##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)For the transition period
    from          to   Commission file
    number. 0-12015
      HEALTHCARE SERVICES GROUP,
    INC.
 (Exact name of registrant as
    specified in its charter)
  Pennsylvania

23-2018365(State or other jurisdiction
    of
    incorporated or organization)

(IRS Employer Identification
    No.)3220 Tillman Drive, Suite 300,Bensalem, PA

19020(Address of principal executive
    offices)

(Zip Code)   Registrants telephone number, including area code:
 (215)
    639-4274
  Securities registered pursuant to Section 12(b) of the
    1934 Act:
  Common Stock ($.01 par
    value)

The NASDAQ Stock Market
    LLCTitle of Class

Name of each exchange on which
    securities registered   o þ
  o þ
  þ o
  Regulation S-K Form 10-K - þ
  Rule 12b-2
  þ o o
  Rule 12b-2  o þ
    42,922,000
  DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




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##### Table of Contents





Part I
    Item I.Business.
  (a)  General
     (b)
    Segment Information Form 10-K
  (c)
    Description of
    Services  General
          1




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##### Table of Contents



90-day
     2




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##### Table of Contents



Housekeeping
 Housekeeping
    services. on-site on-site on-site
  Laundry and linen
    services.
  Maintenance and
    other services.
  Laundry installation
    sales.
  Food
 Food
    services. On-site
 3




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##### Table of Contents



Operational
    Management Structure
   
  on-site on-site
  Market
    4




---



##### Table of Contents



Marketing and
    Sales
   on-site
  Government
    Regulation of Clients
          5




---



##### Table of Contents



and/or
  Service
    Agreements/Collections
 on-site
  90-day
    Schedule II-Valuation
  Competition
  6




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##### Table of Contents



Employees
 on-site
    (d)
    Financial
    Information About Geographic Areas   (e)
    Available Information 1-800-SEC-0330.
  Website
    Access
 www.hcsgcorp.com.
 7




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##### Table of Contents



Item 1A.
    Risk
    Factors.     We have one
    client, a nursing home chain, which due to its significant
    contribution to our total revenues, we consider a major
    client.
   Our clients are
    concentrated in the health care industry.
   We have a Paid
    Loss Retrospective Insurance Plan for general liability and
    workers compensation insurance.
 and/or
  We provide
    services in 47 states and are subject to numerous local
    taxing jurisdictions within those states.
  8




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##### Table of Contents



We primarily
    provide our services pursuant to agreements which have a one
    year term, cancelable by either party upon 30 to
    90 days notice after the initial
    90-day
    service agreement period.
 start-up
  We are dependent
    on the management experience of our key personnel.
 on-site
  We may in general
    be adversely affected by inflationary or market fluctuations in
    the cost of products consumed in providing our services or our
    cost of labor.
   Market
    expectations are high and rely greatly on execution of our
    growth strategy and related increases in financial
    performance.
   Item 1B.  Unresolved
    Staff Comments.
   Item 2.  Properties.
    9




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##### Table of Contents



Item 3.  Legal
    Proceedings.
 and/or
  Item 4.  Submission
    of Matters to a Vote of Security Holders.
  10




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##### Table of Contents



PART II
  Item 5.
    Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities. (a)  Market
    Information
     2007 High


2007 Low1st Qtr.


$20.02



$17.812nd Qtr.


$20.18



$17.673rd Qtr.


$23.32



$18.474th Qtr.


$23.51



$19.95   2006 High


2006 Low1st Qtr.


$14.40



$12.142nd Qtr.


$15.01



$12.683rd Qtr.


$17.02



$12.864th Qtr.


$19.43



$16.51   (b)  Holders
   (c)  Dividends
     Cash Dividend

Payment Date

Record Date1st Quarter

$.09

February 14

February 52nd Quarter

$.10

May 11

April 273rd Quarter

$.11

August 10

July 274th Quarter

$.12

November 9

October 29        11




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##### Table of Contents



(d)  Securities
    Authorized for Issuance Under Equity Compensation Plans
   Number of SecuritiesNumber of Securities to be

Weighted-Average

Remaining Available for FutureIssued Upon Exercise of

Exercise Price of

Issuance Under EquityOutstanding Options,

Outstanding Options,

Compensation Plans (ExcludingWarrants and Rights

Warrants and Rights

Securities Reflected in Column (a))Plan Category

(a)

(b)

(c)Equity compensation plans approved by security holders

2,412,0001

$6.34

5,070,0002Equity compensation plans not approved by security holders

N/A

N/A

N/ATotal

2,412,000

$6.34

5,070,000     1
    
    Represents shares of Common Stock issuable upon exercise of
    outstanding options granted under either the 2002 Plan, the 1996
    Plan, or the 1995 Incentive and Non-qualified Stock Option Plan
    (the Stock Option Plans).2
    
    Includes options to purchase 2,733,000 shares available for
    future grant under the Companys Stock Option Plans. Also
    includes 1,942,000 and 394,000 shares available for
    issuance under the Companys 1999 Employee Stock Purchase
    Plan and 1999 Deferred Compensation Plan, respectively
    (collectively, the 1999 Plans). Treasury shares may
    be issued under the 1999 Plans. 12




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##### Table of Contents



(e)  Performance
    Graph
  Copyright
    ©
    2008 Standard & Poors, a division of The McGraw-Hill
    Companies, Inc. All rights reserved.
    www.researchdatagroup.com/S&P.htm
  12/02



12/03



12/04



12/05



12/06



12/07Healthcare Services Group, Inc.



