<PAGE> 1
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, 2000
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.)
12401 WEST OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90064-1022
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 584-6500
Former name, address and fiscal year, if changed since last report: NONE
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 class of
common stock as of the latest practicable date: Common Stock, $.001 Par Value
21,918,269 shares as of May 8, 2000.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ............................................................ $ 2,718 $ 10,620
Marketable securities ........................................................... 20,056 5,313
Trade accounts receivable, less allowance for uncollectible accounts of
$7,378 and $7,162 at March 31, 2000 and December 31, 1999, respectively ..... 19,053 15,276
Inventory, prepaid expenses and other ........................................... 9,404 9,999
Deferred income taxes ........................................................... 4,213 4,213
Prepaid income taxes ............................................................ -- 3,986
--------- ---------
Total current assets ........................................................ 55,444 49,407
Property and equipment, net ........................................................ 74,334 70,336
Goodwill and covenants not to compete, net ......................................... 299,656 295,736
Other assets ....................................................................... 6,073 11,021
--------- ---------
$ 435,507 $ 426,500
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations ........................................ $ 19,419 $ 21,901
Accounts payable ................................................................ 9,146 8,715
Other accrued liabilities ....................................................... 18,829 15,154
--------- ---------
Total current liabilities ................................................... 47,394 45,770
Long-term obligations, less current portion ........................................ 139,812 139,634
Deferred income taxes .............................................................. 6,655 6,655
Minority interest .................................................................. 2,918 3,212
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.001 .................................................. 20 20
Additional paid-in capital ...................................................... 214,857 213,728
Notes receivable from stockholders .............................................. (663) (654)
Retained earnings ............................................................... 32,129 25,737
Other comprehensive income, unrealized loss on investments ...................... (374) (361)
Less cost of common stock held in treasury, 620 shares at both March 31,
2000 and December 31, 1999 ................................................ (7,241) (7,241)
--------- ---------
Total stockholders' equity .................................................. 238,728 231,229
--------- ---------
$ 435,507 $ 426,500
========= =========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated balance sheets.
2
<PAGE> 3
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Revenues ............................................................... $83,351 $73,838
Direct costs ........................................................... 61,666 55,277
------- -------
Gross profit ...................................................... 21,685 18,561
Selling, general and administrative expense ............................ 6,459 5,522
Depreciation and amortization .......................................... 4,151 3,554
Year 2000 remediation expenses ......................................... -- 287
Year 2000 accelerated depreciation ..................................... -- 344
1996 restructuring plan favorable settlement ........................... -- 321
------- -------
Operating income .................................................. 11,075 9,175
Interest income ........................................................ 115 466
Interest expense ....................................................... 2,537 2,655
Gain on sale of investment in Veterinary Pet Insurance, Inc. ........... 3,200 --
------- -------
Income before minority interest and provision for income taxes .... 11,853 6,986
Minority interest in income of subsidiaries ............................ 190 136
------- -------
Income before provision for income taxes .......................... 11,663 6,850
Provision for income taxes ............................................. 5,271 3,150
------- -------
Net income ........................................................ $ 6,392 $ 3,700
======= =======
Basic earnings per common share ................................... $ 0.30 $ 0.18
======= =======
Diluted earnings per common share ................................. $ 0.30 $ 0.17
======= =======
Shares used for computing basic earnings per share ................ 21,144 20,657
======= =======
Shares used for computing diluted earnings per share .............. 21,656 22,065
======= =======
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated balance sheets.
3
<PAGE> 4
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ....................................................................... $ 6,392 $ 3,700
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................................... 4,151 3,897
Gain on sale of investment in Veterinary Pet Insurance, Inc. ................ (3,200) --
Minority interest in income of subsidiaries ................................. 190 136
Distributions to minority interest partners ................................. (492) (193)
Provision for uncollectible accounts ........................................ 840 811
Increase in accounts receivable, net ........................................ (4,590) (2,790)
Decrease (increase) in inventory, prepaid expenses and other assets ......... 595 (350)
Decrease in prepaid income taxes ............................................ 3,986 3,130
Increase in accounts payable and accrued liabilities ........................ 5,129 6,478
-------- --------
Net cash provided by operating activities ................................. 13,001 14,819
-------- --------
Cash flows from investing activities:
Property and equipment additions ............................................ (5,149) (2,772)
Business acquisitions, net of cash acquired ................................. (2,331) (2,920)
Proceeds from sales of marketable securities, net ........................... 23,996 23,686
Investments in marketable securities, net ................................... (38,752) (20,576)
Net proceeds from sale of investment in Veterinary Pet Insurance, Inc. ...... 8,200 --
Other ....................................................................... (68) 55
-------- --------
Net cash used in investing activities ..................................... (14,104) (2,527)
-------- --------
Cash flows from financing activities:
Repayment of long-term obligations .......................................... (6,815) (4,946)
Proceeds from issuance of common stock under stock option plans ............. 16 149
Purchase of treasury stock .................................................. -- (804)
-------- --------
Net cash used in financing activities ..................................... (6,799) (5,601)
-------- --------
Increase (decrease) in cash and equivalents ........................................ (7,902) 6,691
Cash and equivalents at beginning of period ........................................ 10,620 8,977
-------- --------
Cash and equivalents at end of period .............................................. $ 2,718 $ 15,668
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated balance sheets.
4
<PAGE> 5
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
(1) GENERAL
The accompanying unaudited condensed 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 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 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, 2000 are not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's 1999 Annual Report on Form 10K, as
amended.
