##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 001-16783
 
 VCA Antech, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    95-4097995(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 12401 West Olympic Boulevard
Los Angeles, California 90064-1022  (Address of principal executive offices)
 (310) 571-6500  (Registrants telephone number, including area code)
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



VCA Antech, Inc.
Form 10-Q
June 30, 2008
 Table of Contents
 PageNumberPart I. Financial InformationItem 1. Financial Statements (Unaudited)Condensed, Consolidated Balance Sheets as of June 30, 2008 and
December 31, 2007
    
    
    1Condensed, Consolidated Income Statements for the Three and Six Months Ended
June 30, 2008 and 2007
    
    
    2Condensed, Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2008 and 2007
    
    
    3Notes to Condensed, Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    29Part II. Other InformationItem 1. Legal Proceedings
    
    
    29Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Defaults Upon Senior Securities
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    30Item 5. Other Information
    
    
    30Item 6. Exhibits
    
    
    30Signature
    
    
    31Exhibit Index
    
    
    32EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 VCA Antech, Inc. and Subsidiaries
 
 Condensed, Consolidated Balance Sheets
 (Unaudited)
 (In thousands, except par value)
 June 30,
    
    
    December 31,2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    75,924
    
    
    $
    110,866Trade accounts receivable, less allowance for uncollectible accounts of $11,048
and $10,940 at June 30, 2008 and December 31, 2007, respectively
    
    
    48,834
    
    
    
    42,650Inventory
    
    
    25,527
    
    
    
    25,517Prepaid expenses and other
    
    
    19,251
    
    
    
    15,307Deferred income taxes
    
    
    14,907
    
    
    
    14,402Prepaid income taxes
    
    
    
    
    
    
    8,160Total current assets
    
    
    184,443
    
    
    
    216,902Property and equipment, less accumulated depreciation and amortization of $136,947
and $124,884 at June 30, 2008 and December 31, 2007, respectively
    
    
    241,634
    
    
    
    214,020Goodwill
    
    
    885,447
    
    
    
    821,967Other intangible assets, net
    
    
    34,156
    
    
    
    22,373Notes receivable, net
    
    
    12,355
    
    
    
    3,493Deferred financing costs, net
    
    
    1,304
    
    
    
    1,537Other
    
    
    14,419
    
    
    
    6,419Total assets
    
    $
    1,373,758
    
    
    $
    1,286,711Liabilities and Stockholders EquityCurrent liabilities:Current portion of long-term obligations
    
    $
    7,810
    
    
    $
    7,886Accounts payable
    
    
    26,288
    
    
    
    28,092Accrued payroll and related liabilities
    
    
    39,451
    
    
    
    38,341Income taxes payable
    
    
    2,464
    
    
    
    Other accrued liabilities
    
    
    49,298
    
    
    
    42,074Total current liabilities
    
    
    125,311
    
    
    
    116,393Long-term obligations, less current portion
    
    
    548,686
    
    
    
    552,294Deferred income taxes
    
    
    33,321
    
    
    
    28,197Other liabilities
    
    
    9,208
    
    
    
    11,236Minority interest
    
    
    12,403
    
    
    
    10,207Commitments and contingenciesPreferred stock, par value $0.001, 11,000 shares authorized, none outstanding
    
    
    
    
    
    
    Stockholders equity:Common stock, par value $0.001, 175,000 shares authorized, 84,397 and 84,335
shares outstanding as of June 30, 2008 and December 31, 2007, respectively
    
    
    84
    
    
    
    84Additional paid-in capital
    
    
    300,606
    
    
    
    296,037Accumulated earnings
    
    
    347,117
    
    
    
    275,598Accumulated other comprehensive loss
    
    
    (2,978
    )
    
    
    (3,335
    )Total stockholders equity
    
    
    644,829
    
    
    
    568,384Total liabilities and stockholders equity
    
    $
    1,373,758
    
    
    $
    1,286,711
  1




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
 
 Condensed, Consolidated Income Statements
 (Unaudited)
 (In thousands, except per share amounts)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    334,434
    
    
    $
    300,305
    
    
    $
    642,266
    
    
    $
    565,450Direct costs
    
    
    237,468
    
    
    
    210,427
    
    
    
    462,269
    
    
    
    399,652Gross profit
    
    
    96,966
    
    
    
    89,878
    
    
    
    179,997
    
    
    
    165,798Selling, general and administrative expense
    
    
    22,809
    
    
    
    22,043
    
    
    
    45,987
    
    
    
    43,516Write-down and loss (gain) on sale of assets
    
    
    127
    
    
    
    420
    
    
    
    (57
    )
    
    
    542Operating income
    
    
    74,030
    
    
    
    67,415
    
    
    
    134,067
    
    
    
    121,740Interest expense, net
    
    
    7,045
    
    
    
    6,671
    
    
    
    14,660
    
    
    
    12,444Other (income) expense
    
    
    (213
    )
    
    
    172
    
    
    
    (36
    )
    
    
    227Income before minority interest and provision
for income taxes
    
    
    67,198
    
    
    
    60,572
    
    
    
    119,443
    
    
    
    109,069Minority interest in income of subsidiaries
    
    
    988
    
    
    
    1,028
    
    
    
    1,945
    
    
    
    1,874Income before provision for income taxes
    
    
    66,210
    
    
    
    59,544
    
    
    
    117,498
    
    
    
    107,195Provision for income taxes
    
    
    25,893
    
    
    
    23,697
    
    
    
    45,979
    
    
    
    43,035Net income
    
    $
    40,317
    
    
    $
    35,847
    
    
    $
    71,519
    
    
    $
    64,160Basic earnings per share
    
    $
    0.48
    
    
    $
    0.43
    
    
    $
    0.85
    
    
    $
    0.77Diluted earnings per share
    
    $
    0.47
    
    
    $
    0.42
    
    
    $
    0.83
    
    
    $
    0.75Weighted-average shares outstanding
for basic earnings per share
    
    
    84,371
    
    
    
    83,742
    
    
    
    84,359
    
    
    
    83,674Weighted-average shares outstanding
for diluted earnings per share
    
    
    85,725
    
    
    
    85,605
    
    
    
    85,805
    
    
    
    85,481
  2




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
 
 Condensed, Consolidated Statements of Cash Flows
 (Unaudited)
(In thousands)
 Six Months EndedJune 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    71,519
    
    
    $
    64,160Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    15,325
    
    
    
    12,740Amortization of debt issue costs
    
    
    233
    
    
    
    137Provision for uncollectible accounts
    
    
    2,008
    
    
    
    2,110Write-down and (gain) loss on sale of assets
    
    
    (57
    )
    
    
    542Share-based compensation
    
    
    3,322
    
    
    
