-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LqkMoRxj9u2enDkFBEah3mkL3mPODKl46RQY4KySUc+HLpT90FrOMx48Fr087OzP grrNQQ67mx+u70kTa5GAmQ== 0000950116-96-000384.txt : 19960517 0000950116-96-000384.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950116-96-000384 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTHCARE SERVICES GROUP INC CENTRAL INDEX KEY: 0000731012 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TO DWELLINGS & OTHER BUILDINGS [7340] IRS NUMBER: 232018365 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12015 FILM NUMBER: 96565596 BUSINESS ADDRESS: STREET 1: 2643 HUNTINGDON PIKE CITY: HUNTINGDON VALLEY STATE: PA ZIP: 19006 BUSINESS PHONE: 2159381661 MAIL ADDRESS: STREET 1: 2643 HUNTINGDON PIKEE CITY: HUNTINGDON VALLEY STATE: PA ZIP: 19006 10-Q 1 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 March 31, 1996 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) 2643 Huntingdon Pike, Huntingdon Valley, Pennsylvania 19006 ----------------------------------------------------------- (Address of principal executive office) (Zip code) Registrant's telephone number, including area code: 215-938-1661 ---------------------- 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 May 13, 1996 is 8,113,563 shares Total of 11 Pages INDEX PART I. FINANCIAL INFORMATION PAGE NO. Balance Sheets as of March 31, 1996 and December 31, 1995 2 Statements of Income for the Three Months ended March 31, 1996 and 1995 3 Statements of Cash Flows for the Three Months ended March 31, 1996 and 1995 4 Notes to Financial Statements 5 to 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 to 8 PART II. OTHER INFORMATION 9 SIGNATURES 10 - 1 - HEALTHCARE SERVICES GROUP, INC. Balance Sheets
March 31, December 31, 1996 1995 (Unaudited) (Audited) -------------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 17,326,438 16,335,886 Accounts and notes receivable, less allowance for doubtful accounts of $4,461,000 in 1996 and $4,468,000 in 1995 34,860,034 32,463,288 Prepaid income taxes 218,653 1,466,184 Inventories and supplies 7,117,130 7,200,033 Deferred income taxes 1,049,650 1,104,350 Prepaid expenses and other 2,498,527 2,090,409 -------------- ------------- Total current assets 63,070,432 60,660,150 PROPERTY AND EQUIPMENT: Laundry and linen equipment 12,333,857 12,135,849 Housekeeping equipment and office furniture 6,615,095 6,216,950 Autos and trucks 178,090 178,006 -------------- ------------- 19,127,042 18,530,805 Less accumulated depreciation 12,941,226 12,347,675 -------------- ------------- 6,185,816 6,183,130 COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED less accumulated amortization of $1,144,319 in 1996 and $1,117,413 in 1995 2,231,158 2,258,064 DEFERRED INCOME TAXES 1,584,826 1,449,236 OTHER NONCURRENT ASSETS 9,362,172 9,739,191 -------------- ------------- $ 82,434,404 80,289,771 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,924,991 3,480,499 Accrued payroll, accrued and withheld payroll tax 4,546,998 2,312,907 Other accrued expenses 2,489,195 2,843,890 Accrued insurance claims 1,037,754 954,881 -------------- ------------- Total current liabilities 9,998,938 9,592,177 ACCRUED INSURANCE CLAIMS 2,421,426 2,228,054 COMMITMENTS AND CONTINGENCIES (Notes 2 and 3) STOCKHOLDERS' EQUITY: Common stock, $.01 par value: 10,000,000 shares authorized, 8,113,563 shares issued in 1996 and 8,143,063 in 1995 81,136 81,431 Additional paid in capital 34,787,488 35,023,468 Retained earnings 35,145,416 33,364,641 -------------- ------------- Total stockholders' equity 70,014,040 68,469,540 -------------- ------------- $ 82,434,404 80,289,771 ============== =============
See accompanying notes. -2- HEALTHCARE SERVICES GROUP, INC. Statements of Income (Unaudited)
For the Three Months Ended March 31, ---------------------------- 1996 1995 ------------- ------------- Revenues $ 39,410,651 36,385,777 Operating costs and expenses: Cost of services provided 33,570,692 30,765,990 Selling, general and administrative 3,013,349 2,927,764 Recovery of contingent losses on promissory notes sold 150,000 Other income: Interest income 191,165 200,158 ------------- ------------- Income before income taxes 3,017,775 3,042,181 Income taxes 1,237,000 1,233,000 ------------- ------------- Net income $ 1,780,775 $ 1,809,181 ============= ============= Earnings per common share $ 0.22 $ 0.22 ============= ============= Weighted average number of common shares outstanding 8,164,995 8,286,414 ============= =============
See accompanying notes. -3- HEALTHCARE SERVICES GROUP, INC. Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, ---------------------------- 1996 1995 ----------- ----------- Cash flows from operating activities: Net Income $ 1,780,775 $ 1,809,181 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 620,457 660,149 Bad debt provision 600,060 147,000 Recovery of contingent losses on promissory notes sold (150,000) Deferred income taxes (benefits) (81,000) (83,338) Tax benefit of stock option transactions 41,445 Changes in operating assets and liabilities: Accounts receivable (2,996,806) (2,121,251) Prepaid income taxes 1,247,641 Inventories and supplies 82,903 (320,086) Changes to long term trade notes receivable 302,069 (401,695) Accounts payable and other accrued expenses (1,910,202) (2,334,584) Accrued payroll, accrued and withheld payroll taxes 2,234,091 1,327,594 Accrued insurance claims 