EX-99.1
2
a5348199-ex991.txt
EXHIBIT 99.1

                                                                    EXHIBIT 99.1



  America Service Group Announces Fourth Quarter and Year-End Results

    Announces Intent to Sell Certain Assets of Secure Pharmacy Plus


    BRENTWOOD, Tenn.--(BUSINESS WIRE)--March 5, 2007--America
Service Group Inc. (NASDAQ:ASGR):

    Highlights:

    --  Gross margin of $10.3 million in the quarter as compared with
        $7.1 million in the prior year quarter

    --  Charge taken for impairment of goodwill of pharmacy segment of
        $3.0 million

    --  Adjusted EBITDA of $3.0 million in the quarter as compared
        with $2.8 million in the prior year quarter

    --  Net cash provided by operating activities of $25.3 million in
        2006 as compared with net cash used in operating activities of
        $10.6 million in the prior year

    America Service Group Inc. (NASDAQ:ASGR) announced today results
for the fourth quarter and year ended December 31, 2006, and its
intent to sell certain assets of Secure Pharmacy Plus, LLC (SPP), a
wholly owned subsidiary.

    Commenting on today's announcement, Michael Catalano, chairman,
president and chief executive officer of America Service Group, said,
"We entered 2006 with the commitment to address clearly defined
challenges that had adversely affected the financial performance of
the Company. In July, the Wyoming contract was renewed upon mutually
agreeable terms. In November, losses under the Florida DOC Region IV
contract stopped after the Company acted to end the contract. In
January 2007, the Company entered into a new, innovative, cost-plus
contract with the Vermont DOC. Hopefully, at the end of the first
quarter, the Company will have a new strategic relationship with a
preeminent correctional pharmacy services company. As we addressed
these challenges, the Company produced $25 million in cash flow from
operations. In the fourth quarter, the Company produced Adjusted
EBITDA from continuing operations of $3.0 million, which, should be
noted, included the impact of the negative $2.1 million of gross
margin related to discontinued contracts. The Company ended the year
with more cash than debt, positive working capital and the ability to
leverage its balance sheet to grow the Company and enhance shareholder
value."

    FAS 144 Impact on Income Statement Presentation Format

    As noted in its 2005 annual report on Form 10-K, the Company is
applying the discontinued operations provisions of Financial
Accounting Standards Board Statement of Financial Accounting Standards
No. 144 ("FAS 144") to all service contracts that expire subsequent to
January 1, 2002. FAS 144 requires the Company to follow the income
statement presentation format described in FAS 144. The results of
operations of contracts that expire, less applicable income taxes, are
classified on the Company's consolidated statements of operations
separately from continuing operations. The presentation prescribed for
discontinued operations requires the collapsing of healthcare revenues
and expenses, as well as other specifically identifiable costs, into
the income or loss from discontinued operations, net of taxes. Items
such as indirect selling, general and administrative expenses or
interest expense cannot be allocated to expired contracts. The
application of the FAS 144 accounting presentation to expired
contracts has no impact on net income, earnings per share, total cash
flows or stockholders' equity.

    As a result of the application of FAS 144, "healthcare revenues"
and "healthcare expenses" on the Company's consolidated statements of
operations for any period presented will only include revenues and
expenses from continuing contracts. The Company will also discuss
"Total Revenues," "Total Healthcare Expenses," and "Total Gross
Margin," which will include all of the Company's revenues and
healthcare expenses for a period (i.e., healthcare revenues plus
revenues from expired service contracts, or healthcare expenses plus
expenses from expired contracts less share-based compensation
expense). Total Gross Margin is defined as Total Revenues less Total
Healthcare Expenses. Total Gross Margin excludes loss contract reserve
utilization and share-based compensation expense. Reconciliations of
healthcare revenues to Total Revenues, healthcare expenses to Total
Healthcare Expenses and gross margin to Total Gross Margin are found
in the attached schedules.

    Results for Fourth Quarter and Year Ended December 31, 2006

    Healthcare revenues from continuing contracts for the fourth
quarter of 2006 were $149.7 million, an increase of 4.7% over the
prior year quarter. Healthcare revenues from continuing contracts for
the year ended December 31, 2006, were $569.4 million, an increase of
5.5% over the prior year period. Total Revenues, which includes
revenues from continuing and discontinued contracts, for the fourth
quarter of 2006 were $160.6 million, an increase of 7.2% over the
prior year quarter. Total Revenues for the year ended December 31,
2006, were $649.8 million, an increase of 0.1% compared with the prior
year period.

    Healthcare expenses from continuing contracts for the fourth
quarter of 2006 were $139.4 million, or 93.1% of healthcare revenues,
as compared with $135.9 million, or 95.0% of healthcare revenues, in
the prior year quarter. Healthcare expenses from continuing contracts
for the year ended December 31, 2006, were $530.2 million, or 93.1% of
healthcare revenues, as compared with $506.4 million, or 93.9% of
healthcare revenues, in the prior year period. Included in healthcare
expenses from continuing contracts is share-based compensation expense
of $112,000 and $436,000 for the fourth quarter of 2006 and the year
ended December 31, 2006, respectively. Healthcare expenses from
continuing operations were negatively impacted in the fourth quarter
by legal and other expenses related to union negotiations and a
potential labor strike, which was subsequently averted, in Alameda
County, California, ($499,000), and slightly higher losses than
anticipated ($355,000) at SPP. Total Healthcare Expenses, which
includes expenses from continuing and discontinued contracts and
excludes share-based compensation expense, for the fourth quarter of
2006 were $152.3 million, or 94.8% of Total Revenues, as compared with
$142.1 million, or 94.9% of Total Revenues, in the prior year quarter.
Total Healthcare Expenses for the year ended December 31, 2006, were
$614.5 million, or 94.6% of Total Revenues, as compared with
$612.8 million, or 94.4% of Total Revenues, in the prior year period.