100.00




148.62




245.56




372.21




531.30




595.24S&P 500



100.00




128.68




142.69




149.70




173.34




182.87S&P Health Care Distributors



100.00




108.18




105.44




136.29




134.44




140.02   COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
    
    ©
 13




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##### Table of Contents



Begin:

12/31/2002Period End:

12/31/2007Healthcare Service Group -NASNM

End:

12/31/2007C000002202   BeginningTransaction

Closing


No. Of


Dividend


Dividend


Shares


Ending


Cum. Tot.Date*

Type

Price**


Shares***


per Share


Paid


Reinvested


Shares


Return31-Dec-02

Begin


3.864



25.88















25.882



100.0011-Sep-03

Dividend


4.859



25.88



0.02



0.46



0.095



25.977



126.2329-Oct-03

Dividend


5.037



25.98



0.02



0.54



0.107



26.084



131.3831-Dec-03

Year End


5.698



26.08















26.084



148.6228-Jan-04

Dividend


5.884



26.08



0.02



0.62



0.105



26.189



154.1128-Apr-04

Dividend


7.031



26.19



0.03



0.70



0.099



26.288



184.8328-Jul-04

Dividend


7.560



26.29



0.03



0.82



0.108



26.396



199.5527-Oct-04

Dividend


8.120



26.40



0.04



0.94



0.116



26.512



215.2831-Dec-04

Year End


9.262



26.51















26.512



245.5626-Jan-05

Dividend


8.733



26.51



0.04



1.06



0.121



26.633



232.602-May-05

Dividend


11.271



26.63



0.03



0.83



0.074



26.707



301.0127-Jul-05

Dividend


12.427



26.71



0.05



1.42



0.115



26.821



333.3027-Oct-05

Dividend


11.720



26.82



0.06



1.61



0.137



26.959



315.9531-Dec-05

Year End


13.807



26.96















26.959



372.211-Feb-06

Dividend


13.193



26.96



0.07



1.80



0.136



27.095



357.4726-Apr-06

Dividend


14.327



27.09



0.07



1.99



0.139



27.234



390.1726-Jul-06

Dividend


13.887



27.23



0.08



2.18



0.157



27.390



380.3625-Oct-06

Dividend


18.473



27.39



0.09



2.37



0.129



27.519



508.3731-Dec-06

Year End


19.307



27.52















27.519



531.301-Feb-07

Dividend


18.827



27.52



0.09



2.57



0.136



27.655



520.6625-Apr-07

Dividend


19.613



27.66



0.10



2.77



0.141



27.796



545.1825-Jul-07

Dividend


19.613



27.80



0.11



2.96



0.151



27.947



548.1425-Oct-07

Dividend


21.450



27.95



0.12



3.35



0.156



28.104



602.8331-Dec-07

End


21.180



28.10















28.104



595.24     *
    
    Specified ending dates or ex-dividends dates.**
    
    All Closing Prices and Dividends are adjusted for stock splits
    and stock dividends.***
    
    Begin Shares based on $100 investment.  Recent sales of
    Unregistered Securities
    Purchases of
    Equity Securities by the Issuer and Affiliated
    Purchasers
   14




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##### Table of Contents



Item 6.  Selected
    Financial Data.
 Form 10-K
  (in thousands except for per share data)Years Ended December 31:

2007


2006


2005


2004


2003Selected Operating Results:Total revenue

$
577,721


$
511,631


$
466,291


$
442,568


$
379,718Net income

$
29,578


$
25,452


$
19,096


$
14,699


$
10,860Basic earnings per Common Share

$
.70


$
.62


$
.47


$
.37


$
.28Diluted earnings per Common Share

$
.67


$
.59


$
.45


$
.35


$
.27Selected Balance Sheet Data:Total assets

$
243,368


$
215,556


$
188,430


$
166,964


$
158,328Stockholders equity

$
194,718


$
165,477


$
148,163


$
131,460


$
121,198Selected Other Financial Data:Working capital

$
167,217


$
140,627


$
142,535


$
125,012


$
112,073Cash dividends per common share

$
.42


$
.31


$
.20


$
.11


$
.04Weighted average number of common shares outstanding for basic
    EPS


42,286



41,176



40,381



39,331



38,361Weighted average number of common shares outstanding for diluted
    EPS


43,847



43,148



42,480



41,490



40,023   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operation.  Cautionary
    Statement Regarding Forward Looking Statements
   15




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##### Table of Contents



Results of
    Operations
     No. 97-14 No. 97-14),
  Overview
  16




---



##### Table of Contents



90-day
          Consolidated
    Operations
   Relation to Consolidated RevenuesYears Ended December 31,2007


2006


2005Revenues


100.0
%


100.0
%


100.0
%Operating costs and expenses:Costs of services provided


85.4



85.7



87.1Selling, general and administration


7.0



7.3



7.0Investment and interest income


.7



1.0



.7Income before income taxes


8.3



8.0



6.6Income taxes


3.2



3.0



2.5Net income


5.1
%


5.0
%


4.1
%      17




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##### Table of Contents



2007 Compared with
    2006
   Percent





Reportable Segmentsincrease


Corporate and


Housekeeping


FoodConsolidated


(decrease)


eliminations


Amount


%incr


Amount


%incr(decr)Revenues

$
577,721,000



12.9
%

$
(126,000
)

$
467,833,000



13.5
%

$
110,014,000



8.5
%Cost of services provided


493,364,000



12.5



(36,803,000
)


422,982,000



13.0



107,185,000



9.4Selling, general and administrative


40,284,000



8.3



40,284,000











Investment and interest income


4,022,000



(18.0
)


4,022,000











Income before income taxes

$
48,095,000



18.1
%

$
415,000


$
44,851,000



18.5
%

$
2,829,000



(16.7
)%   Revenues
  Consolidated
   .
  Reportable
    Segments
      18




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##### Table of Contents



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

2007%

2006%

Incr (Decr)%Bad debt provision


1
.1



.1

1.0Workers compensation and general liability insurance


3
.1


3
.5

(.4)     Reportable
    Segments
     Cost of Services Provided-Key
    Indicators

2007%

2006%

Incr (Decr)%Housekeeping labor and other labor costs


81
.5


81
.6


(
.1)Housekeeping segment supplies


5
.2


5
.6


(
.4)Food labor and other labor costs


54
.9


54
.3



.6Food segment supplies


38
.6


37
.4


1
.2       Consolidated
    Selling, General and Administrative Expense
   Consolidated
    Investment and Interest Income
   Income before
    Income Taxes
  Consolidated
  19




