UNITED STATES
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 March 31, 1998
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
20,495,003 shares as of May 8, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS March 31, December 31,
1998 1997
------------ --------------
Current assets:
Cash and equivalents $ 23,547,000 $ 19,882,000
Marketable securities 28,068,000 51,371,000
Trade accounts receivable, less allowance for
uncollectible accounts 13,245,000 8,964,000
Inventory, prepaid expenses and other 7,282,000 6,482,000
Deferred income taxes 3,068,000 3,068,000
Prepaid income taxes 3,749,000 5,634,000
------------ --------------
Total current assets 78,959,000 95,401,000
Property, plant and equipment, net 42,977,000 39,985,000
Goodwill, net 248,321,000 239,117,000
Other assets 15,598,000 11,586,000
------------ --------------
$ 385,855,000 $ 386,089,000
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 18,641,000 $ 19,369,000
Accounts payable 7,130,000 6,267,000
Other accrued liabilities 22,301,000 22,335,000
------------- -------------
Total current liabilities 48,072,000 47,971,000
Long-term obligations, less current portion 150,407,000 154,506,000
Deferred income taxes 1,186,000 1,186,000
Minority interest 2,030,000 1,575,000
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.001 20,000 20,000
Additional paid-in capital 197,747,000 196,745,000
Notes receivable from stockholders (546,000) (546,000)
Accumulated deficit (10,581,000) (12,888,000)
Less cost of common stock held in treasury,
246,938 shares at March 31, 1998 and
at December 31, 1997 (2,480,000) (2,480,000)
------------- -------------
Total stockholders' equity 184,160,000 180,851,000
------------- -------------
$ 385,855,000 $ 386,089,000
============== =============
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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<PAGE>
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997
(UNAUDITED)
1998 1997
------------ -------------
Revenues $ 63,312,000 $ 56,023,000
Direct costs 48,507,000 43,520,000
------------ -------------
Gross profit 14,805,000 12,503,000
Selling, general and administrative 4,888,000 4,849,000
Depreciation and amortization 3,136,000 2,728,000
------------ -------------
Operating income 6,781,000 4,926,000
Interest income 712,000 1,108,000
Interest expense 2,996,000 2,906,000
------------ -------------
Income before minority interest and provision
for income taxes 4,497,000 3,128,000
Minority interest in income of subsidiaries 155,000 171,000
------------ -------------
Income before provision for income taxes 4,342,000 2,957,000
Provision for income taxes 2,035,000 1,547,000
------------ -------------
Net income $ 2,307,000 $ 1,410,000
============ =============
Basic earnings per common share $ 0.11 $ 0.07
====== ======
Diluted earnings per common share $ 0.11 $ 0.07
====== ======
Shares used for computing basic earnings
per share 20,205,000 19,444,000
========== ==========
Shares used for computing diluted earnings
per share 21,402,000 20,699,000
========== ==========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 3
<PAGE>
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997
(UNAUDITED)
1998 1997
------------ ------------
Cash flows from operating activities:
Net income 2,307,000 $ 1,410,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,136,000 2,728,000
Amortization of debt discount 53,000 207,000
Minority interest in income of subsidiaries 155,000 171,000
Distributions to minority interest partners (100,000) (76,000)
Increase in accounts receivable, net (3,171,000) (1,726,000)
Decrease in inventory, prepaid expenses and other 156,000 2,383,000
Decrease (increase) in prepaid income taxes 1,019,000 (96,000)
Increase in accounts payable and accrued
liabilities 1,606,000 4,437,000
Increase in income taxes payable -- 1,547,000
---------- ----------
Net cash provided by operating activities 5,161,000 10,985,000
---------- ----------
Cash flows from investing activities:
Property, plant and equipment additions, net (4,186,000) (1,084,000)
Business acquisitions, net of cash acquired (11,535,000) (21,803,000)
Investments in marketable securities -- (45,679,000)
Proceeds from sale of marketable securities 23,303,000 47,906,000
Proceeds from the sale of assets -- 180,000
Investment in Veterinary Pet Insurance (4,000,000) --
---------- ------------
Net cash provided by (used in) investing
activities 3,582,000 (20,480,000)
---------- ------------
Cash flows from financing activities:
Reduction of long-term obligations and notes
payable (5,280,000) (4,985,000)
Payments received on notes receivable 35,000 38,000
Proceeds from issuance of common stock under
stock option plans 213,000 43,000
Payments on guaranteed purchase price
contingently payable in cash or common stock (46,000) --
Capital contribution of minority interest partner -- 10,000
Capital distribution to minority interest partner -- (1,318,000)
---------- ------------
Net cash used in financing activities (5,078,000) (6,212,000)
---------- ------------
Increase (decrease) in cash and equivalents 3,665,000 (15,707,000)
Cash and equivalents at beginning of period 19,882,000 23,820,000
---------- ------------
Cash and equivalents at end of period $23,547,000 $ 8,113,000
========== ============
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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<PAGE>
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
(1) GENERAL
The accompanying unaudited consolidated condensed 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 in accordance with the rules and
regulations of the United States Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements,
as permitted under the applicable rules and regulations. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. The results of operations for the three months ended March 31,
1998 and 1997 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, 1997 included in the
Company's Annual Report on Form 10-K as filed with the Securities and Exchange
Commission on March 31, 1998.
