##### 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 September 30, 2009
 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
  o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ




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##### 



VCA Antech, Inc.
Form 10-Q
September 30, 2009
  
 Table of Contents
 PageNumberPart I. Financial InformationItem 1. Financial Statements (Unaudited)Condensed, Consolidated Balance Sheets as of September 30, 2009 and
December 31, 2008
    
    1Condensed, Consolidated Income Statements for the Three and Nine Months
Ended September 30, 2009 and 2008
    
    2Condensed, Consolidated Statements of Equity for the Nine Months
Ended September 30, 2009 and 2008
    
    3Condensed, Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2009 and 2008
    
    4Notes to Condensed, Consolidated Financial Statements
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    33Item 4. Controls and Procedures
    
    33Part II. Other InformationItem 1. Legal Proceedings
    
    34Item 1A. Risk Factors
    
    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    34Item 3. Defaults Upon Senior Securities
    
    34Item 4. Submission of Matters to a Vote of Security Holders
    
    34Item 5. Other Information
    
    34Item 6. Exhibits
    
    34Signature
    
    35Exhibit Index
    
    36EX-31.1EX-31.2EX-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)
 September 30,
    
    
    December 31,2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    155,001
    
    
    $
    88,959Trade accounts receivable, less allowance for uncollectible accounts of $12,813
and $11,025 at September 30, 2009 and December 31, 2008, respectively
    
    
    49,439
    
    
    
    43,453Inventory
    
    
    31,100
    
    
    
    26,631Prepaid expenses and other
    
    
    20,671
    
    
    
    18,800Deferred income taxes
    
    
    17,364
    
    
    
    15,938Prepaid income taxes
    
    
    1,152
    
    
    
    5,287Total current assets
    
    
    274,727
    
    
    
    199,068Property and equipment, less accumulated depreciation and amortization of $159,141
and $138,431 at September 30, 2009 and December 31, 2008, respectively
    
    
    283,457
    
    
    
    263,443Goodwill
    
    
    970,274
    
    
    
    922,057Other intangible assets, net
    
    
    44,211
    
    
    
    35,645Notes receivable, net
    
    
    4,819
    
    
    
    12,893Deferred financing costs, net
    
    
    704
    
    
    
    1,067Other
    
    
    21,586
    
    
    
    14,865Total assets
    
    $
    1,599,778
    
    
    $
    1,449,038Liabilities and EquityCurrent liabilities:Current portion of long-term obligations
    
    $
    8,418
    
    
    $
    7,771Accounts payable
    
    
    28,958
    
    
    
    26,087Accrued payroll and related liabilities
    
    
    37,026
    
    
    
    42,840Other accrued liabilities
    
    
    48,291
    
    
    
    46,424Total current liabilities
    
    
    122,693
    
    
    
    123,122Long-term obligations, less current portion
    
    
    538,663
    
    
    
    544,860Deferred income taxes
    
    
    67,560
    
    
    
    47,331Other liabilities
    
    
    10,525
    
    
    
    9,890Total liabilities
    
    
    739,441
    
    
    
    725,203Commitments and contingencies:Preferred stock, par value $0.001, 11,000 shares authorized, none outstanding
    
    
    
    
    
    
    VCA Antech, Inc. stockholders equity:Common stock, par value $0.001, 175,000 shares authorized, 85,441 and 84,633
shares outstanding as of September 30, 2009 and December 31, 2008, respectively
    
    
    85
    
    
    
    85Additional paid-in capital
    
    
    330,549
    
    
    
    308,674Accumulated earnings
    
    
    514,658
    
    
    
    408,582Accumulated other comprehensive loss
    
    
    (1,482
    )
    
    
    (6,352
    )Total VCA Antech, Inc. stockholders equity
    
    
    843,810
    
    
    
    710,989Noncontrolling interest
    
    
    16,527
    
    
    
    12,846Total equity
    
    
    860,337
    
    
    
    723,835Total liabilities and equity
    
    $
    1,599,778
    
    
    $
    1,449,038
  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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    $
    338,562
    
    
    $
    332,035
    
    
    $
    999,288
    
    
    $
    974,301Direct costs
    
    
    247,422
    
    
    
    243,267
    
    
    
    728,095
    
    
    
    705,536Gross profit
    
    
    91,140
    
    
    
    88,768
    
    
    
    271,193
    
    
    
    268,765Selling, general and administrative expense
    
    
    25,258
    
    
    
    22,003
    
    
    
    71,652
    
    
    
    67,990Write-off of internal-use software
    
    
    
    
    
    
    
    
    
    
    5,271
    
    
    
    Net loss on sale and disposal of assets
    
    
    409
    
    
    
    90
    
    
    
    333
    
    
    
    33Operating income
    
    
    65,473
    
    
    
    66,675
    
    
    
    193,937
    
    
    
    200,742Interest expense, net
    
    
    4,808
    
    
    
    6,709
    
    
    
    16,652
    
    
    
    21,369Other (income) expense
    
    
    (1
    )
    
    
    88
    
    
    
    (131
    )
    
    
    (44
    )Income before provision for income taxes
    
    
    60,666
    
    
    
    59,878
    
    
    
    177,416
    
    
    
    179,417Provision for income taxes
    
    
    23,180
    
    
    
    23,000
    
    
    
    68,081
    
    
    
    68,979Net income
    
    
    37,486
    
    
    
    36,878
    
    
    
    109,335
    
    
    
    110,438Net income attributable to noncontrolling interests
    
    
    1,125
    
    
    
    1,104
    
    
    
    3,259
    
    
    
    3,145Net income attributable to VCA Antech, Inc.
    
    $
    36,361
    
    
    $
    35,774
    
    
    $
    106,076
    
    
    $
    107,293Basic earnings per share
    
    $
    0.43
    
    
    $
    0.42
    
    
    $
    1.25
    
    
    $
    1.27Diluted earnings per share
    
    $
    0.42
    
    
    $
    0.42
    
    
    $
    1.23
    
    
    $
    1.25Weighted-average shares outstanding
for basic earnings per share
    
    
    85,217
    
    
    
    84,463
    
    
    
    84,909
    
    
    
    84,394Weighted-average shares outstanding
for diluted earnings per share
    
    
    86,431
    
    
    
    85,789
    
    
    
    85,893
    
    
    
    85,789
  2




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
 
 Condensed, Consolidated Statements of Equity
(Unaudited)
 (In thousands)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    NoncontrollingShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    (Loss) Income
    
    
    Interest
    
    
    TotalBalances, December 31, 2007
    
    
    84,335
    
    
    $
    84
    
    
    $
    296,037
    
    
    $
    275,598
    
    
    $
    (3,335
    )
    
    $
    10,207
    
    
    $
    578,591Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,293
    
    
    
    
    
    
    
    3,145
    
    
    
    110,438Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (224
    )
    
    
    
    
    
