##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 OR
 o
    
    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.
  Delaware
    
    51-0332317(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 105 Westpark Drive, Suite 200Brentwood, Tennessee
    
    37027(Address of principal executive offices)
    
    (Zip Code)
 (615) 373-3100
 þ  ̈
  ̈  ̈
  Large Accelerated Filer o
Accelerated Filer þ
Non-Accelerated filer o(Do not check if a smaller reporting company)
Smaller Reporting Company o  ̈ þ




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##### 



AMERICA SERVICE GROUP INC.
 QUARTERLY REPORT ON FORM 10-Q
INDEX
 PageNumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008
    
    
    3Condensed Consolidated Statements of Income for the quarters and nine months ended
September 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    33PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    34Item 1A. Risk Factors
    
    
    38Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 3. Defaults Upon Senior Securities
    
    
    39Item 4. Submission of Matters to a Vote of Security Holders
    
    
    39Item 5. Other Information
    
    
    39Item 6. Exhibits
    
    
    40Signatures
    
    
    41EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I:
 FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 AMERICA SERVICE GROUP INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS  (shown in 000s except share and per share amounts)  (UNAUDITED)
 September 30,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    35,598
    
    
    $
    24,855Accounts receivable, net of allowance for doubtful accounts of $440 and $417, respectively
    
    
    50,938
    
    
    
    41,007Inventories
    
    
    2,848
    
    
    
    2,933Prepaid expenses and other current assets
    
    
    19,048
    
    
    
    12,987Current deferred tax assets
    
    
    4,994
    
    
    
    5,333Total current assets
    
    
    113,426
    
    
    
    87,115Property and equipment, net
    
    
    8,022
    
    
    
    6,442Goodwill
    
    
    40,772
    
    
    
    40,772Contracts, net
    
    
    2,007
    
    
    
    2,217Other intangibles, net
    
    
    
    
    
    
    154Other assets
    
    
    7,778
    
    
    
    5,183Total assets
    
    $
    172,005
    
    
    $
    141,883LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    17,475
    
    
    $
    19,570Accrued medical claims liability
    
    
    24,317
    
    
    
    14,743Accrued expenses
    
    
    47,375
    
    
    
    36,466Deferred revenue
    
    
    8,693
    
    
    
    8,052Total current liabilities
    
    
    97,860
    
    
    
    78,831Noncurrent portion of accrued expenses
    
    
    24,651
    
    
    
    17,146Noncurrent deferred tax liabilities
    
    
    2,587
    
    
    
    1,860Total liabilities
    
    
    125,098
    
    
    
    97,837Commitments and contingenciesStockholders equity:Preferred stock, $0.01 par value, 2,000,000 shares authorized at September 30, 2009 and
December 31, 2008; no shares issued or outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value, 20,000,000 shares authorized at September 30, 2009 and
December 31, 2008; 9,296,870 and 9,260,708 shares issued and outstanding at September 30,
2009 and December 31, 2008, respectively
    
    
    93
    
    
    
    93Additional paid-in capital
    
    
    37,855
    
    
    
    38,047Retained earnings
    
    
    8,959
    
    
    
    5,906Total stockholders equity
    
    
    46,907
    
    
    
    44,046Total liabilities and stockholders equity
    
    $
    172,005
    
    
    $
    141,883
 
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AMERICA SERVICE GROUP INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME  (shown in 000s except share and per share amounts)  (UNAUDITED)
 Quarter ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Healthcare revenues
    
    $
    159,848
    
    
    $
    125,145
    
    
    $
    446,850
    
    
    $
    368,846Healthcare expenses
    
    
    150,101
    
    
    
    113,607
    
    
    
    415,653
    
    
    
    338,295Gross margin
    
    
    9,747
    
    
    
    11,538
    
    
    
    31,197
    
    
    
    30,551Selling, general and administrative expenses
    
    
    6,591
    
    
    
    7,457
    
    
    
    21,251
    
    
    
    20,797Corporate restructuring expenses
    
    
    
    
    
    
    2,255
    
    
    
    
    
    
    
    2,255Audit Committee investigation and related expenses
    
    
    973
    
    
    
    99
    
    
    
    1,106
    
    
    
    157Depreciation and amortization
    
    
    662
    
    
    
