VCA Antech, Inc. Reports Fourth Quarter 2008 Results and Provides Financial Guidance for 2009

VCA Antech, Inc. (NASDAQ: WOOF), a leading animal healthcare company in the United States, today reported financial results for the quarter ended December 31, 2008, as follows: revenue increased 6.7% to a fourth quarter record of $303.2 million; gross profit increased 6.6% to $73.9 million; operating income increased 6.5% to $50.9 million; net income increased 4.3% to $25.7 million; and diluted earnings per share increased 3.4% to $0.30. Each fourth quarter of 2008 and 2007 included a benefit of $3.3 million and $3.5 million, respectively related to a decline in our estimated workers' compensation liability for previous years' policy periods. The benefit totaled $2.0 million and $2.2 million on an after-tax basis or $0.02 and $0.03 per diluted common share in 2008 and 2007, respectively.

We also reported our financial results for the year ended December 31, 2008, as follows: revenue increased 10.5% to a twelve-month record of $1.28 billion; gross profit increased 6.6% to $342.6 million; operating income increased 7.9% to $251.7 million; net income increased 9.9% to $133.0 million; and diluted earnings per share increased 9.9% to $1.55. The years ended December 31, 2008 and 2007 each included a benefit of $3.3 million and $3.5 million, respectively, or $0.02 per diluted share on an after-tax basis related to a decline in our estimated workers' compensation liability, as mentioned previously.

Bob Antin, Chairman and CEO, stated, “Although the challenging economic environment has impacted our ability to maintain historical organic growth rates, we have extended our long record of revenue and earnings growth. We remain focused on our clients and their pets, and we are proud of the professionals and staff in our hospitals who continue to have the trust of the pet owning community.

“Animal hospital revenue in the fourth quarter increased 9.4% to $229.0 million driven by acquisitions. Our consolidated animal hospital gross margin increased to 17.5% compared to 16.0% and the operating margin increased to 15.2% compared to 13.3% primarily due to the implementation of cost controls and synergies achieved from the larger revenue base. Although our same-store revenue remained essentially flat during the quarter, our same-store gross profit margin increased to 18.3% compared to 16.2%.

“We continue to focus on our hospital acquisition program. During the fourth quarter we acquired eight animal hospitals with over $31.7 million of annualized revenue, bringing the twelve-month total to $118.0 million.

“Laboratory revenue in the fourth quarter increased 1.0% to $69.3 million driven by acquisitions as internal revenue remained essentially flat. Laboratory margins in the fourth quarter continued to be impacted by the aforementioned economic environment. Our laboratory gross profit margin declined to 42.3% from 45.9% for the quarter ended December 31, 2008 and 2007, respectively, and our laboratory operating margin declined to 34.3% from 38.9% for the quarter ended December 31, 2008 and 2007, respectively.”

2009 Financial Guidance

Our financial guidance for 2009 is as follows:

Revenue from $1.36 billion to $1.39 billion;
Net income from $135.2 million to $141.1 million; and
Diluted earnings per common share from $1.56 to $1.63.

Conference Call

We will discuss our company's fourth quarter and annual 2008 financial results during a conference call today, February 19, 2009, at 4:30 p.m. Eastern Time. You can access a live broadcast of the call by visiting our website at http://investor.vcaantech.com. You can also access the call via telephone by dialing 800-259-2693. Interested parties should call at least ten minutes prior to the start of the call to register.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our financial guidance for fiscal year 2009. Actual results may and likely will differ materially from the guidance provided in this release. Among the important factors that could cause actual results to differ are: a material adverse change in our financial condition or operations; the impact of adverse trends in the general economy on the rate of our laboratory internal revenue growth and animal hospital same-store revenue growth; the level of direct costs and our ability to maintain revenue and expenses at a level necessary to maintain expected operating margins; the level of selling, general and administrative costs; the effects of our recent acquisitions and our ability to effectively manage our growth and achieve operating synergies; a decline in demand for some of our products and services; any disruption in our information technology systems or transportation networks; the effects of competition; any impairment in the carrying value of our goodwill and other intangible assets; changes in prevailing interest rates; our ability to service our debt; and general economic conditions. These and other risk factors are discussed in our Report on Form 10-K for the year ended December 31, 2007, and our Report on Form 10-Q for the quarter ended September 30, 2008, and the reader is directed to these statements for a further discussion of important factors that could cause actual results to differ materially from those in the forward-looking statements.

