OurTable success in obtaining new contracts and renewals of our existing contracts depends upon maintaining our reputation as a quality service provider among governmental authorities, advocacy groups, families of our clients, our clients and the public. Negative publicity, changes in public perception, legal proceedings and government investigations with respect to our operations could damage our reputation and hinder our ability to retain contracts and obtain new contracts, and could reduce referrals, increase government scrutiny and compliance or litigation costs, or generally discourage clients from using our services. Any of these events could have a material adverse effect on our business, financial condition and operating results. Contents

ElementsTable of Compensation. Each element of the executive compensation program works to fulfill one or more of the objectives of the program. The elements of our compensation program are as follows: Contents

BaseTable Salary. Base salary provides executives with a fixed amount of compensation paid on a regular basis throughout the year. The Committee’s charter charges the Committee with reviewing and determining each executive’s base salary on an annual basis. The named executive officers’ base salaries were reviewed in December 2012 as required by the Committee’s charter. Wilson found that base salaries were significantly under market at the executive officer level and recommended increases to raise each named executive officer’s base salary to align them more closely with the median salary of their respective counterparts at companies in the public company peer group and in comparison to commercial survey data, in order to remain competitive for executive talent. The salary of Mr. Petersen, as an Operating Group President, was increased based on commercial survey data and relative to the other executive officers and the respective size of the business he manages. Effective January 1, 2013, the salary of Mr. Murphy was increased from $350,000 to $500,000; the salary of Mr. Nardella was increased from $302,500 to $400,000; the salary of Mr. Holler was increased from $285,000 to $335,000; the salary of Mr. Petersen was increased from $270,000 to $320,000; the salary of Ms. DeRenzo was increased from $250,000 to $285,000; and the salary of Ms. Federico was increased from $250,000 to $280,000. Contents

On November 7,Table 2012,of the Committee approved the following financial targets for fiscal 2013: Contents

50Table of Contents

InTable fiscal 2013, Messrs. Murphy, Nardella and Holler each received a satisfactory quality rating with a reduction in incentive compensation of 2.5% in total. The Committee, in the case of the Chief Executive Officer, and the Chief Executive Officer, in the case of Messrs. Nardella and Holler, decided to assign a 2.5% quality modifier primarily because the Company failed to achieve a satisfactory number of days sales outstanding (“DSO”) in fiscal year 2013. The quality modifier was considered in the calculation of incentive compensation because it reinforces our primary mission of providing high-quality services to individuals with disabilities and other challenges and because management strongly believes that service, quality and growth are inextricably linked, with service outcomes and the satisfaction of those we serve and our payor and referral sources driving our ability to maintain existing levels of service and expand our operation by receiving additional referrals and winning new contracts. Contents

52Table of Contents

RespectfullyTable submitted,of Chris A. Durbin (Chairman) James L. Elrod Jr. Guy SansoneContents

(e)Table Represents earnings in excess of the applicable federal long-term rate under the Executive Deferred Compensation Plan and the Executive Deferral Plan.Contents

(a)Table Granted on August 22, 2008 in connection with compensatory grants under the NMH Investment, LLC 2006 Unit Plan, as amended. The units fully vested on May 10, 2011. Because payment of the value of the B, C and D Common Units is deferred until termination of a recipient’s employment with the Company or the occurrence of a liquidity event, we have included all such awards under the column for equity incentive plan awards that have been earned but have not vested. Vesting is explained in more detail above, under “Compensation Discussion and Analysis — Equity-Based Compensation”.Contents

(f)Table Granted on April 7, 2009 in connection with compensatory grants under the NMH Investment, LLC 2006 Unit Plan, as amended. The units fully vested on May 10, 2011, to the extent not already vested. Because payment of the value of the B, C and D Common Units is deferred until termination of a recipient’s employment with the Company or the occurrence of a liquidity event, we have included all such awards under the column for equity incentive plan awards that have been earned but have not vested. Vesting is explained in more detail above, under “Compensation Discussion and Analysis — Equity-Based Compensation”.Contents

PensionTable Benefitsof Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, ~~2013~~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: 333-129179

NATIONAL MENTOR HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware		31-1757086
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
313 Congress Street, 6th Floor Boston, Massachusetts 02210		(617) 790-4800
(Address of principal executive offices, including zip code)		(Registrant’s telephone number, including area code)

313 Congress Street, 6th Floor

Boston, Massachusetts 02210

(617) 790-4800

(Address of principal executive offices, including zip code)

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

None.

Securities Registered Pursuant to Section 12(g) of the Act:

None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x No ¨

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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨x No x ¨

The Company is a voluntary filer of reports required of companies with public securities under Sections 13 or 15(d) of the Securities Exchange Act of 1934 and has filed all reports which would have been required of the Company during the past 12 months had it been subject to such provisions.

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 x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of March 31, ~~2013~~2014, the last business day of the registrant’s most recently completed second fiscal quarter, was zero.

As of December 1817, ~~2013~~2014, there were 100 shares of the registrant’s common stock, $0.01 par value, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

None.

The registrant meets the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K as, among other things, all of the registrant’s equity securities are owned indirectly by Civitas Solutions, Inc., which is a reporting company under the Securities Exchange Act of 1934 and which has filed with the SEC all materials required to be filed pursuant to Section 13, 14 or 15(d) thereof, and the registrant is therefore filing this Form 10-K with a reduced disclosure format.

TABLE OF CONTENTS

PART I	~~PART I~~
Item 1.	Business	43
Item 1A.	Risk Factors	1211
Item 1B.	Unresolved Staff Comments	2225
Item 2.	Properties	2225
Item 3.	Legal Proceedings	2225
Item 4.	Mine Safety Disclosures	2325
PART II	~~PART II~~
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2426
Item 6.	Selected Financial Data	2729
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2830
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	4249
Item 8.	Financial Statements and Supplementary Data	4249
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	4249
Item 9A.	Controls and Procedures	4249
Item 9B.	Other Information	4350
PART III	~~PART III~~
Item 10.	Directors, Executive Officers and Corporate Governance (intentionally omitted pursuant to General Instruction I(2)(c) of Form 10-K)	4451
Item 11.	Executive Compensation (intentionally omitted pursuant to General Instruction I(2)(c) of Form 10-K)	4751
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (intentionally omitted pursuant to General Instruction I(2)(c) of Form 10-K)	6351
Item 13.	Certain Relationships and Related Transactions, and Director Independence (intentionally omitted pursuant to General Instruction I(2)(c) of Form 10-K)	6351
Item 14.	Principal Accounting Fees and Services	6651
PART IV	~~PART IV~~
Item 15.	Exhibits and Financial Statement Schedules	6752
Signatures		6853

FORWARD-LOOKING STATEMENTS

Some of the matters discussed in this report may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

These statements relate to future events or our future financial performance, and include statements about our expectations for future periods with respect to demand for our services, the political climate and budgetary environment, our expansion efforts and the impact of our recent acquisitions, our plans for investments to further grow and develop our business, our margins and our liquidity. InTerminology ~~some cases, you can identify forward-looking statements by terminology~~ such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” ~~the~~or ~~negative~~similar ofexpressions ~~such~~are ~~terms~~intended orto ~~other~~identify ~~comparable~~these ~~terminology~~forward looking statements. These statements are only predictions. Actual events or results may differ materially.

The information in this report is not a complete description of our business or the risks associated with our business. There can be no assurance that other factors will not affect the accuracy of these forward-looking statements or that our actual results will not differ materially from the results anticipated in such forward-looking statements. While it is ~~impossible~~not possible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to, those factors or conditions described under “Part I. Item 1A. Risk Factors” in this ~~report~~Annual Report on Form 10-K as well as the following:

• reductions or changes in Medicaid or other funding or changes in budgetary priorities by federal, state and local governments;

• ~~changes~~substantial ~~in reimbursement rates~~claims, ~~policies~~litigation orand ~~payment~~governmental ~~practices by our payors~~proceedings;

•

reductions in reimbursement rates, policies or payment practices by our payors;

•

an increase in labor costs or labor-related liability;

•

matters involving employees that expose us to potential liability;

•

our substantial amount of debt, our ability to meet our debt service obligations and our ability to incur additional debt;

• anour ~~increase~~history ~~in the number and nature~~ of ~~pending legal proceedings and the outcomes of those proceedings~~losses;

• ~~an increase in~~ our ~~self-insured~~ability ~~retentions~~to ~~and~~comply ~~changes~~with incomplicated ~~the~~billing ~~insurance market for professional~~ and ~~general~~collection ~~liability,~~rules ~~workers’ compensation~~ and ~~automobile liability and our claims history that affect our ability to obtain coverage at reasonable rates~~regulations;

•

failure to comply with reimbursement procedures and collect accounts receivable;

•

changes in economic conditions;

•

an increase in our self-insured retentions and changes in the insurance market for professional and general liability, workers’ compensation and automobile liability and our claims history and our ability to obtain coverage at reasonable rates;

•

an increase in workers’ compensation related liability;

•

our ability to control labor costs, including healthcare costs imposed by the Patient Protection and Affordable Care Act;

• our ability to ~~control~~attract ~~operating costs~~ and ~~collect~~retain ~~accounts~~experienced ~~receivable~~personnel;

• failure to take advantage of organic growth opportunities;

• our ability to maintain, expand and renew existing services contracts and to obtain additional contracts;

•

our ability to establish and maintain relationships with government agencies and advocacy groups;

• ~~our~~negative ~~ability~~publicity toor ~~acquire~~changes ~~new~~in ~~licenses~~public orperception toof ~~maintain~~ our ~~status as a licensed service provider in certain jurisdictions~~services;

• our ability to ~~attract~~maintain ~~and~~our ~~retain~~status ~~experienced~~as ~~personnel,~~a ~~including~~licensed ~~members~~service ofprovider ~~our~~in ~~senior~~certain ~~management team~~jurisdictions;

•

our ability to maintain, expand and renew existing services contracts and to obtain additional contracts or acquire new licenses;

•

our ability to successfully integrate acquired businesses;

•

our inability to successfully expand into adjacent markets;

•

government regulations, changes in government regulations and our ability to comply with such regulations;

• increased ~~or more effective~~ competition;

• ~~credit~~decrease in popularity of home- and ~~financial~~community-based ~~market~~human ~~conditions~~services among our targeted client populations and/or state and local governments;

• ~~changes~~our susceptibility to any reduction in ~~interest~~budget ~~rates;~~appropriations ~~and~~for our services in Minnesota or any other adverse developments in that state;

•

our ability to operate our business due to constraints imposed by covenants in our senior credit agreement;

•

our ability to retain the continued services of certain members of our management team;

•

our ability to manage and integrate key administrative functions;

•

failure of our information systems or failure to upgrade our information systems when required;

•

information technology failure, inadequacy, interruption or security failure;

•

write-offs of goodwill or other intangible assets;

•

natural disasters or public health catastrophes;

•

our ability to comply with requirements to maintain effective internal controls; and

•

the potential for conflict between the interests of our majority equity holder and those of our debt holders.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, we do not assume responsibility for the accuracy and completeness of the forward-looking statements. All written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the “Risk Factors” and other cautionary statements included herein. We are under no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results or to changes in our expectations.

PART I

Item 1.

Business

Company Overview

WeIn ~~are~~this asection ~~leading~~“NMHI”, ~~provider~~“we”, of“us”, ~~home~~the “Company” and ~~community-based~~“our” ~~health~~refer to National Mentor Holdings, Inc. and ~~human~~its ~~services~~consolidated tosubsidiaries. ~~adults~~Throughout ~~and~~this ~~children~~Annual ~~with~~Report ~~intellectual~~on ~~and/or~~Form ~~developmental disabilities~~10-K ~~(“I/DD”),~~we ~~acquired~~use ~~brain~~the ~~injury~~term (“~~ABI~~must serve”) ~~and~~to ~~other~~describe ~~catastrophic~~the ~~injuries~~people ~~and~~we ~~illnesses,~~serve. ~~and~~We toconsider ~~youth~~“must-serve ~~with~~individuals” ~~emotional,~~to ~~behavioral~~be ~~and/or~~those ~~medically~~that ~~complex~~public ~~challenges,~~policy orhas recognized ~~at-risk~~a ~~youth~~responsibility ~~(“ARY”).~~to ~~Since~~care ~~our founding~~for inbecause ~~1980,~~they ~~our~~are ~~operations~~highly ~~have~~vulnerable ~~grown~~by tovirtue 35of ~~states.~~a Wecondition ~~provide~~acquired ~~services~~at tobirth ~~approximately~~or 12after birth,~~300~~ ~~clients~~or intheir ~~residential~~status ~~settings~~as a minor, ~~some~~or ofas ~~whom~~elders, ~~also~~and ~~receive~~have ~~periodic~~special ~~services.~~needs ~~Approximately~~and/or ~~16,700~~disabilities ~~clients~~such ~~receive~~that ~~periodic~~they ~~services~~need ~~from~~to usbe supported or cared for in ~~non-residential~~ ~~settings~~the daily activities of living.

We ~~design~~are ~~customized service plans to meet~~ the ~~unique~~leading ~~needs~~national provider of ~~our clients, which we deliver in~~ home- and community-based ~~settings.~~health and ~~Most~~human ofservices ~~our~~to ~~service~~must-serve ~~plans~~individuals ~~involve~~with ~~residential support~~intellectual, ~~typically in small group homes~~developmental, ~~host~~physical ~~home settings~~ or ~~specialized~~behavioral ~~community~~disabilities ~~facilities, designed to improve our clients’ quality of life~~ and toother ~~promote~~special ~~client independence and participation in community life~~needs. ~~Other~~These ~~services~~populations ~~offered~~are ~~include supported living~~large, ~~day~~growing and ~~transitional~~increasingly ~~programs,~~being ~~vocational~~served ~~services,~~in ~~case management, family~~home-~~based~~ and ~~outpatient therapeutic services, post~~community-~~acute~~based ~~treatment~~settings ~~and~~such ~~neurorehabilitation,~~as ~~neurobehavioral~~those ~~rehabilitation~~we ~~and~~provide. ~~physical,~~Our ~~occupational~~clinicians and ~~speech~~caregivers ~~therapies,~~develop ~~among others. Our~~ customized service plans, ~~offer~~delivered ~~our~~in ~~clients~~non-institutional settings, asdesigned ~~well~~to asaddress ~~the~~a ~~payors~~broad ~~for~~range ~~these~~of ~~services,~~often ~~an attractive, cost~~life-~~effective~~long ~~alternative~~conditions and to ~~health~~ ~~and~~enable ~~human~~those ~~services~~we ~~provided~~serve into ~~large,~~thrive ~~institutional~~in less restrictive settings.

We believe ~~that~~we ~~our~~offer ~~broad~~a ~~range~~powerful ofvalue ~~services~~proposition to government and non-public payors, referral sources and individuals and families by providing innovative, high-quality ~~reputation~~ and ~~longstanding~~cost-effective ~~relationships~~services ~~with~~that aenable ~~diverse~~greater ~~group~~client ofindependence, ~~payors~~skill ~~have~~building ~~made~~and uscommunity ~~one~~involvement. ofOur ~~the~~core ~~largest~~strength ~~providers~~is providing a continuum of ~~home~~residential, day and ~~community-based~~vocational ~~health~~programs, and periodic ~~human~~ services into ~~the~~support ~~United~~diverse ~~States~~populations with disabilities and special needs. We ~~believe~~currently ~~that~~offer our ~~substantial~~services ~~experience~~through ina ~~the~~variety ~~industry~~of ~~coupled with~~models, ~~our~~including ~~ability~~(i) neighborhood togroup ~~offer~~homes, ~~clinical~~most ~~resources~~of ~~and~~which ~~share~~are ~~best~~residences ~~practices~~for ~~across~~six ~~our~~or ~~organization~~fewer individuals, ~~has~~(ii) host ~~made~~homes, usor the “Mentor” model, in which a ~~preferred~~client ~~provider~~lives ~~for~~in ~~many~~the private home of ~~our~~a ~~referral~~licensed ~~sources.~~caregiver, We(iii) in-home ~~derive~~settings, ~~approximately~~within ~~87%~~which ofwe ~~our~~support ~~revenue~~clients’ ~~from~~independent aliving ~~diverse~~or ~~group~~provide therapeutic services, (iv) specialized community facilities to support individuals with more complex medical, physical and behavioral challenges, and (v) non-residential care, consisting primarily of ~~state~~day and ~~local~~vocational programs and periodic services ~~government~~that ~~payors~~are provided outside the client’s home.

WeDuring ~~offer~~ our ~~services~~nearly ~~through~~35-year history, we have evolved from a ~~variety~~single ofresidential ~~models,~~program serving ~~including~~at-risk ~~(i) small~~youth ~~group~~to ~~homes,~~a ~~most~~diversified ofnational ~~which~~network ~~are~~providing ~~residences for~~an ~~six~~array ~~people~~of orhigh-quality ~~fewer,~~services ~~(ii) host~~and ~~homes~~care in large, orgrowing ~~the~~and ~~“Mentor”~~highly-fragmented ~~model~~markets. As of September 30, 2014, we operated in ~~which~~36 astates, ~~client~~serving ~~lives~~more than 12,600 clients in ~~the~~residential ~~home~~settings ofand amore ~~trained~~than ~~Mentor~~16,500 ~~(iii)~~ clients in non-~~home~~residential settings,. inWe ~~which~~have wea ~~support~~diverse ~~clients’~~group ~~independence~~of ~~with~~hundreds ~~24-hour~~of public payors that fund our services inwith ~~their~~a ~~own homes,~~combination ~~(iv) small~~of federal, ~~specialized~~state ~~community~~and ~~facilities~~local ~~which~~funding, ~~provide~~as ~~post-acute,~~well ~~specialized~~as ~~rehabilitation~~an ~~and~~increasing ~~comprehensive~~number ~~care~~of non-public payors for ~~individuals~~our ~~who~~services ~~have~~for ~~suffered~~acquired ~~ABI,~~brain ~~spinal~~injury ~~injuries~~ and other catastrophic injuries and illnesses. ~~and (v)~~As of September ~~non-residential~~30, ~~settings~~2014, ~~consisting~~our ~~primarily~~services ofwere ~~day~~provided ~~programs~~by ~~and~~over ~~periodic~~21,500 ~~services~~full-time inequivalent ~~various~~employees, ~~settings~~as well as approximately 5,600 independently-contracted host home caregivers.

AsCorporate ~~of September 30,~~Structure 2013, we provided our services through approximately 20,200 full-time equivalent employees, as well as approximately 5,700 independently contracted host home caregivers, or Mentors. We generated net revenue of $1,198.7 million, $1,123.1 million and $1,062.8 million during fiscal 2013, 2012 and 2011, respectively.

The chart below sets forth our current corporate structure.

LOGO

The Company

The Company is an indirect, wholly-owned subsidiary of Civitas Solutions, Inc. (“Civitas”). Civitas is a subsidiary of NMH Investment, LLC (“NMH Investment”), which was formed in connection with the acquisition of our business by affiliates of Vestar Capital Partners (“Vestar”) in 2006. See “–Our Sponsor” below. The equity interests of NMH Investment are owned by Vestar and certain of our executive officers and directors and other members of management. On September 22, 2014, Civitas completed an initial public offering (the “IPO”) of its common stock and became a reporting company under the Securities Exchange Act of 1934, as amended.

Description of Services by Segment

We have two reportable segments, Human Services and Post-Acute Specialty Rehabilitation Services (“SRS”).

~~Presently,~~We wedo ~~don’t~~not derive any revenues from countries outside the United States.

~~Human~~3 ~~Services~~

We are a leading provider of home and community-based human services to the I/DD and ARY populations. Our Human Services segment represented approximately 83% of our net revenue in fiscal 2013.

Delivery of services to adults and children with I/DD is the largest portion of our Human Services segment. Our I/DD programs include residential support, day habilitation, vocational services, case management and personal care. We provide services to these clients through small group homes, Intermediate Care Facilities for the Mentally Retarded (“ICFs-MR”), host homes, in-home settings and non-residential settings. We operate approximately 980 group homes and 150 ICFs-MR. As of September 30, 2013, we provided I/DD services to approximately 17,500 clients in 21 states. In fiscal 2013, our I/DD services generated net revenue of $772.1 million, representing 64% of our net revenue. We receive substantially all our revenue for I/DD services from a diverse group of state and local governmental payors.

Our Human Services segment also includes the delivery of ARY services. Our ARY programs include therapeutic foster care, family reunification, family preservation, early intervention and adoption services. Our individualized approach allows us to work with an ever-changing client population that is diverse demographically as well as in type and severity of condition. We provide services to these clients through host homes, group homes, educational settings, in their family homes and in other non-residential settings. As of September 30, 2013, we provided ARY services to approximately 10,500 children, adolescents and their families in 17 states. In fiscal 2013, our ARY services generated net revenue of $218.1 million, representing 19% of our net revenue. We receive substantially all our revenue for ARY services from a diverse group of state and local governmental payors.

Human Services

Our Human Services segment provides home and community-based human services to individuals with intellectual and/or developmental disabilities (“I/DD”), youth with emotional, behavioral and/or medically complex challenges, at-risk youth (“ARY”), outpatient, center-based services for elders (“Adult Day Services”). Our Human Services segment represented approximately 82% of our net revenue in fiscal 2014.

Delivery of services to adults and children with I/DD is the largest portion of our Human Services segment. Our I/DD programs include residential support, day habilitation, vocational services, case management, crisis intervention and hourly support care. We provide services to these clients through small group homes, Intermediate Care Facilities for the Mentally Retarded (“ICFs-MR”), host homes, in-home settings and non-residential settings. We operate approximately 1,050 group homes and 150 ICFs-MR. As of September 30, 2014, we provided I/DD services to approximately 16,500 clients in 23 states. In fiscal 2014, our I/DD services generated net revenue of $826.8 million, representing 66% of our net revenue. We receive substantially all our revenue for I/DD services from a diverse group of state and local governmental payors.

Our Human Services segment also includes the delivery of ARY services. Our ARY programs include therapeutic foster care, family preservation, adoption services, early intervention, school-based services and juvenile offender programs. Our individualized approach allows us to work with an ever-changing client population that is diverse demographically as well as in type and severity of condition. We provide services to these clients through host homes, group homes, educational settings, in their family homes and in other non-residential settings. As of September 30, 2014, we provided ARY services to approximately 10,300 children, adolescents and their families in 18 states. In fiscal 2014, our ARY services generated net revenue of $197.8 million, representing 16% of our net revenue. We receive substantially all our revenue for ARY services from a diverse group of state and local governmental payors.

In September 2014, we acquired Mass Adult Day Health Alliance which operates adult day health facilities. Our adult day health facilities provide outpatient, center-based services that provide health, therapeutic and social support to approximately 1,000 adults in a group environment.

Post-Acute Specialty Rehabilitation Services

Our SRS segment delivers health care and community-based health and human services to individuals who have suffered acquired brain injury (“ABI”), spinal injuries and other catastrophic injuries and illnesses. Our services range from sub-acute healthcare for individuals with intensive medical needs to day treatment programs, and include skilled nursing, neurorehabilitation, neurobehavioral rehabilitation, physical, occupational and speech therapies, supported living, outpatient treatment, and pre-vocational services. Our goal is to provide a continuum of care that allows our clients to achieve the highest level of function possible while enhancing their quality of life. We provide services to these clients primarily through specialized community facilities, small group homes, in-home and non-residential settings. As of September 30, 2013, our SRS ~~operations~~segment ~~provided~~represented ~~services in 25 states and served~~ approximately ~~1,000 clients nationally. In fiscal 2013, our SRS operations generated net revenue of $208.4 million, representing 17~~18% of our net revenue. Inin fiscal 2013, we received 56% of our SRS revenue from non-public payors, such as commercial insurers, workers’ compensation funds, managed care and other private payors and 44% from state, local and federal governmental payors2014.

Within our SRS segment, our NeuroRestorative business unit is focused on rehabilitation and transitional living services and our CareMeridian business unit is focused on the more medically-intensive post-acute care services. Our SRS services range from sub-acute healthcare for individuals with intensive medical needs to day treatment programs, and include: neurorehabilitation; neurobehavioral rehabilitation; specialized nursing; physical, occupational and speech therapies; supported living; outpatient treatment; and pre-vocational services. Our goal is to provide a continuum of care that allows our clients to achieve the highest level of function possible while enhancing their quality of life. We provide services to these clients primarily through specialized community facilities, small group homes, in-home and non-residential settings. As of September 30, 2014, our SRS operations provided services in 26 states and served approximately 1,400 clients nationally. In fiscal 2014, we received 53% of our SRS revenue from non-public payors, such as commercial insurers, workers’ compensation funds, managed care and other private payors and 47% from state, local and federal governmental payors.

For additional information on the Company’s segments, please see note 18 to the consolidated financial statements.

Industry Overview

~~The~~We ~~health~~provide home- and ~~human services~~community-based ~~industry provides~~ services to ~~people~~large ~~with~~populations ~~a range~~ of ~~disabilities~~individuals ~~and~~with ~~special~~intellectual, ~~needs~~developmental, ~~including~~physical ~~adults~~or ~~and~~behavioral disabilities ~~children with I/DD, ABI~~ and other ~~catastrophic~~special ~~injuries~~needs. ~~and~~These ~~illnesses,~~populations ~~and~~are tomust ~~at-risk~~serve ~~youth.~~due ~~The~~to ~~market~~the ~~for~~nature ~~these~~of ~~services~~their ~~remains highly fragmented~~disabilities, ~~with~~which ~~service~~in ~~providers~~many ~~consisting~~cases ofare ~~both not~~life-~~for-profit~~long and ~~for-profit entities~~irreversible, ofor ~~varying~~their ~~sizes.~~status ~~The~~as ~~largest portion of this client base is adults and~~ children, ~~with I/DD. Services for these clients are funded primarily through Medicaid~~adolescents, aor ~~joint~~elders. ~~federal~~Within ~~and~~the ~~state~~broader health ~~insurance program under which eligible state expenditures are matched with federal funding. In addition, funds are provided by other federal, state~~ and human ~~local~~services ~~governmental programs and~~market, towe acurrently ~~lesser~~serve ~~extent, private~~four ~~payors.~~primary populations:

~~Intellectual~~• ~~and~~I/DD. Based on reports prepared by Dr. David Braddock, public spending on I/DD services was estimated to be $56.6 billion in 2011, of which approximately 80% was spent to provide services in community settings of six or ~~Developmental~~fewer ~~Disabilities~~beds, our target market, and for other non-institutional services, including supported living, supported employment and family assistance. In 2012, there were approximately 4.9 million individuals with an intellectual or developmental disability across the nation. Over the past two decades, the delivery of services to the I/DD population in supervised residential settings has grown significantly and, at the same time, there has been a shift from institutional settings to home- and community-based settings.

~~Unless~~• ~~otherwise~~ARY. ~~stated~~According to reports published by the organization Child Trends, ~~all~~an ~~statistical~~estimated ~~information~~$29.4 billion was spent in ~~this~~2010 ~~section~~on ~~has~~child ~~been~~welfare, ~~obtained~~including ~~from~~spending ~~reports~~for ~~prepared~~residential byand Drnon-residential family support services such as those that we offer. ~~David~~ ~~Braddock~~Approximately 3. Dr3 million referrals for abuse or neglect were investigated or assessed in the United States in 2010. ~~Braddock~~ isOf ~~Associate~~that, ~~Vice~~approximately ~~President~~663,000 ofwere served by the ~~University~~foster care system. According to the Federal Department of ~~Colorado~~Health ~~(CU)~~and ~~System~~Human Services AFCARS data, there were nearly 400,000 children and ~~Executive~~adolescents ~~Director~~in offoster ~~the~~care ~~Coleman~~as ~~Institute~~of ~~for~~September ~~Cognitive~~30, ~~Disabilities~~2012. Of those individuals, approximately 200,000 are living in non-relative foster family homes, which includes the therapeutic

~~Intellectual~~4 and developmental disabilities are life-long disabilities attributable to a mental or physical impairment. Individuals with I/DD live in supervised residential settings, including institutions, with family caregivers or on their own. The number of persons with I/DD who received residential services outside of their family homes increased from 440,000 in 2000 to an estimated 613,000 in 2011, and the utilization of residential services is projected to increase during the next decade, in part because parents of baby boomers with I/DD may be unable to continue caring for them. Over the past two decades, the delivery of services to the I/DD population in supervised residential settings has grown significantly and, at the same time, there has been a major shift from institutional settings to home and community-based settings, both in part due to the Americans with Disabilities Act (“ADA”) and the U.S. Supreme Court Olmstead decision in 1999. The U.S. Supreme Court held in its Olmstead decision that under the ADA, states are required to place persons with intellectual disabilities in community settings rather than in institutions when such placement is deemed appropriate by medical professionals, the affected individual does not oppose the transfer from institutional care to a less restrictive setting and the placement can be accommodated taking into account the resources available to the state and the needs of other individuals with intellectual disabilities. We believe that community settings provide a higher quality and, in most cases, lower-cost alternative to care provided in state institutions.

Public spending on I/DD services was an estimated $56.6 billion in 2011, of which approximately 80% was spent to provide services in community settings of six or fewer beds, our target market, and for other non-institutional services, including supported living and employment and family assistance.

The Home and Community-Based Services (“HCBS”) Waiver program, a Medicaid program in which the federal government has waived the requirement that services be delivered in institutional settings, is the primary funding vehicle for home and community-based services. The HCBS Waiver program was instituted as an alternative to the ICF-MR program, described below, and authorized federal reimbursement for a wide variety of community supports and services, including supported living, life-skills training, supported employment, case management, respite care and other family support. In this program, the provider responds to the client’s identified needs and typically is paid on a fee-for-service basis.

The federal ICF-MR program was established in 1971 when legislation was enacted to provide for federal financial participation for ICFs-MR as an optional Medicaid service. This congressional authorization allows states to receive federal matching funds for institutional services that are funded with state or local government dollars. To qualify for Medicaid reimbursement, ICFs-MR must be certified and comply with federal standards in eight areas: management, client protections, facility staffing, active treatment services, client behavior and facility practices, health care services, physical environment and dietetic services. The ICF-MR program is used by states to support I/DD housing programs in both smaller (up to 16 residents) and larger (16 residents or more) institutional settings. Individuals who live in ICFs-MR receive active treatment.

Wefoster ~~believe~~care ~~that~~market, the ~~following~~primary ~~factors~~market ~~will~~for ~~continue~~our toresidential ~~benefit~~ARY services. Furthermore, over the ~~I/DD~~last ~~sector~~decade ~~within~~state ~~the~~and ~~human services~~local ~~industry,~~agencies have increasingly favored innovative solutions that provide at-risk youth and infamilies ~~particular,~~with ~~providers~~periodic ofsupport ~~home~~services to promote and ~~community-based~~preserve ~~programs:~~successful family environments.

• ~~Continued~~ABI. ~~Closure/Downsizing~~The ofmarket ~~State~~for ~~Institutions~~post-acute care and ~~Other~~rehabilitation ~~Large~~for individuals with ABI, ~~Congregate~~the ~~Care~~largest ~~Facilities~~of —these ~~Although~~populations, ~~most~~is ofapproximately ~~the~~$10 ~~shift~~billion ~~from~~annually, ~~institutions~~according to ~~home~~the Centers for Disease Control and ~~community-based~~Prevention ~~settings~~(the ~~has~~“CDC”). ~~already~~According ~~occurred,~~to the ~~closure~~Brain Injury Association of ~~additional~~America ~~state~~(“BIAA”), ~~institutions~~there isare ~~ongoing~~more than 2.6 Wemillion ~~currently~~new ~~provide~~brain ~~I/DD~~injuries ~~services~~each toyear, ~~individuals~~many ~~with~~of ~~I/DD~~which result in ~~six~~complex, oflife-long ~~the~~medical ~~ten~~and/or ~~states~~behavioral ~~with~~issues ~~the~~that ~~highest~~require ~~institutional~~specialized ~~populations,~~care. ~~including~~Approximately 5.3 million individuals in the ~~states~~United ofStates ~~California,~~are ~~Illinois~~living ~~and~~with ~~New~~permanent ~~Jersey,~~disability ~~which~~as ~~are~~a ~~currently~~result ~~downsizing~~of ~~their~~an ~~facilities~~ABI. Many ~~individuals~~of ~~with~~these ~~I/DD~~individuals ~~previously~~are ~~resided~~currently served in ~~large~~costly ~~private facilities~~ and ~~nursing~~often ~~homes.~~medically ~~These~~inappropriate care settings ~~are~~such ~~often not~~ as ~~well~~long-term ~~equipped~~acute to care ~~for~~facilities ~~individuals~~and ~~with~~nursing ~~I/DD~~homes. ~~and~~We ~~therefore~~expect ~~represent~~that anthere ~~additional~~will ~~source~~be ofa ~~demand~~continuing ~~for~~shift ~~services~~in ~~provided~~care indelivery ~~home~~to ~~and~~more appropriate community-based settings such as those that we offer.

• ~~Active~~Elder ~~Advocacy~~Services. —Based ~~Individuals~~on ~~with~~data ~~I/DD~~from ~~are~~the ~~supported~~Centers byfor ~~active~~Medicare and ~~well-organized~~Medicaid ~~advocacy~~Services, ~~groups.~~an ~~Using~~estimated ~~legislation~~$75 ~~prompted~~billion bywas ~~the~~spent ~~Olmstead~~in ~~decision,~~2010 ~~as well as lawsuits filed~~ on ~~behalf~~residential ofand ~~those~~personal onhealthcare ~~waiting~~services ~~lists~~and ~~for~~ home ~~and~~healthcare ~~community-based~~ services, ~~policy~~for ~~makers,~~individuals ~~civil~~64 ~~rights~~years ~~lawyers,~~of ~~social~~age ~~workers~~or ~~and~~older. ~~advocacy~~The ~~groups~~adult ~~are~~day ~~driving~~services ~~states~~portion toof ~~offer~~this ~~individuals~~market ~~with~~is ~~I/DD~~an ~~and~~estimated ~~other~~$6 ~~disabilities~~billion ~~the~~based ~~option~~on toIBISWorld ~~live~~estimates ~~and~~for ~~receive~~spending ~~services~~ in ~~home~~2010. ~~and~~We ~~community-based~~believe ~~settings.~~that ~~The~~there ~~U.S.~~will ~~Justice~~be ~~Department~~a ~~has~~growing ~~significantly~~demand ~~intensified~~for ~~Olmstead~~adult ~~enforcement~~day ~~actions~~services infor ~~recent~~several ~~years~~reasons, ~~most~~including ~~notably~~that ~~in a 2010 settlement with~~ the ~~state~~population of ~~Georgia~~adults ~~under~~65 ~~which~~and ~~the~~older ~~state~~is ~~agreed to~~ a ~~five-year~~growing ~~plan~~demographic. toMoreover, ~~fund~~states ~~residential~~are ~~waiver~~increasingly ~~services~~looking for ~~1,150~~alternatives ~~people~~to ~~with~~more ~~I/DD~~expensive ~~living~~models inof ~~state~~home-based, ~~institutions~~residential orand ~~waiting~~institutional ~~for~~care. ~~such~~The ~~residential~~adult day services market, ~~providing~~like ~~the~~other ~~opportunity~~markets toin ~~transition~~which ~~these~~we ~~individuals~~operate, tois ~~the~~highly ~~most~~fragmented ~~integrated~~with ~~setting~~opportunities ~~appropriate~~ for ~~their needs by July 1, 2015~~consolidation.

• Aging Caregivers — Nationwide in 2011, more than 740,000 individuals with I/DD were living with a family caregiver aged 60 years or older. As the caregivers grow older and are not able to provide continuous care, we expect the demand for I/DD services, and home and community-based services in particular, to expand.

At-Risk Youth and Their Families

According to a July 2013 U.S. Department of Health and Human Services report, there were approximately 400,000 children and adolescents in foster care as of September 30, 2012 as a result of abuse and neglect. Approximately 185,000, or 47%, were living in nonrelative foster family homes. Although during the last decade public child welfare agencies have increasingly emphasized periodic support services intended to strengthen families and keep young people out of foster care, there were more entries into foster care than exits from the system in federal fiscal year 2012 for the second year in a row.

ARY services are funded from a variety of sources, including Title IV-E of the Social Security Act (“Title IV-E”), The Adoption Assistance and Child Welfare Act of 1980, Medicaid and other state and local government appropriations. Title IV-E provides for an uncapped federal entitlement program that supports states’ expenditures on foster care and adoption support. For states that meet certain requirements, including Florida, Indiana and Ohio, the federal government permits the allocation of Title IV-E funds for family preservation and other prevention services.

Post-Acute Specialty Rehabilitation Services

The SRS market includes community-based health and human services to individuals who have suffered ABI, spinal injuries and other catastrophic injuries and illnesses. We provide the largest portion of our SRS services to individuals who have ABI. ABI has drawn growing public awareness due to injuries of our soldiers returning from war and injuries acquired in contact sports.

The treatment of ABI is an important public health challenge in the United States. According to the Brain Injury Association of America, an estimated 4.2 million people in the U.S. are living with a permanent disability as a result of an ABI. Traumatic brain injury is considered the “signature wound” of soldiers involved in the conflicts in Iraq and Afghanistan. The Government Accountability Office estimates that 20% of these veterans experience a traumatic brain injury. There is a growing role for providers with respect to services for those in the military, and we have qualified as a provider in a pilot program with the Veterans Health Administration Assisted Living Pilot Program for Veterans with Traumatic Brain Injury. This pilot program is the first time that the Veterans Administration has contracted with civilian providers that offer post-acute brain injury rehabilitation services. Discussions are ongoing to extend the program’s five-year authorization, which is scheduled to expire in federal fiscal year 2014. There are currently twenty-one states participating in home and community-based waivers for people with brain injuries, and others, including Maine, Rhode Island, Texas and Virginia, that have established programs specifically to fund brain injury services.

SRS services are an attractive alternative to higher-cost and less personalized institutional care, and we believe that both public and non-public payors are emphasizing lower-cost community-based residential, outpatient and day treatment for effective and cost-efficient care for individuals recovering from ABI, spinal injuries and other catastrophic injuries and illnesses. SRS services are also sought out as a clinically appropriate and less expensive “step-down” for individuals who no longer require care in acute care settings.

Both the public and non-public sectors currently finance post-acute specialty rehabilitation services. Public funding for post-acute services for individuals with ABI are provided in some states under ABI waiver programs that provide access to Medicaid funds for ABI care, and other states utilize I/DD or global waivers to serve the same population. In addition, significant advocacy efforts are advancing at the federal and state levels to require insurers to pay for rehabilitative treatment for those who suffer a brain injury.

Public funding for services for individuals with spinal injuries and other catastrophic injuries and illnesses is provided through specific Medicaid waivers for brain and spinal cord injuries, as well as other generic Medicaid waivers and state-specific programs. Non-public payors for SRS services include private insurance companies, workers’ compensation funds, managed care companies and private individuals.

Our Business Strategy

We believe the market opportunity for home - and community-based health and human services that increase client independence and participation in community life while reducing ~~payor~~ costs will continue to grow ~~in market share~~. We intend to continue leveraging our strengths to capitalize on this trend, both in existing markets and in new markets where we believe significant opportunities exist. The primary aspects of our strategy include the following:

~~Maintain~~Leverage ~~and~~our ~~Improve~~Core ~~Quality~~Competencies ~~of Care and Employee Engagement; Continue~~ to ~~Strengthen~~Drive ~~our~~Organic ~~Third-Party Payor Relationships~~Growth. We ~~focus on~~ ~~providing~~expect ~~our~~to ~~clients~~capture ~~and their families with an environment that minimizes~~ the ~~stress~~embedded ~~and~~growth ~~uncertainty~~opportunities ~~associated~~resulting ~~with~~from ~~their~~recent ~~condition~~organic ~~while~~growth ~~fostering~~initiatives ~~community integration~~ and ~~high~~leverage ~~quality~~our ~~living.~~core Wecompetencies ~~aim~~ to ~~enhance~~further expand our ~~clients’~~presence ~~overall~~in ~~quality of~~markets ~~life~~we bycurrently ~~providing~~serve ~~a broad range of services, delivered by carefully trained, qualified~~ and ~~engaged employees and Mentors, with access~~ to ~~best~~further ~~practices~~expand ~~from across~~ our ~~organization.~~geographic ~~Our~~footprint ~~employees are at the heart of~~ in our ~~mission~~existing ~~and~~service ~~critical to our success~~lines. WeDuring ~~have a number of initiatives throughout the organization that are focused on the engagement of~~ our ~~workforce.~~nearly We35-year ~~believe~~history, ~~our~~we ~~focus~~have ondeveloped and ~~reputation~~refined ~~for client service at both~~ a ~~local~~core ~~and~~set ~~national~~of ~~level~~competencies ~~has~~through ~~strengthened~~ our ~~relationship~~ ~~with~~experience ~~the~~developing ~~state~~customized ~~and~~service ~~local~~plans ~~government~~for ~~agencies~~complex ~~that~~cases ~~refer~~ and ~~pay~~supporting ~~for~~ our ~~services.~~operations ~~As a result, our relationships~~ with ~~these~~expertise ~~agencies have enabled us to gain referrals and contract renewals and to introduce new services~~ in ~~existing~~ ~~markets.~~areas Wesuch ~~further~~as ~~strengthen~~risk ~~these relationships by maintaining quality assurance~~management, ~~reporting, billing,~~ compliance and ~~risk~~quality ~~management programs designed to serve the needs of third-party payors~~assurance. ~~We seek recognition as the provider of choice to state and local governments and other third-party payors by finding solutions to their most challenging human service delivery problems.~~

~~Grow~~Continue to Invest in our ~~Census~~New ~~and~~Start ~~Expand~~Programs. ~~our~~A ~~Services~~key indriver of ~~New~~growth ~~and~~has ~~Existing~~been ~~Markets.~~our Wenew ~~believe~~start programs that ~~our~~have ~~future~~historically ~~growth~~generated ~~will~~attractive ~~depend~~returns on our investments. Our demonstrated ability to ~~increase~~ ~~referrals~~quickly inlaunch ~~existing~~new ~~markets~~start ~~and~~programs ~~expand~~positions ~~our~~us ~~services~~well ~~into~~to meet new ~~markets~~sources of market demand. ~~Our~~New ~~organic~~starts, ~~expansion~~which typically ~~activities~~turn ~~consist~~profitable ofwithin ~~new~~18-24 ~~starts~~months, inrequire ~~both~~modest ~~new~~investments, consisting of operating losses and ~~existing~~capital ~~markets~~expenditures. Our investment of approximately $8.1 million in new starts ~~typically~~between ~~require~~fiscal us2007 toand ~~fund~~fiscal ~~operating~~2010 ~~losses~~generated ~~for~~net arevenues and ~~period~~operating income of approximately 18$70.7 tomillion 24and ~~months~~$16.5 Ifmillion, respectively, in fiscal 2014. We have made a ~~new~~number ~~start~~of ~~does~~recent ~~not~~investments ~~become~~that ~~profitable~~we ~~during~~believe ~~such~~will ~~period~~continue to drive near term growth as they reach maturity. In 2011, we ~~may~~dramatically increased ~~terminate~~our level of new start investment, expanding it from an average of $3.1 million in fiscal 2009 and fiscal 2010 to an average of more than $7.5 million in fiscal 2013 and fiscal 2014. We intend to continue to aggressively pursue new start opportunities with attractive rates of return.

~~Continue~~Pursue toOpportunistic ~~Expand in SRS Market and Further Diversify Payor Base~~Acquisitions. WeAs ~~believe~~a ~~the~~leading ~~SRS~~provider ~~market~~in ~~represents an attractive opportunity for us because (i) the demand for these services is growing, (ii)~~ our ~~SRS~~markets ~~services~~with national ~~typically~~scale ~~generate~~and a ~~higher~~proven ~~margin~~track ~~than our~~record ~~services~~of inquality ~~the~~care, ~~Human~~we ~~Services~~are ~~segment~~well ~~and~~positioned ~~(iii) the~~as ~~SRS~~an ~~market~~acquiror ~~represents~~of anchoice ~~opportunity~~ for ussmall tooperators ~~diversify~~in ~~our~~a ~~payor~~highly-fragmented ~~base~~industry. InThis ~~addition,~~dynamic ~~the~~leads ~~SRS~~to ~~market~~a isnumber ~~highly fragmented and consists~~ of ~~many~~attractive ~~small~~tuck-in ~~providers,~~acquisition ~~which~~opportunities wethat ~~believe represents~~can andrive ~~opportunity~~returns. ~~for~~We ~~us to~~ continue to ~~grow~~maintain ~~through~~a ~~acquisitions.~~robust Inacquisition ~~recent~~pipeline ~~years, our growth strategy has emphasized expanding our SRS segment through both organic growth~~ and ~~acquisitions,~~deploy ~~and~~capital ~~we have achieved significant growth~~ in ~~both~~a ~~revenue~~disciplined and ~~profitability~~ toopportunistic ~~become~~manner ato ~~leading~~pursue ~~provider of these services~~acquisitions.

~~Strategically Pursue Acquisitions.~~ We ~~have~~intend ~~strategically supplemented~~to ~~our~~continue ~~organic~~to ~~growth~~pursue ~~through~~ acquisitions, ~~which~~that ~~have~~are ~~allowed~~consistent uswith toour ~~penetrate~~mission ~~new~~and ~~geographies,~~complement ~~leverage~~ our ~~systems,~~existing ~~operating~~operations. ~~costs~~We ~~and~~have ~~best~~invested ~~practices,~~in a ~~and~~team ~~pursue~~dedicated ~~cross-selling~~to ~~opportunities.~~mergers ~~The~~and ~~majority of our~~ acquisitions, ~~are~~as ~~small and~~well ofas athe ~~“tuck-in”~~infrastructure ~~nature,~~and ~~although~~formalized weprocesses ~~have~~to ~~completed~~enable ~~larger~~us ~~acquisitions,~~to ~~particularly~~pursue inacquisition ~~the~~opportunities ~~SRS~~and ~~segment,~~to ~~from~~integrate ~~time~~them tointo ~~time~~our business. We monitor the market nationally for ~~human services~~ businesses that we can ~~purchase~~acquire at an attractive ~~price~~prices and efficiently integrate with our existing operations. WeFrom ~~have~~the ~~invested~~beginning inof ~~our~~fiscal ~~infrastructure~~2010 ~~and~~through ~~formalized~~September 30, ~~processes~~2014, ~~to enable us to pursue and integrate acquisition opportunities. We believe~~ we ~~are~~have ~~often~~successfully ~~seen~~acquired as36 ~~a preferred acquiror in these situations due to our service offerings~~companies, ~~experience,~~at ~~payor~~an ~~relationships,~~aggregate ~~infrastructure,~~purchase ~~reputation~~price ~~for~~of ~~quality and overall resources~~approximately $143.7 ~~We intend to continue to pursue acquisitions that are philosophically compatible and can be readily integrated into our existing operations~~million.

~~Continue~~Expand our SRS Platform. We intend to ~~Leverage~~leverage ~~Overhead~~our unique scale and ~~Reduce~~leadership ~~Costs.~~position Into ~~recent~~continue ~~years~~to expand our SRS platform through continued organic growth in new and existing markets, weas ~~have~~well ~~launched~~as through opportunistic acquisitions. We are the only provider with a ~~number~~national ~~of initiatives~~platform dedicated to ~~leverage~~providing ~~our~~post-acute ~~overhead~~care ~~and~~for ~~reduce~~individuals ~~costs~~with brain injuries or other catastrophic injuries and illnesses, ~~including~~and ~~purchasing~~thus ~~initiatives~~we tobelieve ~~obtain~~we are the leader serving this market. We have more ~~favorable~~than ~~pricing~~doubled ~~for~~the ~~medical~~size and ~~office~~contribution ~~supplies,~~of ~~vehicles~~our ~~and~~SRS ~~technology,~~segment ~~and~~since ~~establishing~~2010, achieving a ~~shared~~14% ~~services~~compound ~~center~~annual ~~(the~~growth ~~“SSC”)~~rate ~~that~~in net ~~now~~revenue ~~houses~~over ~~certain~~that ~~Finance~~period. Furthermore, ~~Human~~our ~~Services~~SRS ~~and~~business ~~Information~~is ~~Technology~~funded ~~teams.~~by ~~Moving~~a ~~forward~~highly attractive payor mix, wewith ~~will~~53% ~~continue~~of tonet ~~explore~~revenues ~~other~~in ~~opportunities~~2014 toderived ~~leverage~~from ~~overhead~~commercial insurers and ~~gain~~other ~~efficiencies~~private entities.

~~Selectively~~5 Divest Underperforming or Non-Strategic Businesses. In order to continue to grow in market share and better utilize our capital, we regularly review and consider the divestiture of underperforming or non-strategic businesses to improve our operating results. We have made divestitures from time to time and expect that we may make additional divestitures in the future. Divestitures could have a material impact on our consolidated financial statements.

Pursue Opportunities in Adjacent Markets and Complementary Service Lines that Diversify our Service Offerings. We have a proven track record of developing new service areas, as evidenced by the growth of our SRS segment. We believe our reputation and credibility in existing markets and service lines will facilitate our entry into adjacent markets. We may also explore strategic acquisitions to enhance our ability to pursue adjacent markets. We intend to leverage our core competencies and relationships with state agencies to pursue opportunities in adjacent markets, including potentially those serving elders, youth with autism and individuals with mental health issues. We believe our periodic, day and residential services can be leveraged to address a portion of the estimated $75 billion spent in 2010 on residential and personal healthcare services and home healthcare services for individuals 64 years of age or older, based on data from the Centers for Medicare and Medicaid Services. More specifically, we have decided to pursue the adult day services portion of this market, an estimated $6 billion market based on IBISWorld estimates for spending on adult day care in 2010, and recently completed the acquisition of a company in this market, Mass Adult Day Health Alliance.

Customers and Contracts

Our customers, that ~~which~~ pay us to provide services to our clients, are governmental agencies, ~~not~~non-~~for-profit~~public ~~organizations~~payors and ~~non~~not-~~public~~for-profit ~~payors~~organizations. Our I/DD and ARY services, as well as a significant portion of our SRS services, are delivered pursuant to contracts with various governmental agencies, such as state departments of developmental disabilities, juvenile justice, child welfare asand ~~well as~~ the Federal Veterans Health Administration. Such contracts may be issued at the county or state level, depending upon the structure of the service system of the state in question. In addition, a majority of our SRS revenue is derived from contracts with commercial insurers, workers’ compensation carriers and other non-public payors. Contracts may cover a range of individuals such as all children referred for host home services in a county or a particular set of individuals who will share group living arrangements. Contracts are sometimes issued for specific individuals, where rates are individually determined based on need. Although our contracts generally have a stated term of one year and generally may be terminated without cause on 60 days’ notice, the contracts are typically renewed annually if we have complied with licensing, certification, program standards and other regulatory requirements. As a provider of record, we contractually obligate ourselves to adhere to the applicable federal and state regulations regarding the provision of services, the maintenance of records and submission of claims for reimbursement under Medicaid.

