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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2000March 31, 2001 Commission File Number 0-12015
HEALTHCARE SERVICES GROUP, INC.
-----------------------------------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2018365
- ------------------------------- -------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) number)
3220 Tillman Drive, SuiteDrive-Suite 300, Bensalem, Pennsylvania 19020
-----------------------------------------------------------------------------------------------------------------------
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: 215-639-4274
------------
Indicate 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 past 90 days.
YES X NO
--- -------- ------
Number of shares of common stock, issued and outstanding as of November 2, 2000May 1, 2001 is
10,939,09110,882,844
Total of 14 Pages
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
Consolidated Balance Sheets as of September 30, 20002
March 31, 2001 and December 31, 1999 22000
Consolidated Statements of Income for the Three Months Ended September 30,3
March 31, 2001 and 2000 and 1999 3
Consolidated Statements of Income for
the Nine Months Ended September 30,
2000 and 1999 4
Consolidated Statements of Cash Flows for the NineThree Months 4 - 5
ended September 30,March 31, 2001 and 2000 and 1999 5
Notes To Consolidated Financial Statements 6 - 7
Management's Discussion and Analysis of Financial Condition 8 - 11
and Results Of Operations 8 - 11
Part II. Other Information 12
-----------------
Signatures 13
Page 1-1-
HEALTHCARE SERVICES GROUP, INC.
Consolidated Balance Sheets
(Unaudited)
September 30,March 31, December 31,
2001 2000
1999
(Unaudited)
---------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,966,79721,417,926 $ 17,198,68722,841,618
Accounts and notes receivable, less allowance
for doubtful accounts of $6,809,000$5,173,000 in 2001 and
$4,914,000 in 2000 and
$7,278,000 in 1999 53,121,363 48,612,73851,771,234 52,744,352
Prepaid income taxes 300,585 843,8891,128,624
Inventories and supplies 8,487,792 8,580,1818,053,811 8,383,963
Deferred income taxes 1,512,372 1,777,5361,009,883 839,103
Prepaid expenses and other 1,977,515 1,869,0912,156,248 2,184,141
------------ -----------------------
Total current assets 82,366,424 78,882,12284,409,102 88,121,801
PROPERTY AND EQUIPMENT:
Laundry and linen equipment installations 7,560,480 7,824,0387,014,951 7,303,508
Housekeeping and office equipment 9,588,565 9,012,1789,854,513 9,696,825
Autos and trucks 21,329 51,11021,329
------------ -----------
17,170,374 16,887,326------------
16,890,793 17,021,662
Less accumulated depreciation 11,866,336 10,990,79211,932,211 11,863,635
------------ -----------
5,304,038 5,896,534------------
4,958,582 5,158,027
COST IN EXCESS OF FAIR VALUE OF NET
ASSETS ACQUIRED less accumulated
amortization of $1,608,625$1,662,437 in 2001 and
$1,635,531 in 2000 and
$1,527,908 in 1999 1,746,852 1,827,5691,693,040 1,719,946
DEFERRED INCOME TAXES 800,517 628,5531,378,206 1,366,186
OTHER NONCURRENT ASSETS 12,218,064 10,795,10412,553,082 11,976,905
------------ -----------
$102,435,895 $98,029,882------------
$104,992,012 $108,342,865
============ =======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $3,969,675 $2,472,021$ 4,391,460 $ 4,829,183
Accrued payroll, accrued and withheld payroll taxes 4,208,558 5,417,3674,051,275 8,209,344
Income taxes payable 15,766
Other accrued expenses 172,912 417,966
Income taxes payable101,631 181,466
Accrued insurance claims 798,708 789,945904,832 906,699
------------ -----------------------
Total current liabilities 9,149,853 9,097,2999,464,964 14,126,692
ACCRUED INSURANCE CLAIMS 3,004,662 2,971,6973,403,892 3,410,916
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value: 30,000,000
shares authorized, 11,066,59111,105,344 shares issued
in 2001 and 11,066,591 in 2000 and 11,064,107 in 1999111,053 110,666 110,641
Additional paid in capital 25,316,393 25,297,28425,525,359 25,315,753
Retained earnings 65,616,196 60,552,961
Less:67,769,557 66,140,713
Common stock in treasury, at cost, 222,500
shares in 2001 and 127,500 shares in 2000 (1,282,813) (761,875)
------------ -----------------------
Total stockholders' equity 90,281,380 85,960,88692,123,156 90,805,257
------------ -----------
$102,435,895 $98,029,882
=========== ===========------------
$104,992,012 $108,342,865
============ ============
See accompanying notes.
