##### 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 March 31, 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(State or other jurisdiction of 
incorporation or organization)
    
    95-4097995(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
March 31, 2008
 Table of Contents
 PageNumberPart I.
    
    Financial InformationItem 1.
    
    Financial Statements (Unaudited)Condensed, Consolidated Balance Sheets as of March 31, 2008 and
December 31, 2007
    
    
    1Condensed, Consolidated Income Statements for the Three Months Ended
March 31, 2008 and 2007
    
    
    2Condensed, Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2008 and 2007
    
    
    3Notes to Condensed, Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4.
    
    Controls and Procedures
    
    
    27Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    28Item 1A.
    
    Risk Factors
    
    
    28Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3.
    
    Defaults Upon Senior Securities
    
    
    28Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    28Item 5.
    
    Other Information
    
    
    28Item 6.
    
    Exhibits
    
    
    28Signature
    
    
    29Exhibit Index
    
    
    30EXHIBIT 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)
 March 31,
    
    
    December 31,2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    86,244
    
    
    $
    110,866Trade accounts receivable, less allowance for uncollectible accounts of $10,834
and $10,940 at March 31, 2008 and December 31, 2007, respectively
    
    
    48,445
    
    
    
    42,650Inventory
    
    
    25,100
    
    
    
    25,517Prepaid expenses and other
    
    
    15,246
    
    
    
    15,307Deferred income taxes
    
    
    14,659
    
    
    
    14,402Prepaid income taxes
    
    
    
    
    
    
    8,160Total current assets
    
    
    189,694
    
    
    
    216,902Property and equipment, less accumulated depreciation and amortization of $130,832
and $124,884 at March 31, 2008 and December 31, 2007, respectively
    
    
    220,879
    
    
    
    214,020Goodwill
    
    
    866,096
    
    
    
    821,967Other intangible assets, net
    
    
    24,548
    
    
    
    22,373Notes receivable, net
    
    
    9,510
    
    
    
    3,493Deferred financing costs, net
    
    
    1,421
    
    
    
    1,537Other
    
    
    15,427
    
    
    
    6,419Total assets
    
    $
    1,327,575
    
    
    $
    1,286,711Liabilities and Stockholders EquityCurrent liabilities:Current portion of long-term obligations
    
    $
    7,794
    
    
    $
    7,886Accounts payable
    
    
    29,998
    
    
    
    28,092Accrued payroll and related liabilities
    
    
    32,712
    
    
    
    38,341Income taxes payable
    
    
    8,673
    
    
    
    Other accrued liabilities
    
    
    49,073
    
    
    
    42,074Total current liabilities
    
    
    128,250
    
    
    
    116,393Long-term obligations, less current portion
    
    
    550,411
    
    
    
    552,294Deferred income taxes
    
    
    27,871
    
    
    
    28,197Other liabilities
    
    
    10,709
    
    
    
    11,236Minority interest
    
    
    12,015
    
    
    
    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, 84,350 and 84,335
shares outstanding as of March 31, 2008 and December 31, 2007, respectively
    
    
    84
    
    
    
    84Additional paid-in capital
    
    
    297,673
    
    
    
    296,037Accumulated earnings
    
    
    306,800
    
    
    
    275,598Accumulated other comprehensive loss
    
    
    (6,238
    )
    
    
    (3,335
    )Total stockholders equity
    
    
    598,319
    
    
    
    568,384Total liabilities and stockholders equity
    
    $
    1,327,575
    
    
    $
    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 EndedMarch 31,2008
    
    
    2007Revenue
    
    $
    307,832
    
    
    $
    265,145Direct costs
    
    
    224,801
    
    
    
    189,225Gross profit
    
    
    83,031
    
    
    
    75,920Selling, general and administrative expense
    
    
    23,178
    
    
    
    21,473Write-down and (gain) loss on sale of assets
    
    
    (184
    )
    
    
    122Operating income
    
    
    60,037
    
    
    
    54,325Interest expense, net
    
    
    7,615
    
    
    
    5,773Other expense
    
    
    177
    
    
    
    55Income before minority interest and provision for income taxes
    
    
    52,245
    
    
    
    48,497Minority interest in income of subsidiaries
    
    
    957
    
    
    
    846Income before provision for income taxes
    
    
    51,288
    
    
    
