<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-10787
VETERINARY CENTERS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4097995
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3420 OCEAN PARK BOULEVARD, SUITE 1000
SANTA MONICA, CALIFORNIA 90405
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 392-9599
NONE
Former name, address and fiscal year, if changed since last report
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [_]
State the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date: Common Stock, $.001 Par
Value 15,879,530 shares as of August 13, 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and equivalents............................................ $ 59,738,000 $ 47,551,000
Marketable securities held to maturity.......................... 58,141,000 --
Accounts receivable, less allowance for uncollectible accounts.. 9,441,000 6,508,000
Inventory, prepaid expenses and other........................... 4,345,000 3,984,000
Deferred income taxes........................................... 1,309,000 1,175,000
Prepaid income taxes............................................ 492,000 494,000
------------ ------------
Total current assets........................................... 133,466,000 59,712,000
Property, plant and equipment, net............................... 23,094,000 17,695,000
Other assets:
Goodwill, net................................................... 90,146,000 66,943,000
Covenants not to compete, net................................... 6,007,000 5,210,000
Building purchase options....................................... 887,000 1,087,000
Notes receivable................................................ 1,087,000 978,000
Deferred costs and other........................................ 4,528,000 1,791,000
------------ ------------
$259,215,000 $153,416,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations........................ $ 9,016,000 $ 7,421,000
Accounts payable................................................ 6,449,000 5,930,000
Accrued payroll and taxes....................................... 3,272,000 2,207,000
Other accrued liabilities....................................... 5,174,000 4,705,000
------------ ------------
Total current liabilities...................................... 23,911,000 20,263,000
Long-term obligations, less current portion...................... 123,945,000 36,778,000
Deferred income taxes............................................ 1,702,000 1,301,000
Minority interest................................................ 6,278,000 4,856,000
Stockholders' equity:
Preferred stock, par value $0.001............................... 1,000 1,000
Common stock, par value $0.001.................................. 14,000 13,000
Additional paid-in capital...................................... 113,389,000 99,685,000
Accumulated deficit............................................. (10,025,000) (9,481,000)
------------ ------------
Total stockholders' equity..................................... 103,379,000 90,218,000
------------ ------------
$259,215,000 $153,416,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues........................................................ $42,208,000 $27,449,000 $77,440,000 $46,101,000
Direct costs.................................................... 30,489,000 19,978,000 57,199,000 34,719,000
----------- ----------- ----------- -----------
Gross profit.................................................... 11,719,000 7,471,000 20,241,000 11,382,000
Selling, general and administrative............................. 4,317,000 3,513,000 8,161,000 6,274,000
Depreciation and amortization................................... 1,414,000 924,000 2,649,000 1,664,000
Merger costs.................................................... 2,901,000 -- 2,901,000 --
Restructuring charge............................................ -- -- -- 1,086,000
----------- ----------- ----------- -----------
Operating income................................................ 3,087,000 3,034,000 6,530,000 2,358,000
Interest and other investment income............................ 1,236,000 198,000 1,624,000 343,000
Interest expense................................................ 2,118,000 745,000 3,019,000 1,482,000
----------- ----------- ----------- -----------
Income before minority interest and provision for income taxes.. 2,205,000 2,487,000 5,135,000 1,219,000
Minority interest in income of subsidiaries..................... 1,938,000 1,160,000 3,309,000 1,191,000
----------- ----------- ----------- -----------
Income before provision for income taxes........................ 267,000 1,327,000 1,826,000 28,000
Provision for income taxes...................................... 1,571,000 760,000 2,370,000 497,000
----------- ----------- ----------- -----------
Net (loss) income............................................... $(1,304,000) $ 567,000 $ (544,000) $ (469,000)
=========== =========== =========== ===========
(Loss) earnings per share....................................... $(0.09) $0.05 $(0.04) $(0.06)
=========== =========== =========== ===========
Weighted average common equivalent shares used
for computing (loss) earnings per share....................... 14,163,000 10,514,000 13,697,000 8,091,000
=========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................................. $ (544,000) $ (469,000)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization..................................... 2,649,000 1,664,000
Gain on sale of land and building................................. -- (19,000)
Amortization of debt discount..................................... 143,000 8,000
Minority interest in income of subsidiaries....................... 3,309,000 738,000
Issuance of common stock in settlement of employment obligations.. 1,163,000 --
Increase in other assets, net..................................... (355,000) (92,000)
Decrease in deferred income taxes................................. 267,000 156,000
Increase in accounts receivable, net.............................. (1,621,000) (2,354,000)
Increase in inventory, prepaid expenses and other................. (39,000) (1,993,000)
Decrease in prepaid income taxes.................................. 2,000 518,000
Increase in accounts payable and accrued liabilities.............. 1,231,000 4,549,000
Payments to minority interest partners............................ (2,550,000) (1,812,000)
------------ ------------
Net cash provided by operating activities 3,655,000 894,000
------------ ------------
Cash flows from investing activities:
Property and equipment additions, net................................. (2,842,000) (759,000)
Business acquisitions, net of cash acquired........................... (17,215,000) (2,872,000)
Investments in marketable securities, held to maturity................ (58,141,000) --
Proceeds from sale of land and building............................... -- 600,000
------------ ------------
Net cash used in investing activities (78,198,000) (3,031,000)
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of subordinated debentures................. 82,086,000 --
Reduction of long-term obligations.................................... (5,016,000) (3,039,000)
Repayment of line of credit........................................... -- (1,100,000)
Payments received on notes receivable................................. 39,000 232,000
Net proceeds from exercise of redeemable warrants..................... 6,450,000 5,618,000
Proceeds from warrants issued in connection with
the Vet Research joint venture....................................... 1,474,000 --
Proceeds from sale of warrants........................................ -- 58,000
Proceeds from issuance of common stock under stock option plans....... 500,000 119,000
Proceeds from issuance of common stock................................ 207,000 10,130,000
Capital contribution of minority interest partner..................... 990,000 --
------------ ------------
Net cash provided by financing activities 86,730,000 12,018,000
------------ ------------
Increase in cash and equivalents...................................... 12,187,000 9,881,000
Cash and equivalents at beginning of period........................... 47,551,000 7,807,000
------------ ------------
Cash and equivalents at end of period................................. $59,738,000 $17,688,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
(UNAUDITED)
(continued)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Supplemental disclosures of cash flow information
Interest paid......................................................................... $ 2,003,000 $ 1,397,000
Taxes paid............................................................................ 2,101,000 276,000
Supplemental schedule of non-cash investing and financing activities:
In connection with acquisitions, assets acquired
and liabilities assumed were as follows:
Fair value of assets acquired....................................................... $31,119,000 $17,459,000
Less: Consideration given
Cash paid to sellers, net of cash acquired........................................ 14,519,000 2,872,000
Cash paid in settlement of assumed liabilities.................................... 2,696,000 --
Common stock issued............................................................... 3,868,000 4,630,000
----------- -----------
Liabilities assumed including notes payable issued, net of payments................. $10,036,000 $ 9,957,000
=========== ===========
In connection with the formation of the joint venture and partnerships,
assets and liabilities contributed by the partners were as follows:
Assets............................................................................ $ 317,000 $ 3,119,000
Liabilities....................................................................... -- 1,063,000
----------- -----------
Non-cash capital contribution of minority interest partners....................... $ 317,000 $ 2,056,000
=========== ===========
Non-cash increase in long-term obligations due to purchase of property................ $ 120,000 $ 241,000
=========== ===========
Issuance of common stock in exchange for convertible debt............................. $ 29,000 $ 254,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
(1) GENERAL
The accompanying unaudited consolidated financial statements of Veterinary
Centers of America, Inc. and subsidiaries (the "Company" or "VCA") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included. The results of operations for the three months and six months
ended June 30,1996 and 1995 are not necessarily indicative of the results to be
expected for the full year. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1995 included
in the Company's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission on March 25, 1996.
