SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

þ☑

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

¨☐

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

(Exact name of registrant as specified in its charter)

(State or other jurisdiction of

incorporation or organization)

3220 Tillman Drive, Suite 300, Bensalem, Pennsylvania

(Address of principal executive office)

Registrant’s telephone number, including area code:

Former name, former address and former ﬁscal year, if changed since last report:

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value	HCSG	NASDAQ Global Select Market

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~~ Yes þ NO No ¨

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~~ Yes þ NO No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ~~YES~~ ¨ NO Yes ☐ No þ

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. Common Stock, $.01 par value: ~~73,273,000~~74,423,000 shares outstanding as of ~~October 26, 2017~~.July 23, 2020.

Healthcare Services Group, Inc.

This report and documents incorporated by reference into ~~this report~~it may contain 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, which are not historical facts but rather are based on current expectations, estimates and projections about our business and industry, and our beliefs and assumptions. Words such as “believes,” “anticipates,” “plans,” “expects,” “will,” “goal,” and similar expressions are intended to identify forward-looking statements. 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. Such forward-looking information is also subject to various risks and uncertainties. Such risks and uncertainties include, but are not limited to, risks arising from our providing services exclusively to the ~~health care~~healthcare industry, primarily providers of long-term care; the impact of and future effects of the COVID-19 pandemic or other potential pandemics; having ~~one client which accounted for approximately 16% and another client which accounted for approximately 9%~~a significant portion of our ~~total~~ consolidated revenues ~~for~~contributed by one customer during the ~~nine~~six months ended ~~September~~June 30, ~~2017;~~2020; credit and collection risks associated with ~~this~~the healthcare industry; our claims experience related to workers’ compensation and general liability ~~insurance;~~insurance (including any litigation claims, enforcement actions, regulatory actions and investigations arising from personal injury and loss of life related to COVID-19); the effects of changes in, or interpretations of laws and regulations governing the healthcare industry, our workforce and services provided, including state and local regulations pertaining to the taxability of our services and other labor-related matters such as minimum wage increases; the Company’s expectations with respect to selling, general, and administrative expense; continued realization of tax benefits arising from our corporate reorganization and self-funded health insurance program; the impact of the Securities and Exchange Commission investigation and related class action lawsuit; risks associated with the reorganization of our corporate structure; and the risk factors described in Part I of our Form 10-K for the fiscal year ended December 31, ~~2016 under “Government Regulation of Clients,” “Competition” and “Service Agreements and Collections,”~~2019 and under Item IA. “Risk Factors” in such Form 10-K and in this Form 10-Q.

These factors, in addition to delays in payments from ~~clients~~customers and/or ~~clients~~customers in bankruptcy, ~~or clients with which we are in litigation to collect payment,~~ have resulted in, and could continue to result in, significant additional bad debts in the near future. Additionally, our operating results would be adversely affected if unexpected increases in the costs of labor and labor-related costs, materials, supplies and equipment used in performing services (including the impact of potential tariffs and COVID-19) could not be passed on to our ~~clients.~~customers.

In addition, we believe that to improve our financial performance we must continue to obtain service agreements with new ~~clients,~~customers, retain and provide new services to existing ~~clients,~~customers, achieve modest price increases on current service agreements with existing ~~clients and~~customers and/or maintain internal cost reduction strategies at our various operational levels. Furthermore, we believe that our ability to sustain the internal development of managerial personnel is an important factor impacting future operating results and the successful execution of our projected growth strategies.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)


	June 30, 2020		December 31, 2019
ASSETS:
Current assets:
Cash and cash equivalents	$	78,109	$	27,329
Marketable securities, at fair value	92,318		90,711
Accounts and notes receivable, less allowance for doubtful accounts of $74,882 and $45,726 as of June 30, 2020 and December 31, 2019, respectively	295,261		340,930
Inventories and supplies	33,677		36,517
Prepaid expenses and other assets	24,176		20,245
Total current assets	523,541		515,732
Property and equipment, net	28,558		28,820
Goodwill	51,084		51,084
Other intangible assets, less accumulated amortization of $21,383 and $19,300 as of June 30, 2020 and December 31, 2019, respectively	20,270		22,353
Notes receivable — long–term portion, less allowance for doubtful accounts of $9,104 and $6,667 as of June 30, 2020 and December 31, 2019, respectively	41,868		46,992
Deferred compensation funding, at fair value	37,217		37,247
Deferred income taxes	34,150		20,364
Total assets	$	736,688	$	722,592

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable	$	59,369	$	54,418
Accrued payroll, accrued and withheld payroll taxes	50,494		36,413
Other accrued expenses	13,904		16,489
Borrowings under line of credit	—		10,000
Income taxes payable	20,922		8,075
Accrued insurance claims	24,806		23,256
Total current liabilities	169,495		148,651
Accrued insurance claims — long-term portion	68,212		64,366
Deferred compensation liability	37,211		37,621
Lease liability — long-term portion	12,083		11,649

Commitments and contingencies (Note 15)

STOCKHOLDERS’ EQUITY:
Common stock, $0.01 par value; 100,000 shares authorized; 75,732 and 75,557 shares issued, and 74,421 and 74,149 shares outstanding as of June 30, 2020 and December 31, 2019, respectively	757		756
Additional paid-in capital	277,482		270,614
Retained earnings	176,268		195,455
Accumulated other comprehensive income, net of taxes	4,042		2,919
Common stock in treasury, at cost, 1,311 and 1,408 shares as of June 30, 2020 and December 31, 2019, respectively	(8,862)		(9,439)
Total stockholders’ equity	449,687		460,305
Total liabilities and stockholders’ equity	$	736,688	$	722,592

See accompanying ~~notes.~~notes to consolidated financial statements.


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenues	$	452,029	$	462,101	$	901,179	$	938,212
Operating costs and expenses:
Costs of services provided	387,517		400,485		774,673		827,750
Selling, general and administrative expense	41,465		38,609		71,482		79,710
Other income (expense):
Investment and other income, net	7,745		1,393		2,918		6,596
Interest expense	(380)		(783)		(748)		(1,839)
Income before income taxes	30,412		23,617		57,194		35,509

Income tax provision	7,311		5,431		13,903		8,167
Net income	$	23,101	$	18,186	$	43,291	$	27,342

Per share data:
Basic earnings per common share	$	0.31	$	0.24	$	0.58	$	0.37
Diluted earnings per common share	$	0.31	$	0.24	$	0.58	$	0.37


Weighted average number of common shares outstanding:
Basic	74,695		74,352		74,676		74,327
Diluted	74,761		74,619		74,764		74,669

Comprehensive income:
Net income	$	23,101	$	18,186	$	43,291	$	27,342
Other comprehensive income:
Unrealized gain on available-for-sale marketable securities, net of taxes	1,656		791		1,123		2,207
Total comprehensive income	$	24,757	$	18,977	$	44,414	$	29,549

See accompanying ~~notes.~~notes to consolidated financial statements.

Stock-based compensation expense, net of tax benefit from equity compensation plans⁽¹⁾

Income taxes payable⁽¹⁾

Tax benefit from equity compensation plans ⁽¹⁾

⁽¹⁾~~The Company adopted the provisions of ASU 2016-09 prospectively, and as such the amounts reflected for the nine months ended September 30, 2016 have not been adjusted.~~

See accompanying ~~notes.~~notes to consolidated financial statements.


	For the six months ended June 30, 2020
	Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income, net of taxes		Retained Earnings		Treasury Stock		Stockholders’ Equity
	Shares	Amount
Balance, December 31, 2019	75,557	$	756	$	270,614	$	2,919	$	195,455	$	(9,439)	$	460,305
Adjustment to adopt credit-loss guidance¹	—	—		—		—		(32,099)		—		(32,099)
Balance, January 1, 2020	75,557	$	756	$	270,614	$	2,919	$	163,356	$	(9,439)	$	428,206
Comprehensive income:
Net income for the period	—	—		—		—		20,190		—		20,190
Unrealized loss on available-for-sale marketable securities, net of taxes	—	—		—		(533)		—		—		(533)
Comprehensive income for the period												$	19,657
Exercise of stock options and other share-based compensation, net of shares tendered for payment	162	1		1,723		—		—		—		1,724
Payment of statutory withholding on issuance of restricted stock and restricted stock units	—	—		(661)		—		—		—		(661)
Share-based compensation expense — stock options, restricted stock and restricted stock units	—	—		1,822		—		—		—		1,822
Treasury shares issued for Deferred Compensation Plan funding and redemptions	—	—		417		—		—		111		528
Shares issued pursuant to Employee Stock Plan	—	—		1,329		—		—		506		1,835
Dividends paid and accrued, $0.20 per share	—	—		—		—		(15,142)		—		(15,142)
Shares issued pursuant to Dividend Reinvestment Plan	—	—		16		—		—		7		23
Other	6	—		187		—		—		—		187
Balance, March 31, 2020	75,725	$	757	$	275,447	$	2,386	$	168,404	$	(8,815)	$	438,179
Comprehensive income:
Net income for the period	—	—		—		—		23,101		—		23,101
Unrealized gain on available-for-sale marketable securities, net of taxes	—	—		—		1,656		—		—		1,656
Comprehensive income for the period												$	24,757
Exercise of stock options and other stock-based compensation, net of shares tendered for payment	7	—		138		—		—		—		138
Share-based compensation expense — stock options, restricted stock and restricted stock units	—	—		1,830		—		—		—		1,830
Treasury shares issued for Deferred Compensation Plan funding and redemptions	—	—		51		—		—		(53)		(2)
Dividends paid and accrued, $0.20 per share	—	—		—		—		(15,237)		—		(15,237)
Shares issued pursuant to Dividend Reinvestment Plan	—	—		16		—		—		6		22
Balance, June 30, 2020	75,732	$	757	$	277,482	$	4,042	$	176,268	$	(8,862)	$	449,687

1.See Note 4—Allowance for Doubtful Accounts regarding the new credit-loss guidance

See accompanying ~~notes.~~notes to consolidated financial statements.


	For the six months ended June 30, 2019
	Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income, net of taxes		Retained Earnings		Treasury Stock		Stockholders’ Equity
	Shares	Amount
Balance, December 31, 2018	75,344	$	753	$	259,440	$	158	$	190,092	$	(9,663)	$	440,780
Comprehensive income:
Net income for the period	—	—		—		—		9,156		—		9,156
Unrealized gain on available-for-sale marketable securities, net of taxes	—	—		—		1,416		—		—		1,416
Comprehensive income for the period												$	10,572
Exercise of stock options and other share-based compensation, net of shares tendered for payment	115	2		1,911		—		—		—		1,913
Payment of statutory withholding on issuance of restricted stock and restricted stock units	—	—		(579)		—		—		—		(579)
Share-based compensation expense — stock options, restricted stock and restricted stock units	—	—		1,656		—		—		—		1,656
Treasury shares issued for Deferred Compensation Plan funding and redemptions	—	—		535		—		—		1		536
Shares issued pursuant to Employee Stock Plan	—	—		1,781		—		—		349		2,130
Dividends paid and accrued, $0.20 per share	—	—		—		—		(14,656)		—		(14,656)
Shares issued pursuant to Dividend Reinvestment Plan	—	—		18		—		—		5		23
Other	6	—		174		—		—		—		174
Balance, March 31, 2019	75,465	$	755	$	264,936	$	1,574	$	184,592	$	(9,308)	$	442,549
Comprehensive income:
Net income for the period	—	—		—		—		18,186		—		18,186
Unrealized gain on available-for-sale marketable securities, net of taxes	—	—		—		791		—		—		791
Comprehensive income for the period												$	18,977
Exercise of stock options and other stock-based compensation, net of shares tendered for payment	54	—		1,186		—		—		—		1,186
Share-based compensation expense — stock options, restricted stock and restricted stock units	—	—		1,668		—		—		—		1,668
Treasury shares issued for Deferred Compensation Plan funding and redemptions	—	—		45		—		—		(47)		(2)
Dividends paid and accrued, $0.20 per share	—	—		—		—		(14,753)		—		(14,753)
Shares issued pursuant to Dividend Reinvestment Plan	—	—		18		—		—		5		23
Balance, June 30, 2019	75,519	$	755	$	267,853	$	2,365	$	188,025	$	(9,350)	$	449,648

See accompanying notes to consolidated financial statements.

Note 1—Description of Business and Significant Accounting Policies

Nature of Operations

Healthcare Services Group, Inc. (the “Company”) provides management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of the ~~health care~~healthcare industry, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. Although the Company does not directly participate in any government reimbursement programs, the Company’s ~~clients~~customers receive government reimbursements related to Medicare and Medicaid. Therefore, they are directly affected by any legislation relating to Medicare and Medicaid reimbursement programs.

The Company provides services primarily pursuant to full service agreements with its ~~clients.~~customers. In such agreements, the Company is responsible for the day-to-day management of employees located at the ~~clients’~~customers’ facilities. The Company also provides services on the basis of management-only agreements for a limited number of ~~clients.~~customers. The agreements with ~~clients~~customers typically provide for a renewable one year service ~~terms, cancelable~~term, cancellable by either party upon 30 to 90 days’ notice after ~~the~~an initial period of 60 to 120 ~~day period.~~days.

The Company is organized into ~~two~~2 reportable segments: housekeeping, laundry, linen and other services (“Housekeeping”), and dietary department services (“Dietary”).

Housekeeping consists of managing the ~~clients’~~customers’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of a ~~client’s~~customer’s facility, as well as the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at a ~~client~~customer facility.

Dietary consists of managing the ~~clients’~~customers’ dietary departments, which are principally responsible for food purchasing, meal preparation and dietitian professional services, which includes the development of menus that meet residents’ dietary needs.

Unaudited Interim Financial Data

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows. However, in the Company’s opinion, all adjustments which are of a normal recurring nature and are necessary for a fair presentation have been reflected in these consolidated financial statements. The balance sheet shown in this report as of December 31, ~~2016~~2019 has been derived from ~~and does not include, all of~~ the ~~disclosures contained in the~~audited financial statements for the year ended December 31, ~~2016.~~2019. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019. The results of operations for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2020 are not necessarily indicative of the results that may be expected for any future period.

~~Certain amounts in the prior year financial statements have been reclassified to conform to current presentation.~~

~~Principles of Consolidation~~

The accompanying consolidated financial statements include the accounts of Healthcare Services Group, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

~~Cash and Cash Equivalents~~

Cash and cash equivalents are held in U.S. financial institutions or in custodial accounts with U.S. financial institutions. Cash equivalents are defined as short-term, highly liquid investments with a maturity of three months or less at the time of purchase, that are readily convertible into cash and have insignificant interest rate risk.

~~Inventories and Supplies~~

Inventories and supplies include housekeeping, linen and laundry supplies, as well as food provisions and supplies. Inventories and supplies are stated at cost to approximate a first-in, first-out (FIFO) basis. Linen supplies are amortized on a straight-line basis over their estimated useful life of 24 months.

~~Revenue Recognition~~

Revenues from the Company’s service agreements with clients are recognized as services are performed. Revenues are reported net of sales taxes that are collected from customers and remitted to taxing authorities.

The Company uses the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current period. The Company accrues for probable tax obligations as required by facts and circumstances in various regulatory environments. In addition, deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. When appropriate, valuation allowances are recorded to reduce deferred tax assets to amounts for which realization is more likely than not.

~~Uncertain income tax positions taken or expected to be taken in tax returns are reflected within the Company’s financial statements based on a recognition and measurement process.~~

~~Earnings per Common Share~~

Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated using the weighted-average number of common shares outstanding and dilutive common shares, such as those issuable upon exercise of stock options and upon the vesting of restricted stock and restricted stock units.

~~Share-Based Compensation~~

The Company estimates the fair value of share-based awards on the date of grant using the Black-Scholes valuation model for stock options and using the share price on the date of grant for restricted stock and restricted stock units. The value of the award is recognized ratably as an expense in the Company’s Consolidated Statements of Comprehensive Income over the requisite service periods, with adjustments made for forfeitures as they occur.

Use of Estimates in Financial Statements

In preparing financial statements in conformity with U.S. GAAP, estimates and assumptions are made that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Significant estimates are used in determining, but are not limited to, the Company’s allowance for doubtful accounts, accrued insurance claims, valuations, deferred taxes and reviews for potential impairment. The estimates are based upon various factors including current and historical trends, as well as other pertinent industry and regulatory authority ~~information.~~information, including the potential future effects of COVID-19. Management regularly evaluates this information to determine if it is necessary to update the basis for its estimates and to adjust for known changes.

Principles of Consolidation

Cash and Cash Equivalents

Cash and cash equivalents are held in U.S. financial institutions or in custodial accounts with U.S. financial institutions. Cash equivalents are defined as short-term, highly liquid investments with a maturity of three months or less at time of purchase that are readily convertible into cash and have insignificant interest rate risk.

Accounts and Notes Receivable

Accounts and notes receivable consist of Housekeeping and Dietary segment trade receivables from contracts with customers. The Company’s payment terms with customers for services provided are defined within each customer’s service agreement. All accounts receivables are considered short term assets as the Company does not grant payment terms greater than one year. Accounts receivable initially are recorded at the transaction amount, and are recorded after the Company has an unconditional right to payment where only the passage of time is required before payment is received. Each reporting period, the Company evaluates the collectability of outstanding receivable balances and records an allowance for doubtful accounts representing an estimate of future expected credit loss. Additions to the allowance for doubtful accounts are made by recording a charge to bad debt expense reported in costs of services provided.

Notes receivable are initially recorded when accounts receivable are transferred into a promissory note and are recorded as an alternative to accounts receivable to memorialize an unqualified promise to pay a specific sum, typically with interest, in accordance with a defined payment schedule. The Company’s payment terms with customers on promissory notes can vary based on several factors and the circumstances of each promissory note, however typically promissory notes mature over a 1 to 3 year period. Similar to accounts receivable, each reporting period the Company evaluates the collectability of outstanding notes receivable balances and records an allowance for doubtful accounts representing an estimate of future expected credit loss.

Refer to Note 3—Accounts and Notes Receivable herein for further information.