~~During~~In ~~fiscal~~all ~~2013~~of ~~and~~our ~~2012~~service lines, ~~revenue~~the ~~from~~clients ~~our~~and/or ~~contracts~~the ~~with~~payors/referral sources (e.g., state agencies) select us as a provider and, ~~local~~although clients ~~governmental~~funded ~~payors~~by inMedicaid have the ~~states~~right ofto ~~Minnesota,~~choose ~~California~~an alternative provider at any time, ~~West~~it has been our experience that our clients change providers infrequently. We believe that many of our clients develop close relationships with their direct ~~Virginia,~~care ~~Florida~~workers and ~~Indiana~~our organization. Although a client may develop a close relationship with his or her direct care worker, it is our ~~five~~experience ~~largest~~that ~~revenue-generating~~if ~~states~~such direct care worker leaves our employment, ~~comprised~~clients ~~42%~~rarely elect to switch providers based on such direct care worker’s departure. The length of stay of our ~~revenue~~clients varies widely based on their individual needs. ~~Revenue~~For ~~from~~instance, in our ~~contracts~~SRS ~~with~~segment, ~~state~~a ~~and~~client’s ~~local~~care ~~governmental~~may ~~payors~~be focused on rehabilitation, in which case we will provide services for several months, or, if a client suffered a catastrophic illness or accident, that client could remain in our care for the ~~state~~duration of ~~Minnesota~~that individual’s life, which could span years or decades. In our ~~largest~~I/DD ~~state~~business, ~~accounted~~the ~~for~~length ~~14%~~of stay ~~and~~is ~~15%~~generally years, with many of our ~~revenue~~clients having used our services for ~~fiscal~~decades. ~~2013~~For ~~and~~our ~~2012~~ARY clients, ~~respectively~~the length of treatment can vary widely but most often is for several months.

Contracts may cover a range of individuals such as all children referred for host home services in a county or a particular set of individuals who will share group living arrangements. Contracts are sometimes issued for specific individuals, where rates are individually determined based on need. Although our contracts generally have a stated term of one year and generally may be terminated without cause on 60 days’ notice, the contracts are typically renewed annually if we have complied with licensing, certification, program standards and other regulatory requirements. As a provider of record, we contractually obligate ourselves to adhere to the applicable federal and state regulations regarding the provision of services, the maintenance of records and submission of claims for reimbursement under Medicaid and other government programs. In addition, while we are not obligated to serve each individual that is referred to us, we make every effort to review referrals made and accept individuals who need our services.

During fiscal 2014 and 2013, revenue from our contracts with state and local governmental payors in the states of Minnesota, California, West Virginia, Florida and New Jersey, our five largest revenue-generating states, comprised 45% and 46% of our revenue, respectively. Revenue from our contracts with state and local governmental payors in the State of Minnesota, our largest state, accounted for 14% of our revenue in each of fiscal 2014 and 2013.

Training and Supporting our Direct Service Professionals

We provide pre-service and in-service education to all of our direct service professionals, ~~including employees~~ and ~~independent contractors,~~ clinical and administrative staff, and we encourage staff ~~and contractors~~ to avail themselves of outside training opportunities whenever possible. Employees ~~and independent contractors~~ participate in orientation programs designed to increase their understanding of our mission, philosophy of ~~care~~service, and our Code of Conduct and compliance program. InOur ~~addition,~~employees ~~education~~benefit ~~and~~from ~~skill development in competencies required for specific duties are provided in accordance with licensing and regulatory requirements and~~ our internal operating standards. These include, but are not limited to, human rights, individual service plan development, universal precautions, first aid, mandated reporting of abuse and neglect, confidentiality, emergency procedures, medication management, risk management and incident reporting procedures. We maintain an extensive resource library of training materials and an intranet site that facilitates the identification and exchange of expertise across all of our operations. Pre-service and in-service education sessions are required as a condition of continued employment or a continued contractual relationship with us. This training helps our staff to understand their responsibilities to the program and its participants, and results in both personal and professional development of staff and contractors. We work to increase individual job satisfaction and retention of motivated and qualified employees ~~and contractors~~.

InWe ~~addition~~use toequally ~~pre-service~~rigorous ~~and~~methods ~~in-service~~to ~~orientation,~~identify ~~the~~and ~~Mentors~~contract inwith ~~our~~independent ~~ARY~~contractor providers ~~business~~(host ~~receive~~home ~~training~~providers), ~~which~~whether isin ~~specific~~an toadult ~~the~~host ~~individual~~home or ~~child~~ ~~placed~~foster incare ~~their home~~environment. AIn ~~home~~addition ~~study~~to ispre-service ~~conducted~~ and ~~interviews~~in-service ~~and~~orientation ~~criminal~~to ~~background~~familiarize ~~checks~~the ~~are~~host ~~performed~~home onproviders ~~all~~to ~~adult~~the ~~members~~specifics of ~~the~~our ~~Mentor~~model ~~household.~~and ~~Mentors~~expectations, ~~are~~the ~~regularly~~contracted host ~~monitored~~home byproviders in our ~~case~~ARY ~~manager~~business orreceive ~~coordinator according to~~ a ~~prescribed~~ ~~schedule.~~detailed ~~Mentors~~briefing ~~have~~tailored ~~access~~ to ~~emergency~~the ~~telephone~~individualized ~~triage~~needs ~~and~~of ~~on-site~~the ~~crisis~~individual ~~intervention,~~or ~~when~~child ~~necessary.~~placed ~~Many~~in ~~Mentors~~their ~~attend~~home. ~~support~~Prior ~~groups~~to ~~offered~~any atplacements ~~the~~being ~~program~~made, ~~office.~~we

conduct a home study to evaluate the appropriateness of any placement and conduct interviews and criminal background checks on adult members residing in the host home provider household. The services provided by host home providers are evaluated for contractual compliance by our case manager or coordinator according to standards set by licensing and regulatory agencies as well as our own strict quality standards. While all host home providers can provide services independently and with minimal oversight, they have access to emergency telephone triage and on-site crisis intervention, when necessary. Host home providers also avail themselves of support groups, whether independent or offered at the program office.

Employees and Independent Contractors

As of September 30, 2014, we had approximately 21,500 full-time equivalent employees and approximately 5,600 independent contractors. Although our employees are generally not unionized, we have one business in New Jersey with approximately 28 employees who are represented by a labor union and approximately 291 Connecticut direct care workers who are also represented by a labor union. We began negotiating a labor agreement with the Connecticut union in September 2012. Those negotiations, however, were suspended after our Connecticut-based business notified the State of Connecticut and the union of its intention to stop providing services under existing contracts due to rate cuts and a change in state policy. We are currently working with our public partners on a plan to effectively transition our programs to new providers, and we anticipate that this transition will be complete during the first quarter of fiscal 2015. We consider our employee relations to be good.

Sales/Business Development and Marketing

~~Substantially~~We ~~all~~market of our ~~I/DD~~services ~~and~~nationally ~~ARY~~as ~~clients~~The ~~come~~MENTOR ~~to us through third-party referrals~~Network, ~~most~~a ~~frequently~~national ~~through~~network ~~recommendations~~of ~~to family members from state or~~ local ~~agencies~~service providers. ~~Since~~We ~~our~~operate ~~operations~~under ~~depend~~several brands ~~heavily~~across onthe ~~these referrals~~country, wepredominantly ~~seek~~under tothe ~~ensure~~REM ~~that~~and weMENTOR ~~provide~~brands ~~high-quality services~~ in ~~all~~our ~~states~~Human inServices ~~which~~segment weand ~~operate,~~the ~~allowing~~NeuroRestorative ~~us to enhance our name recognition~~ and ~~maintain~~CareMeridian ~~a positive~~brands ~~reputation~~in ~~with~~our ~~the~~SRS ~~state and local agencies~~segment.

~~Relationships~~The ~~with~~majority ~~referral~~of ~~sources~~our ~~are~~human ~~cultivated~~services clients come to us through third-party referrals, and ~~maintained~~frequently atour ~~the~~I/DD ~~local~~referrals come through ~~level~~recommendations byto ~~key~~family ~~operations~~members ~~managers.~~from ~~Local~~state ~~programs~~or ~~may,~~local ~~however,~~agencies. ~~avail~~Since ~~themselves~~our ofoperations ~~corporate~~depend ~~resources~~heavily toon ~~help~~these ~~grow~~referrals, ~~and~~we ~~diversify~~seek ~~their~~to ~~businesses.~~ensure ~~Staff~~that ~~across~~we ~~the~~provide ~~country~~high-quality ~~has~~services ~~business~~in ~~development~~all ~~and~~states ~~marketing~~in ~~services~~which ~~available~~we operate, allowing us to ~~promote~~enhance ~~both~~our name ~~new~~recognition and ~~existing~~maintain ~~product~~a ~~lines~~positive reputation with state and local agencies.

~~Our~~Relationships ~~SRS~~with ~~sales~~referral ~~activities~~sources are ~~independently~~cultivated ~~organized~~and maintained ~~from~~at ~~those~~the oflocal ~~our~~level ~~Human~~by ~~Services~~key ~~businesses.~~operations Wemanagers ~~have dedicated~~and ~~geographically~~supported ~~assigned~~by ~~sales~~an ~~staff~~array ~~cultivating~~of ~~relationships~~corporate ~~with~~supports ~~public~~including ~~and~~marketing ~~private~~communications, ~~payors~~government relations and ~~conducting~~business ~~our~~development ~~marketing~~services to promote both new and ~~sales~~existing ~~activities~~product lines.

Our SRS sales activities are independently organized from those of our Human Services businesses. We have dedicated, geographically assigned clinical marketing and sales staff cultivating relationships with public and private payors, referral sources and directly with potential participants and their families. These regional teams are also supported by corporate resources as outlined above.

To further distinguish ourselves in both segments, we have established a comprehensive presence at both the national and local level through a robust online presence, including social media. Additionally, through our government relations and business development activities, we have successfully positioned ourselves to anticipate and meet the needs of our public partners.

Competition

I/DD

The I/DD market is highly fragmented, with both not-for-profit and for-profit providers ranging in size from small, local agencies to large, national organizations. ~~While~~We and the other leading national provider only account for less than 5% of services by revenue in the I/DD market. Although state and local governments continue to supply a small percentage of services, the majority of services are provided by the private sector. Not-for-profit organizations are also active in all states and range from small agencies serving a limited area with specific programs to multi-state organizations. Many of the not-for-profit companies are affiliated with advocacy ~~and sponsoring~~ groups such as community mental health and ~~mental retardation centers as well as~~ religious organizations.

ARY

The at-risk youth ~~and troubled youth~~ market is extremely fragmented, with several thousand providers in the United States. Competitors include both not-for-profit and ~~not-~~for- profit local providers serving one particular geographic area to ~~multi-state~~a ~~ARY~~single ~~providers~~state, and, to a ~~very~~ limited extent, multi-state ~~and county~~ providers.

SRS

We compete with local providers, both large and small, including hospitals, post-acute rehabilitation facilities, residential community-based facilities, day treatment centers and outpatient centers specializing in long-term catastrophic care and short-term rehabilitation. This market also includes several large national providers of general inpatient and outpatient rehabilitation services.

Regulatory Framework

We must comply with comprehensive government regulation of our business, including federal, state and local statutes, regulations and policies governing the licensing of facilities, the quality of service, the revenues received for services, and reimbursement for the cost of services. State and federal regulatory agencies have broad discretionary powers over the administration and enforcement of laws and regulations that govern our operations.

The following regulatory considerations are critical to our operations:

New federal regulation regarding “waivered” services. Individuals with disabilities or chronic illnesses who need certain levels of care may qualify for governing home- and community-based “waivered” services (“HCBS Waiver”). The waiver program allows the states to furnish an array of home- and community-based services and avoid institutional care. On March 17, 2014, a newly promulgated federal regulation governing HCBS Waiver programs became effective. The rule establishes eligibility requirements for payment for Medicaid home and community-based services provided under the “waiver” program. Under the new rule, home- and community-based settings must be integrated in and support full access to the greater community, be selected by the individual from different setting options, ensure individual rights of privacy, and optimize autonomy and independence in making life choices. The rule includes additional requirements for provider-owned or controlled home and community-based residential settings, including that the individual has a lease or other legally enforceable agreement, and standards related to the individual’s privacy, control over schedule and visitors, and physical accessibility of the setting. At this juncture it is unclear how individual states will seek to implement this newly adopted regulation. The rule may present some implementation costs and challenges. Some of the broad requirements may conflict with individual recipient needs and/or precautions that we must undertake to assure individual services and safety. It is unclear how each state will seek to address this potential conflict. The impact and costs of implementation and compliance with this regulation is currently unknown. States have the option to request a variation or delay of compliance with the federal standards for as long as five (5) years from the effective date.

Funding. Federal and state funding for our services is subject to statutory and regulatory changes, contracting and managed care initiatives, level of care assessments, court orders, rate setting and state budgetary considerations, all of which may materially increase or decrease reimbursement for our services. We actively participate in local and national legislative initiatives that seek to impact funding and regulation of our services. We derive revenues for our I/DD and ARY services and a significant portion of our SRS services from Medicaid programs.

Licensure and qualification to deliver service. We are required to comply with extensive licensing and regulatory requirements applicable to the services we deliver. These include requirements for participation in the Medicaid program, state and local contractual obligations, and requirements relating to individual rights, the credentialing of individual ~~all of our~~ employees and contract Mentors (including background and Office of Inspector General checks), the quality of care delivered, the physical plant and facilitation of community participation. Compliance with state licensing requirements is a prerequisite for participation in government-sponsored public health care assistance programs, such as Medicaid. To qualify for reimbursement under Medicaid, facilities and programs are subject to various requirements imposed by federal and state authorities. We maintain a licensing database that tracks activity onimpacting licenses governing the provision of services.

In addition to Medicaid participation requirements, our facilities and services are subject to annual or semi-annual licensing and other regulatory requirements of state and local authorities. These requirements relate to the condition of the facilities, the quality and adequacy of personnel staff and service ratios and the quality of services provided. State licensing and other regulatory requirements vary by jurisdiction and are subject to change and local interpretation.

From time to time we receive notices from regulatory inspectors that, in their opinion, there are deficiencies resulting from a failure to comply with various regulatory requirements. We review such notices and take corrective action as appropriate. In most cases we and the reviewing agency agree upon the steps to be taken to address the deficiency and, from time to time, we or one or more of our subsidiaries may enter into agreements with regulatory agencies requiring us to take certain corrective action in order to maintain our licenses or certification. Serious deficiencies, or failure to comply with any regulatory agreements, may result in the assessment of fines or penalties and/or decertification or de-licensure actions by ~~the~~various ~~Centers~~federal ~~for Medicare and Medicaid Services (“CMS”)~~ or state regulatory agencies.

We deliver services and support under a number of different funding and program provisions. Our most significant sources of funding for our I/DD services are HCBS Waiver programs, Medicaid programs for which eligibility is based on a set of criteria (typically disability or age) established by the state and approved by the federal government. There is no uniformity among states and/or regulations governing our delivery of waivered services to individuals. Each state where we deliver services operates under a plan submitted by the state to CMS to use Medicaid funds in non-institutional settings. Typically the state writes its own regulations governing providers and services provided under the state waiver program. Consequently, there is no uniform method of describing or predicting the outcomes of regulations across states where we deliver HCBS Waiver services. In addition, our ICFs-MR are governed by federal regulations, and may also be subject to individual state rules that vary widely in application and content. Federal regulations require that in order to maintain Medicaid certification as an ICF-MR, the facility is subject to annual on site survey (a federal rule and process implemented by state agencies). Failure to successfully pass this inspection and remedy all defects or conditions cited may result in a finding of immediate jeopardy or other serious sanction and, ultimately, may cause a loss of both certification and funding for that particular facility.

(typically disability or age) established by the state and approved by the federal government. There is no uniformity among states and/or regulations governing our delivery of waivered services to individuals. Each state where we deliver services operates under a plan submitted by the state to Centers for Medicare and Medicaid Services (“CMS”) which authorizes the state to use Medicaid funds in non-institutional settings using federal financial participation (“FPP”). Typically the state writes its state specific regulations governing providers and services provided under the state waiver program. Consequently, there is no uniform method of describing or predicting the content or impact of regulations across states where we deliver HCBS Waiver services. In addition, our ICFs-MR are governed by federal regulations, and may also be subject to individual state rules that vary widely in application and content. Federal regulations require that in order to maintain Medicaid certification as an ICF-MR, the facility is subject to annual on-site survey (a federal rule and process implemented by state agencies), the results of which provide or deny the certification necessary to bill Medicaid for services in the facility. Failure to successfully pass this inspection and remedy all defects or conditions cited may result in a finding of immediate jeopardy or other serious sanction and, ultimately, may cause a loss of both certification and funding for that particular facility.

Similarly, child foster care and other children’s services are largely governed by individual state regulations which vary both in terms and regulatory content. Failure to comply with any state’s regulations requires remedial action on our part and a failure to adequately remedy the problem may result in provider or contract termination.

All states in which we operate have adopted laws or regulations which generally require that a state agency approve us as a provider, and many require a determination that a need exists prior to the ~~addition~~admission of covered individuals or services. Provider licenses are not transferable. Consequently, should we intend to acquire, develop, expand or divest services in any state or to enter a new state, we may be required to undergo a rigorous licensing, transfer and approval process prior to conducting business or completing any transaction.

Similarly, some states have a formal Certificate of Need (“CON”) process, whereby the state health care authority must first determine that a service proposed is needed under the state health plan, prior to any service being licensed or applied for. The CON process varies by state and may be formal in design, encompassing any transfer, organizational change, capital improvements, divestitures or acquisitions. Formal processes may include public notice, opportunity for affected parties to request a hearing prior to the health care authority approving the project, as well as an opportunity for the state authority to deny the project. Other states have a less formal process for CON application and approval and may be limited to new or institutional projects. Very few states require CON approval for waivered services. Failure to comply with a state CON process may result in a prohibition on Medicaid billing and may subject the provider to fines, penalties, other civil sanctions or criminal penalties for the operators or owners of an unapproved health service.

Other regulatory matters. The Health Insurance Portability and Accountability Act of 1996, or “HIPAA,” as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH Act”), set national standards for the protection of health information created, maintained or transmitted by health providers. Under the law and regulations known collectively as the privacy and security rules, covered entities must implement standards to protect and guard against the misuse of individually identifiable health information, report breaches and undertake notification and remedial steps consistent with regulation.

Federal regulations issued pursuant to HIPAA and the HITECH ACT contain, among other measures, provisions that require organizations to implement significant and expensive computer systems, employee training programs and business procedures. Rules have been established to protect the integrity, security and distribution of electronic health and related financial information. Many states have also implemented extensive data privacy and security laws and regulations. Failure to timely implement or comply with HIPAA or other data privacy and security regulations may, under certain circumstances, trigger the imposition of civil or criminal penalties.

The federal False Claims Act imposes civil liability on individuals and entities that submit or cause to be submitted false or fraudulent claims for payment to the government. Violations of the False Claims Act may include treble damages and penalties of up to $11,000 per false or fraudulent claim. Similarly, retention of any overpayments may be regarded by the government as a false claim.

In addition to actions being brought by government officials under the False Claims Act, this statute and analogous state laws also allow a private individual with direct knowledge of fraud to bring a “whistleblower” claim on behalf of the government for violations. The whistleblower receives a statutory amount of up to 30% of the recovered amount from the government’s litigation proceeds if the litigation is successful or if the case is successfully settled. Recently, the number of whistleblower suits brought against healthcare providers has increased dramatically, and has included suits based (among other things) upon alleged violations of the Federal Anti-Kickback Law.

The Anti-Kickback Law prohibits kickbacks, rebates and any other forms of remuneration in return for referrals. Any remuneration, direct or indirect, offered, paid, solicited or received, in return for referrals of patients or business for which payment may be made in whole or in part under Medicaid, could be considered a violation of law. The language of the Anti-Kickback law also prohibits payments made to anyone to induce them to recommend purchasing, leasing, or ordering any goods, facility, service or item for which payment may be made in whole or in part by Medicaid. Criminal penalties under the Anti-Kickback Law include fines up to $25,000, imprisonment for up to 5 years, or both. In addition, acts constituting a violation of the Anti-Kickback Law may also lead to civil penalties, such as fines, assessments and exclusion from participation in the Medicaid program.

Additionally we must comply with local zoning and licensing ordinances and requirements. The Federal Fair Housing Amendments Act of 1988 protects the interests of the individuals we serve, prohibits local discriminatory ordinance practices and provides additional opportunities and accommodations for people with disabilities to live in their community of choice.

Federal regulations promulgated by the Occupational Safety and Health Administration (“OSHA”) require us to have safety plans for blood borne pathogens and other work place risks. At any point in time OSHA investigators may receive a complaint which requires on-site inspection and/or audit, the outcome of which may adversely affect our operations.

10Periodically, new statutes and regulations are written and adopted that directly affect our business. It is often difficult to predict the impact a new regulation will have on our operations until we have taken steps to implement its requirements. For example, the Patient Protection and Affordable Care Act of 2010 provided a mandate for more vigorous and widespread enforcement and directed state Medicaid agencies to establish Recovery Audit Contractor (“RAC”) programs. RACs are private entities which will perform audits on a contingency fee basis, giving them an incentive to identify discrepancies in payments, from which they may be permitted to extrapolate disproportionately large penalties and fines. States were required to be in compliance by January 1, 2012 unless granted an extension. We have experienced only modest RAC auditing activity to date; however this remains a fairly new federal initiative and the ultimate impact remains unclear. Only the passage of time and our experience with enforcement and compliance will permit our assessment of the exact impact the new statute and regulations have on our business.

~~Table~~Similarly the HIPAA and HITECH Regulations increased both the scope of ~~Contents~~liability and obligations of business associates with whom such covered entities contract for services, as well as increase disclosure obligations of providers in the event of a breach. The Federal enforcement agency has expressed an intent to increase investigations and potential penalties for noncompliance in part due to these new standards.

Periodically, new statutes and regulations are written and adopted that directly affect our business. It is often difficult to predict the impact a new regulation will have on our operations until we have taken steps to implement its requirements. For example, the Patient Protection and Affordable Care Act of 2010 provided a mandate for more vigorous and widespread enforcement and directed state Medicaid agencies to establish Recovery Audit Contractor (“RAC”) programs. RACs are private entities which will perform audits on a contingency fee basis, giving them an incentive to identify discrepancies in payments, from which they may be permitted to extrapolate disproportionately large penalties and fines. States were required to be in compliance by January 1, 2012 unless granted an extension. To date, RAC activity has affected our business in a single state; however this remains a fairly new federal initiative and the ultimate impact remains unclear. Only the passage of time and our experience with enforcement and compliance will permit our assessment of the exact impact the new statute and regulations have on our business.

Similarly the new HIPAA Regulations increased both the scope of business associates liability and obligations, as well as increase disclosure obligations of providers in the event of a breach. The Federal enforcement agency has expressed an intent to increase investigations and potential penalties for noncompliance in part due to these new standards.

Managed care initiatives undertaken in a given state may impact our business by modifying the types of services eligible for payment, the qualifications required for payment and the rates that are paid for those services. Similarly, some states are pursuing waivers for dual-eligible populations (that is, persons eligible for both Medicare and Medicaid), and our ability to participate in such waivered services may depend on our ability to become a Medicare provider.

We participate in Medicare in a very select number of areas of the country, as well as in managed care projects that allocate funds for recipients who are dually eligible for Medicare and Medicaid. Medicare has a unique and different set of regulations, funding mechanisms and audit and compliance risks compared to Medicaid. In recent years, states have begun working toward maximizing Medicare funding for services for dual eligible populations due to the fiscal incentive to lower state contributions and shift the cost of service to Medicare. In some state markets “equalization” of rates is required, thereby mandating that the rates we charge to private payors may not exceed rates established and paid by Medicaid and/or Medicare. Public policy initiatives and cost-containment initiatives in the Medicare program may continue and may affect our operating margins where we participate in Medicare.

Conviction of abusive or fraudulent behavior with respect to one facility or program may subject other facilities and programs under common control or ownership to disqualification from participation in the Medicaid program. Executive Order 12549 prohibits any corporation or facility from participating in federal contracts if it or its principals (included but not limited to officers, directors, owners and key employees) have been debarred, suspended or declared ineligible or have been voluntarily excluded from participating in federal contracts. In addition, some state regulators provide that all facilities licensed with a state under common ownership or control are subject to delicensure if any one or more of such facilities are delicensed.

We must also comply with the standards set forth by the Office of Inspector General (“OIG”) governing internal compliance and external reporting requirements. We regularly review and monitor OIG advisory opinions, although they are limited in their application to community-based Medicaid ~~programs~~providers. Significant legislative, media and public attention has recently focused on health care. Because the law in this area is complex and continuously evolving, ongoing or future governmental investigations or litigation may result in interpretations that are inconsistent with our current practices. It is possible that outside entities could initiate investigations or future litigation impacting our services and that such matters could result in penalties and adverse publicity. It is also possible that our executive and other management personnel could be included in these investigations and litigation or be named defendants.

The Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act of 2010, and the rules and regulations thereunder (together, the “Affordable Care Act”) were signed into law in March 2010 and represent significant changes to the U.S. healthcare system. The legislation is far-reaching and is intended to expand access to health insurance coverage over time. The legislation includes requirements that most individuals obtain health insurance coverage beginning in 2014 and that most large employers offer coverage to their employees or they will be required to pay a financial penalty beginning in 2015. In addition, the new laws encompass certain new taxes and fees, including limitations on the amount of compensation that is tax deductible and new fees which may not be deductible for income tax purposes.

The legislation also imposes new requirements and restrictions, including, but not limited to, guaranteed coverage requirements, prohibitions on some annual and all lifetime limits on amounts paid on behalf of or to our employees, increased restrictions on rescinding coverage, establishment of minimum medical loss ratio requirements, the establishment of state insurance exchanges and essential benefit packages, and greater limitations on product pricing.

The Affordable Care Act has already had a significant impact on the structure of the health plans we offer our employees. We have ~~recently~~ redesigned our health benefits to only offer employees health coverage that meets the requirements of the Affordable Care Act.

Finally, we are also subject to a large number of employment related laws and regulations, including laws regarding discrimination, wrongful discharge, retaliation, and federal and state wage and hours laws.

A material violation of a law or regulation could subject us to fines and penalties and in some circumstances could disqualify some or all of the facilities and programs under our control from future participation in Medicaid or other government programs. Failure to comply with laws and regulations could have a material adverse effect on our business.

A Compliance Officer (vice president level position) oversees our compliance program and reports to our Chief Legal Officer, a management compliance committee, the board quality and arisk ~~board~~management ~~compliance~~committee of our indirect parent, Civitas, and the audit committee of our indirect parent, Civitas as applicable. The program activities are reported regularly to the management compliance committee which includes the CEO, ~~COO,~~ CFO, as well as ~~medical, operations,~~ HR, legal and quality ~~expertise~~assurance leaders. In addition, the program activities are periodically reported at the board level.

~~Seasonablity.~~Seasonality ~~In general, our financial performance is not significantly impacted by fluctuations from seasonality.~~

~~Certain~~In ~~Transactions~~general, our financial performance is not significantly impacted by fluctuations from seasonality.

On February 9, 2011, we completed a refinancing (the “February 2011 Refinancing”), which included entering into a senior credit agreement (the “senior credit agreement”) for senior secured credit facilities (the “senior secured credit facilities”) and issuing $250.0 million in aggregate principal amount of 12.50% senior notes due 2018 (the “senior notes”). We used the net proceeds from the senior secured credit facilities ($520.9 million) and the senior notes ($238.7 million), together with cash on hand, to: (i) repay all amounts owing under our old senior secured credit facilities and our mortgage facility; (ii) purchase $171.9 million of our senior subordinated notes (the “Senior Subordinated Notes”); (iii) pay $9.6 million to NMH Holdings, Inc. (“NMH Holdings”) related to a tax sharing arrangement; (iv) declare a $219.7 million dividend to NMH Holdings, LLC (“Parent”), which in turn made a distribution to NMH Holdings, which used $206.4 million cash proceeds of the distribution to repurchase $210.9 million aggregate principal amount of the NMH Holdings notes at a premium to market value (v) repurchase an additional $13.3 million principal amount of NMH Holdings notes we held as an investment and (vi) pay related fees and expenses.

On October 15, 2012, we entered into an Amendment Agreement (the “Amendment Agreement”) to amend and restate the senior credit agreement governing the senior secured credit facilities. The Amendment Agreement converted the existing term loan facility into a tranche B-1 term loan facility in aggregate principal amount of $522.1 million (the “term loan”), the proceeds of which were used to prepay the existing term loan. The Amendment Agreement also replaced our existing $75.0 million revolving credit facility and the borrowings thereunder with a new $75.0 million revolving credit facility (the “senior revolver”). The Amendment Agreement had the effect of lowering the interest rate we pay on the borrowings under the senior secured credit facilities by 0.50%, by reducing the LIBOR floor from 1.75% to 1.25%.

On February 4, 2013, we entered into an Incremental Amendment No. 1 (the “Incremental Amendment No. 1”) to the Amendment Agreement. The Incremental Amendment No. 1 provided for an additional $30.0 million term loan (the “incremental term loan”) under our existing term loan. The net proceeds of the incremental term loan were used to repay $29.8 million of outstanding borrowings under the senior revolver. Total fees incurred related to the Incremental Amendment No.1 were $0.4 million which are being amortized over the remaining period of the term loan. We are required to repay the incremental term loan in quarterly principal installments of 0.25% of the principal amount, with the balance payable at maturity of the term loan. All of the other terms of the incremental term loan are identical to the term loan.

Our Sponsor

Vestar, ~~certain affiliates of Vestar,~~ members of management and certain directors own NMH Investment, ~~LLC (“NMH Investment”),~~ which indirectly owns a majority of the Company. Vestar is a leading U.S. middle market private equity firm specializing in management buyouts and growth capital investments. Vestar’s investment in ~~National~~the ~~Mentor~~Company ~~Holdings, Inc.~~ was funded by Vestar Capital Partners V, L.P., a $3.7 billion fund which closed in ~~2006~~2005, and ~~an affiliate~~ affiliates.

Since the firm’s founding in 1988, Vestar ~~has~~funds have completed more than 70 investments in ~~North America and Europe in~~ companies with a total value of ~~over~~of more than $40 billion. These companies have varied in size and geography and span a broad range of industries including healthcare, an area in which Vestar’s principals have had meaningful experience. Vestar currently manages funds ~~totaling~~with approximately ~~over~~ $7 5 billion of assets and has offices in New York, Denver and Boston. See “Certain Relationships and Related Party Transactions, and Director Independence,” “Security Ownership of Principal Shareholders and Management” and the documents incorporated by reference herein for more information with respect to our relationship with Vestar.

Item 1A.

Risk Factors.

Our business faces a number of risks. The risks described below are items of most concern to us, however these are not all of the risks we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impact our business operations.

Reductions or changes in Medicaid funding or changes in budgetary priorities by the federal, state and local governments that pay for our services could have a material adverse effect on our revenue and profitability.

We currently derive ~~the~~approximately ~~vast~~90% ~~majority~~ of our revenue from contracts with state and local governments. These governmental payors fund a significant portion of their payments to us through Medicaid, a joint federal and state health insurance program through which state expenditures are matched by federal funds typically ranging from 50% to approximately 75% of total costs, a number based largely on a state’s per capita income. Our revenue, therefore, is largely determined by the level of federal, state and local governmental spending for the services we provide.

~~Efforts~~11 at the federal level to reduce the federal budget deficit pose risk for reductions in federal Medicaid matching funds to state governments. The Joint Select Committee on Deficit Reduction’s failure to meet the deadline imposed by the Budget Control Act of 2011 triggered automatic across-the-board cuts to discretionary funding, including a 2% reduction to Medicare, effective March 1, 2013, but specifically exempted Medicaid payments to states. While this development did not reduce federal Medicaid funding, reductions in other federal payments to states will put additional stress on state budgets, with the potential to negatively impact the ability of states to provide the state Medicaid matching funds necessary to maintain or increase the federal financial contribution to the program. Negotiations surrounding deficit reduction efforts remain contentious, and most recently resulted in a 16 day government shutdown in October 2013. While Medicaid payments were not affected during this period, the potential for a longer shutdown if further negotiations fail to produce a resolution could cause disruptions in Medicaid support and payments to states. In addition, Congress and the Obama Administration may choose to adopt alternative proposals to reduce the federal budget deficit. These alternative reductions could have a negative impact on state Medicaid budgets, including proposals to provide states with more flexibility to determine Medicaid benefits, eligibility or provider payments through the use of block grants or streamlined waiver approvals, as well as those that would reduce the amount of federal Medicaid matching funding available to states by curtailing the use of provider taxes or by adjusting the Federal Medical Assistance Percentage (FMAP). Furthermore, any new Medicaid-funded benefits and requirements established by the Congress, particularly those included in the Patient Protection and Affordable Care Act of 2010, that mandate certain uses for Medicaid funds could have the effect of diverting those funds from the services we provide.

Efforts at the federal level to reduce the federal budget deficit pose risk for reductions in federal Medicaid matching funds to state governments. Previously, the Joint Select Committee on Deficit Reduction’s failure to meet the deadline imposed by the Budget Control Act of 2011 triggered automatic across-the-board cuts to discretionary funding, including a 2% reduction to Medicare, which went into effect April 1, 2013, but specifically exempted Medicaid payments to states. While this development did not reduce federal Medicaid funding, reductions in other federal payments to states will put additional stress on state budgets, with the potential to negatively impact the ability of states to provide the state Medicaid matching funds necessary to maintain or increase the federal financial contribution to the program. Negotiations in recent years regarding deficit reduction efforts have been contentious and resulted in a 16-day government shutdown in October 2013. While Medicaid payments were not affected during this period, the potential of longer shutdowns in the future if new negotiations regarding the federal budget and/or the federal debt ceiling fail to produce a resolution could cause disruptions in Medicaid support and payments to states. In addition, the federal government may choose to adopt alternative proposals to reduce the federal budget deficit. These alternative reductions could have a negative impact on state Medicaid budgets, including proposals to provide states with more flexibility to determine Medicaid benefits, eligibility or provider payments through the use of block grants or streamlined waiver approvals, as well as those that would reduce the amount of federal Medicaid matching funding available to states by curtailing the use of provider taxes or by adjusting the Federal Medical Assistance Percentage (FMAP). Furthermore, any new Medicaid-funded benefits and requirements established by the Congress, particularly those included in the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, and the rules and regulations thereunder (together, the “Patient Protection and Affordable Care Act”), that mandate certain uses for Medicaid funds could have the effect of diverting those funds from the services we provide.

Budgetary pressures facing state governments, as well as other economic, industry, and political factors, could cause state governments to limit spending, which could significantly reduce our revenue, referrals, margins and profitability, and adversely affect our growth strategy. Governmental agencies generally condition their contracts with us upon a sufficient budgetary appropriation. If a government agency does not receive an appropriation sufficient to cover its contractual obligations with us, it may terminate a contract or defer or reduce our reimbursement. In addition, there is risk that previously appropriated funds could be reduced through subsequent legislation. Many states in which we operate experienced unprecedented budgetary deficits during and in the wake of the recession that began in 2008, and, as a result, implemented service reductions, rate freezes and/or rate reductions, including states such as Minnesota, California, Florida, Indiana and Arizona. Similarly, programmatic changes such as conversions to managed care with related contract demands regarding billing and services, unbundling of services, governmental efforts to increase consumer autonomy and reduce provider oversight, coverage and other changes under state Medicaid plans, may cause unanticipated costs and risks to our service delivery. The loss or reduction of or changes to reimbursement under our contracts could have a material adverse effect on our business, financial condition and operating results.

The nature of our operations subjects us to substantial claims, litigation and governmental proceedings.

We are in the health and human services business and, therefore, we have been and continue to be subject to substantial claims alleging that we, our employees or our Mentors failed to provide proper care for a client. We are also subject to claims by our clients, our employees, our Mentors or community members against us for negligence and intentional misconduct, or violation of applicable laws. Included in our recent claims are claims alleging personal injury, assault, abuse, wrongful death and other charges. Several years ago, we experienced a spike in claims filed against the Company, and we could face an increase in claims in the future. As a result of the prior increase in claims, we received less favorable insurance terms and have expensed greater amounts to fund potential claims. For more information, see “Item 3, Legal Proceedings”.

Professional and general liability expense totaled 0.9%, 1.0% and 1.0% of our net revenue for the fiscal years ended September 30, 2014, 2013 and 2012, respectively. We incurred professional and general liability expenses of $10.9 million, $12.1 million and $10.7 million for the fiscal years ended September 30, 2014, 2013 and 2012, respectively. These expenses are incurred in connection with our claims reserve and insurance premiums. For more information, see “—Our financial results could be adversely affected if claims against us are successful, to the extent we must make payments under our self-insured retentions, or if such claims are not covered by our applicable insurance or if the costs of our insurance coverage increase.” Increased costs of insurance and claims have negatively impacted our results of operations and have resulted in a renewed emphasis on reducing the occurrence of claims. Although insurance premiums did not increase in fiscal 2013 and 2014, they have increased in prior years and may increase in the future.

~~Budgetary~~We ~~pressures~~are ~~facing~~subject ~~state~~to ~~governments,~~employee-related asclaims ~~well~~under ~~as other economic, industry, and political factors, could cause~~ state ~~governments to limit spending, which could significantly reduce our revenue, referrals, margins~~ and ~~profitability,~~federal and adversely affect our growth strategy. Governmental agencies generally condition their contracts with us upon a sufficient budgetary appropriation. If a government agency does not receive an appropriation sufficient to cover its contractual obligations with uslaw, itincluding ~~may~~claims ~~terminate a contract or defer or reduce our reimbursement. In addition, there is risk~~for that previously appropriated funds could be reduced through subsequent legislation. Many states in which we operate experienced unprecedented budgetary deficits in recent years and implemented service reductionsdiscrimination, ~~rate~~wrongful ~~freezes~~discharge ~~and/~~or ~~rate reductions~~retaliation, ~~including~~ ~~the states such~~ as ~~Minnesota,~~well ~~California, Florida, Indiana and Arizona. Similarly, programmatic changes such~~ as ~~conversions~~claims tofor ~~managed~~violations ~~care with related contract demands regarding billing and services, unbundling of services, governmental efforts to increase consumer autonomy and reduce provider oversight, coverage and other changes~~ under ~~state~~the ~~Medicaid~~Fair ~~plans,~~Labor ~~may~~Standards ~~cause~~Act ~~unanticipated costs and risks to our service delivery. The loss~~ or ~~reduction~~state ofwage ~~or changes to reimbursement under our contracts could have a material adverse effect on our business, financial condition~~ and ~~operating~~hour ~~results~~laws.

~~Reductions~~Regulatory inagencies may initiate administrative proceedings alleging that our programs, employees or agents violate statutes and regulations ~~reimbursement~~and ~~rates~~seek to impose monetary penalties on us or ~~failure~~ask for recoupment of amounts paid. We could be required to ~~obtain~~incur ~~increases~~significant incosts ~~reimbursement~~to ~~rates~~respond to regulatory investigations or defend against lawsuits and, if we do not prevail, we could ~~adversely~~be ~~affect~~required ~~our~~to pay ~~revenue~~substantial amounts of money in damages, ~~cash~~settlement ~~flows~~amounts ~~and~~or ~~profitability~~penalties arising from these legal proceedings.

~~Our~~A ~~revenue~~litigation ~~and operating profitability depend on our ability to maintain our existing reimbursement levels and to obtain periodic increases in~~award ~~reimbursement~~excluded rates to meet higher costs and demand for more services. Approximately twelve percent of our revenue is derived from contracts based on a cost reimbursement model where we are reimbursed for our services based on our costs plus an agreed-upon margin. If we are not entitled toby, ~~do not receive~~ or ~~cannot negotiate increases~~ in ~~reimbursement~~excess ~~rates, or are forced to accept a reduction in our reimbursement rates at approximately the same time as our costs~~ of ~~providing services increase~~, ~~including labor costs and rent,~~ our margins and profitability could be adversely affected. Changes in how federal and state government agencies operate reimbursement programs can also affect our operating results and financial condition. Some states have, from time to time, revised their rate-setting methodologies in a manner that has resulted in rate decreases. In some instances, changes in rate-setting methodologies have resulted in third-party ~~payors~~insurance ~~disallowing,~~limits inand ~~whole~~self-insurance orreserves ~~in part, our requests for reimbursement. Any reduction in or the failure to maintain or increase our reimbursement rates~~ could have a material adverse ~~effect~~impact on our ~~business,~~operations ~~financial condition~~ and ~~results~~cash offlow ~~operations.~~and ~~Changes~~could inadversely ~~the~~impact ~~manner~~our inability ~~which state~~to ~~agencies~~continue ~~interpret~~to ~~program~~purchase ~~policies~~appropriate ~~and~~liability insurance. ~~procedures~~Even orif ~~review~~we ~~and~~are ~~audit~~successful ~~billings~~in ~~and costs could also adversely affect~~ our ~~business~~defense, ~~financial~~lawsuits ~~condition~~or ~~and~~regulatory ~~operating~~proceedings ~~results~~could ~~and~~also ~~our~~irreparably ~~ability~~damage ~~to meet obligations under~~ our ~~indebtedness~~reputation.

Reductions in reimbursement rates, a failure to obtain increases in reimbursement rates or subsequent negative audit adjustments could adversely affect our revenue, cash flows and profitability.

Our revenue and operating profitability depend on our ability to maintain our existing reimbursement levels and to obtain periodic increases in reimbursement rates to meet higher costs and demand for more services. Approximately 11.7% of our revenue is derived from contracts based on a retrospective cost reimbursement model, whereby we are required to maintain a certain cost structure in order to realize the specified rate. For such programs, if our costs are less than the required amount, we are required to return a portion of the revenue to the payor. Some of our programs are also subject to prospective rate adjustments based on current spending levels. For such programs, we could experience reduced rates in the future if our current spending is not sufficient. If we are not entitled to, do not receive or cannot negotiate increases in reimbursement rates, or are forced to accept a reduction in our reimbursement rates at approximately the same time as our costs of providing services increase, including labor costs and rent, our margins and profitability could be adversely affected.

Changes in how federal and state government agencies operate reimbursement programs can also affect our operating results and financial condition. Some states have, from time to time, revised their rate-setting methodologies in a manner that has resulted in rate decreases. In some instances, changes in rate-setting methodologies have resulted in third-party payors disallowing, in whole or in part, our requests for reimbursement. Any reduction in or the failure to maintain or increase our reimbursement rates could have a material adverse effect on our business, financial condition and results of operations. Changes in the manner in which state agencies interpret program policies and procedures or review and audit billings and costs could also adversely affect our business, financial condition and operating results.

As a result of cost reporting, we have from time to time experienced negative audit adjustments which are based on subjective judgments of reasonableness, necessity or allocation of costs in our services provided to clients. These adjustments are generally required to be negotiated as part of the overall audit resolution and may result in paybacks to payors and adjustments of our rates. We cannot assure you that our rates will be maintained or that we will be able to keep all payments made to us, until an audit of the relevant period is complete.

Our variable cost structure is directly related to our labor costs, which may be adversely affected by labor shortages, a deterioration in labor relations or increased unionization activities.

Our variable cost structure and operating profitability are directly related to our labor costs. Labor costs may be adversely affected by a variety of factors, including a limited supply of qualified personnel in any geographic area, local competitive forces, ineffective utilization of our labor force, increases in minimum wages or the need to increase wages to remain competitive, health care costs and other personnel costs, and adverse changes in client service models. We typically cannot recover our increased labor costs from payors and must absorb them ourselves. We have incurred higher labor costs in certain markets from time to time because of difficulty in hiring qualified direct care staff. These higher labor costs have resulted from increased wages and overtime and the costs associated with recruitment and retention, training programs and use of temporary staffing personnel. In part to help with the challenge of recruiting and retaining direct care staff, we offer these employees a benefits package that includes paid time off, health insurance, dental insurance, vision coverage, life insurance and a 401(k) plan, and these costs can be significant.

Although our employees are generally not unionized, we have one business in New Jersey with approximately 28 employees who are represented by a labor union and 291 Connecticut direct care workers who are also represented by a labor union. We began negotiating a labor agreement with the Connecticut union in September 2012. Those negotiations, were suspended after our Connecticut-based business notified the State of Connecticut and the union of its intention to stop providing services under existing contracts due to rate cuts and a change in state policy. We are currently working with our public partners on a plan to effectively transition our programs to new providers, and we anticipate that this transition will be complete during the first quarter of fiscal 2015.

From time to time, we experience attempts to unionize certain of our non-union employees. Recently, the National Labor Relations Board (“NLRB”) issued a final rule that takes effect April 14, 2015, that will significantly reduce the maximum number of days to hold a union election. This reduction in the open election period may limit the Company’s ability to adequately inform employees regarding the risks associated with unionization. We are currently evaluating the NLRB’s rule to determine if it ruling has additional implications to our business. Future unionization activities could result in an increase of our labor and other costs. If employees covered by a collective bargaining agreement were to engage in a strike, work stoppage or other slowdown, we could experience a disruption of our operations and/or higher ongoing labor costs, which could adversely affect our business, financial condition and results of operations.

Matters involving employees may expose us to potential liability.

We are subject to United States federal, state and local employment laws that expose us to potential liability if we are determined to have violated such employment laws. Failure to comply with federal and state labor laws pertaining to minimum wage, overtime pay, meal and rest breaks, unemployment tax rates, workers’ compensation rates, citizenship or residency requirements, and other employment-related matters may have a material adverse effect on our business or operations. In addition, employee claims based on, among other things, discrimination, harassment or wrongful termination may divert financial and management resources and adversely affect operations. We are further subject to the Fair Labor Standards Act (which governs such matters as minimum wages, overtime and other working conditions) as well as state and local wage and hour laws.

We expect increases in payroll expenses as a result of recent state and federal policy initiatives to increase the minimum wage as well as potential new federal regulations increasing the scope of overtime eligibility. Although such increases are not expected to be material, we cannot assure you that there will not be material increases in the future.

The potential losses that may be incurred as a result of any violation of employment laws are difficult to quantify, but they could be material.

Our level of indebtedness could adversely affect our liquidity and ability to raise additional capital to fund our operations, and it could limit our ability to invest in our growth initiatives or react to changes in the economy or our industry.

We have a significant amount of indebtedness and substantial leverage. As of September 30, ~~2013~~2014, we had total indebtedness of $~~803~~815.5 million. ~~Our~~and ~~increased~~an ~~cash~~ability ~~interest~~to ~~payments~~borrow ~~after~~up ~~the~~to ~~February~~an ~~2011~~additional ~~Refinancing~~$100.0 ~~and~~million under our ~~investments~~senior insecured ~~our~~revolving ~~growth initiatives~~credit ~~have~~facility. This amount was reduced ~~the~~subsequent ~~liquidity~~to inSeptember 30, 2014 as a result of our ~~business~~redemption of $162.0 ~~Although~~million weof ~~used~~senior ~~the~~notes ~~net~~on October 17, ~~proceeds~~2014. ~~from~~A portion of our indebtedness, including borrowings under the ~~incremental~~senior ~~term~~secured ~~loan~~credit facilities, bears interest at rates that fluctuate with changes in ~~February~~certain ~~2013~~short-term toprevailing ~~pay~~interest ~~the~~rates. ~~outstanding~~If ~~balance~~interest onrates increase, our ~~senior~~debt ~~revolver,~~service ~~thereby~~obligations ~~increasing~~on ~~our~~the ~~liquidity,~~variable werate indebtedness would increase even though the amount borrowed remained the same. We expect to continue to make new investments in our growth that ~~will~~may reduce liquidity, and we may need to ~~draw~~increase onour indebtedness ~~the senior revolver~~ in the future.

Our substantial degree of leverage could have important consequences, including the following:

•

it may significantly curtail our acquisitions program and may limit our ability to invest in our infrastructure and in growth opportunities;

•

it may diminish our ability to obtain additional debt or equity financing for working capital, capital expenditures, debt service requirements and general corporate or other purposes;

•

a substantial portion of our cash flows from operations will be dedicated to the payment of principal and interest on our indebtedness and will not be available for other purposes, including our operations, future business opportunities and acquisitions and capital expenditures;

•

the debt service requirements of our indebtedness could make it more difficult for us to satisfy our indebtedness and contractual and commercial commitments;

• interest rates on ~~the~~any portion of our variable interest rate borrowings under the senior secured credit facilities that we have not ~~been~~ hedged may increase;

•

it may limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to our competitors that have less debt and a lower degree of leverage; and

•

we may be vulnerable if the country falls into another recession, or if there is a downturn in our business, or we may be unable to carry out activities that are important to our growth.

Subject to restrictions in the indenture governing our senior notes and the senior credit agreement, we may be able to incur more debt in the future, which may intensify the risks described in this risk factor. All of the borrowings under ~~the~~our senior secured credit facilities are secured by substantially all of the assets of the Company and its subsidiaries.

In addition to our high level of indebtedness, we have significant rental obligations under our operating leases for our group homes, other service facilities and administrative offices. For the fiscal year ended September 30, 2013, our aggregate rental payments for these leases were $54.3 million. We expect this number will increase during fiscal 2014 as a result of new leases entered into pursuant to acquisitions and new program starts. Our ongoing rental obligations could exacerbate the risks described above.

Our increased cash interest payments after the February 2011 Refinancing and our investments in our growth initiatives have reduced the liquidity in our business. As we continue to make new investments in our growth that will reduce liquidity, we may need to draw on the senior revolver in the future. Our ability to generate sufficient cash flow to fund our debt service, rental payments and other obligations depends on many factors beyond our control. See “Risk Factors—Credit and economic conditions could have a material adverse effect on our cash flows, liquidity and financial condition.” In addition, possible acquisitions or investments in organic growth and other strategic initiatives could require additional debt financing. If our future cash flows do not meet our expectations and we are unable to service our debt, or if we are unable to obtain additional debt financing, we may be forced to take actions such as revising or delaying our strategic plans, reducing or delaying acquisitions, selling assets, restructuring or refinancing our debt, or seeking additional equity capital. We may be unable to effect any of these transactions on satisfactory terms, or at all. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to obtain additional financing on satisfactory terms, or at all, could have a material adverse effect on our business, financial condition and operating results.

Covenants in our debt agreements restrict our business in many ways.

The senior credit agreement governing the senior secured credit facilities and the indenture governing the senior notes contain various covenants that limit our ability and/or our subsidiaries’ ability to, among other things:

• incur additional debt or issue certain preferred shares;

• pay dividends on or make distributions in respect of capital stock or make other restricted payments;

• make certain investments;

• sell certain assets;

• create liens on certain assets to secure debt;

• enter into agreements that restrict dividends from subsidiaries;

• consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and

• enter into certain transactions with our affiliates.

The senior credit agreement governing the senior secured credit facilities also requires the Company and its subsidiaries to maintain specified financial ratios and satisfy other financial condition tests, which over time will become more restrictive. Our ability to meet those financial ratios and tests may be affected by events beyond our control, and we cannot assure you that we will satisfy those tests. The breach of any of these covenants or financial ratios could result in a default under the senior secured credit facilities and the lenders could elect to declare all amounts borrowed thereunder, together with accrued interest, to be due and payable and could proceed against the collateral securing that indebtedness.

The nature of our operations subjects us to substantial claims, litigation and governmental investigations.

We are in the health and human services business and, therefore, we have been and continue to be subject to substantial claims alleging that we, our employees or our Mentors failed to provide proper care for a client. We are also subject to claims by our clients, our employees, our Mentors or community members against us for negligence and intentional misconduct, or violation of applicable laws. Included in our recent claims are claims alleging personal injury, assault, abuse, wrongful death and other charges. Several years ago, we experienced a spike in claims filed against the Company and we could face such a spike in the future. As a result of the increase in claims, we received less favorable insurance terms and expensed greater amounts to fund potential claims.

Regulatory agencies may initiate administrative proceedings alleging that our programs, employees or agents violate statutes and regulations and seek to impose monetary penalties on us or ask for recoupment of amounts paid. We could be required to incur significant costs to respond to regulatory investigations or defend against civil lawsuits and, if we do not prevail, we could be required to pay substantial amounts of money in damages, settlement amounts or penalties arising from these legal proceedings.