    Gross margin from continuing contracts for the fourth quarter of
2006 was $10.3 million, or 6.9% of healthcare revenues, as compared
with $7.1 million, or 5.0% of healthcare revenues, in the prior year
quarter. Gross margin from continuing contracts for the year ended
December 31, 2006, was $39.2 million, or 6.9% of healthcare revenues,
as compared with $33.1 million, or 6.1% of healthcare revenues, in the
prior year period. Reducing gross margin from continuing contracts is
share-based compensation expense of $112,000 and $436,000 for the
fourth quarter of 2006 and the year ended December 31, 2006,
respectively. Total Gross Margin, which includes continuing and
discontinued contracts and excludes share-based compensation expense,
for the fourth quarter of 2006 was $8.3 million, or 5.2% of Total
Revenues, as compared with $7.7 million, or 5.1% of Total Revenues, in
the prior year quarter. Total Gross Margin for the year ended December
31, 2006, was $35.2 million, or 5.4% of Total Revenues, as compared
with $36.5 million, or 5.6% of Total Revenues, in the prior year
period.

    Selling, general and administrative expenses for the fourth
quarter of 2006 were $6.4 million, or 4.4% of healthcare revenues, as
compared with $4.9 million, or 3.4% of healthcare revenues, in the
prior year quarter. Selling, general and administrative expenses for
the year ended December 31, 2006, were $25.0 million, or 4.4% of
healthcare revenues, as compared with $18.1 million, or 3.4% of
healthcare revenues, in the prior year period. Included in selling,
general and administrative expenses is share-based compensation
expense of $1.1 million and $3.8 million for the fourth quarter of
2006 and the year ended December 31, 2006, respectively. Selling,
general and administrative expenses, excluding share-based
compensation expense, as a percentage of Total Revenues for the fourth
quarter of 2006 were 3.3%, consistent with the prior year quarter.
Selling, general and administrative expenses, excluding share-based
compensation expense, as a percentage of Total Revenues for the year
ended December 31, 2006, were 3.3%, as compared with 2.8%, in the
prior year period.

    As of December 31, 2006, the Company performed its annual goodwill
impairment analysis as required by Statement of Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 142
and recorded a non-cash impairment charge related to its
pharmaceutical distribution services segment of $3.0 million to
write-off the carrying value of goodwill. The impairment charge was
attributable to a decrease in the segment's estimated fair value
resulting from a decline in volume occurring primarily in the fourth
quarter of 2006 and an indication of value of this segment based on a
proposed independent third party transaction as described below.

    Expenses related to the Audit Committee investigation into certain
matters at SPP, the findings of which were reported on March 15, 2006,
for the fourth quarter of 2006 were $340,000, as compared with
$3.3 million in the prior year quarter. Audit Committee investigation
and related expenses for the year ended December 31, 2006, were $5.3
million, as compared with $3.7 million in the prior year period.

    Adjusted EBITDA for the fourth quarter of 2006 was $3.0 million,
as compared with $2.8 million in the prior year quarter. Adjusted
EBITDA for the year ended December 31, 2006, was $14.1 million, as
compared with $18.4 million in the prior year period. As reflected in
the attached schedule, the Company defines Adjusted EBITDA as earnings
before interest expense, late fee income, income taxes, depreciation,
amortization, increases or decreases in reserves for loss contracts,
discontinued acquisition expenses, Audit Committee investigation
expenses, impairment of goodwill and share-based compensation expense.
The Company includes in Adjusted EBITDA the results of discontinued
operations under the same definition. The negative gross margin
generated by discontinued contracts of $2.1 million in the fourth
quarter of 2006 and $4.4 million for the year ended December 31, 2006,
significantly impacted Adjusted EBITDA results.

    Depreciation and amortization expense for the fourth quarter of
2006 was $1.1 million, as compared with $965,000 in the prior year
quarter. Depreciation and amortization expense for the year ended
December 31, 2006, was $4.1 million, as compared with $4.0 million in
the prior year period.

    The loss from operations for the fourth quarter of 2006 was
$571,000, as compared with $2.1 million in the prior year quarter.
Income from operations for the year ended December 31, 2006, was $1.7
million, as compared with $6.7 million in the prior year period.
Negatively impacting the current year results is the $3.0 million
impairment of goodwill in the fourth quarter, the $4.3 million of
share-based compensation expense ($1.2 million in the fourth quarter)
and the $5.3 million of Audit Committee investigation and related
expenses ($340,000 in the fourth quarter). Negatively impacting the
prior year results is $658,000 of discontinued acquisition expenses
(none of which was in the fourth quarter of 2005) and $3.7 million of
Audit Committee investigation and related expenses ($3.3 million in
the fourth quarter of 2005).

    Net interest expense for the fourth quarter of 2006 was $386,000,
as compared with $371,000 in the prior year quarter. Net interest
expense for the year ended December 31, 2006, was $1.9 million, as
compared with $1.2 million in the prior year period.