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##### Table of Contents



Reportable
    Segments
     Consolidated
    Income Taxes
   Consolidated Net
    Income
   2006 Compared with
    2005
   Reportable SegmentsPercent


Corporate and


Housekeeping


FoodConsolidated


increase


eliminations


Amount


%incr


Amount


%incrRevenues

$
511,631,000



9.7
%

$
(2,019,000
)

$
412,271,000



9.9
%

$
101,379,000



9.2
%Cost of services provided


438,617,000



8.0



(33,778,000
)


374,414,000



9.1



97,981,000



8.6Selling, general and administrative


37,196,000



14.2



37,196,000











Income before income taxes

$
40,723,000



32.2
%

$
(532,000
)

$
37,857,000



18.6
%

$
3,398,000



29.0
%   Revenues
  Consolidated
     Reportable
    Segments
  20




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##### Table of Contents



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

2006%

2005%

(Decr)%Bad debt provision


.1



.3



(.2
)Workers compensation and general liability insurance


3.5



3.9



(.4
)     Reportable Segments
      Cost of Services Provided-Key
    Indicators

2006%


2005%


Incr (Decr)%Housekeeping labor and other labor costs


81.6



82.4



(.8
)Housekeeping segment supplies


5.6



5.5



.1Food labor and other labor costs


54.3



54.9



(.6
)Food segment supplies


37.4



38.6



(1.2
)       Consolidated
    Selling, General and Administrative Expense
   Consolidated
    Investment and Interest Income
  21




---



##### Table of Contents



Income before
    Income Taxes
  Consolidated
   Reportable
    Segments
     Consolidated
    Income Taxes
   Consolidated Net
    Income
   Critical
    Accounting Policies and Estimates
     Form 10-K,
  Allowance for
    Doubtful Accounts
  22




---



##### Table of Contents



and/or
      Aggregate AccountBalances of Clientsin Bankruptcy orin/or Pending

Net Write-Offs

Bad Debt

Allowance forYear Ending

Collection/Litigation

of Client Accounts

Provision

Doubtful Accounts2005

$
2,960,000


$
1,019,000


$
1,425,000


$
2,275,0002006


6,098,000



181,000



622,000



2,716,0002007


9,363,000



4,574,000



6,142,000



4,284,000     Form 10-K
 23




---



##### Table of Contents



Accrued
    Insurance Claims
        Asset
    Valuations and Review for Potential Impairment
   Liquidity and
    Capital Resources
   Operating
    Activities
  24




---



##### Table of Contents



Investing
    Activities
   Financing
    Activities
   1st Quarter

2nd Quarter

3rd Quarter

4th QuarterCash dividend per common share

$      .09

$      .10

$      .11

$      .12Total cash dividends paid

$3,886,000

$4,185,000

$4,538,000

$5,127,000Record date

February 5

April 27

July 27

October 29Payment date

February 14

May 11

August 10

November 9         Line of
    Credit
     Covenant Description and
    Requirement

Status at December 31, 2007Commitment coverage ratio: cash and cash 
    equivalents must equal or exceed outstanding obligations under
    the line of credit by a multiple of 2

Commitment coverage is 3.33Tangible net worth: must exceed $139,000,000

Tangible net worth is $174,000,000    25




---



##### Table of Contents



Accounts and
    Notes Receivable
 agreed-upon
      Insurance
    Programs
      26




---



##### Table of Contents



and/or
  Capital
    Expenditures
   Material
    Off-Balance Sheet Arrangements
   Effects of
    Inflation
  27




---



##### 



Item 7A.  Quantitative
    and Qualitative Disclosures About Market Risk.
   Item 8.  Financial
    Statements and Supplementary Data.
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
   
 PageReport of Independent Registered Public
    Accounting Firm

29Managements Report on Internal Control Over
    Financial Reporting

30Report of Independent Registered Public
    Accounting Firm (on Internal Control Over Financial
    Reporting)

31Consolidated Financial StatementsConsolidated Balance Sheets as of
    December 31, 2007 and 2006

32Consolidated Statements of Income for the Years
    Ended December 31, 2007, 2006 and 2005

33Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2007, 2006 and 2005

34Consolidated Statement of Changes in
    Stockholders Equity for the years Ended December 31,
    2007, 2006 and 2005

35Notes to Consolidated Financial Statements for
    the Years Ended December 31, 2007, 2006 and 2005

36Consent of Independent Registered Public Accounting FirmCertification of Principal Executive OfficerCertification of Principal Financial OfficerCertification of Principal Executive Officer pursuant to Section 906Certification of Principal Financial Officer pursuant to Section 906   28




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm               
    29




---



##### Table of Contents



Managements
    Annual Report on Internal Control Over Financial
    Reporting  Rule 13a-15(f) 15d-15(f)
                Signatures

SignaturesDaniel P. McCartney
    Chief Executive Officer
    February 12, 2008

Richard W. Hudson
    Chief Financial Officer
    February 12, 2008  30




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm     Internal Control  Integrated Framework
        Internal Control  Integrated
    Framework
    
   31




---



##### Table of Contents



Consolidated
    Balance Sheets  December 31,2007


2006AssetsCurrent Assets:Cash and cash equivalents

$
92,461,000


$
72,997,000Accounts and notes receivable, less allowance for doubtful
    accounts of $4,284,000 in 2007 and $2,716,000 in 2006


82,951,000



78,086,000Inventories and supplies


15,117,000



12,640,000Deferred income taxes


465,000



652,000Prepaid expenses and other


4,104,000



3,862,000Total current assets


195,098,000



168,237,000Property and Equipment:Laundry and linen equipment installations


1,718,000



1,781,000Housekeeping equipment and office furniture


16,588,000



16,086,000Autos and trucks


103,000



85,00018,409,000



17,952,000Less accumulated depreciation


14,106,000



13,077,0004,303,000



4,875,000GOODWILL Less accumulated amortization of $1,743,000 in 2007 and
    2006


