LOS ANGELES, California, February 21, 2006 - Our company, VCA Antech, Inc. (NASDAQ NM SYMBOL: WOOF), a leading animal healthcare company in the United States, today reported financial results for its fourth quarter ended December 31, 2005, as follows: revenue increased 23.0% to $217.0 million; operating income increased 13.2% to $33.3 million; net income increased 28.0% to $17.1 million; and diluted earnings per common share increased 25.0% to $0.20. Our tax provision for the quarter ended December 31, 2005, reflects an adjustment relating to prior periods of approximately $1.3 million that is a result of a decrease in our state statutory tax rate.
We also reported our financial results for the year ended December 31, 2005 as follows: revenue increased 24.6% to $839.7 million; operating income increased 17.8% to $159.2 million; reported net income was $67.8 million; and reported diluted earnings per common share was $0.81. Reported net income and reported diluted earnings per common share for the year ended December 31, 2005 included an after-tax charge of $11.7 million, or $0.14 per diluted common share, for debt retirement costs related to the refinancing of our senior term notes and the repurchase of our 9.875% senior subordinated notes. Reported net income and reported diluted earnings per common share for the year ended December 31, 2004 included an after-tax credit for certain significant items in the net amount of $605,000. Excluding these items from the years ended December 31, 2005 and 2004, adjusted net income increased 26.3% to $79.5 million and adjusted diluted earnings per common share increased 25.0% to $0.95.
Bob Antin, Chairman and CEO, stated, "We had another strong quarter marked by continued growth in our core businesses. Our laboratory internal revenue growth for the fourth quarter of 2005 was 10.6%, generating a 12.3% increase in laboratory gross profit and an increase in laboratory gross profit margins to 42.0% compared to 41.4% in the comparable prior year quarter. Our laboratory operating margins increased to 35.2% compared to 34.9% in the fourth quarter of 2004.
"Our continued effort to integrate recent acquisitions is proceeding well and the operating results for our animal hospital segment were in line with our expectations. Our consolidated animal hospital revenue for the fourth quarter of 2005 grew 26.5%, generating a 21.0% increase in animal hospital gross profit, reflecting a gross profit margin of 16.7% compared to 17.4% in the comparable prior year quarter. Our animal hospital same-store revenue growth for the fourth quarter of 2005, adjusted for one additional business day, was 4.4% and our same-store gross profit margins were 17.4% compared to 17.6% in the comparable prior year quarter. Our consolidated animal hospital operating margins for the fourth quarter of 2005 were 13.5% compared to 14.6% in the comparable prior year quarter.
"Our medical technology segment revenue grew 62.4% in the fourth quarter to $9.9 million. Operating income for the fourth quarter was $284,000. We are excited by the sales growth and the positive acceptance of our products in the veterinary profession."
Non-GAAP Financial Measures
We believe investors' understanding of our total performance is enhanced by disclosing adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per common share. We define adjusted net income, adjusted operating income, adjusted operating margin and adjusted diluted earnings per common share as the reported items, adjusted to exclude certain significant items. For the periods presented in this press release, the only significant item that was excluded from adjusted operating income and adjusted operating margin was a litigation settlement reimbursement recognized during the first quarter of 2004 as a result of the Company settling a claim with its insurance company. The only significant items excluded from adjusted net income were the litigation settlement reimbursement recognized during the first quarter of 2004, debt retirement costs incurred during the second and fourth quarters of 2004, and debt retirement costs incurred during the second quarter of 2005. Adjusted diluted earnings per common share is adjusted net income divided by diluted common shares outstanding.
Management uses adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per common share because they exclude the effect of the litigation settlement reimbursement and debt retirement costs and related expenses that we believe are not representative of our core operations for the periods presented. As a result, these non-GAAP financial measures help to provide meaningful comparisons of our overall performance from one reporting period to another and meaningful assessments of our future performance and related trends.
There is a material limitation associated with the use of these non-GAAP financial measures: adjusted operating income and adjusted operating margin exclude the impact of significant items (in this case, the litigation settlement reimbursement) on current performance; and adjusted net income excludes the impact of significant items (in this case, the litigation settlement reimbursement and debt retirement costs and related expenses) on current performance; and adjusted diluted earnings per common share does not depict diluted earnings per common share in accordance with GAAP.
To compensate for the limitations in the non-GAAP financial measures discussed above, our disclosures provide a complete understanding of all adjustments found in non-GAAP financial measures, and we reconcile the non-GAAP financial measures to the GAAP financial measures in the attached financial schedules titled "Supplemental Operating Data."
We will discuss our company's fourth quarter 2005 financial results during a conference call today, February 21, 2006 at 4:30 p.m. Eastern Time. You can access a live broadcast of the call by visiting our website at http://investor.vcaantech.com. You can also access the call via telephone by dialing (800) 289-0496. Interested parties should call at least 10 minutes prior to the start of the call to register.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our statement regarding continued growth in our core businesses and our expectations regarding our acquisition of Pet's Choice, Inc. Among the important factors that could cause actual results to differ are: a material adverse change in our financial condition or operations; the rate of our laboratory internal revenue growth and animal hospital same-store revenue growth; the level of direct costs and our ability to maintain revenue at a level necessary to maintain expected operating margins; the level of selling, general and administrative costs; the effects of competition; any impairment in the carrying value of our goodwill; the effects of our recent acquisitions, including Pet's Choice, Inc., and our ability to effectively manage our growth and achieve operating synergies; changes in prevailing interest rates; our ability to service our debt; and general economic conditions. These and other risk factors are discussed in our periodic reports filed with the SEC, including our Report on Form 10-K for the year ended December 31, 2004 and our periodic Report on Form 10-Q for the quarter ended September 30, 2005, and the reader is directed to these statements for a further discussion of important factors that could cause actual results to differ materially from those in the forward-looking statements.
We own, operate and manage the largest networks of freestanding veterinary hospitals and veterinary-exclusive clinical laboratories in the country, and we supply ultrasound and digital radiography equipment to the veterinary industry.
Chief Financial Officer