##### 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, 2009
    
    Commission File Number 0-120152
 HEALTHCARE SERVICES GROUP, INC.
 
 Pennsylvania
    
    23-2018365(State or other jurisdiction of
    
    (IRS Employer Identificationincorporation or organization)
    
    number)
 
 215-639-4274
  þ o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o  o þ




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##### 



INDEX
 PAGE NO.PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Consolidated Balance Sheets as of March 31, 2009
and December 31, 2008
    
    
    2Consolidated Statements of Income for the Three
Months Ended March 31, 2009 and March 31, 2008
    
    
    3Consolidated Statements of Cash Flows for the Three
Months ended March 31, 2009 and March 31, 2008
    
    
    4Consolidated Statement of Stockholders Equity for
the Three Months Ended March 31, 2009
    
    
    5Notes To Consolidated Financial Statements
    
    
    6  16Item 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
    
    
    31Ex-31.1Ex-31.2Ex-32.1Ex-32.2
  -1-




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##### Table of Contents



Consolidated Balance Sheets
 (Unaudited)March 31,
    
    
    December 31,2009
    
    
    2008ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    44,476,000
    
    
    $
    37,501,000Marketable securities, at fair value
    
    $
    51,946,000
    
    
    $
    49,414,000Accounts and notes receivable, less allowance for doubtful
accounts of $3,914,000 in 2009 and $3,214,000 in 2008
    
    
    98,213,000
    
    
    
    96,558,000Prepaid income taxes
    
    
    
    
    
    
    2,838,000Inventories and supplies
    
    
    15,411,000
    
    
    
    16,079,000Prepaid expenses and other
    
    
    5,273,000
    
    
    
    4,225,000Total current assets
    
    
    215,319,000
    
    
    
    206,615,000PROPERTY AND EQUIPMENT:Laundry and linen equipment installations
    
    
    1,784,000
    
    
    
    1,767,000Housekeeping equipment and office equipment
    
    
    16,249,000
    
    
    
    16,365,000Autos and trucks
    
    
    93,000
    
    
    
    93,00018,126,000
    
    
    
    18,225,000Less accumulated depreciation
    
    
    14,220,000
    
    
    
    14,296,0003,906,000
    
    
    
    3,929,000GOODWILL
    
    
    15,020,000
    
    
    
    15,020,000OTHER INTANGIBLE ASSETS, Less accumulated amortization of
$2,730,000 in 2009 and $2,466,000 in 2008
    
    
    4,769,000
    
    
    
    5,033,000NOTES RECEIVABLE- long term portion, net of discount
    
    
    5,605,000
    
    
    
    3,202,000DEFERRED COMPENSATION FUNDING, at fair value
    
    
    8,254,000
    
    
    
    8,287,000DEFERRED INCOME TAXES- long term portion
    
    
    6,753,000
    
    
    
    6,386,000OTHER NONCURRENT ASSETS
    
    
    69,000
    
    
    
    89,000TOTAL ASSETS
    
    $
    259,695,000
    
    
    $
    248,561,000LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    9,572,000
    
    
    $
    9,301,000Accrued payroll, accrued and withheld payroll taxes
    
    
    20,854,000
    
    
    
    14,365,000Other accrued expenses
    
    
    769,000
    
    
    
    679,000Income taxes payable
    
    
    2,093,000
    
    
    
    Deferred income taxes
    
    
    848,000
    
    
    
    754,000Accrued insurance claims
    
    
    4,183,000
    
    
    
    3,943,000Total current liabilities
    
    
    38,319,000
    
    
    
    29,042,000ACCRUED INSURANCE CLAIMS- long term portion
    
    
    9,761,000
    
    
    
    9,201,000DEFERRED COMPENSATION LIABILITY
    
    
    8,334,000
    
    
    
    8,636,000COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Common stock, $.01 par value: 100,000,000 shares authorized,
45,572,000 shares issued in 2009 and 45,563,000 shares in 2008
    
    
    457,000
    
    
    
    456,000Additional paid in capital
    
    
    85,229,000
    
    
    
    84,421,000Retained earnings
    
    
    138,089,000
    
    
    