    2,300Minority interest in income of subsidiaries
    
    
    1,945
    
    
    
    1,874Distributions to minority interest partners
    
    
    (1,456
    )
    
    
    (1,364
    )Deferred income taxes
    
    
    5,431
    
    
    
    3,025Excess tax benefit from exercise of stock options
    
    
    (355
    )
    
    
    (2,680
    )Other
    
    
    (150
    )
    
    
    (173
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (8,004
    )
    
    
    (5,244
    )Inventory, prepaid expenses and other assets
    
    
    (4,519
    )
    
    
    45Accounts payable and other accrued liabilities
    
    
    2,307
    
    
    
    (173
    )Accrued payroll and related liabilities
    
    
    1,465
    
    
    
    1,105Income taxes
    
    
    10,979
    
    
    
    15,789Net cash provided by operating activities
    
    
    99,993
    
    
    
    94,193Cash flows from investing activities:Business acquisitions, net of cash acquired
    
    
    (80,367
    )
    
    
    (203,322
    )Real estate acquired in connection with business acquisitions
    
    
    (13,098
    )
    
    
    (7,962
    )Property and equipment additions
    
    
    (25,543
    )
    
    
    (27,236
    )Proceeds from sale of assets
    
    
    1,753
    
    
    
    1,564Other
    
    
    (14,987
    )
    
    
    (256
    )Net cash used in investing activities
    
    
    (132,242
    )
    
    
    (237,212
    )Cash flows from financing activities:Repayment of long-term obligations
    
    
    (3,925
    )
    
    
    (4,224
    )Proceeds from issuance of long-term obligations
    
    
    
    
    
    
    160,000Payment of debt issue costs
    
    
    
    
    
    
    (794
    )Proceeds from issuance of common stock under stock option plans
    
    
    892
    
    
    
    2,360Excess tax benefit from exercise of stock options
    
    
    355
    
    
    
    2,680Net cash (used in) provided by financing activities
    
    
    (2,678
    )
    
    
    160,022Effect of currency exchange rate changes on cash and cash equivalents
    
    
    (15
    )
    
    
    (Decrease) increase in cash and cash equivalents
    
    
    (34,942
    )
    
    
    17,003Cash and cash equivalents at beginning of period
    
    
    110,866
    
    
    
    45,104Cash and cash equivalents at end of period
    
    $
    75,924
    
    
    $
    62,107
  3




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
 
 Notes To Condensed, Consolidated Financial Statements
 June 30, 2008
 (Unaudited)
 1. Nature of Operations
     2. Basis of Presentation
   3. Acquisitions
  Animal Hospitals:Acquisitions
    
    
    36Acquisitions relocated into our existing
animal hospitals
    
    
    (4
    )Total
    
    
    32Laboratories:Acquisitions
    
    
    3Acquisitions relocated into our existing
laboratories
    
    
    (1
    )Total
    
    
    2
 4




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 3. Acquisitions, continued
 Animal Hospital and Laboratory Acquisitions
  Preliminary Purchase Price:Cash
    
    $
    78,022Liabilities assumed
    
    
    4,213Total
    
    $
    82,235Preliminary Allocation of the Purchase Price:Tangible assets
    
    $
    3,820Identifiable intangible assets
    
    
    14,980Goodwill (1)
    
    
    63,435Total
    
    $
    82,235
 
 (1)
    
    We expect that $57.2 million of the goodwill recorded for these acquisitions as of June 30,
2008 will be fully deductible for income tax purposes. Other Acquisition Payments
   4. Goodwill and Other Intangible Assets
  Animal
    
    
    MedicalLaboratory
    
    
    Hospital
    
    
    Technology
    
    
    TotalBalance as of December 31, 2007
    
    $
    95,344
    
    
    $
    707,463
    
    
    $
    19,160
    
    
    $
    821,967Goodwill acquired
    
    
    312
    
    
    
    63,123
    
    
    
    
    
    
    
    63,435Goodwill related to partnership interests (1)
    
    
    
    
    
    
    2,168
    
    
    
    
    
    
    
    2,168Other (2)
    
    
    
    
    
    
    (2,123
    )
    
    
    
    
    
    
    (2,123
    )Balance as of June 30, 2008
    
    $
    95,656
    
    
    $
    770,631
    
    
    $
    19,160
    
    
    $
    885,447
 
 (1)
    
    In various circumstances we are required to, or elect to, purchase the minority interest in
certain of our partnership arrangements.(2)
    
    Other includes purchase price adjustments and earn-out payments. 5




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 4. Goodwill and Other Intangible Assets, continued
 Other Intangible Assets
  As of June 30, 2008
    
    
    As of December 31, 2007Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountCovenants not-to-compete
    
    $
    16,452
    
    
    $
    (7,315
    )
    
    $
    9,137
    
    
    $
    13,487
    
    
    $
    (6,928
    )
    
    $
    6,559Non-contractual customer
relationships
    
    
    23,848
    
    
    
    (4,011
    )
    
    
    19,837
    
    
    
    12,992
    
    
    
    (2,755
    )
    
    
    10,237Favorable lease asset
    
    
    5,612
    
    
    
    (1,329
    )
    
    
    4,283
    
    
    
    5,594
    
    
    
    (1,019
    )
    
    
    4,575Technology
    
    
    1,270
    
    
    
    (949
    )
    
    
    321
    
    
    
    1,270
    
    
    
    (822
    )
    
    
    448Trademarks
    
    
    699
    
    
    
    (217
    )
    
    
    482
    
    
    
    582
    
    
    
    (185
    )
    
    
    397Contracts
    
    
    380
    
    
    
    (356
    )
    
    
    24
    
    
    
    380
    
    
    
    (309
    )
    
    
    71Client lists
    
    
    126
    
    
    
    (54
    )
    
    
    72
    
    
    
    137
    
    
    
    (51
    )
    
    
    86Total
    
    $
    48,387
    
    
    $
    (14,231
    )
    
    $
    34,156
    
    
    $
    34,442
    
    
    $
    (12,069
    )
    
    $
    22,373
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Aggregate amortization expense
    
    $
    1,743
    
    
    $
    1,065
    
    
    $
    2,947
    
    
    $
    2,030
  Remainder of 2008
    
    $
    3,6312009
    
    
    6,4042010
    
    
    5,5922011
    
    
    4,7822012
    
    
    2,438Thereafter
    
    
    11,309Total
    
    $
    34,156
 6




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 5. Other Accrued Liabilities
  June 30,
    
    
    December 31,2008
    
    
    2007Accrued workers compensation insurance
    
    $
    7,484
    
    
    $
    6,051Deferred revenue
    
    
    7,353
    
    
    
    7,018Interest rate swap liability
    
    
    5,898
    
    
    