    
    (224
    )Unrealized loss on foreign currency,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92
    )
    
    
    
    
    
    
    (92
    )Unrealized loss on hedging
instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,175
    )
    
    
    
    
    
    
    (1,175
    )Losses on hedging instruments
reclassified to income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,461
    
    
    
    
    
    
    
    2,461Formation of noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,241
    
    
    
    3,241Distribution to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,797
    )
    
    
    (2,797
    )Purchase of noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (374
    )
    
    
    (374
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    5,309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,309Stock option activity and awards
    
    
    296
    
    
    
    1
    
    
    
    3,574
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,575Tax benefit from stock options and
awards
    
    
    
    
    
    
    
    
    
    
    1,846
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,846Balances, September 30, 2008
    
    
    84,631
    
    
    $
    85
    
    
    $
    306,766
    
    
    $
    382,891
    
    
    $
    (2,365
    )
    
    $
    13,422
    
    
    $
    700,799Balances, December 31, 2008
    
    
    84,633
    
    
    $
    85
    
    
    $
    308,674
    
    
    $
    408,582
    
    
    $
    (6,352
    )
    
    $
    12,846
    
    
    $
    723,835Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,076
    
    
    
    
    
    
    
    3,259
    
    
    
    109,335Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    592
    
    
    
    
    
    
    
    592Unrealized gain on foreign currency,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    288
    
    
    
    
    
    
    
    288Unrealized loss on hedging
instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (801
    )
    
    
    
    
    
    
    (801
    )Losses on hedging instruments
reclassified to income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,791
    
    
    
    
    
    
    
    4,791Formation of noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,440
    
    
    
    3,440Distribution to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,018
    )
    
    
    (3,018
    )Restricted stock unit grant
    
    
    
    
    
    
    
    
    
    
    1,941
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,941Share-based compensation
    
    
    
    
    
    
    
    
    
    
    5,940
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,940Stock option activity and awards
    
    
    808
    
    
    
    
    
    
    
    13,110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,110Stock repurchases
    
    
    
    
    
    
    
    
    
    
    (561
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (561
    )Tax benefit from stock options and
awards
    
    
    
    
    
    
    
    
    
    
    1,445
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,445Balances, September 30, 2009
    
    
    85,441
    
    
    $
    85
    
    
    $
    330,549
    
    
    $
    514,658
    
    
    $
    (1,482
    )
    
    $
    16,527
    
    
    $
    860,337
  3




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
 
 Condensed, Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 Nine Months EndedSeptember 30,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    109,335
    
    
    $
    110,438Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    28,986
    
    
    
    23,762Amortization of debt issue costs
    
    
    363
    
    
    
    351Provision for uncollectible accounts
    
    
    5,075
    
    
    
    3,671Net loss on sale and disposal of assets
    
    
    333
    
    
    
    33Share-based compensation
    
    
    5,940
    
    
    
    5,309Deferred income taxes
    
    
    16,057
    
    
    
    9,894Excess tax benefit from exercise of stock options
    
    
    (591
    )
    
    
    (1,846
    )Write-off of internal-use software
    
    
    5,271
    
    
    
    Other
    
    
    (299
    )
    
    
    192Changes in operating assets and liabilities:Accounts receivable
    
    
    (8,312
    )
    
    
    (5,736
    )Inventory, prepaid expenses and other assets
    
    
    (7,820
    )
    
    
    (5,972
    )Accounts payable and other accrued liabilities
    
    
    742
    
    
    
    (438
    )Accrued payroll and related liabilities
    
    
    (4,339
    )
    
    
    (3,553
    )Income taxes
    
    
    5,580
    
    
    
    9,457Net cash provided by operating activities
    
    
    156,321
    
    
    
    145,562Cash flows from investing activities:Business acquisitions, net of cash acquired
    
    
    (51,853
    )
    
    
    (89,775
    )Real estate acquired in connection with business acquisitions
    
    
    (3,828
    )
    
    
    (15,063
    )Property and equipment additions
    
    
    (38,522
    )
    
    
    (39,764
    )Proceeds from sale of assets
    
    
    123
    
    
    
    1,774Other
    
    
    (440
    )
    
    
    (15,024
    )Net cash used in investing activities
    
    
    (94,520
    )
    
    
    (157,852
    )Cash flows from financing activities:Repayment of long-term obligations
    
    
    (5,898
    )
    
    
    (5,852
    )Distributions to noncontrolling interest partners
    
    
    (3,018
    )
    
    
    (2,797
    )Proceeds from issuance of common stock under stock option plans
    
    
    13,110
    
    
    
    3,574Excess tax benefit from exercise of stock options
    
    
    591
    
    
    
    1,846Stock repurchases
    
    
    (561
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    4,224
    
    
    
    (3,229
    )Effect of currency exchange rate changes on cash and cash equivalents
    
    
    17
    
    
    
    (44
    )Increase (decrease) in cash and cash equivalents
    
    
    66,042
    
    
    
    (15,563
    )Cash and cash equivalents at beginning of period
    
    
    88,959
    
    
    
    110,866Cash and cash equivalents at end of period
    
    $
    155,001
    
    
    $
    95,303Supplemental disclosures of cash flow information:Interest paid
    
    $
    16,329
    
    
    $
    23,449Income taxes paid
    
    $
    46,444
    
    
    $
    49,628Supplemental schedule of non-cash investing and financing activities:Detail of acquisitions:Fair value of assets acquired
    
    $
    72,303
    
    
    $
    92,930Cash paid for acquisitions
    
    
    (48,042
    )
    
    
    (88,136
    )Non-cash note conversion to equity interest in subsidiary
    
    
    (5,700
    )
    
    
    Contingent consideration
    
    
    (712
    )
    
    
    Liabilities assumed
    
    $
    17,849
    
    
    $
    4,794
  4




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
 
 Notes to Condensed, Consolidated Financial Statements
 September 30, 2009
 (Unaudited)
 1. Nature of Operations
     2. Basis of Presentation
     3. Goodwill and Other Intangible Assets
  5




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
 3. Goodwill and Other Intangible Assets, continued
  Goodwill
  Animal
    
    
    
    
    
    
    MedicalHospital
    
    
    Laboratory
    
    
    Technology
    
    
    TotalBalance as of December 31, 2008
    
    $
    807,203
    
    
    $
    95,694
    
    
    $
    19,160
    
    
    $
    922,057Goodwill acquired
    
    
    32,484
    
    
    
    430
    
    
    
    11,127
    
    
    
    44,041Goodwill related to noncontrolling interests
    
    
    3,440
    
    
    
    
    
    
    
    
    
    
    
    3,440Other (1)
    
    
    583
    
    
    
    153
    
    
    
    
    
    
    
    736Balance as of September 30, 2009
    
    $
    843,710
    
    
    $
    96,277
    
    
    $
    30,287
    
    
    $
    970,274
 
 (1)
    