AIn ~~litigation~~addition ~~award~~to ~~excluded~~our ~~by,~~significant oramount ~~in excess~~ of indebtedness, ~~our~~we ~~third-party~~have ~~insurance~~significant ~~limits~~rental ~~and~~obligations ~~self-insurance~~under ~~reserves~~our ~~could~~operating ~~have~~leases afor ~~material~~our ~~adverse~~group ~~impact~~homes, onother ~~our~~service ~~operations~~facilities and ~~cash~~administrative ~~flow~~offices. ~~and~~For ~~could~~the ~~adversely~~fiscal ~~impact~~year ended September 30, 2014, our ~~ability~~aggregate torental ~~continue~~expense tofor ~~purchase~~these ~~appropriate~~leases ~~liability~~was ~~insurance~~$57.7 ~~Even~~million. ifWe weexpect ~~are~~this ~~successful~~number inwill increase ~~our~~during ~~defense,~~fiscal ~~civil~~2015 ~~lawsuits~~as ~~or regulatory~~a ~~proceedings~~result of new leases entered into pursuant to acquisitions and new program starts. Our ongoing rental obligations could ~~also~~exacerbate ~~irreparably~~the ~~damage~~risks ~~our~~described ~~reputation~~above.

Our ~~financial~~ability ~~results~~to generate sufficient cash flow to fund our debt service, rental payments and other obligations depends on many factors beyond our control. See “—Economic conditions could behave ~~adversely~~a ~~affected~~material ifadverse ~~claims~~effect on our cash flows, liquidity and financial condition.” In addition, possible acquisitions or investments in organic growth and other strategic initiatives ~~against~~could usrequire additional debt financing. If our future cash flows do not meet our expectations and we are ~~successful~~unable to service our debt, or if we are unable to ~~the~~obtain ~~extent~~additional debt financing, we ~~must~~may ~~make~~be ~~payments~~forced ~~under~~to take actions such as revising or delaying our ~~self-insured~~strategic ~~retentions~~plans, reducing or ifdelaying ~~such~~acquisitions, ~~claims~~selling ~~are~~assets, ~~not~~restructuring ~~covered~~or byrefinancing our ~~applicable~~debt, ~~insurance~~ or ifseeking ~~the~~additional ~~costs~~equity capital. We may be unable to effect any of ~~our~~these ~~insurance~~transactions ~~coverage~~on ~~increase~~satisfactory terms, or at all. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to obtain additional financing on satisfactory terms, or at all, could have a material adverse effect on our business, financial condition and operating results.

We have ~~been~~a ~~and~~history continue to be subject to substantial claims against our professional and general liability and automobile liability insurance. Professional and general liability claims, if successful, could result in substantial damage awards which might require us to make significant payments under our self-insured retentions and increase future insurance costs. For claims arising from occurrences from October 1, 2010 to September 30, 2011, we were self-insured for $2.0 million per claim and $8.0 million in the aggregate, and for $500,000 per claim in excess of ~~the aggregate. From October 1~~losses, ~~2011 to September 30, 2013, we were self-insured for the first $4.0 million of each~~ and ~~every claim with no aggregate limit. Beginning October 1, 2013,~~ we ~~are~~might ~~self-insured~~not ~~for $4.0 million per claim and $28.0 million in the aggregate. We may~~ be ~~subject~~ toprofitable ~~increased self-insurance retention limits~~ in the future ~~which could have a negative impact on our results~~. An award may exceed the limits of any applicable insurance coverage, and awards for punitive damages may be excluded from our insurance policies either contractually or by operation of state law. In addition, our insurance does not cover all potential liabilities including, for example, those arising from employment practice claims, wage and hour violations, and governmental fines and penalties. As a result, we may become responsible for substantial damage awards that are uninsured.

~~Insurance against~~Due ~~professional~~in ~~and~~large ~~general~~part ~~liability~~to ~~and~~our ~~automobile~~high ~~liability~~levels ~~can~~of beindebtedness, ~~expensive~~we ~~and~~have ~~our~~had ~~insurance~~a ~~premiums~~history ~~may~~of ~~increase~~losses. inFor the ~~future.~~years ~~Insurance~~ended ~~rates~~September 30, ~~vary~~2014, ~~from~~2013 ~~state~~and 2012, towe ~~state,~~generated bynet ~~type~~losses ~~and~~of by$22.4 ~~other~~million, ~~factors~~$18.3 ~~Rising~~million, ~~costs~~$14.4 million, respectively. Although we have reduced our outstanding indebtedness using the proceeds of ~~insurance~~Civitas’s ~~premiums~~IPO and effectively decreased our interest payments, we could asreport ~~well~~losses asin ~~successful~~the ~~claims~~future. ~~against~~Other factors may cause us to report losses in the future, ~~could~~including ~~have~~reductions ain ~~material~~funding ~~adverse~~for ~~effect~~our onservices, reductions in reimbursement rates, increases in our ~~financial~~costs, ~~position~~increased competition and ~~results~~other offactors ~~operations~~described elsewhere under this “Item 1A, Risk Factors”.

ItState ~~is also~~and ~~possible~~local ~~that~~government ~~our~~payors ~~liability~~with which we have contracts have complicated billing and ~~other~~collection ~~insurance~~rules ~~coverage~~and ~~will~~regulations, ~~not~~and ~~continue~~if we fail to bemeet ~~available~~such atrequirements, ~~acceptable~~our ~~costs~~business orcould onbe ~~favorable~~materially ~~terms~~impacted.

IfWe ~~payments~~derive approximately 90% of our revenue from contracts with state and local government agencies, and a substantial portion of this revenue is state-funded with federal Medicaid matching dollars. In billing for ~~claims~~our ~~exceed~~services ~~actuarially~~to ~~determined~~third-party ~~estimates~~payors, ifwe ~~claims~~must follow complex documentation, coding and billing rules and there can be delays before we receive payment. These rules are ~~not~~based ~~covered~~on federal byand ~~insurance~~state laws, orrules ifand ~~our~~regulations, ~~insurers~~various government pronouncements, and on industry practice. If we fail to ~~meet~~comply ~~their obligations~~with federal and state documentation, ~~our~~coding ~~results~~and billing rules, we could be subject to criminal and/or civil penalties, loss of ~~operations~~licenses and ~~financial~~exclusion ~~position~~from the Medicaid programs, which could bematerially ~~adversely~~harm ~~affected~~us. Specifically, failure to follow these rules could result in potential criminal or civil liability under the False Claims Act and various federal and state criminal healthcare fraud statutes, under which extensive financial penalties and exclusion from participation in federal healthcare programs can be imposed.

~~Our~~Federal ~~variable~~false ~~cost~~claims ~~structure~~laws isprohibit ~~directly related~~any person from knowingly presenting or causing to ~~our~~be ~~labor~~presented ~~costs~~a false claim for payment to the federal government, ~~which~~or ~~may~~knowingly making or causing to be ~~adversely~~made ~~affected~~a false statement to get a false claim paid. Penalties for a False Claims Act violation include three times the actual damages sustained by ~~labor~~the ~~shortages~~government, aplus ~~deterioration~~mandatory civil penalties of between $5,500 and $11,000 for each separate false claim, the potential for exclusion from participation in ~~labor~~federal ~~relations~~healthcare programs and criminal liability. The majority of states also have statutes or ~~increased~~regulations ~~unionization~~similar ~~activities~~to the federal false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. See “—We are subject to extensive governmental regulations, which require significant compliance expenditures, and a failure to comply with these regulations could adversely affect our business.”

~~Our~~We ~~variable~~annually ~~cost~~submit ~~structure and operating profitability are directly related to our labor costs. Labor costs may be adversely affected by~~ a ~~variety~~large ofvolume ~~factors, including a limited supply~~ of ~~qualified~~claims ~~personnel~~for inMedicaid ~~any geographic area, local competitive forces, ineffective utilization of our labor force, increases in minimum wages or the need to increase wages to remain competitive, health care costs~~ and other ~~personnel costs~~payments, and ~~adverse~~there ~~changes~~can inbe ~~client~~no ~~service~~assurance ~~models.~~that Wethere ~~typically cannot recover our increased labor costs from payors and must absorb them ourselves. We~~ have ~~incurred~~not ~~higher~~been ~~labor costs in certain markets from time to time because of difficulty in hiring qualified direct service staff~~errors. ~~These~~The ~~higher~~rules ~~labor~~are ~~costs~~frequently ~~have~~vague ~~resulted from increased wages~~ and ~~overtime~~confusing, and ~~the~~we ~~costs~~cannot ~~associated~~assure ~~with~~that ~~recruitment~~governmental ~~and retention~~investigators, ~~training~~private ~~programs~~insurers, ~~and use of temporary~~private ~~staffing~~whistleblowers ~~personnel.~~or InMedicaid ~~part~~auditors towill ~~help~~not ~~with the~~ challenge ofour ~~recruiting~~practices. ~~and~~Such ~~retaining direct care employees, we offer these employees~~ a ~~benefits~~challenge ~~package~~could ~~that~~result ~~includes~~in ~~paid time off, health insurance, dental insurance, vision coverage, life insurance and~~ a ~~401(k)~~material ~~plan,~~adverse ~~and~~effect ~~these~~on ~~costs~~our ~~can be significant~~business.

~~Although~~We ~~our~~are ~~employees~~routinely ~~are~~subject ~~generally~~to ~~not~~governmental ~~unionized~~reviews, weaudits ~~have one business in New Jersey with approximately 41 employees who are represented by a labor union~~ and ~~approximately~~investigations ~~283~~to ~~Connecticut~~verify ~~direct~~our ~~care~~compliance ~~workers who are also represented by a labor union. We began negotiating a labor agreement~~ with ~~the~~applicable ~~Connecticut~~laws ~~union in September 2012~~ and ~~such negotiations are continuing~~regulations. WeAs a ~~may not be able to negotiate this or future labor agreements on satisfactory terms. Future unionization activities could~~ result ~~in an increase~~ of ~~our~~these ~~labor and other costs. If employees covered by a collective bargaining agreement were to engage in a strike~~reviews, ~~work~~audits ~~stoppage~~and ~~or other slowdown~~investigations, wethese ~~could~~governmental ~~experience~~payors amay ~~disruption~~be ofentitled ~~our operations and/or higher ongoing labor costs~~to, ~~which~~at ~~could~~their ~~adversely~~discretion: ~~affect our business, financial condition and results of operations.~~

The Patient Protection and Affordable Care Act may materially increase our costs and/or make it harder for us to compete as an employer.

The Patient Protection and Affordable Care Act imposed new mandates on employers and individuals. Though the implementation of the requirement that all employers with 50 or more full-time employees provide “credible” health insurance to employees or pay a penalty has been delayed until January 1, 2015, the mandate requiring all individuals to enroll in a “credible” health insurance plan is scheduled to become effective on January 1, 2014. Despite the delayed implementation of the employer mandate, we have recently redesigned our health benefits for calendar year 2014 to offer employees health coverage that meets the requirements of the Affordable Care Act. Depending upon enrollment in our new plan, our cost for employee health insurance could materially increase. Moreover, if the coverage we are offering isn’t competitive with the health insurance benefits our employees could receive at other employers, we may become less attractive as an employer and it may be difficult for us to compete for qualified employees.

If any of the state and local government agencies with which we have contracts determines that we have not complied with our contracts or have violated any applicable laws or regulations, our revenue may decrease, we may be subject to fines or penalties and we may be required to restructure our billing and collection methods.

We derive the vast majority of our revenue from state and local government agencies, and a substantial portion of this revenue is state-funded with federal Medicaid matching dollars. If we fail to comply with federal and state documentation, coding and billing rules, we could be subject to criminal and/or civil penalties, loss of licenses and exclusion from the Medicaid programs, which could materially harm us. In billing for our services to third-party payors, we must follow complex documentation, coding and billing rules. These rules are based on federal and state laws, rules and regulations, various government pronouncements, and on industry practice. Failure to follow these rules could result in potential criminal or civil liability under the False Claims Act, under which extensive financial penalties can be imposed. It could further result in criminal liability under various federal and state criminal statutes. We annually submit a large volume of claims for Medicaid and other payments and there can be no assurance that there have not been errors. The rules are frequently vague and confusing and we cannot assure that governmental investigators, private insurers, private whistleblowers, or Medicaid auditors will not challenge our practices. Such a challenge could result in a material adverse effect on our business.

If any of the state, local and other government payors determines that we have not complied with our contracts or have violated any applicable laws or regulations, our revenue may decrease, we may be subject to fines or penalties and we may be required to restructure our billing and collection methods. We are routinely subject to governmental reviews, audits and investigations to verify our compliance with applicable laws and regulations. As a result of these reviews, audits and investigations, these governmental payors may be entitled to, in their discretion:

•

require us to refund amounts we have previously been paid;

•

terminate or modify our existing contracts;

•

suspend or prevent us from receiving new contracts or extending existing contracts;

•

impose referral holds on us;

•

impose fines, penalties or other sanctions on us; and

•

reduce the amount we are paid under our existing contracts.

As a result of past reviews and audits of our operations, we have been and are subject to some of these actions from time to time. While we do not currently believe that our existing governmental reviews and audit proceedings will have a material adverse effect on our financial condition or significantly harm our reputation, we cannot assure you that such actions or similar actions in the future will not do so. In addition, such proceedings could have a material adverse impact on our results of operations in a future reporting period. Moreover, if we are required to restructure our billing and collection methods, these changes could be disruptive to our operations and costly to implement.

InComplicated ~~some~~billing ~~states,~~and wecollection ~~operate~~procedures oncan aresult ~~cost~~in ~~reimbursement~~delays ~~model~~ in ~~which~~collecting ~~revenue~~payment isfor ~~recognized at the time costs are incurred. In these states, payors audit~~ our ~~historical costs on a regular basis~~services, and if it is determined that our historical costs are insufficient to justify our rates, our rates may be reduced, or we may be required to return fees paid to us in prior periods. In some cases we have experienced negative audit adjustments which are based on subjective judgments of reasonableness, necessity or allocation of costs in our services provided to clients. These adjustments are generally required to be negotiated as part of the overall audit resolution and may ~~result~~adversely in paybacks to payors and adjustments of our rates. We cannot assure you that our rates will be maintained, or that we will be able to keep all payments made to us, until an audit of the relevant period isaffect ~~complete. Moreover, if we are required to restructure~~ our ~~billing and collection methods~~liquidity, ~~these~~cash ~~changes~~flows ~~could be disruptive to our operations~~ and ~~costly~~operating ~~to implement~~results. ~~Failure to comply with laws and regulations could have a material adverse effect on our business.~~

~~Reimbursement~~The ~~procedures~~reimbursement ~~for~~process ~~the~~is ~~services~~time consuming and complex, and there can be delays before we ~~provide~~receive payment. Government reimbursement, facility credentialing, Medicaid recipient eligibility and service authorization procedures are often complicated and burdensome, and delays can result from, among other things, securing documentation and coordinating necessary eligibility paperwork between agencies. Similar issues arise in seeking payment from some of our private payors. These reimbursement and procedural issues occasionally cause us to have to resubmit claims several times and manage other administrative requests before payment is remitted. Missed filing deadlines can cause rejections of claims. If there is a billing error, the process to resolve the error may be time-consuming and ~~complex~~costly. To the extent that complexity associated with billing for our services causes delays in our cash collections, ~~and~~we ~~failure~~assume tothe ~~comply~~financial risk of increased carrying costs associated with the aging of our accounts receivable as well as increased potential for ~~these~~write-offs. ~~procedures~~We can provide no assurance that we will be able to collect payment for claims at our current levels in future periods. The risks associated with third-party payors and the inability to monitor and manage accounts receivable successfully could ~~adversely~~have ~~affect~~a material adverse effect on our liquidity, cash flows and operating results.

~~The~~Economic ~~reimbursement~~conditions process is time-consuming and complex, and there can be delays before we receive payment. Government reimbursement, group home credentialing and Medicaid recipient eligibility and service authorization procedures are often complicated and burdensome, and delays can result from, among other things, securing documentation and coordinating necessary eligibility paperwork between agencies. Similar issues arise in seeking payment from some of our private payors. These reimbursement and procedural issues occasionally cause us to have to resubmit claims several times before payment is remitted. If there is a billing error, the process to resolve the error may be time-consuming and costly. To the extent that complexity associated with billing for our services causes delays in our cash collections, we assume the financial risk of increased carrying costs associated with the aging of our accounts receivable as well as increased potential for write-offs. We can provide no assurance that we will be able to collect payment for claims at our current levels in future periods. The risks associated with third-party payors and the inability to monitor and manage accounts receivable successfully could have a material adverse effect on our ~~liquidity,~~ cash flows, liquidity and ~~operating~~financial ~~results~~condition.

Our government payors rely on tax revenue to pay for our services. In the wake of the last economic recession that began in 2008, most states faced unprecedented declines in tax revenues and, as a result, record budget gaps. Furthermore, even after four years of economic improvement, at the end of 2013, inflation-adjusted tax revenues remained below peak levels in many states. If the economy were to contract into recession again, our government payors or other counterparties that owe us money could be delayed in obtaining, or may not be able to obtain, necessary funding and/or financing to meet their cash flow needs. In 2011, Standard & Poor’s downgraded the Federal government’s credit rating and additional downgrades are possible in the future. In October 2013, Fitch Ratings placed the Federal government’s credit rating on negative watch. If the credit rating of the federal government is downgraded again, it is possible there will be related downgrades of state credit ratings as well. If this or unrelated state downgrades occur, this could make it more expensive for states to finance their cash flow needs and put additional pressure on state budgets. Delays in payment could have a material adverse effect on our cash flows, liquidity and financial condition. In the event that our payors or other counterparties are financially unstable or delay payments to us, our financial condition could be further impaired if we are unable to borrow additional funds under our senior credit agreement to finance our operations.

Our financial results could be adversely affected if claims against us are successful, to the extent we must make payments under our self-insured retentions, or if such claims are not covered by our applicable insurance or if the costs of our insurance coverage increase.

We have been and continue to be subject to substantial claims against our professional and general liability and automobile liability insurance. Professional and general liability claims, if successful, could result in substantial damage awards which might require us to make significant payments under our self-insured retentions and increase future insurance costs. For claims made from October 1, 2011 to September 30, 2013, we were self-insured for the first $4.0 million of each and every claim with no aggregate limit. As of October 1, 2013, we are self-insured for $4.0 million per claim and $28.0 million in the aggregate. We may be subject to increased self-insurance retention limits in the future which could have a negative impact on our results. An award may exceed the limits of any applicable insurance coverage, and awards for punitive damages may be excluded from our insurance policies either contractually or by operation of state law. In addition, our insurance does not cover all potential liabilities including, for example, those arising from employment practice claims, wage and hour violations, and governmental fines and penalties. As a result, we may become responsible for substantial damage awards that are uninsured.

Insurance against professional and general liability and automobile liability can be expensive and our insurance premiums may increase in the future. Insurance rates vary from state to state, by type and by other factors. Rising costs of insurance premiums, as well as successful claims against us, could have a material adverse effect on our financial position and results of operations.

WeIt ~~have~~is ~~increased~~also ~~and~~possible ~~will~~that ~~continue to increase~~ our ~~expenditures~~liability toand ~~expand~~other ~~existing services,~~insurance ~~win~~coverage ~~new~~will ~~business~~not ~~and~~continue ~~grow~~to ~~revenue,~~be available ~~and~~at weacceptable ~~may~~costs ~~not~~or ~~realize~~on ~~the~~favorable ~~anticipated benefits of such expenditures~~terms.

InIf ~~order~~payments ~~to grow~~for ~~our~~claims ~~business,~~exceed weactuarially ~~must~~determined ~~capitalize on opportunities to expand existing services and win new business~~estimates, ~~some~~if ofclaims ~~which require spending in advance of revenue. For example, states such as California and New Jersey~~ are ~~in the process of closing~~not ~~institutions~~covered ~~and~~by their former residents will need care in community-based settings such as ours. Responding to opportunities such as these typically require significant investment of our resources. In fiscal 2012 and 2013insurance, weor ~~increased~~if ~~significantly the amount spent on growth initiatives, especially new starts. This elevated level of growth investments has had a negative effect on~~ our ~~operating~~insurers ~~margin, and we may not realize the anticipated benefits of the spending as soon as we expect to or at any point in the future. If we target the wrong areas, or~~ fail to ~~identify the evolving needs of our payors by responding with service offerings that~~ meet their ~~fiscal and programmatic requirements~~obligations, weour ~~may~~results ~~not realize the anticipated benefits~~ of ~~our investments~~operations and ~~the~~financial ~~results~~position ofcould ~~our~~be ~~operations~~adversely ~~may suffer~~affected.

The nature of services that we provide could subject us to significant workers’ compensation related liability, some of which may not be fully reserved for.

We use a combination of insurance and self-insurance plans to provide for potential liability for workers’ compensation claims. Because we have so many employees, and because of the inherent physical risk associated with the interaction of employees with our clients, many of whom have intensive care needs, the potential for incidents giving rise to workers’ compensation liability is high.

We estimate liabilities associated with workers’ compensation risk and establish reserves each quarter based on internal valuations, third-party actuarial advice, historical loss development factors and other assumptions believed to be reasonable under the circumstances. In prior years, our results of operations have been adversely impacted by higher than anticipated claims, and they may be adversely impacted in the future if actual occurrences and claims exceed our assumptions and historical trends.

The Patient Protection and Affordable Care Act may materially increase our costs and/or make it harder for us to compete as an employer.

The Patient Protection and Affordable Care Act imposed new mandates on employers and individuals. The mandate requiring all individuals to enroll in a health insurance plan deemed credible became effective on January 1, 2014, but the implementation of the requirement that all employers with 50 or more full-time employees provide to employees health insurance deemed credible or pay a penalty has been delayed until January 1, 2015. Despite the delayed implementation of the employer mandate, we redesigned our health benefits for calendar year 2014 to offer employees health coverage that meets the requirements of the Patient Protection and Affordable Care Act. Depending upon claims experience or enrollment changes in our new plans, our cost for employee health insurance could materially increase. Moreover, if the coverage we are offering isn’t competitive with the health insurance benefits our employees could receive at other employers, we may become less attractive as an employer and it may become more difficult for us to compete for qualified employees.

We face substantial competition in attracting and retaining experienced personnel, and we may be unable to maintain or grow our business if we cannot attract and retain qualified employees.

Our success depends to a significant degree on our ability to attract and retain qualified and experienced human service and other professionals, who possess the skills and experience necessary to deliver quality services to our clients and manage our operations. We face competition for certain categories of our employees, particularly direct service professionals and managers, based on wages, benefits and other working conditions. Contractual requirements and client needs determine the number, as well as the education and experience levels, of health and human service professionals we hire. We face substantial turnover among our direct service professionals. Also, due to the nature of the services we provide, our working conditions require additional sensitivities and skills relative to traditional medical care environments. Our ability to attract and retain employees with the requisite credentials, experience and skills depends on several factors, including, but not limited to, our ability to offer competitive wages, benefits and professional growth opportunities. The inability to attract and retain experienced personnel could have a material adverse effect on our business.

If we fail to establish and maintain relationships with government agencies, we may not be able to successfully procure or retain government-sponsored contracts, which could negatively impact our revenue.

To facilitate our ability to procure or retain government-sponsored contracts, we rely in part on establishing and maintaining relationships with officials of various government agencies, primarily at the state and local level but also including federal agencies. These relationships enable us to maintain and renew existing contracts and obtain new contracts and referrals. The effectiveness of our relationships may be reduced or eliminated with changes in the personnel holding various government offices or staff positions. We also may lose key personnel who have these relationships, and such personnel may not be subject to non-compete or non-solicitation covenants. Any failure to establish, maintain or manage relationships with government and agency personnel may hinder our ability to procure or retain government-sponsored contracts, and could negatively impact our revenue.

~~Negative~~17 ~~publicity or changes in public perception of our services may adversely affect our ability to obtain new contracts and renew existing ones.~~

Negative publicity or changes in public perception of our services may adversely affect our ability to obtain new contracts and renew existing ones or obtain third-party referrals.

Our success in obtaining new contracts and renewals of our existing contracts depends upon maintaining our reputation as a quality service provider among governmental authorities, advocacy groups, families of our clients, our clients and the public. Negative publicity, changes in public perception, quality lapses, legal proceedings and government investigations with respect to our operations could damage our reputation and hinder our ability to retain contracts and obtain new contracts, and could reduce referrals, increase government scrutiny and compliance or litigation costs, or generally discourage clients from using our services. Any of these events could have a material adverse effect on our business, financial condition and operating results.

Our reputation and prior experience with agency staff, care workers and others in positions to make referrals to us are important for building and maintaining our operations. Any event that harms our reputation or creates negative experiences with such third parties could impact our ability to receive referrals and maintain or grow our client base.

A loss of our status as a licensed service provider in any jurisdiction could result in the termination of existing services and our inability to market our services in that jurisdiction.

We operate in numerous jurisdictions and are required to maintain licenses and certifications in order to conduct our operations in each of them. Each state and local government has its own regulations, which can be complicated. Additionally, ~~and~~ each of our service lines can be regulated differently within a particular jurisdiction. As a result, maintaining the necessary licenses and certifications to conduct our operations ~~can~~is be cumbersome. Our licenses and certifications could be suspended, revoked or terminated for a number of reasons, including:

• the failure by our ~~employees~~direct care staff or ~~Mentors~~host-home providers to properly care for clients;

•

the failure to submit proper documentation to the applicable government agency, including documentation supporting reimbursements for costs;

• the failure by our programs to abide by the applicable laws and regulations relating to the provision of health and human services; orand

•

the failure of our facilities to comply with the applicable building, health and safety codes and ordinances.

From time to time, some of our licenses or certifications, or those of our employees, are temporarily placed on probationary status or suspended. If we lost our status as a licensed provider of health and human services in any jurisdiction or any other required certification, we would be unable to market our services in that jurisdiction, and the contracts under which we provide services in that jurisdiction would be subject to termination. ~~Moreover~~In providing services in certain jurisdictions, ~~such~~we ansubcontract ~~event~~to another provider. In those situations, the other provider may hold the license or certification. However, if the other provider’s license or certification were revoked or suspended, we may no longer be permitted to provide services in that jurisdiction. Loss of a license as a direct provider or subcontractor of another provider of health and human services could constitute a violation of provisions of contracts in other jurisdictions, resulting in other contract, license or certification terminations. Any of these events could have a material adverse effect on our financial performance and operations.

17We have increased and will continue to make substantial expenditures to expand existing services, win new business and grow revenue, but we may not realize the anticipated benefits of such increased expenditures.

In order to grow our business, we must capitalize on opportunities to expand existing services and win new business, some of which require spending in advance of revenue. For example, states such as California and New Jersey are in the process of closing state institutions and transitioning individuals with intellectual and developmental disabilities into community-based settings such as ours. Responding to opportunities such as these typically requires significant investment of our resources in advance of revenue. In North Carolina, where we have made significant investments in an effort to expand periodic services for at-risk youth, the system continues to experience significant change that has required us to reorganize and restructure our operations and has resulted in a downsizing of our business there.

In fiscal 2012, fiscal 2013 and the beginning of fiscal 2014, we increased significantly the amount spent on growth initiatives, especially new starts. This elevated level of growth investments has had a negative effect on our operating margin, and we may not realize the anticipated benefits of the spending as soon as we expect to or at any point in the future. If we target the wrong areas, or fail to identify the evolving needs of our payors by responding with service offerings that meet their fiscal and programmatic requirements, we may not realize the anticipated benefits of our investments and the results of our operations may suffer.

~~The~~We ~~nature~~may ofnot ~~services~~realize ~~that~~the weanticipated ~~provide~~benefits ~~could~~of ~~subject~~any usfuture ~~to significant workers’ compensation related liability~~acquisitions, ~~some~~and ofwe ~~which~~ may experience ~~not~~difficulties bein ~~fully~~integrating ~~reserved~~these ~~for~~acquisitions.

We use a combination of insurance and self-insurance plans to provide for potential liability for workers’ compensation claims. Because of our high ratio of employees per client, and because of the inherent physical risk associated with the interaction of employees with our clients, many of whom have intensive care needs, the potential for incidents giving rise to workers’ compensation liability is relatively high.

We estimate liabilities associated with workers’ compensation risk and establish reserves each quarter based on internal valuations, third-party actuarial advice, historical loss development factors and other assumptions believed to be reasonable under the circumstances. In prior years, our results of operations have been adversely impacted by higher than anticipated claims and they may be adversely impacted in the future if actual occurrences and claims exceed our assumptions and historical trends.

We face substantial competition in attracting and retaining experienced personnel, and we may be unable to maintain or grow our business if we cannot attract and retain qualified employees.

Our success depends to a significant degree on our ability to attract and retain qualified and experienced human service and other professionals who possess the skills and experience necessary to deliver quality services to our clients and manage our operations. We face competition for certain categories of our employees, particularly direct service professionals and managers, based on the wages, benefits and other working conditions we offer. Contractual requirements and client needs determine the number, education and experience levels of human service professionals we hire. Our ability to attract and retain employees with the requisite credentials, experience and skills depends on several factors, including, but not limited to, our ability to offer competitive wages, benefits and professional growth opportunities. The inability to attract and retain experienced personnel could have a material adverse effect on our business.

We may not realize the anticipated benefits of any future acquisitions and we may experience difficulties in integrating these acquisitions.

As part of our growth strategy, we intend to make acquisitions. Growing our business through acquisitions involves risks because with any acquisition there is the possibility that:

•

the business we acquire may not continue to generate income at the same historical levels on which we based our acquisition decision;

•

we may be unable to maintain and renew the contracts of the acquired business;

•

unforeseen difficulties may arise in integrating the acquired operations, including employment practices, information systems and accounting controls;

•

we may not achieve operating efficiencies, synergies, economies of scale and cost reductions as expected;

•

we may be required to pay higher purchase prices for acquisitions than we have paid historically;

•

management may be distracted from overseeing existing operations by the need to integrate the acquired business;

•

we may acquire or assume unexpected liabilities or there may be other unanticipated costs;

•

we may encounter unanticipated regulatory risk;

•

we may experience problems entering new markets or service lines in which we have limited or no experience;

•

we may fail to retain and assimilate key employees of the acquired business;

•

we may finance the acquisition by incurring additional debt and further increase our leverage ratios; and

•

the culture of the acquired business may not match well with our culture.

As a result of these risks, there can be no assurance that any future acquisition will be successful or that it will not have a material adverse effect on our financial condition and results of operations.

If we are not successful in expanding into adjacent markets, our growth strategy could suffer.

Our growth strategy depends on pursuing opportunities in adjacent markets, and we may not be successful in adapting our service models to markets or service lines in which we have little or no prior experience. Expanding into adjacent markets, such as services to elders and individuals with autism, mental health and substance abuse issues, will expose us to additional operational, regulatory and legal risks. Serving these populations may require compliance with additional federal and state laws and regulations, such as Medicare, which may differ from the laws and regulations that apply to the populations we currently serve. Compliance with new laws and regulations may result in unanticipated expenses or liabilities. Programs we open in adjacent markets may also take longer to reach expected revenue and profit levels on a consistent basis and may have higher occupancy or operating costs than programs in our existing markets, which may affect our overall profitability. Adjacent markets may have different payors, referral sources, staffing requirements, client preferences and competitive conditions. We may find it more difficult to hire, motivate and keep qualified direct care workers and other employees in these adjacent markets. We may need to augment our staffing to meet regulatory requirements, and the overall cost of labor may be higher. As a result, we may not be successful in diversifying the populations we serve, and we may fail to capture market share in adjacent markets. If any steps taken to expand our existing business into adjacent markets are unsuccessful, we may not be able to achieve our growth strategy and our business, financial condition or results of operations could be adversely affected.

We are subject to extensive governmental regulations, which require significant compliance expenditures, and a failure to comply with these regulations could adversely affect our business.

We ~~must~~are required to comply with comprehensive government regulation of our business, including statutes, regulations and policies governing the licensing of our facilities, the maintenance and management of our work place for our employees, the quality of our service, the revenue we receive for our services and reimbursement for the cost of our services. Compliance with these laws, regulations and policies is expensive, and if we fail to comply with these laws, regulations and policies, we could lose contracts and the related revenue, thereby harming our financial results. State and federal regulatory agencies have broad discretionary powers over the administration and enforcement of laws and regulations that govern our operations. A material violation of a law or regulation could subject us to fines and penalties and in some circumstances could disqualify some or all of the facilities and programs under our control from future participation in Medicaid or other government programs.

1819

~~policies~~The isHealth ~~expensive,~~Insurance Portability and ifAccountability weAct ~~fail~~of to1996 ~~comply~~(“HIPAA”), ~~with~~as ~~these~~amended by ~~laws,~~the ~~regulations~~Health Information Technology for Economic and ~~policies,~~Clinical weHealth ~~could~~Act ~~lose~~(“HITECH ~~contracts~~Act”) and other federal and state data privacy and security laws govern the ~~related~~collection, ~~revenue~~dissemination, ~~thereby~~security, ~~harming~~use ~~our~~and ~~financial~~confidentiality ~~results~~of patient-identifiable health information. ~~State~~HIPAA and ~~federal~~ ~~regulatory~~the ~~agencies~~HITECH ~~have~~Act ~~broad~~require ~~discretionary~~us ~~powers~~to ~~over~~comply with standards for the ~~administration~~use and ~~enforcement~~disclosure of ~~laws~~health information within our company and ~~regulations~~with ~~that~~third ~~govern~~parties, ~~our~~including, ~~operations.~~among Aother ~~material~~things, ~~violation~~the adoption of administrative, aphysical ~~law~~and ortechnical ~~regulation~~safeguards ~~could~~to ~~subject~~protect ussuch toinformation. ~~fines~~Additionally, ~~and~~certain ~~penalties~~states have adopted comparable privacy and insecurity ~~some circumstances~~laws ~~could~~and ~~disqualify~~regulations, some orof ~~all~~which ofmay ~~the~~be ~~facilities~~more ~~and~~stringent ~~programs~~than ~~under~~HIPAA. ~~our~~While ~~control~~we ~~from~~have ~~future~~taken ~~participation~~steps to incomply ~~Medicaid~~with orapplicable ~~other~~health ~~government~~information ~~programs.~~privacy ~~The~~and ~~Health~~security ~~Insurance~~requirements ~~Portability~~to ~~and~~which ~~Accountability~~we ~~Act~~are ofaware ~~1996~~that ~~(as~~we ~~amended~~are subject to, ~~“HIPAA”)~~ ~~and~~if ~~other~~we ~~federal~~do ~~and~~not ~~state~~comply ~~data~~with ~~privacy~~existing ~~and~~or ~~security~~new ~~laws,~~federal ~~which~~or ~~require~~state ~~the~~laws ~~establishment~~and ofregulations ~~privacy~~related ~~standards~~to ~~for~~patient health ~~care~~ information ~~storage~~, ~~retrieval~~we could ~~and~~be ~~dissemination~~subject asto ~~well~~criminal asor ~~electronic~~civil ~~transmission~~sanctions and ~~security standards,~~any resulting liability could ~~result~~adversely inaffect ~~potential~~our ~~penalties~~operations. inThe ~~certain~~costs of ~~our~~complying ~~businesses~~with ifprivacy weand ~~fail~~security torelated ~~comply~~legal ~~with~~and ~~these~~regulatory ~~privacy~~requirements are burdensome and ~~security~~could ~~standards~~have a material adverse effect on our operations.

Expenses incurred under governmental agency contracts for any of our services, as well as management contracts with providers of record for such agencies, are subject to review by agencies administering the contracts and services. Representatives of those agencies visit our group homes to verify compliance with state and local regulations governing our home operations. A negative outcome from any of these examinations could increase government scrutiny, increase compliance costs or hinder our ability to obtain or retain contracts. Any of these events could have a material adverse effect on our business, financial condition and operating results.

The federal ~~anti~~Anti-~~kickback~~Kickback ~~law~~Law and ~~non-self referral statute, and~~ similar state statutes, prohibit the provision of kickbacks, rebates and any other form of remuneration in return for referrals. Any remuneration, direct or indirect, offered, paid, solicited, or received, in return for referrals of patients or business for which payment may be made in whole or in part under Medicaid could be considered a violation of law. The ~~language of the anti~~Anti-~~kickback~~Kickback ~~law~~Law also prohibits payments made to anyone to induce them to recommend purchasing, leasing, or ordering any goods, facility, service, or item for which payment may be ~~made~~ made in whole or in part by Medicaid. Criminal penalties under the ~~anti~~Anti-~~kickback~~Kickback ~~law~~Law include fines up to $25,000, imprisonment for up to five years, or both. In addition, acts constituting a violation of the ~~anti~~Anti-~~kickback~~Kickback ~~law~~Law may also lead to civil penalties, such as fines, assessments, ~~and~~ exclusion from participation in the Medicaid programs and liability under the False Claims Act.

We are subject to many different and varied audit mechanisms for post -payment review of claims submitted under the Medicaid program. These include Recovery Audit Contractor (“RAC”) auditors, State Medicaid auditors, surveillance integrity review audits and Payment Error Rate Measurement (“PERM”) audits, among others. Any one of these audit activities may identify claims that the auditors deem problematic and, following such determination, auditors may berequire ~~made~~ recoupment of claims by Medicaid to us.

~~Should~~On weMarch 17, be2014, ~~found~~a ~~out~~newly promulgated federal regulation governing home- and community-based services became effective. The rule establishes eligibility requirements for Medicaid home and community-based services provided under the “waiver” program. The waiver program allows the states to furnish an array of ~~compliance~~home- ~~with~~and ~~these~~community-based services ~~statutes~~and avoid institutional care. Under the new rule, ~~regulations~~home- and ~~policies~~community-based settings must be integrated in and support full access to the greater community, ~~depending~~be onselected by the ~~nature~~individual from different setting options, ensure individual rights of privacy, and optimize autonomy and independence in making life choices. The rule includes additional requirements for provider-owned or controlled home and community-based residential settings, including that the ~~findings~~individual has a lease or other legally enforceable agreement, ~~our~~and ~~business~~standards related to the individual’s privacy, ~~our~~control over schedule and visitors, and physical accessibility of the setting. At this juncture it is unclear how individual states will seek to implement ~~financial~~this ~~position~~newly adopted regulation. The rule presents some implementation challenges, as some of the broad requirements may conflict with the needs and/or ~~our~~precautions ~~results~~that we must take for some of ~~operations~~the ~~could~~individuals bethat ~~materially~~we ~~adversely~~serve. ~~impacted~~It is unclear how each state will seek to address this potential conflict, and the impact and costs of implementation and compliance with this regulation are currently unknown. States have the option to request a variation or delay of compliance with the federal standards for as long as five years from the effective date. Moreover, each state Medicaid agency may interpret and submit different requests and extension timelines.

If a federal or state agency asserts a different position or enacts new laws or regulations regarding illegal payments under Medicaid or other governmental programs, we may be subject to civil and criminal penalties, experience a significant reduction in our revenue or be excluded from participation in Medicaid or other governmental programs.

Any change in interpretations or enforcement of existing or new laws and regulations could subject our current business practices to allegations of impropriety or illegality, or could require us to make changes in our homes, equipment, personnel, services, pricing or capital expenditure programs, which could increase our operating expenses and have a material adverse effect on our operations or reduce the demand for or profitability of our services.

IfShould we ~~identify~~be ~~deficiencies~~found inout ~~our~~of ~~internal~~compliance ~~control~~with ~~over~~these ~~financial~~statutes, regulations ~~reporting~~and policies, depending on the nature of the findings, our business, ~~may~~our financial position and our results of operations could be materially adversely ~~affected~~impacted.

We20 are required to assess the effectiveness of our internal control over financial reporting and report on the effectiveness of our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act. No evaluation can provide complete assurance that our internal controls will operate as intended.

The generally decentralized nature of our operations and manual nature of many of our controls increases our risk of control deficiencies. In connection with the transition of our billing, accounts receivable and general ledger functions to a shared services center, we have gradually been centralizing and automating certain of those controls, and we may in the future identify material weaknesses in connection with this implementation. In addition, future acquisitions may present challenges in implementing appropriate internal controls. Any future material weaknesses in internal control over financial reporting could result in material misstatements in our financial statements. Moreover, any future disclosures of additional material weaknesses, or errors as a result of those weaknesses, could result in a negative reaction in the financial markets if there is a loss of confidence in the reliability of our financial reporting.

The high level of competition in our industry could adversely affect our contract and revenue base.

We compete in a highly fragmented industry with a wide variety of competitors, ranging from small, local agencies to a few large, national organizations. Competitive factors may favor other providers and reduce our ability to obtain contracts, which would hinder our growth. Not-for-profit organizations are active in all states and range from small agencies , serving a limited area with specific programs to multi-state organizations. Smaller local organizations may have a better understanding of the local conditions and may be better able to gain political and public acceptance. Not-for-profit providers may be affiliated with advocacy groups, health organizations or religious organizations that have substantial influence with legislators and government agencies. Increased competition may result in pricing pressures, loss of or failure to gain market share or loss of clients or payors, any of which could harm our business.

Credit and economic conditions could have a material adverse effect on our cash flows, liquidity and financial condition.

Our government payors rely on tax revenue collections to pay for our services. In the wake of the last economic recession that began in 2008, most states faced unprecedented declines in tax revenues and, as a result, record budget gaps. Even after a full three years of continual gains, overall state tax collections remain below their previous peak when adjusted for inflation and population growth. Given the relatively weak recovery in state tax collections, if the economy were to contract into recession, our government payors or other counterparties that owe us money could be delayed in obtaining, or may not be able to obtain, necessary funding and/or financing to meet their cash flow needs. In 2011, Standard & Poor’s downgraded the Federal government’s credit rating and additional downgrades are possible in the future. In October 2013, Fitch Ratings placed the Federal government’s credit rating on negative watch. If the credit rating of the federal government is downgraded again, it is possible there will be related downgrades of state credit ratings as well and, if they occur, this could make it more expensive for states to finance their cash flow needs and put additional pressure on state budgets. Delays in payment could have a material adverse effect on our cash flows, liquidity and financial condition. In the event that our payors or other counterparties are financially unstable or delay payments to us, our financial condition could be further impaired if we are unable to borrow additional funds under our senior credit agreement to finance our operations.

Because a portion of our indebtedness bears interest at rates that fluctuate with changes in certain prevailing short-term interest rates, we are vulnerable to interest rate increases.

A portion of our indebtedness, including borrowings under the senior revolver and borrowings under the term loan facility for which we have not hedged our interest rate exposure under an interest rate swap agreement, bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same.

As of September 30, 2013, we had $546.5 million of floating rate term loan debt outstanding and no borrowings under our senior revolver before giving effect to the interest rate swap agreement. The Company entered into an interest rate swap, as amended in October 2012, in a notional amount of $400.0 million effective March 31, 2011 that matures September 30, 2014, in order to hedge the risk of changes in the floating rate of interest on borrowings under the term loan. As a result of the interest rate swap agreement, the floating rate debt has been effectively reduced to $146.5 million. A 1% increase in the interest rate on our floating rate debt would increase cash interest expense of the floating rate debt by approximately $1.5 million per annum. If interest rates increase dramatically, we could be unable to service our debt.

We rely on third parties to refer clients to our facilities and programs.

We receive substantially all of our clients from third-party referrals and are governed by the federal anti-kickback/non-self referral statute. Our reputation and prior experience with agency staff, care workers and others in positions to make referrals to us are important for building and maintaining our operations. Any event that harms our reputation or creates negative experiences with such third parties could impact our ability to receive referrals and grow our client base.

Home and community-based human services may become less popular among our targeted client populations and/or state and local governments, which would adversely affect our results of operations.

Our growth depends on the continuation of trends in our industry toward providing services to individuals in smaller, community-based settings and increasing the percentage of individuals served by non-governmental providers. For example, during the course of much of the last decade, state governments increasingly adopted policies that emphasized greater family preservation and family reunification for at-risk youth, which reduced the demand for foster care services and required that we adapt our service offerings. The ~~continuation~~ARY market in several states continues to be volatile and challenging, which could result in additional restructuring of ~~these~~our ~~trends~~operations and/or contracts. Shifts in public policy and, therefore, our future success, are subject to a variety of political, economic, social and legal pressures, all of which are beyond our control. A reversal in the downsizing and privatization trends could reduce the demand for our services, which could adversely affect our revenue and profitability.

We conduct a significant percentage of our operations in Minnesota and, as a result, we are particularly susceptible to any reduction in budget appropriations for our services or any other adverse developments in that state.

For each of the fiscal ~~year~~years ended September 30, 2014 and 2013, 14% of our net revenue was ~~generated~~derived from contracts with government agencies in the ~~state~~State of Minnesota. Accordingly, any reduction in Minnesota’s budgetary appropriations for our services, whether as a result of ~~fiscal~~ fiscal constraints due to recession, changes in policy or otherwise, could result in a reduction in our fees and possibly the loss of contracts. For example, our I/DD services in Minnesota were negatively impacted in 2009 and 2011 by rate cuts of 2.6% and 1.5%, respectively. We cannot assure you that we will not receive additional rate reductions this year or in the future. The concentration of our operations in Minnesota also makes us particularly susceptible to many of the other risks ~~described~~ described above occurring in this state, including:

•

the failure to maintain and renew our licenses;

•

the failure to maintain important relationships with officials of government agencies; and

•

any negative publicity regarding our operations.

Any of these adverse developments occurring in Minnesota could result in a reduction in revenue or a loss of contracts, which could have a material adverse effect on our results of operations, financial position and cash flows.

Covenants in our debt agreements impose several restrictions on our business.

The senior credit agreement and the indenture governing the senior notes contain various covenants that limit our ability to, among other things:

•

incur additional debt or issue certain preferred shares;

•

pay dividends on or make distributions in respect of capital stock or make other restricted payments;

•

make certain investments;

•

sell certain assets;

•

create liens on certain assets to secure debt;

•

enter into agreements that restrict dividends from subsidiaries;

•

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and

•

enter into certain transactions with our affiliates.

The senior credit agreement governing the senior secured credit facilities also requires us to maintain a specified financial ratio, which began in the quarter ended June 30, 2014, in the event that we draw greater than 30% of the revolving commitment under our senior revolver. Our ability to meet this financial ratio could be affected by events beyond our control. The breach of any of these covenants or financial ratio could result in a default under the senior secured credit facilities and our lenders could elect to declare all amounts borrowed thereunder, together with accrued interest, to be due and payable and could proceed against the collateral securing that indebtedness.

We depend upon the continued services of certain members of our senior management team, without whom our business operations could be significantly disrupted.

Our success depends, in part, on the continued contributions of our senior officers and other key employees. Our management team has significant industry experience and ~~would be difficult to replace. We have recently announced~~ a ~~transition~~long ~~plan~~history ~~under~~with ~~which our current Chief Executive Officer will become the Executive Chair of the Board of Directors effective January 1~~us, ~~2014.~~and Hewould ~~will~~be ~~remain~~difficult ~~a full-time executive officer but will cease~~ to ~~be a co-principal executive officer~~replace. ~~Effective January 1, 2014, the current President and Chief Operating Officer will become the Chief Executive Officer.~~ If we lose or suffer an extended interruption in the service of one or more of our key employees, our financial condition and operating results could be adversely affected. The market for qualified individuals is highly competitive and we may not be able to attract and retain qualified personnel to replace or succeed members of our senior management or other key employees, should the need arise.

Our success depends on our ability to manage ~~growing~~ and ~~changing~~integrate ~~operations~~key administrative functions.

Our operations and administrative functions are largely decentralized and subject to disparate accounting and billing requirements established and often modified by our local payors and referral sources. Although in recent years we have undertaken an effort to consolidate accounting, billing, cash collections and other financial and administrative functions which may have mitigated this risk to some degree, there remains a substantial portion of the business that has not yet been centralized and some risk in the centralization process itself. If we encounter difficulties in integrating our operations further or fail to effectively manage these functions to ensure compliance with disparate and evolving requirements imposed by our payors and referral sources, it could have a material adverse effect on our results of operations, financial position and cash flows.

Our information systems are critical to our business and a failure of those systems, or a failure to upgrade them when required, could materially harm us.

We depend on our ability to store, retrieve, process and manage a significant amount of information, and to provide our operations with efficient and effective accounting, census, incident reporting and ~~scheduling~~other quality assurance systems. Our information systems require maintenance and upgrading to meet our needs, which could significantly increase our ~~administrative~~ administrative expenses.

Any system failure that causes an interruption in service or availability of our critical systems could adversely affect operations or delay the collection of revenues. Even though we have implemented network security measures, our servers are vulnerable to computer viruses, ~~break-ins~~hacking and similar disruptions from unauthorized tampering. The occurrence of any of these events could result in interruptions, delays, the loss or corruption of data, or cessations in the availability of systems, all of which could have a material adverse effect on our financial position and results of operations and harm our business reputation. Furthermore, a loss of health care information could result in potential penalties in certain of our businesses if we fail to comply with privacy and security standards in violation of HIPAA, as amended by the HITECH Act.

The performance of our information technology and systems is critical to our business operations. Our information systems are essential to a number of critical areas of our operations, including:

•

accounting and financial reporting;

•

billing and collecting accounts;

•

coding and compliance;

•

clinical systems, including census and incident reporting;

•

records and document storage; and

•

monitoring quality of care and collecting data on quality and compliance measures.

21In addition, as we continue to upgrade our systems, we run the risk of ongoing disruptions while we transition from legacy, and often paper-based, systems. Disruptions in our systems could result in delays and difficulties in billing, which could negatively affect our results from operations and cash flows. We may choose systems that ultimately fail to meet our needs, or that cost more to implement and maintain than we had anticipated. Such systems may become obsolete sooner than expected, our payors may require us to invest in other systems, and state and/or federal regulations may impose electronic records standards that we cannot easily address from our existing platform. If we fail to upgrade successfully and cost-effectively, or if we are forced to invest in new or incompatible technology, our financial condition, cash flows and results of operations may suffer.

InWe ~~addition,~~rely ason weinformation ~~continue~~technology ~~to upgrade our systems, we run the risk of ongoing disruptions while we transition from legacy, and sometimes paper-based, systems. Disruptions~~ in our ~~systems could result in delays and difficulties in billing, which could negatively affect our results from~~ operations ~~and cash flows. We may choose systems that ultimately fail to meet our needs~~, ~~or that cost more to implement~~ and ~~maintain~~any ~~than~~material ~~we had anticipated. Such systems may become obsolete sooner than expected~~failure, ~~our payors may require us to invest in other systems~~inadequacy, interruption ~~and state and/~~or ~~federal~~security ~~regulations may~~failure ~~impose~~of ~~electronic records standards~~ that wetechnology ~~cannot~~could ~~easily~~harm ~~address from~~ our ~~existing platform~~business. ~~If we fail to upgrade successfully and cost-effectively, or if we are forced to invest in new or incompatible technology, our financial condition, cash flows and results of operations may suffer.~~

We rely on information technology networks and systems to process, transmit and store electronic information in order to manage or support a variety of our business processes, including consumer records, financial transactions and maintenance of records. These processes may include sensitive financial information, personally identifiable information of clients and employees, and personal health information protected by HIPPA. Our business and operations may be harmed if we do not securely maintain our business processes and information systems or maintain the integrity of our confidential information. Although we have developed systems and processes that are designed to protect information against security breaches, it is impossible to prevent all security breaches. Failure to protect such information or mitigate any such breaches may adversely affect our operating results. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns and unauthorized disclosure of confidential information. Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties, increase administrative expenses or lead to other adverse consequences.

