##### 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, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 001-16783
 
 VCA Antech, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    95-4097995(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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
  þ o o
  o þ




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##### 



VCA Antech, Inc.
Form 10-Q
September 30, 2007
 Table of Contents
 PageNumberPart I. Financial InformationItem 1. Financial Statements (Unaudited)Condensed, Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006
    
    
    1Condensed, Consolidated Income Statements for the Three and Nine Months Ended September 30, 2007 and 2006
    
    
    2Condensed, Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006
    
    
    3Notes to Condensed, Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26Part II. Other InformationItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3. Defaults Upon Senior Securities
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    27Signature
    
    
    28Exhibit Index
    
    
    29EXHIBIT 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)
 September 30,
    
    
    December 31,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    87,155
    
    
    $
    45,104Trade accounts receivable, less allowance for uncollectible accounts of $11,297
and $11,195 at September 30, 2007 and December 31, 2006, respectively
    
    
    46,503
    
    
    
    44,491Inventory
    
    
    21,332
    
    
    
    21,420Prepaid expenses and other
    
    
    13,616
    
    
    
    13,492Deferred income taxes
    
    
    17,866
    
    
    
    14,935Prepaid income taxes
    
    
    
    
    
    
    13,523Total current assets
    
    
    186,472
    
    
    
    152,965Property and equipment, less accumulated depreciation and amortization of $126,894
and $111,165 at September 30, 2007 and December 31, 2006, respectively
    
    
    206,347
    
    
    
    166,033Goodwill
    
    
    847,942
    
    
    
    625,748Other intangible assets, net
    
    
    16,586
    
    
    
    16,293Notes receivable, net
    
    
    2,897
    
    
    
    2,675Deferred financing costs, net
    
    
    1,623
    
    
    
    979Other
    
    
    11,278
    
    
    
    7,264Total assets
    
    $
    1,273,145
    
    
    $
    971,957Liabilities and Stockholders EquityCurrent liabilities:Current portion of long-term obligations
    
    $
    7,997
    
    
    $
    6,648Accounts payable
    
    
    23,905
    
    
    
    23,328Accrued payroll and related liabilities
    
    
    32,932
    
    
    
    33,864Accrued interest
    
    
    608
    
    
    
    388Other accrued liabilities
    
    
    43,353
    
    
    
    30,573Total current liabilities
    
    
    108,795
    
    
    
    94,801Long-term obligations, less current portion
    
    
    554,205
    
    
    
    384,067Deferred income taxes
    
    
    45,647
    
    
    
    39,804Other liabilities
    
    
    12,118
    
    
    
    13,294Minority interest
    
    
    10,634
    
    
    
    9,686Commitments 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, 84,210 and 83,560
shares outstanding as of September 30, 2007 and December 31, 2006, respectively
    
    
    84
    
    
    
    84Additional paid-in capital
    
    
    292,223
    
    
    
    275,013Accumulated earnings
    
    
    250,975
    
    
    
    154,586Accumulated other comprehensive (loss) income
    
    
    (1,536
    )
    
    
    622Total stockholders equity
    
    
    541,746
    
    
    
    430,305Total liabilities and stockholders equity
    
    $
    1,273,145
    
    
    $
    971,957
  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 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue
    
    $
    306,537
    
    
    $
    251,632
    
    
    $
    871,987
    
    
    $
    740,962Direct costs
    
    
    220,235
    
    
    
    181,167
    
    
    
    619,887
    
    
    
    532,014Gross profit
    
    
    86,302
    
    
    
    70,465
    
    
    
    252,100
    
    
    
    208,948Selling, general and administrative expense
    
    
    22,295
    
    
    
    18,946
    
    
    
    65,811
    
    
    
    57,315Loss (gain) on sale of assets
    
    
    333
    
    
    
    3
    
    
    
    875
    
    
    
    (200
    )Operating income
    
    
    63,674
    
    
    
    51,516
    
    
    
    185,414
    
    
    
    151,833Interest expense, net
    
    
    8,930
    
    
    
    6,084
    
    
    
    21,374
    
    
    
    18,323Other (income) expense
    
    
    (1
    )
    
    
    73
    
    
    
    226
    
    
    
    (24
    )Minority interest in income of subsidiaries
    
    
    1,187
    
    
    
    846
    
    
    
    3,061
    
    
    
    2,520Income before provision for income taxes
    
    
    53,558
    
    
    
    44,513
    
    
    
    160,753
    
    
    
    131,014Provision for income taxes
    
    
    21,329
    
    
    
    17,536
    
    
    
    64,364
    
    
    
    44,825Net income
    
    $
    32,229
    
    
    $
    26,977
    
    
    $
    96,389
    
    
    $
    86,189Basic earnings per share
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    1.15
    
    
    $
    1.04Diluted earnings per share
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    1.13
    
    
    $
    1.02Weighted-average shares outstanding
for basic earnings per share
    
    
    83,957
    
    
    
    83,339
    
    
    
    83,769
    
    
    
    83,092Weighted-average shares outstanding
for diluted earnings per share
    
    
    85,752
    
    
    
    85,187
    
    
    
    85,572
    
    
    
    84,864
  2




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
 
 Condensed, Consolidated Statements Of Cash Flows
 (Unaudited)
 (In thousands)
 Nine Months EndedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    96,389
    
    
    $
    86,189Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    19,764
    
    
    
