##### Table of Contents



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 Quarter Ended March 31, 2008
 Commission File Number 0-120152
 HEALTHCARE SERVICES GROUP, INC.
  Pennsylvania
    
    23-2018365(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer Identification
number)3220 Tillman Drive-Suite 300, Bensalem, Pennsylvania
    
    19020(Address of principal executive office)
    
    (Zip code)
 215-639-4274
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ
     -0-




---



##### 



INDEX
  
 PAGE NO.PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Consolidated Balance Sheets as of
March 31, 2008 and December 31, 2007
    
    
    2Consolidated Statements of Income for the Three Months
Ended March 31, 2008 and March 31, 2007
    
    
    3Consolidated Statements of Cash Flows for the Three Months
ended March 31, 2008 and March 31, 2007
    
    
    4Consolidated Statement of Stockholders Equity for the
Three Months Ended March 31, 2008
    
    
    5Notes To Consolidated Financial Statements
    

6  15Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results Of Operations
    

16  28Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    29Item 4.
    
    Controls and Procedures
    
    
    29Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    30Item 1A.
    
    Risk Factors
    
    
    30Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3.
    
    Defaults Upon Senior Securities
    
    
    30Item 4.
    
    Submission of Matters to a Vote of Security
Holders
    
    
    30Item 5.
    
    Other Information
    
    
    30Item 6.
    
    Exhibits
    
    
    30Signatures
    
    
    31Certification of Principal Executive Officer Section 302Certification of Principal Financial Officer Section 302Certification of Principal Executive Officer Section 906Certification of Principal Financial Officer Section 906
  -1-




---



##### Table of Contents



Consolidated Balance Sheets
 (Unaudited)March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    96,957,000
    
    
    $
    92,461,000Accounts and notes receivable, less allowance for doubtful
accounts of $4,784,000 in 2008 and $4,284,000 in 2007
    
    
    84,556,000
    
    
    
    82,951,000Prepaid income taxes
    
    
    1,823,000Inventories and supplies
    
    
    15,065,000
    
    
    
    15,117,000Deferred income taxes
    
    
    525,000
    
    
    
    465,000Prepaid expenses and other
    
    
    5,002,000
    
    
    
    4,104,000Total current assets
    
    
    203,928,000
    
    
    
    195,098,000PROPERTY AND EQUIPMENT:Laundry and linen equipment installations
    
    
    1,697,000
    
    
    
    1,718,000Housekeeping equipment and office equipment
    
    
    16,121,000
    
    
    
    16,588,000Autos and trucks
    
    
    103,000
    
    
    
    103,00017,921,000
    
    
    
    18,409,000Less accumulated depreciation
    
    
    13,826,000
    
    
    
    14,106,0004,095,000
    
    
    
    4,303,000GOODWILL, Less accumulated amortization of $1,743,000 in 2008 and 2007
    
    
    15,020,000
    
    
    
    15,020,000OTHER INTANGIBLE ASSETS, Less accumulated amortization of
$1,673,000 in 2008 and $1,409,000 in 2007
    
    
    5,826,000
    
    
    
    6,090,000NOTES RECEIVABLE- long term portion, net of discount
    
    
    7,209,000
    
    
    
    6,058,000DEFERRED COMPENSATION FUNDING
    
    
    9,659,000
    
    
    
    10,361,000DEFERRED INCOME TAXES- long term portion
    
    
    5,881,000
    
    
    
    6,349,000OTHER NONCURRENT ASSETS
    
    
    90,000
    
    
    
    89,000TOTAL ASSETS
    
    $
    251,708,000
    
    
    $
    243,368,000LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:Accounts payable
    
    $
    8,776,000
    
    
    $
    8,902,000Accrued payroll, accrued and withheld payroll taxes
    
    
    18,197,000
    
    
    
    11,613,000Other accrued expenses
    
    
    900,000
    
    
    
    1,338,000Income taxes payable
    
    
    
    
    
    
    1,726,000Accrued insurance claims
    
    
    3,880,000
    
    
    
    4,302,000Total current liabilities
    
    
    31,753,000
    
    
    
    27,881,000ACCRUED INSURANCE CLAIMS- long term portion
    
    
    9,054,000
    
    
    
    10,037,000DEFERRED COMPENSATION LIABILITY
    
    
    9,759,000
    
    
    
