Animal Health International, Inc. Announces Its Third Quarter Fiscal Year 2007 Earnings

Westlake, Texas, UNITED STATES


WESTLAKE, Texas, May 2, 2007 (PRIME NEWSWIRE) -- Animal Health International, Inc. (Nasdaq:AHII) announced today that net sales increased $14.1 million, or 10.0%, to $153.9 million for the three months ended March 31, 2007, from $139.8 million for the same quarter last year. Operating income increased 22.5% to $6.0 million, up from $4.9 million in the same quarter last year. The increase in operating income was offset by a $2.0 million expense related to unamortized debt issue costs and prepayment penalties associated with the debt retired with IPO proceeds, a $0.5 million increase in interest expense, and a higher tax rate, all of which resulted in net income of $0.1 million, down $1.0 million from last year.

Net sales increased $45.5 million, or 10.7%, to $469.9 million for the nine months ended March 31, 2007, from $424.4 million for the same period last year. Operating income increased 23.8% to $24.3 million, up from $19.7 million in the same period last year. The increase in operating income was offset by a $2.4 million expense related to unamortized debt issue costs and prepayment penalties associated with the debt retired with IPO proceeds, higher interest expense, and a higher tax rate, all of which resulted in net income of $5.4 million, down $1.3 million compared to the same period last year.

"We are pleased with our results for the third quarter of fiscal year 2007. This performance was driven in part by our continued focus on improving operational efficiencies through leveraging fixed expenses and managing gross profit margins. We continued our growth, completed two acquisitions and opened a new regional distribution facility in California," commented Animal Health International's Chairman and CEO Jim Robison.

Third quarter ended March 31, 2007 compared to the third quarter ended March 31, 2006

Net sales increased $14.1 million, or 10.0%, to $153.9 million for the three months ended March 31, 2007, from $139.8 million for the three months ended March 31, 2006. The increase in net sales was primarily attributable to the addition of new customers, continued expansion into new territories, increased sales to existing customers, and acquisitions.

Gross profit increased $3.3 million, or 12.9%, to $29.0 million for the three months ended March 31, 2007, from $25.7 million for the three months ended March 31, 2006. Gross profit as a percentage of sales was 18.9% for the three months ended March 31, 2007, compared to 18.4% for the three months ended March 31, 2006.

Selling, general and administrative expenses increased to $21.4 million for the three months ended March 31, 2007, from $19.3 million for the three months ended March 31, 2006. This was caused by an increase in variable selling and distribution expenses driven by higher sales volume. As a percent of net sales, selling, general and administrative expenses were up slightly from 13.8% last year to 13.9% for the three months ended March 31, 2007.

Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) for the quarter was $7.8 million, which was an increase of 17.1% from the year earlier quarter of $6.6 million. The increase in EBITDA was due to an increase in sales volume and related gross profit. (Please refer to Table A for a reconciliation of EBITDA to reported net income.)

Net income for the third quarter was $0.1 million down from the third quarter last year net income of $1.1 million. An increase in operating income, offset by the write-off of unamortized debt issue costs, prepayment penalties and higher interest expense accounted for the decline. The unamortized debt issue costs and prepayment penalty, after tax totaled $1.2 million. GAAP diluted loss was ($5.71) per common share after reducing net income for the deemed dividend upon conversion of preferred stock, which amounted to ($5.69) per common share, and the preferred stock participation in undistributed earnings, which amounted to ($0.02) per common share. For the same period last year, GAAP diluted earnings was $0.03 per share after reducing net income for the dividend on preferred stock, which amounted to ($0.42) per common share, and for the preferred stock participation in undistributed earnings, which amounted to ($0.04) per common share.

Nine months ended March 31, 2007 compared to nine months ended March 31, 2006

Net sales increased $45.6 million, or 10.7%, to $469.9 million for the nine months ended March 31, 2007, from $424.3 million for the nine months ended March 31, 2006. This increase was primarily attributable to the addition of new customers, continued expansion into new territories, increased sales to existing customers, and acquisitions.

Gross profit increased $8.0 million, or 9.3%, to $93.4 million for the nine months ended March 31, 2007, from $85.4 million for the nine months ended March 31, 2006. Gross profit as a percentage of sales was 19.9% for the nine months ended March 31, 2007, compared to 20.1% for the nine months ended March 31, 2006. The Company's gross profit increased as a result of sales growth but was slightly offset by an unfavorable shift in product mix to lower gross margin products.

Selling, general and administrative expenses increased $3.2 million, or 5.3%, to $64.2 million for the nine months ended March 31, 2007, from $61.0 million for the nine months ended March 31, 2006. An increase in variable selling and distribution expenses driven by sales volume was partially offset by lower corporate expenses. This resulted in a decrease in selling, general and administrative expenses as a percent of sales from 14.4% for the nine months ended March 31, 2006, to 13.7% for the nine months ended March 31, 2007.