In June 1996, the Company acquired all of the outstanding shares of Pets'
Rx, Inc. ("Pets' Rx"). The business combination was treated for accounting
purposes as a pooling of interests, and accordingly, the accompanying financial
statements reflect the combined results of the pooled businesses for the
respective periods presented. The financial data presented below reflects the
historical results of VCA and the historical results of Pets' Rx adjusted to
conform to VCA's methods of accounting.
<TABLE>
<CAPTION>
(In thousands)
For the Three Months For the Six Months
Ended June 30, 1996 Ended June 30, 1996
VCA Pets' Rx (1) Combined VCA Pets' Rx (1) Combined
------- ------------ -------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Revenue $38,587 $3,621 $42,208 $69,591 $7,849 $77,440
Merger costs 2,901 -- 2,901 2,901 -- 2,901
Operating income (loss) 3,258 (171) 3,087 6,711 (181) 6,530
Net (loss) income (580) (724) (1,304) 432 (976) (544)
<CAPTION>
For the Three Months For the Six Months
Ended June 30, 1995 Ended June 30, 1995
VCA Pets' Rx Combined VCA Pets' Rx Combined
------- ------------ -------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Revenue $23,279 $4,170 $27,449 $38,509 $7,592 $46,101
Restructuring charge -- -- -- 1,086 -- 1,086
Operating income (loss) 3,109 (75) 3,034 2,634 (276) 2,358
Net income (loss) 876 (309) 567 284 (753) (469)
</TABLE>
(1) Reflects the historical results of Pets' Rx for the period indicated
through June 19, 1996, the merger date.
(2) RECLASSIFICATIONS
Certain 1995 balances have been reclassified to conform with the 1996
financial statement presentation.
6
<PAGE>
(3) ACQUISITIONS
On June 19, 1996, the Company completed the merger with Pets' Rx for
801,081 shares of VCA common stock. In addition, outstanding Pets' Rx warrants,
options and convertible securities were converted into the right to purchase an
additional 111,607 shares of VCA common stock. Pets' Rx owned 16 veterinary
hospitals in the San Jose and Sacramento, California and the Las Vegas, Nevada
markets. The Pets' Rx acquisition was accounted for as a pooling of interests.
Also during the second quarter of 1996 the Company completed the
acquisition of six veterinary hospitals and two veterinary diagnostic
laboratories. In connection with the acquisitions which were accounted for as a
purchase, VCA paid an aggregate consideration of $7,815,000 consisting of
$4,644,000 in cash, $2,365,000 in debt and the assumption of liabilities
totaling $806,000, including acquisition costs. In connection with the two
hospital acquisitions which were treated as a pooling of interests, VCA issued
151,010 shares of VCA common stock.
During the first quarter of 1996, the Company purchased seven veterinary
hospitals and a veterinary diagnostic laboratory in separate transactions for a
total consideration (including acquisition costs) of $23,304,000 consisting of
$9,875,000 in cash, $6,551,000 in long-term obligations, 242,926 shares of VCA
common stock, with a value of $3,868,000, and the assumption of liabilities
totaling $3,010,000.
(4) MERGER COSTS
During the quarter ended June 30, 1996, the Company recorded the estimated
costs to complete the merger between VCA and Pets' Rx. The estimated costs
include the following:
<TABLE>
<S> <C>
Termination of employment agreements and severance $1,555,000
Transaction costs including accounting, legal and investment advisor fees 1,346,000
----------
$2,901,000
==========
</TABLE>
(5) RESTRUCTURING CHARGE
During the first quarter of 1995, the Company merged the operations of one
of its laboratories (Cenvet) into the operations of Vet Research, Inc.'s
operations to form Vet Research Laboratories, LLC. The combined operations were
restructured to eliminate duplicate operating and overhead costs. The
restructuring included the consolidation of facilities, staff reductions and the
consolidation of ancillary operations. In connection with the restructuring, the
Company recorded a charge of $1,086,000 in the first quarter of 1995 to accrue
the estimated costs associated with the restructuring, consisting primarily of
lease terminations and severance costs.
The Company significantly expanded the number of animal hospitals that it
owns with the merger with Pets' Rx on June 19, 1996 and the acquisition of The
Pet Practice, Inc. ("Pet Practice") on July 19, 1996. Following these two major
acquisitions, which more than doubled the number of hospitals, the Company is
developing a plan to restructure its animal hospital operations. This
restructuring plan is likely to be completed in the third or fourth quarter of
1996, at which time some facilities may be closed, sold or merged into other
hospitals. In connection with this restructuring, the Company anticipates that
it will record a restructuring charge in the quarter that the plan is completed.