(2) ACQUISITIONS & INVESTMENTS
During the first quarter of 1998, the Company purchased one animal
hospital and one veterinary diagnostic laboratory for an aggregate
consideration (including acquisition costs) of $11,910,000, consisting of
$10,900,000 in cash, $400,000 in debt and the assumption of liabilities
totaling $610,000. The $11,910,000 aggregate purchase price was allocated as
follows: $797,000 to tangible assets, $10,613,000 to goodwill and $500,000 to
other intangible assets. In conjunction with previous acquisitions, the
company paid $542,000 related to assumed liabilities and $93,000 related to
stock guarantees, earnouts and other.
In January 1998, the Company invested an additional $4,000,000 in
convertible preferred stock, for a total investment of $5,000,000 in
Veterinary Pet Insurance, Inc. ("VPI") at March 31, 1998. VPI is the largest
provider of pet health insurance in the United States. The Company accounts
for the investment in VPI on the cost method.
Each share of VPI convertible preferred stock is convertible at the
Company's option at any time after issuance into that number of fully paid and
non-assessable shares of common stock of VPI as is equal to $14.00 divided
by the Conversion Price, which initially is set at $3.50. In the event of a
liquidation, winding up, merger or consolidation of VPI into another
corporation in which the shareholders of VPI will own less than 50% of
the voting securities of the surviving corporation, or the sale, transfer
or lease of all or substantially all of the assets of VPI, the holders of
the convertible preferred stock shall be entitled to be paid, out of
legally available assets, before any payment is made in respect of the
common stock, an amount equal to $14.00 per share. Upon request of
holders of at least a majority of the outstanding shares of the convertible
preferred stock at any time after December 31, 2002, VPI shall redeem all
shares of convertible preferred stock outstanding at a cash price equal
to $14.00 per share, plus all accrued but unpaid dividends on each share
(the "Redemption Price"). At any time after December 31, 2004, VPI at
its option may redeem the outstanding shares of convertible preferred
stock at the Redemption Price. The holders of the convertible preferred
stock are entitled to elect, voting as a single class, one director to the
Board of Directors of VPI.
(3) VET'S CHOICE JOINT VENTURE
In February 1997, the Company's joint venture, Vet's Choice was
restructured and management of the joint venture was assumed by the Company's
partner, Heinz Pet Products ("HPP"). Pursuant to a restructuring agreement, the
Company maintains its 50.5% equity interest in Vet's Choice. Profits and
losses are allocated 99.9% to HPP and 0.1% to the Company and all management
control has been transferred from the Company to HPP. Additionally, the
Company agreed to provide certain consulting and management services for a
three-year period commencing on February 1, 1997 for an aggregate fee of $15.3
million payable in semi-annual installments over a five-year period. On or
after the earlier of a change of control in the Company or January 1, 2000, HPP
may purchase all of the Company's interest in the partnership at a purchase
price equal to (i) 51% of (ii) 1.3 times the annual sales of all products
bearing the SELECT BALANCE or SELECT CARE brand (the "Annual Sales") less
(iii) $4.5 million. If HPP fails to exercise its option prior to January 1,
2001, the Company may purchase all of the interest of HPP in the partnership at
a purchase price equal to (i) 49.5% of (ii) 1.3 times the Annual Sales plus
(iii) $4.5 million. Effective February 1, 1997, the Company no longer reports
the results of operations of Vet's Choice on a consolidated basis.
(4) RESTRUCTURING RESERVES
During 1996, the Company adopted and implemented a restructuring plan (the
"1996 Plan") designed to restructure the Company's Animal Hospital and
Laboratory operations in connection with its 1996 acquisitions. In addition,
certain hospitals which did not meet the new standards for performance adopted
in light of the increase in the size of the Company's Animal Hospital
operations, were to be closed or sold. During the three months ended March 31,
1998, pursuant to the 1996 Plan, the Company closed one animal hospital
resulting in lease and contract termination cash expenditures of $120,000. In
addition, the Company settled a contract relating to the restructuring of its
Laboratory operations resulting in
Page 5
<PAGE>
cash expenditures of $365,000. The Company incurred an additional $141,000 of
cash expenditures for lease and other contractual obligations.
