-----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, MUpvF2NifvauCmstCPQIXakEYLbVRelWxjSeQ0JAI38aT1v9UuAnSznHbBcNPFyF nXzoR7FzpRYSUOgOWA3oRQ== 0000950116-99-000856.txt : 19990430 0000950116-99-000856.hdr.sgml : 19990430 ACCESSION NUMBER: 0000950116-99-000856 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990429 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: SEC FILE NUMBER: 000-12015 FILM NUMBER: 99603859 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, 1999 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 April 26, 1999 is 11,057,957 Total of 13 Pages INDEX ----- PART I. FINANCIAL INFORMATION PAGE NO. --------------------- -------- Consolidated Balance Sheets as of 2 March 31, 1999 and December 31, 1998 Consolidated Statements of Income for the 3 Three Months Ended March 31, 1999 and 1998 Consolidated Statements of Cash Flows 4 for the Three Months ended March 31, 1999 and 1998 Notes To Consolidated Financial 5 - 6 Statements Management's Discussion and Analysis 7 - 10 of Financial Condition and Results Of Operations Part II. Other Information 11 ----------------- Signatures 12 -1- --- Consolidated Balance Sheets
March 31, December 31, 1999 1998 (Unaudited) (Audited) --------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $18,834,277 $17,201,408 Accounts and notes receivable, less allowance for doubtful accounts of $3,449,000 in 1999 and 1998 46,477,454 45,086,828 Iventories and supplies 8,079,812 7,803,437 Deferred income taxes 386,287 324,054 Prepaid expenses and other 2,238,032 2,318,285 ----------- ----------- Total current assets 76,015,862 72,714,012 PROPERTY AND EQUIPMENT: Laundry and linen equipment installations 9,107,289 8,985,945 Housekeeping equipment and office furniture 8,913,042 8,482,207 Autos and trucks 51,110 51,110 ----------- ----------- 18,071,441 17,519,262 Less accumulated depreciation 11,871,377 11,416,214 ----------- ----------- 6,200,064 6,103,048 COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED less accumulated amortization of $1,447,190 in 1999 and $1,420,284 in 1998 1,908,287 1,935,193 DEFERRED INCOME TAXES 2,334,141 2,131,535 OTHER NONCURRENT ASSETS l0,973,778 10,225,439 ----------- ----------- $97,432,132 $93,109,227 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,443,692 $ 4,366,015 Accured payroll, accrued and withheld payroll taxes 7,625,376 5,147,634 Other accrued epenses 195,359 319,333 Income taxes payable 1,783,374 283,980 Accrued insurance claims 749,351 588,040 ----------- ----------- Total current liabilities 11,797,152 10,705,002 ACCURED INSURANCE CLAIMS 2,818,985 2,212,151 COMMITMENTS AND CONTINGENCIES (Note 3) STOCKHOLDERS' EQUITY: (Note 2) Common stock $.01 par value: 22,500,000 shares authorized, 11,057,957 shares issued and outstanding in 1999 and 11,034,207 in 1998 110,580 110,342 Additional paid in capital 25,259,509 25,064,832 Retained earnings 57,445,906 55,016,900 ----------- ----------- Total stockholders' equity 82,815,995 80,192,074 ----------- ----------- $97,432,132 $93,109,227 =========== ===========
See accompanying notes. -2- --- Healthcare Services Group, Inc. Consolidated Income Statements (Unaudited)
For the Three Months Ended March 31, 1999 1998 ------------------------------------ Revenues $55,622,204 $47,767,127 Operating costs and expenses: Costs of services provided 47,403,301 40,596,844 Selling, general and administrative 4,300,820 3,949,148 Other Income: Interest Income 197,924 338,111 ----------- -------------- Income before income taxes 4,116,007 3,559,246 Income taxes 1,687,000 1,459,000 ----------- -------------- Net Income $ 2,429,007 $ 2,100,246 =========== ============== Earnings per share of common stock: (Note 2) Basic earnings per common share $ 0.22 $ 0.19 =========== ============== Diluted earnings per common share $ 0.21 $ 0.18 =========== ============== Basic weighted average number of common shares outstanding 11,048,746 11,134,953 =========== ============== Diluted weighted average number of common shares outstanding 11,380,004 11,455,056 =========== ==============
See accompanying notes -3- --- HEALTHCARE SERVICES GROUP, INC. Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, ------------------------------ 1999 1998 ------------- -------------- Cash flows from operating activities: Net Income $ 2,429,007 $ 2,100,246 Adjustmetits to reconcile net income to net cash provided by operating activities: Depreciation and amortization 481,919 496,852 Bad debt provision 750,000 550,000 Deferred income taxes (benefits) (264,839) (473,208) Tax benefit of stock cption transactions 29,938 115,624 Changes in operating assets and liabilities: Accounts and notes receivable (2,160,626) (3,103,380) Prepaid income taxes 366,712 Inventories and supplies (276,375) (176,132) Changes to long term notes receivable (515,665) 516,261 Accounts payable and other accrued expenses (3,046,297) (1,897,779) Accrued payroll, accrued and vdthheld payroll taxes 2,477,742 2,239,107 Accrued insurance claims 768,145 59,699 Income taxes payable 1,499,393 958,375 Prepaid expenses and other assets (152,421) (179,004) ----------- ----------- Net cash provided by operating activities 2,019,921 1,573,373 ----------- ----------- Cash flows from investing activities: Disposals of fixed assets 150 30,525 Additions to property and equipment (552,179) (271,131) ----------- ----------- Net cash used in investing activities (552,029) (240,606) ----------- ----------- Cash flows from financing activities: Proceeds from the exercise of stock options 164,977 557,086 ----------- ----------- Net cash provided by financing activities 164,977 557,086 ----------- ----------- Net increase in cash and cash equivalents 1,632,869 1,889,853 Cash and cash equivalents at beginning of the year 17,201,408 17,774,219 ----------- ----------- Cash and cash equivalents at end of the period $18,834,277 $19,664,072 =========== ===========