(6) INCOME TAXES
The provision for income taxes is greater than the amount computed using
the statutory rate due primarily to nondeductible amortization of intangible
assets and to the nondeductibility of a significant portion of the merger costs.
(7) LONG-TERM OBLIGATIONS
On April 17, 1996, the Company received net proceeds of $82,086,000 from an
offshore offering and concurrent private placement in the United States, of
$84,385,000 of 5.25% convertible subordinated debentures due in 2006. The
debentures, non-callable for three years, will be convertible into approximately
2.5 million shares of the Company's common stock at a rate of $34.35 per share.
Under the terms of the agreement the debentures and common stock issuable upon
conversion will be registered under the United States Securities Act of 1933 by
October 12, 1996.
(8) NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." The impact of adoption of this statement was immaterial to the
financial statements.
7
<PAGE>
(9) SUBSEQUENT EVENTS
On July 19, 1996, the Company completed the acquisition of Pet Practice for
approximately 3,519,100 shares of VCA common stock. VCA currently operates 76
veterinary hospitals in eleven states which were previously operated by Pet
Practice.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company reports its operations in three business lines -- Animal
Hospital, Laboratory and Premium Pet Food. Animal Hospital operations include
the operations of the Company's veterinary hospitals. Laboratory operations
include the Company's veterinary diagnostic laboratories. Premium Pet Food
includes the operations of the Vet's Choice joint venture. With the launch of
Select Balance, its first product line, Vet's Choice commenced generating
revenues in March 1994. A portion of the Company's operations, including Vet's
Choice, Vet Research Laboratories, LLC and selected animal hospitals, are
operated as joint ventures in which VCA owns a majority interest. The results
of operations of the Company include the results of operations of the joint
ventures on a consolidated basis. The Company acquired the remaining 30 percent
interest in Professional Animal Laboratory ("PAL") effective July 1, 1995.
Prior to that date, it was operated as a joint venture.
RECENT DEVELOPMENTS
Recent Acquisitions
Since January 1, 1996 through August 13, 1996, VCA has acquired 14 animal
hospitals in the states of Illinois, Virginia, Nevada, Maryland, Massachusetts,
Pennsylvania, Florida, Hawaii and California. In addition, VCA has acquired four
veterinary laboratories, one of which was Southwest Veterinary Diagnostics, Inc.
("Southwest"), a veterinary diagnostic laboratory located in Phoenix, Arizona.
The acquisition of Southwest, which services more than 2,500 veterinary
hospitals in the states of Arizona, California, New Mexico, Texas, Kansas,
Nebraska and Missouri, and other portions of the Midwest, expands the customer
base of VCA's laboratory division, providing VCA with the opportunity to serve
over 8,000 veterinary hospitals daily.
Pets' Rx, Inc.
On June 19, 1996, VCA completed the acquisition of Pets' Rx, Inc. ("Pets'
Rx") for 801,081 shares of VCA common stock. In addition, outstanding Pets' Rx
warrants, options and convertible securities were converted into the right to
acquire an additional 111,607 shares of VCA common stock. Pets' Rx was the owner
of 16 veterinary hospitals in the San Jose and Sacramento, California and Las
Vegas, Nevada markets. The acquisition of Pets' Rx was accounted for as a
pooling of interests and therefore the accompanying financial information
reflects the combined results of the pooled business.
8
<PAGE>
The Pet Practice, Inc.
On July 19, 1996, VCA completed the acquisition of The Pet Practice, Inc.
("Pet Practice") for approximately 3,519,100 shares of VCA common stock. In
addition, outstanding employee stock options were converted into options to
purchase an additional 41,280 shares of VCA common stock. On the acquisition
date, Pet Practice was the operator of 84 veterinary clinics located in 11
states. The acquisition of Pet Practice was accounted for as a purchase.
Debt Offering
On April 17, 1996, VCA issued $84.4 million of 5.25% convertible
subordinated debentures due in 2006. The debentures, non-callable for three
years, will be convertible into approximately 2.5 million shares of VCA common
stock at a rate of $34.35 per share. The proceeds of this offering are intended
to be used to repay long-term debt and for general corporate purposes.
ANTICIPATED EFFECTS OF ACQUISITIONS
VCA has acquired Pets' Rx and Pet Practice with the expectation that the
transactions will result in beneficial synergies for the combined business.
These include the potential to realize improved operating margins at animal
hospitals through a strategy of centralizing various corporate and
administrative functions and leveraging fixed costs while providing customers
with improved services.
Achieving these anticipated business benefits will depend in part on
whether the operations of Pets' Rx and Pet Practice can be integrated with the
operations of VCA in an efficient, effective and timely manner. There can be no
assurance that this will occur. The combination of the companies will require,
among other things, integration of the companies' management staffs,
coordination of the companies' sales and marketing efforts, integration and
coordination of the companies' development teams and the identification and
elimination of redundant overhead and poor-performing hospitals. The success of
this process will be significantly influenced by the ability of the combined
business to retain key management and marketing and development personnel. There
is no assurance that this integration will be accomplished smoothly or
successfully or that VCA will be successful in retaining key members of
management. The difficulties of such integration may be increased by the
necessity of coordinating geographically separated organizations with distinct
cultures. The integration of operations of the companies following the mergers
will require the dedication of management resources, which may temporarily
distract attention from the day-to-day business of the combined business. The
inability of management to integrate successfully the operations of the
companies could have an adverse effect on the business and results of the
combined business. In addition, even if the operations of the three companies
are ultimately successfully integrated, it is anticipated that the integration
will be accomplished over time and, in the interim, the combination may have an
adverse effect on the business, results of operations and financial condition of
VCA.
The Pets' Rx acquisition was accounted for under the pooling of interests
method of accounting. Under the pooling rules, the historical financial results
of VCA have been restated to reflect the combination, together with certain
adjustments. Further, under the pooling rules, the costs incurred by VCA and
Pets' Rx in consummating the merger have been expensed during the second
quarter.
