EX-99.1 2 a6615760ex99-1.htm EXHIBIT 99.1

Exhibit 99.1

VCA Antech, Inc. Reports Fourth Quarter 2010 Results and Provides Financial Guidance for 2011

  • Fourth quarter revenue increased 7.3% to $338.1 million
  • Fourth quarter diluted earnings per common share of $0.25
  • Fourth quarter adjusted diluted earnings per common share of $0.24

LOS ANGELES--(BUSINESS WIRE)--February 17, 2011--VCA Antech, Inc. (NASDAQ NM: WOOF), a leading animal healthcare company in the United States, today reported financial results for the fourth quarter ended December 31, 2010 as follows: revenue increased 7.3% to a fourth quarter record of $338.1 million, gross profit decreased 2.2 % to $69.6 million and diluted earnings per common share was $0.25.

Results for the year ended December 31, 2010 were as follows: revenue increased 5.1% to a record of $1.38 billion, gross profit decreased 3.0% to $331.2 million and diluted earnings per common share was $1.27. The twelve month results include charges of $14.5 million, or $8.9 million net of tax, for compensation in connection with executive consulting agreements, $2.1 million, or $1.3 million net of tax, of debt retirement costs and $5.4 million, or $3.5 million net of tax, related to additional state tax payments required as a result of a settlement. Excluding these items, adjusted diluted earnings per common share was $1.42.

Animal Hospital revenue in the fourth quarter increased 10.2% to $261.5 million driven by acquisitions made in the past twelve months. The combination of a decline in our same-store margins, due to a decline in same-store revenue, and lower margins at our newly acquired animal hospitals has caused our Animal Hospital gross margin to decrease to 13.4% from 15.3%, and our operating margin to decline to 10.8% from 12.9%. Our same-store revenue declined by 2.2% and our same-store gross profit margin declined to 14.0% from 15.4%. We acquired ten animal hospitals during the fourth quarter with historical combined annual revenue of $33.1 million.

Laboratory revenue in the fourth quarter increased 1.5% to $72.2 million driven by internal revenue growth. Our Laboratory gross profit decreased by 80 basis points to 42.1% and our operating margin decreased 170 basis points to 32.7%.

Medical Technology revenue was flat during the fourth quarter and gross profit declined 3.4% to $4.8 million. Gross profit margin declined 110 bps to 29.9% compared to 31.0% in the prior year, primarily due to a change in product mix.

2011 Financial Guidance

The continued uncertainty and the lack of visibility regarding the timing and degree of the recovery in our business sector have made it particularly difficult to predict consumer demand for our services and to provide guidance relative to future results. Further, the foregoing factors make it more likely that our actual results could differ from expectations. Our 2011 financial guidance is as follows:

  • Revenue from $1.47 billion to $1.51 billion;
  • Net income from $124.1 million to $132.8 million; and
  • Diluted earnings per common share from $1.42 to $1.52.

Non-GAAP Financial Measures

We believe investors’ understanding of our total performance is enhanced by disclosing adjusted operating income, adjusted net income and adjusted diluted earnings per common share. We define these adjusted measures as the reported amounts, adjusted to exclude certain significant items. Adjusted diluted earnings per common share is adjusted net income divided by diluted common shares outstanding.

Management uses adjusted measures because they exclude the effect of significant items that we believe are not representative of our core operations for the periods presented. As a result, these non-GAAP financial measures help to provide meaningful comparisons of our overall performance from one reporting period to another and meaningful assessments of related trends. For the twelve months ended December 31, 2010, we made the following adjustments: $2.1 million, or $1.3 million after tax, and $0.02 per diluted common share for debt retirement costs related to the refinancing of our senior term notes and financing of our new revolver; $5.4 million, or $3.5 million net of tax, or $0.04 per diluted common share for tax expense related to the settlement of state taxes assessed on taxable income for the tax years 2004 through 2007; $14.5 million, or $8.9 million net of tax, or $0.10 per diluted common share, for compensation in connection to executive consulting agreements. For the three and twelve months ended December 31, 2009, we adjusted our reported amounts for the abandonment of an internally developed software project as follows: for the three months ended December 31, 2009, recovery of $1.9 million, or $1.2 million after tax, or $0.01 per diluted common share and for the twelve months ended December 31, 2009, a net software write-off of $3.3 million, or $2.0 million after tax, or $0.02 per diluted common share.

