<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, 1999
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 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 3,576,163 shares of Common Stock outstanding as of May 6, 1999.
<PAGE> 2
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 March 31, 1999 and
December 31, 1998 3
Condensed Consolidated Income Statements for the quarters
ended March 31, 1999 and March 31, 1998 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and March 31, 1998 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition 8-11
and Results of Operations
PART II. OTHER INFORMATION
Item 5: Other Events 12
Item 6: Exhibits and Reports on Form 8-K 12
Signature page 13
</TABLE>
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
AMERICA SERVICE GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,477,000 $ 7,211,000
Accounts receivable: Healthcare and other,
less allowance for doubtful accounts 54,901,000 13,760,000
Prepaid expenses and other current assets 4,282,000 1,098,000
Current deferred taxes 2,730,000 2,730,000
------------ -----------
Total current assets 63,390,000 24,799,000
Property and equipment, net 3,264,000 1,886,000
Deferred taxes 1,341,000 1,341,000
Cost in excess of net assets acquired, net 45,933,000 --
Other assets 827,000 349,000
------------ -----------
$114,755,000 $28,375,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,468,000 $ 2,438,000
Accrued expenses 30,434,000 11,846,000
Subordinated notes 14,460,000 --
------------ -----------
Total current liabilities 57,362,000 14,284,000
Noncurrent portion of accrued expenses 1,477,000 1,300,000
Long-term debt 37,000,000 --
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 9,041,000 8,351,000
Retained earnings 2,997,000 2,562,000
------------ -----------
Total liabilities and stockholders' equity $114,755,000 $28,375,000
============ ===========
</TABLE>
3
<PAGE> 4
AMERICA SERVICE GROUP INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Healthcare revenue $ 58,281,000 $ 27,632,000
Healthcare expenses 52,478,000 24,842,000
------------ ------------
Gross margin 5,803,000 2,790,000
Selling, general and administrative expenses 3,020,000 2,761,000
Depreciation and amortization 667,000 294,000
------------ ------------
Income (loss) from operations 2,116,000 (265,000)
Interest, net (1,024,000) 132,000
------------ ------------
Income (loss) before nonrecurring gain and taxes 1,092,000 (133,000)
MedPartners settlement -- 1,595,000
------------ ------------
Income before taxes 1,092,000 1,462,000
Provision for income taxes 612,000 --
------------ ------------
Net income 480,000 1,462,000
Preferred stock dividends 45,000 --
------------ ------------
Net income attributable to common shares $ 435,000 $ 1,462,000
============ ============
Net income per common share:
Basic $ 0.12 $ 0.41
============ ============
Diluted $ 0.12 $ 0.41
============ ============
Weighed average shares outstanding:
Basic 3,575,000 3,530,000
============ ============
Diluted 4,166,000 3,591,000
============ ============
</TABLE>
4
<PAGE> 5
AMERICA SERVICE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 480,000 $ 1,462,000
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 667,000 294,000
Accretion of subordinated notes 119,000 --
Changes in operating assets and liabilities, net of
effects from acquisition:
Accounts receivable (1,688,000) (2,179,000)
Prepaid expenses and other current assets (2,386,000) 507,000
Other assets (218,000) 2,000
Accounts payable 10,031,000 (503,000)
Accrued expenses (3,434,000) 1,154,000
Deferred revenue -- (1,410,000)
------------ -----------
Net cash provided by (used in) operating activities 3,571,000 (673,000)
Investing Activities:
Cash paid for acquisition, net of cash acquired (66,077,000) --
Capital expenditures (259,000) (129,000)
Change in short-term investments -- 566,000
Change in restricted investments -- (652,000)
------------ -----------
Net cash used in investing activities (66,336,000) (215,000)
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 (10,000,000) --
Exercise of stock options 31,000 247,000
------------ -----------
Net cash provided by financing activities 57,031,000 247,000
Net decrease in cash and cash equivalents (5,734,000) (641,000)
Cash and cash equivalents, beginning of period 7,211,000 3,445,000
------------ -----------
Cash and cash equivalents, end of period $ 1,477,000 $ 2,804,000
============ ===========
</TABLE>
5
<PAGE> 6
AMERICA SERVICE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. BASIS OF PRESENTATION
The interim consolidated financial statements as of March 31, 1999 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 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
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, 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 March 1998 Condensed
Consolidated Income Statement relating to the presentation of the MedPartners
Release and Settlement Agreement as discussed in Note 4. Specifically, $0.4
million of reimbursements relating to healthcare and lease costs are now
reflected in healthcare expenses and $0.7 million of costs and associated with
the failed merger are included in selling, general and administrative expenses.