The Pet Practice acquisition was accounted for as a purchase. Since it
occurred after the close of the second quarter, the effects of the Pet Practice
acquisition have not been reflected in the financial statements included in this
report. Under the purchase rules, the Pet Practice acquisition will result in a
significant increase in the goodwill and other intangibles recorded on VCA's
balance sheet. As a result, VCA expects that its amortization expense will
significantly increase over historical levels.
VCA has implemented a plan with respect to the integration of the
businesses of Pets' Rx and Pet Practice into VCA's existing operations. It is
anticipated that a significant restructuring of the combined operations will be
required as a result of the acquisitions, including the sale, closure or merger
of some of the hospitals acquired. As a consequence of this restructuring and
the consummation of the mergers, VCA anticipates incurring one-time
restructuring and related charges in the third or fourth quarter of 1996. The
magnitude of these charges has not been quantified at this time.
9
<PAGE>
RESULTS OF OPERATIONS
Three months and six months ended June 30, 1996 compared to the three and
six months ended June 30, 1995.
Revenues
The following table summarizes the Company's revenues for each of the three
and six month periods ended June 30:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Animal Hospital $25,455,000 $15,791,000 $47,514,000 $28,363,000
Laboratory 15,432,000 10,948,000 27,488,000 16,765,000
Premium Pet Food 2,120,000 1,090,000 3,970,000 1,631,000
Intercompany Sales (799,000) (380,000) (1,532,000) (658,000)
----------- ----------- ----------- -----------
$42,208,000 $27,449,000 $77,440,000 $46,101,000
=========== =========== =========== ===========
</TABLE>
Revenues for the Animal Hospital operations increased 67.5% for the six
months ended June 30, 1996 compared to the six months ended June 30, 1995. The
increase in the three month period ended June 30, 1996 compared to the three
month period ended June 30, 1995 was 61.2%. This growth was primarily the result
of growth in the number of facilities owned and operated by the Company. The
results for 1996 include the results of 23 veterinary hospitals acquired from
July 1, 1995 to March 31, 1996, and the results, from the date of acquisition,
for an additional six veterinary hospitals acquired during the second quarter of
1996. The increase in revenues resulting from changes in volume or prices at
existing facilities was approximately 6.9% and 4.9% in the six months and
quarter ended June 30, 1996, respectively.
Revenues of the Laboratory operations increased 64.0% for the six months
ended June 30, 1996 compared to the six months ended June 30, 1995. The increase
in the three months ended June 30, 1996 compared to June 30, 1995 was 41.0%.
This increase was primarily due to the acquisition of five veterinary diagnostic
laboratories since June 30, 1995, and in the six month period, the inclusion of
a full six months of Vet Research operations which was acquired in March 1995.
Vet's Choice began generating revenues in March 1994 when it commenced
commercial distribution of Select Balance through VCA's network of owned animal
hospitals. Distribution was expanded nationally to independent veterinary
hospitals in selected regional markets beginning in the second quarter of 1994.
In April 1995, Vet's Choice commenced distributing its second product line,
Select Care, a complete line of therapeutic diets.
Gross Profit
Gross profit for each of the three and six month periods ended June 30, is
comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Animal Hospital $ 4,488,000 $2,904,000 $ 7,650,000 $ 4,882,000
Laboratory 6,429,000 4,193,000 11,099,000 5,940,000
Premium Pet Food 802,000 374,000 1,492,000 560,000
----------- ----------- ----------- -----------
$11,719,000 $7,471,000 $20,241,000 $11,382,000
=========== =========== =========== ===========
</TABLE>
Gross profit of the Animal Hospital operations represents the contribution
from the hospital operations and is comprised of revenues less all costs of
services and products at the hospitals, including salaries of veterinarians,
technicians and all other hospital-based personnel, facilities rent and
occupancy costs and medical supply costs and costs of goods sold associated with
the retail sales of pet food and pet supplies. Animal Hospital gross profit
increased 56.7% from the six months ended June 30, 1995 compared to the six
months ended June 30, 1996, representing 17.2% and 16.1% of Animal Hospital
revenues in 1995
10
<PAGE>
and 1996, respectively. The decrease in gross profit as a percentage of
revenues from 1995 to 1996 was primarily attributable to increased supply costs.
Animal Hospital gross profit increased 54.5% from the three months ended June
30, 1995 compared to the three months ended June 30, 1996, representing 18.4%
and 17.6% of Animal Hospital revenues in 1995 and 1996, respectively. The gross
profit margins as reported in the Company's restated financial statements are
less than historically reported due to the acquisition of Pets' Rx. Animal
Hospital gross profit margins, after excluding the effect of Pets' Rx hospitals,
increased from 18.4% in the second quarter of 1995 to 19.1% in the second
quarter of 1996.
The Company anticipates achieving cost savings through the
implementation of its hospital operating plan and purchasing program at the
newly acquired facilities with the objective of improving the newly acquired
entities' gross profit margins to those achieved by previously owned VCA
hospitals.
Gross profit of the Laboratory operations is comprised of revenues
less all direct costs of services at the laboratory, including salaries of
veterinarians, technicians and other non-administrative laboratory-based
personnel, facilities rent and occupancy costs and supply costs. As a
percentage of revenues, Laboratory gross profit was 35.4% and 40.4% of revenues
in the six months ended June 30, 1995 and 1996, respectively. The increase in
gross profit as a percentage of revenue from 1995 to 1996 was primarily
attributable to the inclusion of a full six months of Vet Research operations in
1996. As a percentage of revenues, Laboratory gross profit was 38.3% and 41.7%
for the three months ended June 30, 1995 and 1996, respectively.
Gross profit of Premium Pet Food is comprised of revenues less cost of
goods sold, including warehousing, freight and distribution costs. Gross profit
as a percentage of revenues for the six months ended June 30, 1995 and 1996 was
34.3% and 37.6%, respectively. As a percentage of revenue, Premium Pet Food
gross profit was 34.3% and 37.8% for the three months ended June 30, 1995 and
1996, respectively.
The Laboratory and Premium Pet Food operations are expected to
continue to carry gross profit margins that are higher than the Animal Hospital
operations. Consequently, historical gross profit margins for the Company as a
whole may not be indicative of those to be expected in the future.