    Other includes purchase-price adjustments, buy-outs, earn-out payments and currency
translation adjustments. Other Intangible Assets
  As of September 30, 2009
    
    
    As of December 31, 2008Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountNoncontractual customer
relationships
    
    $
    36,268
    
    
    $
    (6,817
    )
    
    $
    29,451
    
    
    $
    26,412
    
    
    $
    (3,689
    )
    
    $
    22,723Covenants not-to-compete
    
    
    14,532
    
    
    
    (7,335
    )
    
    
    7,197
    
    
    
    16,195
    
    
    
    (8,001
    )
    
    
    8,194Favorable lease asset
    
    
    4,119
    
    
    
    (431
    )
    
    
    3,688
    
    
    
    4,689
    
    
    
    (629
    )
    
    
    4,060Trademarks
    
    
    3,316
    
    
    
    (395
    )
    
    
    2,921
    
    
    
    699
    
    
    
    (251
    )
    
    
    448Technology
    
    
    2,209
    
    
    
    (1,297
    )
    
    
    912
    
    
    
    1,270
    
    
    
    (1,076
    )
    
    
    194Client lists
    
    
    103
    
    
    
    (61
    )
    
    
    42
    
    
    
    84
    
    
    
    (58
    )
    
    
    26Total
    
    $
    60,547
    
    
    $
    (16,336
    )
    
    $
    44,211
    
    
    $
    49,349
    
    
    $
    (13,704
    )
    
    $
    35,645
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Aggregate amortization expense
    
    $
    2,013
    
    
    $
    1,792
    
    
    $
    5,643
    
    
    $
    4,739
 6




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
 3. Goodwill and Other Intangible Assets, continued
  Remainder of 2009
    
    $
    2,1552010
    
    
    8,3212011
    
    
    7,4772012
    
    
    6,5112013
    
    
    5,354Thereafter
    
    
    13,942Total (1)
    
    $
    43,760
 
 (1)
    
    This excludes $451,000 of intangible assets that are not subject to amortization. 4. Noncontrolling Interests
  5. Other Accrued Liabilities
  September 30,
    
    
    December 31,2009
    
    
    2008Accrued workers compensation insurance
    
    $
    3,934
    
    
    $
    4,436Deferred revenue
    
    
    11,397
    
    
    
    7,303Interest rate swap liability
    
    
    2,278
    
    
    
    8,899Other
    
    
    30,682
    
    
    
    25,786$
    48,291
    
    
    $
    46,424
 6. Interest Rate Swap Agreements
  ,
 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
      Interest Rate Swap AgreementsFixed interest rate
    
    
    5.34%
    
    
    
    2.64%Notional amount (in millions)
    
    
    $ 100.0
    
    
    
    $ 100.0Effective date
    
    
    6/11/2007
    
    
    
    2/12/2008Expiration date
    
    
    12/31/2009
    
    
    
    2/26/2010Counterparty
    
    Goldman Sachs
    
    
    Wells FargoQualifies for hedge accounting
    
    Yes
    
    Yes
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Cash paid (1)
    
    $
    1,895
    
    
    $
    1,639
    
    
    $
    7,867
    
    
    $
    4,030Recognized loss (gain) from ineffectiveness (2)
    
    $
    1
    
    
    $
    12
    
    
    $
    (70
    )
    
    $
    (24
    )
 
 (1)
    
    Our interest rate swap agreements effectively convert a certain amount of our variable-rate
debt under our senior credit facility to fixed-rate debt in an attempt to mitigate interest
rate risk. The above table depicts both cash payments to and receipts from the counterparties
on our swap agreements. These payments and receipts are offset by a corresponding decrease or
increase in interest paid on our variable-rate debt under our senior credit facility. 8




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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
 (2)
    
    These recognized losses and gains are included in other income in our condensed, consolidated
income statements. 7. Fair Value Measurements
   
    
    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.
 Fair Value of Financial Instruments
   9




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
 7. Fair Value Measurements, continued
 Cash and Cash Equivalents.
 Receivables, Less Allowance for Doubtful Accounts, Accounts Payable and Certain Other Accrued
Liabilities.
 Long-Term Debt.
  As of September 30, 2009
    
    
    As of December 31, 2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueVariable-rate long-term debt
    
    $
    518,237
    
    
    $
    511,912
    
    
    $
    522,282
    
    
    $
    499,025
 Interest Rate Swap Agreements
  Basis of Fair Value MeasurementQuoted Prices
    
    
    Significant Other
    
    
    SignificantIn Active Markets
    
    
    Observable
    
    
    Unobservablefor Identical Items
    
    
    Inputs
    
    
    InputsBalance
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)At September 30, 2009Other accrued liabilities
    
    $
    2,278
    
    
    $
    
    
    
    $
    2,278
    
    
    $
    At December 31, 2008Other accrued liabilities
    
    $
    8,899
    
    
    $
    
    
    
    $
    8,899
    
    
    $
    
 8. Share-Based Compensation
 Stock Option Activity
   10




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
 8. Share-Based Compensation, continued
   Non-Vested Stock Activity
     Weighted-Average FairValueShares
    
    
    Per ShareOutstanding at December 31, 2008
    
    
    724,235
    
    
    $
    31.52Granted
    
    
    12,096
    
    
    $
    24.80Vested
    
    
    (90,660
    )
    
    $
    32.89Forfeited/Canceled
    
    
    (10,875
    )
    
    $
    34.12Outstanding at September 30, 2009
    
    
    634,796
    
    
    $
    31.15
 Restricted Stock Unit Activity
  11




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
 9. Calculation of Earnings per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
attributable to VCA Antech, Inc.
    
    $
    36,361
    
    
    $
    35,774
    
    
    $
    106,076
    
    
    $
    107,293Weighted-average common shares outstanding:Basic
    
    
    85,217
    
    
    
    84,463
    
    
    
    84,909
    
    
    
    84,394Effect of dilutive potential common shares:Stock options
    
    
    951
    
    
    
    1,184
    
    
    
    779
    
    
    
    1,271Non-vested shares
    
    
    263
    
    
    
    142
    
    
    
    205
    
    
    
    124Diluted
    
    
    86,431
    
    
    
    85,789
    
    
    
    85,893
    
    
    
    85,789Basic earnings per share
    
    $
    0.43
    
    
    $
    0.42
    
    
    $
    1.25
    
    
    $
    1.27Diluted earnings per share
    
    $
    0.42
    
    
    $
    0.42
    
    
    $
    1.23
    
    
    $
    1.25
   10. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    37,486
    
    
    $
    36,878
    
    
    $
    109,335
    
    
    $
    110,438Other comprehensive income:Foreign currency translation adjustments
    
    
    415
    
    
    
    (206
    )
    
    
    592
    
    
    
    (224
    )Unrealized gain (loss) on foreign currency
    
    
    316
    
    
    
    (92
    )
    
    
    473
    
    
    