    10,732,000COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Common stock, $.01 par value: 100,000,000 shares authorized,
45,105,000 shares issued in 2008 and 44,715,000 shares in 2007
    
    
    451,000
    
    
    
    447,000Additional paid in capital
    
    
    80,419,000
    
    
    
    75,064,000Retained earnings
    
    
    137,388,000
    
    
    
    136,110,000Common stock in treasury, at cost, 2,089,000 shares in 2008 and
2,119,000 shares in 2007
    
    
    (17,116,000
    )
    
    
    (16,903,000
    )Total stockholders equity
    
    
    201,142,000
    
    
    
    194,718,000TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    251,708,000
    
    
    $
    243,368,000
  -2-




---



##### Table of Contents



Consolidated Statements of Income  (Unaudited)
 For the Three Months Ended March 31,2008
    
    
    2007Revenues
    
    $
    147,259,000
    
    
    $
    141,166,000Operating costs and expenses:Costs of services provided
    
    
    125,854,000
    
    
    
    119,801,000Selling, general and
administrative
    
    
    10,579,000
    
    
    
    10,511,000Other Income :Investment and interest income
    
    
    324,000
    
    
    
    1,261,000Income before income taxes
    
    
    11,150,000
    
    
    
    12,115,000Income taxes
    
    
    4,293,000
    
    
    
    4,665,000Net Income
    
    $
    6,857,000
    
    
    $
    7,450,000Basic earnings per common share
    
    $
    0.16
    
    
    $
    0.18Diluted earnings per common
share
    
    $
    0.16
    
    
    $
    0.17Cash dividends per common share
    
    $
    0.13
    
    
    $
    0.09Basic weighted average number of
common shares outstanding
    
    
    43,016,000
    
    
    
    41,657,000Diluted weighted average number
of
common shares outstanding
    
    
    44,213,000
    
    
    
    43,662,000
  -3-




---



##### Table of Contents



Consolidated Statements of Cash Flows
    
    ( Unaudited )For the Three Months EndedMarch 31,2008
    
    
    2007Cash flows from operating activities:Net Income
    
    $
    6,857,000
    
    
    $
    7,450,000Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation and amortization
    
    
    748,000
    
    
    
    745,000Bad debt provision
    
    
    500,000
    
    
    
    1,977,000Deferred income taxes (benefits)
    
    
    408,000
    
    
    
    (888,000
    )Share-based compensation expense
    
    
    179,000
    
    
    
    103,000Unrealized (gain) loss on deferred compensation
fund investments
    
    
    504,000
    
    
    
    (382,000
    )Changes in operating assets and liabilities:Accounts and notes receivable
    
    
    (2,105,000
    )
    
    
    (4,582,000
    )Prepaid income taxes
    
    
    (1,823,000
    )
    
    
    Inventories and supplies
    
    
    52,000
    
    
    
    (522,000
    )Notes receivable- long term portion
    
    
    (1,151,000
    )
    
    
    (221,000
    )Deferred compensation funding
    
    
    197,000
    
    
    
    (589,000
    )Accounts payable and other accrued expenses
    
    
    (340,000
    )
    
    
    (2,541,000
    )Accrued payroll, accrued and withheld payroll taxes
    
    
    7,585,000
    
    
    
    6,242,000Accrued insurance claims
    
    
    (1,405,000
    )
    
    
    (81,000
    )Deferred compensation liability
    
    
    (603,000
    )
    
    
    871,000Income taxes payable
    
    
    (1,726,000
    )
    
    
    (82,000
    )Prepaid expenses and other assets
    
    
    (898,000
    )
    
    
    (330,000
    )Net cash provided by operating activities
    
    
    6,979,000
    
    
    
    7,170,000Cash flows from investing activities:Disposals of fixed assets
    
    
    62,000
    
    
    
    61,000Additions to property and equipment
    
    
    (337,000
    )
    
    
    (415,000
    )Cash paid for acquisition
    
    
    
    
    
    
    (27,000
    )Net cash used in investing activities
    
    
    (275,000
    )
    
    
    (381,000
    )Cash flows from financing activities:Treasury stock transactions in benefit plans
    
    
    
    
    
    
    82,000Dividends paid
    
    
    (5,579,000
    )
    
    
    (3,887,000
    )Reissuance of treasury stock pursuant to Dividend
Reinvestment Plan
    
    
    17,000
    
    
    
