Full Press Release Details
HEALTHCARE SERVICES GROUP, INC.
REPORTS RECORD RESULTS FOR THE THREE MONTHS AND YEAR ENDED
| Quarterly net income up 32% over 2005 quarter on 19% increase in revenues | |||
| Annual net income 33% over 2005 annual net income on a 10% increase in revenues | |||
| Quarterly cash dividend raised 8% over 2006 third quarter cash dividend and 40% over 2005 fourth quarter cash dividend |
Bensalem, PA February 13 , 2007, Healthcare Services Group, Inc. (NASDAQ-HCSG) reported that
revenues for the three months ended December 31, 2006 increased 19% to $139,790,000 compared to
$117,864,000 for the same 2005 period. Net income for the three months ended December 31, 2006
increased 32% to $7,227,000 or $.26 per basic and $.25 per diluted common share, compared to 2005
fourth quarter net income of $5,475,000 or $.20 per basic and $.19 per diluted common share,
representing increases of 30% and 32%, respectively, in basic and diluted earnings per common share.
The Company also reported that revenues for the year ended December 31, 2006 increased by 10%
to $511,631,000 compared to $466,291,000 for the 2005 year. In addition, annual net income
increased 33% to 25,452,000 or $.93 per basic and $.89 per diluted common share, compared to the
year ended December 31, 2005 net income of $19,096,000 or $.71 per basic and $.67 per diluted .
2006 Earnings Release
Additionally, on January 23, 2007 our Board of Directors declared a regular quarterly cash
dividend of $ .14 per common share, payable on February 14, 2007 to shareholders of record at
the close of business February 5, 2007. This dividend represents an 8% increase over the dividend
declared for the 2006 third quarter and a 40% increase over the 2005 same period payment. It is the
fifteenth consecutive regular quarterly cash dividend payment, as well as the fourteenth
consecutive increase since our initiation of regular quarterly cash dividend payments in 2003.
The 2006 financial results include the cumulative effect of a non-material adjustment in
its deferred compensation liability which results from applying the provisions of Securities and
Exchange Commission Staff Accounting Bulletin No. 108 ( SAB No. 108 ). We have adopted SAB No. 108
at December 31, 2006 and for the year then ended. Historically, the appreciation on our Common
Stock held in our Deferred Compensation Plan (the Plan ) trust account was not recognized in the
reporting of the deferred compensation liability. In accordance with the guidance provided by
Emerging Issues Task Force Issue No. 97-14 ( EITF No. 97-14 ), we increased our recorded deferred
compensation liability to reflect the current fair market value of our shares held in the Plan
trust account. Prior to the adoption of SAB No. 108, we used the rollover method described
therein in evaluating the materiality of financial statements adjustments. We determined the
impact from the adjustment to be immaterial to current and prior periods financial results under
the rollover method. Additionally, we have evaluated the adjustment using the dual approach
method described in SAB No. 108. Pursuant to the guidance of SAB No. 108, the adjustment to the
liability was accomplished by the recording in 2006 of the cumulative effect, as of January 1,
2006, of a $1,432,000 ($856,000 net of income taxes) increase to correct the liability balance as
of December 31, 2005, with a corresponding charge to retained earnings 2006 beginning
2006 Earnings Release
balance. The 2006 financial statements were affected by the adjustment through a $970,000 ($605,000
net of income taxes) increase to the liability with a corresponding charge to deferred compensation expense to reflect the changes in fair market value
during 2006. Of this adjustment, approximately $530,000 ($335,000 net of income taxes) was
applicable to previously reported 2006 periods through September 30, 2006 and $440,000 ($270,000
after income taxes) impacted our 2006 fourth quarter results. In accordance with SAB No. 108,
reported results for periods prior to January 1, 2006 have not been adjusted.
The Company also announced the planned retirement of its Chief Financial Officer, James L.
DiStefano. Mr. DiStefano will continue to serve in his current capacity through the end of March
2007. Richard W. Hudson, who has been with the Company since 1989 and has served as its Vice
President of Finance since 1993, will be appointed to the office of Chief Financial Officer upon
Mr. DiStefano s retirement.