(2) ACQUISITIONS
During the first quarter of 2000, the Company purchased five animal
hospitals, two of which were merged into existing VCA facilities, and one
veterinary diagnostic laboratory, which was also merged into an existing VCA
facility, for an aggregate consideration (including acquisition costs) of
$6,335,000, consisting of $2,125,000 in cash, $4,050,000 in debt and the
assumption of liabilities totaling $160,000. The $6,335,000 aggregate purchase
price was allocated as follows: $166,000 to tangible assets, $5,860,000 to
goodwill and $309,000 to other intangible assets.
(3) JOINT VENTURES AND INVESTMENT
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 (the "Consulting Fees"). The
Consulting Fees earned in each of the three months ended March 31, 2000 and
1999, of $425,000 and $1,275,000, respectively, are included in revenues. The
Company ceased earning these consulting fees on February 1, 2000. On or after
the earlier of a change of control in the Company or January 1, 2001, HPP may
purchase all of the Company's interest in the joint venture at a purchase price
equal to 51% of 1.3 times the annual sales of all products bearing the Select
Balance or Select Care brand (the "annual sales") less $4.5 million. If HPP
fails to exercise its option prior to January 1, 2002, the Company may purchase
all of the interest of HPP in the joint venture at a purchase price equal to
49.5% of 1.3 times the annual sales plus $4.5 million.
In December 1997 and January 1998, the Company made a combined $5.0
million strategic investment in Veterinary Pet Insurance, Inc. ("VPI"), the
largest provider of pet health insurance in the United States. The Company
accounted for this investment using the cost method. The Company sold its
investment in VPI and received $8.2 million in cash, net of $50,000 in related
transaction costs, in February 2000, resulting in a one-time gain of
approximately $3.2 million.
5
<PAGE> 6
(4) RESTRUCTURING RESERVES
During 1997, the Company reviewed the financial performance of its
animal hospitals. As a result of this review, certain animal hospitals were
determined not to meet the Company's performance standards. Accordingly, the
Company adopted a restructuring plan (the "1997 Plan"). During the three months
ended March 31, 2000, pursuant to the 1997 Plan, the Company incurred $24,000 of
cash expenditures for lease and other contractual obligations.
At March 31, 2000, the 1997 Plan restructuring reserve balance was
$319,000, consisting primarily of lease obligations. The 1997 Plan was completed
in 1999, although certain lease obligations will continue through 2005.
(5) MERGER AGREEMENT AND RECAPITALIZATION
On March 30, 2000, we entered into an Agreement and Plan of Merger with
Vicar Recap, Inc., a Delaware corporation and wholly owned by Green Equity
Investors III, L.P., and Vicar Operating Company, Inc., a Delaware corporation
and wholly owned subsidiary of our company. According to the terms of the merger
agreement, we will be merged with and into Vicar Recap, with our company as the
surviving corporation. As a result of the merger, Green Equity Investors III and
a group of our directors, officers and employees will become the owners of 100%
of our common stock. In the merger, each outstanding share of our common stock,
par value $0.001 per share, (other then shares held by dissenting stockholders,
Vicar Recap, Green Equity Investors III and in our treasury) will be converted
into the right to receive a cash payment of $15.00, without interest.
Completion of the transaction is subject to various conditions,
including stockholder approval, receipt of regulatory approvals and the
completion of debt financing. Stockholder approval will be solicited by means of
a proxy statement, which will be mailed to stockholders upon completion of the
required United States Securities and Exchange Commission filing and review
process.
(6) STOCKHOLDER LAWSUITS
As a result of the proposed merger described in Footnote (5), six
complaints have been filed as of May 8, 2000. The Company and members of the
Board of Directors have been named as defendants in class action lawsuits filed
in the Delaware Court of Chancery and the California Superior Court. The
complaints seek certification of a class of all the Company's stockholders whose
stock will be acquired in connection with the merger and seek injunctive relief
that would, if granted, prevent the completion of the merger. The complaints
also seek unspecified damages, attorneys' fees and other relief. The Company
believes that the allegations contained in the complaints are without merit and
intends to contest the actions vigorously. The individual defendants have
advised us that they also believe that the allegations in the complaints are
without merit and that they intend to contest the actions vigorously.
The defendants have filed an answer to the class action complaints filed
in Delaware and the five separate actions filed in Delaware have been
consolidated. The defendants have not filed an answer to the one class action
complaint filed in California.
The Company cannot be assured that the allegations included in the
complaints will be successfully defended. 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. Regardless of whether the merger is
consummated or the outcome of the lawsuits, the Company may incur significant
related expenses and costs that could have an adverse effect on the Company's
business and operations. Furthermore, the cases could involve a substantial
diversion of the time of some members of management. Accordingly, the Company is
unable to estimate the impact of any potential liabilities associated with the
complaints.
6
<PAGE> 7
(7) CALCULATION OF PER SHARE AMOUNTS
Below is a reconciliation of the income and shares used in the
computations of the basic and diluted earnings per share ("EPS") (amounts in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------------------- -------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income ...................... $6,392 21,144 $0.30 $3,700 20,657 $0.18
===== =====
Effect of dilutive securities:
Stock options ................... -- 512 -- 1,408
------ ------- ------- -------
Diluted EPS ........................ $6,392 21,656 $0.30 $3,700 22,065 $0.17
====== ======= ===== ======= ======= =====
</TABLE>
(8) COMPREHENSIVE INCOME
Below is a calculation of comprehensive income (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------- -------
<S> <C> <C>
Net income ....................................... $ 6,392 $ 3,700
Other comprehensive income (loss) - unrealized
loss
on investments .............................. (242) (122)
Unrealized loss recognized on investments ........ 229 278
------- -------
Net comprehensive income ......................... $ 6,379 $ 3,856
======= =======
</TABLE>
No income tax benefit related to the unrealized loss on investment was
recognized due to potential tax treatment of investment losses.