Our financial results may suffer if we have to write off goodwill or other intangible assets.

A large portion of our total assets consists of goodwill and other intangible assets. Goodwill and other intangible assets, net of accumulated amortization, accounted for 5648.05% and 5856.10% of the total assets on our consolidated balance sheets as of September 30, ~~2013~~2014 and ~~September 30~~2013, ~~2012,~~ respectively. We may not realize the value of our goodwill or other intangible assets and we expect to engage in additional transactions that will result in our recognition of additional goodwill or other intangible assets.

We evaluate on a regular basis whether events and circumstances have occurred that indicate that all or a portion of the carrying amount of goodwill or other intangible assets may no longer be recoverable, and is therefore impaired. Under current accounting rules, any determination that impairment has occurred would require us to write-off the impaired portion of our goodwill or the unamortized portion of our intangible assets, resulting in a charge to our earnings.

We may be more susceptible to the effects of a natural disaster or public health catastrophe, compared with other businesses due to the vulnerable nature of our client population.

Our primary clients are individuals with developmental disabilities, brain injuries, or emotionally, behaviorally and/or medically complex challenges, many of whom would be more vulnerable than the general public in a natural disaster or public health catastrophe. For example, in a flu pandemic, we could suffer significant losses to our client population and, at a high cost, be required to pay overtime or hire replacement staff and Mentors for workers who drop out of the workforce. In a natural disaster, we could be forced to relocate some of our clients on ~~very~~ short notice under ~~treacherous~~dangerous conditions and our new program starts and acquisitions could experience delays. Accordingly, natural disasters and certain public health catastrophes could have a material adverse effect on our financial condition and results of operations.

WeFailure ~~are~~to ~~controlled~~comply bywith ~~our~~requirements ~~principal~~to ~~equityholder~~design, ~~which~~implement ~~has~~and ~~the~~maintain ~~power~~effective tointernal ~~take~~controls ~~unilateral~~could ~~action~~have a material adverse effect on our business.

~~Vestar~~We ~~controls~~are ~~our~~required, ~~business~~pursuant ~~affairs~~to ~~and~~Section 404 ~~material policies. Circumstances may occur in which the interests~~ of ~~Vestar could be in conflict with~~ the ~~interests~~Sarbanes-Oxley ~~of our debt holders. In addition~~Act, Vestar may have an interest in pursuing organic growth opportunities, acquisitions, divestitures or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to ~~our~~furnish debt holders. Vestar is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Vestar may also pursue acquisition opportunities that may be complementary to our business and, as a ~~result,~~report ~~those acquisition opportunities may not be available to us. So long as investment funds associated with or designated~~ by ~~Vestar~~management ~~continue~~on ~~to own a significant~~the ~~amount~~effectiveness of our ~~equity~~internal ~~interests, even if such amount is less than 50%, Vestar will continue to be able to significantly influence or effectively~~ control ~~our~~over ~~decisions~~financial reporting.

No evaluation can provide complete assurance that our internal controls will operate as intended. Management’s report is required to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not issue an unqualified opinion when they are required to do so beginning in the fiscal year ending September 30, 2015. The generally decentralized nature of our operations and manual nature of many of our controls increases our risk of control deficiencies. In addition, future acquisitions may present challenges in implementing appropriate internal controls. Any future material weaknesses in internal control over financial reporting could result in material misstatements in our financial statements. Moreover, any future disclosures of additional material weaknesses, or errors as a result of those weaknesses, could result in a negative reaction in the financial markets if there is a loss of confidence in the reliability of our financial reporting.

We are controlled by our principal equity holder, which has the power to take unilateral action.

Vestar, through its ownership of NMH Investment, which controls Civitas, controls our business affairs and material policies. Circumstances may occur in which the interests of Vestar could be in conflict with the interests of our debt holders. In addition, Vestar may have an interest in pursuing organic growth opportunities, acquisitions, divestitures or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to our debt holders. Vestar is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Vestar may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. So long as investment funds associated with or designated by Vestar continue to own a significant amount of our equity interests, even if such amount is less than 50%, Vestar will continue to be able to significantly influence or effectively control our decisions.

Item 1B.

Unresolved Staff Comments

Not applicable.

Item 2.

Properties

Our principal executive office is located at 313 Congress Street, Boston, Massachusetts 02210. We operate a number of facilities and administrative offices throughout the United States. As of September 30, ~~2013~~2014, we provided services in ~~383~~379 owned facilities and approximately 1,~~224~~374 leased facilities, as well as in homes owned by our Mentors. We also own three offices and lease approximately ~~259~~260 offices. We believe that our properties are adequate for our business as presently conducted and we believe we can meet requirements for additional space by exercising options on leases or by finding alternative space.

Item 3.

Legal Proceedings

We are in the health and human services ~~business~~ business and, therefore, we have been and continue to be subject to substantial claims alleging that we, our employees or our Mentors failed to provide proper care for a client. We are also subject to claims by our clients, our employees, our Mentors or community members against us for negligence, intentional misconduct or violation of applicable laws. Included in our recent claims are claims alleging personal injury, assault, abuse, wrongful death and other charges. Regulatory agencies ~~may~~ may initiate administrative proceedings alleging that our programs, employees or agents violate statutes and regulations and seek to impose monetary penalties on us. We could be required to incur significant costs to respond to regulatory investigations or defend against civil lawsuits and, if we do not prevail, we could be required to pay substantial amounts of money in damages, settlement amounts or penalties arising from these legal proceedings.

administrative proceedings alleging that our programs, employees or agents violate statutes and regulations and seek to impose monetary penalties on us. We could be required to incur significant costs to respond to regulatory investigations or defend against civil lawsuits and, if we do not prevail, we could be required to pay substantial amounts of money in damages, settlement amounts or penalties arising from these legal proceedings.

We also are subject to potential lawsuits under the False Claims Act and other federal and state whistleblower statutes designed to combat fraud and abuse in the health care industry. These lawsuits can involve significant monetary awards that may incentivize private plaintiffs to bring these suits. If we are found to have violated the False Claims Act, we could be excluded from participation in Medicaid and other federal healthcare programs. The Patient Protection and Affordable Care Act provides a mandate for more vigorous and widespread enforcement activity to combat fraud and abuse in the health care industry.

Finally, we are also subject to employee-related claims under state and federal law, including claims for discrimination, wrongful discharge or retaliation; and claims for wage and hour violations under the Fair Labor Standards Act or state wage and hour laws.

We reserve for ~~costs~~ costs related to contingencies when a loss is probable and the amount is reasonably estimable. While we believe our provision for legal contingencies is adequate, the outcome of ~~the~~our legal proceedings is difficult to predict, and we may settle legal ~~claims~~ claims or be subject to judgments for amounts that differ from our estimates. In addition, legal contingencies could have a material adverse impact on our results of operations in any given future reporting period.

See “Part I. Item 1A. Risk Factors” and “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information.

Item 4.

Mine Safety Disclosures

Not applicable.

2325

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

We are an indirect, wholly -owned subsidiary of ~~NMH~~Civitas ~~Investment~~Solutions, Inc. Accordingly, there is no ~~public trading~~ market for our common stock.

~~Stockholders~~On September 22, 2014, Civitas Solutions, Inc. completed its initial public offering of 11,700,000 shares of common stock for total proceeds, before expenses, of $185,971,500. The common stock trades on the New York Stock Exchange under the symbol “CIVI.” Sixty-eight percent of Civitas Solutions, Inc. is owned by NMH Investment, LLC.

~~There~~Stockholder ~~was one owner of record of our common stock as of December 1, 2013.~~

There was one owner of record of our common stock as of September 30, 2014.

Dividends

During fiscal ~~2013~~2014, ~~2012~~2013 and ~~2011~~2012, ~~our~~we ~~indirect~~paid ~~parent~~$110 thousand, $39 thousand and $75 thousand, respectively, to NMH Investment ~~repurchased~~to fund repurchases of equity units from employees upon or after their ~~departures of $39 thousand, $75 thousand, and $1~~departure.5 ~~million, respectively.~~ We accounted for these repurchases as dividends of $39110 thousand, $7539 thousand and $~~1.5~~75 ~~million~~thousand, respectively, to our indirect parent, NMH Investment ~~to fund these repurchases~~.

~~Also~~In addition, ~~during~~our ~~fiscal~~current ~~2011,~~financing wearrangements limit ~~paid~~the acash ~~dividend~~dividends ofwe ~~$219.7~~may ~~million~~pay toin ~~Parent,~~the ~~which~~foreseeable infuture. ~~turn~~We ~~made~~are arestricted ~~distribution~~from ofpaying ~~$219.7~~dividends ~~million~~ to NMH ~~Holdings,~~Investment ~~Inc.~~in ~~NMH~~excess ~~Holdings used the proceeds~~ of ~~the~~$15 ~~distribution~~million, toexcept ~~(i) repurchase~~for ~~$210.9~~dividends ~~million~~used ~~aggregate~~for ~~principal~~the ~~amount~~repurchase of ~~the~~equity ~~Senior Floating~~from ~~Rate~~former ~~Toggle~~officers ~~Notes~~and ~~due~~employees ~~2014~~and (for the payment ~~“NMH~~of ~~Holdings~~management ~~notes”)~~fees, attaxes ~~a premium~~ and ~~(ii) pay~~certain ~~related~~other ~~fees and expenses~~exceptions.

We26 do not anticipate that we will pay any dividends for the foreseeable future apart from dividends as needed to fund the repurchase of equity units from departing employees. Any determination to pay dividends will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors our board of directors deems relevant. In addition, our current financing arrangements limit the cash dividends we may pay in the foreseeable future. We are restricted from paying dividends to Parent in excess of $15 million, except for dividends used for the repurchase of equity from former officers and employees and for the payment of management fees, taxes and certain other exceptions.

Equity Compensation Plan Information

The following table lists the number of securities of NMH Investment available for issuance as of September 30, ~~2013~~2014 under the NMH Investment, LLC Amended and Restated 2006 Unit Plan, as amended and the 2014 Omnibus Incentive Plan. For a description of the ~~plan~~plans, ~~please~~ see note 19 to the consolidated financial statements included elsewhere in this report.

Number of

Plan Category

Number of Securitiesto beIssued Upon Exerciseof OutstandingOptions(a)

Weighted-AverageExercise Price ofOutstanding Options(b)

Number of SecuritiesRemaining Available forFuture Issuance underEquity CompensationPlans (excludingSecurities Reflected inColumn(a))(c)

Securities

Equity compensation plans approved by security holders (1)

Preferred Units: 21,619.50

Remaining

A Units: 223,795.03

Available for

B Units: 64,725.08

Future Issuance

C Units: 67,916.28

under Equity

D Units: 138,402.47

Compensation

E Units: -

Plans (excluding

F Units: 998,697.29

Number of Securities to be

Weighted-Average

Securities

G Units: 5,000.00

Issued Upon Exercise of

Exercise Price of

Reflected in

H Units: 100,000.00

Outstanding Options

Column(a))

1,109,808

(2)

17.00

(3)

2,215,692

Plan Category

(a)

(b)

(c)

Equity compensation plans not approved by security holders

—

Equity compensation plans approved by security holders

Preferred Units: 21,419.50

Total

Preferred Units: 21,619.50

A Units: 221,795.03

A Units: 223,795.03

B Units: 55,870.08

B Units: 64,725.08

C Units: 58,624.28

C Units: 67,916.28

D Units: 128,558.47

D Units: 138,402.47

~~E Units: -~~

E Units: -

N/A

F Units: 1,072,489.63

F Units: 998,697.29

G Units: -

G Units: 5,000.00

H Units: 200,000.00

H Units: 100,000.00

Equity compensation plans not approved by security holders

N/A

1,109,808

17.00

2,215,692

TOTAL

Preferred Units: 21,419.50

A Units: 221,795.03

B Units: 55,870.08

C Units: 58,624.28

D Units: 128,558.47

E Units: -

F Units: 1,072,489.63

G Units: -

—

H Units: 200,000.00

(1)	Consists of the NMH Investment, LLC Amended and Restated 2006 Unit Plan and the 2014 Omnibus Incentive Plan.

(2)	Consists of 550,481 restricted stock units (“RSUs”) and stock options covering 559,307 shares of common stock.

(3)	The weighted-average exercise price includes all outstanding stock options, but does not include RSUs, which do not have an exercise price.

Unregistered Sales of Equity Securities

No unregistered equity securities of the Company were sold during fiscal ~~2013~~2014; however, the Company’s indirect parent, NMH Investment, did issue equity securities during this period.

~~The~~27 following table sets forth the number of units of common equity of NMH Investment issued during fiscal 2013 pursuant to the NMH Investment, LLC Amended and Restated 2006 Unit Plan, as amended. The units were granted under Rule 701 promulgated under the Securities Act of 1933.

Dates

Title of Securities

Amount

Purchasers

Consideration

January 24, 2013

Class F Common Units

129,761.63

Certain employees

—

The following table sets forth the number of units of common equity of NMH Investment issued during fiscal 2014 pursuant to the NMH Investment, LLC Amended and Restated 2006 Unit Plan, as amended. The units were issued under Rule 701 promulgated under the Securities Act of 1933.

Date

Title of Securities

Amount

Purchaser

Consideration

January 27, 2014

Class F Common Units

103,710.33

Certain employees

—

January 27, 2014

Class F Common Units

100,000.00

Chief Executive Officer

—

January 27, 2014

Class H Common Units

100,000.00

Chief Executive Officer

—

Repurchases of Equity Securities

No equity securities or common equity units of the Company or NMH Investment were repurchased during the three months ended September 30, ~~2013~~ 2014.

2528

The following table sets forth information in connection with repurchases made by NMH Investment of its common equity units during the three months ended September 30, 2013:

						(d) Maximum
						Number (or
				(c) Total Number		Approximate Dollar
				of Units Purchased		Value) of Shares (or
	(a) Class and	(b) Average		as Part of Publicly		Units) that May Yet
	Total Number of	Price Paid		Announced Plans		be Purchased Under
	Units Purchased	per Unit		or Programs		the Plans or Programs
Month #1 (July 1, 2013 through July 31, 2013)	— A Units		—		—		N/A
	— B Units		—		—		N/A
	— C Units		—		—		N/A
	— D Units		—		—		N/A
	— F Units	$	—		—		N/A
Month #2 (August 1, 2013 through August 31, 2013)	— A Units		—		—		N/A
	— B Units		—		—		N/A
	— C Units		—		—		N/A
	— D Units		—		—		N/A
	— F Units		—		—		N/A
Month #3 (September 1, 2013 through September 30, 2013)	— A Units	$	—		—		N/A
	1,443.75 B Units	$	0.05		—		N/A
	1,515.00 C Units	$	0.03		—		N/A
	1,605.00 D Units	$	0.01		—		N/A
	6,212.11 F Units	$	—		—		N/A

The Company did not repurchase any of its common stock as part of an equity repurchase program during the three months ended September 30, 2013. NMH Investment purchased all of the units listed in the table from one of its employees after her departure.

Item 6.

Selected Financial Data

We derived the selected historical ~~consolidated~~ consolidated financial data as of and for the years ended September 30, ~~2011,~~ 2012, 2013 and ~~2013~~2014 from the historical consolidated financial statements of the Company and the related notes included elsewhere in this Annual Report on Form 10-K.

We have derived the selected historical consolidated financial data as of and for the years ended September 30, ~~2009~~2010 and ~~2010~~2011 from the historical consolidated financial statements of the Company and the related notes not included or incorporated by reference in this Annual Report on Form 10-K, as adjusted for discontinued operations.

The selected information below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical consolidated financial statements and notes included elsewhere in this report.

	Year Ended September 30,(3)
	Year Ended September 30,(1)
	2009			2010			2011			2012			2013
	2014			2013			2012			2011			2010
Statements of Operations Data:
Net revenue	$	~~949~~1,~~582~~255,838		$	1,~~004~~182,~~192~~509		$	1,~~062~~107,~~773~~351		$	1,~~123~~048,~~118~~949		$	1991,~~198,653~~877
Cost of revenue (exclusive of depreciation expense shown separately below)		~~725~~983,~~275~~043			~~771~~921,~~066~~618			~~823~~861,~~009~~691			~~874~~811,~~778~~765			~~935~~761,~~143~~112
General and administrative expenses		~~125~~144,~~076~~304			~~133~~145,~~114~~184			~~143~~139,~~949~~630			~~140~~143,~~221~~454			~~146~~132,~~040~~467
Depreciation and amortization		5567,~~069~~488			5563,~~918~~573			6159,~~330~~987			60,~~534~~804			6455,~~146~~496
Income from operations		4461,~~162~~003			4452,~~094~~134			3446,~~485~~043			4732,~~585~~926			5342,~~324~~802
Management fee of related party		(19,~~146~~488	)		(1,~~208~~359	)		(1,~~271~~325	)		(1,~~325~~271	)		(1,~~359~~208	)
Other income (expense), net		~~(503~~191	)		~~(339~~911	)		~~(142~~2	)		2(119	)		~~929~~(332	)
Extinguishment of debt		—(14,699	)		—			~~(19,278~~—	)		—(19,278	)		—
Gain from available for sale investment security		—			—			~~3,018~~—			—3,018			—
Interest income		~~193~~183			42135			22328			~~332~~22			~~137~~42
Interest income from related party		~~1,202~~—			~~1,921~~—			~~684~~—			—684			—1,921
Interest expense		(4869,~~254~~348	)		(4678,~~693~~075	)		(6179,~~718~~445	)		(7961,~~445~~718	)		(7846,~~075~~693	)
Loss from continuing operations before income taxes		(432,~~346~~158	)		(226,~~183~~254	)		(4434,~~200~~397	)		(3245,~~851~~736	)		(253,~~044~~468	)
Benefit for income taxes		(111,~~294~~138	)		(~~464~~9,942	)		(1419,~~683~~772	)		(1915,~~172~~280	)		(~~9,472~~963	)
Loss from continuing operations		(321,~~052~~020	)		(116,~~719~~312	)		(2914,~~517~~625	)		(1330,~~679~~456	)		(152,~~572~~505	)
Loss from discontinued operations, net of tax		(21,~~404~~382	)		(51,~~148~~984	)		~~(4,625~~245	)		(~~701~~3,686	)		(24,~~724~~362	)
Net loss	$	(522,~~456~~402	)	$	(618,~~867~~296	)	$	(3414,~~142~~380	)	$	(1434,~~380~~142	)	$	(186,~~296~~867	)
Balance Sheet Data (at end of period):
Cash and cash equivalents	$	23,650		$	26,448		$	263		$	—		$	19,315
Cash and cash equivalents (2)	$	196,022		$	19,315		$	—		$	263		$	26,448
Working capital(1)		47,836			34,904			12,028			25,198			58,267
Working capital(3)		48,843			58,267			25,198			12,028			34,904
Total assets		~~995~~1,~~610~~206,983			1,~~015~~020,~~885~~372			1,~~010~~044,~~850~~983			1,~~044~~010,~~983~~850			1,~~020~~015,~~372~~885
Total debt(2)		509,976			506,182			784,124			799,895			803,464
Total debt(4)		815,509			803,464			799,895			784,124			506,182
Shareholder’s equity (deficit)		223,728			225,133			(31,123	)		(44,247	)		(60,831	)
Stockholder’s equity (deficit)		101,635			(60,831	)		(44,247	)		(31,123	)		225,133

(1) ~~Calculated~~During fiscal 2010, 2011 and 2013, we sold our home health business, closed certain Human Services operations in the states of Maryland, Colorado, Nebraska, New Hampshire, New York and Virginia, sold our Rhode Island ARY business and closed our Rhode Island I/DD business. During fiscal 2014, the Company gave notice of its intention to close all Human Services operations in the state of Connecticut. All fiscal years presented reflect the classification of these businesses as ~~current~~discontinued ~~assets~~operations. ~~minus~~In ~~current~~April ~~liabilities~~2014, the FASB issued Accounting Standards Update No. 2014-08 which is effective for the Company on October 1, 2014. Under the new standard, which is applied prospectively, similar closures will no longer be classified as discontinued operations.

(2) ~~Includes~~The ~~obligations~~cash ~~under~~and ~~capital~~cash ~~leases~~equivalent balance as of September 30, 2014 includes $172.1 million of cash that was used to redeem $162.0 million of our outstanding senior notes and pay the associated call premium on October 17, 2014.

(3) ~~During~~Calculated ~~fiscal~~as ~~2010,~~current ~~2011~~assets ~~and~~minus ~~2013,~~current the Company sold its home health business, closed certain Human Services operations in the state of Maryland, Colorado, Nebraska, New Hampshire, New York and Virginia, and sold its Mentor Rhode Island businessliabilities. ~~All fiscal years presented reflect the classification of these businesses as discontinued operations.~~

27(4) Includes obligations under capital leases.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the historical consolidated financial statements and the related notes included elsewhere in this report. This discussion may contain forward-looking statements about our markets, the demand for our services and our future results. We based these statements on assumptions that we consider reasonable. Actual results may differ materially from those suggested by our forward-looking statements for various reasons, including those discussed in the “Risk factors” and “Forward-looking statements” sections of this report.

Overview

We are a the leading national provider of home- and community-based health and human services to ~~adults~~must-serve ~~and~~individuals ~~children~~ with intellectual, ~~and/~~developmental, physical or ~~developmental~~behavioral disabilities ~~(“I/DD”)~~and other special needs. Since our founding in 1980, ~~acquired~~we ~~brain~~have ~~injury~~been ~~(“ABI”)~~a pioneer ~~and~~in ~~other~~the ~~catastrophic~~movement ~~injuries~~to provide home- and community-based services for people who would otherwise be institutionalized. During our nearly 35-year history, we have evolved from a single residential program serving at-risk youth to a diversified ~~illnesses~~national network providing an array of high-quality services and care in large, growing and highly-fragmented markets. While we have the capabilities to serve individuals with a wide variety of special needs and disabilities, we currently provide our services to individuals with intellectual and/or developmental disabilities (I/DD), youth with emotional, behavioral and/or medically complex challenges, or at-risk youth (“ARY”)., ~~Since~~individuals ~~our~~with ~~founding~~catastrophic ininjuries ~~1980~~and illnesses, ~~our~~particularly acquired ~~operations~~brain ~~have~~injury ~~grown~~(ABI), toand ~~35 states~~elders. WeAs ~~provide~~of ~~services~~September 30, to2014, we operated in 36 states, serving approximately 12,~~300~~600 clients in residential settings and approximately 16,500 ~~some~~clients in non-residential settings. We have a diverse group of hundreds ~~whom~~of ~~also~~public ~~receive~~payors ~~periodic~~which fund our services. ~~Approximately~~with 16a combination of federal,~~700~~ ~~clients~~state ~~receive~~and ~~periodic~~local ~~services~~funding, ~~from~~as uswell inas an increasing number of non-~~residential~~public ~~settings~~payors related to our services for ABI and other catastrophic injuries and illnesses.

We ~~design~~have ~~customized~~two ~~service~~reportable ~~plans~~business tosegments: ~~meet~~the Human Services Segment and the ~~unique~~Post-Acute ~~needs~~Specialty ofRehabilitation ~~our~~Services ~~clients,~~(“SRS”) Segment. ~~which~~Through wethe ~~deliver~~Human inServices Segment, we provide home and community-based ~~settings.~~human ~~Most~~services ofto ~~our service~~adults ~~plans~~and ~~involve~~children ~~residential~~with ~~support~~intellectual and development disabilities (I/DD), ~~typically~~and into ~~small~~youth ~~group~~with ~~homes~~emotional, ~~host~~behavioral ~~home~~and/or ~~settings~~medically orcomplex ~~specialized~~challenges (“ARY”) ~~community~~and, ~~facilities~~beginning in the quarter ended September 30, ~~designed~~2014, to ~~improve~~elders. ~~our~~The ~~clients’~~operations ~~quality~~ of ~~life~~the ~~and~~Human toServices ~~promote~~Segment ~~client~~have ~~independence~~been ~~and~~organized ~~participation~~by ~~in community~~management ~~life~~based upon geography. ~~Other~~The ~~services~~geographical ~~offered~~regions, ~~include~~which ~~supported~~comprise ~~living~~three operating segments, ~~day~~have ~~and~~been ~~transitional~~aggregated ~~programs,~~based ~~vocational~~on ~~services,~~the ~~case~~criteria ~~management~~set forth in ASC Topic 280, ~~family-based~~Segment ~~and~~Reporting. ~~outpatient~~Through ~~therapeutic~~the SRS Segment, we deliver services to individuals who have suffered acquired brain injury, ~~post-acute~~spinal ~~treatment~~injuries and ~~neurorehabilitation,~~other ~~neurobehavioral~~catastrophic ~~rehabilitation~~injuries and ~~physical~~illnesses. The operations of the SRS Segment have been organized by management into two business units, ~~occupational~~NeuroRestorative and ~~speech therapies~~CareMeridian, ~~among~~based ~~others~~upon service type. ~~Our~~These ~~customized~~business ~~service~~units, ~~plans~~which ~~offer~~comprise ~~our~~two ~~clients~~operating segments, ashave ~~well~~been aggregated asbased on the ~~payors~~criteria ~~for~~set ~~these~~forth ~~services,~~in anthe ~~attractive,~~accounting ~~cost-effective~~standards. ~~alternative~~Each tooperating ~~health~~segment is aligned with the Company’s reporting structure and ~~human~~has ~~services~~a ~~provided~~segment manager that is directly accountable for its operations and regularly reports inresults ~~large,~~to ~~institutional~~the ~~settings~~chief operating decision maker for the purpose of evaluating these results and making decisions regarding resource allocations.

WeDelivery ~~offer~~of ~~our~~ services ~~through~~to aadults ~~variety~~and ofchildren ~~models,~~with ~~including~~I/DD ~~(i) small~~is ~~group~~the ~~homes,~~largest ~~most~~portion of ~~which are~~our ~~residences~~Human ~~for~~Services ~~six~~segment. ~~people~~Our orI/DD ~~fewer~~programs include residential support, ~~(ii) host~~day ~~homes~~habilitation, orvocational ~~the~~services, ~~“Mentor”~~case ~~model~~management, incrisis ~~which~~intervention aand ~~client~~hourly ~~lives~~support incare. Our Human Services segment also includes the ~~home~~delivery of aARY ~~trained~~services. ~~Mentor~~Our ARY programs include therapeutic foster care, ~~(iii) in~~family preservation, adoption services, early intervention, school-~~home~~based ~~settings~~services and juvenile offender programs. Within our SRS segment, inour ~~which~~NeuroRestorative webusiness ~~support~~unit ~~clients’~~is ~~independence~~focused ~~with~~on ~~24-hour~~rehabilitation and transitional living services in ~~their~~and ~~own~~our ~~homes,~~CareMeridian business ~~(iv) small,~~unit ~~specialized~~is ~~community~~focused ~~facilities~~on ~~which~~the ~~provide~~more medically-intensive post-acute, ~~specialized~~care ~~rehabilitation~~services. ~~and~~Our ~~comprehensive~~SRS ~~care~~services ~~for~~range ~~individuals~~from ~~who~~sub-acute ~~have~~healthcare ~~suffered~~for ~~ABI,~~individuals ~~spinal~~with ~~injuries~~intensive ~~and~~medical ~~other~~needs ~~catastrophic~~to ~~injuries~~day treatment programs, and ~~illnesses~~include: neurorehabilitation; ~~and~~neurobehavioral ~~(v) non-residential~~rehabilitation; ~~settings~~specialized nursing; physical, ~~consisting~~occupational ~~primarily~~and ofspeech ~~day~~therapies; ~~programs~~supported ~~and~~living; ~~periodic~~outpatient ~~services~~treatment; inand ~~various~~pre-vocational ~~settings~~services.

We have two reportable segments, Human Services and Post-Acute Specialty Rehabilitation Services (“SRS”). The Human Services segment provides home and community-based human services to adults and children with intellectual and/or developmental disabilities and to youth with emotional, behavioral and/or medically complex challenges. The SRS segment provides a mix of health care and community-based health and human services to individuals who have suffered ABI, spinal injuries and other catastrophic injuries and illnesses.

Delivery of services to adults and children with I/DD is the largest portion of our Human Services segment. Our I/DD programs include residential support, day habilitation, vocational services, case management and personal care. Our Human Services segment also includes the delivery of ARY services. Our ARY programs include therapeutic foster care, family reunification, family preservation, early intervention and adoption services. Our SRS segment delivers healthcare and community-based human services to individuals who have suffered ABI, spinal injuries and other catastrophic injuries and illnesses. Our services range from sub-acute healthcare for individuals with intensive medical needs to day treatment programs, and include skilled nursing, neurorehabilitation, neurobehavioral rehabilitation, physical, occupational, and speech therapy, supported living, outpatient treatment and pre-vocational services.

Factors Affecting our Operating Results

Demand for Home and Community-Based Health and Human Services

Our growth in revenue has historically been related to increases in the ~~rates~~number weof ~~receive~~individuals ~~for~~served ~~our services~~ as well as increases in the ~~number~~rates ofwe ~~individuals~~receive ~~served~~for our services. This growth has depended largely upon development-driven activities, including the maintenance and expansion of existing contracts and the award of new contracts, ~~and~~our ~~upon~~new start program and acquisitions. We also attribute the long-term growth in our client base to certain trends that are increasing demand in our industry, including demographic, health-care and political developments.

Demographic trends have a particular impact on our I/DD business. Increases in the life expectancy of individuals with I/DD, we believe, have resulted in steady increases in the demand for I/DD services. In addition, caregivers currently caring for their relatives at home are aging and many may soon be unable to continue with these responsibilities. Many states continue to downsize or ~~close~~ close large, ~~publically~~ publicly-run facilities for individuals with I/DD and refer those individuals to private providers of community-based services. Each of these factors affects the size of the I/DD population in need of services. And while our residential ~~ARY~~ ARY services were negatively impacted by a substantial decline in the number of children and adolescents in foster care placements during the last decade, this trend has contributed to increased demand for periodic, non-residential services to support at-risk youth and their families. However, during the past 18 months payor demand in the state of North Carolina for periodic ARY services has significantly contracted as a result of a statewide redesign of these programs. It is also noteworthy that in recent years the general foster care population across the country has stabilized, with data for federal fiscal year 2013 showing the first increase in more than a decade in the number of children in foster care at year end. Demand for our SRS services has also grown as emergency response and improved

2830

decline in the number of children and adolescents in foster care placements during the last decade, this trend has contributed significant increased demand for periodic, non-residential services to support at-risk youth and their families. It is noteworthy, however, that after declining by nearly 30% from its peak, the general foster care population across the country have recently stabilized. Demand for our SRS services has also grown as faster emergency response and improved medical techniques have resulted in more people surviving a catastrophic injury. SRS services are increasingly sought out as a clinically-appropriate and less-expensive alternative to institutional care and as a “step-down” for individuals who no longer require care in acute settings.

Political and economic trends can also affect our operations. InBudgetary ~~particular,~~pressures facing state ~~budgetary pressures~~governments, especially within Medicaid programs, ~~may~~as ~~influence~~well ~~the~~as ~~overall~~other ~~level~~economic, ofindustry ~~payments~~and ~~for~~political factors could cause state governments to limit spending, which could significantly reduce our ~~services~~revenue, ~~the~~referrals, ~~number~~margins ofand ~~clients~~profitability, and ~~the~~adversely ~~preferred~~affect ~~settings~~our ~~for~~growth ~~many~~strategy. ofGovernment agencies generally condition their contracts with us upon a sufficient budgetary appropriation. If the ~~services~~government weagency does ~~provide~~not receive an appropriation sufficient to cover its obligations with us, it may terminate a contract or defer or reduce our reimbursements. For example, during the economic downturn that began in 2008, our government payors in several states responded to deteriorating revenue collections by implementing ~~provider~~service reductions, rate freezes and/or rate reductions. ~~More~~Beginning ~~recently~~in fiscal 2012, the rate environment ~~has~~ improved and, as a result, for ~~state~~ fiscal ~~year~~years 2012, 2013 and 2014, ~~which~~pricing ~~began~~increases contributed to revenue growth. With new state fiscal 2015 budgets effective on July 1, ~~2013~~2014 in most ~~states~~jurisdictions, wethis ~~expect~~positive totrend ~~receive~~is ~~modest~~continuing ~~pricing~~as ~~increases~~we inbegin ~~some~~our ~~jurisdictions~~fiscal year 2015.

Historically, ~~pressure~~our business has benefited from ~~client~~the ~~advocacy~~efforts of groups that advocate for the populations we serve. ~~has~~These ~~generally helped our business, as these~~ groups ~~generally seek~~lobby ~~to pressure~~ governments to fund residential services that use our small group home or host home models, rather than large, institutional models. In addition, our ARY services have historically been positively affected by the trend toward privatization of these services. Furthermore, we believe that successful lobbying by ~~these~~advocacy groups has preserved I/DD and ARY services and, therefore, our revenue base for these services, from significant ~~cutbacks~~reductions as compared with certain other human services, although we did suffer rate reductions during and ~~since~~after the recession that began in 2008. In addition, a number of states have developed community-based waiver programs to support long-term care services for survivors of a traumatic brain injury. ~~The~~However, the majority of our specialty rehabilitation services revenue is derived from non-public payors, such as commercial insurers, managed care and other private payors.

Expansion of Services

We have grown our business through expansion of existing markets and programs, entry into new geographical markets as well as through acquisitions.

Organic Growth

Various economic, fiscal, public policy and legal factors are contributing to an environment with an increased number of organic growth opportunities, particularly within the Human Services segment, and, as a result, we have a renewed emphasis on growing our business organically and making investments to support the effort. Our future growth will depend heavily on our ability to expand our current programs and identify and execute upon new opportunities. Our organic expansion activities consist of both new program starts in existing markets and expansion into new geographical markets. Our new programs in new and existing geographic markets typically require us to incur and fund operating losses for a period of approximately 18 to 24 months (we refer to ~~such~~these new programs as “new starts”). IfNet aoperating ~~new~~loss ~~start~~or ~~does~~income ~~not~~of ~~become~~a ~~profitable~~new ~~during~~start ~~such~~is ~~period,~~defined weas ~~may~~its ~~terminate~~revenue ~~it.~~for ~~During~~ the ~~fiscal~~period ~~year~~less ~~ended~~direct ~~September 30,~~expenses ~~2013,~~but ~~operating~~not ~~losses~~including onallocated ~~new~~overhead ~~starts~~costs. ~~for~~The ~~programs~~aggregation ~~started~~of ~~within~~all ~~the~~programs ~~previous~~with 18net ~~months~~operating ~~were~~losses ~~$8.8~~that ~~million,~~are asless ~~compared~~than to18 ~~$7.5~~months ~~million~~old ~~during~~comprises the ~~fiscal~~new ~~year~~start ~~ended~~operating ~~September 30, 2012~~loss for such period. During ~~the~~fiscal years ~~quarter~~2014 ~~ended~~and ~~September 30,~~ 2013, ~~operating~~new ~~losses~~starts ongenerated ~~new~~operating ~~starts~~losses ~~for~~of ~~programs~~$6.1 ~~started~~million ~~within~~and ~~the~~$8.8 ~~previous~~million 18and ~~months~~operating ~~were~~income of $1.9 million asand ~~compared to~~ $3.63 million, ~~during~~respectively. ~~the~~As ~~quarter~~indicated ~~ended September 30~~above, during fiscal 2012 and 2013 demand for new programs increased. These new start investment opportunities increased ~~losses~~ ~~reflect~~our aorganic ~~substantial~~growth ~~increase~~but inalso ~~both~~had the ~~number~~effect of ~~new~~reducing ~~starts~~our ~~and~~operating ~~the~~margin. ~~substantial~~In ~~investments~~fiscal we2014, ~~are~~our ~~making~~investment inlevel ~~these~~was ~~new~~slightly ~~starts~~lower than recent years, but still at a rate higher than fiscal 2011 and earlier periods.

During fiscal 2012 and 2013, we made substantial investments in our core Human Services business, especially in new start spending, as described above. That spending produced an increase in organic revenue growth but it also had the effect of reducing our operating margin. We expect that our level of new start spending will remain well above historical levels in fiscal 2014 and, as a result, continue to depress our operating margin. Management’s goal is to improve our operating margin as our newly begun programs stabilize and our new start spending begins to decline.

Acquisitions

AsFrom the beginning of fiscal 2010 through September 30, ~~2013~~2014, we have completed 3736 acquisitions ~~since the acquisition by Vestar on September 29~~, ~~2006~~ including several acquisitions of rights to government contracts orand fixed assets from small providers, which we ~~integrate~~have integrated with our existing operations. We have pursued larger strategic acquisitions in ~~markets~~the ~~with~~past ~~significant~~and ~~opportunities~~may opportunistically continue to do so in the future. Acquisitions could have a material impact on our consolidated financial statements.

During the year ended September 30, 2014, we acquired ten companies complementary to our business in the Human Services segment and one company in the SRS segment for total fair value consideration of $56.1 million, including $2.4 million of contingent consideration.

During the fiscal year ended September 30, 2013, we acquired two companies complementary to our business in the Human Services segment and one company in the SRS segment, for a total cash consideration of $9.3 million.

2931

Divestitures

We regularly review and consider the divestiture of underperforming or non-strategic businesses to improve our operating results and better utilize our capital. We have made divestitures from time to time and expect that we may make additional divestitures in the future. Divestitures could have a material impact on our ~~consolidated~~ financial ~~statements~~performance and results.

~~Net~~In ~~revenue~~August 2014, our Connecticut-based business notified the State of Connecticut of its intention to stop providing services under existing contracts due to rate cuts and a change in state policy. We are currently working with our public partners to effectively transition our programs to new providers, and we anticipate that this transition will be complete during the first quarter of fiscal 2015. In connection with the decision to discontinue services in Connecticut, we recorded termination benefits for impacted employees of $0.1 million and impairment charges of $1.6 million and $0.7 million for intangible assets and properties owned by the business unit, respectively. The operating results for Connecticut are included as discontinued operations in the Consolidated Statement of Operations.

Revenue is reported net of allowances for unauthorized sales and estimated sales adjustments. Revenue is also reported net of any state provider taxes or gross receipts taxes levied on services we provide. During the fiscal year ended September 30, 2013, we derived approximately 87% of our revenue from state, local and other government payors and approximately 13% of our revenue from non-public payors. Substantially all of our non-public revenue is generated by our SRS business through contracts with commercial insurers, workers’ compensation carriers and other private payors. The payment terms and rates of our contracts vary widely by jurisdiction and service type, and may be based on per person per diems, rates established by the jurisdiction, cost-based reimbursement, hourly rates and/or units of service. We bill most of our residential services on a per diem basis, and we bill most of our non-residential services on an hourly basis. Some of our revenue is billed pursuant to cost-based reimbursement contracts, under which the billed rate is tied to the underlying costs. Lower than expected cost levels may require us to return previously received payments after cost reports are filed. In such instances, we estimate and record a liability from such excess payments. In addition, our revenue may be affected by adjustments to our billed rates as well as adjustments to previously billed amounts. Revenue in the future may be affected by changes in rates, rate-setting structures, methodologies or interpretations that may be proposed in states where we operate or by the federal government which provides matching funds. We cannot determine the impact of such changes or the effect of any possible governmental actions.

~~Occasionally~~Revenue is reported net of allowances for unauthorized sales and estimated sales adjustments, ~~timing~~and net of ~~payment~~any ~~streams~~state ~~may~~provider betaxes ~~affected~~or bygross ~~delays~~receipts bytaxes levied on services we provide. We derive revenue from contracts with state, local and other government payors and non-public payors. During the fiscal years ended September 30, 2014 and 2013, we derived 90% of our net revenue from contracts with state, ~~related~~local toand ~~bill~~other ~~processing~~government ~~systems~~payors and 10% of our net revenue from non-public payors. Substantially all of our non-public revenue is generated by our SRS business through contracts with commercial insurers, ~~staffing~~workers’ orcompensation carriers and other ~~factors~~private payors. The payment terms and rates of our contracts vary widely by ~~While~~jurisdiction ~~these~~and ~~delays~~service type. We have ~~historically~~four ~~impacted~~types of contractual arrangements with payors which include negotiated contracts, fixed fee contracts, retrospective reimbursement contracts and prospective payments contracts. See “—Critical Accounting Policies—Revenue Recognition” for further information. Our revenue may be affected by adjustments to our ~~cash~~billed ~~position~~rates as well as adjustments to previously billed amounts. Revenue in ~~particular~~the ~~periods,~~future ~~they~~may ~~have~~be ~~not~~affected ~~resulted~~by changes in rates, ~~long~~rate-~~term~~setting ~~collections~~structures, ~~problems~~methodologies or interpretations that may be proposed in states where we operate or by the federal government which provides matching funds. We cannot determine the impact of such changes or the effect of any possible governmental actions. In general, we take prices set by our payors and do not compete based on pricing.

We bill the majority of our residential services on a per person per-diem basis. We believe the key factors affecting our revenues in residential service business include gross revenue, average residential census and average daily rates. We bill the majority of our non-residential service on a per service unit basis. These service units, which vary in length, are converted to billable units which are the hourly equivalent for the service provided. We believe the key factors affecting our revenues in our non-residential service business include gross revenue, non-residential billable units and average billable unit rates. We define these factors as follows:

•

Gross Revenue: Revenues before adjusting for sales adjustments and state provider and gross receipts taxes.

•

Average Residential Census: The average daily residential census over the respective period.

•

Average Daily Rate: A mathematical calculation derived by dividing the gross residential revenue by the residential census and the resulting quotient by the number of days during the respective period.

•

Non-Residential Billable Units: The hourly equivalent of non-residential services provided.

•

Average Billable Unit Rate: Gross non-residential revenue divided by the billable units provided during the period.

A comparative summary of gross revenues by service line and our key metrics is as follows (dollars in thousands, except for daily and billable unit rates):


	Year Ended September 30,
	2014			2013 ⁽¹⁾			2012 ⁽¹⁾
I/DD Services
Gross Revenues	$	839,127		$	768,362		$	719,180
Average Residential Census		7,435			6,931			6,521
Average Daily Rate	$	229.02		$	222.53		$	217.18
Non-Residential Billable Units		11,608,274			11,131,686			8,810,339
Average Non-Residential Billable Unit Rate	$	18.75		$	18.46		$	22.80
Gross Revenue Growth %		9.2	%		6.8	%
Gross Revenue growth due to:
Volume Growth		6.5	%		11.9	%
Average Rate Growth		2.7	%		(5.0	)%

At-Risk Youth Services
Gross Revenues	$	203,353		$	223,037		$	214,405
Average Residential Census		3,840			4,094			3,856
Average Daily Rate	$	101.11		$	96.78		$	97.96
Non-residential Billable Units		712,497			931,646			947,318
Average Non-Residential Billable Unit Rate	$	86.51		$	84.19		$	80.39
Gross Revenue Growth %		(8.8	)%		4.0	%
Gross Revenue growth due to:
Volume Growth		(12.3	)%		3.4	%
Average Rate Growth		3.5	%		0.6	%

Specialty Rehabilitation Services
Gross Revenues	$	234,435		$	213,465		$	189,561
Average Residential Census		1,065			996			916
Average Daily Rate	$	603.22		$	587.14		$	565.50
Gross Revenue Growth %		9.8	%		12.6	%
Gross Revenue growth due to:
Volume Growth		6.9	%		8.7	%
Average Rate Growth		2.9	%		3.9	%

(1)	During fiscal 2014, the Company gave notice of its intention to close all Human Services operations in the state of Connecticut. All fiscal years presented reflect the classification of these businesses as discontinued operations.

Expenses

Expenses directly related to providing services are classified as ~~Cost~~cost of revenue. ~~Direct~~These ~~costs~~expenses ~~and~~consist ~~expenses~~of direct labor costs which principally include salaries and benefits for service provider employees; and per diem payments to our Mentors; ~~residential occupancy expenses, which are primarily comprised of rent and utilities related to facilities providing direct care; certain~~ client ~~expenses~~program costs such as food, medicine and ~~transportation costs for clients requiring services; and~~ professional and general liability ~~expense. General~~ and ~~administrative~~employment ~~expenses~~practices ~~primarily~~liability ~~include~~expenses; residential ~~salaries~~occupancy ~~and~~expenses ~~benefits~~which ~~for administrative employees, or employees that~~ are ~~not~~primarily ~~directly~~comprised ~~providing~~of ~~services,~~rent ~~administrative~~and ~~occupancy~~utilities ~~costs~~related asto ~~well~~facilities asproviding ~~professional~~direct ~~expenses~~care; ~~such~~travel ~~as accounting, consulting~~ and ~~legal~~transportation ~~services.~~costs ~~Depreciation and amortization includes depreciation~~ for ~~fixed~~clients ~~assets~~requiring ~~utilized~~services; inand ~~both~~other ~~facilities~~ancillary ~~providing~~ direct ~~care~~costs ~~and~~associated ~~administrative~~with ~~offices,~~the provision ~~and~~of ~~amortization~~services ~~related~~ to ~~intangible~~clients ~~assets~~including workers’ compensation expense.

~~Wages~~33 and benefits to our employees and per diem payments to our Mentors constitute the most significant operating cost in each of our operations. Most of our employee caregivers are paid on an hourly basis, with hours of work generally tied to client need. Our Mentors are paid on a per diem basis, but only if the Mentor is currently caring for a client. Our labor costs are generally influenced by levels of service and these costs can vary in material respects across regions.

Occupancy costs represent a significant portion of our operating costs. As of September 30, 2013, we owned 383 facilities and three offices, and we leased approximately 1,234 facilities and approximately 259 offices. We expect occupancy costs to increase during fiscal 2014 as a result of new leases entered into pursuant to acquisitions and new starts. We incur no facility costs for services provided in the home of a Mentor.

Professional and general liability expense totaled 1.0% of our net revenue for the fiscal year ended September 30, 2013, 2012 and 2011, respectively. We incurred professional and general liability expenses of $12.2 million, $10.9 million and $10.2 million for the fiscal year ended September 30, 2013, 2012 and 2011, respectively. These expenses are incurred in connection with our claims reserve and insurance premiums. The expense for the fiscal year ended September 30, 2013 included an expense of $3.4 million that was not incurred in the fiscal year ended September 30, 2012. This represents an adjustment to our tail reserve for professional and general liability claims which is required by accounting standards for companies with claims-made insurance (the “PL/GL Tail Reserve”). Claims paid by us and our insurers for professional and general liability increased sharply in the 2007 to 2008 time period. Commencing October 1, 2010, our self-insured retentions and premiums increased dramatically. For claims arising from occurrences between October 1, 2010 and September 30, 2011, we were self-insured for $2.0 million per claim and $8.0 million in the aggregate, and for $500 thousand per claim in excess of the aggregate. From October 1, 2011 to September 30, 2013, we were self-insured for the first $4.0 million of each and every claim without an aggregate limit. Beginning October 1, 2013, we are self-insured for $4.0 million per claim and $28.0 million in the aggregate. These increased costs have negatively impacted our results of operations and have resulted in a renewed emphasis on reducing our claims exposure. Although insurance premiums did not increase in fiscal 2013, they have increased in recent years and may increase in the future.

General and administrative expenses primarily include salaries and benefits for administrative employees, or employees that are not directly providing services, administrative occupancy costs as well as professional expenses such as accounting, consulting and legal services. Depreciation and amortization includes depreciation for fixed assets utilized in both facilities providing direct care and administrative offices, and amortization related to intangible assets.

Wages and benefits to our employees and per diem payments to our Mentors constitute the most significant operating cost in each of our segments. Most of our employee caregivers are paid on an hourly basis, with hours of work generally tied to client need. Our Mentors are paid on a per diem basis, but only if the Mentor is currently caring for a client. Our labor costs are generally influenced by levels of service, and these costs can vary significantly across regions.

Occupancy costs represent a significant portion of our operating costs. As of September 30, 2014, we owned 379 facilities and three offices, and we leased 1,374 facilities and 260 offices. We expect occupancy costs to increase during fiscal 2015 as a result of new leases entered into pursuant to acquisitions and new starts. We incur no facility costs for services provided in the home of a Mentor.

Professional and general liability expense totaled 0.9% of our net revenue for the fiscal year ended September 30, 2014, as compared to 1.0% for the fiscal years ended September 30, 2013 and 2012. We incurred professional and general liability expenses of $10.9 million, $12.1 million and $10.7 million for the fiscal years ended September 30, 2014, 2013 and 2012, respectively. These expenses are incurred in connection with our claims reserve and insurance premiums. For claims made between From October 1, 2011 to September 30, 2013, we were self-insured for the first $4.0 million of each and every claim without an aggregate limit. Beginning October 1, 2013, we are self-insured for $4.0 million per claim and $28.0 million in the aggregate. Increased costs of insurance and claims have negatively impacted our results of operations and have resulted in a renewed emphasis on reducing the occurrence of claims. Although insurance premiums did not increase in fiscal 2013 and 2014, they have increased in prior years and may increase in the future.

Results of Operations

The following table sets forth ~~income~~our ~~(loss)~~Consolidated ~~from~~Statements ~~operations~~of Operations as a percentage of total net ~~revenue~~revenues ~~(operating margin)~~ for the periods indicated:.

For the Year Ended September 30,	HumanServices			Post-Acute SpecialtyRehabilitationServices			Corporate			Consolidated
	Year ended September 30,
	(In thousands)
	2014			2013			2012
2013
Revenues:
Net revenue	$	990,232		$	208,421		$	—		$	1,198,653
Net revenues		100.0	%		100.0	%		100.0	%
Income (loss) from operations		91,667			17,293			(55,636	)		53,324
Cost of revenue		78.3	%		77.9	%		77.8	%
Operating margin		9.3	%		8.3	%					4.4	%
Operating expenses:
2012
General and administrative		11.5	%		12.3	%		12.6	%
Net revenue	$	937,652		$	185,466		$	—		$	1,123,118
Depreciation and amortization		5.4	%		5.4	%		5.4	%
Income (loss) from operations		80,280			20,376			(53,071	)		47,585
Total operating expense		16.9	%		17.7	%		18.0	%
Operating margin		8.6	%		11.0	%					4.2	%
Income from operations		4.9	%		4.4	%		4.2	%
2011
Other income (expense):
Net revenue	$	887,297		$	175,476		$	—		$	1,062,773
Management fee of related party		(0.8	)%		(0.1	)%		(0.1	)%
Income (loss) from operations		77,209			18,434			(61,158	)		34,485
Other income, net		0.0	%		0.1	%		0.0	%
Operating margin		8.7	%		10.5	%					3.2	%
Extinguishment of debt		(1.2	)%		0.0	%		0.0	%
Interest income		0.0	%		0.0	%		0.0	%
Interest expense		(5.5	)%		(6.6	)%		(7.2	)%
Loss from continuing operations before income taxes		(2.6	)%		(2.2	)%		(3.1	)%
Benefit for income taxes		(0.9	)%		(0.8	)%		(1.8	)%
Loss from continuing operations		(1.7	)%		(1.4	)%		(1.3	)%
Gain (loss) from discounted operations, net of tax		(0.1	)%		(0.2	)%		0.0	%
Net Loss		(1.8	)%		(1.5	)%		(1.3	)%

~~Fiscal~~34 ~~Year Ended September 30, 2013 compared to Fiscal Year Ended September 30, 2012~~

Consolidated revenue for the fiscal year ended September 30, 2013 (“fiscal 2013”) increased by $75.5 million, or 6.7%, compared to revenue for the fiscal year ended September 30, 2012 (“fiscal 2012”). Revenue increased $55.6 million from organic growth, including growth related to new programs and a $2.1 million adjustment to our state provider tax reserve relating to pre-Merger periods, and $23.5 million from acquisitions that closed during and after the twelve months ended September 30, 2012. The organic revenue growth was partially offset by a reduction in revenue of $3.6 million from businesses we divested during the same period.

