-----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, SMspRysAUGPqCGqzP8HPLq/pT24qtxCehh+3UpuFmRc5WY/EKFMwY4Y8/naIKxZX NRzmwudYG/k4g2nrvPU8HA== 0000950116-04-002199.txt : 20040728 0000950116-04-002199.hdr.sgml : 20040728 20040727101950 ACCESSION NUMBER: 0000950116-04-002199 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040727 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: 04932377 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 tenq.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 Commission File Number 0-120152 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-Suite 300, Bensalem, Pennsylvania 19020 ----------------------------------------------------------- (Address of principal executive office) (Zip code) Registrant's telephone number, including area code: 215-639-4274 ------------ 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 past 90 days. YES X NO ----- ----- Indicate by check mark whether the registrant is an Accelerated Filer (as defined in Rule 12b-2 of the Exchange Act) YES X NO ----- ----- Number of shares of common stock outstanding as of July 26, 2004 is 17,198,305 INDEX PART I. FINANCIAL INFORMATION PAGE NO. --------------------- -------- Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003 2 Consolidated Statements of Income for the Three Months Ended June 30, 2004 and 2003 3 Consolidated Statements of Income for the Six Months Ended June 30, 2004 and 2003 4 Consolidated Statements of Cash Flows for the Six Months ended June 30, 2004 and 2003 5 Consolidated Statement of Stockholders' Equity for the Six Months ended June 30, 2004 6 Notes To Consolidated Financial Statements 7 - 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations 13 - 21 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 Item 4. Controls and Procedures 22 PART II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings 23 Item 2. Changes in Securities, Use of Proceeds And Issuer Purchases of Equity Securities 23 Item 3. Defaults Upon Senior Securities 23 Item 4. Submission of Matters to a Vote of Security Holders 23 Item 5. Other Information 24 Item 6. Exhibits and Reports on Form 8-K 24 Signatures 25 -1- PART I- FINANCIAL INFORMATION --------------------- ITEM 1.- FINANCIAL STATEMENTS Consolidated Balance Sheets
(Unaudited) June 30, December 31, 2004 2003 ------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 74,726,696 $ 64,180,697 Accounts and notes receivable, less allowance for doubtful accounts of $2,784,000 in 2004 and $3,414,000 in 2003 54,388,779 58,145,440 Inventories and supplies 10,832,419 10,454,838 Deferred income taxes 1,811,603 2,016,798 Prepaid expenses and other 3,750,894 3,312,959 ------------- ------------- Total current assets 145,510,391 138,110,732 PROPERTY AND EQUIPMENT: Laundry and linen equipment installations 2,199,450 2,190,388 Housekeeping and office equipment 13,637,507 12,830,794 Autos and trucks 79,639 79,639 ------------- ------------- 15,916,596 15,100,821 Less accumulated depreciation 11,235,557 10,489,224 ------------- ------------- 4,681,039 4,611,597 NOTES RECEIVABLE- long term portion, net 5,733,094 7,904,195 DEFERRED COMPENSATION FUNDING 3,458,286 2,847,575 DEFERRED INCOME TAXES- long term portion 3,670,486 3,134,691 OTHER NONCURRENT ASSETS 1,719,342 1,719,342 ------------- ------------- $ 164,772,638 $ 158,328,132 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 7,128,272 $ 6,536,395 Accrued payroll, accrued and withheld payroll taxes 14,854,321 14,127,469 Other accrued expenses 2,493,999 874,523 Income taxes payable 396,191 178,862 Accrued insurance claims 3,202,278 2,978,974 ------------- ------------- Total current liabilities 28,075,061 24,696,223 ACCRUED INSURANCE CLAIMS- long term portion 9,606,833 8,936,921 DEFERRED COMPENSATION LIABILITY 4,244,521 3,496,810 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $.01 par value: 45,000,000 shares authorized, 18,154,000 shares issued in 2004 and 17,938,613 in 2003 181,540 179,386 Additional paid in capital 35,641,165 33,515,234 Retained earnings 96,042,074 91,178,370 Common stock in treasury, at cost, 963,565 shares in 2004 and 652,238 in 2003 (9,018,556) (3,674,812) ------------- ------------- Total stockholders' equity 122,846,223 121,198,178 ------------- ------------- $ 164,772,638 $ 158,328,132 ============= =============
See accompanying notes. -2- CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2004 2003 -------------- ------------- Revenues $ 110,489,485 $ 92,805,714 Operating costs and expenses: Costs of services provided 97,340,454 81,636,195 Selling, general and administrative 7,760,779 7,075,887 Other Income: Investment and interest income 306,057 190,878 ------------- ------------ Income before income taxes 5,694,309 4,284,510 Income taxes 2,164,000 1,624,000 ------------- ------------ Net Income $ 3,530,309 $ 2,660,510 ============= ============ Basic earnings per common share $ 0.20 $ 0.16 ============= ============ Diluted earnings per common share $ 0.19 $ 0.15 ============= ============ Cash dividends per common share $ 0.06 $ -- ============= ============ Basic weighted average number of common shares outstanding 17,483,148 16,956,909 ============= ============ Diluted weighted average number of common shares outstanding 18,467,080 17,577,611 ============= ============
See accompanying notes. -3- CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2004 2003 ---------------- -------------- Revenues $ 217,111,305 $ 182,337,066 Operating costs and expenses: Costs of services provided 190,788,869 160,327,050 Selling, general and administrative 15,775,680 13,872,674 Other Income: Investment and interest income 499,747 390,081 ------------- ------------ Income before income taxes 11,046,503 8,527,423 Income taxes 4,198,000 3,321,000 ------------- ------------ Net Income $ 6,848,503 $ 5,206,423 ============= ============= Basic earnings per common share $ 0.39 $ 0.31 ============= ============= Diluted earnings per common share $ 0.37 $ 0.30 ============= ============= Cash dividends per common share $ 0.11 $ -- ============= ============= Basic weighted average number of common shares outstanding 17,483,836 16,912,637 ============= ============= Diluted weighted average number of common shares outstanding 18,452,458 17,544,844 ============= =============