15,020,000



14,543,000OTHER INTANGIBLE ASSETS Less accumulated amortization of
    $1,409,00 in 2007 and $352,000 in 2006


6,090,000



7,148,000NOTES RECEIVABLElong term portion, net of discount


6,058,000



7,861,000DEFERRED COMPENSATION FUNDING


10,361,000



7,385,000DEFERRED INCOME TAXESlong term portion


6,349,000



5,403,000OTHER NONCURRENT ASSETS


89,000



104,000TOTAL ASSETS

$
243,368,000


$
215,556,000Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable

$
8,902,000


$
10,139,000Accrued payroll, accrued and withheld payroll taxes


11,613,000



10,125,000Other accrued expenses


1,338,000



2,425,000Income taxes payable


1,726,000



274,000Accrued insurance claims


4,302,000



4,647,000Total current liabilities


27,881,000



27,610,000ACCRUED INSURANCE CLAIMSlong term portion


10,037,000



10,843,000DEFERRED COMPENSATION LIABILITY


10,732,000



11,626,000COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Common stock, $.01 par value, 100,000,000 shares
    authorized, 44,715,000 shares issued in 2007 and 43,499,000
    in 2006


447,000



435,000Additional paid-in capital


75,064,000



58,664,000Retained earnings


136,110,000



124,268,000Common stock in treasury, at cost, 2,119,000 shares in 2007
    and 2,276,000 shares in 2006


(16,903,000
)


(17,890,000
)Total Stockholders Equity


194,718,000



165,477,000TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

$
243,368,000


$
215,556,000    32




---



##### Table of Contents



Consolidated
    Statements of Income  Years Ended December 31,2007


2006


2005Revenues

$
577,721,000


$
511,631,000


$
466,291,000Operating costs and expenses:Cost of services provided


493,364,000



438,617,000



406,114,000Selling, general and administrative


40,284,000



37,196,000



32,576,000Other income:Investment and interest


4,022,000



4,905,000



3,198,000Income before income taxes


48,095,000



40,723,000



30,799,000Income taxes


18,517,000



15,271,000



11,703,000Net Income

$
29,578,000


$
25,452,000


$
19,096,000Basic earnings per Common Share

$
.70


$
.62


$
.47Diluted earnings per Common Share

$
.67


$
.59


$
.45Cash dividends per common share

$
.42


$
.31


$
.20Basic weighted average number of common shares outstanding


42,286,000



41,176,000



40,382,000Diluted weighted average number of common shares outstanding


43,847,000



43,147,000



42,480,000    33




---



##### Table of Contents



Consolidated
    Statements of Cash Flows  Years Ended December 31,2007


2006


2005Cash flows from operating activities:Net Income

$
29,578,000


$
25,452,000


$
19,096,000Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


3,004,000



2,306,000



1,872,000Bad debt provision


6,142,000



622,000



1,425,000Deferred income taxes benefits


(759,000
)


(1,386,000
)


(399,000
)Stock-based compensation expense


291,000



481,000



35,000Tax benefit of stock option transactions










3,454,000Unrealized gain on deferred compensation fund investments


(426,000
)


(976,000
)


(705,000
)Changes in operating assets and liabilities:Accounts and notes receivable


(11,008,000
)


(9,422,000
)


(4,897,000
)Inventories and supplies


(2,477,000
)


(840,000
)


(714,000
)Notes receivable  long term portion


1,803,000



(3,306,000
)


1,002,000Deferred compensation funding


(1,684,000
)


(783,000
)


(859,000
)Accounts payable and other accrued expenses


(2,134,000
)


(774,000
)


453,000Accrued payroll, accrued and withheld payroll taxes


2,261,000



1,890,000



2,324,000Accrued insurance claims


(1,151,000
)


413,000



285,000Deferred compensation liability


1,106,000



3,285,000



1,892,000Income taxes payable


1,452,000



(896,000
)


452,000Prepaid expenses and other assets


(227,000
)


54,000



(221,000
)Net cash provided by operating activities


25,771,000



16,120,000



24,495,000Cash flows from investing activities:Disposals of fixed assets


132,000



151,000



85,000Additions to property and equipment


(1,505,000
)


(1,854,000
)


(1,897,000
)Cash paid for acquisition


(477,000
)


(9,736,000
)


Net cash used in investing activities


(1,850,000
)


(11,439,000
)


(1,812,000
)Cash flows from financing activities:Treasury stock transactions in benefit plans


1,142,000



(261,000
)


(173,000
)Acquisition of treasury stock






(8,227,000
)


(3,857,000
)Dividends paid


(17,736,000
)


(12,627,000
)


(8,076,000
)Reissuance of treasury stock pursuant to DividendReinvestment Plan


59,000



44,000



32,000Repayment of debt assumed in acquisition






(6,163,000
)


Tax benefit from equity compensation plans


6,616,000



1,247,000



Proceeds from the exercise of stock options


5,462,000



3,298,000



5,549,000Net cash used in financing activities


(4,457,000
)


(22,689,000
)


(6,525,000
)Net increase (decrease) in cash and cash equivalents


19,464,000



(18,008,000
)


16,158,000Cash and cash equivalents at beginning of the year


72,997,000



91,005,000



74,847,000Cash and cash equivalents at end of the year

$
92,461,000


$
72,997,000


$
91,005,000Supplementary Cash Flow Information:Issuance of 65,000, 96,000, and 135,000 shares of CommonStock in 2007, 2006 and 2005, respectively, pursuant to Employee
    Stock Plans

$
1,254,000


$
728,000


$
643,000Reclassification of deferred compensation obligation pursuant to
    Plan amendment

$
2,866,000Issuance of 554,000 shares of Common Stock related toacquisition

$



$
8,516,000


$
    34




---



##### Table of Contents



Consolidated
    Statements of Stockholders Equity  Years Ended December 31, 2007, 2006 and 2005Additional