Consolidated income from operations increased from $47.6 million for fiscal 2012 to $53.3 million for fiscal 2013, and our operating margin increased from 4.2% of revenue to 4.4% of revenue for the same periods.

Our operating margin increased primarily due to the increase in revenue as noted above partially offset by a $48.3 million increase in direct labor costs as we increased staffing in connection with acquisitions, new programs and new starts for programs started within the previous 18 months. Additionally, we increased our staffing to maintain and strengthen the quality and service of our businesses.

Total occupancy costs increased approximately $6.9 million during fiscal 2013 as compared to fiscal 2012. The increase in occupancy expense is primarily attributable to acquisitions that have closed during and after the twelve months ended September 30, 2012, new programs primarily within our Post-Acute Specialty Rehabilitation Services segment, and new starts. Total occupancy expense has also been affected by the increase in rent, utilities and repairs and maintenance expense related to our businesses.

Depreciation and amortization expense increased $3.6 million during fiscal 2013 from fiscal 2012 but remained relatively flat as a percent of revenue of 5.4% for the same periods. The increase in depreciation and amortization expense is primarily due to an increase in leasehold improvements to our properties and the acquisition of amortizable assets. Partially offsetting this increase was a decrease in depreciation and amortization expense as certain assets became fully depreciated.

In addition, we wrote off goodwill and intangible assets related to underperforming programs within the Human Services segment which were closed during fiscal 2013. The total impairment charge was $2.3 million and included the write-off of $1.0 million of intangible assets recorded in Depreciation and amortization expense and the write-off of $1.3 million of goodwill recorded in General and administrative expense in the accompanying consolidated statements of operations.

Additionally, our health insurance expense and professional and general liability expense increased in fiscal 2013 as compared to fiscal 2012 primarily as a result of a change in reserves. Health insurance expense increased approximately $3.0 million; $2.4 million of the increase in health insurance expense is included in Cost of revenue and $0.6 million is included in General and administrative expenses within the accompanying consolidated statements of operations. Professional and general liability expense increased approximately $1.4 million as compared to fiscal 2012. In fiscal 2013, we increased the PL/GL Tail Reserve by an additional $3.4 million which was partially offset by the decrease in our professional and general liability claims expense as compared to fiscal 2012. The expense relating to the professional and general liability claims expense and the PL/GL Tail Reserve is included in Cost of revenue in the accompanying consolidated statements of operations.

~~During~~Fiscal ~~fiscal~~Year ~~2013~~Ended September 30, we2014 ~~also recorded $1.0 million related to a cash bonus to our direct care workers. This was a decrease of approximately $1.5 million~~ compared to ~~fiscal~~Fiscal ~~2012.~~Year ~~This~~Ended ~~bonus~~September 30, is2013 ~~recorded in Cost of Revenue in the accompanying consolidated statement of operations.~~

~~Interest~~Consolidated ~~expense~~overview for fiscal 2013 decreased $1.4 million to $78.1 million as compared to fiscal 2012. The decrease is due to the lower interest rate we pay on our borrowings under the senior secured credit facilities as a result of the Amendment Agreement we entered into during fiscal 2013. (Refer to Debt and Financing Arrangements for further detail.)

For fiscal 2013, our effective income tax rate was 37.8% compared to an effective tax rate of 58.4% for fiscal 2012. These rates differ from the federal statutory income tax rate primarily due to nondeductible permanent differences such as meals and nondeductible compensation, and net operating losses not benefited. In addition, our effective tax rate for fiscal 2012 was impacted by a reduction in our reserve for uncertain income tax positions, including interest and penalties, as a result of favorable settlement of audits.


	Year ended September 30,
(In thousands)	2014			2013			Increase (Decrease)
Gross revenue	$	1,277,957		$	1,204,864		$	73,093
Sales adjustments		(22,119	)		(22,355	)	$	236

Net revenue	$	1,255,838		$	1,182,509		$	73,329

Income from operations	$	61,003		$	52,134		$	8,869
Operating margin		4.9	%		4.4	%

~~Loss~~Consolidated ~~from~~gross ~~discontinued~~revenue ~~operations~~for ~~net~~the offiscal ~~taxes~~year ~~for~~ended September 30, 2014 (“fiscal ~~2013~~2014”) increased ~~was~~by $~~2.7~~ 73.1 million, asor 6.1%, compared to ~~$0.7~~gross ~~million~~revenue for the fiscal ~~2012.~~year ~~During~~ended ~~the~~September 30, ~~second quarter~~2013 of (“fiscal 2013,”). weSales ~~adopted~~adjustments as a ~~plan~~percentage toof ~~sell~~gross ~~certain~~revenue ~~Human~~decreased ~~Services~~from ~~operations~~1.9% into ~~the~~1.7% ~~state~~during offiscal ~~Rhode~~2014. Gross ~~Island~~revenue ~~and~~increased ~~completed~~$42.5 ~~the~~million ~~sale~~from inorganic ~~the~~growth, ~~third~~including ~~quarter~~growth ofrelated ~~fiscal~~to ~~2013.~~new ~~Additionally~~programs, weand ~~closed~~$30.6 ~~certain~~million ~~Human~~from ~~Services~~acquisitions ~~operations~~that inclosed ~~the state of Virginia~~ during ~~the~~and ~~second~~after ~~quarter of~~ fiscal 2013. WeOur ~~recorded~~Human aServices ~~total~~segment ~~impairment~~contributed ~~charge~~66% of ~~$4.1 million to write off~~ the ~~related~~organic ~~intangible~~revenue growth ~~assets.~~with ~~The impairment charge and operations of these businesses including~~ the ~~expenses~~remaining to34% ~~close~~contributed ~~these operations~~by ~~are~~our ~~included~~SRS ~~in discontinued operations~~segment.

~~Human~~Consolidated ~~Services~~income from operations increased from $52.1 million, or 4.4% of net revenue, in fiscal 2013 to $61.0 million, or 4.9% of net revenue, in fiscal 2014. The increase in our operating margin was primarily due to the increase in revenue, as well as, expense leveraging and cost containment efforts in our direct labor costs and general administrative expenses. The improvement in operating margin was partially offset by the increase in client occupancy costs due to new programs with higher levels of open occupancy and increases in rent, utilities and repair and maintenance costs related to our business.

~~Human~~Revenues ~~Services revenue for fiscal 2013 increased~~ by ~~$52.6 million,~~segment or 5.6%, compared to fiscal 2012. Revenue increased $45.2 million from organic growth, including growth related to new programs, and $11.0 million from acquisitions that closed during and after the twelve months ended September 30, 2012. The organic revenue growth was partially offset by a reduction in revenue of $3.6 million from businesses we divested during the same period.

~~Income~~The ~~from~~following ~~operations~~table ~~increased~~sets ~~from~~forth ~~$80.3~~net ~~million, or 8.6% of~~ revenue, ~~during~~for ~~fiscal~~the ~~2012~~Human toServices ~~$91.7~~segment ~~million,~~for ~~or 9.3% of revenue, during fiscal 2013. Operating margin was positively impacted primarily due to~~ the ~~increase~~periods inindicated ~~revenue noted. In addition, during fiscal 2013, we recognized a decrease of $1.8 million~~ (in ~~professional~~thousands): ~~and general liability claims expense as compared to fiscal 2012 due to a change in reserves.~~

Our operating margin was also positively impacted by a $1.5 million decrease in a cash bonus that was paid to our direct care workers as compared to fiscal 2012.


	Year ended September 30,
	2014			2013			Increase (Decrease)			Percentage Increase (Decrease)
I/DD gross revenue	$	839,127		$	768,362		$	70,765			9.2	%
ARY gross revenue		203,353			223,037			(19,684	)		(8.8	)%
Adult Day Services gross revenue		1,042			—			1,042			NM

Total Human Services gross revenue		1,043,522			991,399			52,123			5.3	%
Sales adjustments		(17,850	)		(17,311	)
Sales adjustments as a percentage of gross revenue		(1.7	)%		(1.7	)%

Total Human Services net revenue	$	1,025,672		$	974,088		$	51,584			5.3	%

~~The~~Human ~~decreased~~Services ~~expenses~~gross ~~from~~revenue for fiscal ~~2012~~2014 increased by $52.1 million, or 5.3%, compared to fiscal 2013. asThe $52.1 ~~noted~~million ~~above~~increase ~~were~~in ~~partially~~gross ~~offset~~revenue was driven by a $3170.28 million increase in ~~direct~~I/DD ~~labor~~gross ~~costs~~revenue while ARY gross revenue decreased by $19.7 million. The increase in I/DD gross revenue included $47.6 million from organic growth and $23.2 million from acquisitions that closed during and anafter ~~increase~~fiscal 2013. The organic growth was the result of a 4.4% increase in volume coupled with a 1.8% increase in average billing rates for fiscal 2014 compared to fiscal 2013. The $519.37 million decrease in ARY ~~occupancy~~gross ~~costs~~revenue aswas due to a 12.3% decrease in volume partially offset by a 3.5% increase in the average billing rate during fiscal 2014 compared to fiscal ~~2012~~2013. The majority of the decrease in volume was caused by a reduction in services in North Carolina due to a state wide redesign of these programs and the voluntary termination of our contracts to provide services with a single managed care organization. The impact of this reduction accounted for approximately $17.6 million of the decrease in gross revenue.

~~Depreciation~~Sales ~~and~~adjustments ~~amortization~~as ~~expense~~a ~~increased~~percentage ~~$2.4 million~~of ~~during~~gross ~~fiscal~~revenue ~~2013~~were ~~from~~consistent ~~fiscal~~at ~~2012~~1.7% ~~The~~during ~~increase~~fiscal in2014 ~~depreciation~~ and ~~amortization~~fiscal ~~expense is primarily due to an increase in leasehold improvements to our properties and the acquisition of amortizable assets~~2013. ~~Partially offsetting this~~ ~~increase was a decrease in depreciation and amortization expense as certain assets became fully depreciated.~~

~~Additionally,~~35 we wrote off goodwill and intangible assets related to underperforming programs which were closed during fiscal 2013. The total impairment charge was $2.3 million and included the write-off of $1.0 million of intangible assets recorded in Depreciation and amortization expense and the write-off of $1.3 million of goodwill recorded in General and administrative expense in the accompanying consolidated statements of operations.

Our health insurance expense also increased by $2.1 million as a result of a change in reserves, as compared to fiscal 2012.

Post-Acute Specialty Rehabilitation Services

Post-Acute Specialty Rehabilitation Services revenue for fiscal 2013 increased by $22.9 million, or 12.4%, compared to fiscal 2012. Revenue increased $10.4 million as a result of organic growth, including growth from new programs, and $12.5 million from acquisitions that closed during and after the twelve months ended September 30, 2012.

~~Income~~The ~~from~~following ~~operations~~table ~~decreased~~sets ~~from~~forth ~~$20.4~~net ~~million, or 11.0% of~~ revenue, ~~during~~for ~~fiscal~~the ~~2012~~SRS ~~to $17.3 million,~~segment orfor ~~8.3%~~the ofperiods ~~revenue,~~indicated ~~during~~(in thousands): ~~fiscal 2013.~~

The decrease in operating margin is primarily due to a $17.1 million increase in direct labor costs, an increase of $4.4 million in occupancy expense, and a $1.6 million increase in depreciation and amortization expense as compared to fiscal 2012.


	Year ended September 30,
	2014			2013			Increase (Decrease)		Percentage Increase (Decrease)
SRS gross revenue	$	234,435		$	213,465		$	20,970		9.8	%
Sales adjustments		(4,269	)		(5,044	)
Sales adjustments as a percentage of gross revenue		(1.8	)%		(2.4	)%

SRS net revenue	$	230,166		$	208,421		$	21,745		10.4	%

~~Corporate~~The SRS segment’s gross revenue for fiscal 2014 increased by $21.0 million, or 9.8%, compared to fiscal 2013. The increase included $14.6 million from organic growth and $6.3 million from acquisitions that closed during and after fiscal 2013. The organic growth was driven by an increase in the average billing rate of 4.5% and an increase in volume of 2.4%.

Total corporate expenses increased from $53.1 million for fiscal 2012 to $55.6 million for fiscal 2013. During fiscal 2013, we incurred an additional $3.4 million of expense related to the PL/GL Tail Reserve as compared to fiscal 2012. The expense relating to the PL/GL Tail Reserve is included in Cost of ~~revenue~~revenues inby ~~the~~segment accompanying consolidated statements of operations. Additionally, corporate expenses have also increased slightly due to the increase in staffing and other general and administrative costs as compared to fiscal 2012.

~~Fiscal~~The ~~Year~~following ~~Ended~~table ~~September 30,~~sets ~~2012~~forth ~~compared~~cost toof ~~Fiscal~~revenues ~~Year~~for ~~Ended~~the ~~September 30,~~Human ~~2011~~ Services segment for the periods indicated (in thousands):

Consolidated revenue for the fiscal year ended September 30, 2012 (“fiscal 2012”) increased by $60.3 million, or 5.7%, compared to revenue for the fiscal year ended September 30, 2011 (“fiscal 2011”). Revenue increased $41.5 million from organic growth, including growth related to new programs, and $22.2 million from acquisitions that closed during and after fiscal 2011. The organic revenue growth was partially offset by a reduction in revenue of $3.4 million from businesses we divested during the same period and rate reductions in some states, including Arizona, Florida and Minnesota.


	Year ended September 30,
	2014					2013
	Amount		% of net revenue			Amount		% of net revenue			Increase (Decrease)		Change in % of net revenue
Direct labor costs	$	664,032		64.7	%	$	632,456		64.9	%	$	31,576		(0.2	)%
Client program costs		42,133		4.1	%		39,722		4.1	%		2,411		0.0	%
Client occupancy costs		55,025		5.4	%		50,411		5.2	%		4,614		0.2	%
Travel & transportation costs		27,935		2.7	%		26,288		2.7	%		1,647		0.0	%
Other direct costs		23,375		2.3	%		18,353		1.9	%		5,022		0.4	%

Total cost of revenues	$	812,500		79.2	%	$	767,230		78.8	%	$	45,270		0.4	%

~~Consolidated~~Human ~~income~~Services ~~from~~cost ~~operations~~of revenue for fiscal 2014 increased ~~from~~by $3445.53 million, ~~for~~or 5.9%, as compared to fiscal ~~2011~~2013 primarily due to an increase in direct labor costs of $4731.6 million, ~~for~~an ~~fiscal~~increase ~~2012~~in client occupancy costs of $4.6 million, and ~~our~~an ~~margin increased~~increase ~~from~~in ~~3.2%~~other direct costs of ~~revenue~~$5.0 million. The increases in direct labor costs and client occupancy costs were primarily attributable to ~~4.2%~~additional ofcosts ~~revenue~~associated with new programs and acquisitions that closed during and after fiscal 2013, as well as, a new compensation program for ~~the~~our ~~same~~direct ~~periods~~care workers. The increase in other direct costs during fiscal 2014 was primarily due to an increase in workers’ compensation claims compared to fiscal 2013.

The ~~increase~~decrease inof ~~our~~direct ~~operating~~labor ~~margin~~costs as a percentage of net revenue was primarily due to expense leveraging. The increase in client occupancy costs as a percentage of net revenue was the ~~non-recurrence~~ result of ~~certain~~new ~~expenses~~programs ~~incurred~~with ~~during~~higher ~~fiscal~~levels ~~2011,~~of ~~namely~~open ~~accelerated~~occupancy ~~stock-based~~and ~~compensation~~an ~~expense,~~increase ~~discretionary~~in ~~bonuses~~rent, ~~cost~~utilities ~~structure~~and repairs ~~optimization~~and ~~efforts,~~maintenance expense related to our business and the increase in other direct costs of revenue as a percentage of net revenue was primarily due to an ~~impairment~~increase ~~charge~~in workers’ compensation claims compared to ~~long-lived~~fiscal ~~assets~~2013.

~~Stock-based~~The ~~compensation~~following ~~expense~~table ~~decreased~~sets ~~$3.0~~forth ~~million~~cost ~~during fiscal 2012 as compared to fiscal 2011. Although NMH Investment issued equity units to members~~ of ~~management~~revenues infor ~~both 2012 and 2011, most of~~ the ~~Class~~SRS Fsegment ~~Common~~for Units issued in fiscal 2011 were fully vested upon issuance, and previously outstanding and unvested Class B, Class C and Class D Common Units also became vested. The fiscal 2012 Class G and Class H equity issuances will not vest until a liquidity event and/or upon the ~~occurrence~~periods ofindicated ~~certain investment return conditions. As such, there was no stock-based compensation expense associated with the Class G and Class H issuances~~ (in ~~fiscal~~thousands): ~~2012. Stock-based compensation expense is included in General and administrative expenses in the accompanying consolidated statements of operations.~~

During fiscal 2012, there was a decrease of $2.4 million in bonus-related costs as compared to fiscal 2011. In connection with the February 2011 Refinancing, discretionary recognition bonuses were given to certain individuals. These bonuses were included in General and administrative expenses in the accompanying consolidated statements of operations.


	Year ended September 30,
	2014					2013
	Amount		% of net revenue			Amount		% of net revenue			Increase (Decrease)		Change in % of net revenue
Direct labor costs	$	119,397		51.9	%	$	110,508		53.0	%	$	8,889		(1.1	)%
Client program costs		17,483		7.6	%		14,486		7.0	%		2,997		0.6	%
Client occupancy costs		25,987		11.3	%		22,662		10.9	%		3,325		0.4	%
Travel & transportation costs		3,134		1.4	%		2,635		1.3	%		499		0.1	%
Other direct costs		4,480		1.9	%		3,144		1.5	%		1,336		0.4	%

Total cost of revenues	$	170,481		74.1	%	$	153,435		73.7	%	$	17,046		0.4	%

As36 compared to fiscal 2011, we also reduced our restructuring costs by $2.2 million in fiscal 2012. These costs are included as part of General and administrative expenses in the accompanying consolidated statements of operations.

In addition, as part of our annual impairment test of indefinite lived intangible assets during fiscal 2011, we concluded that our trade names were impaired by $5.3 million. This impairment charge is included in General and administrative expenses in the accompanying consolidated statements of operations. There was no impairment on our indefinite lived intangible assets during fiscal 2012.

Our operating margin was also positively impacted by a decrease of $4.8 million in workers’ compensation insurance costs and employment practices liabilities claims during fiscal 2012 as compared to fiscal 2011. The decrease is primarily attributable to the change in reserves due to favorable settlement of prior period claims. During fiscal 2011, we recognized more workers’ compensation expense, which resulted in an additional $3.5 million of costs as compared to fiscal 2012. We also recorded an additional $1.3 million due to higher self-insurance reserves for employment practices liability claims in fiscal 2011 as compared to fiscal 2012. The expense relating to workers’ compensation liability and employment practices liability claims are included in Cost of revenue in the accompanying consolidated statements of operations.

The decreased expenses from fiscal 2011 to fiscal 2012 as noted above were partially offset by the increased staffing to strengthen quality and service and rate cuts mentioned above. In addition, we have continued spending on growth initiatives, such as new starts, especially in our Human Services segment. Within this segment, we continued to navigate a shift in market demand for models of service for at-risk youth. Many payors were emphasizing non-residential periodic support services to keep a greater number of children and adolescents within their families rather than moving them to out-of-home placements, including therapeutic foster care.

~~During~~The ~~fiscal~~SRS ~~2012,~~segment’s wecost ~~also~~of ~~recorded~~revenue anfor ~~additional~~fiscal 2014 increased by $517.20 million, inor ~~travel~~11.1%, ~~and transportation~~as ~~expense~~compared to fiscal 2013, primarily ~~increased~~due ~~cost~~to ~~for~~an ~~mileage~~increase ~~reimbursement,~~in ~~auto~~direct ~~insurance~~labor ~~and~~costs ~~gasoline~~of $8.9 million, an increase in client program costs of ~~which~~$3.0 million and an increase in client occupancy costs of $43.63 million. ~~related~~These increases were primarily attributable to ~~the~~additional ~~Human~~costs ~~Services~~associated ~~segment~~with new programs and acquisitions that closed during and after fiscal 2013.

~~During~~The ~~fiscal~~decrease ~~2011,~~of wedirect ~~recorded~~labor costs anas ~~additional~~a ~~$19.3~~percentage ~~million~~ of ~~expenses~~revenue ~~related~~was primarily due to ~~the~~expense ~~February~~leveraging. ~~2011~~The ~~Refinancing~~increase ~~including~~in ~~(i) $10.8 million~~client ~~related~~program tocosts ~~the~~as ~~tender~~a ~~premium~~percentage ~~and~~of ~~consent~~net ~~fees~~revenue ~~paid~~during fiscal 2014 was due to an increase in ~~connection~~medical ~~with~~supply ~~the~~and ~~repurchase~~pharmacy ofcosts ~~the~~relating ~~Senior~~to ~~Subordinated~~the ~~Notes,~~SRS segment’s ~~(ii) $7~~client mix.9 ~~million~~The increase in ~~connection~~client ~~with~~occupancy ~~the~~costs ~~acceleration~~as a percentage of ~~deferred~~net ~~financing~~revenue ~~costs~~during ~~related~~fiscal to2014 ~~the~~was ~~prior~~due ~~indebtedness and~~to ~~(iii) $0.6~~new ~~million~~programs ~~related~~with tohigher ~~transaction~~levels ~~costs.~~of ~~These~~open ~~expenses~~occupancy ~~are~~and ~~recorded~~an onincrease ~~our~~in ~~fiscal~~rent, ~~2011~~utilities ~~consolidated~~and ~~statements~~repairs ofand ~~operations~~maintenance asexpense related ~~Extinguishment~~to ofour ~~debt~~business.

~~Also,~~Consolidated ~~during~~operating ~~fiscal~~expenses 2011, we recorded a $3.0 million gain as NMH Holdings repurchased the NMH Holdings notes (which we had purchased on the open market at a discount) from us at a premium to the carrying value. The gain was recorded on our statements of operations as Gain from available for sale investment security.

~~Interest~~General ~~expense~~and ~~increased~~administrative byand ~~$17.7~~depreciation ~~million~~and ~~from~~amortization ~~fiscal~~expense ~~2011~~were as ~~compared~~follows to(in ~~fiscal~~thousands): 2012, as a result of the February 2011 Refinancing. Our weighted average debt balance increased by $107.9 million and our weighted average interest rate increased from 8.2% during fiscal 2011 to 9.2% for fiscal 2012.

For fiscal 2012, our effective income tax rate was a benefit of 58.4% compared to an effective tax rate benefit of 33.2% for fiscal 2011. These rates differ from the federal statutory income tax rate primarily due to nondeductible permanent differences and net operating losses not benefited. In addition, our effective tax rate for the twelve months ended September 30, 2012 was impacted by a $6.1 million reduction in our reserve for uncertain income tax positions, including interest and penalties, as a result of favorable settlement of audits.


	Year ended September 30,
	2014					2013
	Amount		% of net revenue			Amount		% of net revenue			Increase (Decrease)			Change in % of net revenue
General and administrative	$	144,304		11.5	%	$	145,184		12.3	%	$	(880	)		(0.8	)%
Depreciation and amortization		67,488		5.4	%		63,573		5.4	%		3,915			0.0	%

Total operating expense	$	211,792		16.9	%	$	208,757		17.7	%	$	3,035			(0.8	)%

~~Human~~General ~~Services~~and administrative expenses for fiscal 2014 decreased by $0.9 million, or 0.6%, as compared to fiscal 2013. As a percentage of net revenue, general and administrative expenses decreased by 0.8% as compared to fiscal 2013. This decrease was attributable to cost containment efforts in administrative staffing, business and office related costs.

~~Human~~Depreciation ~~Services~~and ~~revenue~~amortization ~~for~~expense ~~fiscal 2012~~ increased by $~~50.~~3 ~~million, or 5~~.~~7%, as compared to fiscal 2011. Revenue increased $35.0 million from organic growth, including growth related to new programs, and $15.~~9 million ~~from acquisitions that closed~~ during ~~and after~~ fiscal ~~2011.~~2014 ~~The~~from ~~organic~~the ~~revenue~~prior ~~growth~~year ~~was~~period ~~partially~~primarily ~~offset~~due byto aan ~~reduction~~increase in leasehold ~~revenue~~improvements ofto ~~$0.6~~our ~~million~~properties ~~from~~and ~~businesses~~the ~~we divested~~acquisition ~~during~~of ~~the~~amortizable ~~same period~~assets. ~~Modest~~Depreciation ~~organic~~and ~~growth~~amortization ~~was~~expense ~~achieved~~as ~~despite~~a ~~the~~percentage ~~negative impact~~ of ~~rate~~net ~~reductions~~revenue inremained ~~some states, including Arizona, Florida and Minnesota~~consistent.

~~Income~~Other ~~from~~(income) ~~operations~~expense ~~increased from $77.2 million during fiscal 2011 to $80.3 million during fiscal 2012 and operating margin decreased slightly from 8.7% of revenue to 8.6% of revenue for the same periods.~~

~~Operating~~Management ~~margin~~fee ~~was~~of ~~negatively~~related ~~impacted~~party: byManagement fee increased ~~staffing~~$8.1 ~~in anticipation~~million ofduring ~~growth~~fiscal ~~opportunities,~~2014 ~~additional~~as ~~staffing~~compared to ~~strengthen~~fiscal ~~quality and service and the rate reductions discussed above~~2013. In ~~addition,~~connection wewith the ~~have~~IPO ~~continued~~of ~~spending on growth initiatives~~Civitas, ~~such~~the asCompany ~~new~~terminated ~~starts.~~the ~~Within~~management ~~this~~agreement ~~segment,~~with weVestar ~~continued to~~and ~~navigate~~paid a ~~shift~~one-time intransaction ~~market~~advisory ~~demand~~fee ~~for models~~ of ~~service for at-risk youth~~$8.0 ~~Many~~million ~~payors were emphasizing non-residential periodic support services~~ to ~~keep a greater number of children and adolescents within their families rather than moving them to out-of-home placements, including therapeutic foster care~~Vestar.

~~The~~Other ~~increase~~income, innet: ~~expenses~~Other ~~noted~~income, ~~above~~net, ~~was~~which ~~offset~~primarily byconsists aof ~~$4.0~~mark ~~million decrease in reserves related~~ to ~~workers’~~market ~~compensation~~adjustments ~~insurance cost and employment practices liability during fiscal 2012 as compared to fiscal 2011 as a result~~ of athe ~~change~~cash insurrender ~~reserves~~value ~~due to favorable settlement~~ of ~~prior~~Company owned ~~period~~life ~~claims.~~insurance ~~During fiscal 2011~~policies, wedecreased ~~recorded~~from ~~an additional~~ $20.9 million ~~due to an increase~~ in ~~workers’~~fiscal ~~compensation~~2013 ~~costs as compared~~ to ~~fiscal 2012. Also, during fiscal 2011, we recognized higher self-insurance reserves for employment practices liability claims, which resulted in an additional~~ $10.12 million ofin ~~expense during~~ fiscal ~~2011 as compared to fiscal 2012~~2014.

~~During~~Loss ~~the~~on ~~fiscal~~extinguishment ~~2012,~~of debt: weExtinguishment ~~also~~of ~~incurred an~~debt ~~additional~~was $414.67 million in ~~travel~~the fiscal year ended September 30, 2014. The prior senior secured credit facilities were repaid and ~~transportation~~replaced ~~expense~~with the senior secured credit facilities on January 31, ~~primarily~~2014, ~~increased~~and ~~cost~~$38.0 million ~~for~~of ~~mileage~~the ~~reimbursement~~senior notes were redeemed on February 26, ~~auto~~2014, ~~insurance~~resulting in the write-off of deferred financing fees, original issue discount, redemption premium and ~~gasoline~~initial purchase discount related to the prior senior secured credit facilities and the partial redemption of the senior notes totaling $14.7 million.

InInterest ~~addition,~~Expense: ~~during~~Interest ~~fiscal~~expense ~~2011,~~decreased ~~we recorded~~ by $3.8.7 million ~~related~~during tofiscal a2014 ~~discretionary~~compared ~~cash~~to ~~bonus~~fiscal 2013 due to ~~direct~~lower ~~care~~interest ~~workers~~expense ason ~~compared~~the tosenior ~~$2.5 million~~secured incredit ~~fiscal~~facilities ~~2012.~~as ~~This~~a ~~bonus~~result isof ~~recorded~~the inrefinancing ~~cost~~on ofJanuary 31, ~~revenue~~2014 inand the ~~accompanying~~redemption ~~consolidated~~of ~~statements~~$38.0 million of ~~operations~~the senior notes on February 26, 2014.

~~Post-Acute~~Benefit ~~Specialty~~for ~~Rehabilitation~~income ~~Services~~taxes

~~Post-Acute~~For ~~Specialty~~fiscal ~~Rehabilitation~~2014, ~~Services~~our ~~revenue~~effective ~~for~~income ~~fiscal~~tax ~~2012~~rate ~~increased~~was ~~by $10~~34.~~0 million, or 5.7~~6%, as compared to ~~fiscal~~an ~~2011.~~effective ~~Revenue increased~~tax ~~$6.5~~rate ~~million~~of ~~from~~37.9% ~~organic~~for ~~growth,~~fiscal ~~including growth related to new programs, and $6~~2013.3 ~~million~~These ~~related~~rates todiffer ~~acquisitions~~from the ~~that~~federal ~~closed~~statutory ~~during~~income ~~and~~tax ~~after~~rate ~~fiscal~~primarily ~~2011.~~due ~~The~~to ~~organic~~nondeductible ~~growth~~permanent ~~was~~differences ~~offset~~such byas ameals ~~reduction~~and innondeductible ~~revenue~~compensation, ofand ~~$2.8~~net ~~million~~operating ~~from businesses~~losses wenot ~~divested during the same period~~benefited.

3437

~~Income~~Loss from discontinued operations increased from $18.4 million during fiscal 2011 to $20.4 million during fiscal 2012 and our operating margin improved from 10.5% to 11.0% for the same periods. The increase is primarily due to the increase in revenue stated above. In addition, during fiscal 2012, our workers’ compensation expense decreased by $0.6 million and our employment practices liability expense decreased by $0.2 million as compared to fiscal 2011 as a result of a change in reserves due to favorable settlement of prior period claims. The decrease in expenses was partially offset by an increase of $0.8 million in occupancy expense as a result of acquisitions in this segment.

~~Corporate~~Loss from discontinued operations net of taxes for fiscal 2014 was $1.4 million as compared to $2.0 million for fiscal 2013. During fiscal 2014, the Company gave notice of its intention to close all Human Services operations in the state of Connecticut. The Company recorded impairment charges of $1.6 million and $0.7 million for intangible assets and properties owned by the business unit, respectively, and $0.1 million of severance expense. The impairment charge and operations of these businesses, including the expenses to close these operations, are included in discontinued operations.

~~Total~~Fiscal ~~corporate~~Year ~~expenses~~Ended ~~decreased by $8.1 million~~September 30, ~~from~~2013 ~~$61.2~~compared ~~million for fiscal 2011~~ to ~~$53.1~~Fiscal ~~million~~Year ~~for~~Ended ~~fiscal 2012~~September 30, ~~as our expenses for fiscal 2011 included certain costs which did not recur during fiscal~~ 2012.

~~During~~Consolidated ~~fiscal~~overview 2011, we recorded an additional $5.3 million expense related to the impairment of our indefinite lived intangible assets that we did not record during fiscal 2012. Additionally, stock based compensation expense decreased by $3.0 million in fiscal 2012 as compared to fiscal 2011. The Company also recorded $2.4 million of discretionary recognition bonuses during fiscal 2011 of which was not recorded in fiscal 2012. The decrease in expenses was partially offset by the increase in staffing and other general and administrative employee-related costs.


	Year ended September 30,
(In thousands)	2013			2012			Increase (Decrease)
Gross revenue	$	1,204,864		$	1,123,146		$	81,718
Sales adjustments		(22,355	)		(15,795	)	$	(6,560	)

Net revenue	$	1,182,509		$	1,107,351		$	75,158

Income from operations	$	52,134		$	46,043		$	6,091
Operating margin		4.4	%		4.2	%

Consolidated gross revenue for the fiscal year ended September 30, 2013 increased by $81.7 million, or 7.3%, compared to gross revenue for the fiscal year ended September 30, 2012 (“fiscal 2012”). Sales adjustments as a percentage of gross revenue increased by 0.5% from 1.4% during fiscal 2012 to 1.9% during fiscal 2013. The increase in sales adjustments was primarily in our Human Services segment. Gross revenue increased $57.2 million from organic growth, including growth related to new programs, and $24.5 million from acquisitions that closed during and after fiscal 2012. The organic growth was partially offset by a reduction in revenue of $3.6 million from businesses we divested during fiscal 2013.

Consolidated income from operations increased from $46.0 million, or 4.2% of net revenue, in fiscal 2012 to $52.1 million, or 4.4% of net revenue, in fiscal 2013. The increase in our operating margin was primarily due to expense leveraging and cost containment efforts in our direct labor costs and general and administrative expenses. The improvement in operating margin was partially offset by an increase in other costs of revenues. Client occupancy expense increased by $10.4 million due to new programs and acquisitions that closed during and after fiscal 2012. Additionally, our health insurance expense and professional and general liability expense increased in fiscal 2013 as compared to fiscal 2012. Our health insurance expense increased approximately $3.0 million in fiscal 2013 compared to fiscal 2012, $2.4 million of which was included in cost of revenue. Professional and general liability expense increased by approximately $1.4 million in fiscal 2013 compared to fiscal 2012 due to an increase in our tail reserve for professional and general liability claims.

Revenues by segment

The following table sets forth net revenue for the Human Services segment for the periods indicated (in thousands):


	Year ended September 30,
	2013			2012			Increase (Decrease)		Percentage Increase (Decrease)
I/DD gross revenue	$	768,362		$	719,180		$	49,182		6.8	%
ARY gross revenue		223,037			214,405			8,632		4.0	%

Total Human Services gross revenue		991,399			933,585			57,814		6.2	%
Sales adjustments		(17,311	)		(11,700	)
Sales adjustments as a percentage of gross revenue		(1.7	)%		(1.3	)%

Total Human Services net revenue	$	974,088		$	921,885		$	52,203		5.7	%

Human Services gross revenue for fiscal 2013 increased by $57.8 million, or 6.2%, compared to fiscal 2012. The increase was driven by a 6.8% increase in I/DD gross revenue and 4.0% increase in ARY gross revenue. The increase in I/DD gross revenue included $37.3 million from organic growth and $11.9 million from acquisitions that closed during and after fiscal 2012. The increase from organic growth was driven by an increase in volume of 10.7% offset by a decrease in average billing rate of 5.5% during fiscal 2013 compared to fiscal 2012. The organic growth was partially offset by a reduction in revenue of $3.6 million from businesses we

divested during fiscal 2013. The increase of $8.6 million in ARY gross revenue was derived from organic growth which was driven by a 4.0% increase in volume during fiscal 2013 compared to fiscal 2012.

Sales adjustments increased by $5.6 million in fiscal 2013 compared to fiscal 2012. Sales adjustments as a percentage of gross revenue increased by 0.4% to 1.7% during fiscal 2013. The increase was primarily due to increases in sales adjustment allowances in our Florida, North Carolina and Pennsylvania business units for the potential write-off of outstanding aged receivables that are in dispute with certain payors.

The following table sets forth net revenue for the SRS segment for the periods indicated (in thousands):


	Year ended September 30,						Increase (Decrease)		Percentage Increase (Decrease)
	2013			2012			Increase (Decrease)		Percentage Increase (Decrease)
SRS gross revenues	$	213,465		$	189,561		$	23,904		12.6	%
Sales adjustments		(5,044	)		(4,095	)
Sales adjustments as a percentage of revenue		(2.4	)%		(2.2	)%

Total SRS net revenues	$	208,421		$	185,466		$	22,955		12.4	%

The SRS segment’s gross revenue for fiscal 2013 increased by $23.9 million, or 12.6%, compared to fiscal 2012. The increase in gross revenue included $11.0 million from organic growth and $12.9 million from acquisitions that closed during and after fiscal 2012. The organic growth was driven by an increase in volume of 2.1% and an increase in average billing rate of 3.7% during fiscal 2013 compared to fiscal 2012.

Cost of revenues by segment

The following table sets forth cost of revenues for the Human Services segment for the periods indicated (in thousands):


	Year ended September 30,
	2013					2012
	Amount		% of net revenue			Amount		% of net revenue			Increase (Decrease)			Change in % of net revenue
Direct labor costs	$	632,456		64.9	%	$	601,867		65.3	%	$	30,589			(0.4	)%
Client program costs		39,722		4.1	%		38,658		4.2	%		1,064			(0.1	)%
Client occupancy costs		50,411		5.2	%		44,365		4.8	%		6,046			0.4	%
Travel & transportation costs		26,288		2.7	%		25,841		2.8	%		447			(0.1	)%
Other direct costs		18,353		1.9	%		20,390		2.2	%		(2,037	)		(0.3	)%

Total cost of revenues	$	767,230		78.8	%	$	731,121		79.3	%	$	36,109			(0.5	)%

Human Services cost of revenue for fiscal 2013 increased by $36.1 million, or 4.9%, compared to fiscal 2012. This increase was driven by $30.6 million increase in direct labor costs and a $6.0 million increase in client occupancy costs and was offset by a $2.0 million decrease in other direct costs.

The increase in direct labor costs was primarily due to increased staffing in connection with new programs and acquisitions that closed during and after fiscal 2012. The decrease in direct labor costs as a percentage of net revenue during fiscal 2013 compared to fiscal 2012 was due to expense leveraging. The increases in client occupancy costs and in client occupancy costs as a percentage of net revenue were attributable to acquisitions and new programs with higher levels of open occupancy and increases in rent, utilities and repairs and maintenance expense related to our businesses. The decrease in other direct costs was primarily due to a reduction of $1.5 million in the cash bonus provided to our direct care workers in fiscal 2013 compared to fiscal 2012.

The following table sets forth cost of revenues for the SRS segment for the periods indicated (in thousands):


	Year ended September 30,										Increase (Decrease)		Change in % of net revenue
	2013					2012
	Amount		% of net revenue			Amount		% of net revenue
Direct labor cost	$	110,508		53.0	%	$	93,412		50.4	%	$	17,096		2.6	%
Client program costs		14,486		7.0	%		13,634		7.4	%		852		(0.4	)%
Client occupancy costs		22,662		10.9	%		18,291		9.9	%		4,371		1.0	%
Travel & transportation costs		2,635		1.3	%		2,383		1.3	%		252		0.0	%
Other direct costs		3,144		1.5	%		2,935		1.6	%		209		(0.1	)%

Total cost of revenues	$	153,435		73.7	%	$	130,655		70.6	%	$	22,780		3.1	%

The SRS segment’s cost of revenue for fiscal 2013 increased by $22.8 million, or 17.4%, compared to fiscal 2012. This increase was driven by $17.1 million increase in direct labor costs, and a $4.4 million increase in client occupancy costs.

The increase in direct labor costs period to period and as a percentage of revenue was primarily due to increased staffing in connection with new programs and acquisitions and due to additional staff to facilitate higher quality and service. The increase in client occupancy expense was primarily attributable to acquisitions that have closed during and after fiscal 2012, and new starts. Client occupancy costs have also been affected by increases in rent, utilities and repairs and maintenance expense related to our existing businesses.

Consolidated operating expenses

General and administrative and depreciation and amortization expense were as follows (in thousands):


	Year ended September 30,										Increase (Decrease)		Change in % of net revenue
	2013					2012
	Amount		% of net revenue			Amount		% of net revenue
General and administrative	$	145,184		12.3	%	$	139,630		12.6	%	$	5,554		(0.3	)%
Depreciation and amortization		63,573		5.4	%		59,987		5.4	%		3,586		0.0	%

Total operating expense	$	208,757		17.7	%	$	199,617		18.0	%	$	9,140		(0.3	)%

General and administrative expenses for fiscal 2013 increased by $5.6 million, or 4.0%, as compared to fiscal 2012 due to increases in professional service fees and administrative staffing costs. Additionally, we wrote off goodwill related underperforming programs within the Human Services segment which were closed in fiscal 2013. The total impairment charge for goodwill that was included in general and administrative expense was $1.3 million.

Depreciation and amortization expense for fiscal 2013 increased $3.6 million, or 6.0%, as compared to fiscal 2012 but remained consistent as a percent of net revenue at 5.4%. The increase in depreciation and amortization expense was primarily due to an increase in leasehold improvements to our properties and the acquisition of amortizable assets. Partially offsetting this increase was a decrease in depreciation and amortization expense as certain assets became fully depreciated. Additionally, we wrote off $1.0 million of intangible assets related to underperforming programs within the Human Services segment which were closed during fiscal 2013.

Non-operating (income) expense

Management fee of related party: Management fee has remained consistent during fiscal 2013 compared to fiscal 2012.

Other income, net: Other income, net which primarily consists of mark to market adjustments of the cash surrender value of Company owned life insurance policies, increased from zero in fiscal 2012 to $0.9 million in fiscal 2013.

Interest Income: Interest income decreased to $0.1 million in fiscal 2013 from $0.3 million in fiscal 2012. Interest income is derived from interest earned on interest bearing bank accounts.

Interest Expense: Interest expense for fiscal 2013 decreased $1.4 million to $78.1 million as compared to fiscal 2012. The decrease is due to the lower interest rate we pay on our borrowings under the prior senior secured credit facilities as a result of the amendment to our prior senior credit agreement during fiscal 2013.

Benefit for income taxes

For fiscal 2013, our effective income tax rate was 37.9% compared to an effective tax rate of 57.5% for fiscal 2012. These rates differ from the federal statutory income tax rate primarily due to nondeductible permanent differences such as meals and nondeductible compensation, and net operating losses not benefited. In addition, our effective tax rate for fiscal 2012 was impacted by a $6.1 million reduction in our reserve for uncertain income tax positions, including interest and penalties, as a result of favorable settlement of an audit.

Loss from discontinued operations

Loss from discontinued operations net of taxes for fiscal 2013 was $2.0 million as compared to a gain of $0.2 million for fiscal 2012. During the second quarter of fiscal 2013, we adopted a plan to sell certain Human Services operations in the State of

Rhode Island and completed the sale in the third quarter of fiscal 2013. Additionally, we closed certain Human Services operations in the Commonwealth of Virginia during the second quarter of fiscal 2013. We recorded a total impairment charge of $4.1 million to write off the related intangible assets. The impairment charge and operations of these businesses including the expenses to close these operations are included in discontinued operations.

Liquidity and Capital Resources

Our principal uses of cash are to meet working capital requirements, fund debt obligations and finance capital expenditures and acquisitions. Cash flows from operations have historically been sufficient to meet these cash requirements. Our principal sources of funds are cash flows from operating activities, cash on hand and available borrowings under our senior revolver (as defined below), and sale of equity securities by Civitas.

Operating activities

Cash flows provided by operating activities were $5583.79 million, $2955.37 million, and $3029.23 million for fiscal ~~2013~~2014, ~~2012~~2013 and ~~2011~~2012, respectively. The increase in cash provided by operating activities in 2014 is primarily attributable to the management of working capital items. The increase in cash provided by operating activities in 2013 and 2014 is also attributable to the decrease in our days sales outstanding. Our days sales outstanding decreased from 47 days to 43 days at September 30, 2014 as compared to September 30, 2013 and from 52 days to 47 days at September 30, 2013 as compared to September 30, 2012. This is primarily due to ~~some~~ efficiencies resulting from the centralization of certain billing and accounts receivable functions as well as the process improvement of our billing and collections process and review of aged receivables.

The decrease in cash flows provided by operating activities from fiscal 2011 to fiscal 2012 was primarily due to an increase in our working capital. Our days sales outstanding increased to 52 days at September 30, 2012 from 48 days at September 30, 2011, as we were still continuing to centralize certain billing and accounts receivable functions and utilize a new billing and accounts receivable system in certain locations.

Investing activities

Net cash used in investing activities was $3988.49 million, $4239.74 million, and $8242.57 million for fiscal ~~2013~~2014, ~~2012~~2013 and ~~2011~~2012, respectively.

Cash paid for acquisitions was $953.37 million, $169.53 million, and $1216.75 million for fiscal ~~2013~~2014, ~~2012~~2013 and ~~2011~~2012, respectively. We acquired ~~three~~eleven, ~~companies~~three ~~in fiscal 2013,~~ and seven companies in each of ~~2012~~fiscal 2014, 2013 and ~~2011~~2012, respectively.

Cash paid for property and equipment for fiscal ~~2013~~ ~~was~~2014 was $3135.93 million, or 2.78% of net revenue, compared to $3031.09 million, or 2.7% of net revenue for fiscal ~~2012~~2013, and $2030.90 million or 2.07% of net revenue for fiscal ~~2011~~2012. ~~We plan to continue allocating approximately 2.7% of revenue to spending on property and equipment during fiscal 2014.~~ During fiscal 2012, we sold certain real estate assets for total cash proceeds of $2.8 million, which we subsequently leased back.

In addition, during fiscal 2011, our restricted cash balance increased by $49.9 million primarily due to $50.0 million which was deposited in a cash collateral account in support of issuance of letters of credit under the institutional letter of credit facility (the “institutional letter of credit facility”).

Financing activities

Net cash provided by financing activities was $3181.07 million, $133.10 million, and $2613.21 million for fiscal years ~~2013~~2014, ~~2012,~~2013 and ~~2011~~2012, respectively. The ~~decrease~~increase in ~~net~~ cash provided by financing activities in fiscal ~~2013~~2014 ~~as compared to fiscal 2012 and fiscal 2011~~ is primarily due to the ~~repayment~~$182.2 ofmillion ~~any~~capital ~~outstanding~~contribution ~~borrowings~~from ~~under~~Civitas ~~our~~as ~~senior~~a ~~revolver.~~result Inof ~~February~~the ~~2013,~~September ~~we increased~~2014 ~~our~~IPO. ~~term~~On ~~loan~~October 17, by2014, ~~an additional~~ $30172.01 million of this capital contribution was used to ~~effectively~~repay ~~lower~~principal and the ~~interest~~associated ~~rate~~call premium on ~~our~~the ~~borrowings~~senior notes.

35Our principal sources of funds are cash flows from operating activities, cash on hand and available borrowings under our senior revolver, and sale of equity securities by Civitas. During fiscal 2013, we borrowed an aggregate of $469.4 million under our senior revolver and repaid $488.4 million during the same period. During fiscal 2014, we borrowed an aggregate of $9.3 million under our senior revolver and repaid $9.3 million during the same period. At September 30, 2014, we had no outstanding borrowings and $100.0 million of availability under the senior revolver. Letters of credit can be issued under our institutional letter of credit facility up to the $50.0 million limit and letters of credit in excess of that amount reduce availability under our senior revolver. Subject to the debt incurrence limitations imposed by the indenture governing the senior notes, we may draw on the revolver during fiscal 2015 and we believe that available funds will provide sufficient liquidity and capital resources to meet our financial obligations for the next twelve months, including scheduled principal and interest payments, as well as to provide funds for working capital, acquisitions, capital expenditures and other needs. No assurance can be given, however, that this will be the case.

On January 31, 2014, we replaced the prior senior secured credit facilities with new senior secured credit facilities consisting of a term loan facility and a senior revolver. The new term loan facility has a seven-year maturity and the new senior revolver has a five-year maturity: provided that if the senior notes are not refinanced in full on or prior to the date that is three months prior to February 15, 2018, such maturity will spring forward to November 15, 2017. We also redeemed $38.0 million aggregate principal amount of the senior notes on February 26, 2014. If these refinancing transactions had occurred at the beginning of fiscal 2013, they would have reduced our interest expense by approximately $11.6 million, based on (i) a reduction in the applicable margin

~~Net~~ and ~~cash~~“LIBOR ~~provided~~floor” byused ~~financing~~to ~~activities~~calculate ~~for~~interest ~~fiscal~~rates ~~2011~~under ~~was~~the ~~primarily~~senior ~~due~~secured tocredit facilities, partially offset by the ~~February~~increase ~~2011 Refinancing.~~in Inthe ~~addition~~principal amount outstanding under the term loan, and ~~net~~(ii) the ~~cash~~elimination ~~used~~of ininterest ~~financing~~expense ~~activities~~on ~~for~~the ~~fiscal~~$38.0 ~~2011~~million ~~included~~principal amount of our senior notes that were redeemed. Assuming an ~~earn-out~~effective ~~payment~~tax rate of 40%, this reduction in interest expense would have reduced our fiscal 2013 net loss by approximately $37.40 million. See Note 9 to ~~the~~our ~~former~~consolidated ~~owners~~financial ofstatements ~~IFCS,~~included aelsewhere ~~company~~herein ~~that~~for wefurther ~~acquired~~information inabout ~~fiscal~~our ~~2009~~senior secured credit facilities.

~~Our~~On ~~principal~~September 22, ~~sources~~2014, ofCivitas, ~~funds~~our ~~are~~indirect ~~cash~~parent ~~flows from operating activities~~company, ~~cash~~completed onan ~~hand,~~initial ~~and~~public ~~available~~offering ~~borrowings~~resulting ~~under~~in ~~our~~net ~~senior~~proceeds ~~revolver.~~of ~~Our~~$182.2 ~~increased~~million ~~cash interest payments~~ after ~~the~~deducting ~~February~~underwriting ~~2011~~discounts, ~~Refinancing~~commissions, and ~~our~~offering ~~use~~expenses. ofIn ~~cash~~connection towith ~~fund~~the ~~investments~~offering, inCivitas ~~our~~through ~~growth initiatives have reduced~~ our ~~liquidity~~direct inparent ~~the~~NMH ~~business. During fiscal 2013~~Holdings, weLLC ~~borrowed~~made ana ~~aggregate~~capital ofcontribution ~~$469.4~~to ~~million~~the ~~under our~~Company ~~senior~~in ~~revolver~~the ~~and~~amount ~~repaid~~of $~~488~~182.~~4 million~~2 ~~during the same period. At September 30~~million, ~~2013, we had no outstanding borrowings and~~ $758.0 million of ~~availability~~which ~~under~~was ~~the~~used ~~senior~~to ~~revolver.~~pay ~~However,~~a ~~despite~~one-time ~~the~~transaction ~~contractual~~advisory ~~availability,~~fee ~~our leverage covenants could effectively limit our ability~~ to ~~draw~~Vestar, ~~on the senior revolver~~$172.1 ~~Letters~~million of ~~credit~~which ~~can~~was beused ~~issued under our institutional letter of credit facility up~~ to ~~the~~redeem $50162.0 million ~~limit and letters of credit~~ in ~~excess~~aggregate ofprinciple ~~that~~ amount ~~reduce~~ ~~availability~~of ~~under~~ our senior ~~revolver.~~notes Weat ~~expect~~a toredemption ~~continue~~price toof ~~draw~~106.25% ~~on the revolver during fiscal 2014~~ and we$2.1 ~~believe~~million ~~that~~of ~~available~~which was ~~funds~~used ~~will~~to ~~provide~~pay ~~sufficient~~other ~~liquidity~~transaction ~~and~~related ~~capital~~costs ~~resources~~paid toby ~~meet~~us. ~~our~~The ~~financial~~redemption ~~obligations~~of ~~for~~ the ~~next~~ ~~twelve~~senior ~~months,~~notes ~~including~~occurred ~~scheduled~~on ~~principal~~October 17, ~~and interest payments~~2014, asand ~~well~~ as toof ~~provide~~that ~~funds for working capital~~date, ~~acquisitions, capital expenditures and other needs~~$50.0 Nomillion ~~assurance~~in ~~can~~principal beamount ~~given,~~of ~~however,~~senior ~~that~~notes ~~this will be the case~~remain.

