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


WESTLAKE, Texas, March 7, 2007 (PRIME NEWSWIRE) -- Animal Health International, Inc. (Nasdaq:AHII) announced today that net sales increased $13.5 million, or 8.6%, to $170.3 million for the three months ended December 31, 2006, from $156.8 million for the same quarter last year. Operating income increased 23.4% to $13.0 million, up from $10.5 million in the same quarter last year. The increase in operating income was offset by higher interest expense and a higher tax rate, which resulted in net income of $4.4 million down $0.4 million from last year. EPS was $0.29, up $0.01 per share compared to the same period last year.

Net sales increased $31.5 million, or 11.1%, to $316.0 million for the six months ended December 31, 2006, from $284.5 million for the same period last year. Operating income increased 24.2% to $18.4 million, up from $14.8 million in the same period last year. The increase in operating income was offset by higher interest expense and a higher tax rate, which resulted in net income of $5.3 million, down $0.3 million compared to the same period last year.

"Our performance in the second quarter was encouraging. Our core business grew nicely with solid growth in sales to both production and companion animal customers. We also completed three acquisitions, expanded our service offering to customers, and continued to see results from our focus on national accounts. We are favorably positioned from a competitive standpoint with our experienced sales force, relative scale, extensive product mix, and marketing disciplines. We have numerous opportunities, and our team continues to execute well. We are excited about AHI's opportunities and are committed to driving strong results over the upcoming years," commented Animal Health International's Chairman and CEO Jim Robison.

Second quarter ended December 31, 2006 compared to the second quarter ended December 31, 2005

Net sales increased $13.5 million, or 8.6%, to $170.3 million for the three months ended December 31, 2006, from $156.8 million for the three months ended December 31, 2005. 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 the acquisition of three small companies in October and November. The acquired companies contributed $5.2 million to the increase in sales.

Gross profit increased $2.4 million, or 6.7%, to $37.3 million for the three months ended December 31, 2006, from $34.9 million for the three months ended December 31, 2005. Gross profit as a percentage of sales was 21.9% for the three months ended December 31, 2006, compared to 22.3% for the three months ended December 31, 2005. 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 decreased slightly to $22.7 million for the three months ended December 31, 2006, from $22.8 million for the three months ended December 31, 2005. An increase in variable selling and distribution expenses driven by sales volume was offset by lower corporate expenses, which left selling, general, and administrative expenses relatively constant. This resulted in a decrease in selling, general and administrative expenses as a percent of sales from 14.5% for the three months ended December 31, 2005, to 13.3% for the three months ended December 31, 2006.

EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) for the quarter was $14.8 million, which was an increase of 19.8% from the year earlier quarter of $12.3 million. The increase in EBITDA was due to an increase in sales volume and related gross profit and constant selling, general and administrative expenses. (Please refer to Table A for a reconciliation of EBITDA to reported net income.)

Depreciation and amortization remained constant at $1.6 million for both periods.

Other expenses increased $2.2 million, or 67.2%, to $5.6 million for the three months ended December 31, 2006, from $3.4 million for the three months ended December 31, 2005. The increase in other expenses was due to an increase in interest expense of $2.3 million to $5.8 million in the three months ended December 31, 2006, as compared to $3.5 million in the three months ended December 31, 2005. This increase was due to additional debt primarily resulting from the September 2006 debt refinancing and higher interest rates.

Income tax expense increased $0.6 million, or 26.8%, to $2.9 million for the three months ended December 31, 2006, from $2.3 million for the three months ended December 31, 2005. The effective tax rate was 39.9% and 32.3% for the three months ended December 31, 2006 and 2005, respectively. This increase in the effective tax rate was attributable to a reduction of deferred tax liabilities driven by the lowering of a state tax in the prior year.

Net income for the second quarter was $4.4 million down 8.9% from the second quarter last year net income of $4.8 million. An increase in operating income, offset by higher interest expense and a higher tax rate accounted for the decline. GAAP diluted EPS was $0.29 after reducing net income for the preferred stock participation in undistributed earnings which amounted to $1.66 per common share. For the same period last year, GAAP diluted EPS was $0.28 after reducing net income for the preferred stock participation in undistributed earnings, which amounted to $1.87 per common share.

Six months ended December 31, 2006 compared to six months ended December 31, 2005

Net sales increased $31.5 million, or 11.1%, to $316.0 million for the six months ended December 31, 2006, from $284.5 million for the six months ended December 31, 2005. 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 the acquisition of three small companies in October and November. The acquired companies contributed $5.2 million to the increase in sales.

Gross profit increased $4.6 million, or 7.7%, to $64.3 million for the six months ended December 31, 2006, from $59.7 million for the six months ended December 31, 2005. Gross profit as a percentage of sales was 20.4% for the six months ended December 31, 2006, compared to 21.0% for the six months ended December 31, 2005. 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 $1.1 million, or 2.6%, to $42.8 million for the six months ended December 31, 2006, from $41.7 million for the six months ended December 31, 2005. 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 14.7% for the six months ended December 31, 2005, to 13.6% for the six months ended December 31, 2006.

EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) for the year to date period was $21.8 million, which was an increase of 19.6% from the year earlier period of $18.2 million. The increase in EBITDA was due to an increase in sales volume and related gross profit and low incremental selling, general and administrative expense. (Please refer to Table A for a reconciliation of EBITDA to reported net income.)

Depreciation and amortization remained constant at $3.2 million for both periods.