    47,651Provision for income taxes
    
    
    20,086
    
    
    
    19,338Net income
    
    $
    31,202
    
    
    $
    28,313Basic earnings per share
    
    $
    0.37
    
    
    $
    0.34Diluted earnings per share
    
    $
    0.36
    
    
    $
    0.33Weighted-average shares outstanding
for basic earnings per share
    
    
    84,348
    
    
    
    83,924Weighted-average shares outstanding
for diluted earnings per share
    
    
    85,865
    
    
    
    85,649
  2




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Condensed, Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 Three Months EndedMarch 31,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    31,202
    
    
    $
    28,313Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    7,263
    
    
    
    5,931Amortization of debt costs
    
    
    116
    
    
    
    61Provision for uncollectible accounts
    
    
    820
    
    
    
    1,425Write-down and (gain) loss on sale of assets
    
    
    (184
    )
    
    
    122Share-based compensation
    
    
    1,309
    
    
    
    1,217Minority interest in income of subsidiaries
    
    
    957
    
    
    
    846Distributions to minority interest partners
    
    
    (760
    )
    
    
    (645
    )Deferred income taxes
    
    
    2,329
    
    
    
    1,159Excess tax benefit from exercise of stock options
    
    
    (133
    )
    
    
    (922
    )Other
    
    
    86
    
    
    
    (142
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (6,463
    )
    
    
    (6,040
    )Inventory, prepaid expenses and other assets
    
    
    (2,351
    )
    
    
    (398
    )Accounts payable and other accrued liabilities
    
    
    2,767
    
    
    
    (2,279
    )Accrued payroll and related liabilities
    
    
    (5,629
    )
    
    
    (2,270
    )Income taxes
    
    
    16,946
    
    
    
    17,637Net cash provided by operating activities
    
    
    48,275
    
    
    
    44,015Cash flows used in investing activities:Business acquisitions, net of cash acquired
    
    
    (47,826
    )
    
    
    (32,203
    )Real estate acquired in connection with business acquisitions
    
    
    (3,612
    )
    
    
    (7,929
    )Property and equipment additions
    
    
    (9,463
    )
    
    
    (11,875
    )Proceeds from sale of assets
    
    
    1,747
    
    
    
    1,564Other
    
    
    (12,124
    )
    
    
    110Net cash used in investing activities
    
    
    (71,278
    )
    
    
    (50,333
    )Cash flows used in financing activities:Repayment of long-term obligations
    
    
    (1,966
    )
    
    
    (2,302
    )Proceeds from issuance of common stock under stock option plans
    
    
    214
    
    
    
    839Excess tax benefit from exercise of stock options
    
    
    133
    
    
    
    922Net cash used in financing activities
    
    
    (1,619
    )
    
    
    (541
    )Decrease in cash and cash equivalents
    
    
    (24,622
    )
    
    
    (6,859
    )Cash and cash equivalents at beginning of period
    
    
    110,866
    
    
    
    45,104Cash and cash equivalents at end of period
    
    $
    86,244
    
    
    $
    38,245
  3




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements
March 31, 2008
(Unaudited)
 1. Nature of Operations
     2. Basis of Presentation
   3. Acquisitions
  Animal hospitals:Acquisitions
    
    
    21Acquisitions relocated into our existing
animal hospitals
    
    
    (1
    )Total
    
    
    20
 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 Acquisitions
  Preliminary Purchase Price:Cash
    
    $
    45,789Liabilities assumed
    
    
    2,394Total
    
    $
    48,183Preliminary Allocation of the Purchase Price:Tangible assets
    
    $
    1,918Identifiable intangible assets
    
    
    3,568Goodwill (1)
    
    
    42,697Total
    
    $
    48,183
 
 (1)
    
    We expect that $38.9 million of the goodwill recorded for these acquisitions as of March 31,
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
    
    
    
    
    
    
    42,697
    
    
    
    
    
    
    
    42,697Goodwill related to partnership interests (1)
    
    
    
    
    
    
    2,168
    
    
    
    
    
    
    
    2,168Other (2)
    
    
    
    
    
    
    (736
    )
    
    
    
    
    