    The loss from continuing operations before income taxes for the
fourth quarter of 2006 was $957,000, as compared with $2.4 million in
the prior year quarter. The loss from continuing operations before
income taxes for the year ended December 31, 2006, was $255,000, as
compared with income from continuing operations before income taxes of
$5.7 million in the prior year period. Negatively impacting the
current year results is the $3.0 million impairment of goodwill in the
fourth quarter, the $4.3 million of share-based compensation expense
($1.2 million in the fourth quarter) and the $5.3 million of Audit
Committee investigation and related expenses ($340,000 in the fourth
quarter). Negatively impacting the prior year results is $658,000 of
discontinued acquisition expenses (none of which was in the fourth
quarter of 2005) and $3.7 million of Audit Committee investigation and
related expenses ($3.3 million in the fourth quarter of 2005),
partially offset by the positive impact of $249,000 of late fee income
(none of which was in the fourth quarter of 2005).

    The income tax provision for the fourth quarter of 2006 was $1.1
million, as compared with an income tax benefit of $947,000 in the
prior year quarter. The income tax provision for the year ended
December 31, 2006, was $437,000, as compared with $2.5 million in the
prior year period. The income tax provision for the year ended
December 31, 2006, is due to the impact of non-deductible expenses and
the revision of prior year tax estimates upon completion of the
related tax returns.

    The loss from continuing operations for the fourth quarter of 2006
was $2.1 million, as compared with $1.5 million in the prior year
quarter. The loss from continuing operations for the year ended
December 31, 2006, was $692,000, as compared with income from
continuing operations of $3.2 million in the prior year period.
Negatively impacting the current year results is the pre-tax
$3.0 million impairment of goodwill in the fourth quarter, the pre-tax
$4.3 million of share-based compensation expense ($1.2 million in the
fourth quarter) and the pre-tax $5.3 million of Audit Committee
investigation and related expenses ($340,000 in the fourth quarter).
Negatively impacting the prior year results is the pre-tax $658,000 of
discontinued acquisition expenses (none of which was in the fourth
quarter of 2005) and the pre-tax $3.7 million of Audit Committee
investigation and related expenses ($3.3 million in the fourth quarter
of 2005), partially offset by the positive impact of the pre-tax
$249,000 of late fee income (none of which was in the fourth quarter
of 2005).

    The loss from discontinued operations, net of taxes, for the
fourth quarter of 2006 was $755,000, as compared with income from
discontinued operations, net of taxes, of $301,000 in the prior year
quarter. The loss from discontinued operations, net of taxes, for the
year ended December 31, 2006, was $2.7 million, as compared with
income from discontinued operations, net of taxes, of $1.2 million in
the prior year period. Negatively impacting the prior year results is
the pre-tax $1.3 million increase in the Company's loss contract
reserve (none of which was in the fourth quarter of 2005).

    The net loss for the fourth quarter of 2006 was $2.8 million, or
$0.28 basic and diluted per common share, as compared with a net loss
of $1.2 million, or $0.11 basic and diluted per common share in the
prior year quarter. The net loss for the year ended December 31, 2006,
was $3.4 million, or $0.32 basic and diluted per common share, as
compared with net income of $4.4 million, or $0.40 basic and $0.39
diluted per common share in the prior year period. Negatively
impacting the current year results is the pre-tax $3.0 million
impairment of goodwill in the fourth quarter, the pre-tax $4.3 million
of share-based compensation expense ($1.2 million in the fourth
quarter) and the pre-tax $5.3 million of Audit Committee investigation
and related expenses ($340,000 in the fourth quarter). Negatively
impacting the prior year results is the pre-tax $658,000 of
discontinued acquisition expenses (none of which was in the fourth
quarter of 2005), the pre-tax $3.7 million of Audit Committee
investigation and related expenses ($3.3 million in the fourth quarter
of 2005), and the pre-tax $1.3 million increase in the Company's loss
contract reserve (none of which was in the fourth quarter of 2005),
partially offset by the positive impact of the pre-tax $249,000 of
late fee income (none of which was in the fourth quarter of 2005).

    Net cash provided by operating activities for the fourth quarter
of 2006 was $3.8 million, as compared with net cash used in operating
activities of $8.9 million in the prior year quarter. Net cash
provided by operating activities for the year ended December 31, 2006,
was $25.3 million, as compared with net cash used in operating
activities of $10.6 million in the prior year period.

    Cash and cash equivalents were $13.7 million at December 31, 2006,
as compared with $14.3 million at September 30, 2006, and cash, cash
equivalents and restricted cash of $4.2 million at December 31, 2005.
Total debt outstanding was $10.0 million at December 31, 2006, as
compared with $13.2 million at September 30, 2006, and $12.5 million
at December 31, 2005. Days sales outstanding in accounts receivable
were 46 days at December 31, 2006, as compared with 51 days at
September 30, 2006, and 61 days at December 31, 2005.

    Planned Sale of Certain Assets of Secure Pharmacy Plus

    On February 28, 2007, the Company entered into a non-binding asset
purchase proposal whereby it intends to sell certain assets of SPP to
Maxor National Pharmacy Services Corporation (Maxor). The Company and
Maxor are in the process of negotiating a definitive asset purchase
agreement providing for Maxor's purchase, at book value, of certain
assets of SPP at closing, including certain prepaid assets, inventory,
information systems and other property and equipment. As part of the
transaction, Maxor and Prison Health Services, Inc. (PHS), the
Company's primary operating subsidiary, will enter into a long-term
supply contract pursuant to which Maxor will be the exclusive provider
of pharmaceuticals and medical supplies to PHS. The Company and Maxor
are currently targeting the closing of this transaction effective
March 31, 2007. The final execution of a definitive asset purchase
agreement, long-term supply contract and closing of the transaction is
subject to final negotiations of the agreements, completion of due
diligence and final approval of the respective companies' boards of
directors, among other things.

