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Form 10-Q HEALTHCARE SERVICES GROU For: Mar 31

April 22, 2016 4:18 PM EDT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  þ    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES  þ    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer 
þ
 
Accelerated filer 
¨
 
Non-accelerated filer  
¨
 
Smaller reporting company  
¨
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Do not check if a smaller  reporting company)
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES  ¨    NO  þ

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value: 72,363,000 shares outstanding as of April 20, 2016.


1




Healthcare Services Group, Inc.
Quarterly Report on Form 10-Q
For the Period Ended March 31, 2016

TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 



2




CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report and documents incorporated by reference into this report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are not historical facts but rather are based on current expectations, estimates and projections about our business and industry, our beliefs and assumptions. Words such as "believes," "anticipates," "plans," "expects," "will," "goal," and similar expressions are intended to identify forward-looking statements. The inclusion of forward-looking statements should not be regarded as a representation by us that any of our plans will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Such forward-looking information is also subject to various risks and uncertainties. Such risks and uncertainties include, but are not limited to, risks arising from our providing services exclusively to the health care industry, primarily providers of long-term care; credit and collection risks associated with this industry; having several significant clients who each individually contributed at least 3% with one as high as 9% of our total consolidated revenues for the three months ended March 31, 2016; our claims experience related to workers’ compensation and general liability insurance; the effects of changes in, or interpretations of laws and regulations governing the industry, our workforce and services provided, including state and local regulations pertaining to the taxability of our services and other labor related matters such as minimum wage increases; continued realization of tax benefits arising from our corporate reorganization and self-funded insurance program transition; risks associated with the reorganization of our corporate structure; and the risk factors and other information described in Part I, Item I. of our Form 10-K for the fiscal year ended December 31, 2015 under "Government Regulation of Clients," "Competition" and "Service Agreements and Collections," and under Item IA. "Risk Factors."

These factors, in addition to delays in payments from clients and/or clients in bankruptcy or clients with which we are in litigation to collect payment, have resulted in, and could continue to result in, significant additional bad debts in the near future. Additionally, our operating results would be adversely affected if unexpected increases in the costs of labor and labor-related costs, materials, supplies and equipment used in performing services could not be passed on to our clients.

In addition, we believe that to improve our financial performance we must continue to obtain service agreements with new clients, provide new services to existing clients, achieve modest price increases on current service agreements with existing clients and maintain internal cost reduction strategies at our various operational levels. Furthermore, we believe that our ability to sustain the internal development of managerial personnel is an important factor impacting future operating results and successfully executing projected growth strategies.


3




PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Healthcare Services Group, Inc.
Consolidated Balance Sheets

 
(Unaudited)
 
 
 
March 31, 2016
 
December 31, 2015
ASSETS:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
29,120,000

 
$
33,189,000

Marketable securities, at fair value
72,358,000

 
69,496,000

Accounts and notes receivable, less allowance for doubtful accounts of $4,577,000 as of March 31, 2016 and $4,608,000 as of December 31, 2015
236,412,000

 
214,854,000

Inventories and supplies
37,927,000

 
36,308,000

Prepaid income taxes
915,000

 

Prepaid expenses and other
14,773,000

 
11,495,000

Total current assets
391,505,000

 
365,342,000

Property and equipment, net
13,275,000

 
13,086,000

Goodwill
44,438,000

 
44,438,000

Other intangible assets, less accumulated amortization of $12,783,000 as of March 31, 2016 and $19,473,000 as of December 31, 2015
16,297,000

 
17,108,000

Notes receivable - long term portion
3,213,000

 
2,972,000

Deferred compensation funding, at fair value
25,659,000

 
25,391,000

Deferred income taxes
8,664,000

 
12,567,000

Other noncurrent assets
44,000

 
45,000

TOTAL ASSETS
$
503,095,000

 
$
480,949,000

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
39,773,000

 
$
41,472,000

Accrued payroll, accrued and withheld payroll taxes
34,065,000

 
18,062,000

Other accrued expenses
2,889,000

 
3,115,000

Income taxes payable

 
3,212,000

Accrued legal expenses
4,394,000

 
10,464,000

Accrued insurance claims
21,475,000

 
19,740,000

Total current liabilities
102,596,000

 
96,065,000

Accrued insurance claims - long term portion
61,783,000

 
62,510,000

Deferred compensation liability
25,761,000

 
25,918,000

Commitments and contingencies


 


STOCKHOLDERS’ EQUITY:
 
 
 
Common stock, $.01 par value; 100,000,000 shares authorized; 74,037,000 shares issued and outstanding as of March 31, 2016 and 73,793,000 shares as of December 31, 2015
740,000

 
738,000

Additional paid-in capital
209,450,000

 
199,294,000

Retained earnings
112,354,000

 
106,886,000

Accumulated other comprehensive income, net of taxes
1,098,000

 
543,000

Common stock in treasury, at cost; 1,699,000 shares as of March 31, 2016 and 1,759,000 shares as of December 31, 2015
(10,687,000
)
 
(11,005,000
)
Total stockholders’ equity
312,955,000

 
296,456,000

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
503,095,000

 
$
480,949,000


See accompanying notes.

4




Healthcare Services Group, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)

 
For the Three Months Ended
March 31,
 
2016
 
2015
Revenues
$
384,807,000

 
$
355,246,000

Operating costs and expenses:
 
 
 
Costs of services provided
330,044,000

 
303,936,000

Selling, general and administrative expense
25,346,000

 
26,763,000

Other income, net:
 
 
 
Investment and interest
187,000

 
507,000

Income before income taxes
29,604,000

 
25,054,000

Income tax provision
10,978,000

 
9,538,000

Net income
$
18,626,000

 
$
15,516,000

 
 
 
 
Per share data:
 
 
 
Basic earnings per common share
$
0.26

 
$
0.22

Diluted earnings per common share
$
0.26

 
$
0.22

 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
Basic
72,364,000

 
71,469,000

Diluted
73,014,000

 
72,159,000

 
 
 
 
Comprehensive income:
 
 
 
Net income
$
18,626,000

 
$
15,516,000

Other comprehensive income:
 
 
 
Unrealized gain on available for sale marketable securities, net of taxes
555,000

 
3,000

Total comprehensive income
$
19,181,000

 
$
15,519,000


See accompanying notes.


5




Healthcare Services Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
For the Three Months Ended March 31,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
18,626,000

 
$
15,516,000

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
1,965,000

 
1,911,000

Bad debt provision
1,100,000

 
925,000

Deferred income tax
3,395,000

 
525,000

Stock-based compensation expense
1,118,000

 
884,000

Tax benefit from equity compensation plans
(509,000
)
 
(499,000
)
Amortization of premium on marketable securities
318,000

 
93,000

Unrealized loss (gain) on deferred compensation fund investments
278,000

 
(365,000
)
Changes in operating assets and liabilities:
 
 
 
Accounts and notes receivable
(22,899,000
)
 
(11,746,000
)
Prepaid income taxes
(915,000
)
 
912,000

Inventories and supplies
(1,619,000
)
 
44,000

Prepaid expenses and other assets
(3,277,000
)
 
(1,235,000
)
Deferred compensation funding
(268,000
)
 
451,000

Accounts payable and other accrued expenses
(4,100,000
)
 
(2,351,000
)
Accrued payroll, accrued and withheld payroll taxes
18,070,000

 
(21,002,000
)
Accrued insurance claims
1,009,000

 
2,979,000

Deferred compensation liability
100,000

 
76,000

Income taxes payable
(2,703,000
)
 
6,678,000

Net cash provided by (used in) operating activities
9,689,000

 
(6,204,000
)
 
 
 
 
Cash flows from investing activities:
 
 
 
Disposals of fixed assets
114,000

 
41,000

Additions to property and equipment
(1,459,000
)
 
(1,436,000
)
Purchases of marketable securities
(4,966,000
)
 
(989,000
)
Sales of marketable securities
2,640,000

 
846,000

Net cash used in investing activities
(3,671,000
)
 
(1,538,000
)
 
 
Cash flows from financing activities:
 
 
 
Dividends paid
(13,158,000
)
 
(12,655,000
)
Reissuance of treasury stock pursuant to Dividend Reinvestment Plan
28,000

 
26,000

Tax benefit from equity compensation plans
509,000

 
499,000

Proceeds from the exercise of stock options
2,534,000

 
2,884,000

Net cash used in financing activities
(10,087,000
)
 
(9,246,000
)
 
 
Net change in cash and cash equivalents
(4,069,000
)
 
(16,988,000
)
Cash and cash equivalents at beginning of the period
33,189,000

 
75,280,000

Cash and cash equivalents at end of the period
$
29,120,000

 
$
58,292,000

 
 
 
 
Supplementary Cash Flow Information:
 
 
 
Cash paid for interest
$
155,000

 
$
22,000

Cash paid for income taxes, net of refunds
$
11,201,000

 
$
1,424,000


See accompanying notes.

6




Healthcare Services Group, Inc.
Consolidated Statement of Stockholders’ Equity
(Unaudited)

 
For the Three Months Ended March 31, 2016
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive Income, net of taxes
 
Retained Earnings
 
Treasury Stock
 
Stockholders’ Equity
 
Shares
 
Amount
 
Balance — December 31, 2015
73,793,000

 
$
738,000

 
$
199,294,000

 
$
543,000

 
$
106,886,000

 
$
(11,005,000
)
 
$
296,456,000

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income for the period
 
 
 
 
 
 
 
 
18,626,000

 
 
 
18,626,000

Unrealized gain on available for sale marketable securities, net of taxes
 
 
 
 
 
 
555,000

 
 
 
 
 
555,000

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
19,181,000

Exercise of stock options and other stock-based compensation, net of shares tendered
131,000

 
1,000

 
2,533,000

 
 
 
 
 


 
2,534,000

Tax benefit from equity compensation plans
 
 
 
 
300,000

 
 
 
 
 
 
 
300,000

Share-based compensation expense — stock options and restricted stock

 
 
 
1,013,000

 
 
 
 
 
 
 
1,013,000

Treasury shares issued for Deferred Compensation Plan funding and redemptions
 
 
 
 
525,000

 
 
 
 
 
9,000

 
534,000

Shares issued pursuant to Employee Stock Purchase Plan
 
 
 
 
1,696,000

 
 
 
 
 
371,000

 
2,067,000

Cash dividends
 
 
 
 
 
 
 
 
(13,158,000
)
 
 
 
(13,158,000
)
Shares issued pursuant to Dividend Reinvestment Plan
 
 
 
 
90,000

 
 
 
 
 
(62,000
)
 
28,000

Shares issued pursuant to settlement
113,000

 
1,000

 
3,999,000

 
 
 
 
 
 
 
4,000,000

Balance — March 31, 2016
74,037,000

 
$
740,000

 
$
209,450,000

 
$
1,098,000

 
$
112,354,000

 
$
(10,687,000
)
 
$
312,955,000


See accompanying notes.

7




Healthcare Services Group, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

Note 1— Description of Business and Significant Accounting Policies

Nature of Operations

Healthcare Services Group, Inc. (the "Company") provides management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of the health care industry, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. Although we do not directly participate in any government reimbursement programs, our clients’ reimbursements are subject to government regulation. Therefore, they are directly affected by any legislation relating to Medicare and Medicaid reimbursement programs.

We provide our services primarily pursuant to full service agreements with our clients. In such agreements, we are responsible for the day-to-day management of employees located at our clients’ facilities. We also provide services on the basis of management-only agreements for a limited number of clients. Our agreements with clients typically provide for renewable one year service terms, cancelable by either party upon 30 to 90 days’ notice after the initial 60 to 120 day period.

We are organized into two reportable segments: housekeeping, laundry, linen and other services ("Housekeeping"), and dietary department services ("Dietary").

Housekeeping consists of the managing of clients' housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of patient rooms and common areas of a client’s facility, as well as the laundering and processing of the personal clothing belonging to the facility’s patients. Also within the scope of this segment’s service is the responsibility for laundering and processing of the bed linens, uniforms and other assorted linen items utilized by a client facility.

Dietary consists of managing clients' dietary department which is principally responsible for food purchasing, meal preparation and providing dietitian consulting professional services, which includes the development of a menu that meets the patient’s dietary needs.

Unaudited Interim Financial Data

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows. However, in our opinion, all adjustments which are of a normal recurring nature and necessary for a fair presentation have been reflected in these consolidated financial statements. The balance sheet shown in this report as of December 31, 2015 has been derived from, and does not include, all of the disclosures contained in the financial statements for the year ended December 31, 2015. These financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for any future period.

Certain amounts in the prior year financial statements have been reclassified to conform to current presentation.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Healthcare Services Group, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents are held in U.S. financial institutions or in custodial accounts with U.S. financial institutions. Cash equivalents are defined as short-term, highly liquid investments with a maturity of three months or less at time of purchase that are readily convertible into cash and have insignificant interest rate risk.

8




Inventories and Supplies

Inventories and supplies include housekeeping, linen and laundry supplies, as well as food provisions and supplies. Inventories and supplies are stated at cost to approximate a first-in, first-out (FIFO) basis. Linen supplies are amortized on a straight-line basis over their estimated useful life of 24 months.

Revenue Recognition

Revenues from our service agreements with clients are recognized as services are performed.

As a distributor of laundry equipment, we occasionally sell laundry installations to certain clients. The sales in most cases represent the construction and installation of a turn-key operation and have payment terms ranging from 24 to 60 months. During the three months ended March 31, 2016 and 2015, laundry installation sales were not material.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current period. We accrue for probable tax obligations as required by facts and circumstances in various regulatory environments. In addition, deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the book and tax bases of assets and liabilities. When appropriate, valuation allowances are recorded to reduce deferred tax assets to amounts for which realization is more likely than not.

Uncertain income tax positions related to tax positions taken or expected to be taken in tax returns are reflected within our financial statements based on a recognition and measurement process.

Earnings per Common Share

Basic earnings per common share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share are calculated using the weighted-average number of common shares outstanding and dilutive common shares, such as those issuable upon exercise of stock options.

Share-Based Compensation

The Company recognizes compensation expense based on the fair value of share-based awards made to employees and directors, including stock options and participation in the Company’s employee stock purchase plan. We estimate the fair value of stock options as of the date of grant using a Black-Scholes option valuation model, while share-based awards are valued based on the market-price on the date of grant. The value of the portion of the award that is ultimately expected to vest, after accounting for estimated and actual forfeitures, is recognized as an expense in the Company’s consolidated statements of comprehensive income ratably over the requisite service periods.

Use of Estimates in Financial Statements

In preparing financial statements in conformity with U.S. GAAP, we make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Significant estimates are used in determining, but are not limited to, our allowance for doubtful accounts, accrued insurance claims, asset valuations, deferred taxes and reviews for potential impairment. The estimates are based upon various factors including current and historical trends, as well as other pertinent industry and regulatory authority information. We regularly evaluate this information to determine if it is necessary to update the basis for our estimates and to compensate for known changes.

Self-Funded Captive Insurance Programs

In fiscal year 2015, the Company transitioned its workers compensation and certain employee health & welfare insurance programs to HCSG Insurance Corp. ("HCSG Insurance"), its wholly owned captive insurance subsidiary which previously provided general liability coverage to the Company. HCSG Insurance was formed in January 2014 to provide the Company with greater efficiency in managing its property & casualty and health & welfare programs.


9




Concentrations of Credit Risk

Our financial instruments consist principally of cash and cash equivalents, marketable securities, deferred compensation funding and accounts and notes receivable. Our marketable securities are fixed income investments which are highly liquid and can be readily purchased or sold through established markets. At March 31, 2016 and December 31, 2015, substantially all of our cash and cash equivalents, and marketable securities were held in one large financial institution located in the United States.

Our clients are concentrated in the health care industry and are primarily providers of long-term care. Many of our clients’ revenues are highly reliant on Medicare, Medicaid and third party payors’ reimbursement funding rates. Congress has enacted legislation that has significantly altered, or threatened to alter, overall government reimbursement for nursing home services. These changes and the lack of substantive reimbursement funding rate reform legislation, as well as other trends in the long-term care industry, have affected and could adversely affect the liquidity of our clients, resulting in their inability to make payments to us in accordance with agreed upon payment terms. These factors could result in the recognition of significant additional bad debts in the future.

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, Stock Compensation. ASU 2016-09 is intended to simplify several aspects of the accounting for share-based payments. The guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within that year. The Company is in the process of evaluating the impacts of the adoption of this ASU.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, and a subsequent amendment to the standard in March 2016 with ASU 2016-08. The original standard provides guidance on recognizing revenue, including a five step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment to the standard clarifies implementation guidance on principal versus agent considerations. Adoption of the new standard is effective for reporting periods beginning after December 15, 2017, with early adoption prohibited. The Company is in the process of evaluating the impacts of the adoption of this ASU.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires lessees to recognize assets and liabilities on their balance sheet related to the rights and obligations created by most leases, while continuing to recognize expenses on their income statements over the lease term.  It will also require disclosures designed to give financial statement users information regarding the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. We are currently evaluating the impact ASU 2016-02 will have on our consolidated financial statements and associated disclosures.