    
    (736
    )Balance as of March 31, 2008
    
    $
    95,344
    
    
    $
    751,592
    
    
    $
    19,160
    
    
    $
    866,096
 
 (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 March 31, 2008
    
    
    As of December 31, 2007Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountCovenants not-to-compete
    
    $
    15,275
    
    
    $
    (7,223
    )
    
    $
    8,052
    
    
    $
    13,487
    
    
    $
    (6,928
    )
    
    $
    6,559Non-contractual customer
relationships
    
    
    14,336
    
    
    
    (3,161
    )
    
    
    11,175
    
    
    
    12,992
    
    
    
    (2,755
    )
    
    
    10,237Favorable lease asset
    
    
    5,612
    
    
    
    (1,174
    )
    
    
    4,438
    
    
    
    5,594
    
    
    
    (1,019
    )
    
    
    4,575Technology
    
    
    1,270
    
    
    
    (885
    )
    
    
    385
    
    
    
    1,270
    
    
    
    (822
    )
    
    
    448Trademarks
    
    
    582
    
    
    
    (199
    )
    
    
    383
    
    
    
    582
    
    
    
    (185
    )
    
    
    397Contracts
    
    
    380
    
    
    
    (333
    )
    
    
    47
    
    
    
    380
    
    
    
    (309
    )
    
    
    71Client lists
    
    
    116
    
    
    
    (48
    )
    
    
    68
    
    
    
    137
    
    
    
    (51
    )
    
    
    86Total
    
    $
    37,571
    
    
    $
    (13,023
    )
    
    $
    24,548
    
    
    $
    34,442
    
    
    $
    (12,069
    )
    
    $
    22,373
  Three Months EndedMarch 31,2008
    
    
    2007Aggregate amortization expense
    
    $
    1,204
    
    
    $
    965
  Remainder of 2008
    
    $
    4,0592009
    
    
    4,3912010
    
    
    3,5812011
    
    
    2,7612012
    
    
    1,563Thereafter
    
    
    8,193Total
    
    $
    24,548
 6




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 5. Other Accrued Liabilities
  March 31,
    
    
    December 31,2008
    
    
    2007Accrued workers compensation insurance
    
    $
    6,218
    
    
    $
    6,051Deferred revenue
    
    
    7,476
    
    
    
    7,018Interest rate swap liability
    
    
    10,573
    
    
    
    5,827Accrued health insurance
    
    
    3,532
    
    
    
    3,273Holdbacks
    
    
    3,100
    
    
    
    2,215Accrued lease payments
    
    
    2,168
    
    
    
    2,329Accrued liability insurance
    
    
    1,897
    
    
    
    1,787Accrued post-retirement healthcare
    
    
    1,562
    
    
    
    1,281Accrued accounting fees
    
    
    1,038
    
    
    
    690Other
    
    
    11,509
    
    
    
    11,603$
    49,073
    
    
    $
    42,074
 6. Interest Rate Swap Agreements
  Interest Rate Swap AgreementsFixed interest rate
    
    
    4.07%
    
    
    
    3.98%
    
    
    
    5.51%
    
    
    
    4.95%
    
    
    
    5.34%
    
    
    
    2.64%Notional amount (in millions)
    
    
    $50.0
    
    
    
    $50.0
    
    
    
    $50.0
    
    
    
    $75.0
    
    
    
    $100.0
    
    
    
    $100.0Effective date
    
    
    5/26/2005
    
    
    
    6/2/2005
    
    
    
    6/20/2006
    
    
    
    4/30/2007
    
    
    
    6/11/2007
    
    
    
    2/12/2008Expiration date
    
    
    5/26/2008
    
    
    
    5/31/2008
    
    
    
    6/30/2009
    
    
    
    4/30/2009
    
    
    
    12/31/2009
    
    
    
    2/26/2010Counterparties
    
    Goldman Sachs
    
    Wells Fargo
    
    Goldman Sachs
    
    Wells Fargo
    
    Goldman Sachs
    
    Wells FargoQualifies for hedge accounting
    
    Yes
    
    Yes
    
    Yes
    
    Yes
    
    Yes
    
    Yes
  Three MonthsEnded March 31,2008
    
    2007Cash paid (received) (1)
    
    $
    782
    
    
    $
    (489
    )Recognized loss (2)
    