    16,347Amortization of debt costs
    
    
    253
    
    
    
    299Provision for uncollectible accounts
    
    
    3,561
    
    
    
    4,174Loss (gain) on sale of assets
    
    
    875
    
    
    
    (200
    )Share-based compensation
    
    
    3,429
    
    
    
    2,326Minority interest in income of subsidiaries
    
    
    3,061
    
    
    
    2,520Distributions to minority interest partners
    
    
    (2,262
    )
    
    
    (2,439
    )Deferred income taxes
    
    
    4,627
    
    
    
    7,222Excess tax benefit from exercise of stock options
    
    
    (6,576
    )
    
    
    (5,774
    )Other
    
    
    (115
    )
    
    
    (750
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (4,823
    )
    
    
    (8,500
    )Inventory, prepaid expenses and other assets
    
    
    1,140
    
    
    
    (6,816
    )Accounts payable and other accrued liabilities
    
    
    (1,195
    )
    
    
    (2,499
    )Accrued payroll and related liabilities
    
    
    (3,958
    )
    
    
    (1,928
    )Income taxes
    
    
    20,983
    
    
    
    567Net cash provided by operating activities
    
    
    135,153
    
    
    
    90,738Cash flows from investing activities:Business acquisitions, net of cash acquired
    
    
    (214,758
    )
    
    
    (37,612
    )Real estate acquired in connection with business acquisitions
    
    
    (7,962
    )
    
    
    (2,872
    )Property and equipment additions
    
    
    (38,033
    )
    
    
    (23,800
    )Proceeds from sale of assets
    
    
    1,774
    
    
    
    533Other
    
    
    (188
    )
    
    
    268Net cash used in investing activities
    
    
    (259,167
    )
    
    
    (63,483
    )Cash flows from financing activities:Repayment of long-term obligations
    
    
    (6,282
    )
    
    
    (64,106
    )Proceeds from the issuance of long-term obligations
    
    
    160,000
    
    
    
    Payment of financing costs
    
    
    (897
    )
    
    
    Proceeds from issuance of common stock under stock option plans
    
    
    6,668
    
    
    
    5,410Excess tax benefit from exercise of stock options
    
    
    6,576
    
    
    
    5,774Net cash provided by (used in) financing activities
    
    
    166,065
    
    
    
    (52,922
    )Increase (decrease) in cash and cash equivalents
    
    
    42,051
    
    
    
    (25,667
    )Cash and cash equivalents at beginning of period
    
    
    45,104
    
    
    
    58,488Cash and cash equivalents at end of period
    
    $
    87,155
    
    
    $
    32,821
  3




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
 
 Notes To Condensed, Consolidated Financial Statements
 September 30, 2007
 (Unaudited)
 1. Nature of Operations
     2. Basis of Presentation
   3. Acquisitions
  Hospital acquisitions, excluding Healthy Pet (1)
    
    
    29Healthy Pet (1)
    
    
    44Acquisitions relocated into our existing animal hospitals
    
    
    (7
    )Total
    
    
    66
 
 (1)
    
    Healthy Pet Corp. (Healthy Pet) was acquired on June 1, 2007.  4




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 3. Acquisitions, continued
 Animal Hospital and Laboratory Acquisitions, Excluding Healthy Pet
  Preliminary Purchase Price:Cash
    
    $
    57,990Liabilities assumed
    
    
    2,755Total
    
    $
    60,745Preliminary Allocation of the Purchase Price:Tangible assets
    
    $
    2,662Identifiable intangible assets
    
    
    2,906Goodwill (1)
    
    
    55,177Total
    
    $
    60,745
 
 (1)
    
    We expect that $45.7 million of the goodwill recorded for these acquisitions as of September
30, 2007 will be deductible for income tax purposes. Healthy Pet
   Preliminary Purchase Price:Cash paid to holders of Healthy Pet stock and debt, net of cash acquired
    
    $
    153,568Cash paid for professional services
    
    
    1,216Debt and capital leases assumed
    
    
    17,761Liabilities assumed
    
    
    8,708Liabilities for our plan to eliminate duplicate functions and to close certain
animal hospitals
    
    
    3,432Total
    
    $
    184,685Preliminary Allocation of the Purchase Price:Tangible assets
    
    $
    15,110Identifiable intangible assets
    
    
    383Goodwill (1)
    
    
    169,192Total
    
    $
    184,685
 
 (1)
    
    As of September 30, 2007, we have not finalized the determination of the amount of goodwill
that will be deductible for income tax purposes. 5




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 3. Acquisitions, continued
  Other Acquisition Payments
   4. Long-Term Obligations and Interest Rate Swap Agreements
   Fixed interest rate
    
    4.95%
    
    5.34%Notional amount (in millions)
    
    $75.0
    
    $100.0Effective date
    
    4/30/2007
    
    6/11/2007Expiration date
    
    4/30/2009
    
    12/31/2009Counterparties
    
    Wells Fargo
    
    Goldman SachsQualifies for hedge accounting
    
    Yes
    
    Yes
 6




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 5. Goodwill and Other Intangible Assets
  Animal
    
    
    MedicalLaboratory
    
    
    Hospital
    
    
    Technology
    
    
    TotalBalance as of December 31, 2006
    
    $
    95,310
    
    
    $
    511,278
    
    
    $
    19,160
    
    
    $
    625,748Goodwill acquired
    
    
    21
    
    
    
