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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Petco Health and Wellness Company Inc | NASDAQ:WOOF | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.04 | 2.58% | 1.59 | 1.48 | 1.70 | 1,006 | 11:37:26 |
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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95-4097995
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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Large accelerated filer [X]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
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Smaller reporting company [ ]
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(Do not check if a smaller reporting company)
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Emerging growth company [ ]
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PART I.
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FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL STATEMENTS
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June 30, 2017
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December 31, 2016
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||||
Assets
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||||
Current assets:
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||||
Cash and cash equivalents
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$
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119,052
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$
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81,409
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Trade accounts receivable, less allowance for uncollectible accounts of $22,781 and $23,440 at June 30, 2017 and December 31, 2016, respectively
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86,323
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85,593
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Inventory
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56,541
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57,590
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Prepaid expenses and other
|
42,721
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44,752
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Prepaid income taxes
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—
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11,705
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Total current assets
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304,637
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281,049
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Property and equipment, net
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656,362
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613,224
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Goodwill
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2,264,265
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2,164,422
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Other intangible assets, net
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207,158
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212,577
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Notes receivable
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2,196
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2,147
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Other
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103,107
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99,909
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Total assets
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$
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3,537,725
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$
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3,373,328
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Liabilities and Equity
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||||
Current liabilities:
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||||
Current portion of long-term obligations
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$
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49,347
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$
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38,320
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Accounts payable
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57,231
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68,587
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Accrued payroll and related liabilities
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96,072
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97,806
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Income tax payable
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4,732
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—
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Other accrued liabilities
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93,053
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91,783
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Total current liabilities
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300,435
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296,496
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Long-term obligations, net
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1,325,411
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1,309,397
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Deferred income taxes, net
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148,368
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142,535
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Other liabilities
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47,472
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44,560
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Total liabilities
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1,821,686
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1,792,988
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Commitments and contingencies
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—
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—
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Redeemable noncontrolling interests
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10,558
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11,615
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Preferred stock, par value $0.001, 11,000 shares authorized, none outstanding
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—
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—
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VCA Inc. stockholders’ equity:
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Common stock, par value $0.001, 175,000 shares authorized, 81,270 and 81,231 shares outstanding as of June 30, 2017 and December 31, 2016, respectively
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81
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81
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Additional paid-in capital
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40,985
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32,157
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Retained earnings
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1,603,196
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1,484,391
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Accumulated other comprehensive loss
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(37,075
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)
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(45,406
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)
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Total VCA Inc. stockholders’ equity
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1,607,187
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1,471,223
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Noncontrolling interests
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98,294
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97,502
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Total equity
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1,705,481
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1,568,725
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Total liabilities and equity
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$
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3,537,725
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$
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3,373,328
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Three Months Ended
June 30, |
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Six Months Ended
June 30, |
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2017
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2016
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2017
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2016
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||||||||
Revenue
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$
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743,132
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$
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653,489
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$
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1,421,383
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$
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1,216,928
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Direct costs
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558,039
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489,541
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1,081,822
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916,200
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Gross profit
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185,093
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163,948
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339,561
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300,728
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Selling, general and administrative expense
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59,776
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48,190
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118,177
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98,318
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Net loss (gain) on sale or disposal of assets
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230
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(271
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)
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480
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292
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Operating income
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125,087
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116,029
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220,904
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202,118
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Interest expense, net
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10,169
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7,867
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19,196
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14,962
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Debt retirement costs
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—
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1,600
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—
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1,600
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Other income
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(280
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)
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(600
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)
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(582
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)
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(864
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)
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Income before provision for income taxes
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115,198
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107,162
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202,290
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186,420
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Provision for income taxes
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44,774
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40,736
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79,413
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72,272
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Net income
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70,424
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66,426
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122,877
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114,148
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Net income attributable to noncontrolling interests
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2,712
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2,376
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4,072
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3,871
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Net income attributable to VCA Inc.
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$
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67,712
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$
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64,050
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$
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118,805
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$
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110,277
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Basic earnings per share
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$
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0.83
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$
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0.79
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$
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1.46
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$
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1.36
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Diluted earnings per share
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$
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0.82
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$
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0.78
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$
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1.45
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$
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1.35
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Weighted-average shares outstanding for basic earnings per share
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81,267
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80,835
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81,256
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80,806
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||||
Weighted-average shares outstanding for diluted earnings per share
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82,228
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81,729
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82,204
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81,630
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Three Months Ended
June 30, |
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Six Months Ended
June 30, |
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2017
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2016
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2017
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2016
|
||||||||
Net income
(1)
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$