At March 31, 1998, $2,387,000 of the restructuring reserve from the 1996
Plan remains on the Company's balance sheet, consisting primarily of lease and
other contractual obligations. The major components of the 1996 Plan that are
to be completed include: (1) the termination of leases, the write-down of
property and equipment, and employee terminations in connection with the
closure of two animal hospitals and the sale of one animal hospital; (2) the
payment of lease obligations of animal hospitals that have been closed or sold;
(3) the payment of employment severance contracts; and (4) lease payments
on unused equipment, contract terminations and write-down of assets in
connection with the on-going move to common communications systems and computer
systems. As of March 31, 1998, the Company has completed a majority of its
restructuring plans, with remaining actions expected to be completed in 1998,
although certain lease obligations will continue through 2014.
During 1997, the Company reviewed the financial performance of its
hospitals. As a result of this review, an additional twelve hospitals were
determined not to meet the Company's performance standards. Accordingly, the
Company adopted phase two of its restructuring plan (the "1997 Plan").
Pursuant to the 1997 Plan, the Company incurred $10,000 of non-cash asset write-
downs, during the three months ended March 31, 1998.
At March 31, 1998, $1,598,000 of the restructuring reserve from the 1997
Plan remains on the Company's balance sheet, consisting primarily of lease
obligations and reserves for asset write-downs. The major components of the
1997 Plan that are to be completed consist primarily of the terminations of
leases and the write-down of property and equipment in connection with the
closure or sale of eleven animal hospitals. The 1997 Plan is expected to be
completed in 1998, although certain lease obligations will continue through
2005.
(5) STOCKHOLDER LAWSUIT
The Company and certain of its current and former officers and directors
have been named as defendants in two purported class action lawsuits filed in
Los Angeles Superior Court (MARILYN J. THOMPSON, ET AL. V. VETERINARY CENTERS
OF AMERICA, INC., ET AL., filed April 1, 1997, AND JOHN MARTIN V. VETERINARY
CENTERS OF AMERICA, INC., ET AL., filed August 8, 1997), and a purported class
action lawsuit filed on June 9, 1997, in the United States District court for
the Central District of California, ENTITLED MARILYN J. THOMPSON, ET AL. V.
VETERINARY CENTERS OF AMERICA, INC., ET AL. (collectively, the "Class
Actions"). The Class Actions have been filed on behalf of individuals
claiming to have purchased common stock of the Company during the time period
from February 15, 1996 through November 14, 1996, and the plaintiffs seek
unspecified damages arising from alleged misstatements regarding the Company's
animal hospitals, diagnostic laboratories, pet food operations and success in
integrating certain acquisitions.
Since discovery has only recently commenced in the Class Actions, the
Company is unable to assess the likelihood of an adverse result. There can be
no assurances as to the outcome of the Class Actions. The inability of the
Company to resolve the claims that are the basis for the lawsuits or to prevail
in any related litigation could result in the Company being required to pay
substantial monetary damages for which the Company may not be adequately
insured, which could have a material adverse effect on the Company's business,
financial position and results of operations. In any event, the Company's
defense of the Class Actions may result in substantial costs to the Company, as
well as significant dedication of management resources, as the Company intends
to vigorously defend the lawsuits.
Certain of the Company's current and former directors and officers were
named as defendants in a lawsuit filed on September 26, 1997, in the Superior
Court of California for the County of Los Angeles, ENTITLED KENT E. MASON IRA
SEP V. ROBERT L. ANTIN, ET AL. (the "Derivative Action"). In the Derivative
Action, the plaintiff has alleged that the officer and director defendants
breached various duties owed to the Company, and seeks unspecified damages on
the Company's behalf. The Company may owe indemnity obligations to the
defendants named in the Derivative Action. None of the defendants have been
served with the complaint.
(6) RECLASSIFICATIONS
Certain 1997 balances have been reclassified to conform with the 1998
financial statement presentation.
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<PAGE>
(7) ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). SFAS 128 revises and simplifies the computation for
earnings per share and requires certain additional disclosures. The adoption
of SFAS 128 did not have a material effect on the Company's financial position
or its results of operations.
The Emerging Issues Task Force of the FASB has recently issued its
Consensus Opinion 97-2 ("EITF 97-2"). EITF 97-2 addresses certain specific
matters pertaining to the contractual management relationships between entities
that operate in the health care industry, which includes the practices of
medicine, dentistry and veterinary science. EITF 97-2 will be effective for
the Company for its year ending December 31, 1998. EITF 97-2 addresses the
ability of EITF 97-2 management companies to consolidate the results of
practices with which it has an existing contractual relationship. The Company
is still in the process of analyzing the effect of EITF 97-2 on all of its
contractual relationships, but currently believes that the adoption of EITF 97-
2 will not have a material effect on its financial position or results of
operations.