There is a material limitation associated with the use of these non-GAAP financial measures: our adjusted measures exclude the impact of these significant items, and as a result, our computation of adjusted diluted earnings per common share does not depict diluted earnings per common share in accordance with GAAP.

To compensate for the limitations in the non-GAAP financial measures discussed above, our disclosures provide a complete understanding of all adjustments found in non-GAAP financial measures, and we reconcile the non-GAAP financial measures to the GAAP financial measures in the attached financial schedules titled “Supplemental Operating Data.”

Conference Call

We will discuss our company’s fourth quarter 2010 financial results during a conference call today, February 17th, at 4:30 p.m. Eastern Time. You can access a live broadcast of the call by visiting our website at http://investor.vcaantech.com. You can also access the call by dialing (877) 293-5492. Interested parties should call at least 10 minutes prior to the start of the call to register.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may and likely will differ materially from this forward-looking information. Our Animal Hospital and Laboratory revenues have been materially adversely impacted by the current economic recession. We are unable to forecast the timing or degree of any economic recovery. Further, trends in the general economy may not be reflected in our business at the same time or in the same degree as in the general economy. The timing and degree of any economic recovery, and its impact on our business, are among the important factors that could cause actual results to differ from this forward-looking information. Among other factors that could cause our actual results to differ from this forward-looking information are: an increase in the level of direct costs or a failure to increase revenue at a level necessary to maintain our expected operating margins, a material adverse change in our financial condition or operations; the level of selling, general and administrative costs; the effects of our recent and future acquisitions (including Pet DRx Corporation) and our ability to effectively manage our growth and achieve operating synergies; a decline in demand for any of our products and services; any disruption in our information technology systems or transportation networks; the effects of competition; any impairment in the carrying value of our goodwill and other intangible assets; changes in prevailing interest rates; our ability to service our debt; and general economic conditions. These and other risks are discussed in our Report on Form 10-K for the year ended December 31, 2009 and our Report on Form 10-Q for the quarter ended September 30, 2010 and the reader is directed to these statements for a further discussion of important factors that could cause actual results to differ materially from those in the forward-looking statements.

We own, operate and manage the largest networks of freestanding veterinary hospitals and veterinary-exclusive clinical laboratories in the country, and we supply diagnostic imaging equipment to the veterinary industry.

                       
VCA Antech, Inc.
Consolidated Income Statements
(Unaudited)
(In thousands, except per share amounts)
 
Three Months Ended Year Ended
December 31, December 31,
2010 2009 2010 2009
Revenue:
Animal hospital $ 261,460 $ 237,185 $ 1,052,462 $ 994,215
Laboratory 72,210 71,140 310,654 310,057
Medical technology 16,208 16,194 64,013 48,557
Intercompany   (11,766 )   (9,300 )   (45,661 )   (38,322 )
  338,112     315,219     1,381,468     1,314,507  
 
Direct costs 268,526 244,081 1,050,304 973,275
 
Gross profit:
Animal hospital 35,059 36,188 172,390 183,698
Laboratory 30,399 30,484 142,196 143,492
Medical technology 4,845 5,015 19,277 15,836
Intercompany   (717 )   (549 )   (2,699 )   (1,794 )
  69,586     71,138     331,164     341,232  
 
Selling, general and administrative expense:
Animal hospital 6,680 5,250 23,539 21,174
Laboratory 6,758 6,063 26,243 22,895
Medical technology 3,857 3,926 14,507 12,885
Corporate   11,956     9,877     59,252     38,715  
  29,251     25,116     123,541     95,669  
 
Loss (gain) on sale and disposal of assets   211     (1,569 )   374     4,035  
 
Operating income 40,124 47,591 207,249 241,528
 
Interest expense, net 4,066 4,814 13,630 21,466
Debt retirement costs (419 ) - 2,131 -
Other (income) expense   (282 )   27     (772 )   (104 )