TotalCommon Stock


Paid-in


Retained


Treasury


StockholdersShares


Amount


Capital


Earnings


Stock


EquityBalance, December 31, 2004


41,642,000



416,000



39,235,000



101,279,000



(9,470,000
)


131,460,000Net income for the year














19,096,000







19,096,000Exercise of stock options and other share-based compensation,
    net of 21,000 shares tendered for payment


1,350,000



13,000



5,571,000











5,584,000Tax benefit arising from stock option transactions










3,454,000











3,454,000Acquisition of treasury stock (869,000 shares)


















(3,857,000
)


(3,857,000
)Shares purchased and shares sold in employee Deferred
    CompensationPlan and other benefit plans (26,000 shares)


















(173,000
)


(173,000
)Shares issued pursuant to Employee Stock Plans
    (135,000 shares)


24,000



2,000



180,000







461,000



643,000Cash dividends$.20 per common share














(8,076,000
)






(8,076,000
)Shares issued pursuant to Dividend Reinvestment Plan
    (3,000 shares)










19,000







13,000



32,000Balance, December 31, 2005


43,016,000



431,000



48,459,000



112,299,000



(13,026,000
)


148,163,000Cumulative effect adjustment (See Note 13)














(856,000
)






(856,000
)Net income for the year














25,452,000







25,452,000Exercise of stock options and other stock-based compensation,
    net of 6,000 shares tendered for payment


483,000



4,000



3,294,000











3,298,000Tax benefit arising from stock option transactions










1,247,000











1,247,000Shares issued pursuant to acquisition (554,000 shares)










5,429,000







3,087,000



8,516,000Acquisition of treasury stock (503,000 shares)


















(8,227,000
)


(8,227,000
)Shares purchased and shares sold in employee Deferred
    Compensation Plan and other benefit plans (2,000 shares)


















(261,000
)


(261,000
)Shares issued pursuant to Employee Stock Plans
    (96,000 shares)










210,000







518,000



728,000Cash dividends$.31 per common share














(12,627,000
)






(12,627,000
)Shares issued pursuant to Dividend Reinvestment Plan
    (3,000 shares)










25,000







19,000



44,000Balance, December 31, 2006


43,499,000



435,000



58,664,000



124,268,000



(17,890,000
)

$
165,477,000Net income for the year














29,578,000







29,578,000Exercise of stock options and other stock-based compensation,
    net of 23,000 shares tendered for payment


1,216,000



12,000



5,450,000











5,462,000Tax benefit arising from stock option transactions










6,616,000











6,616,000Shares purchased and shares sold in employee Deferred
    CompensationPlan and other benefit plans (89,000 shares)










690,000







452,000



1,142,000Shares issued pursuant to Employee Stock Plans
    (65,000 shares)










745,000







509,000



1,254,000Reclassification of deferred compensation plan liability










2,866,000











2,866,000Cash dividends$.42 per common share














(17,736,000
)






(17,736,000
)Shares issued pursuant to Dividend Reinvestment Plan
    (3,000 shares)










33,000







26,000



59,000Balance, December 31, 2007


44,715,000


$
447,000


$
75,064,000


$
136,110,000


$
(16,903,000
)

$
194,718,000    35




---



##### Table of Contents



Notes to
    Consolidated Financial Statements  Note 1
    Summary of
    Significant Accounting Policies  Nature of
    Operations
   90-day
          Principles of
    Consolidation
   Cash and Cash
    Equivalents
   Inventories and
    Supplies
 first-in,
  Property and
    Equipment
  36




---



##### Table of Contents



Revenue
    Recognition
     Income
    Taxes
     Earnings per
    Common Share
   Share-Based
    Compensation
  37




---



##### Table of Contents



Advertising
    Costs
   Impairment of
    Long-Lived Assets
   Identifiable
    Intangible Assets and Goodwill
       Treasury
    Stock
   Three-for-Two
    Stock Splits
   Use of Estimates
    in Financial Statements
  38




---



##### Table of Contents



Concentrations of
    Credit Risk
     Major
    Client
   Reportable SegmentsRevenues


Amounts due at December 31,Total Revenues


Housekeeping


Food


% of accounts receivable balance2007


16%



15%



21%



less than 1%2006


18%



16%



26%



less than 1%2005


19%



18%



27%



less than 1%     Fair Value of
    Financial Instruments
    39




---



##### Table of Contents



Recent Accounting
    Pronouncements
         Note 2
    Acquisition     40




---



##### Table of Contents



Accounts and notes receivable, net

$
10,441,000Other assets


312,000Fixed assets


382,000Identifiable Intangible Assets


7,500,000Goodwill


13,409,000Total assets acquired


32,044,000Accounts payable, accrued expenses and other liabilities


(13,315,000
)Net assets acquired

$
18,729,000     Customer


Non-CompeteYear

Relationships


Agreements


Total2008

$
957,000


$
100,000


$
1,057,0002009

$
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     2007


2007


2006


2006Segment

Housekeeping


Food


Housekeeping


FoodRevenues

$
40,078,000


$
2,762,000


$
14,719,000


$
1,189,000Amortization

$
957,000


$
100,000


$
316,000


$
36,000     Note 3
    Allowance for
    Doubtful Accounts  41




---



##### Table of Contents



Impaired Notes
    Receivable
       Impaired Notes ReceivableBalance








BalanceBeginning








End ofof Year


Additions


Deductions


Year2007

$
200,000


$
400,000


$
200,000


$
400,0002006

$
2,500,000


$



$
2,300,000


$
200,0002005

$
2,500,000


$
60,000


$
60,000


$
2,500,000   Reserve for Impaired Notes ReceivableBalance








BalanceBeginning








End ofof Year


Additions


Deductions


Year2007

$
200,000


$
200,000


$
200,000


$
200,0002006

$
1,300,000


$



$
1,100,000


$
200,0002005

$
500,000


$
900,000


$
100,000


$
1,300,000  42




---



##### Table of Contents



Note 4
    Lease
    Commitments   OperatingYear

Leases2008

$
1,025,0002009


562,0002010


398,0002011


4,000Thereafter


Total minimum lease payments

$
1,989,000     Note
    5
    Share-Based
    Compensation (
   43




---



##### Table of Contents



2005Net income as reported

$
19,096,000Deduct:Total share-based employee compensation expense determined under
    fair
    value based method for all awards, net of related tax effects:Stock Option Plans