See accompanying notes. -4- CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, ---------------------------------------------- 2004 2003 --------------------- --------------------- Cash flows from operating activities: Net Income $ 6,848,503 $ 5,206,423 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 975,785 1,016,865 Bad debt provision 1,750,000 2,950,000 Deferred income taxes (benefit) (330,600) 382,900 Tax benefit of stock option transactions 642,912 326,485 Unrealized (gain) loss on deferred compensation fund investments (83,382) 30,712 Changes in operating assets and liabilities: Accounts and notes receivable 2,006,661 (2,308,548) Prepaid income taxes -- 883,282 Inventories and supplies (377,581) (1,048,250) Notes receivable- long term 2,171,100 532,560 Deferred compensation funding (527,329) (485,767) Accounts payable and other accrued expenses 2,211,353 682,539 Accrued payroll, accrued and withheld payroll taxes 1,093,030 482,112 Deferred compensation liability 747,711 565,637 Income taxes payable 217,329 528,500 Accrued insurance claims 893,216 1,541,517 Prepaid expenses and other assets (437,935) (1,052,678) ------------- ------------- Net cash provided by operating activities 17,800,773 10,234,289 ------------- ------------- Cash flows from investing activities: Disposals of fixed assets 118,872 112,929 Additions to property and equipment (1,164,099) (1,114,138) ------------- ------------- Net cash used in investing activities (1,045,227) (1,001,209) ------------- ------------- Cash flows from financing activities: Dividends paid (1,984,799) -- Purchase of treasury stock (5,617,004) (163,448) Reissue of treasury stock pursuant to Dividend Reinvestment Plan 3,684 -- Proceeds from the exercise of stock options 1,388,572 996,863 ------------- ------------- Net cash provided by (used in) financing activities (6,209,547) 833,415 ------------- ------------- Net increase in cash and cash equivalents 10,545,999 10,066,495 Cash and cash equivalents at beginning of the period 64,180,697 48,320,098 ------------- ------------- Cash and cash equivalents at end of the period $ 74,726,696 $ 58,386,593 ============= ============= Supplementary Cash Flow Information: Issuance of 48,224 shares of Common Stock in 2004 and 36,212 shares of Common Stock in 2003 pursuant to Employee Stock Plans $ 366,177 $ 205,199 ============= =============
See accompanying notes. Consolidated Statements of Stockholders' Equity (Unaudited)
For the Six Months Ended June 30, 2004 -------------------------------------- Additional Total Common Stock Paid-in Retained Treasury Stockholders' Shares Amount Capital Earnings Stock Equity ------ ------ ---------- -------- -------- ------------- Balance, December 31, 2003 17,938,613 $179,386 $33,515,234 $91,178,370 ($3,674,812) $121,198,178 Net income 6,848,503 6,848,503 Exercise of stock options 215,387 2,154 1,386,418 1,388,572 Tax benefit arising from stock option transactions 642,912 642,912 Purchase of common stock for treasury (359,798 shares) (5,617,004) (5,617,004) Shares issued pursuant to Employee Stock Plans (48,224 shares) 94,478 271,699 366,177 Cash dividends paid - $.11 per common share (1,984,799) (1,984,799) Shares issued pursuant to Dividend Reinvestment Plan (247 shares) 2,123 1,561 3,684 ---------- -------- ----------- ----------- ----------- ------------ Balance, June 30, 2004 18,154,000 $181,540 $35,641,165 $96,042,074 ($9,018,556) $122,846,223 ========== ======== =========== =========== =========== ============
See accompanying notes. -6- 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 our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The balance sheet shown in this report as of December 31, 2003 has been derived from, and does not include, all the disclosures contained in the financial statements for the year ended December 31, 2003. The financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003. The results of operations for the three and six month periods ended June 30, 2004 and 2003 are not necessarily indicative of the results that may be expected for the full fiscal year. NOTE 2 - THREE-FOR-TWO STOCK SPLIT On February 12, 2004, our Board of Directors approved a three-for-two stock split in the form of a 50% common stock dividend which was paid on March 1, 2004 to shareholders of record on February 23, 2004. All share and earnings per common share information for all periods presented have been adjusted to reflect the three-for-two stock split. NOTE 3 - OTHER CONTINGENCIES We have an $18,000,000 bank line of credit on which we may draw to meet short-term liquidity requirements in excess of internally generated cash flow. The credit facility contains several financial covenants that we are required to meet. We are in compliance with all financial covenants at both June 30, 2004 and December 31, 2003 and expect to continue to remain in compliance. This facility expires on January 31, 2005. We believe the line of credit will be renewed at that time. Amounts drawn under the line of credit are payable upon demand. At both June 30, 2004 and December 31, 2003, there were no borrowings under the line of credit. However, at such dates, we had outstanding $15,925,000 and $14,500,000, respectively of irrevocable standby letter of credit which relate to payment obligations under our insurance program. As a result of the letter of credit issued, the amount available under the line of credit was reduced by $15,925,000 and $14,500,000 at June 30, 2004 and December 31, 2003, respectively. We are also involved in miscellaneous claims and litigation arising in the ordinary course of business. We believe that these matters, taken individually or in the aggregate, will not have a material adverse affect on our financial position or results of operations. The Balance Budget Act of 1997 changed Medicare policy in a number of ways, most notably the phasing in, effective July 1, 1998, of a Medicare Prospective Payment System for skilled nursing facilities which significantly changed the manner and the amounts of reimbursement they receive. Many of the -7- our clients' revenues are highly contingent on Medicare and Medicaid reimbursement funding rates. Therefore, they have been and continue to be adversely affected by changes in applicable laws and regulations, as well as other trends in the long-term care industry. This has resulted in certain of our clients filing for bankruptcy protection. Others may follow. These factors, in addition to delays in payments from clients, have resulted in and could continue to result in significant additional bad debts in the near future. NOTE 4 - SEGMENT INFORMATION We manage and evaluate our operations in two reportable operating segments. The two operating segments are Housekeeping services (housekeeping, laundry, linen and other services), and Food services. Although both segments serve the same client base and share many operational similarities they are managed separately due to distinct differences in the type of service provided, as well as the specialized expertise required of the professional management personnel responsible for delivering the respective segment's services. We consider the various services provided within the Housekeeping services segment to be one reportable operating segment since such services are rendered pursuant to a single service agreement and the delivery of such services is managed by the same management personnel. Differences between the reportable segments' operating results and other disclosed data, and our consolidated financial statements relate primarily to corporate level transactions, as well as transactions between reportable operating segments and our warehousing and distribution subsidiary. This subsidiary's transactions with reportable segments are made on a basis intended to reflect the fair market value of the goods transferred. Additionally, included in the differences between the reportable segments' operating results and other disclosed data are amounts from our investment holding company subsidiary. This subsidiary does not transact any business with the reportable segments. Segment amounts disclosed are prior to any elimination entries made in consolidation. The Housekeeping services segment provides services in Canada, although essentially all of its revenues and net income, 99% in both categories, are earned in one geographic area, the United States. Food services are provided solely in the United States.
Housekeeping Food Corporate and services services eliminations Total ------------ -------- -------------- ------ Quarter Ended June 30, 2004 - --------------------------- Revenues $ 88,773,502 $ 21,794,596 $( 78,613) $110,489,485 Income before income taxes $ 7,546,850 $ 779,251 $( 2,631,792)(1) $ 5,694,309 Quarter Ended June 30, 2003 - --------------------------- Revenues $ 78,363,077 $ 14,441,576 $ 1,061 $ 92,805,714 Income before income taxes $ 6,245,398 $ 559,413 $( 3,520,301)(1) $ 4,284,510
(1) represents primarily corporate office cost and related overhead, as well as certain consolidated subsidiaries' operating expenses that are not allocated to the service segments. -8-
Housekeeping Food Corporate and services services eliminations Total ------------ -------- -------------- ------ Six Months Ended June 30, 2004 - ------------------------------ Revenues $ 176,565,291 $ 40,649,144 $( 103,130) $217,111,305 Income before income taxes $ 15,346,398 $ 1,276,322 $( 5,576,217)(1) $ 11,046,503 Six Months Ended June 30, 2003 - ------------------------------ Revenues $ 153,942,154 $ 27,862,484 $ 532,428 $182,337,066 Income before income taxes $ 12,331,048 $ 1,031,128 $( 4,834,753)(1) $ 8,527,423
(1) represents primarily corporate office cost and related overhead, as well as certain consolidated subsidiaries' operating expenses that are not allocated to the service segments. We earned revenue in the following service categories: For the quarter ended June 30, ------------------------------ 2004 2003 ---- ---- Housekeeping services $ 61,961,274 $55,319,200 Laundry and linen services 26,313,529 22,736,888 Food services 21,690,477 14,361,554 Maintenance services and Other 524,205 388,072 ------------ ----------- $110,489,485 $92,805,714 ============ =========== For the quarter ended June 30, ------------------------------ 2004 2003 ---- ---- Housekeeping services $123,612,468 $109,124,971 Laundry and linen services 52,386,782 44,565,528 Food services 40,110,356 27,908,515 Maintenance services and Other 1,001,699 738,052 ------------ ------------ $217,111,305 $182,337,066 ============ ============ We have one client, a nursing home chain, which in the six month periods ended June 30, 2004 and June 30, 2003 accounted for approximately 21% and 23%, respectively of consolidated revenues. In the six month period ended June 30, 2004, we derived approximately 19% and 27%, respectively of the Housekeeping services and Food services segments' revenues from such client. Although we expect to continue our relationship with this client, the loss of such client would adversely affect the operations of our two operating segments. -9- NOTE 5 - EARNINGS PER COMMON SHARE A reconciliation of the numerator and denominator of basic and diluted earnings per common share is as follows:
Quarter Ended June 30, 2004 --------------------------- Income Shares Per-share (Numerator) (Denominator) Amount ----------- ------------- --------- Net income $3,530,309 ========== Basic earnings per common share $3,530,309 17,483,148 $ .20 Effect of dilutive securities: Options -- 983,932 (.01) ---------- ------------- --------- Diluted earnings per Common share $3,530,309 18,467,080 $ .19 ========== ============= ========= Quarter Ended June 30, 2003 --------------------------- Income Shares Per-share (Numerator) (Denominator) Amount ----------- ------------- --------- Net income $2,660,510 ========== Basic earnings per common share $2,660,510 16,956,909 $ .16 Effect of dilutive securities: Options -- 620,702 (.01) ---------- ------------- --------- Diluted earnings per Common share $2,660,510 17,577,611 $ .15 ========== ============= ========= Six Months Ended June 30, 2004 ------------------------------ Income Shares Per-share (Numerator) (Denominator) Amount ----------- ------------- --------- Net income $6,848,503 ========== Basic earnings per common share $6,848,503 17,483,836 $ .39 Effect of dilutive securities: Options -- 968,622 (.02) ---------- ------------- --------- Diluted earnings per Common share $6,848,503 18,452,458 $ .37 ========== ============= =========