    Update on Stock Repurchase Program

    On July 26, 2005, the Company announced that its Board of
Directors had approved a stock repurchase program to repurchase up to
$30 million of the Company's common stock over an approximate 24-month
period. The Company intends to repurchase common stock under this
program from time to time in accordance with Securities and Exchange
Commission requirements and subject to ongoing reviews of the
Company's operating cash flow requirements. This program is intended
to be implemented through purchases made from time to time in either
the open market or through private transactions. Under the stock
repurchase program, no shares will be purchased directly from officers
or directors of the Company.

    The timing, prices and sizes of purchases will depend upon
prevailing stock prices, general economic and market conditions and
other considerations. Funds for the repurchase of shares are expected
to come primarily from cash generated from operations and also from
funds on hand, including amounts available under the Company's credit
facility.

    The repurchase program does not obligate the Company to acquire
any particular amount of common stock, and the repurchase program may
be suspended at any time at the Company's discretion.

    During the fourth quarter of 2006, the Company repurchased and
retired 51,000 shares of its common stock for approximately $781,000.
Repurchase activity was minimal during the fourth quarter due to
significant limitations on open trading windows. Since the inception
of the stock repurchase program, the Company has repurchased and
retired 1,112,936 shares of its common stock for approximately
$15.3 million. As of March 1, 2007, the Company had approximately 10.1
million shares outstanding.

    2007 Guidance

    The Company is maintaining its previous guidance for full-year
2007 results. Consistent with past practice, the Company's guidance
for full-year 2007 results does not consider the impact of any
potential new business. Contracts currently in operation are included
in the guidance for full-year 2007 results through the end of the
year, unless the Company has previously been notified otherwise by the
client. The Company's current guidance for full-year 2007 results does
not reflect the potential impact of the planned sale of certain assets
of SPP to Maxor, as discussed above. It is currently expected that the
proposed transaction and the anticipated effect of entering into the
proposed long-term supply agreement with Maxor, when completed, will
increase adjusted net income (as defined below) in a range of
approximately $600,000 to $900,000 in the subsequent 12 months.

    The Company's current guidance for estimated full-year 2007
results and a comparison with actual 2006 results (adjusted for the
items discussed in detail in the footnotes) is summarized below:



                                         Estimated          Actual
                                         Full-Year        Full-Year
                                        2007 Results     2006 Results
                                     ------------------ --------------
Total Revenues (1)                   $570 - 580 million $649.8 million
Adjusted Total Gross Margin (2)        $44.7 million    $35.2 million
Adjusted selling, general and
 administrative expenses (3)           $25.2 million    $21.2 million
Depreciation, amortization and
 interest expense (1)                   $5.5 million     $6.1 million
Adjusted pre-tax income (4)            $14.0 million     $7.9 million
Estimated effective tax rate on
 adjusted pre-tax income                    41%              41%
Adjusted net income (4)                 $8.2 million     $4.7 million
Weighted average common shares
 outstanding - diluted                  9.5 million      10.6 million
Adjusted net income per common share
 - diluted (4)                             $0.86            $0.44

(1) From continuing and discontinued contracts.
(2) From continuing and discontinued contracts and excluding actual
 share-based compensation expense allocated to healthcare expenses of
 $0.4 million estimated in 2007 and $0.4 million actual in 2006.
(3) Excluding share-based compensation expense allocated to selling,
 general and administrative expenses of $3.5 million estimated in 2007
 and $3.8 million actual in 2006.
(4) From continuing and discontinued contracts and excluding pre-tax
 impairment of goodwill of $0 estimated in 2007 and $3.0 million
 actual in 2006, pre-tax share-based compensation expense of $3.9
 million estimated in 2007 and $4.3 million actual in 2006 and pre-tax
 Audit Committee investigation and related expenses of $0 estimated in
 2007 and $5.3 million actual in 2006.


    Conference Call

    A listen-only simulcast and replay of America Service Group's
fourth quarter 2006 results conference call will be available online
at www.asgr.com or www.earnings.com on March 6, 2007, beginning at
11:00 a.m. Eastern time. In addition, a copy of the press release
containing the related financial information can be found on the
Company's website.

    America Service Group Inc., based in Brentwood, Tennessee, is a
leading provider of correctional healthcare services in the United
States. America Service Group Inc., through its subsidiaries, provides
a wide range of healthcare and pharmacy programs to government
agencies for the medical care of inmates. More information about
America Service Group can be found on the Company's website at
www.asgr.com or at www.prisonhealthmedia.com.

    This release contains certain financial information not derived in
accordance with United States generally accepted accounting principles
("GAAP"). The Company believes this information is useful to investors
and other interested parties. Such information should not be
considered as a substitute for any measures derived in accordance with
GAAP and may not be comparable to other similarly titled measures of
other companies. A discussion of the Company's definition of such
information and reconciliation to the most comparable GAAP measure is
included below.

    The most directly comparable GAAP measures for the guidance
provided by the Company are: healthcare revenues; gross margin; income
from continuing operations before income taxes; depreciation and
amortization; and interest, each of which will only include results
from continuing contracts. Because it is not possible to reliably
forecast discontinued operations, reconciliation of the Company's
guidance to the most directly comparable GAAP measure cannot be
estimated on a forward-looking basis.