Income before provision for income taxes

36,759 42,750 192,260 220,166
Provision for income taxes   14,637     16,499     78,102     84,580  
Net income 22,122 26,251 114,158 135,586
Net income attributable to noncontrolling interests   649     899     3,915     4,158  
Net income attributable to VCA Antech, Inc. $ 21,473   $ 25,352   $ 110,243   $ 131,428  
 
Diluted earnings per share $ 0.25   $ 0.29   $ 1.27   $ 1.53  

Shares used for computing diluted earnings per share

  87,167     86,714     87,051     86,097  
 
 
                               
VCA Antech, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands)
 
December 31,
2010 2009
Assets
 
Current assets:
Cash and cash equivalents $ 97,126 $ 145,181
Trade accounts receivable, net 49,224 49,186
Inventory 40,760 32,031
Prepaid expenses and other 21,138 27,242
Deferred income taxes 19,019 18,318
Prepaid income taxes   19,047   6,252  
Total current assets 246,314 278,210
Property and equipment, net 331,687 289,415
Other assets:
Goodwill 1,092,480 985,674
Other intangible assets, net 46,986 44,280
Deferred financing costs, net 6,700 581
Other   42,255   29,244  
Total assets $ 1,766,422 $ 1,627,404  
 
Liabilities and Equity
 
Current liabilities:
Current portion of long-term obligations $ 28,101 $ 17,195
Accounts payable 31,970 28,326
Accrued payroll and related liabilities 35,754 33,539
Other accrued liabilities   45,769   43,298  
Total current liabilities 141,594 122,358
Long-term obligations, less current portion 498,935 527,860
Deferred income taxes 82,131 75,197
Other liabilities 27,972 10,651
VCA Antech, Inc. stockholders' equity:
Common stock 86 86
Additional paid-in capital 347,848 335,114
Retained earnings 650,253 540,010
Accumulated other comprehensive income (loss)   737   (163 )
Total VCA Antech, Inc. stockholders' equity 998,924 875,047
Noncontrolling interest   16,866   16,291  
Total equity   1,015,790   891,338  
Total liabilities and equity $ 1,766,422 $ 1,627,404  
 
 
                               
VCA Antech, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
Year Ended
December 31,
2010 2009
Cash flows from operating activities:
Net income $ 114,158 $ 135,586

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 46,069 39,571
Amortization of debt costs 862 486
Provision for uncollectible accounts 7,366 7,048
Debt retirement costs 2,131 -
Net loss on sale and disposal of assets 374 4,035
Share-based compensation 9,340 7,951
Deferred income taxes 13,493 24,600
Excess tax benefit from exercise of stock options (378 ) (866 )
Other (901 ) (425 )
Changes in operating assets and liabilities:
Accounts receivable (7,048 ) (10,004 )
Inventory, prepaid expenses and other assets (11,868 ) (15,591 )
Accounts payable and other accrued liabilities 7,463 (1,974 )
Accrued payroll and related liabilities (385 ) (7,794 )
Prepaid income taxes   (12,603 )   848  
Net cash provided by operating activities   168,073     183,471  
Cash flows from investing activities:
Business acquisitions, net of cash acquired (80,683 ) (74,577 )
Real estate acquired in connection with business acquisitions (9,289 ) (4,894 )
Property and equipment additions (61,951 ) (50,801 )
Proceeds from sale of assets 939 151
Other   (22 )   (649 )
Net cash used in investing activities   (151,006 )   (130,770 )
Cash flows from financing activities:
Repayment of long-term obligations (555,529 ) (7,936 )
Proceeds from the issuance of long-term debt 500,000 -
Payment of financing costs (9,112 ) -
Distributions to noncontrolling interest partners (4,247 ) (4,189 )
Proceeds from issuance of common stock under stock option plans 5,510 15,297
Repurchase of common stock (2,310 ) (561 )
Excess tax benefit from exercise of stock options   378     866  
Net cash (used in) provided by financing activities   (65,310 )   3,477  
Effect of currency exchange rate changes on cash and cash equivalents 188 44
(Decrease) increase in cash and cash equivalents (48,055 ) 56,222
Cash and cash equivalents at beginning of period   145,181     88,959  
Cash and cash equivalents at end of period $ 97,126   $ 145,181  
 
 
                       
VCA Antech, Inc.
Supplemental Operating Data
(Unaudited - In thousands, except per share amounts)
 