    5,827Accrued health insurance
    
    
    3,976
    
    
    
    3,273Holdbacks
    
    
    4,390
    
    
    
    2,215Accrued lease payments
    
    
    1,881
    
    
    
    2,329Accrued liability insurance
    
    
    2,240
    
    
    
    1,787Accrued post-retirement healthcare
    
    
    1,571
    
    
    
    1,281Accrued accounting fees
    
    
    1,403
    
    
    
    690Other
    
    
    13,102
    
    
    
    11,603$
    49,298
    
    
    $
    42,074
 6. Interest Rate Swap Agreements
  Interest Rate Swap AgreementsFixed interest rate
    
    
    5.51
    %
    
    
    4.95
    %
    
    
    5.34
    %
    
    
    2.64
    %Notional amount (in millions)
    
    $
    50.0
    
    
    $
    75.0
    
    
    $
    100.0
    
    
    $
    100.0Effective date
    
    
    6/20/2006
    
    
    
    4/30/2007
    
    
    
    6/11/2007
    
    
    
    2/12/2008Expiration date
    
    
    6/30/2009
    
    
    
    4/30/2009
    
    
    
    12/31/2009
    
    
    
    2/26/2010Counterparty
    
    Goldman Sachs
    
    Wells Fargo
    
    Goldman Sachs
    
    Wells FargoQualifies for hedge accounting
    
    Yes
    
    Yes
    
    Yes
    
    Yes
  Three Months Ended
June 30,
    
    Six Months Ended
June 30,2008
    
    2007
    
    2008
    
    2007Cash paid (received) (1)
    
    $
    1,703
    
    
    $
    (531
    )
    
    $
    2,391
    
    
    $
    (1,020
    )Recognized (gain) loss from ineffectiveness (2)
    
    $
    (213
    )
    
    $
    172
    
    
    $
    (36
    )
    
    $
    227
 
 (1)
    
    These amounts are included in interest expense in our consolidated income statements.(2)
    
    These recognized losses are included in other expense in our consolidated income statements. Fair Value
Measurement
 7




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 6. Interest Rate Swap Agreements, 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.
  Basis of Fair Value MeasurementQuoted Prices
    
    
    Significant Other
    
    
    SignificantBalance at
    
    
    In Active Markets
    
    
    Observable
    
    
    UnobservableJune 30,
    
    
    for Identical Items
    
    
    Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Interest rate swap agreements:Prepaid expenses and other
    
    $
    918
    
    
    $
    
    
    
    $
    918
    
    
    $
    Other accrued liabilities
    
    $
    5,898
    
    
    $
    
    
    
    $
    5,898
    
    
    $
    
 7. Share-Based Compensation
 Stock Option Activity
    8




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 7. Share-Based Compensation, continued
  Non-vested Stock Activity
     Weighted-Average FairValueShares
    
    
    Per ShareOutstanding at December 31, 2007
    
    
    352,832
    
    
    $
    32.90Granted
    
    
    418,780
    
    
    
    30.31Vested
    
    
    (2,667
    )
    
    
    40.59Forfeited/Canceled
    
    
    (1,500
    )
    
    
    32.34Outstanding at June 30, 2008
    
    
    767,445
    
    
    $
    31.46
 8. Calculation of Earnings per Share
  9




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 8. Calculation of Earnings per Share, continued
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    40,317
    
    
    $
    35,847
    
    
    $
    71,519
    
    
    $
    64,160Weighted-average common shares outstanding:Basic
    
    
    84,371
    
    
    
    83,742
    
    
    
    84,359
    
    
    
    83,674Effect of dilutive potential common shares:Stock options
    
    
    1,244
    
    
    
    1,805
    
    
    
    1,333
    
    
    
    1,766Non-vested shares
    
    
    110
    
    
    
    58
    
    
    
    113
    
    
    
    41Diluted
    
    
    85,725
    
    
    
    85,605
    
    
    
    85,805
    
    
    
    85,481Basic earnings per share
    
    $
    0.48
    
    
    $
    0.43
    
    
    $
    0.85
    
    
    $
    0.77Diluted earnings per share
    
    $
    0.47
    
    
    $
    0.42
    
    
    $
    0.83
    
    
    $
    0.75
   9. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    40,317
    
    
    $
    35,847
    
    
    $
    71,519
    
    
    $
    64,160Other comprehensive gain (loss):Foreign currency translation adjustments
    
    
    (18
    )
    
    
    
    
    
    
    (18
    )
    
    
    Unrealized gain (loss) on hedging instruments
    
    
    3,675
    
    
    
    1,010
    
    
    
    (1,765
    )
    
    
    934Tax (expense) benefit
    
    
    (1,437
    )
    
    
    (401
    )
    
    
    679
    
    
    
    (371
    )Loss (gain) on hedging instruments reclassified to income
    
    
    1,703
    
    
    
    (531
    )
    
    
    2,391
    
    
    
    (1,020
    )Tax (expense) benefit
    
    
    (663
    )
    
    
    211
    
    
    
    (930
    )
    
    
    405Other comprehensive gain (loss)
    
    
    3,260
    
    
    
    289
    
    
    
    357
    
    
    
    (52
    )Total comprehensive income
    
    $
    43,577
    
    
    $
    36,136
    
    
    $
    71,876
    
    
    $
    64,108
 10. Segment Reporting
  10




---



##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 10. Segment Reporting, continued
    Animal
    
    
    Medical
    
    
    
    
    
    
    IntercompanyLaboratory
    
    
    Hospital
    
    
    Technology
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalThree Months Ended June 30, 2008External revenue
    
    $
    73,591
    
    
    $
    251,001
    
    
    $
    9,842
    
    
    $
    
    
    
    $
    
    
    
    $
    334,434Intercompany revenue
    
    
    8,249
    
    
    
    
    
    
    
    1,996
    
    
    
    
    
    
    
    (10,245
    )
    
    
    Total revenue
    
    
    81,840
    
    
    
    251,001
    
    
    
    11,838
    
    
    
    
    
    
    
    (10,245
    )
    
    
    334,434Direct costs
    
    
    40,966
    
    
    
    198,381
    
    
    
    7,616
    
    
    
    
    
    
    
    (9,495
    )
    
    
    237,468Gross profit
    
    
    40,874
    
    
    
    52,620
    
    
    
    4,222
    
    
    
    
    
    
    
    (750
    )
    
    
    96,966Selling, general and administrative expense
    
    
    5,185
    
    
    
    5,694
    
    
    
    2,948
    
    
    
    8,982
    
    
    
    
    
    
    
    22,809Write-down and loss on sale of assets
    
    
    11
    
    
    
    104
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    127Operating income (loss)
    