    929
    
    
    
    1,959
    
    
    
    2,803Income from operations
    
    
    1,521
    
    
    
    798
    
    
    
    6,881
    
    
    
    4,539Interest, net
    
    
    28
    
    
    
    176
    
    
    
    148
    
    
    
    625Income from continuing operations before income tax provision
    
    
    1,493
    
    
    
    622
    
    
    
    6,733
    
    
    
    3,914Income tax provision
    
    
    649
    
    
    
    368
    
    
    
    2,891
    
    
    
    1,706Income from continuing operations
    
    
    844
    
    
    
    254
    
    
    
    3,842
    
    
    
    2,208Income (loss) from discontinued operations, net of taxes
    
    
    (128
    )
    
    
    94
    
    
    
    (324
    )
    
    
    473Net income
    
    $
    716
    
    
    $
    348
    
    
    $
    3,518
    
    
    $
    2,681Net income (loss) per common share  basic:Income from continuing operations
    
    $
    0.09
    
    
    $
    0.03
    
    
    $
    0.43
    
    
    $
    0.24Income (loss) from discontinued operations, net of taxes
    
    
    (0.01
    )
    
    
    0.01
    
    
    
    (0.04
    )
    
    
    0.05Net income
    
    $
    0.08
    
    
    $
    0.04
    
    
    $
    0.39
    
    
    $
    0.29Net income (loss) per common share  diluted:Income from continuing operations
    
    $
    0.09
    
    
    $
    0.03
    
    
    $
    0.42
    
    
    $
    0.24Income (loss) from discontinued operations, net of taxes
    
    
    (0.01
    )
    
    
    0.01
    
    
    
    (0.03
    )
    
    
    0.05Net income
    
    $
    0.08
    
    
    $
    0.04
    
    
    $
    0.39
    
    
    $
    0.29Weighted average common shares outstanding:Basic
    
    
    8,998,512
    
    
    
    9,130,847
    
    
    
    8,964,710
    
    
    
    9,168,474Diluted
    
    
    9,222,931
    
    
    
    9,157,367
    
    
    
    9,118,315
    
    
    
    9,187,720Dividends declared per share
    
    $
    0.05
    
    
    $
    
    
    
    $
    0.05
    
    
    $
    
 
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AMERICA SERVICE GROUP INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (shown in 000s)  (UNAUDITED)
 Nine months endedSeptember 30,2009
    
    

2008Cash flows from operating activities:Net income
    
    $
    3,518
    
    
    $
    2,681Adjustments to reconcile net income to net cash provided byoperating activities:Depreciation and amortization
    
    
    1,967
    
    
    
    2,834Loss on retirement of fixed assets
    
    
    31
    
    
    
    21Finance cost amortization
    
    
    106
    
    
    
    31Deferred income taxes
    
    
    1,209
    
    
    
    1,553Share-based compensation expense
    
    
    1,378
    
    
    
    2,295Excess tax benefits from share-based compensation expense
    
    
    (143
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (9,931
    )
    
    
    10,707Inventories
    
    
    85
    
    
    
    223Prepaid expenses and other current assets
    
    
    (6,061
    )
    
    
    (1,567
    )Other assets
    
    
    (2,699
    )
    
    
    2,124Accounts payable
    
    
    (2,095
    )
    
    
    (2,979
    )Accrued medical claims liability
    
    
    9,574
    
    
    
    (1,890
    )Accrued expenses
    
    
    18,414
    
    
    
    5,294Deferred revenue
    
    
    641
    
    
    
    (4,364
    )Net cash provided by operating activities
    
    
    15,994
    
    
    
    16,963Cash flows from investing activities:Capital expenditures
    
    
    (3,216
    )
    
    
    (2,204
    )Net cash used in investing activities
    
    
    (3,216
    )
    
    
    (2,204
    )Cash flows from financing activities:Share repurchases
    
    
    (3,570
    )
    
    
    (1,521
    )Restricted stock repurchased from employees for employees tax liability
    
    
    (177
    )
    
    
    Excess tax benefits from share-based compensation expense
    
    
    143
    
    
    
    Dividends on common stock
    
    
    (465
    )
    
    
    Issuance of common stock
    
    
    319
    
    
    
    235Exercise of stock options
    
    
    1,715
    
    
    