Selling, General and Administrative Expenses
VCA Corporate selling, general and administrative expense consists of
administrative expense at the Company's headquarters, including the salaries of
corporate officers and other personnel, accounting, legal and other professional
expense and rent and occupancy.
Selling, general and administrative expense for each of the three and
six month periods ended June 30, is comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
VCA Corporate $2,139,000 $1,508,000 $3,948,000 $2,834,000
Laboratory 980,000 865,000 1,895,000 1,365,000
Premium Pet Food 1,198,000 1,140,000 2,318,000 2,075,000
---------- ---------- ---------- ----------
$4,317,000 $3,513,000 $8,161,000 $6,274,000
========== ========== ========== ==========
</TABLE>
VCA Corporate and Laboratory selling, general and administrative expense,
as a percentage of Animal Hospital and Laboratory revenues, was 9.3% and 7.8%
for the six months ended June 30, 1995 and 1996, respectively. For the three
months ended June 30, 1995 and 1996, VCA Corporate and Laboratory, selling,
general and administrative expense as a percentage of Animal Hospital and
Laboratory revenues was 8.9% and 7.6%, respectively. The decrease from 1995 to
1996 was primarily attributable to spreading the expenses over a larger revenue
base.
The Company anticipates that it will recognize significant savings in VCA
Corporate selling, general and administrative expenses through the elimination
of duplicate overhead at Pets' Rx.
11
<PAGE>
Premium Pet Food selling, general and administrative expense as a
percentage of Premium Pet Food revenues was 127.2% and 58.4% for the six months
ended June 30, 1995 and 1996, respectively. The decrease as a percentage of
revenue was primarily attributable to spreading the expenses over a larger
revenue base.
Depreciation and Amortization
Depreciation and amortization expense primarily relates to the depreciation
of capital assets and the amortization of excess cost over the fair value of net
assets acquired (goodwill) and certain other intangibles. Depreciation and
amortization expense increased from $1,664,000 for the six months ended June 30,
1995 to $2,649,000 for the six months ended June 30, 1996. The Company's policy
is to amortize goodwill over the expected period to be benefited, not exceeding
forty years. The increase in depreciation and amortization expense is primarily
due to the acquisition of hospitals and laboratories.
Restructuring Charge
The operations of Cenvet (acquired January 1, 1995) were merged into Vet
Research Inc.'s operations to form Vet Research Laboratories, LLC. The combined
operations were restructured to eliminate duplicate operating and overhead
costs. In connection with the restructuring, the Company recorded a charge of
$1,086,000 in the first quarter of 1995 to accrue the estimated costs associated
with the restructuring, consisting primarily of lease termination and severance
costs.
Merger Costs
In connection with the Pets' Rx merger, the Company recorded the estimated
costs to complete the transaction. The costs, amounting to $2,901,000 primarily
include legal, accounting, investment advisor, termination of employment
agreements and severance costs.
Net (Loss) Income
During the second quarter of 1996, VCA completed the merger with Pets' Rx
which was treated as a pooling of interests. As such, the historical results of
VCA have been restated to reflect the results of Pets' Rx for the periods
presented. Also in connection with the merger, VCA incurred costs to complete
the transaction.
Net (loss) income for the three and six month periods ended June 30, is
comprised of the following:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
----------- --------- ----------- ----------
<S> <C> <C> <C> <C>
VCA $ 2,215,000 $876,000 $3,227,000 $946,000
Pets' Rx (1) (724,000) (309,000) (976,000) (753,000)
Merger costs (2,795,000) -- (2,795,000) --
Restructuring costs -- -- -- (662,000)
----------- -------- ----------- ---------
$(1,304,000) $567,000 $ (544,000) $(469,000)
=========== ======== =========== =========
</TABLE>
(1) Reflects the historical results of Pets' Rx for the period indicated
through June 19, 1996, the merger date.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations during the six months ended June 30, 1996 was
$3,655,000. The Company's operating cash flow was adversely impacted by Vet's
Choice, which had a net outflow from operations during the quarter of $717,000.
Excluding Vet's Choice, cash provided by operations was $4,372,000. The Company
used cash, net of cash acquired, of $17,215,000, to purchase thirteen veterinary
hospitals and three veterinary diagnostic laboratories. The Company used cash of
$5,016,000 to retire long-term obligations.
12
<PAGE>
Of its cash and equivalents on hand at June 30, 1996, $2,463,000 was
restricted for use by Vet's Choice. In 1996, Vet's Choice used $1,444,000 of
cash, primarily for operating expenses and increases in inventory.
The Company and Heinz Pet Products contributed $1,010,000 and $990,000,
respectively to Vet's Choice during May 1996. As sales of Premium Pet Food grow,
Vet's Choice will require additional cash to fund its working capital
requirements (primarily inventory and accounts receivable). Heinz Pet Products
has agreed to lend Vet's Choice up to $1.0 million at its bank prime rate plus
one-half percent to assist in meeting these working capital needs. Vet's Choice,
however, may require additional equity or debt financing. If Vet's Choice is
unable to obtain debt financing on favorable terms, it may be necessary for the
Company to make additional capital contributions to the venture.
During the second quarter of 1996, the Company received net proceeds of
$82,086,000 related to the sale, in an offshore offering and concurrent private
placement in the United States, of $84,385,000 of 5.25% convertible subordinated
debentures due in 2006. The debentures, non-callable for three years, will be
convertible into approximately 2.5 million shares of the Company's common stock
at a rate of $34.35 per share.
The Company used $58,141,000 to purchase marketable securities to be held
to maturity.
The Company has achieved its growth in the past, and anticipates it will
continue its growth in the future, through the acquisition of veterinary
hospitals and veterinary diagnostic laboratories for cash, stock and notes
payable.
The Company intends to fund its future cash requirements primarily from
cash on hand, internally generated funds and the net proceeds from the exercise
of its warrants (which, if all were exercised, would generate approximately $9.1
million of cash). The Company believes these sources of funds will be sufficient
to continue the Company's operations and planned capital expenditures for at
least the next 12 months.
