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FORM 10Q -- 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
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FORM 10-Q
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED JUNE 30, 1999
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: 0-20135
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AMERICA SERVICE GROUP INC.
(Exact name of registrant as specified in its charter)
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 3,589,078 shares of Common Stock outstanding as of August 3,
1999.
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AMERICA SERVICE GROUP INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at June 30, 1999 and December 31, 1998.......................... 3
Condensed Consolidated Statements of Operations for the quarters and six months ended June 30, 1999
and June 30, 1998................................................................................... 4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and June 30,
1998................................................................................................ 5
Notes to Condensed Consolidated Financial Statements.................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 8
PART II. OTHER INFORMATION
Item 5: Other Events.................................................................................... 12
Item 6: Exhibits and Reports on Form 8-K................................................................ 12
Signature page.......................................................................................... 13
</TABLE>
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PART I:
FINANCIAL INFORMATION
AMERICA SERVICE GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 5,828,000 $ 7,211,000
Accounts receivable: Healthcare and other, less allowance
for doubtful accounts ................................ 42,466,000 13,760,000
Prepaid expenses and other current assets ............... 3,579,000 1,098,000
Current deferred taxes .................................. 2,730,000 2,730,000
------------ -----------
Total current assets ............................ 54,603,000 24,799,000
Property and equipment, net ............................... 3,498,000 1,886,000
Deferred taxes ............................................ 1,341,000 1,341,000
Cost in excess of net assets acquired, net ................ 45,360,000 --
Other assets .............................................. 1,096,000 349,000
============ ===========
$105,898,000 $28,375,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ 6,673,000 $ 2,438,000
Accrued expenses ........................................ 32,535,000 11,846,000
Subordinated notes ...................................... 14,623,000 --
------------ -----------
Total current liabilities ....................... 53,831,000 14,284,000
Noncurrent portion of accrued expenses .................... 1,876,000 1,300,000
Long-term debt ............................................ 30,000,000 --
Commitments and contingencies
Mandatory redeemable preferred stock ...................... 5,000,000 --
Mandatory redeemable common stock ......................... 1,842,000 1,842,000
Common stock .............................................. 36,000 36,000
Additional paid in capital ................................ 11,120,000 8,351,000
Retained earnings ......................................... 2,193,000 2,562,000
============ ===========
Total liabilities and stockholders' equity ...... $105,898,000 $28,375,000
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
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AMERICA SERVICE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
Healthcare revenue ............................ $ 72,218,000 $27,831,000 $ 130,499,000 $ 55,463,000
Healthcare expenses ........................... 65,261,000 25,163,000 117,739,000 50,005,000
------------ ----------- ------------- ------------
Gross margin .................................. 6,957,000 2,668,000 12,760,000 5,458,000
Selling, general and administrative expenses .. 2,944,000 2,309,000 5,964,000 5,070,000
Depreciation and amortization ................. 1,031,000 518,000 1,698,000 812,000
MedPartners settlement ........................ -- (960,000) -- (2,555,000)
------------ ----------- ------------- ------------
Income from operations ........................ 2,982,000 801,000 5,098,000 2,131,000
Interest, net ................................. (1,267,000) 202,000 (2,291,000) 334,000
------------ ----------- ------------- ------------
Income before taxes ........................... 1,715,000 1,003,000 2,807,000 2,465,000
Provision for income taxes .................... 511,000 5,000 1,123,000 5,000
------------ ----------- ------------- ------------
Net income .................................... 1,204,000 998,000 1,684,000 2,460,000
Preferred stock dividends ..................... 64,000 -- 2,053,000 --
============ =========== ============= ============
Net income (loss) attributable to common shares $ 1,140,000 $ 998,000 $ (369,000) 2,460,000
============ =========== ============= ============
Net income (loss) per common share:
Basic ....................................... $ 0.32 $ 0.28 $ (0.10) $ 0.69
============ =========== ============= ============
Diluted ..................................... $ 0.28 $ 0.27 $ (0.10) $ 0.67
============ =========== ============= ============
Weighed average shares outstanding:
Basic ....................................... 3,576,000 3,556,000 3,576,000 3,542,000
============ =========== ============= ============
Diluted ..................................... 4,284,000 3,735,000 3,576,000 3,663,000
============ =========== ============= ============
</TABLE>
See notes to condensed consolidated financial statements.
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AMERICA SERVICE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
JUNE 30,
1999 1998
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<S> <C> <C>
Operating activities:
Net income ................................................ $ 1,684,000 $ 2,460,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ........................... 1,698,000 812,000
Accretion of subordinated notes ......................... 282,000 --
Changes in operating assets and liabilities, net of
Effects from acquisition:
Accounts receivable .................................. 10,747,000 852,000
Prepaid expenses and other current assets ............ (1,683,000) 928,000
Other assets ......................................... (577,000) 30,000
Accounts payable ..................................... 4,233,000 (152,000)
Accrued expenses ..................................... (998,000) (1,032,000)
------------ -----------
Net cash provided by operating activities ................. 15,386,000 3,898,000
Investing activities:
Cash paid for acquisition, net of cash acquired ........... (66,077,000) --
Capital expenditures ...................................... (858,000) (168,000)
Sale of property and equipment ............................ -- 533,000
Change in short-term investments .......................... -- 1,319,000
Change in restricted investments .......................... -- (1,552,000)
------------ -----------
Net cash provided by (used in) investing activities ....... (66,935,000) 132,000
Financing activities:
Proceeds from long-term debt .............................. 47,000,000 --
Proceeds from mandatory redeemable preferred stock ........ 5,000,000 --
Proceeds from subordinated notes .......................... 15,000,000 --
Payments on long-term debt ................................ (17,000,000) --
Exercise of stock options ................................. 166,000 268,000
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Net cash provided by financing activities ................. 50,166,000 268,000
Net increase (decrease) in cash and cash equivalents ...... (1,383,000) 4,298,000
Cash and cash equivalents, beginning of period ............ 7,211,000 3,445,000
------------ -----------
Cash and cash equivalents, end of period .................. $ 5,828,000 $ 7,743,000
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
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AMERICA SERVICE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. BASIS OF PRESENTATION
The interim consolidated financial statements as of June 30, 1999 and for
the six 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 audited
consolidated 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 six months and quarter presented. The results of operations
for the six months presented are not necessarily indicative of the results to be
expected for the year ending December 31, 1999. The interim consolidated
financial statements should be read in connection with the audited consolidated
financial statements for the year ended December 31, 1998.