    Cautionary Statement

    This press release contains "forward-looking" statements made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Statements in this release that are not
historical facts, including statements about the Company's or
management's beliefs and expectations, constitute forward-looking
statements and may be indicated by words or phrases such as
"anticipate," "estimate," "plans," "expects," "projects," "should,"
"will," "believes" or "intends" and similar words and phrases.
Forward-looking statements involve inherent risks and uncertainties. A
number of important factors could cause actual results to differ
materially from those contained in any forward-looking statement. Such
factors include, but are not limited to, the following:

    --  the risk that government entities (including the Company's
        government 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
        recently investigated by the Audit Committee or the previous
        restatement of the Company's financial results;

    --  the risks arising from shareholder litigation as a result of
        the matters recently investigated by the Audit Committee or
        the previous restatement of the Company's financial results;

    --  risks associated with the possibility that we may be unable to
        satisfy covenants under our credit facility;

    --  risks arising from potential weaknesses or deficiencies in our
        internal control over financial reporting;

    --  risks arising from the possibility that we may be unable to
        collect accounts receivable;

    --  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;

    --  the possible effect of adverse publicity on the Company's
        business;

    --  increased competition for new contracts and renewals of
        existing contracts;

    --  the Company's ability to execute its expansion strategies;

    --  the Company's ability to limit its exposure for catastrophic
        illnesses and injuries in excess of amounts covered under
        contracts or insurance coverage;

    --  the outcome or adverse development of pending litigation,
        including professional liability litigation;

    --  risks arising from the possibility that the potential sale of
        certain assets of Secure Pharmacy Plus either does not occur
        or does not occur on the terms described in this release;

    --  risks arising from the possibility that the potential acquirer
        of certain assets of Secure Pharmacy Plus cannot provide
        pharmaceuticals or related services at either a cost or
        service level sufficient to allow the Company to meet its
        contractual obligations with its customers without negatively
        impacting financial performance;

    --  risks arising from the possibility of continued financial
        underperformance by Secure Pharmacy Plus;

    --  the Company's dependence on key personnel; and

    --  the Company's determination whether to repurchase shares under
        its stock repurchase program.

    A discussion of important factors and assumptions regarding
certain statements and risks involved in an investment in the Company
is contained in the Company's Annual Report on Form 10-K and other
filings with the Securities and Exchange Commission. These
forward-looking statements are made as of the date of this release.
The Company assumes no obligations to update or revise them or provide
reasons why actual results may differ.



                      AMERICA SERVICE GROUP INC.
                CONSOLIDATED STATEMENTS OF OPERATIONS
           (In thousands, except share and per share data)

                                           Three Months Ended
                                   -----------------------------------
                                   Dec. 31,   % of   Dec. 31,   % of
                                     2006    Revenue   2005    Revenue
                                   --------- ------- --------- -------
Healthcare revenues                $149,718   100.0  $143,012   100.0
Healthcare expenses                 139,440    93.1   135,867    95.0
                                   --------- ------- --------- -------
   Gross margin                      10,278     6.9     7,145     5.0
Selling, general and
 administrative expenses              6,411     4.4     4,900     3.4
Impairment of goodwill                3,041     2.0         -       -
Audit Committee investigation and
 related expenses                       340     0.2     3,332     2.3
Depreciation and amortization         1,057     0.7       965     0.7
                                   --------- ------- --------- -------
   Loss from operations                (571)   (0.4)   (2,052)   (1.4)
Interest, net                           386     0.2       371     0.3
                                   --------- ------- --------- -------
   Loss from continuing operations
    before income tax provision
    (benefit)                          (957)   (0.6)   (2,423)   (1.7)
Income tax provision (benefit)        1,117     0.8      (947)   (0.7)
                                   --------- ------- --------- -------
   Loss from continuing operations   (2,074)   (1.4)   (1,476)   (1.0)
Income (loss) from discontinued
 operations, net of taxes              (755)   (0.5)      301     0.2
                                   --------- ------- --------- -------
            Net loss               $ (2,829)   (1.9) $ (1,175)   (0.8)
                                   ========= ======= ========= =======

Income (loss) per common share -
 basic:
   Loss from continuing operations $  (0.21)         $  (0.14)
   Income (loss) from discontinued
    operations, net of taxes          (0.07)             0.03
                                   ---------         ---------
            Net loss               $  (0.28)         $  (0.11)
                                   =========         =========

Income (loss) per common share -
 diluted:
   Loss from continuing operations $  (0.21)         $  (0.14)
   Income (loss) from discontinued
    operations, net of taxes          (0.07)             0.03
                                   ---------         ---------
            Net loss               $  (0.28)         $  (0.11)
                                   =========         =========

Weighted average common shares
 outstanding:
   Basic                             10,094            10,753
                                   =========         =========
   Diluted                           10,094            10,753
                                   =========         =========




                      AMERICA SERVICE GROUP INC.
                CONSOLIDATED STATEMENTS OF OPERATIONS
           (In thousands, except share and per share data)