Allowance for Doubtful Accounts

The guidance under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification subtopic 326 Credit Losses - Measurement of Credit Losses on Financial Instruments ("ASC 326") became effective and was adopted by the Company prospectively as of January 1, 2020. In adopting ASC 326, the Company replaced its previous incurred loss impairment model for estimating credit losses on accounts and notes receivables for its reporting of quarterly and annual financial results with an expected loss model prepared in accordance with ASC 326. While the incurred loss impairment model had the Company recognize credit losses when it was probable that a loss had been incurred, ASC 326 requires the Company to estimate the lifetime expected credit losses on such instruments and to record an allowance to offset the receivables. ASC 326 requires the recognition of credit losses that are expected based on existing accounts and notes receivable as compared to the incurred loss approach. Accordingly, credit losses under ASC 326 generally are recognized earlier in the life cycle of a receivable than under the Company’s previous incurred loss model. Modeling must be prepared after considering historical experience, current conditions, and reasonable and supportable economic forecasts to estimate lifetime expected credit losses. Under the previous incurred loss impairment model, credit losses were recognized when Management determined that it was more likely than not that a loss had been incurred and such loss was estimable.

Refer to Note 4—Allowance for Doubtful Accounts herein for further information.

The cumulative effect of initially applying the new ASC 326 guidance to the consolidated financial statements on January 1, 2020 was as follows:


Consolidated Statement of Financial Position	December 31, 2019		Cumulative Impact from Adopting ASC 326 Guidance		January 1, 2020
	(in thousands)
Assets
Short-term accounts and notes receivable, less allowance for doubtful accounts	$	340,930	$	(41,100)	$	299,830
Notes receivable – long–term portion, less allowance for doubtful accounts	$	46,992	$	(1,136)	$	45,856
Allowance for doubtful accounts on short-term accounts and notes receivables	$	(45,726)	$	(41,100)	$	(86,826)
Allowance for doubtful accounts on long-term notes receivables	$	(6,667)	$	(1,136)	$	(7,803)
Deferred income taxes	$	20,364	$	10,137	$	30,501
Stockholders’ equity
Retained earnings	$	195,455	$	(32,099)	$	163,356

Inventories and Supplies

Inventories and supplies include housekeeping, linen and laundry supplies, as well as food provisions and supplies. Non-linen inventories and supplies are stated on a first-in, first-out (FIFO) basis, and reduced as deemed necessary to approximate the lower of cost or net realizable value. Linen supplies are amortized on a straight-line basis over their estimated useful life of 24 months.

The Company recognizes revenue from contracts with customers when or as the promised goods and services are provided to customers. Revenues are reported net of sales taxes that are collected from customers and remitted to taxing authorities.

The guidance under the FASB Accounting Standards Codification subtopic 606 Revenue from Contracts with Customers ("ASC 606") requires the Company to recognize revenue as the promised goods and services within the terms of the Company’s contracts are performed and satisfied. The amount of revenue recognized by the Company is based on the consideration to which the Company is entitled in exchange for providing the contracted goods and services. Refer to Note 2—Revenue herein for further information.

The guidance under FASB Accounting Standards Codification subtopic ASC 842 Leases (“ASC 842”) became effective and was adopted by the Company as of January 1, 2019, by applying a modified retrospective transition approach which resulted in the capitalization of the Company’s existing operating leases as of January 1, 2019. As such, the Company records assets and liabilities on the balance sheet to recognize the rights and obligations arising from leasing arrangements with contractual terms greater than 12 months, as permitted by U.S. GAAP. A leasing arrangement includes any contract which entitles the Company to the right of use of an identified tangible asset where there are no restrictions as to the direct of use of the asset, and the Company obtains substantially all of the economic benefits from the right of use. As of June 30, 2020 and December 31, 2019, the Company was only the lessee of operating lease arrangements.

Refer to Note 7—Leases herein for further information.

The Company uses the asset and liability method of accounting for income taxes. Under this method, income tax expense or benefits are recognized for the amount of taxes payable or refundable for the current period. The Company accrues for probable tax obligations as required, based on facts and circumstances in various regulatory environments. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. When appropriate, valuation allowances are recorded to reduce deferred tax assets to amounts for which realization is more likely than not.

Uncertain income tax positions taken or expected to be taken in tax returns are reflected within the Company’s financial statements based on a recognition and measurement process.

Earnings per Common Share

Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is computed using the weighted-average number of common shares outstanding and dilutive common shares, such as those issuable upon exercise of stock options and upon the vesting of restricted stock and restricted stock units.

Share-Based Compensation

Identifiable Intangible Assets and Goodwill

Identifiable intangible assets are amortized on a straight-line basis over their respective lives. Goodwill represents the excess of cost over the fair value of net assets of acquired businesses. Management reviews the carrying value of goodwill annually during the fourth quarter to assess for impairment, or more often if events or circumstances indicate that the carrying value may exceed its estimated fair value.

NaN impairment loss was recognized on the Company's intangible assets or goodwill during the six months ended June 30, 2020 or 2019.

Concentrations of Credit Risk

The Company’s financial instruments that are subject to ~~concentrations of~~ credit risk are cash and cash equivalents, marketable securities, deferred compensation funding and accounts and notes receivable. At June 30, 2020 and December 31, 2019, substantially all of the Company’s cash and cash equivalents and marketable securities were held in 1 large financial institution located in the United States. The Company’s marketable securities are fixed income investments which are highly liquid and can be readily purchased or sold through established markets. At September 30, 2017 and December 31, 2016, substantially all of the Company’s cash and cash equivalents and marketable securities were held in one large financial institution located in the United States.

The Company’s ~~clients~~customers are concentrated in the ~~health care~~healthcare industry and are primarily providers of long-term care. The revenues of many of the Company’s ~~clients~~customers are highly reliant on Medicare, Medicaid and third party payors’ reimbursement funding rates. New legislation or changes in existing regulations could ~~be made which could~~ directly impact the governmental reimbursement

programs in which the ~~clients~~customers participate. ~~The~~As a result, the Company may not realize the full ~~effect~~effects of ~~any~~ such programs ~~would not be realized~~ until these laws are fully implemented and governmental agencies issue applicable regulations or guidance.

~~Recent Accounting Pronouncements~~

The Company presents its consolidated revenues disaggregated by reportable segment, as Management evaluates the ~~Financial Accounting Standards Board (“FASB”) issued ASU 2016-09,~~ ~~Stock Compensation: Improvements to Employee Share-Based Payment Accounting.~~ ~~ASU 2016-09 is intended to simplify several aspects~~nature, amount, timing and uncertainty of the ~~accounting for share-based payments. The Company adopted the standard beginning January 1, 2017. The impact of adopting the standard includes the recognition of excess tax benefits related~~Company’s revenues by segment. Refer to share-based payments as a component of income tax expense, as opposed to additional paid-in capital; an amendment to the calculation of diluted earnings per share to exclude windfall tax benefits from assumed proceeds when calculating diluted shares outstanding;Note 13—Segment Information herein as well as ~~accounting~~the information below regarding the Company’s reportable segments.

Housekeeping accounted for ~~forfeitures~~$451.9 million and $462.0 million of ~~share-based awards~~the Company’s consolidated revenues for the six months ended June 30, 2020 and 2019, respectively, which represented approximately 50.2% and 49.2% of the Company’s revenues in each respective period. The Housekeeping services include managing customers’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of the customers’ facilities, as ~~they occur,~~well as ~~opposed~~the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at the customers’ facilities. Upon beginning service with a customer facility, the Company will typically hire and train the employees previously employed by such facility and assign an on-site manager to ~~reserving~~supervise and train the front-line personnel and coordinate housekeeping services with other facility support functions in accordance with customer requests. Such management personnel also oversee the execution of various cost and quality-control procedures including continuous training and employee evaluation.

Dietary services accounted for ~~estimated forfeitures.~~

~~In January 2017,~~$449.3 million and $476.2 million of the ~~FASB issued ASU 2017-01,~~ ~~Business Combinations: Clarifying~~Company’s consolidated revenues for the ~~Definition~~six months ended June 30, 2020 and 2019, respectively, which represented approximately 49.8% and 50.8% of the Company’s revenues in each respective period. Dietary services consist of managing customers’ dietary departments which are principally responsible for food purchasing, meal preparation and professional dietitian services, which include the development of menus that meet the dietary needs of residents. On-site management is responsible for all daily dietary department activities, with regular support provided by a ~~Business. The guidance changes the definition of a business to assist entities~~District Manager specializing in evaluating whether a set of transferred assets and activities constitutes a business under Topic 805. The guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted.dietary services. The Company ~~plans~~also offers clinical consulting services to ~~adopt~~facilities which if contracted is a service bundled within the ~~standard effective January 1, 2018.~~monthly service provided to customers. Upon beginning service with a customer facility, the Company will typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise and train the front-line personnel and coordinate dietitian services with other facility support functions in accordance with customer requests. Such management personnel also oversee the execution of various cost and quality-control procedures including continuous training and employee evaluation.

~~In May 2014,~~Revenue Recognition

All of the ~~FASB issued ASU 2014-09,~~ ~~Revenue~~Company��s revenues are derived from ~~Contracts~~contracts with ~~Customers, which was subsequently amended~~customers. The Company accounts for revenue from contracts with customers in accordance with ASC 606, and ~~updated throughout 2015 and 2016. The standard provides guidance on revenue recognition, among other topics~~as such, as the ~~accounting for compensation and costs to obtain a contract. The standard requires that an entity recognize~~Company recognizes revenue to depict the transfer of promised goods orand services to customers in ~~an amount~~amounts that ~~reflects~~reflect the consideration to which the ~~entity expects to be~~Company is entitled in exchange for those goods and services. The Company’s costs of obtaining contracts are not material.

The Company performs services and provides goods in accordance with its contracts with its customers. Such contracts typically provide for a renewable one year service term, cancellable by either party upon 30 to 90 days’ notice, after an initial period of 60 to 120 days. A performance obligation is the unit of account under ASC 606 and is defined as a promise in a contract to transfer a distinct good or ~~services. Adoption~~service to the customer. The Company’s Housekeeping and Dietary contracts relate to the provision of bundles of goods, services or both, which represent a series of distinct goods and services that are substantially the same and that have the same pattern of transfer to the customer. The Company accounts for the series as a single performance obligation satisfied over time, as the customer simultaneously receives and consumes the benefits of the goods and services provided. Revenue is recognized using the output method, which is based upon the delivery of goods and services to the customers’ facilities. In limited cases, the Company provides goods, services or both, before the execution of a written contract. In these cases, the Company defers the recognition of revenue until a contract is executed. The amount of such deferred revenue was $1.9 million and $0.3 million as of June 30, 2020 and December 31, 2019, respectively. Additionally, substantially all such revenue amounts deferred as of December 31, 2019 were subsequently recognized as revenue during the six months ended June 30, 2020.

The transaction price is the amount of consideration to which the Company is entitled in exchange for transferring promised goods or services to its customers. The transaction price does not include taxes assessed or collected. The Company’s contracts detail the fees that the Company charges for the goods and services it provides. For certain contracts which contain a variable component to the transaction price, the Company is required ~~for reporting periods beginning after December 15, 2017, with early adoption prohibited.~~to make estimates of the amount of consideration to which the Company will be entitled, based on variability in resident and patient populations serviced, product usage or quantities consumed. The Company ~~plans~~recognizes revenue related to ~~adopt~~such estimates only when the ~~standard beginning~~Company determines that there will not be a significant reversal in the amount of revenue recognized. The Company’s contracts generally do not contain significant financing components, as payment terms are less than one year.

The Company allocates the transaction price to each performance obligation, noting that the bundle of goods, services or goods and services provided under each Housekeeping and Dietary contract represents a single performance obligation that is satisfied over time. The Company recognizes the related revenue when it satisfies the performance obligation by transferring a bundle of promised goods, services or both to a customer. Such recognition is on a monthly or weekly basis, as goods are provided and services are performed. In some cases, the Company requires customers to pay in advance for goods and services to be provided. As of June 30, 2020 and December 31, 2019, the value of the contract liabilities associated with customer prepayments was not material. Additionally, substantially all such revenue amounts deferred as of December 31, 2019 were subsequently recognized as revenue during the six months ended June 30, 2020.

Transaction Price Allocated to Remaining Performance Obligations

The Company recognizes revenue as it satisfies the performance obligations associated with contracts with customers, which due to the nature of the goods and services provided by the Company, are satisfied over time. Contracts may contain transaction prices that are fixed, variable or both. The Company’s contracts with customers typically provide for an initial term of one year, with renewable one year service terms, cancellable by either party upon 30 to 90 days’ notice after an initial period of 60 to 120 days.

At June 30, 2020, the Company had $559.4 million related to performance obligations that were unsatisfied or partially unsatisfied for which the Company expects to recognize revenue. The Company expects to recognize revenue on approximately 20.5% of the remaining performance obligations over the next 12 months, with the balance to be recognized thereafter. These amounts exclude variable consideration primarily related to performance obligations that consists of a series of distinct service periods with revenues based on future performance that cannot be estimated at contract inception. The Company also has elected to apply the practical expedient that permits exclusion of information about the remaining performance obligations with original expected durations of one year or less.

Note 3—Accounts and Notes Receivable

The Company’s accounts and notes receivable balances consisted of the following as of June 30, 2020 and December 31, 2019:


	June 30, 2020		December 31, 2019
	(in thousands)
Short-term
Accounts and notes receivable	$	370,143	$	386,656
Allowance for doubtful accounts¹	(74,882)		(45,726)
Total net short-term accounts and notes receivable	$	295,261	$	340,930
Long-term
Notes receivable	$	50,972	$	53,659
Allowance for doubtful accounts¹	(9,104)		(6,667)
Total net long-term notes receivable	$	41,868	$	46,992
Total net accounts and notes receivable	$	337,129	$	387,922

1.Effective January 1, ~~2018 utilizing~~2020, the ~~modified retrospective method.~~ Company adopted ASC 326 and recorded a one-time adoption adjustment of $42.2 million

The Company makes credit decisions on a case-by-case basis after reviewing a number of qualitative and quantitative factors related to the specific customer as well as current industry variables that may impact that customer. There are a variety of factors that impact a customer’s ability to pay in accordance with the Company’s contracts. These factors include, but are not limited to, fluctuating census numbers, litigation costs and the customer’s participation in programs funded by federal and state governmental agencies. Deviations in the timing or amounts of reimbursements under those programs can impact the customer’s cash flows and its ability to make timely payments. However, the customer’s obligation to pay the Company in accordance with the contracts are not contingent upon the customer’s cash flow. Notwithstanding the Company’s efforts to minimize its credit risk exposure, the aforementioned factors, as well as other factors that impact customer cash flows or ability to make timely payments, could have an indirect, yet material adverse effect on the Company’s results of operations and financial condition.

Fluctuations in net accounts and notes receivable are generally attributable to a variety of factors including, but not limited to, the timing of cash receipts from customers and the inception, transition, modification or termination of customer relationships. The Company deploys significant resources and has invested in tools and processes to optimize Management’s credit and collections efforts. When appropriate, the Company utilizes interest-bearing promissory notes to enhance the collectability of amounts due, by instituting definitive repayment plans and providing a means by which to further evidence the amounts owed. In addition, the Company may amend contracts from full service to management-only arrangements, or adjust contractual payment terms, to accommodate customers who have in good faith established clearly-defined plans for addressing cash flow issues. These efforts are intended to minimize the Company’s collections risk.

Note 4 - Allowance for Doubtful Accounts

On January 1, 2020 (the "adoption date"), the Company replaced its previous incurred loss impairment model for estimating credit losses on accounts and notes receivables with an expected loss model prepared in accordance with ASC 326. While the incurred loss impairment model had the Company recognize credit losses when it was probable that a loss had been incurred, ASC 326 requires the Company to estimate future expected credit losses on such instruments before an impairment may occur. On the adoption date, the Company recorded an initial increase of $42.2 million to the Company's allowance for doubtful accounts, with an offset recorded as an opening adjustment to retained earnings.

In making the Company’s credit evaluations, management considers the general collection risk associated with trends in the long-term care industry. The Company establishes credit limits through payment terms with customers, performs ongoing credit evaluations and monitors accounts on an aging schedule basis to minimize the risk of loss. Despite the Company’s efforts to minimize credit risk exposure, customers could be adversely affected if future industry trends, including those related to COVID-19, change in such a manner as to negatively impact their cash flows. The full effects of COVID-19 on the Company’s customers are highly uncertain and cannot be predicted. As a result, the Company’s future collection experience can differ significantly from historical collection trends. If the Company’s customers experience a negative impact on their cash flows, it could have a material adverse effect on the Company’s results of operations and financial condition.

The Company evaluates its accounts and notes receivable for expected credit losses quarterly. Accounts receivables are evaluated based on internally developed credit quality indicators derived from the ~~impact~~aging of receivables. Notes receivable are evaluated based on internally developed credit quality indicators derived from Management’s assessment of collection risk. The Company manages note receivable portfolios using a two tiered approach by disaggregating standard notes receivables, which are promissory notes in good standing, from those who have been identified by Management as having an elevated credit risk profile due to a trigger event such as bankruptcy. At the end of each period the Company sets a reserve for expected credit losses on standard notes receivable based on the Company’s historical loss rate. Notes receivable with an elevated risk profile, which are from customers who have filed bankruptcy, are subject to collections activity or are slow payers that are experiencing financial difficulties, are aggregated and evaluated to determine the total reserve for the class of receivable.

The guidance in ASC 326 permits entities to make an accounting policy election not to measure an estimate for credit losses on accrued interest if those entities write-off accrued interest deemed uncollectible in a timely manner. The Company follows an income recognition policy on all interest earned on notes receivable. Under such policy the Company accounts for all notes receivable on a non-accrual basis and defers the recognition of any interest income until receipt of cash payments. This policy was established, recognizing the environment of the long-term care industry, and not because such notes receivable are necessarily impaired. Accordingly, the Company does not record a credit loss adjustment for accrued interest. For the three and six months ended June 30, 2020, the Company recognized $0.4 million and $1.0 million in interest income from notes receivables.