Page 2-2-
Healthcare Services Group, Inc.
Consolidated Income Statements of Income
(Unaudited)
For the Three Months Ended
September 30,March 31,
--------------------------------
2001 2000
1999
----------------------------------------------------- -----------
Revenues $ 65,210,687 $ 59,620,142$66,618,070 $60,127,632
Operating costs and expenses:
Costs of services provided 57,374,336 51,110,96659,082,359 53,224,983
Selling, general and administrative 5,138,984 4,779,9885,172,129 4,654,801
Other Income:Income :
Interest Income 265,468 176,139
------------ ------------307,263 212,991
----------- -----------
Income before income taxes 2,962,835 3,905,3272,670,845 2,460,839
Income taxes 1,155,000 1,469,000
------------ ------------1,042,000 960,000
----------- -----------
Net Income $ 1,807,8351,628,845 $ 2,436,327
============ ============1,500,839
=========== ===========
Basic earnings per common share $ 0.170.15 $ 0.22
============ ============0.14
=========== ===========
Diluted earnings per common share $ 0.170.15 $ 0.22
============ ============
Basic weighted average number
of common shares outstanding 10,939,057 11,052,307
============ ============
Diluted weighted average number
of common shares outstanding 10,939,057 11,270,979
============ ============0.14
=========== ===========
See accompanying notes.
Page 3notes
-3-
Consolidated Statements of Income
(Unaudited)
For the Nine Months Ended September 30,
2000 1999
-------------------------------------------
Revenues $ 189,188,381 $ 172,125,372
Operating costs and expenses:
Costs of services provided 166,863,415 147,271,486
Selling, general and administrative 14,749,220 13,660,479
Other Income:
Interest Income 702,489 583,435
------------- -------------
Income before income taxes 8,278,235 11,776,842
Income taxes 3,215,000 4,475,000
------------- -------------
Net Income $ 5,063,235 $ 7,301,842
============ =============
Basic earnings per common share $ 0.46 $ 0.66
============ =============
Diluted earnings per common share $ 0.46 $ 0.64
============ =============
Basic weighted average number
of common shares outstanding 10,972,092 11,049,863
============ =============
Diluted weighted average number
of common shares outstanding 10,996,991 11,324,843
============ =============
See accompanying notes.
Page 4
HEALTHCARE SERVICES GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For the NineThree Months Ended
September 30,
-------------------------------------March 31,
---------------------------------
2001 2000
1999
----------- --------------- ----
Cash flows from operating activities:
Net Income $ 5,063,2351,628,845 $ 7,301,8421,500,839
Adjustments to reconcile net income
to net cash provided by (used in)used in operating activities:
Depreciation and amortization 1,640,297 1,312,875588,276 543,475
Bad debt provision 2,250,000 2,250,000750,000 750,000
Deferred income taxes 93,200 1,640,517(benefits) (182,800) 111,626
Tax benefit of stock option transactions 832 45,588
Changes in operating assets and liabilities:
Accounts and notes receivable (6,758,625) (7,833,785)223,118 (3,143,456)
Prepaid income taxes 543,304 (1,085,169)1,128,624 794,847
Inventories and supplies 92,389 (752,773)
Long term330,152 (233,422)
Long-term notes receivable (1,336,356) (1,382,544)(419,427) (1,124,505)
Accounts payable and other accrued expenses 1,252,601 (2,196,242)(517,559) 448,447
Accrued payroll, accrued and withheld payroll
taxes (1,208,809) (2,575,225)(3,948,075) (2,134,835)
Income taxes payable 15,766
Accrued insurance claims 41,728 43,029
Income taxes payable (283,980)(8,891) (83,257)
Prepaid expenses and other assets (195,028) 101,646
----------- -----------(128,859) (173,129)
------------ ------------
Net cash provided by (used in)used in operating activities 1,478,768 (3,414,221)
----------- -----------(540,830) (2,742,538)
------------ ------------
Cash flows from investing activities:
Disposals of fixed assets 355,732 783,30586,123 52,233
Additions to property and equipment (1,322,817) (2,046,775)
----------- -----------(448,047) (438,258)
------------ ------------
Net cash used in investing activities (967,085) (1,263,470)
----------- -----------(361,924) (386,025)
------------ ------------
Cash flows from financing activities:
Purchase of treasury stock (761,875) (183,750)(520,938) (550,625)
Proceeds from the exercise of stock options 18,302 339,805
----------- -----------18,303
------------ ------------
Net cash provided by (used in)used in financing activities (743,573) 156,055
----------- -----------(520,938) (532,322)
------------ ------------
Net decrease in cash and cash equivalents (231,890) (4,521,636)(1,423,692) (3,660,885)
Cash and cash equivalents at beginning of the year 22,841,618 17,198,687
17,201,408
----------- ----------------------- ------------
Cash and cash equivalents at end of the period $16,966,797 $12,679,772
=========== ===========$ 21,417,926 $ 13,537,802
============ ============
See accompanying notes.