(3,735,000
)ESPP


(604,000
)Pro forma net income

$
14,757,000Basic Earnings Per Common ShareAs reported

$
.47Pro forma

$
.37Diluted Earnings Per Common ShareAs reported

$
.45Pro forma

$
.35     Stock Option
    Plans
     Incentive Stock
    Options
  44




---



##### Table of Contents



2007


2006


2005Weighted





Weighted





WeightedAverage


Number


Average


Number


Average


NumberPrice


of Shares


Price


of Shares


Price


of SharesBeginning of period

$
6.85



1,754,000


$
6.93



2,294,000


$
4.90



2,954,000Granted


















13.81



477,000Cancelled


8.85



(1,000
)


6.45



(126,000
)


3.61



(83,000
)Exercised


5.81



(754,000
)


7.45



(414,000
)


4.62



(1,054,000
)End of period

$
7.63



999,000


$
6.85



1,754,000


$
6.93



2,294,000       Options Outstanding


Options ExercisableAverage


Weighted





WeightedRemaining


Average





AverageNumber


Contractual


Exercise


Number


ExerciseExercise Price Range

Outstanding


Life


Price


Exercisable


Price$1.502.74


107,000



3.09


$
2.31



107,000


$
2.31$3.013.75


193,000



4.76



3.55



193,000



3.55$5.535.53


240,000



5.99



5.53



240,000



5.53$9.109.10


208,000



6.99



9.10



208,000



9.10$13.8113.81


251,000



3.00



13.81



251,000



13.81999,000



4.90


$
7.63



999,000


$
7.63   Non-Qualified
    Options
     2007


2006


2005Weighted





Weighted





WeightedAverage


Number


Average


Number


Average


NumberPrice


of Shares


Price


of Shares


Price


of SharesBeginning of period

$
4.83



1,896,000


$
4.79



1,971,000


$
3.75



2,126,000Granted


















13.81



162,000Cancelled






















Exercised


3.10



(483,000
)


3.63



(75,000
)


2.45



(317,000
)End of period

$
5.43



1,413,000


$
4.83



1,896,000


$
4.79



1,971,000    45




---



##### Table of Contents



Options Outstanding


Options ExercisableAverage


Weighted





WeightedRemaining


Average





AverageNumber


Contractual


Exercise


Number


ExerciseExercise Price Range

Outstanding


Life


Price


Exercisable


Price$1.502.74


608,000



3.09


$
2.51



608,000


$
2.51$3.013.75


185,000



4.95



3.73



185,000



3.73$5.535.53


256,000



5.99



5.53



256,000



5.53$9.109.10


211,000



6.99



9.10



211,000



9.10$13.8113.81


153,000



3.00



13.81



153,000



13.811,413,000



4.43


$
5.43



1,413,000


$
5.43   Fair Value
    Valuation Estimates
   2005Risk-Free Interest-Rate


7.00
%Weighted Average Expected Life
    Incentive Options


2.32yearsNon-Qualified Options


4.20yearsExpected Volatility


35.0
%Dividend Yield


1.45
%   Other
    Information
   2007

2006

2005Aggregate intrinsic value of stock options exercised

$
18,084,000


$
3,689,000


$
10,560,000Aggregate intrinsic value of outstanding stock options

$
35,723,000


$
49,322,000


$
33,556,000   Employee Stock
    Purchase Plan
  46




---



##### Table of Contents



ESPP Annual Offering2007

2006

2005Common shares purchased

61,000

65,000

96,000Per common share purchase price

$16.41

$11.95

$7.55Amount expensed under ESPP

$291,000

$481,000

Common shares date of issue

January 14, 2008

January 17, 2007

January 9, 2006   Deferred
    Compensation Plan
   SERP Plan Year2007

2006

2005Amount of company match expensed under SERP

$371,000

$353,000

$317,000Treasury shares issued to fund SERP expense

18,000

18,000

23,000SERP trust account balance at December 31

$13,578,0001

$11,705,0001

$8,431,0001Unrealized gains recorded in SERP liability account

$241,0002

$1,944,0002

$1,312,0002     1
    
    SERP trust account investments are recorded at their fair value
    which is based on quoted market prices. Differences between such
    amounts in the table above and the deferred compensation funding
    asset reported on our Consolidated Balance Sheets represent the
    value of our Common Stock held in the Plans
    participants trust account and reported by us as treasury
    stock in our Consolidated Balance Sheets.2
    
    Includes unrecognized loss on our Common Stock held in
    Plans participants trust account of $185,000 in the
    2007 SERP Plan year, and unrecognized gains on our Common Stock
    held in the Plans participants trust account of
    $970,000 and $607,000 for the 2006 and 2005 SERP Plan years,
    respectively. The Common Stock unrecognized loss in 2007
    represents such loss as of May 31, 2007, the date of the
    modification of the SERP Plan.   47




---



##### Table of Contents



Note 6
    Other Employee
    Benefit Plans  Retirement
    Savings Plan
   Note 7
    Dividends   2007 Cash Dividend Payments

1st Quarter

2nd Quarter

3rd Quarter

4th QuarterCash dividend per common share

$.09

$.10

$.11

$.12Total cash dividends paid

$3,886,000

$4,185,000

$4,538,000

$5,127,000Record date

February 5

April 27

July 27

October 29Payment date

February 14

May 11

August 10

November 9        48




---



##### Table of Contents



Note 8
    Income
    Taxes   Year Ended December 31,2007


2006


2005Current:Federal

$
15,608,000


$
14,131,000


$
9,732,000State


3,529,000



2,526,000



2,370,00019,137,000



16,657,000



12,102,000Deferred:Federal


(513,000
)