2. RECLASSIFICATIONS
Certain reclassifications have been made to the June 1998 Condensed
Consolidated Income Statement relating to the presentation of the MedPartners
Release and Settlement Agreement as discussed in Note 4. Specifically, $0.4 and
$0.8 million for the quarter and six months of reimbursements relating to
healthcare and lease costs are now reflected in healthcare expenses and $0.5 and
$1.2 million for the quarter and six months of costs associated with the failed
merger are included in selling, general and administrative expenses and
amortization expense. The reclassifications increased the nonrecurring gain by
$0.9 million for the quarter and $2.0 million for the six months. The gain now
reflected for the quarter and six months is $1.0 and $2.6 million, respectively.
The reclassifications did not impact net income or earnings per share
calculations and were discussed in conjunction with the Company's March 1998
10-Q's Management's Discussion and Analysis of Financial Condition and Results
of Operations.
3. ACQUISITION OF GOVERNMENT SERVICES DIVISION
On January 26, 1999, the Company purchased all of the outstanding stock of
EMSA Government Services, Inc. ("EMSA") from InPhyNet Administrative Services,
Inc. ("InPhyNet") for $67.0 million in cash pursuant to a Stock Purchase
Agreement, dated as of December 18, 1998 (the "Stock Purchase Agreement"), as
amended by the First Amendment to Stock Purchase Agreement, dated as of January
26, 1999 (the "First Amendment"), between the Company and InPhyNet. InPhyNet is
a wholly-owned subsidiary of MedPartners, Inc. ("MedPartners").
EMSA conducts its operations through two wholly-owned subsidiaries, EMSA
Correctional Care, Inc. and EMSA Military Services, Inc., each of which became
indirect subsidiaries of the Company pursuant to its acquisition of EMSA. EMSA
Correctional provides comprehensive managed healthcare solutions to state and
local correctional facilities, managing healthcare for approximately 70,000
inmates. Following the EMSA acquisition, the Company, through EMSA Correctional
and Prison Health Services, Inc. ("PHS"), manages healthcare for approximately
133,000 inmates in 25 states. EMSA Military contracts with the U.S. Department
of Defense (the "DOD") and the Veterans Administration (the "VA") to provide
emergency medicine and primary healthcare services to active and retired
military personnel and their dependents at medical facilities operated by the
DOD and the VA.
The purchase price paid to InPhyNet was subject to increase or decrease on a
dollar-for-dollar basis by an amount equal to the amount by which EMSA's working
capital, as defined, and as reflected on its balance sheet as of January 25,
1999 (the "Closing Date Balance Sheet"), was in excess of or was less than $27.6
million. The Closing Date Balance Sheet reflected working capital, as defined,
of $24.0 million. Accordingly, the Company received $3.6 million in March 1999
as part of the purchase price adjustment. The Company accounted for the EMSA
acquisition using the purchase method of accounting.
In connection with the EMSA acquisition: (i) the Company and all of its
subsidiaries, including EMSA, EMSA Military and EMSA Correctional, entered into
an Amended and Restated Credit Agreement, dated as of January 26, 1999, with
NationsBank, N.A., as Administrative Agent and Issuing Bank ("NationsBank"),
which provides for a revolving credit facility of up to $46.0 million (the
"Credit Facility") subject to scheduled reductions and (ii) the Company entered
into a Securities Purchase Agreement, dated as of January 26, 1999 (the
"Securities Purchase Agreement") with Health Care Capital Partners L.P.
("Capital Partners") and Health Care Executive Partners L.P. ("Executive
Partners"), investment funds managed by Ferrer Freeman Thompson & Co.
(collectively, with Capital Partners and Executive Partners, "FFT"). On January
26, 1999, pursuant to the Securities Purchase Agreement, the Company issued to
Capital Partners and Executive Partners (i) $15.0 million aggregate principal
amount of the Company's 12% Subordinated
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Convertible Bridge Notes due January 26, 2000 (the "Notes") with detachable
warrants (the "Warrants") to purchase an aggregate 135,000 shares of the
Company's common stock, par value $0.01 per share (the "Common Stock"), and (ii)
50,000 shares of the Company's Series A Convertible Preferred Stock, par value
$0.01 per share (the "Preferred Stock"), for $5.0 million. The Preferred Stock
is subject to mandatory redemption on July 26, 2005. The Notes, Warrants and
Preferred Stock are referred to collectively as the "Convertible Shares."
The Company has obtained an independent valuation computation of the fair
values of the Warrants ($4.88 per Warrant). Significant assumptions used in the
fair value calculation include: risk-free interest rate (4.79%); expiration
period (7 years); volatility (49%); and dividend per share (zero). The proceeds
from the sale of the Notes and Warrants were allocated in January 1999 based on
the relative fair values of the Warrants and Notes, with the fair value of the
Warrants being accounted for as an addition to paid-in capital. The resulting
discount on the Notes is accounted for as such and is being accreted and charged
to interest expense over the one-year life of the notes.
Preferred stock dividends of $2.0 million relate to the 5% coupon rate on
the $5.0 million of Convertible Preferred Stock issued as part of the EMSA
acquisition, which equates to $0.1 million and a noncash, nonrecurring dividend
of $1.9 million, which increased paid-in capital and represents a $3.68 dividend
on each outstanding share of Convertible Preferred Stock. The dividend equals
the increase in the fair market value of a share of the Company's Common Stock
from the date the Company entered into a commitment to issue the Convertible
Preferred Stock ($9.45 per share) to the Company's issuance of the convertible
Preferred Stock on January 26, 1999 ($13.125 per share).