                                               Year Ended
                                  ------------------------------------
                                  Dec. 31,   % of    Dec. 31,   % of
                                    2006    Revenue   2005     Revenue
                                  --------- ------- ---------- -------
Healthcare revenues               $569,409   100.0  $ 539,470   100.0
Healthcare expenses                530,236    93.1    506,376    93.9
                                  --------- ------- ---------- -------
   Gross margin                     39,173     6.9     33,094     6.1
Selling, general and
 administrative expenses            25,019     4.4     18,100     3.4
Impairment of goodwill               3,041     0.5          -       -
Discontinued acquisition expenses        -       -        658     0.1
Audit Committee investigation and
 related expenses                    5,307     1.0      3,702     0.7
Depreciation and amortization        4,129     0.7      3,958     0.7
                                  --------- ------- ---------- -------
   Income from operations            1,677     0.3      6,676     1.2
Interest, net                        1,932     0.3      1,219     0.2
Late fee income                          -       -        249     0.1
                                  --------- ------- ---------- -------
   Income (loss) from continuing
    operations before income tax
    provision                         (255)      -      5,706     1.1
Income tax provision                   437     0.1      2,528     0.5
                                  --------- ------- ---------- -------
   Income (loss) from continuing
    operations                        (692)   (0.1)     3,178     0.6
Income (loss) from discontinued
 operations, net of taxes           (2,688)   (0.5)     1,187     0.2
                                  --------- ------- ---------- -------
            Net income (loss)     $ (3,380)   (0.6) $   4,365     0.8
                                  ========= ======= ========== =======

Income (loss) per common share -
 basic:
   Income (loss) from continuing
    operations                    $  (0.07)         $    0.29
   Income (loss) from
    discontinued operations, net
    of taxes                         (0.25)              0.11
                                  ---------         ----------
            Net income (loss)     $  (0.32)         $    0.40
                                  =========         ==========

Income (loss) per common share -
 diluted:
   Income (loss) from continuing
    operations                    $  (0.07)         $    0.29
   Income (loss) from
    discontinued operations, net
    of taxes                         (0.25)              0.10
                                  ---------         ----------
            Net income (loss)     $  (0.32)         $    0.39
                                  =========         ==========

Weighted average common shares
 outstanding:
   Basic                            10,511             10,824
                                  =========         ==========
   Diluted                          10,511             11,064
                                  =========         ==========




                      AMERICA SERVICE GROUP INC.
                     CONSOLIDATED BALANCE SHEETS
                            (In thousands)

                                                   Dec. 31,  Dec. 31,
                                                     2006    2005 (1)
                                                   --------- ---------
                      ASSETS

Current assets:
   Cash and cash equivalents                       $ 13,736  $      -
   Restricted cash                                        -     4,200
   Accounts receivable: healthcare and other, less
    allowances                                       80,945    99,712
   Inventories                                        7,070     6,546
   Prepaid expenses and other current assets         12,851    18,976
   Current deferred tax assets                        8,864     7,575
                                                   --------- ---------
Total current assets                                123,466   137,009
Property and equipment, net                           6,800     6,336
Goodwill, net                                        40,772    43,813
Contracts, net                                        5,538     7,166
Other intangibles, net                                  615       845
Other assets                                          7,540    10,068
                                                   --------- ---------
            Total assets                           $184,731  $205,237
                                                   ========= =========

       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                $ 26,809  $ 36,023
   Accrued medical claims liability                  31,005    31,122
   Accrued expenses                                  37,541    44,478
   Deferred revenue                                  11,740     8,533
   Revolving credit facility classified as current   10,000    12,500
                                                   --------- ---------
Total current liabilities                           117,095   132,656
Noncurrent portion of accrued expenses               20,634    15,701
Noncurrent deferred tax liabilities                     548       876
                                                   --------- ---------
Total liabilities                                   138,277   149,233
                                                   --------- ---------
Stockholders' equity:
   Common stock                                         100       108
   Additional paid-in capital                        47,597    53,759
   Retained earnings (accumulated deficit)           (1,243)    2,137
                                                   --------- ---------
Total stockholders' equity                           46,454    56,004
                                                   --------- ---------
            Total liabilities and stockholders'
             equity                                $184,731  $205,237
                                                   ========= =========

(1) Certain prior period amounts have been reclassified in order to
 conform to the current period presentation.




                      AMERICA SERVICE GROUP INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands)

                                                       Year Ended
                                                        Dec. 31,
                                                   -------------------
                                                     2006      2005
                                                   --------- ---------
Cash Flows from Operating Activities
Net income (loss)                                  $ (3,380) $  4,365
Adjustments to reconcile net income (loss) to net
 cash provided by (used in) operating activities:
      Depreciation and amortization                   4,182     4,084
      Loss on retirement of fixed assets                 40       138
      Impairment of goodwill                          3,041         -
      Finance cost amortization                         111       501
      Deferred income taxes                          (1,155)    3,017
      Share-based compensation expense                4,279        90
      Increase in reserve for loss contracts              -     1,295
      Excess tax benefits from share-based
       compensation expense                            (462)       98
      Changes in operating assets and liabilities:
         Accounts receivable, net                    18,767    (6,470)
         Inventories                                   (524)      965
         Prepaid expenses and other current assets    6,125    (1,790)
         Other assets                                 2,390     1,991
         Accounts payable                            (9,214)  (13,763)
         Accrued medical claims liability              (117)    5,314
         Accrued expenses                            (2,004)      211
         Deferred revenue                             3,207    (3,336)
         Loss contract reserve utilization                -    (7,357)
                                                   --------- ---------
            Net cash provided by (used in)
             operating activities                    25,286   (10,647)
                                                   --------- ---------

Cash Flows from Investing Activities
Capital expenditures                                 (2,801)   (3,355)
                                                   --------- ---------
            Net cash used in investing activities    (2,801)   (3,355)
                                                   --------- ---------

