<PAGE> 1
FORM 10-Q -- QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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, Tennessee 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 3,557,561 shares of Common Stock outstanding as of May 4, 1998.
<PAGE> 2
AMERICA SERVICE GROUP INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at March 31, 1998 and
December 31, 1997 3
Condensed Consolidated Income Statements for the
quarters ended March 31, 1998 and March 31, 1997 4
Condensed Consolidated Statements of Cash Flows for the
quarters ended March 31, 1998 and March 31, 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 7-8
Results of Operations
PART II. OTHER INFORMATION
Item 5: Other Events 9
Item 6: Exhibits and Reports on Form 8-K
Signature page 9
</TABLE>
2
<PAGE> 3
AMERICA SERVICE GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,804,000 $ 3,445,000
Short-term investments 993,000 1,559,000
Accounts receivable: Healthcare and other,
less allowance for doubtful accounts 10,421,000 8,242,000
Prepaid expenses and other current assets 1,877,000 2,384,000
Current deferred taxes 2,116,000 2,116,000
------------ ------------
Total currents assets 18,211,000 17,746,000
Restricted investments 6,291,000 5,639,000
Property and equipment, net 2,313,000 2,468,000
Deferred taxes 1,193,000 1,193,000
Cost in excess of net assets acquired company, net 401,000 411,000
Other assets 295,000 297,000
============ ============
$ 28,704,000 $ 27,754,000
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 2,740,000 $ 3,243,000
Accrued expenses 14,267,000 12,836,000
Deferred revenue -- 1,410,000
------------ ------------
Total current liabilities 17,007,000 17,489,000
Noncurrent portion of accrued expenses 3,347,000 3,624,000
Commitments and contingencies
Redeemable common stock 1,842,000 1,842,000
Common stock 36,000 35,000
Additional paid in capital 8,172,000 7,926,000
Accumulated deficit (1,700,000) (3,162,000)
------------ ------------
Total liabilities and stockholders' equity $ 28,704,000 $ 27,754,000
============ ============
</TABLE>
3
<PAGE> 4
AMERICA SERVICE GROUP INC.
CONDENSED CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
1998 1997
---- ----
<S> <C> <C>
Revenues
Healthcare revenue $ 27,632,000 $38,660,000
Investment and interest income 132,000 183,000
------------ -----------
Total revenue 27,764,000 38,843,000
Healthcare expenses 24,543,000 36,160,000
------------ -----------
Gross margin 3,221,000 2,683,000
Selling, general and administrative expenses 2,345,000 2,290,000
Nonrecurring gain (586,000) --
------------ -----------
Income before taxes 1,462,000 393,000
Provision for income taxes -- --
------------ -----------
Net income 1,462,000 393,000
Redeemable common stock decrease -- 57,000
------------ -----------
Net income attributable to common shares $ 1,462,000 $ 450,000
============ ===========
Net income per common share:
Basic $ 0.41 $ 0.13
============ ===========
Diluted $ 0.41 $ 0.13
============ ===========
Weighted average common shares outstanding:
Basic 3,530,000 3,392,000
============ ===========
Diluted 3,591,000 3,542,000
============ ===========
</TABLE>
4
<PAGE> 5
AMERICA SERVICE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
1998 1997
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 1,462,000 $ 393,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 294,000 200,000
Non-cash compensation adjustment -- (16,000)
Changes in operating assets and liabilities:
Accounts receivable (2,179,000) (3,115,000)
Prepaid expenses and other current assets 507,000 (728,000)
Other assets 2,000 --
Accounts payable (503,000) (260,000)
Accrued expenses 1,154,000 650,000
Deferred revenue (1,410,000) 172,000
----------- ------------
Net cash used in operating activities (673,000) (2,704,000)
Investing Activities:
Change in short-term investments 566,000 (60,000)
Change in restricted investments (652,000) (1,000)
Capital expenditures (129,000) (320,000)
----------- ------------
Net cash used in investing activities (215,000) (381,000)
Financing Activities:
Exercise of stock options 247,000 131,000
----------- ------------
Net cash provided by financing activities 247,000 131,000
Net decrease in cash and cash equivalents (641,000) (2,954,000)
Cash and cash equivalents, beginning of period 3,445,000 12,550,000
----------- ------------
Cash and cash equivalents, end of period $ 2,804,000 $ 9,596,000
=========== ============
</TABLE>
5
<PAGE> 6
AMERICA SERVICE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. BASIS OF PRESENTATION
The interim consolidated financial statements as of March 31, 1998 and for the
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 audited 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 quarter presented. The results of
operations for the three months presented are not necessarily indicative of the
results to be expected for the year ending December 31, 1998. The interim
consolidated financial statements should be read in connection with the audited
consolidated financial statements for the year ended December 31, 1997.
