Sales: $522.7 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: RSCR
NAIC: 62431 Vocational Rehabilitation Services; 62321 Residential Mental Retardation Facilities; 62399 Other Residential Care Facilities
Res-Care, Inc. is the United States’ largest provider of residential, training, educational, and support services for persons with special needs, serving more than 20,000 people in 30 states and Puerto Rico. The company has two main operating divisions. The Division for Persons with Disabilities offers a full range of residential support services, vocational training, and other services to individuals with mental retardation and other developmental disabilities. The Division for Youth Services provides educational, training, and treatment programs for at-risk youth and young adults. The Division for Youth Services provides these services as a private contractor in the federal Job Corps program and through two subsidiary operations: Youthtrack, Inc. and Alternative Youth Services, Inc.
Job Corps Beginnings in 1974
Res-Care was founded in 1974 by James R. Fornear. Fornear had served previously as a center director for the Job Corps program, a U.S. Department of Labor-administered program that provides educational and training programs for unemployed and disadvantaged youth. Fornear used his experience with the program and his desire to work with at-risk youth to establish Res-Care as a private contractor for the Job Corps. The company was awarded its first government contract in 1976, to operate the Whitney Young Job Corps Center in Shelby County, Kentucky. In the following two years, Fornear acquired additional Job Corps operations in Crystal Springs and Gulfport, Mississippi.
After four years of success in the Job Corps program, Res-Care stepped into a new service sector by establishing the Higgins Learning Center near Morganfield, Kentucky. This center, developed to serve persons with mental retardation, marked a broadening and diversification of Res-Care’s services. This diversification—to serve disabled persons in addition to at-risk youth—was the inception of the company’s modern-day service duality.
For Res-Care, the 1980s were characterized by growth in both Job Corps contracts and services for persons with disabilities. In 1983 the company was awarded a contract for the Job Corps Center in Miami, Florida, a program serving 300 students. That same year, Res-Care began to operate small community-based group homes for persons with developmental disabilities in both Florida and Indiana. These state-licensed, Res-Care-staffed group homes typically consisted of six to eight individuals living together in a house located in a residential neighborhood. More group homes and Job Corps programs were in the offing for Res-Care, and by 1989 the company had expanded to serve persons in Kentucky, Indiana, Florida, West Virginia, and New York.
In 1989 Fornear recruited Ron Geary to become Res-Care’s president and CEO. Geary had a wide range of professional experience, having served as president of the Cincinnati Bible College and as Secretary of Revenue for the state of Kentucky, as well as practicing in the areas of law and accounting. The somewhat unusual combination of Geary’s managerial expertise and Fornear’s know-how in the service industries proved to be synergistic.
Res-Care continued to grow at a moderate pace for the next few years. In 1990 the company began operating Job Corps centers in Puerto Rico. Two years later, it opened facilities for developmentally disabled persons in both Colorado and Nebraska. Res-Care’s Colorado operation was its first “supported-living” program. The supported living program differed from the group home concept in that it allowed services to be provided on a more individualized basis. Instead of six to eight persons living in a group home, supported-living consumers were able to live either singly or in much smaller groups of two or three. Res-Care offered a broad spectrum of services to its supported-living consumers—from 24-hour staffing to only a few hours of service weekly—depending upon need.
At the close of 1992, Res-Care issued an initial public offering (IPO) and began trading on the Nasdaq exchange. Using the capital raised in its IPO, the company ramped up its expansion pace substantially, and the next five years were to be busy ones. During that time frame, the company established facilities for developmentally disabled persons in California, Texas, New Mexico, Kansas, Oklahoma, Tennessee, Illinois, and Ohio, in addition to acquiring a new Job Corps contract in Edison, New Jersey. It also moved its headquarters into a new 50,000-square-foot office building on Linn Station Road in Louisville, in November of 1995.
Youth Division Expansions in the Mid-1990s
While Res-Care’s Division for Persons with Disabilities was moving into new territory geographically, its Division for Youth Services was preparing to move into a completely new type of service. In late 1995 the company created a subsidiary called Youthtrack, Inc., to serve delinquent youth. Based in Denver, Colorado, Youthtrack offered programs to young people, both male and female, who had either been sentenced or were awaiting sentencing for criminal activity. Through Youthtrack, Res-Care offered a menu of services, including secure residential treatment; short-term, intensive training; detention programming; aftercare programs for released delinquent youth; and an array of specialized services such as substance abuse programming, vocational and life skills training, gender-specific programming, and offense-specific programming. Youthtrack soon grew to be the largest private provider of services to youth in the Colorado juvenile justice system, eventually expanding into Utah and Puerto Rico as well.