    (92
    )Tax expense
    
    
    (124
    )
    
    
    
    
    
    
    (185
    )
    
    
    Unrealized loss on hedging instruments
    
    
    (245
    )
    
    
    (218
    )
    
    
    (1,315
    )
    
    
    (1,983
    )Tax benefit
    
    
    96
    
    
    
    129
    
    
    
    514
    
    
    
    808Losses on hedging instruments reclassified to income
    
    
    1,895
    
    
    
    1,639
    
    
    
    7,867
    
    
    
    4,030Tax benefit
    
    
    (741
    )
    
    
    (639
    )
    
    
    (3,076
    )
    
    
    (1,569
    )Other comprehensive income
    
    
    1,612
    
    
    
    613
    
    
    
    4,870
    
    
    
    970Total comprehensive income
    
    
    39,098
    
    
    
    37,491
    
    
    
    114,205
    
    
    
    111,408Comprehensive income attributable to noncontrolling interests
    
    
    1,125
    
    
    
    1,104
    
    
    
    3,259
    
    
    
    3,145Comprehensive
income attributable to VCA Antech, Inc.
    
    $
    37,973
    
    
    $
    36,387
    
    
    $
    110,946
    
    
    $
    108,263
 12




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
 11. Lines of Business
    Animal
    
    
    
    
    
    
    Medical
    
    
    
    
    
    
    IntercompanyHospital
    
    
    Laboratory
    
    
    Technology
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalThree Months Ended September 30, 2009External revenue
    
    $
    257,385
    
    
    $
    69,504
    
    
    $
    11,673
    
    
    $
    
    
    
    $
    
    
    
    $
    338,562Intercompany revenue
    
    
    
    
    
    
    7,958
    
    
    
    2,059
    
    
    
    
    
    
    
    (10,017
    )
    
    
    Total revenue
    
    
    257,385
    
    
    
    77,462
    
    
    
    13,732
    
    
    
    
    
    
    
    (10,017
    )
    
    
    338,562Direct costs
    
    
    206,172
    
    
    
    41,636
    
    
    
    9,024
    
    
    
    
    
    
    
    (9,410
    )
    
    
    247,422Gross profit
    
    
    51,213
    
    
    
    35,826
    
    
    
    4,708
    
    
    
    
    
    
    
    (607
    )
    
    
    91,140Selling, general and administrative expense
    
    
    5,162
    
    
    
    5,621
    
    
    
    4,316
    
    
    
    10,159
    
    
    
    
    
    
    
    25,258Net loss on sale and disposal of assets
    
    
    400
    
    
    
    1
    
    
    
    1
    
    
    
    7
    
    
    
    
    
    
    
    409Operating income (loss)
    
    $
    45,651
    
    
    $
    30,204
    
    
    $
    391
    
    
    $
    (10,166
    )
    
    $
    (607
    )
    
    $
    65,473Depreciation and amortization
    
    $
    6,777
    
    
    $
    2,364
    
    
    $
    616
    
    
    $
    603
    
    
    $
    (214
    )
    
    $
    10,146Capital expenditures
    
    $
    10,571
    
    
    $
    2,388
    
    
    $
    347
    
    
    $
    557
    
    
    $
    (549
    )
    
    $
    13,314Three Months Ended September 30, 2008External revenue
    
    $
    253,251
    
    
    $
    69,035
    
    
    $
    9,749
    
    
    $
    
    
    
    $
    
    
    
    $
    332,035Intercompany revenue
    
    
    
    
    
    
    8,030
    
    
    
    2,797
    
    
    
    
    
    
    
    (10,827
    )
    
    
    Total revenue
    
    
    253,251
    
    
    
    77,065
    
    
    
    12,546
    
    
    
    
    
    
    
    (10,827
    )
    
    
    332,035Direct costs
    
    
    202,965
    
    
    
    41,792
    
    
    
    8,224
    
    
    
    
    
    
    
    (9,714
    )
    
    
    243,267Gross profit
    
    
    50,286
    
    
    
    35,273
    
    
    
    4,322
    
    
    
    
    
    
    
    (1,113
    )
    
    
    88,768Selling, general and administrative expense
    
    
    5,643
    
    
    
    5,178
    
    
    
    3,120
    
    
    
    8,062
    
    
    
    
    
    
    
    22,003Net loss on sale and disposal of assets
    
    
    25
    
    
    
    3
    
    
    
    2
    
    
    
    60
    
    
    
    
    
    
    
    90Operating income (loss)
    
    $
    44,618
    
    
    $
    30,092
    
    
    $
    1,200
    
    
    $
    (8,122
    )
    
    $
    (1,113
    )
    
    $
    66,675Depreciation and amortization
    
    $
    5,816
    
    
    $
    1,923
    
    
    $
    404
    
    
    $
    446
    
    
    $
    (152
    )
    
    $
    8,437Capital expenditures
    
    $
    11,327
    
    
    $
    2,777
    
    
    $
    46
    
    
    $
    756
    
    
    $
    (685
    )
    
    $
    14,221
 13




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
 11. Lines of Business, continued
 Animal
    
    
    
    
    
    
    Medical
    
    
    
    
    
    
    IntercompanyHospital
    
    
    Laboratory
    
    
    Technology
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalNine Months Ended September 30, 2009External revenue
    
    $
    757,030
    
    
    $
    213,354
    
    
    $
    28,904
    
    
    $
    
    
    
    $
    
    
    
    $
    999,288Intercompany revenue
    
    
    
    
    
    
    24,408
    
    
    
    4,614
    
    
    
    
    
    
    
    (29,022
    )
    
    
    Total revenue
    
    
    757,030
    
    
    
    237,762
    
    
    
    33,518
    
    
    
    
    
    
    
    (29,022
    )
    
    
    999,288Direct costs
    
    
    609,520
    
    
    
    124,900
    
    
    
    21,452
    
    
    
    
    
    
    
    (27,777
    )
    
    
    728,095Gross profit
    
    
    147,510
    
    
    
    112,862
    
    
    
    12,066
    
    
    
    
    
    
    
    (1,245
    )
    
    
    271,193Selling, general and administrative expense
    
    
    15,924
    
    
    
    16,832
    
    
    
    10,058
    
    
    
    28,838
    
    
    
    
    
    
    
    71,652Write-off of internal-use software
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,271
    
    
    
    
    
    
    
    5,271Net loss on sale and disposal of assets
    
    
    270
    
    
    
    28
    
    
    
    7
    
    
    
    28
    
    
    
    
    
    
    
    333Operating income (loss)
    
    $
    131,316
    
    
    $
    96,002
    
    
    $
    2,001
    
    
    $
    (34,137
    )
    
    $
    (1,245
    )
    
    $
    193,937Depreciation and amortization
    
    $
    19,636
    
    
    $
    6,827
    
    
    $
    1,365
    
    
    $
    1,759
    
    
    $
    (601
    )
    