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70,424
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$
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66,426
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$
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122,877
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$
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114,148
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Other comprehensive income:
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Foreign currency translation adjustments
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6,175
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32
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8,556
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12,630
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|
||||
Other comprehensive income
|
6,175
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32
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|
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8,556
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12,630
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|
||||
Total comprehensive income
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76,599
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66,458
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131,433
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126,778
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|
||||
Comprehensive income attributable to noncontrolling interests
(1)
|
2,878
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|
2,446
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4,297
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|
4,294
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|
||||
Comprehensive income attributable to VCA Inc.
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$
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73,721
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$
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64,012
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$
|
127,136
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$
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122,484
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(1)
|
Includes approximately
$1.8 million
and
$2.1 million
of net income related to redeemable and mandatorily redeemable noncontrolling interests for the
six
months ended
June 30, 2017
and
2016
, respectively.
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Common Stock
|
|
Additional
Paid-In
Capital
|
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Retained
Earnings
|
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Accumulated
Other
Comprehensive
Income
|
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Noncontrolling
Interests
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Total
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|||||||||||||||
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Shares
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Amount
|
|
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||||||||||||||||||
Balances, December 31, 2015
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80,764
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|
|
$
|
81
|
|
|
$
|
19,708
|
|
|
$
|
1,275,207
|
|
|
$
|
(50,034
|
)
|
|
$
|
12,072
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|
|
$
|
1,257,034
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Net income (excludes $1,300 and $827 related to redeemable and mandatorily redeemable noncontrolling interests, respectively)
|
—
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|
|
—
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|
|
—
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|
|
110,277
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|
|
—
|
|
|
1,744
|
|
|
112,021
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|
||||||
Other comprehensive income (excludes $168 related to mandatorily redeemable noncontrolling interests)
|
—
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—
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|
|
—
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|
|
—
|
|
|
12,207
|
|
|
255
|
|
|
12,462
|
|
||||||
Formation of noncontrolling interests
|
—
|
|
|
—
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|
|
—
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|
|
—
|
|
|
—
|
|
|
88,949
|
|
|
88,949
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|
||||||
Distributions to noncontrolling interests
|
—
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|
|
—
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|
|
—
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|
|
—
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|
|
—
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|
|
(1,166
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)
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|
(1,166
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)
|
||||||
Purchase of noncontrolling interests
|
—
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|
|
—
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|
|
(1,822
|
)
|
|
—
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|
—
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|
(1,908
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)
|
|
(3,730
|
)
|
||||||
Share-based compensation
|
—
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|
|
—
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|
|
9,104
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—
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—
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|
—
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|
|
9,104
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|
||||||
Issuance of common stock under stock incentive plans
|
117
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|
|
—
|
|
|
1,122
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|
|
—
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|
|
—
|
|
|
—
|
|
|
1,122
|
|
||||||
Stock repurchases
|
(18
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)
|
|
—
|
|
|
(843
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)
|
|
—
|
|
|
—
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|
—
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|
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(843
|
)
|
||||||
Excess tax benefit from share-based compensation
|
—
|
|
|
—
|
|
|
1,421
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|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,421
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|
||||||
Other
|
—
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
(85
|
)
|
|
(79
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)
|
||||||
Balances, June 30, 2016
|
80,863
|
|
|
$
|
81
|
|
|
$
|
28,696
|
|
|
$
|
1,385,484
|
|
|
$
|
(37,827
|
)
|
|
$
|
99,861
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|
|
$
|
1,476,295
|
|
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|
|||||||||||||
Balances, December 31, 2016
|
81,231
|
|
|
$
|
81
|
|
|
$
|
32,157
|
|
|
$
|
1,484,391
|
|
|
$
|
(45,406
|
)
|
|
$
|
97,502
|
|
|
$
|
1,568,725
|
|
Net income (excludes $969 and $810 related to redeemable and mandatorily redeemable noncontrolling interests, respectively)
|
—
|
|
|
—
|
|
|
—
|
|
|
118,805
|
|
|
—
|
|
|
2,293
|
|
|
121,098
|
|
||||||
Other comprehensive income (excludes $87 related to mandatorily redeemable noncontrolling interests)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,331
|
|
|
138
|
|
|
8,469
|
|
||||||
Formation of noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
335
|
|
|
335
|
|
||||||
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(983
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)
|
|
(983
|
)
|
||||||
Purchase of noncontrolling interests (excludes $1,185 related to redeemable noncontrolling interests)
|
—
|
|
|
—
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|
|
(216
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)
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|
—
|
|
|
—
|
|
|
—
|
|
|
(216
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)
|
||||||
Share-based compensation
|
—
|
|
|
—
|
|
|
7,993
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|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,993
|
|
||||||
Issuance of common stock under stock incentive plans
|
42
|
|
|
—
|
|
|
90
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
90
|
|
||||||
Stock repurchases
|
(3
|
)
|
|
—
|
|
|
(129
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(129
|
)
|
||||||
Other
|
—
|
|
|
—
|
|
|
1,090
|
|
|
—
|
|
|
—
|
|
|
(991
|
)
|
|
99
|
|
||||||
Balances, June 30, 2017
|
81,270
|
|
|
$
|
81
|
|
|
$
|
40,985
|
|
|
$
|
1,603,196
|
|
|
$
|
(37,075
|
)
|
|
$
|
98,294
|
|
|
$
|
1,705,481
|
|
VCA Inc. and Subsidiaries
Condensed, Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
|||||||
|
Six Months Ended
June 30, |
||||||
|
2017
|
|
2016
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income
|
$
|
122,877
|
|
|
$
|
114,148
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
60,920
|
|
|
46,978
|
|
||
Amortization of debt issue costs
|
767
|
|
|
865
|
|
||
Provision for uncollectible accounts
|
4,319
|
|
|
2,891
|
|
||
Debt retirement costs
|
—
|
|
|
1,600
|
|
||
Net loss on sale or disposal of assets
|
480
|
|
|
292
|
|
||
Share-based compensation
|
7,993
|
|
|
9,104
|
|
||
Excess tax benefits from share-based compensation
|
—
|
|
|
(1,421
|
)
|
||
Other
|
(1,332
|
)
|
|
6,665
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Trade accounts receivable
|
(5,318
|
)
|
|
(7,065
|
)
|
||
Inventory, prepaid expenses and other assets
|
1,287
|
|
|
(15,607
|
)
|
||
Accounts payable and other accrued liabilities
|
8,777
|
|
|
5,889
|
|
||
Accrued payroll and related liabilities
|
(1,936
|
)
|
|
2,817
|
|
||
Income taxes
|
16,449
|
|
|
23,557
|
|
||
Net cash provided by operating activities
|
215,283
|
|
|
190,713
|
|
||
Cash flows from investing activities:
|
|
|
|
||||
Business acquisitions, net of cash acquired
|
(123,852
|
)
|
|
(540,878
|
)
|
||
Property and equipment additions
|
(54,638
|
)
|
|
(58,814
|
)
|
||
Proceeds from sale of assets
|
1,747
|
|
|
282
|
|
||
Other
|
(7,900
|
)
|
|
(4,924
|
)
|
||
Net cash used in investing activities
|
(184,643
|
)
|
|
(604,334
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Repayment of long-term obligations
|
(28,259
|
)
|
|
(1,256,250
|
)
|
||
Proceeds from issuance of long-term obligations
|
—
|
|
|
1,255,000
|
|
||
Repayment of revolving credit facility
|
(30,000
|
)
|
|
—
|
|
||
Proceeds from revolving credit facility
|
70,000
|
|
|
435,000
|
|
||
Payment of financing costs
|
—
|
|
|
(3,829
|
)
|
||
Distributions to noncontrolling interest partners
|
(2,333
|
)
|
|
(2,554
|
)
|
||
Purchase of noncontrolling interests
|
(1,401
|
)
|
|
(3,730
|
)
|
||
Proceeds from formation of noncontrolling interests
|
335
|
|
|
—
|
|
||
Proceeds from issuance of common stock under stock incentive plans
|
90
|
|
|
1,122
|
|
||
Excess tax benefits from share-based compensation
|
—
|
|
|
1,421
|
|
||
Stock repurchases
|
(129
|
)
|
|
(843
|
)
|
||
Other
|
(1,479
|
)
|
|
(1,233
|
)
|
||
Net cash provided by financing activities
|
6,824
|
|
|
424,104
|
|
||
Effect of currency exchange rate changes on cash and cash equivalents
|
179
|
|
|
313
|
|
||
Increase in cash and cash equivalents
|
37,643
|
|
|
10,796
|
|
||
Cash and cash equivalents at beginning of period
|
81,409
|
|
|
98,888
|
|
||
Cash and cash equivalents at end of period
|
$
|
119,052
|
|
|
$
|
109,684
|
|
VCA Inc. and Subsidiaries
Condensed, Consolidated Statements of Cash Flows (Continued)
(Unaudited)
(In thousands)
|
|||||||
|
Six Months Ended
June 30, |
||||||
|
2017
|
|
2016
|
||||
Supplemental disclosures of cash flow information:
|
|
|
|
||||
Interest paid
|
$
|
15,990
|
|
|
$
|
12,272
|
|
Income taxes paid
|
$
|
62,727
|
|
|
$
|
47,326
|
|
1.
|
Nature of Operations
|
2.
|
Basis of Presentation
|
3.
|
Goodwill and Other Long-Lived Assets
|
|
Animal
Hospital
|
|
Laboratory
|
|
All Other
|
|
Total
|
||||||||
Balance as of December 31, 2016
|
|
|
|
|
|
|
|
||||||||
Goodwill
|
$
|
2,047,894
|
|
|
$
|
101,283
|
|
|
$
|
145,302
|
|
|
$
|
2,294,479
|
|
Accumulated impairment losses
|
—
|
|
|
—
|
|
|
(130,057
|
)
|
|
(130,057
|
)
|
||||
Subtotal
|
2,047,894
|
|
|
101,283
|
|
|
15,245
|
|
|
2,164,422
|
|
||||
Goodwill acquired
|
109,090
|
|
|
—
|
|
|
—
|
|
|
109,090
|
|
||||
Foreign translation adjustment
|
6,301
|
|
|
16
|
|
|
—
|
|
|
6,317
|
|
||||
Other
(1)
|
(15,564
|
)
|
|
—
|
|
|
—
|
|
|
(15,564
|
)
|
||||
Balance as of June 30, 2017
|
|
|
|
|
|
|
|
||||||||
Goodwill
|
2,147,721
|
|
|
101,299
|
|
|
145,302
|
|
|
2,394,322
|
|
||||
Accumulated impairment losses
|
—
|
|
|
—
|
|
|
(130,057
|
)
|
|
(130,057
|
)
|
||||
Subtotal
|
$
|
2,147,721
|
|
|
$
|
101,299
|
|
|
$
|
15,245
|
|
|
$
|
2,264,265
|
|
(1)
|
"Other" consists primarily of measurement period adjustments and the sale of an animal hospital.
|
3.
|
Goodwill and Other Long-Lived Assets, continued
|
|
As of June 30, 2017
|
|
As of December 31, 2016
|
||||||||||||||||||||
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
||||||||||||
Non-contractual customer relationships
|
$
|
232,789
|
|
|
$
|
(78,875
|
)
|
|
$
|
153,914
|
|
|
$
|
218,847
|
|
|
$
|
(62,331
|
)
|
|
$
|
156,516
|
|
Covenants not-to-compete
|
26,276
|
|
|
(9,847
|
)
|
|
16,429
|
|
|
23,990
|
|
|
(7,580
|
)
|
|
16,410
|
|
||||||
Favorable lease assets
|
6,509
|
|
|
(3,112
|
)
|
|
3,397
|
|
|
9,451
|
|
|
(5,855
|
)
|
|
3,596
|
|
||||||
Technology
|
1,377
|
|
|
(893
|
)
|
|
484
|
|
|
1,377
|
|
|
(795
|
)
|
|
582
|
|
||||||
Trademarks
|
30,752
|
|
|
(10,291
|
)
|
|
20,461
|
|
|
30,144
|
|
|
(7,713
|
)
|
|
22,431
|
|
||||||
Client lists
|
10
|
|
|
(2
|
)
|
|
8
|
|
|
10
|
|
|
(1
|
)
|
|
9
|
|
||||||
Franchise rights
|
11,730
|
|
|
(3,324
|
)
|
|
8,406
|
|
|
11,730
|
|
|
(2,737
|
)
|
|
8,993
|
|
||||||
Total
|
$
|
309,443
|
|
|
$
|
(106,344
|
)
|
|
$
|
203,099
|
|
|
$
|
295,549
|
|
|
$
|
(87,012
|
)
|
|
$
|
208,537
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Aggregate amortization expense
|
$
|
11,338
|
|
|
$
|
9,798
|
|
|
$
|
22,763
|
|
|
$
|
16,026
|
|
Definite-lived intangible assets:
|
|
||
Remainder of 2017
|
$
|
22,782
|
|
2018
|
43,018
|
|
|
2019
|
39,864
|
|
|
2020
|
34,819
|
|
|
2021
|
24,485
|
|
|
Thereafter
|
38,131
|
|
|
Total
|
$
|
203,099
|
|
Indefinite-lived intangible assets:
|
|
||
Trademarks
|
4,059
|
|
|
Total intangible assets
|
$
|
207,158
|
|
4.
|
Acquisitions
|
|
Six Months Ended
June 30, |
||||
|
2017
|
|
2016
|
||
Animal Hospitals:
|
|
|
|
||
Acquisitions, excluding CAPNA in 2016
(1)
|
24
|
|
|
37
|
|
CAPNA
(2)
|
—
|
|
|
56
|
|
Acquisitions, merged
|
(2
|
)
|
|
(3
|
)
|
Sold, closed or merged
|
(5
|
)
|
|
(5
|
)
|
Net increase
|
17
|
|
|
85
|
|
|
|
|
|
||
Laboratories:
|
|
|
|
||
New facilities
|
1
|
|
|
—
|
|
Net increase
|
1
|
|
|
—
|
|
(1)
|
Includes additional independent animal hospitals that were acquired by CAPNA subsequent to its May 2016 acquisition.
|
(2)
|
On May 1, 2016, we acquired an
80%
ownership interest in CAPNA.
|
4.
|
Acquisitions, continued
|
|
Six Months Ended
June 30, |
||||||
|
2017
|
|
2016
|
||||
Consideration:
|
|
|
|
||||
Cash
|
$
|
123,889
|
|
|
$
|
188,329
|
|
Cash acquired
|
(37
|
)
|
|
(970
|
)
|
||
Cash, net of cash acquired
|
$
|
123,852
|
|
|
$
|
187,359
|
|
Assumed debt
|
9,697
|
|
|
2,601
|
|
||
Holdbacks
|
2,255
|
|
|
4,148
|
|
||
Earn-outs
|
596
|
|
|
4,002
|
|
||
Fair value of total consideration transferred
|
$
|
136,400
|
|
|
$
|
198,110
|
|
|
|
|
|
||||
Allocation of the Purchase Price:
|
|
|
|
||||
Tangible assets
|
$
|
11,086
|
|
|
$
|
21,521
|
|
Identifiable intangible assets
(1)
|
16,560
|
|
|
24,325
|
|
||
Goodwill
(2)
|
109,090
|
|
|
153,012
|
|
||
Other liabilities assumed
|
(336
|
)
|
|
(437
|
)
|
||
Fair value of assets acquired and liabilities assumed
|
$
|
136,400
|
|
|
$
|
198,421
|
|
Noncontrolling interest
|
—
|
|
|
(311
|
)
|
||
Total
|
$
|
136,400
|
|
|
$
|
198,110
|
|
(1)
|
Identifiable intangible assets include customer relationships, trademarks and covenants-not-to-compete. The weighted-average amortization period for the total identifiable intangible assets is approximately
five
years. The weighted-average amortization period for customer relationships, trademarks and covenants-not-to-compete is approximately
five
,
seven
and
five
years, respectively.