-10-
Six Months Ended June 30, 2003 ------------------------------ Income Shares Per-share (Numerator) (Denominator) Amount ----------- ------------- --------- Net income $5,206,423 ========== Basic earnings per common share $5,206,423 16,912,637 $ .31 Effect of dilutive securities: Options 632,207 (.01) ---------- ------------- --------- Diluted earnings per Common share $5,206,423 17,544,844 $ .30 ========== ============= =========
No outstanding options were excluded for any of the reported periods ended June 30, 2004 or June 30, 2003, as none have an exercise price in excess of the average market value of our Common Stock at such dates. NOTE 6 - STOCK BASED COMPENSATION At both June 30, 2004 and December 31, 2003, we had and continue to have stock based compensation plans. As permitted by the Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation", we account for stock-based compensation arrangements in accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to Employees". Compensation expense for stock options issued to employees is based on the difference on the date of grant, between the fair value of our common stock and the exercise price of the option. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock at the date of grant. We account for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction With Selling, or in Conjunction With Selling Goods or Services". All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. There were no such equity instruments issued during the six month periods ended June 30, 2004 or June 30, 2003. -11- The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123 to stock based compensation:
Quarter Ended June 30, ---------------------- 2004 2003 ---- ---- Net Income As reported $3,530,309 $2,660,510 Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net of related tax effects ( 512,000) ( 553,000) ---------- ---------- Pro forma net income $3,018,309 $2,107,510 ========== ========== Basic Earnings Per Common Share As reported $ .20 $ .16 Pro forma $ .17 $ .12 Diluted Earnings Per Common Share As reported $ .19 $ .15 Pro forma $ .16 $ .12 Six Months Ended June 30, ------------------------- 2004 2003 ---- ---- Net Income As reported $6,848,503 $5,206,423 Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1,279,000) (1,383,000) ---------- ---------- Pro forma net income $5,569,503 $3,823,423 ========== ========== Basic Earnings Per Common Share As reported $ .39 $ .31 Pro forma $ .32 $ .23 Diluted Earnings Per Common Share As reported $ .37 $ .30 Pro forma $ .30 $ .22
-12- ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statements Regarding Forward Looking Statements This quarterly report on Form 10-Q includes forward-looking statements that are subject to risks and uncertainties that could cause actual results or objectives to differ materially from those projected. 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 risks and uncertainties include, but are not limited to, risks arising from providing our services exclusively to the health care industry, primarily providers of long-term care; credit and collection risks associated with this industry; one client accounting for approximately 21% of revenues in 2004; our claims experience related to workers' compensation and general liability insurance; the effects of changes in laws and regulations governing the industry and risk factors described in our Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2003 in Part I thereof under "Government Regulation of Clients", "Competition" and "Service Agreements/Collections". Many of our clients' revenues are highly contingent on Medicare and Medicaid reimbursement funding rates, which have been and continue to be adversely affected by the change in Medicare payments under the 1997 enactment of the Medicare Prospective Payment System. That change, and lack of substantive reimbursement funding rate reform legislation, as well as other trends in the long-term care industry have resulted in certain of our clients filing for bankruptcy protection. Others may follow. Any decisions by the government to discontinue or adversely modify legislation related to reimbursement funding rates will have a material adverse affect on our clients. These factors, in addition to delays in payments from clients 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 our services could not be passed on to our clients. In addition, we believe that to improve our financial performance we 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 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 successfully executing projected growth strategies. -13- RESULTS OF OPERATIONS Revenues for the quarter ended June 30, 2004 increased 19.1% or $17,683,771 to $110,489,485 as compared to $92,805,714 in the corresponding 2003 quarter. The Housekeeping services segment's 2004 second quarter revenues increased to $88,773,502, or 13.3% as compared to the second quarter of 2003 segment revenues of $78,363,077. This growth is primarily a result of a net increase in service agreements entered into with new clients. The Food service segment's 2004 second quarter revenues increased approximately 51.0% to $21,794,596 as compared to the second quarter of 2003 revenues of $14,441,576. This growth is a result of providing this service to additional existing Housekeeping services segment's clients. Revenues for the six month period ended June 30, 2004 increased 19.1% or $34,774,239 to $217,111,305 as compared to $182,337,066 in the corresponding 2003 period. The Housekeeping services segment's 2004 six months period revenues increased to $176,565,291, or 14.7% from the comparable 2003 period's revenues of $153,942,154. This growth is primarily a result of a net increase in service agreements entered into with new clients. The Food services segment's 2004 six months period revenues increased approximately 45.9% to $40,649,144 from the comparable 2003 period's revenues of $27,862,484. This growth is a result of providing this service to additional existing Housekeeping service's segment clients. Although there can be no assurance thereof, we believe that during the remainder of 2004 the revenue growth from both Housekeeping services and Food services, as a percentage of total revenues, will approximate their respective 2004 six month percentages. The following table sets forth, for the periods indicated, the percentage which certain items bear to revenues:
Relation to Total Revenues For the Quarter Ended June 30, For the Six Months Ended June 30, ------------------------------ --------------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- Revenues 100.0% 100.0% 100.0% 100.0% Operating costs and expenses: Costs of services provided 88.1 88.0 87.9 87.9 Selling, general and administration 7.0 7.6 7.3 7.6 Investment and interest income .3 .2 .3 .2 ----- ----- ----- ----- Income before income taxes 5.2 4.6 5.1 4.7 Income taxes 2.0 1.7 1.9 1.8 ----- ----- ----- ----- Net income 3.2% 2.9% 3.2% 2.9% ===== ===== ===== =====
-14- Major client We have one client, a nursing home chain, which in the six months periods ended June 30, 2004 and June 30, 2003 accounted for approximately 21% and 23%, respectively of consolidated revenues. In the six months ended June 30, 2004 we derived approximately 19% and 27%, respectively, of the Housekeeping services and Food services segments' revenues from such client. Although we expect to continue our relationship with this client, the loss of such client would adversely affect the operations of our two operating segments. 2004 Second Quarter Compared with 2003 Second Quarter Cost of services provided as a percentage of revenues remained essentially unchanged at 88.1% for the second quarter of 2004 compared to 88.0% in the corresponding 2003 quarter. The primary factors affecting this slight increase are as follows: an increase of 1.6% in the cost of supplies consumed in providing services which was primarily attributable to increased costs associated with the Food services segment's growth. Offsetting this increase were decreases of .9% in bad debt provision, .6% in workers compensation insurance, and a .5% decrease in labor costs which is primarily a result of efficiencies achieved in managing the Housekeeping services segment's labor. Although there can be no assurance thereof, we believe that the cost of services provided as a percentage of revenues for the remainder of 2004 will approximate the same percentage as recognized in the first six months of 2004. Selling, general and administrative expenses as a percentage of revenue decreased to 7.0% in the 2004 second quarter compared to 7.6% in the 2003 second quarter. This is primarily attributable to our ability to control these expenses and comparing these expenses to a greater revenue base in the current quarter. Our effective income tax rate remained unchanged at 38% comparing the 2004 second quarter to the 2003 second quarter. Our effective income tax rate differs from the federal income tax statutory rate principally because of the effect of state and local income taxes. As a result of the matters discussed above, net income for the three month period ended June 30, 2004 increased to 3.2% as a percentage of revenue, compared to 2.9% in the 2003 comparable three month period. 2004 Six Month Period Compared with 2003 Six Month Period Cost of services provided as percentage of revenues remain unchanged at 87.9% in the 2004 six month period compared with the 2003 six month period. Even though the percentage of cost of services remained unchanged, certain components of the cost of services did change. The primary components that changed when comparing the two six month periods were an increase of 1.6% in the cost of supplies consumed in providing services, which was primarily attributable to increased costs associated with the Food services segment's growth, which was offset by decreases of .8% and .6% in bad debt provision and labor costs, respectively. The decrease in labor costs resulted primarily from efficiencies achieved in managing the Housekeeping services segment's labor. -15- Selling, general and administrative expenses as a percentage of revenue decreased in the six month period ended June 30, 2004 to 7.3% from 7.6% in the comparable 2003 period. This is primarily attributable to our ability to control these expenses and comparing these expenses to a greater revenue base in the current six month period. Our 2004 second quarter effective income tax rate decreased slightly to 38.0% from 39.0% in the 2003 second quarter. The decrease primarily results from a reduction in our state and local tax liability. The effective income tax rate differs from the federal income tax statutory rate principally because of the effect of state and local income taxes. As a result of the matters discussed above, net income for the six month period ended June 30, 2004 increased to 3.2% as a percentage of revenue compared to 2.9% in the comparable 2003 six month period. CRITICAL ACCOUNTING POLICIES We consider the two policies discussed below to be critical to an understanding of our financial statements because their application places the most significant demands on our judgment. Therefore, it should be noted that financial reporting results rely on estimating the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For these policies, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. The two policies discussed are not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for our judgment in their application. There are also areas in which our judgment in selecting another available alternative would not produce a materially different result. See our audited consolidated financial statements and notes thereto which are included in our Annual Report for the year ended December 31, 2003 which contain accounting policies and other disclosures required by generally accepted accounting principles. Allowance for Doubtful Accounts The allowance for doubtful accounts is established as losses are estimated to have occurred through a provision for bad debts charged to earnings. The