America Service Group Announces Second Quarter Results; Company Announces Special Charges; Corrective Action Initiated.Health/Medical Writers & Business Editors NASHVILLE Nashville, city (1990 pop. 487,969), state capital, coextensive with Davidson co., central Tenn., on the Cumberland River, in a fertile farm area; inc. as a city 1806, merged with Davidson co. 1963. , Tenn.--(BW HealthWire)--July 26, 2001 America Service Group Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :ASGR ASGR America Service Group Inc. ASGR Armed Services Graves Registration Office ) announced today results for the second quarter and six months ended June 30, 2001. During the second quarter, the Company recorded special charges and reported increased healthcare expenses. Commenting on second quarter results, Michael Catalano, chairman, president and chief executive officer of America Service Group, said, "After two years of substantial growth, the Company encountered a significant number of issues during the second quarter. However, we have a management team with a track record for successfully meeting industry challenges, and we have developed a corrective cor·rec·tive adj. Counteracting or modifying what is malfunctioning, undesirable, or injurious. n. An agent that corrects. corrective, n course of action focused on a return to predictable financial results. We anticipate that the successful implementation of this course of action will result in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become in the range of $4 million for both the third and fourth quarters of this year." Specifically, the Company has implemented a comprehensive program to upgrade its contract portfolio and achieve reasonable rates, which reflect the current cost of providing healthcare services. To the extent possible, contracts are renewed and new contracts are bid with risk-sharing models. In all other cases, contract prices will adequately reflect the risks assumed. Additional emphasis has been placed on nurse recruiting to avoid staffing penalties, overtime, and the use of temporary personnel. The Company's Regional Medical Directors conduct daily reviews of all inpatient inpatient /in·pa·tient/ (in´pa-shent) a patient who comes to a hospital or other health care facility for diagnosis or treatment that requires an overnight stay. in·pa·tient n. stays. Weekly off-site utilization data and pharmacy pharmacy, art of compounding and dispensing drugs and medication. The term is also applied to an establishment used for such purposes. Until modern times medication was prepared and dispensed by the physician himself. In the 18th cent. costs reports are also provided for better clinical management of these areas. The Company's second quarter financial results include pre-tax special charges of $22.2 million related to increased reserves for medical claims ($6.0 million), legal and malpractice insurance Noun 1. malpractice insurance - insurance purchased by physicians and hospitals to cover the cost of being sued for malpractice; "obstetricians have to pay high rates for malpractice insurance" exposures ($1.7 million), the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of goodwill ($13.2 million), and continuing transaction costs Transaction Costs Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). related to certain strategic initiatives ($1.3 million). During the second quarter, the Company recorded an after-tax loss of $18.4 million, or $3.39 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared with net income of $1.8 million, or $0.33 per diluted share, for the prior year quarter. For the six months ended June 30, 2001, the after-tax loss was $16.0 million, or $3.14 per diluted share, compared with net income of $3.5 million, or $0.65 per diluted share, for the prior year six-month period. Healthcare revenues for the second quarter of 2001 were $140.8 million, a 57.5% increase from $89.4 million in the prior year quarter, and $278.7 million for the six months ended June 30, 2001, a 68.3% increase from $165.6 million in the prior year six-month period. Revenue growth was generated by three acquisitions during the prior year and several new contract awards started between July 1, 2000 and June 30, 2001. Exclusive of special charges, healthcare expenses, as a percent of revenue, were 99.7% for the second quarter compared with 90.5% for the prior year quarter and 95.8% for the six months ended June 30, 2001 compared with 90.3% for the prior year six-month period. The spike A burst of extra voltage in a power line that lasts only a few nanoseconds. See power surge, power swell, sag and surge suppression. (jargon) spike - To defeat a selection mechanism by introducing a (sometimes temporary) device that forces a specific result. in healthcare expenses is attributable to increasing reserves for current year's medical claims and substantial costs increases in the areas of salaries, pharmacy and off-site utilization for certain of the larger state and city contracts. In particular, the Company will continue to be affected by higher costs due to nursing shortages. Excluding special charges, selling, general and administrative expenses, as a percentage of revenue, was 3.3% for the second quarter compared with 3.5% for the prior year quarter and 3.2% for the six months ended June 30, 2001 compared with 3.9% for the prior year six-month period. Exclusive of special charges, earnings before interest, taxes, depreciation and amortization Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability.