    $
    35,678
    
    
    $
    46,822
    
    
    $
    1,274
    
    
    $
    (8,994
    )
    
    $
    (750
    )
    
    $
    74,030Depreciation and amortization
    
    $
    1,808
    
    
    $
    5,535
    
    
    $
    404
    
    
    $
    454
    
    
    $
    (139
    )
    
    $
    8,062Capital expenditures
    
    $
    3,637
    
    
    $
    12,091
    
    
    $
    175
    
    
    $
    617
    
    
    $
    (440
    )
    
    $
    16,080Three Months Ended June 30, 2007External revenue
    
    $
    72,027
    
    
    $
    218,466
    
    
    $
    9,812
    
    
    $
    
    
    
    $
    
    
    
    $
    300,305Intercompany revenue
    
    
    7,183
    
    
    
    
    
    
    
    823
    
    
    
    
    
    
    
    (8,006
    )
    
    
    Total revenue
    
    
    79,210
    
    
    
    218,466
    
    
    
    10,635
    
    
    
    
    
    
    
    (8,006
    )
    
    
    300,305Direct costs
    
    
    39,244
    
    
    
    172,165
    
    
    
    6,850
    
    
    
    
    
    
    
    (7,832
    )
    
    
    210,427Gross profit
    
    
    39,966
    
    
    
    46,301
    
    
    
    3,785
    
    
    
    
    
    
    
    (174
    )
    
    
    89,878Selling, general and administrative expense
    
    
    5,046
    
    
    
    5,321
    
    
    
    2,693
    
    
    
    8,983
    
    
    
    
    
    
    
    22,043Write-down and loss on sale of assets
    
    
    58
    
    
    
    322
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    420Operating income (loss)
    
    $
    34,862
    
    
    $
    40,658
    
    
    $
    1,052
    
    
    $
    (8,983
    )
    
    $
    (174
    )
    
    $
    67,415Depreciation and amortization
    
    $
    1,593
    
    
    $
    4,420
    
    
    $
    428
    
    
    $
    460
    
    
    $
    (92
    )
    
    $
    6,809Capital expenditures
    
    $
    4,601
    
    
    $
    9,324
    
    
    $
    176
    
    
    $
    1,526
    
    
    $
    (266
    )
    
    $
    15,361
 11




---



##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 10. Segment Reporting, continued
 Animal
    
    
    Medical
    
    
    
    
    
    
    IntercompanyLaboratory
    
    
    Hospital
    
    
    Technology
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalSix Months Ended June 30, 2008External revenue
    
    $
    142,649
    
    
    $
    477,101
    
    
    $
    22,516
    
    
    $
    
    
    
    $
    
    
    
    $
    642,266Intercompany revenue
    
    
    15,920
    
    
    
    
    
    
    
    3,171
    
    
    
    
    
    
    
    (19,091
    )
    
    
    Total revenue
    
    
    158,569
    
    
    
    477,101
    
    
    
    25,687
    
    
    
    
    
    
    
    (19,091
    )
    
    
    642,266Direct costs
    
    
    80,353
    
    
    
    383,344
    
    
    
    16,552
    
    
    
    
    
    
    
    (17,980
    )
    
    
    462,269Gross profit
    
    
    78,216
    
    
    
    93,757
    
    
    
    9,135
    
    
    
    
    
    
    
    (1,111
    )
    
    
    179,997Selling, general and administrative expense
    
    
    10,136
    
    
    
    11,172
    
    
    
    6,382
    
    
    
    18,297
    
    
    
    
    
    
    
    45,987Write-down and (gain) loss on sale of assets
    
    
    
    
    
    
    (89
    )
    
    
    20
    
    
    
    12
    
    
    
    
    
    
    
    (57
    )Operating income (loss)
    
    $
    68,080
    
    
    $
    82,674
    
    
    $
    2,733
    
    
    $
    (18,309
    )
    
    $
    (1,111
    )
    
    $
    134,067Depreciation and amortization
    
    $
    3,455
    
    
    $
    10,418
    
    
    $
    801
    
    
    $
    913
    
    
    $
    (262
    )
    
    $
    15,325Capital expenditures
    
    $
    5,415
    
    
    $
    19,146
    
    
    $
    257
    
    
    $
    1,442
    
    
    $
    (717
    )
    
    $
    25,543Six Months Ended June 30, 2007External revenue
    
    $
    139,269
    
    
    $
    405,637
    
    
    $
    20,544
    
    
    $
    
    
    
    $
    
    
    
    $
    565,450Intercompany revenue
    
    
    13,538
    
    
    
    
    
    
    
    1,263
    
    
    
    
    
    
    
    (14,801
    )
    
    
    Total revenue
    
    
    152,807
    
    
    
    405,637
    
    
    
    21,807
    
    
    
    
    
    
    
    (14,801
    )
    
    
    565,450Direct costs
    
    
    76,839
    
    
    
    323,756
    
    
    
    13,711
    
    
    
    
    
    
    
    (14,654
    )
    
    
    399,652Gross profit
    
    
    75,968
    
    
    
    81,881
    
    
    
    8,096
    
    
    
    
    
    
    
    (147
    )
    
    
    165,798Selling, general and administrative expense
    
    
    10,013
    
    
    
    10,881
    
    
    
    5,628
    
    
    
    16,994
    
    
    
    
    
    
    
    43,516Write-down and loss on sale of assets
    
    
    58
    
    
    
    444
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    542Operating income (loss)
    
    $
    65,897
    
    
    $
    70,556
    
    
    $
    2,428
    
    
    $
    (16,994
    )
    
    $
    (147
    )
    
    $
    121,740Depreciation and amortization
    
    $
    2,946
    
    
    $
    8,290
    
    
    $
    807
    
    
    $
    878
    
    
    $
    (181
    )
    
    $
    12,740Capital expenditures
    
    $
    7,724
    
    
    $
    16,280
    
    
    $
    424
    
    
    $
    3,136
    
    
    $
    (328
    )
    
    $
    27,236At June 30, 2008Total assets
    
    $
    195,383
    
    
    $
    1,013,625
    
    
    $
    44,469
    
    
    $
    128,674
    
    
    $
    (8,393
    )
    
    $
    1,373,758At December 31, 2007Total assets
    
    $
    178,846
    
    
    $
    934,366
    
    
    $
    54,954
    
    
    $
    125,173
    
    
    $
    (6,628
    )
    
    $
    1,286,711
 11. Commitments and Contingencies
  a. Earn-out Payments
  12




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 11. Commitments and Contingencies, continued
 b. Officers Compensation
     c. Other Contingencies
  12. Recent Accounting Pronouncements
  13




