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This excerpt taken from the HCSG 10-K filed Feb 23, 2007. Item 1A. Risk
Factors.
We make 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, in this report and documents incorporated by reference
into this report, other public filings with the Securities and
Exchange Commission, and in our press releases. Such
forward-looking statements are not historical facts but rather
are based on current expectations, estimates and projections
about our business and industry, our beliefs and assumptions.
Generally they may include statements on; projections of
revenues, net income, earnings per share, cash flows and other
financial data. Additionally, we may make forward-looking
statements relating to business objectives of management and
evaluations of the market we serve. Such forward-looking
statements are subject to risks and uncertainties that could
cause actual results or objectives to differ materially from
those projected. The inclusion of forward-looking statements
should not be regarded as a representation by us that any of our
plans will be achieved. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
We have described below what we believe are our most significant
risk factors, which may be beyond our control and could cause
results to differ significantly from our projections.
We have one
client, a nursing home chain, which due to its significant
contribution to our total revenues, we consider a major
client.
Golden Horizons, our major client accounted for 18% of our 2006
total consolidated revenues, consisting of 16% and 26% of our
Housekeeping and Food revenues, respectively. At
December 31, 2006, amounts due from such client represented
less than 1% of our accounts receivable balance. This client
completed its previously announced merger on March 14,
2006. Our relationship with the successor entity remains under
the same terms and conditions as existed prior to the merger.
Although we expect to continue the relationship with this
client, there can be no assurance thereof. The loss of such
client, or a significant reduction in the revenues we receive
from such client, would have a material adverse effect on the
results of operations of our two operating segments. In
addition, if such client changes its payment terms it would
increase our accounts receivable balance and have a material
adverse effect on our cash flows and cash and cash equivalents.
Although we
expect that the acquisition of Summit will result in benefits to
our company, those benefits may not occur, or may be delayed,
because of integration and other challenges associated with the
acquisition.
On September 18, 2006, effective as of August 31,
2006, we acquired Summit. Achieving the benefits we expect from
the acquisition of Summit depends in part on our ability to
integrate Summit’s and our operations and personnel in a
timely and efficient manner. Although much of this integration
has already occurred, there remain aspects of the integration,
known and unknown, which will take time to fully accomplish.
Such integration challenges include, but are not limited to:
Our clients are
concentrated in the health care industry.
We provide our services primarily to providers of long-term
care. Congress has enacted a number of major laws during the
past decade that have significantly altered, or may alter,
overall government reimbursement for nursing home services.
Because our clients’ revenues are generally highly reliant
on Medicare and Medicaid reimbursement funding rates and
mechanisms, the overall effect of these laws and trends in the
long term care industry have affected and could adversely affect
the liquidity of our clients, resulting in their inability to
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make payments to us on agreed upon payment terms. These factors,
in addition to delays in payments from clients have resulted in,
and could continue to result in, significant additional bad
debts in the future.
We have a Paid
Loss Retrospective Insurance Plan for general liability and
workers’ compensation insurance.
Under our insurance plans for general liability and
workers’ compensation, predetermined loss limits are
arranged with our insurance company to limit both our per
occurrence cash outlay and annual insurance plan cost. We
regularly evaluate our claims pay-out experience, present value
factor and other factors related to the nature of specific
claims in arriving at the basis for our accrued insurance claims
estimate. Our evaluation is based primarily on current
information derived from reviewing our claims experience and
industry trends. In the event that our claims experience
and/or
industry trends result in an unfavorable change, it would have
an adverse effect on our results of operations and financial
condition.
We provide
services in 47 states and are subject to numerous local
taxing jurisdictions within those states.
The taxability of our services is subject to various
interpretations within the taxing jurisdictions of our markets.
Consequently, in the ordinary course of business, a jurisdiction
may contest our reporting positions with respect to the
application of its tax code to our services. A
jurisdiction’s conflicting position on the taxability of
our services could result in additional tax liabilities which we
may not be able to pass on to our clients or could negatively
impact our competitive position in the respective location.
Additionally, if we or one of our employees fail to comply with
applicable tax laws and regulations we could suffer civil or
criminal penalties in addition to the delinquent tax assessment.
We primarily
provide our services pursuant to agreements which have a one
year term, cancelable by either party upon 30 to
90 days’ notice after the initial
90-day
service agreement period.
We do not enter into long-term contractual agreements with our
clients for the rendering of our services. Consequently, our
clients can unilaterally decrease the amount of services we
provide or terminate all services pursuant to the terms of our
service agreements. Any loss of a significant number of clients
during the first year of providing services, for which we have
incurred significant
start-up
costs or invested in an equipment installation, could in the
aggregate materially adversely affect our consolidated results
of operations and financial position.
We are dependent
on the management experience of our key personnel.
We manage and provide our services through a network of
management personnel, from the
on-site
facility manager up to the executive officers of the company.
Therefore, we believe that our ability to recruit and sustain
the internal development of managerial personnel is an important
factor impacting future operating results and our ability to
successfully execute projected growth strategies. Our
professional management personnel are the key personnel in
maintaining and selling additional services to current clients
and obtaining new clients.
We may in general
be adversely affected by inflationary or market fluctuations in
the cost of products consumed in providing our services or our
cost of labor
The prices we pay for the principal items we consume in
performing our services are dependent primarily on current
market prices. Additionally, our cost of labor may be influenced
by unanticipated factors in certain market areas or increases in
collective bargaining agreements of our clients, to which we
assent. Although we endeavor to pass on such increased costs to
our clients, any inability or delay in passing on such increases
in costs could negatively impact our profitability.
Market
expectations are high and rely greatly on execution of our
growth strategy and related increases in financial
performance.
Management believes the historical price increases of our Common
Stock reflect high market expectations for our future operating
results. In particular, our ability to attract new clients,
through organic growth or
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acquisitions, has enabled us to execute our growth strategy and
increase market share. If, in the event we are not able to
continue historical client and revenue growth rates, our
operating performance may be adversely affected. Any failure to
meet the market’s high expectations for our revenue and
operating results may trigger our Common Stock price to decline.
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