Cash Flows from Financing Activities
Net borrowings (payments) on line of credit          (2,500)   12,500
Share repurchases                                   (12,364)   (2,972)
Restricted cash used to collateralize letters of
 credit                                               4,200    (4,200)
Excess tax benefits from share-based compensation
 expense                                                462         -
Issuance of common stock                                398       600
Exercise of stock options                             1,055       883
                                                   --------- ---------
            Net cash provided by (used in)
             financing activities                    (8,749)    6,811
                                                   --------- ---------

Net increase (decrease) in cash and cash
 equivalents                                         13,736    (7,191)
Cash and cash equivalents at beginning of period          -     7,191
                                                   --------- ---------
Cash and cash equivalents at end of period         $ 13,736  $      -
                                                   ========= =========




                      AMERICA SERVICE GROUP INC.
SCHEDULES OF INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES
                            (In thousands)

                                            Three Months Ended
                                    ----------------------------------
                                    Dec. 31,  % of   Dec. 31,   % of
                                     2006    Revenue   2005    Revenue
                                    -------- ------- --------- -------
Healthcare revenues                 $10,877   100.0  $  6,777   100.0
Healthcare expenses                  12,943   119.0     6,248    92.2
                                    -------- ------- --------- -------
   Gross margin                      (2,066)  (19.0)      529     7.8
Depreciation and amortization             9     0.1        18     0.3
Interest, net                             -       -        10     0.1
                                    -------- ------- --------- -------
   Income (loss) from discontinued
    operations before income taxes   (2,075)  (19.1)      501     7.4
Income tax provision (benefit)       (1,320)  (12.2)      200     3.0
                                    -------- ------- --------- -------
Income (loss) from discontinued
 operations, net of taxes           $  (755)   (6.9) $    301     4.4
                                    ======== ======= ========= =======

                                                Year Ended
                                    ----------------------------------
                                    Dec. 31,  % of   Dec. 31,   % of
                                     2006    Revenue   2005    Revenue
                                    -------- ------- --------- -------
Healthcare revenues                 $80,350   100.0  $109,880   100.0
Healthcare expenses                  84,717   105.4   106,425    96.9
Increase in reserve for loss
 contracts                                -       -     1,295     1.1
                                    -------- ------- --------- -------
   Gross margin                      (4,367)   (5.4)    2,160     2.0
Depreciation and amortization            53     0.1       125     0.2
Interest, net                            16       -        24       -
                                    -------- ------- --------- -------
   Income (loss) from discontinued
    operations before income taxes   (4,436)   (5.5)    2,011     1.8
Income tax provision (benefit)       (1,748)   (2.2)      824     0.7
                                    -------- ------- --------- -------
Income (loss) from discontinued
 operations, net of taxes           $(2,688)   (3.3) $  1,187     1.1
                                    ======== ======= ========= =======




                      AMERICA SERVICE GROUP INC.
         DISCUSSION AND RECONCILIATIONS OF NON-GAAP MEASURES
                            (In thousands)

This release contains certain financial information not derived in
 accordance with United States generally accepted accounting
 principles ("GAAP"). The Company believes this information is useful
 to investors and other interested parties. Such information should
 not be considered as a substitute for any measures derived in
 accordance with GAAP and may not be comparable to other similarly
 titled measures of other companies. A discussion of the Company's
 definition of such information and reconciliations to the most
 comparable GAAP measures are included below.


                           ADJUSTED EBITDA

The Company defines Adjusted EBITDA as earnings before interest
 expense, late fee income, income taxes, depreciation, amortization,
 increases or decreases in reserves for loss contracts, discontinued
 acquisition expenses, Audit Committee investigation expenses,
 impairment of goodwill and share-based compensation expense. The
 Company includes in Adjusted EBITDA the results of discontinued
 operations under the same definition.

The Company believes that Adjusted EBITDA is an important operating
 measure that supplements discussions and analysis of the Company's
 results of operations. The Company believes that it is useful to
 investors to provide disclosures of its results of operations on the
 same basis as that used by management, credit providers and analysts.
 The Company's management, credit providers and analysts rely upon
 Adjusted EBITDA as a key measure to review and assess operating
 performance. Adjusted EBITDA is utilized by management, credit
 providers and analysts to compare the Company's current operating
 results with the corresponding periods in the previous year and to
 compare the Company's operating results with other companies in the
 healthcare industry.

Adjusted EBITDA is not a measure of financial performance under United
 States generally accepted accounting principles and should not be
 considered an alternative to net income as a measure of operating
 performance or to cash flows from operating, investing and financing
 activities as a measure of liquidity. Because Adjusted EBITDA is not
 a measurement determined in accordance with generally accepted
 accounting principles and is susceptible to varying calculations,
 Adjusted EBITDA, as presented, may not be comparable to other
 similarly titled measures presented by other companies.