The Company follows the requirements of Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings per Share. Diluted earnings per share will
include shares to be issued relating to the Warrants under the treasury stock
method and the conversion of Preferred Stock to Common Stock at the applicable
conversion ratio. The Notes are contingent as to conversion based on a vote of
the stockholders. Under SFAS No. 128, until all necessary conditions to
conversion have been satisfied, the Notes are not considered in the diluted
earnings per share computation.
The Company has included in its proxy statement filing a detailed
description of the Notes, the Warrants and the Preferred Stock, including
conversion features and redemption requirements.
The Company used $47.0 million in borrowings under the Credit Facility and
the aggregate $20.0 million in proceeds received from its issuance of the
Convertible Securities to Capital Partners and Executive Partners to finance, in
part, the EMSA acquisition, which consisted of assets acquired of $89.2 million,
including cash of $0.9 million and $46.4 million of cost in excess of net assets
acquired and the assumption of $22.2 million in liabilities. The following
unaudited pro forma results of operations give effect to the operations of the
Company as if the acquisition had occurred effective January 1, 1999 and January
1, 1998:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Healthcare revenue ............................... $ 72,218,000 $ 65,679,000 $ 140,227,000 $ 131,471,000
Net income (loss) attributable to common shares .. 1,140,000 195,000 (371,000) (1,820,000)
Net income (loss) per common share:
Basic .......................................... $ 0.32 $ 0.05 $ (0.10) $ (0.51)
============== ============== =============== ===============
Diluted ........................................ $ 0.28 $ 0.05 $ (0.10) $ (0.51)
============== ============== =============== ===============
</TABLE>
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 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.
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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.
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, 1998 (the "1998 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 1998 Form 10-K.
In light of these and other uncertainties, the inclusion of forward-looking
statements 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.
GENERAL
The financial statements of the Company for the six months ended June 30,
1999 include the operations of EMSA since January 26, 1999, the date of
acquisition. The acquisition was strategic in that it positions the Company as
the second largest provider of comprehensive managed healthcare for incarcerated
individuals in the United States and positions the Company to capitalize on
opportunities within the $4.5 billion correctional healthcare industry. Through
the acquisition of EMSA, the Company was able to (1) increase its contracts from
thirty-five to ninety-six; (2) increase the number of inmates served from 64,000
to 133,000; (3) leverage its revenue base whereby no one contract exceeds 8% of
combined revenue; (4) increase its market presence to twenty-five states, versus
sixteen; (5) leverage its corporate general and administrative expenses; (6)
obtain more favorable pricing in areas such as pharmacy, medical supplies and
lab costs; and (7) strengthen certain critical disciplines such as marketing and
client development.
In addition to the strategic advantages, EMSA's contracts are similar to the
Company's prison and jail contracts, which will allow the Company to implement
its operational process, which includes (1) a claims management tracking system
that monitors incidents, claims and litigation; (2) a Daily Operating Report to
control staffing and off-site utilization; (3) Bi-weekly pharmacy reports; and
(4) a comprehensive cost review system that analyzes average costs per inmate at
each facility. Through the implementation of the above processes, the Company
anticipates an overall improvement in EMSA's margins.
RESULTS OF OPERATIONS
SECOND QUARTER JUNE 1999 COMPARED TO SECOND QUARTER JUNE 1998
Healthcare revenues for the quarter June 1999 increased to $72.2 million
from $27.8 million in the second quarter 1998. The $44.4 million increase is
attributable to the acquisition of EMSA, an increase in inmate population and
automatic pricing adjustments
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of existing PHS contracts and new business. Revenue from EMSA was $39.6 million,
existing PHS contracts increased $2.9 million or 10.4% as compared to June 1998
and new business was $1.9 million.
Healthcare expenses during the second quarter 1999 were $65.3 million or
90.4% of revenue versus $25.2 million or 90.4% of revenue for the same period in
1998. The $40.1 million increase is mainly attributable to the EMSA acquisition.
Selling, general and administrative expenses for the quarter ended June 1999
increased $0.6 million as compared to June 1998, due to the additional costs
related to the EMSA acquisition. As a percent of revenue, selling, general and
administrative expenses are 4.1% for June 1999 versus 8.3% for June 1998,
exclusive of the costs associated with the terminated merger with MedPartners.
The percentage decrease demonstrates the leverage on selling, general and
administrative expense provided by the EMSA acquisition.
Depreciation and amortization increased $0.5 million to $1.0 million for
June 1999. The increase of $0.5 million is mainly due to the amortization of
cost in excess of net assets related to the EMSA acquisition, totaling $46.4
million, which is being amortized over twenty years.
Net interest expense of $1.3 million for June 1999, which includes $0.2
million of noncash accretion on the Convertible Subordinated Notes, relates to
the financing of the EMSA acquisition through the Senior Revolving Credit
Facility of $47.0 million and the $15.0 million Convertible Subordinated Notes.
Interest expense of $1.4 million was offset by $0.1 million of interest income.
The outstanding balance of the Senior Revolving Credit Facility was $30.0
million as of June 1999. In addition, the Company repaid $7.5 million of the
$15.0 million Convertible Subordinated Notes on July 2, 1999.
Income taxes for June 1999 were $0.5 million, which equates to a 30%
effective tax rate. Income taxes reflect a six month effective rate of 40%. The
June 1998 financial statements have minimal income taxes due to the utilization
of income tax loss carryforwards.
The Company recorded a gain of $1.0 million in the second quarter of 1998
related to the Settlement Agreement between the Company and MedPartners. As part
of the Settlement Agreement, the Company received a payment totaling $0.6
million and $0.4 million in employee healthcare and lease costs were reimbursed
by MedPartners for the quarter ended June 1998.
Preferred stock dividends of $64,000 relate to the 5% coupon rate on the
$5.0 million of Convertible Preferred Stock issued as part of the EMSA
acquisition.
SIX MONTHS JUNE 1999 COMPARED TO SIX MONTHS JUNE 1998
Healthcare revenues for the six months June 1999 increased to $130.5 million
from $55.5 million for six months 1998. The $75.0 million increase is
attributable to the acquisition of EMSA, an increase in inmate population and
automatic pricing adjustments of existing PHS contracts and new business.