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 12. Recent Accounting Pronouncements, continued
 Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of SFAS No. 133
 Determination of the Useful Life of Intangible
Assets Goodwill and Other
Intangible Assets, Business Combinations
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.
 14




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 PageNumberIntroduction
    
    
    16Executive Overview
    
    
    16Critical Accounting Policies
    
    
    17Consolidated Results of Operations
    
    
    18Segment Results
    
    
    21Liquidity
and Capital Resources
    
    
    24
 15




---



##### Table of Contents



Introduction
 The following discussion should be read in conjunction with our condensed, consolidated
financial statements provided under Part I, Item I of this quarterly report on Form 10-Q . We have
included herein statements that constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. We generally identify forward-looking statements
in this report using words like believe, intend, expect, estimate, may, plan, should
plan, project, contemplate, anticipate, predict, potential, continue, or similar
expressions. You may find some of these statements below and elsewhere in this report. These
forward-looking statements are not historical facts and are inherently uncertain and outside of our
control. Any or all of our forward-looking statements in this report may turn out to be wrong.
They can be affected by inaccurate assumptions we might make or by known or unknown risks and
uncertainties. Many factors mentioned in our discussion in this report will be important in
determining future results. Consequently, no forward-looking statement can be guaranteed. Actual
future results may vary materially. Factors that may cause our plans, expectations, future
financial condition and results to change are described throughout this report and in our Annual
Report on Form 10-K , particularly in Risk Factors, Part I, Item 1A of that report.
 The forward-looking information set forth in this Quarterly report on Form 10-Q is as of
August 8, 2008, and we undertake no duty to update this information. Shareholders and prospective
investors can find information filed with the SEC after August 8, 2008 at our website at http://investor.vcaantech.com or at the SECs website at www.sec.gov .
  
    
    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,
2008, our laboratory network consisted of 39 laboratories serving all 50 states and certain
areas in Canada.
    
    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, 2008, our animal hospital network consisted of 465 animal
hospitals in 39 states.
    
    Our medical technology segment sells digital radiography and ultrasound imaging
equipment, related computer hardware, software and ancillary services.
  
 Executive Overview
  16




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##### Table of Contents



Acquisitions and Facilities
  Animal Hospitals:Beginning of period
    
    
    438Acquisitions
    
    
    36Acquisitions relocated into our existing animal hospitals
    
    
    (4
    )Sold or closed
    
    
    (5
    )End of period
    
    
    465Laboratories:Beginning of period
    
    
    36Acquisitions
    
    
    3Acquisitions relocated into our existing laboratories
    
    
    (1
    )Created
    
    
    1End of period
    
    
    39
 
 Critical Accounting Policies
  17




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##### Table of Contents



Consolidated Results of Operations
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue:Laboratory
    
    
    24.5
    %
    
    
    26.4
    %
    
    
    24.7
    %
    
    
    27.0
    %Animal hospital
    
    
    75.1
    
    
    
    72.7
    
    
    
    74.3
    
    
    
    71.7Medical technology
    
    
    3.5
    
    
    
    3.5
    
    
    
    4.0
    
    
    
    3.9Intercompany
    
    
    (3.1
    )
    
    
    (2.6
    )
    
    
    (3.0
    )
    
    
    (2.6
    )Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Direct costs
    
    
    71.0
    
    
    
    70.1
    
    
    
    72.0
    
    
    
    70.7Gross profit
    
    
    29.0
    
    
    
    29.9
    
    
    
    28.0
    
    
    
    29.3Selling, general and administrative expense
    
    
    6.8
    
    
    
    7.3
    
    
    
    7.2
    
    
    
    7.7Write-down and loss (gain) on sale of assets
    
    
    0.1
    
    
    
    0.2
    
    
    
    (0.1
    )
    
    
    0.1Operating income
    
    
    22.1
    
    
    
    22.4
    
    
    
    20.9
    
    
    
    21.5Interest expense, net
    
    
    2.1
    
    
    
    2.2
    
    
    
    2.3
    
    
    
    2.3Other (income) expense
    
    
    (0.1
    )
    
    
    0.1
    
    
    
    
    
    
    
    Income before minority interest and provision
for income taxes
    
    
    20.1
    
    
    
    20.1
    
    
    
    18.6
    
    
    
    19.2Minority interest in income of subsidiairies
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3Income before provision for income taxes
    
    
    19.8
    
    
    
    19.8
    
    
    
    18.3
    
    
    
    18.9Provision for income taxes
    
    
    7.7
    
    
    
    7.9
    
    
    
    7.2
    
    
    
    7.6Net income
    
    
    12.1
    %
    
    
    11.9
    %
    
    
    11.1
    %
    
    
    11.3
    %
 Revenue
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    
    
    
    
    2008
    
    
    2007% of
    
    
    
    
    
    
    % of
    
    
    %
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    %$
    
    
    Total
    
    
    $
    
    
    Total
    
    
    Change
    
    
    $
    
    
    Total
    
    
    $
    
    
    Total
    
    
    ChangeLaboratory
    
    $
    81,840
    
    
    
    24.5
    %
    
    $
    79,210
    
    
    
    26.4
    %
    
    
    3.3
    %
    
    $
    158,569
    
    
    
    24.7
    %
    
    $
    152,807
    
    
    
    27.0
    %
    
    
    3.8
    %Animal hospital
    
    
    251,001
    
    
    
    75.1
    %
    
    
    218,466
    
    
    
    72.7
    %
    
    
    14.9
    %
    
    
    477,101
    
    
    
    74.3
    %
    
    
    405,637
    
    
    
    71.7
    %
    
    
    17.6
    %Medical technology
    
    
    11,838
    
    
    
    3.5
    %
    
    
    10,635
    
    
    
    3.5
    %
    
    
    11.3
    %
    
    
    25,687
    
    
    
    4.0
    %
    
    
    21,807
    
    
    
    3.9
    %
    
    
    17.8
    %Intercompany
    
    
    (10,245
    )
    
    
    (3.1
    )%
    
    
    (8,006
    )
    
    
    (2.6
    )%
    
    
    28.0
    %
    
    
    (19,091
    )
    
    
    (3.0
    )%
    
    
    (14,801
    )
    
    
    (2.6
    )%
    
    
    29.0
    %Total revenue
    
    $
    334,434
    
    
    
    100.0
    %
    
    $
    300,305
    
    
    
    100.0
    %
    
    
    11.4
    %
    
    $
    642,266
    
    
    
    100.0
    %
    
    $
    565,450
    
    
    
    100.0
    %
    
    
    13.6
    %
  18




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##### Table of Contents



Gross Profit
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    
    
    
    
    2008
    
    
    2007Gross
    
    
    
    
    