EBITDA for the nine months ended March 31, 2007 was $29.6 million, an increase of 19.0% from the year earlier period of $24.9 million. This increase was due to higher sales volume and related gross profit and low incremental selling, general and administrative expenses. (Please refer to Table A for a reconciliation of EBITDA to reported net income.)

Net income for the nine months ended March 31, 2007 was $5.4 million, down 18.9% from $6.7 million for the same period last year. An increase in operating income, offset by higher interest expense, the write-off of unamortized debt issue costs, prepayment penalties and a higher tax rate accounted for the decline. The unamortized debt issue costs and prepayment penalty, after tax totaled $1.4 million. GAAP diluted loss was ($21.00) per share after reducing net income for the deemed dividend upon conversion of preferred stock which amounted to ($13.58) per common share, the preferred stock dividend which amounted to ($7.61) per common share and participation in undistributed earnings which amounted to ($0.58) per common share. For the same period last year, GAAP diluted earnings per share was $0.38 after reducing net income for the dividend on preferred stock which amounted to ($0.46) per common share and the preferred stock participation in undistributed earnings, which amounted to ($2.45) per common share.

Fiscal Year 2007 Guidance

The following statements are based on current information and the Company assumes no obligation to update them. These statements are forward-looking and inherently uncertain.

The Company expects its net income for its fiscal year ending June 30, 2007 to be in the range of $7.5 to $8.3 million. Net sales are expected to be in the $620 to $630 million range.

Conference Call

The Company plans to host its investor conference call today at 10:00 a.m. Eastern Standard Time to discuss these results and its business outlook. You can access the conference call by dialing (913) 312-1235. Participants will be required to register their name and company affiliation for the conference call. Audio replay will be made available by accessing the Company's web site at ahii.com under the Investor Relations tab.

Use of Non-GAAP measures

EBITDA represents net income before interest expense, income tax expense, depreciation and amortization and acquisition costs. We present EBITDA as a supplemental performance measure because we believe it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses), the age and book depreciation of fixed assets (affecting relative depreciation expense), the impact of purchase accounting and SFAS No. 142 (affecting depreciation and amortization expense). Because EBITDA facilitates internal comparisons of our historical financial position and operating performance on a more consistent basis, we also use EBITDA in measuring our performance relative to that of our competitors and in evaluating acquisition opportunities. EBITDA is not a measurement of our financial performance under generally accepted accounting principles in the United States, or GAAP, and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our profitability or liquidity. We understand that although EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:


  *  EBITDA does not reflect our cash expenditures, or future
     requirements for capital expenditures or contractual
     commitments;
  *  EBITDA does not reflect changes in, or cash requirements for,
     our working capital needs;
  *  EBITDA does not reflect the significant interest expense,
     or the cash requirements necessary to service interest or
     principal payments, on our debts;
  *  Although depreciation and amortization are non-cash charges,
     the assets being depreciated and amortized will often have
     to be replaced in the future, and EBITDA does not reflect
     any cash requirements for such replacements; and
  *  Other companies in our industry may calculate EBITDA
     differently than we do, limiting its usefulness as a
     comparative measure.

About Animal Health International, Inc.

Animal Health International, Inc. is a leading distributor of animal health products in the United States. The Company sells more than 35,000 products sourced from over 1,500 animal health products manufacturers. The Company also provides consultative services to our customers in the highly fragmented animal health products industry. Products the Company distributes include pharmaceuticals, vaccines, parasiticides, diagnostics, capital equipment, sanitizers, devices and supplies. Our principal customers are veterinarians, production animal operators and animal health product retailers.

The Animal Health International logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=3240

Safe Harbor for Forward-Looking Statements

Certain items in this press release may constitute forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Animal Health International can give no assurance that expectations will be attained. Factors that could cause actual results to differ materially from Animal Health International's expectations include, but are not limited to, the outbreak of an infectious disease within an animal population, Animal Health International's inability to maintain relationships with manufacturers, an adverse change in manufacturer rebates or Animal Health International's inability to meet applicable rebate targets, the loss of key personnel, the loss of products or delays in product availability from one or more manufacturers, changes in customer preferences, consolidation in the animal heath products industry, and other risks detailed in Animal Health International's filings with the Securities and Exchange Commission, including Animal Health International's Quarterly Report on Form 10-Q, which was filed on March 7, 2007. Such forward-looking statements speak only as of the date of this press release. Animal Health International expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Animal Health International's expectations with regard thereto or change in events, conditions, or circumstances on which any such statement is based.