The following year saw further expansion for Res-Care’s Division for Youth Services, with the creation of another subsidiary, Alternative Youth Services, Inc. (AYS). The goal in creating AYS was to serve at-risk and special-needs youth who were not viable candidates for the Job Corps or Youthtrack programs. AYS targeted youth who had behavioral and emotional disorders and who, in some cases, had been diagnosed with mental retardation or other learning disabilities. The initial AYS facility was the Georgia Center for Youth, a residential treatment center and alternative school. The new subsidiary grew in 1997 through a series of acquisitions and management agreements. In the course of that year, AYS signed a long-term agreement to manage two foster care programs in Ohio and Kentucky, acquired a collection of ten group homes in Kentucky, and acquired an outdoor therapeutic program and emergency treatment shelter in Tennessee. Altogether, AYS’s acquisitions were projected to serve more than 750 new consumers and generate more than $7 million in revenue.
In the fall of 1997 Res-Care more than doubled the scope of its Job Corps operations by acquiring Teledyne Economic Development, of Allegheny, Pennsylvania. Teledyne, which operated five Job Corps centers in Pennsylvania, Virginia, Oklahoma, and Arizona, had annual revenues of approximately $40 million. The addition of Teledyne made Res-Care one of the three largest private contractors in the Job Corps programs, with 12 Job Corps centers serving 4,500 individuals. In an October 3, 1997 press release, Geary called the Teledyne acquisition “perhaps the most exciting transaction in the history of Res-Care.”
New Service Delivery Systems in 1997
The year 1997 also brought expansion in Res-Care’s Division for Persons with Disabilities, in the form of 11 new acquisitions, entry into four new states, and the capacity to serve 1,751 new consumers. Among the division’s 11 new acquisitions, three provided entry into new markets. The first came in January of 1997, when the company acquired a partnership interest in Premier Rehabilitation Centers, a Chicago-based, privately owned provider of services to persons with acquired brain injury and related neurological disorders. Although Res-Care previously had serviced a small number of consumers with acquired brain injury (ABI) through its existing programs, the Premier acquisition marked its first operation dedicated to this specific disability.
A second strategic acquisition was completed in July of 1997. With the purchase of Communications Network Consultants, of Lenoir, North Carolina, Res-Care began providing “periodic services.” This delivery method allowed the company to provide services to consumers in their own homes on an as-needed basis—a departure from the traditional residential delivery method, in which all consumers lived in a home owned and staffed by the company. Subsequent to the acquisition of Communications Network Consultants, Res-Care began to introduce the periodic service delivery model throughout the company.
We are a group of dedicated and caring people who form a unique and special company with a unique and special mission. Res-Care exists to ensure that all human beings have the chance to realize their fullest potential no matter what the obstacle, no matter what the challenge. We care. We serve. With compassion, with skill, with effectiveness, with results and with respect.
In late 1997 the Division for Persons with Disabilities made its third key acquisition: Other Options, a Maryland-based nonprofit service agency designed to serve persons with developmental disabilities and behavioral challenges. The acquisition of Other Options positioned Res-Care as a niche provider for a segment of the population often refused service by other community-based providers. The Other Options’ program model focused on generating community support for these often difficult to serve consumers, rather than trying to make these consumers conform to the community’s expectations. By the end of 1997, Res-Care was implementing this model in three states, with plans for further expansion.
In the years between 1992 and 1997, Res-Care had grown from serving 1,378 persons in six states and Puerto Rico to serving more than 14,000 persons in 24 states and Puerto Rico. This growth in capacity was paralleled by a steady growth in revenues. For the five years 1992 through 1996, the company showed a 26 percent annual compounded growth rate in net income—and in 1997 posted a record 36 percent increase.
Record Growth in 1998
Res-Care kicked off 1998 with January acquisitions in both the Division for Persons with Disabilities and the Division for Youth Services. On January 6, the Disability division announced completion of the acquisition of Creative Networks, LLC. The purchase of this agency, a privately owned provider of supported living services, gave Res-Care 1,600 new consumers located in the Phoenix, Flagstaff, and Prescott, Arizona areas. A week later, the company’s Alternative Youth Services subsidiary announced its purchase of Arizona Youth Associates, which included ten group homes in the Phoenix and Mesa areas, a 35-student alternative school, and an outpatient counseling program serving 200 youth.
The spring of 1998 was filled with further acquisitions. In March, Res-Care purchased the Louisville-based Normal Life, Inc., one of the nation’s largest privately owned providers of services to mentally retarded and developmentally disabled persons. Normal Life had annual revenue of approximately $68 million and served 1,300 consumers in California, Florida, Georgia, Indiana, Kentucky, Louisiana, and Texas. Res-Care added another $11 million in revenue and 1,100 consumers with the purchase of Southern Home Care, a provider of home- and community-based services for persons with developmental disabilities in Georgia and South Carolina. The company also expanded its acquired brain injury unit with the acquisition of Iowa-based Victorian Acres, a provider of supported living services to persons with ABI.