|
(2)
|
We expect that
$99.8 million
and
$146.9 million
of the goodwill recorded for these acquisitions, as of
June 30, 2017
and
2016
, respectively, will be fully deductible for income tax purposes.
|
4.
|
Acquisitions, continued
|
Consideration:
|
|
||
Cash
|
$
|
352,829
|
|
Cash acquired
|
(3,405
|
)
|
|
Cash, net of cash acquired
|
$
|
349,424
|
|
Holdbacks
|
1,000
|
|
|
Fair value of total consideration transferred
|
$
|
350,424
|
|
|
|
||
Allocation of the Purchase Price:
|
|
||
Tangible assets
|
$
|
36,381
|
|
Identifiable intangible assets
(1)
|
102,300
|
|
|
Goodwill
(2)
|
325,517
|
|
|
Other liabilities assumed
|
(27,774
|
)
|
|
Fair value of assets acquired and liabilities assumed
|
$
|
436,424
|
|
Noncontrolling interest
|
(86,000
|
)
|
|
Total
|
$
|
350,424
|
|
(1)
|
Identifiable intangible assets primarily include customer relationships, trademarks and covenants-not-to-compete. The weighted-average amortization period for the total identifiable intangible assets is approximately
seven
years. The amortization periods for customer relationships, trademarks and covenants is
seven
years,
five
years and
five
years, respectively.
|
(2)
|
As of June 30, 2017, we expect that
$262.2 million
of goodwill recorded for this acquisition will be deductible for income tax purposes.
|
5.
|
Other Accrued Liabilities
|
|
June 30, 2017
|
|
December 31, 2016
|
||||
Deferred revenue
|
$
|
23,702
|
|
|
$
|
21,400
|
|
Holdbacks and earn-outs
|
14,225
|
|
|
20,823
|
|
||
Deferred rent
|
5,690
|
|
|
5,347
|
|
||
Accrued health insurance
|
5,548
|
|
|
4,818
|
|
||
Accrued worker's compensation
|
5,530
|
|
|
3,733
|
|
||
Miscellaneous accrued taxes
(1)
|
4,855
|
|
|
2,966
|
|
||
Accrued accounting and legal fees
|
3,992
|
|
|
2,508
|
|
||
Accrued other insurance
|
2,744
|
|
|
6,169
|
|
||
Customer deposits
|
1,663
|
|
|
3,168
|
|
||
Accrued lease payments
|
1,571
|
|
|
1,409
|
|
||
Other
|
23,533
|
|
|
19,442
|
|
||
|
$
|
93,053
|
|
|
$
|
91,783
|
|
6.
|
Long-Term Obligations
|
6.
|
Long-Term Obligations, continued
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
||||
Senior term notes
|
|
Principal amount
|
|
$
|
858,000
|
|
|
$
|
869,000
|
|
|
|
Less unamortized debt issuance costs
|
|
(2,293
|
)
|
|
(2,605
|
)
|
||
|
|
Senior term notes less unamortized debt issuance costs, secured by assets, variable interest rate (2.73% and 2.28% at June 30, 2017 and December 31, 2016, respectively)
(1)
|
|
$
|
855,707
|
|
|
$
|
866,395
|
|
Revolving credit
|
|
Principal amount
|
|
$
|
440,000
|
|
|
$
|
400,000
|
|
|
|
Less unamortized debt issuance costs
|
|
(3,638
|
)
|
|
(4,093
|
)
|
||
|
|
Revolving line of credit less unamortized debt issuance costs, secured by assets, variable interest rate (2.73% and 2.28% at June 30, 2017 and December 31, 2016, respectively)
(1)
|
|
$
|
436,362
|
|
|
$
|
395,907
|
|
Secured seller note
|
|
Notes payable matures in 2017, secured by assets and stock of certain subsidiaries, with interest rate of 10.0%
|
|
230
|
|
|
230
|
|
||
|
|
Other Debt
|
|
1,418
|
|
|
1,801
|
|
||
|
|
Total debt obligations
|
|
1,293,717
|
|
|
1,264,333
|
|
||
|
|
Capital lease obligations
|
|
81,041
|
|
|
83,384
|
|
||
|
|
|
|
1,374,758
|
|
|
1,347,717
|
|
||
|
|
Less — current portion
|
|
(49,347
|
)
|
|
(38,320
|
)
|
||
|
|
|
|
$
|
1,325,411
|
|
|
$
|
1,309,397
|
|
(1)
|
Notes payable and the revolving line of credit at
June 30, 2017
will mature in 2021 under the New Senior Credit Facility.
|
•
|
the base rate (as defined below) plus the applicable margin of
0.50%
(Pricing Tier 3, see table below) per annum; or
|
•
|
the Eurodollar rate (as defined below), plus a margin of
1.50%
(Pricing Tier 3, see table below) per annum
|
6.
|
Long-Term Obligations, continued
|
Pricing Tier
|
|
Consolidated Leverage Ratio
|
|
Applicable Margin for Eurodollar Loans/Letter of Credit Fees
|
|
Applicable Margin for Base Rate Loans
|
|
Commitment Fee
|
|||
1
|
|
≥ 3.50:1.00
|
|
2.00
|
%
|
|
1.00
|
%
|
|
0.40
|
%
|
2
|
|
< 3.50:1.00 and ≥ 2.75:1.00
|
|
1.75
|
%
|
|
0.75
|
%
|
|
0.35
|
%
|
3
|
|
< 2.75:1.00 and ≥ 1.75:1.00
|
|
1.50
|
%
|
|
0.50
|
%
|
|
0.30
|
%
|
4
|
|
< 1.75:1.00 and ≥ 1.00:1.00
|
|
1.25
|
%
|
|
0.25
|
%
|
|
0.25
|
%
|
5
|
|
< 1.00:1.00
|
|
1.00
|
%
|
|
—
|
%
|
|
0.25
|
%
|
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Thereafter
|
||||||||||||
Senior term notes
|
|
$
|
22,000
|
|
|
$
|
44,000
|
|
|
$
|
55,000
|
|
|
$
|
77,000
|
|
|
$
|
660,000
|
|
|
$
|
—
|
|
Revolving loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
440,000
|
|
|
—
|
|
||||||
|
|
$
|
22,000
|
|
|
$
|
44,000
|
|
|
$
|
55,000
|
|
|
$
|
77,000
|
|
|
$
|
1,100,000
|
|
|
$
|
—
|
|
7.
|
Fair Value
|
7.
|
Fair Value, continued
|
•
|
Level 1.
Observable inputs such as quoted prices in active markets;
|
•
|
Level 2.
Inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and
|
•
|
Level 3.
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
|
|
As of June 30,
|
|
As of December 31,
|
||||||||||||
|
|
2017
|
|
2016
|
||||||||||||
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
||||||||
Variable-rate long-term debt
|
|
$
|
1,298,000
|
|
|
$
|
1,298,000
|
|
|
$
|
1,269,000
|
|
|
$
|
1,269,000
|
|
8.
|
Calculation of Earnings per Share
|
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||||||||
|
2017
|
|
2016
|
2017
|
|
2016
|
||||||||
Net income attributable to VCA Inc.
|
$
|
67,712
|
|
|
$
|
64,050
|
|
$
|
118,805
|
|
|
$
|
110,277
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
||||||||
Basic
|
81,267
|
|
|
80,835
|
|
81,256
|
|
|
80,806
|
|
||||
Effect of dilutive potential common shares:
|
|
|
|
|
|
|
||||||||
Stock options
|
361
|
|
|
295
|
|
361
|
|
|
294
|
|
||||
Non-vested shares and units
|
600
|
|
|
599
|
|
587
|
|
|
530
|
|
||||
Diluted
|
82,228
|
|
|
81,729
|
|
82,204
|
|
|
81,630
|
|
||||
Basic earnings per common share
|
$
|
0.83
|
|
|
$
|
0.79
|
|
$
|
1.46
|
|
|
$
|
1.36
|
|
Diluted earnings per common share
|
$
|
0.82
|
|
|
$
|
0.78
|
|
$
|
1.45
|
|
|
$
|
1.35
|
|
9.
|
Lines of Business
|
9.