Revenue from EMSA was $68.1 million, existing PHS contracts increased $4.9
million or 8.9% as compared to June 1998 and new business was $2.0 million.
Healthcare expenses during the six months ended June 1999 were $117.7
million or 90.2% of revenue versus $50.0 million or 90.2% of revenue for the
same period in 1998. The $67.7 million increase is primarily attributable to the
EMSA acquisition.
Selling, general and administrative expenses for the six months ended June
1999 increased $0.9 million as compared to June 1998, due to the additional
costs related to the EMSA acquisition. Selling, general and administrative
expenses for the six months ended June 1998 include $0.7 million of costs
related to the failed merger with MedPartners. As a percent of revenue, selling,
general and administrative expenses are 4.6% for June 1999 versus 7.9% for June
1998, exclusive of the costs associated with the failed merger. The percentage
decrease demonstrates the leverage on selling, general and administrative
expense provided by the EMSA acquisition.
Depreciation and amortization increased $0.9 million to $1.7 million for
June 1999. The increase of $0.9 million is mainly due to the amortization of
cost in excess of net assets related to the EMSA acquisition, totaling $46.4
million, which is being amortized over twenty years.
Net interest expense of $2.3 million for June 1999, which includes $0.3
million of noncash accretion on the Convertible Subordinated Notes, relates to
the financing of the EMSA acquisition through the Senior Revolving Credit
Facility of $47.0 million and the $15.0 million Convertible Subordinated Notes.
Interest expense of $1.4 million was offset by $0.1 million of interest income.
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The outstanding balance of the Senior Revolving Credit Facility was $30.0
million as of June 1999. In addition, the Company repaid $7.5 million of the
$15.0 million Convertible Subordinated Notes on July 2, 1999.
Income taxes for June 1999 were $1.1 million, which equates to a 40%
effective tax rate. The June 1998 financial statements have minimal income taxes
due to the utilization of income tax loss carryforwards.
The Company recorded a gain of $2.6 million for the six months of 1998
related to the Settlement Agreement between the Company and MedPartners. As part
of the Settlement Agreement, the Company received payments totaling $2.8
million, of which $1.0 million reimbursed the Company for costs directly
associated with the terminated merger transaction. In addition to the $1.8
million recognized from payments from MedPartners, an additional $0.8 million in
employee healthcare and lease costs were reimbursed by MedPartners for the six
months ended June 1998.
Preferred stock dividends of $2.0 million relate to the 5% coupon rate on
the $5.0 million of Convertible Preferred Stock issued as part of the EMSA
acquisition, which equates to $0.1 million and a noncash, nonrecurring dividend
of $1.9 million, which increased paid-in capital and represents a $3.68 dividend
on each outstanding share of Convertible Preferred Stock. The dividend equals
the increase in the fair market value of a share of the Company's Common Stock
from the date the Company entered into a commitment to issue the Convertible
Preferred Stock ($9.45 per share) to the Company's issuance of the convertible
Preferred Stock on January 26, 1999 ($13.125 per share).
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at June 30, 1999, were $5.8 million,
compared with cash and cash equivalents of $7.2 million at December 31, 1998.
Cash provided by operating activities during the six months ended June 30, 1999
was $15.4 million compared to cash provided by operations of $3.9 million for
the comparable 1998 period. The overall increase in cash from operating
activities was due to the completion of the transitioning of EMSA's corporate
finance functions during the second quarter, including processing of vendor and
medical claims invoices and accounts receivable. The transition had temporarily
slowed the processing of both vendor and medical providers' claims, as well as
billing and collections of certain contracts' monthly base fees. With the
completion of the transition, accounts receivable during the second quarter were
reduced by $12.4 million, while accounts payable and accrued expenses declined
by $2.7 million. Due to the significant improvement in cash flow from
operations, the Company was able to reduce the Senior Revolving Credit Facility
by an additional $7.0 million in the second quarter whereby a total of $17.0
million has been repaid. In addition to the Senior Revolving Credit Facility
paydowns, the Company paid $7.5 million on the Subordinated Convertible Notes on
July 2, 1999.
The transitioning of corporate finance functions was a slower process than
planned as time and effort was committed to complete the independent financial
statement audits for EMSA for January 25, 1999, for working capital statement
purposes, and as of December 31, 1998 and for three years ending December 31,
1998. The working capital audit was required to be completed within 60 days of
the closing date while the December audits had a 90-day deadline. The task of
completing four audits mandated the full attention of the entire EMSA finance
department. Additionally, no employees within the EMSA finance department
relocated to Brentwood, Tennessee where the Company maintains its corporate
headquarters. Accordingly, during the months of February and March replacements
were recruited and hired at the Brentwood location to support the EMSA
contracts.
The following transition tasks have been completed and are operational: (1)
general ledger conversion; (2) medical claims adjudication through its medical
claims system; (3) billing and collection functions are in place with daily and
weekly cash reports being generated which has reduced accounts receivable
outstanding by $12.4 million from March 31, 1999 to June 30, 1999; (4) Daily
Operations Report used to manage site financial operations; (5) bi-weekly
reports for staffing and pharmacy costs; (6) site, contract and region specific
operating statements; and (7) utilization management reports identifying open
authorizations which will reduce potential delinquent medical claims payment.
The Company believes the impact the transition had on vendor relations was
minimal as the Company had notified its vendors and EMSA medical and non-medical
providers of the acquisition. However, the Company has implemented a priority
list for any medical providers who are displeased whereby any open or disputed
invoices can be quickly researched and resolved. Additionally, the sites are
receiving weekly reports whereby any missing authorizations can be identified
and fixed immediately. The Company is not aware of any violations under its
agreements with its providers.
10
<PAGE> 11
The Company believes that the disciplines impacted by the EMSA transition
including medical claims and vendor payables processing, billing and
collections, daily operational reporting are functioning in a manner similar to
the Company's other operating subsidiary, Prison Health Services, Inc. whereby
accounts receivables and accounts payable days outstanding will begin to
approach the Company's days prior to the acquisition.