~~Also~~During ~~during~~ fiscal ~~2013~~2014, ~~2012~~2013 and ~~2011~~2012, ~~our indirect parent~~ NMH Investment repurchased equity units from employees upon or after their departures from the Company for $39110 thousand, $75 39 thousand, and $~~1.5~~75 ~~million~~thousand, respectively. We accounted for these repurchases as dividends of $39 110 thousand, $7539 thousand and $~~1.5~~75 ~~million~~thousand, respectively, up to NMH Investment which used the proceeds to fund the repurchases.

Debt and Financing Arrangements

Senior Secured Credit Facilities

InOn ~~the~~January 31, ~~February~~2014, ~~2011~~we ~~Refinancing~~and NMH Holdings, weLLC entered into a new senior credit agreement (the “senior credit agreement”) with Barclays Bank PLC, as administrative agent, and the other agents and lenders named therein, for the new senior secured credit facilities (the “senior secured credit facilities”), consisting of a ~~(i) six-year~~ $~~530~~600.0 million term loan facility (the “term loan facility”), of which $50.0 million was deposited in a cash collateral account in support of the issuance of letters of credit under ~~the~~an institutional letter of credit facility (the “institutional letter of credit facility”), and a ~~(ii)~~ $75100.0 million ~~five-year~~ senior secured revolving credit facility (the “senior revolver”). On October 21, 2014, the Company increased the revolving commitment under the senior revolver by $20.0 million, on terms identical to those applicable to the existing senior revolver. The aggregate amount of the revolving commitment under the senior revolver is now $~~530~~120.0 million. The term loan ~~was~~facility ~~issued~~has ata seven-year maturity and the senior revolver has a ~~price~~five-year ~~equal~~maturity; provided, that if the senior notes are not refinanced in full on or prior to 98the date that is three months prior to February 15, 2018, such maturity dates shall spring forward to November 15, 2017.5% ofThe ~~its~~senior ~~face~~credit ~~value~~agreement ~~and~~provides ~~amortizes~~that we may make one ~~percent~~or ~~per~~more ~~year,~~offers ~~paid~~to ~~quarterly~~the lenders, and consummate transactions with individual lenders that accept the ~~remaining~~terms ~~balance~~contained ~~payable~~in atsuch offers, to extend the maturity. Wedate ~~refer~~of tothe ~~these~~lender’s ~~facilities,~~term asloans ~~amended~~and/or ~~on October 15~~revolving commitments, ~~2012~~subject to certain conditions, asand ~~the~~any ~~“senior~~extended ~~secured~~term ~~credit~~loans ~~facilities”~~or revolving commitments will constitute a separate class of term loans or revolving commitments.

OnAll ~~October 15,~~of ~~2012~~the obligations under the senior secured credit facilities are guaranteed by NMH Holdings, weLLC ~~entered~~and ~~into~~the ansubsidiary ~~Amendment~~guarantors named ~~Agreement~~therein (the “~~Amendment~~Subsidiary ~~Agreement~~Guarantors”). Pursuant to ~~amend~~the Guarantee and ~~restate~~Security ~~the~~Agreement, ~~senior~~dated ~~credit~~as ~~agreement~~of ~~governing~~January 31, 2014 (the ~~senior~~“guarantee ~~secured~~and ~~credit~~security ~~facilities.~~agreement”), ~~The~~among ~~Amendment~~Parent, ~~Agreement~~as ~~converted~~parent guarantor, the ~~existing~~Company, ~~term~~certain ~~loan~~of ~~facility~~the Company’s ~~into~~subsidiaries, aas ~~tranche~~subsidiary ~~B-1~~guarantors ~~term~~and ~~loan~~Barclays ~~facility in~~Bank, ~~aggregate~~PLC, ~~principal~~as ~~amount~~administrative ofagent, ~~$522.1~~subject ~~million~~to (certain exceptions, the ~~“term~~obligations ~~loan”),~~under the ~~proceeds~~senior ofsecured ~~which~~credit ~~were~~facilities ~~used~~are tosecured ~~prepay~~by ~~the~~a ~~existing~~pledge ~~term~~of ~~loan.~~100% ~~The~~of ~~Amendment~~the ~~Agreement~~Company’s capital ~~also~~stock ~~replaced~~and ~~our~~the ~~existing~~capital ~~$75.0~~stock ~~million~~of ~~revolving~~domestic ~~credit~~subsidiaries ~~facility~~owned ~~and~~by the ~~borrowings~~ ~~thereunder~~Company ~~with~~and aany ~~new~~other ~~$75.0~~domestic ~~million~~Subsidiary ~~revolving~~Guarantor ~~credit~~and ~~facility~~65% (of the ~~“senior~~capital ~~revolver”).~~stock ~~The~~of ~~Amendment~~any ~~Agreement~~first ~~had~~tier ~~the~~foreign ~~effect~~subsidiaries ofand ~~lowering~~a ~~the~~security interest ~~rate~~in wesubstantially ~~pay~~all onof the Company’s ~~borrowings~~tangible ~~under~~and ~~the~~intangible ~~senior~~assets ~~secured~~and ~~credit~~the ~~facilities~~tangible ~~by 0.5%,~~and byintangible ~~reducing~~assets ~~the~~of ~~LIBOR~~NMH ~~floor~~Holdings, ~~from~~LLC ~~1.75%~~and toeach 1Subsidiary Guarantor.~~25%.~~

~~All~~The ofsenior ~~our~~revolver ~~obligations~~includes ~~under~~borrowing ~~the~~capacity ~~senior~~available ~~secured~~for ~~credit~~letters ~~facilities~~of ~~are~~credit ~~guaranteed by Parent~~ and ~~certain~~for ofborrowings ~~our~~on ~~existing~~same-day ~~subsidiaries.~~notice, ~~The~~referred ~~obligations~~to ~~under~~as the “swingline ~~senior~~loans.” ~~secured~~Any ~~credit~~issuance ~~facilities are secured by a pledge~~ of ~~100%~~letters of ~~our~~credit ~~capital~~or ~~stock~~borrowing ~~and~~on ~~the~~a ~~capital~~swingline ~~stock~~loan ofwill ~~domestic~~reduce ~~subsidiaries~~the ~~owned~~amount byavailable usunder ~~and~~the ~~any~~senior ~~other~~revolver. ~~domestic subsidiary~~As ~~guarantor and 65%~~ of ~~the~~September 30, ~~capital~~2014, ~~stock~~we ofhad ~~any~~no ~~first~~borrowings ~~tier~~under ~~foreign~~the ~~subsidiaries,~~senior revolver and a$44.3 million ~~security~~of ~~interest~~letters ~~in substantially all~~ of ~~our~~credit ~~tangible~~issued ~~and~~under ~~intangible assets and~~ the ~~tangible~~institutional ~~and~~letter ~~intangible assets~~ of ~~Parent~~credit ~~and each guarantor~~facility.

At our option, we may add one or more new term loan facilities or increase the commitments under the senior revolver (collectively, the “incremental borrowings”) in an aggregate amount of up to $125.0 million plus any additional amounts so long as certain conditions, including a consolidated first lien leverage ratio (as defined in the senior credit agreement) of not more than 64.0050 to 1.00 on a pro forma basis, are satisfied. ~~The~~In addition, the covenants in the indenture governing the senior notes effectively limit the amount of incremental borrowings that we may incur tobased ~~not~~on ~~more~~a ~~than~~consolidated ~~$75.0 million.~~leverage Inratio ~~February~~(as ~~2013,~~defined wein ~~entered~~the ~~into~~indenture) anof ~~amendment~~not ~~related~~more tothan ~~our senior credit agreement for an incremental borrowing of $30~~6.000 ~~million~~to ~~under our term loan~~1.00 ~~See~~on ~~“Term~~a ~~Loan”~~pro ~~for~~forma ~~more details~~basis.

~~The~~42 senior credit agreement contains a number of covenants including, among other things, limitations on our ability to incur additional debt, create liens on assets, transfer or sell assets, pay dividends, redeem stock or make other distributions or investments, and engage in certain transactions with affiliates. The senior credit agreement contains affirmative covenants and events of default. The senior credit agreement also requires us to maintain certain financial covenants, as described under “Covenants”.

The interest rates under the senior secured credit facilities were unchanged by the Amendment Agreement, except that the LIBOR floor applicable to borrowings under the senior secured credit facilities was reduced by 0.50%. As a result, borrowings under the senior secured credit facilities bear interest as follows: (1) in the case of base rate loans, at a rate equal to the greater of (a) the prime rate of UBS AG, Stamford Branch, (b) the federal funds rate plus 1/2 of 1% and (c) the Eurodollar rate for an interest period of one-month beginning on such day plus 100 basis points (subject to an ABR floor of 2.25% per annum), plus 4.25%, and (2) in the case of Eurodollar loans, at the Eurodollar rate (subject to a LIBOR floor of 1.25% per annum), plus 5.25%.

~~Term~~Borrowings under the senior secured credit facilities bear interest, at our option, at: (i) an ABR rate equal to the greater of (a) the prime rate of Barclays Bank PLC, (b) the federal funds rate plus 1/2 of 1.0%, and (c) the Eurodollar rate for an interest period of one-month plus 100 basis points, plus 2.75% (provided that the ABR rate applicable to the term loan facility will not be less than 2.00% per annum); or (ii) the Eurodollar rate (provided that the Eurodollar rate applicable to the term loan facility will not be less than 1.00% per annum), plus 3.75%. The applicable margin will decrease by 0.50% per annum if our consolidated leverage ratio is less than or equal to 5.00 to 1.00. This decrease will become effective as of the first business day immediately following the first date on which the Company delivers a quarterly compliance certificate setting forth such calculation. We are also required to pay a commitment fee to the lenders under the senior revolver at an initial rate of 0.50% of the average daily unutilized commitments thereunder. The Company must also pay customary letter of credit fees.

The ~~original~~senior ~~$530.0~~credit ~~million~~agreement requires ~~term~~us ~~loan~~to ~~was~~make ~~issued~~mandatory atprepayments, asubject ~~price~~to ~~equal~~certain exceptions, with: (i) beginning in fiscal year 2015, 50% (which percentage will be reduced upon its achievement of certain first lien leverage ratios) of our annual excess cash flow; (ii) 100% of net cash proceeds of all non-ordinary course assets sales or other dispositions of property, subject to ~~98.5~~certain exceptions and thresholds; and (iii) 100% of ~~its~~the ~~face~~net ~~value.~~cash ~~The~~proceeds of any debt incurrence, other than debt permitted under the senior credit agreement. ~~includes~~Excess acash ~~provision for~~flow is defined in our senior credit agreement as (A) the ~~prepayment~~sum of a(i) consolidated ~~portion~~net ofincome (as defined in the ~~outstanding~~senior ~~term~~credit ~~loan~~agreement), ~~amounts~~plus ~~equal~~(ii) the tonet andecrease ~~amount~~in working ~~ranging~~capital, plus (iii) noncash charges previously deducted from 0consolidated tonet ~~50%~~income, plus (iv) non-cash losses from assets sales, minus (B) the sum of a(i) certain ~~calculated~~amortization ~~amount~~and other mandatory prepayment of indebtedness, ~~depending~~plus on(ii) unfinanced ~~our~~capital ~~leverage~~expenditures ~~ratio~~plus (iii) the cash portion of permitted investments plus (iv) noncash gains previously including in consolidated net income, ifplus we(v) the ~~generate~~net increase in working capital, plus (vi) certain ~~levels~~cash payments of long-term liabilities, plus (vii) cash ~~flow~~restricted payments, ~~sell~~plus ~~certain~~(viii) cash ~~assets~~expenditures ornot ~~incur~~expensed ~~other~~during such period, plus (ix) penalties paid in connection with the repayment of indebtedness, ~~subject~~plus to (x) certain ~~exceptions.~~cash Wedistributions ~~have~~from ~~not~~the ~~been~~SRS ~~required~~business, plus (xi) aggregate unfinanced portion of contract consideration for acquisition or capital expenditures to ~~make~~be consummated, plus (xii) aggregate amount of cash amounts received in such aperiod ~~prepayment~~but asexcluded from consolidated net income, plus (xiii) certain cash payments in respect of ~~September~~earnout obligations, plus (xiv) 30certain voluntary prepayments of indebtedness, ~~2013~~plus (xv) certain cash payments of non-cash charges added back in a prior period, plus (xvi) all charges or expenses incurred in such period but excluded from consolidated net income. We are required to repay the term loan facility portion of the senior secured credit facilities in quarterly principal installments of 0.25% of the ~~original~~ principal amount commencing on June 30, ~~which~~ 2014, with the balance payable at maturity. The senior credit agreement permits the Company to offer to its lenders newly issued notes in exchange for their term loans in one or more permitted debt exchange offers, subject to the conditions set forth in the senior credit agreement.

On February 4, 2013, we also entered into an Incremental Amendment No. 1 (the “Incremental Amendment No. 1”) to the senior credit agreement. The Incremental Amendment No. 1 provided for an additional $30.0 million term loan (the “incremental term loan”) under our existing term loan. The net proceeds were used to repay a majority of the outstanding borrowings under our senior revolver. We are required to repay the incremental term loan in quarterly installments of 0.25% of its principal amount, with the balance payable at maturity. All of the other terms of the incremental term loan are identical to the term loan.

At September 30, 2013, we had $546.5 million of borrowings under the term loan (including the incremental term loan). At September 30, 2013, the variable interest rate on the term loan was 6.5%.

Senior revolver

We had no borrowings and $75.0 million of availability under the senior revolver September 30, 2013 and had $42.2 million of standby letters of credit issued under the institutional letter of credit facility primarily related to our workers’ compensation insurance coverage. Letters of credit can be issued under our institutional letter of credit facility up to the $50.0 million credit collateral account. Letters of credit in excess of that amount reduce availability under our senior revolver. The interest rate for any borrowings under the senior revolver was 7.5% at September 30, 2013.

The senior revolver includes borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as the “swingline loans.” Any issuance of letters of credit in excess of the $50 million credit collateral account or making of a swingline loan will reduce the amount available under the senior revolver.

Senior Notes

On February 9, 2011, we issued $250.0 million in aggregate principal amount of ~~the~~ senior notes at a price equal to 97.7% of their face value. The senior notes mature on February 15, 2018 and bear interest at a rate of 12.50% per annum, payable semi-annually on February 15 and August 15 of each year, beginning on August 15, 2011. The senior notes are our unsecured obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by certain of our existing subsidiaries.

WeOn ~~may redeem the senior notes at our option, in whole or part, at any time prior to~~ February 1526, 2014, atwe aredeemed ~~price~~$38.0 ~~equal~~million toaggregate ~~100% of the~~ principal amount of the ~~senior~~outstanding ~~notes~~principal amount ~~redeemed~~of ~~plus~~our ~~accrued and unpaid interest to the redemption date and plus an applicable premium. We may redeem the~~ senior notes, in ~~whole~~accordance orwith ~~in part, on or after February 15, 2014, at~~ the ~~redemption~~provisions ~~prices set~~of ~~forth in~~ the indenture ~~plus~~governing ~~accrued~~them. ~~and~~The ~~unpaid interest to the~~ redemption ~~date.~~price ~~At any time on or before February 15, 2014, we may choose to redeem up to 35%~~ of the ~~aggregate principal amount of the~~ senior notes atwas ~~a redemption price equal to 112~~106.5250% of the principal amount ~~thereof~~redeemed, plus accrued and unpaid interest to ~~the redemption date~~, ~~with~~but ~~the~~not ~~net proceeds of one or more equity offerings~~including, ~~so long as at least 65% of~~ the ~~original aggregate principal amount of the senior notes remain~~ ~~outstanding after each such~~ redemption date.

On October 17, 2014, we redeemed an additional $162.0 million in aggregate principal amount of the outstanding senior notes at a redemption price of 106.25% plus accrued and unpaid interest thereon to, but not including, the date of redemption. After giving effect to that redemption, $50.0 million in aggregate principal amount of senior notes remains outstanding.

Covenants

The senior credit agreement and the indenture governing the senior notes contain negative financial and non-financial covenants, including, among other things, limitations on our ability to incur additional debt, create liens on assets, transfer or sell assets, pay dividends, redeem stock or make other distributions or investments, and engage in certain transactions with affiliates. We were in compliance with these covenants as of September 30, 2013. In addition, in the case of the senior credit agreement, we are required to maintain at the end of each fiscal quarter a consolidated leverage ratio. At September 30, 2013, the maximum consolidated leverage ratio was not more than 6.50 to 1.00. This consolidated leverage ratio will step down over time, starting on December 31, 2013 when we will be required to maintain a consolidated leverage ratio of not more than 6.00 to 1.00. The consolidated leverage ratio is defined as the ratio of total debt, net of cash and cash equivalents, to consolidated EBITDA, as defined in the senior credit agreement, for the most recently completed four fiscal quarters. We are also required to maintain at the end of each fiscal quarter a minimum consolidated interest coverage ratio. At September 30, 2013, the minimum consolidated interest coverage ratio was 1.55 to 1.00 and this ratio will continue to step up over time. The next step up is on September 30, 2014 ~~when we will be required to maintain a minimum interest coverage ratio of 1~~.70 to 1.00. The consolidated interest coverage ratio is defined as the ratio of consolidated EBITDA to consolidated interest expense, both as defined under the senior credit agreement, for the most recently completed four fiscal quarters.

37In addition, the senior credit agreement contains a springing financial covenant. If, at the end of any fiscal quarter, our usage of the senior revolver exceeds 30% of the commitments thereunder, we are required to maintain at the end of each such fiscal quarter, a consolidated first lien leverage ratio of not more than 5.50 to 1.00. This consolidated first lien leverage ratio will step down to 5.00 to 1.00 commencing with the fiscal quarter ending March 31, 2017. The springing financial covenant was not in effect as of September 30, 2014 as our usage of the senior revolver did not exceed the threshold for that quarter.

AsThe ofsenior ~~September 30,~~credit ~~2013,~~agreement ~~our~~also ~~consolidated~~contains ~~leverage~~a ~~ratio~~number ~~was~~of ~~5.49~~covenants ~~to 1.00~~that, asamong ~~calculated~~other inthings, ~~accordance~~restrict, ~~with~~subject ~~the~~to ~~senior~~certain ~~credit~~exceptions, ~~agreement and~~ our ~~consolidated~~ability ~~interest~~and ~~coverage~~the ~~ratio~~ability ~~was~~of ~~1.85~~its subsidiaries to: ~~1.00,~~(i) incur asadditional ~~calculated~~indebtedness; in(ii) create ~~accordance~~liens ~~with~~on ~~the~~assets; ~~senior~~(iii) engage ~~credit~~in ~~agreement.~~mergers Asor ofconsolidations; ~~September~~(iv) ~~30,~~sell ~~2013,~~assets; (v) pay ~~total~~dividends ~~debt,~~and ~~net~~distributions ofor ~~cash~~repurchase ~~and~~our ~~cash~~capital ~~equivalents,~~stock; ~~was $734.1~~(vi) enter ~~million.~~into ~~Under~~swap ~~the~~transactions; ~~senior~~(vii) make ~~credit agreement~~investments, ~~consolidated~~loans ~~EBITDA~~or isadvances; ~~defined~~(viii) repay ascertain ~~net~~junior ~~income~~indebtedness; ~~before~~(ix) engage ~~interest~~in ~~expense~~certain ~~and~~transactions with ~~interest~~affiliates; ~~income,~~(x) enter ~~income~~into ~~taxes,~~sale ~~depreciation~~ and ~~amortization,~~leaseback ~~further~~transactions; ~~adjusted~~(xi) amend tomaterial ~~add~~agreements ~~back~~governing certain ~~non-cash~~of ~~charges,~~our ~~fees under~~junior ~~the~~indebtedness; ~~management~~(xii) change ~~agreement with~~ our ~~equity~~lines ~~sponsor, proceeds~~ of business; ~~insurance,~~(xiii) make certain ~~expenses~~acquisitions; ~~incurred~~and (xiv) limitations ~~under~~on ~~indemnification~~the orletter ~~refunding~~of ~~provisions~~credit ~~for~~cash ~~acquisitions,~~collateral ~~certain~~account. ~~start-up~~If ~~losses,~~we ~~non-cash~~withdraw ~~compensation~~any ~~expense,~~of ~~transaction bonuses,~~the ~~unusual~~$50.0 ormillion ~~non-recurring~~from ~~losses,~~the ~~charges,~~cash ~~severance~~collateral ~~costs~~account ~~and~~supporting ~~relocation~~the ~~costs~~issuance ~~and~~of ~~deductions~~letters ~~attributable~~of ~~to minority interests~~credit, ~~business~~we ~~optimization~~must ~~expenses~~use ~~and~~the ~~further~~cash ~~adjusted~~ to ~~subtract~~either ~~unusual~~prepay orthe ~~non-recurring~~term ~~income~~loan facility or ~~gains, income tax credits~~ to ~~the~~secure ~~extent~~any ~~not~~other ~~netted,~~obligations ~~non-cash~~under ~~income~~the ~~and~~senior ~~interest~~secured ~~income~~credit ~~and~~facilities ~~gains~~in ona ~~interest~~manner ~~rate~~reasonably ~~hedges,~~satisfactory ~~and~~to ~~further~~the ~~adjusted~~administrative ~~for~~agent. ~~certain~~The ~~other~~senior ~~items~~credit ~~including~~agreement ~~EBITDA~~contains ~~and~~customary ~~pro~~affirmative ~~forma~~covenants ~~adjustments from acquired businesses~~ and ~~exclusion~~events of ~~discontinued~~ ~~operations~~default.

Set forth below is a reconciliation of consolidated EBITDA, as calculated under the senior credit agreement, to net loss for the four fiscal quarters ended September 30, 2013.

	(in thousands)
Net loss	$	(18,296	)
Loss from discontinued operations, net of tax		2,724
Benefit for income taxes		(9,472	)
Interest expense		78,075
Interest income		(137	)
Management fee of related party		1,359
Depreciation and amortization		64,146
Claims made insurance liability		3,445
Non-cash charges		(784	)
Restructuring expense		703
Acquisition costs		238
Franchise taxes, transaction fees, costs, and expenses		208
Stock-based compensation		273
Loss on disposal of assets		165
Operating losses from new starts		8,000
Business optimization expenses		183
Acquired EBITDA		2,229
Professional liability claims expense in excess of cash payments		545
Consolidated EBITDA per the senior credit agreement	$	133,604

Set forth below is an annualized calculation of consolidated interest expense as of September 30, 2013, as calculated under the credit agreement:

	(in thousands)
Senior term loan	$	35,605
Senior notes		31,250
Interest rate swap agreements		3,358
Senior revolver and unused line of credit		1,079
Capital leases		815
Standby letters of credit		105
Interest income		(137	)
Consolidated interest expense per the senior credit agreement	$	72,075

The consolidated leverage ratio and the consolidated interest coverage ratios are material components of the senior credit agreement and non-compliance with these ratios could prevent us from borrowing under the senior revolver and would result in a default under the senior credit agreement.

Contractual Commitments Summary

The following table summarizes our contractual obligations and commitments as of September 30, ~~2013~~2014:

	Total		Less ~~Than1~~Than ~~Year~~1Year		1-3 Years		3-5 Years		More ~~Than5~~Than ~~Years~~5Years
	(In thousands)
Long-term debt obligations(1)	$	1,056,391	$	72,729	$	144,447	$	839,215	$	—
Long-term debt obligations (1)	$	1,011,136	$	206,380	$	80,997	$	120,388	$	603,371
Operating lease obligations(2)		198,150		47,261		67,893		40,934		42,062
Operating lease obligations (2)		208,411		52,748		78,397		43,757		33,509
Capital lease obligations		6,~~939~~509		~~430~~451		~~948~~1,046		1,~~157~~282		43,~~404~~730
Purchase obligations (3)		411,~~421~~230		~~824~~4,699		26,~~161~~100		~~1,436~~431		—
Standby letters of credit		4244,~~211~~287		4244,~~211~~287		—		—		—
Total obligations and commitments	$	1,~~308~~281,~~112~~573	$	~~163~~308,~~455~~565	$	~~215~~166,~~449~~540	$	~~882~~165,~~742~~858	$	46640,~~466~~610

(1) ~~Amounts~~Represents ~~represent~~ the principal amount of our long-term debt and the expected cash payments for interest on our long-term debt based on the interest rates in place and amounts outstanding at September 30, ~~2013~~2014. AsThe amaturity ~~result~~ of the ~~amendment~~term ofloan ~~the~~principal ~~senior~~and ~~credit~~interest, ~~agreement~~which ~~governing~~is ~~our~~due ~~senior~~in ~~secured~~quarterly ~~credit~~installments ~~facilities~~through onJanuary ~~October~~31, 152021, ~~2012~~is subject to acceleration to November 15, ~~the~~2017. ~~LIBOR~~See ~~floor~~Note ~~applicable~~9 to ~~borrowings~~our ~~under~~consolidated ~~the~~financial ~~senior~~statements ~~secured~~included ~~credit~~elsewhere ~~facilities~~herein ~~was~~for ~~reduced~~further byinformation 0about our senior secured credit facilities.~~50%.~~

(2)	Includes the fixed rent payable under the leases and does not include additional amounts, such as taxes, that may be payable under the leases.

(3) ~~Amounts~~Represents ~~represent~~ purchase obligations related to information technology services and maintenance contracts.

Inflation

We do not believe that general inflation in the U.S. economy has had a material impact on our financial position or results of operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet transactions or interests.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

We believe our application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change.

As of September 30, 2014, there has been no material change in our accounting policies or the underlying assumptions or methodology used to fairly present our financial position, results of operations and cash flows for the periods covered by this report. In addition, no triggering events have come to our attention pursuant to our review of goodwill that would indicate impairment as of September 30, 2014.

The following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

Revenue is reported net of allowances ~~for~~(discussed ~~unauthorized~~below) ~~sales~~ and ~~estimated sales adjustments. Revenue is also reported net of any~~ state provider taxes ~~or gross receipts taxes levied on services we provide~~. ~~Sales adjustments are estimated based on an analysis of historical sales adjustments and recent developments in the payment trends.~~ Revenue is recognized when evidence of an arrangement exists, the service has been provided, the price is fixed or determinable and ~~collectibility~~collectability is reasonably assured.

~~We recognize~~Generally, we recognize revenue for services ~~performed~~provided ~~pursuant~~ to ~~contracts~~our ~~with~~clients ~~various~~when ~~state~~earned. ~~and~~Our ~~local~~services ~~government~~fall ~~agencies~~into ~~and~~two ~~private~~general ~~health~~categories: ~~care~~residential ~~agencies~~and ~~as follows: cost~~non-~~reimbursement~~residential. ~~contract~~In ~~revenue~~residential isservices, ~~recognized~~we atare ~~the~~providing ~~time~~a ~~the~~living ~~service~~environment, ~~costs~~usually ~~are~~a ~~incurred and~~community ~~units-of-service~~residence, ~~contract~~to ~~revenue~~a isclient ~~recognized~~and providing atcare ~~the~~on ~~time~~a ~~the~~24-hour ~~service is provided~~basis. ~~For our cost~~Non-~~reimbursement~~residential ~~contracts,~~services ~~the~~are ~~rate~~ provided byto ~~the~~a ~~payor~~client ~~is based~~ on aan ~~certain~~hourly ~~level~~(or ofother ~~service~~unit ~~and types~~ of ~~costs incurred in delivering the service. From~~ time) tobasis ~~time~~for therapy, wecommunity ~~receive~~support ~~payments~~or ~~under cost-reimbursement contracts~~ in ~~excess~~our ofday ~~the~~program ~~allowable costs required to support those payments~~centers. InRevenues ~~such~~for ~~instances,~~residential weservices ~~estimate~~are ~~and~~recognized ~~record a liability~~ for ~~such excess payments. At~~ the ~~end of the~~ ~~contract~~number ~~period, any balance~~ of ~~excess~~days ~~payments~~in ~~is maintained as a liability until it is reimbursed to~~ the ~~payor.~~accounting ~~Revenue~~period inthat the ~~future~~client ~~may~~is ~~be affected by changes~~ in ~~rate-setting~~our ~~structures,~~service. ~~methodologies~~Periodic orservice ~~interpretations~~revenue ~~that~~is ~~may~~recognized bewhen ~~enacted~~the ~~in states~~related ~~where~~services weare ~~operate or by the federal government~~performed.

39In addition, we operate under four distinct types of contracting arrangements with our payors:

•

Negotiated Contracts. For these contracts, services are priced pursuant to a “plan of care” for the client which encompasses habilitation and therapies. Such contracts are not subject to retroactive adjustment or cost reimbursement requirements. However, we may petition for a change in rate based upon a change in circumstances with a particular client or in situations where additional services are needed. For these contracts, we recognize revenue at the negotiated rate when earned. Subsequent adjustments to rates, if any, are recognized when approved by the payor. For fiscal years ended 2012, 2013 and 2014, 40.8%, 40.4% and 32.7%, respectively, of our revenues were earned from contracts that fall into this category.

•

Fixed Fee Contracts. For these contracts, payors set a standard rate or set of rates for a particular service usually dependent on the acuity of the client. These rates are the same for all agencies providing the service. For these contract types, there is generally no cost report required or if a cost report is required it is used for informational purposes only. For these contracts, we recognize revenue at the standard rate as earned. For fiscal years ended 2012, 2013 and 2014, 39.6%, 40.1% and 46.5%, respectively, of our revenues were earned from contracts that fall into this category.

•

Retrospective reimbursement contracts. For these contracts, a provisional rate is set for the year pending the filing of an annual cost report that may further adjust that rate. Cost reimbursement rules differ by jurisdiction and program type but generally include direct costs, indirect costs, depreciation, interest, overhead allocations with interest, overhead and profit usually subject to limitation. Should the cost report indicate that allowable rate is lower than what has been billed, we record a liability and these funds are adjusted back or refunded to the state payor at some time in the future. For these contracts we prepare an analysis quarterly to determine if any of the revenue that has been billed and recognized should be deferred and if so record that portion as a current liability. In a subsequent quarter, allowable costs may increase which would result in a reversal of the liability but if this condition persists through the end of the statutory annual period, we would refund the unallowed portion of the revenue to the state and offset the liability. For fiscal years ended 2012, 2013 and 2014, 10.1%, 10.7% and 11.7%, respectively, of our revenues were earned from contracts that fall into this category.

•

Prospective payment contracts. These contracts are cost reported in the same way as retrospective contracts, except the cost report for the annual period is used to set the rates in a future period. For these contracts, changes in rates are recognized in revenue prospectively. For fiscal years ended 2012, 2013 and 2014, 9.5%, 8.8% and 9.1%, respectively, of our revenues were earned from contracts that fall into this category.

All four types of contracting arrangements are subject to audit by the payor and may be subject to recoupments of revenue if in performing our services we have not adhered to the terms of the contract, or not documented our services as specified by the payor. For fiscal years ended 2012, 2013 and 2014 liabilities to payors for cost based contracts were $5.4 million, $3.6 million and $3.7 million, respectively.

Accounts Receivable and Reserves

Accounts receivable primarily consists of amounts due from state payors, not-for-profit providers and commercial insurance companies. Generally there is no bad debt risk with government payors or insurance companies. However, allowances are still required for disallowances of revenue that have not been billed timely or if authorizations to deliver services have been exceeded. In addition, there are numerous retroactive adjustments to revenue in cases where rates are adjusted by payors, often after an assessment of our client that takes effect retroactively. We record the following reserves against revenue:

Sales Adjustment Allowance. The types of sales adjustments that we record typically involves rate adjustments due to billing errors or an agreed upon settlement of rate or level of services disputes with the payors. Sales adjustments expense is recorded

~~Accounts~~ against ~~Receivable~~revenue in accordance with industry practice. We estimate the sales adjustment allowance based on historical sales adjustments experience. In addition, we also regularly evaluate our accounts receivable, especially receivables that are past due, and reassess our sales adjustment allowance based on specific payor collection issues and may record a specific addition to our sales adjustment allowance to reduce the net recognized receivable to the amount we reasonably expect to collect. As of September 30, 2012, 2013 and 2014, our sales adjustment allowance was $9.3 million, $12.5 million and $11.5 million, respectively.

~~Accounts~~Non ~~receivable~~Authorized ~~primarily~~Sales ~~consist~~Allowance. ofOur ~~amounts~~clients ~~due~~are ~~from~~generally ~~government~~long-term ~~agencies,~~recipients ~~not-for-profit~~of ~~providers~~our services and ~~commercial~~require ~~insurance~~continuous ~~companies~~care. AnThe majority of ~~estimated~~the ~~allowance~~services ~~for~~are ~~doubtful~~paid ~~accounts~~for isthrough ~~recorded~~state toMedicaid ~~the~~programs. ~~extent~~When itwe isenter ~~probable~~into ~~that~~an aarrangement ~~portion~~to orprovide ~~all~~services ofto a ~~particular~~client, ~~account~~we ~~will~~obtain ~~not~~an be“authorization” ~~collected.~~to Inprovide ~~evaluating~~services ~~the~~for ~~collectibility~~a ofspecified ~~accounts~~period ~~receivable,~~of wetime ~~consider~~such as a ~~number~~six ofmonths ~~factors,~~or one year. ~~including~~When ~~payment~~an ~~trends~~authorization inexpires ~~individual~~we ~~states,~~generally ~~age~~do ofnot ~~the~~discontinue ~~accounts~~providing ~~and~~service ~~the~~to ~~status~~our ofclients ~~ongoing~~and ~~disputes~~in ~~with~~some ~~third~~cases ~~party~~are ~~payors.~~prevented ~~Complex~~from ~~rules~~doing ~~and~~so ~~regulations~~legally. ~~regarding~~Therefore, ~~billing~~it ~~and~~is ~~timely~~not ~~filing~~uncommon ~~requirements~~for inus ~~various~~to ~~states~~serve ~~are~~a ~~also~~client without a ~~factor~~current inauthorization. ~~our~~In this ~~assessment~~situation ofwe ~~the~~determine ~~collectibility~~whether ofa ~~accounts~~non-authorized ~~receivable.~~sales ~~Actual~~allowance ~~collections~~is ofrequired ~~accounts~~by ~~receivable~~whether the lapse in ~~subsequent~~authorization ~~periods~~is ~~may~~within ~~require~~the ~~changes~~documented incustomary ~~the~~business ~~estimated~~practice ~~allowance~~period that we have established for ~~doubtful~~that ~~accounts~~particular payor. ~~Changes~~Once the lapse in authorization ~~these~~extends ~~estimates~~beyond ~~are~~the ~~charged~~normal orperiod ~~credited~~for ~~to revenue~~that aspayor, awe ~~contractual~~adjust the non-authorized sales allowance into reserve the ~~consolidated~~revenue. ~~statements~~As of ~~operations~~September 30, in2012, ~~the~~2013 ~~period~~and of2014, ~~the~~our ~~change~~non-authorized insales ~~estimate~~allowance was $1.7 million, $1.8 million and $2.3 million, respectively.

Goodwill and Indefinite-lived Intangible Assets

We review ~~costs~~goodwill ofand ~~purchased~~indefinite-lived ~~businesses~~intangible inassets ~~excess~~for impairment annually, as of July 1st, or whenever events or changes in circumstances indicate the ~~fair~~carrying value of ~~net~~these assets ~~acquired (goodwill),~~may ~~and~~not ~~indefinite-lived~~be ~~intangible~~recoverable ~~assets~~to ~~for~~determine whether any impairment atexists, ~~least~~and, ~~annually~~if so, ~~unless~~the ~~significant~~extent ~~changes~~of insuch ~~circumstances~~impairment. ~~indicate~~Our agoodwill ~~potential~~balance ~~impairment~~represents ~~may~~the ~~have~~difference ~~occurred~~between ~~sooner.~~the Wepurchase ~~conduct~~price ~~our~~of acquired ~~annual~~businesses ~~impairment~~and ~~test~~the ~~for~~fair ~~both~~value ~~goodwill~~of the identifiable tangible and ~~indefinite-lived~~ intangible net assets onwhen ~~July 1~~accounted offor ~~each~~using ~~year.~~the Wepurchase ~~are~~method ~~required~~of toaccounting. We test goodwill onat athe reporting unit ~~basis~~level, which is the same level as our operating segments. We have the option to first assess qualitative factors to determine whether further impairment testing is necessary. We have elected to bypass the qualitative assessments ~~for the fiscal year ended 2013~~ and proceed directly to the two-step impairment test. The first step is to compare the fair value of the reporting unit with its carrying value. We estimated the fair value of each of our reporting units using the income approach. The income approach is based on a discounted cash flow analysis and calculates the fair value of a reporting unit by estimating the after–tax cash flows attributable to a reporting unit and then discounting them to a present value using a risk-adjusted discount rate. In our discounted cash flow analysis, we forecasted cash flows by reporting unit for each of the next seven years and applied a long term growth rate to the final years of the forecasted cash flows to estimate terminal value. The cash flows were then discounted to a present value using a risk-adjusted discount rate. The discount rates, which are intended to reflect the risks inherent in future cash flow projections used in the discounted cash flow analysis are based on estimates of the weighted average costs of capital of market participants relative to each respective reporting unit. If the carrying amount of the reporting unit exceeds its estimated fair value, ~~then~~we are required to perform the second step, or Step 2, of the goodwill impairment test isto ~~performed.~~measure ~~The~~the ~~second~~amount ~~step~~ of impairment loss. Step 2 of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying ~~amount~~value of that goodwill in order to determine the amount of impairment to be recognized. The ~~excess~~implied offair ~~the carrying~~ value of goodwill ~~above~~is calculated as the ~~implied~~difference ~~goodwill,~~between ifthe ~~any,~~fair ~~would~~value beof ~~recognized~~the asreporting ~~an impairment~~unit ~~charge.~~and ~~Fair~~the ~~values~~estimated ~~are~~fair ~~established~~value ~~using~~of ~~discounted~~its ~~cash~~assets ~~flow~~ and ~~comparative market multiple methods~~liabilities.

~~For its~~Our indefinite- lived intangible assets primarily consist of trade names acquired in business combinations. For these assets, we have the option to first assess qualitative factors to determine whether further impairment testing is necessary. The Company has elected to bypass the qualitative assessments ~~for fiscal year 2013~~ and proceed directly to the quantitative impairment test. The impairment test for indefinite-lived intangible assets requires the determination of the fair value of the intangible asset. If the fair value of the indefinite-lived intangible asset is less than its carrying value, an impairment loss is recognized in an amount equal to the difference. Fair values are established using the relief from royalty method.

The estimated fair ~~value~~values of aour reporting ~~unit~~units isand indefinite lived intangibles are based on discounted estimated future cash flows. The discounted ~~assumptions~~cash ~~used~~flow toanalysis ~~estimate~~requires ~~fair~~significant ~~value~~judgment, ~~include management’s~~including ~~best~~judgments ~~estimates~~about ofthe appropriate discount rates and terminal values, future growth, capital expenditures, ~~discount rates~~ and market conditions over ~~an estimate of~~ the estimated remaining operating period. As such, actual results may differ from these estimates and lead to a revaluation of our goodwill and indefinite-lived intangible assets. If updated estimates indicate that the fair value of goodwill or any indefinite-lived intangibles is less than the carrying value of the asset, an impairment charge is recorded in the consolidated statements of operations in the period of the change in estimate.

We completed our annual impairment tests in the fourth quarter of 2014, 2013 and 2012 and determined in each of those periods that the carrying value of goodwill and indefinite-lived assets was not impaired. In fiscal 2014, the fair value of each of our reporting units was in excess of its carrying value and passed with a substantial margin, except for one reporting unit, whose fair value exceeded the carrying value by approximately $13.2 million. For this reporting unit, we performed a sensitivity analysis on our significant assumptions and determined that none of (i) a 10% reduction in projected free cash flows, (ii) a 50 basis point increase in the weighted average cost of capital or (iii) a 50 basis point reduction in terminal growth rate, individually, which we determined to be reasonable, would impact our conclusions.

Impairment of Long-Lived Assets

Intangible assets with finite lives consist of agency contracts, acquired licenses and permits and non-competition agreements and are valued according to the future cash flows they are estimated to produce. Tangible assets with finite lives consist of property and equipment, which are depreciated over their estimate useful lives. We review these long-lived assets for impairment ~~when~~by continually evaluating whether circumstances indicate the carrying amount of an asset may not be recoverable based on the undiscounted future cash flows of the asset. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded.

Income Taxes

We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined by multiplying the differences between the financial reporting and tax reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered or settled. These deferred tax assets and liabilities are separated into current and long-term amounts based on the classification of the related assets and liabilities for financial reporting purposes and netted by jurisdiction. Valuation allowances on deferred tax assets are estimated based on our assessment of the realizability of such amounts.

The ultimate recovery of certain of our deferred tax assets is dependent on the amount and timing of taxable income we will ultimately generate in the future, as well as other factors. A high degree of judgment is required to determine the extent a valuation allowance should be provided against deferred tax assets. On a quarterly basis, we assess the likelihood of realization of our deferred tax assets considering all available evidence, both positive and negative. Our operating performance in recent years, the scheduled reversal of temporary differences, our forecast of taxable income in future periods in each applicable tax jurisdiction, our ability to sustain a core level of earnings, and the availability of prudent tax planning strategies are important considerations in our assessment. Our forecast of future earnings includes assumptions about service volumes, payor reimbursement, labor costs, operating expenses, and interest expense. Based on the weight of available evidence, we determine if it is more likely than not our deferred tax assets will be realized in the future.

We also recognize the benefits of tax positions when certain criteria are satisfied. Companies may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. We recognize interest and penalties related to uncertain tax positions as a component of income tax expense which is consistent with the recognition of these items in prior reporting periods.

Stock-Based Compensation

NMH Investment, ~~our indirect parent,~~ adopted an equity-based compensation plan, and issued units of limited liability company interests consisting of Class B Common Units, Class C Common Units, Class D Common Units, Class E Common Units, Class F Common Units, Class G Common Units, and Class H Common Units pursuant to such plan. The units are limited liability company interests and are available for issuance to our employees and members of the Board of Directors for incentive purposes. ~~For~~Compensation ~~purposes of determining the compensation~~ expense ~~associated~~is ~~with~~recorded for these ~~grants,~~awards ~~management~~based ~~values~~on the ~~business~~estimated enterprise using a variety of widely accepted valuation techniques which considered a number of factors such as our financial performance, the values of comparable companies and the lack of marketability of our equity. We then used the option pricing method to determine the fair value ofon ~~these units at~~ the ~~time of~~ grant ~~using~~ ~~valuation assumptions consisting of the expected term in which the units will be realized; a risk-free interest rate equal to the U~~date.S. ~~federal~~Compensation ~~treasury~~expense ~~bond~~reflects ~~rate consistent with the term assumption; expected dividend yield, for which there is~~an ~~none;~~estimate ~~and~~of ~~expected volatility based on~~ the ~~historical~~number ~~data~~ of ~~equity~~awards ~~instruments~~expected ofto ~~comparable~~vest ~~companies. For Class B Units, Class C Units, Class D Units, Class E Units~~ and ~~Class F Units, the estimated fair value of the units, less an assumed forfeiture rate,~~ is recognized ~~in expense~~ on a straight-line basis over the requisite service ~~periods~~period ofor at the ~~awards.~~time ~~The~~it ~~Class~~is Gprobable ~~Units~~that ~~and Class H Units vest upon a liquidity event and/or upon the occurrence of~~ certain ~~investment~~performance ~~return~~ conditions~~, for~~ ~~which the compensation expense~~ will ~~then~~ be ~~recognized in its entirety when probable~~met.

For purposes of determining the estimated fair value of these grants, management values the business enterprise using a variety of widely accepted valuation techniques which considered a number of factors such as our financial performance, the values of comparable companies and the lack of marketability of our equity. We then use the option pricing method to determine the fair value of these units at the time of grant. Significant assumptions include the expected term in which the units will be realized; a risk-free interest rate equal to the U.S. federal treasury bond rate consistent with the term assumption; expected dividend yield, for which there is none; and expected volatility based on the historical data of equity instruments of comparable companies. For Class B Common Units, Class C Common Units, Class D Common Units, Class E Common Units and Class F Common Units, the estimated fair value of the units, less an assumed forfeiture rate, is recognized in expense on a straight-line basis over the requisite service periods of the awards. We use the historical forfeiture patterns to determine the forfeiture rate. The Class G Common Units and Class H Common Units vest upon a liquidity event and/or upon the occurrence of certain investment return conditions. We regularly assess the probability of these events occurring. At the time these events are determined to be probable, compensation expense will then be recognized in its entirety. During fiscal 2014, the Class G Units fully vested as a result of the completion of the IPO of Civitas on September 22, 2014. As a result, the company recognized $0.6 million of expense in fiscal 2014.

In connection with the IPO of Civitas, we amended the terms of the Class H Common Units so that they vest upon the earlier to occur of a sale of the Company and the achievement of a multiple of investment return threshold by Vestar and its affiliates. However, the employment agreements for the executive officers and two other individuals provide that (i) in the event that such individual’s employment is terminated due to such individual’s death or disability or (ii) the individual’s employment is terminated six months prior to or within 24 months after a sale of the Company, such individual’s unvested Class F Common Units and Class H Common Units will vest. Once vested, the holders of Class H Units are entitled to receive between 0.0% and 5.0% of the common equity value distributed by NMH Investment to its unit holders depending upon the multiple of investment achieved by Vestar and its affiliates. At the time when the vesting of these awards becomes probable, the fair value of the awards as determined on the modification date, or $7.5 million, will be expensed. Although this non-cash expense would impact our financial results in the event vesting becomes probable, it would not impact the number of shares outstanding as it would only reflect a reallocation of economic value among Vestar and the Management Investors in NMH Investment. As of September 30, 2014, no expense has been recognized for these units.

In fiscal 2014, Civitas, the Company’s indirect parent, adopted an equity-based compensation plan and issued stock-based awards including non-qualified stock options and restricted stock units. The Company recognizes the fair value of stock-based compensation expense over the requisite service period of the individual grantee, which equals the vesting period. The Company is required to estimate future forfeitures of stock-based awards for recognition of compensation expense. The Company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior recognized expense if the actual forfeitures are higher than estimated. The actual expense recognized over the vesting period will only be for those awards that vest.

The fair value of each award granted was estimated on the grant date using the Black-Scholes valuation model. Significant assumptions include the expected term in which the awards will be realized; a risk-free interest rate equal to the U.S. federal treasury bond rate consistent with the term assumption; expected dividend yield, for which there is none; and expected volatility. The Company has estimated volatility for the awards granted based on the historical volatility for a group of companies believed to be a representative peer group, selected based on industry and market capitalization, due to lack of sufficient historical publicly traded prices of its own common stock. The fair value of the stock options and restricted stock awards on the date of grant, less an assumed forfeiture rate of 9.3% for employee grants, will be recognized as expense in the Company’s consolidated financial statements on a straight-line basis over the requisite service periods of the awards. The Company does not have a history with these types of awards, and as such, the historical forfeiture rate of the Unit Plan was used as the basis for determining the assumed forfeiture rate. The Company has not applied a forfeiture rate to the restricted awards granted to the Board of Directors as the awards vest 100% on the first anniversary of the grant date.

Derivative Financial Instruments

We report derivative financial instruments on the balance sheet at fair value and establish criteria for designation and effectiveness of hedging relationships. Changes in the fair value of derivatives are recorded each period in current operations or in the consolidated statements of comprehensive income (loss) depending upon whether the derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction.

We, from time to time, enter into interest rate swap agreements to hedge against variability in cash flows resulting from fluctuations in the benchmark interest rate, which is LIBOR, on our debt. These agreements involve the exchange of variable interest rates for fixed interest rates over the life of the swap agreement without an exchange of the notional amount upon which the payments are based. On a quarterly basis, the differential to be received or paid as interest rates change is accrued and recognized as an adjustment to interest expense in the accompanying consolidated statement of operations. In addition, on a quarterly basis the mark to market valuation is recorded as an adjustment to gain (loss) on derivative within the consolidated statements of comprehensive income (loss). The related amount receivable from or payable to counterparties is included as an asset or liability, respectively, in our consolidated balance sheets.

The fair value of the swap arrangements are determined based on pricing models and independent formulas using current assumptions that include swap terms, interest rates and forward LIBOR curves and our credit risk. As of September 30, 2014, the swap arrangements were expired.

Accruals for Self-Insurance

We maintain employment practices liability, professional and general liability, workers’ compensation, automobile liability and health insurance with policies that include self-insured retentions. Employment practices liability is fully self-insured. We record expenses related to claims on an incurred basis, which includes estimates of fully developed losses for both reported and unreported claims. The accruals for the health, workers’ compensation, automobile, employment practices liability and professional and general liability programs are based on analyses performed internally by management and ~~may~~for certain balances, take into account reports by independent third ~~parties.~~party ~~Accruals relating to prior periods are periodically reevaluated and increased or decreased based on new information~~actuaries. Changes in estimates are charged or credited to the consolidated statements of operations in a period subsequent to the change in estimate. In addition, we report insurance liabilities on a gross basis without giving effect to insurance recoveries.

~~Legal~~48 ~~Contingencies~~

We are regularly involved in litigation and regulatory proceedings in the operation of our business. We reserve for costs related to contingencies when a loss is probable and the amount is reasonably estimable. While we believe our provision for legal contingencies is adequate, the outcome of our legal proceedings is difficult to predict and we may settle legal claims or be subject to judgments for amounts that differ from our estimates. In addition, legal contingencies could have a material adverse impact on our results of operations in any given future reporting period. See “Part I, Item 1A. Risk Factors” for additional information.

We regularly analyze our reserves for incurred but not reported claims and for reported but not paid claims related to our self-insured retentions and fully self-insured programs. We believe our reserves are adequate. However, significant judgment is involved in assessing these reserves, such as assessing historical paid claims, average lags between the claims’ incurred date, reported dates and paid dates and the frequency and severity of claims. There may be differences between actual settlement amounts and recorded reserves and any resulting adjustments are included in expense once a probable amount is known. Any significant increase in the number of claims or costs associated with claims made under these programs above our reserves could have a material adverse effect on our financial results.

Legal Contingencies

We are regularly involved in litigation and regulatory proceedings in the operation of our business. We reserve for costs related to contingencies when a loss is probable and the amount is reasonably estimable. While we believe our provision for legal contingencies is adequate, the outcome of our legal proceedings is difficult to predict, and we may settle legal claims or be subject to judgments for amounts that differ from our estimates. In addition, legal contingencies could have a material adverse impact on our results of operations in any given future reporting period. See “Risk Factors” and “Business—Legal Proceedings” for additional information.

Subsequent Events

The Company redeemed $162.0 million aggregate principal amount of the senior notes on October 17, 2014, and as of that date, $50.0 million in aggregate principal amount of senior notes remains outstanding.

On October 21, 2014, the Company increased the revolving commitment under the senior revolver by $20.0 million, on terms identical to those applicable to the existing senior revolver. The aggregate amount of the revolving commitment under the senior revolver is now $120.0 million.