During the second quarter of 2001, the Company recorded a charge of $6.0 million to strengthen its accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. for medical claim expenses due to adverse development on prior years' medical claims. This charge was primarily the result of updated information showing actual utilization and cost data for inpatient and outpatient services outpatient services Hospital-based services Managed care Medical and other services provided, to a nonadmitted Pt, by a hospital or other qualified facility–eg, mental health clinic, rural health clinic, mobile X-ray unit, free-standing dialysis unit Examples were higher than the historical levels upon which the original estimate was based. The increase in the reserve was 12% of total medical claims with 2000 service dates. Also, the Company expensed $1.3 million of continuing transaction costs during the second quarter related to certain strategic initiatives. Additionally, the Company recognized approximately $1.7 million in legal and other charges. These charges are primarily related to an insurance carrier that provides malpractice malpractice, failure to provide professional services with the skill usually exhibited by responsible and careful members of the profession, resulting in injury, loss, or damage to the party contracting those services. coverage for the Company during the years 1992-1997 that has applied for receivership receivership In law, state of being in the hands of a receiver, a person appointed by the court to administer, conserve, rehabilitate, or liquidate the assets of an insolvent corporation for the protection or relief of creditors. under state regulatory authorities Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities . The Company currently provides services under two contracts for the Eastern and Western Regions of the Pennsylvania Pennsylvania (pĕnsəlvā`nyə), one of the Middle Atlantic states of the United States. It is bordered by New Jersey, across the Delaware River (E), Delaware (SE), Maryland (S), West Virginia (SW), Ohio (W), and Lake Erie and New York Department of Corrections. Another vendor has been selected to negotiate a contract for these services. The Company anticipates operations will cease under the Western Region contract, with annual revenues of approximately $25.5 million, on October 1, 2002, and under the Eastern Region contract, with annual revenues of approximately $28.4 million, on December 31, 2002. The Company also currently provides services under a contract with the Yonkers Region of the New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of State Department of Corrections. It is anticipated that the Company will cease operations under the Yonkers Region contract, with annual revenues of approximately $14.8 million, on May 31, 2002, as the services are to be assumed by the client under circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or applicable to other vendors operating under similar regional contracts. The Company acquired the contracts for the Eastern Region of Pennsylvania and for the Yonkers Region of New York through the acquisition of certain assets of Correctional Physician Services, Inc. (CPS (1) (Characters Per Second) The measurement of the speed of a serial printer or the speed of a data transfer between hardware devices or over a communications channel. CPS is equivalent to bytes per second. ) in March 2000. Due to the anticipated expiration EXPIRATION. Cessation; end. As, the expiration of, a lease, of a contract, or statute. 2. In general, the expiration of a contract puts an end to all the engagements of the parties, except to those which arise from the non- fulfillment of obligations created of these contracts, the Company wrote off $13.2 million, $8.3 million after tax, during the second quarter, representing goodwill that was recorded in connection with this acquisition. This charge will have no impact on operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. . As a result of the special charges discussed in this press release, the Company has obtained a waiver The voluntary surrender of a known right; conduct supporting an inference that a particular right has been relinquished. The term waiver is used in many legal contexts. of certain financial covenants contained in its senior credit agreement. The Company is working with its banks to obtain a permanent amendment to its credit agreement. In addition, the Company currently provides services under four contracts in Florida, with combined annual revenues of approximately $33.0 million. Another vendor has been selected to perform contracts for these services. It is presently anticipated that the Company will cease operations under these contracts on or about October 1, 2001. This year, the Company has been selected to renew several existing contracts with annual revenues of approximately $38.5 million. It is not anticipated that the Company will have any contract with annual revenues in excess of $7.0 million up for rebid re·bid v. re·bid, re·bid·den or re·bid, re·bid·ding, re·bids v.tr. 1. Games To bid (a previously bid suit) again in bridge. 2. through December 2002. Also this year, the Company has been awarded several new contracts with annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. revenues of approximately $18 million. A listen-only simulcast and 30-day replay of a conference call to discuss this press release will be available online at www.asgr.com, or www.streetevents.com on July 27, 2001, beginning at 9:00 a.m. Eastern time. America Service Group Inc., based in Brentwood, Tennessee Brentwood is a city in Williamson County, Tennessee, United States. The population was 23,445 as of the U.S. Census Bureau's 2000 census, and as of 2007, Brentwood's population has increased to over 30,000. Brentwood is an affluent Nashville suburb. , is the leading provider of correctional healthcare services in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . America Service Group Inc., through its subsidiaries, provides a wide range of healthcare and pharmacy programs for approximately 340,000 inmates. The Company employs over 7,000 medical, professional and administrative staff nationwide. This press release may contain "forward-looking" statements made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. As such, they involve risk and uncertainty that actual results may differ materially from those projected in the forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . 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.