    14,000Acquisition of treasury stock
    
    
    (746,000
    )
    
    
    Tax benefits transactions in equity compensation plans
    
    
    2,369,000
    
    
    
    1,307,000Proceeds from the exercise of stock options
    
    
    1,731,000
    
    
    
    1,697,000Net cash used in financing activities
    
    
    (2,208,000
    )
    
    
    (787,000
    )Net increase in cash and cash equivalents
    
    
    4,496,000
    
    
    
    6,002,000Cash and cash equivalents at beginning of the period
    
    
    92,461,000
    
    
    
    72,997,000Cash and cash equivalents at end of the period
    
    $
    96,957,000
    
    
    $
    78,999,000Supplementary Cash Flow Information:Income taxes cash payments, net of refunds
    
    $
    5,064,000
    
    
    $
    4,328,000Issuance of 61,000 shares of Common Stock in 2008 and
65,000 shares of Common Stock in 2007 pursuant to
Employee Stock Plans
    
    $
    1,293,000
    
    
    $
    1,254,000
  -4-




---



##### Table of Contents



For the Three Months Ended March 31, 2008AdditionalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Treasury
    
    
    Stockholders'Shares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    EquityBalance, December 31, 2007
    
    
    44,715,000
    
    
    $
    447,000
    
    
    $
    75,064,000
    
    
    $
    136,110,000
    
    
    $
    (16,903,000
    )
    
    $
    194,718,000Net income for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,857,000
    
    
    
    
    
    
    
    6,857,000Exercise of stock options
    
    
    390,000
    
    
    
    4,000
    
    
    
    1,727,000
    
    
    
    
    
    
    
    
    
    
    
    1,731,000Share-based compensation expense  stock options
    
    
    
    
    
    
    
    
    
    
    112,000
    
    
    
    
    
    
    
    
    
    
    
    112,000Tax benefit arising from Stock Plans transactions
    
    
    
    
    
    
    
    
    
    
    2,369,000
    
    
    
    
    
    
    
    
    
    
    
    2,369,000Purchase of common stock for treasury (37,000 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (746,000
    )
    
    
    (746,000
    )Treasury shares issued for Deferred Compensation Plan
funding and redemptions (5,000 shares)
    
    
    
    
    
    
    
    
    
    
    331,000
    
    
    
    
    
    
    
    39,000
    
    
    
    370,000Shares issued pursuant to Employee Stock Plans (61,000 shares)
    
    
    
    
    
    
    
    
    
    
    806,000
    
    
    
    
    
    
    
    487,000
    
    
    
    1,293,000Cash dividends  $.13 per common share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,579,000
    )
    
    
    
    
    
    
    (5,579,000
    )Shares issued pursuant to Dividend Reinvestment Plan (1,000 shares)
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    7,000
    
    
    
    17,000Balance, March 31, 2008
    
    
    45,105,000
    
    
    $
    451,000
    
    
    $
    80,419,000
    
    
    $
    137,388,000
    
    
    $
    (17,116,000
    )
    
    $
    201,142,000
 -5-




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1   Basis of Reporting
     Note 2  Three-For-Two Stock Split
  -6-




---



##### Table of Contents



Note 3   Goodwill and Other Intangible Assets
   Acquisition
    
    
    AmortizationAmount
    
    
    ExpenseCustomer Relationships
    
    $
    6,700,000
    
    
    $
    239,000Non-compete Agreements
    
    
    800,000
    
    
    
    25,000Total
    
    $
    7,500,000
    
    
    $
    264,000
  Customer
    
    Non-CompetePeriod/Year
    
    Relationships
    
    Agreements
    
    TotalApril 1 to December 31, 2008
    
    $
    718,000
    
    
    $
    75,000
    
    
    $
    793,0002009
    
    $
    957,000
    
    
    $
    100,000
    
    
    $
    1,057,0002010
    
    $
    957,000
    
    
    $
    100,000
    
    
    $
    1,057,0002011
    
    $
    957,000
    
    
    $
    100,000
    
    
    $
    1,057,0002012
    
    $
    957,000
    
    
    $
    100,000
    
    
    $
    1,057,000
  Summit
    
    All other
    
    Total$13,409,000
    
    $
    1,611,000
    
    
    $
    15,020,000
  Segment
    
    AmountFood
    
    $
    1,401,000Housekeeping
    
    
    13,619,000Total
    
    $
    15,020,000
 -7-




---



##### Table of Contents



Note
4  Other Contingencies
       -8-




---



##### Table of Contents



Note 5  Segment Information
 Reportable Operating Segments
    Corporate andHousekeeping
    
