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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2005 Commission File Number 0-120152
HEALTHCARE SERVICES GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2018365
------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) number)
3220 Tillman Drive-Suite 300, Bensalem, Pennsylvania 19020
---------------------------------------------------- ----------
(Address of principal executive office) (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 past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant is an Accelerated Filer
(as defined in Rule 12b-2 of the Exchange Act )
YES [X] NO [ ]
Number of shares of common stock, issued and outstanding as of April 25, 2005 is
17,735,000
INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
March 31, 2005 and December 31, 2004 2
Consolidated Statements of Income for the Three Months Ended
March 31, 2005 and March 31, 2004 3
Consolidated Statements of Cash Flows for the Three Months
ended March 31, 2005 and March 31, 2004 4
Consolidated Statement of Stockholders' Equity for the Three
Months Ended March 31, 2005 5
Notes To Consolidated Financial Statements 6 - 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results Of Operations 11 - 20
Item 3. Quantitative and Qualitative Disclosure About Market Risk 21
Item 4. Controls and Procedures 21
Part II. Other Information
Item 1. Legal Proceedings 21
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security 21
Holders 21
Item 5. Other Information 21
Item 6. Exhibits 21 - 22
Signatures 23
-1-
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2005 2004
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 85,912,000 $ 74,847,000
Accounts and notes receivable, less allowance for doubtful
accounts of $2,209,000 in 2005 and $1,869,000 in 2004 55,932,000 55,725,000
Inventories and supplies 11,396,000 11,015,000
Deferred income taxes 628,000 574,000
Prepaid expenses and other 3,959,000 3,110,000
-------------- --------------
Total current assets 157,827,000 145,271,000
PROPERTY AND EQUIPMENT:
Laundry and linen equipment installations 2,329,000 2,329,000
Housekeeping and office equipment 14,427,000 13,987,000
Autos and trucks 80,000 80,000
-------------- --------------
16,836,000 16,396,000
Less accumulated depreciation 12,054,000 11,592,000
-------------- --------------
4,782,000 4,804,000
NOTES RECEIVABLE- long term portion, net of discount 5,005,000 5,557,000
DEFERRED COMPENSATION FUNDING 4,198,000 4,062,000
DEFERRED INCOME TAXES- long term portion 5,801,000 5,563,000
OTHER NONCURRENT ASSETS 1,707,000 1,707,000
-------------- --------------
$ 179,320,000 $ 166,964,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,281,000 $ 7,272,000
Accrued payroll, accrued and withheld payroll taxes 11,080,000 6,110,000
Other accrued expenses 1,849,000 1,692,000
Income taxes payable 1,030,000 1,016,000
Accrued insurance claims 4,533,000 4,169,000
-------------- --------------
Total current liabilities 26,773,000 20,259,000
ACCRUED INSURANCE CLAIMS- long term portion 10,577,000 10,227,000
DEFERRED COMPENSATION LIABILITY 5,330,000 5,018,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value: 45,000,000 shares authorized,
18,673,000 shares issued in 2005 and 18,507,000 in 2004 187,000 185,000
Additional paid in capital 41,663,000 39,466,000
Retained earnings 103,951,000 101,279,000
Common stock in treasury, at cost, 948,000 shares in 2005 and
992,000 in 2004 (9,161,000) (9,470,000)
-------------- --------------
Total stockholders' equity 136,640,000 131,460,000
-------------- --------------
$ 179,320,000 $ 166,964,000
============== ==============
See accompanying notes.
-2-
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
2005 2004
-------------- ---------------
Revenues $ 114,695,000 $ 106,622,000
Operating costs and expenses:
Costs of services provided 99,770,000 93,397,000
Selling, general and administrative 8,429,000 8,015,000
Other Income :
Investment and interest income 380,000 142,000
-------------- ---------------
Income before income taxes 6,876,000 5,352,000
Income taxes 2,613,000 2,034,000
-------------- ---------------
Net Income $ 4,263,000 $ 3,318,000
============== ===============
Basic earnings per common share $ 0.24 $ 0.19
============== ===============
Diluted earnings per common share $ 0.23 $ 0.18
============== ===============
Cash dividends per common share $ 0.09 $ 0.05
============== ===============
Basic weighted average number of
common shares outstanding 17,748,000 17,476,000
============== ===============
Diluted weighted average number of
common shares outstanding 18,691,000 18,429,000
============== ===============
-3-
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
----------------------------------
2005 2004
--------------- ---------------
Cash flows from operating activities:
Net Income $ 4,263,000 $ 3,318,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 479,000 483,000
Bad debt provision 375,000 1,000,000
Deferred income taxes benefit (293,000) (205,000)
Tax benefit of stock option transactions 746,000 428,000
Unrealized loss on deferred compensation
fund investments 55,000 --
Changes in operating assets and liabilities:
Accounts and notes receivable (582,000) 2,093,000
Inventories and supplies (381,000) (266,000)
Notes receivable- long term portion 552,000 (26,000)
Deferred compensation funding (190,000) (246,000)
Accounts payable and other accrued expenses 1,166,000 1,091,000
Accrued payroll, accrued and withheld payroll taxes 5,611,000 (4,548,000)
Accrued insurance claims 714,000 327,000
Deferred compensation liability 313,000 309,000
Income taxes payable 15,000 477,000
Prepaid expenses and other assets (849,000) (500,000)
--------------- ---------------
Net cash provided by operating activities 11,994,000 3,735,000
--------------- ---------------
Cash flows from investing activities:
Disposals of fixed assets 3,000 55,000
Additions to property and equipment (460,000) (650,000)
--------------- ---------------
Net cash used in investing activities (457,000) (595,000)
--------------- ---------------
Cash flows from financing activities:
Acquisition of treasury stock (155,000)
Dividends paid (1,591,000) (931,000)
Reissuance of treasury stock pursuant to Dividend
Reinvestment Plan 7,000 2,000
Proceeds from the exercise of stock options 1,267,000 952,000
--------------- ---------------
Net cash provided by (used in) financing activities (472,000) 23,000
--------------- ---------------
Net increase in cash and cash equivalents 11,065,000 3,163,000
Cash and cash equivalents at beginning of the period 74,847,000 64,181,000
--------------- ---------------
Cash and cash equivalents at end of the period $ 85,912,000 $ 67,344,000
=============== ===============
Supplementary Cash Flow Information:
Issuance of 60,000 shares of Common Stock in 2005 and
48,000 shares of Common Stock in 2004 pursuant to
Employee Stock Plans $ 643,000 $ 366,000
=============== ===============
See accompanying notes.
-4-
Consolidated Statements of Stockholders' Equity
(unaudited)
For the Three Months Ended March 31, 2005
------------------------------------------------------------------------------------------
Common Stock Additional Total
--------------------------- Paid-in Retained Treasury Stockholders'
Shares Amount Capital Earnings Stock Equity
------------ ------------ ------------- ------------- -------------- -------------
Balance, December 31, 2004 18,507,000 $ 185,000 $ 39,466,000 $ 101,279,000 $ (9,470,000) $ 131,460,000
Net income for the period 4,263,000 4,263,000
Exercise of stock options 155,000 1,000 1,266,000 1,267,000
Tax benefit arising from stock option
transactions 746,000 746,000
Purchase of common stock for treasury
(4,700 shares) (155,000) (155,000)
Shares issued pursuant to Employee
Stock Plans (60,000 shares) 11,000 1,000 181,000 461,000 643,000
Cash dividends - $.09 per common share (1,591,000) (1,591,000)
Shares issued pursuant to Dividend
Reinvestment Plan (356 shares) 4,000 3,000 7,000
------------ ------------ ------------- ------------- -------------- -------------
Balance, March 31, 2005 18,673,000 $ 187,000 $ 41,663,000 $ 103,951,000 $ (9,161,000) $ 136,640,000
============ ============ ============= ============= ============== =============
See accompanying notes.
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF REPORTING
The accompanying financial statements are unaudited and do not include
certain information and note disclosures required by generally accepted
accounting principles for complete financial statements. However, in our
opinion, all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. The balance sheet shown in
this report as of March 31, 2005 has been derived from, and does not include,
all the disclosures contained in the financial statements for the year ended
December 31, 2004. The 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, 2004. The results of operations for the
quarter ended March 31, 2005 are not necessarily indicative of the results that
may be expected for the full fiscal year.
NOTE 2 - THREE-FOR-TWO STOCK SPLIT
On April 19, 2005, our Board of Directors approved a three-for-two stock
split in the form of a 50% common stock dividend which will be paid on May 2,
2005 to shareholders of record on April 29, 2005. Presented below are unaudited
pro forma results for the three month periods ended March 31, 2005 and March 31,
2004 assuming the stock split occurred on January 1, 2004.
March 31, March 31,
2005 2004
---------------- ----------------
Net income $ 4,263,000 $ 3,318,000
Basic weighted average number of common
shares outstanding as reported 17,748,000 17,476,000
Basic weighted average number of common
shares outstanding pro forma (unaudited) 26,622,000 26,214,000
Basic earnings per common share as reported $ .24 $ .19
Basic earnings per common share pro
forma (unaudited) $ .16 $ .13
Diluted weighted average number of
common shares outstanding as reported 18,691,000 18,430,000
Diluted weighted average number of
common shares outstanding pro forma
(unaudited) 28,036,000 27,644,000
Diluted earnings per common share as reported $ .23 $ .18
Diluted earnings per common share pro forma (unaudited) $ .15 $ .12
Cash dividends per common share as reported $ .09 $ .05
Cash dividends per common share pro forma (unaudited) $ .06 $ .03
-6-
Additionally, our Board of Directors has declared a $.07 per common
share cash dividend to be paid on May 16, 2005 to shareholders of record as of
May 4, 2005. Such cash dividend payment is after giving effect to the
three-for-two stock split.
NOTE 3- OTHER CONTINGENCIES
We have an $18,000,000 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 on demand. At March 31, 2005
and December 31, 2004, there were no borrowings under the line of credit.
However, at such dates, we had outstanding $17,925,000 and $15,925,000,
respectively, of irrevocable standby letters of credit which relate to payment
obligations under our insurance programs. As a result of the letters of credit
issued, the amount available under the line of credit was reduced by $17,925,000
and $15,925,000 at March 31, 2005 and December 31, 2004, respectively. The line
of credit requires us to satisfy several financial covenants. We complied with
all financial covenants at both March 31, 2005 and December 31, 2004 and expect
to continue to remain in compliance with all such financial covenants. This line
of credit expires on June 30, 2005. We believe the line of credit will be
renewed at that time.
We provide our services in 42 states and numerous local taxing
jurisdictions within those states. Consequently, the taxability of our services
is subject to various interpretations within these jurisdictions. In the
ordinary course of business, a jurisdiction may contest our application and
reporting requirements of its tax code to our services, which may result in
additional tax liabilities. As of March 31, 2005 and December 31, 2004 we have
unsettled tax assessments (including interest to date) from various state taxing
authorities of $2,900,000 ($1,900,000, net of federal income taxes) and
$2,800,000 ($1,800,000, net of federal income taxes), respectively. Although we
intend to vigorously defend our positions that the assessments are without
merit, we have recorded a reserve at both March 31, 2005 and December 31, 2004
of $900,000 ($590,000, net of federal income taxes), for these assessments in
cases where we could estimate that a tax settlement is probable and the range of
such settlement. In other tax matters, 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 financial position or results of operations.
We are involved in miscellaneous claims and litigation arising in the
ordinary course of business. We believe that these matters, taken individually
or in the aggregate, would not have a material adverse affect on our financial
position or results of operations.
The Balance Budget Act of 1997 changed Medicare policy in a number of
ways, most notably the phasing in, effective July 1, 1998, of a Medicare
Prospective Payment System for skilled nursing facilities which significantly
changed the manner and the amounts of reimbursement they receive. Many of our
clients' revenues are highly contingent on Medicare and Medicaid reimbursement
funding rates. Therefore, they have been and continue to be adversely affected
by changes in applicable laws and regulations, as well as other trends in the
long-term care industry. This has resulted in certain of our clients filing for
bankruptcy
-7-
protection. Others may follow. These factors in addition to delays in payments
from clients, have resulted in and could continue to result in significant
additional bad debts in the near future.
NOTE 4 - SEGMENT INFORMATION
REPORTABLE OPERATING SEGMENTS
We manage and evaluate our operations in two reportable operating
segments. The two reportable operating segments are Housekeeping (housekeeping,
laundry, linen and other services), and Food. Although both segments serve the
same client base and share many operational similarities, they are managed
separately due to distinct differences in the type of service provided, as well
as the specialized expertise required of the professional management personnel
responsible for delivering the respective segments' services. We consider the
various services provided within the Housekeeping segment to be one reportable
operating segment since such services are rendered pursuant to a single service
agreement and the delivery of such services is managed by the same management
personnel.
Differences between the reportable segments' operating results and other
disclosed data and our consolidated financial statements relate primarily to
corporate level transactions, as well as transactions between reportable
segments and our warehousing and distribution subsidiary. The subsidiary's
transactions with reportable segments are made on a basis intended to reflect
the fair market value of the goods transferred. Additionally, included in the
differences between the reportable segments' operating results and other
disclosed data are amounts from our investment holding company subsidiary. This
subsidiary does not transact any business with the reportable segments. Segment
amounts reported are prior to any elimination entries made in consolidation.
The Housekeeping segment provides services in Canada, although
essentially all of its revenues and net income, 99% in both categories, are
earned in one geographic area, the United States. Food services are provided
solely in the United States.
Housekeeping Food Corporate and
services services eliminations Total
---------------- ---------------- ---------------- ----------------
Quarter Ended March 31, 2005
Revenues $ 91,090,000 $ 22,615,000 $ 990,000 $ 114,695,000
Income before income taxes $ 8,282,000 $ 644,000 $ (2,050,000)(1) $ 6,876,000
Quarter Ended March 31, 2004
Revenues $ 87,792,000 $ 18,855,000 $ (25,000) $ 106,622,000
Income before income taxes $ 7,800,000 $ 497,000 $ (2,945,000)(1) $ 5,352,000
(1) represents primarily corporate office cost and related overhead, as
well as consolidated subsidiaries' operating expenses that are not
allocated to the reportable segments.
-8-
TOTAL REVENUES FROM CLIENTS
The following revenues earned from clients differ from segment revenues
reported above due to the inclusion of adjustments used for segment reporting
purposes by management. We earned revenues from clients in the following service
categories:
For the quarter ended March 31,
-----------------------------------
2005 2004
---------------- ----------------
Housekeeping services $ 64,459,000 $ 61,651,000
Laundry and linen services 27,092,000 26,073,000
Food Services 22,437,000 18,420,000
Maintenance services and Other 707,000 478,000
---------------- ----------------
$ 114,695,000 $ 106,622,000
================ ================
MAJOR CLIENT
We have one client, a nursing home chain, which in the three month
periods ended March 31, 2005 and 2004 accounted for 19% and 21%, respectively,
of total revenues. In the three month period ended March 31, 2005, we derived
18% and 26%, respectively, of the Housekeeping and Food segments' revenues from
such client. Although we expect to continue our relationship with this client,
the loss of such client would have a material adverse affect on the operations
of our two operating segments.
NOTE 5 - EARNINGS PER COMMON SHARE
A reconciliation of the numerator and denominator of basic and diluted
earnings per common share is as follows:
Quarter Ended March 31, 2005
---------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
-------------- -------------- ----------
Net income $ 4,263,000
==============
Basic earnings per
common share $ 4,263,000 17,748,000 $ .24
Effect of dilutive securities:
Options 943,000 (.01)
-------------- -------------- ----------
Diluted earnings per
common share $ 4,263,000 18,691,000 $ .23
============== ============== ==========
-9-
Quarter Ended March 31, 2004
---------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
-------------- -------------- ----------
Net income $ 3,318,000
==============
Basic earnings per
common share $ 3,318,000 17,476,000 $ .19
Effect of dilutive securities:
Options 953,000 (.01)
-------------- -------------- ----------
Diluted earnings per
common share $ 3,318,000 18,429,000 $ .18
============== ============== ==========
No outstanding options were excluded from the computation of diluted earnings
per common share for either the three month period ended March 31, 2005 or March
31, 2004 as none have an exercise price in excess of the average market value of
our common stock during such periods.
NOTE 6 - STOCK BASED COMPENSATION
At March 31, 2005, we had stock based compensation plans. As permitted
by the Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock Based Compensation", we account for stock-based
compensation arrangements in accordance with provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees".
Compensation expense for stock options issued to employees is based on the
difference on the date of grant, between the fair market value of our stock and
the exercise price of the option. No stock based employee compensation cost is
reflected in net income, as all options granted under our plans had an exercise
price equal to the market value of the underlying common stock at the date of
grant. We account for equity instruments issued to non-employees in accordance
with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF")
Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction With Selling, or in Conjunction
With Selling Goods or Services". All transactions in which goods or services are
the consideration received for the issuance of equity instruments are accounted
for based on the fair value of the consideration received or the fair value of
the equity instrument issued, whichever is more reliably measurable.
-10-
The following table illustrates the effect on net income and earnings
per common share if we had applied the fair value recognition provisions of SFAS
No. 123 to stock based compensation:
Quarter Ended March 31,
----------------------------
2005 2004
-------------- -----------
Net Income
As reported $ 4,263,000 $ 3,318,000
Deduct:
Total stock based employee compensation
expense determined under fair value based
method for all awards, net of related tax
effects (1,020,000) (767,000)
-------------- -----------
Pro forma net income $ 3,243,000 $ 2,551,000
============== ===========
Basic Earnings Per Common Share
As reported $ .24 $ .19
Pro forma $ .18 $ .15
Diluted Earnings Per Common Share
As reported $ .23 $ .18
Pro forma $ .17 $ .14
NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (the "FASB")
issued a revision of Financial Accounting Standards No. 123 ("SFAS 123R") which
requires all share-based payments to employees to be recognized in the income
statement based on their fair values. Our option grants to employees,
non-employees and directors, as well as common stock shares issued pursuant to
our Employee Stock Purchase Plan will represent share-based payments. We expect
to calculate the fair value of share-based payments under SFAS 123R on a basis
substantially consistent with the fair value approach of SFAS 123. We plan to
adopt SFAS 123R in our fiscal year beginning January 1, 2006. We expect the
adoption of SFAS 123R will have a material impact on our financial statements in
that fiscal year, but we cannot reasonably estimate the impact of adoption
because we expect certain assumptions that can materially affect the calculation
of the value of share-based payments to recipients to change between now and the
time of adoption.
-11-
PART I.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This report includes forward-looking statements that are subject to
risks and uncertainties that could cause actual results or objectives to differ
materially from those projected. 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 risks and uncertainties include,
but are not limited to, risks arising from our providing services exclusively to
the health care industry, primarily providers of long-term care; credit and
collection risks associated with this industry; one client accounting for
approximately 19% of revenues in the three month period ended March 31, 2005;
our claims experience related to workers' compensation and general liability
insurance; the effects of changes in, or interpretations of laws and regulations
governing the industry, including state and local regulations pertaining to the
taxability of our services; and the risk factors described in our Form 10-K
filed with the Securities and Exchange Commission for the year ended December
31, 2004 in Part I thereof under "Government Regulation of Clients",
"Competition" and "Service Agreements/Collections". Many of our clients'
revenues are highly contingent on Medicare and Medicaid reimbursement funding
rates, which have been and continue to be adversely affected by the change in
Medicare payments under the 1997 enactment of the Medicare Prospective Payment
System. That change, and the lack of substantive reimbursement funding rate
reform legislation, as well as other trends in the long-term care industry have
resulted in certain of our clients filing for bankruptcy protection. Others may
follow. Any decisions by the government to discontinue or adversely modify
legislation related to reimbursement funding rates will have a material adverse
affect on our clients. These factors, in addition to delays in payments from
clients 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.
RESULTS OF OPERATIONS
The following discussion is intended to provide the reader with information that
will assist them 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 results of operations. This
discussion should be read in conjunction with
-12-
our financial statements as of March 31, 2005 and December 31, 2004 and the
notes accompanying those financial statements.
OVERVIEW
We provide housekeeping, laundry, linen, facility maintenance and food
services to the health care industry, including nursing homes, retirement
complexes, rehabilitation centers and hospitals located throughout the United
States. We believe that we are the largest provider of housekeeping and laundry
services to the long-term care industry in the United States, rendering such
services to approximately 1,700 facilities in 42 states as of March 31, 2005.
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 our management and
hourly employees located at our clients' facilities. We also provide services on
the basis of a management agreement for a very limited number of clients. Our
agreements with clients typically provide for a one year service term,
cancelable by either party upon 30 to 90 days notice after the initial 90-day
period.
Additionally, we operate two wholly-owned subsidiaries. HCSG Supply,
Inc. purchases, warehouses and distributes the supplies and equipment used in
providing our Housekeeping segment services. Huntingdon Holdings, Inc. invests
our cash and cash equivalents.
CONSOLIDATED OPERATIONS
The following table sets forth, for the periods indicated, the
percentage which certain items bear to total revenues:
Relation to Total Revenues
For the Quarter Ended March 31,
-----------------------------------
2005 2004
---------------- ----------------
Revenues 100.0% 100.0%
Operating costs and expenses:
Costs of services provided 87.0 87.6
Selling, general and administration 7.3 7.5
Investment and interest income .3 .1
---------------- ----------------
Income before income taxes 6.0 5.0
Income taxes 2.3 1.9
---------------- ----------------
Net income 3.7% 3.1%
================ ================
Subject to the factors noted in the Cautionary Statement Regarding
Forward Looking Statements included in this report, we anticipate our financial
performance for the remainder of 2005 to be comparable to the quarter ended
March 31, 2005 percentages presented in the above table as they relate to total
revenues.
-13-
Although there can be no assurance thereof, we believe that for the
remainder of 2005 both the Housekeeping and Food segments' revenues, as a
percentage of total revenues, will remain approximately the same as their
respective percentages noted in the discussion below. Furthermore, we expect the
sources of growth for the remainder of 2005 for the respective business segments
will be primarily the same as historically experienced. That is the growth in
the Food segment is expected to come from our current Housekeeping segment's
client base, while growth in the Housekeeping segment will primarily come from
obtaining new clients.
We are organized into two operating segments; housekeeping, laundry,
linen and other services ("Housekeeping"), and food services ("Food").
Housekeeping is our largest and core operating segment, representing
80.4% or $92,258,000 of total first quarter 2005 revenues. The services provided
by this segment consist primarily of 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 laundering and
processing of the bed linens, uniforms and other assorted linen items utilized
by a client facility.
The Food segment, which began operations in 1997, consists of providing
for the development of a menu that meets the patient's dietary needs, and the
purchasing and preparing of the food for delivery to the patients. Food segment
revenues represented approximately 19.6% or $22,437,000 of total first quarter
2005 revenues.
2005 FIRST QUARTER COMPARED WITH 2004 FIRST QUARTER
The following table sets forth 2005 first quarter revenues, income
before income taxes, and percentage increases of each compared to 2004 first
quarter amounts. Revenues and income before income taxes are shown in total and
on a reportable segment basis.
Reportable Segments
--------------------------------------------------
Housekeeping Food
Percent Corporate and ----------------------- -----------------------
Total increase eliminations Amount %incr Amount %incr
-------------- -------- -------------- -------------- ----- -------------- -----
Revenues $ 114,695,000 7.6% $ 990,000 $ 91,090,000 3.8% $ 22,615,000 19.9%
Income before
income taxes 6,876,000 28.5 (2,050,000) 8,282,000 6.2 644,000 29.6
Total revenues increased 7.6% to $114,695,000 in the 2005 first quarter
compared to $106,622,000 in the same 2004 period.
The Housekeeping segment's 3.8% growth in revenues is primarily a result
of a net increase in service agreements entered into with new clients.
Housekeeping's 6.2% increase in income before income taxes, on an operating
segment basis, is attributable to both a modest improvement in the gross profit
earned at the client facility level and the gross profit earned on the 3.8%
increase in reportable segment revenues. The improvement in gross profit is
primarily a result of a .6% reduction, as a percentage of reportable segment
revenues, in total labor costs. The reduction is attributable to our ability to
have managed these costs more efficiently.
The Food segment's 19.9% revenue growth is a result of providing this
service to an increasing number of existing Housekeeping segment clients. Food
segment income before income taxes increased 29.6% on a reportable segment basis
which is attributable to both a
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modest improvement in gross profit earned at the client facility level and the
gross profit earned on the 19.9% increase in reportable segment revenues.
We have one client, a nursing home chain, which in the three month
periods ended March 31, 2005 and March 31, 2004 accounted for 19% and 21%,
respectively, of total revenues. We derived 18% and 26%, respectively, of the
Housekeeping and Food segments' 2005 first quarter revenues from such client.
Additionally, at both March 31, 2005 and December 31, 2004, amounts due from
such client represented less than 1% of our accounts receivable balances.
Although we expect the relationship with this client to continue, the loss of
such client would have a material adverse affect on our results of operations.
Cost of services provided, on a consolidated basis, as a percentage of
total revenues for the 2005 first quarter decreased to 87.0 % from 87.6 % in the
corresponding 2004 quarter. The following table provides a comparison, as a
percentage of total revenues (unless otherwise noted), of the key indicators of
our financial performance in respect to our cost of services provided:
Cost of Services Provided Key Indicators 2005 % 2004 % Incr (Decr) %
- -------------------------------------------------- -------- -------- --------------
Labor and costs of labor 65.9% 66.7% (.8)%
Workers' compensation and general
liability insurance 4.3 4.1 .2
Bad debt provision .3 .9 (.6)
Health insurance and employee benefits 2.1 2.7 (.6)
Housekeeping segment supplies (as a percentage
of Housekeeping segment revenues) 4.6 4.8 (.2)
Food segment supplies ( as a percentage of
Food segment revenues) 42.4 41.2 1.2
The following is an explanation of significant increases and decreases
of key indicators of cost of services provided in comparing the 2005 first
quarter to the 2004 first quarter.
The decrease in labor and costs of labor is primarily attributable to
efficiencies achieved in managing the Housekeeping segment's labor. The decrease
in bad debt provision resulted primarily from improved collection experience.
The decrease in health insurance and employee benefits is a result of fewer
employees participating in our health insurance programs. The decrease in
Housekeeping segment supplies, as a percentage of Housekeeping segment revenues,
resulted primarily from our ability to limit price increases from the vendors of
housekeeping supplies.
The increase in Food segment supplies, as a percentage of Food segment
revenues, is a result of price increases from vendors. The increase in workers'
compensation and general liability insurance is primarily a result of the
increase in the cost to settle claims.
Consistent with our 7.6% growth in total revenues, selling, general and
administrative expenses increased by $414,000. However, as a percentage of total
revenues, these expenses decreased to 7.3% in the 2005 first quarter as compared
to 7.5% in the 2004 first quarter. The decrease is primarily attributable to our
ability to control these expenses and comparing them to a greater revenue base
in the current year.
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Investment and interest income, as a percentage of total revenues, was
..3% in the 2005 first quarter compared to .1% in the 2004 first quarter. The
increase is primarily attributable to higher cash balances, as well as increased
rates of return.
Our effective tax rate at both March 31, 2005 and 2004 was 38%. Absent
any significant change in federal, or state and local tax laws, we expect our
effective tax rate for the remainder of 2005 to be approximately the same as
realized in the 2005 first quarter. Our 38% effective tax rate differs from the
federal income tax statutory rate principally because of the effect of state and
local income taxes.
As a result of the matters discussed above, net income for the 2005
first quarter increased to 3.7%, as a percentage of total revenues, compared to
3.1% in the 2004 first quarter.
CRITICAL ACCOUNTING POLICIES
We consider the two policies discussed below to be critical to an
understanding of our financial statements because their application places the
most significant demands on our judgment. Therefore, it should be noted that
financial reporting results rely on estimating the effect of matters that are
inherently uncertain. Specific risks for these critical accounting policies are
described in the following paragraphs. For these policies, we caution that
future events rarely develop exactly as forecasted, and the best estimates
routinely require adjustment. Any such adjustments or revisions to estimates
could result in material differences to previously reported amounts.
The two policies discussed are not intended to be a comprehensive list
of all of our accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by generally accepted accounting
principles, with no need for our judgment in their application. There are also
areas in which our judgment in selecting another available alternative would not
produce a materially different result. See our audited consolidated financial
statements and notes thereto which are included in our Annual Report for the
year ended December 31, 2004 which contain accounting policies and other
disclosures required by generally accepted accounting principles.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Allowance for Doubtful Accounts is established as losses are
estimated to have occurred through a provision for bad debts charged to
earnings. The Allowance for Doubtful Accounts is evaluated based on our periodic
review of accounts and notes receivable and is inherently subjective as it
requires estimates that are susceptible to significant revision as more
information becomes available.
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
making credit evaluations, in addition to analyzing and anticipating, where
possible, the specific
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cases described above, we consider the general collection risks associated with
trends in the long-term care industry. We also establish credit limits, perform
ongoing credit evaluation, and monitor accounts to minimize the risk of loss.
In accordance with the risk of extending credit, we regularly evaluate
our accounts and notes receivable for impairment or loss of value and when
appropriate will provide in our Allowance for Doubtful Accounts for such
receivables. We generally follow a policy of reserving for receivables from
clients in bankruptcy, clients with which we are in litigation for collection
and other slow paying clients. The reserve is based upon our estimates of
ultimate collectibility. Correspondingly, once our recovery of a receivable is
determined through either litigation, bankruptcy proceedings or negotiation to
be less than the recorded amount on our balance sheet, we will charge-off the
applicable amount to the Allowance for Doubtful Accounts.
At March 31, 2005, we identified accounts totaling $3,887,000 that
require an Allowance for Doubtful Accounts based on potential impairment or loss
of value. An Allowance for Doubtful Accounts totaling $2,209,000 was provided
for these accounts at March 31, 2005. Actual collections of these accounts could
differ from that which we currently estimate. If our actual collection
experience is 5% less than our estimate, the related increase to our Allowance
for Doubtful Accounts would decrease net income by $62,000.
Notwithstanding our efforts to minimize credit risk exposure, our
clients could be adversely affected if future industry trends, as more fully
discussed under Liquidity and Capital Resources below, and as further described
in our Form 10-K filed with Securities and Exchange Commission for the year
ended December 31, 2004 in Part I thereof under "Government Regulation of
Clients" and "Service Agreements/Collections", change in such a manner as to
negatively impact the cash flows of our clients. If our clients experience a
negative impact in their cash flows, it would have a material adverse affect on
our results of operations and financial condition.
ACCRUED INSURANCE CLAIMS
We currently have a Paid Loss Retrospective Insurance Plan for general
liability and workers' compensation insurance, which comprise approximately 35%
of our liabilities at March 31, 2005. Our accounting for this plan is affected
by various uncertainties because we must make assumptions and apply judgment to
estimate the ultimate cost to settle reported claims and claims incurred but not
reported as of the balance sheet date. We address these uncertainties by
regularly evaluating our claims pay-out experience, present value factor and
other factors related to the nature of specific claims in arriving at the basis
for our accrued insurance claims estimate. Our evaluations are based primarily
on current information derived from reviewing our claims experience and industry
trends. In the event that our claims experience and/or industry trends result in
an unfavorable change, it would have a material adverse effect on our results of
operations and financial condition. Under these plans, pre-determined loss
limits are arranged with an insurance company to limit both our per occurrence
cash outlay and annual insurance plan cost.
For workers' compensation, we record a reserve based on the present
value of future payments, including an estimate of claims incurred but not
reported, that are developed as a
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result of a review of our historical data and open claims. The present value of
the payout is determined by applying an 8% discount factor against the estimated
value of the claims over the estimated remaining pay-out period. Reducing the
discount factor by 1% would reduce net income by approximately $62,000.
Additionally, reducing the estimated payout period by six months would result in
an approximate $118,000 reduction in net income.
For general liability, we record a reserve for the estimated ultimate
amounts to be paid for known claims.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2005, we had cash and cash equivalents of $85,912,000 and working
capital of $131,054,000 compared to December 31, 2004 cash and cash equivalents,
and working capital of $74,847,000 and $125,012,000, respectively. We view our
cash and cash equivalents of $85,912,000 at March 31, 2005 as our principal
measure of liquidity. Our current ratio at March 31, 2005 decreased to 5.9 to 1
compared to 7.2 to 1 at December 31, 2004. This decrease resulted primarily from
the timing of payments for accrued payroll, accrued and withheld payroll taxes.
On an historical basis, our operations have generally produced consistent cash
flow and have required limited capital resources. We believe our current and
near term cash flow positions will enable us to fund our continued growth.
OPERATING ACTIVITIES
The net cash provided by our operating activities was $11,994,000 for
the three month period ended March 31, 2005. The principal sources of net cash
flows from operating activities for the three month period ended March 31, 2005
were net income, including non-cash charges to operations for bad debt
provisions and depreciation. Additionally, operating activities' cash flows were
increased by the timing of payments for accrued payroll, accrued and withheld
payroll taxes of $5,611,000 and $1,166,000 for accounts payable and other
accrued expenses. The operating activity that used the largest amount of cash
during the three month period ended March 31, 2005 was an increase of $849,000
in prepaid expenses and other assets resulting from the timing of such payments.
INVESTING ACTIVITIES
Our principal use of cash in investing activities for the three month
period ended March 31, 2005 was $460,000 for the purchase of housekeeping
equipment, computer software and equipment, and laundry equipment installations.
Under our current plans, which are subject to revision upon further review, it
is our intention to spend an aggregate of $1,500,000 to $2,000,000 during the
remainder of 2005 for such capital expenditures.
FINANCING ACTIVITIES
On February 11, 2005, we paid, in the aggregate $1,591,000, to
shareholders of record as of January 28, 2005 regular cash dividends of $.09 per
common share ($.06 per common share after giving effect to the May 2, 2005
three-for-two stock split). Additionally, on April 19, 2005, our Board of
Directors declared a three-for-two stock split in the form of a 50% stock
dividend payable on May 2, 2005 to shareholders of record on April 29, 2005, and
a regular cash dividend of $.07 per common share to be paid on May 16, 2005 to
shareholders of record as of May 4, 2005.
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The cash dividend payment is after giving effect to the three-for-two stock
split.
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.
On April 19, 2005, the Board of Directors also authorized the repurchase
of up to 1,000,000 shares of our common stock pursuant to our share repurchase
program.
During the 2005 first quarter, we received proceeds of $1,267,000 from
the exercise of stock options by employees. Additionally, 4,700 shares of our
common stock at an aggregate value of $155,000 were purchased by certain
employees within their deferred compensation accounts which are considered an
acquisition of treasury stock.
LINE OF CREDIT
We have an $18,000,000 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,
2005 and December 31, 2004, there were no borrowings under the line. However, at
such dates, we had outstanding $17,925,000 and $15,925,000, respectively of
irrevocable standby letters of credit, which relate to payment obligations under
our insurance programs. As a result of the letters of credit issued, the amount
available under the line of credit was reduced by $17,925,000 and $15,925,000 at
March 31, 2005 and December 31, 2004, respectively.
The line of credit requires us to satisfy several financial covenants.
Such covenants, and their respective status at March 31, 2005, are as follows:
Covenant Description and Requirement Status at March 31, 2005
- --------------------------------------------- -----------------------------------
Commitment coverage ratio: cash and cash Commitment coverage is 7.5.
equivalents, and eligible receivables must
equal or exceed outstanding obligations
under the line of credit a multiple of 2.
Tangible net worth: must exceed $105,000,000. Tangible net worth is $134,000,000.
Fixed charge coverage ratio: EBITDA must Fixed charge coverage ratio is 1.6.
exceed fixed charges by 1.5 times.
As noted above, we complied with all financial covenants at March 31,
2005 and expect to continue to remain in compliance with all such financial
covenants. This line of credit expires on June 30, 2005. We believe the line of
credit will be renewed at that time.
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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. The Balance Budget Act of 1997 changed Medicare policy in a number
of ways, most notably the phasing in, effective July 1, 1998 of a Medicare
Prospective Payment System for skilled nursing facilities which significantly
changed the reimbursement procedures and the amounts of reimbursement our
clients receive. Many of our clients' revenues are highly contingent on Medicare
and Medicaid reimbursement funding rates. Therefore, they have been and continue
to be adversely affected by changes in applicable laws and regulations, as well
as other trends in the long-term care industry. This has resulted in certain of
our clients filing for bankruptcy protection. Others may follow. These factors,
in addition to delays in payments from clients have resulted in and could
continue to result in significant additional bad debts in the near future.
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, 2005 and
December 31, 2004, we had $8,192,000 and $8,942,000, net of reserves,
respectively, of such promissory notes outstanding. Additionally, we consider
restructuring service agreements from full service to management service in the
case of certain clients experiencing financial difficulties. We believe that
such restructuring 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 $375,000 and $1,000,000 in the three month
periods ended March 31, 2005 and 2004, respectively. These provisions represent
approximately .3% and .9%, as a percentage of total revenues for such respective
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 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.
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INSURANCE PROGRAMS
We have a Paid Loss Retrospective Insurance Plan for general liability
and workers' compensation insurance. Under these plans, pre-determined loss
limits are arranged with an insurance company to limit both our per occurrence
cash outlay and annual insurance plan cost.
For workers' compensation, we record a reserve based on the present
value of future payments, including an estimate of claims incurred but not
reported, that are developed as a result of a review of our historical data and
open claims. The present value of the payout is determined by applying an 8%
discount factor against the estimated value of the claims over the estimated
remaining pay-out period.
For general liability, we record a reserve for the estimated ultimate
amounts to be paid for known claims.
We regularly evaluate our claims' pay-out experience, present value
factor and other factors related to the nature of specific claims in arriving at
the basis for our accrued insurance claims' estimate. Our evaluation is based
primarily on current information derived from reviewing our claims experience
and industry trends. In the event that our claims experience and/or industry
trends result in an unfavorable change, it would have an 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 2005, we
estimate that for the remainder of 2005 we will have capital expenditures of
approximately $1,500,000 to $2,000,000 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. 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
continued 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.
EFFECTS OF INFLATION
Although there can be no assurance thereof, we believe that in most
instances we will be able to recover increases in costs attributable to
inflation by passing through such cost increases to our clients.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our exposure to market risk is not significant.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls are procedures that are designed with the objective
of 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 the Securities and Exchange Commission's (the "SEC")
rules. Disclosure controls are also designed with the objective of ensuring 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.
As of the March 31, 2005 (the "Evaluation Date"), we carried out an
evaluation under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon
our evaluation, at the Evaluation Date, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective to insure that information required to be disclosed in the reports
that we file under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified by the SEC's rules and regulations.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in our internal controls or to our
knowledge, in other factors that could significantly affect our disclosure
controls and procedures subsequent to the Evaluation Date.
CERTIFICATIONS
Certifications of the Principal Executive Officer and Principal
Financial Officer regarding, among other items, disclosure controls and
procedures are included as exhibits to this Form 10-Q.
PART II. Other Information
Item 1. Legal Proceedings. Not Applicable
Item 2. Changes in Securities. Not Applicable
Item 3. Defaults under Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Not Applicable
Holders
Item 5. Other Information.
a) None
Item 6. Exhibits
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a) Exhibits -
31.1 Certification of Principal Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Principal Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Principal Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
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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.
April 25, 2005 /s/ Daniel P. McCartney
Date ----------------------------------------
DANIEL P. McCARTNEY, Chief
Executive Officer
April 25, 2005 /s/ Thomas A. Cook
Date ----------------------------------------
THOMAS A. COOK, President and
Chief Operating Officer
April 25, 2005 /s/ James L. DiStefano
Date ----------------------------------------
JAMES L. DiSTEFANO, Chief Financial
Officer and Treasurer
April 25, 2005 /s/ Richard W. Hudson
Date ----------------------------------------
RICHARD W. HUDSON, Vice
President-Finance, Secretary and Chief
Accounting Officer
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