Management believes that the current levels of cash, when coupled with
internally generated funds, acquired working capital of $24.0 million from the
EMSA acquisition and the line of credit is sufficient to meet the Company's
foreseeable cash needs.
YEAR 2000 UPDATE
The Year 2000 problem is the result of two potential malfunctions that could
have an impact on the Company's operations. The first is computer systems and
software being programmed to use two rather than four digits to define the
applicable year. The second is the use of embedded chips that have been designed
using two rather than four digits to define the applicable year. These chips are
often used in medical equipment used in certain Company sites.
The Company has completed the evaluation of all computer systems and
software it currently utilizes and has determined that 85% of all computer
systems and software will be in compliance without modification. The Company is
currently in the process of modifying or replacing the remaining 15% of its
computer systems and software. The general ledger, accounts payable, accounts
receivable and timekeeping systems have been upgraded, tested and are in
production. The Company's most significant outsourcing contract is for medical
claims processing and payment and that vendor has certified that all Year 2000
modifications will be completed by December 31, 1999.
The Company has undertaken a program to inventory, assess and correct or
replace the equipment that contains embedded chips. The Company has completed
its inventory of its sites, and is in its final stages of its inventory with
contract vendors. The analysis, replacement or modification, or implementation
of alternative plans for equipment that will have a direct impact on patient
safety and health will be completed by September 1999.
The Company is relying on information that is being provided by equipment
and medical device manufacturers regarding the Year 2000 compliance status of
their products. While the Company is attempting to evaluate information provided
by its present vendors, there can be no assurances that in all instances
accurate information is being provided. The Company also cannot in all instances
guarantee that the repair, replacement or upgrade of all items of equipment and
medical device systems will occur on a timely basis. Contingency planning will
be established and implemented in an effort to minimize any impact from Year
2000-related failures of such equipment. The Company anticipates its contingency
planning for this aspect of its Year 2000 assessment to be completed by
September 30, 1999. Costs as a result of these types of occurrences are in the
process of being determined.
The Company has also initiated communications with suppliers and vendors
whose supplies are essential for day-to-day operations regarding their state of
Year 2000 readiness. The Company is continuing its efforts to obtain such
information from all critical suppliers and vendors and feels that it will be
able to determine its vendors' status by September 30, 1999. Failure of certain
suppliers and vendors to remain in business without interruptions following
December 31, 1999 could have a material impact on operations or the Company's
ability to provide healthcare services. Contingency plans may include
stockpiling medical supplies and materials, increasing inventory levels and
securing alternate sources of supply. The Company anticipates its contingency
planning for this aspect of its Year 2000 assessment to be completed by
September 30, 1999. Costs as a result of these types of occurrences are in the
process of being determined.
Because the Company's physical sites are located within facilities owned and
operated by other entities whose Year 2000 readiness efforts it does not
control, there will be issues that arise which are dependent on these clients'
efforts. The Company has initiated communications with its clients on these
matters. The Company anticipates its contingency planning for this aspect of its
Year 2000 assessment to be completed by September 30, 1999 and feels costs
related to this phase will be immaterial.
The Company expects to expend approximately $0.1 million in connection with
evaluating, modifying and replacing its computer systems and software and
expects to fund such expenditures through operating cash flows. However, there
can be no guarantees that these estimates will be achieved and actual results
could differ materially from those anticipated.
11
<PAGE> 12
PART II:
OTHER INFORMATION
ITEM 5. -- OTHER EVENTS
On July 23, 1999, the Company issued a press release discussing its second
quarter 1999 operating performance. A copy of such press release is attached
hereto as Exhibit 99.1 and is hereby incorporated herein by reference.
ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
<TABLE>
<S> <C> <C>
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 for the quarter and six months ended
June 30, 1999 (for SEC use only)
27.2 -- Financial Data Schedule for the quarter and six months ended
June 30, 1998 (for SEC use only)
99.1 -- June 1999 Earnings Release
</TABLE>
(B) Reports on Form 8-K
1. On February 10, 1999, the Company filed Form 8-K, announcing
the completion of the acquisition of MedPartners' Government
Services Division.
2. On March 26, 1999, the Company filed Form 8-K/A, amending and
replacing its report on Form 8-K, which was originally filed
on February 10, 1999, announcing the completion of the
acquisition of MedPartners' Government Services Division.
12
<PAGE> 13
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.
/s/ MICHAEL CATALANO
--------------------------------------------------
Michael Catalano
President & Chief Executive Officer
/s/ BRUCE A. TEAL
--------------------------------------------------
Bruce A. Teal
Executive Vice President & Chief Financial Officer
Dated: August 12, 1999
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C> <C>
11.1 -- Statement re-computation of per share earnings........................................
27.1 -- Restated Financial Data Schedule for the quarter and six months ended June 30, 1999
(for SEC use only) ...................................................................
27.2 -- Financial Data Schedule for the quarter and six months ended June 30, 1998
(for SEC use only)....................................................................
99.1 -- June 1999 Earnings Release............................................................
</TABLE>
14
<PAGE> 1
EXHIBIT 11.1
AMERICA SERVICE GROUP INC.