On October 31, 2014, the Company acquired a company complementary to its Human Services business for aggregate consideration of $4.5 million.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to changes in interest rates as a result of our outstanding variable rate debt. ToThe ~~reduce~~variable ~~the interest~~ rate ~~exposure~~debt ~~related~~outstanding relates to the ~~variable~~term ~~debt,~~loan weand ~~entered~~the ~~into~~senior anrevolver, ~~interest~~which ~~rate~~bears ~~swap~~interest inat: (i) a ~~notional~~rate ~~amount~~equal ofto ~~$400.0~~the ~~million~~greater ~~effective~~of ~~March~~(a) ~~31,~~the ~~2011~~prime ~~and ending September 30~~rate, ~~2014. Under~~ (b) the ~~terms~~federal offunds ~~the~~rate ~~swap,~~plus as1/2 ~~amended~~of on1% ~~October 15,~~and ~~2012, we receive from~~ (c) the ~~counterparty~~Eurodollar ~~a quarterly payment based on a~~ rate ~~equal~~for toan ~~the~~interest ~~greater~~period of 3one-month ~~LIBOR~~plus ~~and~~100 ~~1.25% per annum,~~basis ~~and~~points weplus ~~make~~2.75%; ~~payments~~or to (ii) the ~~counterparty~~Eurodollar ~~based~~rate on(subject to a ~~fixed~~LIBOR ~~rate~~floor of 21.0800% ~~per annum~~), ~~in each case on the notional amount of $400~~plus 3.~~0 million~~75%, ~~settled~~at onour aoption. ~~net~~A ~~payment~~1% ~~basis.~~increase ~~Based~~in on the ~~applicable~~interest ~~margin~~rate ofon ~~5.25% under~~ our ~~term~~floating ~~loan facility,~~rate ~~this~~debt ~~swap~~as ~~effectively~~of ~~fixes~~September 30, ~~our~~2014 ~~cost~~would ofhave ~~borrowing~~increased ~~for~~cash ~~$400.0~~interest ~~million~~expense ofon ~~our~~the ~~term~~floating ~~loan~~rate debt atby 7approximately $6.3%1 million per annum, ~~for~~without ~~the~~giving ~~term~~effect to of the interest rate swap agreement discussed below.

AsTo areduce ~~result of~~ the interest rate ~~swap,~~exposure ~~the~~related ~~variable~~to ~~rate~~our variable debt, ~~outstanding~~we ~~was~~entered ~~effectively~~into an ~~reduced~~interest ~~from~~rate ~~$546.5~~swap ~~million~~in ~~outstanding~~a tonotional amount of $~~146~~400.5 0 million, ~~outstanding~~effective ason ~~of September~~March 3031, ~~2013~~2011. ~~The~~Under ~~variable~~the ~~rate~~terms ~~debt~~of ~~outstanding~~the ~~relates~~swap, toas ~~the~~amended ~~term~~on ~~loan~~October 15, ~~and~~2012, we receive from the ~~senior~~counterparty ~~revolver,~~a ~~which~~quarterly ~~bear~~payment ~~interest~~based aton ~~(i)~~ a rate equal to the greater of ~~(a) the~~3-month ~~prime~~LIBOR ~~rate~~and ~~(b) the federal funds rate plus~~ 1~~/2 of 1~~.25% ~~and (c)~~ ~~the~~per ~~Eurodollar~~annum, ~~rate~~and ~~for~~we anmake ~~interest~~payments ~~period~~to ofthe ~~one-month~~counterparty ~~beginning~~based on ~~such day plus 100 basis points (subject to~~ a ~~LIBOR~~fixed ~~floor~~rate of 2.2508% per annum), ~~plus~~in ~~4.25%;~~each orcase ~~(ii)~~ on the ~~Eurodollar~~notional ~~rate~~amount ~~(subject~~of to$400.0 million, settled on a ~~LIBOR floor~~net ofpayment 1basis.~~25%),~~ ~~plus~~The ~~5.25%,~~swap atexpired ~~our~~on September 30, ~~option~~2014. AWe 1%are ~~increase~~considering inentering ~~the~~into a new interest rate onswap ~~our~~or ~~floating~~other ~~rate~~hedging ~~debt~~agreement, ~~would~~but ~~increase~~the ~~cash~~timing ~~interest~~and ~~expense~~type onof ~~the~~instrument, ~~floating~~notional ~~rate~~amount ~~debt~~and byduration ~~approximately~~of ~~$1.5~~any ~~million~~such ~~per~~instrument ~~annum.~~or arrangement have not yet been determined.

Item 8.

Financial Statements and Supplementary Data

Our consolidated financial statements required by this Item are on pages F-1 through F-3236 of this report.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, and is accumulated and communicated to management, including the Chief Executive Officer and the President (principal executive officers) and the Chief Financial Officer (principal financial officer), to allow for timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. As of September 30, 2013, the end of the period covered by this Annual Report on Form 10-K, our management, with the participation of our principal executive officers and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, our principal executive officers and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2013.

~~(b)~~49 ~~Management’s Report on Internal Control Over Financial Reporting~~

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d — 15(f) of the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of September 30, 2013.

Management’s evaluation did not include assessing the internal controls of three businesses that were acquired by us in purchase business combination transactions during fiscal 2013. The combined financial statements of these companies are included in our consolidated financial statements for the fiscal year ended September 30, 2013, and represented 1.1% of our total assets as of September 30, 2013 and 0.2% of our net revenue for the fiscal year ended September 30, 2013.

forms of the SEC, and is accumulated and communicated to management, including the Chief Executive Officer and the President (principal executive officer) and the Chief Financial Officer (principal financial officer), to allow for timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. As of September 30, 2014, the end of the period covered by this Annual Report on Form 10-K, our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2014.

(b) Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of September 30, 2014.

Management’s evaluation did not include assessing the internal controls of 11 businesses that were acquired by us in purchase business combination transactions during fiscal 2014. The combined financial statements of these companies are included in our consolidated financial statements for the fiscal year ended September 30, 2014, and represented 1.5% of our total assets as of September 30, 2014 and 1.6% of our net revenue for the fiscal year ended September 30, 2014.

During the fiscal year ended September 30, ~~2013~~2014, we continued to ~~transition and~~ evaluate the transition of certain field billing and accounts receivable functions into a centralized shared services center. This centralization is expected to continue in a phased approach over the next several years. As part of this centralization, we continue to refine and optimize our billing and accounts receivable process and related system in a majority of our operations. This has affected, and will continue to affect, the processes that impact our internal control over financial reporting. We will continue to review the related controls and may take additional steps to ensure that they remain effective.

~~During~~Except for the ~~fiscal~~continuing ~~year~~centralization ~~ended~~and ~~September 30,~~optimization ~~2013,~~of weour ~~transitioned~~billing and ~~certain~~accounts ~~field~~receivable process and related system, as well as the centralization of certain general ledger functions, ~~into~~there awere ~~centralized~~no ~~shared~~significant ~~services~~changes ~~center.~~in ~~This~~our ~~centralization~~internal iscontrol ~~expected~~over tofinancial ~~continue~~reporting inthat ahave ~~phased~~materially ~~approach~~affected, ~~over~~or ~~the~~are ~~next~~reasonably likely ~~several~~to ~~years~~materially affect, our internal control over financial reporting.

Except for the continuing centralization and optimization of our billing and accounts receivable process and related system, as well as the centralization of certain general ledger functions, during the most recent fiscal quarter, there were no significant changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to an exemption for issuers that are not “large accelerated filers” nor “accelerated filers” set forth in Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Item 9B.

Other Information

~~Item 5~~None.02 ~~Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers~~

On50 December 16, 2013, the Company amended and restated The Mentor Network Human Services and Corporate Management Incentive Plan, effective October 1, 2013. The amended and restated plan applies to fiscal years beginning with fiscal 2014. The plan was amended to include a further modifier to the plan to increase or decrease (up to a maximum increase or decrease of ten percent (10%) of the amount of incentive compensation to be paid to certain employees based on the actual number of days sales outstanding (“DSO”) achieved by the Company as of the end of fiscal 2014 compared to the target approved by the Compensation Committee at the beginning of each fiscal year (the “DSO Target”).

For a description of the terms of The Mentor Network Human Services and Corporate Management Incentive Plan, see “Item 11. Executive Compensation—Compensation Discussion and Analysis—Annual Incentive Compensation.”

On October 11, 2013, we announced an executive transition plan under which Bruce F. Nardella, currently President and Chief Operating Officer, will become Chief Executive Officer and the sole principal executive officer effective January 1, 2014. Mr. Nardella will also become a member of the Board of Directors and will serve on the Company’s Compliance Committee. On December 16, 2013, the Compensation Committee of the Company’s Board of Directors approved certain compensation arrangements that will become effective January 1, 2014, to effectuate the executive transition plan. Specifically, on December 16, 2013, the Company entered into the following agreements: (1) Second Amended and Restated Employment Agreement between the Company and Edward M. Murphy (the “Murphy Employment Agreement”), (2) Employment Agreement between the Company and Bruce F. Nardella (the “Nardella Employment Agreement”), and (3) Termination Agreement between the Company and Gregory Torres (the “Torres Termination Agreement”). On December 16, 2013, the Board of Directors also increased the size of the Board of Directors from seven (7) Directors to eight (8) and appointed Mr. Nadella to the Board of Directors.

Pursuant to the Murphy Employment Agreement, effective January 1, 2014, Mr. Murphy will resign as Chief Executive Officer of the Company and will be elected as Executive Chair of the Board of Directors. The initial term of the Murphy Employment Agreement is one year, after which the agreement renews automatically each year for a one-year term, unless terminated earlier by the parties. The Murphy Employment Agreement provides a base salary of $400,000 per year, subject to review and adjustment from time to time, with an annual bonus from the incentive compensation plan equal to no less than Mr. Murphy’s base salary if the Company reaches certain yearly determined performance objectives. Under the terms of the agreement, if Mr. Murphy is terminated by the Company without “cause” or Mr. Murphy resigns with “good reason”, the Company is obligated to continue to pay him his base salary and targeted incentive compensation for two years following the date of such termination, as well as a pro rata incentive compensation amount for the year in which such termination occurs. The definition of “cause” includes the commission of fraud or embezzlement, an indictment or conviction for a felony or a crime involving moral turpitude, willful misconduct, violation of any material written policy of the Company, material neglect of duties, failure to comply with reasonable Board directives and material breach of any agreement with the Company or its securityholders or affiliates. The definition of “good reason” includes a material change in title, duties and responsibilities, a reduction in Mr. Murphy’s annual base salary or annual bonus opportunity (subject to certain exclusions), a material breach by the Company of the amended and restated employment agreement, and relocation of Mr. Murphy’s principal place of work from its current location to a location that is beyond a 50-mile radius of such location. The Murphy Employment Agreement contains provisions pursuant to which Mr. Murphy has agreed not to disclose our confidential information. Mr. Murphy has also agreed not to solicit our employees or contractors, nor compete with us for a period of two years after his employment with us has been terminated.

The Company entered into the Nardella Employment Agreement in connection with Mr. Nardella’s promotion to Chief Executive Officer of the Company. The Nardella Employment Agreement has an initial term of three years, after which the agreement renews automatically each year for a one-year term, unless terminated earlier by the parties. The Nardella Employment Agreement provides for a base salary of $500,000 per year, subject to review and adjustment from time to time, with an annual bonus from the incentive compensation plan equal to no less than Mr. Nardella’s base salary if the Company reaches certain yearly determined performance objectives. Under the terms of the agreement, if Mr. Nardella is terminated by the Company without “cause” or Mr. Nardella resigns with “good reason”, the Company is obligated to continue to pay him his base salary and targeted incentive compensation for two years following the date of such termination, as well as a pro rata incentive compensation amount for the year in which such termination occurs. The definition of “cause” includes the commission of fraud or embezzlement, an indictment or conviction for a felony or a crime involving moral turpitude, willful misconduct, violation of any material written policy of the Company, material neglect of duties, failure to comply with reasonable Board directives and material breach of any agreement with the Company or its securityholders or affiliates. The definition of “good reason” includes a material change in title, duties and responsibilities, a material reduction in Mr. Nardella’s annual base salary or annual bonus opportunity (subject to certain exclusions), a material breach by the Company of the amended and restated employment agreement, and relocation of Mr. Nardella’s principal place of work from its current location to a location that is beyond a 50-mile radius of such location. The Nardella Employment Agreement contains provisions pursuant to which Mr. Nardella has agreed not to disclose our confidential information. Mr. Nardella has also agreed not to solicit our employees or contractors, nor compete with us for a period of two years after his employment with us has been terminated. In connection with his promotion to Chief Executive Officer of the Company, Mr. Nardella was granted 100,000 Class F Units and 100,000 Class H Units by NMH Investment on December 16, 2013.

On December 16, 2013, the Board of Directors accepted the resignation of Mr. Torres as Chairman of the Board of Directors and employee of the Company, effective as of January 1, 2014. In connection with Mr. Torres’ resignation, the Company entered into a Termination of Amended and Restated Employment Agreement (the “Torres Termination Agreement”). Pursuant to the terms of the Torres Termination Agreement, the Company has agreed to make a donation in the amount of $100,000 to MassINC. Although Mr. Torres will no longer be Chairman of the Board of Directors or an employee of the Company as of January 1, 2014, he will remain a Director of the Company.

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year

On December 16, 2013, pursuant to a unanimous written consent of the board of directors of the Company, the bylaws of the Company were amended. First, the Amendment replaces the position of the Chairman of the Board with the position of the Executive Chair. Second, the Amendment adds a separate position of Chief Executive Officer of the Company. This Amendment was adopted in connection with the management transition, pursuant to which, effective January 1, 2014, Edward M. Murphy will become the Executive Chair of the board of directors and Bruce N. Nardella will become the Chief Executive Officer of the Company.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

~~The~~Intentionally ~~following~~omitted in ~~table~~accordance ~~sets~~with ~~forth~~General ~~the~~Instruction ~~name,~~1(2)(c) ~~age and position~~ of ~~each of our directors and executive officers as of December~~Form 1,10-K. ~~2013:~~

Name	Age	Position
Gregory T. Torres	64	Chairman and Director
Edward M. Murphy	66	Chief Executive Officer and Director
Bruce F. Nardella	56	President and Chief Operating Officer
Denis M. Holler	59	Chief Financial Officer and Treasurer
Robert M. Melia	57	Cambridge Operating Group President
David M. Petersen	65	Redwood Operating Group President
Jeffrey M. Cohen	45	Chief Information Officer
Linda DeRenzo	54	Chief Legal Officer, General Counsel and Secretary
Kathleen P. Federico	54	Chief Human Resources Officer
Dwight D. Robson	42	Chief Public Strategy and Marketing Officer
Chris A. Durbin	48	Director
James L. Elrod, Jr.	59	Director
Pamela F. Lenehan	61	Director
Kevin A. Mundt	59	Director
Guy Sansone	49	Director

Directors are elected at the annual meeting of our sole stockholder and hold office until the next annual meeting or a special meeting in lieu thereof, and until their successors are elected and qualified, or upon their earlier resignation or removal. There are no family relationships between any of the directors and executive officers listed in the table. There are no arrangements or understandings between any executive officer and any other person pursuant to which he or she was selected as an officer.

Gregory T. Torres has served as Chairman of the board of directors since September 2004. He was also the Company’s Chief Executive Officer from January 1996 to January 2005, as well as its President from January 1996 until September 2004. Mr. Torres joined the Company in 1980 as a member of its first board of directors. Prior to joining the Company, Mr. Torres held prominent positions within the public sector, including chief of staff of the Massachusetts Senate Committee on Ways and Means and assistant secretary of human services. Since May 2007, Mr. Torres has been president and chief executive officer of the Massachusetts Institute for a New Commonwealth, known as “MassINC”, an independent, nonpartisan research and educational institute in Boston. On December 16, 2013, the Board of Directors accepted the resignation of Mr. Torres as Chairman and employee of the Company, effective as of January 1, 2014. In connection with Mr. Torres’ resignation, the Company entered into a Termination of Amended and Restated Employment Agreement (the “Torres Termination Agreement”). Mr. Torres was selected as a director for his knowledge and experience in the human services industry, in the nonprofit, public and private sectors. On October 11, 2013, we announced that Mr. Torres will step down as Chairman effective January 1, 2014 but will remain a director.

Edward M. Murphy has served as Chief Executive Officer since January 2005 and was elected to the Board of Directors in September 2004. He also served as our President from September 2004 until December 2009. Mr. Murphy founded Alliance Health and Human Services, Inc. (“Alliance”) in 1999 and served as the organization’s President and CEO until September 2004. Prior to founding Alliance, he was a Senior Vice President at Tucker Anthony and President and Chief Operating Officer of Olympus Healthcare Group. Mr. Murphy is a former Commissioner of the Massachusetts Department of Youth Services and the Massachusetts Department of Mental Health, and the former Executive Director of the Massachusetts Health and Educational Facilities Authority. On December 16, 2013, the Board of Directors accepted the resignation of Mr. Murphy as Chief Executive Officer of the Company effective as of January 1, 2014. Effective as of January 1, 2014, Mr. Murphy will assume the position of Executive Chair of the board of directors and has entered into the Second Amended and Restated Employment Agreement dated December 16, 2013. Mr. Murphy was selected as a director for his knowledge and experience in finance and the human services industry and experience in the public, private and nonprofit sectors. On October 11, 2013, we announced that Mr. Murphy will become Executive Chair of the board of directors and will remain a full-time executive of the company but will cease to serve as Chief Executive Officer effective January 1, 2014.

Bruce F. Nardella was appointed President and Chief Operating Officer in December 2009, after being appointed Executive Vice President and Chief Operating Officer in May 2007. Mr. Nardella joined the Company in 1996 as a state director and in May 2003 he was named President of our Eastern Division. Prior to that, he was a deputy commissioner for the Massachusetts Department of Youth Services. On December 16, 2013, the Board of Directors unanimously approved the promotion of Mr. Nardella as the Chief Executive Officer of the Company effective as of January 1, 2014. Mr. Nardella will remain as President of the Company but will resign as the Chief Operating Officer. Mr. Nardella will resign his position as Chief Operating Officer, effective as of January 1, 2014. In connection with his promotion to Chief Executive Officer, Mr. Nardella has entered into an Employment Agreement with the Company dated December 16, 2013. Effective January 1, 2014, Mr. Nardella will also become a member of Board of Directors and a member of the Compliance Committee.

Denis M. Holler has served as our Chief Financial Officer and Treasurer since May 2007. Mr. Holler was named Senior Vice President of Finance in January 2002 and led the Company’s corporate finance functions through the Merger in 2006. In addition to overseeing all finance functions of the Company, he manages external relationships with our equity sponsor, banking partners and high-yield investors. Prior to joining the Company in October 2000 as Vice President of Financial Operations, Mr. Holler was Chief Financial Officer of the Fortress Corporation.

Robert M. Melia was named Cambridge Operating Group President in March 2011, having joined the Company in November 2007, first as the head of our affiliated employment services business and then as Senior Vice President, Mergers & Acquisitions. Prior to joining the Company, Mr. Melia was employed at Maximus, Inc. from 1998 to 2007, ending as President of the Workforce Services Division. He also served for 12 years in a variety of positions at Massachusetts state agencies.

David M. Petersen served as our Redwood Operating Group President since June 2007. He had been serving as Senior Vice President and President of our Central Division since May 2003. Prior to joining the Company, Mr. Petersen worked for REM beginning in 1972, managing various operations in Minnesota, Montana, North Dakota and Wisconsin.

Jeffrey M. Cohen joined the Company as its Chief Information Officer in November 2011. From 2008 until joining the Company, Mr. Cohen served as Vice President of Information Technology for Magellan Biosciences, a private equity backed medical device company, where he oversaw the strategic transformation of its worldwide IT and communications systems. Prior to that, Mr. Cohen was Director of Information Technology at Biogen Idec, where he was responsible for its ERP, SOX program and ancillary systems for finance, human resources, legal and business development. He started his career at Cambridge Technology Partners, in various consulting roles culminating as a Vice President for its eBusiness practice.

Linda DeRenzo was named our Chief Legal Officer in March 2011, and has served as our General Counsel and Secretary since March 2006. Ms. DeRenzo oversees the litigation and risk management, regulatory, compliance, labor and employment and corporate legal functions. An 18-year business law veteran before joining the Company, Ms. DeRenzo represented high-growth companies and their financiers in a variety of industries including information technology, life sciences and health services. Prior to joining the Company, Ms. DeRenzo was a partner at Testa, Hurwitz & Thibeault, LLP in Boston from 1992 to 2004.

Kathleen P. Federico joined the Company in December 2008 as our Senior Vice President, Human Resources, and was named our Chief Human Resources Officer in March 2011. From 2005 until joining the Company, Ms. Federico served as Senior Vice President, Sales and Human Resources, for World Travel Holdings in Woburn, Massachusetts, and was its Senior Vice President, Human Resources, from 2002 to 2005. Prior to that, she served as Vice President of Human Resources for KaBloom LLC, NE Restaurant Company and Sodexho Marriott Services. Ms. Federico was also Chief Operating Officer for Sheehan Associates, an employee benefits brokerage firm.

Dwight D. Robson was named Chief Public Strategy and Marketing Officer in March 2011 after serving as Vice President of Public Strategy since joining the Company in 2003. He leads the work of the Public Strategy Group, which is responsible for developing and implementing the Company’s agenda with respect to communications, investor relations, marketing and proposal development, and government and community affairs. Mr. Robson’s experience prior to joining the Company includes senior policy and management positions in Massachusetts state government, most recently as Assistant State Treasurer.

Chris A. Durbin was elected to our board of directors in December 2010. He is a Managing Director in the Vestar Resources group of Vestar Capital Partners. Before joining Vestar in 2007, Mr. Durbin was Managing Director of Strategy and Business Development in Bank of America’s Global Wealth and Investment business from 2001 to 2007. Prior to this, he worked at Mercer Management Consulting and Corporate Decisions, Inc., where he designed and implemented growth strategies for clients including several Vestar portfolio companies. Mr. Durbin is currently a director of Triton Container International Limited and DeVilbiss Healthcare. Mr. Durbin was selected as a director for his knowledge and experience in strategy and operations.

James L. Elrod, Jr. joined our board of directors in June 2006. Mr. Elrod is a Managing Director of Vestar Capital Partners, having joined Vestar in 1998. Previously, he was Executive Vice President, Finance and Operations, for Physicians Health Service, a public managed care company. Prior to that, he was a Managing Director and Partner of Dillon, Read & Co. Inc. Mr. Elrod is currently a director of Radiation Therapy Services, Inc. Mr. Elrod was selected as a director for his knowledge and experience in finance and the health care industry.

Pamela F. Lenehan was elected to our board of directors in December 2008. Ms. Lenehan has served as President of Ridge Hill Consulting, a strategy consulting firm, since 2002. Prior to this, Ms. Lenehan was self-employed as a private investor. From 2000 to 2001, she was vice president and chief financial officer of Convergent Networks. From 1995 to 2000, she was senior vice president of corporate development and treasurer of Oak Industries Inc., which was acquired by Corning Inc. in 2000. Prior to that, Ms. Lenehan was a Managing Director in Credit Suisse First Boston’s Investment Banking division and a vice president of Corporate Banking at Chase Manhattan Bank. Ms. Lenehan is currently a member of the boards of directors of Monotype Imaging Holdings Inc., where she is a member of the Audit Committee and chair of the Management Development and Compensation Committee, and American Superconductor Corporation where she chairs the Audit Committee. From 2004-2013 she was a member of the board of directors and chair of the Compensation Committee of Spartech Corporation until it was acquired by PolyOne and from 2001 to 2007, she was a member of the board of directors of Avid Technology and at various times chair of the board, chair of the Audit Committee and a member of the Compensation Committee. Ms. Lenehan was selected as a director for her knowledge and experience in finance and strategy and holds a Masters Professional Director Certification from the American College of Corporate Directors, a national public company director education organization.

Kevin A. Mundt joined our board of directors in March 2008. He is a Managing Director at Vestar Capital Partners, and is President of the Vestar Resources group. Before joining Vestar in 2004, Mr. Mundt spent 23 years as a strategy and operations consultant specializing in consumer products, retailing and multi-point distribution, as well as healthcare and industrial marketing. For 11 of those years, Mr. Mundt was a strategic adviser to Vestar, and served on the boards of several Vestar portfolio companies. He began his consulting career at Bain and Company, and went on from there to co-found Corporate Decisions, Inc. When that firm was acquired by Marsh and McLennan, Mr. Mundt became a Managing Director of Marsh and McLennan’s financial consulting arm, Mercer Oliver Wyman. Mr. Mundt is currently a Director and serves on the Compensation Committee of Del Monte Foods and The Sun Products Corp., companies in which Vestar or its affiliates have a significant equity interest. In addition, Mr. Mundt is a member of the President’s Leadership Council at Brigham & Women’s Hospital and a member of the Corporation of Brown University. He is also a past director of Medimedia USA, Inc., Solo Cup Company, Fiorucci Foods, Birds Eye Foods, Sunrise Medical and Duff & Phelps. Mr. Mundt was selected as a director for his knowledge and experience in strategy and operations.

Guy Sansone was elected to our Board of Directors in December 2009. Mr. Sansone is a Managing Director at Alvarez & Marsal in New York and serves as head of its Healthcare Industry Group. Over the past 20 years, he has invested in and consulted as an executive to numerous companies, focusing on developing and evaluating strategic and operating alternatives designed to enhance value. While at Alvarez & Marsal, Mr. Sansone served as Chief Executive Officer and Chief Restructuring Officer at Saint Vincent Catholic Medical Centers in New York from October 2005 to August 2007 and as interim Chief Financial Officer of HealthSouth Corporation from March 2003 to October 2004, among other positions. He most recently served as Chief Restructuring Officer for Erickson Retirement Communities, which filed for bankruptcy protection in October 2009. Mr. Sansone is currently a director of NextCare Urgent Care and was a director of Rotech Healthcare, Inc. from March 2002 to August 2005. Mr. Sansone was selected as a director for his knowledge and experience in strategy and operations, with an emphasis on the health care industry.

Code of Ethics

We have adopted a code of ethics that applies to our directors, officers and employees, including our principal executive officers and our principal financial and accounting officer. The MENTOR Network Code of Conduct is publicly available on our website at www.thementornetwork.com, via a link from our “Quality” page under the tab “Compliance”. If we make any substantive amendments to the Code, or grant any waiver from a provision of the Code to our principal executive officers, principal financial officer or principal accounting officer, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K.

Audit Committee Financial Expert

The Board of Directors has determined that Ms. Lenehan, the chairman of the Company’s Audit Committee, is an Audit Committee financial expert. Our securities are not listed on any stock exchange, so we are not subject to listing standards requiring that we maintain an Audit Committee consisting of independent directors, but Ms. Lenehan would likely qualify as an independent director based on the definition of independent director set forth in Rule 5605(a)(2) of the Nasdaq Stock Market, LLC Listing Rules.

Item 11.

Executive Compensation

~~Compensation~~Intentionally ~~Discussion~~omitted ~~and~~in ~~Analysis~~accordance with General Instruction 1(2)(c) of Form 10-K.

~~General~~Item ~~Overview~~12. ~~The~~ ~~Company~~Security isOwnership ~~an indirect wholly owned subsidiary~~ of ~~NMH~~Certain ~~Investment.~~Beneficial ~~NMH~~Owners ~~Investment is beneficially owned by Vestar~~ and ~~certain~~Management ~~affiliates, certain of our directors~~ and ~~members~~Related ofStockholder our management team. The Company’s board of directors consists of representatives of Vestar (Chris Durbin, James Elrod Jr. and Kevin Mundt) and representatives of management (Gregory Torres and Edward Murphy), as well as two outside directors (Pamela Lenehan and Guy Sansone). Messrs. Elrod, Durbin and Sansone serve as the members of the Company’s Compensation Committee (the “Committee”), and Mr. Durbin is the Committee’s chairman. Matters

InIntentionally ~~connection~~omitted ~~with~~in ~~the~~accordance ~~Company’s~~with ~~acquisition~~General byInstruction ~~Vestar on June 29, 2006~~ 1(~~the “Merger”~~2),(c) the Company entered into an amended and restated employment agreement with its Chief Executive Officer, Edward Murphy. It also entered into severance agreements with its other named executive officers, Bruce Nardella, the Company’s President and Chief Operating Officer, Denis Holler, the Company’s Chief Financial Officer, David Petersen, President of the Redwood Operating Group, Linda DeRenzo, the Company’s Chief Legal Officer, and, subsequently upon her hire, Kathleen P. Federico, Chief Human Resources Officer. The compensation initially paid to Mr.Form ~~Murphy reflects negotiations at the time of the Merger, which has been adjusted since the Merger as described below~~10-K. Messrs. Holler, Nardella, Petersen and Ms. DeRenzo and Ms. Federico have all received raises since the Merger, upon being promoted or otherwise. Also in connection with the Merger, or after joining the Company, most of the Company’s executive officers invested in the Preferred Units and Class A Common Units of NMH Investment. As of September 30, 2013, the Company’s executive officers (including the named executive officers) have invested approximately $3.0 million. The Company’s executive officers also hold earned equity in NMH Investment.

~~Compensation~~Intentionally ~~Policies~~omitted ~~and Practices. The~~in ~~primary~~accordance ~~objectives~~with ofGeneral ~~our~~Instruction ~~executive~~1(2)(c) ~~compensation~~of Form 10-K. ~~program are to:~~

•Item ~~attract~~14. ~~and~~Principal ~~retain~~Accounting ~~top~~Fees ~~executive~~and ~~talent;~~Services

•Aggregate ~~achieve~~fees ~~accountability~~for professional services rendered for ~~performance~~us by ~~linking~~Deloitte & ~~annual~~Touche ~~cash~~LLP ~~incentive~~and ~~awards~~affiliates tofor ~~achievement~~the ofyears ~~measurable~~ended ~~performance~~September 30, ~~objectives;~~2014 and September 30, 2013, were:

• align short and longer-term incentives with equity value creation.


	2014		2013
	(In thousands)
Audit fees (1)	$	2,131	$	1,190
Tax fees (2)		34		33

Total fees	$	2,165	$	1,223

~~Our~~(1) ~~executive~~Audit ~~compensation programs~~fees ~~are~~consist ~~designed~~of tofees ~~encourage~~paid ~~our~~for ~~executive~~professional ~~officers~~services necessary to ~~operate~~perform ~~the~~an ~~business~~audit inof athe ~~manner~~financial ~~that best serves our clients~~statements, ~~payors and other public partners, as well as our employees, thereby enhancing equity value. They do this by awarding~~ a ~~significant~~ ~~portion~~review of ~~our executives’ overall compensation based on~~ the ~~Company’s~~quarterly ~~financial~~and ~~performance,~~annual ~~specifically,~~reports ~~revenue~~ and ~~achievement~~statutory ~~of earnings before interest~~audits, ~~taxes,~~initial ~~depreciation~~public ~~and~~offering-related ~~amortization,~~services ~~or EBITDA (with certain adjustments). Our compensation philosophy provides for a direct relationship between compensation~~ and ~~the~~other ~~achievement~~services ofrequired ~~our goals and seeks~~ to ~~include~~be ~~management~~performed inby ~~upside~~our ~~rewards.~~independent auditors.

47(2) Tax fees primarily include professional services rendered for tax services during the fiscal year indicated.

~~Table~~Preapproval ofPolicies ~~Contents~~and Procedures

WeThe Audit ~~seek~~Committee tohas ~~achieve~~preapproved anall ~~overall~~related ~~compensation~~fees ~~program~~and ~~that~~services ~~provides~~provided ~~foundational~~by ~~elements~~Deloitte & ~~such~~Touche ~~as base~~LLP ~~salary~~ and benefits, as well as an opportunity for variable incentive compensation that constitutes a significant portion of an executive officer’s annual compensation in order to drive the Company’s achievement of performance goalsaffiliates.

~~The~~51 Company’s executive compensation program is overseen by the Committee. The role of the Committee is, among other things, to review and approve salaries and other compensation of the executive officers of the Company, to review and recommend equity grants under NMH Investment’s equity plan, and to review and approve payments under the annual cash incentive plan in which the executive officers participate. During fiscal 2012, the Wilson Group (“Wilson”), a boutique consulting firm that specializes in designing compensation programs that drive organizational performance, conducted an extensive competitive analysis and review of certain compensation elements for executives. Following Wilson’s review and analysis, the Committee considered Wilson’s recommendations and approved certain changes to executive compensation.

•PART ~~base~~IV ~~salary;~~

•Item ~~annual~~15. ~~cash~~Exhibits, ~~bonus~~Financial ~~incentives;~~Statement Schedules

•(a)(1) ~~long-term~~Financial Statements ~~incentive compensation in the form of equity-based units, including equity units which vest upon the achievement of certain investment returns by Vestar Capital Partners;~~

•The ~~deferred~~following ~~compensation;~~consolidated financial statements on pages F-1 through F-36 are filed as part of this report.

• ~~severance~~Consolidated ~~benefits~~Balance ~~and~~Sheets ~~equity~~as ~~vesting~~of ~~upon~~September a30, ~~change~~2014 inand ~~control~~2013; ~~and~~

• ~~other~~Consolidated ~~benefits.~~Statements of Operations for the years ended September 30, 2014, 2013 and 2012;

~~Base~~• ~~salaries~~Consolidated ~~for~~Statements ~~our executive officers are designed to recognize the contributions~~ of ~~our~~Comprehensive ~~senior~~Loss ~~management~~for ~~team and provide a stable source of income in line with~~ the ~~market~~years ~~for~~ended ~~comparable~~September ~~positions. Our annual bonuses are designed to reward executive officers for achievement of business performance~~30, ~~primarily EBITDA (with certain adjustments) and revenue. In addition~~2014, we2013 ~~consider quality of services managed~~ and ~~work performed by the executive officers. Our equity component of compensation, in the form of equity units in NMH Investment, is designed to reward equity value creation over a longer period of time.~~ 2012;

48• Consolidated Statements of Stockholder’s Equity (Deficit) for the years ended September 30, 2014, 2013 and 2012; and

~~Table~~• Consolidated Statements of ~~Contents~~Cash Flows for the years ended September 30, 2014, 2013 and 2012.

~~Executive~~(2) ~~Compensation~~Financial ~~Study.~~Statement ~~With~~Schedules: ~~the~~Financial ~~approval~~statement ofschedules ~~the~~have ~~Committee,~~been inomitted ~~fiscal~~because ~~2012~~they ~~the Company~~are ~~retained~~not ~~the~~applicable ~~Wilson~~or ~~compensation~~not ~~consulting~~required, ~~firm to evaluate our executive compensation program. Wilson conducted an extensive analysis of the competitiveness and appropriateness of the Company’s cash and equity executive compensation~~or ~~opportunity~~because ~~and made recommendations based on this analysis. Wilson conducted interviews with senior management and members of~~ the ~~Committee,~~required ~~reviewed~~information ~~market data from multiple commercial survey sources and reviewed public company peer group data. Set forth below~~ is ~~the~~provided ~~public company peer group that Wilson used~~ in ~~fiscal~~our ~~2012~~consolidated tofinancial ~~evaluate~~statements ~~compensation.~~or ~~The~~notes ~~companies were chosen based on industry (health and human services), and size (revenue and number of employees) as of their then-most recent SEC filings~~thereto. ~~There were 17 US-based companies, with a median revenue of $1.48 billion and a median employee population of 18,800.~~

Name of Company	Revenue(In thousands)		Employees
Amsurg Corp.	$	710,409		3,100
Bioscrip, Inc.	$	1,638,623		2,589
Emeritus Corp.	$	1,007,065		29,300
Five Star Quality Care, Inc.	$	1,240,728		22,500
Gentiva Health Services, Inc.	$	1,447,029		18,950
HealthSouth Corp.	$	1,999,300		23,000
Healthways, Inc.	$	695,974		2,800
Lincare Holdings Inc.	$	1,669,205		10,225
Mednax, Inc.	$	1,401,559		6,270
National Healthcare Corp.	$	701,594		12,760
Providence Service Corp.	$	879,697		10,309
Psychiatric Solutions, Inc.	$	1,805,361		23,000
Rehabcare Group, Inc.	$	1,329,443		18,800
Res-Care, Inc.	$	1,579,255		45,700
Skilled Healthcare Group, Inc.	$	820,238		9,736
Sun Healthcare Group, Inc.	$	1,906,861		29,922
Sunrise Senior Living, Inc.	$	1,409,501		31,700

(3) Exhibits: The Exhibit Index is incorporated by reference herein.

~~Wilson~~52 reviewed base salary, annual cash bonus incentives and long-term incentive compensation in the form of equity-based units of executive officers in health and human services public companies with similar revenue base and/or employee base. After completing its review, and presenting its findings to the Committee and to the Board of Directors in executive session, Wilson recommended that the Company: (i) increase the base salaries of its executive officers, to align them more closely with median salaries for comparably situated executive officers, and (ii) issue additional equity to the executive officers in order to more tightly align management and equity sponsor interests in creating stockholder value. Wilson did not recommend changes to the annual cash bonus incentives.

~~The~~SIGNATURES named executive officers’ base salaries were reviewed in December 2013 as required by the Committee’s charter. The salaries of each of the named executive officers, other than Messrs. Murphy and Nardella, are expected to remain the same in fiscal year 2014. In connection with Mr. Murphy’s election to Executive Chair of the Board of Directors and resignation as Chief Executive Officer, effective as of January 1, 2014, Mr. Murphy’s salary will be decreased from $500,000 to $400,000. In connection with Mr. Nardella’s promotion to Chief Executive Officer and his continuing service as President, effective January 1, 2014, Mr. Nardella’s salary will be increased from $400,000 to $500,000.

~~Annual~~Pursuant ~~Incentive Compensation. In addition~~ to ~~base salary, each named executive officer participates in The MENTOR Network Human Services and Corporate Management Incentive Compensation Plan, an annual cash incentive plan, which constitutes~~ the ~~variable,~~requirements ~~performance-based component~~ of anSection 13 ~~executive’s~~or ~~annual~~15(d) ~~cash~~of ~~compensation.~~the ~~The~~Securities ~~objective~~Exchange ofAct ~~this element~~ of ~~executive~~1934, ~~compensation is to drive individual performance and~~ the ~~achievement~~registrant ofhas ~~organizational~~duly ~~goals,~~caused ~~particularly~~this ~~those~~report ~~pertaining~~ to be ~~the~~signed ~~provision~~on ofits ~~quality~~behalf ~~services.~~by ~~The plan provides~~ the ~~executive~~undersigned, ~~officers~~thereunto ~~with~~duly ~~the opportunity to earn significant annual cash bonuses~~authorized.

49NATIONAL MENTOR HOLDINGS, INC. By: /s/ Bruce F. Nardella Bruce F. Nardella Its: Chief Executive Officer

~~Table~~Date: ofDecember ~~Contents~~17, 2014

~~Wilson~~Pursuant ~~did not recommend any changes~~ to the ~~incentive~~requirements ~~compensation~~of ~~plan because, assuming adequate salaries,~~ the ~~payout~~Securities ~~opportunities~~Exchange ~~were~~Act ~~deemed~~of ~~adequate~~1934, ~~compared~~this ~~with~~report ~~survey~~has ~~data~~been ~~and~~signed ~~with~~below ~~data for~~as ~~similarly~~of ~~situated~~December 17, ~~executive~~2014 ~~officers~~by ~~at companies in~~ the following ~~public~~persons ~~company~~on ~~peer~~behalf ~~group~~of ~~and, accordingly,~~ the ~~payout~~registrant ~~opportunities~~ and ~~the plan were left unchanged~~ in ~~fiscal~~the ~~2012~~capacities indicated.

OnSignature ~~December 20,~~Title ~~2012,~~/s/ ~~the~~Bruce ~~Company amended and restated The MENTOR Network Human Services and Corporate Management Incentive Compensation Plan, effective October 1, 2012~~F. ~~The~~Nardella ~~amended~~Chief ~~and~~Executive ~~restated~~Officer ~~plan~~Bruce ~~applies to fiscal years beginning with fiscal 2013~~F. ~~Two~~Nardella ~~changes~~(principal ~~were~~executive ~~made.~~officer) ~~First,~~and ~~the~~Director ~~scorecard~~/s/ ~~element~~Denis ~~was eliminated from the plan in order to simplify plan administration~~M. ~~Instead~~ ofHoller ~~an individual scorecard, named executive officers (except for the~~ Chief ~~Executive~~Financial Officer) ~~are~~and ~~assessed~~Treasurer byDenis ~~the~~M. ~~Chief~~Holler ~~Executive Officer or the President~~ (~~based~~principal onfinancial ~~whether~~officer ~~the~~and ~~Executive~~principal ~~Officer~~accounting ~~reports to Chief Executive Officer or President~~officer) on/s/ ~~the~~Edward ~~individual~~M. ~~quality~~Murphy ofExecutive ~~their~~Chair ~~work (which includes workforce management~~ and ~~employee~~Director ~~engagement)~~Edward M. ~~The~~Murphy ~~Chief Executive Officer’~~/s/ ~~performance~~Chris isA. ~~assessed~~Durbin byDirector ~~the~~Chris ~~Committee~~A. ~~The~~Durbin ~~assessment of each executive’~~/s/ ~~quality~~James ~~of work may result in a downward adjustment of up to 50% of their payout if the quality of their work is less than satisfactory~~L. ~~Second~~Elrod, ~~the~~Jr. ~~payout~~Director ~~scale~~James ~~for the Operating Group targets was also modified to reflect the payout of maximum incentive compensation at a lower percentage of the target~~L. ~~The maximum payout of 150% would be payable for achievement of 104% of the adjusted EBITDA target for the Operating Groups~~Elrod, asJr. ~~well~~/s/ asPatrick ~~for~~M. ~~104%~~Gray ofDirector ~~the~~Patrick ~~revenue~~M. ~~target~~Gray ~~for~~/s/ ~~the~~Pamela ~~Operating Groups~~F. ~~This change~~Lenehan ~~was~~Director ~~intended~~Pamela toF. ~~motivate~~Lenehan ~~Operating~~/s/ ~~Group~~Kevin ~~leaders to focus equally on margin and revenue growth when they are undertaking new business ventures~~A. ~~The~~Mundt ~~payout~~Director ~~scales~~Kevin ~~for the Company-wide targets were unchanged~~A. ~~That~~Mundt ~~is,~~/s/ ~~the~~Guy ~~maximum~~Sansone ~~payout~~Director ofGuy ~~150% is~~Sansone ~~payable~~/s/ ~~for~~Gregory ~~achievement of 107~~T.5% ofTorres ~~the~~Director ~~adjusted~~Gregory ~~EBITDA and revenue targets~~T. Torres

~~For~~53 ~~fiscal 2013, the incentive compensation payout opportunity at threshold, target and maximum performance levels was as follows:~~

Officers	Threshold payout(% of basesalary)		Target payout(% of basesalary)		Maximum payout(% of basesalary)
Mr. Murphy		50.0		100.0		150.0
Mr. Nardella		37.5		75.0		112.5
Messrs. Holler, Petersen and Mses. DeRenzo and Federico		25.0		50.0		75.0

~~The~~EXHIBIT ~~annual~~INDEX incentive plan for fiscal 2013 was structured to provide incentive compensation based upon the Company’s and/or relevant Operating Group’s attainment of certain financial targets for fiscal 2013, which were approved by the Committee, and includes a ratings system that considers an individual participant’s quality of work or quality of services managed. The Chief Executive Officer and President are responsible for certification of the quality ratings of the executive officers and the Compensation Committee is responsible for the certification of the CEO’s quality rating.

The calculation of awards under the plan followed a two-step process in fiscal 2013.


Exhibit No.	Description

2.1^¥	Merger Agreement between National MENTOR Holdings, Inc., NMH Holdings, LLC, and NMH MergerSub Inc., dated as of March 22, 2006.	Incorporated by reference to Exhibit 2.1 of National Mentor Holdings, Inc. Form S-4 Registration Statement (Registration No. 333-138362) filed on November 1, 2006

3.1	Amended and Restated Certificate of Incorporation of National Mentor Holdings, Inc.	Incorporated by reference to Exhibit 3.1 of National Mentor Holdings, Inc. Form 10-Q for the quarterly period ending March 31, 2007 (the “March 2007 10-Q”)

3.2	By-Laws of National Mentor Holdings, Inc.	Incorporated by reference to Exhibit 3.2 of the Form 10-K for the fiscal year ended September 30, 2013

3.3	Amendment No. 1 to By-Laws of National Mentor Holdings, Inc.	Incorporated by reference to Exhibit 3.3 of the Form 10-K for the fiscal year ended September 30, 2013

4.1	Indenture, dated as of February 9, 2011, among National Mentor Holdings, Inc., the subsidiary guarantors named therein, and Wells Fargo, National Association, as trustee.	Incorporated by reference to Exhibit 4.1 of National Mentor Holdings, Inc. Current Report on Form 8-K filed on February 10, 2011 (the “February 10, 2011 8- K”)

4.2	Form of 12.50% Senior Note due 2018 (attached as exhibit to Exhibit 4.1).	Incorporated by reference to Exhibit 4.2

4.3	Supplemental Indenture of REM East, LLC dated August 14, 2012.	Incorporated by reference to Exhibit 4.3 of National Mentor Holdings, Inc. Form 10-K for the fiscal year ended September 30, 2012

4.4	Supplemental Indenture of Illinois Mentor Community Services, LLC dated December 27, 2012	Incorporated by reference to Exhibit 4.1 of National Mentor Holdings, Inc. Form 10-Q for the quarterly period ended December 31, 2012

4.5	Supplemental Indenture of REM Occazio, LLC dated February 18, 2014.	Incorporated by reference to Civitas Solutions, Inc. Form S-1 Registration Statement (Registration No. 333-196281) filed on May 27, 2014.

4.6	Supplemental Indenture of Adult Day Health, Inc. dated August 24, 2014	Filed herewith

10.1#	Credit Agreement, dated as of January 31, 2014, among NMH Holdings, LLC, as parent guarantor, National Mentor Holdings, Inc., as borrower, the several lenders from time to time party thereto, Barclays Bank PLC, as administrative agent, Goldman Sachs Bank USA, as syndication agent, Jefferies Finance LLC and UBS Securities LLC, as co documentation agents, and Barclays Bank PLC, Goldman Sachs Bank USA, Jefferies Finance LLC and UBS Securities LLC, as joint lead arrangers and joint bookrunners.	Incorporated by reference to Exhibit 10.4 of the National Mentor Holdings, Inc. Form 10-Q for the quarterly period ended March 31, 2014 (the “March 2014 10-Q”)

10.2	Guarantee and Security Agreement, dated as of January 31, 2014, among NMH Holdings, LLC, as parent guarantor, National Mentor Holdings, Inc., as borrower, certain subsidiaries of National Mentor Holdings, Inc., as subsidiary guarantors, and Barclays Bank, PLC, as administrative agent.	Incorporated by reference to Exhibit 10.5 of the March 2014 10-Q

~~First,~~54 a “potential payout” was calculated. As in prior years, the potential payout was based on achievement of revenue and adjusted EBITDA goals, adjusted to exclude the revenue and costs relating to companies that were acquired for more than $3 million during fiscal 2013, certain new program starts that were identified at the beginning of fiscal 2013, and operations identified as Discontinued operations in our financial statements, as well as certain additional operations that were closed or sold during fiscal 2013. In fiscal 2013, adjusted EBITDA was weighted 50 percent and revenue was weighted 50 percent for all participants in the plan. The weighting reflects an equal emphasis on promoting organic growth in addition to profitability. For Mr. Peterson, an Operating Group President, the Company’s consolidated performance on these two measures was weighted 25 percent, and the Operating Group’s revenue performance was weighted 75 percent, in order to emphasize and reward expansion and performance of the relevant business organization that he manages. Potential payouts for the rest of the named executive officers were calculated based on the Company’s consolidated Adjusted EBITDA and revenue results.

	Target Revenue			Target AdjustedEBITDA
ExhibitNo.	Description
Company	$	1,206.6 million		$	129.2 million
10.3	Amendment No. 1 to the Credit Agreement dated September 8, 2014 among NMH Holdings, LLC, as parent guarantor, National Mentor Holdings, Inc. as borrower, certain subsidiaries of National Mentor Holdings, Inc. party thereto, as guarantors, the lender party thereto and Barclays Bank PLC, as administrative agent, swingline lender and issuing bank.		Filed herewith
Cambridge Operating Group	$	376.9 million		$	51.8 million
10.4	Amendment No. 2 to the to the Credit Agreement dated as of October 21, 2014, among NMH Holdings, LLC, as parent guarantor, National Mentor Holdings, Inc. as borrower, certain subsidiaries of National Mentor Holdings, Inc. party thereto, as guarantors, the lender party thereto and Barclays Bank PLC, as administrative agent, swingline lender and issuing bank		Incorporated by reference to Exhibit 10.1 of the Form 8-K filed on October 23, 2014
Redwood Operating Group	$	620.9 million		$	89.2 million
10.5	Management Agreement, dated as of February 9, 2011, among National Mentor Holdings, Inc., National Mentor Holdings, LLC, NMH Investment, LLC, Civitas Solutions, Inc., NMH Holdings, LLC and Vestar Capital Partners		Incorporated by reference to Exhibit 10.3 of the February 10, 2011 8-K
10.6*	Amended and Restated Employment Agreement, dated June 29, 2006, between National Mentor Holdings, Inc. and Gregory Torres.		Incorporated by reference to Exhibit 10.5 of the S-4
10.7*	First Amendment to Amended and Restated Employment Agreement dated December 31, 2008 between National Mentor Holdings, Inc. and Gregory Torres.		Incorporated by reference to Exhibit 10.2 of National Mentor Holdings, Inc. Form 10-Q for the quarterly period ended December 31, 2008 (the “December 2008 10-Q”)
10.8*	Amended and Restated Employment Agreement dated December 30, 2008, between National Mentor Holdings, Inc. and Edward Murphy.		Incorporated by reference to Exhibit 10.3 of the December 2008 10-Q
10.9	Form of Amended and Restated Severance and Noncompetition Agreement.		Incorporated by reference to Exhibit 10.1 of the December 2008 10-Q
10.10	National Mentor Holdings, LLC Executive Deferred Compensation Plan, Third Amendment and Restatement Adopted Effective as of December 4, 2009		Incorporated by reference to Exhibit 10.11 of National Mentor Holdings, Inc. Form 10-K for the fiscal year ended September 30, 2009 (the “2009 10-K”)
10.11	National Mentor Holdings, LLC Executive Deferred Compensation Plan, Fourth Amendment and Restatement Adopted December 27, 2011, Effective as of January 1, 2011.		Incorporated by reference to Exhibit 10.8.1 of National Mentor Holdings, Inc. Form 10-K for the fiscal year ended September 30, 2011
10.12	National Mentor Holdings, LLC Executive Deferral Plan, Second Amendment and Restatement Adopted June 17, 2009 and Effective as of January 1, 2009.		Incorporated by reference to Exhibit 10.13 of the 2009 10-K
10.13	NMH Investment, LLC Amended and Restated 2006 Unit Plan.		Incorporated by reference to Exhibit 10.17 of National Mentor Holdings, Inc. Form S-4/A Amendment No. 1 to the Registration Statement (Registration No. 333-138362) filed on January 12, 2007 (the “S-4/A”)

~~The~~55 Committee chose these targets as profitability continues to be a major objective of the Company, while the continuing focus on revenue is meant to incentivize management to expand the Company’s overall business in order to grow its adjusted EBITDA.