Page 5-4-
For the Three Months Ended
March 31,
---------------------------------
2001 2000
---- ----
Supplementary Cash Flow Information:
Issuance of common stock pursuant to
Employee Stock Purchase Plan $ 209,993
============
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
Note 1 - Basis of Reporting
The accompanying financial statements are unaudited and do not include
certain information and note disclosures required by generally accepted
accounting principles for complete financial statements. However, in the opinion
of the Company, all adjustments considered necessary for a fair presentation
have been included and are of a normal recurring nature.included. The balance sheet shown in this report as of December 31,
19992000 has been derived from, and does not include, all the disclosures contained
in the audited financial statements for the year ended December 31, 1999.2000. The 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, 1999.2000. The results of operations for the three month period ended
March 31, 2001 and nine month periods ended September 30,
2000 and 1999 are not necessarily indicative of the results that may
be expected for the full fiscal year.
Note 2 - Other Contingencies
The Company has aan $18,000,000 bank line of credit onunder which it may
draw to meet short-term liquidity requirements or for other purposes, that
expires on September 30, 2001. Amounts drawn under the line are payable upon
demand. At both September 30, 2000March 31, 2001 and December 31, 1999,2000, there were no borrowings
under the line. However, at such dates, the Company had outstanding
approximately $13,000,000 of irrevocable standby letters of credit, which relate
to payment obligations under the Company's insurance program. As a result of the
letters of credit issued, the amount available under the line was reduced by
approximately $13,000,000 at both September 30, 2000March 31, 2001 and December 31, 1999.2000.
The Company is also involved in miscellaneous claims and litigation
arising in the ordinary course of business. The Company believes that these
matters, taken individually or in the aggregate, would not have a material
adverse impact on the Company's financial position or results of operations.
Federal legislation enacted in August 1997 changed Medicare policy in a
number of ways, most notably the phasing in, effective July 1, 1998, of a
Medicare Prospective Payment System ("PPS") for skilled nursing facilities which
significantly changed the manner and the amounts of reimbursement they receive.
The Company's clients have been adversely affected by PPS, as well as other
trends in the long-term care industry resulting in certain of the Company's
clients recently filing for bankruptcy protection.bankruptcy. Others may follow. These factors, in addition to
delays in payments from clients, have resulted in and could result in additional
bad debts in the near future.
Page 6-6-
Note 3 - Segment Information
The Company provides housekeeping, laundry, linen, facility maintenance
and linen, food and
maintenance services to the healthcare industry. The Company considers its business
to consist of one reportable operating segment, based on the service business
categories, provided to a client facility, sharing similar economic
characteristics in the nature of the service provided, method of delivering
service and client base. Although the Company does provide services in Canada,
essentially all of its revenue and net income, approximately 99%, are in each case,
is earned in one geographic area, the United States.