    $
    177
    
    
    $
    55
 
 (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
    
    
    UnobservableMarch 31,
    
    
    for Identical Items
    
    
    Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Interest rate swap agreements:Other accrued liabilities
    
    $
    10,573
    
    
    $
    
    
    
    $
    10,573
    
    
    $
    
 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
    
    
    410,780
    
    
    
    30.30Vested
    
    
    
    
    
    
    Forfeited/Canceled
    
    
    (1,500
    )
    
    
    32.34Outstanding at March 31, 2008
    
    
    762,112
    
    
    $
    31.50
 8. Calculation of Earnings per Share
  Three Months EndedMarch 31,2008
    
    
    2007Net income
    
    $
    31,202
    
    
    $
    28,313Weighted-average common shares outstanding:Basic
    
    
    84,348
    
    
    
    83,924Effect of dilutive potential common shares:Stock options and non-vested shares
    
    
    1,517
    
    
    
    1,725Diluted
    
    
    85,865
    
    
    
    85,649Basic earnings per share
    
    $
    0.37
    
    
    $
    0.34Diluted earnings per share
    
    $
    0.36
    
    
    $
    0.33
 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
  9. Comprehensive Income
  Three Months EndedMarch 31,2008
    
    
    2007Net income
    
    $
    31,202
    
    
    $
    28,313Other comprehensive loss:Unrealized loss on hedging
instruments, net of tax benefit of $1,919 in 2008 and $178 in 2007
    
    
    (3,011
    )
    
    
    (374
    )Loss on hedging instruments reclassified to
income, net of tax benefit of $70 in 2008 and $22 in 2007
    
    
    108
    
    
    
    33Other comprehensive loss
    
    
    (2,903
    )
    
    
    (341
    )Total comprehensive income
    
    $
    28,299
    
    
    $
    27,972
 10. Segment Reporting
   10




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##### 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 March 31, 2008External revenue
    
    $
    69,058
    
    
    $
    226,100
    
    
    $
    12,674
    
    
    $
    
    
    
    $
    
    
    
    $
    307,832Intercompany revenue
    
    
    7,671
    
    
    
    
    
    
    
    1,175
    
    
    
    
    
    
    
    (8,846
    )
    
    
    Total revenue
    
    
    76,729
    
    
    
    226,100
    
    
    
    13,849
    
    
    
    
    
    
    
    (8,846
    )
    
    
    307,832Direct costs
    
    
    39,387
    
    
    
    184,963
    
    
    
    8,936
    
    
    
    
    
    
    
    (8,485
    )
    
    
    224,801Gross profit
    
    
    37,342
    
    
    
    41,137
    
    
    
    4,913
    
    
    
    
    
    
    
    (361
    )
    
    
    83,031Selling, general and administrative expense
    
    
    4,951
    
    
    
    5,478
    
    
    
    3,434
    
    
    
    9,315
    
    
    
    
    
    
    
    23,178Write-down and (gain) loss on sale of assets
    
    
    (11
    )
    
    
    (193
    )
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    (184
    )Operating income (loss)
    
    $
    32,402
    
    
    $
    35,852
    
    
    $
    1,459
    
    
    $
    (9,315
    )
    
    $
    (361
    )
    
    $
    60,037Depreciation and amortization
    
    $
    1,647
    
    
    $
    4,883
    
    
    $
    397
    
    
    $
    459
    
    
    $
    (123
    )
    
    $
    7,263Capital expenditures
    
    $
    1,778
    
    
    $
    7,055
    
    
    $
    82
    
    
    $
    825
    
    
    $
    (277
    )
    
    $
    9,463Three Months Ended March 31, 2007External revenue
    
    $
    67,242
    
    
    $
    187,171
    
    
    $
    10,732
    
    
    $
    
    
    
    $
    
    
    
    $
    265,145Intercompany revenue
    
    
    6,355
    
    
    
    
    
    
    
    440
    
    
    
    
    
    
    
    (6,795
    )
    
    
    Total revenue
    
    
    73,597
    
    
    
    187,171
    
    
    
    11,172
    
    
    
    
    
    
    
    (6,795
    )
    
    
    265,145Direct costs
    
    
    37,595
    
    
    
    151,591
    
    
    
    6,861
    
    
    
    
    
    
    
    (6,822
    )
    