    137,741,000Common stock in treasury, at cost, 2,284,000 shares in 2009 and
2,335,000 shares in 2008
    
    
    (20,494,000
    )
    
    
    (20,936,000
    )Total stockholders equity
    
    
    203,281,000
    
    
    
    201,682,000TOTAL LIABILITITIES AND STOCKHOLDERS EQUITY
    
    $
    259,695,000
    
    
    $
    248,561,000
  -2-




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Consolidated Statements of Income
(Unaudited)
 For the Three MonthsEnded March 31,2009
    
    
    2008Revenues
    
    $
    160,409,000
    
    
    $
    147,259,000Operating costs and expenses:Costs of services provided
    
    
    137,892,000
    
    
    
    125,854,000Selling, general and administrative
    
    
    10,876,000
    
    
    
    10,579,000Other Income:Investment and interest
    
    
    937,000
    
    
    
    324,000Income before income taxes
    
    
    12,578,000
    
    
    
    11,150,000Income taxes
    
    
    4,842,000
    
    
    
    4,293,000Net Income
    
    $
    7,736,000
    
    
    $
    6,857,000Basic earnings per common share
    
    $
    0.18
    
    
    $
    0.16Diluted earnings per common share
    
    $
    0.18
    
    
    $
    0.16Cash dividends per common share
    
    $
    0.17
    
    
    $
    0.13Basic weighted average number of common
shares outstanding
    
    
    43,457,000
    
    
    
    43,016,000Diluted weighted average number of
common shares outstanding
    
    
    44,073,000
    
    
    
    44,213,000
  -3-




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##### Table of Contents



Consolidated Statements of Cash Flows
 
 
 ( Unaudited )For the Three Months EndedMarch 31,2009
    
    
    2008Cash flows from operating activities:Net Income
    
    $
    7,736,000
    
    
    $
    6,857,000Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    692,000
    
    
    
    748,000Bad debt provision
    
    
    700,000
    
    
    
    500,000Deferred income taxes (benefits)
    
    
    (273,000
    )
    
    
    408,000Stock-based compensation expense
    
    
    257,000
    
    
    
    179,000Amortization of premium on marketable securities
    
    
    230,000
    
    
    
    Unrealized gain on marketable securities
    
    
    (645,000
    )
    
    
    Unrealized loss on deferred compensation fund investments
    
    
    258,000
    
    
    
    504,000Changes in operating assets and liabilities:Accounts and notes receivable
    
    
    (2,356,000
    )
    
    
    (2,105,000
    )Inventories and supplies
    
    
    669,000
    
    
    
    52,000Notes receivable- long term portion
    
    
    (2,404,000
    )
    
    
    (1,151,000
    )Deferred compensation funding
    
    
    (225,000
    )
    
    
    197,000Accounts payable and other accrued expenses
    
    
    396,000
    
    
    
    (340,000
    )Accrued payroll, accrued and withheld payroll taxes
    
    
    7,149,000
    
    
    
    7,585,000Accrued insurance claims
    
    
    800,000
    
    
    
    (1,405,000
    )Deferred compensation liability
    
    
    53,000
    
    
    
    (603,000
    )Income taxes payable
    
    
    4,931,000
    
    
    
    (1,726,000
    )Prepaid income taxes
    
    
    
    
    
    
    (1,823,000
    )Prepaid expenses and other assets
    
    
    (1,026,000
    )
    
    
    (898,000
    )Net cash provided by operating activities
    
    
    16,942,000
    
    
    
    6,979,000Cash flows from investing activities:Disposals of fixed assets
    
    
    15,000
    
    
    
    62,000Additions to property and equipment
    
    
    (419,000
    )
    
    
    (337,000
    )Purchases of marketable securities, net
    
    
    (2,118,000
    )Net cash used in investing activities
    
    
    (2,522,000
    )
    
    
    (275,000
    )Cash flows from financing activities:Acquisition of treasury stock
    
    
    
    
    
    
    (746,000
    )Dividends paid
    
    
    (7,388,000
    )
    
    
    (5,579,000
    )Reissuance of treasury stock pursuant to Dividend
Reinvestment Plan
    
    
    21,000
    
    
    
