ResCare fails to comply with bank covenants

New York, March 6 - ResCare said it failed to comply with bank covenants at the end of its fourth quarter after taking $22 million in charges.

The Louisville, Ky. provider of services to people with special needs and disabilities said it is holding discussions with its lenders that it believes "will lead to a resolution of those variances."

The company's chairman, president and chief executive officer Ronald G. Geary also emphasized in a news release that the charges relate to current studies and analyses of data from before 2001.

Including the charges but before an extraordinary item, ResCare reported a fourth quarter loss of $10.6 million or 44 cents per diluted share. Excluding the charges, earnings were 11 cents per share, the same as the same period of 2000, also excluding special charges.

The fourth quarter charge was made up of $15.5 million related to accounts receivable and $6.5 million for insurance claims for workers compensation.

The accounts receivable charge was an increased reserve required in part as a result of ResCare's implementation of a new information system for billing and accounts receivable.

"We believe this new system now gives us the information necessary to timely address any billing issues and prevent a recurrence of this type of charge," Geary said.

The workers compensation charge arose from current studies of the company's experience during the policy years when it was integrating several significant acquisitions, ResCare said. Additional reserves were required because of "ineffective handling of claims" by its previous third-party administrator.

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