(8) CALCULATION OF PER SHARE AMOUNTS
A reconciliation of the income and shares used in the computations of the
basic and diluted earnings per share ("EPS") for the quarters ended March 31,
1998 and 1997 follows:
For the Quarter Ended March 31, 1998
------------------------------------------
Per-Share
Income Shares Amount
------------ ----------- ---------
Basic EPS
Net Income $ 2,307,000 20,205,000 $0.11
=========
Effect of Dilutive Securities:
Stock Options -- 1,135,000
Stock Guarantees -- 62,000
----------- ----------
Diluted EPS $ 2,307,000 21,402,000 $0.11
=========== ========== =========
For the Quarter Ended March 31, 1997
------------------------------------------
Per-Share
Income Shares Amount
------------ ----------- ---------
Basic EPS
Net Income $ 1,410,000 19,444,000 $0.07
=========
Effect of Dilutive Securities:
Convertible Preferred Stock -- 583,000
Stock Options -- 337,000
Stock Guarantees -- 335,000
----------- ----------
Diluted EPS $ 1,410,000 20,699,000 $0.07
=========== ========== =========
(9) SUBSEQUENT EVENTS
Since March 31, 1998 through May 8, 1998, the Company has purchased five
animal hospitals for a total consideration (including acquisition costs) of
$9,029,000, consisting of $4,160,000 in cash and $2,409,000 in notes payable,
VCA common stock with a value of $2,350,000, and the assumption of liabilities
totaling $110,000.
Page 7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Veterinary Centers of America, Inc. and subsidiaries ("VCA" or the
"Company") is a leading animal health care company. The Company has
established a premier position in two core businesses, animal hospitals and
veterinary diagnostic laboratories. In addition, the Company owns a
partnership interest in a joint venture, Vet's Choice, with Heinz Pet Products
("HPP"), which markets and distributes premium pet foods. The Company also has
an investment in Veterinary Pet Insurance, Inc., the nation's largest pet
health insurance company. The Company operates the largest network of free-
standing, full-service animal hospitals in the country and one of the largest
networks of veterinary-exclusive laboratories in the nation.
Over the past several years, the Company has expanded its animal hospital
network and veterinary diagnostic laboratory operations through acquisitions.
Animal hospitals and veterinary diagnostic laboratories have been acquired
through a combination of issuance of common stock, notes or the payment of
cash.
Effective February 1, 1997, the day-to-day management of Vet's Choice was
assumed by HPP. The Company maintains its 50.5% equity interest in Vet's
Choice, but the profits and losses are allocated 99.9% to HPP and 0.1% to the
Company. The Company ceased consolidating the results of operations of Vet's
Choice on February 1, 1997.
FUTURE OPERATING RESULTS
This filing contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The words "expect", "estimate", "anticipate", "predict", "believe"
and similar expressions and variations thereof are intended to identify forward-
looking statements. Such statements appear in a number of places in this
filing and include statements regarding the intent, belief or current
expectations of the Company, its directors or its officers with respect to,
among other things (i) trends affecting the Company's financial condition or
results of operations, and (ii) the Company's business and growth strategies.
The readers of this filing are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in this filing, including, without limitation, the information set
forth under the heading "Risk Factors," as well as the information set forth
below.
RESULTS OF OPERATIONS
REVENUES
The following table summarizes the Company's revenues for each of the
three-month periods ended March 31:
1998 1997
----------- -----------
Animal Hospital $45,584,000 $39,939,000
Laboratory 19,102,000 16,246,000
Premium Pet Food -- 1,064,000
Intercompany Sales (1,374,000) (1,226,000)
----------- -----------
$63,312,000 $56,023,000
=========== ===========
Revenues for the Animal Hospital operations increased 14.1% for the three
months ended March 31, 1998 compared to the three months ended March 31, 1997.
This growth was primarily the result of the increase in the number of
facilities operated by the Company. The results for 1998 include the revenues
of an additional 12 veterinary hospitals acquired subsequent to March 31, 1997.
The increase in revenues resulting from changes in volume or prices at existing
facilities, as compared to the corresponding period in the prior year, was
approximately 4.5%.
Pursuant to the restructuring agreement and other related agreements
between HPP and the Company, the Company has agreed to provide certain
consulting and management services for a three-year period commencing February
1, 1997 for an aggregate fee of $15.3 million payable in semi-annual
installments over a five-year period (the "Consulting Fees"). The Consulting
Fees earned in the first quarters of 1998 and 1997 of $1,275,000 and $850,000,
respectively, are included in
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Animal Hospital revenues.
Revenues for the Laboratory operations increased 17.6% for the three
months ended March 31, 1998 compared to the three months ended March 31, 1997.
This increase was primarily due to the acquisition of the businesses of four
veterinary diagnostic laboratories since March 31, 1997 and to the success
achieved with increased marketing efforts.