The Company earned revenue in the following service business
categories:
For the three month period ended September 30,
----------------------------------------------March 31,
------------------------------------------
2001 2000 1999
----------- -----------
Housekeeping services $41,679,000 $37,613,000$40,435,076 $38,434,188
Laundry & linen services 17,104,000 17,118,00016,701,985 17,105,995
Food services 5,777,000 3,031,000Services 8,742,434 3,882,103
Maintenance services &
Other 651,000 1,858,000738,575 705,346
----------- -----------
$65,211,000 $59,620,000$66,618,070 $60,127,632
=========== ===========
For the nine month period ended September 30,
---------------------------------------------Note 4 - Earnings Per Common Share
Three Months Ended March 31, 2001
-------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net income $1,628,845
==========
Basic earnings per
common share $1,628,845 10,948,372 $ .15
Effect of dilutive securities:
Options 23,708
---------- ---------- ----------
Diluted earnings per
Common share $1,628,845 10,972,080 $ .15
========== ========== ==========
-7-
Three Months Ended March 31, 2000
1999
------------ ------------
Housekeeping services $121,223,000 $108,263,000
Laundry & linen services 51,310,000 49,693,000
Food services 14,462,000 8,478,000
Maintenance services &
Other 2,193,000 5,691,000
------------ ------------
$189,188,000 $172,125,000
============ ============-------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net income $1,500,839
==========
Basic earnings per
common share $1,500,839 11,033,140 $ .14
Effect of dilutive securities:
Options 74,698
---------- ---------- ---------
Diluted earnings per
Common share $1,500,839 11,107,838 $ .14
========== ========== =========
Note 45 - Effect of Recently Issued Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities
------------------------------------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which requires all entities to recognize
all derivative instruments on their balance sheet as either assets or
liabilities measured at fair value. SFAS No. 133 also specifies new methods of
accounting for hedging transactions, prescribes the items and transactions that
my be hedged, and specifies detailed criteria to be met to qualify for hedge
accounting. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal
years beginning
after June 15, 2000.January 1, 2001. This standard isdoes not expected to have a material effect on the Company's
financial statements.
Page 7
PART I.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the thirdfirst quarter of 20002001 increased by 9.4% over11% compared to
revenues in the corresponding 19992000 quarter. Revenues for the nine months ended September
30, 2000 increased by 9.9% over the corresponding 1999 period. The three and
nine month periods' revenue increases areincrease is primarily a result
of net new food service agreements entered into withobtained from existing clients, as well as
increases in other services provided to new clients.
Cost of services provided as a percentage of revenues increased
slightly to 88.0%88.7% for the thirdfirst quarter of 20002001 from 85.7%88.5 % in the corresponding
19992000 quarter. In addition, cost of services as a percentage of revenue increased to
88.2% for the nine month period ended September 30, 2000 from 85.6% in the same
1999 period. The primary factors affecting specific variations in the 2000 third
quarter and nine month period's2001
first quarter's cost of services provided as a percentage of revenue and their
effects on the respective 2.3% and 2.6% increases.2% increase are as follows: in the third quarter an increase of 1.8%3.3% in the cost of
supplies consumed in performingproviding services resultingwhich is primarily from increases inattributable to
increased food purchasescosts associated with food service clients; and an increase of .4%.5%
in health insuranceworkers' compensation, general liability and employee benefits
costs;other insurance; offsetting
these increases was a decrease of .3% in labor costs and
payroll related taxes; in the nine month period an increase of 1.2%3.3% in the cost of supplies consumed in performing services resulting primarily from increases
in food purchases; a .6% increase in health insurance and employee benefits
costs and an increase of .3% in labor costs and payroll related taxes.labor.
-8-
Selling, general and administrative expenses as a percentage of revenue
decreased slightlyremained essentially unchanged in the thirdfirst quarter of 2000 to 7.9%2001 at 7.8% as compared
to 8.0%7.7% in the corresponding 19992000 three month period. Additionally, during the nine month
period ended September 30, 2000 selling, general and administrative expenses as
a percentage of revenue decreased slightly to 7.8 % as compared to 7.9% in the
corresponding 1999 period. The three and nine month period decreases are
primarily attributable to the Company's ability to control certain selling,
general and administrative expenses while comparing them to a greater revenue
base in the current period.
The effective income tax rate for the three and nine month periods
ended September 30, 1999 is lower, as compared to the respective 2000 periods,
as a result of the reversal of previously established income tax reserves no
longer required as a result of the conclusion of an Internal Revenue Service
examination for the tax years ended December 31, 1997 and 1996.
Liquidity and Capital Resources
At September 30, 2000March 31, 2001 the Company had working capital and cash of
$74,944,138 and cash
equivalents of $73,216,571 and $16,966,797,$21,417,926 respectively, which represents an
increase of 5% in working capital and a slight decrease of 1% increase in cash
and cash equivalents compared to December 31, 19992000 working
capital and cash of $73,995,109 and cash equivalents of $69,784,823 and $17,198,687, respectively.
Page 8
$22,841,618.