    32Net cash used in financing activities
    
    
    (2,035
    )
    
    
    (1,254
    )Net increase in cash and cash equivalents
    
    
    10,743
    
    
    
    13,505Cash and cash equivalents at beginning of period
    
    
    24,855
    
    
    
    8,969Cash and cash equivalents at end of period
    
    $
    35,598
    
    
    $
    22,474
 
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AMERICA SERVICE GROUP INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
 1. Basis of Presentation
   2. Description of Business
  3. Audit Committee Investigation
  6




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4. Recent Accounting Pronouncements
 Fair Value Measurement.
  Business Combinations.
 5. Share-Based Compensation
   Quarter and ninemonths endedSept. 30, 2008Volatility
    
    
    0.52Interest rate
    
    
    2.92
    %Expected life (years)
    
    
    4.18Dividend yields
    
    
    0.00
    %
  7




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Weighted Average
    
    Aggregate IntrinsicWeighted Average
    
    Remaining
    
    Value (inOptions
    
    Exercise Price
    
    Contractual Term
    
    thousands) (1)Outstanding, December 31, 2008
    
    
    1,177,011
    
    
    $
    17.26Granted
    
    
    
    
    
    
    Exercised
    
    
    (148,588
    )
    
    
    11.54Canceled
    
    
    (12,750
    )
    
    
    13.73Outstanding, September 30, 2009
    
    
    1,015,673
    
    
    $
    18.14
    
    
    
    5.16
    
    
    $
    1,580Exercisable, September 30, 2009
    
    
    965,673
    
    
    $
    18.56
    
    
    
    4.97
    
    
    $
    1,254
 
 (1)
    
    Based upon the difference between the closing market price of the Companys common stock on the last trading day of
the quarter and the exercise price of in-the-money options.  WeightedRestricted
    
    Average Grant-Shares
    
    Date Fair ValueNonvested, December 31, 2008
    
    
    231,390
    
    
    $
    12.68Granted
    
    
    132,700
    
    
    
    12.56Vested
    
    
    (55,020
    )
    
    
    11.41Forfeited
    
    
    (11,000
    )
    
    
    13.42Nonvested, September 30, 2009
    
    
    298,070
    
    
    $
    12.83
 6. Discontinued Operations
   Quarter ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Healthcare revenues
    
    $
    (62
    )
    
    $
    4,315
    
    
    $
    2,533
    
    
    $
    15,046Healthcare expenses
    
    
    154
    
    
    
    4,148
    
    
    
    3,072
    
    
    
    14,216Gross margin
    
    
    (216
    )
    
    
    167
    
    
    
    (539
    )
    
    
    830Depreciation and amortization
    
    
    
    
    
    
    8
    
    
    
    8
    
    
    
    31Income
(loss) from discontinued operations before taxes
    
    
    (216
    )
    
    
    159
    
    
    
    (547
    )
    
    
    799Income tax provision (benefit)
    
    
    (88
    )
    
    
    65
    
    
    
    (223
    )
    
    
    326Income (loss) from discontinued operations, net of taxes
    
    $
    (128
    )
    
    $
    94
    
    
    $
    (324
    )
    
    $
    473
 7. Fair Value of Financial Instruments
  8




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8. Accounts Receivable
  September 30,
    
    
    December 31,2009
    
    
    2008Billed accounts receivable
    
    $
    27,465
    
    
    $
    16,064Unbilled accounts receivable
    
    
    25,209
    
    
    
    24,126Other accounts receivable
    
    
    618
    
    
    
    2,92353,292
    
    
    
    43,113Less: Allowances
    
    
    (440
    )
    
    
    (417
    )52,852
    
    
    
    42,696Less: Receivables reclassified as noncurrent
    
    
    (1,914
    )
    
    
    (1,689
    )$
    50,938
    
    
    $
    41,007
     9. Prepaid Expenses and Other Current Assets
  September 30,
    
    
    December 31,2009
    
    
    2008Prepaid insurance
    
    $
    4,320
    
    
    $
    6,079Prepaid cash deposits for professional liability claims losses
    
    
    6,400
    
    
    
    6,130Insurance settlement receivable related to
shareholder litigation (see Note 18)
    
    
    7,554
    
    
    