    224,348
    
    
    
    
    
    
    
    224,369Goodwill related to partnership interests
    
    
    
    
    
    
    753
    
    
    
    
    
    
    
    753Other (1)
    
    
    
    
    
    
    (2,928
    )
    
    
    
    
    
    
    (2,928
    )Balance as of September 30, 2007
    
    $
    95,331
    
    
    $
    733,451
    
    
    $
    19,160
    
    
    $
    847,942
 
 (1)
    
    Comprised of purchase price adjustments and the contribution of assets in return for a
minority interest in a partially-owned subsidiary.  As of September 30, 2007
    
    
    As of December 31, 2006Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountCovenants not-to-compete
    
    $
    14,110
    
    
    $
    (6,890
    )
    
    $
    7,220
    
    
    $
    12,687
    
    
    $
    (6,169
    )
    
    $
    6,518Non-contractual customer
relationships
    
    
    10,459
    
    
    
    (2,204
    )
    
    
    8,255
    
    
    
    9,869
    
    
    
    (1,553
    )
    
    
    8,316Technology
    
    
    1,270
    
    
    
    (758
    )
    
    
    512
    
    
    
    1,270
    
    
    
    (568
    )
    
    
    702Trademarks
    
    
    582
    
    
    
    (170
    )
    
    
    412
    
    
    
    569
    
    
    
    (127
    )
    
    
    442Contracts
    
    
    380
    
    
    
    (285
    )
    
    
    95
    
    
    
    397
    
    
    
    (231
    )
    
    
    166Client lists
    
    
    136
    
    
    
    (44
    )
    
    
    92
    
    
    
    506
    
    
    
    (357
    )
    
    
    149Total
    
    $
    26,937
    
    
    $
    (10,351
    )
    
    $
    16,586
    
    
    $
    25,298
    
    
    $
    (9,005
    )
    
    $
    16,293
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Aggregate amortization expense
    
    $
    967
    
    
    $
    933
    
    
    $
    2,997
    
    
    $
    2,661
 7




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 5. Goodwill and Other Intangible Assets, continued
  Remainder of 2007
    
    $
    9972008
    
    
    3,5562009
    
    
    2,5122010
    
    
    1,7392011
    
    
    1,250Thereafter
    
    
    6,532Total
    
    $
    16,586
 6. Share-Based Compensation
 Stock Option Activity
  Weighted-AverageWeighted-
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateStock
    
    
    Exercise
    
    
    Term
    
    
    IntrinsicOptions
    
    
    Price
    
    
    (Years)
    
    
    ValueOutstanding at December 31, 2006
    
    
    5,290
    
    
    $
    15.72
    
    
    
    5.0
    
    
    $
    87,136Granted
    
    
    
    
    
    
    Exercised
    
    
    (650
    )
    
    
    10.26Forfeited/Canceled
    
    
    (83
    )
    
    
    20.59Outstanding at September 30, 2007
    
    
    4,557
    
    
    $
    16.41
    
    
    
    4.3
    
    
    $
    115,472Exercisable at September 30, 2007
    
    
    4,030
    
    
    $
    16.32
    
    
    
    4.4
    
    
    $
    102,487Expected to vest at September 30, 2007
    
    
    510
    
    
    $
    17.10
    
    
    
    3.5
    
    
    $
    12,580
  Options Outstanding
    
    Options ExercisableWeighted-Avg.RemainingNumber
    
    Contractual
    
    Weighted-Avg.
    
    Number
    
    Weighted-Avg.Exercise Price
    
    
    
    
    
    Outstanding
    
    Life
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$0.50
    
    
    
    
    
    
    149
    
    
    
    3.0
    
    
    $
    0.50
    
    
    
    149
    
    
    $
    0.50$6.26 - $7.97
    
    
    
    
    
    
    1,114
    
    
    
    5.2
    
    
    $
    7.01
    
    
    
    1,114
    
    
    $
    7.01$15.33 - $30.70
    
    
    
    
    
    
    3,294
    
    
    
    4.0
    
    
    $
    20.30
    
    
    
    2,767
    
    
    $
    20.924,557
    
    
    
    
    
    
    
    
    
    
    
    4,030
 8




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 6. Share-Based Compensation, continued
  Non-vested Stock Activity
  7. Income Taxes
  8. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    32,229
    
    
    $
    26,977
    
    
    $
    96,389
    
    
    $
    86,189Other comprehensive loss:Unrealized loss on hedging
instruments, net of tax
    
    
    (2,171
    )
    
    
    (1,262
    )
    
    
    (2,359
    )
    
    
    (517
    )Loss (gain) on hedging instruments
reclassified to income, net of tax
    
    
    65
    
    
    
    44
    
    
    
    201
    
    
    
    (14
    )Other comprehensive loss
    
    
    (2,106
    )
    
    
    (1,218
    )
    
    
    (2,158
    )
    
    
    (531
    )Total comprehensive income
    
    $
    30,123
    
    
    $
    25,759
    
    
    $
    94,231
    
    
    $
    85,658
 9




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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 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    32,229
    
    
    $
    26,977
    
    
    $
    96,389
    
    
    $
    86,189Weighted-average common shares outstanding:Basic
    
    
    83,957
    
    
    
    83,339
    
    
    
    83,769
    
    
    
    83,092Effect of dilutive potential common shares:Stock options and non-vested shares
    