    17,000Tax benefits (expense) transactions in equity compensation plans
    
    
    (96,000
    )
    
    
    2,369,000Proceeds from the exercise of stock options
    
    
    18,000
    
    
    
    1,731,000Net cash used in financing activities
    
    
    (7,445,000
    )
    
    
    (2,208,000
    )Net increase in cash and cash equivalents
    
    
    6,975,000
    
    
    
    4,496,000Cash and cash equivalents at beginning of the period
    
    
    37,501,000
    
    
    
    92,461,000Cash and cash equivalents at end of the period
    
    $
    44,476,000
    
    
    $
    96,957,000Supplementary Cash Flow Information:Income taxes cash payments, net of refunds
    
    $
    5,064,000
    
    
    $
    5,064,000Issuance of 49,000 shares of Common Stock in 2009 and
61,000 shares of Common Stock in 2008 pursuant to
Employee Stock Plans
    
    $
    777,000
    
    
    $
    1,293,000
  -4-




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##### Table of Contents



For the Three Months EndedMarch 31, 2009AdditionalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Treasury
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    EquityBalance, December 31, 2008
    
    
    45,563,000
    
    
    $
    456,000
    
    
    $
    84,421,000
    
    
    $
    137,741,000
    
    
    
    ($20,936,000
    )
    
    $
    201,682,000Net income for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,736,000
    
    
    
    
    
    
    
    7,736,000Exercise of stock options and other stock-based compensation
net of 2,000 shares tendered for payment
    
    
    9,000
    
    
    
    1,000
    
    
    
    17,000
    
    
    
    
    
    
    
    
    
    
    
    18,000Share-based compensation expense  stock options
    
    
    
    
    
    
    
    
    
    
    177,000
    
    
    
    
    
    
    
    
    
    
    
    177,000Tax liability arising from Stock Plans transactions
    
    
    
    
    
    
    
    
    
    
    (96,000
    )
    
    
    
    
    
    
    
    
    
    
    (96,000
    )Treasury shares issued for Deferred Compensation Plan
funding and redemptions (22,000 shares)
    
    
    
    
    
    
    
    
    
    
    350,000
    
    
    
    
    
    
    
    4,000
    
    
    
    354,000Shares issued pursuant to Employee Stock Plans (49,000
shares)
    
    
    
    
    
    
    
    
    
    
    351,000
    
    
    
    
    
    
    
    426,000
    
    
    
    777,000Cash
dividends  $.17 per common share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,388,000
    )
    
    
    
    
    
    
    (7,388,000
    )Shares issued pursuant to Dividend Reinvestment Plan (1,000 shares)
    
    
    
    
    
    
    
    
    
    
    9,000
    
    
    
    
    
    
    
    12,000
    
    
    
    21,000Balance, March 31, 2009
    
    
    45,572,000
    
    
    $
    457,000
    
    
    $
    85,229,000
    
    
    $
    138,089,000
    
    
    
    ($20,494,000
    )
    
    $
    203,281,000
  -5-




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1   Basis of Reporting
     Note 2  Fair Value Measurements and Marketable Securities
  -6-




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As of March 31, 2009Fair Value Measurement Using:SignificantQuoted Prices
    
    Other
    
    Significantin Active
    
    Observable
    
    UnobservableCarrying
    
    
    
    
    
    Markets
    
    Inputs
    
    InputsAmount
    
    Total Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Financial AssetsMarketable Securities
    
    $
    51,946,000
    
    
    $
    51,946,000
    
    
    $
    51,946,000
    
    
    $
    
    
    
    $
    Deferred Compensation
Funding
    
    $
    8,254,000
    
    
    $
    8,254,000
    
    
    $
    8,254,000
    
    
    $
    
    
    
    $
    
 As of March 31, 2008Fair Value Measurement Using:SignificantQuoted Prices
    
    Other
    
    Significantin Active
    
    Observable
    
    UnobservableCarrying
    
    
    
    
    
    Markets
    
    Inputs
    
    InputsAmount
    
    Total Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Financial AssetsMarketable Securities
    
    $
    49,414,000
    
    
    $
    49,414,000
    
    
    $
    49,414,000
    
    
    $
    
    
    