    Prepaid performance bonds
    
    
    26
    
    
    
    110Prepaid other
    
    
    748
    
    
    
    668$
    19,048
    
    
    $
    12,987
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10. Property and Equipment
  September 30,
    
    
    December 31,
    
    
    Estimated2009
    
    
    2008
    
    
    Useful LivesLeasehold improvements
    
    $
    196
    
    
    $
    91
    
    
    5 yearsEquipment and furniture
    
    
    9,360
    
    
    
    8,342
    
    
    5 yearsComputer software
    
    
    4,471
    
    
    
    3,805
    
    
    3-5 yearsMedical equipment
    
    
    1,152
    
    
    
    1,101
    
    
    5 yearsAutomobiles
    
    
    62
    
    
    
    66
    
    
    5 yearsManagement information systems under development
    
    
    1,897
    
    
    
    712
    
    
    
    17,138
    
    
    
    14,117Less: Accumulated depreciation
    
    
    (9,116
    )
    
    
    (7,675
    )$
    8,022
    
    
    $
    6,442
   11. Other Assets
  September 30,
    
    
    December 31,2009
    
    
    2008Deferred financing costs
    
    $
    60
    
    
    $
    384Less: Accumulated amortization
    
    
    (2
    )
    
    
    (281
    )58
    
    
    
    103Estimated prepaid professional liability claims losses
    
    
    2,415
    
    
    
    Prepaid insurance deposits
    
    
    3,277
    
    
    
    3,277Noncurrent receivables
    
    
    1,914
    
    
    
    1,689Other refundable deposits
    
    
    114
    
    
    
    114$
    7,778
    
    
    $
    5,183
 12. Contracts and Other Intangible Assets
 The gross and net values of contracts and other intangible assets consist of the following (in
thousands):
 September 30,
    
    
    December 31,2009
    
    
    2008Contracts:Gross value
    
    $
    4,000
    
    
    $
    4,670Less: Accumulated amortization
    
    
    (1,993
    )
    
    
    (2,453
    )$
    2,007
    
    
    $
    2,217Other intangible assets:Gross value
    
    $
    
    
    
    $
    2,400Less: Accumulated amortization
    
    
    
    
    
    
    (2,246
    )$
    
    
    
    $
    154
  10




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13. Accrued Expenses
  September 30,
    
    
    December 31,2009
    
    
    2008Salaries and employee benefits
    
    $
    22,774
    
    
    $
    20,013Professional liability claims
    
    
    27,773
    
    
    
    22,033Accrued workers compensation claims
    
    
    7,261
    
    
    
    6,263Accrued loss contingency related to
shareholder litigation (see Note
18)
    
    
    8,000
    
    
    
    Other
    
    
    6,218
    
    
    
    5,30372,026
    
    
    
    53,612Less: Noncurrent portion of
professional liability and workers
compensation claims
    
    
    (24,651
    )
    
    
    (17,146
    )$
    47,375
    
    
    $
    36,466
 14. Reserve for Loss Contracts
    15. Banking Arrangements
   11




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16. Income Taxes
    12




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##### Table of Contents



17. Professional and General Liability Self-Insurance Retention
  18. Commitments and Contingencies
 Litigation and Claims
 Lysager Professional Liability Suit.
 13




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Andrew Berkowitz, M.D., Individually and on behalf of all others similarly situated v. Prison
Health Services, Inc. and City of Philadelphia.
 Saint Josephs Regional Medical Center v. Correctional Health Services, et al.
 Matters involving PHS and Baltimore County, Maryland.
  14




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Matters Related to the Audit Committee Investigation and Shareholder Litigation
  SEC and United States Attorney Informal Inquiries.
 Shareholder Litigation.
 15




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Delaware Department of Justice Inquiry
 16




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Other Matters
   Performance Bonds
  19. Net Income (Loss) Per Share
   Quarter ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Income from continuing operations
    
    $
    844
    
    
    $
    254
    
    
    $
    3,842
    
    
    $
    2,208Income (loss) from discontinued operations, net of taxes
    
    
    (128
    )
    
    
    94
    
    
    
    (324
    )
    
    
    473Numerator for basic and diluted net income per share
    
    $
    716
    
    
    $
    348
    
    
    $
    3,518
    
    
    $
    2,681Denominator:Denominator for basic net income (loss) per share 
weighted average shares
    