AMERICA SERVICE GROUP INC.
Financial Highlights
(In thousands, except per share data)
Three Months Ended
June 30, % of June 30, % of
2001 Revenue 2000 Revenue
Consolidated Income Statement:
Healthcare revenue $ 140,779 100.0 $ 89,449 100.0
Healthcare expenses(1) 146,711 104.2 80,964 90.5
--------- ------- --------- -------
Gross margin (5,932) (4.2) 8,485 9.5
Selling, general and
administrative
expenses (2) 7,251 5.2 3,169 3.5
Write-down of
intangible assets 13,236 9.4 -- 0.0
Depreciation
and amortization 1,960 1.4 1,403 1.6
--------- ------- --------- -------
Income (loss)
from operations (28,379) (20.2) 3,913 4.4
Interest, net 1,237 0.8 891 1.0
--------- ------- --------- -------
Income (loss)
before taxes (29,616) (21.0) 3,022 3.4
Provision (benefit)
for income taxes (11,237) (8.0) 1,207 1.4
--------- ------- --------- -------
Net income (loss) (18,379) (13.0) 1,815 2.0
Preferred stock
dividends -- 0.0 161 0.2
--------- ------- --------- -------
Net income (loss)
attributable to
common shares $ (18,379) (13.0) 1,654 1.8
========= ======= ========= =======
Net income (loss) per common share:
Basic $ (3.39) $ 0.44
Diluted $ (3.39) $ 0.33
========= =========
Weighted average shares outstanding:
Basic 5,420 3,737
Diluted 5,420 5,510
========= =========
Six Months Ended
June 30, % of June 30, % of
2001 Revenue 2000 Revenue
Healthcare revenue $ 278,720 100.0 $ 165,618 100.0
Healthcare
expenses (1) 273,309 98.1 149,590 90.3
--------- ------- --------- -------
Gross margin 5,411 1.9 16,028 9.7
Selling, general and
administrative
expenses (2) 11,393 4.1 6,410 3.9
Write-down of
intangible assets 13,236 4.7 -- 0.0
Depreciation and
amortization 3,943 1.4 2,348 1.4
--------- ------- --------- -------
Income (loss)
from operations (23,161) (8.3) 7,270 4.4
Interest, net 2,525 0.9 1,421 0.8
--------- ------- --------- -------
Income (loss)
before taxes (25,686) (9.2) 5,849 3.5
Provision (benefit)
for income taxes (9,645) (3.5) 2,339 1.4
--------- ------- --------- -------
Net income (loss) (16,041) (5.7) 3,510 2.1
Preferred stock
dividends 163 0.0 324 0.2
--------- ------- --------- -------
Net income (loss)
attributable to
common shares $ (16,204) (5.7) $ 3,186 1.9
========= ======= ========= =======
Net income (loss) per common share:
Basic $ (3.14) $ 0.85
Diluted $ (3.14) $ 0.65
========= =========
Weighted average shares outstanding:
Basic 5,153 3,732
Diluted 5,153 5,428
========= =========
AMERICA SERVICE GROUP INC.
Financial Highlights
(In thousands, except per share data)
Condensed Consolidated Balance Sheet: June 30, Dec. 31,
2001 2000
Current assets $ 92,961 $ 74,376
Intangible assets, net 61,712 77,285
Property and equipment, net, and other assets 14,774 9,741
-------- --------
$169,447 $161,402
Liabilities and debt $144,012 $120,040
Stockholders' equity(3) 25,435 41,362
-------- --------
$169,447 $161,402
(1) Includes $6.4 million of Special Charges related to the
strengthening of reserves for medical claims and other costs.
(2) Includes $2.6 million of Special Charges related to the expense of
strategic transaction costs and other costs.
(3) Includes $12.4 million of redeemable preferred stock as of
December 31, 2000. On February 5, 2001, all of the redeemable
preferred stock was converted into approximately 1.3 million
shares of common stock.
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