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


VCA Antech, Inc.
Consolidated Income Statements
(Unaudited)
(In thousands, except per share amounts)

	Three Months Ended						Year Ended
	December 31,						December 31,
	2008			2007			2008			2007
Revenue:
Animal hospital	$	229,043		$	209,298		$	959,395		$	844,344
Laboratory		69,318			68,622			304,952			295,695
Medical technology		12,944			13,925			51,177			46,823
Intercompany		(8,136	)		(7,687	)		(38,054	)		(30,717	)
		303,169			284,158			1,277,470			1,156,145

Direct costs		229,297			214,837			934,833			834,724

Gross profit:
Animal hospital		40,142			33,588			184,185			163,053
Laboratory		29,294			31,466			142,783			143,072
Medical technology		4,571			4,522			18,028			15,879
Intercompany		(135	)		(255	)		(2,359	)		(583	)
		73,872			69,321			342,637			321,421

Selling, general and administrative expense:
Animal hospital		5,327			5,270			22,142			21,562
Laboratory		5,502			4,776			20,816			19,648
Medical technology		2,835			3,139			12,337			11,528
Corporate		9,073			7,881			35,432			34,139
		22,737			21,066			90,727			86,877

Write-down and loss on sale of assets		201			448			234			1,323

Operating income		50,934			47,807			251,676			233,221

Interest expense, net		7,190			8,129			28,559			29,503
Other (income) expense		(73	)		89			(97	)		315
Minority interest		886			694			4,011			3,755
Income before provision for income taxes		42,931			38,895			219,203			199,648
Provision for income taxes		17,240			14,272			86,219			78,636
Net income	$	25,691		$	24,623		$	132,984		$	121,012

Diluted earnings per share	$	0.30		$	0.29		$	1.55		$	1.41
Shares used for computing diluted earnings per share		85,227			86,080			85,700			85,716


VCA Antech, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands)

	December 31,
	2008			2007
Assets

Current assets:
Cash and cash equivalents	$	88,959		$	110,866
Trade accounts receivable, net		43,453			42,650
Inventory		26,631			25,517
Prepaid expenses and other		18,800			15,307
Deferred income taxes		15,938			14,402
Prepaid income taxes		5,287			8,160
Total current assets		199,068			216,902
Property and equipment, net		263,443			214,020
Other assets:
Goodwill		922,057			821,967
Other intangible assets, net		35,645			22,373
Deferred financing costs, net		1,067			1,537
Other		27,758			9,912
Total assets	$	1,449,038		$	1,286,711

Liabilities and Stockholders' Equity

Current liabilities:
Current portion of long-term obligations	$	7,771		$	7,886
Accounts payable		26,087			28,092
Accrued payroll and related liabilities		42,840			38,341
Other accrued liabilities		46,424			42,074
Total current liabilities		123,122			116,393
Long-term obligations, less current portion		544,860			552,294
Deferred income taxes		47,331			28,197
Other liabilities		9,890			11,236
Minority interest		12,846			10,207
Stockholders' equity:
Common stock		85			84
Additional paid-in capital		308,674			296,037
Retained earnings		408,582			275,598
Accumulated other comprehensive loss		(6,352	)		(3,335	)
Total stockholders' equity		710,989			568,384
Total liabilities and stockholders' equity	$	1,449,038		$	1,286,711