(9) LINES OF BUSINESS
During the three months ended March 31, 2000 and 1999, the Company had
three reportable segments: Animal Hospitals, Laboratories and Corporate. These
segments are strategic business units that have different products, services and
functions. The segments are managed separately because each is a distinct and
different business venture with unique challenges, rewards and risks. The Animal
Hospitals provide veterinary services for companion animals and sell related
retail products. The Laboratories provide testing services for veterinarians
both associated with the Company and independent of the Company. Corporate
provides selling, general and administrative support for the Animal Hospitals
and Laboratories segments. The Corporate segment includes the costs of the
executive, finance, accounting, human resources, marketing, purchasing and
regional operational management functions. Though Corporate does not generate
revenue, it is being included as a reportable segment to provide a better
understanding of the Company as a whole.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies as detailed in the Company's
1999 Annual Report Form 10-K as amended. The Company evaluates performance of
segments based on profit or loss before income taxes, interest income, interest
expense
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<PAGE> 8
and minority interest, which are evaluated on a consolidated level. For purposes
of reviewing the operating performance of the segments, all inter-segment sales
and purchases are accounted for as if they were transactions with independent
third parties at current market prices.
Below is a summary of certain financial data for each of the three
segments (in thousands):
<TABLE>
<CAPTION>
Inter-Segment
Animal Sales
Hospitals Laboratories Corporate Eliminations Total
--------- ------------ --------- ------------- -----
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 2000
Revenues ......................... $ 56,220 $ 28,805 $ -- $ (1,674) $ 83,351
Operating income (loss) .......... 7,993 8,256 (5,174) -- 11,075
Depreciation/amortization ........ 2,855 1,081 215 -- 4,151
expense
Capital expenditures ............. 4,171 387 591 -- 5,149
THREE MONTHS ENDED MARCH 31, 1999
Revenues ......................... $ 49,726 $ 25,569 $ -- $ (1,457) $ 73,838
Operating income (loss) .......... 6,751 7,101 (4,677) -- 9,175
Year 2000 remediation costs ...... -- -- (631) -- (631)
Reversal of restructuring ........ -- -- 321 -- 321
charges
Depreciation/amortization ........ 2,277 1,041 236 -- 3,554
expense
Capital expenditures ............. 2,050 630 92 -- 2,772
AT MARCH 31, 2000
Identifiable assets .............. $ 284,988 $ 110,896 $ 39,623 -- $ 435,507
AT MARCH 31, 1999
Identifiable assets .............. $ 231,435 $ 108,507 $ 60,647 -- $ 400,589
AT DECEMBER 31, 1999
Identifiable assets .............. $ 280,742 $ 105,224 $ 40,534 -- $ 426,500
</TABLE>
Below is a reconciliation between total segment operating income after
eliminations and consolidated income before provision for income taxes as
reported on the condensed, consolidated statements of operations, (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------- -------
<S> <C> <C>
Total segment operating income after eliminations .... $11,075 $ 9,175
Interest income ...................................... 115 466
Interest expense ..................................... 2,537 2,655
Gain on sale of investment in Veterinary Pet
Insurance, Inc................................... 3,200 --
Minority interest .................................... 190 136
------- -------
Income before provision for income taxes ............. $11,663 $ 6,850
======= =======
</TABLE>
(10) RECLASSIFICATIONS
Certain 1999 balances have been reclassified to conform with the 2000
financial statement presentation.
(11) ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000, as per the
issuance of SFAS 137. SFAS 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
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activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The Company has not yet assessed the impact of the
adoption of SFAS 133.
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 one of the nation's largest animal health care companies. The
Company has established a premier position in two core businesses, animal
hospitals ("Animal Hospitals") and veterinary diagnostic laboratories
("Laboratories"). The Company operates the largest nationwide networks of
free-standing, full-service animal hospitals and veterinary-exclusive
laboratories.
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 issuing a combination of common stock, notes payable and cash.
On March 30, 2000, we entered into an Agreement and Plan of Merger with
Vicar Recap, Inc., a Delaware corporation and wholly owned by Green Equity
Investors III, L.P., and Vicar Operating Company, Inc., a Delaware corporation
and wholly owned subsidiary of our company. According to the terms of the merger
agreement, we will be merged with and into Vicar Recap, with our company as the
surviving corporation. As a result of the merger, Green Equity Investors III and
a group of our directors, officers and employees will become the owners of 100%
of our common stock. In the merger, each outstanding share of our common stock,
par value $0.001 per share, (other then shares held by dissenting stockholders,
Vicar Recap, Green Equity Investors III and in our treasury) will be converted
into the right to receive a cash payment of $15.00, without interest.
Completion of the merger is subject to various conditions, including
approval of the merger by our stockholders, securing the financing necessary in
connection with the consummation of the merger, obtaining all necessary permits
and approvals and the expiration of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act Of 1976, as amended, or HSR Act. In
addition, the completion of the merger is subject to the execution of certain
agreements including, a management services agreement, a stockholders' agreement
and various employment agreements.