allowance for doubtful accounts is evaluated based on our periodic review of accounts and notes receivable and is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. We have had varying collection experience with respect to our accounts and notes receivable. When contractual terms are not met, we generally encounter difficulty in collecting amounts due from certain of our clients. Therefore, we have sometimes been required to extend the period of payment for certain clients beyond contractual terms. These clients include those in bankruptcy, those who have terminated service agreements and slow payers experiencing financial difficulties. In making credit evaluations, in addition to analyzing and anticipating, where possible, the specific cases described above, we consider the general collection risks associated with trends in the long-term care industry. We also establish credit limits, perform ongoing credit evaluation, and monitor accounts to minimize the risk of loss. -16- In accordance with the risk of extending credit, we regularly evaluate our accounts and notes receivable for impairment or loss of value and when appropriate will provide in our Allowance for Doubtful Accounts for such receivables. We generally follow a policy of reserving for receivables from clients in bankruptcy, as well as clients with which we are in litigation for collection. The reserve is based upon our estimates of ultimate collectibility. Correspondingly, once our recovery of a receivable is determined through either litigation, bankruptcy proceedings or negotiation at less than the recorded amount on our balance sheet, we will charge-off the applicable amount to the Allowance for Doubtful Accounts. Notwithstanding our efforts to minimize credit risk exposure, our clients could be adversely affected if future industry trends, as more fully discussed under Liquidity and Capital Resources below, and as further described in our Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2003 in Part I thereof under "Government Regulation of Clients" and "Service Agreements/Collections", change in such a manner as to negatively impact the cash flows of our clients. If our clients experience a negative impact in their cash flows, it would have a material adverse affect on our results of operations and financial condition. Accrued Insurance Claims We have a Paid Loss Retrospective Insurance Plan for general liability and workers' compensation insurance. Under these plans, pre-determined loss limits are arranged with an insurance company to limit both our per occurrence cash outlay and annual insurance plan cost. For workers' compensation, we record a reserve based on the present value of future payments, including an estimate of claims incurred but not reported, that are developed as a result of a review of our historical data, open claims and actuarial analysis done by an independent insurance specialist. The present value of the payout is determined by applying an 8% discount factor over the estimated remaining pay-out period. For general liability, we record a reserve for the estimated amounts to be paid for known claims. We regularly evaluate our claims' pay-out experience, present value factor and other factors related to the nature of specific claims in arriving at the basis for our accrued insurance claims' estimate. Our evaluations are based primarily on current information derived from reviewing our claims' experience and industry trends. In the event that our claims' experience and/or industry trends result in an unfavorable change, it would have an adverse affect on our results of operations and financial condition. -17- LIQUIDITY AND CAPITAL RESOURCES At June 30, 2004 we had cash and cash equivalents of $74,726,696 and working capital of $117,435,330 compared to December 31, 2003 cash and cash equivalents, and working capital of $64,180,697 and $113,414,509, respectively. We view our cash and cash equivalents of $74,726,696 at June 30, 2004 as our principal measure of liquidity. Our current ratio at June 30, 2004 decreased slightly to 5.2 to 1 from 5.6 to 1 at December 31, 2003. The net cash provided by our operating activities was $17,800,773 for the six month period ended June 30, 2004. The principal sources of net cash flows from operating activities for the six month period ended June 30, 2004 were net income, including non-cash charges to operations for depreciation and bad debt provisions. Additionally, operating activities' cash flows were increased by the timing of payments for accounts payable and other accrued expenses, as well as, a $4,177,761 net decrease in accounts and notes receivable and long term notes receivable due primarily to improved collections experience. The operating activity that used the largest amount of cash during the six month period ended June 30, 2004 was an increase of $527,329 in the funding of our deferred compensation plan. Our principal use of cash in investing activities in the six month period ended June 30, 2004 was the purchase of housekeeping equipment and computer software and equipment. On February 12, 2004, our Board of Directors approved a three-for-two stock split in the form of a 50% common stock dividend which was paid on March 1, 2004 to shareholders of record on February 23, 2004. 