|
Lines of Business, continued
|
|
Animal
Hospital
|
|
Laboratory
|
|
All Other
|
|
Corporate
|
|
Eliminations
|
|
Total
|
||||||||||||
Three Months Ended
June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
External revenue
|
$
|
628,798
|
|
|
$
|
95,269
|
|
|
$
|
18,225
|
|
|
$
|
—
|
|
|
$
|
840
|
|
|
$
|
743,132
|
|
Intercompany revenue
|
—
|
|
|
21,932
|
|
|
4,308
|
|
|
—
|
|
|
(26,240
|
)
|
|
—
|
|
||||||
Total revenue
|
628,798
|
|
|
117,201
|
|
|
22,533
|
|
|
—
|
|
|
(25,400
|
)
|
|
743,132
|
|
||||||
Direct costs
|
516,239
|
|
|
53,777
|
|
|
13,177
|
|
|
—
|
|
|
(25,154
|
)
|
|
558,039
|
|
||||||
Gross profit
|
112,559
|
|
|
63,424
|
|
|
9,356
|
|
|
—
|
|
|
(246
|
)
|
|
185,093
|
|
||||||
Selling, general and administrative expense
|
16,745
|
|
|
9,975
|
|
|
7,512
|
|
|
25,544
|
|
|
—
|
|
|
59,776
|
|
||||||
Operating income (loss) before sale or disposal of assets
|
95,814
|
|
|
53,449
|
|
|
1,844
|
|
|
(25,544
|
)
|
|
(246
|
)
|
|
125,317
|
|
||||||
Net loss on sale or disposal of assets
|
225
|
|
|
3
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
230
|
|
||||||
Operating income (loss)
|
$
|
95,589
|
|
|
$
|
53,446
|
|
|
$
|
1,842
|
|
|
$
|
(25,544
|
)
|
|
$
|
(246
|
)
|
|
$
|
125,087
|
|
Depreciation and amortization
|
$
|
26,486
|
|
|
$
|
3,173
|
|
|
$
|
849
|
|
|
$
|
715
|
|
|
$
|
(704
|
)
|
|
$
|
30,519
|
|
Property and equipment additions
|
$
|
19,965
|
|
|
$
|
5,042
|
|
|
$
|
359
|
|
|
$
|
1,259
|
|
|
$
|
(906
|
)
|
|
$
|
25,719
|
|
Three Months Ended
June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
External revenue
|
$
|
540,376
|
|
|
$
|
93,265
|
|
|
$
|
18,656
|
|
|
$
|
—
|
|
|
$
|
1,192
|
|
|
$
|
653,489
|
|
Intercompany revenue
|
—
|
|
|
18,795
|
|
|
4,741
|
|
|
—
|
|
|
(23,536
|
)
|
|
—
|
|
||||||
Total revenue
|
540,376
|
|
|
112,060
|
|
|
23,397
|
|
|
—
|
|
|
(22,344
|
)
|
|
653,489
|
|
||||||
Direct costs
|
445,697
|
|
|
51,513
|
|
|
14,480
|
|
|
—
|
|
|
(22,149
|
)
|
|
489,541
|
|
||||||
Gross profit
|
94,679
|
|
|
60,547
|
|
|
8,917
|
|
|
—
|
|
|
(195
|
)
|
|
163,948
|
|
||||||
Selling, general and administrative expense
|
14,277
|
|
|
9,702
|
|
|
6,022
|
|
|
18,189
|
|
|
—
|
|
|
48,190
|
|
||||||
Operating income (loss) before sale or disposal of assets
|
80,402
|
|
|
50,845
|
|
|
2,895
|
|
|
(18,189
|
)
|
|
(195
|
)
|
|
115,758
|
|
||||||
Net (gain) loss on sale or disposal of assets
|
(132
|
)
|
|
(35
|
)
|
|
3
|
|
|
(107
|
)
|
|
—
|
|
|
(271
|
)
|
||||||
Operating income (loss)
|
$
|
80,534
|
|
|
$
|
50,880
|
|
|
$
|
2,892
|
|
|
$
|
(18,082
|
)
|
|
$
|
(195
|
)
|
|
$
|
116,029
|
|
Depreciation and amortization
|
$
|
21,875
|
|
|
$
|
2,839
|
|
|
$
|
904
|
|
|
$
|
668
|
|
|
$
|
(597
|
)
|
|
$
|
25,689
|
|
Property and equipment additions
|
$
|
25,486
|
|
|
$
|
4,750
|
|
|
$
|
1,485
|
|
|
$
|
2,336
|
|
|
$
|
(1,049
|
)
|
|
$
|
33,008
|
|
9.
|
Lines of Business, continued
|
|
Animal
Hospital
|
|
Laboratory
|
|
All Other
|
|
Corporate
|
|
Eliminations
|
|
Total
|
||||||||||||
Six Months Ended
June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
External revenue
|
$
|
1,196,979
|
|
|
$
|
185,818
|
|
|
$
|
36,864
|
|
|
$
|
—
|
|
|
$
|
1,722
|
|
|
$
|
1,421,383
|
|
Intercompany revenue
|
—
|
|
|
42,531
|
|
|
8,238
|
|
|
—
|
|
|
(50,769
|
)
|
|
—
|
|
||||||
Total revenue
|
1,196,979
|
|
|
228,349
|
|
|
45,102
|
|
|
—
|
|
|
(49,047
|
)
|
|
1,421,383
|
|
||||||
Direct costs
|
998,110
|
|
|
105,332
|
|
|
27,060
|
|
|
—
|
|
|
(48,680
|
)
|
|
1,081,822
|
|
||||||
Gross profit
|
198,869
|
|
|
123,017
|
|
|
18,042
|
|
|
—
|
|
|
(367
|
)
|
|
339,561
|
|
||||||
Selling, general and administrative expense
|
34,356
|
|
|
19,881
|
|
|
14,152
|
|
|
49,788
|
|
|
—
|
|
|
118,177
|
|
||||||
Operating income (loss) before sale or disposal of assets
|
164,513
|
|
|
103,136
|
|
|
3,890
|
|
|
(49,788
|
)
|
|
(367
|
)
|
|
221,384
|
|
||||||
Net loss on sale or disposal of assets
|
436
|
|
|
41
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
480
|
|
||||||
Operating income (loss)
|
$
|
164,077
|
|
|
$
|
103,095
|
|
|
$
|
3,887
|
|
|
$
|
(49,788
|
)
|
|
$
|
(367
|
)
|
|
$
|
220,904
|
|
Depreciation and amortization
|
$
|
53,144
|
|
|
$
|
6,081
|
|
|
$
|
1,678
|
|
|
$
|
1,407
|
|
|
$
|
(1,390
|
)
|
|
$
|
60,920
|
|
Property and equipment additions
|
$
|
39,568
|
|
|
$
|
12,682
|
|
|
$
|
1,477
|
|
|
$
|
2,880
|
|
|
$
|
(1,969
|
)
|
|
$
|
54,638
|
|
Six Months Ended
June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
External revenue
|
$
|
998,999
|
|
|
$
|
182,505
|
|
|
$
|
33,110
|
|
|
$
|
—
|
|
|
$
|
2,314
|
|
|
$
|
1,216,928
|
|
Intercompany revenue
|
—
|
|
|
36,282
|
|
|
9,700
|
|
|
—
|
|
|
(45,982
|
)
|
|
—
|
|
||||||
Total revenue
|
998,999
|
|
|
218,787
|
|
|
42,810
|
|
|
—
|
|
|
(43,668
|
)
|
|
1,216,928
|
|
||||||
Direct costs
|
830,903
|
|
|
101,524
|
|
|
26,983
|
|
|
—
|
|
|
(43,210
|
)
|
|
916,200
|
|
||||||
Gross profit
|
168,096
|
|
|
117,263
|
|
|
15,827
|
|
|
—
|
|
|
(458
|
)
|
|
300,728
|
|
||||||
Selling, general and administrative expense
|
26,362
|
|
|
19,998
|
|
|
11,321
|
|
|
40,637
|
|
|
—
|
|
|
98,318
|
|
||||||
Operating income (loss) before sale or disposal of assets
|
141,734
|
|
|
97,265
|
|
|
4,506
|
|
|
(40,637
|
)
|
|
(458
|
)
|
|
202,410
|
|
||||||
Net loss (gain) on sale or disposal of assets
|
443
|
|
|
(35
|
)
|
|
3
|
|
|
(119
|
)
|
|
—
|
|
|
292
|
|
||||||
Operating income (loss)
|
$
|
141,291
|
|
|
$
|
97,300
|
|
|
$
|
4,503
|
|
|
$
|
(40,518
|
)
|
|
$
|
(458
|
)
|
|
$
|
202,118
|
|
Depreciation and amortization
|
$
|
39,448
|
|
|
$
|
5,620
|
|
|
$
|
1,787
|
|
|
$
|
1,306
|
|
|
$
|
(1,183
|
)
|
|
$
|
46,978
|
|
Property and equipment additions
|
$
|
44,030
|
|
|
$
|
9,402
|
|
|
$
|
2,092
|
|
|
$
|
5,187
|
|
|
$
|
(1,897
|
)
|
|
$
|
58,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
At June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total assets
|
$
|
3,282,596
|
|
|
$
|
350,220
|
|
|
$
|
74,838
|
|
|
$
|
1,970,760
|
|
|
$
|
(2,140,689
|
)
|
|
$
|
3,537,725
|
|
At December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total assets
|
$
|
3,137,177
|
|
|
$
|
331,484
|
|
|
$
|
74,752
|
|
|
$
|
1,502,150
|
|
|
$
|
(1,672,235
|
)
|
|
$
|
3,373,328
|
|
10.
|
Commitments and Contingencies
|
a.
|
Earn-Out Payments
|
b.
|
Legal Proceedings
|
10.
|
Commitments and Contingencies, continued
|
11.
|
Noncontrolling Interests
|
a.
|
Mandatorily Redeemable Noncontrolling Interests
|
|
Income
Statement
Impact
|
|
Mandatorily Redeemable
Noncontrolling
Interests
|
||||
Balance as of December 31, 2015
|
|
|
$
|
8,588
|
|
||
Noncontrolling interest expense
|
$
|
827
|
|
|
|
||
Redemption value change
|
16
|
|
|
843
|
|
||
Distributions to noncontrolling interest partners
|
|
|
(761
|
)
|
|||
Currency translation adjustment
|
|
|
168
|
|
|||
Balance as of June 30, 2016
|
|
|
$
|
8,838
|
|
||
|
|
|
|
||||
Balance as of December 31, 2016
|
|
|
$
|
10,379
|
|
||
Noncontrolling interest expense
|
$
|
810
|
|
|
|
||
Redemption value change
|
(23
|
)
|
|
787
|
|
||
Sale of noncontrolling interests
|
|
|
(363
|
)
|
|||
Distributions to noncontrolling interest partners
|
|
|
(677
|
)
|
|||
Currency translation adjustment
|
|
|
87
|
|
|||
Balance as of June 30, 2017
|
|
|
$
|
10,213
|
|
11.