The merger agreement provides that under certain conditions, we may
terminate the merger agreement and accept a proposal determined by the Board of
Directors to be superior, from a financial point of view, to our stockholders
(other then to the management stockholders), subject to the payment of a
termination fee to Vicar Recap of $10 million. The merger agreement further
provides that in the event we are not required to pay the $10 million
termination fee and the merger is terminated because we breached a covenant or
representation or warranty contained in the merger agreement or are unable to
obtain stockholder approval of the merger agreement and related transactions, we
may be required to pay Vicar Recap fees and expenses, up to $1 million, incurred
in connection with the merger. Either party may terminate the merger agreement
if the merger is not consummated on or before September 30, 2000, subject to
certain conditions.
9
<PAGE> 10
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, 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
Animal Hospitals represented 67.4% and 67.3% of total Company revenues
for the three months ended March 31, 2000 (the "first quarter 2000") and the
three months ended March 31, 1999 (the "first quarter 1999"), respectively.
Laboratories represented 32.6% and 32.7% of total Company revenues for first
quarter 2000 and 1999, respectively.
The reported revenues of Animal Hospitals consists of the revenues of
animal hospitals owned by the Company and the management fees charged to
independent professional corporations ("PCs"). At March 31, 2000, the Company
owned and managed 196 animal hospitals, of which 46 were located in states that
prohibit veterinarians from splitting fees with non-veterinarians and prohibit
business corporations from providing or holding themselves out as providers of
veterinary medical care. In these states, the Company has contracted with PCs
who provide all veterinary medical care. The Company provides all administrative
functions with respect to these 46 animal hospitals. In return for its services,
the Company receives management fees from the PCs, which have been included in
the reported revenues for Animal Hospitals. The Company does not consolidate the
operations of the PCs.
The following are components of reported revenues of Animal Hospitals
included in the table below:
ANIMAL HOSPITALS OWNED AND MANAGED - represents the aggregate of
revenues for animal hospitals owned directly by the Company and the
unconsolidated revenues of the PCs. This aggregate would equal the total
reported Animal Hospitals revenues if the Company recognized and consolidated
the revenues of the PCs.
REVENUES OF PCS - represents the unconsolidated and unrecognized
revenues of the PCs.
MANAGEMENT FEES CHARGED TO PCS - represents the fees that the PCs pay to
the Company in return for the Company's services.
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<PAGE> 11
The following table summarizes the Company's revenues for the three
months ended March 31, 2000 and 1999 (amounts in thousands):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999 %Increase
-------- -------- ---------
<S> <C> <C> <C>
Animal Hospitals Owned and Managed ..... $ 62,713 $ 51,338 22.2%
Less: Revenues of PCs .................. (13,330) (6,481) 105.7%
Add: Management fees charged to PCs .... 6,837 4,869 40.4%
-------- --------
Animal Hospitals Reported .............. 56,220 49,726 13.1%
Laboratories ........................... 28,805 25,569 12.7%
Intercompany Sales ..................... (1,674) (1,457) --
-------- --------
$ 83,351 $ 73,838 12.9%
======== ========
</TABLE>
The increase in revenues of both Animal Hospitals Reported and Animal
Hospitals Owned and Managed for the three months ended March 31, 2000 from the
1999 comparable period was primarily the result of the increase in the number of
facilities owned and the number of animal hospitals managed by the Company. The
Company owned an additional two animal hospitals and managed an additional 24
animal hospitals in the three months ended March 31, 2000 compared to the three
months ended March 31, 1999.
The increase in revenues of Animal Hospitals Reported that resulted from
increases in volume or prices at same-store facilities, as compared to the
corresponding period in the prior year, was approximately 8.3% for the three
months ended March 31, 2000. Same-store facilities are animal hospitals that
were owned as of the beginning of the prior-year period.
Had the revenues of the PCs been consolidated with the revenues of owned
veterinary animal hospitals, the increases in combined revenues resulting from
changes in volume or prices at same-store facilities, as compared to the
corresponding period in the prior year, would have been 8.1% for the three
months ended March 31, 2000.
Effective October 1, 1999 for the independent professional corporation
located in Texas and January 1, 2000 for all other PCs, non-veterinarian
employees ceased working directly for the Company and were hired by the PCs. The
PCs bear all labor costs directly associated with the managed animal hospitals.
Before this change, only veterinarians were employed by the PCs, and the Company
provided non-veterinarian labor as part of its management agreement with the
PCs. As a result, the management fees charged to the PCs by the Company have
decreased. Had this change not occurred and had the Company provided the
non-veterinarian labor for the PCs, the management fees for the first quarter of
2000 would have been $9,905,000, reflecting an increase of 103.4% from the prior
year period.
The increase in Laboratories' revenues for the three months ended March
31, 2000 is primarily due to success achieved with increased marketing efforts,
a pricing increase and the revenues from two veterinary diagnostic laboratories
acquired since March 31, 1999.
Pursuant to the restructuring agreement and other related agreements
between Heinz Pet Products and the Company, the Company has agreed to provide
certain consulting and management services for a three-year period commencing
February 1, 1997 and ending January 31, 2000. The agreements call for the
Company to receive an aggregate of $15.3 million payable in semi-annual
installments over a five-year period (the "Consulting Fees"). The Consulting
Fees earned and recognized in each of the three month periods ended March 31,
2000 and 1999, of $425,000 and $1,275,000, respectively, are included in Animal
Hospital revenues.
11
<PAGE> 12
GROSS PROFIT
The following table summarizes the Company's gross profit for the three
months ended March 31, 2000 and 1999 (amounts in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999 %Increase
------- ------- ---------
<S> <C> <C> <C>
Animal Hospitals ... $10,848 $ 9,028 20.2%
Laboratories ....... 10,837 9,533 13.7%
------- -------
$21,685 $18,561 16.8%
======= =======
</TABLE>
Gross profit for the Animal Hospitals 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, supply costs and costs of goods sold associated with the
retail sales of pet food and pet supplies. Animal Hospitals' gross profit
represented 19.3% and 18.2% of Animal Hospitals' revenues for the three months
ended March 31, 2000 and 1999, respectively.