    $
    Deferred Compensation
Funding
    
    $
    8,287,000
    
    
    $
    8,287,000
    
    
    $
    8,287,000
    
    
    $
    
    
    
    $
    
  Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    EstimatedCost
    
    Gains
    
    Losses
    
    Fair ValueMarch 31, 2009Type of security:Marketable Securities
    
    $
    50,155,000
    
    
    $
    1,791,000
    
    
    $
    
    
    
    $
    51,946,000.
 Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    EstimatedCost
    
    Gains
    
    Losses
    
    Fair ValueDecember 31, 2008Type of security:Marketable Securities
    
    $
    48,268,000
    
    
    $
    1,146,000
    
    
    $
    
    
    
    $
    49,414,000
 Note 3   Goodwill and Other Intangible Assets
  -7-




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##### Table of Contents



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, 2009
    
    $
    718,000
    
    
    $
    75,000
    
    
    $
    793,0002010
    
    $
    957,000
    
    
    $
    100,000
    
    
    $
    1,057,0002011
    
    $
    957,000
    
    
    $
    100,000
    
    
    $
    1,057,0002012
    
    $
    957,000
    
    
    $
    100,000
    
    
    $
    1,057,0002013
    
    $
    638,000
    
    
    $
    100,000
    
    
    $
    738,000
  Summit
    
    All other
    
    Total$
    13,409,000
    
    
    $
    1,611,000
    
    
    $
    15,020,000
  Segment
    
    AmountFood
    
    $
    1,401,000Housekeeping
    
    
    13,619,000Total
    
    $
    15,020,000
 -8-




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Note 4- Other Contingencies
      -9-




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##### Table of Contents



Note 5- Segment Information
 Reportable Operating Segments
    Corporate andHousekeeping
    
    Food
    
    Eliminations
    
    TotalQuarter Ended March 31, 2009Revenues
    
    $
    123,913,000
    
    
    $
    34,359,000
    
    
    $
    2,137,000
    (1)
    
    $
    160,409,000Income before income
taxes
    
    $
    12,327,000
    
    
    $
    1,312,000
    
    
    $
    (1,061,000
    )(1)
    
    $
    12,578,000Quarter 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)
    
    $
    11,150,000
 
 (1)
    
    represents primarily corporate office cost and related overhead, recording of
transactions at the reportable segment level which use methods other than generally
acceptable accounting principles and consolidated subsidiaries operating expenses that are
not allocated to the reportable segments, net of investment and interest income. -10-




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##### Table of Contents



Total Revenues from Clients
  For the Quarter Ended March 31,2009
    
    
    2008Housekeeping services
    
    $
    86,730,000
    
    
    $
    82,568,000Laundry and linen services
    
    
    38,906,000
    
    
    
    36,842,000Food Services
    
    
    34,227,000
    
    
    
    27,357,000Maintenance services
and Other
    
    
    546,000
    
    
    
    492,000$
    160,409,000
    
    
    $
    147,259,000
 Major Client
  Note 6   Earnings Per Common Share
  Quarter Ended March 31, 2009Income
    
    
    Shares
    
    
    Per-share(Numerator)
    
    
    (Denominator)
    
    
    AmountNet income
    
    $
    7,736,000Basic earnings per
common share
    
    $
    7,736,000
    
    
    
    43,457,000
    
    
    $
    .18Effect of dilutive securities:Options
    
    
    
    
    
    
    616,000Diluted earnings per
common share
    
    $
    7,736,000
    
    
    
    44,073,000
    
    
    $
    .18
 -11-




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##### Table of Contents



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
 Note 7  Dividends
  Note 8  Share-Based Compensation
 Stock Options
  Weighted AverageRemainingContractual
    
    
    AggregateWeighted Average
    
    
    Number
    
    
    Term
    
    
    IntrinsicPrice
    
    
    of Shares
    
    
    (In Years)
    
    
    ValueOutstanding, January 1, 2009
    
    $
    10.12
    
    
    
    1,894,000Granted
    
    
    15.58
    
    
    
    421,000Cancelled
    
    
    19.48
    
    
    