|
Noncontrolling Interests, continued
|
b.
|
Redeemable Noncontrolling Interests
|
|
Income
Statement
Impact
|
|
Redeemable
Noncontrolling
Interests
|
||||
Balance as of December 31, 2015
|
|
|
$
|
11,511
|
|
||
Noncontrolling interest expense
|
$
|
820
|
|
|
|
||
Redemption value change
|
480
|
|
|
1,300
|
|
||
Distributions to noncontrolling interest partners
|
|
|
(758
|
)
|
|||
Balance as of June 30, 2016
|
|
|
$
|
12,053
|
|
||
|
|
|
|
||||
Balance as of December 31, 2016
|
|
|
$
|
11,615
|
|
||
Noncontrolling interest expense
|
$
|
784
|
|
|
|
||
Redemption value change
|
185
|
|
|
969
|
|
||
Purchase of noncontrolling interests
|
|
|
(1,185
|
)
|
|||
Distributions to noncontrolling interest partners
|
|
|
(793
|
)
|
|||
Other
|
|
|
(48
|
)
|
|||
Balance as of June 30, 2017
|
|
|
$
|
10,558
|
|
12.
|
Recent Accounting Pronouncements
|
12.
|
Recent Accounting Pronouncements, continued
|
12.
|
Recent Accounting Pronouncements, continued
|
•
|
The amendment requiring excess tax benefits to be recorded in the income statement has been applied prospectively effective January 1, 2017. Amounts previously recorded to additional paid in capital related to windfall tax benefits prior to January 1, 2017 remain in equity, and the December 31, 2016 balance sheet has not been adjusted.
|
•
|
The amendment eliminating the requirement that excess tax benefits must be realized (through a reduction in income taxes payable) prior to recognition has been applied prospectively. As of January 1, 2017, we do not have unrecognized excess tax benefits.
|
12.
|
Recent Accounting Pronouncements, continued
|
•
|
The amendment requiring exclusion of excess tax benefits from the computation of assumed proceeds under the treasury stock method when calculating earnings per share has been applied prospectively effective January 1, 2017. Earnings per share for the three and six months ended June 30, 2016 have not been adjusted.
|
•
|
The amendment requiring presentation of excess tax benefits to be classified along with other income tax cash flows as an operating activity on the statement of cash flows rather than as a financing activity has been applied prospectively
|
•
|
We have elected not to change our policy to estimate the number of forfeitures expected to occur.
|
12.
|
Recent Accounting Pronouncements, continued
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
Our Animal Hospital segment operates the largest network of freestanding, full-service animal hospitals in the nation. Our animal hospitals offer a full range of general medical and surgical services for companion animals. We treat diseases and injuries, offer pharmaceutical and retail products and perform a variety of pet wellness programs, including health examinations, diagnostic testing, routine vaccinations, spaying, neutering and dental care. At
June 30, 2017
, our animal hospital network consisted of
812
animal hospitals in
43
states and in
five
Canadian provinces.
|
•
|
Our Laboratory segment operates the largest network of veterinary diagnostic laboratories in the nation. Our laboratories provide sophisticated testing and consulting services used by veterinarians in the detection, diagnosis, evaluation, monitoring, treatment and prevention of diseases and other conditions affecting animals. At
June 30, 2017
, our laboratory network consisted of
62
laboratories serving all
50
states and certain areas in Canada.
|
|
Six Months Ended
June 30, |
||||
|
2017
|
|
2016
|
||
Animal Hospitals:
|
|
|
|
||
Beginning of period
|
795
|
|
|
682
|
|
Acquisitions
|
24
|
|
|
37
|
|
CAPNA acquisition
|
—
|
|
|
56
|
|
|
|
|
|
||
Acquisitions, merged
|
(2
|
)
|
|
(3
|
)
|
Sold, closed or merged
|
(5
|
)
|
|
(5
|
)
|
End of period
|
812
|
|
|
767
|
|
|
|
|
|
||
Laboratories:
|
|
|
|
||
Beginning of period
|
61
|
|
|
60
|
|
New facilities
|
1
|
|
|
—
|
|
End of period
|
62
|
|
|
60
|
|
•
|
The amendment requiring excess tax benefits to be recorded in the income statement has been applied prospectively effective January 1, 2017. Amounts previously recorded to additional paid in capital related to windfall tax benefits prior to January 1, 2017 remain in equity, and the December 31, 2016 balance sheet has not been adjusted.
|
•
|
The amendment eliminating the requirement that excess tax benefits must be realized (through a reduction in income taxes payable) prior to recognition has been applied prospectively. As of January 1, 2017, we do not have unrecognized excess tax benefits.
|
•
|
The amendment requiring exclusion of excess tax benefits from the computation of assumed proceeds under the treasury stock method when calculating earnings per share has been applied prospectively effective January 1, 2017. Earnings per share for the three and six months ended June 30, 2016 have not been adjusted.
|
•
|
The amendment requiring presentation of excess tax benefits to be classified along with other income tax cash flows as an operating activity on the statement of cash flows rather than as a financing activity has been applied prospectively effective January 1, 2017. The statement of cash flows for the six months ended June 30, 2016 has not been adjusted.
|
•
|
We have elected not to change our policy to estimate the number of forfeitures expected to occur.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||
Revenue:
|
|
|
|
|
|
|
|
||||
Animal Hospital
|
84.6
|
%
|
|
82.7
|
%
|
|
84.2
|
%
|
|
82.1
|
%
|
Laboratory
|
15.8
|
|
|
17.1
|
|
|
16.1
|
|
|
18.0
|
|
All Other
|
3.0
|
|
|
3.6
|
|
|
3.2
|
|
|
3.5
|
|
Intercompany
|
(3.4
|
)
|
|
(3.4
|
)
|
|
(3.5
|
)
|
|
(3.6
|
)
|
Total revenue
|
100.0
|
|
|
100.0
|
|
|
100.0
|
|
|
100.0
|
|
Direct costs
|
75.1
|
|
|
74.9
|
|
|
76.1
|
|
|
75.3
|
|
Gross profit
|
24.9
|
|
|
25.1
|
|
|
23.9
|
|
|
24.7
|
|
Selling, general and administrative expense
|
8.0
|
|
|
7.4
|
|
|
8.3
|
|
|
8.1
|
|
Net loss (gain) on sale or disposal of assets
|
0.1
|
|
|
(0.1
|
)
|
|
0.1
|
|
|
—
|
|
Operating income
|
16.8
|
|
|
17.8
|
|
|
15.5
|
|
|
16.6
|
|
Interest expense, net
|
1.3
|
|
|
1.2
|
|
|
1.4
|
|
|
1.3
|
|
Debt retirement costs
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.1
|
|
Other income
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
(0.1
|
)
|
Income before provision for income taxes
|
15.5
|
|
|
16.4
|
|
|
14.2
|
|
|
15.3
|
|
Provision for income taxes
|
6.0
|
|
|
6.2
|
|
|
5.6
|
|
|
5.9
|
|
Net income
|
9.5
|
|
|
10.2
|
|
|
8.6
|
|
|
9.4
|
|
Net income attributable to noncontrolling interests
|
0.4
|
|
|
0.4
|
|
|
0.3
|
|
|
0.3
|
|
Net income attributable to VCA Inc.