RISK FACTORS
Rapid Expansion and Management of Growth
Due to the number and size of acquisitions completed since January 1, 1994,
the Company has experienced rapid growth. In 1994, the Company completed six
acquisitions (five animal hospitals and one veterinary diagnostic laboratory)
and in 1995, the Company completed 32 acquisitions (25 animal hospitals, six
veterinary diagnostic laboratories and the remaining 30 percent interest in
Professional Animal Laboratory). In 1996, the Company completed the acquisition
of Pet Practice, Pets' Rx, 14 animal hospitals and four veterinary diagnostic
laboratories. As a result of these acquisitions, the Company's revenues have
grown from $25.3 million in 1993 to $42.2 million in 1994, to $92.1 million in
1995 and to unaudited proforma 1995 revenue of approximately $220 million. In
addition, during this period, the Company entered two new lines of business,
veterinary diagnostic laboratories and premium pet food.
The Company's growth and pace of acquisitions have placed, and will
continue to place, a substantial strain on its management, operational,
financial and accounting resources. The successful management of this growth
will require the Company to continue to implement and improve its financial and
management information systems and to train, motivate and manage its employees.
There can be no assurance that the combined business will be able to identify,
consummate or integrate acquisitions without substantial delays, costs or other
problems. Once integrated, acquisitions may not achieve sales, profitability and
asset productivity commensurate with the combined business' other operations. In
addition, acquisitions involve several other risks, including adverse short-term
effects on the combined business' reported operating results, impairments of
goodwill and other intangible assets, the diversion of management's attention,
the dependence on retention, hiring and training of key personnel, the
amortization of intangible assets and risks associated with unanticipated
problems or legal liabilities. The combined business' failure to manage growth
effectively would have a material adverse effect on the combined business'
results of operations and its ability to execute its business strategy.
In addition, the growth experienced by the Company, and the corresponding
increased need for timely information, have placed significant demands on the
Company's existing accounting and management information systems. As a result,
the Company is in the process of upgrading these systems. No assurance can be
given that these upgrades will be completed
13
<PAGE>
successfully or that the new systems can be successfully integrated or that the
new systems will effectively serve the combined business' future information
requirements.
Dependence on Acquisitions for Future Growth
The Company's growth strategy is dependent principally on its ability to
acquire existing animal hospitals and veterinary diagnostic laboratories.
Successful acquisitions involve a number of factors which are difficult to
control, including the identification of potential acquisition candidates, the
willingness of the owners to sell on reasonable terms and the satisfactory
completion of negotiations. In addition, acquisitions may be subject to pre-
merger or post-merger review by governmental authorities for antitrust and other
legal compliance. Adverse regulatory action could negatively affect the
Company's operations through the assessment of fines or penalties against the
Company or the possible requirement of divestiture of one or more of the
Company's operations.
There can be no assurance that the Company will be able to identify and
acquire acceptable acquisition candidates on terms favorable to the Company in a
timely manner in the future. Assuming the availability of capital, the Company's
plans include an aggressive acquisition program involving the acquisition of at
least 15 to 25 facilities per year. The Company continues to evaluate
acquisitions and negotiate with several potential acquisition candidates. The
failure to complete acquisitions and continue expansion could have a material
adverse effect on the Company's financial performance. As the combined business
proceeds with its acquisition strategy, it will continue to encounter the risks
associated with the integration of acquisitions described above.
Leverage
The Company has incurred substantial indebtedness to finance the
acquisition of its animal hospitals and veterinary diagnostic laboratories.
Giving effect to debt incurred in acquisitions subsequent to June 30, 1996
through August 13, 1996, the Company had at June 30,1996, consolidated long-term
obligations (including current portion) of approximately $152 million. At
December 31, 1995 and June 30, 1996, the Company's ratio of long-term debt to
total stockholders' equity was 49.0% and 128.6%, respectively. As of June 30,
1996, after giving effect to the acquisitions subsequent to June 30, 1996, the
ratio of long-term debt to total stockholders' equity will be 88.9%. The Company
expects to incur additional indebtedness in the future to continue its
acquisition strategy.
Risks Associated with Intangible Assets
A substantial portion of the assets of the Company consists of intangible
assets, including goodwill and covenants not to compete relating to the
acquisition of animal hospitals and veterinary diagnostic laboratories. At June
30, 1996, the Company's balance sheet reflected $96.2 million of intangible
assets of these types, a substantial portion of the Company's $259.2 million in
total assets at such date. The Company expects the aggregate amounts of goodwill
and other intangible assets on its balance sheet to increase in the future in
connection with additional acquisitions. This increase will have an adverse
impact on earnings as goodwill and other intangible assets will be amortized
against earnings. In the event of any sale or liquidation of the Company, there
can be no assurance that the value of these intangible assets will be realized.
In addition, the Company continually evaluates whether events and
circumstances have occurred that indicate the remaining balance of intangible
assets may not be recoverable. When factors indicate that these intangible
assets should be evaluated for possible impairment, they may be required to
reduce the carrying value of intangible assets, which could have a material
adverse effect on results of operations during the periods in which such
reduction is recognized. In accordance with this policy, the Company recognized
a write down of goodwill and related assets in the amount of $2.3 million in
1993 in connection with three of the Company's facilities which were not
performing. There can be no assurance that the Company will not be required to
write down assets further in future periods.
Guaranteed Payments
In connection with acquisitions in which the purchase price consists, in
part, of the Company's common stock (the "Guarantee Shares"), the Company often
guarantees (the "Guarantee Right") that the value of such stock (the
"Measurement
14
<PAGE>
Price") two to three years following the date of the acquisition (the "Guarantee
Period") will equal or exceed the value of the stock on the date of acquisition
(the "Issue Price"). In the event the Measurement Price does not equal or
exceed the Issue Price, the Company typically is obligated either to (i) pay to
the seller in cash, notes payable or additional shares of the Company's common
stock the difference between the Issue Price and the Measurement Price
multiplied by the number of Guarantee Shares then held by the seller, or (ii)
purchase the Guarantee Shares then held by the seller. Once the Guarantee
Shares are delivered and registered for resale under the Securities Act, which
registration the Company covenants to effect generally within six months of
issuance of the Guarantee Shares, the seller's Guarantee Right typically
terminates if the Company's common stock trades at 110% to 120% of the Issue
Price (the "Release Price") for five to 15 consecutive days, depending on the
terms of the agreement. There are 177,810 Guarantee Shares outstanding at June
30, 1996 with Issue Prices ranging from $11.70 to $17.49 that have not met their
respective Release Prices for the specified period or have not been delivered
due to escrow arrangements. If the value of the Company's common stock decreases
and is less than an Issue Price at the end of the respective Guarantee Period
for these shares, the Company may be obligated to compensate these sellers.