    ( 20,000
    )Exercised
    
    
    4.25
    
    
    
    (  11,000
    )Outstanding, March 31, 2009
    
    $
    1 1.08
    
    
    
    2 ,284,000
    
    
    
    5.64
    
    
    $
    11,248,000Options exercisable as of March 31, 2009
    
    
    
    
    
    
    1 ,585,000
    
    
    
    3.96
    
    
    $
    11,248,000
  -12-




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##### 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
    
    
    210,000
    
    
    
    2.56
    
    
    $
    2.62
    
    
    
    210,000
    
    
    $
    2.62$3.01 - 5.53
    
    
    614,000
    
    
    
    4.27
    
    
    
    4.76
    
    
    
    614,000
    
    
    
    4.76$9.10 - 9.10
    
    
    338,000
    
    
    
    5.74
    
    
    
    9.10
    
    
    
    338,000
    
    
    
    9.10$13.81 - 15.58
    
    
    767,000
    
    
    
    6.10
    
    
    
    14.77
    
    
    
    351,000
    
    
    
    13.81$20.89 - 20.89
    
    
    355,000
    
    
    
    8.76
    
    
    
    20.89
    
    
    
    72,000
    
    
    
    20.892,284,000
    
    
    
    5.64
    
    
    $
    11.08
    
    
    
    1,585,000
    
    
    $
    8.15
  March
    
    March31, 2009
    
    31, 2008Weighted average grant-date fair value of stock options granted:
    
    $
    1,545,000
    
    
    $
    2,237,000Total fair value of stock options vested:
    
    
    447,000
    
    
    
    -0-Total intrinsic value of stock options exercised:
    
    $
    122,000
    
    
    $
    6,573,000Total pre-tax stock-based compensation expense charged
against income
    
    $
    177,000
    
    
    $
    112,000Total unrecognized compensation expense related to
Non-vested options
    
    $
    2,970,000
    
    
    $
    2,125,000
   2009
    
    2008Risk-free interest rate
    
    
    2.5
    %
    
    
    4.2
    %Expected volatility
    
    
    41.0
    %
    
    
    35.9
    %Weighted average expected life in years
    
    
    6.5
    
    
    
    4.5Dividend yield
    
    
    3.6
    %
    
    
    2.0
    %
 Employee Stock Purchase Plan
 -13-




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##### Table of Contents



2009
    
    2008Risk-free interest rate
    
    
    0.2
    %
    
    
    3.6
    %Expected volatility
    
    
    62.9
    %
    
    
    38.8
    %Weighted average expected life (in years)
    
    
    1.0
    
    
    
    1.0Dividend yield
    
    
    3.6
    %
    
    
    2.0
    %
  Note 9  Related Party Transactions
   Note 10- Income Taxes
  -14-




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Note 11  Recently Issued Accounting Pronouncements
    Note 12  Subsequent Event
 -15-




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##### Table of Contents



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




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RESULTS OF OPERATIONS
  Overview
    -17-




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##### Table of Contents



Consolidated Operations
  Relation to Consolidated RevenuesFor the Quarter Ended March 31,2009
    
    2008Revenues
    
    
    100.0
    %
    
    
    100.0
    %Operating costs and expenses:Costs of services provided
    
    
    86.0
    
    
    
    85.4Selling, general and
administration
    
    
    6.8
    
    
    
    7.2Investment and interest income
    
    
    .6
    
    
    
    .2Income before income taxes
    
    
    7.8
    
    
    
    7.6Income taxes
    
    
    3.0
    
    
    
    2.9Net income
    
    
    4.8
    %
    
    
    4.7
    %
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##### Table of Contents



2009 First Quarter Compared with 2008 First Quarter
  Reportable SegmentsPercent
    
    Corporate and
    
    Housekeeping
    
    FoodConsolidated
    
    incr (decr)
    
    eliminations
    
    Amount
    
    %incr
    
    Amount
    
    %incrRevenues
    
    $
    160,409,000
    
    
    
    8.9
    %
    
    $
    2,137,000
    
    
    $
    123,913,000
    
    
    
    3.7
    %
    
    $
    34,359,000
    
    
    