As part of the Company’s adoption of ASC 326, there are additional disclosures required to be made on a class of financing receivable basis. The following table presents the Company’s two tiers of notes receivable further disaggregated by year of origination as of June 30, 2020:


	Notes Receivable
	Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Total
	(in thousands)
Notes Receivable
Standard notes receivable	$	8,127	$	13,619	$	17,669	$	26,429	$	275	$	1,602	$	67,721
Elevated risk notes receivable	$	—	$	604	$	—	$	5,511	$	—	$	2,421	$	8,536

Current-period gross write-offs	$	—	$	—	$	411	$	—	$	1,721	$	36	$	2,168
Current-period recoveries	—		—		—		—		—		—		—
Current-period net write-offs	$	—	$	—	$	411	$	—	$	1,721	$	36	$	2,168

The following table provides information as to the status of payment on the Company’s notes receivable which were past due as of June 30, 2020:


	Age Analysis of Past-Due Notes Receivable as of June 30, 2020
	0-90 Days		91 - 180 Days		Greater than 181 Days		Total
	(in thousands)
Notes Receivable
Standard notes receivable	$	638	$	433	$	3,075	$	4,146
Elevated risk notes receivable	1,035		767		5,829		7,631
	$	1,673	$	1,200	$	8,904	$	11,777

The following table provides a summary of the changes in the Company’s allowance for doubtful accounts on a portfolio segment basis for the three and six months ended June 30, 2020:


	Allowance for doubtful accounts
Portfolio Segment:	March 31 2020		Write-Offs¹		Bad Debt Expense		June 30 2020
	(in thousands)
Accounts Receivables	$	74,389	$	(9,987)	$	1,897	$	66,299

Notes Receivables
Standard notes receivable	$	11,654	$	(1,721)	$	1,936	$	11,869
Elevated risk notes receivable	6,237		(447)		28		5,818
	$	17,891	$	(2,168)	$	1,964	$	17,687
Total accounts and notes receivable	$	92,280	$	(12,155)	$	3,861	$	83,986

1.Write-offs are shown net of recoveries. During the three months ended June 30, 2020, the Company collected $0.8 million of accounts receivables that were recovered subsequent to being written-off.


	Allowance for doubtful accounts
Portfolio Segment:	December 31, 2019		Cumulative effect of ASC 326 adoption¹		Write-Offs²		Bad Debt Expense		June 30, 2020
	(in thousands)
Accounts receivable	$	39,903	$	36,709	$	(14,396)	$	4,083	$	66,299

Notes receivable
Standard notes receivable	$	6,667	$	5,236	$	(1,721)	$	1,687	$	11,869
Elevated risk notes receivable	5,823		291		(447)		151		5,818
Total notes receivable	$	12,490	$	5,527	$	(2,168)	$	1,838	$	17,687
Total accounts and notes receivable	$	52,393	$	42,236	$	(16,564)	$	5,921	$	83,986

1.Represents the pre-tax one-time adjustment to the Company’s 2020 opening retained earnings balance in accordance with the adoption of ~~this ASU by reviewing~~ the ~~nature and terms~~CECL accounting guidance.

2.Write-offs are shown net of ~~existing contracts under~~recoveries. During the ~~provisions~~six months ended June 30, 2020, the Company collected $0.8 million of ~~the new guidance and designing operational and process updates required for ongoing compliance. Management does not expect a material impact~~accounts receivables that were recovered subsequent to the Company's accounting for the revenue earned related to its Housekeeping and Dietary department services. Management anticipates that the most significant impact of the new standard will relate to additional disclosure obligations.being written-off.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases~~. ASU 2016-02 requires lessees to recognize assets and liabilities on their balance sheet related to the rights and obligations created by most leases, while continuing to recognize expenses on their income statements over the lease term. It will also require disclosures designed to give financial statement users information regarding the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. The Company will adopt the new guidance as of January 1, 2019. Management is continuing to evaluate the expected impact of the requirements, however it is expected that the primary impact will relate to the capitalization of operating leases of office space, vehicles and equipment.

Note 2—5—Changes in Accumulated Other Comprehensive Income by Component

Accumulated other comprehensive income consists of unrealized gains and losses from the Company’s available-for-sale marketable securities. The following table provides a summary of the changes in accumulated other comprehensive income for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016:~~2019:


	Unrealized Gains and Losses on Available-for-Sale Securities¹
	Six Months Ended June 30,
	2020		2019
	(in thousands)
Accumulated other comprehensive income — beginning balance	$	2,919	$	158
Other comprehensive income before reclassifications	1,057		2,286
Losses (gains) reclassified from other comprehensive income²	66		(79)
Net current period other comprehensive income³	1,123		2,207
Accumulated other comprehensive income — ending balance	$	4,042	$	2,365

Unrealized Gains and Losses on Available-for-Sale Securities⁽¹⁾
Nine Months Ended September 30,
2017 2016
(in thousands)
Accumulated other comprehensive income (loss) — beginning balance $ (319 ) $ 543
Other comprehensive income before reclassifications 1,162
909
Losses (gains) reclassified from other comprehensive income 1
(144 )
Net current period other comprehensive income⁽²⁾
1,163
765
Accumulated other comprehensive income — ending balance $ 844
$ 1,308
1.All amounts are net of tax

~~Amounts reclassified from accumulated other comprehensive income (loss) represent realized gains or losses on the sale of the Company’s available-for-sale securities.~~ 2.Realized gains and losses ~~are~~were recorded pre-tax ~~within “Other income - Investment~~under “Investment and ~~interest”~~other income” in the Consolidated Statements of Comprehensive Income. For the six months ended June 30, 2020, the Company recorded $0.1 million of realized losses from the sale of available-for-sale securities. For the six months ended June 30, 2019, the Company recorded $0.1 million of realized gains from the sale of available-for-sale securities. Refer to Note ~~5 -~~ 9—Fair Value Measurements herein for further information. ~~The table below shows~~

3.For the ~~reclassification adjustments out of accumulated~~six months ended June 30, 2020 and 2019, the changes in other comprehensive income ~~(loss) for the~~ ~~three~~were net of a tax expense of $0.3 million and ~~nine~~ ~~months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016~~:$0.6 million, respectively.


	Amounts Reclassified from Accumulated Other Comprehensive Income
	2020		2019
	(in thousands)
Three Months Ended June 30,
(Losses) gains from the sale of available-for-sale securities	$	(76)	$	99
Tax benefit (expense)	19		(23)
Net (loss) gain reclassified from accumulated other comprehensive income	$	(57)	$	76
Six Months Ended June 30,
(Losses) gains from the sale of available-for-sale securities	$	(87)	$	103
Tax benefit (expense)	21		(24)
Net (loss) gain reclassified from accumulated other comprehensive income	$	(66)	$	79

Amounts Reclassified from Accumulated Other Comprehensive Income
2017 2016
(in thousands)
Three Months Ended September 30,
Gains (losses) from the sale of available-for-sale securities $ 171
$ (17 )
Tax expense (benefit) $ (54 ) $ 8
Net gain (loss) reclassified from accumulated other comprehensive income $ 117
$ (9 )
Nine Months Ended September 30,
Gains (losses) from the sale of available-for-sale securities $ (2 ) $ 226
Tax expense (benefit) $ 1
$ (82 )
Net gain (loss) reclassified from accumulated other comprehensive income $ (1 ) $ 144

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Note 3—6—Property and Equipment

Property and equipment are recorded at cost. Depreciation is recorded over the estimated useful life of each class of depreciable asset, and is computed using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated asset life or term of the lease. Repairs and maintenance costs are charged to expense as incurred.

~~Table of Contents~~

The following table sets forth the amounts of property and equipment by each class of depreciable asset as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016:~~2019:


	June 30, 2020		December 31, 2019
	(in thousands)
Housekeeping and Dietary equipment	$	22,528	$	25,219
Computer hardware and software	9,280		12,769
Operating lease — right-of-use assets	24,449		21,176
Other¹	1,643		1,698
Total property and equipment, at cost	57,900		60,862
Less accumulated depreciation	29,342		32,042
Total property and equipment, net	$	28,558	$	28,820

September 30, 2017 December 31, 2016
(in thousands)
Housekeeping and Dietary equipment $ 22,057
$ 21,136
Computer hardware and software 12,381
11,750
Other ⁽¹⁾
988
1,133
Total property and equipment, at cost 35,426
34,019
Less accumulated depreciation 21,927
20,564
Total property and equipment, net $ 13,499
$ 13,455
1.Includes furniture and fixtures, leasehold improvements and autos and trucks including auto leases.


⁽¹⁾	~~Includes furniture and fixtures, leasehold improvements and autos and trucks.~~

Depreciation expense for ~~each of~~ the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 was ~~$1.1 million.~~$2.6 million and $2.3 million, respectively. Depreciation expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 was ~~$3.7~~$5.1 million and ~~$3.5~~$4.8 million, respectively. Of the depreciation expense recorded for the three and six months ended June 30, 2020, $1.4 million and $2.7 million related to the depreciation of the Company’s operating lease - right-of-use assets ("ROU Assets"), respectively. Of the depreciation expense recorded for the three and six months ended June 30, 2019, $1.0 million and $2.2 million related to the depreciation of the Company's operating lease - ROU Assets, respectively.

Note ~~4—Goodwill~~7—Leases

The Company recognizes ROU assets and lease liabilities (“Lease Liabilities”) for automobiles, office buildings, IT equipment, and small storage units for the temporary storage of operational equipment. The Company’s leases have remaining lease terms ranging from less than 1 year to 10 years, and have extension options ranging from 1 year to 5 years. Most leases include the option to terminate the lease within 1 year.

Upon adopting ASC 842, the Company made accounting policy elections using practical expedients offered under the guidance to combine lease and non-lease components within leasing arrangements and to recognize the payments associated with short-term leases in earnings on a straight-line basis over the lease term, with the cost associated with variable lease payments recognized when incurred. These accounting policy elections impact the value of the Company’s ROU Assets and Lease Liabilities. The value of the Company’s ROU Assets is determined as the non-depreciated fair value of its leasing arrangements and is recorded to Property and Equipment, net on the Company’s Consolidated Balance Sheets. The value of the Company’s Lease Liabilities is the present value of fixed lease payments not yet paid, discounted using either the rate implicit in the lease contract if that rate can be determined, or the Company’s incremental borrowing rate ("IBR") and is recorded in Other accrued expenses and Lease liability — long-term portion on the Company’s Consolidated Balance Sheets. Any future lease payments that are not fixed based on the terms of the lease contract, or fluctuate based on a factor other than an index or rate, are considered variable lease payments and are not included in the value of the Company’s ROU Assets or Lease Liabilities. The Company’s IBR is determined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

Table of Contents

Components of lease expense required by ASC 842 are presented below for the three and six months ended June 30, 2020 and 2019.


	Three Months Ended June 30,
	2020		2019
	(in thousands)
Lease cost
Operating lease cost	$	1,394	$	1,016
Short-term lease cost	124		340
Variable lease cost	116		131
Total lease cost	$	1,634	$	1,487


	Six Months Ended June 30,
	2020		2019
	(in thousands)
Lease cost
Operating lease cost	$	2,749	$	2,230
Short-term lease cost	253		561
Variable lease cost	262		284
Total lease cost	$	3,264	$	3,075

Supplemental information required by ASC 842 is presented below for the six months ended June 30, 2020 and 2019.


	Six Months Ended June 30,
	2020			2019
	(dollar amounts in thousands)
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	2,793		$	2,702
Weighted-average remaining lease term — operating leases	5.1 years			6.9 years
Weighted-average discount rate — operating leases	4.9		%	4.9		%

During the three and six months ended June 30, 2020, the Company’s ROU Assets and Lease Liabilities were both reduced by $0.1 million and $0.3 million, respectively due to lease cancellations. During the three and six months ended June 30, 2019, the Company’s ROU Assets and Lease Liabilities were both reduced by less than $0.1 million and $0.1 million, respectively due to lease cancellations.

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The following is a schedule by calendar year of future minimum lease payments under operating leases that have remaining terms as of June 30, 2020:


Period/Year	Operating Leases
	(in thousands)
July 1 to December 31, 2020	$	2,882
2021	4,789
2022	3,565
2023	1,741
2024	1,295
2025	1,311
Thereafter	4,204
Total minimum lease payments¹	$	19,787

^1.As of June 30, 2020, the Company's total Lease Liabilities in the Consolidated Balance Sheet were $17.5 million, net of imputed interest of $2.2 million.

Note 8—Other Intangible Assets

~~Goodwill~~

Goodwill represents the excess of the purchase price over the fair value of the net assets of an acquired business. Goodwill is not amortized, but is evaluated for impairment on an annual basis, or more frequently if impairment indicators arise.

Goodwill by reportable operating segment, as described in Note 10 - Segment Information, was approximately $42.4 million and $8.7 million for Housekeeping and Dietary, respectively, as of September 30, 2017. At December 31, 2016, goodwill by reportable operating segment was $42.3 million and $2.1 million for Housekeeping and Dietary, respectively. The increase in goodwill is related to the acquisition of certain Dietary-related assets during 2017.

~~Intangible Assets~~

The Company’s other intangible assets consist of customer relationships which were obtained through acquisitions and are recorded at their fair values at the date of acquisition. Intangible assets with determinable lives are amortized on a straight-line basis over their estimated useful lives. The customer relationships have a weighted-average amortization period of ~~9.9~~approximately 10 years. As of September 30, 2017, certain customer relationship intangible assets were fully amortized and the respective balances were written off. The increase from year-end is related to the acquisition of certain Dietary-related assets during 2017.

The following table sets forth the estimated amortization expense for intangibles subject to amortization for the remainder of ~~2017,~~2020, the following five fiscal years and thereafter:


Period/Year	Total Amortization Expense		Period/Year	Total Amortization Expense
	(in thousands)			(in thousands)
October 1 to December 31, 2017	$	1,116
2018	$	4,363
2019	$	4,165
2020	$	4,165
July 1 to December 31, 2020			July 1 to December 31, 2020	$	2,083
2021	$	4,165	2021	$	4,165
2022	$	4,165	2022	$	4,165
2023			2023	$	3,169
2024			2024	$	2,035
2025			2025	$	2,035
Thereafter	$	9,858	Thereafter	$	2,618

Amortization expense for both the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 was $1.0 ~~million and $0.6 million, respectively.~~million. Amortization expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 was ~~$2.7~~$2.0 million and $2.1 million, respectively.

Note 5—9—Fair Value Measurements

The Company’s current assets ~~(other than marketable securities and inventories)~~ and current liabilities are financial instruments and most of these items (other than marketable securities and inventories) are recorded at cost in the Consolidated Balance Sheets. The estimated fair value of these financial instruments approximates their carrying value due to their short-term nature. The carrying value of the Company’s line of credit represents the outstanding amount of the borrowings, which approximates fair value. The Company’s financial assets that are measured at fair value on a recurring basis are its marketable securities and deferred compensation funding. The recorded values of all of the financial instruments approximate their current fair values because of their nature, stated interest rates and respective maturity dates or durations.

The Company’s marketable securities consist of tax-exempt municipal bonds, which are classified as available-for-sale and are reported at fair value. Unrealized gains and losses associated with these investments are included in other comprehensive income (net of tax) within the Consolidated Statements of Comprehensive Income. The fair value of these marketable securities is classified within Level 2 of the fair value hierarchy, as these securities are measured using quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable. Such valuations are determined by a third-party pricing service. For the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, the Company recorded unrealized gains of ~~$82 thousand~~$1.7 million and ~~unrealized losses of $0.4~~$0.8 million on marketable securities, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, the Company recorded unrealized gains of ~~$1.2~~$1.1 million and ~~$0.8~~of $2.2 million on marketable securities, respectively.

For the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, the Company received total proceeds, less the amount of interest received, of ~~$5.7~~$4.0 million and ~~$3.0~~$3.6 million, respectively, from sales of available-for-sale municipal bonds. For the three months ended ~~September~~June 30, ~~2017,~~2020 and 2019, these sales resulted in realized losses of $0.1 million and realized gains of ~~$171 thousand~~$0.1 million, respectively. For the six months ended June 30, 2020 and 2019, the Company received total proceeds, less the amount of interest received of $5.8 million and $7.1 million, respectively, from sales of available-for-sale municipal bonds. For the six months ended June 30, 2020 and 2019, these sales resulted in realized losses of $0.1 million and realized gains of $0.1 million, respectively, which were recorded in “Other income ~~net~~ – Investment and ~~interest”~~other income, net” in the Consolidated Statements of Comprehensive Income. The basis for the sale of these securities was the specific identification of each bond sold during the period. ~~For the three months ended September 30, 2016, there were $17 thousand in realized losses.~~

For the nine months ended September 30, 2017 and 2016, the Company received total proceeds, less the amount of interest received, of $20.2 million and $8.1 million, respectively, from sales of available-for-sale municipal bonds. For the nine months ended September 30, 2017, these sales resulted in realized losses of $2 thousand which were recorded in “Other income, net – Investment and interest” in the Consolidated Statements of Comprehensive Income. The basis for the sale of these securities was the specific identification of each bond sold during the period. For the nine months ended September 30, 2016, there were $226 thousand in realized gains.

The investments under the funded deferred compensation plan are accounted for as trading securities and unrealized gains or losses are included in earnings. The fair value of these investments are determined based on quoted market prices (Level 1). For the three months ended June 30, 2020 and 2019, the Company’s recognized unrealized gains of $6.7 million and of $1.6 million, respectively, related to equity securities still held at the respective reporting dates. For the six months ended June 30, 2020 and 2019, the Company's recognized unrealized gains of $1.0 million and of $5.0 million, respectively, related to equity securities still held at the respective reporting dates.

The following tables provide fair value measurement information for the Company’s marketable securities and deferred compensation fund investments as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016:~~2019:


	As of June 30, 2020
					Fair Value Measurement Using:
	Carrying Amount		Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale	$	92,318	$	92,318	$	—	$	92,318	$	—

Deferred compensation fund
Money Market ¹	$	2,440	$	2,440	$	—	$	2,440	$	—
Balanced and Lifestyle	8,990		8,990		8,990		—		—
Large Cap Growth	13,305		13,305		13,305		—		—
Small Cap Growth	3,923		3,923		3,923		—		—
Fixed Income	4,153		4,153		4,153		—		—
International	1,715		1,715		1,715		—		—
Mid Cap Growth	2,691		2,691		2,691		—		—
Deferred compensation fund	$	37,217	$	37,217	$	34,777	$	2,440	$	—

As of September 30, 2017
Fair Value Measurement Using:
Carrying Amount Total Fair Value Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale $ 70,384
$ 70,384
$ —
$ 70,384
$ —

Deferred compensation fund
Money Market⁽¹⁾
$ 2,378
$ 2,378
$ —
$ 2,378
$ —
Balanced and Lifestyle 8,181
8,181
8,181
—
—
Large Cap Growth 7,227
7,227
7,227
—
—
Small Cap Growth 3,359
3,359
3,359
—
—
Fixed Income 3,038
3,038
3,038
—
—
International 1,471
1,471
1,471
—
—
Mid Cap Growth 1,733
1,733
1,733
—
—
Deferred compensation fund $ 27,387
$ 27,387
$ 25,009
$ 2,378
$ —

As of December 31, 2016
Fair Value Measurement Using:
Carrying
Amount Total Fair
Value Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale $ 67,730
$ 67,730
$ —
$ 67,730
$ —

Deferred compensation fund
Money Market ⁽¹⁾
$ 3,147
$ 3,147
$ —
$ 3,147
$ —
Balanced and Lifestyle 7,162
7,162
7,162
—
—
Large Cap Growth 5,583
5,583
5,583
—
—
Small Cap Growth 2,933
2,933
2,933
—
—
Fixed Income 2,752
2,752
2,752
—
—
International 1,132
1,132
1,132
—
—
Mid Cap Growth 1,410
1,410
1,410
—
—
Deferred compensation fund $ 24,119
$ 24,119
$ 20,972
$ 3,147
$ —

⁽¹⁾

The fair value of the money market fund is based on the net asset value (“NAV”) of the shares held by the plan at the end of the period. The money market fund includes short-term United States dollar denominated money market instruments and the NAV is determined by the custodian of the fund. The money market fund can be redeemed at its NAV at the measurement date as there are no significant restrictions on the ability to sell this investment.