    
    1,795
    
    
    
    1,848
    
    
    
    1,803
    
    
    
    1,772Diluted
    
    
    85,752
    
    
    
    85,187
    
    
    
    85,572
    
    
    
    84,864Basic earnings per share
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    1.15
    
    
    $
    1.04Diluted earnings per share
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    1.13
    
    
    $
    1.02
  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 September 30, 2007External revenue
    
    $
    66,964
    
    
    $
    229,409
    
    
    $
    10,164
    
    
    $
    
    
    
    $
    
    
    
    $
    306,537Intercompany revenue
    
    
    7,302
    
    
    
    
    
    
    
    927
    
    
    
    
    
    
    
    (8,229
    )
    
    
    Total revenue
    
    
    74,266
    
    
    
    229,409
    
    
    
    11,091
    
    
    
    
    
    
    
    (8,229
    )
    
    
    306,537Direct costs
    
    
    38,628
    
    
    
    181,825
    
    
    
    7,830
    
    
    
    
    
    
    
    (8,048
    )
    
    
    220,235Gross profit
    
    
    35,638
    
    
    
    47,584
    
    
    
    3,261
    
    
    
    
    
    
    
    (181
    )
    
    
    86,302Selling, general and administrative
expense
    
    
    4,859
    
    
    
    5,411
    
    
    
    2,761
    
    
    
    9,264
    
    
    
    
    
    
    
    22,295Loss on sale of assets
    
    
    14
    
    
    
    312
    
    
    
    6
    
    
    
    1
    
    
    
    
    
    
    
    333Operating income (loss)
    
    $
    30,765
    
    
    $
    41,861
    
    
    $
    494
    
    
    $
    (9,265
    )
    
    $
    (181
    )
    
    $
    63,674Depreciation and amortization
    
    $
    1,742
    
    
    $
    4,461
    
    
    $
    409
    
    
    $
    512
    
    
    $
    (100
    )
    
    $
    7,024Capital expenditures
    
    $
    2,084
    
    
    $
    7,383
    
    
    $
    142
    
    
    $
    1,468
    
    
    $
    (280
    )
    
    $
    10,797Three Months Ended September 30, 2006External revenue
    
    $
    60,261
    
    
    $
    183,592
    
    
    $
    7,779
    
    
    $
    
    
    
    $
    
    
    
    $
    251,632Intercompany revenue
    
    
    5,793
    
    
    
    
    
    
    
    1,177
    
    
    
    
    
    
    
    (6,970
    )
    
    
    Total revenue
    
    
    66,054
    
    
    
    183,592
    
    
    
    8,956
    
    
    
    
    
    
    
    (6,970
    )
    
    
    251,632Direct costs
    
    
    36,041
    
    
    
    146,132
    
    
    
    5,530
    
    
    
    
    
    
    
    (6,536
    )
    
    
    181,167Gross profit
    
    
    30,013
    
    
    
    37,460
    
    
    
    3,426
    
    
    
    
    
    
    
    (434
    )
    
    
    70,465Selling, general and administrative
expense
    
    
    4,350
    
    
    
    5,161
    
    
    
    2,534
    
    
    
    6,901
    
    
    
    
    
    
    
    18,946Loss (gain) on sale of assets
    
    
    6
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Operating income (loss)
    
    $
    25,657
    
    
    $
    32,302
    
    
    $
    892
    
    
    $
    (6,901
    )
    
    $
    (434
    )
    
    $
    51,516Depreciation and amortization
    
    $
    1,221
    
    
    $
    3,577
    
    
    $
    315
    
    
    $
    424
    
    
    $
    (41
    )
    
    $
    5,496Capital expenditures
    
    $
    2,388
    
    
    $
    4,747
    
    
    $
    404
    
    
    $
    1,354
    
    
    $
    (160
    )
    
    $
    8,733
 11




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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
    
    
    TotalNine Months Ended September 30, 2007External revenue
    
    $
    206,233
    
    
    $
    635,046
    
    
    $
    30,708
    
    
    $
    
    
    
    $
    
    
    
    $
    871,987Intercompany revenue
    
    
    20,840
    
    
    
    
    
    
    
    2,190
    
    
    
    
    
    
    
    (23,030
    )
    
    
    Total revenue
    
    
    227,073
    
    
    
    635,046
    
    
    
    32,898
    
    
    
    
    
    
    
    (23,030
    )
    
    
    871,987Direct costs
    
    
    115,467
    
    
    
    505,581
    
    
    
    21,541
    
    
    
    
    
    
    
    (22,702
    )
    
    
    619,887Gross profit
    
    
    111,606
    
    
    
    129,465
    
    
    
    11,357
    
    
    
    
    
    
    
    (328
    )
    
    
    252,100Selling, general and administrative
expense
    
    
    14,872
    
    
    
    16,292
    
    
    
    8,389
    
    
    
    26,258
    
    
    
    
    
    
    
    65,811Loss on sale of assets
    
    
    72
    
    
    
    756
    
    
    
    46
    
    
    
    1
    
    
    
    
    
    
    
    875Operating income (loss)
    
    $
    96,662
    
    
    $
    112,417
    
    
    $
    2,922
    
    
    $
    (26,259
    )
    
    $
    (328
    )
    
    $
    185,414Depreciation and amortization
    
    $
    4,688
    
    
    $
    12,751
    
    
    $
    1,216
    
    
    $
    1,390
    
    
    $
    (281
    )
    