In November 2015, the FASB issued ASU 2015-17, 
Balance Sheet Classification of Deferred Taxes. The amendment in this ASU requires that deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent in a classified statement of financial position. The guidance becomes effective for annual reporting periods beginning after December 15, 2016 with early adoption permitted. Management elected to adopt the standard in the first quarter of 2016, with retrospective application to prior period balances presented. The adoption of ASU 2015-17 did not have a material impact on the Company’s consolidated financial statements.



10




Note 2—Changes in Accumulated Other Comprehensive Income by Component

As of March 31, 2016 and December 31, 2015, respectively, accumulated other comprehensive income consisted of unrealized gains and losses from our available for sale marketable securities.

The following table provides a summary of changes in accumulated other comprehensive income for the three months ended March 31, 2016:
 
Unrealized Gains and Losses on Available for Sale Securities (1)
 
For the Three Months Ended
March 31,
 
2016
 
2015
Accumulated other comprehensive income — beginning balance
$
543,000

 
$
25,000

Other comprehensive income before reclassifications
594,000

 
5,000

Amounts reclassified from accumulated other comprehensive income (2)(3)
(39,000
)
 
(2,000
)
Net current period change in other comprehensive income
555,000

 
3,000

Accumulated other comprehensive income — ending balance
$
1,098,000

 
$
28,000


(1) 
All amounts are net of tax.
(2) 
Realized gains and losses are recorded pre-tax under "Other income - Investment and interest" on our consolidated statements of comprehensive income.
(3) 
For the three months ended March 31, 2016 and 2015, the Company recorded $62,000 and $3,000, respectively, of realized gains from the sale of available for sale securities. Refer to Note 5 herein for further information.

Note 3—Property and Equipment

Property and equipment is recorded at cost. Depreciation is recorded over the estimated useful life of each class of depreciable assets, and is computed using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated asset life or term of the lease. Repairs and maintenance costs are charged to expense as incurred.

The following table sets forth the amounts of property and equipment by each class of depreciable assets as of March 31, 2016 and December 31, 2015:
 
March 31, 2016
 
December 31, 2015
Housekeeping and office equipment and furniture
$
30,464,000

 
$
29,852,000

Laundry and linen equipment installations
1,124,000

 
1,117,000

Autos and trucks
138,000

 
138,000

Total property and equipment, at cost
31,726,000

 
31,107,000

Less accumulated depreciation
18,451,000

 
18,021,000

Total property and equipment, net
$
13,275,000

 
$
13,086,000


Depreciation expense for the three months ended March 31, 2016 and 2015 was $1,155,000 and $1,101,000, respectively.

Note 4—Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of the net assets of an acquired business. Goodwill is not amortized, but is evaluated for impairment on an annual basis, or more frequently if impairment indicators arise, using a fair-value-based test that compares the fair value of the reporting unit to its carrying value.

Goodwill by reportable operating segment, as described in Note 10 herein, was approximately $42,377,000 and $2,061,000 for Housekeeping and Dietary, respectively, as of March 31, 2016 and December 31, 2015.

The cost of intangible assets is based on fair values at the date of acquisition. Intangible assets with determinable lives are amortized on a straight-line basis over their estimated useful lives. The customer relationships have a weighted-average amortization period of eight years.


11




The following table sets forth the amounts of our identifiable intangible assets subject to amortization, which were acquired in acquisitions.
 
March 31, 2016
 
December 31, 2015
Customer relationships
$
29,080,000

 
$
35,781,000

Non-compete agreements

 
800,000

Total other intangibles, gross
29,080,000

 
36,581,000

Less accumulated amortization
12,783,000

 
19,473,000

Other intangibles, net
$
16,297,000

 
$
17,108,000


The following table sets forth the estimated amortization expense for intangibles subject to amortization for the remainder of 2016, the following five fiscal years and thereafter:
Period/Year
 
Total Amortization Expense
April 1 to December 31, 2016
 
$
1,889,000

2017
 
$
2,427,000

2018
 
$
2,327,000

2019
 
$
2,130,000

2020
 
$
2,130,000

2021
 
$
2,130,000

Thereafter
 
$
3,264,000


Amortization expense for the three months ended March 31, 2016 and 2015 was $810,000 in each period.

Note 5—Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We have not elected the fair value option for our available for sale marketable securities as we believe these assets are more representative of our investing activities and are viewed as non-operating in nature. These assets are available for future needs of the Company to support our current and projected growth, if required. The Company's investments in marketable securities are classified within Level 2 of the fair value hierarchy. These investment securities are valued based upon quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
 
The Company’s financial instruments include cash and cash equivalents, accounts and notes receivable, prepaid expenses and accounts payable (including income taxes payable and accrued expenses). The carrying value of these financial instruments approximates their fair value because of their short-term nature. The fair value of financial instruments is defined as the amount for which the instrument could be exchanged in a current transaction between willing parties.

















12




The following tables provide fair value measurement information for our marketable securities and deferred compensation fund investment assets as of March 31, 2016 and December 31, 2015:
 
As of March 31, 2016
 
 
 
 
 
Fair Value Measurement Using:
 
Carrying Amount
 
Total Fair Value
 
Quoted Prices in Active Markets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
Financial Assets:
 
 
 
 
 
 
 
 
 
Marketable securities
 
 
 
 
 
 
 
 
 
Municipal bonds — available for sale
$
72,358,000

 
$
72,358,000

 
$

 
$
72,358,000

 
$

 
 
 
 
 
 
 
 
 
 
Deferred compensation fund
 
 
 
 
 
 
 
 
 
Money Market
$
4,526,000

 
$
4,526,000

 
$

 
$
4,526,000

 
$

Balanced and Lifestyle
9,151,000

 
9,151,000

 
9,151,000

 

 

Large Cap Growth
4,884,000

 
4,884,000

 
4,884,000

 

 

Small Cap Growth
2,184,000

 
2,184,000

 
2,184,000

 

 

Fixed Income
2,688,000

 
2,688,000

 
2,688,000

 

 

International
999,000

 
999,000

 
999,000

 

 

Mid Cap Growth
1,227,000

 
1,227,000

 
1,227,000

 

 

Deferred compensation fund
$
25,659,000

 
$
25,659,000

 
$
21,133,000

 
$
4,526,000

 
$

 
As of December 31, 2015
 
 
 
 
 
Fair Value Measurement Using:
 
Carrying Amount
 
Total Fair Value
 
Quoted Prices in Active Markets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
Financial Assets:
 
 
 
 
 
 
 
 
 
Marketable securities
 
 
 
 
 
 
 
 
 
Municipal bonds — available for sale
$
69,496,000

 
$
69,496,000

 
$

 
$
69,496,000

 
$

 
 
 
 
 
 
 
 
 
 
Deferred compensation fund
 
 
 
 
 
 
 
 
 
Money Market
$
3,896,000

 
$
3,896,000

 
$

 
$
3,896,000

 
$

Balanced and Lifestyle
9,136,000

 
9,136,000

 
9,136,000

 

 

Large Cap Growth
5,218,000

 
5,218,000

 
5,218,000

 

 

Small Cap Growth
2,275,000

 
2,275,000

 
2,275,000

 

 

Fixed Income
2,624,000

 
2,624,000

 
2,624,000

 

 

International
1,025,000

 
1,025,000

 
1,025,000

 

 

Mid Cap Growth
1,217,000

 
1,217,000

 
1,217,000

 

 

Deferred compensation fund
$
25,391,000

 
$
25,391,000

 
$
21,495,000

 
$
3,896,000

 
$


The fair value of the municipal bonds is measured using third party pricing service data. The fair value of investments in the funded deferred compensation plan are valued based on quoted market prices (Level 1). The money market fund in the funded deferred compensation plan is valued at the net asset value ("NAV") of the shares held by the plan at the end of the period (Level 2). As a practical expedient, fair value of our money market fund is valued at the NAV as determined by the custodian of the fund. The money market fund includes short-term United States dollar denominated money-market instruments. The money market fund can be redeemed at its NAV at its measurement date as there are no significant restrictions on the ability of participants to sell this investment. These assets will be redeemed by the plan participants on an as needed basis.

Unrealized gains and losses from marketable securities are recorded in other comprehensive income in our consolidated statements of comprehensive income. For the three months ended March 31, 2016 and 2015, we recorded unrealized gains from marketable securities of $555,000 and $3,000, respectively.

13





Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
 
Other-than-temporary Impairments
March 31, 2016
 
 
 
 
 
 
 
 
 
Type of security:
 
 
 
 
 
 
 
 
 
Municipal bonds — available for sale
$
70,593,000

 
$
1,771,000

 
$
(6,000
)
 
$
72,358,000

 
$

Total debt securities
$
70,593,000

 
$
1,771,000

 
$
(6,000
)
 
$
72,358,000

 
$

 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
Type of security:
 
 
 
 
 
 
 
 
 
Municipal bonds — available for sale
$
68,640,000

 
$
869,000

 
$
(13,000
)
 
$
69,496,000

 
$

Total debt securities
$
68,640,000

 
$
869,000

 
$
(13,000
)
 
$
69,496,000

 
$


For the three months ended March 31, 2016 and 2015, we received total proceeds, less the amount of interest received, of $2,018,000 and $758,000, respectively, from sales of available for sale municipal bonds. These sales resulted in realized gains of $62,000 and $3,000, respectively, and were recorded in other income – investment and interest in our consolidated statements of comprehensive income for the three months ended March 31, 2016 and 2015. The basis for the sale of these securities was the specific identification of each bond sold during this period.

The following table summarizes the contractual maturities of debt securities held at March 31, 2016 and December 31, 2015, which are classified as marketable securities in the consolidated Balance Sheet.
 
Municipal Bonds — Available for Sale
Contractual maturity:
March 31, 2016
 
December 31, 2015
Maturing in one year or less
$
804,000

 
$
774,000

Maturing in second year through fifth year
14,681,000

 
13,852,000

Maturing in sixth year through tenth year
37,635,000

 
36,273,000

Maturing after ten years
19,238,000

 
18,597,000

Total debt securities
$
72,358,000

 
$
69,496,000


Note 6— Share-Based Compensation

A summary of stock-based compensation expense for the three months ended March 31, 2016 and 2015 is as follows:
 
For the Three Months Ended March 31,
 
2016
 
2015
Stock options
$
878,000

 
$
719,000

Restricted stock
135,000

 
58,000

Employee Stock Purchase Plan ("ESPP")
105,000

 
107,000

Total pre-tax stock-based compensation expense charged against income (1)
$
1,118,000

 
$
884,000


(1) 
Stock-based compensation expense is recorded in selling, general and administrative expense in our consolidated statements of comprehensive income.

At March 31, 2016, the unrecognized compensation cost related to unvested stock options and awards was $11,254,000. The weighted average period over which these awards will vest is approximately 3.5 years.

Other information pertaining to activity of our stock awards during the three months ended March 31, 2016 and 2015 were as follows:
 
March 31, 2016
 
March 31, 2015
Total grant-date fair value of stock options and awards granted
$
5,202,000

 
$
4,027,000

Total fair value of stock options and awards vested during period
$
3,092,000

 
$
2,719,000



14




2012 Equity Incentive Plan

The Company's 2012 Equity Incentive Plan (the "2012 Plan") provides that current or prospective officers, employees, non-employee directors and advisors can receive share-based awards such as stock options, restricted stock and other stock awards. The 2012 Plan seeks to promote the highest level of performance by providing an economic interest in the long-term success of the Company. As of the adoption of the 2012 Plan, no further grants were permitted under any previously existing stock plans (the "Pre-existing Plans"). Additionally, all remaining shares available for future grants under the Pre-existing Plans became available for issuance under the 2012 Plan.

We have outstanding stock awards that were granted under the Pre-existing Plans to non-employee directors, officers and employees of the Company and other specified groups, depending on the Pre-existing Plan. As of March 31, 2016, 4,089,000 shares of common stock were reserved for issuance under our 2012 Plan, including 1,196,000 shares available for future grant. The stock price will not be less than the fair market value of the common stock on the date the award is granted. No stock award will have a term in excess of ten years. Since 2008, all awards granted under the Pre-existing Plans and the 2012 Plan become vested and exercisable ratably over a five year period on each yearly anniversary date of the option grant.

The Nominating, Compensation and Stock Option Committee of the Board of Directors is responsible for determining the individuals who will be granted stock awards, the number of stock awards each individual will receive, the price per share (in accordance with the terms of the 2012 Plan), and the exercise period of each stock award.

Stock Options

A summary of our stock options outstanding under the 2012 Plan as of December 31, 2015 and changes during the three months ended March 31, 2016 is as follows:
 
Stock Options Outstanding
 
Number of Shares
 
Weighted Average Exercise Price
December 31, 2015
2,461,000

 
$
22.16

Granted
569,000

 
$
34.14

Cancelled
(13,000
)
 
$
28.39

Exercised
(124,000
)
 
$
20.83

March 31, 2016
2,893,000

 
$
24.54


The weighted average grant-date fair value of stock options granted during the three months ended March 31, 2016 and 2015 was $7.46 and $6.64 per common share, respectively.

The following table summarizes other information about our stock options at March 31, 2016:

 
Stock Options
Range of exercise prices
 
$10.39-$34.14

Outstanding:
 
 
Weighted average remaining contractual life (years)
 
7.0

Aggregate intrinsic value
 
$
35,492,000

Exercisable:
 
 
Number of shares
 
1,346,000

Weighted average remaining contractual life (years)
 
5.2

Aggregate intrinsic value
 
$
24,454,000

Exercised:
 
 
Aggregate intrinsic value
 
$
1,737,000






15




The fair value of stock option awards granted in 2016 and 2015 was estimated on the date of grant using the Black-Scholes option valuation model using the following assumptions:
 
Three months ended March 31,
 
2016
 
2015
Risk-free interest rate
2.0%
 
1.9%
Weighted average expected life in years
5.8 years
 
5.8 years
Expected volatility
26.0%
 
27.2%
Dividend yield
2.0%
 
2.2%

Restricted Stock

During the three months ended March 31, 2016, the Company granted 44,000 shares of restricted stock with a weighted average grant date fair value of $34.14 per share. Fair value is determined based on the market price of the shares on the date of grant. During the three months ended March 31, 2015, the Company granted 25,000 shares of restricted stock with a weighted average grant date fair value of $30.30 per share.

A summary of our outstanding stock-based compensation as of December 31, 2015 and changes during the three months ended March 31, 2016 is as follows:
 
Shares
 
Weighted Average Grant Date Fair Value
December 31, 2015
40,000

 
$
29.10

Granted
44,000

 
$
34.14

Vested
(9,000
)
 
$
28.76

Forfeited

 
$

March 31, 2016
75,000

 
$
32.10


Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan ("ESPP") for all eligible employees. The ESPP currently extends through 2016. All full-time and certain part-time employees who have completed two years of continuous service with us are eligible to participate. Annual offerings commence and terminate on the respective year’s first and last calendar day.

Under the ESPP, we are authorized to issue up to 4,050,000 shares of our common stock to our employees. Pursuant to such authorization, we have 2,362,000 shares available for future grant at March 31, 2016.

The stock-based compensation expense associated the options granted under our ESPP was estimated on the date of grant using the Black-Scholes option valuation model using the following assumptions:
 
Three months ended March 31,
 
2016
 
2015
Risk-free interest rate
0.58%
 
0.18%
Weighted average expected life in years
1.0 year
 
1.0 year
Expected volatility
19.7%
 
19.2%
Dividend yield
2.0%
 
2.2%

Note 7— Dividends

On March 25, 2016, a regular cash dividend of $0.18125 per common share was paid to shareholders of record on February 19, 2016. The total dividend paid was $13,158,000.
 
Additionally, on April 12, 2016, our Board of Directors declared a regular quarterly cash dividend of $0.18250 per common share, which will be paid on June 24, 2016, to shareholders of record as of the close of business on May 20, 2016.


16




Cash dividends on our outstanding weighted average number of basic common shares for the three months ended March 31, 2016 and 2015 were approximately as follows:
 
For the Three Months Ended March 31,
 
2016
 
2015
Cash dividends per common share
$
0.18

 
$
0.18


Note 8— Income Taxes

The 2016 estimated annual effective tax rate is expected to be approximately 37%. Differences between the effective tax rate and the applicable U.S. federal statutory rate arise primarily from the effect of state and local income taxes and tax credits available to the Company. The actual 2016 effective tax rate could vary from the estimate depending on the availability of tax credits.

We account for income taxes using the asset and liability method, which results in recognizing income tax expense based on the amount of income taxes payable or refundable for the current year. Additionally, we evaluate regularly the tax positions taken or expected to be taken resulting from financial statement recognition of certain items. Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our financial statements. Our evaluation was performed for the tax years ended December 31, 2012 through 2015 (with regard to U.S. federal income tax returns) and December 31, 2011 through 2015 (with regard to various state and local income tax returns), the tax years which remain subject to examination by major tax jurisdictions as of March 31, 2016.

We may from time to time be assessed interest or penalties by taxing jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. When we have received an assessment for interest and/or penalties, it has been classified in the financial statements as selling, general and administrative expense.

Note 9—Related Party Transactions

A director is a member of a law firm which was retained by us. In each of the three months ended March 31, 2016 and 2015, fees received from us by such firm did not exceed $120,000 in any period. Additionally, such fees did not exceed, in either period, 5% of such firm’s or the Company's revenues.