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	As of December 31, 2019
					Fair Value Measurement Using:
	Carrying Amount		Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale	$	90,711	$	90,711	$	—	$	90,711	$	—

Deferred compensation fund
Money Market ¹	$	2,625	$	2,625	$	—	$	2,625	$	—
Balanced and Lifestyle	10,294		10,294		10,294		—		—
Large Cap Growth	11,369		11,369		11,369		—		—
Small Cap Growth	4,120		4,120		4,120		—		—
Fixed Income	4,072		4,072		4,072		—		—
International	1,932		1,932		1,932		—		—
Mid Cap Growth	2,835		2,835		2,835		—		—
Deferred compensation fund	$	37,247	$	37,247	$	34,622	$	2,625	$	—

1.The fair value of the money market fund is based on the net asset value (“NAV”) of the shares held by the plan at the end of the period. The money market fund includes short-term United States dollar denominated money market instruments and the NAV is determined by the custodian of the fund. The money market fund can be redeemed at its NAV at the measurement date as there are no significant restrictions on the ability to sell this investment.

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Other-than-temporary Impairments
(in thousands)
September 30, 2017
Type of security:
Municipal bonds — available-for-sale $ 69,085
$ 1,379
$ (80 ) $ 70,384
$ —
Total debt securities $ 69,085
$ 1,379
$ (80 ) $ 70,384
$ —

December 31, 2016
Type of security:
Municipal bonds — available-for-sale $ 68,220
$ 178
$ (668 ) $ 67,730
$ —
Total debt securities $ 68,220
$ 178
$ (668 ) $ 67,730
$ —


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Other-than-temporary Impairments
	(in thousands)
June 30, 2020
Type of security:
Municipal bonds — available-for-sale	$	87,226	$	5,092	$	—	$	92,318	$	—
Total debt securities	$	87,226	$	5,092	$	—	$	92,318	$	—

December 31, 2019
Type of security:
Municipal bonds — available-for-sale	$	87,016	$	3,695	$	—	$	90,711	$	—
Total debt securities	$	87,016	$	3,695	$	—	$	90,711	$	—

The following table summarizes the contractual maturities of debt securities held at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, which are classified as marketable securities in the Consolidated Balance Sheets:


	Municipal Bonds — Available-for-Sale
Contractual maturity:	June 30, 2020		December 31, 2019
	(in thousands)
Maturing in one year or less	$	2,498	$	876
Maturing in second year through fifth year	33,476		16,071
Maturing in sixth year through tenth year	20,839		38,801
Maturing after ten years	35,505		34,963
Total debt securities	$	92,318	$	90,711

Municipal Bonds — Available-for-Sale
Contractual maturity: September 30, 2017 December 31, 2016
(in thousands)
Maturing in one year or less $ 1,403
$ 973
Maturing in second year through fifth year 23,879
28,671
Maturing in sixth year through tenth year 19,346
21,651
Maturing after ten years 25,756
16,435
Total debt securities $ 70,384
$ 67,730

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Note ~~6— Stock-Based~~10—Shared-Based Compensation

~~A summary~~The components of ~~stock-based~~the Company’s shared-based compensation expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016 is~~2019 are as follows:


	Six Months Ended June 30,
	2020		2019
	(in thousands)
Stock options	$	1,054	$	1,326
Restricted stock and restricted stock units	2,598		1,998
Employee Stock Purchase Plan	273		335
Total pre-tax share-based compensation expense charged against income¹	$	3,925	$	3,659

Nine Months Ended September 30,
2017 2016
(in thousands)
Stock options $ 2,885
$ 2,399
Restricted stock and restricted stock units 888
412
Employee Stock Purchase Plan 365
302
Total pre-tax stock-based compensation expense charged against income ⁽¹⁾
$ 4,138
$ 3,113
1.Share-based compensation expense is recorded in cost of services and selling, general and administrative expense in the Company’s Consolidated Statements of Comprehensive Income.


⁽¹⁾	~~Stock-based compensation expense is recorded in selling, general and administrative expense in the Company’s Consolidated Statements of Comprehensive Income.~~

At ~~September~~June 30, ~~2017,~~2020, the unrecognized compensation cost related to unvested stock options and awards was ~~$12.7~~$20.4 million. The weighted average period over which these awards will vest is approximately ~~3.0~~3.1 years.

~~Table of Contents~~

~~2012 Equity~~2020 Omnibus Incentive Plan

~~The Company’s 2012 Equity~~On May 26, 2020, the Company adopted the 2020 Omnibus Incentive Plan (the ~~“Plan”~~"2020 Plan") after approval by the Company's Shareholders at the Annual Meeting of Shareholders. The 2020 Plan provides that current or prospective officers, employees, non-employee directors and advisors can receive share-based awards such as stock options, ~~restricted~~performance stock units, restricted stock units and other stock awards. The 2020 Plan seeks to ~~promote the highest level of performance by providing an economic interest in the long-term success~~encourage profitability and growth of the ~~Company.~~Company through short-term and long-term incentives that are consistent with the Company's operating objectives.

As of ~~September~~June 30, ~~2017, 3.4~~2020, there were 2.5 million shares of common stock ~~were~~ reserved for issuance under the 2020 Plan, ~~including 0.8 million~~of which, all are available for future grant. The amount of shares available for ~~future grant.~~issuance under the 2020 Plan will increase when outstanding awards under the Company's Second Amended and Restated 2012 Equity Incentive Plan (the “2012 Plan”) are subsequently forfeited, terminated, lapsed, or satisfied thereunder in cash or property other than shares. No stock award will have a term in excess of ~~ten~~10 years. ~~All awards granted under the Plan become vested and exercisable ratably over a five year period on each yearly anniversary of the grant date.~~

The Nominating, Compensation and Stock Option Committee of the Board of Directors is responsible for determining the terms of the grants in accordance with the 2020 Plan.

2012 Equity Incentive Plan

The 2012 Plan was replaced by the 2020 Plan upon shareholder approval of the 2020 Plan on May 26, 2020. Accordingly, no new equity awards will be granted under the 2012 Plan.

Stock Options

A summary of stock options outstanding under ~~the Plan~~ as of December 31, ~~2016~~2019 and changes during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 is as follows:


	Stock Options Outstanding
	Number of Shares	Weighted Average Exercise Price
	(in thousands)
December 31, 2019	2,107	$	32.99
Granted	210	$	24.43
Exercised	(99)	$	17.75
Forfeited	(11)	$	37.65
Expired	(39)	$	31.97
June 30, 2020	2,168	$	32.85

Stock Options Outstanding
Number of Shares Weighted Average Exercise Price
(in thousands)
December 31, 2016 2,615
$ 24.61
Granted 544
$ 39.38
Canceled (93 ) $ 33.66
Exercised (513 ) $ 20.39
September 30, 2017 2,553
$ 28.27

The weighted average grant-date fair value of stock options granted during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 was ~~$8.52~~$4.62 and ~~$7.46~~$8.18 per common share, respectively. The total intrinsic value of stock options exercised during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 was ~~$13.3~~$0.9 million and ~~$4.6~~$1.5 million, respectively.

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The fair value of stock option awards granted in ~~2017~~2020 and ~~2016~~2019 was estimated on the date of grant using the Black-Scholes option valuation model ~~using~~with the following assumptions:


	Six Months Ended June 30,
	2020		2019
Risk-free interest rate	1.8	%	2.5	%
Weighted average expected life	6.6 years		5.7 years
Expected volatility	26.5	%	22.6	%
Dividend yield	3.2	%	1.9	%

Nine Months Ended
2017 2016
Risk-free interest rate 2.0 % 2.0 %
Weighted average expected life (years) 5.8 years
5.8 years
Expected volatility 25.1 % 26.0 %
Dividend yield 1.9 % 2.0 %

~~Table of Contents~~

The following table summarizes other information about the stock options at ~~September~~June 30, ~~2017:~~2020:


	June 30, 2020
	(amounts in thousands, except per share data)
Outstanding:
Aggregate intrinsic value	$	1,497
Weighted average remaining contractual life	5.6 years
Exercisable:
Number of options	1,450
Weighted average exercise price	$	31.08
Aggregate intrinsic value	$	1,491
Weighted average remaining contractual life	4.5 years

September 30, 2017
(in thousands, except per share data)
Outstanding:
Aggregate intrinsic value $ 65,589
Weighted average remaining contractual life (years) 6.5 years
Exercisable:
Number of options 1,123
Weighted average exercise price $ 21.05
Aggregate intrinsic value $ 36,950
Weighted average remaining contractual life (years) 4.5 years

Restricted Stock Units and Restricted Stock

During the nine months ended September 30, 2017, the Company did not grant any restricted stock. During the nine months ended September 30, 2016, the Company granted 44 thousand shares of restricted stock with a weighted average grant dateThe fair value of ~~$34.14 per share. Fair value is~~outstanding restricted stock units and restricted stock was determined based on the market price of the shares on the date of grant.

~~A summary of~~ During the ~~outstanding restricted stock awards as of December 31, 2016 and changes during the nine~~six months ended ~~September~~June 30, ~~2017 is as follows:~~

Shares Weighted Average Grant Date Fair Value
(in thousands)
December 31, 2016 74
$ 32.09
Granted —
$ —
Vested (18 ) $ 31.41
Forfeited —
$ —
September 30, 2017 56
$ 32.30

~~Restricted Stock Units~~

~~During the nine months ended September 30, 2017,~~2020, the Company granted ~~88 thousand~~0.3 million restricted stock units with a weighted average grant date fair value of ~~$40.16~~$24.43 per unit. ~~Fair value is determined based on the market price of the underlying shares on the date of grant.~~ During the ~~nine~~six months ended ~~September~~June 30, ~~2016, there were no grants of~~2019, the Company granted 0.2 million restricted stock ~~units.~~units with a weighted average grant date fair value of $40.49 per unit.

During the six months ended June 30, 2020 and 2019, the Company did 0t grant any restricted stock.

A summary of the outstanding restricted stock units and restricted stock as of December 31, ~~2016~~2019 and changes during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 is as follows:


	Restricted Stock Units and Restricted Stock
	Number	Weighted Average Grant Date Fair Value
	(in thousands)
December 31, 2019	362	$	43.24
Granted	307	$	24.43
Vested	(93)	$	42.30
Forfeited	(10)	$	32.69
June 30, 2020	566	$	33.37

Units Weighted Average Grant Date Fair Value
(in thousands)
December 31, 2016 —
$ —
Granted 88
$ 40.16
Vested —
$ —
Forfeited —
$ —
September 30, 2017 88
$ 40.16

~~Table of Contents~~

Employee Stock Purchase Plan

The ~~Company's~~Company’s Employee Stock Purchase Plan ("ESPP") is currently available through 2021 to all eligible employees. All full-time and part-time employees who work an average of 20 hours per week and have completed two years of continuous service with the Company are eligible to participate. Annual offerings commence and terminate on the respective year’s first and last calendar day.

Under the ESPP, the Company is authorized to issue up to 4.1 million shares of its common stock to its employees. Pursuant to such authorization, there are ~~2.3~~2.1 million shares available for future grant at ~~September~~June 30, ~~2017.~~2020.

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The ~~stock-based compensation~~ expense associated with the options granted under the ESPP during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 was estimated on the date of grant using the Black-Scholes option valuation model ~~using~~with the following assumptions:


	Nine Months Ended September 30,			Six Months Ended June 30,
	2017	2016		2020	2019
Risk-free interest rate	1.05%	0.58%	Risk-free interest rate	1.6%	2.6%
Weighted average expected life (years)	1.0	1.0	Weighted average expected life (years)	1.0	1.0
Expected volatility	21.2%	19.7%	Expected volatility	42.0%	30.8%
Dividend yield	1.9%	2.0%	Dividend yield	3.3%	1.9%

Deferred Compensation Plan

The Company offers a Supplemental Executive Retirement Plan (“SERP”) for executives and certain key ~~executives and~~ employees. The SERP allows participants to defer a portion of their earned income on a pre-tax basis and as of the last day of each plan year, each participant will be credited with a match of a portion of their deferral in the form of the Company’s common stock based on the then-current market value. Under the SERP, the Company is authorized to issue 1.0 million shares of its common stock to its employees. Pursuant to such authorization, the Company has 0.4 million shares available for future grant at ~~September~~June 30, ~~2017.~~2020. At the time of issuance, such shares are accounted for at cost as treasury stock.

The following table summarizes information about the SERP during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016:~~2019:


	Six Months Ended June 30,
	2020		2019
	(in thousands)
SERP expense ¹	$	298	$	346
Unrealized gain recorded in SERP liability account	$	763	$	4,939

Nine Months Ended September 30,
2017 2016
(in thousands)
SERP expense⁽¹⁾
$ 460
$ 443
Unrealized gain recorded in SERP liability account $ 3,375
$ 1,114

⁽¹⁾1.Both the SERP match and the deferrals are included in the selling, general and administrative caption in the ~~consolidated statements~~Consolidated Statements of ~~comprehensive income.~~Comprehensive Income.

Note 7— 11—Dividends

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, the Company paid regular quarterly cash dividends totaling approximately ~~$41.3~~$30.2 million as follows:


	Quarter Ended
	June 30, 2020		March 31, 2020
	(in thousands, except per share data)
Cash dividend paid per common share	$	0.20250	$	0.20125
Total cash dividends paid	$	15,128	$	15,033
Record date	May 22, 2020		February 28, 2020
Payment date	June 26, 2020		March 27, 2020

Quarter Ended
March 31, 2017 June 30, 2017 September 30, 2017
(in thousands, except per share amounts)
Cash dividends paid per common share $ 0.18625
$ 0.18750
$ 0.18875
Total cash dividends paid $ 13,624
$ 13,750
$ 13,883
Record date February 17, 2017
May 19, 2017
August 18, 2017
Payment date March 24, 2017
June 23, 2017
September 22, 2017

Additionally, on ~~October 17, 2017,~~July 21, 2020, the Company’s Board of Directors declared a regular quarterly cash dividend of ~~$0.19~~$0.20375 per common share, which will be paid on ~~December 22, 2017,~~September 25, 2020, to shareholders of record as of the close of business on ~~November 17, 2017.~~August 21, 2020.

Cash dividends declared for the periods presented were as follows:


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
Cash dividends declared per common share	0.20375	0.19875	0.40625	0.39625

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Cash dividends declared per common share $ 0.19000
$ 0.18500
$ 0.56625
$ 0.55125

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Note 8— 12—Income Taxes

The ~~2017 estimated~~Company’s annual effective tax rate is ~~expected to be approximately 31.9%. Due to the adoption of ASU 2016-09,~~impacted by the tax effects of option exercises orand vested awards, ~~should be~~which are treated as discrete items in the reporting period in which they occur, and therefore cannot be considered in the calculation of the estimated annual effective tax rate. ~~Excluding~~The impact on the ~~impact of ASU 2016-09,~~Company’s income tax provision through the ~~estimated annual effective tax rate would be 35.6%.~~six months ended June 30, 2020 for such discrete items was not material.

Differences between the effective tax rate and the applicable U.S. federal statutory rate arise primarily from the effect of state and local income taxes, share-based compensation and tax credits available to the Company. The actual ~~2017~~2020 effective tax rate will likely vary from the estimate depending on the actual operating income earned with availability of tax credits and the ~~exercises~~exercise of stock options and vesting of share-based awards. The Company’s estimate for the 2020 effective tax rate has not been adjusted for any impacts related to COVID-19.

The Company accounts for income taxes using the asset and liability method, which results in recognizing income tax expense based on the amount of income taxes payable or refundable for the current year. Additionally, the Company regularly evaluates the tax positions taken or expected to be taken resulting from financial statement recognition of certain items. Based on the evaluation, there are no0 significant uncertain tax positions requiring recognition in the Company’s financial statements. The evaluation was performed for the tax years ended December 31, ~~2013~~2016 through ~~2016~~2019 (with regard to U.S. federal income tax returns) and December 31, ~~2012~~2015 through ~~2016~~2019 (with regard to various state and local income tax returns), the tax years which remain subject to examination by major tax jurisdictions as of ~~September~~June 30, ~~2017.~~2020.

The Company may from time to time be assessed interest or penalties by taxing jurisdictions, although any such assessments historically have been ~~minimal and immaterial to its financial results.~~minimal. When the Company has received an assessment for interest and/or penalties, it will be classified in the financial statements as selling, general and administrative expense. In addition, any interest or penalties relating to recognized uncertain tax positions would also be recorded in selling, general and administrative expense.

Note ~~9—Related Party Transactions~~

A director is a member of a law firm retained by the Company. In each of the nine months ended September 30, 2017 and 2016, fees paid to such firm by the Company did not exceed $120,000. Additionally, such fees did not exceed, in either period, 5% of such firm’s or the Company’s revenues.

~~Note 10—~~13—Segment Information

The Company manages and evaluates its operations in ~~two~~2 reportable segments: Housekeeping (housekeeping, laundry, linen and other services) and Dietary (dietary department services). Although both segments serve the same ~~client~~customer base and share many operational similarities, they are managed separately due to distinct differences in the type of services provided, as well as the specialized expertise required of the professional management personnel responsible for delivering each segment’s services. Such services are rendered pursuant to discrete ~~service agreements,~~contracts, specific to each reportable segment.