    
    189,225Gross profit
    
    
    36,002
    
    
    
    35,580
    
    
    
    4,311
    
    
    
    
    
    
    
    27
    
    
    
    75,920Selling, general and administrative expense
    
    
    4,967
    
    
    
    5,560
    
    
    
    2,935
    
    
    
    8,011
    
    
    
    
    
    
    
    21,473Write-down and loss on sale of assets
    
    
    
    
    
    
    122
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122Operating income (loss)
    
    $
    31,035
    
    
    $
    29,898
    
    
    $
    1,376
    
    
    $
    (8,011
    )
    
    $
    27
    
    
    $
    54,325Depreciation and amortization
    
    $
    1,353
    
    
    $
    3,870
    
    
    $
    379
    
    
    $
    418
    
    
    $
    (89
    )
    
    $
    5,931Capital expenditures
    
    $
    3,123
    
    
    $
    6,956
    
    
    $
    248
    
    
    $
    1,610
    
    
    $
    (62
    )
    
    $
    11,875At March 31, 2008Total assets
    
    $
    184,071
    
    
    $
    969,392
    
    
    $
    49,063
    
    
    $
    132,351
    
    
    $
    (7,302
    )
    
    $
    1,327,575At 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
  11




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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
  Fair Value Option for Financial Assets and
Financial Liabilities
 12




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 12. Recent Accounting Pronouncements, continued
  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
 13




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 PageNumberIntroduction
    
    
    15Executive Overview
    
    
    15Critical Accounting Policies
    
    
    16Consolidated Results of Operations
    
    
    17Segment Results
    
    
    20Liquidity and Capital Resources
    
    
    23
 14




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##### 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 May
9, 2008, and we undertake no duty to update this information. Shareholders and prospective
investors can find information filed with the SEC after May 9, 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 March 31,
2008, our laboratory network consisted of 36 laboratories serving all 50 states.
    
    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 March 31, 2008, our animal hospital network consisted of 456 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
  15




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##### Table of Contents



Acquisitions and Facilities
  Animal hospitals:Beginning of period
    
    
    438Acquisitions
    
    
    21Acquisitions relocated into our existing animal hospitals
    
    
    (1
    )Sold or closed
    
    
    (2
    )End of period
    
    
    456
 
 Critical Accounting Policies
  16




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##### Table of Contents



Consolidated Results of Operations
  Three Months EndedMarch 31,2008
    
    
    2007Revenue:Laboratory
    
    
    24.9
    %
    
    
    27.8
    %Animal hospital
    
    
    73.4
    
    
    
    70.6Medical technology
    
    
    4.5
    
    
    
    4.2Intercompany
    
    
    (2.8
    )
    
    
    (2.6
    )Total revenue
    
    
    100.0
    
    
    
    100.0Direct costs
    
    
    73.0
    
    
    
    71.4Gross profit
    
    
    27.0
    
    
    
    28.6Selling, general and administrative expense
    
    
    7.5
    
    
    
    8.1Operating income
    
    
    19.5
    
    
    
    20.5Interest expense, net
    
    
    2.5
    
    
    
    2.2Income before minority interest and provision for income taxes
    
    
    17.0
    
    
    
    18.3Minority interest in income of subsidiairies
    
    
    0.3
    
    
    
    0.3Income before provision for income taxes
    
    
    16.7
    
    
    
    18.0Provision for income taxes
    
    
    6.6
    
    
    
    7.3Net income
    
    
    10.1
    %
    
    
    10.7
    %
 Revenue
  Three Months Ended March 31,2008
    
    
    2007% of
    
    
    
    
    
    
    % of$
    
    
    Total
    
    
    $
    
    
    Total
    
    
    % ChangeLaboratory
    
    $
    76,729
    
    
    
    24.9
    %
    
    $
    73,597
    
    
    
    27.8
    %
    
    
    4.3
    %Animal hospital
    
    
    226,100
    
    
    
    73.4
    %
    
    
    187,171
    
    
    
    70.6
    %
    
    
    20.8
    %Medical technology
    
    
    13,849
    
    
    
    4.5
    %
    
    
    11,172
    
    
    
    4.2
    %
    
    
    24.0
    %Intercompany
    
    
    (8,846
    )
    