(1,138,000
)


(504,000
)State


(107,000
)


(248,000
)


105,000(620,000
)


(1,386,000
)


(399,000
)Tax Provision

$
18,517,000


$
15,271,000


$
11,703,000       Year Ended December 31,2007


2006Net current deferred assets:Allowance for doubtful accounts

$
1,892,000


$
1,293,000Accrued insurance claimscurrent


1,682,000



1,821,000Expensing of housekeeping supplies


(2,848,000
)


(2,234,000
)Other


(261,000
)


(228,000
)$
465,000


$
652,000Net noncurrent deferred tax assets:Deferred compensation

$
4,965,000


$
4,066,000Non-deductible reserves


59,000



181,000Depreciation of property and equipment


(483,000
)


(589,000
)Accrued insurance claimsnoncurrent


3,926,000



4,248,000Amortization of intangibles


(2,143,000
)


(2,541,000
)Other


25,000



38,000$
6,349,000


$
5,403,000  49




---



##### Table of Contents



Year Ended December 31,2007


2006


2005Tax expense computed at statutory rate

$
16,832,000


$
14,253,000


$
10,779,000Increases (decreases) resulting from:State income taxes, net of federal tax benefit


2,130,000



1,198,000



1,576,000Federal jobs credits


(379,000
)


(183,000
)


(524,000
)Tax exempt interest


(414,000
)


(373,000
)


(243,000
)Other, net


348,000



376,000



115,000$
18,517,000


$
15,271,000


$
11,703,000       and/or
      Note 9
    Related Party
    Transactions     Note 10
    Segment
    Information  Reportable
    Operating Segments
  50




---



##### Table of Contents



Corporate andHousekeeping


Food


Eliminations


TotalYear Ended December 31, 2007Revenues

$
467,833,000


$
110,014,000


$
(126,000
)

$
577,721,000Income before income taxes


44,851,000



2,829,000



415,0001



48,095,000Depreciation and amortization


2,311,000



248,000



445,000



3,004,000Total assets


100,529,000



24,873,000



117,966,0002



243,368,000Capital Expenditures

$
1,049,000


$
70,000


$
386,000


$
1,505,000Year Ended December 31, 2006Revenues

$
412,271,000


$
101,379,000


$
(2,019,000
)

$
511,631,000Income before income taxes


37,857,000



3,398,000



(532,000
)1


40,723,000Depreciation


1,356,000



136,000



814,000



2,306,000Total assets


101,066,000



23,126,000



91,364,0002



215,556,000Capital Expenditures

$
1,359,000


$
16,000


$
479,000


$
1,854,000Year Ended December 31, 2005Revenues

$
375,133,000


$
92,864,000


$
(1,706,000
)

$
466,291,000Income before income taxes


31,909,000



2,634,000



(3,744,000
)1


30,799,000Depreciation


1,229,000



116,000



527,000



1,872,000Total assets


62,631,000



17,754,000



108,045,0002



188,430,000Capital Expenditures

$
1,334,000


$
2,000


$
561,000


$
1,897,000     1
    
    represents primarily corporate office cost and related overhead,
    as well as consolidated subsidiaries operating expenses
    that are  not allocated to the reportable segments, net of
    investment and interest income.2
    
    represents primarily cash and cash equivalents, deferred income
    taxes and other current and noncurrent assets. 51




---



##### Table of Contents



Total Revenues
    from Clients
   Year Ended December 31,2007


2006


2005Housekeeping services

$
325,033,000


$
293,374,000


$
262,842,000Laundry and linen services


140,531,000



116,254,000



109,764,000Food services


110,002,000



99,513,000



91,244,000Maintenance services and Other


2,155,000



2,490,000



2,441,000$
577,721,000


$
511,631,000


$
466,291,000   Major
    Client
   Note 11
    Earnings Per
    Common Share   Year Ended December 31, 2007Income


Shares


Per-Share(Numerator)


(Denominator)


AmountNet Income

$
29,578,000Basic earnings per common share


29,578,000



42,286,000


$
.70Effect of dilutive securities: Options






1,561,000



(.03
)Diluted earnings per common share

$
29,578,000



43,847,000


$
.67   Year Ended December 31, 2006Income


Shares


Per-Share(Numerator)


(Denominator)


AmountNet Income

$
25,452,000Basic earnings per common share


25,452,000



41,176,000


$
.62Effect of dilutive securities: Options






1,971,000



(.03
)Diluted earnings per common share

$
25,452,000



43,147,000


$
.59   52




---



##### Table of Contents



Year Ended December 31, 2005Income


Shares


Per-Share(Numerator)


(Denominator)


AmountNet Income

$
19,096,000Basic earnings per common share


19,096,000



40,382,000


$
.47Effect of dilutive securities: Options






2,098,000



(.02
)Diluted earnings per common share

$
19,096,000



42,480,000


$
.45     Note 12
    Other
    Contingencies             Note 13
    Cumulative Effect
    of Adjustment to Deferred Compensation Liability  53




---



##### Table of Contents



No. 97-14 No. 97-14),
    Note 14
    Accrued Insurance
    Claims   and/or
     54




---



##### Table of Contents



Note 15
    Selected
    Quarterly Financial Data (Unaudited)  Three Months EndedMarch 31


June 30


September 30


December 312007Revenues

$
140,679,000


$
142,377,000


$
146,081,000


$
148,584,000Operating costs and expenses

$
129,825,000


$
131,190,000


$
135,341,000


$
137,292,000Income before income taxes

$
12,115,000


$
12,234,000


$
11,868,000


$
11,878,000Net income

$
7,450,000


$
7,524,000


$
7,299,000


$
7,305,000Basic earnings per common
    share1

$
.18


$
.18


$
.17


$
.17Diluted earnings per common
    share1

$
.17


$
.17


$
.17


$
.17Cash dividends per common
    share1

$
.09


$
.10


$
.11


$
.122006Revenues

$
118,918,000


$
122,840,000


$
130,083,000


$
139,790,000Operating costs and expenses

$
111,256,000


$
113,800,000


$
121,475,000


$
129,283,000Income before income taxes

$
9,009,000


$
10,013,000


$
9,906,000


$
11,795,000Net income

$
5,676,000


$
6,308,000


$
6,241,000


$
7,227,000Basic earnings per common
    share1

$
.14


$
.15


$
.15


$
.17Diluted earnings per common
    share1

$
.13


$
.15


$
.15


$
.17Cash dividends per common
    share1

$
.07


$
.07


$
.08


$
.09     1
    
    Year-to-date
    earnings and cash dividends per common share amounts may differ
    from the sum of quarterly amounts due to rounding. 55