<TABLE>
<CAPTION>
SIX MONTHS ENDED QUARTER ENDED
JUNE 30, JUNE 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) ($369,000) $ 2,460,000 $ 1,140,000 $ 998,000
Preferred stock dividends -- -- 64,000 --
----------------------------------------------------------------
Numerator for basic earnings per share - income
available to common stock holders ($369,000) 2,460,000 $ 1,204,000 $ 998,000
================================================================
Denominator for basic earnings per share -
weighted average shares 3,576,000 3,542,000 3,576,000 3,556,000
Effect of dilutive securities -- 121,000 708,000 179,000
-----------------------------------------------------------------
Weighted average common shares outstanding -
diluted 3,576,000 3,663,000 4,284,000 3,735,000
=================================================================
Basic earnings (loss) per share ($0.10) $ 0.69 $ 0.32 $ 0.28
=================================================================
Diluted earnings (loss) per share ($0.10) $ 0.67 $ 0.28 $ 0.27
=================================================================
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN SERVICE GROUP, INC. FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,828,00
<SECURITIES> 0
<RECEIVABLES> 43,071,000
<ALLOWANCES> (605,000)
<INVENTORY> 658,000
<CURRENT-ASSETS> 54,603,000
<PP&E> 7,284,000
<DEPRECIATION> (3,786,000)
<TOTAL-ASSETS> 105,898,000
<CURRENT-LIABILITIES> 53,829,000
<BONDS> 30,000,000
6,842,000
0
<COMMON> 36,000
<OTHER-SE> 13,315,000
<TOTAL-LIABILITY-AND-EQUITY> 105,898,000
<SALES> 130,499,000
<TOTAL-REVENUES> 130,499,000
<CGS> 117,739,000
<TOTAL-COSTS> 125,401,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,291,000
<INCOME-PRETAX> 2,807,000
<INCOME-TAX> 1,123,000
<INCOME-CONTINUING> 1,684,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,684,000
<EPS-BASIC> (0.10)<F1>
<EPS-DILUTED> (0.10)<F1>
<FN>
<F1>THE COMPANY RECORDED A $1,944,000 NON-CASH NON-RECURING DIVIDEND AS PART OF
THE EMSA AQUISITION. ADDITIONALY, THE COMPANY HAS ACCRUED $109,000 IN DIVIDENDS
WHICH ARE PAYABLE.
</FN>
</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 SIX MONTHS ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,743,000
<SECURITIES> 240,000
<RECEIVABLES> 7,520,000
<ALLOWANCES> (130,000)
<INVENTORY> 231,000
<CURRENT-ASSETS> 18,945,000
<PP&E> 4,029,000
<DEPRECIATION> (2,327,000)
<TOTAL-ASSETS> 29,298,000
<CURRENT-LIABILITIES> 16,784,000
<BONDS> 0
1,842,000
0
<COMMON> 36,000
<OTHER-SE> 7,491,000
<TOTAL-LIABILITY-AND-EQUITY> 29,298,000
<SALES> 55,463,000
<TOTAL-REVENUES> 55,463,000
<CGS> 50,005,000
<TOTAL-COSTS> 55,887,000
<OTHER-EXPENSES> (2,555,000)<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (334,000)
<INCOME-PRETAX> 2,465,000
<INCOME-TAX> 5,000
<INCOME-CONTINUING> 2,460,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,460,000
<EPS-BASIC> 0.69
<EPS-DILUTED> 0.67
<FN>
<F1>Gain from settlement agreement with MedPartners.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99.1
AMERICA SERVICE GROUP INC. LOGO
FOR IMMEDIATE RELEASE
CONTACT: MICHAEL CATALANO BRUCE A. TEAL
PRESIDENT AND CHIEF EXECUTIVE OFFICER EXECUTIVE VICE PRESIDENT AND
(615) 376-1319 CHIEF FINANCIAL OFFICER
(615) 376-1361
AMERICA SERVICE GROUP ANNOUNCES
RECORD SECOND QUARTER RESULTS
----------------------------------------------------
ROUTINE SEC REVIEW OF EMSA TRANSACTION
PROMPTS NONCASH RESTATEMENT OF FIRST QUARTER RESULTS
Second Quarter Highlights:
- Bridge notes reduced by $7.5 million
- Senior bank debt reduced by an additional $7 million
- SG&A decreased from 5.2% of revenue in the first quarter to
4.1% in the second quarter
- Integration of EMSA completed on schedule
NASHVILLE, Tennessee (July 23, 1999) - America Service Group Inc. (NASDAQ:ASGR)
announced today that results for the second quarter and six months ended June
30, 1999, reached record levels.
Healthcare revenue for the second quarter of 1999 was $72.2 million, up
160% from $27.8 million a year ago, reflecting the impact of the Company's
acquisition of EMSA Government Services (EMSA) during the first quarter. Net
income attributable to common shares, exclusive of transitional costs related to
the EMSA acquisition, was $1.2 million, or $0.30 per diluted share, compared
with net income of $0.4 million, or $0.10 per diluted share, for the second
quarter of 1998, exclusive of the MedPartners' settlement. Including costs
related to the EMSA acquisition, net income attributable to common stock for the
second quarter of 1999 was $1.1 million, or $0.28 per diluted share.
Healthcare expenses as a percent of revenue remained stable at 90.4% in
the second quarter of 1999 compared with the second quarter of 1998. In
addition, selling, general and administrative expenses improved from 8.3% of
revenues in the second quarter of 1998 to 4.1% of revenues in the second quarter
of 1999.
Healthcare revenue for the six months ended June 30, 1999, was $130.5
million, up 135% from $55.5 million a year ago, again, reflecting the impact of
the Company's acquisition of EMSA. Net income attributable to common shares,
exclusive of a noncash, nonrecurring dividend and transitional costs related to
the EMSA acquisition, was $2.0 million or $0.49 per diluted share compared with
net income, excluding the MedPartners' settlement, of $0.7 million, or $0.19 per
diluted share, for the first six months of 1998.
-MORE-
<PAGE> 2
ASGR Reports Second Quarter Results
Page 2
July 23, 1999
Michael Catalano, president and chief executive officer of America
Service Group, said, "These strong results reflect the positive momentum which
is building at our company. The accretive impact of the EMSA acquisition was
clearly evident in the second quarter as the Company accelerated its debt
reduction. In addition, we are particularly pleased about our improved operating
leverage which has enabled us to reduce SG&A decisively."
On July 2, 1999, the Company redeemed $7.5 million of the $15 million
Bridge Notes issued as part of the $67 million cash purchase price of EMSA. The
acquisition was financed by $47 million of Senior Debt with NationsBank, $5
million of redeemable convertible preferred stock purchased by Ferrer Freeman
Thompson & Co. ("FFT") and $15 million of Bridge Notes to FFT. The remaining
Bridge Notes will be converted to redeemable convertible preferred stock subject
to shareholder approval. The redemption of the Bridge Notes, which was accretive
to earnings, reduces dilutive common shares by approximately 0.8 million shares
and annual dividends by $0.4 million. During the first quarter of 1999, the
Company reduced Senior Debt by $10 million. In addition to the redemption of the
$7.5 million in Bridge Notes, the Company further reduced Senior Debt by an
additional $7 million in June 1999.