    
    (2.8
    )%
    
    
    (6,795
    )
    
    
    (2.6
    )%
    
    
    30.2
    %Total revenue
    
    $
    307,832
    
    
    
    100.0
    %
    
    $
    265,145
    
    
    
    100.0
    %
    
    
    16.1
    %
 Segment Results
 17




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##### Table of Contents



Gross Profit
  Three Months Ended March 31,2008
    
    
    2007Gross
    
    
    
    
    
    
    Gross$
    
    
    Margin
    
    
    $
    
    
    Margin
    
    
    % ChangeLaboratory
    
    $
    37,342
    
    
    
    48.7
    %
    
    $
    36,002
    
    
    
    48.9
    %
    
    
    3.7
    %Animal hospital
    
    
    41,137
    
    
    
    18.2
    %
    
    
    35,580
    
    
    
    19.0
    %
    
    
    15.6
    %Medical technology
    
    
    4,913
    
    
    
    35.5
    %
    
    
    4,311
    
    
    
    38.6
    %
    
    
    14.0
    %Intercompany
    
    
    (361
    )
    
    
    
    
    
    
    27Total gross profit
    
    $
    83,031
    
    
    
    27.0
    %
    
    $
    75,920
    
    
    
    28.6
    %
    
    
    9.4
    %
  Selling, General and Administrative Expense
  Three Months Ended March 31,2008
    
    
    2007% of
    
    
    
    
    
    
    % of$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    % ChangeLaboratory
    
    $
    4,951
    
    
    
    6.5
    %
    
    $
    4,967
    
    
    
    6.7
    %
    
    
    (0.3
    )%Animal hospital
    
    
    5,478
    
    
    
    2.4
    %
    
    
    5,560
    
    
    
    3.0
    %
    
    
    (1.5
    )%Medical technology
    
    
    3,434
    
    
    
    24.8
    %
    
    
    2,935
    
    
    
    26.3
    %
    
    
    17.0
    %Corporate
    
    
    9,315
    
    
    
    3.0
    %
    
    
    8,011
    
    
    
    3.0
    %
    
    
    16.3
    %Total SG&A
    
    $
    23,178
    
    
    
    7.5
    %
    
    $
    21,473
    
    
    
    8.1
    %
    
    
    7.9
    %
  Write-down and (Gain) Loss on Sale of Assets
  18




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##### Table of Contents



Operating Income
  Three Months Ended March 31,2008
    
    
    2007% of
    
    
    
    
    
    
    % of$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    % ChangeLaboratory
    
    $
    32,402
    
    
    
    42.2
    %
    
    $
    31,035
    
    
    
    42.2
    %
    
    
    4.4
    %Animal hospital
    
    
    35,852
    
    
    
    15.9
    %
    
    
    29,898
    
    
    
    16.0
    %
    
    
    19.9
    %Medical technology
    
    
    1,459
    
    
    
    10.5
    %
    
    
    1,376
    
    
    
    12.3
    %
    
    
    6.0
    %Corporate
    
    
    (9,315
    )
    
    
    (3.0
    )%
    
    
    (8,011
    )
    
    
    (3.0
    )%
    
    
    16.3
    %Intercompany
    
    
    (361
    )
    
    
    4.1
    %
    
    
    27
    
    
    
    (0.4
    )%
    
    
    (1,437.0
    )%Total operating income
    
    $
    60,037
    
    
    
    19.5
    %
    
    $
    54,325
    
    
    
    20.5
    %
    
    
    10.5
    %
  Interest Expense, Net
  Three Months EndedMarch 31,2008
    
    
    2007Interest expense (income):Senior term notes
    
    $
    7,013
    
    
    $
    6,405Interest rate hedging agreements
    
    
    782
    
    
    
    (489
    )Capital leases and other
    
    
    641
    
    
    
    350Amortization of debt costs
    
    
    116
    
    
    
    618,552
    
    
    
    6,327Interest income
    
    
    937
    
    
    
    554Total interest expense, net of interest income
    
    $
    7,615
    
    
    $
    5,773
  Provision for Income Taxes
  19




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##### Table of Contents



Segment Results
 Laboratory Segment
  Three Months Ended March 31,2008
    
    2007Gross
    
    
    
    
    