2. INCOME (LOSS) PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement No.
128, Earnings Per Share ("Statement 128"). Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share exclude any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share, and uses the treasury stock method in
calculating dilution. All earnings per share amounts for all periods have been
presented and restated to conform to Statement 128 requirements.
3. REPORT COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement No. 130, Reporting
Comprehensive Income, ("Statement 130"). Statement 130 establishes new rules for
the reporting and display of comprehensive income and its components. The
adoption of this Statement had no impact on the Company's net income or
stockholders' equity.
4. RELEASE AND SETTLEMENT AGREEMENT
On October 1, 1997, the Company entered into a Plan and Agreement of Merger (the
"Merger Agreement") with MedPartners, Inc., a Delaware corporation
("MedPartners"), and a wholly owned subsidiary of MedPartners, pursuant to which
the Company would have been acquired by MedPartners (the "Merger"). In
connection with the Merger, each issued and outstanding share of the Company's
Common Stock, $0.01 par value per share (the "Company's Common Stock") would
have been converted into the right to receive 0.71 of a share of MedPartners'
Common Stock. On October 28, 1997, MedPartners entered into a Plan and Agreement
of Merger (the "PhyCor Merger Agreement") with PhyCor, Inc., a Delaware
corporation ("PhyCor"), pursuant
6
<PAGE> 7
to which MedPartners would have been acquired by PhyCor and each issued and
outstanding share of MedPartners' Common Stock would have been converted into
the right to receive 1.18 shares of PhyCor Common Stock.
The Company mailed a Proxy Statement to the holders of its Common Stock on
November 20, 1997. The Proxy Statement related to a special meeting of the
Company's stockholders scheduled to be held on December 29, 1997, for the
purpose of considering and voting upon the Merger. On December 29, the Company
postponed the special meeting at the request of MedPartners until January 20,
1998.
On January 20, 1998, the Company announced that it would not hold the special
meeting of its stockholders originally scheduled for December 29, 1997, and that
it was engaged in discussions with MedPartners regarding the Merger Agreement.
On February 26, 1998, the Company announced the termination of the Merger
Agreement and the execution of a Release and Settlement Agreement (the
"Settlement Agreement") with MedPartners relating to the Merger Agreement.
Pursuant to the Settlement Agreement, MedPartners agreed to pay the Company
approximately $3.5 million in cash and to reimburse or assume certain other
costs incurred by the Company in connection with the Merger in the amount of
approximately $2.0 million. The Company and MedPartners and certain of their
respective affiliates also entered into a Non-Compete, Non-Solicitation and
Standstill Agreement in connection with the termination of the Merger Agreement.
Results of operations of the Company as of March 1998 do not include any direct
costs relating to the Merger Agreement as all such amounts are to be reimbursed
as part of the Settlement Agreement for a three-year period.
ITEM 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This quarterly report on Form 10-Q contains and incorporates by reference
"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. Those statements include, among other things, discussions of the
Company's business strategy and expectations concerning the Company's position
in the industry, future operations, margins, profitability, liquidity and
capital resources. All these forward-looking statements are based on estimates
and assumptions made by management of the Company that, although believed to be
reasonable, are inherently uncertain. Therefore, undue reliance should not be
placed on such statements and estimates. No assurance can be given that any of
such estimates or statements will be realized, and it is likely that actual
results may differ materially from those contemplated by such forward-looking
statements. Factors that may cause such differences include, but are not limited
to, those set forth in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 (the "1997 Form 10-K") under the heading "Item 1.
Business -- Cautionary Statements," which cautionary statements are hereby
incorporated herein by reference. All forward-looking statements attributable to
the Company or persons acting on behalf of the Company are expressly qualified
in their entirety by the cautionary statements set forth in the 1997 Form 10-K.
In light of these and other uncertainties, the inclusion of a forward-looking
statement herein or in any statement made by the Company should not be regarded
as a representation by the Company that the Company's plans and objectives will
be achieved.
