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HCSG > SEC Filings for HCSG > Form 10-Q on 24-Apr-2014All Recent SEC Filings




Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

The following discussion is intended to provide the reader with information that will be helpful in understanding our financial statements including the changes in certain key items in comparing financial statements period to period. We also intend to provide the primary factors that accounted for those changes, as well as a summary of how certain accounting principles affect our financial statements. In addition, we are providing information about the financial results of our two operating segments to further assist in understanding how these segments and their results affect our consolidated results of operations. This discussion should be read in conjunction with our financial statements as of March 31, 2014 and December 31, 2013 and the periods then ended and the notes accompanying those financial statements.


We provide management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of the health care industry, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. We believe that we are the largest provider of housekeeping and laundry management services to the long-term care industry in the United States, rendering such services to over 3,000 facilities in 48 states as of March 31, 2014. Although we do not directly participate in any government reimbursement programs, our clients' reimbursements are subject to government regulation. Therefore, our clients are directly affected by any legislation relating to Medicare and Medicaid reimbursement programs.

We provide our services primarily pursuant to full service agreements with our clients. In such agreements, we are responsible for the day to day management of the department managers and hourly employees located at our clients' facilities. We also provide services on the basis of a management-only agreement for a very limited number of clients. Our agreements with clients typically provide for renewable one year service terms, cancelable by either party upon 30 to 90 days' notice after the initial 90-day period.

We are organized into two reportable segments; housekeeping, laundry, linen and other services ("Housekeeping"), and dietary department services ("Dietary"). At March 31, 2014, Housekeeping is provided at essentially all of our 3,000 client facilities, generating approximating 66% or $204,741,000 of the total revenues for the three months ended March 31, 2014. Dietary is provided to approximately 800 client facilities at March 31, 2014 and contributed approximately 34% or $107,424,000 of total revenues for the three months ended March 31, 2014.

Housekeeping consists of managing the client's housekeeping department which is principally responsible for the cleaning, disinfecting and sanitizing of patient rooms and common areas of a client's facility, as well as laundering and processing of the personal clothing belonging to the facility's patients. Also within the scope of this segment's service is the responsibility for laundering and processing the bed linens, uniforms and other assorted linen items utilized by a client facility.

Dietary consists of managing the client's dietary department which is principally responsible for food purchasing, meal preparation and providing dietitian consulting professional services, which includes the development of a menu that meets the patient's dietary needs.

As of March 31, 2014, we operate three wholly-owned subsidiaries, Huntingdon Holdings, Inc. ("Huntingdon"), Healthcare Staff Leasing Solutions, LLC ("Staff Leasing") and HCSG Insurance Corp. Huntingdon invests our cash and cash equivalents and manages our portfolio of available-for-sale marketable securities. Staff Leasing offers professional employer organization ("PEO") services to potential clients in the health care industry. As of March 31, 2014, we have PEO service contracts in several states. During the three months ended March 31, 2014 and 2013, operating results from our PEO service contracts were not material and were included in our Housekeeping segment. Formed in 2014, HCSG Insurance Corp. is a captive insurance company domiciled in the State of New Jersey and provides the Company with certain insurance-related services.

On July 12, 2013, the Company acquired substantially all of the operating assets of Platinum Health Services, LLC, a Delaware limited liability company and Platinum Health Services PEO, LLC, a Delaware limited liability company (collectively "Platinum") pursuant to an Asset Purchase Agreement dated July 11, 2013. Platinum was a privately-held provider of professional housekeeping, laundry and maintenance services to long-term and post-acute care facilities and operated solely within the United States. The acquisition has been included within the consolidated results of operations and financial condition from the date of the acquisition.

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