|
9.1
|
%
|
|
9.8
|
%
|
|
8.3
|
%
|
|
9.1
|
%
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||||||||||||||||||||
|
2017
|
|
2016
|
|
|
|
2017
|
|
2016
|
|
|
||||||||||||||||||||||
|
$
|
|
% of
Total
|
|
$
|
|
% of
Total
|
|
%
Change
|
|
$
|
|
% of
Total
|
|
$
|
|
% of
Total
|
|
%
Change
|
||||||||||||||
Animal Hospital
|
$
|
628,798
|
|
|
84.6
|
%
|
|
$
|
540,376
|
|
|
82.7
|
%
|
|
16.4
|
%
|
|
$
|
1,196,979
|
|
|
84.2
|
%
|
|
$
|
998,999
|
|
|
82.1
|
%
|
|
19.8
|
%
|
Laboratory
|
117,201
|
|
|
15.8
|
%
|
|
112,060
|
|
|
17.1
|
%
|
|
4.6
|
%
|
|
228,349
|
|
|
16.1
|
%
|
|
218,787
|
|
|
18.0
|
%
|
|
4.4
|
%
|
||||
All Other
|
22,533
|
|
|
3.0
|
%
|
|
23,397
|
|
|
3.6
|
%
|
|
(3.7
|
)%
|
|
45,102
|
|
|
3.2
|
%
|
|
42,810
|
|
|
3.5
|
%
|
|
5.4
|
%
|
||||
Intercompany
|
(25,400
|
)
|
|
(3.4
|
)%
|
|
(22,344
|
)
|
|
(3.4
|
)%
|
|
(13.7
|
)%
|
|
(49,047
|
)
|
|
(3.5
|
)%
|
|
(43,668
|
)
|
|
(3.6
|
)%
|
|
(12.3
|
)%
|
||||
Total revenue
|
$
|
743,132
|
|
|
100.0
|
%
|
|
$
|
653,489
|
|
|
100.0
|
%
|
|
13.7
|
%
|
|
$
|
1,421,383
|
|
|
100.0
|
%
|
|
$
|
1,216,928
|
|
|
100.0
|
%
|
|
16.8
|
%
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||||||||||||||||||||
|
2017
|
|
2016
|
|
|
|
2017
|
|
2016
|
|
|
||||||||||||||||||||||
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
%
Change
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
%
Change
|
||||||||||||||
Animal Hospital
|
$
|
516,239
|
|
|
82.1
|
%
|
|
$
|
445,697
|
|
|
82.5
|
%
|
|
15.8
|
%
|
|
$
|
998,110
|
|
|
83.4
|
%
|
|
$
|
830,903
|
|
|
83.2
|
%
|
|
20.1
|
%
|
Laboratory
|
53,777
|
|
|
45.9
|
%
|
|
51,513
|
|
|
46.0
|
%
|
|
4.4
|
%
|
|
105,332
|
|
|
46.1
|
%
|
|
101,524
|
|
|
46.4
|
%
|
|
3.8
|
%
|
||||
All Other
|
13,177
|
|
|
58.5
|
%
|
|
14,480
|
|
|
61.9
|
%
|
|
(9.0
|
)%
|
|
27,060
|
|
|
60.0
|
%
|
|
26,983
|
|
|
63.0
|
%
|
|
0.3
|
%
|
||||
Intercompany
|
(25,154
|
)
|
|
(3.4
|
)%
|
|
(22,149
|
)
|
|
(3.4
|
)%
|
|
(13.6
|
)%
|
|
(48,680
|
)
|
|
(3.4
|
)%
|
|
(43,210
|
)
|
|
(3.6
|
)%
|
|
(12.7
|
)%
|
||||
Total direct costs
|
$
|
558,039
|
|
|
75.1
|
%
|
|
$
|
489,541
|
|
|
74.9
|
%
|
|
14.0
|
%
|
|
$
|
1,081,822
|
|
|
76.1
|
%
|
|
$
|
916,200
|
|
|
75.3
|
%
|
|
18.1
|
%
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||||||||||||||||||||
|
2017
|
|
2016
|
|
|
|
2017
|
|
2016
|
|
|
||||||||||||||||||||||
|
$
|
|
Gross
Margin
|
|
$
|
|
Gross
Margin
|
|
%
Change
|
|
$
|
|
Gross
Margin
|
|
$
|
|
Gross
Margin
|
|
%
Change
|
||||||||||||||
Animal Hospital
|
$
|
112,559
|
|
|
17.9
|
%
|
|
$
|
94,679
|
|
|
17.5
|
%
|
|
18.9
|
%
|
|
$
|
198,869
|
|
|
16.6
|
%
|
|
$
|
168,096
|
|
|
16.8
|
%
|
|
18.3
|
%
|
Laboratory
|
63,424
|
|
|
54.1
|
%
|
|
60,547
|
|
|
54.0
|
%
|
|
4.8
|
%
|
|
123,017
|
|
|
53.9
|
%
|
|
117,263
|
|
|
53.6
|
%
|
|
4.9
|
%
|
||||
All Other
|
9,356
|
|
|
41.5
|
%
|
|
8,917
|
|
|
38.1
|
%
|
|
4.9
|
%
|
|
18,042
|
|
|
40.0
|
%
|
|
15,827
|
|
|
37.0
|
%
|
|
14.0
|
%
|
||||
Intercompany
|
(246
|
)
|
|
|
|
(195
|
)
|
|
|
|
|
|
(367
|
)
|
|
|
|
(458
|
)
|
|
|
|
|
||||||||||
Consolidated gross profit
|
$
|
185,093
|
|
|
24.9
|
%
|
|
$
|
163,948
|
|
|
25.1
|
%
|
|
12.9
|
%
|
|
$
|
339,561
|
|
|
23.9
|
%
|
|
$
|
300,728
|
|
|
24.7
|
%
|
|
12.9
|
%
|
Intangible asset amortization associated with acquisitions
|
9,606
|
|
|
|
|
9,187
|
|
|
|
|
|
|
19,757
|
|
|
|
|
15,415
|
|
|
|
|
|
||||||||||
Non-GAAP consolidated gross profit and Non-GAAP gross margin
(1)
|
$
|
194,699
|
|
|
26.2
|
%
|
|
$
|
173,135
|
|
|
26.5
|
%
|
|
12.5
|
%
|
|
$
|
359,318
|
|
|
25.3
|
%
|
|
$
|
316,143
|
|
|
26.0
|
%
|
|
13.7
|
%
|
(1)
|
Non-GAAP consolidated gross profit and Non-GAAP gross margin are not measurements of financial performance prepared in accordance with GAAP. See
Non-GAAP Financial Measures
below for information about these Non-GAAP financial measures, including our reasons for including the measures, material limitations with respect to the usefulness of the measures, and a reconciliation of each Non-GAAP financial measure to the most directly comparable GAAP financial measure.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||||||||
|
2017
|
|
2016
|
|
% Change
|
|
2017
|
|
2016
|
|
% Change
|
||||||||||
Same-store facilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Orders
(1)
|
2,783
|
|
|
2,762
|
|
|
0.8
|
%
|
|
5,131
|
|
|
5,136
|
|
|
(0.1
|
)%
|
||||
Average revenue per order
(2)
|
$
|
189.58
|
|
|
$
|
181.58
|
|
|
4.4
|
%
|
|
$
|
188.25
|
|
|
$
|
180.03
|
|
|
4.6
|
%
|
Same-store revenue
(1)
|
$
|
527,595
|
|
|
$
|
501,530
|
|
|
5.2
|
%
|
|
$
|
965,898
|
|
|
$
|
924,623
|
|
|
4.5
|
%
|
Business-day adjustment
(3)
|
—
|
|
|
639
|
|
|
|
|
—
|
|
|
—
|
|
|
|
||||||
Acquisitions
|
103,406
|
|
|
35,352
|
|
|
|
|
230,753
|
|
|
68,464
|
|
|
|
||||||
Closures
|
401
|
|
|
2,855
|
|
|
|
|
1,194
|
|
|
5,912
|
|
|
|
||||||
Net acquired revenue
(4)
|
$
|
103,807
|
|
|
$
|
38,207
|
|
|
|
|
$
|
231,947
|
|
|
$
|
74,376
|
|
|
|
||
Foreign currency impact
|
(2,604
|
)
|
|
—
|
|
|
|
|
(866
|
)
|
|
—
|
|
|
|
||||||
Total
|
$
|
628,798
|
|
|
$
|
540,376
|
|
|
16.4
|
%
|
|
$
|
1,196,979
|
|
|
$
|
998,999
|
|
|
19.8
|
%
|
(1)
|
Same-store revenue and orders were calculated using Animal Hospital operating results, adjusted to exclude the operating results for newly acquired animal hospitals that we did not own, as of the beginning of the comparable period in the prior year. Same-store revenue also includes revenue generated by customers referred from our relocated or combined animal hospitals, including those merged upon acquisition.
|
(2)
|
Computed by dividing same-store revenue by same-store orders. The average revenue per order may not calculate exactly due to rounding.
|
(3)
|
The business-day adjustment reflects the impact of the one additional day for the three months ended June 30, 2016 as compared to the same period in 2017.
|
(4)
|
Net acquired revenue represents the revenue from animal hospitals acquired, net of revenue from animal hospitals sold or closed, on or after the beginning of the comparable period in the prior year. Fluctuations in net acquired revenue occur due to the volume, size, and timing of acquisitions and dispositions.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||||||||
|
2017
|
|
2016
|
|
% Change
|
|
2017
|
|
2016
|
|
% Change
|
||||||||||
Gross profit
|
$
|
112,559
|
|
|
$
|
94,679
|
|
|
18.9
|
%
|
|
$
|
198,869
|
|
|
$
|
168,096
|
|
|
18.3
|
%
|
Intangible asset amortization associated with acquisitions
|
9,339
|
|
|
8,195
|
|
|
|
|
18,767
|
|
|
13,435
|
|
|
|
||||||
Non-GAAP gross profit
(1)
|
$
|
121,898
|
|
|
$
|
102,874
|
|
|
18.5
|
%
|
|
$
|
217,636
|
|
|
$
|
181,531
|
|
|
19.9
|
%
|
Gross margin
|
17.9
|
%
|
|
17.5
|
%
|
|
|
|
16.6
|
%
|
|
16.8
|
%
|
|
|
||||||
Non-GAAP gross margin
(1)
|
19.4
|
%
|
|
19.0
|
%
|
|
|
|
18.2
|
%
|
|
18.2
|
%
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Same-store gross profit
|
$
|
98,095
|
|
|
$
|
89,353
|
|
|
9.8
|
%
|
|
$
|
170,104
|
|
|
$
|
157,649
|
|
|
7.9
|
%
|
Intangible asset amortization associated with acquisitions
|
4,488
|
|
|
5,930
|
|
|
|
|
7,616
|
|
|
9,847
|
|
|
|
||||||
Non-GAAP same-store gross profit
(1)
|
$
|
102,583
|
|
|
$
|
95,283
|
|
|
7.7
|
%
|
|
$
|
177,720
|
|
|
$
|
167,496
|
|
|
6.1
|
%
|
Same-store gross margin
|
18.6
|
%
|
|
17.8
|
%
|
|
|
|
17.6
|
%
|
|
17.1
|
%
|
|
|
||||||
Non-GAAP same-store gross margin
(1)
|
19.4
|
%
|
|
19.0
|
%
|
|
|
|
18.4
|
%
|
|
18.1
|
%
|
|
|
(1)
|
Non-GAAP gross profit and Non-GAAP gross margin and the same measures expressed on a same store basis, are not measurements of financial performance prepared in accordance with GAAP. See
Non-GAAP Financial Measures
below for information about these Non-GAAP financial measures, including our reasons for including the measures, material limitations with respect to the usefulness of the measures, and a reconciliation of each Non-GAAP financial measure to the most directly comparable GAAP financial measure.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||||||||
|
2017
|
|
2016
|
|
% Change
|
|
2017
|
|
2016
|
|
% Change
|
||||||||||
Revenue
|
$
|
117,201
|
|
|
$
|
112,060
|
|
|
4.6
|
%
|
|
$
|
228,349
|
|
|
$
|
218,787
|
|
|
4.4
|
%
|
Gross profit
|
$
|
63,424
|
|
|
$
|
60,547
|
|
|
4.8
|
%
|
|
$
|
123,017
|
|
|
$
|
117,263
|
|
|
4.9
|
%
|
Gross margin
|
54.1
|
%
|
|
54.0
|
%
|
|
|
|
53.9
|
%
|
|
53.6
|
%
|
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||||||||
|
2017
|
|
2016
|
|
% Change
|
|
2017
|
|
2016
|
|
% Change
|
||||||||||
Internal growth:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Number of requisitions
(1)
|
3,783
|
|
|
3,770
|
|
|
0.3
|
%
|
|
7,256
|
|
|
7,181
|
|
|
1.0
|
%
|
||||
Average revenue per requisition
(2)
|
$
|
30.98
|
|
|
$
|
29.72
|
|
|
4.2
|
%
|
|
$
|
31.47
|
|
|
$
|
30.27
|
|
|
4.0
|
%
|
Total internal revenue
(1)
|
$
|
117,201
|
|
|
$
|
112,060
|
|
|
4.6
|
%
|
|
$
|
228,349
|
|
|
$
|
217,366
|
|
|
5.1
|
%
|
Billing-day adjustment
(3)
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
1,421
|
|
|
|
||||||
Total
|
$
|
117,201
|
|
|
$
|
112,060
|
|
|
4.6
|
%
|
|
$
|
228,349
|
|
|
$
|
218,787
|
|
|
4.4
|
%
|
(1)
|
Internal revenue and requisitions were calculated using Laboratory operating results, which are adjusted (i) to exclude the operating results of acquired laboratories we recognized during the current year period that we did not own them in the prior year, and (ii) for the impact resulting from any differences in the number of billing days in the comparable period, if applicable.