    Food
    
    Eliminations
    
    TotalQuarter Ended March 31,
2008Revenues
    
    $
    119,519,000
    
    
    $
    27,240,000
    
    
    $
    500,000
    (1)
    
    $
    147,259,000Income before income taxes
    
    $
    11,817,000
    
    
    $
    1,278,000
    
    
    $
    (1,945,000
    )(1)
    
    $
    11,150,000Quarter Ended March 31,
2007Revenues
    
    $
    113,201,000
    
    
    $
    26,553,000
    
    
    $
    1,412,000
    (1)
    
    $
    141,166,000Income before income
taxes
    
    $
    11,320,000
    
    
    $
    1,181,000
    
    
    $
    (386,000
    )(1)
    
    $
    12,115,000
 
 (1)
    
    represents primarily corporate office cost and related overhead, as well as
consolidated subsidiaries operating expenses that are not allocated to the reportable
segments. -9-




---



##### Table of Contents



Total Revenues from Clients
  For the Quarter Ended March 31,2008
    
    
    2007Housekeeping services
    
    $
    82,568,000
    
    
    $
    79,529,000Laundry and linen services
    
    
    36,842,000
    
    
    
    34,212,000Food Services
    
    
    27,357,000
    
    
    
    26,806,000Maintenance services
and Other
    
    
    492,000
    
    
    
    619,000$
    147,259,000
    
    
    $
    141,166,000
 Major Client
  Note 6   Earnings Per Common Share
  Quarter Ended March 31, 2008Income
    
    
    Shares
    
    
    Per-share(Numerator)
    
    
    (Denominator)
    
    
    AmountNet income
    
    $
    6,857,000Basic earnings per
common share
    
    $
    6,857,000
    
    
    
    43,016,000
    
    
    $
    .16Effect of dilutive securities:Options
    
    
    
    
    
    
    1,197,000
    
    
    
    Diluted earnings per
common share
    
    $
    6,857,000
    
    
    
    44,213,000
    
    
    $
    .16
 -10-




---



##### Table of Contents



Quarter Ended March 31, 2007Income
    
    
    Shares
    
    
    Per-share(Numerator)
    
    
    (Denominator)
    
    
    AmountNet income
    
    $
    7,450,000Basic earnings per
common share
    
    $
    7,450,000
    
    
    
    41,657,000
    
    
    $
    .18Effect of dilutive securities:Options

    
    
    
    
    
    
    2,005,000
    
    
    
    (.01
    )Diluted earnings per
common share
    
    $
    7,450,000
    
    
    
    43,662,000
    
    
    $
    .17
 Note 7  Dividends
  Note 8  Share-Based Compensation
 Stock Options
  Weighted AverageRemainingContractual
    
    
    AggregateWeighted Average
    
    
    Number
    
    
    Term
    
    
    IntrinsicPrice
    
    
    of Shares
    
    
    (In Years)
    
    
    ValueOutstanding, January 1, 2008
    
    $
    6.34
    
    
    
    2,412,000Granted
    
    
    20.89
    
    
    
    372,000Cancelled
    
    
    
    
    
    
    Exercised
    
    
    4.44
    
    
    
    (390,000
    )Outstanding, March 31, 2008
    
    $
    8.91
    
    
    
    2,394,000
    
    
    
    5.26
    
    
    $
    28,171,000Options exercisable as of March
31, 2008
    
    
    
    
    
    
    2,022,000
    
    
    
    4.43
    
    
    $
    28,171,000
  -11-




---



##### Table of Contents



Options Outstanding
    
    
    
    
    
    
    Options ExercisableAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExercisePrice Range
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$1.50 - 2.74
    
    
    508,000
    
    
    
    2.51
    
    
    $
    2.38
    
    
    
    508,000
    
    
    $
    2.38$3.01 - 5.53
    
    
    740,000
    
    
    
    5.31
    
    
    
    4.83
    
    
    
    740,000
    
    
    
    4.83$9.10 - 9.10
    
    
    406,000
    
    
    
    6.74
    
    
    
    9.10
    
    
    
    406,000
    
    
    
    9.10$13.81 - 13.81
    
    
    368,000
    
    
    