276,244 299,905 Income taxes payable 159,445 Prepaid expenses and other assets (333,168) 1,199,431 ----------- ----------- Net cash provided by operating activities 1,823,064 233,196 ----------- ----------- Cash flows from investing activities: Additions to property and equipment (596,237) (948,992) Cash provided by release of Certificates of Deposits pledged for loan guarantees 1,500,000 ----------- ----------- Net cash provided by (used in) investing activities (596,237) 551,008 ----------- ----------- Cash flows from financing activities: Purchase of treasury stock (240,700) Proceeds from the exercise of stock options 4,425 160,336 ----------- ----------- Net cash provided by (used in ) financing activities (236,275) 160,336 ----------- ----------- Net increase in cash and cash equivalents 990,552 944,540 Cash and cash equivalents at beginning of the year 16,335,886 11,230,118 ----------- ----------- Cash and cash equivalents at end of the year $17,326,438 $12,174,658 =========== =========== See accompanying notes.
-4- NOTES TO 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. The balance sheet shown in this report as of March 31, 1996 has been derived from, and does not include, all the disclosures contained in the financial statements for the year ended December 31, 1995. These 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, 1995. However, in the opinion of the Company, all adjustments considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results that may be expected for the full fiscal year. Note 2 - Other Contingencies The Company has a $13,000,000 bank line of credit on which it may draw to meet short-term liquidity requirements or for other purposes. This line expires on June 30, 1996. Amounts drawn under the line are payable upon demand. At both March 31, 1996 and December 31, 1995, there were no borrowings under the line. However, the amount available under the line was reduced by approximately $8,000,000 at March 31, 1996 and $8,200,000 at December 31, 1995 as a result of outstanding irrevocable standby letters of credit, which primarily relate to contingent payment obligations under the Company's insurance program. Note 3 - Provision for Estimated Cost Related to SEC Inquiry and Other Matters The Securities and Exchange Commission (SEC) has been conducting a non-public investigation since 1990 with respect to certain matters, including the Company's financial statements, financial condition and results of operations. The Company has cooperated fully with such inquiry on a voluntary basis. On March 21, 1996 the Staff of the SEC informed the Company that the SEC had accepted a settlement which had been offered by the Company and recommended by the Staff pertaining to certain allegations of violations of the Federal securities laws by the Company and certain of its officers with respect to periods ended on or before March 31, 1992. The settlement is subject to mutual agreement on the final form of the Complaint and Consent to be filed in the United States District Court. Under the settlement, upon filing of the - 5 - Complaint and the entry of a final judgment upon Consent, and without admitting or denying any of the allegations of the Complaint, the Company , two officers and a former officer, will be permanently enjoined from violating certain provisions of the Federal securities laws, and the Company and these individuals will be required to pay civil penalties aggregating approximately $825,000. The estimated monetary impact of this settlement plus related legal costs have been reflected in the accompanying financial statements. In addition, the United States Attorney for the Eastern District of Pennsylvania is investigating matters relating to certain payments (approximately $84,000 in 1988, $54,000 in 1989, $110,000 in 1990, $125,000 in 1991 and $34,000 in 1992) made by the Company between June 1988 and January 1992 to certain vendors that were not in accordance with Company policy. This matter was previously investigated and reported upon by the Company in its Form 10-K for the year ended December 31, 1991. Information regarding this matter was voluntarily furnished to the U.S. Attorney's office in New Jersey in May and November 1992 and such payments were recovered by the Company in November 1992. The Company is cooperating with the United States Attorney's office to attempt to resolve any issues or claims arising out of these payments. During 1995, the Company anticipated that it would incur a significant amount of legal and related costs in connection with these matters. The Company incurred approximately $950,000 of costs in 1995 and estimated that the additional costs which may be incurred in connection with these matters will be in a range of approximately $2,150,000 to $3,500,000 and accordingly accrued as of December 31, 1995 the estimated low range of this liability. The result of this $3,100,000 provision was to reduce 1995 net income by approximately $2,321,000 or $.28 per common share. - 6 - PART I. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the financial statements and notes thereto. RESULTS OF OPERATIONS Revenues for the first quarter of 1996 increased by 8.3% over revenues in the corresponding 1995 quarter. The following factors contributed to the increase in first quarter revenues: service agreements with new clients in existing geographic areas increased 18.7%; providing new services to existing clients increased revenues 1.9% ; and cancellations and other minor changes decreased revenues 12.3 %. Cost of services provided as a percentage of revenues increased to 85.2% for the first quarter of 1996 from 84.6% in the corresponding 1995 quarter. The primary factors affecting the .6% variation in cost of services provided as a percentage of revenue include the following: an increase of .8% in the allowance for doubtful accounts and other reserves; and an increase of .8% in the cost of laundry and housekeeping supplies; and offsetting these increases was a decrease in costs associated with service agreements cancelled 1.4% ( see Note 1- Intangible Assets in Notes to Financial Statements at December 31, 1995); and a decrease of .4% in workers' compensation, general liability and other insurance costs. Selling, general and administrative expenses as a percentage of revenue decreased to 7.6% for the first quarter of 1996 as compared to 8.0% in the corresponding 1995 three month period due to the Company's ability to control other selling, general and administrative expenses while comparing them to a greater revenue base. The Company presently anticipates that it will incur a significant amount of additional legal and related costs in connection with the pending governmental investigations and accordingly has established a provision for this purpose (see Note 3 - Provision for Estimated Cost Related to SEC Inquiry and Other Matters ). Liquidity and Capital Resources At March 31, 1996 the Company had working capital of $53,071,494 which represents a 4% increase over December 31, 1995 working capital of $51,067,973. Working capital continues to grow primarily as a result of higher accounts receivable attributable to the Company's 8.3% increase in revenues. - 7 - The Company's current ratio at March 31, 1996 remains at 6.3 to 1 as it was at December 31, 1995. The net cash provided by the Company's operating activities was $1,823,064 for the three month period ended March 31, 1996. The components of working capital that required the largest amount of cash were: a $2,996,806 increase in accounts receivable and a $1,910,202 decrease in accounts payable and other accrued expenses. The increase in accounts receivable resulted primarily from the continued growth in the Company's revenues which increased by 8.3% in the three month period ended March 31, 1996. The increased use of cash associated with accounts payable and other accrued expenses resulted primarily from the timing of payments to vendors. 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. Whenever possible, when a client falls behind in making agreed-upon payments, the Company converts the unpaid accounts receivable to interest bearing promissory notes receivable. The promissory notes receivable provide a definitive repayment plan and therefore may enhance the ultimate collectibility of the amounts due. In some instances the Company obtains a security interest in certain of the debtors' assets. The Company has a $13,000,000 bank line of credit on which it may draw to meet short-term liquidity requirements or for other purposes. This line expires on June 30, 1996. Amounts drawn under the line are payable on demand. At March 31, 1996 there were no borrowings under the line. However, at such date, the amount available under the line was reduced by approximately $8,000,000 as a result of outstanding irrevocable standby letters of credit, which primarily relate to contingent payment obligations under the Company's insurance program. At March 31, 1996, the Company had $17,326,438 of cash and cash equivalents, which it views as its principal measure of liquidity. The Company has no specific material commitments for capital expenditures and believes that its cash from operations, existing balances and available 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. - 8 - PART II. Other Information Item 1. Legal Proceedings. None. Item 2. Changes in Securities. None. Item 3. Defaults under Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable. Item 5. Other Information. a) None. Item 6. Exhibits and Reports on Form 8-K. a) Exhibits - None. b) Reports on Form 8-K - None - 9 - 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. ------------------------------- May 14, 1996 /s/ Daniel P. McCartney - ------------------------------ --------------------------------------- Date DANIEL P. McCARTNEY, Director and Chief Executive Officer May 14, 1996 /s/ Thomas A. Cook - ------------------------------ --------------------------------------- Date THOMAS A. COOK, Director, President, and Chief Operating Officer May 14, 1996 /s/ James L. DiStefano - ------------------------------ --------------------------------------- Date JAMES L. DiSTEFANO, Chief Financial Officer and Treasurer May 14, 1996 /s/ Richard W. Hudson - ------------------------------ --------------------------------------- Date RICHARD W. HUDSON, Vice President- Finance, Secretary and Chief Accounting Officer - 10 - EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 MAR-31-1996 17,326,438 0 39,321,034 4,461,000 7,117,130 63,070,432 19,127,042 12,941,226 82,434,404 9,998,938 0 0 0 81,136 69,932,904 82,434,404 0 39,410,651 33,570,692 36,584,041 0 0 0 3,017,775 1,237,000 1,780,775 0 0 0 1,780,775 .22 .22
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