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The Company’s accounting policies for the segments are generally the same as described in the Company’s significant accounting policies. Differences between the reportable segments’ operating results and other disclosed data and the information in the consolidated financial statements relate primarily to corporate level transactions and recording of transactions at the reportable segment level using other than generally accepted accounting principles. There are certain inventories and supplies that are primarily expensed when incurred within the operating segments, while they are capitalized in the consolidated financial statements. In addition, most corporate expenses such as corporate salary and benefit costs, certain legal costs, debt expense, information technology costs, depreciation, amortization of finite-lived intangible assets, share based compensation costs and other corporate-specific costs, are not fully allocated to the operating segments. There are also allocations for workers’ compensation and general liability expense within the operating segments that differ from the actual expense recorded by the Company under U.S. GAAP. Segment amounts disclosed are prior to elimination entries made in consolidation.


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Revenues
Housekeeping	$	227,650	$	228,911	$	451,943	$	462,045
Dietary	224,379		233,190		449,236		476,167
Total	$	452,029	$	462,101	$	901,179	$	938,212

Income before income taxes
Housekeeping	$	25,258	$	24,804	$	49,199	$	51,311
Dietary	18,668		9,713		32,997		25,138
Corporate and eliminations¹	(13,514)		(10,900)		(25,002)		(40,940)
Total	$	30,412	$	23,617	$	57,194	$	35,509

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Revenues
Housekeeping $ 247,395
$ 239,584
$ 733,737
$ 716,154
Dietary 243,960
153,150
632,984
447,943
Total $ 491,355
$ 392,734
$ 1,366,721
$ 1,164,097

Income before income taxes
Housekeeping $ 26,848
$ 23,645
$ 71,524
$ 68,966
Dietary 11,366
7,884
34,733
26,103
Corporate and eliminations ⁽¹⁾
(5,284 ) (958 ) (7,970 ) (5,211 )
Total $ 32,930
$ 30,571
$ 98,287
$ 89,858

⁽¹⁾

Primarily represents corporate office costs and related overhead, recording of certain inventories and supplies and workers compensation costs at the reportable segment level which use accounting methods that differ from those used at the corporate level, as well as consolidated subsidiaries’ operating expenses that are not allocated to the reportable segments, net of investment and interest income.

1.Primarily represents corporate office costs and related overhead, recording of certain inventories and supplies and workers compensation costs at the reportable segment level which use accounting methods that differ from those used at the corporate level, as well as consolidated subsidiaries’ operating expenses that are not allocated to the reportable segments, net of investment and other income and interest expense.

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Note ~~11—~~ 14—Earnings Per Common Share

Basic and diluted earnings per common share are computed by dividing net income by the weighted-average number of basic and diluted common shares outstanding, respectively. The weighted-average number of diluted common shares includes the impact of dilutive securities, including outstanding stock options and unvested restricted stock and restricted stock units. The table below reconciles the weighted-average basic and diluted common shares outstanding:


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
	(in thousands)
Weighted average number of common shares outstanding - basic	74,695	74,352	74,676	74,327
Effect of dilutive securities ¹	66	267	88	342
Weighted average number of common shares outstanding - diluted	74,761	74,619	74,764	74,669

1.Certain outstanding equity awards are anti-dilutive and therefore were excluded from the calculation of the weighted average number of diluted common shares outstanding.

Anti-dilutive outstanding equity awards under share-based compensation plans were as follows:


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
	(in thousands)
Anti-dilutive	2,102	1,536	2,096	1,455

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Weighted average number of common shares outstanding - basic 73,461
72,839
73,272
72,718
Effect of dilutive securities⁽¹⁾
1,077
753
980
717
Weighted average number of common shares outstanding - diluted 74,538
73,592
74,252
73,435

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⁽¹⁾

Certain outstanding stock option awards are anti-dilutive and were therefore excluded from the calculation of the weighted average number of diluted common shares outstanding. During the three months ended September 30, 2017, there were no anti-dilutive stock options excluded and during the nine months ended September 30, 2017, options to purchase 0.5 million shares having a weighted average exercise price of $39.38 per share were excluded. During the three and nine months ended September 30, 2016, options to purchase 0.5 million shares having a weighted average exercise price of $34.14 per share were excluded.

Note ~~12—~~ 15—Other Contingencies

Line of Credit

At ~~September~~June 30, ~~2017,~~2020, the Company had a ~~$300~~$475 million bank line of credit on which to draw for general corporate purposes. Amounts drawn under the line of credit are payable upon demand and generally bear interest at ~~September~~a float rate, based on the Company’s leverage ratio, and starting at LIBOR plus 115 basis points (or if LIBOR becomes unavailable, the higher of the Overnight Bank Funding Rate, plus 50 basis points and the Prime Rate). As of June 30, ~~2017,~~2020 there were ~~$25.0~~0 borrowings under the line of credit. As of December 31, 2019 there were $10.0 million in borrowings under the line of credit. The line of credit requires the Company to satisfy ~~one~~two financial ~~covenant,~~covenants, with which the Company is in compliance as of ~~September~~June 30, ~~2017 and expects to remain in compliance.~~2020. The line of credit expires on December ~~18, 2018.~~21, 2023.

At ~~September~~June 30, ~~2017,~~2020, the Company also had outstanding ~~$74.2~~$64.9 million in irrevocable standby letters of credit, which relate to payment obligations under the ~~Company's~~Company’s insurance programs. In connection with the issuance of the letters of credit, the amount available under the line of credit was reduced by ~~$74.2~~$64.9 million to ~~$200.8~~$410.1 million at ~~September~~June 30, ~~2017.~~2020. The letters of credit ~~were increased~~expire on January 2, 2021. Besides the $64.9 million letters of credit there are no other restrictions as to ~~$77.6~~the amount which the Company can draw upon the $475 million ~~on October 2, 2017.~~line of credit.

Tax Jurisdictions and Matters

The Company provides services throughout the continental United States and is subject to numerous state and local taxing jurisdictions. In the ordinary course of business, a jurisdiction may contest the Company’s reporting positions with respect to the application of its tax code to the Company’s services, which could result in additional tax liabilities.

The Company has tax matters with various taxing authorities. Because of the uncertainties related to both the probable outcomes and amount of probable assessments due, the Company is unable to make a reasonable estimate of a liability. The Company does not expect the resolution of any of these matters, taken individually or in the aggregate, to have a material adverse effect on the consolidated financial position or results of operations based on the Company’s best estimate of the outcomes of such matters.

Legal Proceedings

The Company is subject to various claims and legal actions in the ordinary course of business. Some of these matters include payroll and employee-related matters and examinations by governmental agencies. As the Company becomes aware of such claims and legal actions, the Company records accruals for any exposures that are probable and estimable. If adverse outcomes of such claims and legal actions are reasonably possible, Management assesses materiality and provides financial disclosure, as appropriate.

As previously disclosed, the Securities and Exchange Commission (“SEC”) is conducting an investigation into the Company’s earnings per share (“EPS”) calculation practices. Following receipt of a letter from the SEC in November 2017 regarding its inquiry into those practices followed by a subpoena in March 2018, the Company authorized its outside counsel to conduct an internal investigation, under the direction of the Company’s Audit Committee, into matters related to the SEC subpoena. This investigation was completed in March 2019 and the Company continues to cooperate with the SEC’s investigation and document requests.

On March 22, 2019, a putative shareholder class action lawsuit was filed against the Company and its Chief Executive Officer in the U.S. District Court for the Eastern District of Pennsylvania. The initial complaint, which was filed by a plaintiff purportedly on behalf of all purchasers of the Company’s securities between April 11, 2017 and March 4, 2019 (the "Class Period"), alleges violations of the federal securities laws in connection with the matters related to the Company’s EPS calculation practices. On September 17, 2019, the complaint was amended to, among other things, extend the Class Period to cover the period between April 8, 2014 and March 4, 2019, and to name additional individuals affiliated with the Company ~~believes it~~as defendants. The lead plaintiff seeks unspecified monetary damages and other relief on behalf of the plaintiff class.

While the Company is vigorously defending against all litigation claims asserted, this litigation—along with the ongoing SEC investigation—could result in substantial costs to the Company and a diversion of the Company’s management’s attention and resources, which could harm its business. In addition, the uncertainty of the pending lawsuit or potential filing of additional lawsuits could lead to more volatility and a reduction in the Company’s stock price. At this time the Company is unable to reasonably estimate possible losses or form a judgment that an unfavorable outcome is either probable or remote. It is not ~~a party~~

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currently possible to ~~nor are any~~assess whether or not the outcome of ~~its properties the subject of, any pending legal proceeding or governmental examination that would~~these proceedings may have a material adverse effect on the ~~Company’s consolidated financial condition or liquidity.~~Company.

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Government Regulations

The Company’s ~~clients~~customers are concentrated in the ~~health care~~healthcare industry and are primarily providers of long-term ~~care.~~care many of whom have been significantly impacted by COVID-19. For those customers who were impacted, the pandemic has resulted in increased operating costs, reductions in new resident admitants, and reduced census. The revenues of many of the Company’s ~~clients~~customers are highly reliant on Medicare, Medicaid and third party payors’ reimbursement funding rates. New legislation or additional changes in existing regulations could directly impact the governmental reimbursement programs in which the ~~clients~~customers participate. ~~The~~There have been several enacted and proposed federal and state relief measures as a result of COVID-19 which should provide support for these customers during this pandemic, however, the full ~~effect~~benefit of any such programs would not be realized until these ~~laws~~programs are fully implemented, ~~and~~ government agencies issue applicable regulations or ~~guidance.~~guidance and such relief is provided.

Note ~~13—~~16—Subsequent Events

The Company evaluated all subsequent events through the filing date of this Form 10-Q. There were no events or transactions occurring during this subsequent reporting period which require recognition or additional disclosure in these financial statements.

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Item 2. Management’s Discussion and Analysisof Financial Condition and Results ofOperations

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 when 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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 and the notes accompanying those financial statements.

COVID-19 Considerations

The Company’s priorities during the COVID-19 pandemic are protecting the health and safety of our employees; maximizing the impact of our main services in helping customers with the housekeeping and dietary services needs of their facilities, and deploying the talents of our employees and our resources to help the communities we serve meet and overcome the current challenges. In the quarter ended June 30, 2020, the COVID-19 pandemic did not have a material net impact on our consolidated operating results. Revenues for the quarter ended June 30, 2020 included $17.2 million of COVID-19 supplemental billings, primarily related to employee pay premiums passed through to customers, which were offset by temporary decreases in recurring billings as a result of census-driven cost reductions in staffing and purchasing. In the future, the pandemic may cause reduced demand for our services if, for example, the pandemic results in a recessionary economic environment to the long-term care and skilled nursing industries in which we serve; however since the services that we offer are essential to the daily lives of our customers, we believe that over the long term, there will continue to be strong demand for our services.

Our ability to operate without significant negative operational impact from the COVID-19 pandemic will in part depend on our ability to protect our employees and our supply chain. The Company has endeavored to follow the recommended actions of government and health authorities to protect our employees, with particular measures in place for those working in our customer facilities. For the six months ended June 30, 2020, we maintained the consistency of our operations during the onset of the COVID-19 pandemic. We will continue to innovate in managing our business, coordinating with nursing departments to do our part in the infection prevention and control continuum and remain flexible in responding to our customer-partners. However, the uncertainty resulting from the pandemic could result in an unforeseen disruption to our workforce and supply chain (for example an inability of a key supplier or transportation supplier to source and transport materials) that could negatively impact our operations.

Through June 30, 2020, the pandemic has not negatively impacted the Company’s liquidity position as of such date. Through June 30, 2020, we continue to generate operating cash flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets. We have also not observed any material impairments of our assets or a significant change in the fair value of our assets due to the COVID-19 pandemic.

For additional information on risk factors related to the pandemic or other risks that could impact our results, please refer to “Risk Factors” in Part II, Item 1A of this Form 10-Q.

Overview

We provide management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of ~~heath care providers,~~healthcare facilities, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. We believe 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 ~~3,500~~3,000 facilities throughout the continental United States as of ~~September~~June 30, 2017. 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.2020.

We provide ~~our~~ services primarily pursuant to full service agreements with our ~~clients. In~~customers. Under such agreements, we are responsible for the day-to-day management of the ~~department serviced, employing Housekeeping or Dietary personnel~~employees located at our ~~clients’~~customers’ facilities, ~~and providing~~as well as for the provision of certain supplies. We also provide services on the basis of management-only agreements for a limited number of ~~clients.~~customers. Under a management-only agreement, we provide management and supervisory services while the customer facility retains payroll responsibility for the non-supervisory staff. Our agreements with ~~clients~~customers typically provide for a renewable one year service ~~terms, cancelable~~term, cancellable by either party upon 30 to 90 days’ notice after ~~the~~an initial period of 60 to 120 days.

We are organized into two reportable segments: housekeeping, laundry, linen and other services (“Housekeeping”), and dietary department services (“Dietary”).

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Housekeeping consists of managing ~~the client’s~~our customers’ housekeeping ~~department~~departments, which isare principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of ~~a client’s facility,~~the customers’ facilities, as well as the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at the customers’ facilities. Upon beginning service with a ~~client facility.~~customer facility, we typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise and train the front-line personnel and coordinate housekeeping services with other facility support functions in accordance with customer requests. Such management personnel also oversee the execution of various cost and quality control procedures including continuous training and employee evaluation.

Dietary consists of managing ~~the client’s~~our customers’ dietary ~~department~~departments, which isare principally responsible for food purchasing, meal preparation and ~~providing~~professional dietitian ~~professional~~ services, which ~~includes~~include the development of menus that meet ~~residents’~~the dietary ~~needs.~~needs of residents. On-site management is responsible for all daily dietary department activities, with regular support provided by a District Manager specializing in dietary services. We also offer clinical consulting services to our dietary customers, which may be provided as a stand-alone service, or bundled with other dietary department services. Upon beginning service with a customer facility, we typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise and train the front-line personnel and coordinate dietitian services with other facility support functions in accordance with customer requests. Such management personnel also oversee the execution of various cost and quality control procedures including continuous training and employee evaluation.

At ~~September~~June 30, ~~2017,~~2020, Housekeeping services were provided at essentially all of our ~~more than 3,500 client~~approximately 3,000 customer facilities, generating approximately ~~53.7%~~50.2% or ~~$733.7~~$451.9 million of our total revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020. Dietary ~~department~~ services were provided to over 1,500 ~~client~~customer facilities at ~~September~~June 30, ~~2017~~2020 and contributed approximately ~~46.3%~~49.8% or ~~$633.0~~$449.3 million of our total revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020.

Subject to the factors noted in the Cautionary Statement Regarding Forward Looking Statements included in this Quarterly Report on Form 10-Q, and although there can be no assurance thereof, we expect our consolidated revenues for the remainder

Table of 2017 to continue to improve compared to historical ranges. We expect that Dietary revenues will continue to grow as a percentage of consolidated revenue and such growth is expected to come from extending our Dietary department service offerings to our current Housekeeping client base. Growth in Housekeeping is expected to primarily come from obtaining new clients. Furthermore, we expect the sources of organic growth for the remainder of 2017 for the respective operating segments to be primarily the same as historically experienced.Contents

Three Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019

The following table summarizes the income statement key components that we use to evaluate our financial performance on a consolidated and reportable segment basis, for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019. The differences between the reportable segments’ operating results and other disclosed data and our consolidated financial results relate primarily to corporate level transactions and ~~recording of~~adjustments related to transactions recorded at the reportable segment level ~~using~~which use methods other than generally accepted accounting principles.


	Three Months Ended June 30,
	2020		2019		% Change
	(in thousands)
Revenues
Housekeeping	$	227,650	$	228,911	(0.6)	%
Dietary	224,379		233,190		(3.8)	%
Consolidated	$	452,029	$	462,101	(2.2)	%

Costs of services provided
Housekeeping	$	202,392	$	204,107	(0.8)	%
Dietary	205,711		223,477		(7.9)	%
Corporate and eliminations	(20,586)		(27,099)		(24.0)	%
Consolidated	$	387,517	$	400,485	(3.2)	%

Selling, general and administrative expense
Corporate and eliminations	$	41,465	$	38,609	7.4	%

Investment and other income, net
Corporate and eliminations	$	7,745	$	1,393	456.0	%

Interest expense
Corporate and eliminations	$	(380)	$	(783)	(51.5)	%

Income (loss) before income taxes
Housekeeping	$	25,258	$	24,804	1.8	%
Dietary	18,668		9,713		92.2	%
Corporate and eliminations	(13,514)		(10,900)		(24.0)	%
Consolidated	$	30,412	$	23,617	28.8	%

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Three Months Ended September 30,
2017 2016 % Change
(in thousands)
Revenues
Housekeeping $ 247,395
$ 239,584
3.3 %
Dietary 243,960
153,150
59.3 %
Consolidated $ 491,355
$ 392,734
25.1 %

Costs of Services Provided
Housekeeping $ 220,547
$ 215,939
2.1 %
Dietary 232,594
145,266
60.1 %
Corporate and eliminations (26,217 ) (24,865 ) 5.4 %
Consolidated $ 426,924
$ 336,340
26.9 %

Selling, general and administrative expense
Corporate and eliminations $ 32,940
$ 27,182
21.2 %

Investment and interest income
Corporate and eliminations $ 1,439
$ 1,359
5.9 %

Income (loss) before income taxes
Housekeeping $ 26,848
$ 23,645
13.5 %
Dietary 11,366
7,884
44.2 %
Corporate and eliminations (5,284 ) (958 ) 451.6 %
Consolidated $ 32,930
$ 30,571
7.7 %

Housekeeping revenues represented approximately ~~50.3%~~50.4% of consolidated revenues for the ~~third quarter 2017.~~three months ended June 30, 2020. Dietary revenues represented approximately ~~49.7%~~49.6% of consolidated revenues for the ~~third quarter 2017.~~three months ended June 30, 2020.

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The following table sets forth the ratio ~~which~~of certain items ~~bear~~ to consolidated revenues:


	Three Months Ended June 30,
	2020		2019
Revenues	100.0	%	100.0	%
Operating costs and expenses:
Costs of services provided	85.7	%	86.7	%
Selling, general and administrative expense	9.2	%	8.4	%
Other income (expense):
Investment and other income, net	1.7	%	0.3	%
Interest expense	(0.1)	%	(0.2)	%
Income before income taxes	6.7	%	5.0	%
Income tax	1.6	%	1.2	%
Net income	5.1	%	3.8	%

Three Months Ended September 30,
2017 2016
Revenues 100.0 % 100.0 %
Operating costs and expenses:
Costs of services provided 86.9 % 85.6 %
Selling, general and administrative expense 6.7 % 6.9 %
Investment and interest income 0.3 % 0.3 %
Income before income taxes 6.7 % 7.8 %
Income taxes 1.9 % 2.8 %
Net income 4.8 % 5.0 %

Revenues

Consolidated

Consolidated revenues ~~increased 25.1%~~decreased 2.2% to ~~$491.4~~$452.0 million infor the ~~third quarter 2017~~three months ended June 30, 2020 compared to ~~$392.7~~$462.1 million for the corresponding period in ~~the third quarter 2016,~~2019, as a result of the factors discussed below under Reportable Segments.