                   ANIMAL HEALTH INTERNATIONAL, INC.
           Condensed Consolidated Statements of Operations
           (In thousands, except share and per share data)
                              (Unaudited)


                           Three months              Nine months
                          ended March 31,           ended March 31,
                       ---------------------     ---------------------
                         2006         2007         2006         2007
 
 Net sales             $139,843     $153,874     $424,346     $469,855
 Direct cost of                                              
  products sold         114,111      124,828      338,926      376,504
                       --------     --------     --------     --------
 Gross Profit            25,732       29,046       85,420       93,351
 Selling, general,                                           
  and administrative                                             
  expenses (including                                        
  salary, wages,                                             
  commission, and                                            
  related benefits)      19,258       21,411       60,953       64,191
 Depreciation and                                            
  amortization            1,593        1,657        4,806        4,820
                       --------     --------     --------     --------
   Operating income       4,881        5,978       19,661       24,340
 Other income                                                
  (expense):                                                 
   Other income             159          132          410          434
   Interest expense      (3,415)      (5,874)     (10,210)     (15,774)
                       --------     --------     --------     --------
     Income before                                               
      income taxes        1,625          236        9,861        9,000
 Income tax expense        (529)        (127)      (3,193)      (3,591)
                       --------     --------     --------     --------
     Net income        $  1,096     $    109     $  6,668     $  5,409
                       ========     ========     ========     ========
       Dividend on                                                
        preferred                                                 
        stock              (941)          --         (941)     (53,323)
       Deemed dividend                                            
        on conversion of                                          
        preferred stock      --      (95,227)          --      (95,227)
       Preferred stock                                            
        participation in                                          
        undistributed                                             
        earnings            (97)        (315)      (4,954)      (4,062)
                       --------     --------     --------     --------
       Net income                                                 
        (loss) available                                          
        to common                                                
        shareholders   $     58     $(95,433)    $    773    $(147,203)
 --------------------  ========     ========     ========    =========
 Earnings (loss) per
  share:          
   Basic               $   0.03     $  (5.71)    $   0.38    $  (21.00)
   Diluted             $   0.03     $  (5.71)    $   0.38    $  (21.00)
 Weighted average 
  shares outstanding:
   Basic                  2,262       16,727        2,025        7,011
   Diluted                2,262       16,727        2,025        7,011
 ---------------------------------------------------------------------



                   ANIMAL HEALTH INTERNATIONAL, INC.
                 Condensed Consolidated Balance Sheets
                            (In thousands)



                              Assets
                                           June 30,          March 31,
                                             2006              2007
                                          ---------         ----------
                                                            (Unaudited)
 Current assets:
   Cash and cash equivalents               $  3,036          $  4,708
   Accounts receivable, net                  70,178            74,851
   Merchandise inventories, net              71,679            92,449
   Other current assets                       4,869             9,148
                                           --------          --------
     Total current assets                   149,762           181,156
 Noncurrent assets:                                        
   Property, plant, and equipment, net       16,045            17,299
   Goodwill and other intangible assets     121,701           134,431
   Other noncurrent assets                    6,829             5,508
                                           --------          --------
     Total assets                          $294,337          $338,394
                                           ========          ========
                                                           

                Liabilities and Stockholders' Equity

 Current liabilities:                                      
   Accounts payable                        $ 65,077          $ 89,442
   Accrued liabilities                       18,100            15,632
   Current portion of long-term debt         81,759            72,721
                                           --------          --------
     Total current liabilities              164,936           177,795

 Noncurrent liabilities:                                   
   Long-term debt, net of current portion    55,875            45,516
   Other noncurrent liabilities              29,205            29,287
                                           --------          --------
     Total liabilities                      250,016           252,598
                                           --------          --------
                                                           
 Redeemable preferred stock                  47,500                -- 
                                                           
 Stockholders' equity (deficit)              (3,179)           85,796
                                           --------          --------
     Total liabilities and stockholders'                       
      equity (deficit)                     $294,337          $338,394
                                           ========          ========
                                                           
                                                            

                  ANIMAL HEALTH INTERNATIONAL, INC.
                        EBITDA Reconciliation
                            (In thousands)
                             (Unaudited)


                        Three months                 Nine months 
                        ended March 31,             ended March 31,
                     --------------------      -----------------------
                        2006        2007         2006           2007

 Net Income           $ 1,096     $   109       $ 6,668       $ 5,409 
   Interest expense     3,415       5,874        10,210        15,774 
   Income tax expense     529         127         3,193         3,591 
   Depreciation and                                                     
    amortization        1,593       1,657         4,806         4,820 
                      -------     -------       -------       ------- 
 EBITDA               $ 6,633     $ 7,767       $24,877       $29,594 
                      =======     =======       =======       ======= 


        

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