    
    8,998,512
    
    
    
    9,130,847
    
    
    
    8,964,710
    
    
    
    9,168,474Effect of dilutive securities:Employee stock options and restricted shares
    
    
    224,419
    
    
    
    26,520
    
    
    
    153,605
    
    
    
    19,246Denominator for diluted net income (loss) per share 
adjusted weighted average shares and assumed
conversions
    
    
    9,222,931
    
    
    
    9,157,367
    
    
    
    9,118,315
    
    
    
    9,187,720Net income (loss) per common share  basic:Income from continuing operations
    
    $
    0.09
    
    
    $
    0.03
    
    
    $
    0.43
    
    
    $
    0.24Income (loss) from discontinued operations, net of taxes
    
    
    (0.01
    )
    
    
    0.01
    
    
    
    (0.04
    )
    
    
    0.05Net income
    
    $
    0.08
    
    
    $
    0.04
    
    
    $
    0.39
    
    
    $
    0.29Net income (loss) per common share  diluted:Income from continuing operations
    
    $
    0.09
    
    
    $
    0.03
    
    
    $
    0.42
    
    
    $
    0.24Income (loss) from discontinued operations, net of taxes
    
    
    (0.01
    )
    
    
    0.01
    
    
    
    (0.03
    )
    
    
    0.05Net income
    
    $
    0.08
    
    
    $
    0.04
    
    
    $
    0.39
    
    
    $
    0.29
 17




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Quarter ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Options excluded from computation of diluted
income per share as effect would be anti-dilutive
    
    
    584,000
    
    
    
    1,044,262
    
    
    
    859,005
    
    
    
    1,097,174Weighted average exercise price of excluded options
    
    $
    22.02
    
    
    $
    18.25
    
    
    $
    19.55
    
    
    $
    17.85Restricted shares excluded from computation of
diluted income per share as effect would be
anti-dilutive
    
    
    19,000
    
    
    
    92,227
    
    
    
    11,236
    
    
    
    152,478
 20. Comprehensive Income
  21. Share Repurchases
  22. Subsequent Event
   18




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
    Forward-Looking Statements
  
    
    the Companys ability to retain existing client contracts and obtain new contracts at
acceptable pricing levels;
    
    whether or not government agencies continue to privatize correctional healthcare
services;
    
    risks arising from governmental budgetary pressures and funding;
    
    the possible effect of adverse publicity on the Companys business;
    
    increased competition for new contracts and renewals of existing contracts;
    
    risks arising from the possibility that the Company may be unable to collect accounts
receivable or that accounts receivable collection may be delayed;
    
    the Companys ability to limit its exposure for inmate medical costs, catastrophic
illnesses, injuries or medical malpractice claims in excess of amounts covered under
contracts or insurance coverage;
    
    the Companys ability to maintain and continually develop information technology and
clinical systems;
    
    the outcome or adverse development of pending litigation, including professional
liability litigation;
    
    the Companys determination whether to continue the payment of quarterly cash dividends,
and if so, at the current amount;
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
    
    the Companys determination whether to repurchase shares under its stock repurchase
program;
    
    the Companys dependence on key management and clinical personnel;
    
    risks arising from potential weaknesses or deficiencies in the Companys internal control
over financial reporting;
    
    risks associated with the possibility that the Company may be unable to satisfy covenants
under its credit facility;
    
    the risk that government or municipal entities (including the Companys government and
municipal customers) may bring enforcement actions against, seek additional refunds from, or
impose penalties on, the Company or its subsidiaries as a result of the matters investigated
by the Audit Committee in prior years or the previous restatement of the Companys financial
results;
    
    the Companys ability to expand its products beyond its traditional correctional health
client base; and
    
    risks arising from shareholder litigation.
  Critical Accounting Policies And Estimates
 General
  
    
    revenue (net of contractual allowances) and cost recognition (including the
estimated cost of off-site medical claims);
    
    cash and cash equivalents;
    
    allowance for doubtful accounts;
    
    loss contracts;
    
    professional and general liability self-insurance retention;
    
    other self-funded insurance reserves;
    
    legal contingencies;
    
    impairment of intangible assets and goodwill;
    
    amortizable life of contract intangibles;
    
    income taxes; and
    
    share-based compensation.
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##### Table of Contents