    26.1
    %Cost of services provided
    
    
    137,892,000
    
    
    
    9.6
    
    
    
    (6,741,000
    )
    
    
    111,586,000
    
    
    
    3.6
    
    
    
    33,047,000
    
    
    
    27.3
    %Selling, general and
administrative expense
    
    
    10,876,000
    
    
    
    2.8
    
    
    
    10,876,000
    
    
    
    
    
    
    
    
    
    
    
    Investment and interest income
    
    
    937,000
    
    
    
    189.0
    
    
    
    937,000
    
    
    
    
    
    
    
    
    
    
    




    Income before income taxes
    
    $
    12,578,000
    
    
    
    12.8
    %
    
    
    (1,061,000
    )
    
    $
    12,327,000
    
    
    
    4.3
    %
    
    $
    1,312,000
    
    
    
    2.6
    %
 Revenues
 Consolidated
   Reportable Segments
    -19-




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##### Table of Contents



Costs of services provided
 Consolidated
  Cost of Services Provided-Key Indicators
    

2009 %
    

2008 %
    

Incr %Bad debt provision
    
    
    .4
    
    
    
    .3
    
    
    
    .1Workers compensation and general
liability insurance
    
    
    3.8
    
    
    
    2.4
    
    
    
    1.4
   Reportable Segments
   Cost of Services Provided-Key Indicators
    

2009 %
    

2008 %
    
    Incr (Decr) %Housekeeping labor and other labor costs
    
    
    81.2
    
    
    
    81.0
    
    
    
    .2Housekeeping supplies
    
    
    6.2
    
    
    
    6.5
    
    
    
    (.3
    )Food labor and other labor costs
    
    
    52.5
    
    
    
    53.7
    
    
    
    (1.2
    )Food supplies
    
    
    41.5
    
    
    
    39.2
    
    
    
    2.3
   Consolidated Selling, General and Administrative Expense
 -20-




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Consolidated Investment and Interest Income
  Income before Income Taxes
 Consolidated
  Reportable Segments
   Consolidated Income Taxes
  Consolidated Net Income
  -21-




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##### Table of Contents



Critical Accounting Policies and Estimates
    Allowance for Doubtful Accounts
    -22-




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##### 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, 2009
    
    $
    9,731,000
    
    
    $
    
    
    
    $
    700,000
    
    
    $
    3,914,000December 31, 2008
    
    $
    8,417,000
    
    
    $
    5,304,000
    
    
    $
    4,234,000
    
    
    $
    3,214,000
   Accrued Insurance Claims
  -23-




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##### Table of Contents



Asset Valuations and Review for Potential Impairment
  Liquidity and Capital Resources
  -24-




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##### Table of Contents



Operating Activities
  Investing Activities
  Financing Activities
    Line of Credit
   -25-




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##### Table of Contents



Covenant Description and Requirement
    
    Status at March 31, 2009Commitment coverage ratio: cash and cash
equivalents must equal or exceed
outstanding obligations under the line by a
multiple of 2
    
    Commitment coverage is 3.0Tangible net worth: must exceed $156,310,000
    
    Tangible net worth is $183,493,000
  Accounts and Notes Receivable
   -26-




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Insurance Programs
     -27-




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##### Table of Contents



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




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##### 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-




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PART II. OTHER INFORMATION
 
 ITEM 1 Legal Proceedings.
  
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 3 Defaults under Senior Securities.
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  
 ITEM 5. Other Information.
 (a)
    
    On January 5, 2009, certain executive
officers and directors were granted stock
options for 104,950 shares, in the aggregate,
at the then current fair market value of
$15.58 per share.
 
 ITEM 6. Exhibits
 (a)
    
    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-




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SIGNATURES
  HEALTHCARE SERVICES GROUP, INC.April 20, 2009
    
    /s/ Daniel P. McCartneyDate
    
    DANIEL P. McCARTNEY, Chief Executive OfficerApril 20, 2009
    
    /s/ Thomas A. CookDate
    
    THOMAS A. COOK, PresidentApril 20, 2009
    
    /s/ Richard W. HudsonDate
    
    RICHARD W. HUDSON, Chief Financial Officer and  Secretary -31-