Had the PCs operations been consolidated with owned animal hospitals
("Combined Hospital Operations"), gross profit margins would have been 17.3% and
17.6% for the three months ended March 31, 2000 and 1999, respectively. As
discussed previously under REVENUES, the Company no longer provides
non-veterinarian labor as part of its management agreement with the PCs. As a
result, the management fees charged to the PCs have decreased in the first
quarter 2000 compared to the first quarter 1999. Had this change not occurred
and had the Company provided the non-veterinarian labor for the PCs, the gross
profit margin for the Combined Hospital Operations for the first quarter of 2000
would have been 18.2%.
The gross profit margin for same-store hospitals owned by the Company
prior to January 1, 1999 was 18.9% and 16.1% for the three months ended March
31, 2000 and 1999, respectively. The gross profit margin for newly acquired
hospitals (those acquired by the Company after the beginning of the period
presented) was 21.5% for the three months ended March 31, 2000. Gross profit
margins for same-store and newly acquired hospitals have been calculated
excluding the Consulting Fees earned in each of the three month periods ended
March 31, 2000 and 1999, of $425,000 and $1,275,000, respectively.
Same-store gross profit margins for the Combined Hospital Operations
would have been 17.8% and 15.6% for the three months ended March 31, 2000 and
1999, respectively.
Gross profit of the Laboratories 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. Laboratories gross profit represented 37.6% and 37.3%
of Laboratories revenues for the three months ended March 31, 2000 and 1999,
respectively.
The Company's Animal Hospitals have historically realized lower gross
profit margins than that of its Laboratories business. If the portion of the
Company's revenues attributable to its Animal Hospitals 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 EXPENSE
VCA Corporate selling, general and administrative expenses consists of
administrative expense, including the salaries of corporate officers, other
professional expenses, rent and occupancy costs associated with the Company's
headquarters.
12
<PAGE> 13
Selling, general and administrative expense for the three months ended
March 31, 2000 and 1999 is comprised of the following (amounts in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------ ------
<S> <C> <C>
VCA Corporate ...... $4,959 $4,131
Laboratories ....... 1,500 1,391
------ ------
$6,459 $5,522
====== ======
</TABLE>
Selling, general and administrative expense, as a percentage of total
revenues, was 7.7% and 7.5% for the three months ended March 31, 2000 and 1999,
respectively.
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 $4,151,000 for the three
months ended March 31, 2000 from $3,544,000 for the three months ended March 31,
1999. The increase in depreciation and amortization expense is due to the
purchase of property and equipment and the acquisition of animal hospitals and
laboratories since March 31, 1999. The Company's policy is to amortize goodwill
over the expected period to be benefited, not exceeding 40 years.
RESTRUCTURING RESERVES
During 1997, the Company reviewed the financial performance of its
animal hospitals. As a result of this review, certain animal hospitals were
determined not to meet the Company's performance standards. Accordingly, the
Company adopted a restructuring plan (the "1997 Plan"). During the three months
ended March 31, 2000, pursuant to the 1997 Plan, the Company incurred $24,000 of
cash expenditures for lease and other contractual obligations.
At March 31, 2000, the 1997 Plan restructuring reserve liability
balance was $319,000, consisting primarily of lease obligations. The 1997 Plan
was completed in 1999, although certain lease obligations will continue through
2005.
GAIN ON SALE OF INVESTMENT IN VETERINARY PET INSURANCE, INC.
In December 1997 and January 1998, the Company made a combined $5.0
million strategic investment in Veterinary Pet Insurance, Inc. ("VPI"), the
largest provider of pet health insurance in the United States. The Company
accounted for this investment using the cost method. The Company sold its
investment in VPI and received $8.2 million in cash, net of $50,000 in related
transaction costs, in February 2000 resulting in a one-time gain of
approximately $3.2 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires continued access to cash, primarily to fund
acquisitions, to reduce long-term debt obligations and to fund capital
expenditures.
Cash provided by operations during the three months ended March 31, 2000
was $13,001,000 compared to $14,819,000 for the comparable period ended March
31, 1999, for a decrease of $1,818,000. The most significant component of this
decrease relates to the timing of certain receipts and disbursements.
13
<PAGE> 14
During the three months ended March 31, 2000 and 1999, in connection
with acquisitions, the Company used cash of $2,331,000 (acquisition of five
animal hospitals and one veterinary diagnostic laboratory) and $2,920,000
(acquisition of five animal hospitals and one veterinary diagnostic laboratory),
respectively. From April 1, 2000 through May 8, 2000, the Company used cash of
approximately $1,215,000 to acquire two animal hospitals.
During the three months ended March 31, 2000 and 1999, the Company used
$5,149,000 and $2,772,000, respectively, to purchase property and equipment and
$6,815,000 and $4,946,000 to reduce long-term obligations, respectively.
The Company has debt payment obligations related to the Animal Hospitals
and Laboratories operations owned as of March 31, 2000, of approximately $15.9
million and $18.7 million in the years ended December 31, 2000 and 2001,
respectively. Interest payments on the convertible debentures amount to
$4,430,000 annually. In addition, the Company is building or has plans to
upgrade, expand or replace facilities for 17 animal hospitals for a total cost
of approximately $9.8 million, as well as to replace or upgrade equipment, as
needed.