In connection with the Pet Practice acquisition, VCA has assumed the
Guarantee Rights issued by Pet Practice (which generally operate similarly to
the Guarantee Rights issued by VCA, except that there is no provision for a
release of the Guarantee Right). In connection with the Pet Practice Guarantee
Rights, 61,933 shares of VCA common stock will have guaranteed values ranging
from $24.53 to $25.76 per share.
Seasonality and Fluctuating Quarterly Results
A large portion of the business of the Company is seasonal, with operating
results varying substantially from quarter to quarter. Historically, the
Company's revenues have been greater in the second and third quarters than in
the first and fourth quarters. The demand for the Company's veterinary services
are significantly higher during warmer months because pets spend a greater
amount of time outdoors, where they are more likely to be injured and are more
susceptible to disease and parasites. In addition, use of veterinary services
may be affected by levels of infestation of fleas, heartworms and ticks, and the
number of daylight hours, as well as general economic conditions. A substantial
portion of the Company's costs are fixed and do not vary with the level of
demand. Consequently, net income for the second and third quarters at individual
animal hospitals generally has been higher than that experienced in the first
and fourth quarters.
Dependence on Key Management
The Company's success will continue to depend to a significant extent on
the Company's executive officers and other key management, particularly its
Chief Executive Officer, Robert L. Antin. VCA has an employment contract with
Mr. Robert Antin, Mr. Arthur Antin, Chief Operating Officer of VCA, and Mr. Neil
Tauber, Senior Vice President of VCA, each of which expires in December 1998.
VCA has no other written employment agreements with its executive officers. None
of VCA's officers are parties to noncompetition covenants which extend beyond
the term of their employment with VCA. VCA maintains "key man" life insurance on
Mr. Robert Antin in the amount of $3.0 million, of which VCA is the sole
beneficiary. VCA does not maintain any insurance on the lives of its other
senior management. As VCA continues to grow, it will continue to hire, appoint
or otherwise change senior managers and other key executives. There can be no
assurance that VCA will be able to retain its executive officers and key
personnel or attract additional qualified members to management in the future.
In addition, the success of certain of VCA's acquisitions may depend on VCA's
ability to retain selling veterinarians of the acquired companies. The loss of
services of any key manager or selling veterinarian could have a material
adverse effect upon VCA's business.
Joint Ventures
The Company conducts a portion of its veterinary diagnostic laboratory
business through a joint venture with Vet Research, Inc. ("VRI"), and conducts
its pet food business through a joint venture with Heinz Pet Products, an
affiliate of H.J. Heinz Company. The Company has an option in January 1997 to
acquire the remaining 49 percent interest in the laboratory joint venture for
$18.6 million in cash plus an additional amount based upon the earnings of the
joint venture to be paid over six years. Based on current information available
to it, the Company expects to exercise its purchase option in January 1997. If
for any reason the Company does not exercise the option, VRI has the option to
purchase from the Company its entire 51 percent interest for $3.5 million. On
the earlier of a change in control of the Company or January 1, 2000, Heinz Pet
Products has the
15
<PAGE>
option to purchase all of the Company's interest in the Vet's Choice joint
venture at a purchase price equal to the fair market value of such interest.
The acquisition of Pet Practice does not result in a change in control for
purposes of the Vet's Choice joint venture. There can be no assurance that the
Company will not have to sell these joint venture interests.
Competition
The companion animal health care industry is highly competitive and subject
to continual change in the manner in which services are delivered and providers
are selected. The Company believes that the primary competitive factors in
connection with animal hospitals are convenient location, recommendation of
friends, reasonable fees, quality of care and convenient hours. The Company's
primary competitors for its animal hospitals in most markets are individual
practitioners or small, regional multi-clinic practices. In addition, certain
national companies in the pet care industry, including the operators of super-
stores, are developing multi-regional networks of animal hospitals in markets
which include the Company's animal hospitals. Among veterinary diagnostic
laboratories, the Company believes that quality, price and the time required to
report results are the major competitive factors. There are many clinical
laboratory companies which provide a broad range of laboratory testing services
in the same markets serviced by the Company. In addition, several national
companies provide on-site diagnostic equipment that allows veterinarians to
perform their own laboratory tests. The Company's major competitors in the
premium pet food industry are Hill's and Iams, both of which have extensive
experience in the manufacture of premium pet food and possess research and
development, marketing and financial resources far greater than that of Vet's
Choice.
Government Regulation
The laws of some states prohibit veterinarians from splitting fees with
non-veterinarians and prohibit business corporations from providing veterinary
services through the direct employment of veterinarians. These laws and their
interpretations vary from state to state and are enforced by the courts and by
regulatory authorities with broad discretion. Although the Company believes that
its operations as currently conducted are in material compliance with existing
applicable laws, there can be no assurance that the Company's existing
operational structure will not be successfully challenged in one or more states
as constituting the unlicensed practice of veterinary medicine. Such a
determination in a state could adversely affect the operations of the Company
and the combined business through the assessment of fines or penalties against
the Company or the combined business or the possible requirement of divestiture
of the Company's operations in the state. In addition, there can be no assurance
that state legislation or regulations will not change so as to restrict the
Company's or, in the future, the combined business' existing operations or the
expansion of such operations.
Anti-takeover Effect
A number of provisions of the Company's Certificate of Incorporation and
bylaws and certain Delaware laws and regulations relating to matters of
corporate governance, certain rights of directors and the issuance of preferred
stock without stockholder approval, may be deemed to have and may have the
effect of making more difficult, and thereby discouraging, a merger, tender
offer, proxy contest or assumption of control and change of incumbent
management, even when stockholders other than the Company's principal
stockholders consider such a transaction to be in their best interest. In
addition, H.J. Heinz Company has an option to purchase the Company's interest in
the Vet's Choice joint venture upon the occurrence of a change in control (as
defined in the joint venture agreement), which may have the same effect.