    Gross$
    
    Margin
    
    $
    
    Margin
    
    % ChangeRevenue
    
    $
    76,729
    
    
    
    
    
    
    $
    73,597
    
    
    
    
    
    
    
    4.3
    %Gross profit
    
    $
    37,342
    
    
    
    48.7
    %
    
    $
    36,002
    
    
    
    48.9
    %
    
    
    3.7
    %
  Three Months Ended March 31,2008
    
    
    2007
    
    
    % ChangeLaboratory Revenue:Internal growth:Number of requisitions (1)
    
    
    3,224
    
    
    
    3,118
    
    
    
    3.4
    %Average revenue per reqisition (2)
    
    $
    23.76
    
    
    $
    23.60
    
    
    
    0.7
    %Total internal revenue (1)
    
    $
    76,615
    
    
    $
    73,597
    
    
    
    4.1
    %Acquired revenue (3)
    
    
    114
    
    
    
    Total
    
    $
    76,729
    
    
    $
    73,597
    
    
    
    4.3
    %
 
 (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 from acquired laboratories for each day in the current
period for which we did not own the laboratories in the comparable prior year period.     20




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##### Table of Contents



Animal Hospital Segment
  Three
Months Ended March 31,2008
    
    2007Gross
    
    
    
    
    
    Gross$
    
    Margin
    
    $
    
    Margin
    
    % ChangeRevenue
    
    $
    226,100
    
    
    
    
    
    
    $
    187,171
    
    
    
    
    
    
    
    20.8
    %Gross profit
    
    $
    41,137
    
    
    
    18.2
    %
    
    $
    35,580
    
    
    
    19.0
    %
    
    
    15.6
    %
  Three Months Ended March 31,Animal Hospital Revenue:
    
    2008
    
    
    2007
    
    
    % ChangeSame-store facilities:Orders (1)(2)
    
    
    1,293
    
    
    
    1,326
    
    
    
    (2.5
    )%Average revenue per order (3)
    
    $
    144.23
    
    
    $
    138.01
    
    
    
    4.5
    %Same-store revenue (1)
    
    $
    186,490
    
    
    $
    183,001
    
    
    
    1.9
    %Net acquired revenue (4)
    
    
    39,610
    
    
    
    4,170Total
    
    $
    226,100
    
    
    $
    187,171
    
    
    
    20.8
    %
 
 (1)
    
    Same-store revenue and orders were calculated using animal hospital operating results,
adjusted to exclude the operating results for newly acquired animal hospitals that we did not
own as of the beginning of the comparable period in the prior 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 January 1, 2008 for the above 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.   21




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##### Table of Contents



Medical Technology Segment
  Three Months Ended March 31,2008
    
    2007Gross
    
    
    
    
    
    Gross$
    
    Margin
    
    $
    
    Margin
    
    % ChangeRevenue
    
    $
    13,849
    
    
    
    
    
    
    $
    11,172
    
    
    
    
    
    
    
    24.0
    %Gross profit
    
    $
    4,913
    
    
    
    35.5
    %
    
    $
    4,311
    
    
    
    38.6
    %
    
    
    14.0
    %
    Intercompany Revenue
  22




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##### Table of Contents



Liquidity and Capital Resources
 Introduction
     Future Cash Flows
 Short-term
   Long-term
   23




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##### Table of Contents



Debt Related Covenants
    Historical Cash Flows
  Three Months EndedMarch 31,2008
    
    
    2007Cash provided by (used in):Operating activities
    
    $
    48,275
    
    
    $
    44,015Investing activities
    
    
    (71,278
    )
    
    
    (50,333
    )Financing activities
    
    
    (1,619
    )
    
    
    (541
    )Decrease in cash and cash equivalents
    
    
    (24,622
    )
    
    
    (6,859
    )Cash and cash equivalents at beginning of period
    
    
    110,866
    
    
    
    45,104Cash and cash equivalents at end of period
    
    $
    86,244
    
    
    $
    38,245
 Cash Flows from Operating Activities
  24




---



##### Table of Contents



Cash Flows from Investing Activities
  Three Months EndedMarch 31,Investing Cash Flows:
    
    2008
    
    
    2007
    
    
    VarianceAcquisition of independent animal
hospitals
    
    $
    (45,789
    )
    