During the first quarter of 2000, the Company committed to loan up to
$5.0 million to yopet.com inc., a start-up corporation funded and controlled by
Robert A. Antin, the Chief Executive Officer and a director of the Company.
At March 31, 2000, the Company had cash and cash equivalents of
$2,718,000 and no bank or institutional indebtedness. 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.
The Company anticipates it will complete the acquisition of an additional 15 to
20 individual animal hospitals during the next twelve months, which will require
cash of up to $15 million. In addition, the Company continues to examine
acquisition opportunities in the veterinary laboratory field, which may impose
additional cash requirements. Although the Company does not have sufficient cash
reserves at March 15, 2000 to fund this growth plan, the Company believes that
it can access sufficient debt financing to fund its planned growth for more than
the next 12 months.
The Company believes it is able to fund its future operational cash
requirements primarily from cash on hand, the sale of its marketable securities,
new debt financing 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. However, a
significant portion of the Company's cash requirements is determined by the pace
and size of its acquisitions. The Company believes that it can access sufficient
funding from financial institutions, if needed.
14
<PAGE> 15
RISK FACTORS
Readers should consider carefully the following factors, in addition to
the other information contained in this prospectus, in evaluating us and our
business.
CERTAIN RISKS ASSOCIATED WITH THE MERGER
On March 30, 2000, we entered into an Agreement and Plan of Merger with
Vicar Recap, Inc., a Delaware corporation and wholly owned by Green Equity
Investors III, L.P., and Vicar Operating Company, Inc., a Delaware corporation
and wholly owned subsidiary of our company. According to the terms of the merger
agreement, we will be merged with and into Vicar Recap, with our company as the
surviving corporation. As a result of the merger, Green Equity Investors III and
a group of our directors, officers and employees will become the owners of 100%
of our common stock. In the merger, each outstanding share of our common stock,
par value $0.001 per share, (other then shares held by dissenting stockholders,
Vicar Recap, Green Equity Investors III and in our treasury) will be converted
into the right to receive a cash payment of $15.00, without interest. We
retained two financial advisors to assess the fairness of the merger. Both
financial advisors found the $15.00 per share price to be fair, from a financial
point of view, to our public stockholders.
Consummation of the merger is subject to various conditions, including
approval of the merger by our stockholders, securing the financing necessary to
consummate the merger and related transactions, obtaining all necessary permits
and approvals and the expiration of the applicable waiting period under the HSR
Act. Although Recap has obtained binding commitments for the required financing,
these commitments also contain a variety of conditions. As a result of the
various conditions to complete the merger, we cannot assure you that the merger
will be consummated.
It is expected that if the merger is not consummated for any reason, our
current management, under the direction of the Board of Directors, will continue
to manage our company as an on-going business. Currently, we are not considering
any other merger proposals as alternatives to the merger. If, for any reason,
the merger is not consummated, we cannot assure you that any other transaction
acceptable to us will be offered or that our operations will not be adversely
impacted.
If the merger is consummated, we will be a privately held corporation.
The public stockholders will cease to have any ownership interest in, or rights
as, stockholders of our company, including the payment of any dividends on our
common stock. Further, the public stockholders will not benefit from any
increase or bear the risk of any decrease in the value of our company.
WE MAY NOT BE ABLE TO MANAGE OUR GROWTH
Since January 1, 1996, we have experienced rapid growth and expansion.
In 1996, we acquired The Pet Practice Inc., Pets' Rx, Inc., as well as 22
individual animal hospitals and six veterinary diagnostic laboratories. In 1997,
we acquired 15 animal hospitals and three veterinary diagnostic laboratories. In
1998, we acquired 11 animal hospitals and one veterinary diagnostic laboratory.
In 1999, we acquired 39 animal hospitals and two veterinary diagnostic
laboratories. As a result of these acquisitions, our revenues grew from $181.4
million in 1996 to $320.6 million in 1999. In 2000 through May 8, we acquired
seven animal hospitals and one veterinary diagnostic laboratory. Of these
purchases, two of the hospitals and the laboratory were merged upon acquisition
into existing facilities.
We have experienced, and will continue to experience, a strain on our
administrative and operating resources. Our growth has also increased the
demands on our information systems and controls. We cannot guarantee that we
will be able to identify, consummate and integrate acquired companies without
substantial delays, costs or other problems. Once integrated, these acquired
companies may not be profitable. In addition, acquisitions involve several other
risks including:
15
<PAGE> 16
- adverse short-term effects on our 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
- risks associated with unanticipated problems or legal liabilities
Our failure to manage our growth effectively will have a material
adverse effect on our results of operations and our ability to execute our
business strategy.
DEPENDENCE ON ACQUISITIONS FOR GROWTH - IF WE DO NOT ACHIEVE OUR ACQUISITION
PROGRAM STRATEGY OUR GROWTH WILL BE DIMINISHED.
We plan to grow primarily by acquisitions of established animal
hospitals. Our acquisition strategy involves 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
- the satisfactory completion of negotiations
- minimal disruption to our existing operations
Also, our acquisitions may be subject to pre-merger or post-merger
review by governmental authorities for antitrust and other legal and regulatory
compliance. Any adverse regulatory decision may negatively affect our operations
by assessing fines or penalties or requiring us to divest one or more of our
operations.