|
(2)
|
Computed by dividing internal revenue by the number of requisitions.
|
(3)
|
The 2017 Business-day adjustment reflects the impact of the one additional day in 2016 as compared to 2017.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||||||||||||||||||||
|
2017
|
|
2016
|
|
|
|
2017
|
|
2016
|
|
|
||||||||||||||||||||||
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
%
Change
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
%
Change
|
||||||||||||||
Animal Hospital
|
$
|
16,745
|
|
|
2.7
|
%
|
|
$
|
14,277
|
|
|
2.6
|
%
|
|
17.3
|
%
|
|
$
|
34,356
|
|
|
2.9
|
%
|
|
$
|
26,362
|
|
|
2.6
|
%
|
|
30.3
|
%
|
Laboratory
|
9,975
|
|
|
8.5
|
%
|
|
9,702
|
|
|
8.7
|
%
|
|
2.8
|
%
|
|
19,881
|
|
|
8.7
|
%
|
|
19,998
|
|
|
9.1
|
%
|
|
(0.6
|
)%
|
||||
All Other
|
7,512
|
|
|
33.3
|
%
|
|
6,022
|
|
|
25.7
|
%
|
|
24.7
|
%
|
|
14,152
|
|
|
31.4
|
%
|
|
11,321
|
|
|
26.4
|
%
|
|
25.0
|
%
|
||||
Corporate
|
25,544
|
|
|
3.4
|
%
|
|
18,189
|
|
|
2.8
|
%
|
|
40.4
|
%
|
|
49,788
|
|
|
3.5
|
%
|
|
40,637
|
|
|
3.3
|
%
|
|
22.5
|
%
|
||||
Total Consolidated SG&A
|
$
|
59,776
|
|
|
8.0
|
%
|
|
$
|
48,190
|
|
|
7.4
|
%
|
|
24.0
|
%
|
|
$
|
118,177
|
|
|
8.3
|
%
|
|
$
|
98,318
|
|
|
8.1
|
%
|
|
20.2
|
%
|
Intangible asset amortization associated with acquisitions
|
1,732
|
|
|
|
|
612
|
|
|
|
|
|
|
3,006
|
|
|
|
|
612
|
|
|
|
|
|
||||||||||
Non-GAAP Consolidated SG&A
(1)
|
$
|
58,044
|
|
|
|
|
$
|
47,578
|
|
|
|
|
|
|
$
|
115,171
|
|
|
|
|
$
|
97,706
|
|
|
|
|
|
(1)
|
Non-GAAP SG&A is not a measurement of financial performance prepared in accordance with GAAP. See
Non-GAAP Financial Measures
below for information about this Non-GAAP financial measure, including our reasons for including the measure and material limitations with respect to the usefulness of the measure, and a reconciliation of each Non-GAAP financial measure to the most directly comparable GAAP financial measure.
|
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||||||||||||||||||||||||||
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
|
|
||||||||||||||||||||||
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
%
Change
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
%
Change
|
||||||||||||||
Animal Hospital
|
$
|
95,589
|
|
|
15.2
|
%
|
|
$
|
80,534
|
|
|
14.9
|
%
|
|
18.7
|
%
|
$
|
164,077
|
|
|
13.7
|
%
|
|
$
|
141,291
|
|
|
14.1
|
%
|
|
16.1
|
%
|
Laboratory
|
53,446
|
|
|
45.6
|
%
|
|
50,880
|
|
|
45.4
|
%
|
|
5.0
|
%
|
103,095
|
|
|
45.1
|
%
|
|
97,300
|
|
|
44.5
|
%
|
|
6.0
|
%
|
||||
All Other
|
1,842
|
|
|
8.2
|
%
|
|
2,892
|
|
|
12.4
|
%
|
|
(36.3
|
)%
|
3,887
|
|
|
8.6
|
%
|
|
4,503
|
|
|
10.5
|
%
|
|
(13.7
|
)%
|
||||
Corporate
|
(25,544
|
)
|
|
|
|
(18,082
|
)
|
|
|
|
(41.3
|
)%
|
(49,788
|
)
|
|
|
|
(40,518
|
)
|
|
|
|
(22.9
|
)%
|
||||||||
Eliminations
|
(246
|
)
|
|
|
|
(195
|
)
|
|
|
|
(26.2
|
)%
|
(367
|
)
|
|
|
|
(458
|
)
|
|
|
|
19.9
|
%
|
||||||||
Total GAAP consolidated operating income
|
$
|
125,087
|
|
|
16.8
|
%
|
|
$
|
116,029
|
|
|
17.8
|
%
|
|
7.8
|
%
|
$
|
220,904
|
|
|
15.5
|
%
|
|
$
|
202,118
|
|
|
16.6
|
%
|
|
9.3
|
%
|
Adjustments to other long-term liabilities
|
—
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
1,954
|
|
|
|
|
|
||||||||||
Transaction costs related to the CAPNA acquisition
|
—
|
|
|
|
|
231
|
|
|
|
|
|
—
|
|
|
|
|
1,197
|
|
|
|
|
|
||||||||||
Transaction costs related to the Mars transaction
|
4,468
|
|
|
|
|
—
|
|
|
|
|
|
7,851
|
|
|
|
|
—
|
|
|
|
|
|
||||||||||
Intangible asset amortization associated with acquisitions
|
11,338
|
|
|
|
|
9,799
|
|
|
|
|
|
22,763
|
|
|
|
|
16,027
|
|
|
|
|
|
||||||||||
Non-GAAP consolidated operating income and Non-GAAP consolidated operating margin
(1)
|
$
|
140,893
|
|
|
19.0
|
%
|
|
$
|
126,059
|
|
|
19.3
|
%
|
|
11.8
|
%
|
$
|
251,518
|
|
|
17.7
|
%
|
|
$
|
221,296
|
|
|
18.2
|
%
|
|
13.7
|
%
|
(1)
|
Non-GAAP consolidated operating income and Non-GAAP consolidated operating margin are not measurements of financial performance prepared in accordance with GAAP. See
Non-GAAP Financial Measures
below for information about these Non-GAAP financial measures, including our reasons for including the measures, material limitations with respect to the usefulness of the measures, and a reconciliation of each Non-GAAP financial measure to the most directly comparable GAAP financial measure.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Interest expense:
|
|
|
|
|
|
|
|
||||||||
Senior term notes and revolver
|
$
|
8,375
|
|
|
$
|
5,806
|
|
|
$
|
15,811
|
|
|
$
|
9,971
|
|
Capital leases and other
|
1,489
|
|
|
1,762
|
|
|
2,881
|
|
|
2,999
|
|
||||
Amortization of debt costs
|
383
|
|
|
431
|
|
|
767
|
|
|
865
|
|
||||
Non-GAAP interest expense
(1)
|
10,247
|
|
|
7,999
|
|
|
19,459
|
|
|
13,835
|
|
||||
Adjustments to other long-term liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
1,398
|
|
||||
Consolidated interest expense
|
10,247
|
|
|
7,999
|
|
|
19,459
|
|
|
15,233
|
|
||||
Interest income
|
(78
|
)
|
|
(132
|
)
|
|
(263
|
)
|
|
(271
|
)
|
||||
Total consolidated interest expense, net of interest income
|
$
|
10,169
|
|
|
$
|
7,867
|
|
|
$
|
19,196
|
|
|
$
|
14,962
|
|
(1)
|
Non-GAAP interest expense is not a measurement of financial performance prepared in accordance with GAAP. See
Non-GAAP Financial Measures
below for information about this financial measure including our reasons for including the measure and material limitations with respect to the usefulness of this measure.
|
•
|
Adjustments to other long-term liabilities
- In the first quarter of 2016, we recorded a non-cash charge of $3.4 million, of which $2.0 million related to compensation and $1.4 million related to interest accretion.
|
•
|
Discrete tax items
- In the first quarter of 2016, we recorded a non-cash tax adjustment to our income tax liabilities for $1.0 million.
|
•
|
Transaction costs related to the CAPNA acquisition
-
For the three and six months ended June 30, 2016, we have recorded transaction costs of $231,000 and $1.2 million, respectively, related to our acquisition of CAPNA.
|
•
|
Transaction costs related to the Mars transaction
-
For the three and six months ended June 30, 2017, we have recorded transaction costs of $4.5 million and $7.9 million, respectively, related to the proposed transaction with Mars.