    $
    (31,092
    )
    
    $
    (14,697
    )(1)Other
    
    
    (2,037
    )
    
    
    (1,111
    )
    
    
    (926
    )Total cash used for acquisitions
    
    
    (47,826
    )
    
    
    (32,203
    )
    
    
    (15,623
    )Property and equipment additions
    
    
    (9,463
    )
    
    
    (11,875
    )
    
    
    2,412
    (2)Real estate acquired with acquisitions
    
    
    (3,612
    )
    
    
    (7,929
    )
    
    
    4,317
    (3)Proceeds from sale of assets
    
    
    1,747
    
    
    
    1,564
    
    
    
    183Other
    
    
    (12,124
    )
    
    
    110
    
    
    
    (12,234
    )(4)Net cash used in investing activities
    
    $
    (71,278
    )
    
    $
    (50,333
    )
    
    $
    (20,945
    )
 
 (1)
    
    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.(2)
    
    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.(3)
    
    The decrease in cash used to acquire real estate was due primarily to a decline in the number
of favorable opportunities presented.(4)
    
    The increase in other investing cash flows was due primarily to certain investments in
related businesses. Cash Flows from Financing Activities
  Three Months EndedMarch 31,Financing Cash Flows:
    
    2008
    
    
    2007
    
    
    VarianceRepayment of long-term obligations
    
    $
    (1,966
    )
    
    $
    (2,302
    )
    
    $
    336Proceeds from stock options exercises
    
    
    214
    
    
    
    839
    
    
    
    (625
    )(1)Excess tax benefits from stock options
    
    
    133
    
    
    
    922
    
    
    
    (789
    )(1)Net cash used in financing activities
    
    $
    (1,619
    )
    
    $
    (541
    )
    
    $
    (1,078
    )
 
 (1)
    
    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. Off-Balance Sheet Arrangements
  Interest Rate Swap Agreements
  25




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##### Table of Contents



Fixed interest rate
    
    
    4.07%
    
    
    
    3.98%
    
    
    
    5.51%
    
    
    
    4.95%
    
    
    
    5.34%
    
    
    
    2.64%Notional amount (in
millions)
    
    
    $50.0
    
    
    
    $50.0
    
    
    
    $50.0
    
    
    
    $75.0
    
    
    
    $100.0
    
    
    
    $100.0Effective date
    
    
    5/26/2005
    
    
    
    6/2/2005
    
    
    
    6/20/2006
    
    
    
    4/30/2007
    
    
    
    6/11/2007
    
    
    
    2/12/2008Expiration date
    
    
    5/26/2008
    
    
    
    5/31/2008
    
    
    
    6/30/2009
    
    
    
    4/30/2009
    
    
    
    12/31/2009
    
    
    
    2/26/2010Counterparties
    
    Goldman Sachs
    
    Wells Fargo
    
    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
 Business Combinations
 26




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##### Table of Contents



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
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Fixed interest rate
    
    
    4.07%
    
    
    
    3.98%
    
    
    
    5.51%
    
    
    
    4.95%
    
    
    
    5.34%
    
    
    
    2.64%Notional amount (in
millions)
    
    
    $50.0
    
    
    
    $50.0
    
    
    
    $50.0
    
    
    
    $75.0
    
    
    
    $100.0
    
    
    
    $100.0Effective date
    
    
    5/26/2005
    
    
    
    6/2/2005
    
    
    
    6/20/2006
    
    
    
    4/30/2007
    
    
    
    6/11/2007
    
    
    
    2/12/2008Expiration date
    
    
    5/26/2008
    
    
    
    5/31/2008
    
    
    
    6/30/2009
    
    
    
    4/30/2009
    
    
    
    12/31/2009
    
    
    
    2/26/2010Counterparties
    
    Goldman Sachs
    
    Wells Fargo
    
    Goldman Sachs
    
    Wells Fargo
    
    Goldman Sachs
    
    Wells Fargo
 Form 10-K
  
 ITEM 4. CONTROLS AND PROCEDURES
  27




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##### Table of Contents



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
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 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.
 28




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##### Table of Contents



SIGNATURE
  Date: May 9, 2008
    By:
    /s/ Tomas W. FullerTomas W. FullerChief Financial Officer 29




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##### 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 30