The reclassifications increased the nonrecurring gain by $1.1 million to $1.6
million. 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
6
<PAGE> 7
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 will account 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 $52.0 million (the
"Credit Facility") through July 26, 1999, at which time availability is reduced
as defined within the Credit Facility 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 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 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:
7
<PAGE> 8
<TABLE>
<S> <C>
Healthcare revenue $68,009,000
Net income attributable to common shares 433,000
Net income per common share:
Basic $ 0.12
===========
Diluted $ 0.11
===========
</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.
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
8
<PAGE> 9
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.
RESULTS OF OPERATIONS
FIRST QUARTER MARCH 1999 VERSUS FIRST QUARTER MARCH 1998
Healthcare revenues for the quarter March 1999 increased to $58.3 million from
$27.6 million in the first quarter 1998. The $30.7 million increase is
attributable to both the acquisition of EMSA and an increase in inmate
population and automatic pricing adjustments of existing PHS contracts. Revenue
from EMSA was $28.4 million, while existing PHS contracts increased $2.3 million
or 8.3% as compared to March 1998.
Healthcare expenses during the first quarter 1999 were $52.5 million or 90.0% of
revenue versus $24.8 million or 89.9% of revenue for the same period in 1998.
The $27.7 million increase is mainly attributable to the EMSA acquisition.
Selling, general and administrative expenses for the quarter ended March 1999
increased $0.3 million as compared to March 1998, due to the additional costs
related to the EMSA acquisition. Selling, general and administrative expenses
for the quarter ended March 1998 include $0.7 million of costs to related the
failed merger with MedPartners. As a percent of revenue, selling, general and
administrative expenses are 5.2% for March 1999 versus 7.6% for March 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 $0.4 million to $0.7 million for March
1999. The increase is due to the amortization of cost in excess of net assets
relating to the EMSA acquisition, which is being amortized over twenty years.
Net interest expense of $1.0 million for March 1998 relates to the financing of
the EMSA acquisition through the Senior Revolving Credit Facility of $47.0
million and the $15.0 million
9
<PAGE> 10
Convertible Subordinated Notes. Interest expense of $1.1 million was offset by
$0.1 million of interest income.
Income taxes for March 1999 were $0.6 million, which equates to a 56.0%
effective tax rate. The significant effective rate is directly related to the
non-deductibility of interest related to the Convertible Subordinated Notes. The
March 1998 financial statements have no provision for income taxes due to the
utilization of income tax loss carryforwards.
The Company recorded a gain of $1.6 million in the first quarter of 1998 related
to the Settlement Agreement between the Company and MedPartners. As part of the
Settlement Agreement, the Company received payments totaling $2.2 million in
February and April 1998, of which $1.0 million reimbursed the Company for costs
directly associated with the terminated merger transaction. In addition to the
$1.2 million recognized from payments from MedPartners, an additional $0.4
million in employee healthcare and lease costs were reimbursed by MedPartners
for the quarter ended March 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments at March 31,
1999, were $1.5 million, compared with cash, cash equivalents and investments of
$7.2 million at December 31, 1998. Cash provided by operating activities during
the three months ended March 31, 1999 was $3.6 million compared to cash used in
operations of $.7 million for the comparable 1998 period. The overall increase
in cash from operating activities was due to the transitioning of corporate
finance during the first quarter, including processing of vendor and medical
claims invoices and accounts receivable. The transition delayed the processing
of both vendor and medical providers' claims, as well as billing and collections
of certain contracts' monthly base fees, whereby the net impact was to increase
cash. The decrease in cash is attributable to the paydown of $10.0 million of
the Senior Revolving Credit Facility offset by cash from operating activities.
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 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 and
10
<PAGE> 11
accounts receivable systems have been upgraded, tested and are in production.
Timekeeping software is currently being upgraded and is currently 87% complete.
The timekeeping upgrades will be completed by July 1, 1999. 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 a plan to inventory
its sites, contact vendors, analyze information provided and replace or modify
devices or equipment that will have a direct impact on patient safety and
health. The Company anticipates completion in all material respects of this
portion of its Year 2000 assessment program by July 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 July 31,
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 July 31, 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 July 31, 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 July 31, 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 April 27, 1999, the Company issued a press release discussing its
first 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
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 ended March 31,
1999 (for SEC use only)
27.2 Financial Data Schedule for the quarter ended March 31,
1998 (for SEC use only)
99.1 March 1999 Earnings Release
(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.