    $
    28,986Capital expenditures
    
    $
    29,447
    
    
    $
    6,506
    
    
    $
    665
    
    
    $
    3,235
    
    
    $
    (1,331
    )
    
    $
    38,522Nine Months Ended September 30, 2008External revenue
    
    $
    730,352
    
    
    $
    211,684
    
    
    $
    32,265
    
    
    $
    
    
    
    $
    
    
    
    $
    974,301Intercompany revenue
    
    
    
    
    
    
    23,950
    
    
    
    5,968
    
    
    
    
    
    
    
    (29,918
    )
    
    
    Total revenue
    
    
    730,352
    
    
    
    235,634
    
    
    
    38,233
    
    
    
    
    
    
    
    (29,918
    )
    
    
    974,301Direct costs
    
    
    586,309
    
    
    
    122,145
    
    
    
    24,776
    
    
    
    
    
    
    
    (27,694
    )
    
    
    705,536Gross profit
    
    
    144,043
    
    
    
    113,489
    
    
    
    13,457
    
    
    
    
    
    
    
    (2,224
    )
    
    
    268,765Selling, general and administrative expense
    
    
    16,815
    
    
    
    15,314
    
    
    
    9,502
    
    
    
    26,359
    
    
    
    
    
    
    
    67,990Net (gain) loss on sale and disposal of assets
    
    
    (64
    )
    
    
    3
    
    
    
    22
    
    
    
    72
    
    
    
    
    
    
    
    33Operating income (loss)
    
    $
    127,292
    
    
    $
    98,172
    
    
    $
    3,933
    
    
    $
    (26,431
    )
    
    $
    (2,224
    )
    
    $
    200,742Depreciation and amortization
    
    $
    16,234
    
    
    $
    5,378
    
    
    $
    1,205
    
    
    $
    1,359
    
    
    $
    (414
    )
    
    $
    23,762Capital expenditures
    
    $
    30,473
    
    
    $
    8,192
    
    
    $
    303
    
    
    $
    2,198
    
    
    $
    (1,402
    )
    
    $
    39,764At September 30, 2009Total assets
    
    $
    1,129,515
    
    
    $
    206,937
    
    
    $
    73,394
    
    
    $
    200,018
    
    
    $
    (10,086
    )
    
    $
    1,599,778At December 31, 2008Total assets
    
    $
    1,069,963
    
    
    $
    194,164
    
    
    $
    42,839
    
    
    $
    150,891
    
    
    $
    (8,819
    )
    
    $
    1,449,038
 14




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
 12. Commitments and Contingencies
  a. Earn-Out Payments
  b. Other Contingencies
  13. Recent Accounting Pronouncements
    15




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
 13. Recent Accounting Pronouncements, continued
  Measuring
Liabilities at Fair Value
 Multiple-Deliverable Revenue Arrangements
 Certain Revenue Arrangements that Include
Software Elements
 16




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 PageNumberIntroduction
    
    
    18Executive Overview
    
    
    18Critical Accounting Policies
    
    
    20Consolidated Results of Operations
    
    
    21Segment Results
    
    
    22Liquidity and Capital Resources
    
    
    27Recent Accounting Pronouncements
    
    
    31
 17




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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
November 6, 2009, and we undertake no duty to update this information. Shareholders and
prospective investors can find information filed with the SEC after November 6, 2009 at our website
at http://investor.vcaantech.com or at the SECs website at www.sec.gov
  
    
    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 September 30, 2009, our animal hospital network consisted of 482
animal hospitals in 40 states.
    
    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 September
30, 2009, our Laboratory network consisted of 46 laboratories serving all 50 states and
certain areas in Canada.
    
    Our Medical Technology segment sells digital radiography and ultrasound imaging
equipment, related computer hardware, software and ancillary services.
   
 Executive Overview
  18




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##### Table of Contents



Acquisitions and Facilities
  Animal Hospitals:Beginning of period
    
    
    471Acquisitions
    
    
    18Acquisitions relocated into our existing animal hospitals
    
    
    (4
    )Closed
    
    
    (3
    )End of period
    
    
    482Laboratories:Beginning of period
    
    
    44Acquisitions
    
    
    2Acquisitions relocated into our existing laboratories
    
    
    (2
    )Created
    
    
    2End of period
    
    
    46
  Purchase Price:Cash (1)
    
    $
    35,559Non-cash note conversion to equity interest in subsidiary
    
    
    5,700Contingent consideration
    
    
    712Total
    
    $
    41,971Allocation of the Purchase Price:Tangible assets
    
    $
    7,450Identifiable intangible assets
    
    
    6,906Goodwill (2)
    
    
    32,914Other liabilities assumed
    
    
    (5,299
    )Total
    
    $
    41,971
 
 (1)
    
    See the Cash Flows from Investing Activitiessection in the Liquidity and Capital Resources
discussion for reconciliation of cash paid for acquisitions per this schedule to the
condensed, consolidated statement of cash flows.(2)
    
    We expect that $19.3 million of the goodwill recorded for these acquisitions as of September
30, 2009 will be fully deductible for income tax purposes.  19




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##### Table of Contents



Acquisition of Eklin Medical Systems, Inc.
  Purchase Price:Cash (1)
    
    $
    12,483Total
    
    $
    12,483Allocation of the Purchase Price:Tangible assets
    
    $
    6,555Identifiable intangible assets
    
    
    7,351Goodwill (1)
    
    
    11,127Other liabilities assumed
    
    
    (12,550
    )Total
    
    $
    12,483
 
 (1)
    
    See the Cash Flows from Investing Activitiessection in the Liquidity and Capital Resources
discussion for reconciliation of cash paid for acquisitions per this schedule to the
condensed, consolidated statement of cash flows.(2)
    
    We expect that $2.9 million of the goodwill recorded for this acquisition as of September 30,
2009 will be fully deductible for income tax purposes.   
 Critical Accounting Policies
  Valuation of Goodwill
  20




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##### Table of Contents



Consolidated Results of Operations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue:Animal Hospital
    
    
    76.0
    %
    
    
    76.3
    %
    
    
    75.8
    %
    
    
    75.0
    %Laboratory
    
    
    22.9
    
    
    
    23.2
    
    
    
    23.8
    
    
    
    24.2Medical Technology
    
    
    4.1
    
    
    
    3.8
    
    
    
    3.3
    
    
    
    3.9Intercompany
    
    
    (3.0
    )
    
    
    (3.3
    )
    
    
    (2.9
    )
    
    
    (3.1
    )Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Direct costs
    
    
    73.1
    
    
    
    73.3
    
    
    
    72.9
    
    
    
    72.4Gross profit
    
    
    26.9
    
    
    
    26.7
    
    
    
    27.1
    
    
    
    27.6Selling, general and administrative expense
    
    
    7.5
    
    
    
    6.6
    
    
    
    7.2
    
    
    
    7.0Write-off of internal-use software
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    Net loss on sale and disposal of assets
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    Operating income
    
    
    19.3
    
    
    
    20.1
    
    
    
    19.4
    
    
    
    20.6Interest expense, net
    
    
    1.4
    
    
    
    2.1
    
    
    
    1.6
    
    
    
    2.2Income before provision for income taxes
    
    
    17.9
    
    
    
    18.0
    
    
    
    17.8
    
    
    
    18.4Provision for income taxes
    
    
    6.8
    
    
    
    6.9
    
    
    
    6.9
    
    
    
    7.1Net income
    
    
    11.1
    
    
    
    11.1
    
    
    
    10.9
    
    
    
    11.3Net income attributable to noncontrolling interests
    
    
    0.4
    
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3Net income
attributable to VCA Antech, Inc.
    