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Reportable Segments

~~Housekeeping’s 3.3% net growth~~Housekeeping and Dietary revenues decreased 0.6% and 3.8%, respectively, during the three months ended June 30, 2020 compared to the corresponding period in ~~reportable segment~~2019, primarily driven by the Company exiting facilities in conjunction with operator transitions where we have been unable to come to agreeable terms. Revenue for the three months ended June 30, 2020 included $17.2 million of COVID-19 supplemental billings, primarily related to employee pay premiums passed through to customers, which were offset by temporary decreases in recurring billings as a result of census-driven cost reductions in staffing and purchasing.

As of the three months ended June 30, 2020, our revenues resulted from service agreements entered into with new clients. Dietary’s 59.3% net growth in reportable segment revenues resulted primarily from providing these services to existing Housekeeping clients.were not adversely impacted by COVID-19. The full impact of COVID-19 is not yet known at this time.

Costs of Services Provided

Consolidated

Consolidated costs of services ~~increased 26.9%~~provided decreased 3.2% to ~~$426.9~~$387.5 million infor the ~~third quarter 2017~~three months ended June 30, 2020 compared to ~~$336.3~~$400.5 million ~~in the third quarter 2016, which is primarily related to our 25.1% growth in consolidated revenues~~ for the ~~same period. As a percentage of consolidated revenues,~~three months ended June 30, 2019. During the three months ended June 30, 2020, costs of services ~~increased~~related to ~~86.9% in~~COVID-19 were primarily re-billed back to our customers. Future increases to both labor and supplies expense as a result of COVID-19 are possible, however we anticipate to be reimbursed from our customers for most COVID-19 related costs which are outside the ~~third quarter 2017 from 85.6% in the third quarter 2016.~~

~~Certain significant components within our costs~~scope of services or supplies which we are ~~subject to fluctuation with changes~~contractually obligated. The terms in our ~~business~~service agreements support this anticipation and ~~client base. Labor and other labor-related costs, dining and housekeeping supplies, and self insurance costs account for most~~the expectation of our ~~consolidated costs of services. See the discussion under Reportable Segments below~~customers' eligibility for additional ~~information on the changes in the components of costs of services.~~reimbursement under enacted and proposed government regulations.

The following table provides a comparison of key indicators we consider when managing the consolidated ~~cost~~costs of services provided:


	Three Months Ended June 30,
Costs of Services Provided - Key Indicators as a % of Consolidated Revenue	2020	2019	Change
Bad debt provision	0.9%	0.6%	0.3%
Self-insurance costs	2.8%	2.9%	(0.1)%

Three Months Ended September 30,
Costs of Services Provided-Key Indicators as a % of Consolidated Revenue 2017 2016 Change
Bad debt provision 0.4% 0.3% 0.1%
Workers’ compensation and general liability insurance 2.6% 2.7% (0.1)%

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The ~~change~~increase in the ~~Company’s~~ bad debt provision ~~as a percentage of consolidated revenue is related to our assessment of~~was impacted by the ~~collectability~~current aging of our accounts ~~and notes receivable.~~

The decrease in workers’ compensation and general liability insurance expense as a percentage of consolidated revenue is primarily the result of the Company’s ongoing initiatives to promote safety and accident prevention in the workplace,receivables as well as ~~proactive management~~elevated write-offs during the quarter of ~~workers’ compensation claims,~~certain balances deemed uncollectible. Effective January 1, 2020, the Company adopted the ASC 326 accounting guidance which ~~positively impact our claims experience.~~changed the Company’s procedures for estimating its bad debt provision. Under ASC 326, the Company now records a provision for bad debt based on management’s forecast of expected future credit losses. Prior to ASC 326, the Company recorded a provision for bad debt based solely on accounts and notes receivables which were identified as impaired.

Reportable Segments

Costs of services provided for Housekeeping, as a percentage of Housekeeping revenues, decreased to ~~89.1%~~88.9% for the ~~third quarter 2017~~three months ended June 30, 2020 from ~~90.1%~~89.2% in the ~~third quarter 2016.~~corresponding period in 2019. Costs of services provided for Dietary, as a percentage of Dietary revenues, ~~increased~~decreased to ~~95.3%~~91.7% for the ~~third quarter 2017~~three months ended June 30, 2020 from ~~94.9%~~95.8% in the ~~third quarter 2016.~~corresponding period in 2019.

The following table provides a comparison of the key indicators we consider when managing costs of services provided at the segment level, as a percentage of the respective ~~segment~~segment’s revenues:


	Three Months Ended June 30,
Costs of Services Provided - Key Indicators as a % of Segment Revenue	2020	2019	Change
Housekeeping labor and other labor-related costs	80.7%	79.6%	1.1%
Housekeeping supplies	6.6%	7.5%	(0.9)%
Dietary labor and other labor-related costs	63.8%	63.7%	0.1%
Dietary supplies	26.2%	29.7%	(3.5)%

Three Months Ended September 30,
Costs of Services Provided-Key Indicators as a % of Segment Revenue 2017 2016 Change
Housekeeping labor and other labor-related costs 79.6% 81.0% (1.4)%
Housekeeping supplies 7.9% 7.7% 0.2%
Dietary labor and other labor-related costs 58.0% 54.5% 3.5%
Dietary supplies 35.4% 37.8% (2.4)%

~~The ratios of~~Variations within these key indicators generally remain relatively consistent. However, during this period of high-growth, the Company has experienced some inefficiencies when integrating new business and facilities. Such inefficiencies can relate to ~~standardizing work flows~~the provision of services at new facilities and ~~labor resources, establishing administrative structures, provisioning and other operational and logistical activities. Further, variations in these ratios can relate to~~ changes in the mix of ~~clients~~customers for whom we provide supplies or do not provide supplies. Management focuses on building efficiencies ~~based on our operational expertise,~~and managing labor and ~~labor-related~~other costs at the facility level, as well as managing supply chain costs, ~~by leveraging economies of scale.~~for new and existing facilities.

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Consolidated Selling, General and Administrative Expense

Excluding the change in the deferred compensation plan described below, consolidated selling, general and administrative expense increased $5.6 million or 21.3% compared to the third quarter 2016, related primarily to our overall growth.

Included in selling, general and administrative expense are gains and losses associated with changes in the value of investments under the deferred compensation ~~plan that~~plan. These investments represent the amounts held on behalf of the participating ~~employees. Changes~~employees and changes in the value of these investments affect the amount of our deferred compensation liability. Gains on the plan investments during the ~~third quarter 2017~~three months ended June 30, 2020 and ~~2016~~2019 increased our total selling, general and administrative expense for ~~these~~those periods. During the three months ended June 30, 2020, we incurred an increase to certain costs related to COVID-19, however such costs were immaterial. There is a possibility for additional increased selling, general and administrative expense related to the pandemic but such costs at this time are not expected to be material.

Excluding the change in the deferred compensation plan described above, consolidated selling, general and administrative expense decreased $2.1 million or 5.7% for the three months ended June 30, 2020 compared to the corresponding period in 2019. The decrease was primarily a result of higher legal and other professional fees incurred during 2019 in connection with the Company's internal investigation related to the Securities and Exchange Commission's ("SEC") inquiry regarding the Company's earnings per share calculation practices.

The table below summarizes the changes in these components of selling, general and administrative expense:


	Three Months Ended June 30,
	2020		2019		$ Change		% Change
	(dollar amounts in thousands)
Selling, general and administrative expense excluding change in deferred compensation liability	$	34,974	$	37,088	$	(2,114)	(5.7)	%
Gain on deferred compensation plan investments	6,491		1,521		4,970		326.8	%
Selling, general and administrative expense	$	41,465	$	38,609	$	2,856	7.4	%

Three Months Ended September 30,
2017 2016 $ Change % Change
(in thousands)
Selling, general and administrative expense excluding change in deferred compensation liability $ 31,878
$ 26,286
$ 5,592
21.3 %
Gain on deferred compensation plan investments 1,062
896
166
18.5 %
Selling, general and administrative expense $ 32,940
$ 27,182
$ 5,758
21.2 %

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Consolidated Investment and ~~Interest~~Other Income, net

Investment and ~~interest~~other income increased ~~5.9%~~456.0% for the three months ended ~~September~~June 30, ~~2017~~2020 compared to the corresponding ~~2016~~2019 period, primarily due to ~~favorable~~ market fluctuations in the value of our trading security investments representing the funding for our deferred compensation plan. ~~Realized gains and losses on our available-for-sale municipal bonds also impacted consolidated investment income.~~

Consolidated Interest Expense

Consolidated interest expense decreased 51.5% to $0.4 million for the three months ended June 30, 2020 compared to the corresponding 2019 period due to fewer interquarter borrowings.

Consolidated Income Taxes

~~For~~During the ~~third quarter 2017, our~~three months ended June 30, 2020, the Company recognized a provision for income taxes of $7.3 million, or 24.0% effective tax rate, ~~was 28.7%,~~ versus ~~35.5%~~$5.4 million, or 23.0% effective tax rate, for the same period in ~~2016. In the first quarter 2017,~~2019. The increase to the Company ~~adopted ASU 2016-09, under which excess~~ tax ~~benefits~~

rate related to ~~share-based payments were recognized as a component of income tax expense, as opposed to additional paid-in capital, resulting in a decrease in 2017 income tax~~discrete items from stock compensation expense. ~~Differences between~~The Company’s estimate for the 2020 effective tax rate has not been adjusted for any impact related to COVID-19 as the impact on the Company's effective tax rate at this time is not expected to be material.

The actual annual effective tax rate will be impacted by the tax effects of option exercises or vested awards, which are treated as discrete items in the reporting period in which they occur, and therefore cannot be considered in the ~~applicable U.S. federal statutory rate generally arise primarily from~~calculation of the ~~effect of state and local~~estimated annual effective tax rate. The impact on our income ~~taxes, share-based compensation and~~ tax ~~credits available to~~provision for the ~~Company.~~three months ended June 30, 2020 for such discrete items was not material.

~~Nine~~

Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019

The following table summarizes the income statement key components that we use to evaluate our financial performance on a consolidated and reportable segment basis, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019. The differences between the reportable segments’ operating results and other disclosed data and our consolidated financial results relate primarily to corporate level transactions and ~~recording of~~adjustments related to transactions recorded at the reportable segment level ~~using~~which use methods other than generally accepted accounting principles.


	Six Months Ended June 30,
	2020		2019		% Change
	(in thousands)
Revenues
Housekeeping	$	451,943	$	462,045	(2.2)	%
Dietary	449,236		476,167		(5.7)	%
Consolidated	$	901,179	$	938,212	(3.9)	%

Costs of services provided
Housekeeping	$	402,744	$	410,734	(1.9)	%
Dietary	416,239		451,030		(7.7)	%
Corporate and eliminations	(44,310)		(34,014)		30.3	%
Consolidated	$	774,673	$	827,750	(6.4)	%

Selling, general and administrative expense
Corporate and eliminations	$	71,482	$	79,710	(10.3)	%

Investment and interest income
Corporate and eliminations	$	2,918	$	6,596	(55.8)	%

Interest expense
Corporate and eliminations	$	(748)	$	(1,839)	(59.3)	%

Income (loss) before income taxes
Housekeeping	$	49,199	$	51,311	(4.1)	%
Dietary	32,997		25,137		31.3	%
Corporate and eliminations	(25,002)		(40,939)		(38.9)	%
Consolidated	$	57,194	$	35,509	61.1	%

Nine Months Ended September 30,
2017 2016 % Change
(in thousands)
Revenues
Housekeeping $ 733,737
$ 716,154
2.5 %
Dietary 632,984
447,943
41.3 %
Consolidated $ 1,366,721
$ 1,164,097
17.4 %

Costs of Services Provided
Housekeeping $ 662,213
$ 647,188
2.3 %
Dietary 598,251
421,840
41.8 %
Corporate and eliminations (80,648 ) (70,433 ) 14.5 %
Consolidated $ 1,179,816
$ 998,595
18.1 %

Selling, general and administrative expense
Corporate and eliminations $ 93,141
$ 78,192
19.1 %

Investment and interest income
Corporate and eliminations $ 4,523
$ 2,548
77.5 %

Income (loss) before income taxes
Housekeeping $ 71,524
$ 68,966
3.7 %
Dietary 34,733
26,103
33.1 %
Corporate and eliminations (7,970 ) (5,211 ) 52.9 %
Consolidated $ 98,287
$ 89,858
9.4 %

~~Housekeeping and Dietary respectively represented approximately 53.7% and 46.3% of consolidated revenues for the nine months ended September 30, 2017.~~

The following table sets forth the ratio ~~which~~of certain items ~~bear~~ to consolidated revenues:


	Six Months Ended June 30,
	2020		2019
Revenues	100.0	%	100.0	%
Operating costs and expenses:
Costs of services provided	86.0	%	88.2	%
Selling, general and administrative expense	7.9	%	8.5	%
Other income (expense):
Investment and other income, net	0.3	%	0.7	%
Interest expense	(0.1)	%	(0.2)	%
Income before income taxes	6.3	%	3.8	%
Income tax	1.5	%	0.9	%
Net income	4.8	%	2.9	%

Nine Months Ended September 30,
2017 2016
Revenues 100.0 % 100.0 %
Operating costs and expenses:
Costs of services provided 86.3 % 85.8 %
Selling, general and administrative expense 6.8 % 6.7 %
Investment and interest income 0.3 % 0.2 %
Income before income taxes 7.2 % 7.7 %
Income taxes 2.2 % 2.8 %
Net income 5.0 % 4.9 %

Revenues

Consolidated

Consolidated revenues ~~increased 17.4%~~decreased 3.9% to ~~$1.4 billion in~~$901.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$1.2 billion in~~$938.2 million for the corresponding period in ~~2016~~2019 as a result of the factors discussed below under Reportable Segments.

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Reportable Segments

~~Housekeeping’s 2.5% net growth~~Housekeeping and Dietary revenues decreased 2.2% and 5.7%, respectively, during the six months ended June 30, 2020 compared to the corresponding period in ~~reportable segment revenues resulted from service agreements entered into~~2019, partially driven by the termination of several customers due to the Company exiting facilities in conjunction with operator transitions where we have been unable to come to agreeable terms, typically including accelerated payment and stricter credit terms with new ~~clients.~~operators.

~~Dietary’s 41.3% net growth~~

Revenue for the six months ended June 30, 2020 included $17.2 million of COVID-19 supplemental billings, primarily related to employee pay premiums passed through to customers, which were offset by temporary decreases in ~~reportable segment revenues resulted primarily from providing these services to existing Housekeeping clients.~~recurring billings as a result of census-driven cost reductions in staffing and purchasing.

Costs of services provided

Consolidated

Consolidated costs of services ~~increased 18.1%~~provided decreased 6.4% to ~~$1.2 billion~~$774.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$1.0 billion~~$827.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016, which is primarily related to our 17.4% growth in consolidated revenues for the same period. As a percentage of consolidated revenues, costs of services increasedto 86.3% in the nine months ended September 30, 2017 from 85.8% in the corresponding period in 2016.~~2019.

Certain significant components within our costs of services are subject to fluctuation with changes in our business and client base. Labor and other labor-related costs, dining and housekeeping supplies, and self insurance costs account for most of our consolidated costs of services. See the discussion under Reportable Segments below for additional information on the changes in the components of costs of services.

The following table provides a comparison of key indicators we consider when managing the consolidated ~~cost~~costs of services provided:

Nine Months Ended September 30,
Costs of Services Provided-Key Indicators as a % of Consolidated Revenue 2017 2016 Change
Bad debt provision 0.3 % 0.3 % — %
Workers’ compensation and general liability insurance 2.7 % 3.0 % (0.3 )%


	Six Months Ended June 30,
Costs of Services Provided - Key Indicators as a % of Consolidated Revenue	2020	2019	Change
Bad debt provision	0.7%	2.3%	(1.6)%
Self-insurance costs	2.8%	2.8%	—%

The decrease in ~~workers’ compensation and general liability insurance expense as a percentage of consolidated revenue~~the bad debt provision is ~~primarily the result~~related to our current assessment of the collectability of our accounts and notes receivable during the six months ended June 30, 2020. Additionally we incurred higher than normal bad debt expense during the six months ended June 30, 2019 due to the out-of-court restructuring of a privately held Northeast based operator that occurred during the first quarter of 2019. Effective January 1, 2020, the Company adopted the ASC 326 accounting guidance which changed the Company’s ~~ongoing initiatives~~procedures for estimating its bad debt provision. Under ASC 326, the Company now records a provision for bad debt based on management’s forecast of expected future credit losses. Prior to ~~promote safety~~ASC 326, the Company recorded a provision for bad debt based solely on accounts and ~~accident prevention in the workplace,~~notes receivables which were identified as ~~well as proactive management of workers’ compensation claims, which positively impact our claims experience.~~impaired.

Reportable Segments

Costs of services provided for Housekeeping, as a percentage of Housekeeping revenues, ~~decreased~~increased to ~~90.3%~~89.1% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 from ~~90.4%~~88.9% in the corresponding period in ~~2016.~~2019. Costs of services provided for Dietary, as a percentage of Dietary revenues, ~~increased~~decreased to ~~94.5%~~92.7% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 from ~~94.2%~~94.7% in the corresponding period in ~~2016.~~2019.

The following table provides a comparison of the key indicators we consider when managing ~~the~~ costs of services provided at the segment level, as a percentage of the respective ~~segment~~segment’s revenues:


	Six Months Ended June 30,
Costs of Services Provided - Key Indicators as a % of Segment Revenue	2020	2019	Change
Housekeeping labor and other labor-related costs	80.1%	79.3%	0.8%
Housekeeping supplies	7.1%	7.6%	(0.5)%
Dietary labor and other labor-related costs	63.7%	62.7%	1.0%
Dietary supplies	26.9%	29.6%	(2.7)%

Nine Months Ended September 30,
Costs of Services Provided-Key Indicators as a % of Segment Revenue 2017 2016 Change
Housekeeping labor and other labor-related costs 80.0 % 80.0 % — %
Housekeeping supplies 8.0 % 7.8 % 0.2 %
Dietary labor and other labor-related costs 55.9 % 53.5 % 2.4 %
Dietary supplies 36.6 % 38.1 % (1.5 )%

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Selling, General and Administrative Expense

Excluding the change in the deferred compensation plan described below, consolidated selling, general and administrative expense increased $12.7 million or 16.5% during the nine months ended September 30, 2017, related primarily to our overall growth.