The net cash providedused by the Company's operating activities was $1,478,768$750,823
for the ninethree month period ended September 30, 2000March 31, 2001 as compared to net cash used of
$3,414,221$2,742,538 in the same 19992000 period. The principleprincipal sources of net cash flows from
operating activities were: for the ninethree month periodperiods ended September
30,March 31, 2001 and 2000
were net income, charges to operations for bad debt provisions and
depreciation and amortization; in the nine month period ended September 30, 1999
net income, charges to operations for bad debt provisions and depreciation and
amortization, as well as the timing of
payments for income taxes. The operating activity that used the largest amount
of cash during the three month period ended March 31, 2001 was a $3,948,075
decrease in accrued payroll, accrued and withheld payroll taxes resulting from
the timing of these payments. The operating activity that used the largest
amount of cash during the three month period ended March 31, 2000 was a
$4,267,961 net increase in accounts and notes receivable and long term notes
receivable at September 30, 2000 and 1999 of $8,094,981 and
$9,216,329, respectively.receivable. The net increases in these amounts resulted primarily from the
growth in the Company's revenues.timing of collections from clients. Additionally, operating activities'first quarter 2000 cash flows
for the nine month periods ended September 30, 2000were negatively impacted by a $2,134,835 decrease in accrued payroll, accrued
and 1999 was decreased
by the timing of payments forwithheld payroll and payroll related taxes of $1,208,809
and $2,575,225, respectively, as well as a $2,196,242 increase in accounts
payable and other accrued expenses in 1999 resulting from the timing of payments
to vendors.these payments.
The Company's principal use of cash in investing activities in each offor the
ninethree month periods ended September 30,March 31, 2001 and 2000 and 1999 was the purchase of housekeeping equipmentproperty
and laundry and linen equipment installations.equipment.
The Company expends considerable effort to collect the amounts due for
its services on the terms agreed upon with its clients. Many of the Company's
clients participate in programs funded by federal and state governmental
agencies which historically have encountered delays in making payments to its
program participants. Additionally, legislation enacted in August 1997 changed
Medicare policy in a number of ways, most notably the phasing in, effective July
1, 1998 of a Medicare Prospective Payment System ("PPS") for skilled nursing
facilities which significantly changed the manner and amount of reimbursements
they receive. The Company's clients have been adversely affected by PPS, as well
as other trends in the long-term care industry resulting in certain of the
Company's clients recently filing for voluntary bankruptcy protection. Others may follow.
These factors, in addition to delays in payments from clients, has resulted in
and could result in additional bad debts in the near future. Whenever possible,
when a client falls behind in making agreed-upon payments, the Company converts
the unpaid accounts receivable to interest bearing promissory notes. The
promissory notes receivable provide a means by which to further evidence the
amounts owed and provide a definitive repayment plan whichand therefore may
ultimately enhance the ultimate collectibility ofCompany's ability to collect the amounts due. In some
instances the Company obtains a security interest in certain of the debtors'
assets. Additionally, the Company considers restructuring service agreements
from full service to management-only service in the case of certain clients
experiencing financial difficulties. The Company believes that suchthe restructuring
provides it with a means to maintain a relationship with the client while at the
same time minimizing collection exposure.
-9-
The Company encounters difficulty in collecting amounts due from
certain of its clients, including those in bankruptcy, those which have
terminated service agreements and slow payers experiencing financial
difficulties. In order to provide for these collection problems and the general
risk associated with the granting of credit terms, the Company has recorded bad
debt provisions of $2,250,000$750,000 in each of the ninethree month periods ended September
30,March 31, 2001 and
2000, and 1999.respectively. In making its evaluation, in addition to analyzing, and
anticipating, where possible, the specific cases described above, management
considers the general collection risk associated with trends in the long-term
care industry.
Page 9
The Company has an $18,000,000 bank line of credit on which it may draw
to meet short-term liquidity requirements in excess of internally generated cash
flow. This facility expires on September 30, 2001. Amounts drawn under the line
are payable on demand. At September 30, 2000,March 31, 2001, there were no borrowings under the
line. However, at such date, the Company had outstanding approximately
$13,000,000 of irrevocable standby letters of credit, which relate to payment
obligations under the Company's insurance program. As a result of the letters of
credit issued, the amount available under the line was reduced by approximately
$13,000,000 at both September 30, 2000 and DecemberMarch 31, 1999.2001.
At September 30, 2000,March 31, 2001, the Company had $16,966,797$21,417,926 of cash and cash
equivalents, which it views as its principal measure of liquidity.