Exhibit No.	Description

10.14	Amendment to NMH Investment, LLC Amended and Restated 2006 Unit Plan.	Incorporated by reference to Exhibit 10.1 of National Mentor Holdings, Inc. Form 10-Q for the quarterly period ended June 30, 2008

10.15	Second Amendment to NMH Investment, LLC Amended and Restated 2006 Unit Plan.	Incorporated by reference to Exhibit 10.6 of the March 2011 10-Q

10.16	Third Amendment to NMH Investment, LLC Amended and Restated 2006 Unit Plan.	Incorporated by reference to Exhibit 10.1 of National Mentor Holdings, Inc. Form 10-Q for the quarterly period ended June 30, 2012 (the “June 2012 10-Q”)

10.17	Form of Management Unit Subscription Agreement.	Incorporated by reference to Exhibit 10.15 of the S-4/A

10.18	Form of Amendment to Management Unit Subscription Agreement	Incorporated by reference to Exhibit 10.19 of the 2009 10-K

10.19	Form of Management Unit Subscription Agreement (Series 1 Class F Common Units).	Incorporated by reference to Exhibit 10.7 of the March 2011 10-Q

10.20	Form of Management Unit Subscription Agreement (Class G Common Units).	Incorporated by reference to Exhibit 10.2 of the June 2012 10-Q

10.21	Form of Management Unit Subscription Agreement (Class H Common Units).	Incorporated by reference to Exhibit 10.3 of the June 2012 10-Q

10.22	Form of Director Unit Subscription Agreement.	Incorporated by reference to Exhibit 10.13 of National Mentor Holdings, Inc. Form 10-K for the fiscal year ended September 30, 2008

10.23	Form of Amendment to Director Unit Subscription Agreement.	Incorporated by reference to Exhibit 10.21 of the 2009 10-K

10.24	Form of Amended and Restated Indemnification Agreement.*	Incorporated by reference to Civitas Solutions, Inc. Amendment No. 3 to Form S-1 Registration (Registration No. 333-196281) filed on August 27, 2014

10.25	Termination of Amended and Restated Employment Agreement, effective as of January 1, 2014, by and between Gregory Torres and National Mentor Holdings, Inc.*	Incorporated by reference to Exhibit 10.28 of National Mentor Holdings, Inc. Form 10-K filed December 18, 2013

10.26	Second Amended and Restated Employment Agreement, effective as of January 1, 2014 by and between Edward M. Murphy and National Mentor Holdings, Inc.*	Incorporated by reference to Exhibit 10.29 of National Mentor Holdings, Inc. Form 10-K filed December 18, 2013

10.27	Employment Agreement, effective as of January 1, 2014, by and between Bruce F. Nardella and National Holdings, Inc.*	Incorporated by reference to Exhibit 10.30 of National Mentor Holdings, Inc. Form 10-K filed December 18, 2013

10.28	The MENTOR Network Human Services and Corporate Management Incentive Compensation Plan, Fourth Amendment and Restatement dated December 16, 2013 and effective October 1, 2013.	Incorporated by reference to Exhibit 10.31 of National Mentor Holdings, Inc. Form 10-K filed December 18, 2013

10.29	Civitas Solutions, Inc. 2014 Omnibus Incentive Plan.	Incorporated by reference to Civitas Solutions, Inc. Amendment No. 3 to Form S-1 Registration Statement (Registration No. 333-196281) filed on August 27, 2014

In56 the case of the named executive officers other than the Operating Group President, the potential payout ranges from 50% of target for achievement of 92.5% of the Adjusted EBITDA or revenue goals, to 150% of target for achievement of 107.5% of the Adjusted EBITDA or revenue goals. For Mr. Peterson, an Operating Group President, 75% of the potential payout that is based on Operating Group performance ranges from 50% of target for achievement of 92.5% of organizational unit revenue goals and 150% of target for achievement of 104.0% of organizational unit revenue and EBITDA goals and 25% of the potential payout that is based on the Company’s consolidated performance as calculated in a manner consistent with the other named executive officers. Payouts for performance levels between threshold and target, and between target and maximum, are calculated proportionately. This year, the Company’s performance was close to the financial goals and the Redwood Operating Group, managed by Mr. Petersen, exceeded its financial goals. Performance on the respective goals for fiscal 2013 was as follows:

	Actual Revenue		Actual AdjustedEBITDA
Company	$	1,186.1 million	$	129.6 million
Cambridge Operating Group	$	354.1 million	$	49.9 million
Redwood Operating Group	$	625.9 million	$	93.5 million

As a result of this performance, Mr. Petersen received 121.6% of his target payout based on achievement toward the targets by the Company and in excess of the targets by Redwood. The remaining named executive officers were potentially eligible to receive 96.6% of the target payout based on Company-wide financial performance.


Exhibit No.	Description

10.30	Form of Management Unit Subscription Agreement (Series 2 Class F Common Units).	Incorporated by reference to Civitas Solutions, Inc. Amendment No. 1 to Form S-1 Registration Statement (Registration No. 333-196281) filed on July 16, 2014.

10.31	Exhibit A to National Mentor Holdings, LLC Executive Deferred Compensation Plan effective as of January 1, 2014.	Incorporated by reference to Civitas Solutions, Inc. Amendment No. 1 to Form S-1 Registration Statement (Registration No. 333-196281) filed on July 16, 2014.

10.32	Exhibit A to National Mentor Holdings, LLC Executive Deferred Compensation Plan effective as of July 1, 2014.	Incorporated by reference to Civitas Solutions, Inc. Amendment No. 1 to Form S-1 Registration Statement (Registration No. 333-196281) filed on July 16, 2014.

10.33	Form of Registration Rights Agreement by and between Civitas Solutions, Inc. and NMH Investment, LLC	Incorporated by reference to Civitas Solutions, Inc. Amendment No. 3 to Form S-1 Registration (Registration No. 333-196281) filed on August 27, 2014

10.34	Amendment to Form of Management Unit Subscription Agreement (Class H Common Units)	Incorporated by reference to Civitas Solutions, Inc. Amendment No. 4 to Form S-1 Registration Statement (Registration No. 333-196281) filed on September 3, 2014

10.35	Amendment to Form of Management Unit Subscription Agreement (Class H Common Units)	Incorporated by reference to Civitas Solutions, Inc. Amendment No. 4 to Form S-1 Registration Statement (Registration No. 333-196281) filed on September 3, 2014

10.36	Form of Restricted Stock Agreement Under the Civitas Solutions, Inc. 2014 Omnibus Incentive Plan	Incorporated by reference to Civitas Solutions, Inc. Amendment No. 4 to Form S-1 Registration Statement (Registration No. 333-196281) filed on September 3, 2014

10.37	Form of Restricted Stock Unit Agreement Under the Civitas Solutions, Inc. 2014 Omnibus Incentive Plan	Incorporated by reference to Civitas Solutions, Inc. Amendment No. 4 to Form S-1 Registration Statement (Registration No. 333-196281) filed on September 3, 2014

10.38	Form of Nonqualified Stock Option Agreement Under the Civitas Solutions, Inc. 2014 Omnibus Incentive Plan	Incorporated by reference to Civitas Solutions, Inc. Amendment No. 4 to Form S-1 Registration Statement (Registration No. 333-196281) filed on September 3, 2014

10.39*	Amended and Restated Employment Agreement by and between Bruce F. Nardella and Civitas Solutions, Inc.	Incorporated by reference to Civitas Solutions, Inc. Amendment No. 4 to Form S-1 Registration Statement (Registration No. 333-196281) filed on September 3, 2014

10.40*	Third Amended and Restated Employment by and between Edward M. Murphy and Civitas Solutions, Inc.	Incorporated by reference to Civitas Solutions, Inc. Amendment No. 4 to Form S-1 Registration Statement (Registration No. 333-196281) filed on September 3, 2014

10.41*	Form of Employment Agreement for executive officers other than Mr. Nardella and Mr. Murphy	Incorporated by reference to Civitas Solutions, Inc. Amendment No. 4 to Form S-1 Registration Statement (Registration No. 333-196281) filed on September 3, 2014

10.42	Form of NMH Investment, LLC Second Amended and Restated 2006 Unit Plan	Incorporated by reference to Civitas Solutions, Inc. Amendment No. 4 to Form S-1 Registration Statement (Registration No. 333-196281) filed on September 3, 2014

10.43*	The MENTOR Network Human Services and Corporate Management Incentive Compensation Plan, Fifth Amendment and Restatement dated December 16, 2014 and effective as of October 1, 2014.	Filed herewith

~~Second,~~57 one-half of the potential payout was subject to reduction of up to 50% based on the participant’s quality of services or work. A participant could also receive no incentive payout, notwithstanding the potential payout calculation or quality rating, if he or she engaged in exceptionally poor conduct or poor performance during the fiscal year.

Based on the Revenue, Adjusted EBITDA and quality ratings, Messrs. Murphy, Nardella and Holler received 94.2% of their target payout. Mr. Petersen received 121.6% of his target payout; Ms. DeRenzo and Ms. Federico, who are not responsible for the Company’s DSO results, each received a satisfactory quality rating and each received 96.6% of her target payout.


Exhibit No.	Description

21.1	Subsidiaries	Filed herewith

31.1	Certification of principal executive officer	Filed herewith

31.2	Certification of principal financial officer	Filed herewith

32	Certifications furnished pursuant to 18 U.S.C. Section 1350.	Filed herewith

101	Interactive Data Files	Filed herewith

~~Each~~* ~~participant~~Management ~~may~~contract ~~receive~~or ~~additional~~compensatory ~~discretionary~~plan ~~incentive~~or compensation. In the case of executive officers, discretionary incentive compensation is determined by the Chief Executive Officer and approved by the Compensation Committee. In fiscal 2013, none of the named executive officers received a discretionary award. arrangement

On¥ ~~December 16,~~Schedules ~~2013,~~have ~~the~~been ~~Company~~omitted ~~amended~~pursuant ~~and restated The MENTOR Network Human Services and Corporate Management Incentive Compensation Plan, effective October 1, 2013. The amended and restated plan applies~~ to ~~fiscal~~Item ~~years beginning with fiscal 2014. The plan was amended to include a further modifier to the plan to increase or decrease~~ 601(~~up to a maximum increase or decrease of ten percent~~ b)(~~10%~~2)~~) of~~ ~~the amount~~ of ~~incentive~~Regulation ~~compensation~~S-K. toThe ~~be paid to certain employees based on the DSO achieved by the~~ Company ashereby ofundertakes ~~the end of fiscal 2014 compared~~ to ~~the~~furnish ~~target~~supplemental ~~approved~~copies ~~by the Compensation Committee at the beginning~~ of ~~each~~ ~~fiscal~~any ~~year. Each~~ of the ~~named~~omitted ~~executive~~schedules ~~officers~~upon ~~(other~~request ~~than~~by ~~Mses.~~the ~~DeRenzo~~Securities and ~~Federico)~~Exchange ~~are subject to the DSO modifier in the calculation of the amount of incentive compensation due to such executive officer in fiscal year 2014~~Commission.

~~Equity-Based~~# ~~Compensation. Long-term~~Indicates ~~incentive~~confidential ~~compensation~~portions ishave ~~provided~~been inomitted ~~the form of non-voting equity units in the Company’s indirect parent company, NMH Investment,~~ pursuant to ~~the~~a ~~NMH~~request ~~Investment~~for ~~2006~~confidential ~~Unit~~treatment ~~Plan.~~filed ~~The~~separately ~~plan~~with ~~allows certain officers~~SEC, employees, directors and consultants of the Company to participate in the long-term growth and financial success of the Company through acquisition of equity interests in NMH Investment, including Class B, Class C, Class D, Class E, Class F, Class G and Class H Common Units of NMH Investment. The purpose of the plan is to promote the Company’s long-term growth and profitability by aligning the interests of the Company’s management with the interests of the ultimate parent of the Company and by encouraging retention. The plan is administered by the Committee which ~~recommends~~has ~~awards~~been ~~to the management committee of NMH Investment~~granted. ~~The management committee determines, among other things, specific participants in the plan as well as the amount and value of any units awarded.~~

5158

AsNational ~~part~~Mentor ~~of the Merger~~Holdings, ~~a pool of units had been set aside for management employees, including the named executive officers, and granted to executive officers during the second quarter of fiscal 2007~~Inc. Messrs. Holler and Nardella received additional grants of B, C and D Common Units during fiscal 2007 in recognition of their promotions, and all of the named executive officers received subsequent grants of B, C and D Common Units during the fourth quarter of fiscal 2008. All of the B, C and D Units that had been unvested became vested during fiscal 2011 concurrently with the creation of a new pool of Class F Common Units. In June 2011, the F Units were issued to management employees, including the named executive officers. As of December 15, 2012, all of the F Units issued to the named executive officers were vested. The earned equity program was designed to motivate management to achieve financial results that would enhance the valuation of the Company upon a sale of the Company or other liquidity event. Pursuant to the terms of NMH Investment’s limited liability company agreement, holders of the Class B, C, D and F Units would receive distributions representing 10% of the total increase in common equity value upon a sale or other liquidity event involving NMH Investment.

~~Consistent~~Consolidated ~~with~~Financial ~~Wilson’s~~Statements recommendation in fiscal 2012 and following numerous conversations between the Chief Executive Officer and members of the Board of Directors in which equity compensation was considered and discussed, NMH Investment decided to grant earned equity to the executive officers and certain other senior leaders of the Company. On August 13, 2012, a new pool of Class G Common Units and Class H Common Units was created and on September 20, 2012, 1,000,000 Class H Common Units were issued to the named executive officers and other executive officers and 130,000 Class G Common Units were issued to non-executive employees and one executive officer. The Compensation Committee designed the Class H Common Units to have the potential to more tightly align management and equity sponsor interests in creating shareholder value. The Class H Common Units vest upon a sale of the Company and may receive up to 5.0% (or as little as 0.0%) of the increase in common equity value upon the sale of the Company, depending upon the multiple of investment received by Vestar and its affiliates. However, upon an initial public offering of the Company, the management committee of NMH Investment may convert the Class H Common Units into options of equivalent value if and to the extent Vestar and its affiliates achieve a certain multiple of investment. The Class G Common Units will share any common equity appreciation pro rata with the Class A Common Units, within a range from 84.9235% (assuming the Class H Common Units receive the full 5.0%) to 89.9190% (assuming the Class H Common Units do not vest) of the increase in common equity value upon a sale or other liquidity event. The B, C, D and F Units will continue to receive 10% of the equity appreciation upon a sale or other liquidity event involving NMH Investment.

InContents ~~connection with his promotion to Chief Executive Officer of the Company, NMH Investment has authorized the issuance of 100,000 Class F Units and 100,000 Class H Units to Mr. Nardella.~~

If an executive’s employment is terminated, NMH Investment may repurchase the executive’s B, C, D and F Units, and all unvested Class H Units will be forfeited (or Class G Units, as applicable). Class B, C, D and F Units that are already vested would be purchased for fair market value, except in the case of a termination for cause. In the case of a termination for cause, the Units would be purchased at cost (or forfeited with no payment, in the case of the F Units and H Units, or Class G Units, as applicable). If an executive officer’s employment is terminated due to death, disability or retirement prior to the earlier of (i) an initial public offering by or involving NMH Investment or any of its subsidiaries or (ii) a sale of the Company, the named executive officer and each of his or her permitted transferees (collectively, the “NEO group”) has the right, subject to certain limitations, for 45 days following the six month anniversary of his or her termination, to sell to NMH Investment, on one occasion, a number of Class F Common Units equal to a specified percentage (the “specified percentage”) of the total number of Class F Common Units held by the NEO group, at a purchase price equal to fair market value (the “put right”). In order to exercise this put right, the NEO group will also be required to simultaneously sell to NMH Investment a number of Class B, C and D Common Units equal to the specified percentage of the total number of such Class B, C and D Common Units held by the NEO group. The specified percentages for each of the named executive officers are as follows: Mr. Murphy, 38.15%; Mr. Nardella, 52.23%; Mr. Holler, 65.29%; Mr. Petersen, 59.37%; Ms. DeRenzo, 75.26%, and Ms. Federico, 34.61%.


Consolidated Financial Statements for the years ended September 30, 2014, 2013 and 2012
Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets as of September 30, 2014 and 2013			F-3
Consolidated Statements of Operations for the years ended September 30, 2014, 2013 and 2012			F-4
Consolidated Statements of Comprehensive Loss for the years ended September 30, 2014, 2013 and 2012			F-5
Consolidated Statements of Stockholder’s Equity (Deficit) for the years ended September 30, 2014, 2013 and 2012			F-6
Consolidated Statements of Cash Flows for the years ended September 30, 2014, 2013 and 2012			F-7
Notes to Consolidated Financial Statements			F-8

Deferred Compensation. Under the National Mentor Holdings, LLC Executive Deferred Compensation Plan, the named executive officers receive an allocation to their account based on a percentage of base salary, as follows: Mr. Murphy, 13%; Mr. Nardella, 12%; Mr. Holler, 11%; and Mr. Petersen, Ms. DeRenzo and Ms. Federico, 9%. These allocations are made as of the end of the plan year, December 31, for service rendered during the prior fiscal year. The balances earn a return, which for plan years 2013, 2012 and 2011, was a fixed rate of 6%. The plan is an unfunded, nonqualified deferred compensation arrangement, which provides deferred compensation to the executive officers. We may make additional discretionary allocations to the plan, although we did not do so in fiscal 2013. A participant’s account balance is 100% vested and nonF-forfeitable and will be distributed to a participant following his or her retirement or termination from the Company, disability or death, or at the Company’s direction under certain circumstances. In connection with Mr. Nardella’s promotion, the percentage of base salary allocated to Mr. Nardella as of January 1, ~~2014 will be increased to 13%.~~

~~Table~~REPORT ofOF ~~Contents~~INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

~~A 401(k) plan is available to eligible employees, including the named executive officers. Under the plan, we may make an annual discretionary matching contribution and/or profit-sharing contribution.~~ To ~~supplement~~ the ~~401(k)~~Board ~~plan, the National Mentor Holdings, LLC Executive Deferral Plan is available to highly compensated employees (as defined by Section 414(q)~~ of ~~the~~Directors ~~Internal Revenue Code), including the named executive officers. Participants may contribute up to 100% of salary~~ and~~/or~~ ~~incentive~~Stockholder compensation bonus earned during the plan year. This plan is a nonqualified deferred compensation arrangement and is coordinated with our 401(k) plan so as to maximize a participant’s contributions and the Company’s matching contributions to the 401(k) plan, with the residual remaining in the Executive Deferral Plan. Amounts contributed to the 401(k) and/or Executive Deferral Plan are matched by the Company up to 1.5% of base salary. Distributions are made upon a participant’s termination of employment, disability, death, retirement or at a time specified by the participant when he or she makes a deferral election. Participants can elect to have distributions made in a lump sum or in monthly installments over a five-year period. A specific-date election may be made only in a lump sum. We have established a grantor trust to accumulate assets to provide for the obligations under the plan. Any assets of the grantor trust are subject to the claims of our general creditors.

~~Severance~~National ~~and Change-in-Control Benefits. As part of the Merger, the Company entered into an amended and restated employment~~Mentor ~~agreement with Mr. Murphy~~Holdings, ~~which was further amended on December 16~~Inc. 2013, effective as of January 1, 2014, and entered into severance agreements with each of the other named executive officers who were employed by the Company at that time. Ms. Federico entered into a severance agreement when she joined the Company in December 2008. Each of these agreements provides for severance benefits to be paid to the named executive officer if the Company terminates his or her employment without “cause” or he or she resigns for “good reason”, each as defined in the applicable agreement. See “— Severance Agreements”. Mr. Nardella’s severance agreement will be superseded effective as of January 1, 2014, by his employment agreement with the Company.

~~If any of the named executive officers terminates employment~~Boston, ~~for~~Massachusetts any reason other than by the Company for cause, he or she would be entitled to receive fair market value for his or her vested B, C, D and F units. Under each executive officer’s management unit subscription agreement, NMH Investment has the right to repurchase the units upon termination of employment. Fair market value is as determined in good faith by the management committee of NMH Investment (valuing the Company and its subsidiaries as a going concern, disregarding any discount for minority interest or marketability of the units).

InWe ~~addition,~~have ~~upon~~audited athe accompanying ~~change~~consolidated inbalance ~~control~~sheets of ~~the~~National ~~Company~~Mentor Holdings, ~~the Class~~Inc. Hand ~~Common~~subsidiaries ~~Units~~(the ~~will~~“Company”) ~~vest~~as ~~immediately.~~of ~~The~~September ~~Company~~30, ~~believes~~2014 ~~that~~and ~~this~~2013, ~~accelerated~~and ~~vesting~~the ~~could~~related ~~align~~consolidated ~~the~~statements ~~interests~~ of ~~the~~operations, ~~named~~comprehensive ~~executive~~loss, ~~officers~~stockholder’s equity ~~with~~(deficit), ~~the~~and ~~interests~~cash offlows ~~the~~for ~~indirect~~each ~~parent~~ of the ~~Company~~three years in the ~~event~~period ofended aSeptember ~~sale~~30, of2014. ~~the~~These ~~Company by~~financial ~~encouraging~~statements are the ~~named~~responsibility ~~executive~~of ~~officers~~the toCompany’s ~~remain~~management. ~~with~~Our ~~the~~responsibility ~~Company~~is ~~and~~to ~~enhancing~~express ~~their~~an ~~focus~~opinion on ~~the~~these ~~Company~~financial statements ~~during~~based aon ~~sale~~our ~~of the Company~~audits.

~~Other~~We ~~Benefits. The~~conducted ~~named~~our ~~executive~~audits ~~officers~~in ~~are~~accordance ~~entitled~~with tothe ~~participate~~standards inof ~~group~~the ~~health~~Public Company Accounting Oversight Board (United States). Those standards require that we plan and ~~welfare~~perform ~~benefits~~the onaudit to obtain reasonable assurance about whether the ~~same~~financial ~~basis~~statements ~~as all~~are ~~regular,~~free ~~full-time~~of ~~employees~~material misstatement. ~~These~~The ~~benefits~~Company ~~include~~is ~~medical,~~not ~~dental,~~required ~~vision~~to ~~care~~have, ~~flexible~~nor ~~spending~~were ~~accounts,~~we ~~term~~engaged ~~life~~to ~~insurance~~perform, ~~short-term~~an audit ~~and~~of ~~long-term~~its ~~disability~~internal ~~insurance~~control ~~and~~over ~~other~~financial ~~benefits~~reporting. InOur ~~addition,~~audits ~~all~~included ~~employees,~~consideration ~~including~~of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the ~~executive~~ ~~officers~~circumstances, ~~have~~but not for the ~~option~~purpose of expressing ~~purchasing~~an ~~supplemental~~opinion ~~group~~on ~~term~~the ~~life~~effectiveness ~~insurance~~of ~~for~~the ~~themselves~~Company’s asinternal ~~well~~control asover ~~coverage~~financial ~~for~~reporting. ~~their~~Accordingly, ~~spouses~~we ~~and~~express ~~dependent~~no ~~children~~such opinion. ~~Executive~~An ~~officers~~audit ~~may~~ also ~~elect~~includes toexamining, ~~receive~~on ~~Company-paid~~a ~~parking~~test ~~and~~basis, ~~supplemental disability~~evidence ~~insurance~~supporting the amounts and ~~long-term~~disclosures in ~~care~~the ~~insurance~~financial statements, ~~with~~assessing the ~~premiums,~~accounting ~~plus~~principles ~~gross-up~~used ~~for~~and ~~tax~~significant ~~liability~~estimates made by management, ~~paid~~as ~~for~~well byas evaluating the ~~Company~~overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

~~Compensation~~In ~~Risk. The~~our ~~Compensation~~opinion, ~~Committee~~such ~~has~~consolidated ~~considered~~financial ~~the~~statements ~~compensation~~present ~~policies~~fairly, ~~and~~in ~~practices~~all ~~throughout~~material ~~the~~respects, ~~Company to assess~~ the ~~risks~~financial ~~presented~~position byof ~~such~~National ~~policies~~Mentor Holdings, Inc. and ~~practices.~~subsidiaries ~~Based~~as onof ~~this~~September ~~review~~30, we2014 ~~have determined that such policies~~ and ~~practices are not reasonably likely to have a material adverse effect on the Company. In reaching this determination~~2013, weand ~~have taken into account~~ the ~~following~~results ~~design elements~~ of ~~our~~their ~~compensation~~operations ~~programs~~ and ~~policies~~their ~~and~~cash ~~practices:~~flows ~~mixture~~for each of ~~cash~~the ~~and~~three ~~equity~~years ~~opportunities,~~in ~~use~~the ofperiod ~~performance-based~~ended ~~pay~~September ~~vehicles~~30, ~~use~~2014, ofin ~~financial~~conformity ~~metrics~~with ~~that~~accounting ~~are~~principles ~~easily~~generally accepted ~~capable~~in ofthe ~~review~~United ~~and avoidance~~States of ~~uncapped rewards~~America.

53/s/ DELOITTE & TOUCHE LLP

~~Table~~Boston, ofMassachusetts ~~Contents~~

~~Compensation~~December 17, ~~Committee~~2014 ~~Report~~

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on that review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10F-K.2

~~Fiscal~~National ~~2013~~Mentor ~~Summary~~Holdings, ~~Compensation~~Inc. ~~Table~~

Name and Principal Position	FiscalYear		Salary($)(a)		Bonus($)(b)		EquityAwards($)(c)		Non-EquityIncentivePlanCompensation($)(d)		NonqualifiedDeferredCompensationEarnings($)(e)		All OtherCompensation($)(f)		Total($)
Edward M. Murphy		2013		461,923		—		—		470,858		12,577		82,269		1,027,627
Chief Executive Officer		2012		350,000		—		—		335,760		11,217		68,092		765,068
		2011		350,000		175,000		715,270		302,406		4,585		112,526		1,659,787
Bruce F. Nardella		2013		375,250		—		—		282,515		61,289		57,354		776,408
President and Chief		2012		302,500		—		—		217,644		47,829		48,097		616,070
Operating Officer		2011		302,500		150,000		464,730		196,025		3,204		77,535		1,193,994
Denis M. Holler		2013		322,308		—		—		157,737		65,449		47,613		593,107
Chief Financial Officer		2012		285,000		—		—		136,702		73,353		43,318		538,373
and Treasurer		2011		280,962		135,000		362,730		123,123		3,110		72,653		977,578
David M. Petersen		2013		305,417		—		—		194,635		15,720		40,667		556,439
President, Redwood		2012		270,000		—		—		149,041		17,192		36,600		472,833
Operating Group		2011		265,833		112,000		321,076		116,643		3,096		59,157		877,805
Linda DeRenzo		2013		276,115		—		—		137,635		5,225		35,794		454,770
Chief		2012		250,000		—		—		129,914		4,042		33,351		417,307
Legal Officer		2011		243,942		108,500		244,809		108,003		1,880		73,517		780,651
Kathleen P. Federico		2013		267,308		—		—		135,221		36,151		34,979		473,659
Chief Human Resources Officer

Consolidated Balance Sheets

(a)Amounts ~~Includes~~in ~~individual’s~~thousands, ~~pre-tax~~except ~~contributions~~share ~~to health plans~~ and ~~contributions~~per toshare ~~retirement~~amounts) ~~plans.~~

(b) During fiscal 2011, all the named executive officers received discretionary recognition bonuses, and Ms. DeRenzo received an additional $8,500 bonus as part of a retroactive salary adjustment.


	September 30,
	2014			2013
ASSETS
Current Assets:
Cash and cash equivalents	$	196,022		$	19,315
Restricted cash		1,944			807
Accounts receivable, net of allowances of $11,491 and $12,494 at September 30, 2014 and 2013, respectively		141,376			144,954
Deferred tax assets, net		18,176			18,424
Prepaid expenses and other current assets		15,265			17,771

Total current assets		372,783			201,271
Property and equipment, net		159,486			153,635
Intangible assets, net		327,726			336,191
Goodwill		257,730			235,623
Restricted cash		50,000			50,000
Other assets		39,258			43,652

Total assets	$	1,206,983		$	1,020,372

LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current Liabilities:
Accounts payable		22,350			26,568
Accrued payroll and related costs		84,176			65,340
Other accrued liabilities		48,963			45,066
Obligations under capital lease, current		451			430
Current portion of long-term debt		168,000			5,600

Total current liabilities		323,940			143,004
Other long-term liabilities		69,314			68,936
Deferred tax liabilities, net		70,841			83,235
Obligations under capital lease, less current portion		6,058			6,509
Long-term debt, less current portion		635,195			779,519
Commitments and contingencies (Notes 14, 15 and 16)
Stockholder’s Equity (Deficit)
Common stock, $0.01 par value; 1,000 shares authorized; and 100 shares issued and outstanding at September 30, 2014 and 2013, respectively		—			—
Additional paid-in capital		216,917			33,929
Accumulated other comprehensive loss		—			(1,880	)
Accumulated deficit		(115,282	)		(92,880	)

Total stockholder’s equity (deficit)		101,635			(60,831	)

Total liabilities and stockholder’s equity (deficit)	$	1,206,983		$	1,020,372

~~(c)~~See ~~Figures~~accompanying ~~represent~~notes respective grant date fair value of the Class H Common Units and Class F Common Units awarded during fiscal 2012 and fiscal 2011, respectively, under the NMH Investment, LLC Amended and Restated 2006 Unit Plan (as amended) in accordance with Accounting Standards Codification Topic 718 (ASC 718, formerly FAS 123R). Please refer to ~~Note~~these 19consolidated infinancial ~~the Notes to Consolidated Financial Statements for the relevant assumptions used to determine the compensation expense of our equity awards~~statements. The figures in this column also represent the value of the Class H Common Unit awards at the grant date assuming that the highest level of performance conditions will be achieved, in accordance with an analysis performed as of September 30, 2012.

~~(d)~~F-3 ~~Represents cash bonuses under The MENTOR Network Human Services and Corporate Management Incentive Compensation Plan.~~

54National Mentor Holdings, Inc.

~~Table~~Consolidated Statements of ~~Contents~~Operations

(f)Amounts ~~Includes~~in ~~Company contributions to the Executive Deferred Compensation Plan and the Company match on executive contributions to the 401(k~~thousands) plan and Executive Deferral Plan, which has been estimated for fiscal 2013 in advance of the actual determination. The fiscal 2012 and 2011 amounts in this column were estimated at the time and have not been restated, as any differences were immaterial. Also included are Company paid parking, tax gross-ups for Company paid parking, imputed income on group term life insurance premiums and Company contributions for supplemental disability insurance and long-term care insurance premiums available to the executive officers. For fiscal 2013, the components of All Other Compensation were as follows:

	CompanyContributionsto ExecutiveDeferredCompensationPlan ($)			CompanyMatch onContributionsto 401(k) andExecutiveDeferral Plan($)			CompanyPaid Parking($)			Gross-ups($)		GroupTerm LifeInsurance($)		SupplementalDisabilityInsurance ($)		Long-TermCareInsurance($)
	Year Ended September 30,
Edward M. Murphy		60,125			3,806			1,320			614		3,038		5,563		7,803
	2014			2013			2012
Bruce F. Nardella		45,075			3,806			1,320			614		1,642		2,313		2,583
Net revenue	$	1,255,838		$	1,182,509		$	1,107,351
Denis M. Holler		35,475			3,806			1,320			614		1,386		2,565		2,446
Cost of revenue (exclusive of depreciation expense shown separately below)		983,043			921,618			861,691
David M. Petersen		27,675			3,806			—			—		2,360		3,652		3,174
Operating expenses:
Linda DeRenzo		24,863			3,806			1,320			614		617		2,162		2,412
General and administrative		144,304			145,184			139,630
Kathleen P. Federico		24,075			3,806			1,320			614		590		2,162		2,412
Depreciation and amortization		67,488			63,573			59,987
Total operating expenses		211,792			208,757			199,617
Income from operations		61,003			52,134			46,043
Other income (expense):
Management fee of related party		(9,488	)		(1,359	)		(1,325	)
Other income, net		191			911			2
Extinguishment of debt		(14,699	)		—			—
Interest income		183			135			328
Interest expense		(69,348	)		(78,075	)		(79,445	)
Loss from continuing operations before income taxes		(32,158	)		(26,254	)		(34,397	)
Benefit for income taxes		(11,138	)		(9,942	)		(19,772	)
Loss from continuing operations		(21,020	)		(16,312	)		(14,625	)
(Loss) gain from discontinued operations, net of tax expense (benefit) for the fiscal year ended September 30, 2014, 2013 and 2012 of ($877), ($1,260) and $155		(1,382	)		(1,984	)		245
Net loss	$	(22,402	)	$	(18,296	)	$	(14,380	)

~~Grants~~See ofaccompanying ~~Plan-Based~~notes ~~Awards~~to inthese ~~Fiscal~~consolidated ~~2013~~financial statements.

~~Estimated Possible Payouts Under Non~~F-~~Equity~~4 ~~Incentive Plan~~

Name	Threshold(a) ($)		Target(a) ($)		Maximum(a) ($)
Edward M. Murphy		250,000		500,000		750,000
Bruce F. Nardella		150,000		300,000		450,000
Denis M. Holler		83,750		167,500		251,250
David M. Petersen		80,000		160,000		240,000
Linda DeRenzo		71,250		142,500		213,750
Kathleen P. Federico		70,000		140,000		210,000

~~(a)~~National ~~Amounts~~Mentor ~~represent potential payouts relating to fiscal 2013 under The MENTOR Network Human Services and Corporate Management Incentive Compensation Plan~~Holdings, ~~based on percentages of base salary as in effect at September 30, 2013~~Inc. ~~For a description of the plan, see “Compensation Discussion and Analysis — Annual Incentive Compensation”.~~

55Consolidated Statements of Comprehensive Loss

~~Table~~(Amounts ofin ~~Contents~~thousands)

Outstanding Equity Awards at Fiscal 2013 Year-End


	Year Ended September 30,
	2014			2013			2012
Net loss	$	(22,402	)	$	(18,296	)	$	(14,380	)
Other comprehensive gain, net of tax:
Unrealized gains on derivative instrument classified as cash flow hedge net of tax for the fiscal year ended September 30, 2014, 2013 and 2012 of $310, $1,027, and $447		466			1,478			659

Reclassification adjustments for gains on derivative instruments included in net income, net of tax for the fiscal year ended September 30, 2014 of $942		1,414			—			—

Comprehensive loss	$	(20,522	)	$	(16,818	)	$	(13,721	)

~~Shares~~See ~~and~~accompanying ~~stock~~notes ~~options~~to ~~are~~these ~~not~~consolidated ~~included~~financial ~~in this table because none were issued during the fiscal year and none were outstanding at fiscal year-end~~statements.

	Equity Incentive Plan Awards
Name	Number and Class of Earned Units Not Vested (#)	Payout Valueof Earned UnitsNot Vested ($)(g)		Number and Class of Unearned Units Not Vested (#)	Payout Valueof UnearnedUnits NotVested ($)(g)
Edward M. Murphy	664.13 B Common Units(a)		345.35
	696.90 C Common Units(a)		348.45
	26,095.96 D Common Units(a)		12,526.06
	6,737.50 B Common Units(b)		3,503.50
	7,070.00 C Common Units(b)		3,535.00
	7,490.00 D Common Units(b)		3,595.20
	701,245.51 F Common Units(c)		329,585.39
				200,000 H Common Units(d)		—
Bruce F. Nardella	664.13 B Common Units(a)		345.35
	696.90 C Common Units(a)		348.45
	21,723.95 D Common Units(a)		10,427.50
	962.50 B Common Units(e)		500.50
	1,010.00 C Common Units(e)		505.00
	1,070.00 D Common Units(e)		513.60
	5,775.00 B Common Units(b)		3,003.00
	6,060.00 C Common Units(b)		3,030.00
	6,420.00 D Common Units(b)		3,081.60
	455,617.52 F Common Units(c)		214,140.23
				150,000 H Common Units(d)		—
Denis M. Holler	664.13 B Common Units(a)		345.35
	696.90 C Common Units(a)		348.45
	21,723.95 D Common Units(a)		10,427.50
	481.25 B Common Units(e)		250.25
	505.00 C Common Units(e)		252.50
	535.00 D Common Units(e)		256.80
	6,256.25 B Common Units(b)		3,253.25
	6,565.00 C Common Units(b)		3,282.50
	6,955.00 D Common Units(b)		3,338.40
	355,617.52 F Common Units(c)		167,140.23
				150,000 H Common Units(d)		—
David M. Petersen	664.13 B Common Units(a)		345.35
	696.90 C Common Units(a)		348.45
	15,603.14 D Common Units(a)		7,489.51
	5,775.00 B Common Units(b)		3,003.00
	6,060.00 C Common Units(b)		3,030.00
	6,420.00 D Common Units(b)		3,081.60
	314,780.83 F Common Units(c)		147,946.99
				100,000 H Common Units(d)		—
Linda DeRenzo	664.13 B Common Units(a)		345.35
	696.90 C Common Units(a)		348.45
	13,854.33 D Common Units(a)		6,650.08
	6,256.25 B Common Units(b)		3,253.25
	6,565.00 C Common Units(b)		3,282.50
	6,955.00 D Common Units(b)		3,338.40
	240,008.39 F Common Units(c)		112,803.94
				100,000 H Common Units(d)		—
Kathleen P. Federico	4,990.33 B Common Units(f)		2,594.97
	5,236.60 C Common Units(f)		2,618.30
	5,547.68 D Common Units(f)		2,662.89
	259,225.39 F Common Units(c)		121,835.93
				100,000 H Common Units(d)		—

F-5

56National Mentor Holdings, Inc.

~~Table~~Consolidated Statements of ~~Contents~~Stockholder’s Equity (Deficit)

(b)Amounts ~~Granted on January 12, 2007~~ in ~~connection with the initial compensatory grants under the NMH Investment~~thousands, ~~LLC~~except ~~2006~~share ~~Unit~~amounts) Plan. The units fully vested on May 10, 2011. Because payment of the value of the B, C and D Common Units is deferred until termination of a recipient’s employment with the Company or the occurrence of a liquidity event, we have included all such awards under the column for equity incentive plan awards that have been earned but have not vested. Vesting is explained in more detail above, under “Compensation Discussion and Analysis — Equity-Based Compensation”.

(c) Granted on June 15, 2011, in connection with compensatory grants under the NMH Investment, LLC 2006 Unit Plan, as amended. The units were 75% vested upon grant date, and the remaining 25% vested on December 15, 2012. Because payment of the value of the F Common Units is deferred until termination of a recipient’s employment with the Company or the occurrence of a liquidity event, we have included all such awards under the column for equity incentive plan awards that have been earned but have not vested. Vesting is explained in more detail above, under “Compensation Discussion and Analysis — Equity-Based Compensation”. The F Common Units are subject to a put right of the named executive officers, as described under “Compensation Discussion and Analysis — Equity-Based Compensation”.


	Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive (Loss) Income			Accumulated Deficit			Total Stockholder’s Equity (Deficit)
	Shares		Amount		Additional Paid-in Capital						Accumulated Deficit			Total Stockholder’s Equity (Deficit)
Balance at September 30, 2011		100	$	—	$	33,098		$	(4,017	)	$	(60,204	)	$	(31,123	)
Other comprehensive income, net of tax		—		—		—			659			—			659
Stock-based compensation		—		—		672			—			—			672
Dividend to parent		—		—		(75	)		—			—			(75	)
Net loss		—		—		—			—			(14,380	)		(14,380	)

Balance at September 30, 2012		100		—		33,695			(3,358	)		(74,584	)		(44,247	)
Other comprehensive income, net of tax		—		—		—			1,478			—			1,478
Stock-based compensation		—		—		273			—			—			273
Dividend to parent		—		—		(39	)		—			—			(39	)
Net loss		—		—		—			—			(18,296	)		(18,296	)

Balance at September 30, 2013		100		—		33,929			(1,880	)		(92,880	)		(60,831	)
Parent capital contribution		—		—		182,203			—			—			182,203
Other comprehensive income, net of tax		—		—		—			1,880			—			1,880
Stock-based compensation		—		—		895			—			—			895
Dividend to parent		—		—		(110	)		—			—			(110	)
Net loss		—		—		—			—			(22,402	)		(22,402	)

Balance at September 30, 2014		100	$	—	$	216,917		$	—		$	(115,282	)	$	101,635

~~(d)~~See ~~Granted~~accompanying onnotes ~~September 20, 2012 in connection with compensatory grants under the NMH Investment, LLC 2006 Unit Plan, as amended. The units will vest if and~~ to ~~the~~these ~~extent~~consolidated ~~that~~financial ~~the multiple of investment received by Vestar and its affiliates meets or exceeds 1~~statements.5. Because payment of the value of the H Common Units is deferred until the occurrence of a specified liquidity threshold, we have included all such awards under the column for equity incentive plan awards that have not been earned and have not vested. Vesting is explained in more detail above, under “Compensation Discussion and Analysis — Equity-Based Compensation”.

(e) Granted on August 14, 2007 under the NMH Investment, LLC 2006 Unit Plan, as amended, in recognition of the named executive officer’s promotion. The units fully vested on May 10, 2011, to the extent not already vested. Because payment of the value of the B, C and D Common Units is deferred until termination of a recipient’s employment with the Company or the occurrence of a liquidity event, we have included all such awards under the column for equity incentive plan awards that have been earned but have not vested. Vesting is explained in more detail above, under “Compensation Discussion and Analysis — EquityF-~~Based~~6 ~~Compensation”.~~

~~(g)~~National ~~Payout~~Mentor ~~value represents fair market value determined as of fiscal year-end~~Holdings, ~~which has been determined to be $0~~Inc.52 per Common B Unit, $0.50 per Common C Unit, $0.48 per Common D Unit, $0.47 per Common F Unit and $0.0 per Common H Unit. For purposes of calculating fair market value, we assumed hypothetical transaction costs in a change in control of the Company.

57Consolidated Statements of Cash Flows

~~Table~~(Amounts ofin ~~Contents~~thousands)

Option Exercises and Stock Vested


	Year Ended September 30,
	2014			2013			2012
Cash Flows from operating activities:
Net loss	$	(22,402	)	$	(18,296	)	$	(14,380	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Accounts receivable allowances		20,392			18,286			12,902
Depreciation		28,742			25,753			24,118
Amortization of intangible assets		37,953			37,600			36,885
Amortization and write-off of original issue discount and initial purchasers discount		7,101			2,946			2,956
Amortization and write-off of financing costs		10,523			2,851			2,395
Stock-based compensation		895			273			672
Deferred income taxes		(13,396	)		(12,212	)		(14,561	)
Gain on changes in derivative fair value		(33	)		—			—
Loss on disposal of assets		385			165			283
Non-cash impairment charge		3,605			6,344			955
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable		(16,815	)		(9,249	)		(33,092	)
Other assets		4,441			553			(1,699	)
Accounts payable		(4,279	)		(5,930	)		5,961
Accrued payroll and related costs		18,836			5,330			3,324
Other accrued liabilities		8,722			(2,719	)		6,562
Other long-term liabilities		(754	)		4,043			(4,030	)

Net cash provided by operating activities		83,916			55,738			29,251
Cash Flows from investing activities:
Cash paid for acquisitions, net of cash received		(53,699	)		(9,275	)		(16,544	)
Purchases of property and equipment		(35,295	)		(31,901	)		(29,995	)
Changes in restricted cash		(1,137	)		327			(198	)
Proceeds from sale of assets		1,207			1,472			4,075

Net cash used in investing activities		(88,924	)		(39,377	)		(42,662	)
Cash Flows from financing activities:
Issuance of long term-debt, net of original issue discount		598,500			30,000			—
Repayments of long-term debt		(587,525	)		(5,525	)		(5,300	)
Proceeds from borrowings under senior revolver		9,300			469,400			679,200
Repayments of borrowings under senior revolver		(9,300	)		(488,400	)		(660,200	)
Repayments of capital lease obligations		(430	)		(434	)		(399	)
Dividend to parent		(110	)		(39	)		(75	)
Payments of financing costs		(10,923	)		(2,048	)		(78	)
Parent capital contribution		182,203			—			—

Net cash provided by financing activities		181,715			2,954			13,148
Net increase (decrease) in cash and cash equivalents		176,707			19,315			(263	)
Cash and cash equivalents at beginning of period		19,315			—			263

Cash and cash equivalents at end of period	$	196,022		$	19,315		$	—


Supplemental disclosure of cash flow information
Cash paid for interest	$	64,155		$	71,670		$	73,110
Cash paid for income taxes, net	$	1,051		$	1,665		$	441
Supplemental disclosure of non-cash investing activities:
Accrued contingent consideration	$	2,400		$	—		$	—
Accrued property, plant and equipment	$	966		$	919		$	2,093
Supplemental disclosure of non-cash financing activities:
Capital lease obligation incurred to acquire assets	$	—		$	—		$	2,434

NoSee ~~options~~accompanying ~~were~~notes issued, outstanding or exercised during fiscal 2013. For purposes of this disclosure item, certain of the units vested during fiscal 2013 such that if the named executive officer terminated his or her employment voluntarily during fiscal 2013 and NMH Investment had elected to ~~repurchase~~these ~~his~~consolidated orfinancial ~~her units, it would have been required to repurchase them at fair market value~~statements. ~~The units that vested in fiscal 2013 are set forth in the table below.~~

Name	Number of F CommonUnits Acquired onVesting
Edward M. Murphy		175,311.38
Bruce F. Nardella		113,904.38
Denis M. Holler		88,904.38
David M. Petersen		78,695.21
Linda DeRenzo		60,002.10
Kathleen P. Federico		6,486.35

F-7

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company

~~The~~National ~~Company~~Mentor ~~has~~Holdings, ~~no pension plans~~Inc.

~~Fiscal~~Notes ~~2013~~to ~~Nonqualified~~Consolidated ~~Deferred~~Financial ~~Compensation~~Statements

Name	ExecutiveContributionsin LastFiscal Year($)(a)(b)		CompanyContributionsin LastFiscal Year($)(b)(c)		AggregateEarningsin LastFiscalYear($)(b)(d)		AggregateWithdrawals/Distributions($)(e)		AggregateBalanceatLastFiscalYear End($)(f)
Edward M. Murphy		13,771		63,931		27,268		—		535,367
Bruce F. Nardella		51,750		48,881		81,011		2,750		701,681
Denis M. Holler		8,400		39,281		94,732		31		930,256
David M. Petersen		37,260		31,481		28,552		8,800		451,747
Linda DeRenzo		5,509		28,669		11,231		4,720		223,320
Kathleen P. Federico		27,580		27,881		45,409		1,900		326,083

September 30, 2014

~~(a) Represents amounts contributed to the Executive Deferral Plan during fiscal 2013~~1. ~~The~~Basis ~~Executive~~of ~~Deferral~~Presentation ~~Plan is available to highly compensated employees to supplement the 401(k) plan. For details about the plan, see “Compensation Discussion and Analysis — Deferred Compensation”, above.~~

58National Mentor Holdings, Inc. is an indirect, wholly-owned subsidiary of Civitas Solutions, Inc. (“Civitas”). Civitas is a subsidiary of NMH Investment, LLC (“NMH Investment”), which was formed in connection with the acquisition of our business by affiliates of Vestar Capital Partners (“Vestar”) in 2006. The equity interests of NMH Investment are owned by Vestar and certain of our executive officers and directors and other members of management. On September 22, 2014, Civitas completed an initial public offering (the “IPO”) of its common stock and became a reporting company under the Securities Exchange Act of 1934, as amended.

~~Table~~National Mentor Holdings, Inc., through its wholly-owned subsidiaries (collectively, the “Company”), is a leading provider of ~~Contents~~home- and community-based health and human services to adults and children with intellectual and/or developmental disabilities, acquired brain injury and other catastrophic injuries and illnesses; and to youth with emotional, behavioral and/or medically complex challenges. Since the Company’s founding in 1980, the Company’s operations have grown to 36 states. The Company provides residential services to over 12,600 clients, some of whom also receive periodic services, and more than 16,500 clients receive periodic services from the Company in non-residential settings.

~~(b)~~The ~~All~~Company ofdesigns customized service plans to meet the ~~amounts~~unique ~~reported~~needs ~~under~~of ~~“Executive~~its ~~Contributions~~clients, inwhich ~~Last~~it ~~Fiscal~~delivers ~~Year”~~in home- and “community-based settings. Most of the Company’s ~~Contributions~~service plans involve residential support, typically in ~~Last~~small ~~Fiscal~~group ~~Year”~~homes, ~~are~~host ~~reported~~home assettings, ~~compensation~~or ~~for~~specialized ~~fiscal~~community ~~2013~~facilities, indesigned to improve the ~~Summary~~clients’ ~~Compensation~~quality ~~Table.~~of ~~Under~~life ~~“Aggregate~~and ~~Earnings~~to promote their independence and participation in ~~Last~~community ~~Fiscal~~life. ~~Year”~~Other services offered include supported living, ~~the~~day ~~following~~and ~~amounts~~transitional ~~are~~programs, ~~reported~~vocational asservices, ~~compensation~~case inmanagement, ~~the~~family-based ~~Summary~~and ~~Compensation~~outpatient ~~Table~~therapeutic ~~that~~services, ~~were~~post-acute intreatment ~~excess~~and neurorehabilitation, ofneurobehavioral rehabilitation and physical, occupational and speech therapies, among others. The Company’s customized service plans offer its clients as well as the ~~applicable~~payors ~~federal~~of ~~long~~these services, an attractive, cost-~~term~~effective alternative ~~rate~~to ~~are~~health asand ~~follows:~~human services provided in large, institutional settings.

Edward M. Murphy	$	12,577
Bruce F. Nardella		61,289
Denis M. Holler		65,449
David M. Petersen		15,720
Linda DeRenzo		5,225
Kathleen P. Federico		36,151

2. Significant Accounting Policies

~~(c)~~Principles ~~Represents Company match (up to 1.5%~~ of ~~base~~Consolidation salary) on executive contributions to the Executive Deferral Plan, plus Company contributions to the Executive Deferred Compensation Plan. The Executive Deferred Compensation Plan is an unfunded, nonqualified deferred compensation arrangement to provide deferred compensation to executive officers. For details about both these plans, see “Compensation Discussion and Analysis — Deferred Compensation” above.

~~(d)~~The ~~Represents~~consolidated ~~the~~financial 6%statements ~~return~~include ~~credited to~~ the ~~participant’s~~accounts ~~account~~of in the ~~Executive~~Company ~~Deferred~~and ~~Compensation~~its ~~Plan~~wholly-owned ~~for~~subsidiaries. ~~balances~~Intercompany inaccounts ~~fiscal~~and transactions ~~2013,~~between ~~plus~~ the ~~executives’~~Company ~~respective~~and ~~returns~~its ~~for~~subsidiaries ~~amounts~~have ~~invested~~been eliminated in ~~the Executive Deferral Plan~~consolidation.

~~(e)~~Use ~~Represents~~of ~~amounts~~Estimates ~~withdrawn from the Executive Deferral Plan and deposited into the executive’s respective 401(k) account in accordance with IRS rules.~~

~~(f)~~The ~~Represents~~preparation ~~aggregate~~of ~~balances~~financial statements in ~~Executive~~conformity ~~Deferral~~with ~~Plan~~generally accepted accounting principles (“GAAP”) requires management to make estimates and ~~Executive~~assumptions ~~Deferred~~that ~~Compensation~~affect ~~Plan~~the ~~for~~reported ~~each~~amounts ~~executive~~of asassets and liabilities and disclosure of ~~fiscal~~contingent ~~year-end.~~assets Ofand ~~the~~liabilities ~~amounts~~at inthe ~~this~~date ~~column,~~of the ~~following~~financial ~~amounts~~statements ~~have~~and ~~been~~the reported asamounts ~~compensation~~of inre

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