Our acquisition strategy may cause us to divert our time from operating
matters, which may cause the loss of business and personnel. There are also
possible adverse effects on earnings resulting from the possible loss of
acquired customer bases, amortization of goodwill created in purchase
transactions and the contingent and latent risks associated with the past
operations of, and other unanticipated problems arising in, the acquired
business. If we have sufficient capital, our acquisition strategy involves the
acquisition of at least 15 to 20 facilities per year. We currently do not have
commitments to effect any material acquisitions but may enter into agreements to
do so in the future. We intend to fund additional animal hospital and veterinary
diagnostic laboratory acquisitions with a combination of cash, assumption of
liabilities, promissory notes and shares of our common stock. Our success is
dependent upon our ability to timely identify, acquire, integrate and manage
profitability of acquired businesses. If we cannot do this, our business and
growth may be harmed.
SUBSTANTIAL LEVERAGE - OUR SIGNIFICANT AMOUNT OF INDEBTEDNESS COULD ADVERSELY
AFFECT OUR FINANCIAL HEALTH.
We have a significant amount of indebtedness. We incurred our debt
primarily in connection with the acquisition of our 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, the debt we
incur in connection with the acquisition of animal hospitals is secured by the
assets of the acquired hospital. At March 31, 2000, we had consolidated
long-term obligations (including current portion) of $159.2 million and our
ratio of long-term debt (including current portion) to total stockholders'
equity was 0.7 to 1.0. We will require substantial capital to finance our
anticipated growth, so we expect to incur additional debt in the future.
WE HAVE RISKS ASSOCIATED WITH OUR INTANGIBLE ASSETS
A substantial portion of our assets 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, 2000, our
balance sheet reflected $299.7 million of intangible assets of these types,
which is a substantial portion of our total assets of $435.5 million at that
date. We expect that the aggregate amount of goodwill and other intangible
assets on our balance sheet will increase as a result of future acquisitions. An
increase will have an adverse impact
16
<PAGE> 17
on earnings because goodwill and other intangible assets will be amortized
against earnings. If our company is sold or liquidated, we cannot assure you
that the value of these intangible assets will be realized.
We continually evaluate whether events and circumstances have occurred
that suggest that we may not be able to recover the remaining balance of our
intangible assets or that the estimated useful lives of our intangible assets
has changed. If we determine that certain intangible assets have been impaired,
we will reduce the carrying value of those intangible assets, which could have a
material adverse effect on our results of operations during the period in which
we recognize the impairment. Also, if we determine that the estimated useful
life of certain intangible assets has decreased, we will accelerate depreciation
or amortization of that asset, which could have a material adverse effect on our
results of operations. We recognized a write-down of goodwill and related assets
in the amount of $9.5 million as part of our restructuring plan adopted during
the third and fourth quarters of 1996. We may have further write-downs in future
periods.
FLUCTUATIONS IN QUARTERLY RESULTS - OUR OPERATING RESULTS VARY SIGNIFICANTLY
FROM QUARTER TO QUARTER WHICH COULD IMPACT OUR STOCK PRICE.
Our operating results may fluctuate significantly in the future. We
believe that quarter to quarter or annual comparisons of our operating results
are not a good indication of our future performance. Historically, we have
experienced higher sales in the second and third quarters than in the first and
fourth quarters. The demand for our veterinary services is 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. Also,
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 our costs are fixed and do not
vary with the level of demand for our services. Therefore, net income for the
second and third quarters at individual animal hospitals and veterinary
diagnostic laboratories generally is higher than in the first and fourth
quarters.
OUR SUCCESS DEPENDS ON KEY MEMBERS OF MANAGEMENT
Our success will continue to depend on our executive officers and other
key management personnel, particularly our Chief Executive Officer, Robert L.
Antin. Our company has employment contracts with Mr. Robert Antin, Mr. Arthur
Antin, Chief Operating Officer and Mr. Neil Tauber, Senior Vice President. Each
of these agreements terminates in January 2002. We have no other employment
contracts with its officers. None of our officers is a party to non-competition
covenants which extend beyond the term of their employment with us. We do not
maintain any key man life insurance coverage on the lives of our senior
management. As we continue to grow, we will continue to hire, appoint or
otherwise change senior managers and other key executives. We cannot assure you
that we will be able to retain our executive officers and key personnel or
attract additional qualified members to management in the future. Also, the
success of certain of our acquisitions may depend on our ability to retain
selling veterinarians of the acquired companies. If we lose the services of any
key manager or selling veterinarian, our business may be materially adversely
affected.
COMPETITION
The animal health care industry is highly competitive. We believe that
the primary competitive factors in connection with animal hospitals include:
- convenient location
- recommendation of friends
- reasonable fees
- quality of care
- convenient hours
Our primary competitors for our animal hospitals in most markets are
individual practitioners or small, regional multi-clinic practices. Also,
regional pet care companies and certain national companies, including operators
of super-stores, are developing multi-regional networks of animal hospitals in
markets in which we
17
<PAGE> 18
operate. We believe that the primary competitive factors in connection with
veterinary diagnostic laboratories include:
- quality
- price
- time required to report results
There are many clinical laboratory companies which provide a broad range
of laboratory testing services in the same markets we service. Also, several
national companies provide on-site diagnostic equipment that allows
veterinarians to perform their own laboratory tests.
LITIGATION RELATING TO THE MERGER
We are aware of six complaints that have been filed relating to the
merger. Our company and members of the Board of Directors have been named as
defendants in class action lawsuits filed in the Delaware Court of Chancery and
the California Superior Court.
While the allegations contained in each complaint are not identical, the
complaints generally assert that the $15.00 per share price to be paid to our
public stockholders is inadequate and does not represent the value of the assets
and future prospects of our company. The complaints also generally allege that
the defendants engaged in self-dealing without regard to conflicts of interest
and that the defendants breached their fiduciary duties in approving the Merger
Agreement.