Accordingly, stockholders may be deprived of an opportunity to sell their shares
at a substantial premium over the market price of the shares.
Impact of Shares Eligible for Future Sale
Future sales by existing stockholders could adversely affect the prevailing
market price of the Company's common stock. As of August 13, 1996, the Company
had 15,879,530 shares of common stock outstanding, most of which are either
freely tradeable in the public market without restriction or tradeable in
accordance with Rule 144 under the Act. There are also 2,057,736 shares which
the Company is obligated to issue in connection with the Pets' Rx merger and
certain acquisitions; 583,333 shares issuable upon conversion of outstanding
preferred stock; 1,549,822 shares of the Company's common stock issuable upon
exercise of outstanding stock options; 1,222,177 shares of the Company's common
stock issuable upon exercise of outstanding warrants; 51,256 shares issuable
upon conversion of convertible notes; and 2,456,623 shares issuable upon
16
<PAGE>
conversion of convertible debentures. Shares may also be issued under price
guarantees delivered in connection with acquisitions. These shares will be
eligible for immediate sale upon issuance.
Possible Volatility of Stock Price
The market price of the Company's common stock could be subject to
significant fluctuations caused by variations in quarterly operating results,
litigation involving the Company, announcements by the Company or its
competitors, general conditions in the companion animal health care industry and
other factors. The stock market in recent years has experienced extreme price
and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of publicly traded companies. The broad fluctuations
may adversely affect the market price of the Company's common stock.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
--------
Exhibit 11. Computation of Per Share (Loss) Earnings
(b) Form 8-K.
--------
Report on Form 8-K dated March 15, 1996 (as amended April 12, 1996 and
April 18, 1996)
Report on Form 8-K dated April 4, 1996
Report on Form 8-K dated April 12, 1996
Report on Form 8-K dated April 17, 1996
Report on Form 8-K dated July 5, 1996 (as amended July 17, 1996)
Report on Form 8-K dated August 1, 1996
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VETERINARY CENTERS OF AMERICA, INC.
Date: August 15, 1996 /s/ Tomas W. Fuller
------------------------
Tomas W. Fuller
Chief Financial Officer
19
<PAGE>
EXHIBIT INDEX
ITEM EXHIBIT
- ---- -------
11 Computation of Per Share (Loss) Earnings
EX-27 Financial Data Schedule
20
<PAGE>
EXHIBIT 11
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
COMPUTATIONS OF PER SHARE (LOSS) EARNINGS
The computations of net (loss) earnings per share for the three months and six
months ended June 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Primary:
Net (loss) income.......................................... $(1,304,000) $ 567,000 $ (544,000) $ (469,000)
=========== ========== =========== ==========
Average common shares outstanding.......................... 14,163,000 8,424,000 13,697,000 8,091,000
Dilutive common equivalent shares issuable upon:..
Conversion of preferred stock............................. -- 583,000 -- --
Redemption of redeemable warrants......................... -- 1,006,000 -- --
Exercise of options to purchase common shares............. -- 500,000 -- --
Issuance of contingently issuable shares.................. -- 1,000 -- --
----------- ---------- ----------- ----------
14,163,000 10,514,000 13,697,000 8,091,000
=========== ========== =========== ==========
Net (loss) earnings per share..................... $(0.09) $0.05 $(0.04) $(0.06)
====== ===== ====== ======
Fully Diluted (1):
Net (loss) income.......................................... $(1,304,000) $ 567,000 $ (544,000) $ (469,000)
Addback: Interest expense, net of tax,
applicable to convertible debt........................... 897,000 3,000 898,000 6,000
----------- ----------- ----------- ----------
$(407,000) $ 570,000 $ 354,000 $ (463,000)
=========== =========== =========== ==========
Average common shares outstanding.......................... 14,163,000 8,424,000 13,697,000 8,091,000
Dilutive common equivalent shares issuable upon:
Conversion of preferred stock............................. 583,000 583,000 583,000 583,000
Redemption of redeemable warrants......................... 970,000 1,046,000 1,145,000 1,157,000
Exercise of options to purchase common shares............. 1,032,000 513,000 977,000 507,000
Issuance of contingently issuable shares.................. -- 2,000 -- 2,000
Conversion of convertible debt............................ 2,464,000 47,000 2,464,000 47,000
----------- ----------- ----------- ----------
19,212,000 10,615,000 18,866,000 10,387,000
=========== =========== =========== ==========
Net (loss) earnings per share............................... $(0.02) $0.05 $ 0.02 $ (0.04)
====== ===== ====== ======
</TABLE>
(1) The computations of the fully diluted income per share are submitted in
accordance with Regulation S-K item 601(b)(11) although it is contrary to
paragraph 40 of APB Opinion No.15 because it produces an anti-dilutive result.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRATED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 59,738,000
<SECURITIES> 58,141,000
<RECEIVABLES> 9,441,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 133,466,000
<PP&E> 23,094,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 259,215,000
<CURRENT-LIABILITIES> 23,911,000
<BONDS> 0
0
1,000
<COMMON> 14,000
<OTHER-SE> 103,364,000
<TOTAL-LIABILITY-AND-EQUITY> 259,215,000
<SALES> 0
<TOTAL-REVENUES> 77,440,000
<CGS> 0
<TOTAL-COSTS> 57,199,000
<OTHER-EXPENSES> 2,649,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,019,000
<INCOME-PRETAX> 1,826,000
<INCOME-TAX> 2,370,000
<INCOME-CONTINUING> (544,000)<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (544,000)<F1>
<EPS-PRIMARY> (.04)<F2>
<EPS-DILUTED> (.04)<F2>
<FN>
<F1>
1996 income before the pooling of interests with Pets' Rx and the merger costs
was $3,227,000 for the six months ended June 30, 1996.
<F2>
1996 EPS was negatively impacted by the pooling of interests with Pets' Rx and a
pre-tax charge of $2,901,000 related to the costs associated with the merger of
VCA and Pets' Rx.
</FN>
</TABLE>