See accompanying notes. -4- --- 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. The balance sheet shown in this report as of December 31, 1998 has been derived from, and does not include, all the disclosures contained in the financial statements for the year ended December 31, 1998. 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, 1998. The results of operations for the three month period ended March 31, 1999 and 1998 are not necessarily indicative of the results that may be expected for the full fiscal year. Note 2 - Three-For-Two Stock Split On August 5, 1998, the Board of Directors declared a three-for-two stock split of the Company's Common Stock effected in the form of a 50% stock dividend payable on August 27, 1998 to Common Stock stockholders of record on August 17, 1998. An amount equal to the par value of the shares of Common Stock issued was transferred from additional paid in capital to common stock in the December 31, 1998 balance sheet. All stock options, share and per share disclosures have been adjusted to reflect the 3-for-2 stock split. Note 3 - 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, that expires on September 30, 1999. Amounts drawn under the line are payable upon demand. At both March 31, 1999 and December 31, 1998, there were no borrowings under the line. However, at such dates, the line was fully utilized as a result of contingent liabilities of the Company to the lender relating to letters of credit issued for the Company, which relate to payment obligations under the Company's insurance program. 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. -5- --- Note 4 - Segment Information The Company provides housekeeping, laundry, linen, facility maintenance and food 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 earned in one geographic area, the United States. The Company earned revenue in the following service business categories: For the three month period ended March 31, ------------------------------------------ 1999 1998 ----------- ----------- Housekeeping services $35,101,000 $31,498,000 Laundry & linen services 16,279,000 11,509,000 Food Services 2,455,000 3,030,000 Maintenance services & Other 1,787,000 1,730,000 ----------- ----------- $55,622,000 $47,767,000 =========== =========== Note 5 - 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 is effective for fiscal years beginning after June, 1999. SFAS No. 133 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. Adoption of SFAS No. 133 is not expected to have a material effect on the Company's consolidated financial statements. -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. All share and per share data has been adjusted for the three-for-two stock split declared by the Board of Directors on August 5, 1998. RESULTS OF OPERATIONS Revenues for the first quarter of 1999 increased by 16.4% over revenues in the corresponding 1998 quarter. The following factors contributed to the increase in 1999 first quarter revenues: service agreements with new clients increased revenues by 35.1%; new services to existing clients increased revenues 2.1%; and cancellations and other minor changes decreased revenues 20.8%. Cost of services provided as a percentage of revenues increased slightly to 85.2% for the first quarter of 1999 from 85.0% in the corresponding 1998 quarter. The primary factors affecting specific variations in the 1999 first quarter's cost of services provided as a percentage of revenue and their effects on the .2% increase are as follows: an increase of 2.3% in labor costs and payroll related taxes; offsetting this increase was a decrease of 1.0% in workers' compensation, general liability and other insurance, and a decrease of .8% in the cost of supplies consumed in performing services. Selling, general and administrative expenses as a percentage of revenue decreased in the first quarter of 1999 to 7.7% as compared to 8.3% in the corresponding 1998 three month period. The decrease is primarily attributable to the Company's ability to control certain selling, general and administrative expenses while also comparing them to a greater revenue base. Interest income decreased in the 1999 first quarter compared to the same 1998 period principally due to the Company's shift from investing excess funds in taxable securities to tax exempt securities, as well as lower average cash balances. Liquidity and Capital Resources At March 31, 1999 the Company had working capital and cash of $64,218,710 and $18,834,277 respectively, which represents increases of 4% and 10%, respectively, compared to December 31, 1998 working capital and cash of $62,009,010 and $17,201,408. The net cash provided by the Company's operating activities was $2,019,921 for the three month period ended March 31, 1999 as compared to net cash provided of $1,573,373 in the same 1998 period. The principle sources of -7- --- net cash flows from operating activities for the three month periods ended March 31, 1999 and 1998 were net income and the timing of payments for payroll, payroll related taxes and income taxes. The operating activity that used the largest amount of cash during the three month period ended March 31, 1999 was a $3,046,297 decrease in accounts payable and accrued expenses which resulted from the timing of payments to vendors. Additionally, operating activities' cash flows for the three month periods ended March 31, 1999 and 1998 were decreased by $2,676,291 and $2,587,119, respectively, as a result of net increases in accounts and notes receivable and long term notes receivable. The net increases in these amounts resulted primarily from the growth in the Company's revenues. The Company's principle use of cash in investing activities for the three month periods ended March 31, 1999 and 1998 was the purchase of property and 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. 