Results of Operations
FIRST QUARTER 1998 VERSUS FIRST QUARTER 1997
Revenues, exclusive of interest income for the first quarter 1998, decreased to
$27.6 million from $38.7 million in the first quarter 1997. The Company had a
contract with the Georgia Department of Corrections which expired June 1997 and
accounted for $14.5 million of revenue for the three months March 1997. Three
contracts accounting for $3.6 million of revenue in the first quarter of 1997
expired subsequent to March 1997. Two contracts that commenced subsequent to
March 1997 contributed $6.1 million in revenue for the quarter ended March 31,
1998. Revenue's in 1998 include $.9 million in growth under existing contracts
through contract renegotiations, automatic pricing adjustments and growth in
inmate population. Interest income decreased due to the prepayment component of
base fees with the Georgia contract being eliminated effective June 1997.
7
<PAGE> 8
Healthcare expenses during the first quarter 1998 were $24.5 million or 88% of
revenue versus $36.2 million or 93% of revenue for the same period in 1997.
Healthcare expenses exclusive of the Georgia contract were 89% for the quarter
ended March 1997. The March 1998 medical loss ratio was favorably impacted by
certain employee healthcare costs being reimbursed by MedPartners. These costs
approximated $.3 million or .01% for the quarter ended March 1998.
Selling, general and administrative expenses for the first quarter 1998 were
$2.35 million versus $2.30 million for March 1997. The slight increase is due to
the increase in corporate clinical positions.
The Company recorded a non-recurring gain of $.6 million in the first quarter of
1998 which is directly related to the Settlement Agreement between the Company
and MedPartners. As part of the Settlement Agreement, the Company received
payments of an aggregate $2.2 million in February and April 1998. Approximately
$1.6 million of such $2.2 million reimbursed the Company for costs directly
associated with the terminated merger transaction. The remaining $.6 million is
reflected as a nonrecurring gain. The Company will receive additional payments
in the months of July and September 1998, totaling $1.2 million as part of the
Settlement Agreement.
The Company's March 1998 financial statements have no provision for income
taxes, as the Company intends to utilize $1.5 million of its $7.5 million
income tax loss carryforward.
Liquidity and Capital Resources
The Company's cash, cash equivalents and short-term investments at March 31,
1998 were $3.8 million compared with cash, cash equivalents and investments of
$5.0 million at December 31, 1997. Cash used in operating activities during the
quarter ended March 31, 1998 was $.7 million compared to cash used in operations
of $2.7 million for the comparable 1997 period.
The decrease in cash from December 1997 is attributable to one client's April
base fee of $1.4 million not being received until early April 1998 when such
payment was due versus January's base fee having been prepaid in December 1997.
The Company was also required to provide $.7 million in funding to its wholly
owned captive insurance subsidiary, Harbour Insurance, Inc.
Management believes that the current levels of cash, when coupled with
internally generated funds and the line of credit, are sufficient to meet the
Company's immediately foreseeable cash needs.
8
<PAGE> 9
ITEM 5. OTHER EVENTS
On April 28, 1998, the Company issued a press release discussing its
first quarter 1998 operating performance. A copy of such press release
is attached hereto as Exhibit 99.1 and is hereby incorporated by
reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<S> <C> <C>
2.1 -- Release and Settlement Agreement dated February 25, 1998 by and among
America Service Group Inc., MedPartners Inc., ASG Merger Corporation and
EMSA Correctional Care, Inc. (incorporated by reference to Exhibit 2.3 of
the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997).
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).
10.1 -- Employment Agreement dated February 20, 1998 between Bruce A. Teal and America
Service Group Inc. (incorporated by reference to Exhibit 10.18 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.2 -- Employment Agreement dated February 12, 1998 between Gerald Boyle and America Service
Group Inc. (incorporated by reference to Exhibit 10.20 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1997).
10.24 -- Sublease Agreement dated April 22, 1997, for office located at Two Penns Way, Suite
200, New Castle, Delaware 19720 and Citibank Delaware as the subtenant (incorporated by
reference to Exhibit 10.24 to the Registrant's Quarterly Report on Form 10-Q three
months ending March 31, 1997).
11.1 -- Statement re-computation of per share earnings.
27.1 -- Financial Data Schedule for the quarter ended March 31, 1998.
27.2 -- Financial Data Schedule for the quarter ended March 31, 1997.
99.1 -- March 1998 Earning Release
</TABLE>
(B) REPORTS ON FORM 8-K
1 - The Company filed a Form 8-K on January 19, 1998 announcing
the final adjournment of its Special Meeting of Stockholders
and a Consent and Agreement regarding the Merger Agreement
between America Service Group Inc., MedPartners, Inc. and ASG
Merger Corporation.