Revenue and Cost Recognition
       Percentage of Revenue fromContinuing OperationsFor the Nine Months
    
    For the Nine MonthsContract Category
    
    Ended Sept. 30, 2009
    
    Ended Sept. 30, 2008Fixed Fee
    
    
    13.1
    %
    
    
    15.1
    %Population Based
    
    
    63.1
    %
    
    
    58.6
    %Cost Plus a Fee
    
    
    23.8
    %
    
    
    26.3
    %
 21




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Cash and Cash Equivalents
  Allowance for Doubtful Accounts
  22




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Loss Contracts
    Professional and General Liability Self-Insurance Retention
  23




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Other Self-Funded Insurance Reserves
  24




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Legal Contingencies
   Impairment of Intangible Assets and Goodwill
   
    
    significant underperformance or loss of key contracts relative to expected
historical or projected future operating results;
    
    significant changes in the manner of use of the Companys assets or in the
Companys overall business strategy; and
    
    significant negative industry or economic trends.
    25




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##### Table of Contents



Amortizable Life of Contract Intangibles
  Income Taxes
       Share-Based Compensation
  26




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##### Table of Contents



Results of Operations
  Quarter ended
    
    Nine months endedSeptember 30,
    
    September 30,Percentage of Healthcare Revenues
    
    2009
    
    2008
    
    2009
    
    2008Healthcare revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Healthcare expenses
    
    
    93.9
    
    
    
    90.8
    
    
    
    93.0
    
    
    
    91.7Gross margin
    
    
    6.1
    
    
    
    9.2
    
    
    
    7.0
    
    
    
    8.3Selling, general and administrative expenses
    
    
    4.1
    
    
    
    6.0
    
    
    
    4.8
    
    
    
    5.6Corporate restructuring expenses
    
    
    
    
    
    
    1.8
    
    
    
    
    
    
    
    0.6Audit Committee investigation and related expenses
    
    
    0.6
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.1Depreciation and amortization
    
    
    0.4
    
    
    
    0.7
    
    
    
    0.4
    
    
    
    0.8Income from operations
    
    
    1.0
    
    
    
    0.6
    
    
    
    1.5
    
    
    
    1.2Interest, net
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Income from continuing operations before income tax
provision
    
    
    0.9
    
    
    
    0.5
    
    
    
    1.5
    
    
    
    1.1Income tax provision
    
    
    0.4
    
    
    
    0.3
    
    
    
    0.6
    
    
    
    0.5Income from continuing operations
    
    
    0.5
    
    
    
    0.2
    
    
    
    0.9
    
    
    
    0.6Income (loss) from discontinued operations, net of taxes
    
    
    (0.1
    )
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    0.1Net income
    
    
    0.4
    %
    
    
    0.3
    %
    
    
    0.8
    %
    
    
    0.7
    %
 Quarter Ended September 30, 2009 Compared to Quarter Ended September 30, 2008
 Healthcare revenues.
 Healthcare expenses.
 Selling, general and administrative expenses.
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##### Table of Contents



Audit Committee investigation and related expenses.
 Corporate Restructuring Expenses.
 Depreciation and amortization
 Interest, net
 Income tax provision.
 Income from continuing operations.
 Income (loss) from discontinued operations, net of taxes
 Net income.
 Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
 Healthcare revenues.
 Healthcare expenses.
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##### Table of Contents



Selling, general and administrative expenses.
 Audit Committee investigation and related expenses.
 Corporate Restructuring Expenses.
 Depreciation and amortization
 Interest, net
 Income tax provision.
 Income from continuing operations.
 Income (loss) from discontinued operations, net of taxes
 Net income.
 29




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##### Table of Contents



Liquidity and Capital Resources
 Overview
      Share Repurchases
   Dividends
   30




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Credit Facility
        31




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##### Table of Contents



Liquidity and Capital Resources Outlook
  Other Financing Transactions
   Off-Balance Sheet Transactions
  Recent Accounting Pronouncements
 Fair Value Measurement.
  Business Combinations.
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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
    33