The complaints seek certification of a class of all our stockholders
whose stock will be acquired in connection with the merger and seek injunctive
relief that would, if granted, prevent the completion of the merger. The
complaints also seek unspecified damages, attorneys' fees and other relief. We
believe that the allegations contained in the complaints are without merit and
intend to contest the actions vigorously. The individual defendants have advised
us that they also believe that the allegations in the complaints are without
merit and that they intend to contest the actions vigorously.
The defendants have filed an answer to the class action complaints filed
in Delaware and the five separate actions filed in Delaware have been
consolidated. The defendants have not filed an answer to the one class action
complaint filed in California.
We cannot assure you that we will successfully defend the allegations
included in the complaints. 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. Regardless of whether the Merger is consummated or the outcome of
the lawsuits, we may incur significant related expenses and costs that could
have an adverse effect on our business and operations. Furthermore, the cases
could involve a substantial diversion of the time of some members of management.
Accordingly, we are unable to estimate the impact of any potential liabilities
associated with the complaints.
OUR BUSINESS IS SUBJECT TO 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 we seek to comply with these laws in each state in which
we operate, we cannot assure you that, given varying and uncertain
interpretations of these laws, we are in compliance with these restrictions in
all states. A determination that we violate any applicable restriction on the
practice of veterinary medicine in any state in which we operate could have a
material adverse effect on our operations if we are unable to restructure our
operations to comply with the requirements of those states.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS
Our Board of Directors is authorized to issue up to 2,000,000 shares of
preferred stock. Our Board also is authorized to determine the price, rights,
preferences and privileges of those shares without any further vote or
18
<PAGE> 19
action by the stockholders. The rights of the holders of any preferred stock may
adversely affect the rights of holders of our common stock. Our ability to issue
preferred stock gives us flexibility concerning possible acquisitions and
financings, but it could make it more difficult for a third party to acquire a
majority of our outstanding voting stock. In addition, any preferred stock to be
issued may have other rights, including economic rights, senior to our common
stock which could have a material adverse effect on the market value of our
common stock.
We are subject to Delaware laws that could have the effect of delaying,
deterring or preventing a change in control of our Company. One of these laws
prohibits us from engaging in a business combination with any interested
stockholder for a period of three years from the date the person became an
interested stockholder, unless some conditions are met. In addition, provisions
of our Certificate of Incorporation and By-laws could have the effect of
discouraging potential takeover attempts or making it more difficult for
stockholders to change management. Also, H.J. Heinz Company has an option to
purchase our interest in the Vet's Choice joint venture if there is a change in
control (as defined in that agreement), which may have the same effect. As a
result, stockholders may not have the opportunity to sell their shares at a
substantial premium over the market price of the shares.
In addition, we have adopted a Stockholder Rights Plan, under which we
distributed a dividend of one right for each outstanding share of our common
stock. These rights will cause substantial dilution to the ownership of a person
or group that attempts to acquire us on terms not approved by our Board of
Directors and may have the effect of deterring hostile takeover attempts.
SHARES ELIGIBLE FOR FUTURE SALE MAY IMPACT OUR STOCK PRICE
Future sales by existing stockholders could adversely affect the
prevailing market price of our common stock. As of May 8, 2000, we had
21,918,269 shares of common stock outstanding (including 620,511 shares held in
treasury), most of which are either freely tradable in the public market without
restriction or tradable in accordance with Rule 144 under the Securities Act of
1933 as amended. As of May 8, 2000, there are also 3,778,844 shares of common
stock issuable upon exercise of outstanding stock options; and 2,456,623 shares
issuable upon conversion of convertible debentures. Shares may also be issued
under price guarantees delivered in connection with acquisitions.
VOLATILITY OF STOCK PRICE
Historically, our stock price has been volatile. Factors that may have
significant impact on the market price of our stock include:
- variations in quarterly operating results
- litigation involving us
- announcements by us or our competitors
- general conditions in the animal health care industry
The stock market in recent years has fluctuated in price and volume
significantly. These fluctuations have been unrelated or disproportionate to the
operating performance of publicly traded companies. Our future earnings and
stock price may be subject to significant volatility, particularly on a
quarterly basis. Shortfalls in our revenues or earnings in any given period
relative to the levels expected by securities analysts could immediately,
significantly and adversely affect the trading price of our common stock.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For discussion on legal proceedings, see Risk Factors - "Litigation
Relating to the Merger". 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:
None
20
<PAGE> 21
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 8, 2000 /s/ Tomas W. Fuller
--------------------------------------
Tomas W. Fuller
Chief Financial Officer
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
ITEM EXHIBIT PAGE
- ---- ------- ----
<S> <C> <C>
27.1 Financial Data Schedule 23
</TABLE>
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,718
<SECURITIES> 20,056
<RECEIVABLES> 19,053
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 55,444
<PP&E> 74,334
<DEPRECIATION> 0
<TOTAL-ASSETS> 435,507
<CURRENT-LIABILITIES> 47,394
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 214,857
<TOTAL-LIABILITY-AND-EQUITY> 435,507
<SALES> 0
<TOTAL-REVENUES> 83,351
<CGS> 0
<TOTAL-COSTS> 61,666
<OTHER-EXPENSES> 10,610
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,537
<INCOME-PRETAX> 11,663
<INCOME-TAX> 5,271
<INCOME-CONTINUING> 6,392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,392
<EPS-BASIC> .30
<EPS-DILUTED> .30
</TABLE>