Included in selling, general and administrative expense are gains and losses associated with changes in the value of investments under the deferred compensation ~~plan that~~plan. These investments represent the amounts held on behalf of the participating ~~employees. Changes~~employees and changes in the value of these investments affect the amount of our deferred compensation liability. Gains on the plan investments during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 increased our total selling, general and administrative expense for these periods. During the six months ended June 30, 2020, we incurred an increase to certain costs related to COVID-19, however such costs were immaterial. There is a possibility for additional increased selling, general and administrative expense related to the pandemic.

Excluding the change in the deferred compensation plan described above, consolidated selling, general and administrative expense decreased $4.1 million or 5.4% for the six months ended June 30, 2020 compared to the corresponding period in 2019. The decrease was primarily a result of higher legal and other professional fees incurred during 2019 in connection with the Company's internal investigation related to the SEC's inquiry regarding the Company's earnings per share calculation practices.

The table below summarizes the changes in these components of selling, general and administrative expense:


	Six Months Ended June 30,
	2020		2019		$ Change		% Change
	(dollar amounts in thousands)
Selling, general and administrative expense excluding change in deferred compensation liability	$	70,719	$	74,771	$	(4,052)	(5.4)	%
Gain on deferred compensation plan investments	763		4,939		(4,176)		(84.6)	%
Selling, general and administrative expense	$	71,482	$	79,710	$	(8,228)	(10.3)	%

Nine Months Ended September 30,
2017 2016 $ Change % Change
(in thousands)
Selling, general and administrative expense excluding change in deferred compensation liability
$ 89,766
$ 77,078
$ 12,688
16.5 %
Gain on deferred compensation plan investments 3,375
1,114
2,261
203.0 %
Selling, general and administrative expense $ 93,141
$ 78,192
$ 14,949
19.1 %

Consolidated Investment and Interest Income, net

Investment and ~~interest~~other income ~~increased 77.5%~~decreased 55.8% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to the corresponding ~~2016~~2019 period, primarily due to ~~favorable~~ market fluctuations in the value of our trading security investments representing the funding for our deferred compensation plan. ~~Realized gains and losses on our available-for-sale municipal bonds also impacted consolidated investment income.~~

Consolidated Interest Expense

Consolidated interest expense decreased 59.3% to $0.7 million for the six months ended June 30, 2020 compared to the corresponding 2019 period due to fewer interquarter borrowings.

Consolidated Income Taxes

~~For~~During the ~~nine~~six months ended ~~September~~June 30, ~~2017, our~~2020 and 2019, the Company recognized a provision for income taxes of $13.9 million, or 24.3% and $8.2 million or 23.0%, respectively. The increase to the Company tax rate related to discrete items from stock compensation expense. The Company’s estimate for the 2020 effective tax rate ~~was 30.8% compared to 36.5%~~has not been adjusted for ~~the 2016 period. In the first quarter 2017, the Company adopted ASU 2016-09, under which excess tax benefits~~any impacts related to ~~share-based payments were recognized~~COVID-19 as ~~a component of income tax expense, as opposed~~the impact at this time is not expected to ~~additional paid-in capital, resulting in a decrease in 2017 income tax expense. Differences between the~~be material.

The actual annual effective tax rate will be impacted by the tax effects of option exercises or vested awards, which are treated as discrete items in the reporting period in which they occur, and therefore cannot be considered in the ~~applicable U.S. federal statutory rate generally arise primarily from~~calculation of the ~~effect of state and local~~estimated annual effective tax rate. The impact on our income ~~taxes, share-based compensation and~~ tax ~~credits available to~~provision for the ~~Company.~~six months ended June 30, 2020 for such discrete items was not material.

Liquidity and Capital Resources

Cash generated through operations is our primary source of liquidity. At ~~September~~June 30, ~~2017,~~2020, we had cash, cash equivalents and marketable securities of ~~$81.4~~$170.4 million and working capital of ~~$340.2~~$354.0 million, compared to December 31, ~~2016~~2019 cash, cash equivalents and marketable securities of ~~$91.6~~$118.0 million and working capital of $313.8 million. The increase in working capital is driven by growth in new business and by the timing of payments and cash receipts as of September 30, 2017 as compared with December 31, 2016. As of September 30, 2017, we had an unused line of credit of $200.8$367.1 million. Our current ratio was ~~2.9~~3.1 to 1 at ~~September~~June 30, ~~2017~~2020 versus ~~4.1~~3.5 to 1 at December 31, ~~2016.~~2019. Marketable securities represent fixed income investments that are highly liquid and can be readily purchased or sold through established markets. Such securities are held by our captive insurance company to satisfy capital requirements of the state regulator related to captive insurance companies.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, our cash flows were as follows:


	Six Months Ended June 30,
	2020		2019
	(in thousands)
Net cash provided by operating activities	$	92,383	$	20,339
Net cash used in investing activities	$	(2,688)	$	(3,498)
Net cash used in financing activities	$	(38,915)	$	(26,710)

Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
(in thousands)
Net cash provided by operating activities $ 3,122
$ 37,898
Net cash used in investing activities $ (10,077 ) $ (14,345 )
Net cash used in financing activities $ (5,893 ) $ (32,415 )

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Operating Activities

Our primary sources of cash from operating activities are the revenues generated from our Housekeeping and Dietary ~~department~~ services. Our primary uses of cash ~~for~~from operating activities are the funding of our payroll and other personnel-related costs, as well as the costs of supplies used in providing our services. ~~The~~For the six months ended June 30, 2020 cash flow from operations included a $15.4 million increase which related to the deferral of payroll taxes under the CARES Act. Such deferral, along with the timing of cash receipts and cash payments, are the primary drivers of the period-over-period changes in net cash provided by operating activities.

We have not changed our expectations on future cash flows from operating activities due to COVID-19. We anticipate that several of our customers may experience changes in their cash flows however we will continue to pursue collections in accordance with our service agreements.

Investing Activities

~~The~~Our principal uses of cash for investing activities are the purchases of marketable securities and capital expenditures such as those for housekeeping and food service equipment, computer software and equipment, and furniture and fixtures (see “Capital Expenditures” below for additional information). Such uses of cash are partially offset by proceeds from sales of marketable securities.

Our investments in marketable securities are primarily comprised of tax-exempt municipal bonds and are intended to achieve our goal of preserving principal, maintaining adequate liquidity and maximizing returns subject to our investment guidelines. Our investment policy limits investment to certain types of instruments issued by institutions primarily with investment-grade ratings and places restrictions on concentration by type and issuer.

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Financing Activities

The primary use of cash for financing activities is the payment of dividends. We have paid regular quarterly cash dividends since the second quarter of 2003. During ~~2017,~~2020, we paid ~~to shareholders~~ regular quarterly cash dividends to shareholders totaling ~~$41.3~~$30.2 million as follows:


	Quarter Ended
	June 30, 2020		March 31, 2020
	(amounts in thousands, except per share data)
Cash dividend paid per common share	$	0.20250	$	0.20125
Total cash dividends paid	$	15,128	$	15,033
Record date	May 22, 2020		February 28, 2020
Payment date	June 26, 2020		March 27, 2020

The dividends paid to shareholders during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 were funded by ~~the existing~~ cash ~~cash equivalents and marketable securities held by the Company.~~generated from operations. Our Board of Directors reviews our dividend policy on a quarterly basis. Although there can be no assurance that we will continue to pay dividends or regarding the amount of ~~the~~future dividend payments, we expect to continue to pay a regular quarterly cash dividend. ~~Partially offsetting~~In connection with the ~~cash used to pay dividends are the proceeds received from the exercise~~establishment of ~~stock options by employees and directors.~~our dividend policy, we adopted a Dividend Reinvestment Plan in 2003.

The primary source of cash from financing activities is the net borrowings under our bank line of credit. We borrow for general corporate purposes as needed throughout the year.

We remain authorized to repurchase 1.7 million shares of our common stock pursuant to previous Board of Directors’ authorization. During the three and six months ended June 30, 2020 and 2019, we repurchased our common stock as part of the dividend reinvestment related to treasury shares held within the Deferred Compensation Plan. The ~~outstanding short-term borrowings balance as~~number of ~~September~~shares and value of shares repurchased were immaterial for the three and six months ended June 30, ~~2017 relates to the timing of cash receipts~~2020 and ~~cash payments.~~2019.

Line of Credit

At ~~September~~June 30, ~~2017,~~2020, we had a ~~$300~~$475 million bank line of credit on which to draw for general corporate purposes. ~~The amounts~~Amounts drawn under the line of credit are payable upon ~~demand.~~demand and generally bear interest at a floating rate, based on our leverage ratio, and starting at LIBOR plus 115 basis points (or if LIBOR becomes unavailable, the higher of the Overnight Bank Funding Rate, plus 50 basis points and the Prime Rate). At ~~September~~June 30, ~~2017,~~2020, there were ~~$25.0 million in~~no borrowings under the line of credit.

The line of credit requires us to satisfy two financial covenants. The covenants and their respective status at June 30, 2020 were as follows:


Covenant Descriptions and Requirements						As of June 30, 2020
Funded debt ¹ to EBITDA ² ratio: less than 3.50 to 1.00						0.24
EBITDA to Interest Expense ratio: not less than 3.00 to 1.00						52.77

1.All indebtedness for borrowed money including, but not limited to, capitalized lease obligations, reimbursement obligations in respect of letters of credit and guarantees of any such indebtedness.

2.Net income plus interest expense, income tax expense, depreciation, amortization, stock compensation expense and extraordinary non-recurring losses/gains.

As noted above, we were in compliance with our financial covenants at June 30, 2020 and we expect to remain in compliance. The line of credit expires on December 21, 2023. We believe that our existing capacity under the line of credit provides adequate liquidity considering the potential impact of COVID-19.

LIBOR is expected to be discontinued after 2021. Our line of credit agreement provides procedures for determining a replacement or alternative rate in the event that LIBOR is unavailable. However, there can be no assurances as to whether such replacement or alternative rate will be more or less favorable than LIBOR. We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and will work with our lenders to ensure any transition away from LIBOR will have minimal impact on our financial condition. We however can provide no assurances regarding the impact of the discontinuation of LIBOR on the interest rate that we would be required to pay or on our financial condition.

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At ~~September~~June 30, ~~2017,~~2020, we also had outstanding ~~$74.2~~$64.9 million in irrevocable standby letters of credit, which relate to payment obligations under our insurance programs. In connection with the issuance of the letters of credit, the amount available under the line of credit was reduced by $74.2 million to $200.8 million at September 30, 2017. The letters of credit were increased to $77.6 million on October 2, 2017.

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~~The line of credit requires us to satisfy one financial covenant. The covenant and its respective status at September 30, 2017 was as follows:~~



~~Covenant Description and Requirement~~		~~As of September 30, 2017~~
~~Funded debt~~ ⁽¹⁾ ~~to EBITDA~~⁽²⁾ ~~ratio: less than 3.00 to 1.00~~		~~0.72~~


⁽¹⁾	~~All indebtedness for borrowed money, including but not limited to, capitalized lease obligations, reimbursement obligations in respect of letters of credit and guaranties of any such indebtedness.~~


⁽²⁾	~~Net income plus interest expense, income tax expense, depreciation, amortization and extraordinary non-recurring losses/gains.~~

~~As noted above, we were in compliance with our financial covenant at September 30, 2017 and we expect to remain in compliance. The line of credit expires on December 18, 2018.~~

~~Accounts and Notes Receivable~~

Any decision to extend credit is made on a case-by-case basis and is based on a number of qualitative and quantitative factors related to the particular client, as well as the general risks associated with operating within the long-term care industry.

Our net accounts and notes receivable balance increased from December 31, 2016. Such fluctuations in net accounts and notes receivable are attributable to a variety of factors including, but not limited to, the timing of cash receipts from customers and the inception, transition or termination of client relationships.

There are a variety of factors that impact our clients’ ability to pay us in accordance with our agreements. Primary among these factors is our clients’ participation in programs funded by federal and state governmental agencies. Deviations in the timing or amounts of reimbursements under those programs can impact our clients’ cash flows and the timing of their payments to us. The payment terms in our service agreements are not contingent upon our clients’ cash flows and notwithstanding our efforts to minimize credit risk exposure, various factors affecting our clients’ cash flows could have an indirect, yet material adverse effect on our results of operations and financial condition.

We deploy significant resources and have invested in tools and processes to optimize our credit and collections efforts. When appropriate, we utilize interest-bearing promissory notes as an alternative to accounts receivable to enhance the collectability of amounts due, by providing a definitive repayment plan and providing a means by which to further evidence the amounts owed. At September 30, 2017 and December 31, 2016, we had $31.9 million and $19.2 million, net of reserves, respectively, of such promissory notes outstanding. In addition, we may assist our clients who are adjusting to changes in their cash flows by amending our agreements from full-service to management-only arrangements, or by modifying contractual payment terms to accommodate clients who have in good faith established clearly-defined plans for addressing cash flow issues. These efforts are intended to minimize our collections risk while maintaining our relationships with our clients.

In order to provide for collections issues and the general risk associated with the granting of credit terms, we recorded a bad debt provision (in an Allowance for Doubtful Accounts) of $4.0 million for the nine months ended September 30, 2017. For the nine months ended September 30, 2016, we recorded a bad debt provision of $3.2 million. As a percentage of total revenues, these provisions represent approximately 0.3% for each of the nine months ended September 30, 2017 and 2016.

Capital Expenditures

The level of capital expenditures is generally dependent on the number of new ~~clients~~customers obtained. Such capital expenditures primarily consist of housekeeping and food service equipment purchases, laundry and linen equipment installations, computer hardware and software, and furniture and fixtures. Although we have no specific material commitments for capital expenditures through the end of calendar year ~~2017,~~2020, we estimate that for ~~2017~~2020 we will have capital expenditures of approximately ~~$4.5~~$5.0 million to $6.0 ~~million.~~million, of which we have made $1.8 million through June 30, 2020. We believe that our cash from operations, existing cash and cash equivalents balance and credit line will be adequate for the foreseeable future to satisfy the needs of our operations and to fund our anticipated growth. However, should these sources not be sufficient, we would seek to obtain necessary capital from such sources as long-term debt or equity financing.

Material Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements, other than our irrevocable standby letter of credit previously discussed.

28Critical Accounting Policies and Estimates

Our significant accounting policies are described in the notes to the consolidated financial statements included in our Annual Report on Form 10-K (the "Form 10-K") for the period ended December 31, 2019. As described in such notes, we recognize revenue in the period in which the performance obligation is satisfied. Refer to our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Form 10-K.

~~Table~~In preparing our financial statements, management is required to make estimates and assumptions that, among other things, affect the reported amounts of ~~Contents~~

assets, liabilities, revenue and expenses. These estimates and assumptions are most significant when they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change, and where they can have a material impact on our financial condition and operating performance. If actual results were to differ materially from the estimates made, the reported results could be materially affected.

Critical accounting estimates and the related assumptions are evaluated periodically as conditions warrant, and changes to such estimates are recorded as new information or changed conditions require.

New Accounting Standard Updates

See Note 1—Description of Business and Significant Accounting Policies herein to the condensed consolidated financial statements for a full description of recent accounting standard updates, including the expected dates of adoption.

Item 3. Quantitative and QualitativeDisclosures About Market Risk

At ~~September~~June 30, ~~2017,~~2020, we had ~~$81.4~~$170.4 million in cash, cash equivalents and marketable securities. The fair ~~values~~value of all of our cash equivalents and marketable securities are determined based on “Level 1” or “Level 2” inputs, which are based upon quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. We place our cash investments in instruments that meet credit quality standards, as specified in our investment policy guidelines.

Investments in both fixed-rate and floating-rate investments carry a degree of interest rate risk. The market value of fixed rate securities may be adversely impacted by an increase in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or if there is a decline in the fair value of our investments.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are intended to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as this Form 10-Q, is reported in accordance with Securities and Exchange Commission rules. Disclosure controls are also intended to ensure that such information is accumulated and communicated to Management, including the President and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on their evaluation as of ~~September~~June 30, ~~2017,~~2020, pursuant to Exchange Act Rule 13a-15(b), our Management, including our President and Chief Executive Officer and Chief Financial Officer, believe our disclosure controls and procedures (as defined in Exchange Act 13a-15(e)) are effective.

Changes in Internal Controls over Financial Reporting

~~In connection with~~There were no changes in the ~~evaluation pursuant to Exchange Act Rule 13a-15(d) of our~~Company’s internal ~~control~~controls over financial reporting ~~(as defined in Exchange Act Rule 13a-15(f)) by our Management, including our President and Chief Executive Officer and Chief Financial Officer, no changes~~that occurred during the ~~quarter~~three or six months ended ~~September~~June 30, ~~2017 were identified~~2020 that have materially affected, or are reasonably likely to materially affect, ~~our~~the Company’s internal control over financial reporting. The Company continues to review its disclosure controls and procedures, including its internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company’s systems evolve with its business.

Certifications

Certifications of the Principal Executive Officer and Principal Financial and Accounting Officer regarding, among other items, disclosure controls and procedures are included as exhibits to this Form 10-Q.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

In the normal course of business, ~~Healthcare Services Group, Inc. (the “Company”)~~the Company is involved in various administrative and legal proceedings, including labor and employment, contracts, personal injury, and insurance matters. ~~The Company believes it~~

As previously disclosed, the SEC is ~~not~~conducting an investigation into our EPS calculation practices. Following receipt of a ~~party~~letter from the SEC in November 2017 regarding its inquiry into those practices followed by a subpoena in March 2018, we authorized our outside counsel to ~~nor are any~~conduct an internal investigation, under the direction of ~~its properties the subject of, any pending legal proceeding or governmental examination that would have a material adverse effect on~~ the Company’s ~~consolidated financial condition~~Audit Committee, into matters related to the SEC subpoena. This investigation was completed in March 2019 and we continue to cooperate with the SEC’s investigation and document requests.