2 - The Company filed a Form 8-K on February 25, 1998 announcing
the Release and Settlement Agreement by and among America
Service Group Inc., MedPartners, Inc., ASG Merger Corporation
and EMSA Correctional Care.
9
<PAGE> 10
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, 1998 /s/ MICHAEL CATALANO
--------------------------------
Michael Catalano
Executive Vice President
& General Counsel
/s/ BRUCE A. TEAL
--------------------------------
Bruce A. Teal
(Senior Vice President /
Chief Financial Officer)
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11.1 Statement re-computation of per share earnings........................
27.1 Financial Data Schedule for the quarter ended March 31, 1998..........
27.2 Financial Data Schedule for the quarter ended March 31, 1997..........
99.1 March 1998 Earning's Release..........................................
</TABLE>
<PAGE> 1
EXHIBIT 11.1
AMERICA SERVICE GROUP INC.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Net income $1,462,000 $ 393,000
Decrease in redeemable common stock -- 57,000
---------- ----------
Numerator for basic and diluted earnings per share - income
available to common stockholder $1,462,000 $ 450,000
========== ==========
Denominator for basic earnings per share - weighted average shares 3,530,000 3,392,000
Effect of dilutive securities 61,000 150,000
---------- ----------
Weighted average common shares outstanding - diluted 3,591,000 3,542,000
========== ==========
Basic earnings per share $ 0.41 $ 0.13
========== ==========
Diluted earnings per share $ 0.41 $ 0.13
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICA SERVICE GROUP INC FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,804,000
<SECURITIES> 993,000
<RECEIVABLES> 10,540,000
<ALLOWANCES> (119,000)
<INVENTORY> 271,000
<CURRENT-ASSETS> 18,211,000
<PP&E> 4,576,000
<DEPRECIATION> (2,263,000)
<TOTAL-ASSETS> 28,704,000
<CURRENT-LIABILITIES> 17,007,000
<BONDS> 0
0
0
<COMMON> 36,000
<OTHER-SE> 8,314,000
<TOTAL-LIABILITY-AND-EQUITY> 28,704,000
<SALES> 27,632,000
<TOTAL-REVENUES> 27,764,000
<CGS> 24,543,000
<TOTAL-COSTS> 26,888,000
<OTHER-EXPENSES> (586,000)<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,462,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,462,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,462,000
<EPS-PRIMARY> $0.41
<EPS-DILUTED> $0.41
<FN>
<F1>
Represent nonrecurring gain related to the MedPartners' Settlement Agreement
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,596,000
<SECURITIES> 2,165,000
<RECEIVABLES> 18,024,000
<ALLOWANCES> 2,016,000
<INVENTORY> 0
<CURRENT-ASSETS> 37,237,000
<PP&E> 6,296,000
<DEPRECIATION> (3,130,000)
<TOTAL-ASSETS> 47,526,000
<CURRENT-LIABILITIES> 40,317,000
<BONDS> 0
0
0
<COMMON> 34,000
<OTHER-SE> 4,857,000
<TOTAL-LIABILITY-AND-EQUITY> 47,526,000
<SALES> 38,660,000
<TOTAL-REVENUES> 38,843,000
<CGS> 36,160,000
<TOTAL-COSTS> 38,450,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 393,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 393,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 450,000<F1>
<EPS-PRIMARY> 0.13<F2>
<EPS-DILUTED> 0.13<F2>
<FN>
<F1>
NET INCOME INCLUDES $57,000 RELATING TO THE ADJUSTMENT OF REDEEMABLE COMMON
STOCK TO MARKET AS DEFINED WITHIN THE AGREEMENT.
<F2>
PRIMARY REPRESENTS BASIC EARNINGS PER SHARE AND FULLY DILUTED REPRESENTS DILUTED
EARNINGS PER SHARE.
</FN>
</TABLE>
<PAGE> 1
105 Westpark Drive, Suite 300, Brentwood, TN, 37027 615-373-3100
[LOGO] AMERICA SERVICE GROUP, INC.