Effective February 1, 1997, the Company no longer reports the results of
operations of Vet's Choice on a consolidated basis. Consequently, revenues for
the Pet Food operations include one month's activity in 1997.
GROSS PROFIT
Gross profit for each of the three-month periods ended March 31 is
comprised of the following:
1998 1997
----------- -----------
Animal Hospital $ 8,716,000 $ 7,224,000
Laboratory 6,089,000 5,561,000
Premium Pet Food -- (282,000)
----------- -----------
$ 14,805,000 $12,503,000
============ ===========
Gross profit for the Animal Hospital operations 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, occupancy costs, medical supply costs and costs of goods sold associated
with the retail sales of pet food and pet supplies. Animal Hospital gross
profit increased 20.7% in the 1998 three-month period when compared to the 1997
three-month period, representing 19.1% and 18.1% of Animal Hospital revenues in
1998 and 1997, respectively. The increase in the gross profit percentage from
1997 to 1998 was primarily attributable to an increase in gross profit margins
at the Company's existing hospitals and an increase in the Consulting Fees of
$425,000. Animal Hospital gross profit margins at existing hospitals increased
to 18.9% in 1998 from 18.2% in 1997. Gross profit margins at newly acquired
hospitals were 21.2% for the quarter. The Company continues to take actions
designed to improve gross margins at the animal hospitals. However, there can
be no assurance that the Company will be successful in its efforts to improve
gross profit margins at these facilities.
Gross profit of the Laboratory operations is comprised of revenues less
all direct costs of services, including salaries of veterinarians, technicians
and other non-administrative laboratory-based personnel, facilities rent,
occupancy costs and supply costs. Laboratory gross profit increased 9.5% for
the 1998 first quarter compared to the 1997 first quarter, representing 31.9%
and 34.2% of laboratory revenues in 1998 and 1997, respectively. The decrease
in the gross profit percentage for the three months ended March 31, 1998 when
compared to the same 1997 period was primarily attributable to costs incurred
in preparation for the phase-in of the operations from the $10.9 million
acquisition of certain assets of the veterinary diagnostics laboratory business
from Laboratory Corporation of America Holdings ("Lab Corp."). Approximately
50% of the acquired operations of Lab Corp. was merged into the Laboratory
operations on April 1, 1998, at which point revenue generation began. The
remaining 50% of the acquired Lab Corp. operations was combined into Laboratory
operations in May 1998. The Laboratory operations gross profit percentage for
the first quarter of 1998, excluding the costs attributable to the phase-in of
the Lab Corp. operations, remained flat when compared to the first quarter of
1997.
The Company's Animal Hospital business historically has realized gross
profit margins that are lower than that of the Laboratory business. As the
portion of the Company's revenues attributable to its Animal Hospital
operations grows in the future, the 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 expenses consists of
administrative expense at the Company's headquarters, including the salaries of
corporate officers and other personnel, accounting, legal and other
professional expenses as well as rent and occupancy costs.
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Selling, general and administrative expense for each of the three-month
periods ended March 31 is comprised of the following:
1998 1997
----------- -----------
VCA Corporate $ 3,622,000 $ 3,489,000
Laboratory 1,266,000 960,000
Premium Pet Food -- 400,000
----------- -----------
$ 4,888,000 $ 4,849,000
=========== ===========
VCA Corporate and Laboratory selling, general and administrative expense,
as a percentage of Animal Hospital and Laboratory revenues was 7.6% and 7.9%
for the three months ended March 31, 1998 and 1997, respectively. The decrease
from 1997 to 1998 was primarily attributable to an increase in revenue without
a comparable increase in expense.
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 to $3,136,000 for the three
months ended March 31, 1998 from $2,728,000 for the three months ended March
31, 1997. The increase in depreciation and amortization expense is due to the
acquisition of hospitals and laboratories. The Company's policy is to amortize
goodwill over the expected period to be benefited, not exceeding forty years.
RESTRUCTURING RESERVES
During 1996, the Company adopted and implemented a restructuring plan (the
"1996 Plan") designed to restructure the Company's Animal Hospital and
Laboratory operations in connection with its 1996 acquisitions. In addition,
certain hospitals which did not meet the new standards for performance adopted
in light of the increase in the size of the Company's Animal Hospital
operations, were to be closed or sold. During the three months ended March 31,
1998, pursuant to the 1996 Plan, the Company closed one animal hospital
resulting in lease and contract termination cash expenditures of $120,000. In
addition, the Company settled a contract relating to the restructuring of its
Laboratory operations resulting in cash expenditures of $365,000. The Company
incurred an additional $141,000 of cash expenditures for lease and other
contractual obligations.