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 March 31, 2004 balance sheet. All share and earnings per common share information presented in this report have been adjusted to reflect the three-for-two stock split. The effect of this action was to increase shares outstanding at March 1, 2004 by 6,016,799 to 17,646,172. During the six month period ended June 30, 2004, we have expended $5,617,004 for open market purchases of 359,798 shares of our common stock. We remain authorized to purchase 524,452 shares pursuant to previous Board of Directors' actions. During the six month period ended June 30, 2004, we issued 215,387 shares of common stock and received proceeds of $1,388,572 from the exercise of stock options by employees and directors. We paid regular quarterly dividends since the second quarter of 2003. In the six month period ended June 30, 2004 we paid regular quarterly dividends totaling $1,984,799. Such regular quarterly dividends paid were $.05 and $.06 per common share on February 14, 2004 and May 14, 2004, respectively. Such payments were made to shareholders of record as of January 31, 2004 and April 30, 2004, respectively. Additionally, on July 20, 2004, our Board of Directors declared a regular cash dividend of $.07 per common share to be paid on August 13, 2004 to shareholders of record as of July 30, 2004. -18- Accounts and Notes Receivable We expend considerable effort to collect the amounts due for our services on the terms agreed upon with our clients. Many of our clients participate in programs funded by federal and state governmental agencies which historically have encountered delays in making payments to its program participants. The Balance Budget Act of 1997 changed Medicare policy in a number of ways, most notably the phasing in, effective July 1, 1998 of a Medicare Prospective Payment System for skilled nursing facilities which significantly changed the reimbursement procedures and the amounts of reimbursement they receive. Many of our clients' revenues are highly contingent on Medicare and Medicaid reimbursement funding rates. Therefore, they have been and continue to be adversely affected by changes in applicable laws and regulations, as well as other trends in the long-term care industry. This has resulted in certain of our clients filing for bankruptcy protection. Others may follow. These factors, in addition to delays in payments from clients have resulted in and could continue to result in significant additional bad debts in the near future. Whenever possible, when a client falls behind in making agreed-upon payments, we convert 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 and therefore may ultimately enhance our ability to collect the amounts due. At June 30, 2004 and December 31, 2003, we had approximately $10,985,000 and $12,638,000, net of reserves, respectively of such notes outstanding. Additionally, we consider restructuring service agreements from full service to management-only service in the case of certain clients experiencing financial difficulties. We believe that the restructuring provides us with a means to maintain a relationship with the client while at the same time minimizing collection exposure. -19- We have had varying collection experience with respect to our accounts and notes receivable. When contractual terms are not met, we generally encounter difficulty in collecting amounts due from certain of our clients. Therefore, we have sometimes been required to extend the period of payment for certain clients beyond contractual terms. These clients include those in bankruptcy, those who 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, we have recorded bad debt provisions (in an Allowance for Doubtful Accounts) of $1,750,000 and $2,950,000 in the six month periods ended June 30, 2004 and June 30, 2003, respectively. These provisions represent approximately .8% and 1.6%, as a percentage of revenue for such respective periods. In making credit evaluations, in addition to analyzing and anticipating, where possible, the specific cases described above, we consider the general collection risks associated with trends in the long-term care industry. We also establish credit limits, perform ongoing credit evaluation and monitor accounts to minimize the risk of loss. Notwithstanding our efforts to minimize credit risk exposure, our clients could be adversely affected if future industry trends change in such a manner as to negatively impact their cash flows. If our clients experience such significant impact in their cash flows, it would have a material adverse effect on our results of operations and financial condition. Insurance Programs We have a Paid Loss Retrospective Insurance Plan for general liability and workers' compensation insurance. Under these plans, pre-determined loss limits are arranged with an insurance company to limit both our per occurrence cash outlay and annual insurance plan cost. For workers' compensation, we record a reserve based on the present value of future payments, including an estimate of claims incurred but not reported, that are developed as a result of a review of our historical data, open claims and actuarial analysis done by an independent insurance specialist. The present value of the payout is determined by applying an 8% discount factor over the estimated remaining pay-out period. For general liability, we record a reserve for the estimated amounts to be paid for known claims. We regularly evaluate our claims' pay-out experience, present value factor and other factors related to the nature of specific claims in arriving at the basis for our accrued insurance claims' estimate. Our evaluation is based primarily on current information derived from reviewing our claims' experience and industry trends. In the event that our claims' experience and/or industry trends result in an unfavorable change, it would have an adverse effect on our results of operations and financial condition. -20- Line of Credit We have an $18,000,000 bank line of credit on which we may draw to meet short-term liquidity requirements in excess of internally generated cash flow. The line of credit contains several financial covenants that we are required to meet. We are in compliance with all financial covenants at both June 30, 2004 and December 31, 2003 and expect to continue to remain in compliance. This line of credit expires on January 31, 2005. We believe the line of credit will be renewed at that time. Amounts drawn under the line of credit are payable on demand. At June 30, 2004 there were no borrowings under the line of credit. However, at such date, we had outstanding $15,925,000 of an irrevocable standby letter of credit, which relate to payment obligations under our insurance program. As a result of the letter of credit issued, the amount available under the line of credit was reduced by $15,925,000 at June 30, 2004. Capital Expenditures Our level of capital expenditures is generally dependent on the number of new clients obtained. Such capital expenditures primarily consist of housekeeping equipment, laundry