    
    10.7
    %
    
    
    10.8
    %
    
    
    10.6
    %
    
    
    11.0
    %
 Revenue
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008% of
    
    
    
    
    
    
    % of
    
    
    %
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    %$
    
    
    Total
    
    
    $
    
    
    Total
    
    
    Change
    
    
    $
    
    
    Total
    
    
    $
    
    
    Total
    
    
    ChangeAnimal Hospital
    
    $
    257,385
    
    
    
    76.0
    %
    
    $
    253,251
    
    
    
    76.3
    %
    
    
    1.6
    %
    
    $
    757,030
    
    
    
    75.8
    %
    
    $
    730,352
    
    
    
    75.0
    %
    
    
    3.7
    %Laboratory
    
    
    77,462
    
    
    
    22.9
    %
    
    
    77,065
    
    
    
    23.2
    %
    
    
    0.5
    %
    
    
    237,762
    
    
    
    23.8
    %
    
    
    235,634
    
    
    
    24.2
    %
    
    
    0.9
    %Medical Technology
    
    
    13,732
    
    
    
    4.1
    %
    
    
    12,546
    
    
    
    3.8
    %
    
    
    9.5
    %
    
    
    33,518
    
    
    
    3.3
    %
    
    
    38,233
    
    
    
    3.9
    %
    
    
    (12.3
    )%Intercompany
    
    
    (10,017
    )
    
    
    (3.0
    )%
    
    
    (10,827
    )
    
    
    (3.3
    )%
    
    
    (7.5
    )%
    
    
    (29,022
    )
    
    
    (2.9
    )%
    
    
    (29,918
    )
    
    
    (3.1
    )%
    
    
    (3.0
    )%Total revenue
    
    $
    338,562
    
    
    
    100.0
    %
    
    $
    332,035
    
    
    
    100.0
    %
    
    
    2.0
    %
    
    $
    999,288
    
    
    
    100.0
    %
    
    $
    974,301
    
    
    
    100.0
    %
    
    
    2.6
    %
   21




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##### Table of Contents



Gross Profit
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008Gross
    
    
    
    
    
    
    Gross
    
    
    %
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    Gross
    
    
    %$
    
    
    Margin
    
    
    $
    
    
    Margin
    
    
    Change
    
    
    $
    
    
    Margin
    
    
    $
    
    
    Margin
    
    
    ChangeAnimal Hospital
    
    $
    51,213
    
    
    
    19.9
    %
    
    $
    50,286
    
    
    
    19.9
    %
    
    
    1.8
    %
    
    $
    147,510
    
    
    
    19.5
    %
    
    $
    144,043
    
    
    
    19.7
    %
    
    
    2.4
    %Laboratory
    
    
    35,826
    
    
    
    46.2
    %
    
    
    35,273
    
    
    
    45.8
    %
    
    
    1.6
    %
    
    
    112,862
    
    
    
    47.5
    %
    
    
    113,489
    
    
    
    48.2
    %
    
    
    (0.6
    )%Medical Technology
    
    
    4,708
    
    
    
    34.3
    %
    
    
    4,322
    
    
    
    34.4
    %
    
    
    8.9
    %
    
    
    12,066
    
    
    
    36.0
    %
    
    
    13,457
    
    
    
    35.2
    %
    
    
    (10.3
    )%Intercompany
    
    
    (607
    )
    
    
    
    
    
    
    (1,113
    )
    
    
    
    
    
    
    
    
    
    
    (1,245
    )
    
    
    
    
    
    
    (2,224
    )Total gross profit
    
    $
    91,140
    
    
    
    26.9
    %
    
    $
    88,768
    
    
    
    26.7
    %
    
    
    2.7
    %
    
    $
    271,193
    
    
    
    27.1
    %
    
    $
    268,765
    
    
    
    27.6
    %
    
    
    0.9
    %
   
 Segment Results
 Animal Hospital Segment
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2009
    
    2008
    
    % Change
    
    2009
    
    2008
    
    % ChangeRevenue
    
    $
    257,385
    
    
    $
    253,251
    
    
    
    1.6
    %
    
    $
    757,030
    
    
    $
    730,352
    
    
    
    3.7
    %Gross profit
    
    $
    51,213
    
    
    $
    50,286
    
    
    
    1.8
    %
    
    $
    147,510
    
    
    $
    144,043
    
    
    
    2.4
    %Gross margin
    
    
    19.9
    %
    
    
    19.9
    %
    
    
    
    
    
    
    19.5
    %
    
    
    19.7
    %
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    % Change
    
    
    2009
    
    
    2008
    
    
    % ChangeSame-store facilities:Orders (1) (2)
    
    
    1,596
    
    
    
    1,714
    
    
    
    (6.9
    )%
    
    
    4,334
    
    
    
    4,624
    
    
    
    (6.3
    )%Average revenue per order (3)
    
    $
    149.79
    
    
    $
    146.63
    
    
    
    2.2
    %
    
    $
    151.40
    
    
    $
    147.25
    
    
    
    2.8
    %Same-store revenue (1)
    
    $
    239,041
    
    
    $
    251,274
    
    
    
    (4.9
    )%
    
    $
    656,243
    
    
    $
    680,895
    
    
    
    (3.6
    )%Business day adjustment (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,832Net acquired revenue (5)
    
    
    18,344
    
    
    
    1,977
    
    
    
    
    
    
    
    100,787
    
    
    
    46,625Total
    
    $
    257,385
    
    
    $
    253,251
    
    
    
    1.6
    %
    
    $
    757,030
    
    
    $
    730,352
    
    
    
    3.7
    %
 
 (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 22




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##### Table of Contents



period in the prior period, and adjusted for the
impact resulting from any differences in the number of business days in the comparable 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)
    
    The business day adjustment reflects the impact of one fewer business day in the nine months
ended September 30, 2009 as compared to the nine months ended September 30, 2008.(5)
    
    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 July 1, 2008 for the three month analysis and January 1, 2008 for
the nine 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.         23