On March 22, 2019, a putative shareholder class action lawsuit was filed against the Company and our Chief Executive Officer in the U.S. District Court for the Eastern District of Pennsylvania. The initial complaint, which was filed by a plaintiff purportedly on behalf of all purchasers of our securities between April 11, 2017 and March 4, 2019, alleges violations of the federal securities laws in connection with the matters related to our EPS calculation practices. On September 17, 2019, the complaint was amended to, among other things, extend the Class Period to cover the period between April 8, 2014 and March 4, 2019, and to name additional individuals affiliated with the Company as defendants. The lead plaintiff seeks unspecified monetary damages and other relief on behalf of the plaintiff class.

While the Company is vigorously defending against all litigation claims asserted, this litigation—along with the ongoing SEC investigation—could result in substantial costs to the Company and a diversion of the Company’s management’s attention and resources, which could harm its business. In addition, the uncertainty of the pending lawsuit or ~~liquidity. However,~~potential filing of additional lawsuits could lead to more volatility and a reduction in the Company’s stock price. At this time the Company is unable to reasonably estimate possible losses or form a judgment that an unfavorable outcome is either probable or remote.

In light of the uncertainties involved in such proceedings, the ultimate outcome of a particular matter could become material to the Company’s results of operations for a particular period depending on, among other factors, the size of the loss or liability imposed and the level of the Company’s operating income for that period.

Item 1A. Risk Factors

~~During the nine months ended September 30, 2017, the Company had one client,~~COVID-19 and other pandemics, epidemics, or outbreaks of a ~~multi-state provider,~~contagious illness may adversely affect our operating results, cash flows and financial condition.

COVID-19 coronavirus outbreak and other pandemics, epidemics, or outbreaks of a contagious illness, and similar events, may cause harm to us, our employees, our customers, our vendors and supply chain partners, and financial institutions, which accounted for approximately 16% of the Company’s total consolidated revenues, and another client which accounted for approximately 9% of the Company’s total consolidated revenues. These are among several major clients that contribute significantly to the Company’s total consolidated revenues. Although the Company expects to continue its relationships with these clients, there can be no assurance thereof. The loss, individually or in the aggregate, of such clients, or a significant reduction in the revenues the Company receives from such clients, could have a material adverse effect on ~~the Company’s~~our results of ~~operations.~~ operations, financial condition and cash flows. The impacts may include, but would not be limited to:

•Decreased availability and increased cost of supplies due to increased demand around essential cleaning supplies including disinfecting agents, personal protective equipment (“PPE”), and food and food-related products due to increased global demand and disruptions along the global supply chains of these manufactures and distributors;

•Disruption to operations due to the unavailability of employees due to illness, quarantines, risk of illness, travel restrictions or factors that limit our existing or potential workforce;

•Disruption to the availability of our key personnel due to travel restrictions;

•Our capacity to meet more stringent, medically-required procedures at customer facilities;

•Elevated employee turnover which may increase payroll expense and recruiting-related expenses;

•Decreased census in the nursing home and long-term care industry, which could increase our credit risk with customers; and

•Significant disruption of global financial markets, which could have a negative impact on us or our customers’ ability to access capital in the future.

In addition, ~~if any~~we have taken and will continue to take temporary precautionary measures intended to help minimize the risk of ~~these clients change or alter current payment terms, it~~COVID-19 to our employees, including requiring administrative and other groups of our employees to work remotely, suspending non-essential travel and restricting attendance at industry events and in-person work-related meetings. Such measures could ~~increase the Company’s accounts receivable balance and~~ have a material adverse effect on our business.

Table of Contents

The further spread of COVID-19, and the ~~Company’s~~requirements to take action to help limit the spread of the virus, could impact the resources required to carry out our business as usual and may have a material adverse effect on our results of operations, financial condition and cash flows. The extent to which COVID-19 will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted. Such developments may include the ongoing geographic spread of the virus, the severity of the disease, the duration of the outbreak and the type and duration of actions that may be taken by various governmental authorities in response to the outbreak and the impact on the United States and the global economy. Any of these developments, individually or in aggregate, could materially impact our business and our financial results and condition.

We may incur additional liabilities in our Paid Loss Retrospective Insurance Plan for general liability and workers’ compensation insurance related to COVID-19 which may adversely affect our operating results, cash flows and financial condition.

As a result of the impact of COVID-19, litigation claims, enforcement actions, regulatory actions and investigations arising from personal injury and loss of life, have been and may, in the future, be asserted against us. In the event that our known claims experience and/or industry trends result in an unfavorable change in initial estimates of costs to settle such claims resulting from, among other factors, the severity levels of reported claims and medical cost inflation, it would have an adverse effect on our consolidated results of operations, financial condition and cash flows. Although we engage third-party experts to assist us in estimating appropriate reserves, the determination of the required reserves is dependent upon significant actuarial judgments. Changes in our insurance reserves as a result of our periodic evaluation of the related liabilities may cause significant fluctuations in our operating results. We expect many of these claims and actions, or any settlement of these claims and actions, to be covered by insurance and historically the maximum amount of our liability, net of any insurance recoverables, has been limited to our self-insurance retention levels.

There have been no other material changes in the risk factors set forth in Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On July 11, 2017, the Company entered into an Amended and Restated Committed Line of Credit Note to increase the existing bank line and letter of credit availability to $300 million. There were no other changes to the terms of the line of credit and amounts drawn under the line of credit remain payable upon demand. The proceeds available under the facility will be used for general corporate purposes.Not applicable.

Table of Contents

Item 6. Exhibits

The following exhibits are filed as part of this Report:



Exhibit Number						Description
~~10.1~~10.4						~~Amended and Restated Committed Line of Credit Note, dated as of July 11, 2017 (Incorporated~~Healthcare Services Group, Inc. 2020 Healthcare Services Group, Inc. 2020 Omnibus Incentive Plan, incorporated by reference to ~~Exhibit 10.1 of~~ the ~~Company’s Form 10-Q for~~Definitive Proxy Statement on Schedule 14A filed on April 24, 2020 Incentive Plan , incorporated by reference to the ~~quarter ended June 30, 2017)~~Definitive P ro xy Statement on Schedule 14A filed on April 24, 2020
31.1						Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
31.2						Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32.1						Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
101						The following financial information from the Company’s Form 10-Q for the quarterly period ended ~~September~~June 30, ~~2017~~2020 formatted in iXBRL (Inline eXtensible Business Reporting ~~Language (XBRL)~~Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statement of Stockholders’ Equity, and (v) Notes to Consolidated Financial Statements
104						Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.)

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HEALTHCARE SERVICES GROUP, INC.

~~Date:~~

~~October 27, 2017~~

Date:

July 24, 2020

/s/ Theodore Wahl

Theodore Wahl

President & Chief Executive Officer

(Principal Executive Officer)

~~Date:~~

~~October 27, 2017~~

Date:

July 24, 2020

/s/ John C. Shea

John C. Shea

Chief Financial Officer

(Principal Financial and Accounting Officer)



Pennsylvania		23-2018365
(State or other jurisdiction of incorporation or organization)		(~~I.R.S~~I.R.S. Employer Identification No.)

~~3220 Tillman Drive, Suite 300, Bensalem, PA~~	~~19020~~
~~(Address of principal executive offices)~~	~~(Zip Code)~~



	September 30, 2017			December 31, 2016
	(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents	$	11,005		$	23,853
Marketable securities, at fair value	70,384			67,730
Accounts and notes receivable, less allowance for doubtful accounts of $9,795 as of September 30, 2017 and $6,911 as of December 31, 2016	367,009			271,276
Inventories and supplies	41,516			37,800
Prepaid expenses and other assets	25,628			13,965
Total current assets	515,542			414,624
Property and equipment, net	13,499			13,455
Goodwill	51,084			44,438
Other intangible assets, less accumulated amortization of $11,659 as of September 30, 2017 and $14,672 as of December 31, 2016	32,075			14,409
Notes receivable — long term portion	11,495			7,531
Deferred compensation funding, at fair value	27,387			24,119
Deferred income taxes	9,196			9,822
Other noncurrent assets	1,264			48
Total Assets	$	661,542		$	528,446

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable	$	62,323		$	42,912
Accrued payroll, accrued and withheld payroll taxes	48,786			22,303
Other accrued expenses	3,665			4,397
Borrowings under line of credit	25,000			—
Income taxes payable	10,781			7,686
Accrued insurance claims	24,827			23,573
Total current liabilities	175,382			100,871
Accrued insurance claims — long term portion	67,818			64,080
Deferred compensation liability	27,886			24,653
Commitments and contingencies
STOCKHOLDERS’ EQUITY:
Common stock, $.01 par value; 100,000 shares authorized; 74,791 and 74,204 shares issued, and 73,265 and 72,601 shares outstanding as of September 30, 2017 and December 31, 2016, respectively	748			742
Additional paid-in capital	241,008			217,664
Retained earnings	157,678			130,940
Accumulated other comprehensive income (loss), net of taxes	844			(319		)
Common stock in treasury, at cost, 1,525 shares as of September 30, 2017 and 1,603 shares as of December 31, 2016	(9,822		)	(10,185		)
Total stockholders’ equity	$	390,456		$	338,842
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	661,542		$	528,446


	Nine Months Ended September 30,							Six Months Ended June 30,
	2017			2016				2020		2019
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	68,040		$	57,097		Net income	$	43,291	$	27,342
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	6,342			5,632			Depreciation and amortization	7,146		6,997
Bad debt provision	4,000			3,200			Bad debt provision	5,921		21,465
Deferred income tax expense	—			2,748
Stock-based compensation expense, net of tax benefit from equity compensation plans⁽¹⁾	(632		)	1,363
Deferred income tax benefit							Deferred income tax benefit	(3,923)		(18)
Share-based compensation expense							Share-based compensation expense	3,925		3,659
Amortization of premium on marketable securities	929			1,053			Amortization of premium on marketable securities	950		712
Unrealized gain on deferred compensation fund investments	(3,351		)	(1,041		)	Unrealized gain on deferred compensation fund investments	(961)		(5,041)
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Accounts and notes receivable	(103,697		)	(54,954		)	Accounts and notes receivable	2,635		(25,305)
Inventories and supplies	(997		)	(1,295		)	Inventories and supplies	2,840		1,305
Prepaid expenses and other assets	(11,658		)	(5,279		)	Prepaid expenses and other assets	(3,931)		(2,847)
Deferred compensation funding	83			(941		)	Deferred compensation funding	990		89
Accounts payable and other accrued expenses	(1,102		)	(6,774		)	Accounts payable and other accrued expenses	(964)		(8,824)
Accrued payroll, accrued and withheld payroll taxes	28,575			22,065			Accrued payroll, accrued and withheld payroll taxes	16,104		(2,678)
Income taxes payable⁽¹⁾	7,865			7,870
Income taxes payable							Income taxes payable	12,847		(7,140)
Accrued insurance claims	4,992			4,870			Accrued insurance claims	5,396		5,423
Deferred compensation liability	3,733			2,284			Deferred compensation liability	117		5,200
Net cash provided by operating activities	3,122			37,898			Net cash provided by operating activities	92,383		20,339

Cash flows from investing activities:							Cash flows from investing activities:
Disposals of fixed assets	264			177			Disposals of fixed assets	307		87
Additions to property and equipment	(3,962		)	(3,908		)	Additions to property and equipment	(1,835)		(2,496)
Purchases of marketable securities	(22,149		)	(18,751		)	Purchases of marketable securities	(6,939)		(8,234)
Sales of marketable securities	20,354			8,137			Sales of marketable securities	5,779		7,145
Cash paid for acquisition	(4,584		)	—
Net cash used in investing activities	(10,077		)	(14,345		)	Net cash used in investing activities	(2,688)		(3,498)

Cash flows from financing activities:							Cash flows from financing activities:
Dividends paid	(41,302		)	(39,849		)	Dividends paid	(30,161)		(29,276)
Reissuance of treasury stock pursuant to Dividend Reinvestment Plan	71			84			Reissuance of treasury stock pursuant to Dividend Reinvestment Plan	45		46
Tax benefit from equity compensation plans ⁽¹⁾	—			1,750
Proceeds from the exercise of stock options	10,338			5,600			Proceeds from the exercise of stock options	1,862		3,099
Net proceeds from short-term borrowings	25,000			—
Repayments of short-term borrowings							Repayments of short-term borrowings	(10,000)		—
Payments of statutory withholding on net issuance of restricted stock units							Payments of statutory withholding on net issuance of restricted stock units	(661)		(579)
Net cash used in financing activities	(5,893		)	(32,415		)	Net cash used in financing activities	(38,915)		(26,710)

Net change in cash and cash equivalents	(12,848		)	(8,862		)	Net change in cash and cash equivalents	50,780		(9,869)
Cash and cash equivalents at beginning of the period	23,853			33,189			Cash and cash equivalents at beginning of the period	27,329		26,025
Cash and cash equivalents at end of the period	$	11,005		$	24,327		Cash and cash equivalents at end of the period	$	78,109	$	16,156



	For the Nine Months Ended September 30, 2017
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss), net of taxes			Retained Earnings			Treasury Stock			Stockholders’ Equity
	Shares	Amount
Balance — December 31, 2016	74,204	$	742	$	217,664	$	(319	)	$	130,940		$	(10,185	)	$	338,842
Comprehensive income:
Net income for the period									68,040						68,040
Unrealized gain on available-for-sale marketable securities, net of taxes						1,163									1,163
Comprehensive income															69,203
Exercise of stock options and other stock-based compensation, net of shares tendered for payment	528	5		10,333											10,338
Share-based compensation expense — stock options, restricted stock and restricted stock units				3,773											3,773
Treasury shares issued for Deferred Compensation Plan funding and redemptions				487								14			501
Shares issued pursuant to Employee Stock Plan				1,752								339			2,091
Cash dividends									(41,302		)				(41,302		)
Shares issued pursuant to Dividend Reinvestment Plans				61								10			71
Shares issued pursuant to acquisition	59	1		2,500											2,501
Contingent shares issuable pursuant to acquisition				4,438											4,438
Balance — September 30, 2017	74,791	$	748	$	241,008	$	844		$	157,678		$	(9,822	)	$	390,456



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
Revenues	$	491,355	$	392,734		$	1,366,721	$	1,164,097
Operating costs and expenses:
Costs of services provided	426,924		336,340			1,179,816		998,595
Selling, general and administrative expense	32,940		27,182			93,141		78,192
Other income, net:
Investment and interest	1,439		1,359			4,523		2,548
Income before income taxes	32,930		30,571			98,287		89,858
Income tax provision	9,458		10,860			30,247		32,761
Net income	$	23,472	$	19,711		$	68,040	$	57,097

Per share data:
Basic earnings per common share	$	0.32	$	0.27		$	0.93	$	0.79
Diluted earnings per common share	$	0.31	$	0.27		$	0.92	$	0.78

Weighted average number of common shares outstanding:
Basic	73,461		72,839			73,272		72,718
Diluted	74,538		73,592			74,252		73,435

Comprehensive income:
Net income	$	23,472	$	19,711		$	68,040	$	57,097
Other comprehensive income:
Unrealized gain (loss) on available-for-sale marketable securities, net of taxes	82		(369		)	1,163		765
Total comprehensive income	$	23,554	$	19,342		$	69,203	$	57,862


⁽²⁾	~~For the nine months ended September 30, 2017 and 2016, these changes in other comprehensive income were net of tax effects of $0.6 million and $0.4 million respectively.~~



	September 30, 2017		December 31, 2016
	(in thousands)
Housekeeping and Dietary equipment	$	22,057	$	21,136
Computer hardware and software	12,381		11,750
Other ⁽¹⁾	988		1,133
Total property and equipment, at cost	35,426		34,019
Less accumulated depreciation	21,927		20,564
Total property and equipment, net	$	13,499	$	13,455



	As of September 30, 2017
					Fair Value Measurement Using:
	Carrying Amount		Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale	$	70,384	$	70,384	$	—	$	70,384	$	—

Deferred compensation fund
Money Market⁽¹⁾	$	2,378	$	2,378	$	—	$	2,378	$	—
Balanced and Lifestyle	8,181		8,181		8,181		—		—
Large Cap Growth	7,227		7,227		7,227		—		—
Small Cap Growth	3,359		3,359		3,359		—		—
Fixed Income	3,038		3,038		3,038		—		—
International	1,471		1,471		1,471		—		—
Mid Cap Growth	1,733		1,733		1,733		—		—
Deferred compensation fund	$	27,387	$	27,387	$	25,009	$	2,378	$	—



	As of December 31, 2016
					Fair Value Measurement Using:
	Carrying Amount		Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale	$	67,730	$	67,730	$	—	$	67,730	$	—

Deferred compensation fund
Money Market ⁽¹⁾	$	3,147	$	3,147	$	—	$	3,147	$	—
Balanced and Lifestyle	7,162		7,162		7,162		—		—
Large Cap Growth	5,583		5,583		5,583		—		—
Small Cap Growth	2,933		2,933		2,933		—		—
Fixed Income	2,752		2,752		2,752		—		—
International	1,132		1,132		1,132		—		—
Mid Cap Growth	1,410		1,410		1,410		—		—
Deferred compensation fund	$	24,119	$	24,119	$	20,972	$	3,147	$	—



	Nine Months Ended
	2017		2016
Risk-free interest rate	2.0	%	2.0	%
Weighted average expected life (years)	5.8 years		5.8 years
Expected volatility	25.1	%	26.0	%
Dividend yield	1.9	%	2.0	%



	Units	Weighted Average Grant Date Fair Value
	(in thousands)
December 31, 2016	—	$	—
Granted	88	$	40.16
Vested	—	$	—
Forfeited	—	$	—
September 30, 2017	88	$	40.16



	Quarter Ended
	March 31, 2017		June 30, 2017		September 30, 2017
	(in thousands, except per share amounts)
Cash dividends paid per common share	$	0.18625	$	0.18750	$	0.18875
Total cash dividends paid	$	13,624	$	13,750	$	13,883
Record date	February 17, 2017		May 19, 2017		August 18, 2017
Payment date	March 24, 2017		June 23, 2017		September 22, 2017



	Three Months Ended September 30,
Costs of Services Provided-Key Indicators as a % of Consolidated Revenue	2017	2016	Change
Bad debt provision	0.4%	0.3%	0.1%
Workers’ compensation and general liability insurance	2.6%	2.7%	(0.1)%



	Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016
	(in thousands)
Net cash provided by operating activities	$	3,122		$	37,898
Net cash used in investing activities	$	(10,077	)	$	(14,345	)
Net cash used in financing activities	$	(5,893	)	$	(32,415	)