At March 31, 1998, $2,387,000 of the restructuring reserve from the 1996
Plan remains on the Company's balance sheet, consisting primarily of lease and
other contractual obligations. The major components of the 1996 Plan that are
to be completed include: (1) the termination of leases, the write-down of
property and equipment, and employee terminations in connection with the
closure of two animal hospitals and the sale of one animal hospital; (2) the
payment of lease obligations of animal hospitals that have been closed or sold;
(3) the payment of employment severance contracts; and (4) lease payments on
unused equipment, contract terminations and write-down of assets in connection
with the on-going move to common communications systems and computer systems.
As of March 31, 1998, the Company has completed a majority of its restructuring
plans, with remaining actions expected to be completed in 1998, although
certain lease obligations will continue through 2014.
During 1997, the Company reviewed the financial performance of its
hospitals. As a result of this review, an additional twelve hospitals were
determined not to meet the Company's performance standards. Accordingly, the
Company adopted phase two of its restructuring plan (the "1997 Plan").
Pursuant to the 1997 Plan, the Company incurred $10,000 of non-cash asset write-
downs, during the three months ended March 31, 1998.
At March 31, 1998, $1,598,000 of the restructuring reserve from the 1997
Plan remains on the Company's balance sheet, consisting primarily of lease
obligations and reserves for asset write-downs. The major components of the
1997 Plan that are to be completed consist primarily of the terminations of
leases and the write-down of property and equipment in connection with the
closure or sale of eleven animal hospitals. The 1997 Plan is expected to be
completed in 1998, although certain lease obligations will continue through
2005.
Page 10
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LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations during the three months ended March 31, 1998
was $5,161,000 compared to $10,985,000 at March 31, 1997 for a decrease of
$5,824,000. The most significant components of this decrease are related to
the timing of certain receipts and disbursements and the growth of accounts
receivable attributable to revenue increases, as described above.
The Company incurred $2.2 million during the three months ended March 31,
1998 related to plans to build, upgrade, expand or replace facilities for 18
animal hospitals, the total cost of which is expected to be approximately $10.4
million. Additionally, the Company spent $1.9 million on other hospital and
lab equipment and expects to continue to upgrade or replace equipment as
needed.
In January 1998, the Company invested an additional $4 million in
convertible preferred stock, for a total investment of $5 million in Veterinary
Pet Insurance, Inc. ("VPI") at March 31, 1998. VPI is the largest provider of
pet health insurance in the United States. This strategic investment offers
VPI and the Company the opportunity to collaborate on the marketing of quality
pet care directly to the Company's clients. The Company believes the growth of
VPI will encourage the use of pet health services in VCA's animal hospitals.
The Company had entered into a letter of intent with VPI in October 1997 to
invest up to $6 million. At this point, the Company has no plans to make any
additional investments in VPI.
In February 1998, the Company acquired certain assets of the veterinary
diagnostic laboratory business of Lab Corp. for $10.9 million. This is a
significant acquisition for the Company. This acquisition will enhance the
Laboratory operations' presence in the Midwest and East coast and help in the
growth of the TEST EXPRESS laboratory business. TEST EXPRESS is a segment of
the Laboratory operations that utilizes Federal Express to service our clients
in remote areas.
The Company has achieved its growth in the past, and anticipates it will
continue its growth in the future through the acquisition of animal hospitals
for cash, stock and notes. Subject to available capital, the Company
anticipates it will complete the acquisition of an additional 10 to 20
individual animal hospitals in 1998, which will require cash of up to $15
million. In addition, the Company continues to examine acquisition
opportunities in the veterinary diagnostic laboratory field which may impose
additional cash requirements.
The Company intends to fund its future cash requirements primarily from its
cash and marketable securities and internally generated funds. 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. A
significant portion of the Company's cash requirements is determined by the
pace and size of its acquisitions.
RISK FACTORS
RAPID EXPANSION AND MANAGEMENT OF GROWTH
Due to the number and size of acquisitions completed since January 1,
1995, the Company has experienced rapid growth. In 1996, the Company completed
the acquisition of Pet Practice, Pets' Rx, 22 individual animal hospitals and
six veterinary diagnostic laboratories. In 1997, the Company completed the
acquisition of 15 individual animal hospitals and three veterinary diagnostic
laboratories. As a result of these acquisitions, the Company's revenues have
grown from $107.7 million in 1995 to $182.2 million in 1996 and to $239.4
million in 1997. In 1998, through May 8, the Company completed the acquisition
of six animal hospitals and one veterinary diagnostic laboratory.
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. There can be no assurance that the Company
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
Company's other operations. In addition, acquisitions involve several other
risks, including adverse short-term effects on the Company's 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
Page 11
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unanticipated problems or legal liabilities. The Company's failure to manage
growth effectively would have a material adverse effect on the Company's
results of operations and its ability to execute its business strategy.