    $
    19,764Capital expenditures
    
    $
    9,808
    
    
    $
    23,663
    
    
    $
    566
    
    
    $
    4,604
    
    
    $
    (608
    )
    
    $
    38,033Nine Months Ended September 30, 2006External revenue
    
    $
    177,964
    
    
    $
    540,117
    
    
    $
    22,881
    
    
    $
    
    
    
    $
    
    
    
    $
    740,962Intercompany revenue
    
    
    17,100
    
    
    
    
    
    
    
    2,467
    
    
    
    
    
    
    
    (19,567
    )
    
    
    Total revenue
    
    
    195,064
    
    
    
    540,117
    
    
    
    25,348
    
    
    
    
    
    
    
    (19,567
    )
    
    
    740,962Direct costs
    
    
    103,977
    
    
    
    430,409
    
    
    
    16,276
    
    
    
    
    
    
    
    (18,648
    )
    
    
    532,014Gross profit
    
    
    91,087
    
    
    
    109,708
    
    
    
    9,072
    
    
    
    
    
    
    
    (919
    )
    
    
    208,948Selling, general and administrative
expense
    
    
    12,793
    
    
    
    15,107
    
    
    
    7,734
    
    
    
    21,681
    
    
    
    
    
    
    
    57,315Loss (gain) on sale of assets
    
    
    14
    
    
    
    (214
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (200
    )Operating income (loss)
    
    $
    78,280
    
    
    $
    94,815
    
    
    $
    1,338
    
    
    $
    (21,681
    )
    
    $
    (919
    )
    
    $
    151,833Depreciation and amortization
    
    $
    3,373
    
    
    $
    10,674
    
    
    $
    1,089
    
    
    $
    1,320
    
    
    $
    (109
    )
    
    $
    16,347Capital expenditures
    
    $
    5,352
    
    
    $
    16,124
    
    
    $
    489
    
    
    $
    2,294
    
    
    $
    (459
    )
    
    $
    23,800At September 30, 2007Total assets
    
    $
    178,942
    
    
    $
    933,828
    
    
    $
    50,069
    
    
    $
    117,801
    
    
    $
    (7,495
    )
    
    $
    1,273,145At December 31, 2006Total assets
    
    $
    167,363
    
    
    $
    671,975
    
    
    $
    53,161
    
    
    $
    85,533
    
    
    $
    (6,075
    )
    
    $
    971,957
 11. Commitments and Contingencies
  a. Earn-out Payments
  12




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 11. Commitments and Contingencies, continued
  b.
    
    Officers Compensation
   
    
    In the event any of these officers employment is terminated due to death or disability,
each officer, or their estate, is entitled to receive the remaining base salary during the
remaining scheduled term of his employment agreement, the acceleration of the vesting of
his options, which options shall remain exercisable for the full term, and the right to
continue receiving specified benefits and perquisites.
    
    In the event any of these officers terminate their employment agreements for cause, we
terminate any of their employment agreements without cause or a change of control occurs
(in which case such employment agreements terminate automatically), each officer is
entitled to receive the remaining base salary during the remaining scheduled term of his
employment agreement, a bonus based on past bonuses, the acceleration of the vesting of his
options, which options shall remain exercisable for the full term, and the right to
continue receiving specified benefits and perquisites.
    
    In the event of a change of control, the cash value of all benefits due under their
employment contracts as a result of the termination would be immediately payable to the
officers. In addition, if any of the amounts payable to these officers under these
provisions constitute excess parachute payments under the Internal Revenue Code, each
officer is entitled to an additional payment to cover the tax consequences associated with
the excess parachute payment.
  c.
    
    Other Contingencies
  12. Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
 13




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes To Condensed, Consolidated Financial Statements (Continued)
 12. Recent Accounting Pronouncements, continued
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB No.115
 14




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 PageNumberIntroduction
    
    16Executive Overview
    
    16Consolidated Results of Operations
    
    18Segment Results
    
    20Liquidity and Capital Resources
    
    23Critical Accounting Policies
    
    25Recent Accounting Pronouncements
    
    26Forward-Looking Statements
    
    26
 15




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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, 2007, and we undertake no duty to update this information. Shareholders and
prospective investors can find information filed with the SEC after November 6, 2007 at our website
at www.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 September
30, 2007, our laboratory network consisted of 35 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 September 30, 2007, our animal hospital network consisted of 441
animal hospitals in 38 states.
    
    Our medical technology segment sells digital radiography and ultrasound imaging
equipment, related computer hardware, software and ancillary services.
  Executive Overview
  16




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##### Table of Contents



Acquisitions and Facilities
  Laboratories:Beginning of period
    
    
    33Acquisitions
    
    
    2Acquisitions relocated into our exising laboratories
    
    
    (1
    )New facilities
    
    
    1End of period
    
    
    35Animal hospitals:Beginning of period
    
    
    379Acquisitions, excluding Healthy Pet
    
    
    29Healthy Pet
    
    
    44Acquisitions relocated into our existing animal hospitals
    
    
    (7
    )Closed
    
    
    (4
    )End of period
    
    
    441
 Financing Transaction
  17




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##### Table of Contents



Consolidated Results of Operations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue:Laboratory
    