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, 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 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 a bad debt provision of $750,000 in the three month period ended March 31, 1999. 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. The Company has a $13,000,000 bank line of credit on which it may draw to meet short-term liquidity requirements in excess of internally generated cash flow, that expires on September 30, 1999. Amounts drawn under the line are payable on demand. At March 31, 1999, there were no borrowings under the line. However, at such date, the line was fully utilized as result of contingent liabilities of the Company to the lender relating to letters of credit issued for the Company (see Note 3 of Notes to Financial Statements). At March 31, 1999, the Company had $18,834,277 of cash and cash equivalents, which it views as its principal measure of liquidity. -8- --- The level of capital expenditures 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 through the end of calendar year 1999, it estimates that it will incur capital expenditures of approximately $2,500,000 during this year in connection with housekeeping equipment and laundry and linen equipment installations in its clients' facilities, as well as hardware and software expenditures relating to the implementation of a new computerized financial reporting system. 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 purchase its outstanding common stock, the Company expended $3,946,000 to purchase 369,000 shares of its common stock during 1998 at an average price of $9.47 per common share. The Company remains authorized to purchase 469,950 shares pursuant to previous Board of Directors' action. 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 is effective for fiscal years beginning after June, 1999. SFAS No. 133 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. Adoption of SFAS No. 133 is not expected to have a material effect on the Company's consolidated financial statements. Other Matters - Year 2000 Compliance The Company has implemented new operating and application software which became fully operational during 1998. The Company has been notified by its software manufacturer, as well as the firm providing installation support, that the new applications have functionality for the year 2000. Therefore, the Company does not believe it will incur any material expense, beyond the new systems installation costs, with respect to year 2000 issues. Additionally, the Company utilizes an independent service bureau for the processing and payment of payroll and payroll related taxes. The Company has been notified by its payroll processing company that all of its systems will be fully compliant with year 2000 requirements. Many of the Company's clients participate in programs funded by federal and state governmental agencies which may be affected by year 2000 issues. Any failure by the Company, its outside processing company, its clients or the federal and state governmental agencies to effectively monitor, implement or improve the above referenced operational, financial, management and technical support systems could have a material adverse effect on the Company's business and consolidated results of operations. -9- --- Cautionary Statements Regarding Forward Looking Statements Certain matters discussed in this report 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 healthcare industry, primarily providers of long-term care; credit and collection risks associated with this industry and risk factors described in the Company's Form 10-K for the year ended December 31, 1998 in Part I thereof under "Government Regulation of Clients", "Competition" and "Service Agreements". Additionally, the Company's operating results would be adversely effected if unexpected increases in the 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 can be no assurance thereof, the Company believes that it will be able to recover increases in costs attributable to inflation by continuing to pass through cost increases to its clients. -10- ---- 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 Item 5. Other Information. a) None Item 6. Exhibits and Reports on Form 8-K. a) Exhibits - 27 - Financial data schedule b) Reports on Form 8-K - None -11- ---- 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. ---------------------------------------- April 26, 1999 /s/ Daniel P. McCartney - ------------------- ---------------------------------------- Date DANIEL P. McCARTNEY, Chief Executive Officer April 26, 1999 /s/ Thomas A. Cook - ------------------- ---------------------------------------- Date THOMAS A. COOK, President and Chief Operating Officer April 26, 1999 /s/ James L. DiStefano - ------------------- ---------------------------------------- Date JAMES L. DiSTEFANO, Chief Financial Officer and Treasurer April 26, 1999 /s/ Richard W. Hudson - ------------------- ---------------------------------------- Date RICHARD W. HUDSON, Vice President-Finance, Secretary and Chief Accounting Officer -12- ---- EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 MAR-31-1999 18,834,277 0 49,926,454 3,449,000 8,079,812 76,015,862 18,071,441 11,871,377 97,432,132 11,797,152 0 0 0 110,580 82,705,415 82,815,995 0 55,622,204 47,403,301 51,704,121 0 0 0 4,116,007 1,687,000 2,429,007 0 0 0 2,429,007 .22 .21
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