Dated: May 14, 1999 /s/ MICHAEL CATALANO
----------------------------------------
Michael Catalano
President & Chief Executive Officer
/s/ BRUCE A. TEAL
----------------------------------------
Bruce A. Teal
Senior Vice President & Chief Financial
Officer
13
<PAGE> 14
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, 1999
(for SEC use only)..................................................
27.2 Financial Data Schedule for the quarter ended March 31, 1998
(for SEC use only)..................................................
99.1 March 1999 Earnings Release.........................................
</TABLE>
14
<PAGE> 1
EXHIBIT 11.1
AMERICA SERVICE GROUP INC.
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Net income $ 480,000 $1,462,000
Preferred stock dividends 45,000 --
---------- ----------
Numerator for basic earnings
per share - net income available
to common share holders $ 435,000 $1,462,000
========== ==========
Denominator for basic earnings per
share - weighted average shares 3,575,000 3,530,000
Effect of dilutive securities 591,000 61,000
---------- ----------
Weighted average common shares
outstanding - diluted 4,166,000 3,591,000
========== ==========
Basic earnings per share $ 0.12 $ 0.41
========== ==========
Diluted earnings per share $ 0.12 $ 0.41
========== ==========
</TABLE>
15
<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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,477,000
<SECURITIES> 0
<RECEIVABLES> 55,138,000
<ALLOWANCES> (237,000)
<INVENTORY> 921,000
<CURRENT-ASSETS> 63,390,000
<PP&E> 6,683,000
<DEPRECIATION> (3,419,000)
<TOTAL-ASSETS> 114,755,000
<CURRENT-LIABILITIES> 57,362,000
<BONDS> 37,000,000
6,842,000
0
<COMMON> 36,000
<OTHER-SE> 12,038,000
<TOTAL-LIABILITY-AND-EQUITY> 114,755,000
<SALES> 58,281,000
<TOTAL-REVENUES> 58,281,000
<CGS> 52,478,000
<TOTAL-COSTS> 56,165,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,024,000
<INCOME-PRETAX> 1,092,000
<INCOME-TAX> 612,000
<INCOME-CONTINUING> 480,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 480,000
<EPS-PRIMARY> $0.12
<EPS-DILUTED> $0.12
</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>
<RESTATED>
<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
1,842,000
0
<COMMON> 36,000
<OTHER-SE> 6,472,000
<TOTAL-LIABILITY-AND-EQUITY> 28,704,000
<SALES> 27,632,000
<TOTAL-REVENUES> 27,632,000
<CGS> 24,842,000
<TOTAL-COSTS> 27,897,000
<OTHER-EXPENSES> (1,595,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (132,000)
<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
</TABLE>
<PAGE> 1
EXHIBIT 99.1
(America Service Group Inc. Logo)
N E W S R E L E A S E
FOR IMMEDIATE RELEASE
CONTACT: MICHAEL CATALANO BRUCE A. TEAL
PRESIDENT AND CHIEF EXECUTIVE OFFICER SR. VICE PRESIDENT AND CHIEF
(615) 376-1319 FINANCIAL OFFICER
(615) 376-1361
AMERICA SERVICE GROUP ANNOUNCES
FIRST QUARTER RESULTS
---------------------------------------------
EMSA ACQUISITION ACCRETIVE IN FIRST QUARTER
First Quarter Highlights:
- - EMSA transaction completed and accretive in first quarter
- - Covered inmates expanded by 115%
- - Bank debt reduced by $10 million, or 21%
NASHVILLE, Tennessee (April 27, 1999) -- America Service Group Inc.
(NASDAQ:ASGR) announced today that its first quarter results reflect record
levels of revenues and income from operations. The results include the Company's
acquisition of EMSA Government Services (EMSA), which was completed on January
26, 1999.
Healthcare revenue for the first quarter of 1999 was $58.3 million, up
111% from $27.6 million a year ago. Net income attributable to common shares,
before transitional expenses related to the EMSA acquisition, was $778,000, or
$0.19 per diluted share. This compares with net income, before nonrecurring gain
related to a settlement agreement with MedPartners, of $516,000, or $0.14 per
diluted share, for the first quarter of 1998. As reported, net income
attributable to common shares, including transitional expenses, was $435,000, or
$0.12 per share, for the first quarter ended March 31, 1999.