    
    24.2
    %
    
    
    26.3
    %
    
    
    26.0
    %
    
    
    26.3
    %Animal hospital
    
    
    74.8
    
    
    
    73.0
    
    
    
    72.8
    
    
    
    72.9Medical technology
    
    
    3.6
    
    
    
    3.6
    
    
    
    3.8
    
    
    
    3.4Intercompany
    
    
    (2.6
    )
    
    
    (2.9
    )
    
    
    (2.6
    )
    
    
    (2.6
    )Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Direct costs
    
    
    71.8
    
    
    
    72.0
    
    
    
    71.1
    
    
    
    71.8Gross profit
    
    
    28.2
    
    
    
    28.0
    
    
    
    28.9
    
    
    
    28.2Selling, general and administrative expense
    
    
    7.3
    
    
    
    7.5
    
    
    
    7.5
    
    
    
    7.7Loss on sale of assets
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    Operating income
    
    
    20.8
    
    
    
    20.5
    
    
    
    21.3
    
    
    
    20.5Interest expense, net
    
    
    2.9
    
    
    
    2.4
    
    
    
    2.5
    
    
    
    2.5Other expense
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    Minority interest in income of subsidiairies
    
    
    0.4
    
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.3Income before provision for income taxes
    
    
    17.5
    
    
    
    17.7
    
    
    
    18.4
    
    
    
    17.7Provision for income taxes
    
    
    7.0
    
    
    
    7.0
    
    
    
    7.3
    
    
    
    6.1Net income
    
    
    10.5
    %
    
    
    10.7
    %
    
    
    11.1
    %
    
    
    11.6
    %
 Revenue
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    
    
    
    
    2007
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of$
    
    
    Total
    
    
    $
    
    
    Total
    
    
    % Change
    
    
    $
    
    
    Total
    
    
    $
    
    
    Total
    
    
    % ChangeLaboratory
    
    $
    74,266
    
    
    
    24.2
    %
    
    $
    66,054
    
    
    
    26.3
    %
    
    
    12.4
    %
    
    $
    227,073
    
    
    
    26.0
    %
    
    $
    195,064
    
    
    
    26.3
    %
    
    
    16.4
    %Animal hospital
    
    
    229,409
    
    
    
    74.8
    %
    
    
    183,592
    
    
    
    73.0
    %
    
    
    25.0
    %
    
    
    635,046
    
    
    
    72.8
    %
    
    
    540,117
    
    
    
    72.9
    %
    
    
    17.6
    %Medical technology
    
    
    11,091
    
    
    
    3.6
    %
    
    
    8,956
    
    
    
    3.6
    %
    
    
    23.8
    %
    
    
    32,898
    
    
    
    3.8
    %
    
    
    25,348
    
    
    
    3.4
    %
    
    
    29.8
    %Intercompany
    
    
    (8,229
    )
    
    
    (2.6
    )%
    
    
    (6,970
    )
    
    
    (2.9
    )%
    
    
    18.1
    %
    
    
    (23,030
    )
    
    
    (2.6
    )%
    
    
    (19,567
    )
    
    
    (2.6
    )%
    
    
    17.7
    %Total revenue
    
    $
    306,537
    
    
    
    100.0
    %
    
    $
    251,632
    
    
    
    100.0
    %
    
    
    21.8
    %
    
    $
    871,987
    
    
    
    100.0
    %
    
    $
    740,962
    
    
    
    100.0
    %
    
    
    17.7
    %
  18




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##### Table of Contents



Gross Profit
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    
    
    
    
    2007
    
    
    2006Gross
    
    
    
    
    
    
    Gross
    
    
    %
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    Gross
    
    
    %$
    
    
    Margin
    
    
    $
    
    
    Margin
    
    
    Change
    
    
    $
    
    
    Margin
    
    
    $
    
    
    Margin
    
    
    ChangeLaboratory
    
    $
    35,638
    
    
    
    48.0
    %
    
    $
    30,013
    
    
    
    45.4
    %
    
    
    18.7
    %
    
    $
    111,606
    
    
    
    49.1
    %
    
    $
    91,087
    
    
    
    46.7
    %
    
    
    22.5
    %Animal
hospital
    
    
    47,584
    
    
    
    20.7
    %
    
    
    37,460
    
    
    
    20.4
    %
    
    
    27.0
    %
    
    
    129,465
    
    
    
    20.4
    %
    
    
    109,708
    
    
    
    20.3
    %
    
    
    18.0
    %Medical technology
    
    
    3,261
    
    
    
    29.4
    %
    
    
    3,426
    
    
    
    38.3
    %
    
    
    (4.8
    )%
    
    
    11,357
    
    
    
    34.5
    %
    
    
    9,072
    
    
    
    35.8
    %
    
    
    25.2
    %Intercompany
    
    
    (181
    )
    
    
    
    
    
    
    (434
    )
    
    
    
    
    
    
    
    
    
    
    (328
    )
    
    
    
    
    
    
    (919
    )Total gross
profit
    
    $
    86,302
    
    
    
    28.2
    %
    
    $
    70,465
    
    
    
    28.0
    %
    
    
    22.5
    %
    
    $
    252,100
    
    
    
    28.9
    %
    
    $
    208,948
    
    
    
    28.2
    %
    
    
    20.7
    %
  Selling, General and Administrative Expense
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    
    
    
    
    2007
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    %
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    %$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    Change
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    ChangeLaboratory
    