The Company also announced that an SEC review of the recently concluded
EMSA acquisition will require the Company to restate its results for the first
quarter ended March 31, 1999. An adjustment of $1.9 million, which increases
paid-in capital, represents a $3.68 noncash, nonrecurring dividend on the
redeemable convertible preferred shares issued as part of the acquisition of
EMSA. The dividend equals the price increase in the common stock from the date
of the equity commitment until January 26, 1999, when the acquisition closed.
The Company's original accounting treatment was based upon the market valuation
at the time of commitment, in line with rule clarifications which became
effective in May 1999. If the acquisition of EMSA had occurred subsequent to May
19, 1999, restatement of the Company's first quarter financial statements would
not be required. This restatement is a historical event and will have no impact
on earnings per share in future periods. The restatement of the first quarter
resulted in a reduction of fully diluted earnings per share of $0.54.
America Service Group Inc., based in Brentwood, Tennessee, is a leading
provider of correctional healthcare services in the United States. America
Service Group contracts with approximately one hundred government agencies to
provide a wide range of managed healthcare programs tailored to specific client
needs. The Company employs over 4,200 medical, professional and administrative
staff nationwide.
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 the Company's filings with the Securities and Exchange
Commission.
-MORE-
<PAGE> 3
ASGR Reports Second Quarter Results
Page 3
July 23, 1999
AMERICA SERVICE GROUP INC.
SECOND QUARTER AND SIX MONTHS FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
June 30, % of June 30, % of
1999(1) Revenue 1998(2) Revenue
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
Healthcare revenue $ 72,218 100.0 $ 27,831 100.0
Healthcare expenses 65,261 90.4 25,163 90.4
-------- --------- --------- ---------
Gross margin 6,957 9.6 2,668 9.6
Selling, general and administrative expenses 2,944 4.1 2,309 8.3
Depreciation and amortization 1,031 1.4 518 1.9
MedPartners' settlement -- -- (960) (3.4)
-------- --------- --------- ---------
Income from operations 2,982 4.1 801 2.9
Interest, net (1,267) (1.8) 202 0.7
-------- --------- --------- ---------
Income before taxes 1,715 2.4 1,003 3.6
Provision for income taxes 511 0.7 5 --
-------- --------- --------- ---------
Net income 1,204 1.7 998 3.6
Preferred stock dividends 64 0.1 -- --
-------- --------- --------- ---------
Net income attributable to common shares $ 1,140 1.6 $ 998 3.6
======== ========= ========= =========
Net income per common share:
Basic $ 0.32 $ 0.28
======== =========
Diluted $ 0.28 $ 0.27
======== =========
Diluted - exclusive of nonrecurring items $ 0.30 $ 0.10
======== =========
Weighted average shares outstanding:
Basic 3,576 3,556
======== =========
Diluted 4,284 3,735
======== =========
</TABLE>
-MORE-
<PAGE> 4
ASGR Reports Second Quarter Results
Page 4
July 23, 1999
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------------
June 30, % of June 30, % of
1999(1,3) Revenue 1998(2) Revenue
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
Healthcare revenue $ 130,499 100.0 $ 55,463 100.0
Healthcare expenses 117,739 90.2 50,005 90.2
--------- --------- --------- ---------
Gross margin 12,760 9.8 5,458 9.8
Selling, general and administrative expenses 5,964 4.6 5,070 9.1
Depreciation and amortization 1,698 1.3 812 1.5
MedPartners' settlement -- -- (2,555) (4.6)
--------- --------- --------- ---------
Income from operations 5,098 3.9 2,131 3.8
Interest, net (2,291) (1.8) 334 0.6
--------- --------- --------- ---------
Income before taxes 2,807 2.2 2,465 4.4
Provision for income taxes 1,123 0.9 5 --
--------- --------- --------- ---------
Net income 1,684 1.3 2,460 4.4
Preferred stock dividends 2,053 1.6 -- --
--------- --------- --------- ---------
Net income attributable to common shares $ (369) (0.3) $ 2,460 4.4
========= ========= ========= =========
Net income per common share:
Basic $ (0.10) $ 0.69
========= =========
Diluted $ (0.10) $ 0.67
========= =========
Diluted - exclusive of nonrecurring items $ 0.49 $ 0.19
========= =========
Weighted average shares outstanding:
Basic 3,576 3,542
========= =========
Diluted 3,576 3,663
========= =========
</TABLE>
(1)Included in the income statement for the quarter and six months ended June
1999 are $0.1 and $0.6 million of transitional expenses relating to the EMSA
acquisition. The majority of the transitional costs relates to salaries and
bonus and will not occur in future periods. Exclusive of these transitional
expenses and the noncash, nonrecurring dividend discussed in Note 3 below, net
income attributable to common shares would have been $1.2 and $2.0 million for
the quarter and six months ended June 1999, or $0.30 and $0.49 per dilutive
share. (2)Exclusive of "one-time" gain and costs related to the MedPartners'
settlement, 1998 earnings for the three and six months ended June 1998, tax
effected at 40%, would have been $0.4 million and $0.7 million, or $0.10 and
$0.19 per share, respectively. (3)An adjustment of $1.9 million, which increases
additional paid-in capital, is included in the income statement for the
six-month period ended June 1999 and represents a $3.68 noncash, nonrecurring
dividend on the redeemable preferred shares issued as part of the acquisition of
EMSA. The dividend equals the price increase in the Company's stock from the
date of the equity commitment until January 26, 1999, when the acquisition was
closed. The Company's original accounting treatment was based upon the market
valuation at the time of commitment, in line with rule clarifications which
became effective in May 1999. Under EITF 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features for Contingently Adjustable
Conversion Ratios," market valuation is based upon the commitment date, not the
closing date. If the acquisition of EMSA had occurred subsequent to May 19,
1999, restatement of the Company's first quarter financial statements would not
have been required.
<TABLE>
<CAPTION>
June 30, Dec. 31,
1999 1998
-------- -------
<S> <C> <C>
CONDENSED BALANCE SHEET:
Cash and short-term investments $ 5,828 $ 7,211
Other current assets 48,775 17,588
-------- -------
Current assets 54,603 24,799
Cost in excess of net assets acquired 45,360 --
Property and equipment, net 3,498 1,886
Other assets 2,437 1,690
-------- -------
$105,898 $28,375
======== =======
Current liabilities(4) $ 53,828 $14,284
Other liabilities 1,876 1,300
Long-term debt 30,000 --
Retained earnings 2,193 2,562
Other stockholders' equity(5) 18,001 10,229
-------- -------
$105,898 $28,375
======== =======
</TABLE>
(4)Includes $14.6 million in bridge loan at June 1999, which will be converted
to redeemable convertible preferred stock subject to shareholder approval. On
July 2, 1999, $7.5 million of the bridge loan was repaid.
(5)Includes $1.8 million of redeemable common stock for all periods presented
and $5.0 million of redeemable convertible preferred stock for June and March
1999.
-MORE-
<PAGE> 5
ASGR Reports Second Quarter Results
Page 5
July 23, 1999
AMERICA SERVICE GROUP INC.
RESTATED FIRST QUARTER FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31, % of March 31, % of
1999(1) Adjustment(3) 1999(1) Revenue 1998(2) Revenue
--------- ------------- ---------- --------- --------- ---------
(AS REPORTED) (RESTATED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT
Healthcare revenue $ 58,281 $ -- $ 58,281 100.0 $ 27,632 100.0
Healthcare expenses 52,478 -- 52,478 90.0 24,842 89.9
--------- --------- --------- --------- --------- ---------
Gross margin 5,803 -- 5,803 10.0 2,790 10.1
Selling, general and
administrative expenses 3,020 -- 3,020 5.2 2,761 10.0
Depreciation and amortization 667 -- 667 1.1 294 1.1
MedPartners' settlement -- -- -- -- (1,595) (5.8)
--------- --------- --------- --------- --------- ---------
Income from operations 2,116 -- 2,116 3.6 1,330 4.8
Interest, net (1,024) -- (1,024) (1.8) 132 0.5
--------- --------- --------- --------- --------- ---------
Income before taxes 1,092 -- 1,092 1.9 1,462 5.3
Provision for income taxes 612 -- 612 1.1 -- --
--------- --------- --------- --------- --------- ---------
Net income 480 -- 480 0.8 1,462 5.3
Preferred stock dividends 45 1,944 1,989 3.4 -- --
--------- --------- --------- --------- --------- ---------
Net income attributable
to common shares $ 435 $ (1,944) $ (1,509) (2.6) $ 1,462 5.3
========= ========= ========= ========= ========= =========
Net income per common share:
Basic $ 0.12 $ (0.54) $ (0.42) $ 0.41
========= ========= ========= =========
Diluted $ 0.12 $ (0.54) $ (0.42) $ 0.41
========= ========= ========= =========
Diluted - exclusive of
nonrecurring items $ 0.19 $ 0.19 $ 0.09
========= ========= =========
Weighted average shares
outstanding:
Basic 3,575 3,575 3,530
========= ========= =========
Diluted 4,166 (591) 3,575 3,591
========= ========= ========= =========
</TABLE>
(1)Included in March 1999 operations are approximately $0.5 million of
transitional expenses relating to the EMSA acquisition. The majority of the $0.5
million relates to salaries and bonus. Exclusive of these transitional expenses
and the noncash, nonrecurring dividend, earnings would have been $0.8 million,
or $0.19 per dilutive share.
(2)Exclusive of a "one-time" net gain related to the MedPartners' settlement,
March 1998 earnings, tax effected at 40%, would have been $0.3 million, or $0.09
per dilutive share.
(3)An adjustment of $1.9 million, which increases additional paid-in capital, is
included in the income statement for the quarter ended March 1999 and represents
a $3.68 noncash, nonrecurring dividend on the redeemable preferred shares issued
as part of the acquisition of EMSA. The dividend equals the price increase in
the Company's stock from the date of the equity commitment until January 26,
1999, when the acquisition was closed. The Company's original accounting
treatment was based upon the market valuation at the time of commitment, in line
with rule clarifications which became effective in May 1999. Under EITF 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features for
Contingently Adjustable Conversion Ratios," market valuation is based upon the
commitment date, not the closing date. If the acquisition of EMSA had occurred
subsequent to May 19, 1999, restatement of the Company's first quarter financial
statements would not have been required.
-MORE-
<PAGE> 6
ASGR Reports Second Quarter Results
Page 6
July 23, 1999
<TABLE>
<CAPTION>
March 31, March 31, Dec. 31,
1999 Adjustment(1) 1999 1998
-------- ------------- -------- -------
(AS REPORTED) (RESTATED)
<S> <C> <C> <C> <C>
CONDENSED BALANCE SHEET:
Cash and short-term investments $ 1,477 $ -- $ 1,477 $ 7,211
Other current assets 61,913 -- 61,913 17,588
-------- --------- -------- -------
Current assets 63,390 -- 63,390 24,799
Cost in excess of net assets acquired 45,933 -- 45,933 --
Property and equipment, net 3,264 -- 3,264 1,886
Other assets 2,168 -- 2,168 1,690
-------- --------- -------- -------
$114,755 $ -- $114,755 $28,375
======== ========= ======== =======
Current liabilities(4) $ 57,362 $ -- $ 57,362 $14,284
Other liabilities 1,477 -- 1,477 1,300
Long-term debt 37,000 -- 37,000 --
Retained earnings 2,997 (1,944) 1,053 2,562
Other stockholders' equity(5) 15,919 1,944 17,863 10,229
-------- --------- -------- -------
$114,755 $ -- $114,755 $28,375
======== ========= ======== =======
</TABLE>
(4)Includes $14.4 million in bridge loan at March 1999, which will be converted
to redeemable convertible preferred stock subject to shareholder approval. On
July 2, 1999, $7.5 million of the bridge loan was repaid.
(5)Includes $1.8 million of redeemable common stock for all periods presented
and $5.0 million of redeemable convertible preferred stock for June and March
1999.
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