Res-Care’s Division for Youth Services moved into Utah for the first time with the late-March purchase of Family Preservation Institute, a juvenile services provider that offered community-based residential and day programs to 40 consumers in Brigham City. On the heels of the Utah acquisition, the youth division was awarded a Job Corps contract for the Earle C. Clements Job Corps Center in Morganfield, Kentucky. With a service capacity of 2,000 students and $60 million in revenue, the Kentucky operation was the nation’s largest Job Corps center—and an important contract for Res-Care.“This award is perhaps the most significant event in our 24 years in the federal Job Corps program,” Res-Care President Ron Geary said in an April 2, 1998 press release.
Acquisitions in May included the Prescott, Arizona-based Schumacher Consulting, Inc. and the Ohio-based Four Star Residential—both agencies service developmentally disabled persons—and the New Summit School, a private school in Jackson, Mississippi serving youth with special learning needs. Together, the three acquisitions added a projected $1.9 million in revenue and 400 new Res-Care consumers. May also brought two new contracts for the company’s Division for Youth Services, totaling a projected $1.8 million in revenue. Fueled by its growth, Res-Care finished the month of May with a 3-for-2 stock split, turning its 12.5 million outstanding shares into 18.7 million.
After a brief summer lull, Res-Care’s steady growth recommenced. In late August the Division for Youth Services’ AYS subsidiary announced the acquisition of Copper Canyon Academy, a 200-student charter school in Glendale, Arizona. At the same time, AYS announced a new long-term management agreement with a Fort Wayne, Indiana foster care program. This was followed in early September by a one-year, $1.6 million contract with the U.S. Department of the Interior to provide support services at two Job Corps centers in Kentucky and West Virginia.
Res-Care’s acquired brain injury division made another expansion in mid-October 1998, with the merger of Tangram Rehabilitation Network, Inc., located in San Marcos, Texas. Tangram, which began operating as part of Res-Care’s ABI unit, served 125 ABI patients and generated revenues of approximately $14 million at the time. Three smaller acquisitions followed in November. Bumpershoot Enterprises, of Riverside, California, and Texas Living Centers, of Garland, Texas—both service providers for mentally retarded and developmentally disabled persons—were added to Res-Care’s Division for Persons with Disabilities. Subsequently, the Division for Youth Services acquired Gator Human Services, a not-for-profit delinquent youth services provider with programs in seven Florida communities. The three acquisitions together were expected to bring in an additional $8.2 million in income.
Res-Care closed out 1998 on a high note by winning two substantial Job Corps contracts in December—and adding a projected total of more than $50 million. Altogether in 1998, the company made 27 acquisitions and new contracts, which were expected to generate $178.1 million in annual revenues and serve more than 8,100 new consumers. The hectic growth pace paid off in the year-end financiáis. Net revenues for 1998 increased a record 71 percent—to $522.7 million from $306.1 million in 1997. Net income increased by 50 percent, and earnings per share were up 31 percent.
1999 and Beyond
As Res-Care entered the last year of the century, it continued the pattern of acquisitions that had proven successful through the 1990s. Between January and March of 1999, the company announced the acquisition of four providers of services to disabled persons. The companies—located in Hickory, North Carolina, Tampa, Florida, Loomis, California, and Rome, Georgia—together were projected to add an additional $12.5 million in revenues and more than 500 new consumers.
In early April 1999, however, the company made perhaps its most significant announcement in its history: a planned merger with PeopleServe, Inc., one of the nation’s largest privately owned agencies serving developmentally disabled persons. PeopleServe, headquartered in Dublin, Ohio, served approximately 4,300 persons in 12 states and Washington, DC, and had 1998 revenues of $184 million. Once merged, the companies were projected to have revenues in excess of $800 million; serve 26,000 persons in 32 states, Washington, DC, and Puerto Rico; and employ approximately 25,300 people. The $170 million transaction was expected to be complete by the end of 1999.
“There are growing pressures to expand the availability of services for person with developmental disabilities, evidenced by long waiting lists in most states and the aging boomer generation of caregivers,” Res-Care’s president, Ron Geary, said in an April 5,1999 press release. “The merger will solidify our position as the leading provider of these services and will position us to achieve our goal of annualized revenues in excess of $1 billion during the calendar year 2000.”
Alternative Youth Services, Inc.; Youthtrack, Inc.
Division for Person with Disabilities; Division for Youth Services.
Benmour, Eric, “Res-Care Headquarters Gains 46 Jobs as Company Expands,” Business First of Louisville, January 26, 1998.
“Human Touch a Priority as Res-Care Grows,” Louisville Courier-Journal, July 28, 1996.
“Louisville Firm Buys Allegheny Teledyne Division,” Pittsburgh Business Times, September 17, 1997.
“Res-Care Subsidiary Offers Youth Services,” Business First of Louisville, March 4, 1996.