VCA Antech, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

	Year Ended
	December 31,
	2008			2007
Cash flows from operating activities:
Net income	$	132,984		$	121,012
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		31,911			27,049
Amortization of debt costs		470			368
Provision for uncollectible accounts		5,187			5,053
Write-down and loss on sale of assets		234			1,323
Share-based compensation		7,176			4,584
Minority interest in income of subsidiaries		4,011			3,755
Distributions to minority interest partners		(3,987	)		(3,388	)
Deferred income taxes		20,425			10,940
Excess tax benefit from exercise of stock options		(1,769	)		(7,866	)
Other		101			(113	)
Changes in operating assets and liabilities:
Accounts receivable		(5,674	)		(2,687	)
Inventory, prepaid expenses and other assets		(6,981	)		(4,712	)
Accounts payable and other accrued liabilities		(2,515	)		7
Accrued payroll and related liabilities		4,863			1,154
Prepaid income taxes		6,885			13,897
Net cash provided by operating activities		193,321			170,376
Cash flows from investing activities:
Business acquisitions, net of cash acquired		(126,702	)		(215,523	)
Real estate acquired in connection with business acquisitions		(17,593	)		(7,962	)
Property and equipment additions		(55,045	)		(48,714	)
Proceeds from sale of assets		1,775			1,674
Other		(15,146	)		(780	)
Net cash used in investing activities		(212,711	)		(271,305	)
Cash flows from financing activities:
Repayment of long-term obligations		(7,790	)		(8,238	)
Proceeds from the issuance of long-term obligations		-			160,000
Borrowings on revolving credit facility		35,000			-
Repayment on revolving credit facility		(35,000	)		-
Payment of financing costs		-			(926	)
Proceeds from issuance of common stock under stock option plans		3,606			7,989
Excess tax benefit from exercise of stock options		1,769			7,866
Net cash (used in) provided by financing activities		(2,415	)		166,691
Effect of currency exchange rate changes on cash and cash equivalents		(102	)		-
(Decrease) increase in cash and cash equivalents		(21,907	)		65,762
Cash and cash equivalents at beginning of period		110,866			45,104
Cash and cash equivalents at end of period	$	88,959		$	110,866


VCA Antech, Inc.
Supplemental Operating Data
(In thousands, except per share amounts)

Table #1

Impact of workers' compensation adjustment on diluted earnings per share:	Three Months Ended December 31,						Year Ended December 31,
	2008			2007			2008			2007
Workers' compensation adjustment, net of tax	$	2,005		$	2,167		$	2,005		$	2,167
Shares used for computing diluted earnings per share		85,227			86,080			85,700			85,716
Impact of workers' compensation adjustment on diluted earnings per share (1)	$	0.02		$	0.03		$	0.02		$	0.02

(1) The impact of the workers' compensation adjustment may not calculate exactly due to rounding.

Table #2

Workers' compensation adjustment	Three Months Ended December 31,						Year Ended December 31,
	2008			2007			2008			2007
Included in direct costs:
Animal Hospital	$	2,457		$	2,655		$	2,457		$	2,655
Laboratory		456			493			456			493
Medical Technology		30			62			30			62
		2,943			3,210			2,943			3,210
Included in selling, general and administrative expense:
Animal Hospital		109			121			109			121
Laboratory		97			104			97			104
Medical Technology		27			-			27			-
Corporate		106			113			106			113
		339			338			339			338
Total workers' compensation adjustment		3,282			3,548			3,282			3,548
Tax benefit		(1,277	)		(1,381	)		(1,277	)		(1,381	)
Workers' compensation adjustment, net of tax		2,005			2,167			2,005			2,167


VCA Antech, Inc.
Supplemental Operating Data - Continued
(In thousands)

Table #3

Selected consolidated balance sheet data							December 31,
							2008			2007

Debt:
Revolving credit facility							$	-		$	-
Senior term notes								522,282			527,675
Other debt and capital leases								30,349			32,505
Total debt							$	552,631		$	560,180

Table #4

Selected expense data	Three Months Ended						Year Ended
	December 31,						December 31,
	2008			2007			2008			2007

Rent expense	$	11,090		$	9,755		$	42,709		$	36,864

Depreciation and amortization included in direct costs:
Animal hospital	$	5,517		$	4,825		$	21,464		$	17,353
Laboratory		1,936			1,713			7,269			6,356
Medical technology		103			304			1,032			1,201
Intercompany		(177	)		(105	)		(591	)		(386	)
		7,379			6,737			29,174			24,524
Depreciation and amortization included in selling, general and administrative expense		770			548			2,737			2,525
Total depreciation and amortization	$	8,149		$	7,285		$	31,911		$	27,049

Share-based compensation included in direct costs:
Laboratory	$	147		$	159		$	758		$	661

Share-based compensation included in selling, general and administrative expense:
Animal hospital		341			297			1,568			1,193
Laboratory		290			179			1,097			731
Medical technology		67			30			208			111
Corporate		1,022			490			3,545			1,888
		1,720			996			6,418			3,923
Total share-based compensation	$	1,867		$	1,155		$	7,176		$	4,584

VCA Antech, Inc.

Tomas Fuller, Chief Financial Officer

310-571-6505

VCA Antech Inc ( WOOF )

VCA Antech, Inc. Reports Fourth Quarter 2008 Results and Provides Financial Guidance for 2009