    $
    4,859
    
    
    
    6.5
    %
    
    $
    4,350
    
    
    
    6.6
    %
    
    
    11.7
    %
    
    $
    14,872
    
    
    
    6.5
    %
    
    $
    12,793
    
    
    
    6.6
    %
    
    
    16.3
    %Animal
hospital
    
    
    5,411
    
    
    
    2.4
    %
    
    
    5,161
    
    
    
    2.8
    %
    
    
    4.8
    %
    
    
    16,292
    
    
    
    2.6
    %
    
    
    15,107
    
    
    
    2.8
    %
    
    
    7.8
    %Medical technology
    
    
    2,761
    
    
    
    24.9
    %
    
    
    2,534
    
    
    
    28.3
    %
    
    
    9.0
    %
    
    
    8,389
    
    
    
    25.5
    %
    
    
    7,734
    
    
    
    30.5
    %
    
    
    8.5
    %Corporate
    
    
    9,264
    
    
    
    3.0
    %
    
    
    6,901
    
    
    
    2.7
    %
    
    
    34.2
    %
    
    
    26,258
    
    
    
    3.0
    %
    
    
    21,681
    
    
    
    2.9
    %
    
    
    21.1
    %Total SG&A
    
    $
    22,295
    
    
    
    7.3
    %
    
    $
    18,946
    
    
    
    7.5
    %
    
    
    17.7
    %
    
    $
    65,811
    
    
    
    7.5
    %
    
    $
    57,315
    
    
    
    7.7
    %
    
    
    14.8
    %
  Loss (Gain) on Sale of Assets
  19




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##### Table of Contents



Interest Expense, Net
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest expense:Senior term
notes
    
    $
    9,432
    
    
    $
    6,597
    
    
    $
    23,205
    
    
    $
    19,515Interest rate
swap
agreements
    
    
    (433
    )
    
    
    (484
    )
    
    
    (1,450
    )
    
    
    (1,054
    )Capital leases
and
other
    
    
    811
    
    
    
    432
    
    
    
    1,510
    
    
    
    1,041Amortization of
debt
costs
    
    
    116
    
    
    
    73
    
    
    
    253
    
    
    
    2999,926
    
    
    
    6,618
    
    
    
    23,518
    
    
    
    19,801Interest
income
    
    
    996
    
    
    
    534
    
    
    
    2,144
    
    
    
    1,478Interest
expense, net
    
    $
    8,930
    
    
    $
    6,084
    
    
    $
    21,374
    
    
    $
    18,323
  Provision for Income Taxes
  Segment Results
 Laboratory Segment
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    % Change
    
    
    2007
    
    
    2006
    
    
    % ChangeInternal growth:Number of requisitions (1)
    
    
    3,104
    
    
    
    2,822
    
    
    
    10.0
    %
    
    
    9,615
    
    
    
    8,446
    
    
    
    13.8
    %Average revenue per
requisition (2)
    
    $
    23.74
    
    
    $
    23.41
    
    
    
    1.4
    %
    
    $
    23.31
    
    
    $
    23.10
    
    
    
    0.9
    %Total internal revenue (1)
    
    $
    73,686
    
    
    $
    66,054
    
    
    
    11.6
    %
    
    $
    224,089
    
    
    $
    195,064
    
    
    
    14.9
    %Acquired revenue (3)
    
    
    580
    
    
    
    
    
    
    
    
    
    
    
    2,984
    
    
    
    Total
    
    $
    74,266
    
    
    $
    66,054
    
    
    
    12.4
    %
    
    $
    227,073
    
    
    $
    195,064
    
    
    
    16.4
    %
 
 (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 those laboratories in the prior year, and adjusted for the impact
resulting from any differences in the number of billing days in the comparable periods.(2)
    
    Computed by dividing internal revenue by the number of requisitions.(3)
    
    Acquired revenue represents revenue recognized from our acquired laboratories for the
comparable current year period that we did not own them in the prior year. 20




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##### Table of Contents



Animal Hospital Segment
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    % Change
    
    
    2007
    
    
    2006
    
    
    % ChangeSame-store facilities:Orders (1)(2)
    
    
    1,380
    
    
    
    1,385
    
    
    
    (0.3
    )%
    
    
    3,919
    
    
    
    3,911
    
    
    
    0.2
    %Average revenue
per order (3)
    
    $
    138.48
    
    
    $
    130.59
    
    
    
    6.0
    %
    
    $
    140.80
    
    
    $
    133.12
    
    
    
    5.8
    %Same-store revenue
(1)
    
    $
    191,135
    
    
    $
    180,842
    
    
    
    5.7
    %
    
    $
    551,853
    
    
    $
    520,689
    
    
    
    6.0
    %Business day
adjustment
(4)
    
    
    
    
    
    
    1,619
    
    
    
    
    
    
    
    
    
    
    
    1,550Net acquired revenue
(5)
    
    
    38,274
    
    
    
    1,131
    
    
    
    
    
    
    
    83,193
    
    
    
    17,878Total
    
    $
    229,409
    
    
    $
    183,592
    
    
    
    25.0
    %
    
    $
    635,046
    
    
    $
    540,117
    
    
    
    17.6
    %
 
 (1)
    
    Same-store revenue and orders were calculated using animal hospital operating results,
adjusted to exclude the operating results for newly acquired animal hospitals that we did not
own as of the beginning of the comparable period in the prior year and adjusted for the impact
resulting from any differences in the number of business days in the comparable periods.
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. 21