NEWS RELEASE
FOR RELEASE: April 28, 1998
7:30 am CDT
CONTACT: Scott L. Mercy Bruce A. Teal
President & CEO Sr. Vice President & CFO
(615) 376-1314 (615) 376-1361
AMERICA SERVICE GROUP ANNOUNCES
FIRST QUARTER E.P.S. GROWTH OF 215%
NASHVILLE, TN (April 28, 1998) -- America Service Group Inc. (NASDAQ: ASGR)
today announced earnings of $0.41 per share for the first quarter ended March
31, 1998, a 215% increase over the first quarter 1997. Net income attributable
to common shares was $1.5 million for the first quarter 1998 versus $450,000
for the same period in 1997. 1998 results include $586,000 in non-recurring
gains relating to the MedPartners Settlement Agreement.
For comparability purposes to March 1998's first quarter results, 1997 results
reflect the Company's consolidated operations as previously reported and
adjusted to exclude the contract with the Georgia Department of Corrections
which expired June 1997 and represented 37% of the Company's revenue for the
three months ended March 1997.
First quarter revenues exclusive of a Georgia contract which expired June 1997,
increased 14.5% to $27.8 million, compared to the first quarter 1997. Quarterly
healthcare expenses as a percent of revenue were 88.4% compared to 89.0% for
first quarter 1997, exclusive of the Georgia contract, and 90.6% for the fourth
quarter 1997.
Selling, general, and administrative expenses for the quarter increased
minimally as compared to March 1997 and decreased an approximate $100,000 when
compared to fourth quarter 1997. No provision for income tax is reflected in
the quarter's results because of the Company's significant tax loss
carryforwards.
"We are excited about the opportunities in 1998. We feel that the first
quarter's financial results, the addition of a seasoned correctional healthcare
COO, and the development of our Marketing Department are significant steps in
making 1998 a successful year for our clients, employees, and shareholders,"
commented Scott L. Mercy, President and Chief Executive Officer.
[MORE]
<PAGE> 2
America Service Group Inc. is a leading national provider of correctional
healthcare services in the United States. America Service Group contracts with
state, county and local government agencies to provide a wide range of on-site
healthcare programs as well as off-site hospitalization and specialty
outpatient care. The Company employees over 1,500 medical, professional and
support staff nationally.
This press release may contain forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
As such, they involve risk and uncertainty that actual results may differ
materially from those projected in the forward-looking statements. A discussion
of the important factors and assumptions regarding the statements and risks
involved is contained in ASG's filings with the Securities and Exchange
Commission.
[MORE]
<PAGE> 3
AMERICA SERVICE GROUP INC.
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
Quarter Ended
March 31, 1998 % of March 31, 1997 % of March 31, 1997 % of
Revenue Adjusted(1) Revenue As Reported Revenue
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Healthcare revenue $27,632,000 $24,126,000 $38,660,000
Interest income 132,000 183,000 183,000
----------- ----------- -----------
Total revenue 27,764,000 24,309,000 38,843,000
Healthcare expenses 24,543,000 88.4% 21,626,000 89.0% 36,160,000 93.1%
----------------------------------------------------------------------------------
Gross Margin 3,221,000 11.6% 2,683,000 11.0% 2,683,000 6.9%
Selling, general and administrative expenses 2,345,000 8.4% 2,290,000 9.4% 2,290,000 5.9%
Nonrecurring gain (586,000) -2.1% 0 0.0% 0 0.0%
----------------------------------------------------------------------------------
Income before taxes 1,462,000 5.3% 393,000 1.6% 393,000 1.0%
Provision for income taxes 0 0.0% 0 0.0% 0 0.0%
----------------------------------------------------------------------------------
Net income 1,462,000 5.3% 393,000 1.6% 393,000 1.0%
Redeemable common stock effect 0 0.0% 57,000 0.2% 57,000 0.1%
----------------------------------------------------------------------------------
Net income attributable to common shares $ 1,462,000 5.3% $ 450,000 1.8% $ 450,000 1.1%
==================================================================================
Net income per common share:
Basic $0.41 $0.13 $0.13
=========== =========== ===========
Diluted $0.41 $0.13 $0.13
=========== =========== ===========
Weighted average shares outstanding:
Basic 3,530,000 3,392,000 3,392,000
=========== =========== ===========
Diluted 3,591,000 3,542,000 3,542,000
=========== =========== ===========
</TABLE>
(1) -Healthcare revenue and expenses have been adjusted to exclude the operating
results of a contract with the Georgia Department of Corrections which expired
on June 30, 1997, and represented 37% of the Company's consolidated healthcare
revenue for the March 1997 quarter.
[END]