Note 10—Segment Information

Reportable Operating Segments

Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in determining how to allocate resources and assess performance.

We manage and evaluate our operations in two reportable segments: Housekeeping (housekeeping, laundry, linen and other services) and Dietary (dietary department services). Although both segments serve a similar client base and share many operational similarities, they are managed separately due to differences in the type of services provided, as well as the specialized expertise required of the professional management personnel responsible for delivering the respective segments' services. Such services are rendered pursuant to distinct service agreements, specific to each reportable segment.

The Company’s accounting policies for the segments are generally the same as described in the Company’s significant accounting policies. Differences between the reportable segments’ operating results and other disclosed data and our consolidated financial statements relate primarily to corporate level transactions and recording of transactions at the reportable segment level which use methods other than generally accepted accounting principles. There are certain inventories and supplies that are primarily expensed when incurred within the operating segments, while they are capitalized for the consolidated financial statements. As discussed, most corporate expenses are not allocated to the operating segments. Such expenses include corporate salary and benefit costs, bad debt expense, certain legal costs, information technology costs, depreciation, amortization of finite lived intangible assets, share based compensation costs and other corporate specific costs. Additionally, there are allocations for workers' compensation and general liability expense within the operating segments that differ from our actual expense recorded for U.S. GAAP.


17




 
Housekeeping
Services
 
Dietary
Services
 
Corporate and
Eliminations
 
Total
Three Months Ended March 31, 2016
 
 
 
 
 
 
 
Revenues
$
238,279,000

 
$
146,528,000

 
$


$
384,807,000

Income before income taxes
22,500,000

 
9,148,000

 
(2,044,000
)
(1) 
29,604,000

Three Months Ended March 31, 2015
 
 
 
 
 
 
 
Revenues
$
226,581,000

 
$
128,665,000

 
$


$
355,246,000

Income before income taxes
20,617,000

 
8,905,000

 
(4,468,000
)
(1) 
25,054,000

(1) 
Primarily represents corporate office costs and related overhead, recording of certain inventories and supplies and workers compensation costs at the reportable segment level which use accounting methods that differ from those used at the corporate level, as well as consolidated subsidiaries’ operating expenses that are not allocated to the reportable segments, net of investment and interest income.

Total Revenues from Clients

We earned total revenues from clients in the following service categories:
 
For the Three Months Ended March 31,
2016
 
2015
Housekeeping services
$
168,916,000

 
$
156,587,000

Dietary Services
146,528,000

 
128,665,000

Laundry and linen services
68,714,000

 
69,488,000

Maintenance services and other
649,000

 
506,000

 
$
384,807,000

 
$
355,246,000


Note 11— Earnings Per Common Share

Basic earnings per share are computed using the weighted-average number of common shares outstanding. The dilutive effect of potential common shares outstanding is included in diluted earnings per share. The computations of basic earnings per share and diluted earnings per share are as follows:
 
 
Three Months Ended March 31, 2016
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-share
Amount
 
 
Net income
$
18,626,000

 
 
 
 
 
Basic earnings per common share
$
18,626,000

 
72,364,000

 
$
0.26

 
Effect of dilutive securities:
 
 
 
 
 
 
Stock options and restricted stock
 
 
650,000

 

 
Diluted earnings per common share
$
18,626,000

 
73,014,000

 
$
0.26

 
 
 
 
 
Three Months Ended March 31, 2015
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-share
Amount
 
 
Net income
$
15,516,000

 
 
 
 
 
Basic earnings per common share
$
15,516,000

 
71,469,000

 
$
0.22

 
Effect of dilutive securities:
 
 
 
 
 
 
Stock options and restricted stock
 
 
690,000

 

 
Diluted earnings per common share
$
15,516,000

 
72,159,000

 
$
0.22


Stock awards to purchase 980,000 shares of common stock having average exercise prices of $32.45 per common share were outstanding during the three months ended March 31, 2016 but not included in the computation of diluted earnings per common share because the exercise prices of the options were greater than the average market price of our common stock, and therefore, would be antidilutive.

18




Stock awards to purchase 1,014,000 shares of common stock having average exercise prices of $29.22 per common share were outstanding during the three months ended March 31, 2015 but not included in the computation of diluted earnings per common share because the exercise prices of the options were greater than the average market price of our common stock, and therefore, would be antidilutive.

Note 12—Other Contingencies

Line of Credit

We have a $200,000,000 bank line of credit on which we may draw to meet short-term liquidity requirements. Amounts drawn under the line of credit are payable upon demand. At March 31, 2016, there were no borrowings under the line of credit. At March 31, 2016, we had outstanding a $68,778,000 irrevocable standby letter of credit, which relates to payment obligations under our insurance programs. This letter of credit was increased to $73,428,000 on April 1, 2016. In connection with the issuance of the letter of credit, the amount available under the line of credit was reduced by $68,778,000 at March 31, 2016. The line of credit requires us to satisfy one financial covenant. We are in compliance with our financial covenant at March 31, 2016 and expect to remain in compliance with such financial covenant. The line of credit expires on December 18, 2018.

Tax Jurisdictions and Matters

We provide our services in 48 states and are subject to numerous local taxing jurisdictions within those states. In the ordinary course of business, a jurisdiction may contest our reporting positions with respect to the application of its tax code to our services. A jurisdiction’s conflicting position on the taxability of our services could result in additional tax liabilities.

We have tax matters with various taxing authorities. Because of the uncertainties related to both the probable outcome and amount of probable assessment due, we are unable to make a reasonable estimate of a liability. We do not expect the resolution of any of these matters, taken individually or in the aggregate, to have a material adverse effect on our consolidated financial position or results of operations based on our best estimate of the outcomes of such matters.

Legal Proceedings

We are subject to various claims and legal actions in the ordinary course of business. Some of these matters include payroll and employee-related matters and examinations by governmental agencies. As we become aware of such claims and legal actions, we record accruals for any exposures that are probable and estimable. If an adverse outcome of such claims and legal actions is reasonably possible, we assess materiality and provide such financial disclosure, as appropriate. The Company believes it is not a party to, nor are any of its properties the subject of, any pending legal proceeding or governmental examination that would have a material adverse effect on the Company's consolidated financial condition or liquidity.

Government Regulations

Our clients are concentrated in the health care industry and are primarily providers of long-term care. Many of our clients’ revenues are highly reliant on Medicare, Medicaid and third party payors’ reimbursement funding rates. New legislation or additional changes in existing regulations could be made which could directly impact the governmental reimbursement programs in which our clients participate. As a result, we may not know the full effects of such programs until these laws are fully implemented and government agencies issue applicable regulations or guidance.

Note 13—Subsequent Events

We evaluated all subsequent events through the filing date of this Form 10-Q. We believe there were no events or transactions occurring during this subsequent reporting period which require recognition or additional disclosure in these financial statements.

19




Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The following discussion is intended to provide the reader with information that will be helpful in understanding our financial statements, including the changes in certain key items in comparing financial statements period to period. We also intend to provide the primary factors that accounted for those changes, as well as a summary of how certain accounting principles affect our financial statements. In addition, we are providing information about the financial results of our two operating segments to further assist in understanding how these segments and their results affect our consolidated results of operations. This discussion should be read in conjunction with our financial statements as of March 31, 2016 and December 31, 2015 and the notes accompanying those financial statements.

Overview

We provide management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of the health care industry, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. We believe we are the largest provider of housekeeping and laundry management services to the long-term care industry in the United States, rendering such services to over 3,500 facilities in 48 states as of March 31, 2016. Although we do not directly participate in any government reimbursement programs, our clients’ reimbursements are subject to government regulation. Therefore, our clients are directly affected by any legislation relating to Medicare and Medicaid reimbursement programs.

We provide our services primarily pursuant to full service agreements with our clients. In such agreements, we are responsible for the day to day management of employees located at our clients’ facilities. We also provide services on the basis of management-only agreements for a limited number of clients. Our agreements with clients typically provide for renewable one year service terms, cancelable by either party upon 30 to 90 days’ notice after the initial 60 to 120 day period.

We are organized into two reportable segments; housekeeping, laundry, linen and other services ("Housekeeping"), and dietary department services ("Dietary").

Housekeeping consists of managing the client’s housekeeping department which is principally responsible for the cleaning, disinfecting and sanitizing of patient rooms and common areas of a client’s facility, as well as laundering and processing of the personal clothing belonging to the facility’s patients. Also within the scope of this segment’s service is the responsibility for laundering and processing the bed linens, uniforms and other assorted linen items utilized by a client facility.

Dietary consists of managing the client’s dietary department which is principally responsible for food purchasing, meal preparation and providing dietitian consulting professional services, which includes the development of a menu that meets the patient’s dietary needs.

At March 31, 2016, Housekeeping is provided at essentially all of our 3,500 client facilities, generating approximately 62% or $238,279,000 of total revenues for the three months ended March 31, 2016. Dietary is provided to over 1,000 client facilities at March 31, 2016 and contributed approximately 38% or $146,528,000 of total revenues for the three months ended March 31, 2016.

On July 12, 2015, the Company completed its corporate restructuring by capitalizing its three new operating entities (HCSG East, LLC, HCSG Central, LLC and HCSG West, LLC), and transitioning the Company's facility-based employees to such entities based on the geography served. As of July 12, 2015, (i) HCSG Insurance provided workers' compensation and other insurance coverages to such entities with respect to such transitioned workforce, (ii) such entities provide housekeeping, laundry and dietary services as a subcontracted provider to the Company, and (iii) the Company provides strategic client-service management and administrative support services to such entities.

Three Months Ended March 31, 2016 and 2015

The following tables sets forth the first quarter 2016 income statement key components that we use to evaluate our financial performance on a consolidated and reportable segment basis compared to first quarter 2015 amounts. The differences between the reportable segments’ operating results and other disclosed data and our consolidated financial statements relate primarily to corporate level transactions and recording of transactions at the reportable segment level which use methods other than generally accepted accounting principles.

20




 
For the Three Months Ended March 31, 2016
 
 
 
 
 
 
 
Housekeeping
 
Dietary
 
Consolidated
 
% Change
 
Corporate & Eliminations
 
Amount
 
% Change
 
Amount
 
% Change
Revenues
$
384,807,000

 
8.3
 %
 
$

 
$
238,279,000

 
5.2
%
 
$
146,528,000

 
13.9
%
Cost of services provided
330,044,000

 
8.6

 
(23,115,000
)
 
215,779,000

 
4.8

 
137,380,000

 
14.7

Selling, general and administrative expense
25,346,000

 
(5.3
)
 
25,346,000

 

 

 

 

Investment and interest income
187,000

 
(63.1
)
 
187,000

 

 

 

 

Income before income taxes
$
29,604,000

 
(18.2
)%
 
$
(2,044,000
)
 
$
22,500,000

 
9.1
%
 
$
9,148,000

 
2.7
%

 
For the Three Months Ended March 31, 2015
 
Consolidated
 
Corporate & Eliminations
 
Housekeeping
 
Dietary
Revenues
$
355,246,000

 
$

 
$
226,581,000

 
$
128,665,000

Cost of services provided
303,936,000

 
(21,788,000
)
 
205,964,000

 
119,760,000

Selling, general and administrative expense
26,763,000

 
26,763,000

 

 

Investment and interest income
507,000

 
507,000

 

 

Income before income taxes
$
25,054,000

 
$
(4,468,000
)
 
$
20,617,000

 
$
8,905,000


Housekeeping, our largest and core reportable segment, represented approximately 62% of consolidated revenues for the first quarter 2016. Dietary revenues represented approximately 38% of consolidated revenues for the first quarter 2016.

The following table sets forth the ratio which certain items bear to consolidated revenues:
 
For the Three Months Ended
March 31,
 
2016
 
2015
Revenues
100.0
%
 
100.0
%
Operating costs and expenses:
 
 
 
Costs of services provided
85.8
%
 
85.6
%
Selling, general and administrative expense
6.6
%
 
7.5
%
Investment and interest income
0.0
%
 
0.1
%
Income before income taxes
7.6
%
 
7.0
%
Income taxes
2.9
%
 
2.7
%
Net income
4.7
%
 
4.3
%

Subject to the factors noted in the Cautionary Statement Regarding Forward Looking Statements included in this Quarterly Report on Form 10-Q, although there can be no assurance thereof, our financial performance for the remainder of 2016 may be comparable to historical ranges as they relate to consolidated revenues. Specifically, each of Housekeeping's and Dietary’s revenues, as a percentage of consolidated revenues, should approximate the respective percentages noted in the Overview Section above. Furthermore, we expect the sources of organic growth for the remainder of 2016 for the respective operating segments to be primarily the same as historically experienced. Accordingly, although there can be no assurance thereof, the growth in Dietary is expected to come from our current Housekeeping client base, while growth in Housekeeping will primarily come from obtaining new clients

Revenues

Consolidated

Consolidated revenues increased 8.3% to $384,807,000 in the first quarter 2016 compared to $355,246,000 in the first quarter 2015 as a result of the factors discussed below under Reportable Segments.



21




Reportable Segments

Housekeeping’s 5.2% net growth in reportable segment revenues resulted from service agreements entered into with new clients.

Dietary’s 13.9% net growth in reportable segment revenues resulted primarily from providing this service to a greater number of existing Housekeeping clients.

Costs of Services Provided

Consolidated

Consolidated costs of services increased 8.6% to $330,044,000 in the first quarter 2016 compared to $303,936,000 in the first quarter 2015. The increase in costs of services is a direct result of growth in our consolidated revenues. Certain significant components within our costs of services are subject to fluctuation with the changes in our business and client base. The increase in such components during 2016 compared to 2015 includes labor and other labor related costs, dietary supplies, workers' compensation and general liability insurance and bad debt provision. Historically, these significant components accounted for approximately 96% to 98% of consolidated costs of services.

As a percentage of consolidated revenues, cost of services increased to 85.8% in the first quarter 2016 from 85.6% in the first quarter 2015. The following table provides a comparison of the key indicators we consider when managing the consolidated cost of services provided:
 
For the Three Months Ended March 31,
Costs of Services Provided-Key Indicators as a % of Consolidated Revenue
2016
 
2015
 
Change
Bad debt provision
0.3%
 
0.3%
 
—%
Workers’ compensation and general liability insurance
3.1%
 
3.3%
 
(0.2)%

The decrease in workers' compensation and general liability insurance expense is primarily the result of the Company's ongoing initiatives to promote safety and accident prevention in the workplace, as well as proactive management of workers' compensation claims.

Reportable Segments

Cost of services provided for Housekeeping, as a percentage of Housekeeping revenues for the first quarter 2016 decreased to 90.6% from 90.9% in first quarter 2015. Cost of services provided for Dietary, as a percentage of Dietary revenues for the first quarter 2016, increased to 93.8% from 93.1% in the first quarter 2015.

The following table provides a comparison of the key indicators we consider when managing cost of services at the segment level, as a percentage of the respective segments' revenues:
 
For the Three Months Ended March 31,
Costs of Services Provided-Key Indicators as a % of Segment Revenue
2016
 
2015
 
Change
Housekeeping labor and other labor costs
79.5%
 
78.9%
 
0.6%
Housekeeping supplies
7.9%
 
8.5%
 
(0.6)%
Dietary labor and other labor costs
52.8%
 
51.8%
 
1.0%
Dietary supplies
38.0%
 
38.0%
 
—%

The ratios of these key indicators to revenue remain relatively consistent. Variations relate to the provision of services at new facilities and changes in the mix of clients for whom we provide supplies or do not provide supplies. Management focuses on building efficiencies and managing labor and other costs at the facility level, as well as managing supply chain costs, for new and existing facilities.







22




Selling, General and Administrative Expense
 
 
For the Three Months Ended March 31,
 
2016
 
2015
 
$ Change
 
% Change
Selling, general and administrative expense excluding deferred compensation change (1)
$
25,674,000

 
$
26,395,000

 
$
(721,000
)
 
(2.7
)%
Deferred compensation fund income (loss)
(328,000
)
 
368,000

 
(696,000
)
 
(189.1
)%
Selling, general and administrative expense
$
25,346,000

 
$
26,763,000

 
$
(1,417,000
)
 
(5.3
)%

(1)
Selling, general and administrative expense excluding the change in the market value of the deferred compensation fund.

Excluding the change in the deferred compensation fund, consolidated selling, general and administrative expense decreased $721,000 or 2.7% compared to the first quarter 2015.

Consolidated Investment and Interest Income

Investment and interest income was less than 0.1% of consolidated revenues for the first quarter 2016 and 2015.

Consolidated Income Taxes

For the first quarter 2016, our effective tax rate was 37% compared to 38% for the 2015 period. Differences between the effective tax rate and the applicable U.S. federal statutory rate arise primarily from the effect of state and local income taxes and tax credits available to the Company. The decrease in the effective tax rate is primarily due to the recognition of certain tax credits in the first quarter 2016 that had not been recognized in the first quarter 2015, as the credits were not approved until late 2015.

Liquidity and Capital Resources

Cash generated through operations is our primary source of liquidity. At March 31, 2016, we had cash, cash equivalents and marketable securities of $101,478,000 and working capital of $288,909,000, compared to December 31, 2015 cash, cash equivalents and marketable securities of $102,685,000 and working capital of $269,277,000. Our current ratio remained consistent at 3.8 to 1 at March 31, 2016 and December 31, 2015. The increase in working capital is driven by the timing of payments and cash receipts as of March 31, 2016 as compared with December 31, 2015.

We have a $200,000,000 bank line of credit on which we may draw to meet short-term liquidity requirements in excess of internally generated cash flow. Amounts drawn under the line of credit are payable upon demand. At March 31, 2016, there were no borrowings under the line of credit. At March 31, 2016, we had outstanding a $68,778,000 irrevocable standby letter of credit, which relates to payment obligations under our insurance programs. This letter of credit was increased to $73,428,000 on April 1, 2016. In connection with the issuance of the letter of credit, the amount available under the line of credit was reduced by $68,778,000 at March 31, 2016.

The line of credit requires us to satisfy one financial covenant. Such covenant and its respective status at March 31, 2016 was as follows:
Covenant Description and Requirement
Status at March 31, 2016
Funded debt (1) to EBITDA(2) ratio: less than 3.00 to 1.00
0.67


(1) 
All indebtedness for borrowed money, including but not limited to capitalized lease obligations, reimbursement obligations in respect of letters of credit and guaranties of any such indebtedness.
(2) 
Net income plus interest expense, income tax expense, depreciation, amortization and extraordinary non-recurring losses/gains.

As noted above, we were in compliance with our financial covenant at March 31, 2016 and expect to continue to remain in compliance with such financial covenant. This line of credit expires on December 18, 2018.


23




Cash Flows from Operating Activities

Cash flows from operating activities are primarily driven by earnings, excluding the impact of non-cash items, the timing of cash receipts and disbursements, and changes in working capital items.

The net cash provided by our operating activities was $9,689,000 for the three months ended March 31, 2016. The principal source of net cash flows from operating activities for the period was net income of $18,626,000, adjusted for non-cash charges to operations for depreciation and amortization, the provision for bad debts, deferred income taxes and stock-based compensation, which totaled $7,578,000, as well as a decrease in accrued payroll and accrued and withheld payroll taxes of $18,070,000. These sources of cash were partially offset by an increase in accounts and notes receivable, prepaid income taxes, inventories and supplies, and prepaid expenses and other assets totaling $28,710,000 and a decrease in accounts payable and other accrued expenses and income taxes payable, totaling $6,803,000.

Cash Flows from Investing Activities

Cash flows from investing activities are related to capital expenditures and our investments in marketable securities.

The net cash used in our investing activities for the three months ended March 31, 2016 was $3,671,000. The principal uses of net cash flows from investing activities was $2,326,000 of net purchases of marketable securities and $1,459,000 for the purchase of property and equipment. See "Capital Expenditures" below.

Cash Flows from Financing Activities

Cash flows from financing activities relate primarily to dividends paid and proceeds from the exercise of stock options.

The net cash used in financing activities during the three months ended March 31, 2016 was primarily related to the $13,158,000 dividend payment on March 25, 2016, partially offset by proceeds of $2,534,000 from the exercise of stock options by employees and directors. Additionally, as a result of tax deductions derived from the stock option exercises, we recognized an income tax benefit of $509,000.

The dividends paid to shareholders during the three months ended March 31, 2016 were funded by the existing cash, cash equivalents and marketable securities held by the Company. At March 31, 2016 and December 31, 2015, we had $101,478,000 and $102,685,000, respectively, in cash, cash equivalents and marketable securities. Our Board of Directors reviews our dividend policy on a quarterly basis. Although there can be no assurance that we will continue to pay dividends or the amount of the dividend, we expect to continue to pay a regular quarterly cash dividend. In connection with the establishment of our dividend policy, we adopted a Dividend Reinvestment Plan in 2003.

Accounts and Notes Receivable

We expend considerable effort to collect the amounts due for our services on the terms agreed upon with our clients. Many of our clients participate in programs funded by federal and state governmental agencies which historically have encountered delays in making payments to its program participants. Whenever possible, when a client falls behind in making agreed-upon payments, we convert the unpaid accounts receivable to interest bearing promissory notes. The promissory notes receivable provide a means by which to further evidence the amounts owed and provide a definitive repayment plan and therefore may ultimately enhance our ability to collect the amounts due. At March 31, 2016 and December 31, 2015, we had $17,559,000 and $16,830,000, net of reserves, respectively, of such promissory notes outstanding. Additionally, we consider restructuring service agreements from full service to management-only service in the case of certain clients experiencing financial difficulties. We believe that such restructurings may provide us with a means to maintain a relationship with the client while at the same time minimizing collection exposure.

We have had varying collection experience with respect to our accounts and notes receivable. When contractual terms are not met, we generally encounter difficulty in collecting amounts due from certain of our clients. Therefore, we have sometimes been required to extend the period of payment for certain clients beyond contractual terms. These clients include those who have terminated service agreements and slow payers experiencing financial difficulties. In order to provide for these collection problems and the general risk associated with the granting of credit terms, we have recorded bad debt provisions (in an Allowance for Doubtful Accounts) of $1,100,000 and $925,000 for the three months ended March 31, 2016 and 2015, respectively. As a percentage of total revenues, these provisions represent approximately 0.3% for both periods. In making our credit evaluations, in addition to analyzing and anticipating, where possible, the specific cases described above, we consider the general collection risk associated with trends in the long-term care industry. We also establish credit limits, perform ongoing credit evaluation and monitor accounts

24




to minimize the risk of loss. Notwithstanding our efforts to minimize credit risk exposure, our clients could be adversely affected if future industry trends change in such a manner as to negatively impact their cash flows. If our clients experience a negative impact in their cash flows, it would have a material adverse effect on our results of operations and financial condition.


Capital Expenditures

The level of capital expenditures is generally dependent on the number of new clients obtained. Such capital expenditures primarily consist of housekeeping equipment purchases, laundry and linen equipment installations, and computer hardware and software. Although we have no specific material commitments for capital expenditures through the end of calendar year 2016, we estimate that for the remainder of 2016 we will have capital expenditures of approximately $4,500,000 to $6,000,000 in connection with housekeeping equipment purchases and laundry and linen equipment installations in our clients’ facilities, as well as expenditures relating to internal data processing hardware and software requirements, computer equipment and office equipment. We believe that our cash from operations, existing cash and cash equivalents balance and credit line will be adequate for the foreseeable future to satisfy the needs of our operations and to fund our anticipated growth. However, should these sources not be sufficient, we would, if necessary, seek to obtain necessary working capital from such sources as long-term debt or equity financing.

Material Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements, other than our irrevocable standby letter of credit previously discussed.


25




Item 3.   Quantitative and Qualitative Disclosures About Market Risk

At March 31, 2016, we had $101,478,000 in cash, cash equivalents and marketable securities. The fair value of all of our cash equivalents and marketable securities is determined based on "Level 1" or "Level 2" inputs, which are based upon quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. We place our cash investments in instruments that meet credit quality standards, as specified in our investment policy guidelines.

Investments in both fixed-rate and floating-rate investments carry a degree of interest rate risk. Fixed rate securities may have their market value adversely impacted due to an increase in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or if there is a decline in the fair value of our investments.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are intended to ensuring that information required to be disclosed in our reports under the Securities Exchange Act of 1934 (the "Exchange Act"), such as this Form 10-Q, is reported in accordance with Securities and Exchange Commission rules. Disclosure controls are also intended to ensure that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on their evaluation as of March 31, 2016, pursuant to Exchange Act Rule 13a-15(b), our management, including our Chief Executive Officer and Chief Financial Officer, believe our disclosure controls and procedures (as defined in Exchange Act 13a-15(e) are effective.

Changes in Internal Controls over Financial Reporting

In connection with the evaluation pursuant to Exchange Act Rule 13a-15(d) of our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) by our management, including our Chief Executive Officer and Chief Financial Officer, no changes during the quarter ended March 31, 2016, were identified that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Certifications

Certifications of the Principal Executive Officer and Principal Financial and Accounting Officer regarding, among other items, disclosure controls and procedures are included as exhibits to this Form 10-Q.


26




PART II — OTHER INFORMATION

Item 1. Legal Proceedings

In the normal course of business, the Company is involved in various administrative and legal proceedings, including labor and employment, contracts, personal injury, and insurance matters. The Company believes it is not a party to, nor are any of its properties the subject of, any pending legal proceeding or governmental examination that would have a material adverse effect on the Company's consolidated financial condition or liquidity. However, in light of the uncertainties involved in such proceedings, the ultimate outcome of a particular matter could become material to the Company’s results of operations for a particular period depending on, among other factors, the size of the loss or liability imposed and the level of the Company’s operating income for that period.

Item 1A. Risk Factors

There has been no material change in the risk factors set forth in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On January 4, 2016, certain executive officers and directors were granted stock options to purchase 103,000 shares, in the aggregate, at an exercise price equal to the then current fair market value of $34.14 per share. Additionally, certain executive officers were also granted 39,000 shares of restricted stock with a weighted average grant date fair value of $34.14.

Item 6. Exhibits

The following exhibits are filed as part of this Report:
Exhibit Number
 
Description
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 and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
101
 
The following financial information from the Company's Form 10-Q for the quarterly period ended March 31, 2016 formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statement of Stockholders' Equity, and (v) Notes to Consolidated Financial Statements


27




Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 
 
HEALTHCARE SERVICES GROUP, INC.
 
 
 
 
Date:
April 22, 2016
 
 /s/ Theodore Wahl
 
 
 
Theodore Wahl
 
 
 
President & Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
 
Date:
April 22, 2016
 
 /s/ John C. Shea
 
 
 
John C. Shea
 
 
 
Chief Financial Officer
 
 
 
(Principal Financial and Accounting Officer)
 
 
 
 



28




Exhibit 31.1

Certification of the Chief Executive Officer
Pursuant to Rules 13a-14(a) and 15d-14(a)
Under the Securities Exchange Act, as Amended

I, Theodore Wahl, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Healthcare Services Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures ( as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting


Date:
April 22, 2016
 
/s/ Theodore Wahl
 
 
 
Theodore Wahl
 
 
 
President & Chief Executive Officer
 
 
 
(Principal Executive Officer)






Exhibit 31.2

Certification of the Chief Financial Officer
Pursuant to Rules 13a-14(a) and 15d-14(a)
Under the Securities Exchange Act, as Amended

I, John C. Shea, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Healthcare Services Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures ( as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting


Date:
April 22, 2016
 
/s/ John C. Shea
 
 
 
John C. Shea
 
 
 
Chief Financial Officer
 
 
 
(Principal Financial and Accounting Officer)






Exhibit 32.1

Certification Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Healthcare Services Group, Inc. (the "Company") for the quarter ended March 31, 2016 as filed with the Securities and Exchange commission on the date hereof (the "Form 10-Q"), Theodore Wahl, the Chief Executive Officer of the Company, and John C. Shea, the Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:

(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d), of the Securities Exchange Act of 1934, as amended; and

(2) That information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
 

/s/ Theodore Wahl
  
/s/ John C. Shea
Theodore Wahl
  
John C. Shea
President & Chief Executive Officer
  
Chief Financial Officer
(Principal Executive Officer)
 
(Principal Financial and Accounting Officer)
April 22, 2016
  
April 22, 2016



v3.3.1.900
Document and Entity Information - shares
shares in Thousands
3 Months Ended
Mar. 31, 2016
Apr. 20, 2016
Document And Entity Information [Abstract]    
Entity Registrant Name HEALTHCARE SERVICES GROUP INC  
Entity Central Index Key 0000731012  
Document Type 10-Q  
Document Period End Date Mar. 31, 2016  
Amendment Flag false  
Document Fiscal Year Focus 2016  
Document Fiscal Period Focus Q1  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding   72,363
v3.3.1.900
Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Current assets:    
Cash and cash equivalents $ 29,120 $ 33,189
Marketable securities, at fair value 72,358 69,496
Accounts and notes receivable, less allowance for doubtful accounts of $4,577,000 as of March 31, 2016 and $4,608,000 as of December 31, 2015 236,412 214,854
Inventories and supplies 37,927 36,308
Prepaid income taxes 915 0
Prepaid expenses and other 14,773 11,495
Total current assets 391,505 365,342
Property and equipment, net 13,275 13,086
Goodwill 44,438 44,438
Other intangible assets, less accumulated amortization of $12,783,000 as of March 31, 2016 and $19,473,000 as of December 31, 2015 16,297 17,108
Notes receivable - long term portion 3,213 2,972
Deferred compensation funding, at fair value 25,659 25,391
Deferred income taxes 8,664 12,567
Other noncurrent assets 44 45
TOTAL ASSETS 503,095 480,949
Current liabilities:    
Accounts payable 39,773 41,472
Accrued payroll, accrued and withheld payroll taxes 34,065 18,062
Other accrued expenses 2,889 3,115
Income taxes payable 0 3,212
Accrued legal expenses 4,394 10,464
Accrued insurance claims 21,475 19,740
Total current liabilities 102,596 96,065
Accrued insurance claims - long term portion 61,783 62,510
Deferred compensation liability $ 25,761 $ 25,918
Commitments and contingencies
STOCKHOLDERS’ EQUITY:    
Common stock, $.01 par value; 100,000,000 shares authorized; 74,037,000 shares issued and outstanding as of March 31, 2016 and 73,793,000 shares as of December 31, 2015 $ 740 $ 738
Additional paid-in capital 209,450 199,294
Retained earnings 112,354 106,886
Accumulated other comprehensive income, net of taxes 1,098 543
Common stock in treasury, at cost; 1,699,000 shares as of March 31, 2016 and 1,759,000 shares as of December 31, 2015 (10,687) (11,005)
Total stockholders’ equity 312,955 296,456
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 503,095 $ 480,949
v3.3.1.900
Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Current assets:    
Allowance for doubtful accounts $ 4,577 $ 4,608
Accumulated amortization of other intangible assets $ 12,783 $ 19,473
STOCKHOLDERS’ EQUITY:    
Common stock, par value (dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (shares) 100,000,000 100,000,000
Common stock, shares issued (shares) 74,037,000 73,793,000
Common stock, shares outstanding (shares) 74,037,000 73,793,000
Common stock in treasury (shares) 1,699,000 1,759,000
v3.3.1.900
Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Income Statement [Abstract]    
Revenues $ 384,807 $ 355,246
Operating costs and expenses:    
Costs of services provided 330,044 303,936
Selling, general and administrative expense 25,346 26,763
Other income, net:    
Investment and interest 187 507
Income before income taxes 29,604 25,054
Income tax provision 10,978 9,538
Net income $ 18,626 $ 15,516
Per share data:    
Basic earnings per common share (dollars per share) $ 0.26 $ 0.22
Diluted earnings per common share (dollars per share) $ 0.26 $ 0.22
Weighted average number of common shares outstanding:    
Basic (shares) 72,364 71,469
Diluted (shares) 73,014 72,159
Comprehensive income:    
Net income $ 18,626 $ 15,516
Other comprehensive income:    
Unrealized gain on available for sale marketable securities, net of taxes 555 3
Total comprehensive income $ 19,181 $ 15,519
v3.3.1.900
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Cash flows from operating activities:    
Net income $ 18,626 $ 15,516
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 1,965 1,911
Bad debt provision 1,100 925
Deferred income tax 3,395 525
Stock-based compensation expense 1,118 884
Tax benefit from equity compensation plans (509) (499)
Amortization of premium on marketable securities 318 93
Unrealized loss (gain) on deferred compensation fund investments 278 (365)
Changes in operating assets and liabilities:    
Accounts and notes receivable (22,899) (11,746)
Prepaid income taxes (915) 912
Inventories and supplies (1,619) 44
Prepaid expenses and other assets (3,277) (1,235)
Deferred compensation funding (268) 451
Accounts payable and other accrued expenses (4,100) (2,351)
Accrued payroll, accrued and withheld payroll taxes 18,070 (21,002)
Accrued insurance claims 1,009 2,979
Deferred compensation liability 100 76
Income taxes payable (2,703) 6,678
Net cash provided by (used in) operating activities 9,689 (6,204)
Cash flows from investing activities:    
Disposals of fixed assets 114 41
Additions to property and equipment (1,459) (1,436)
Purchases of marketable securities (4,966) (989)
Sales of marketable securities 2,640 846
Net cash used in investing activities (3,671) (1,538)
Cash flows from financing activities:    
Dividends paid (13,158) (12,655)
Reissuance of treasury stock pursuant to Dividend Reinvestment Plan 28 26
Tax benefit from equity compensation plans 509 499
Proceeds from the exercise of stock options 2,534 2,884
Net cash used in financing activities (10,087) (9,246)
Net change in cash and cash equivalents (4,069) (16,988)
Cash and cash equivalents at beginning of the period 33,189 75,280
Cash and cash equivalents at end of the period 29,120 58,292
Supplementary Cash Flow Information:    
Cash paid for interest 155 22
Cash paid for income taxes, net of refunds $ 11,201 $ 1,424
v3.3.1.900
Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Income, net of taxes
Retained Earnings
Treasury Stock
Balance at Dec. 31, 2014       $ 25    
Comprehensive income:            
Net income for the period $ 15,516          
Unrealized gain on available for sale marketable securities, net of taxes 3          
Total comprehensive income 15,519          
Balance at Mar. 31, 2015       28    
Balance (in shares) at Dec. 31, 2015   73,793        
Balance at Dec. 31, 2015 296,456 $ 738 $ 199,294 543 $ 106,886 $ (11,005)
Comprehensive income:            
Net income for the period 18,626       18,626  
Unrealized gain on available for sale marketable securities, net of taxes 555     555    
Total comprehensive income 19,181          
Exercise of stock options and other stock-based compensation, net of shares tendered (in shares)   131        
Exercise of stock options and other stock-based compensation, net of shares tendered 2,534 $ 1 2,533      
Tax benefit from equity compensation plans 300   300      
Share-based compensation expense — stock options and restricted stock 1,013   1,013      
Treasury shares issued for Deferred Compensation Plan funding and redemptions 534   525     9
Shares issued pursuant to Employee Stock Purchase Plan 2,067   1,696     371
Cash dividends (13,158)       (13,158)  
Shares issued pursuant to Dividend Reinvestment Plan 28   90     (62)
Shares issued pursuant to settlement (in shares)   113        
Shares issued pursuant to settlement 4,000 $ 1 3,999      
Balance (in shares) at Mar. 31, 2016   74,037        
Balance at Mar. 31, 2016 $ 312,955 $ 740 $ 209,450 $ 1,098 $ 112,354 $ (10,687)
v3.3.1.900
Description of Business and Significant Accounting Policies
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Description of Business and Significant Accounting Policies
Description of Business and Significant Accounting Policies

Nature of Operations

Healthcare Services Group, Inc. (the "Company") provides management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of the health care industry, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. Although we do not directly participate in any government reimbursement programs, our clients’ reimbursements are subject to government regulation. Therefore, they are directly affected by any legislation relating to Medicare and Medicaid reimbursement programs.

We provide our services primarily pursuant to full service agreements with our clients. In such agreements, we are responsible for the day-to-day management of employees located at our clients’ facilities. We also provide services on the basis of management-only agreements for a limited number of clients. Our agreements with clients typically provide for renewable one year service terms, cancelable by either party upon 30 to 90 days’ notice after the initial 60 to 120 day period.

We are organized into two reportable segments: housekeeping, laundry, linen and other services ("Housekeeping"), and dietary department services ("Dietary").

Housekeeping consists of the managing of clients' housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of patient rooms and common areas of a client’s facility, as well as the laundering and processing of the personal clothing belonging to the facility’s patients. Also within the scope of this segment’s service is the responsibility for laundering and processing of the bed linens, uniforms and other assorted linen items utilized by a client facility.

Dietary consists of managing clients' dietary department which is principally responsible for food purchasing, meal preparation and providing dietitian consulting professional services, which includes the development of a menu that meets the patient’s dietary needs.

Unaudited Interim Financial Data

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows. However, in our opinion, all adjustments which are of a normal recurring nature and necessary for a fair presentation have been reflected in these consolidated financial statements. The balance sheet shown in this report as of December 31, 2015 has been derived from, and does not include, all of the disclosures contained in the financial statements for the year ended December 31, 2015. These financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for any future period.

Certain amounts in the prior year financial statements have been reclassified to conform to current presentation.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Healthcare Services Group, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents are held in U.S. financial institutions or in custodial accounts with U.S. financial institutions. Cash equivalents are defined as short-term, highly liquid investments with a maturity of three months or less at time of purchase that are readily convertible into cash and have insignificant interest rate risk.
Inventories and Supplies

Inventories and supplies include housekeeping, linen and laundry supplies, as well as food provisions and supplies. Inventories and supplies are stated at cost to approximate a first-in, first-out (FIFO) basis. Linen supplies are amortized on a straight-line basis over their estimated useful life of 24 months.

Revenue Recognition

Revenues from our service agreements with clients are recognized as services are performed.

As a distributor of laundry equipment, we occasionally sell laundry installations to certain clients. The sales in most cases represent the construction and installation of a turn-key operation and have payment terms ranging from 24 to 60 months. During the three months ended March 31, 2016 and 2015, laundry installation sales were not material.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current period. We accrue for probable tax obligations as required by facts and circumstances in various regulatory environments. In addition, deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the book and tax bases of assets and liabilities. When appropriate, valuation allowances are recorded to reduce deferred tax assets to amounts for which realization is more likely than not.

Uncertain income tax positions related to tax positions taken or expected to be taken in tax returns are reflected within our financial statements based on a recognition and measurement process.

Earnings per Common Share

Basic earnings per common share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share are calculated using the weighted-average number of common shares outstanding and dilutive common shares, such as those issuable upon exercise of stock options.

Share-Based Compensation

The Company recognizes compensation expense based on the fair value of share-based awards made to employees and directors, including stock options and participation in the Company’s employee stock purchase plan. We estimate the fair value of stock options as of the date of grant using a Black-Scholes option valuation model, while share-based awards are valued based on the market-price on the date of grant. The value of the portion of the award that is ultimately expected to vest, after accounting for estimated and actual forfeitures, is recognized as an expense in the Company’s consolidated statements of comprehensive income ratably over the requisite service periods.

Use of Estimates in Financial Statements

In preparing financial statements in conformity with U.S. GAAP, we make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Significant estimates are used in determining, but are not limited to, our allowance for doubtful accounts, accrued insurance claims, asset valuations, deferred taxes and reviews for potential impairment. The estimates are based upon various factors including current and historical trends, as well as other pertinent industry and regulatory authority information. We regularly evaluate this information to determine if it is necessary to update the basis for our estimates and to compensate for known changes.

Self-Funded Captive Insurance Programs

In fiscal year 2015, the Company transitioned its workers compensation and certain employee health & welfare insurance programs to HCSG Insurance Corp. ("HCSG Insurance"), its wholly owned captive insurance subsidiary which previously provided general liability coverage to the Company. HCSG Insurance was formed in January 2014 to provide the Company with greater efficiency in managing its property & casualty and health & welfare programs.

Concentrations of Credit Risk

Our financial instruments consist principally of cash and cash equivalents, marketable securities, deferred compensation funding and accounts and notes receivable. Our marketable securities are fixed income investments which are highly liquid and can be readily purchased or sold through established markets. At March 31, 2016 and December 31, 2015, substantially all of our cash and cash equivalents, and marketable securities were held in one large financial institution located in the United States.

Our clients are concentrated in the health care industry and are primarily providers of long-term care. Many of our clients’ revenues are highly reliant on Medicare, Medicaid and third party payors’ reimbursement funding rates. Congress has enacted legislation that has significantly altered, or threatened to alter, overall government reimbursement for nursing home services. These changes and the lack of substantive reimbursement funding rate reform legislation, as well as other trends in the long-term care industry, have affected and could adversely affect the liquidity of our clients, resulting in their inability to make payments to us in accordance with agreed upon payment terms. These factors could result in the recognition of significant additional bad debts in the future.

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, Stock Compensation. ASU 2016-09 is intended to simplify several aspects of the accounting for share-based payments. The guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within that year. The Company is in the process of evaluating the impacts of the adoption of this ASU.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, and a subsequent amendment to the standard in March 2016 with ASU 2016-08. The original standard provides guidance on recognizing revenue, including a five step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment to the standard clarifies implementation guidance on principal versus agent considerations. Adoption of the new standard is effective for reporting periods beginning after December 15, 2017, with early adoption prohibited. The Company is in the process of evaluating the impacts of the adoption of this ASU.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires lessees to recognize assets and liabilities on their balance sheet related to the rights and obligations created by most leases, while continuing to recognize expenses on their income statements over the lease term.  It will also require disclosures designed to give financial statement users information regarding the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. We are currently evaluating the impact ASU 2016-02 will have on our consolidated financial statements and associated disclosures.


In November 2015, the FASB issued ASU 2015-17, 
Balance Sheet Classification of Deferred Taxes. The amendment in this ASU requires that deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent in a classified statement of financial position. The guidance becomes effective for annual reporting periods beginning after December 15, 2016 with early adoption permitted. Management elected to adopt the standard in the first quarter of 2016, with retrospective application to prior period balances presented. The adoption of ASU 2015-17 did not have a material impact on the Company’s consolidated financial statements.
v3.3.1.900
Changes in Accumulated Other Comprehensive Income by Component
3 Months Ended
Mar. 31, 2016
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]  
Changes in Accumulated Other Comprehensive Income by Component
Changes in Accumulated Other Comprehensive Income by Component

As of March 31, 2016 and December 31, 2015, respectively, accumulated other comprehensive income consisted of unrealized gains and losses from our available for sale marketable securities.

The following table provides a summary of changes in accumulated other comprehensive income for the three months ended March 31, 2016:
 
Unrealized Gains and Losses on Available for Sale Securities (1)
 
For the Three Months Ended
March 31,
 
2016
 
2015
Accumulated other comprehensive income — beginning balance
$
543,000

 
$
25,000

Other comprehensive income before reclassifications
594,000

 
5,000

Amounts reclassified from accumulated other comprehensive income (2)(3)
(39,000
)
 
(2,000
)
Net current period change in other comprehensive income
555,000

 
3,000

Accumulated other comprehensive income — ending balance
$
1,098,000

 
$
28,000


(1) 
All amounts are net of tax.
(2) 
Realized gains and losses are recorded pre-tax under "Other income - Investment and interest" on our consolidated statements of comprehensive income.
(3) 
For the three months ended March 31, 2016 and 2015, the Company recorded $62,000 and $3,000, respectively, of realized gains from the sale of available for sale securities. Refer to Note 5 herein for further information.
v3.3.1.900
Property and Equipment
3 Months Ended
Mar. 31, 2016
Property, Plant and Equipment [Abstract]  
Property and Equipment
Property and Equipment

Property and equipment is recorded at cost. Depreciation is recorded over the estimated useful life of each class of depreciable assets, and is computed using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated asset life or term of the lease. Repairs and maintenance costs are charged to expense as incurred.

The following table sets forth the amounts of property and equipment by each class of depreciable assets as of March 31, 2016 and December 31, 2015:
 
March 31, 2016
 
December 31, 2015
Housekeeping and office equipment and furniture
$
30,464,000

 
$
29,852,000

Laundry and linen equipment installations
1,124,000

 
1,117,000

Autos and trucks
138,000

 
138,000

Total property and equipment, at cost
31,726,000

 
31,107,000

Less accumulated depreciation
18,451,000

 
18,021,000

Total property and equipment, net
$
13,275,000

 
$
13,086,000



Depreciation expense for the three months ended March 31, 2016 and 2015 was $1,155,000 and $1,101,000, respectively.
v3.3.1.900
Goodwill and Other Intangible Assets
3 Months Ended
Mar. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill And Other Intangible Assets
Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of the net assets of an acquired business. Goodwill is not amortized, but is evaluated for impairment on an annual basis, or more frequently if impairment indicators arise, using a fair-value-based test that compares the fair value of the reporting unit to its carrying value.

Goodwill by reportable operating segment, as described in Note 10 herein, was approximately $42,377,000 and $2,061,000 for Housekeeping and Dietary, respectively, as of March 31, 2016 and December 31, 2015.

The cost of intangible assets is based on fair values at the date of acquisition. Intangible assets with determinable lives are amortized on a straight-line basis over their estimated useful lives. The customer relationships have a weighted-average amortization period of eight years.

The following table sets forth the amounts of our identifiable intangible assets subject to amortization, which were acquired in acquisitions.
 
March 31, 2016
 
December 31, 2015
Customer relationships
$
29,080,000

 
$
35,781,000

Non-compete agreements

 
800,000

Total other intangibles, gross
29,080,000

 
36,581,000

Less accumulated amortization
12,783,000

 
19,473,000

Other intangibles, net
$
16,297,000

 
$
17,108,000



The following table sets forth the estimated amortization expense for intangibles subject to amortization for the remainder of 2016, the following five fiscal years and thereafter:
Period/Year
 
Total Amortization Expense
April 1 to December 31, 2016
 
$
1,889,000

2017
 
$
2,427,000

2018
 
$
2,327,000

2019
 
$
2,130,000

2020
 
$
2,130,000

2021
 
$
2,130,000

Thereafter
 
$
3,264,000



Amortization expense for the three months ended March 31, 2016 and 2015 was $810,000 in each period.
v3.3.1.900
Fair Value Measurements
3 Months Ended
Mar. 31, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We have not elected the fair value option for our available for sale marketable securities as we believe these assets are more representative of our investing activities and are viewed as non-operating in nature. These assets are available for future needs of the Company to support our current and projected growth, if required. The Company's investments in marketable securities are classified within Level 2 of the fair value hierarchy. These investment securities are valued based upon quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
 
The Company’s financial instruments include cash and cash equivalents, accounts and notes receivable, prepaid expenses and accounts payable (including income taxes payable and accrued expenses). The carrying value of these financial instruments approximates their fair value because of their short-term nature. The fair value of financial instruments is defined as the amount for which the instrument could be exchanged in a current transaction between willing parties.
















The following tables provide fair value measurement information for our marketable securities and deferred compensation fund investment assets as of March 31, 2016 and December 31, 2015:
 
As of March 31, 2016
 
 
 
 
 
Fair Value Measurement Using:
 
Carrying Amount
 
Total Fair Value
 
Quoted Prices in Active Markets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
Financial Assets:
 
 
 
 
 
 
 
 
 
Marketable securities
 
 
 
 
 
 
 
 
 
Municipal bonds — available for sale
$
72,358,000

 
$
72,358,000

 
$

 
$
72,358,000

 
$

 
 
 
 
 
 
 
 
 
 
Deferred compensation fund
 
 
 
 
 
 
 
 
 
Money Market
$
4,526,000

 
$
4,526,000

 
$

 
$
4,526,000

 
$

Balanced and Lifestyle
9,151,000

 
9,151,000

 
9,151,000

 

 

Large Cap Growth
4,884,000

 
4,884,000

 
4,884,000

 

 

Small Cap Growth
2,184,000

 
2,184,000

 
2,184,000

 

 

Fixed Income
2,688,000

 
2,688,000

 
2,688,000

 

 

International
999,000

 
999,000

 
999,000

 

 

Mid Cap Growth
1,227,000

 
1,227,000

 
1,227,000

 

 

Deferred compensation fund
$
25,659,000

 
$
25,659,000

 
$
21,133,000

 
$
4,526,000

 
$

 
As of December 31, 2015
 
 
 
 
 
Fair Value Measurement Using:
 
Carrying Amount
 
Total Fair Value
 
Quoted Prices in Active Markets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
Financial Assets:
 
 
 
 
 
 
 
 
 
Marketable securities
 
 
 
 
 
 
 
 
 
Municipal bonds — available for sale
$
69,496,000

 
$
69,496,000

 
$

 
$
69,496,000

 
$

 
 
 
 
 
 
 
 
 
 
Deferred compensation fund
 
 
 
 
 
 
 
 
 
Money Market
$
3,896,000

 
$
3,896,000

 
$

 
$
3,896,000

 
$

Balanced and Lifestyle
9,136,000

 
9,136,000

 
9,136,000

 

 

Large Cap Growth
5,218,000

 
5,218,000

 
5,218,000

 

 

Small Cap Growth
2,275,000

 
2,275,000

 
2,275,000

 

 

Fixed Income
2,624,000

 
2,624,000

 
2,624,000

 

 

International
1,025,000

 
1,025,000

 
1,025,000

 

 

Mid Cap Growth
1,217,000

 
1,217,000

 
1,217,000

 

 

Deferred compensation fund
$
25,391,000

 
$
25,391,000

 
$
21,495,000

 
$
3,896,000

 
$



The fair value of the municipal bonds is measured using third party pricing service data. The fair value of investments in the funded deferred compensation plan are valued based on quoted market prices (Level 1). The money market fund in the funded deferred compensation plan is valued at the net asset value ("NAV") of the shares held by the plan at the end of the period (Level 2). As a practical expedient, fair value of our money market fund is valued at the NAV as determined by the custodian of the fund. The money market fund includes short-term United States dollar denominated money-market instruments. The money market fund can be redeemed at its NAV at its measurement date as there are no significant restrictions on the ability of participants to sell this investment. These assets will be redeemed by the plan participants on an as needed basis.

Unrealized gains and losses from marketable securities are recorded in other comprehensive income in our consolidated statements of comprehensive income. For the three months ended March 31, 2016 and 2015, we recorded unrealized gains from marketable securities of $555,000 and $3,000, respectively.

Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
 
Other-than-temporary Impairments
March 31, 2016
 
 
 
 
 
 
 
 
 
Type of security:
 
 
 
 
 
 
 
 
 
Municipal bonds — available for sale
$
70,593,000

 
$
1,771,000

 
$
(6,000
)
 
$
72,358,000

 
$

Total debt securities
$
70,593,000

 
$
1,771,000

 
$
(6,000
)
 
$
72,358,000

 
$

 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
Type of security:
 
 
 
 
 
 
 
 
 
Municipal bonds — available for sale
$
68,640,000

 
$
869,000

 
$
(13,000
)
 
$
69,496,000

 
$

Total debt securities
$
68,640,000

 
$
869,000

 
$
(13,000
)
 
$
69,496,000

 
$



For the three months ended March 31, 2016 and 2015, we received total proceeds, less the amount of interest received, of $2,018,000 and $758,000, respectively, from sales of available for sale municipal bonds. These sales resulted in realized gains of $62,000 and $3,000, respectively, and were recorded in other income – investment and interest in our consolidated statements of comprehensive income for the three months ended March 31, 2016 and 2015. The basis for the sale of these securities was the specific identification of each bond sold during this period.

The following table summarizes the contractual maturities of debt securities held at March 31, 2016 and December 31, 2015, which are classified as marketable securities in the consolidated Balance Sheet.
 
Municipal Bonds — Available for Sale
Contractual maturity:
March 31, 2016
 
December 31, 2015
Maturing in one year or less
$
804,000

 
$
774,000

Maturing in second year through fifth year
14,681,000

 
13,852,000

Maturing in sixth year through tenth year
37,635,000

 
36,273,000

Maturing after ten years
19,238,000

 
18,597,000

Total debt securities
$
72,358,000

 
$
69,496,000

v3.3.1.900
Share-Based Compensation
3 Months Ended
Mar. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation
Share-Based Compensation

A summary of stock-based compensation expense for the three months ended March 31, 2016 and 2015 is as follows:
 
For the Three Months Ended March 31,
 
2016
 
2015
Stock options
$
878,000

 
$
719,000

Restricted stock
135,000

 
58,000

Employee Stock Purchase Plan ("ESPP")
105,000

 
107,000

Total pre-tax stock-based compensation expense charged against income (1)
$
1,118,000

 
$
884,000


(1) 
Stock-based compensation expense is recorded in selling, general and administrative expense in our consolidated statements of comprehensive income.

At March 31, 2016, the unrecognized compensation cost related to unvested stock options and awards was $11,254,000. The weighted average period over which these awards will vest is approximately 3.5 years.

Other information pertaining to activity of our stock awards during the three months ended March 31, 2016 and 2015 were as follows:
 
March 31, 2016
 
March 31, 2015
Total grant-date fair value of stock options and awards granted
$
5,202,000

 
$
4,027,000

Total fair value of stock options and awards vested during period
$
3,092,000

 
$
2,719,000



2012 Equity Incentive Plan

The Company's 2012 Equity Incentive Plan (the "2012 Plan") provides that current or prospective officers, employees, non-employee directors and advisors can receive share-based awards such as stock options, restricted stock and other stock awards. The 2012 Plan seeks to promote the highest level of performance by providing an economic interest in the long-term success of the Company. As of the adoption of the 2012 Plan, no further grants were permitted under any previously existing stock plans (the "Pre-existing Plans"). Additionally, all remaining shares available for future grants under the Pre-existing Plans became available for issuance under the 2012 Plan.

We have outstanding stock awards that were granted under the Pre-existing Plans to non-employee directors, officers and employees of the Company and other specified groups, depending on the Pre-existing Plan. As of March 31, 2016, 4,089,000 shares of common stock were reserved for issuance under our 2012 Plan, including 1,196,000 shares available for future grant. The stock price will not be less than the fair market value of the common stock on the date the award is granted. No stock award will have a term in excess of ten years. Since 2008, all awards granted under the Pre-existing Plans and the 2012 Plan become vested and exercisable ratably over a five year period on each yearly anniversary date of the option grant.

The Nominating, Compensation and Stock Option Committee of the Board of Directors is responsible for determining the individuals who will be granted stock awards, the number of stock awards each individual will receive, the price per share (in accordance with the terms of the 2012 Plan), and the exercise period of each stock award.

Stock Options

A summary of our stock options outstanding under the 2012 Plan as of December 31, 2015 and changes during the three months ended March 31, 2016 is as follows:
 
Stock Options Outstanding
 
Number of Shares
 
Weighted Average Exercise Price
December 31, 2015
2,461,000

 
$
22.16

Granted
569,000

 
$
34.14

Cancelled
(13,000
)
 
$
28.39

Exercised
(124,000
)
 
$
20.83

March 31, 2016
2,893,000

 
$
24.54



The weighted average grant-date fair value of stock options granted during the three months ended March 31, 2016 and 2015 was $7.46 and $6.64 per common share, respectively.

The following table summarizes other information about our stock options at March 31, 2016:

 
Stock Options
Range of exercise prices
 
$10.39-$34.14

Outstanding:
 
 
Weighted average remaining contractual life (years)
 
7.0

Aggregate intrinsic value
 
$
35,492,000

Exercisable:
 
 
Number of shares
 
1,346,000

Weighted average remaining contractual life (years)
 
5.2

Aggregate intrinsic value
 
$
24,454,000

Exercised:
 
 
Aggregate intrinsic value
 
$
1,737,000






The fair value of stock option awards granted in 2016 and 2015 was estimated on the date of grant using the Black-Scholes option valuation model using the following assumptions:
 
Three months ended March 31,
 
2016
 
2015
Risk-free interest rate
2.0%
 
1.9%
Weighted average expected life in years
5.8 years
 
5.8 years
Expected volatility
26.0%
 
27.2%
Dividend yield
2.0%
 
2.2%


Restricted Stock

During the three months ended March 31, 2016, the Company granted 44,000 shares of restricted stock with a weighted average grant date fair value of $34.14 per share. Fair value is determined based on the market price of the shares on the date of grant. During the three months ended March 31, 2015, the Company granted 25,000 shares of restricted stock with a weighted average grant date fair value of $30.30 per share.

A summary of our outstanding stock-based compensation as of December 31, 2015 and changes during the three months ended March 31, 2016 is as follows:
 
Shares
 
Weighted Average Grant Date Fair Value
December 31, 2015
40,000

 
$
29.10

Granted
44,000

 
$
34.14

Vested
(9,000
)
 
$
28.76

Forfeited

 
$

March 31, 2016
75,000

 
$
32.10



Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan ("ESPP") for all eligible employees. The ESPP currently extends through 2016. All full-time and certain part-time employees who have completed two years of continuous service with us are eligible to participate. Annual offerings commence and terminate on the respective year’s first and last calendar day.

Under the ESPP, we are authorized to issue up to 4,050,000 shares of our common stock to our employees. Pursuant to such authorization, we have 2,362,000 shares available for future grant at March 31, 2016.

The stock-based compensation expense associated the options granted under our ESPP was estimated on the date of grant using the Black-Scholes option valuation model using the following assumptions:
 
Three months ended March 31,
 
2016
 
2015
Risk-free interest rate
0.58%
 
0.18%
Weighted average expected life in years
1.0 year
 
1.0 year
Expected volatility
19.7%
 
19.2%
Dividend yield
2.0%
 
2.2%
v3.3.1.900
Dividends
3 Months Ended
Mar. 31, 2016
Equity [Abstract]  
Dividends
Dividends

On March 25, 2016, a regular cash dividend of $0.18125 per common share was paid to shareholders of record on February 19, 2016. The total dividend paid was $13,158,000.
 

Additionally, on April 12, 2016, our Board of Directors declared a regular quarterly cash dividend of $0.18250 per common share, which will be paid on June 24, 2016, to shareholders of record as of the close of business on May 20, 2016.

Cash dividends on our outstanding weighted average number of basic common shares for the three months ended March 31, 2016 and 2015 were approximately as follows:
 
For the Three Months Ended March 31,
 
2016
 
2015
Cash dividends per common share
$
0.18

 
$
0.18

v3.3.1.900
Income Taxes
3 Months Ended
Mar. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

The 2016 estimated annual effective tax rate is expected to be approximately 37%. Differences between the effective tax rate and the applicable U.S. federal statutory rate arise primarily from the effect of state and local income taxes and tax credits available to the Company. The actual 2016 effective tax rate could vary from the estimate depending on the availability of tax credits.

We account for income taxes using the asset and liability method, which results in recognizing income tax expense based on the amount of income taxes payable or refundable for the current year. Additionally, we evaluate regularly the tax positions taken or expected to be taken resulting from financial statement recognition of certain items. Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our financial statements. Our evaluation was performed for the tax years ended December 31, 2012 through 2015 (with regard to U.S. federal income tax returns) and December 31, 2011 through 2015 (with regard to various state and local income tax returns), the tax years which remain subject to examination by major tax jurisdictions as of March 31, 2016.

We may from time to time be assessed interest or penalties by taxing jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. When we have received an assessment for interest and/or penalties, it has been classified in the financial statements as selling, general and administrative expense.
v3.3.1.900
Related Party Transactions
3 Months Ended
Mar. 31, 2016
Related Party Transactions [Abstract]  
Related Party Transactions
Related Party Transactions

A director is a member of a law firm which was retained by us. In each of the three months ended March 31, 2016 and 2015, fees received from us by such firm did not exceed $120,000 in any period. Additionally, such fees did not exceed, in either period, 5% of such firm’s or the Company's revenues.
v3.3.1.900
Segment Information
3 Months Ended
Mar. 31, 2016
Segment Reporting [Abstract]  
Segment Information
Segment Information

Reportable Operating Segments

Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in determining how to allocate resources and assess performance.

We manage and evaluate our operations in two reportable segments: Housekeeping (housekeeping, laundry, linen and other services) and Dietary (dietary department services). Although both segments serve a similar client base and share many operational similarities, they are managed separately due to differences in the type of services provided, as well as the specialized expertise required of the professional management personnel responsible for delivering the respective segments' services. Such services are rendered pursuant to distinct service agreements, specific to each reportable segment.

The Company’s accounting policies for the segments are generally the same as described in the Company’s significant accounting policies. Differences between the reportable segments’ operating results and other disclosed data and our consolidated financial statements relate primarily to corporate level transactions and recording of transactions at the reportable segment level which use methods other than generally accepted accounting principles. There are certain inventories and supplies that are primarily expensed when incurred within the operating segments, while they are capitalized for the consolidated financial statements. As discussed, most corporate expenses are not allocated to the operating segments. Such expenses include corporate salary and benefit costs, bad debt expense, certain legal costs, information technology costs, depreciation, amortization of finite lived intangible assets, share based compensation costs and other corporate specific costs. Additionally, there are allocations for workers' compensation and general liability expense within the operating segments that differ from our actual expense recorded for U.S. GAAP.

 
Housekeeping
Services
 
Dietary
Services
 
Corporate and
Eliminations
 
Total
Three Months Ended March 31, 2016
 
 
 
 
 
 
 
Revenues
$
238,279,000

 
$
146,528,000

 
$


$
384,807,000

Income before income taxes
22,500,000

 
9,148,000

 
(2,044,000
)
(1) 
29,604,000

Three Months Ended March 31, 2015
 
 
 
 
 
 
 
Revenues
$
226,581,000

 
$
128,665,000

 
$


$
355,246,000

Income before income taxes
20,617,000

 
8,905,000

 
(4,468,000
)
(1) 
25,054,000


(1) 
Primarily represents corporate office costs and related overhead, recording of certain inventories and supplies and workers compensation costs at the reportable segment level which use accounting methods that differ from those used at the corporate level, as well as consolidated subsidiaries’ operating expenses that are not allocated to the reportable segments, net of investment and interest income.

Total Revenues from Clients

We earned total revenues from clients in the following service categories:
 
For the Three Months Ended March 31,
2016
 
2015
Housekeeping services
$
168,916,000

 
$
156,587,000

Dietary Services
146,528,000

 
128,665,000

Laundry and linen services
68,714,000

 
69,488,000

Maintenance services and other
649,000

 
506,000

 
$
384,807,000

 
$
355,246,000

v3.3.1.900
Earnings Per Common Share
3 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
Earnings Per Common Share
Earnings Per Common Share

Basic earnings per share are computed using the weighted-average number of common shares outstanding. The dilutive effect of potential common shares outstanding is included in diluted earnings per share. The computations of basic earnings per share and diluted earnings per share are as follows:
 
 
Three Months Ended March 31, 2016
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-share
Amount
 
 
Net income
$
18,626,000

 
 
 
 
 
Basic earnings per common share
$
18,626,000

 
72,364,000

 
$
0.26

 
Effect of dilutive securities:
 
 
 
 
 
 
Stock options and restricted stock
 
 
650,000

 

 
Diluted earnings per common share
$
18,626,000

 
73,014,000

 
$
0.26

 
 
 
 
 
Three Months Ended March 31, 2015
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-share
Amount
 
 
Net income
$
15,516,000

 
 
 
 
 
Basic earnings per common share
$
15,516,000

 
71,469,000

 
$
0.22

 
Effect of dilutive securities:
 
 
 
 
 
 
Stock options and restricted stock
 
 
690,000

 

 
Diluted earnings per common share
$
15,516,000

 
72,159,000

 
$
0.22



Stock awards to purchase 980,000 shares of common stock having average exercise prices of $32.45 per common share were outstanding during the three months ended March 31, 2016 but not included in the computation of diluted earnings per common share because the exercise prices of the options were greater than the average market price of our common stock, and therefore, would be antidilutive.
Stock awards to purchase 1,014,000 shares of common stock having average exercise prices of $29.22 per common share were outstanding during the three months ended March 31, 2015 but not included in the computation of diluted earnings per common share because the exercise prices of the options were greater than the average market price of our common stock, and therefore, would be antidilutive.
v3.3.1.900
Other Contingencies
3 Months Ended
Mar. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
Other Contingencies
Other Contingencies

Line of Credit

We have a $200,000,000 bank line of credit on which we may draw to meet short-term liquidity requirements. Amounts drawn under the line of credit are payable upon demand. At March 31, 2016, there were no borrowings under the line of credit. At March 31, 2016, we had outstanding a $68,778,000 irrevocable standby letter of credit, which relates to payment obligations under our insurance programs. This letter of credit was increased to $73,428,000 on April 1, 2016. In connection with the issuance of the letter of credit, the amount available under the line of credit was reduced by $68,778,000 at March 31, 2016. The line of credit requires us to satisfy one financial covenant. We are in compliance with our financial covenant at March 31, 2016 and expect to remain in compliance with such financial covenant. The line of credit expires on December 18, 2018.

Tax Jurisdictions and Matters

We provide our services in 48 states and are subject to numerous local taxing jurisdictions within those states. In the ordinary course of business, a jurisdiction may contest our reporting positions with respect to the application of its tax code to our services. A jurisdiction’s conflicting position on the taxability of our services could result in additional tax liabilities.

We have tax matters with various taxing authorities. Because of the uncertainties related to both the probable outcome and amount of probable assessment due, we are unable to make a reasonable estimate of a liability. We do not expect the resolution of any of these matters, taken individually or in the aggregate, to have a material adverse effect on our consolidated financial position or results of operations based on our best estimate of the outcomes of such matters.

Legal Proceedings

We are subject to various claims and legal actions in the ordinary course of business. Some of these matters include payroll and employee-related matters and examinations by governmental agencies. As we become aware of such claims and legal actions, we record accruals for any exposures that are probable and estimable. If an adverse outcome of such claims and legal actions is reasonably possible, we assess materiality and provide such financial disclosure, as appropriate. The Company believes it is not a party to, nor are any of its properties the subject of, any pending legal proceeding or governmental examination that would have a material adverse effect on the Company's consolidated financial condition or liquidity.

Government Regulations

Our clients are concentrated in the health care industry and are primarily providers of long-term care. Many of our clients’ revenues are highly reliant on Medicare, Medicaid and third party payors’ reimbursement funding rates. New legislation or additional changes in existing regulations could be made which could directly impact the governmental reimbursement programs in which our clients participate. As a result, we may not know the full effects of such programs until these laws are fully implemented and government agencies issue applicable regulations or guidance.
v3.3.1.900
Subsequent Events
3 Months Ended
Mar. 31, 2016
Subsequent Events [Abstract]  
Subsequent Events
Subsequent Events

We evaluated all subsequent events through the filing date of this Form 10-Q. We believe there were no events or transactions occurring during this subsequent reporting period which require recognition or additional disclosure in these financial statements.
v3.3.1.900
Description of Business and Significant Accounting Policies (Policy)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Nature of Operations
Healthcare Services Group, Inc. (the "Company") provides management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of the health care industry, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. Although we do not directly participate in any government reimbursement programs, our clients’ reimbursements are subject to government regulation. Therefore, they are directly affected by any legislation relating to Medicare and Medicaid reimbursement programs.

We provide our services primarily pursuant to full service agreements with our clients. In such agreements, we are responsible for the day-to-day management of employees located at our clients’ facilities. We also provide services on the basis of management-only agreements for a limited number of clients. Our agreements with clients typically provide for renewable one year service terms, cancelable by either party upon 30 to 90 days’ notice after the initial 60 to 120 day period.

We are organized into two reportable segments: housekeeping, laundry, linen and other services ("Housekeeping"), and dietary department services ("Dietary").

Housekeeping consists of the managing of clients' housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of patient rooms and common areas of a client’s facility, as well as the laundering and processing of the personal clothing belonging to the facility’s patients. Also within the scope of this segment’s service is the responsibility for laundering and processing of the bed linens, uniforms and other assorted linen items utilized by a client facility.

Dietary consists of managing clients' dietary department which is principally responsible for food purchasing, meal preparation and providing dietitian consulting professional services, which includes the development of a menu that meets the patient’s dietary needs.
Unaudited Interim Financial Data
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows. However, in our opinion, all adjustments which are of a normal recurring nature and necessary for a fair presentation have been reflected in these consolidated financial statements. The balance sheet shown in this report as of December 31, 2015 has been derived from, and does not include, all of the disclosures contained in the financial statements for the year ended December 31, 2015. These financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for any future period.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Healthcare Services Group, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents are held in U.S. financial institutions or in custodial accounts with U.S. financial institutions. Cash equivalents are defined as short-term, highly liquid investments with a maturity of three months or less at time of purchase that are readily convertible into cash and have insignificant interest rate risk.
Inventories and Supplies
Inventories and supplies include housekeeping, linen and laundry supplies, as well as food provisions and supplies. Inventories and supplies are stated at cost to approximate a first-in, first-out (FIFO) basis. Linen supplies are amortized on a straight-line basis over their estimated useful life of 24 months.

Revenue Recognition
Revenues from our service agreements with clients are recognized as services are performed.

As a distributor of laundry equipment, we occasionally sell laundry installations to certain clients. The sales in most cases represent the construction and installation of a turn-key operation and have payment terms ranging from 24 to 60 months. During the three months ended March 31, 2016 and 2015, laundry installation sales were not material.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current period. We accrue for probable tax obligations as required by facts and circumstances in various regulatory environments. In addition, deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the book and tax bases of assets and liabilities. When appropriate, valuation allowances are recorded to reduce deferred tax assets to amounts for which realization is more likely than not.

Uncertain income tax positions related to tax positions taken or expected to be taken in tax returns are reflected within our financial statements based on a recognition and measurement process.
Earnings per Common Share
Basic earnings per common share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share are calculated using the weighted-average number of common shares outstanding and dilutive common shares, such as those issuable upon exercise of stock options.

Share-Based Compensation

The Company recognizes compensation expense based on the fair value of share-based awards made to employees and directors, including stock options and participation in the Company’s employee stock purchase plan. We estimate the fair value of stock options as of the date of grant using a Black-Scholes option valuation model, while share-based awards are valued based on the market-price on the date of grant. The value of the portion of the award that is ultimately expected to vest, after accounting for estimated and actual forfeitures, is recognized as an expense in the Company’s consolidated statements of comprehensive income ratably over the requisite service periods.
Use of Estimates in Financial Statements
In preparing financial statements in conformity with U.S. GAAP, we make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Significant estimates are used in determining, but are not limited to, our allowance for doubtful accounts, accrued insurance claims, asset valuations, deferred taxes and reviews for potential impairment. The estimates are based upon various factors including current and historical trends, as well as other pertinent industry and regulatory authority information. We regularly evaluate this information to determine if it is necessary to update the basis for our estimates and to compensate for known changes.
Self-Funded Captive Insurance Programs
In fiscal year 2015, the Company transitioned its workers compensation and certain employee health & welfare insurance programs to HCSG Insurance Corp. ("HCSG Insurance"), its wholly owned captive insurance subsidiary which previously provided general liability coverage to the Company. HCSG Insurance was formed in January 2014 to provide the Company with greater efficiency in managing its property & casualty and health & welfare programs.
Concentrations of Credit Risk
Our financial instruments consist principally of cash and cash equivalents, marketable securities, deferred compensation funding and accounts and notes receivable. Our marketable securities are fixed income investments which are highly liquid and can be readily purchased or sold through established markets. At March 31, 2016 and December 31, 2015, substantially all of our cash and cash equivalents, and marketable securities were held in one large financial institution located in the United States.

Our clients are concentrated in the health care industry and are primarily providers of long-term care. Many of our clients’ revenues are highly reliant on Medicare, Medicaid and third party payors’ reimbursement funding rates. Congress has enacted legislation that has significantly altered, or threatened to alter, overall government reimbursement for nursing home services. These changes and the lack of substantive reimbursement funding rate reform legislation, as well as other trends in the long-term care industry, have affected and could adversely affect the liquidity of our clients, resulting in their inability to make payments to us in accordance with agreed upon payment terms. These factors could result in the recognition of significant additional bad debts in the future.
Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, Stock Compensation. ASU 2016-09 is intended to simplify several aspects of the accounting for share-based payments. The guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within that year. The Company is in the process of evaluating the impacts of the adoption of this ASU.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, and a subsequent amendment to the standard in March 2016 with ASU 2016-08. The original standard provides guidance on recognizing revenue, including a five step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment to the standard clarifies implementation guidance on principal versus agent considerations. Adoption of the new standard is effective for reporting periods beginning after December 15, 2017, with early adoption prohibited. The Company is in the process of evaluating the impacts of the adoption of this ASU.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires lessees to recognize assets and liabilities on their balance sheet related to the rights and obligations created by most leases, while continuing to recognize expenses on their income statements over the lease term.  It will also require disclosures designed to give financial statement users information regarding the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. We are currently evaluating the impact ASU 2016-02 will have on our consolidated financial statements and associated disclosures.


In November 2015, the FASB issued ASU 2015-17, 
Balance Sheet Classification of Deferred Taxes. The amendment in this ASU requires that deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent in a classified statement of financial position. The guidance becomes effective for annual reporting periods beginning after December 15, 2016 with early adoption permitted. Management elected to adopt the standard in the first quarter of 2016, with retrospective application to prior period balances presented. The adoption of ASU 2015-17 did not have a material impact on the Company’s consolidated financial statements.

v3.3.1.900
Changes in Accumulated Other Comprehensive Income by Component (Tables)
3 Months Ended
Mar. 31, 2016
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]  
Schedule of Accumulated Other Comprehensive Income
The following table provides a summary of changes in accumulated other comprehensive income for the three months ended March 31, 2016:
 
Unrealized Gains and Losses on Available for Sale Securities (1)
 
For the Three Months Ended
March 31,
 
2016
 
2015
Accumulated other comprehensive income — beginning balance
$
543,000

 
$
25,000

Other comprehensive income before reclassifications
594,000

 
5,000

Amounts reclassified from accumulated other comprehensive income (2)(3)
(39,000
)
 
(2,000
)
Net current period change in other comprehensive income
555,000

 
3,000

Accumulated other comprehensive income — ending balance
$
1,098,000

 
$
28,000


(1) 
All amounts are net of tax.
(2) 
Realized gains and losses are recorded pre-tax under "Other income - Investment and interest" on our consolidated statements of comprehensive income.
(3) 
For the three months ended March 31, 2016 and 2015, the Company recorded $62,000 and $3,000, respectively, of realized gains from the sale of available for sale securities. Refer to Note 5 herein for further information.

v3.3.1.900
Property and Equipment (Tables)
3 Months Ended
Mar. 31, 2016
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment
The following table sets forth the amounts of property and equipment by each class of depreciable assets as of March 31, 2016 and December 31, 2015:
 
March 31, 2016
 
December 31, 2015
Housekeeping and office equipment and furniture
$
30,464,000

 
$
29,852,000

Laundry and linen equipment installations
1,124,000

 
1,117,000

Autos and trucks
138,000

 
138,000

Total property and equipment, at cost
31,726,000

 
31,107,000

Less accumulated depreciation
18,451,000

 
18,021,000

Total property and equipment, net
$
13,275,000

 
$
13,086,000

v3.3.1.900
Goodwill and Other Intangible Assets (Tables)
3 Months Ended
Mar. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Identifiable Intangible Assets Subject To Amortization
The following table sets forth the amounts of our identifiable intangible assets subject to amortization, which were acquired in acquisitions.
 
March 31, 2016
 
December 31, 2015
Customer relationships
$
29,080,000

 
$
35,781,000

Non-compete agreements

 
800,000

Total other intangibles, gross
29,080,000

 
36,581,000

Less accumulated amortization
12,783,000

 
19,473,000

Other intangibles, net
$
16,297,000

 
$
17,108,000

Estimated Amortization Expense For Intangibles Subject To Amortization
The following table sets forth the estimated amortization expense for intangibles subject to amortization for the remainder of 2016, the following five fiscal years and thereafter:
Period/Year
 
Total Amortization Expense
April 1 to December 31, 2016
 
$
1,889,000

2017
 
$
2,427,000

2018
 
$
2,327,000

2019
 
$
2,130,000

2020
 
$
2,130,000

2021
 
$
2,130,000

Thereafter
 
$
3,264,000

v3.3.1.900
Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurements
The following tables provide fair value measurement information for our marketable securities and deferred compensation fund investment assets as of March 31, 2016 and December 31, 2015:
 
As of March 31, 2016
 
 
 
 
 
Fair Value Measurement Using:
 
Carrying Amount
 
Total Fair Value
 
Quoted Prices in Active Markets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
Financial Assets:
 
 
 
 
 
 
 
 
 
Marketable securities
 
 
 
 
 
 
 
 
 
Municipal bonds — available for sale
$
72,358,000

 
$
72,358,000

 
$

 
$
72,358,000

 
$

 
 
 
 
 
 
 
 
 
 
Deferred compensation fund
 
 
 
 
 
 
 
 
 
Money Market
$
4,526,000

 
$
4,526,000

 
$

 
$
4,526,000

 
$

Balanced and Lifestyle
9,151,000

 
9,151,000

 
9,151,000

 

 

Large Cap Growth
4,884,000

 
4,884,000

 
4,884,000

 

 

Small Cap Growth
2,184,000

 
2,184,000

 
2,184,000

 

 

Fixed Income
2,688,000

 
2,688,000

 
2,688,000

 

 

International
999,000

 
999,000

 
999,000

 

 

Mid Cap Growth
1,227,000

 
1,227,000

 
1,227,000

 

 

Deferred compensation fund
$
25,659,000

 
$
25,659,000

 
$
21,133,000

 
$
4,526,000

 
$

 
As of December 31, 2015
 
 
 
 
 
Fair Value Measurement Using:
 
Carrying Amount
 
Total Fair Value
 
Quoted Prices in Active Markets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
Financial Assets:
 
 
 
 
 
 
 
 
 
Marketable securities
 
 
 
 
 
 
 
 
 
Municipal bonds — available for sale
$
69,496,000

 
$
69,496,000

 
$

 
$
69,496,000

 
$

 
 
 
 
 
 
 
 
 
 
Deferred compensation fund
 
 
 
 
 
 
 
 
 
Money Market
$
3,896,000

 
$
3,896,000

 
$

 
$
3,896,000

 
$

Balanced and Lifestyle
9,136,000

 
9,136,000

 
9,136,000

 

 

Large Cap Growth
5,218,000

 
5,218,000

 
5,218,000

 

 

Small Cap Growth
2,275,000

 
2,275,000

 
2,275,000

 

 

Fixed Income
2,624,000

 
2,624,000

 
2,624,000

 

 

International
1,025,000

 
1,025,000

 
1,025,000

 

 

Mid Cap Growth
1,217,000

 
1,217,000

 
1,217,000

 

 

Deferred compensation fund
$
25,391,000

 
$
25,391,000

 
$
21,495,000

 
$
3,896,000

 
$

Marketable Debt Securities

Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
 
Other-than-temporary Impairments
March 31, 2016
 
 
 
 
 
 
 
 
 
Type of security:
 
 
 
 
 
 
 
 
 
Municipal bonds — available for sale
$
70,593,000

 
$
1,771,000

 
$
(6,000
)
 
$
72,358,000

 
$

Total debt securities
$
70,593,000

 
$
1,771,000

 
$
(6,000
)
 
$
72,358,000

 
$

 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
Type of security:
 
 
 
 
 
 
 
 
 
Municipal bonds — available for sale
$
68,640,000

 
$
869,000

 
$
(13,000
)
 
$
69,496,000

 
$

Total debt securities
$
68,640,000

 
$
869,000

 
$
(13,000
)
 
$
69,496,000

 
$

Contractual Maturities Of Available For Sale Investments
The following table summarizes the contractual maturities of debt securities held at March 31, 2016 and December 31, 2015, which are classified as marketable securities in the consolidated Balance Sheet.
 
Municipal Bonds — Available for Sale
Contractual maturity:
March 31, 2016
 
December 31, 2015
Maturing in one year or less
$
804,000

 
$
774,000

Maturing in second year through fifth year
14,681,000

 
13,852,000

Maturing in sixth year through tenth year
37,635,000

 
36,273,000

Maturing after ten years
19,238,000

 
18,597,000

Total debt securities
$
72,358,000

 
$
69,496,000

v3.3.1.900
Share-Based Compensation (Tables)
3 Months Ended
Mar. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Schedule of Stock-based Compensation Expense
A summary of stock-based compensation expense for the three months ended March 31, 2016 and 2015 is as follows:
 
For the Three Months Ended March 31,
 
2016
 
2015
Stock options
$
878,000

 
$
719,000

Restricted stock
135,000

 
58,000

Employee Stock Purchase Plan ("ESPP")
105,000

 
107,000

Total pre-tax stock-based compensation expense charged against income (1)
$
1,118,000

 
$
884,000


(1) 
Stock-based compensation expense is recorded in selling, general and administrative expense in our consolidated statements of comprehensive income.
Summary of Other Information of Stock Option Plans
Other information pertaining to activity of our stock awards during the three months ended March 31, 2016 and 2015 were as follows:
 
March 31, 2016
 
March 31, 2015
Total grant-date fair value of stock options and awards granted
$
5,202,000

 
$
4,027,000

Total fair value of stock options and awards vested during period
$
3,092,000

 
$
2,719,000

A summary of our stock options outstanding under the 2012 Plan as of December 31, 2015 and changes during the three months ended March 31, 2016 is as follows:
 
Stock Options Outstanding
 
Number of Shares
 
Weighted Average Exercise Price
December 31, 2015
2,461,000

 
$
22.16

Granted
569,000

 
$
34.14

Cancelled
(13,000
)
 
$
28.39

Exercised
(124,000
)
 
$
20.83

March 31, 2016
2,893,000

 
$
24.54

Summarized Information of Stock Options Outstanding
The following table summarizes other information about our stock options at March 31, 2016:

 
Stock Options
Range of exercise prices
 
$10.39-$34.14

Outstanding:
 
 
Weighted average remaining contractual life (years)
 
7.0

Aggregate intrinsic value
 
$
35,492,000

Exercisable:
 
 
Number of shares
 
1,346,000

Weighted average remaining contractual life (years)
 
5.2

Aggregate intrinsic value
 
$
24,454,000

Exercised:
 
 
Aggregate intrinsic value
 
$
1,737,000

Assumption For Fair Value of Options Granted
The fair value of stock option awards granted in 2016 and 2015 was estimated on the date of grant using the Black-Scholes option valuation model using the following assumptions:
 
Three months ended March 31,
 
2016
 
2015
Risk-free interest rate
2.0%
 
1.9%
Weighted average expected life in years
5.8 years
 
5.8 years
Expected volatility
26.0%
 
27.2%
Dividend yield
2.0%
 
2.2%
Schedule of Restricted Stock Outstanding Stock-based Compensation
A summary of our outstanding stock-based compensation as of December 31, 2015 and changes during the three months ended March 31, 2016 is as follows:
 
Shares
 
Weighted Average Grant Date Fair Value
December 31, 2015
40,000

 
$
29.10

Granted
44,000

 
$
34.14

Vested
(9,000
)
 
$
28.76

Forfeited

 
$

March 31, 2016
75,000

 
$
32.10

Schedule of Share-based Payment Award, Employee Stock Purchase Plan, Valuation Assumptions
The stock-based compensation expense associated the options granted under our ESPP was estimated on the date of grant using the Black-Scholes option valuation model using the following assumptions:
 
Three months ended March 31,
 
2016
 
2015
Risk-free interest rate
0.58%
 
0.18%
Weighted average expected life in years
1.0 year
 
1.0 year
Expected volatility
19.7%
 
19.2%
Dividend yield
2.0%
 
2.2%
v3.3.1.900
Dividends (Tables)
3 Months Ended
Mar. 31, 2016
Equity [Abstract]  
Schedule of Dividends Payable on Outstanding Weighted Average Number of Basic Common Shares
Cash dividends on our outstanding weighted average number of basic common shares for the three months ended March 31, 2016 and 2015 were approximately as follows:
 
For the Three Months Ended March 31,
 
2016
 
2015
Cash dividends per common share
$
0.18

 
$
0.18

v3.3.1.900
Segment Information (Tables)
3 Months Ended
Mar. 31, 2016
Segment Reporting [Abstract]  
Schedule of Information of Reportable Segments
 
Housekeeping
Services
 
Dietary
Services
 
Corporate and
Eliminations
 
Total
Three Months Ended March 31, 2016
 
 
 
 
 
 
 
Revenues
$
238,279,000

 
$
146,528,000

 
$


$
384,807,000

Income before income taxes
22,500,000

 
9,148,000

 
(2,044,000
)
(1) 
29,604,000

Three Months Ended March 31, 2015
 
 
 
 
 
 
 
Revenues
$
226,581,000

 
$
128,665,000

 
$


$
355,246,000

Income before income taxes
20,617,000

 
8,905,000

 
(4,468,000
)
(1) 
25,054,000


(1) 
Primarily represents corporate office costs and related overhead, recording of certain inventories and supplies and workers compensation costs at the reportable segment level which use accounting methods that differ from those used at the corporate level, as well as consolidated subsidiaries’ operating expenses that are not allocated to the reportable segments, net of investment and interest income.
Revenues by Client Services
We earned total revenues from clients in the following service categories:
 
For the Three Months Ended March 31,
2016
 
2015
Housekeeping services
$
168,916,000

 
$
156,587,000

Dietary Services
146,528,000

 
128,665,000

Laundry and linen services
68,714,000

 
69,488,000

Maintenance services and other
649,000

 
506,000

 
$
384,807,000

 
$
355,246,000

v3.3.1.900
Earnings Per Common Share (Tables)
3 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
Computation of Basic and Diluted Net Earnings Per Share
The computations of basic earnings per share and diluted earnings per share are as follows:
 
 
Three Months Ended March 31, 2016
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-share
Amount
 
 
Net income
$
18,626,000

 
 
 
 
 
Basic earnings per common share
$
18,626,000

 
72,364,000

 
$
0.26

 
Effect of dilutive securities:
 
 
 
 
 
 
Stock options and restricted stock
 
 
650,000

 

 
Diluted earnings per common share
$
18,626,000

 
73,014,000

 
$
0.26

 
 
 
 
 
Three Months Ended March 31, 2015
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-share
Amount
 
 
Net income
$
15,516,000

 
 
 
 
 
Basic earnings per common share
$
15,516,000

 
71,469,000

 
$
0.22

 
Effect of dilutive securities:
 
 
 
 
 
 
Stock options and restricted stock
 
 
690,000

 

 
Diluted earnings per common share
$
15,516,000

 
72,159,000

 
$
0.22

v3.3.1.900
Description of Business and Significant Accounting Policies (Details)
3 Months Ended
Mar. 31, 2016
financial_institution
segment
Dec. 31, 2015
financial_institution
Schedule of Accounting Policies [Line Items]    
Service term 1 year  
Number of reportable segments | segment 2  
Amortization period of inventories and supplies 24 months  
Number of financial institutions holding cash and cash equivalents and marketable securities | financial_institution 1 1
Minimum    
Schedule of Accounting Policies [Line Items]    
Days to notify cancellation of service 30 days  
Initial period of service term 60 days  
Property and equipment payment terms 24 months  
Maximum    
Schedule of Accounting Policies [Line Items]    
Days to notify cancellation of service 90 days  
Initial period of service term 120 days  
Property and equipment payment terms 60 months  
v3.3.1.900
Changes in Accumulated Other Comprehensive Income by Component (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Accumulated other comprehensive income    
Balance $ 296,456  
Balance 312,955  
Accumulated Other Comprehensive Income, net of taxes    
Accumulated other comprehensive income    
Balance 543 $ 25
Other comprehensive income before reclassifications 594 5
Amounts reclassified from accumulated other comprehensive income (39) (2)
Net current period change in other comprehensive income 555 3
Balance $ 1,098 $ 28
v3.3.1.900
Changes in Accumulated Other Comprehensive Income by Component - Additional Information (Details) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]    
Realized gains from the sale of available for sale securities $ 62 $ 3
v3.3.1.900
Property and Equipment (Details) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Property, Plant and Equipment [Line Items]      
Total property and equipment, at cost $ 31,726,000   $ 31,107,000
Less accumulated depreciation 18,451,000   18,021,000
Property and equipment, net 13,275,000   13,086,000
Depreciation 1,155,000 $ 1,101,000  
Housekeeping and office equipment and furniture      
Property, Plant and Equipment [Line Items]      
Total property and equipment, at cost 30,464,000   29,852,000
Laundry and linen equipment installations      
Property, Plant and Equipment [Line Items]      
Total property and equipment, at cost 1,124,000   1,117,000
Autos and trucks      
Property, Plant and Equipment [Line Items]      
Total property and equipment, at cost $ 138,000   $ 138,000
v3.3.1.900
Goodwill and Other Intangible Assets - Additional Information (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Goodwill [Line Items]      
Goodwill $ 44,438   $ 44,438
Amortization expense $ 810 $ 810  
Customer Relationships      
Goodwill [Line Items]      
Weighted-average amortization period of finite-lived intangible assets 8 years    
Housekeeping Segment      
Goodwill [Line Items]      
Goodwill $ 42,377   42,377
Dietary Segment      
Goodwill [Line Items]      
Goodwill $ 2,061   $ 2,061
v3.3.1.900
Goodwill and Other Intangible Assets - Identifiable Intangible Assets Subject To Amortization (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]    
Total other intangibles, gross $ 29,080 $ 36,581
Less accumulated amortization 12,783 19,473
Other intangibles, net 16,297 17,108
Customer Relationships    
Finite-Lived Intangible Assets [Line Items]    
Total other intangibles, gross 29,080 35,781
Non-compete Agreements    
Finite-Lived Intangible Assets [Line Items]    
Total other intangibles, gross $ 0 $ 800
v3.3.1.900
Goodwill and Other Intangible Assets - Estimated Amortization Expense For Intangibles Subject To Amortization (Details)
$ in Thousands
Mar. 31, 2016
USD ($)
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]  
April 1 to December 31, 2016 $ 1,889
2017 2,427
2018 2,327
2019 2,130
2020 2,130
2021 2,130
Thereafter $ 3,264
v3.3.1.900
Fair Value Measurements - Marketable Securities and Deferred Compensation Fund Investment Assets (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Marketable securities $ 72,358 $ 69,496
Deferred compensation fund 25,659 25,391
Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 21,133 21,495
Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 4,526 3,896
Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 25,659 25,391
Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 25,659 25,391
Municipal bonds — available for sale    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Marketable securities 72,358 69,496
Municipal bonds — available for sale | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Marketable securities 0 0
Municipal bonds — available for sale | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Marketable securities 72,358 69,496
Municipal bonds — available for sale | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Marketable securities 0 0
Municipal bonds — available for sale | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Marketable securities 72,358 69,496
Municipal bonds — available for sale | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Marketable securities 72,358 69,496
Money Market | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Money Market | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 4,526 3,896
Money Market | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Money Market | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 4,526 3,896
Money Market | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 4,526 3,896
Balanced and Lifestyle | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 9,151 9,136
Balanced and Lifestyle | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Balanced and Lifestyle | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Balanced and Lifestyle | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 9,151 9,136
Balanced and Lifestyle | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 9,151 9,136
Large Cap Growth | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 4,884 5,218
Large Cap Growth | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Large Cap Growth | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Large Cap Growth | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 4,884 5,218
Large Cap Growth | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 4,884 5,218
Small Cap Growth | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 2,184 2,275
Small Cap Growth | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Small Cap Growth | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Small Cap Growth | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 2,184 2,275
Small Cap Growth | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 2,184 2,275
Fixed Income | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 2,688 2,624
Fixed Income | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Fixed Income | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Fixed Income | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 2,688 2,624
Fixed Income | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 2,688 2,624
International | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 999 1,025
International | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
International | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
International | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 999 1,025
International | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 999 1,025
Mid Cap Growth | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 1,227 1,217
Mid Cap Growth | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Mid Cap Growth | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Mid Cap Growth | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 1,227 1,217
Mid Cap Growth | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund $ 1,227 $ 1,217
v3.3.1.900
Fair Value Measurements - Additional Information (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Fair Value Disclosures [Abstract]    
Unrealized gain on available for sale marketable securities, net of taxes $ 555 $ 3
Proceeds from available for sale municipal bonds 2,018 758
Realized gain on other income, investment and interest $ 62 $ 3
v3.3.1.900
Fair Value Measurements - Marketable Debt Securities (Details) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Fair Value, Investments, Entities that Calculate Net Asset Value Per Share [Line Items]    
Amortized Cost $ 70,593 $ 68,640
Gross Unrealized Gains 1,771 869
Gross Unrealized Losses (6) (13)
Estimated Fair Value 72,358 69,496
Other-than-temporary Impairments 0 0
Municipal bonds — available for sale    
Fair Value, Investments, Entities that Calculate Net Asset Value Per Share [Line Items]    
Amortized Cost 70,593 68,640
Gross Unrealized Gains 1,771 869
Gross Unrealized Losses (6) (13)
Estimated Fair Value 72,358 69,496
Other-than-temporary Impairments $ 0 $ 0
v3.3.1.900
Fair Value Measurements - Contractual Maturities of Available For Sale Investments (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Fair Value Disclosures [Abstract]    
Maturing in one year or less $ 804 $ 774
Maturing in second year through fifth year 14,681 13,852
Maturing in sixth year through tenth year 37,635 36,273
Maturing after ten years 19,238 18,597
Total debt securities $ 72,358 $ 69,496
v3.3.1.900
Stock-Based Compensation - Summary of Stock-Based Compensation Expense (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Total pre-tax stock-based compensation expense charged against income $ 1,118 $ 884
Stock options    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Total pre-tax stock-based compensation expense charged against income 878 719
Restricted stock    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Total pre-tax stock-based compensation expense charged against income 135 58
Employee Stock Purchase Plan (ESPP)    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Total pre-tax stock-based compensation expense charged against income $ 105 $ 107
v3.3.1.900
Share-Based Compensation - Additional Information (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Unrecognized compensation cost $ 11,254  
Period of expense of unrecognized compensation cost, years 3 years 6 months  
Common stock reserved for future issuance 4,089,000  
Shares available for future grant 1,196,000  
Maximum term of grants 10 years  
Options vested and exercisable, period 5 years  
Weighted average grant-date fair value of stock options granted (in dollars per share) $ 7.46 $ 6.64
Restricted Stock    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Restricted stock granted 44,000 25,000
Weighted average grant date fair value of restricted stock granted (in dollars per share) $ 34.14 $ 30.30
Employee Stock Purchase Plan (ESPP)    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Shares available for future grant 2,362,000  
Requisite service period for plan participation eligibility 2 years  
Stock options authorized to issue to employees 4,050,000  
v3.3.1.900
Share-Based Compensation - Summary of Other Information of Stock Awards (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]    
Total grant-date fair value of stock options and awards granted $ 5,202 $ 4,027
Total fair value of stock options and awards vested during period $ 3,092 $ 2,719
v3.3.1.900
Share-Based Compensation - Summary of Stock Award Activity (Details)
shares in Thousands
3 Months Ended
Mar. 31, 2016
$ / shares
shares
Number of Shares  
December 31, 2015 (in shares) | shares 2,461
Granted (in shares) | shares 569
Cancelled (in shares) | shares (13)
Exercised (in shares) | shares (124)
March 31, 2016 (in shares) | shares 2,893
Weighted Average Exercise Price  
December 31, 2015 (in dollars per share) | $ / shares $ 22.16
Granted (in dollars per share) | $ / shares 34.14
Cancelled (in dollars per share) | $ / shares 28.39
Exercised (in dollars per share) | $ / shares 20.83
March 31, 2016 (in dollars per share) | $ / shares $ 24.54
v3.3.1.900
Share-Based Compensation - Summarized Information About Stock Awards (Details) - $10.39 to $34.14
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2016
USD ($)
$ / shares
shares
Stock Options  
Exercise price range - lower limit (in dollars per share) | $ / shares $ 10.39
Exercise price range - upper limit (in dollars per share) | $ / shares $ 34.14
Outstanding:  
Weighted average remaining contractual life (years) 7 years
Aggregate intrinsic value $ 35,492
Exercisable:  
Number of shares (in shares) | shares 1,346
Weighted average remaining contractual life (years) 5 years 2 months 12 days
Aggregate intrinsic value $ 24,454
Exercised:  
Aggregate intrinsic value of stock options exercised $ 1,737
v3.3.1.900
Share-Based Compensation - Assumption For Fair Value of Options Granted (Details)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]    
Risk-free interest rate 2.00% 1.90%
Weighted average expected life in years 5 years 9 months 18 days 5 years 9 months 18 days
Expected volatility 26.00% 27.20%
Dividend yield 2.00% 2.20%
v3.3.1.900
Share-Based Compensation - Summary of Restricted Stock Activity (Details) - Restricted Stock - $ / shares
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Shares    
December 31, 2015 (in shares) 40,000  
Granted (in shares) 44,000 25,000
Vested (in shares) (9,000)  
Forfeited (in shares) 0  
March 31, 2016 (in shares) 75,000  
Weighted Average Grant Date Fair Value    
December 31, 2015 (in dollars per share) $ 29.10  
Granted (in dollars per share) 34.14 $ 30.30
Vested (in dollars per share) 28.76  
Forfeited (in dollars per share) 0.00  
March 31, 2016 (in dollars per share) $ 32.10  
v3.3.1.900
Share-Based Compensation - Assumptions For Employee Stock Purchase Plan (Details)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Risk-free interest rate 2.00% 1.90%
Weighted average expected life in years 5 years 9 months 18 days 5 years 9 months 18 days
Expected volatility 26.00% 27.20%
Dividend yield 2.00% 2.20%
Employee Stock Purchase Plan (ESPP)    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Risk-free interest rate 0.58% 0.18%
Weighted average expected life in years 1 year 1 year
Expected volatility 19.70% 19.20%
Dividend yield 2.00% 2.20%
v3.3.1.900
Dividends - Additional Information (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Apr. 12, 2016
Mar. 25, 2016
Mar. 31, 2016
Mar. 31, 2015
Subsequent Event [Line Items]        
Cash dividend paid per common share (in dollars per share)   $ 0.18125    
Dividends paid   $ 13,158 $ 13,158 $ 12,655
Subsequent Event        
Subsequent Event [Line Items]        
Dividends declared (in dollars per share) $ 0.1825      
v3.3.1.900
Dividends - Cash Dividends per Common Share (Details) - $ / shares
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Equity [Abstract]    
Cash dividends per common share (in dollars per share) $ 0.18 $ 0.18
v3.3.1.900
Income Taxes (Details)
12 Months Ended
Dec. 31, 2016
Forecast  
Subsequent Event [Line Items]  
Effective tax rate 37.00%
v3.3.1.900
Related Party Transactions (Details) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Related Party Transactions [Abstract]    
Fees paid to related party firm (less than) $ 120,000 $ 120,000
Percentage of fee paid to related party in relation to related party's total revenue (less than) 5.00% 5.00%
v3.3.1.900
Segment Information - Schedule of Information of Reportable Segments (Details)
$ in Thousands
3 Months Ended
Mar. 31, 2016
USD ($)
segment
Mar. 31, 2015
USD ($)
Segment Reporting [Abstract]    
Number of reportable segments | segment 2  
Segment Reporting Information [Line Items]    
Revenues $ 384,807 $ 355,246
Income before income taxes 29,604 25,054
Operating Segments | Housekeeping Services    
Segment Reporting Information [Line Items]    
Revenues 238,279 226,581
Income before income taxes 22,500 20,617
Operating Segments | Dietary Services    
Segment Reporting Information [Line Items]    
Revenues 146,528 128,665
Income before income taxes 9,148 8,905
Corporate And Eliminations    
Segment Reporting Information [Line Items]    
Revenues 0 0
Income before income taxes $ (2,044) $ (4,468)
v3.3.1.900
Segment Information - Revenues by Client Services (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Revenue from External Customer [Line Items]    
Revenues $ 384,807 $ 355,246
Housekeeping Services    
Revenue from External Customer [Line Items]    
Revenues 168,916 156,587
Dietary Services    
Revenue from External Customer [Line Items]    
Revenues 146,528 128,665
Laundry and Linen Services    
Revenue from External Customer [Line Items]    
Revenues 68,714 69,488
Maintenance Services and Other    
Revenue from External Customer [Line Items]    
Revenues $ 649 $ 506
v3.3.1.900
Earnings Per Common Share - Computation of Basic and Diluted Net Earnings Per Share (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Earnings Per Share [Abstract]    
Net income $ 18,626 $ 15,516
Basic earnings per common share, Income (Numerator) $ 18,626 $ 15,516
Basic earnings per common share, Shares (Denominator) (in shares) 72,364 71,469
Basic earnings per common share, Per-share Amount (in dollars per share) $ 0.26 $ 0.22
Effect of dilutive securities:    
Stock options and restricted stock, Shares (Denominator) (in shares) 650 690
Stock options and restricted stock, Per-share Amount (in dollars per share) $ 0.00 $ 0.00
Diluted earnings per common share, Income (Numerator) $ 18,626 $ 15,516
Diluted earnings per common share, Shares (Denominator) (in shares) 73,014 72,159
Diluted earnings per common share, Per-share Amount (in dollars per share) $ 0.26 $ 0.22
v3.3.1.900
Earnings Per Common Share - Additional Information (Details) - $ / shares
shares in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Earnings Per Share [Abstract]    
Options outstanding to purchase common stock excluded from computation of diluted earnings per common share (in shares) 980 1,014
Antidilutive securities excluded from earnings per share, average exercise price (in dollars per share) $ 32.45 $ 29.22
v3.3.1.900
Other Contingencies (Details)
3 Months Ended
Mar. 31, 2016
USD ($)
financial_covenant
state
Apr. 01, 2016
USD ($)
Short-term Debt [Line Items]    
Bank line of credit $ 200,000,000  
Borrowings under line of credit 0  
Reduction of bank line of credit $ 68,778,000  
Number of financial covenants | financial_covenant 1  
Number of states in which entity operates | state 48  
Standby Letter Of Credit    
Short-term Debt [Line Items]    
Irrevocable standby letter of credit, outstanding $ 68,778,000  
Standby Letter Of Credit | Subsequent Event    
Short-term Debt [Line Items]    
Irrevocable standby letter of credit, outstanding   $ 73,428,000
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