DEPENDENCE ON ACQUISITIONS FOR FUTURE GROWTH
The Company's growth strategy is dependent principally on its ability to
acquire established animal hospitals. 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 materially adverse effect on the Company's financial performance. As
the Company proceeds with its acquisition strategy, it will continue to
encounter the risks associated with the integration of acquisitions described
above.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
The Company has incurred substantial indebtedness in connection with the
acquisition of its animal hospitals and veterinary diagnostic laboratories and
through the sale of the $84,385,000 of 5.25% convertible debentures in April
1996. In certain instances, debt issued in connection with the acquisition of
animal hospitals is secured by the assets of the hospital acquired. The
Company has at March 31, 1998, consolidated long-term obligations (including
current portion) of $169 million. At March 31, 1998 and December 31, 1997, the
Company's ratio of long-term debt to total stockholders' equity was 91.8% and
96.1%, respectively.
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
March 31, 1998, the Company's balance sheet reflected $253 million of
intangible assets of these types, a substantial portion of the Company's $386
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 or the estimated useful lives of the intangible
assets have changed. When factors indicate that these intangible assets
should be evaluated for possible impairment, the carrying value of the
intangible assets may be reduced, which could have a material adverse
effect on results of operations during the periods in which such reduction is
recognized. Further, any change in the estimated useful lives of the
intangible assets could result in a reduction of the carrying value of the
intangible assets and/or the future depreciation or amortization of
these assets, which could have a material adverse effect on the results of
operations of the Company. There can be no assurance that the Company will
not be required to write-down assets in future periods.
IMPACT OF YEAR 2000
The Company maintains its general ledger and accounting systems primarily
on four separate PC based systems. Some of the Company's older computer
programs were written using two digits rather than four to define the
applicable year. As a result, those computer programs have time-sensitive
software that recognize a date using "00" as the year 1900 rather than the year
2000. This could cause a system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Page 12
<PAGE>
The Company has completed an assessment of its existing software systems
and after reviewing various factors, one of which being the year 2000 issue,
has determined that modifications or upgrades to or replacements of certain
software is required. The Company anticipates that the required changes to its
existing computer systems will be substantially completed no later than
September 30, 1999, which is prior to any anticipated impact on its operating
systems. The Company believes that with these changes, the year 2000 issue
will not pose significant operational problems for its computer systems. The
total cost associated with these changes is estimated at approximately $3
million.
The costs of the project and the date on which the Company believes it
will complete the changes to its computer systems are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
SEASONALITY AND FLUCTUATING QUARTERLY RESULTS
A large portion of the Company's business 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.
GUARANTEED PURCHASE PRICE CONTINGENTLY PAYABLE IN CASH OR COMMON STOCK
In connection with acquisitions in which the purchase price consists, in
part, of the Company's common stock (the "Guarantee Shares"), the Company in
some instances guarantees (the "Guarantee Right") that the value of such stock
(the "Measurement 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 is
obligated to pay to the seller in cash 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. The
seller's Guarantee Right terminates if the Company's common stock trades at the
Issue Price (the "Release Price") for seven consecutive days. There are
156,010 Guarantee Shares outstanding at May 8, 1998 with an Issue Price of
$19.80 that have not met their respective Release Prices for the specified
period. The Guarantee Period through which the Guaranteed Shares extend is
September, 1998, and the liability for such shares at May 8, 1998 totals
approximately $456,000. 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.
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 January
2002. 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 does not maintain any
key man life insurance on the lives of its 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 materially adverse effect upon VCA's business.
Page 13
<PAGE>
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.
GOVERNMENT REGULATION
The laws of many states prohibit veterinarians from splitting fees with
non-veterinarians and prohibit business corporations from providing, or holding
themselves out as providers of, veterinary medical care. These laws vary from
state to state and are enforced by the courts and by regulatory authorities
with broad discretion. While the Company seeks to structure its operations to
comply with the corporate practice of veterinary medicine laws of each state in
which it operates, there can be no assurance that, given varying and uncertain
interpretations of such laws, the Company would be found to be in compliance
with restrictions on the corporate practice of veterinary medicine in all
states. A determination that the Company is in violation of applicable
restrictions on the practice of veterinary medicine in any state in which it
operates, could have a materially adverse effect on the Company if the Company
were unable to restructure its operations to comply with the requirements of
such states.
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.
On December 22, 1997, the Company adopted a Stockholder Rights Plan (the
"Rights Agreement") and in connection therewith, out of its authorized but
unissued shares of preferred Stock, designated 400,000 shares as Series B
Preferred Stock, par value $0.001 per share (the "Series B Preferred Stock").