The level of capital expenditures incurred by the Company is generally
dependent on the number of new clients obtained. Such capital expenditures
primarily consist of housekeeping equipment and laundry and linen equipment
installations. Although the Company has no specific material commitments for
capital expenditures duringthrough the end of calendar year 2000,2001, it estimates that it
will incur capital expenditures of approximately $2,000,000 during 2000this period
in connection with housekeeping equipment and laundry and linen equipment
installations in its clients' facilities, as well as expenditures relating to
internal data processing hardware and software expenditures relating to
the implementation of a new computerized financial reporting system.requirements. The Company
believes that its cash from operations, existing balances and credit line will
be adequate for the foreseeable future to satisfy the needs of its operations
and to fund its continued growth. However, if the need arose, the Company would
seek to obtain capital from such sources as long-term debt or equity financing.
In accordance with the Company's previously announced authorizations to
re-purchasepurchase its outstanding common stock, the Company expended $761,875approximately
$521,000 to purchase 127,50095,000 shares of its common stock induring the nine months period September
30, 2000first quarter
of 2001 at an average price of $5.98$5.48 per common share. The Company remains
authorized to purchase 321,450226,450 shares pursuant to previous Board of Directors'
action.
-10-
Effect of Recently Issued Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities
- ------------------------------------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which requires all entities to recognize
all derivative instruments on their balance sheet as either assets or
liabilities measured at fair value. SFAS No. 133 also specifies new methods of
accounting for hedging transactions, prescribes the items and transactions that
may be hedged, and specifies detailed criteria to be met to qualify for hedge
accounting. SFAS No. 133, as amended by SFAS No. 137, is effective beginning
January 1, 2001. This standard does not have a material effect on the Company's
financial statements.
Cautionary Statements Regarding Forward Looking Statements
Certain matters discussed may include forward-looking statements that
are subject to risks and uncertainties that could cause actual results or
objectives to differ materially from those projected. Such risks and
uncertainties include, but are not limited to, risks arising from the Company
providing its services exclusively to the healthcarehealth care industry, primarily
providers of long-term care; credit and collection risks associated with this
industry; the effects of changes in regulations governing the industry and risk
factors described in the Company's Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 19992000 in Part I thereof under
"Government Regulation of Clients", "Competition" and "Service
Agreements/Collections". The Company's clients have been adversely affected by
the change in Medicare payments under the recently enacted1997 enactment of Prospective Payment
Page 10
System ("PPS"), as well as other trends in the long-term care industry resulting
in certain of the Company's clients filing voluntary bankruptcy petitions.
Others may follow. These factors, in addition to delays in payments from clients
has resulted in and could result in additional bad debts in the near future.
Additionally, the Company's operating results would be adversely affected if
unexpected increases in thelabor and labor related costs, of labor, materials, supplies and
equipment used in performing its services could not be passed on to clients.
In addition, the Company believes that to improve its financial
performance it must continue to obtain service agreements with new clients,
provide new services to existing clients, achieve modest price increases on
current service agreements with existing clients and maintain internal cost
reduction strategies at the various operational levels of the Company.
Furthermore, the Company believes that its ability to sustain the internal
development of managerial personnel is an important factor impacting future
operating results and successfully executing projected growth strategies.
Effects of Inflation
All of the Company's service agreements allow it to pass through to its
clients increases in the cost of labor resulting from new wage agreements. Although there canThe
Company believes that it will be no assurance thereof, the Company will continue to seekable to recover increases in costs attributable
to inflation by continuing to pass through cost increases to its clients.
Page 11-11-
PART II. Other Information
-----------------
Item 1. Legal Proceedings. Not Applicable
Item 2. Changes in Securities. Not Applicable
Item 3. Defaults under Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Not Applicable
Holders
a) None
Item 5. Other Information.
a) None
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits - 27 - Financial Data ScheduleNone
b) Reports on Form 8-K - None
Page 12-12-
SIGNATURES
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.
November 2,-------------------------------
May 1, 2000 /s/ Daniel P. McCartney
- ---------------------------- -------------------------------------------------------------- ------------------------------------------------
Date DANIEL P. McCARTNEY, Chief
Executive Officer
November 2,May 1, 2000 /s/ Thomas A. Cook
- ---------------------------- -------------------------------------------------------------- ------------------------------------------------
Date THOMAS A. COOK, President and
Chief Operating Officer
November 2,May 1, 2000 /s/ James L. DiStefano
- ---------------------------- -------------------------------------------------------------- ------------------------------------------------
Date JAMES L. DiSTEFANO, Chief Financial
Officer and Treasurer
November 2,May 1, 2000 /s/ Richard W. Hudson
- ---------------------------- -------------------------------------------------------------- -----------------------------------------------
Date RICHARD W. HUDSON, Vice
President-Finance, Secretary and Chief
Accounting Officer
Page 13-13-