    
    Gross
    
    
    %
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    Gross
    
    
    %$
    
    
    Margin
    
    
    $
    
    
    Margin
    
    
    Change
    
    
    $
    
    
    Margin
    
    
    $
    
    
    Margin
    
    
    ChangeLaboratory
    
    $
    40,874
    
    
    
    49.9
    %
    
    $
    39,966
    
    
    
    50.5
    %
    
    
    2.3
    %
    
    $
    78,216
    
    
    
    49.3
    %
    
    $
    75,968
    
    
    
    49.7
    %
    
    
    3.0
    %Animal hospital
    
    
    52,620
    
    
    
    21.0
    %
    
    
    46,301
    
    
    
    21.2
    %
    
    
    13.6
    %
    
    
    93,757
    
    
    
    19.7
    %
    
    
    81,881
    
    
    
    20.2
    %
    
    
    14.5
    %Medical technology
    
    
    4,222
    
    
    
    35.7
    %
    
    
    3,785
    
    
    
    35.6
    %
    
    
    11.5
    %
    
    
    9,135
    
    
    
    35.6
    %
    
    
    8,096
    
    
    
    37.1
    %
    
    
    12.8
    %Intercompany
    
    
    (750
    )
    
    
    
    
    
    
    (174
    )
    
    
    
    
    
    
    
    
    
    
    (1,111
    )
    
    
    
    
    
    
    (147
    )Total gross profit
    
    $
    96,966
    
    
    
    29.0
    %
    
    $
    89,878
    
    
    
    29.9
    %
    
    
    7.9
    %
    
    $
    179,997
    
    
    
    28.0
    %
    
    $
    165,798
    
    
    
    29.3
    %
    
    
    8.6
    %
  Selling, General and Administrative Expense
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    
    
    
    
    2008
    
    
    2007% of
    
    
    
    
    
    
    % of
    
    
    %
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    %$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    Change
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    ChangeLaboratory
    
    $
    5,185
    
    
    
    6.3
    %
    
    $
    5,046
    
    
    
    6.4
    %
    
    
    2.8
    %
    
    $
    10,136
    
    
    
    6.4
    %
    
    $
    10,013
    
    
    
    6.6
    %
    
    
    1.2
    %Animal hospital
    
    
    5,694
    
    
    
    2.3
    %
    
    
    5,321
    
    
    
    2.4
    %
    
    
    7.0
    %
    
    
    11,172
    
    
    
    2.3
    %
    
    
    10,881
    
    
    
    2.7
    %
    
    
    2.7
    %Medical technology
    
    
    2,948
    
    
    
    24.9
    %
    
    
    2,693
    
    
    
    25.3
    %
    
    
    9.5
    %
    
    
    6,382
    
    
    
    24.8
    %
    
    
    5,628
    
    
    
    25.8
    %
    
    
    13.4
    %Corporate
    
    
    8,982
    
    
    
    2.7
    %
    
    
    8,983
    
    
    
    3.0
    %
    
    
    0.0
    %
    
    
    18,297
    
    
    
    2.8
    %
    
    
    16,994
    
    
    
    3.0
    %
    
    
    7.7
    %Total SG&A
    
    $
    22,809
    
    
    
    6.8
    %
    
    $
    22,043
    
    
    
    7.3
    %
    
    
    3.5
    %
    
    $
    45,987
    
    
    
    7.2
    %
    
    $
    43,516
    
    
    
    7.7
    %
    
    
    5.7
    %
  Write-down and (Gain) Loss on Sale of Assets
  19




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##### Table of Contents



Operating Income
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    
    
    
    
    2008
    
    
    2007% of
    
    
    
    
    
    
    % of
    
    
    %
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    %$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    Change
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    ChangeLaboratory
    
    $
    35,678
    
    
    
    43.6
    %
    
    $
    34,862
    
    
    
    44.0
    %
    
    
    2.3
    %
    
    $
    68,080
    
    
    
    42.9
    %
    
    $
    65,897
    
    
    
    43.1
    %
    
    
    3.3
    %Animal hospital
    
    
    46,822
    
    
    
    18.7
    %
    
    
    40,658
    
    
    
    18.6
    %
    
    
    15.2
    %
    
    
    82,674
    
    
    
    17.3
    %
    
    
    70,556
    
    
    
    17.4
    %
    
    
    17.2
    %Medical technology
    
    
    1,274
    
    
    
    10.8
    %
    
    
    1,052
    
    
    
    9.9
    %
    
    
    21.1
    %
    
    
    2,733
    
    
    
    10.6
    %
    
    
    2,428
    
    
    
    11.1
    %
    
    
    12.6
    %Corporate
    
    
    (8,994
    )
    
    
    (2.7
    )%
    
    
    (8,983
    )
    
    
    (3.0
    )%
    
    
    0.1
    %
    
    
    (18,309
    )
    
    
    (2.9
    )%
    
    
    (16,994
    )
    
    
    (3.0
    )%
    
    
    7.7
    %Intercompany
    
    
    (750
    )
    
    
    7.3
    %
    
    
    (174
    )
    
    
    2.2
    %
    
    
    331.0
    %
    
    
    (1,111
    )
    
    
    5.8
    %
    
    
    (147
    )
    
    
    1.0
    %
    
    
    655.8
    %Total operating income
    
    $
    74,030
    
    
    
    22.1
    %
    
    $
    67,415
    
    
    
    22.4
    %
    
    
    9.8
    %
    
    $
    134,067
    
    
    
    20.9
    %
    
    $
    121,740
    
    
    
    21.5
    %
    
    
    10.1
    %
  Interest Expense, Net
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest expense (income):Senior term
notes
    
    $
    5,563
    
    
    $
    7,369
    
    
    $
    12,576
    
    
    $
    13,774Interest rate hedging agreements
    
    
    1,656
    
    
    
    (529
    )
    
    
    2,438
    
    
    
    (1,018
    )Capital leases and other
    
    
    401
    
    
    
    349
    
    
    
    1,042
    
    
    
    699Amortization of debt costs
    
    
    117
    
    
    
    76
    
    
    
    233
    
    
    
    1377,737
    
    
    
    7,265
    
    
    
    16,289
    
    
    
    13,592Interest
income
    
    
    (692
    )
    
    
    (594
    )
    
    
    (1,629
    )
    
    
    (1,148
    )Total interest expense, net of interest income
    
    $
    7,045
    
    
    $
    6,671
    
    
    $
    14,660
    
    
    $
    12,444
  Provision for Income Taxes
  20




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##### Table of Contents



Segment Results
 Laboratory Segment
  Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    
    
    
    
    2008
    
    2007Gross
    
    
    
    
    
    Gross
    
    %
    
    
    
    
    
    Gross
    
    
    
    
    