Other expenses increased $3.1 million, or 46.7%, to $9.6 million for the six months ended December 31, 2006, from $6.5 million for the six months ended December 31, 2005. The increase in other expenses was due to an increase in interest expense of $3.1 million to $9.9 million in the six months ended December 31, 2006, as compared to $6.8 million in the six months ended December 31, 2005. This increase was due to additional debt primarily resulting from the September 2006 debt refinancing and higher interest rates.

Income tax expense increased $0.8 million, or 30.0%, to $3.5 million for the six months ended December 31, 2006, from $2.7 million for the six months ended December 31, 2005. The effective tax rate was 39.5% and 32.3% for the six months ended December 31, 2006 and 2005, respectively. This increase in the effective tax rate was attributable to a reduction of deferred tax liabilities driven by the lowering of a state tax in the prior year.

Net income for the first half of the fiscal year was $5.3 million down 4.9% from the same period last year net income of $5.6 million. An increase in operating income, offset by higher interest expense and a higher tax rate accounted for the decline. GAAP diluted Loss Per Share was ($22.93) after reducing net income for the preferred stock dividend and participation in undistributed earnings which amounted to ($25.27) per common share. For the same period last year, GAAP diluted EPS was $0.37 after reducing net income for the preferred stock participation in undistributed earnings, which amounted to ($2.54) 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) 981-4905. 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 Registration Statement on Form S-1 (File No. 333-137656), which was declared effective on January 30, 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 per share data)
                              (Unaudited)

                              Three months ended     Six months ended
                                 December 31,          December 31,
                              ------------------    ------------------
                                2005      2006        2005      2006

 Net sales                    $156,763  $170,279    $284,503  $315,981
 Direct cost of products
  sold                         121,842   133,028     224,815   251,676
                              --------  --------    --------  --------
 Gross Profit                   34,921    37,251      59,688    64,305
 Selling, general, and
  administrative expenses
  (including salary, wages,
  commission, and related
  benefits)                     22,777    22,660      41,695    42,780
 Depreciation and
  amortization                   1,632     1,623       3,213     3,163
                              --------  --------    --------  --------
   Operating income             10,512    12,968      14,780    18,362

 Other income (expense):
   Other income                    167       162         251       302
   Interest expense             (3,545)   (5,810)     (6,795)   (9,900)
                              --------  --------    --------  --------
     Income before income
      taxes                      7,134     7,320       8,236     8,764

 Income tax expense             (2,304)   (2,921)     (2,664)   (3,464)
                              --------  --------    --------  --------
   Net income                 $  4,830  $  4,399    $  5,572  $  5,300
                              ========  ========    ========  ========
     Dividend on preferred
      stock                         --        --          --   (53,323)
     Preferred stock
      participation in
      undistributed earnings    (4,195)   (3,747)     (4,857)   (3,747)
                              --------  --------    --------  --------
     Net income (loss)
      available to common
      shareholders            $    635  $    652    $    715  $(51,770)
 --------------------------   ========  ========    ========  ========
 Earnings (loss) per share:
   Basic                      $   0.28  $   0.29    $   0.37  $ (22.93)
   Diluted                    $   0.28  $   0.29    $   0.37  $ (22.93)
 Weighted average shares
  outstanding:
   Basic                         2,249     2,258       1,910     2,258
   Diluted                       2,249     2,258       1,910     2,258
 ---------------------------------------------------------------------


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

                                              June 30,    December 31,
                                               2006          2006
                                             --------     ------------
                                                          (Unaudited)
                   Assets

 Current assets:
   Cash and cash equivalents                 $  3,036       $  6,152
   Accounts receivable, net                    70,178         90,252
   Merchandise inventories, net                71,679         86,936
   Other current assets                         4,869          4,393
                                             --------       --------
     Total current assets                     149,762        187,733
 Noncurrent assets:
   Property, plant, and equipment, net         16,045         16,826
   Goodwill and other intangible assets       121,701        131,663
   Other noncurrent assets                      6,829          7,757
                                             --------       --------
     Total assets                            $294,337       $343,979
                                             ========       ========

       Liabilities and Stockholders' Equity

 Current liabilities:
   Accounts payable                          $ 65,077       $ 83,473
   Accrued liabilities                         18,100         16,977
   Current portion of long-term debt           81,759         88,546
                                             --------       --------
     Total current liabilities                164,936        188,996

 Noncurrent liabilities:
   Long-term debt, net of current portion      55,875        130,833
   Other noncurrent liabilities                29,205         29,167
                                             --------       --------
     Total liabilities                        250,016        348,996
                                             --------       --------

 Redeemable preferred stock                    47,500         47,500

 Stockholders' equity (deficit)                (3,179)       (52,517)
                                             --------       --------
     Total liabilities and stockholders'
      equity (deficit)                       $294,337       $343,979
                                             ========       ========


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

                              Three months ended     Six months ended
                                 December 31,          December 31,
                              ------------------    ------------------
                                2005      2006        2005      2006

 Net Income                   $  4,830  $  4,399    $  5,572  $  5,300
   Interest expense              3,545     5,810       6,795     9,900
   Income tax expense            2,304     2,921       2,664     3,464
   Depreciation and
    amortization                 1,632     1,623       3,213     3,163
                              --------  --------    --------  --------
 EBITDA                       $ 12,311  $ 14,753    $ 18,244  $ 21,827
                              ========  ========    ========  ========


            

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