    2.77
    
    
    
    13.81
    
    
    
    368,000
    
    
    
    13.81$20.89 - 20.89
    
    
    372,000
    
    
    
    9.76
    
    
    
    20.89
    
    
    
    -0-
    
    
    
    -0-2,394,000
    
    
    
    5.26
    
    
    $
    8.91
    
    
    
    2,022,000
    
    
    $
    6.70
  March
    
    March31, 2008
    

31, 2007Weighted average grant-date fair value of stock options granted:
    
    $
    2,237,000
    
    
    Not applicableTotal fair value of stock options vested:
    
    
    -0-
    
    
    Not applicableTotal intrinsic value of stock options exercised:
    
    $
    6,573,000
    
    
    $
    3,345,000
   Risk-free interest rate
    
    
    4.2
    %Expected volatility
    
    
    35.9
    %Weighted average expected life in years
    
    
    4.5Dividend yield
    
    
    2.0
    %
 Employee Stock Purchase Plan
  -12-




---



##### Table of Contents



2008
    
    2007Risk-free interest rate
    
    
    3.6
    %
    
    
    4.9
    %Expected volatility
    
    
    38.8
    %
    
    
    33.9
    %Weighted average expected life (in years)
    
    
    1.0
    
    
    
    .75Dividend yield
    
    
    2.0
    %
    
    
    1.6
    %
  Note 9  Related Party Transactions
   Note
10  Cumulative Effect of Adjustment to Deferred Compensation Liability
  -13-




---



##### Table of Contents



Note
11  Income Taxes
    Note 12  Recently Issued Accounting Pronouncements
  -14-




---



##### Table of Contents



-15-




---



##### Table of Contents



ITEM 2    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
 CONDITION AND RESULTS OF OPERATIONS
 Cautionary Statement Regarding Forward Looking Statements
   -16-




---



##### Table of Contents



RESULTS OF OPERATIONS
  Overview
       Consolidated Operations
 -17-




---



##### Table of Contents



Relation to Consolidated RevenuesFor the Quarter Ended March 31,2008
    
    2007Revenues
    
    
    100.0
    %
    
    
    100.0
    %Operating costs and expenses:Costs of services provided
    
    
    85.4
    
    
    
    84.9Selling, general and
administration
    
    
    7.2
    
    
    
    7.4Investment and interest income
    
    
    .2
    
    
    
    .9Income before income taxes
    
    
    7.6
    
    
    
    8.6Income taxes
    
    
    2.9
    
    
    
    3.3Net income
    
    
    4.7
    %
    
    
    5.3
    %
    2008 First Quarter Compared with 2007 First Quarter
  Reportable SegmentsPercent
    
    Corporate and
    
    Housekeeping
    
    FoodConsolidated
    
    incr (decr)
    
    eliminations
    
    Amount
    
    %incr
    
    Amount
    
    %incrRevenues
    
    $
    147,259,000
    
    
    
    4.3
    %
    
    $
    500,000
    
    
    $
    119,519,000
    
    
    
    5.6
    %
    
    $
    27,240,000
    
    
    
    2.6
    %Cost of services provided
    
    
    125,854,000
    
    
    
    5.1
    
    
    
    (   7,810,000
    )
    
    
    107,702,000
    
    
    
    5.7
    
    
    
    25,962,000
    
    
    
    2.3
    %Selling, general and
administrative expense
    
    
    10,579,000
    
    
    
    .7
    
    
    
    10,579,000
    
    
    
    
    
    
    
    
    
    
    
    Investment and interest income
    
    
    324,000
    
    
    
    (74.3
    )
    
    
    324,000
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    $
    11,150,000
    
    
    
    (  8.0
    )%
    
    
    (  1,945,000
    )
    
    $
    11,817,000
    
    
    
    4.4
    %
    
    $
    1,278,000
    
    
    
    8.3
    %
 Revenues
 Consolidated
  -18-




---



##### Table of Contents



Reportable Segments
    Costs of services provided
 Consolidated
  Cost of Services Provided-Key Indicators
    
    2008 %
    
    2007 %
    
    (Decr)%Bad debt provision
    
    
    .3
    
    
    
    1.4
    
    
    
    (1.1
    )Workers compensation and general
liability insurance
    
    
    2.4
    
    
    
    3.0
    
    
    