    Gross
    
    %$
    
    Margin
    
    $
    
    Margin
    
    Change
    
    $
    
    Margin
    
    $
    
    Margin
    
    ChangeRevenue
    
    $
    81,840
    
    
    
    
    
    
    $
    79,210
    
    
    
    
    
    
    
    3.3
    %
    
    $
    158,569
    
    
    
    
    
    
    $
    152,807
    
    
    
    
    
    
    
    3.8
    %Gross profit
    
    $
    40,874
    
    
    
    49.9
    %
    
    $
    39,966
    
    
    
    50.5
    %
    
    
    2.3
    %
    
    $
    78,216
    
    
    
    49.3
    %
    
    $
    75,968
    
    
    
    49.7
    %
    
    
    3.0
    %
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    % Change
    
    
    2008
    
    
    2007
    
    
    % ChangeLaboratory Revenue:Internal growth:Number of requisitions (1)
    
    
    3,530
    
    
    
    3,474
    
    
    
    1.6
    %
    
    
    6,755
    
    
    
    6,593
    
    
    
    2.5
    %Average revenue per reqisition (2)
    
    $
    23.00
    
    
    $
    22.80
    
    
    
    0.9
    %
    
    $
    23.36
    
    
    $
    23.18
    
    
    
    0.8
    %Total internal revenue (1)
    
    $
    81,184
    
    
    $
    79,210
    
    
    
    2.5
    %
    
    $
    157,799
    
    
    $
    152,807
    
    
    
    3.3
    %Acquired revenue (3)
    
    
    656
    
    
    
    
    
    
    
    
    
    
    
    770
    
    
    
    Total
    
    $
    81,840
    
    
    $
    79,210
    
    
    
    3.3
    %
    
    $
    158,569
    
    
    $
    152,807
    
    
    
    3.8
    %
 
 (1)
    
    Internal revenue and requisitions were calculated using laboratory operating results,
adjusted to exclude the operating results of acquired laboratories for the comparable periods
that we did not own them in the prior year.(2)
    
    Computed by dividing internal revenue by the number of requisitions.(3)
    
    Acquired revenue represents revenue recognized from our acquired laboratories for the
comparable current year period that we did not own them in the prior year.   21




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##### Table of Contents



Animal Hospital Segment
  Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    
    
    
    
    2008
    
    2007Gross
    
    
    
    
    
    Gross
    
    %
    
    
    
    
    
    Gross
    
    
    
    
    
    Gross
    
    %$
    
    Margin
    
    $
    
    Margin
    
    Change
    
    $
    
    Margin
    
    $
    
    Margin
    
    ChangeRevenue
    
    $
    251,001
    
    
    
    
    
    
    $
    218,466
    
    
    
    
    
    
    
    14.9
    %
    
    $
    477,101
    
    
    
    
    
    
    $
    405,637
    
    
    
    
    
    
    
    17.6
    %Gross profit
    
    $
    52,620
    
    
    
    21.0
    %
    
    $
    46,301
    
    
    
    21.2
    %
    
    
    13.6
    %
    
    $
    93,757
    
    
    
    19.7
    %
    
    $
    81,881
    
    
    
    20.2
    %
    
    
    14.5
    %
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    % Change
    
    
    2008
    
    
    2007
    
    
    % ChangeAnimal Hospital Revenue:Same-store facilities:Orders (1)(2)
    
    
    1,392
    
    
    
    1,466
    
    
    
    (5.1
    )%
    
    
    2,634
    
    
    
    2,740
    
    
    
    (3.9
    )%Average revenue per order (3)
    
    $
    148.59
    
    
    $
    141.28
    
    
    
    5.2
    %
    
    $
    146.50
    
    
    $
    139.64
    
    
    
    4.9
    %Same-store revenue (1)
    
    $
    206,841
    
    
    $
    207,185
    
    
    
    (0.2
    )%
    
    $
    385,893
    
    
    $
    382,670
    
    
    
    0.8
    %Net acquired revenue (4)
    
    
    44,160
    
    
    
    11,281
    
    
    
    
    
    
    
    91,208
    
    
    
    22,967Total
    
    $
    251,001
    
    
    $
    218,466
    
    
    
    14.9
    %
    
    $
    477,101
    
    
    $
    405,637
    
    
    
    17.6
    %
 
 (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 period. Same-store revenue also
includes revenue generated by customers referred from our relocated or combined animal
hospitals, including those merged upon acquisition.(2)
    
    The change in orders may not calculate exactly due to rounding.(3)
    
    Computed by dividing same-store revenue by same-store orders. The average revenue per order
may not calculate exactly due to rounding.(4)
    
    Net acquired revenue represents the revenue from those animal hospitals acquired, net of
revenue from those animal hospitals sold or closed, on or after the beginning of the
comparable period, which was April 1, 2007 for the three-month analysis, and January 1, 2007
for the six-month analysis. Fluctuations in net acquired revenue occur due to the volume,
size and timing of acquisitions and dispositions during the periods from this date through the
end of the applicable period.  22




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##### Table of Contents



Medical Technology Segment
  Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    
    
    
    
    2008
    
    2007Gross
    
    
    
    
    
    Gross
    
    %
    
    
    
    
    
    Gross
    
    
    
    
    
    Gross
    
    %$
    
    Margin
    
    $
    
    Margin
    
    Change
    
    $
    
    Margin
    
    $
    
    Margin
    
    ChangeRevenue
    
    $
    11,838
    
    
    
    
    
    
    $
    10,635
    
    
    
    
    
    
    
    11.3
    %
    
    $
    25,687
    
    
    
    
    
    
    $
    21,807
    
    
    
    
    
    
    
    17.8
    %Gross profit
    
    $
    4,222
    
    
    
    35.7
    %
    
    $
    3,785
    
    
    
    35.6
    %
    
    
    11.5
    %
    
    $
    9,135
    
    
    
    35.6
    %
    
    $
    8,096
    
    
    
    37.1
    %
    
    
    12.8
    %
    23




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##### Table of Contents



Intercompany Revenue
  
 Liquidity and Capital Resources
 Introduction
     Future Cash Flows
 Short-term
   Long-term
  24




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##### Table of Contents



Debt Related Covenants
    Historical Cash Flows
  Six Months EndedJune 30,2008
    
    
    2007Cash provided by (used in):Operating
activities
    
    $
    99,993
    
    
    $
    94,193Investing
activities
    
    
    (132,242
    )
    
    
    (237,212
    )Financing
activities
    
    
    (2,678
    )
    
    
    160,022Effect of exchange rate changes on cash and cash equivalents
    
    
    (15
    )
    
    
    (Decrease) increase in cash and cash equivalents
    
    
    (34,942
    )
    
    
    17,003Cash and cash equivalents at beginning of period
    
    
    110,866
    
    
    
