Avalon Correctional Services, Inc. Third Quarter Net Income Increases 57%
Monday November 3, 1:57 pm ET

OKLAHOMA CITY, Nov. 3 /PRNewswire-FirstCall/ -- Avalon Correctional Services, Inc. (Nasdaq: CITY - News) today announced financial results for the three months ended September 30, 2003.

     --  18th Consecutive Quarter of profitability

     --  57% Increase in net income for 3rd Q 2003 to $346,000 vs. $220,000 in

         2002

     --  48% Increase in pretax income for 3rd Q 2003 to $539,000 vs. $363,000

         in 2002

     --  EPS of $.07 basic and $.06 diluted for the 3rd quarter vs. $04 for

         2002

     --  8% Reduction in 3rd Q G&A expenses vs. same period 2002

     --  EPS of $.19 basic and $.17 diluted for the nine months vs. $.18 and

         $.16 in 2002 

Bolstered by growth in the adult offender population, Avalon achieved net income of $346,000 resulting in $.07 basic and $.06 diluted earnings per share for the quarter ended September 30, 2003. This represents an increase of 57% compared to net income of $220,000 and earnings of $.04 basic and diluted for the same period in 2002.

"Avalon achieved substantial growth in offender population levels during the period, particularly in Oklahoma, a major contributor to Avalon's continued success. We achieved better than expected bottom line growth with a limited top line growth. Avalon's consistent financial performance is a tribute to the Company's ability to execute its business plan while realizing substantial growth through proposals for new contract awards, renewals of existing contracts, organic growth, and cost containment measures. We expect to continue strengthening our financial position as we expand existing programs and add new programs and services. We have implemented additional programs and services allowing us to continue to expand our current market position while remaining focused on maintaining high quality services and recognizing the economics of expanded operations," stated Donald E. Smith, Chief Executive Officer and Chairman.

THREE MONTHS ENDED SEPTEMBER 30, 2003

The quarter ended September 30, 2003 was the Company's 18th consecutive profitable quarter. The Company's net income for the quarter was $346,000 or $.07 basic and $.06 diluted earnings per share as compared to net income of $220,000 or $.04 basic and diluted earnings per share for the same period of 2002.

Total revenues were $6.35 million compared to $6.87 million for the third quarter of 2002. The net decrease in revenues was a result of the Union City Juvenile contract expiring in December 2002. The juvenile contract contributed $975,000 of revenues in the third quarter of 2002. The Company's revenues from its current adult facilities increased $443,000, partially offsetting the previous juvenile contract revenues.

The Company's income before taxes increased 48% to $539,000 for the third quarter of 2003 compared to $363,000 for the third quarter of 2002.

General and administrative expenses were approximately 6.8% of revenues in both 2003 and 2002.

NINE MONTHS ENDED SEPTEMBER 30, 2003

The Company's revenues were $18.63 million compared to $20.25 million for the same period last year. The decrease in revenues was a result of the Union City Juvenile contract expiring in December 2002. The juvenile contract contributed $2,866,000 for the nine months of 2002. The Company's revenues from its adult facilities increased $1,247,000, partially offsetting the previous juvenile contract revenues.

The Company's net income increased approximately 5% to $929,000 or $.19 basic and $.17 diluted earnings per share compared to $886,000 or $.18 basic and $.16 diluted earnings per share for the same period last year. The increase of $43,000 in net income was the result of cost reduction efforts in direct general and administrative expenses, lower depreciation and amortization, and lower interest expense.

General and administrative expenses were reduced to $1,214,000 compared to $1,547,000 for the same period of 2002. The significant decrease in expenses was a result of significant cost-containment efforts implemented throughout the fourth quarter of 2002 and first quarter of 2003.

                    CONSOLIDATED STATEMENTS OF OPERATIONS

                                 (Unaudited)

                              Three Months Ended        Nine Months Ended

                                September 30,             September 30,

                              2003         2002         2003         2002

    Revenues              $6,346,000   $6,878,000   $18,628,000   $20,247,000

    Costs and expenses

      Direct operating    $4,412,000   $4,891,000   $13,112,000   $14,008,000

      General and

       administrative        431,000      470,000     1,214,000     1,547,000

      Depreciation and

       amortization          403,000      510,000     1,130,000     1,499,000

      Interest expense       561,000      644,000     1,744,000     1,939,000

    Net income from

     operations before

     income tax expense     $539,000     $363,000    $1,428,000    $1,254,000

      Income tax expense     193,000      143,000       499,000       368,000

    Net income              $346,000     $220,000      $929,000      $886,000

    Net income per

     share, basic              $0.07        $0.04         $0.19         $0.18

    Net income per

     share, diluted            $0.06        $0.04         $0.17         $0.16