|
•
|
Debt retirement costs adjustment
- We incurred debt retirement costs of $1.6 million in connection with our new credit facility for the three and six months ended June 30, 2016.
|
•
|
Intangible asset amortization associated with acquisitions
- Our GAAP net income includes amortization expense related to intangible assets in our acquired businesses. The amortization expense related to our acquired intangible assets can vary significantly dependent upon the amount and size of our acquisitions in each period; accordingly, we exclude amortization from our GAAP net income, for all periods presented, to provide investors with more comparable operating results.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
GAAP net income
|
$
|
67,712
|
|
|
$
|
64,050
|
|
|
$
|
118,805
|
|
|
$
|
110,277
|
|
Adjustments to other long-term liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
3,352
|
|
||||
Discrete tax items
|
—
|
|
|
—
|
|
|
—
|
|
|
1,045
|
|
||||
Transaction costs related to the CAPNA acquisition
|
—
|
|
|
231
|
|
|
—
|
|
|
1,197
|
|
||||
Transaction costs related to the Mars transaction
|
4,468
|
|
|
—
|
|
|
7,851
|
|
|
—
|
|
||||
Debt retirement costs
|
—
|
|
|
1,600
|
|
|
—
|
|
|
1,600
|
|
||||
Intangible asset amortization associated with acquisitions
|
10,535
|
|
|
9,247
|
|
|
21,160
|
|
|
15,476
|
|
||||
Tax benefit on above adjustments
|
(4,124
|
)
|
|
(4,335
|
)
|
|
(8,284
|
)
|
|
(8,464
|
)
|
||||
Non-GAAP net income
|
$
|
78,591
|
|
|
$
|
70,793
|
|
|
$
|
139,532
|
|
|
$
|
124,483
|
|
Non-GAAP diluted earnings per share
|
$
|
0.96
|
|
|
$
|
0.87
|
|
|
$
|
1.70
|
|
|
$
|
1.53
|
|
Shares used for computing adjusted diluted earnings per share
|
82,228
|
|
|
81,729
|
|
|
82,204
|
|
|
81,630
|
|
|
Six Months Ended
June 30, |
||||||
|
2017
|
|
2016
|
||||
Cash provided by (used in):
|
|
|
|
||||
Operating activities
|
$
|
215,283
|
|
|
$
|
190,713
|
|
Investing activities
|
(184,643
|
)
|
|
(604,334
|
)
|
||
Financing activities
|
6,824
|
|
|
424,104
|
|
||
Effect of currency exchange rate changes on cash and cash equivalents
|
179
|
|
|
313
|
|
||
Increase in cash and cash equivalents
|
37,643
|
|
|
10,796
|
|
||
Cash and cash equivalents at beginning of period
|
81,409
|
|
|
98,888
|
|
||
Cash and cash equivalents at end of period
|
$
|
119,052
|
|
|
$
|
109,684
|
|
|
Six Months Ended
June 30, |
|
|
|
||||||||
|
2017
|
|
2016
|
|
Change
|
|
||||||
Investing Cash Flows:
|
|
|
|
|
|
|
||||||
Business acquisitions, net of cash acquired
|
$
|
(123,852
|
)
|
|
$
|
(540,878
|
)
|
|
$
|
417,026
|
|
(1)
|
Property and equipment additions
|
(54,638
|
)
|
|
(58,814
|
)
|
|
4,176
|
|
(2)
|
|||
Proceeds from sale of assets
|
1,747
|
|
|
282
|
|
|
1,465
|
|
|
|||
Other
|
(7,900
|
)
|
|
(4,924
|
)
|
|
(2,976
|
)
|
(3)
|
|||
Net cash used in investing activities
|
$
|
(184,643
|
)
|
|
$
|
(604,334
|
)
|
|
$
|
419,691
|
|
|
(1)
|
The number of acquisitions will vary from period to period based upon the available pool of suitable candidates. A discussion of our acquisitions is provided above in our
Executive Overview
.
|
(2)
|
The cash used to acquire property and equipment will vary from period to period based on upgrade requirements and expansion of our animal hospitals and laboratory facilities.
|
(3)
|
We paid $3.7 million in connection with our acquisition holdbacks. Payouts will vary from period to period based on the timing of each acquisition and the acquisition holdback period.
|
|
Six Months Ended
June 30, |
|
|
|
||||||||
|
2017
|
|
2016
|
|
Change
|
|
||||||
Financing Cash Flows:
|
|
|
|
|
|
|
||||||
Repayment of long-term obligations
|
$
|
(28,259
|
)
|
|
$
|
(1,256,250
|
)
|
|
$
|
1,227,991
|
|
(1)
|
Proceeds from issuance of long-term obligations
|
—
|
|
|
1,255,000
|
|
|
(1,255,000
|
)
|
(1)
|
|||
Repayment of revolving credit facility
|
(30,000
|
)
|
|
—
|
|
|
(30,000
|
)
|
|
|||
Proceeds from revolving credit facility
|
70,000
|
|
|
435,000
|
|
|
(365,000
|
)
|
(2)
|
|||
Payment of financing costs
|
—
|
|
|
(3,829
|
)
|
|
3,829
|
|
(1)
|
|||
Distributions to noncontrolling interest partners
|
(2,333
|
)
|
|
(2,554
|
)
|
|
221
|
|
|
|||
Purchase of noncontrolling interests
|
(1,401
|
)
|
|
(3,730
|
)
|
|
2,329
|
|
(3)
|
|||
Proceeds from formation of noncontrolling interests
|
335
|
|
|
—
|
|
|
335
|
|
|
|||
Proceeds from issuance of common stock under stock incentive plans
|
90
|
|
|
1,122
|
|
|
(1,032
|
)
|
|
|||
Excess tax benefits from share-based compensation
|
—
|
|
|
1,421
|
|
|
(1,421
|
)
|
|
|||
Stock repurchases
|
(129
|
)
|
|
(843
|
)
|
|
714
|
|
|
|||
Other
|
(1,479
|
)
|
|
(1,233
|
)
|
|
(246
|
)
|
|
|||
Net cash provided by financing activities
|
$
|
6,824
|
|
|
$
|
424,104
|
|
|
$
|
(417,280
|
)
|
|
(1)
|
The repayment of long-term obligations consists primarily of $14.4 million in subsequent payoff of debt assumed in acquisitions, $11.0 million in scheduled senior-term note principal, and $2.4 million in capital lease payments.
|
(2)
|
In 2017, we borrowed $70.0 million from our June 2016 Revolving Credit Facility in which the proceeds were primarily used to fund our individual hospital acquisitions.
|
(3)
|
The cash paid to purchase noncontrolling interests will vary based upon differing opportunities and circumstances during each of the respective periods.
|
|
Payment due by period
|
||||||||||||||||||
|
Total
|
|
Less than 1 Year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5 years
|
||||||||||
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
||||||||||
Long-term debt
|
$
|
1,299,647
|
|
|
$
|
44,275
|
|
|
$
|
110,360
|
|
|
$
|
1,144,360
|
|
|
$
|
652
|
|
Variable cash interest expense Term A
(1)
|
131,202
|
|
|
34,937
|
|
|
66,097
|
|
|
30,168
|
|
|
—
|
|
|||||
|
$
|
1,430,849
|
|
|
$
|
79,212
|
|
|
$
|
176,457
|
|
|
$
|
1,174,528
|
|
|
$
|
652
|
|
(1)
|
The interest payments on our variable-rate senior term notes are based on rates effective as of
June 30, 2017
.
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
PART II.
|
OTHER INFORMATION
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 1A.
|
RISK FACTORS
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
|
|
|
|
|
|
Total Number of
|
|
Approximate Dollar
|
||||||
|
|
|
|
|
|
Shares Purchased as
|
|
Value of Shares That
|
||||||
|
|
Total Number
|
|
Average
|
|
Part of Publicly
|
|
May Yet Be Purchased
|
||||||
|
|
of Shares
|
|
Price Paid
|
|
Announced Plan
|
|
Under the Plan
|
||||||
Period
|
|
Purchased
|
|
Per Share
|
|
or Program
|
|
or Program
|
||||||
(1)
|
|
(2)
|
|
(3)
|
|
(4)
|
|
(4)
|
||||||
|
|
|
|
|
|
|
|
|
||||||
April 1, 2017 to April 30, 2017
|
|
125
|
|
|
$
|
92.64
|
|
|
—
|
|
|
$
|
101,058,831
|
|
May 1, 2017 to May 31, 2017
|
|
242
|
|
|
$
|
91.83
|
|
|
—
|
|
|
$
|
101,058,831
|
|
June 1, 2017 to June 30, 2017
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
101,058,831
|
|
|
|
367
|
|
|
$
|
92.11
|
|
|
—
|
|
|
$
|
101,058,831
|
|
(1)
|
Information is based on settlement dates of repurchase transactions.
|
(2)
|
Consists of shares of our common stock, par value $0.001 per share. For the quarter ended
June 30, 2017
, no shares were repurchased in the open market or in block trades pursuant to a previously-announced share repurchase program (see (4) below). There were 367 shares of common stock surrendered to us by employees to satisfy exercise cost and minimum statutory withholding tax obligations in connection with the vesting of restricted stock and payout of restricted stock units.
|
(3)
|
The average price of shares surrendered to us by employees to satisfy tax obligations.
|
(4)
|
In April 2013, our Board of Directors authorized a repurchase program to purchase up to $125 million in shares of our common stock. As of August 2014, we have completed this program and our Board of Directors authorized a new repurchase program to buyback up to $400 million in shares of our common stock in open market purchases or negotiated transactions.
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
ITEM 5.
|
OTHER INFORMATION
|
ITEM 6.
|
EXHIBITS
|
Date:
|
August 8, 2017
|
By:
/s/ Tomas W. Fuller
|
|
|
|
Tomas W. Fuller
|
|
|
|
Chief Financial Officer, Principal Accounting Officer, and Vice President and Secretary
|
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