    45,104Cash and cash equivalents at end of period
    
    $
    75,924
    
    
    $
    62,107
 Cash Flows from Operating Activities
  25




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##### Table of Contents



Cash Flows from Investing Activities
  Six Months EndedJune 30,2008
    
    
    2007
    
    
    VarianceInvesting Cash Flows:Acquisition of Healthy Pet
    
    $
    
    
    
    $
    (154,376
    )
    
    $
    154,376
    (1)Acquisition of independent animal
hospitals
    
    
    (78,022
    )
    
    
    (47,055
    )
    
    
    (30,967)
    (2)Other
    
    
    (2,345
    )
    
    
    (1,891
    )
    
    
    (454
    )Total cash used for acquisitions
    
    
    (80,367
    )
    
    
    (203,322
    )
    
    
    122,955Property and equipment additions
    
    
    (25,543
    )
    
    
    (27,236
    )
    
    
    1,693
    (3)Real estate acquired with acquisitions
    
    
    (13,098
    )
    
    
    (7,962
    )
    
    
    (5,136)
    (4)Proceeds from sale of assets
    
    
    1,753
    
    
    
    1,564
    
    
    
    189Other
    
    
    (14,987
    )
    
    
    (256
    )
    
    
    (14,731)
    (5)Net cash used in investing activities
    
    $
    (132,242
    )
    
    $
    (237,212
    )
    
    $
    104,970
 
 (1)
    
    The decrease in cash used is primarily due to the acquisition of the Healthy Pet chain in
June of 2007.(2)
    
    The number of acquisitions will vary from year to year based upon the available pool of
suitable candidates. A discussion of our acquisitions is provided above in the Executive
Overview.(3)
    
    The decrease in cash used to acquire property and equipment was primarily due to a reduction
in costs related to certain technology related initiatives in 2007 aimed at creating
operational efficiencies.(4)
    
    The increase in cash used to acquire real estate was due primarily to a increase in the
number of favorable opportunities presented.(5)
    
    The increase in other investing cash flows was due primarily to certain investments in
related businesses. Cash Flows from Financing Activities
  Six Months EndedJune 30,2008
    
    
    2007
    
    
    VarianceFinancing Cash Flows:Repayment of long-term
obligations
    
    $
    (3,925
    )
    
    $
    (4,224
    )
    
    $
    299Proceeds from issuance of long-term obligations
    
    
    
    
    
    
    160,000
    
    
    
    (160,000)
    (1)Payment of debt issue
costs
    
    
    
    
    
    
    (794
    )
    
    
    794Proceeds from stock options
exercises
    
    
    892
    
    
    
    2,360
    
    
    
    (1,468)
    (2)Excess tax benefits from stock
options
    
    
    355
    
    
    
    2,680
    
    
    
    (2,325)
    (2)Net cash (used in) provided by financing activities
    
    $
    (2,678
    )
    
    $
    160,022
    
    
    $
    (162,700
    )
 
 (1)
    
    The decrease in proceeds from the issuance of long-term obligations is due to funds borrowed
in 2007 related to the Healthy Pet acquisition.(2)
    
    The number of stock option exercises has declined in comparison to the prior year.
Accordingly, there has been a decline in the amount of excess tax benefits as well. 26




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##### Table of Contents



Off-Balance Sheet Arrangements
  Interest Rate Swap Agreements
  Fixed interest rate
    
    
    5.51
    %
    
    
    4.95
    %
    
    
    5.34
    %
    
    
    2.64
    %Notional amount (in millions)
    
    $
    50.0
    
    
    $
    75.0
    
    
    $
    100.0
    
    
    $
    100.0Effective
date
    
    
    6/20/2006
    
    
    
    4/30/2007
    
    
    
    6/11/2007
    
    
    
    2/12/2008Expiration date
    
    
    6/30/2009
    
    
    
    4/30/2009
    
    
    
    12/31/2009
    
    
    
    2/26/2010Counterparty
    
    Goldman Sachs
    
    Wells Fargo
    
    Goldman Sachs
    
    Wells Fargo
  Description of Indebtedness
 Senior Credit Facility
    Other Debt and Capital Lease Obligations
  Recent Accounting Pronouncements
 Fair Value Measurements
 Fair Value Option for Financial Assets and
Financial Liabilities
 27




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##### Table of Contents



Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of SFAS No. 133
 Determination of the Useful Life of Intangible
Assets Goodwill and Other
Intangible Assets, Business Combinations
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles.
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Fixed interest rate
    
    
    5.51
    %
    
    
    4.95
    %
    
    
    5.34
    %
    
    
    2.64
    %Notional amount (in millions)
    
    $
    50.0
    
    
    $
    75.0
    
    
    $
    100.0
    
    
    $
    100.0Effective
date
    
    
    6/20/2006
    
    
    
    4/30/2007
    
    
    
    6/11/2007
    
    
    
    2/12/2008Expiration date
    
    
    6/30/2009
    
    
    
    4/30/2009
    
    
    
    12/31/2009
    
    
    
    2/26/2010Counterparty
    
    Goldman Sachs
    
    Wells Fargo
    
    Goldman Sachs
    
    Wells Fargo
  28




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##### Table of Contents



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
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  29




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
    
    elected each of John B. Chickering, Jr., and John Heil as a Class III director; and
    
    ratified KPMG LLP as our independent registered accounting firm.
   Candidate
    
    Yes Votes
    
    No Votes
    
    Abstain
    
    Broker Non-VoteJohn B. Chickering, Jr.
    
    
    72,080,505
    
    
    
    
    
    
    
    5,765,813
    
    
    
    John Heil
    
    
    72,116,772
    
    
    
    
    
    
    
    5,729,546
    
    
    
    
  Proposal
    
    Yes Votes
    
    No Votes
    
    Abstain
    
    Broker Non-VoteRatify KPMG LLP as our independent
registered accounting firm
    
    
    77,459,850
    
    
    
    344,241
    
    
    
    42,227
    
    
    
    
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 10.1
    
    Letter Agreement, dated as of April 25, 2008, by and between VCA Antech, Inc. and Neil
Tauber. Incorporated by reference to Exhibit 10.1 to the Registrants current report on
Form 8-K filed April 28, 2008.31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 30




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##### Table of Contents



SIGNATURE
  Date:  August 8, 2008
    By:
    /s/ Tomas W. FullerTomas W. FullerChief Financial Officer 31




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1*
    
    Letter Agreement, dated as of April 25, 2008, by and between VCA Antech, Inc. and Neil
Tauber. Incorporated by reference to Exhibit 10.1 to the Registrants current report on Form
8-K filed April 28, 2008.31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Management contract or compensatory plan or arrangement 32