Table #1
Reconciliation of net income attributable to Three Months Ended Twelve Months Ended
VCA Antech, Inc., to adjusted net income December 31, December 31,
attributable to VCA Antech, Inc. 2010 2009 2010 2009
 
Net income attributable to VCA Antech, Inc. $ 21,473 $ 25,352 $ 110,243 $ 131,428
Debt retirement costs (419 ) - 2,131 -
Tax expense (benefit) from debt retirement costs 163 - (829 ) -
Tax settlement - - 5,400 -
Tax benefit from tax settlement - - (1,920 ) -
Compensation charges - - 14,525 -
Tax benefit from compensation charges - - (5,653 ) -
(Recovery) write-down of internal-use software - (1,937 ) - 3,334

Tax expense (benefit) from (recovery) write-down of internal use software

  -     754     -     (1,298 )
Adjusted net income attributable to VCA Antech, Inc. $ 21,217   $ 24,169   $ 123,897   $ 133,464  
 
The rate used to calculate the tax benefit is the statutory tax rate for the year.
 
 
Table #2 Three Months Ended Twelve Months Ended
Reconciliation of diluted earnings per share to December 31, December 31,
adjusted diluted earnings per share 2010 2009 2010 2009
 
Diluted earnings per share $ 0.25 $ 0.29 $ 1.27 $ 1.53
Impact of debt retirement costs, net of tax - - 0.02 -
Impact of tax settlement, net of tax - - 0.04 -
Impact of compensation charges, net of tax - - 0.10 -

Impact of (recovery) write-down of internal-use software, net of tax

  -     (0.01 )   -     0.02  
Adjusted diluted earnings per share $ 0.24   $ 0.28   $ 1.42   $ 1.55  

Shares used for computing adjusted diluted earnings per share

  87,167     86,714     87,051     86,097  
 
Per share amounts may not add due to rounding.
 
 
Table #3 Three Months Ended Twelve Months Ended
Reconciliation of operating income to adjusted December 31, December 31,
operating income 2010 2009 2010 2009
 
Consolidated operating income $ 40,124 $ 47,591 $ 207,249 $ 241,528
Compensation charges - - 14,525 -
(Recovery) write-down of internal-use software   -     (1,937 )   -     3,334  
Consolidated adjusted operating income $ 40,124   $ 45,654   $ 221,774   $ 244,862  
Consolidated adjusted operating margin 11.9 % 14.5 % 16.1 % 18.6 %
 
 
                       
VCA Antech, Inc.
Supplemental Operating Data - Continued
(Unaudited - In thousands)
 
Table #4 December 31,
Selected consolidated balance sheet data 2010 2009
 
Debt:
Senior term notes $ 493,750 $ 516,889
Other debt and capital leases   33,286     28,166  
Total debt $ 527,036   $ 545,055  
 
 
Three Months Ended Year Ended
Table #5 December 31, December 31,
Selected expense data 2010 2009 2010 2009
 
Rent expense $ 14,215   $ 11,776   $ 51,914   $ 46,658  

 

Depreciation and amortization included in direct costs:

Animal hospital $ 9,149 $ 7,061 $ 32,186 $ 26,468
Laboratory 2,363 2,371 9,309 9,191
Medical technology 390 448 1,529 1,232
Intercompany   (283 )   (229 )   (1,036 )   (830 )
11,619 9,651 41,988 36,061

Depreciation and amortization included in selling, general and administrative expense

  1,063     934     4,081     3,510  
Total depreciation and amortization $ 12,682   $ 10,585   $ 46,069   $ 39,571  
 

Share-based compensation included in direct costs:

Laboratory $ 186 $ 157 $ 674 $ 620
 

Share-based compensation included in selling, general and administrative expense:

Animal hospital 461 376 1,571 1,484
Laboratory 400 316 1,350 1,225
Medical technology 102 64 297 277
Corporate   701     1,098     5,448     4,345  
  1,664     1,854     8,666     7,331  
Total share-based compensation $ 1,850   $ 2,011   $ 9,340   $ 7,951  

CONTACT:
VCA Antech, Inc.
Tomas Fuller, Chief Financial Officer
(310) 571-6505