-MORE-
105 Westpark Drive - Suite 300 - Brentwood, TN 37027 - 615-373-3100 -
Fax 615-376-9862
<PAGE> 2
ASGR Announces First Quarter Results
Page 2
April 27, 1999
During the first quarter, healthcare expenses as a percent of revenue
were 90% versus 89.9% in the prior year, exclusive of the MedPartners settlement
impact. The Company immediately leveraged its corporate infrastructure, as
selling, general and administrative expenses improved from 7.6% of revenues in
the first quarter of 1998 to 5.2% of revenues in the first quarter of 1999.
"This has been a very productive and rewarding quarter," said Michael
Catalano, president and chief executive officer of America Service Group. "Our
integration of the EMSA acquisition is right on track. The reaction of EMSA
clients has been positive. Operating results met our expectations, and repayment
of bank debt is ahead of schedule. This early momentum should lead to a year of
added growth and value for our company."
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
AMERICA SERVICE GROUP INC.
FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
March 31, % of March 31, % of
CONSOLIDATED INCOME STATEMENT: 1999(1) Revenue 1998(2) Revenue
----------- -------- ---------- -------
<S> <C> <C> <C> <C>
Healthcare revenue $ 58,281 100.0 $ 27,632 100.0
Healthcare expenses 52,478 90.0 24,482 88.6
---------- -------- ---------- ------
Gross margin 5,803 10.0 3,150 11.4
Selling, general and administrative expenses 3,020 5.2 2,112 7.6
Depreciation and amortization 667 1.1 294 1.1
---------- -------- ----------- ------
Income from operations 2,116 3.7 744 2.7
Interest, net (1,024) (1.8) 132 0.5
---------- -------- ----------- ------
Income before nonrecurring gain and taxes 1,092 1.9 876 3.2
Nonrecurring gain -- -- 586 2.1
---------- -------- ----------- ------
Income before taxes 1,092 1.9 1,462 5.3
Provision for income taxes 612 1.1 -- --
---------- -------- ----------- ------
Net income 480 0.8 1,462 5.3
Preferred stock dividends 45 0.1 -- --
---------- -------- ----------- ------
Net income attributable to common shares $ 435 0.7 $ 1,462 5.3
========== ======== ========== ======
Net income per common share:
Basic $ 0.12 $ 0.41
========== ==========
Diluted $ 0.12 $ 0.41
========== ==========
Weighted average shares outstanding:
Basic 3,575 3,530
========== ==========
Diluted 4,166 3,591
========== ==========
Net income per common share, adjusted for charges(1)(2):
Basic $ 0.20 $ 0.15
========== ==========
Diluted $ 0.19 $ 0.14
========== ==========
</TABLE>
(1) Included in March 1999 operations are approximately $496,000 of transitional
expenses relating to the EMSA Government Services acquisition. The majority
of the $496,000 relates to salaries and bonuses which are not anticipated to
occur in the future. Exclusive of these transaction expenses, earnings would
have been $778,000, or $0.19 per dilutive share.
(2) March 1998 healthcare expenses exclude $360,000 of costs covered as part of
a settlement agreement with MedPartners, Inc. The $586,000 nonrecurring gain
is also related to the settlement. Exclusive of these "one-time" items,
March 1998 earnings would have been $516,000, or $0.14 per diluted share.
<TABLE>
<CAPTION>
March 31, Dec. 31,
CONSOLIDATED BALANCE SHEET: 1999 1998
------------- --------------
<S> <C> <C>
Cash and short-term investments $ 1,477 $ 7,211
Other current assets 63,045 17,588
------------- ------------
Current assets 64,522 24,799
Cost in excess of net assets acquired 48,080 --
Property and equipment, net 3,264 1,886
Other assets 2,168 1,690
------------- ------------
$ 118,034 $ 28,375
============= ============
Current liabilities(3) $ 60,641 $ 14,284
Other liabilities 1,477 1,300
Long-term debt 37,000 --
Stockholders' equity(4) 18,916 12,791
------------- ------------
$ 118,034 $ 28,375
============= ============
</TABLE>
(3) Includes $14,460,000 bridge loan which will be converted to redeemable
convertible preferred stock subsequent to shareholder approval.
(4 Stockholders' equity includes $1.8 million of redeemable common stock for
both March 1999 and December 1998 and $5.0 million of redeemable
convertible stock for March 1999.
-###-