The Company announced that it will make a presentation on February 14, 2007 regarding the
Company at the UBS Warburg Global Healthcare Services Conference at the Grand Hyatt in New York
City. Additionally, this presentation will be audio webcast at www.ibb.ubs.com.
Forward Looking Statements/Risk Factors
This press release may include forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, that are not historical facts but rather are based on current expectations, estimates and
projections about our business and industry, our beliefs and assumptions. Words such as believes ,
anticipates , plans , expects , intends , will , goal , and similar expressions are intended
to identify forward-
2006 Earnings Release
looking statements. The inclusion of forward-looking statements should not be regarded as a
representation by us that any of our plans will be achieved. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise. Such forward looking information is also subject to various risks and
uncertainties. Such risks and uncertainties include, but are not limited to, risks arising from our
providing services exclusively to the health care industry, primarily providers of long-term care;
credit and collection risks associated with this industry; one client accounting for approximately
18% of 2006 annual revenues ( the client completed its previously announced merger on March 14,
2006); risks associated with our recent acquisition of Summit Services Group, Inc., including
integration risks and costs, or such business not achieving expected financial results or synergies
or failure to otherwise perform as expected; our claims experience related to workers
compensation and general liability insurance; the effects of changes in, or interpretations of laws
and regulations governing the industry, including state and local regulations pertaining to the
taxability of our services; and risk factors described in our Form 10-K filed with the Securities
and Exchange Commission for the year ended December 31, 2005 in Part I thereof under Government
Regulation of Clients , Competition and Service Agreements/Collections and Risk Factors . Many
of our clients revenues are highly contingent on Medicare and Medicaid reimbursement funding rates, which
Congress has affected through the enactment of a number of major laws during the past decade. These
laws have significantly altered, or may alter, overall government reimbursement funding rates and
mechanisms. The overall effect of these laws and trends in the long-term care industry have
affected and could adversely affect the liquidity of our clients, resulting in their inability to
make payments to us on agreed- upon payment terms. These factors, in addition to delays in payments
from clients, have resulted in and could continue to result in significant additional bad debts in
2006 Earnings Release
Additionally, our operating results would also 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 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.
Healthcare Services Group, Inc. is the largest national provider of professional housekeeping,
laundry and food services to long-term care and related facilities.
| Company Contacts: | ||
| Daniel P. McCartney | Thomas Cook | |
| Chairman and Chief Executive Officer | President and Chief Operating Officer | |
| 215-639-4274 | 215-639-4274 |
HEALTHCARE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, 2006 | December 31, 2005 | |||||||
| Cash and cash equivalents | $ | 72,997,000 | $ | 91,005,000 | ||||
| Accounts receivable, net | 78,086,000 | 59,197,000 | ||||||
| Other current assets | 17,154,000 | 15,414,000 | ||||||
| Total current assets | 168,237,000 | 165,616,000 | ||||||
| Property and equipment, net | 4,875,000 | 4,744,000 | ||||||
| Notes receivable long term, net | 7,861,000 | 4,555,000 | ||||||
| Goodwill , net | 14,543,000 | 1,612,000 | ||||||
| Other Intangible Assets, net | 7,148,000 | |||||||
| Deferred compensation funding | 7,385,000 | 5,626,000 | ||||||
| Other assets | 5,507,000 | 6,277,000 | ||||||
| Total Assets | $ | 215,556,000 | $ | 188,430,000 | ||||
| Accrued insurance claims current | $ | 4,647,000 | $ | 4,405,000 | ||||
| Other current liabilities | 22,963,000 | 18,676,000 | ||||||
| Total current liabilities | 27,610,000 | 23,081,000 | ||||||
| Accrued insurance claims long term | 10,843,000 | 10,277,000 | ||||||
| Deferred compensation liability | 11,626,000 | 6,909,000 | ||||||
| Stockholders equity | 165,477,000 | 148,163,000 | ||||||
| Total Liabilities and Stockholders Equity | $ | 215,556,000 | $ | 188,430,000 |
HEALTHCARE SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME