<PAGE> 1
FORM 10-Q/A QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the quarterly period ended September 30, 1996
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: 0-19673
AMERICA SERVICE GROUP INC.
(Exact name of registrant as specified in its character)
Delaware 51-0332317
(State or other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.
105 Westpark Drive, Suite 300, Brentwood, TN 37027
- -------------------------------------------------
(Address and zip code of principal executive office)
(615) 373-3100
- --------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed under 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 X NO
--- ---
There were 3,295,112 shares of Common Stock outstanding as of November 11, 1996
1
<PAGE> 2
AMERICA SERVICE GROUP INC.
QUARTERLY REPORT ON FORM 10-Q/A
INDEX
<TABLE>
Page Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 1996 and
December 31, 1995 3
Condensed Consolidated Statements of Operations for the nine 4
months and the quarters ended September 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows for the nine 5
months and the quarters ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-9
Part II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
Signature Page
</TABLE>
2
<PAGE> 3
AMERICA SERVICE GROUP INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,521,092 $ 12,049,855
Investments at cost 700,000 700,000
Accounts receivable:
Healthcare sites, net of allowance for doubtful
accounts 5,489,567 11,669,007
Advance billings and other 9,748,560 4,919,797
Inventory 334,870 454,434
Prepaid expenses and income taxes 2,807,435 1,098,211
Current deferred taxes 3,046,353 2,054,200
------------ ------------
Total currents assets 33,647,877 32,945,504
Restricted investments 4,755,162 4,574,624
Property and equipment, net 6,020,223 3,239,004
Deferred taxes 1,661,000 1,153,800
Cost in excess of net assets acquired, net 464,077 495,771
Other assets 104,416 92,635
------------ ------------
$ 46,652,755 $ 42,501,338
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,713,533 $ 7,015,264
Accrued expenses 17,051,767 13,845,039
Deferred revenue 9,092,188 9,109,469
Income taxes payable 49,755 284,093
Notes payable 51,202 --
------------ ------------
Total current liabilities 31,958,445 30,253,865
Noncurrent portion of accrued expenses and notes payable 4,407,000 3,581,000
Commitments and contingent liabilities
Redeemable Common Stock 2,662,218 --
Common stock 34,040 34,040
Additional paid-in-capital 7,140,226 6,886,721
Retained earnings 1,261,384 4,007,501
Treasury stock (810,558) (2,261,789)
------------ ------------
$ 46,652,755 $ 42,501,338
============ ============
</TABLE>
3
<PAGE> 4
AMERICA SERVICE GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------- -------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 37,472,333 $ 25,784,466 $ 115,406,879 $ 75,960,086
Health-care expenses 34,100,935 22,904,817 109,504,972 67,299,315
------------ ------------ ------------- ------------
Gross Margin 3,371,398 2,879,649 5,901,907 8,660,771
Selling, general and administrative expenses 2,542,180 2,373,395 8,441,944 7,101,554
Non-cash, non-recurring compensation charge -- -- 2,384,375 --
------------ ------------ ------------- ------------
Income (loss) from operations 829,218 506,254 (4,924,412) 1,559,217
Other income (expense):
Interest income 87,155 27,493 285,928 110,731
Interest expense (5,459) (3,314) (40,914) (12,897)
------------ ------------ ------------- ------------
Total other income 81,696 24,179 245,014 97,834
Income (loss) before taxes (benefits) 910,914 530,433 (4,679,398) 1,657,051
Provision for income taxes (benefits) 365,000 204,000 (1,873,980) 654,000
------------ ------------ ------------- ------------
Net income (loss) 545,914 326,433 (2,805,418) 1,003,051
Change in Redeemable Common Stock 716,130 -- (812,198) --
------------ ------------ ------------- ------------
Net Income (Loss) Attributable to Common Shares $ 1,262,044 $ 326,433 ($ 3,617,616) $ 1,003,051
============ ============ ============= ============
Net income (loss) per common and common equivalent
share $ 0.36 $ 0.10 $ (1.16) $ 0.30
============ ============ ============= ============
Common and common equivalent shares
outstanding 3,516,726 3,348,808 3,128,413 3,314,342
============ ============ ============= ============
</TABLE>
4
<PAGE> 5
AMERICA SERVICE GROUP INC
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
Operating Activities:
Net income (loss) $( 2,805,418) $ 1,003,051
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 698,331 496,430
Non-cash and non-recurring compensation charges 2,606,895 --
Deferred income tax provision (1,499,353) (305,988)
(Increase) decrease in:
Accounts receivable 1,350,677 3,045,816
Inventory 119,564 (76,477)
Prepaid expenses and income taxes (1,709,224) (128,930)
Other assets (11,781) 20,295
Increase (decrease) in:
Accounts payable (1,301,731) (830,338)
Accrued expenses 4,032,728 (2,575,318)
Deferred revenue (17,281) --
Income taxes payable (234,338) --
------------ ------------
Net cash provided by operating activities 1,229,069 648,541
------------ ------------
Investing Activities:
Change in restricted investments, net (180,538) 206,497
Sales and maturities of investments -- 33,495
Capital expenditures (3,447,856) (635,891)
------------ ------------
Net cash used in investing activities (3,628,394) (395,899)
------------ ------------
Financing Activities:
Proceeds from notes payable borrowings 51,202 --
Exercise of stock options 1,416,762 302,163
Sale of redeemable common stock 1,277,500 --
Purchase of treasury shares (874,902) (525,000)
------------ ------------
Net cash provided (used in) by financing activities 1,870,562 (222,837)
------------ ------------
Net increase (decrease) in cash and cash equivalents (528,763) 29,805
Cash and cash equivalents beginning of period 12,049,855 3,829,888
------------ ------------
Cash and cash equivalents end of period $ 11,521,092 $ 3,859,693
============ ============
</TABLE>
5
<PAGE> 6
AMERICA SERVICE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. Basis of Presentation
The interim consolidated financial statements as of September 30, 1996 and for
the nine months and quarter then ended, are unaudited, but in the opinion of
management, have been prepared in conformity with generally accepted accounting
principles applied on a basis consistent with those of the annual financial
statements. Such interim consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the financial position and the results of operations for the
periods presented. The results of operations for the nine months presented are
not necessarily indicative of the results to be expected for the year ending
December 31, 1996. The interim consolidated financial statements should be read
in connection with the audited consolidated financial statements for the year
ended December 31, 1995.
2. Earnings per Common and Common Equivalent Share
Earnings per common and common equivalent share is based on the average number
of common shares and dilutive common share equivalents outstanding for the nine
months and the quarters ended September 30, 1996 and 1995. The amount of
dilution is computed using the treasury stock method. For the nine months ended
September 30, 1996, common share equivalents were not included in the
calculation as they were anti-dilutive. Earnings per common and common
equivalent share, when calculated on a stand alone basis, will not necessarily
be equal to the year-to-date calculations as a result of significant changes in
the weighted number of shares outstanding.
3. Amended Quarterly Filing
The Company has amended its second and third quarter 10-Q filings for 1996 in
order to properly reflect the financial impact of adjusting the 146,000
redeemable common shares purchased and the 40,000 redeemable common shares
awarded to the President and Chief Executive Officer of the Company to market,
defined as the average closing price of the shares for the thirty day period
prior to the date of notification by either party of their intention to
exercise this right.
6
<PAGE> 7
AMERICA SERIVCE GROUP, INC.
ITEM 2. -MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
THIRD QUARTER 1996 VERSUS THIRD QUARTER 1995
Revenues for the third quarter 1996 increased $11,688,000 or 45% to $37,472,000
from $25,784,000 in the third quarter 1995. The contract with the State of
Georgia which will expire on June 30,1997, accounted for $14,087,000 of
revenues during the third quarter 1996. Two contracts which commenced during
the third quarter of 1996 contributed revenues of $2,629,000. Eight contracts
which produced revenue of $5,762,000 during the third quarter of 1995 were
terminated prior to the third quarter of 1996 and therefore produced no revenue
in the current quarter. Repricing and renewals of continuing contracts
contributed an additional $734,000 in revenue during the current quarter.
Health care expenses during the third quarter 1996 were $34,101,000 or 91% of
revenue. Health care expenses in the third quarter of 1995 were 88.8% of
revenue. The increase in health care expenses and the increase in the
percentage of revenue can be attributed to specific cost issues relating to the
contract with the State of Georgia. During the second quarter of 1996, the
Company established reserves directly attributable to these cost issues in
Georgia and implemented operational, management and staffing changes intended
to bring the health care outside services, pharmacy and laboratory as it
endeavors to implement its "managed care" philosophy throughout the State of
Georgia. Rates for clinical and outpatient services have also been higher than
anticipated.
Selling, general and administrative expenses for the third quarter 1996 and
1995 were $2,542,000 and $2,373,000 respectively. Third quarter 1996 reflects a
reduction in expenses of $196,000 relating to the adjustment of the 40,000
redeemable common shares to market. The increase in costs is attributable to
the Georgia contract.
Other income was $82,000 for the third quarter 1996 compared with $24,000
during the 1995 third quarter. Interest income has increased as a result of
higher levels of available cash during 1996 due to the prepayment feature of
the Georgia contract. Interest expense was approximately $5,000 during the
third quarter 1996 and relates principally to an equipment financing loan that
was repaid in August 1996.
The provision for income taxes was $365,000 for the third quarter 1996
compared with $204,000 in the third quarter of 1995. The effective income tax
rate was approximately 40% in the third quarter of 1996. The effective tax rate
has increased in 1996 from approximately 39% in 1995 as an increasing
percentage of the Company's pretax income is being generated in states with
higher income tax rates.
7
<PAGE> 8
The Company recognized a $716,000 gain for the quarter relating to the
adjustment of the 146,000 redeemable common stock shares acquired by the
President and Chief Executive Officer to market.
NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS NONE MONTHS ENDED SEPTEMBER 30,
1995
Revenues of $115,407,000 for the nine months ended September 30, 1996 increased
52% over revenues of $75,960,000 for the corresponding 1995 period. The
contract with the State of Georgia accounted for $41,856,000 of revenues during
the nine months ended September 30, 1996. Five contracts that either commenced
during 1996 or were not operating the full nine months of 1995, contributed
$5,759,000 more revenue in the nine months ended September 30, 1996 than the
nine months of 1995. Seven contracts that were terminated during 1995 generated
revenue of $8,478,000 during the nine months ended 30, 1995 while four
contracts were terminated in 1996 resulting in a decrease in revenue of
$3,494,000 when comparing 1996 revenue to 1995. Repricing and renewals of
continuing contracts and revenue associated with increased inmate populations
contributed an additional $3,804,000 in revenue during the current nine months.
Health care expenses during the nine months ended September 30, 1996 were
$109,505,000 or 94.9% revenue. Health care expenses include $2,100,000 in
contract accounting and reserve adjustments recorded during the second quarter
of 1996. Excluding the $2,100,000 charge, health care expenses were 93.1% of
revenue compared with 88.6% in the nine month period ended September 30, 1995.
The increase in health care expenses and the increases in the percentage of
revenue is attributable to specific cost issues relating to the contract with
the State of Georgia. The Company has experienced higher than expected
utilization of outside services, pharmacy and laboratory as it endeavors to
implement its "managed care" philosophy throughout the State of Georgia. Rates
for clinical and outpatient services have also been higher than anticipated.
The 35,000 inmate system had previously been privatized as a "staffing only"
contract and implementation of the managed care concept has taken longer than
anticipated.
Selling, general and administrative expenses for the nine-month period ended
September 30, 1996 were $10,826,000 and includes a $223,000 charge to adjust
the 40,000 redeemable common shares to market, $2,384,000 non-cash,
non-recurring compensation charge related to stock awards and options issued to
the President and Chief Executive Officer of the Company and $225,000 in legal
and reserve adjustments. Excluding these charges, selling general and
administrative expenses during the nine months ended September 30, 1996
increased $893,000 over the comparable 1995 period. The increase is directly
attributable to the administrative costs associated with the Georgia contract.
Other income was $245,000 for the nine months ended September 30, 1996 compared
with $98,000 during the comparable 1995 period. Interest income has increased
as a result of higher levels of cash during 1996 due to the prepayment feature
of the Georgia contract. Interest expense was approximately $41,000 during the
1996 period and relates principally to an equipment financing loan that was
repaid in August 1996.
8
<PAGE> 9
An income tax benefit of $1,874,000 was recorded during the nine months ended
September 30, 1996 as a result of the losses incurred. The benefit rate is
approximately 40%. The 1995 tax provision of $654,000 was recorded at an
effective tax rate of approximately 40%.
Liquidity and Capital Resources
The Company's cash, cash equivalents and investments at September 30, 1996 were
$12,221,000 compared with cash, cash equivalents and investments of $12,750,000
at December 31, 1995. Cash provided by operating activities during the nine
months ended September 30, 1996 was $1,229,000 compared to cash provided by
operating activities of $649,000 for the comparable 1995 period.
The primary sources of cash during the period were the decrease in accounts
receivable of $1,351,000, and a net increase in the combined line items of
accounts payable and accrued expenses. The decrease in accounts receivable is
the result of settlement of contract year issues with a large state contract.
Accounts payable decreased $1,302,000 during the period as a result of Georgia
contract related invoices which began being paid in volume during 1996. Accrued
expenses increased by $4,032,000 during the period, of which approximately
$2,000,000 relates to the contract reserves recorded during the second quarter.
The increase in prepaid expenses and income taxes is due to estimated taxes
being paid based upon projected 1996 pretax operating profit. Additionally, a
benefit has been provided on 1996 losses under the assumption that previously
paid income taxes will be recoverable. Capital expenditures of $3,448,000 have
been made during 1996 primarily on computer and related software development
associated with the Georgia contract.
As previously disclosed, the non-cash non-recurring compensation charge relates
to the grant and vesting of stock options awarded to the newly appointed
President and Chief Executive Officer. While this charge has been deducted for
financial reporting purposes, the amount of the tax deduction will not be
recognized until the options are actually exercised. Therefore, a deferred tax
asset has been established for this compensation charge. Upon exercise of the
options, the deferred compensation charge will be credited to additional
paid-in-capital along with the associated income tax benefit realized.
In February 1996, the Company announced a series of agreements with a new
primary lending bank. During the second quarter the Company and the bank
mutually restructured the components of the lines, which now consist of a $6.5
million working capital line of credit, a $15.0 million line of credit
available for collateral for the Company's performance bonds and a $5 million
revolving line of credit for acquisition purposes. As of November 4, 1996
collateralized letters of credit of approximately $10.8 million had been issued
to support various performance bonds outstanding. An equipment financing note
of $4.6 million, issued on March 29, 1996, was repaid during August 1996.
Management believes that the current levels of cash and investments, when
coupled with internally generated funds, are sufficient to meet the Company's
immediately foreseeable cash needs.
9
<PAGE> 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 -- Amended and Restated Certificate of Incorporation of
America Service Group Inc. (incorporated by reference to
Exhibit 3.1 of the Registrant's Registration Statement
on form S-1, Registration No. 33-43306, as amended).
3.2 -- Amended and Restated By-Laws of America Service Group Inc.
(incorporated by reference to Exhibit 3.2 of the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996).
4.1 -- Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.1 of the Registrant's Registration
Statement on Form S-1, Registration No. 33-43306.)
11.1 -- Statement re-computation of per share earnings.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
(None)
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly authorized this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AMERICA SERVICE GROUP INC.
Dated: May 14, 1997 /s/ MICHAEL CATALANO
---------------------------------------
Michael Catalano
Executive Vice President
& General Counsel
/s/ BRUCE A. TEAL
---------------------------------------
Bruce A. Teal
Vice President, Controller and Treasurer
(Acting Principal Financial Officer and
Principal Accounting Officer)
<PAGE> 12
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Amended and Restated Certificate of Incorporation of
America Service Group Inc.....................................
3.2 Laws of America Service Group Inc................................
4.1 Specimen Common Stock Certificate................................
11.1 Statement re-computation of per share earnings...................
27.1 Financial Data Schedule..........................................
<PAGE> 1
EXHIBIT 11.1
AMERICA SERVICE GROUP
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, QUARTER ENDED SEPTEMBER 30,
-------------------------------- ---------------------------
1996 1995 1996 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net income (loss) attributable to
common shares $ (3,617,616) $ 1,003,051 $ 1,262,044 $ 326,433
============ ============ ============= ============
Weighted average shares outstanding 3,128,413 3,059,377 3,281,516 3,070,563
Common stock equivalents -- 254,965 235,210 278,245
------------ ------------ ------------- ------------
Total weighted average common and
common equivalent shares 3,128,413 3,314,342 3,516,726 3,348,808
============ ============ ============= ============
Earnings per common and common and
equivalent share $ (1.16) $ 0.30 $ 0.36 $ 0.10
============ ============ ============= ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,521,092
<SECURITIES> 700,000
<RECEIVABLES> 15,433,453
<ALLOWANCES> (195,326)
<INVENTORY> 334,870
<CURRENT-ASSETS> 33,647,877
<PP&E> 9,849,122
<DEPRECIATION> (3,828,899)
<TOTAL-ASSETS> 46,652,755
<CURRENT-LIABILITIES> 31,958,445
<BONDS> 0
0
0
<COMMON> 34,040
<OTHER-SE> 10,253,270
<TOTAL-LIABILITY-AND-EQUITY> 46,652,755
<SALES> 115,406,879
<TOTAL-REVENUES> 115,406,879
<CGS> 109,504,972
<TOTAL-COSTS> 120,331,291<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,914
<INCOME-PRETAX> (4,679,398)
<INCOME-TAX> (1,873,980)
<INCOME-CONTINUING> (2,805,418)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,617,616)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> (1.16)
<FN>
<F1>TOTAL COSTS INCLUDES $2,354,000 IN NON-CASH, NON-RECURRING COMPENSATION CHARGE.
NET LOSS INCLUDES AN ADJUSTMENT OF $812,198 RELATING TO CERTAIN REDEEMABLE
COMMON SHARES AS DEFINED WITHIN THE AGREEMENT.
</FN>
</TABLE>