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##### Table of Contents



Item 9.
    Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure.   Item 9A.
    Controls and Procedures.
  Evaluation of
    Disclosure Controls and Procedures
 Rules 13a-15 15a-15,
  Design and
    Evaluation of Internal Control Over Financial
    Reporting
 Form 10-K
    Changes in
    Internal Control over Financial Reporting
 Form 10-K
  Item 9B.
    Other
    Information.   Part III
  Item 10.
    Directors,
    Executive Officers and Corporate Governance.   Item 11.
    Executive
    Compensation.   Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.  56




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##### Table of Contents



Item 13.
    Certain
    Relationships and Related Transactions.   Item 14.
    Principal
    Accounting Fees and Services   Part IV
  Item 15.
    Exhibits and
    Financial Statement Schedules  (a)  Index
    of Financial Statements
 10-K Item 8-
  (b)  Index
    of Exhibits
   ExhibitNumber

Description3.1

Articles of Incorporation of the Registrant, as amended, are
    incorporated by reference to Exhibit 4.1 to the
    Companys Registration Statement on
    Form S-2
    (File
    No. 33-35798).3.2

Amendment to Articles of Incorporation of the Registrant as of
    May 30, 2000, is incorporated by reference to
    Exhibit 3.2 to the Companys
    Form 10-K
    for the period ended December 31, 2001.3.3

Amendment to Articles of Incorporation of the Registrant as of
    May 22, 2007, is incorporated by reference to
    Exhibit 3.1 to the Companys
    Form 8-K
    filed May 24, 2007.4.1

Specimen Certificate of the Common Stock, $.01 par value,
    of the Registrant is incorporated by reference to
    Exhibit 4.1 of Registrants Registration Statement on
    Form S-18
    (Commission File
    No. 2-87625-W).4.2**

Employee Stock Purchase Plan of the Registrant is incorporated
    by reference to Exhibit 4(a) of Registrants
    Registration Statement on
    Form S-8
    (Commission File
    No. 333-92835).4.3**

Amendment to Employee Stock Purchase Plan is incorporated by
    reference to Exhibit 4.3 to the Companys
    Form 10-K
    for the period ended December 31, 2003.4.4**

Deferred Compensation Plan is incorporated by reference to
    Exhibit 4(b) of Registrants Registration Statement on
    Form S-8
    (Commission File
    No. 333-92835).10.1**

1995 Incentive and Non-Qualified Stock Option Plan, as amended
    is incorporated by reference to Exhibit 4(d) of the
    Form S-8
    filed by the Registrant, Commission File
    No. 33-58765.10.2**

Amendment to the 1995 Employee Stock Option Plan is incorporated
    by reference to Exhibit 4(a) of Registrants
    Registration Statement on
    Form S-8
    (Commission File
    No. 333-46656).10.3**

1996 Non-Employee Directors Stock Option Plan, Amended and
    Restated as of October 28, 1997 is incorporated by
    reference to Exhibit 10.6 of
    Form 10-Q
    Report for the quarter ended September 30, 1997 filed by
    Registrant on November 14, 1997).10.4**

Form of Non-Qualified Stock Option Agreement granted to certain
    Directors is incorporated by reference to Exhibit 10.9 of
    Registrants Registration Statement on
    Form S-1
    (Commission File
    No. 2-98089).10.5**

Amended and restated 2002 Stock Option Plan is incorporated by
    reference to Exhibit 4(1) to the Companys
    Registration Statement on
    Form S-8
    (Commission File
    No. 333-127747).10.7

Healthcare Services Group, Inc. Dividend Reinvestment Plan is
    incorporated by reference to the Companys Registration
    Statement on
    Form S-3
    (Commission File
    No. 333-108182).14.

Code of Ethics and Business Conduct. Such document is available
    at our website www.hcsgcorp.com21.

List of subsidiaries is filed herewith in Part I,
    Item I. 57




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##### Table of Contents



ExhibitNumber

Description23.

Consent of Independent Registered Public Accounting Firm.31.1

Certification of Principal Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act.31.2

Certification of Principal Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act.32.1

Certification of the Principal Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act.32.2

Certification of the Principal Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act.     **
    
    indicates that exhibit is a management contract or a management
    compensatory plan or arrangement  (c)  Financial
    Statement Schedules
  58




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##### Table of Contents



Signatures
        By:
    /s/  Daniel
    P. McCartney        Signature

Title

Date/s/  Daniel
    P. McCartneyDaniel
    P. McCartney

Chief Executive
    Officer and Chairman

February 12, 2008/s/  Joseph
    F. McCartneyJoseph
    F. McCartney

Director and Vice
    President

February 12, 2008/s/  Barton
    D. WeismanBarton
    D. Weisman

Director

February 12, 2008/s/  Robert
    L. FromeRobert
    L. Frome

Director

February 12, 2008/s/  Thomas
    A. CookThomas
    A. Cook

Director, President
    and Chief Operating Officer

February 12, 2008/s/  John
    M. BriggsJohn
    M. Briggs

Director

February 12, 2008/s/  Robert
    J. MossRobert
    J. Moss

Director

February 12, 2008/s/  Dino
    D. OttavianoDino
    D. Ottaviano

Director

February 12, 2008/s/  Richard
    W. HudsonRichard
    W. Hudson

Chief Financial
    Officer and Secretary

February 12, 2008  59