    ( .6
    )
  Reportable Segments
  -19-




---



##### Table of Contents



Cost of Services Provided-Key Indicators
    
    2008 %
    
    2007 %
    
    Incr (Decr) %Housekeeping labor and other labor costs
    
    
    81.0
    
    
    
    81.2
    
    
    
    (   .2
    )Housekeeping supplies
    
    
    6.5
    
    
    
    4.7
    
    
    
    1.8Food labor and other labor costs
    
    
    53.7
    
    
    
    54.0
    
    
    
    (   .3
    )Food supplies
    
    
    39.2
    
    
    
    37.7
    
    
    
    1.5
   Consolidated Selling, General and Administrative Expense
   Consolidated Investment and Interest Income
  Income before Income Taxes
 -20-




---



##### Table of Contents



Consolidated
  Reportable Segments
   Consolidated Income Taxes
  Consolidated Net Income
  Critical Accounting Policies and Estimates
    -21-




---



##### Table of Contents



Allowance for Doubtful Accounts
      -22-




---



##### Table of Contents



Aggregate AccountBalances of Clientsin Bankruptcy orPeriod
    
    In/Pending
    
    Net Write-Offs
    
    Bad Debt
    
    Allowance forEnded
    
    Collection/Litigation
    
    of Client Accounts
    
    Provision
    
    Doubtful AccountsMarch
31, 2008
    
    $
    9,151,000
    
    
    $
    
    
    
    $
    500,000
    
    
    $
    4,784,000December
31, 2007
    
    $
    9,363,000
    
    
    $
    4,574,000
    
    
    $
    6,142,000
    
    
    $
    4,284,000
   Accrued Insurance Claims
   -23-




---



##### Table of Contents



Asset Valuations and Review for Potential Impairment
  -24-




---



##### Table of Contents



Liquidity and Capital Resources
  Operating Activities
  Investing Activities
  Financing Activities
    -25-




---



##### Table of Contents



Line of Credit
   Covenant Description and Requirement
    
    Status at March 31, 2008Commitment coverage ratio: cash and cash
equivalents must equal or exceed outstanding
obligations under the line by a multiple of 2
    
    Commitment coverage is 3.5Tangible net worth: must exceed $143,000,000
    
    Tangible net worth is $180,296,000
  Accounts and Notes Receivable
  -26-




---



##### Table of Contents



Insurance Programs
     -27-




---



##### Table of Contents



Capital Expenditures
  Material Off-Balance Sheet Arrangements
  Effects of Inflation
  -28-




---



##### Table of Contents



ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
    Certifications
  -29-




---



##### Table of Contents



PART II.
    
    OTHER INFORMATION
 
 ITEM 1.
    
    Legal Proceedings.
    
    Not Applicable
 
 ITEM 1A.
    
    Risk Factors
  
 ITEM 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 Repurchases(a)
    
    (b)
    
    (c)
    
    (d)Total number of
    
    Maximumshares purchased as
    
    number of sharespart of publicly
    
    that may yet beTotal number of
    
    Average price
    
    announced plans
    
    purchased under the2008 Period
    
    Shares purchased
    
    paid per share
    
    or programs
    
    plans or programsJanuary 1 to
January 31
    
    noneFebruary 1 to
February 29
    
    
    37,325
    
    
    $
    19.99
    
    
    
    37,325
    
    
    
    1,382,000March 1 to
March 31
    
    none
 
 ITEM 3.
    
    Defaults under Senior Securities.
    
    Not Applicable
 
 ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    Not Applicable
 
 ITEM 5.
    
    Other Information.
 (a)
    
    On January 3, 2008, certain executive officers
and directors were granted stock options, in the aggregate 99,950
shares, at the current fair market value of $20.89 per share.
 
 ITEM 6.
    
    Exhibits
  31.1
    
    Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Principal Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350.32.2
    
    Certification of Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
 -30-




---



##### Table of Contents



SIGNATURES
  HEALTHCARE SERVICES GROUP,
INC.
 April 18, 2008
    
    /s/ Daniel P. McCartneyDate
    
    DANIEL P. McCARTNEY, Chief
Executive OfficerApril 18, 2008
    
    /s/ Thomas A. CookDate
    
    THOMAS A. COOK, President and
Chief Operating OfficerApril 18, 2008
    
    /s/ Richard W. HudsonDate
    
    RICHARD W. HUDSON, Chief
Financial Officer and Secretary
 -31-