       RECONCILIATIONS OF NET INCOME (LOSS) TO ADJUSTED EBITDA

                                                    Three Months Ended
                                                         Dec. 31,
                                                    ------------------
                                                      2006     2005
                                                    --------- --------
Net loss                                             $(2,829) $(1,175)
Depreciation, interest and taxes included in income
 (loss) from discontinued operations, net of taxes    (1,311)     228
Income tax provision (benefit)                         1,117     (947)
Interest, net                                            386      371
Depreciation and amortization                          1,057      965
Audit Committee investigation and related expenses       340    3,332
Impairment of goodwill                                 3,041        -
Share-based compensation expense included in
 healthcare expenses                                     112        -
Share-based compensation expense included in
 selling, general and administrative expenses          1,050        -
                                                    --------- --------
Adjusted EBITDA                                      $ 2,963  $ 2,774
                                                    ========= ========

                                                        Year Ended
                                                         Dec. 31,
                                                    ------------------
                                                      2006     2005
                                                    --------- --------
Net income (loss)                                    $(3,380) $ 4,365
Depreciation, interest and taxes included in income
 (loss) from discontinued operations, net of taxes    (1,679)     973
Increase in loss contract reserve included in
 income (loss) from discontinued operations, net of
 taxes                                                     -    1,295
Income tax provision                                     437    2,528
Interest, net                                          1,932    1,219
Late fee income                                            -     (249)
Depreciation and amortization                          4,129    3,958
Discontinued acquisition costs                             -      658
Audit Committee investigation and related expenses     5,307    3,702
Impairment of goodwill                                 3,041        -
Share-based compensation expense included in
 healthcare expenses                                     436        -
Share-based compensation expense included in
 selling, general and administrative expenses          3,843        -
                                                    --------- --------
Adjusted EBITDA                                      $14,066  $18,449
                                                    ========= ========




   TOTAL REVENUES, TOTAL HEALTHCARE EXPENSES AND TOTAL GROSS MARGIN

The Company defines Total Revenues as healthcare revenues plus
 revenues from expired service contracts classified as discontinued
 operations. The Company defines Total Healthcare Expenses as
 healthcare expenses plus expenses from expired contracts classified
 as discontinued operations, less share-based compensation expense.
 The Company defines Total Gross Margin as Total Revenues less Total
 Healthcare Expenses. Total Gross Margin excludes loss contract
 reserve utilization.

The Company believes that Total Revenues, Total Healthcare Expenses
 and Total Gross Margin are useful measurements when comparing the
 Company's performance for such items as selling, general and
 administrative expenses, interest expense or tax expense as a
 percentage of revenue between periods. As a result of the application
 of FAS 144, "healthcare revenues," "healthcare expenses," and "gross
 margin" on the Company's consolidated statements of operations for
 any period presented will only include revenues and expenses from
 continuing contracts.




       RECONCILIATIONS OF HEALTHCARE REVENUES TO TOTAL REVENUES

                                                Three Months Ended
                                                     Dec. 31,
                                                 2006         2005
                                             -------------- ----------
Healthcare revenues                               $149,718   $143,012
Healthcare revenues included in income
 (loss) from discontinued operations, net of
 taxes                                              10,877      6,777
                                             -------------- ----------
Total Revenues                                    $160,595   $149,789
                                             ============== ==========

                                                    Year Ended
                                                     Dec. 31,
                                             -------------------------
                                                 2006         2005
                                             -------------- ----------
Healthcare revenues                               $569,409   $539,470
Healthcare revenues included in income
 (loss) from discontinued operations, net of
 taxes                                              80,350    109,880
                                             -------------- ----------
Total Revenues                                    $649,759   $649,350
                                             ============== ==========

 RECONCILIATIONS OF HEALTHCARE EXPENSES TO TOTAL HEALTHCARE EXPENSES

                                                Three Months Ended
                                                     Dec. 31,
                                             -------------------------
                                                 2006         2005
                                             -------------- ----------
Healthcare expenses                               $139,440   $135,867
Healthcare expenses included in income
 (loss) from discontinued operations, net of
 taxes                                              12,943      6,248
Share-based compensation expense included in
 healthcare expenses                                  (112)         -
                                             -------------- ----------
Total Healthcare Expenses                         $152,271   $142,115
                                             ============== ==========

                                                    Year Ended
                                                     Dec. 31,
                                             -------------------------
                                                 2006         2005
                                             -------------- ----------
Healthcare expenses                               $530,236   $506,376
Healthcare expenses included in income
 (loss) from discontinued operations, net of
 taxes                                              84,717    106,425
Share-based compensation expense included in
 healthcare expenses                                  (436)         -
                                             -------------- ----------
Total Healthcare Expenses                         $614,517   $612,801
                                             ============== ==========

        RECONCILIATIONS OF GROSS MARGIN TO TOTAL GROSS MARGIN

                                                Three Months Ended
                                                     Dec. 31,
                                             -------------------------
                                                 2006         2005
                                             -------------- ----------
Gross margin                                      $ 10,278   $  7,145
Gross margin included in income (loss) from
 discontinued operations, net of taxes              (2,066)       529
Share-based compensation expense included in
 gross margin                                          112          -
                                             -------------- ----------
Total Gross Margin                                $  8,324   $  7,674
                                             ============== ==========

                                                    Year Ended
                                                     Dec. 31,
                                             -------------------------
                                                 2006         2005
                                             -------------- ----------
Gross margin                                      $ 39,173   $ 33,094
Gross margin included in income (loss) from
 discontinued operations, net of taxes              (4,367)     2,160
Increase in loss contract reserve included
 in income (loss) from discontinued
 operations, net of taxes                                -      1,295
Share-based compensation expense included in
 gross margin                                          436          -
                                             -------------- ----------
Total Gross Margin                                $ 35,242   $ 36,549
                                             ============== ==========



    CONTACT: America Service Group Inc., Brentwood
             Michael Catalano, 615-373-3100
             Chairman, President and Chief Executive Officer
             or
             Michael W. Taylor, 615-373-3100
             Senior Vice President and Chief Financial Officer




The following information was filed by America Service Group Inc De on Monday, March 5, 2007 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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