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##### Table of Contents



PART II:
 OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Lysager Professional Liability Suit.
 Andrew Berkowitz, M.D., Individually and on behalf of all others similarly situated v. Prison
Health Services, Inc. and City of Philadelphia.
 Saint Josephs Regional Medical Center v. Correctional Health Services, et al.
 34




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##### Table of Contents



Matters involving PHS and Baltimore County, Maryland.
    35




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##### Table of Contents



Matters Related to the Audit Committee Investigation and Shareholder Litigation
  SEC and United States Attorney Informal Inquiries.
 Shareholder Litigation.
    36




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##### Table of Contents



Delaware Department of Justice Inquiry
 Other Matters.
  37




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##### Table of Contents



ITEM 1A. RISK FACTORS
  The Company has not established a minimum dividend payment level for its common stockholders
and there are no assurances of the Companys ability to pay dividends to common stockholders in the
future.
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##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  (d) Maximum Number(or Approximate(c) Total Number of
    
    Dollar(a) Total of
    
    
    
    
    
    Shares Purchased
    
    Value) of shares thatNumber of
    
    (b) Average
    
    as Part of Publicly
    
    May Yet Be PurchasedShares
    
    Price Paid
    
    Announced Plans or
    
    Under the Plans orPeriod
    
    Purchased (1)
    
    per Share
    
    Programs
    
    Programs (2)July 2009 (7/1/09
to 7/31/09)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    August 2009 (8/1/09
to 8/31/09)
    
    
    61,884
    
    
    $
    17.40
    
    
    
    51,600
    
    
    $
    9,056September 2009
(9/1/09 to 9/30/09)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 
 (1)
    
    On August 3, 2009, the Company purchased 10,284 shares from
employees to satisfy the employees tax liability relating to
the vesting of restricted stock.(2)
    
    On February 27, 2008, the Companys Board of Directors approved a stock repurchase
program to repurchase up to $15 million of the Companys common stock through the end of 2009. On
July 28, 2009, the Companys Board of Directors authorized the extension of this program by two
years through the end of 2011, while maintaining the total $15 million limit. As of September 30,
2009, the Company has repurchased and retired a total of 508,350 shares of common stock under the
stock repurchase program at an aggregate cost of approximately $5.9 million. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS
 3.1 
    
    Amended and Restated Certificate of Incorporation of America Service Group Inc.
(incorporated herein by reference to Exhibit 3.1 to the Companys Quarterly Report on Form
10-Q for the three month period ended June 30, 2002).3.2 
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation of America
Service Group Inc. (incorporated herein by reference to Exhibit 3.4 to the Companys Quarterly
Report on Form 10-Q for the three month period ended June 30, 2004).3.3  
    
    Amended and Restated By-Laws of America Service Group Inc. (incorporated herein by
reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed on March 3, 2009).4.1  
    
    Specimen Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the
Companys Quarterly Report on Form 10-Q for the three month period ended June 30, 2002).4.2  
    
    Certificate of Designation of the Series A Convertible Preferred Stock (incorporated
herein by reference to Exhibit 99.3 to the Companys Current Report on Form 8-K filed on
February 10, 1999).10.1  
    
    Revolving Credit and Security Agreement dated July 28, 2009 between America Service Group
Inc., a Delaware corporation, Prison Health Services, Inc., a Delaware corporation, Prison
Health Services of Indiana, LLC, an Indiana limited liability company, Secure Pharmacy Plus,
LLC, a Tennessee limited liability company, Correctional Health Services, LLC, a New Jersey
limited liability company, and CapitalSource Bank, a California industrial bank, as lender and
collateral and administrative agent (incorporated herein by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on July 29, 2009).10.2  
    
    Form of August 2009 Employee Stock Grant Certification under the America Service Group
Inc. 2009 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on August 11, 2009).11  
    
    Computation of Per Share Earnings.*31.1  
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2  
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1  
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2  
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Data required by U.S. GAAP related to earnings per share is provided in Note 19 to the condensed
consolidated financial statements in this report. 40




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SIGNATURES
  AMERICA SERVICE GROUP INC./s/ RICHARD HALLWORTHRichard HallworthPresident & Chief Executive Officer
(Duly Authorized Officer) /s/ MICHAEL W. TAYLORMichael W. TaylorExecutive Vice President & Chief Financial Officer
(Principal Financial Officer)  41