Pursuant to the Rights Agreement, the Company distributed to its stockholders,
rights entitling the holders to purchase one one-hundredth of a share of Series
B Preferred Stock for each share of common stock then held at an exercise price
of $60.00. One one-hundredth of a share of Series B Preferred Stock is
functionally equivalent in all respects, including voting and dividend rights
to one share of common stock. Upon the occurrence of certain "triggering
events," each right entitles its holder to purchase, at the rights then-current
exercise price, a number of one one-hundredths of a share of Series B Preferred
Stock having a market value equal to twice the exercise price. A triggering
event occurs ten days following the date a person or group (other than an
"Exempt Person"), without the consent of the Company's board of directors,
acquires 15% or more of the Company's common stock or upon the announcement of
a tender offer or an exchange offer, the consummation of which would result in
the ownership by a person or group of 15% or more of the Company's common
stock. The rights will expire on January 5, 2008.
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 May 8, 1998, the
Company had 20,495,003 shares of common stock outstanding (including 246,938
shares held in treasury), most of which are either freely tradable in the
public market without restriction or tradable in accordance
Page 14
<PAGE>
with Rule 144 under the Act. There are also 14,978 shares which the Company is
obligated to issue in connection with the Pets' Rx and Pet Practice mergers and
certain acquisitions; 3,707,873 shares of the Company's common stock issuable
upon exercise of outstanding stock options; 41,046 shares issuable upon
conversion of convertible notes; and 2,456,623 shares issuable upon 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.
ALLEGED MISSTATEMENTS REGARDING THE COMPANY'S OPERATIONS AND PROSPECTS
The Company and certain of its current and former officers and directors
have been named as defendants in two purported class action lawsuits filed in
Los Angeles Superior COURT (MARILYN J. THOMPSON, ET AL. V. VETERINARY CENTERS
OF AMERICA, INC., ET AL., filed April 1, 1997, AND JOHN MARTIN V. VETERINARY
CENTERS OF AMERICA, INC., ET AL., filed August 8, 1997), and a purported class
action lawsuit filed on June 9, 1997, in the United States District court for
the Central District of California, ENTITLED MARILYN J. THOMPSON, ET AL. V.
VETERINARY CENTERS OF AMERICA, INC., ET AL. (collectively, the "Class
Actions"). The Class Actions have been filed on behalf of individuals
claiming to have purchased common stock of the Company during the time period
from February 15, 1996 through November 14, 1996, and the plaintiffs seek
unspecified damages arising from alleged misstatements regarding the Company's
animal hospitals, diagnostic laboratories, pet food operations and success in
integrating certain acquisitions.
Since discovery has only recently commenced in the Class Actions, the
Company is unable to assess the likelihood of an adverse result. There can be
no assurances as to the outcome of the Class Actions. The inability of the
Company to resolve the claims that are the basis for the lawsuits or to prevail
in any related litigation could result in the Company being required to pay
substantial monetary damages for which the Company may not be adequately
insured, which could have a material adverse effect on the Company's business,
financial position and results of operations. In any event, the Company's
defense of the Class Actions may result in substantial costs to the Company, as
well as significant dedication of management resources, as the Company intends
to vigorously defend the lawsuits.
Certain of the Company's current and former directors and officers were
named as defendants in a lawsuit filed on September 26, 1997, in the Superior
Court of California for the County of Los Angeles, entitled KENT E. MASON IRA
SEP V. ROBERT L. ANTIN, ET AL. (the "Derivative Action"). In the Derivative
Action, the plaintiff has alleged that the officer and director defendants
breached various duties owed to the Company, and seeks unspecified damages on
the Company's behalf. The Company may owe indemnity obligations to the
defendants named in the Derivative Action.
Page 15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For discussion on legal proceedings, see Risk Factors - "Alleged
Misstatements Regarding the Company's Operations and Prospects."
In addition to the legal proceedings described herein, the Company
is a party to other litigation which arises in the ordinary course
of its business, none of which is material.
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 27.1 Financial Data Schedule
(b) Reports on Form 8-K:
-------------------
Current Report on Form 8-K filed May 5, 1998, Item 5.
Current Report on Form 8-K filed January 5, 1998, Item 5.
Page 16
<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: May 14, 1998 /s/ Tomas W. Fuller
-----------------------------
Tomas W. Fuller
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
ITEM EXHIBIT PAGE
- ---- ------- ----
27.1 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EX-27.1
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 23,547,000
<SECURITIES> 28,068,000
<RECEIVABLES> 13,245,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 78,959,000
<PP&E> 42,977,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 385,855,000
<CURRENT-LIABILITIES> 48,072,000
<BONDS> 0
0
0
<COMMON> 20,000
<OTHER-SE> 184,140,000
<TOTAL-LIABILITY-AND-EQUITY> 385,855,000
<SALES> 0
<TOTAL-REVENUES> 63,312,000
<CGS> 0
<TOTAL-COSTS> 48,507,000
<OTHER-EXPENSES> 3,136,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,996,000
<INCOME-PRETAX> 4,342,000
<INCOME-TAX> 2,035,000
<INCOME-CONTINUING> 2,307,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,307,000
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
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