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##### Table of Contents



Laboratory Segment
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2009
    
    2008
    

%
Change
    
    2009
    
    2008
    

%
ChangeRevenue
    
    $
    77,462
    
    
    $
    77,065
    
    
    
    0.5
    %
    
    $
    237,762
    
    
    $
    235,634
    
    
    
    0.9
    %Gross profit
    
    $
    35,826
    
    
    $
    35,273
    
    
    
    1.6
    %
    
    $
    112,862
    
    
    $
    113,489
    
    
    
    (0.6
    )%Gross margin
    
    
    46.2
    %
    
    
    45.8
    %
    
    
    
    
    
    
    47.5
    %
    
    
    48.2
    %
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    

%
Change
    
    
    2009
    
    
    2008
    
    

%
ChangeInternal growth:Number of requisitions (1)
    
    
    3,288
    
    
    
    3,306
    
    
    
    (0.5
    )%
    
    
    10,138
    
    
    
    10,102
    
    
    
    0.4
    %Average revenue per requisition (2)
    
    $
    23.41
    
    
    $
    23.31
    
    
    
    0.4
    %
    
    $
    23.31
    
    
    $
    23.23
    
    
    
    0.3
    %Total internal revenue (1)
    
    $
    76,986
    
    
    $
    77,065
    
    
    
    (0.1
    )%
    
    $
    236,356
    
    
    $
    234,637
    
    
    
    0.7
    %Billing day adjustment (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    997Acquired revenue (4)
    
    
    476
    
    
    
    
    
    
    
    
    
    
    
    1,406
    
    
    
    Total
    
    $
    77,462
    
    
    $
    77,065
    
    
    
    0.5
    %
    
    $
    237,762
    
    
    $
    235,634
    
    
    
    0.9
    %
 
 (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 and adjusted for the impact resulting from any
differences in the number of billing days in comparable periods.(2)
    
    Computed by dividing internal revenue by the number of requisitions.(3)
    
    The billing day adjustment reflects the impact of one fewer billing day in the nine months
ended September 30, 2009 as compared to the nine months ended September 30, 2008.(4)
    
    Acquired revenue represents the revenue recognized from our acquired laboratories for the
comparable current year period that we did not own them in the prior year.    24




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##### Table of Contents



Medical Technology Segment
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2009
    
    2008
    
    % Change
    
    2009
    
    2008
    
    % ChangeRevenue
    
    $
    13,732
    
    
    $
    12,546
    
    
    
    9.5
    %
    
    $
    33,518
    
    
    $
    38,233
    
    
    
    (12.3
    )%Gross profit
    
    $
    4,708
    
    
    $
    4,322
    
    
    
    8.9
    %
    
    $
    12,066
    
    
    $
    13,457
    
    
    
    (10.3
    )%Gross margin
    
    
    34.3
    %
    
    
    34.4
    %
    
    
    
    
    
    
    36.0
    %
    
    
    35.2
    %
     25




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##### Table of Contents



Intercompany Revenue
  Selling, General and Administrative Expense
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008% of
    
    
    
    
    
    
    % of
    
    
    %
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    %$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    Change
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    ChangeAnimal Hospital
    
    $
    5,162
    
    
    
    2.0
    %
    
    $
    5,643
    
    
    
    2.2
    %
    
    
    (8.5
    )%
    
    $
    15,924
    
    
    
    2.1
    %
    
    $
    16,815
    
    
    
    2.3
    %
    
    
    (5.3
    )%Laboratory
    
    
    5,621
    
    
    
    7.3
    %
    
    
    5,178
    
    
    
    6.7
    %
    
    
    8.6
    %
    
    
    16,832
    
    
    
    7.1
    %
    
    
    15,314
    
    
    
    6.5
    %
    
    
    9.9
    %Medical Technology
    
    
    4,316
    
    
    
    31.4
    %
    
    
    3,120
    
    
    
    24.9
    %
    
    
    38.3
    %
    
    
    10,058
    
    
    
    30.0
    %
    
    
    9,502
    
    
    
    24.9
    %
    
    
    5.9
    %Corporate
    
    
    10,159
    
    
    
    3.0
    %
    
    
    8,062
    
    
    
    2.4
    %
    
    
    26.0
    %
    
    
    28,838
    
    
    
    2.9
    %
    
    
    26,359
    
    
    
    2.7
    %
    
    
    9.4
    %Total SG&A
    
    $
    25,258
    
    
    
    7.5
    %
    
    $
    22,003
    
    
    
    6.6
    %
    
    
    14.8
    %
    
    $
    71,652
    
    
    
    7.2
    %
    
    $
    67,990
    
    
    
    7.0
    %
    
    
    5.4
    %
  Operating Income
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008% of
    
    
    
    
    
    
    % of
    
    
    %
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    %$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    Change
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    ChangeAnimal Hospital
    
    $
    45,651
    
    
    
    17.7
    %
    
    $
    44,618
    
    
    
    17.6
    %
    
    
    2.3
    %
    
    $
    131,316
    
    
    
    17.3
    %
    
    $
    127,292
    
    
    
    17.4
    %
    
    
    3.2
    %Laboratory
    
    
    30,204
    
    
    
    39.0
    %
    
    
    30,092
    
    
    
    39.0
    %
    
    
    0.4
    %
    
    
    96,002
    
    
    
    40.4
    %
    
    
    98,172
    
    
    
    41.7
    %
    
    
    (2.2
    )%Medical Technology
    
    
    391
    
    
    
    2.8
    %
    
    
    1,200
    
    
    
    9.6
    %
    
    
    (67.4
    )%
    
    
    2,001
    
    
    
    6.0
    %
    
    
    3,933
    
    
    
    10.3
    %
    
    
    (49.1
    )%Corporate
    
    
    (10,166
    )
    
    
    (3.0
    )%
    
    
    (8,122
    )
    
    
    (2.4
    )%
    
    
    25.2
    %
    
    
    (34,137
    )
    
    
    (3.4
    )%
    
    
    (26,431
    )
    
    
    (2.7
    )%
    
    
    29.2
    %Intercompany
    
    
    (607
    )
    
    
    6.1
    %
    
    
    (1,113
    )
    
    
    10.3
    %
    
    
    (45.5
    )%
    
    
    (1,245
    )
    
    
    4.3
    %
    
    
    (2,224
    )
    
    
    7.4
    %
    
    
    (44.0
    )%Total operating income
    
    $
    65,473
    
    
    
    19.3
    %
    
    $
    66,675
    
    
    
    20.1
    %
    
    
    (1.8
    )%
    
    $
    193,937
    
    
    
    19.4
    %
    
    $
    200,742
    
    
    
    20.6
    %
    
    
    (3.4
    )%
  26




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##### Table of Contents



Interest Expense, Net
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest expense (income):Senior term notes
    
    $
    2,406
    
    
    $
    5,385
    
    
    $
    7,566
    
    
    $
    17,961Interest rate hedging agreements
    
    
    1,895
    
    
    