and linen equipment installations, and computer hardware and software. Although we have no specific material commitments for capital expenditures through the end of calendar year 2004, we estimate that we will incur capital expenditures of approximately $2,500,000 during all of 2004 in connection with housekeeping equipment and laundry and linen equipment installations in our clients' facilities, as well as expenditures relating to internal data processing hardware and software requirements. We believe that cash from operations, existing cash balances and available credit line will be adequate for the foreseeable future to satisfy the needs of our operations and to fund our continued growth. However, should cash flows from current operations not be sufficient, we would utilize our existing working capital and if necessary seek to obtain necessary working capital from such sources as long-term debt or equity financing. Material Off-Balance Sheet Arrangements We have not entered into any material off-balance sheet arrangements. Effects of Inflation We believe in most instances we will be able to recover increases in costs attributable to inflation by passing through such cost increases to our clients. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Our exposure to market risk is not significant. -21- ITEM 4. CONTROLS AND PROCEDURES Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports under the Securities Exchange Act of 1934, such as this Form 10-Q, is reported in accordance with the Securities and Exchange Commission's (the "SEC") rules. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Securities Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to insure that information required to be disclosed in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and regulations. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Certifications of the Chief Executive Officer and Chief Financial Officer regarding, among other items, disclosure controls and procedures are included as exhibits to this Form 10-Q. -22- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
2004 (a) (b) (c) (d) Period Total Average Total Maximum Number Price Number of Shares Number of Shares Paid per Purchased as Part Shares that Purchased Share of Publicly Announced May Yet Be Plans or Programs Purchased Under the Plans Or Programs --------- -------- --------------------- --------------- April 1 to April 30 9,960 $15.4710 9,960 874,290 May 1 to May 31 141,814 $15.6273 141,814 732,476 June 1 to June 30 208,024 $15.6076 208,024 524,452
On July 18, 2001 our Board of Directors authorized a plan to purchase up to 900,000 shares (adjusted for the March 1, 2004 3-for-2 stock split) of its common stock on the open market. Such repurchase plan does not have an expiration date. ITEM 3. DEFAULTS UNDER SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Our Annual Meeting of Shareholders was held on May 25, 2004. The results are as follows: (1) All of management's nominees for directors were elected as follows: Shares Voted Withheld "FOR" 11,002,819 5,409,228 (2) Proposal to approve and ratify selection of Grant Thornton LLP as the independent certified public accountants of the Company for its current fiscal year ending December 31, 2004 as approved as follows. Shares Voted Shares Voted Shares "FOR" "AGAINST" "ABSTAINING" 11,321,801 84,406 5,839 -23- ITEM 5. OTHER INFORMATION a) None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a) Exhibits - 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 b) Reports on Form 8-K - None. -24- 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. July 26, 2004 /s/ Daniel P. McCartney ------------------------------------ Date DANIEL P. McCARTNEY, Chief Executive Officer July 26, 2004 /s/ Thomas A. Cook ------------------------------------ Date THOMAS A. COOK, President and Chief Operating Officer July 26, 2004 /s/ James L. DiStefano ------------------------------------ Date JAMES L. DiSTEFANO, Chief Financial Officer and Treasurer July 26, 2004 /s/ Richard W. Hudson ------------------------------------ Date RICHARD W. HUDSON, Vice President-Finance, Secretary and Chief Accounting Officer -25- EX-31 2 ex31-1.txt EXHIBIT 31.1 CERTIFICATIONS - -------------- Exhibit 31.1 - ------------ I, Daniel P. McCartney, Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Healthcare Services Group, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation and; c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's Board of Directors. a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting Date: July 26, 2004 /s/ Daniel P. McCartney ------------------------- Daniel P. McCartney Chief Executive Officer EX-31 3 ex31-2.txt EXHIBIT 31.2 Exhibit 31.2 - ------------ I, James L. DiStefano, Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Healthcare Services Group, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation and; c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's Board of Directors. a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting Date: July 26, 2004 /s/ James L. DiStefano ------------------------- James L. DiStefano Chief Financial Officer EX-32 4 ex32-1.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sec 1350), the undersigned, Daniel P. McCartney, Chief Executive Officer of Healthcare Services Group, Inc., a Pennsylvania corporation (the "Company"), does hereby certify, to his knowledge, that: The Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 of the Company (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Daniel P. McCartney ------------------------- Daniel P. McCartney Chief Executive Officer July 26, 2004 EX-32 5 ex32-2.txt EXHIBIT 32.2 Exhibit 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sec 1350), the undersigned, James L. DiStefano, Chief Financial Officer of Healthcare Services Group, Inc., a Pennsylvania corporation (the "Company"), does hereby certify, to his knowledge, that: The Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 of the Company (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ James L. DiStefano ------------------------- James L. DiStefano Chief Financial Officer July 26, 2004 -----END PRIVACY-ENHANCED MESSAGE-----