    1,639
    
    
    
    7,867
    
    
    
    4,077Capital leases and other
    
    
    567
    
    
    
    395
    
    
    
    1,716
    
    
    
    1,437Amortization of debt costs
    
    
    122
    
    
    
    118
    
    
    
    363
    
    
    
    3514,990
    
    
    
    7,537
    
    
    
    17,512
    
    
    
    23,826Interest income
    
    
    (182
    )
    
    
    (828
    )
    
    
    (860
    )
    
    
    (2,457
    )Total interest expense, net of interest income
    
    $
    4,808
    
    
    $
    6,709
    
    
    $
    16,652
    
    
    $
    21,369
  Provision for Income Taxes
  
 Liquidity and Capital Resources
 Introduction
     27




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##### Table of Contents



Future Cash Flows
 Short-Term
   Long-Term
   Debt Related Covenants
   28




---



##### Table of Contents



Historical Cash Flows
  Nine Months EndedSeptember 30,2009
    
    
    2008Cash provided by (used in):Operating activities
    
    $
    156,321
    
    
    $
    145,562Investing activities
    
    
    (94,520
    )
    
    
    (157,852
    )Financing activities
    
    
    4,224
    
    
    
    (3,229
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    17
    
    
    
    (44
    )Increase (decrease) in cash and cash equivalents
    
    
    66,042
    
    
    
    (15,563
    )Cash and cash equivalents at beginning of period
    
    
    88,959
    
    
    
    110,866Cash and cash equivalents at end of period
    
    $
    155,001
    
    
    $
    95,303
 Cash Flows from Operating Activities
  Cash Flows from Investing Activities
  Nine Months EndedSeptember 30,2009
    
    
    2008
    
    
    VarianceInvesting Cash Flows:Acquisition of independent animal
hospitals and laboratories
    
    $
    (35,559
    )
    
    $
    (88,136
    )
    
    $
    52,577
    (1)Acquisition of Eklin
    
    
    (12,483
    )
    
    
    
    
    
    
    (12,483
    ) (2)Other
    
    
    (3,811
    )
    
    
    (1,639
    )
    
    
    (2,172
    )Total cash used for acquisitions
    
    
    (51,853
    )
    
    
    (89,775
    )
    
    
    37,922Property and equipment additions
    
    
    (38,522
    )
    
    
    (39,764
    )
    
    
    1,242Real estate acquired with acquisitions
    
    
    (3,828
    )
    
    
    (15,063
    )
    
    
    11,235
    (3)Proceeds from sale of assets
    
    
    123
    
    
    
    1,774
    
    
    
    (1,651
    ) (4)Other
    
    
    (440
    )
    
    
    (15,024
    )
    
    
    14,584
    (5)Net cash used in investing activities
    
    $
    (94,520
    )
    
    $
    (157,852
    )
    
    $
    63,332
 
 (1)
    
    The number of acquisitions will vary from year to year based upon the available pool of
suitable candidates. In addition, the cash used for acquisitions declined in 2009 as a
result of our desire to accumulate cash in advance of our debt refinancing which is expected
to occur early next year.(2)
    
    As mentioned previously, on July 1, 2009 we acquired Eklin. See further discussion of the
acquisition in the Executive Overviewabove. 29




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(3)
    
    Due to the lower return on investment realized on acquired real estate we are highly
selective in our decision to acquire real estate. The decrease in cash used to acquire real
estate is due to a decrease in opportunities that met our selective criteria.(4)
    
    The decrease in proceeds from sale of assets is primarily due to a significant land sale in
2008.(5)
    
    The decrease in other investing cash flows was primarily due to investments made in 2008
related to our expansion into other markets. Cash Flows from Financing Activities
  Nine Months EndedSeptember 30,2009
    
    
    2008
    
    
    VarianceFinancing Cash Flows:Repayment of long-term obligations
    
    $
    (5,898
    )
    
    $
    (5,852
    )
    
    $
    (46
    )Distributions to noncontrolling interest partners
    
    
    (3,018
    )
    
    
    (2,797
    )
    
    
    (221
    ) (1)Proceeds from stock options exercises
    
    
    13,110
    
    
    
    3,574
    
    
    
    9,536
    (2)Excess tax benefits from stock options
    
    
    591
    
    
    
    1,846
    
    
    
    (1,255
    )Stock repurchases
    
    
    (561
    )
    
    
    
    
    
    
    (561
    ) (3)Net cash provided by (used in) financing activities
    
    $
    4,224
    
    
    $
    (3,229
    )
    
    $
    7,453
 
 (1)
    
    The distributions to noncontrolling interest partners represent cash payments to
noncontrolling interest partners for their portion of the partnerships excess cash. As
mentioned in Note 4 in our September 30, 2009 Notes to Condensed, Consolidated Financial
Statements, we adopted new noncontrolling interest guidance effective January 1, 2009, which
resulted in a reclassification of these distributions from operating activities to financing
activities.(2)
    
    The number of stock option exercises has increased in comparison to the prior year related to
the increase in the market price of our stock during the nine months ended September 30, 2009
and the nearing expiration of certain stock options.(3)
    
    The stock repurchases in fiscal 2009 represent cash paid for income taxes on behalf of
employees who elected to settle their tax obligations on vested stocks with a portion of the
stocks that vested. Off-Balance Sheet Arrangements
  Interest Rate Swap Agreements
  30




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Interest Rate Swap AgreementsFixed interest rate
    
    
    5.34%
    
    
    
    2.64%Notional amount (in millions)
    
    
    $100.0
    
    
    
    $100.0Effective date
    
    
    6/11/2007
    
    
    
    2/12/2008Expiration date
    
    
    12/31/2009
    
    
    
    2/26/2010Counterparty
    
    Goldman Sachs
    
    Wells FargoQualifies for hedge accounting
    
    Yes
    
    Yes
  Description of Indebtedness
 Senior Credit Facility
    Other Debt and Capital Lease Obligations
  
 Recent Accounting Pronouncements
     31




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Notes to Condensed, Consolidated Financial Statements
      Measuring
Liabilities at Fair Value
 Multiple-Deliverable Revenue Arrangements
 32




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Certain Revenue Arrangements that Include
Software Elements
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Swap AgreementsFixed interest rate
    
    5.34%
    
    2.64%Notional amount (in millions)
    
    $100.0
    
    $100.0Effective date
    
    6/11/2007
    
    2/12/2008Expiration date
    
    12/31/2009
    
    2/26/2010Counterparty
    
    Goldman Sachs
    
    Wells FargoQualifies for hedge accounting
    
    Yes
    
    Yes
   
 ITEM 4. CONTROLS AND PROCEDURES
    33




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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
 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.
 
 34




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##### Table of Contents



SIGNATURE
  Date: November 6, 2009
    By:
    /s/ Tomas W. FullerTomas W. FullerChief Financial Officer 35




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EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    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.
 36