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##### Table of Contents



(4)
    
    The 2006 business day adjustment reflects the impact of one additional business day in 2006
as compared to 2007 for both 2007 periods presented.(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, 2006 for the three-month analysis, and January 1, 2006
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.     Medical Technology Segment
 Critical Accounting Policies
   Intercompany Revenue
  22




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##### Table of Contents



Liquidity and Capital Resources
  Nine Months EndedSeptember 30,2007
    
    
    2006Cash provided by (used in):Operating activities
    
    $
    135,153
    
    
    $
    90,738Investing activities
    
    
    (259,167
    )
    
    
    (63,483
    )Financing activities
    
    
    166,065
    
    
    
    (52,922
    )Increase (decrease) in cash and cash equivalents
    
    
    42,051
    
    
    
    (25,667
    )Cash and cash equivalents at beginning of year
    
    
    45,104
    
    
    
    58,488Cash and cash equivalents at end of period
    
    $
    87,155
    
    
    $
    32,821
 Cash Flows from Operating Activities
  Cash Flows from Investing Activities
   Cash Flows from Financing Activities
  23




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##### Table of Contents



Future Cash Requirements
  Total
    
    
    2007 (1)
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterLong-term debt
    
    $
    531,485
    
    
    $
    1,755
    
    
    $
    6,106
    
    
    $
    5,828
    
    
    $
    5,855
    
    
    $
    511,941
    
    
    $
    Capital lease obligations
    
    
    30,717
    
    
    
    465
    
    
    
    1,837
    
    
    
    1,909
    
    
    
    2,073
    
    
    
    2,181
    
    
    
    22,252Operating leases
    
    
    564,508
    
    
    
    8,396
    
    
    
    37,348
    
    
    
    37,013
    
    
    
    35,067
    
    
    
    34,822
    
    
    
    411,862Fixed cash interest expense
    
    
    14,874
    
    
    
    600
    
    
    
    2,469
    
    
    
    2,131
    
    
    
    1,750
    
    
    
    1,434
    
    
    
    6,490Variable cash interest expense (2)
    
    
    113,837
    
    
    
    8,427
    
    
    
    30,882
    
    
    
    30,306
    
    
    
    31,815
    
    
    
    12,407
    
    
    
    Swap agreements (2)
    
    
    3,284
    
    
    
    
    
    
    
    1,816
    
    
    
    1,468
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    44,442
    
    
    
    11,663
    
    
    
    8,134
    
    
    
    8,899
    
    
    
    9,744
    
    
    
    6,002
    
    
    
    Other long-term liabilities (3)
    
    
    53,264
    
    
    
    531
    
    
    
    1,003
    
    
    
    934
    
    
    
    826
    
    
    
    665
    
    
    
    49,305Earn-out payments (4)
    
    
    938
    
    
    
    213
    
    
    
    375
    
    
    
    350
    
    
    
    
    
    
    
    
    
    
    
    $
    1,357,349
    
    
    $
    32,050
    
    
    $
    89,970
    
    
    $
    88,838
    
    
    $
    87,130
    
    
    $
    569,452
    
    
    $
    489,909
 
 (1)
    
    Consists of the period from October 1, 2007 through December 31, 2007.(2)
    
    We have variable-rate debt. The interest payments on our variable-rate debt are based on a
variable-rate component plus a margin of 1.50%. For purposes of this computation, we have
assumed that the interest rate on our variable-rate debt (including the margin of 1.50%) will
be 6.37%, 5.88%, 5.83%, 6.18% and 6.43% for years 2007 through 2011, respectively. These
estimates are based on interest rate projections used to price our interest rate swap
agreements. Our consolidated financial statements included in our 2006 Annual Report on Form
10-K discuss these variable-rate notes in more detail.(3)
    
    Includes deferred income taxes of $45.6 million.(4)
    
    Represents contractual arrangements whereby additional cash may be paid to former owners of
acquired businesses upon attainment of specified performance targets.  Debt Related Covenants
    24




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##### Table of Contents



Interest Rate Swap Agreements
  Fixed interest rate
    
    
    4.07%
    
    
    
    3.98%
    
    
    
    5.51%
    
    
    
    4.95%
    
    
    
    5.34%Notional amount (in millions)
    
    
    $50.0
    
    
    
    $50.0
    
    
    
    $50.0
    
    
    
    $75.0
    
    
    
    $100.0Effective date
    
    
    5/26/2005
    
    
    
    6/2/2005
    
    
    
    6/20/2006
    
    
    
    4/30/2007
    
    
    
    6/11/2007Expiration date
    
    
    5/26/2008
    
    
    
    5/31/2008
    
    
    
    6/30/2009
    
    
    
    4/30/2009
    
    
    
    12/31/2009Counterparties
    
    Goldman Sachs
    
    Wells Fargo
    
    Goldman Sachs
    
    Wells Fargo
    
    Goldman Sachs
  Description of Indebtedness
 Senior Credit Facility
    Other Debt
  Critical Accounting Policies
  Accounting for Uncertainty in Income Taxes  an interpretation of FASB
Statement No. 109
 25




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##### Table of Contents



Recent Accounting Pronouncements
  Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB No.115
 Forward-Looking Statements
 Risk Factors
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Fixed interest rate
    
    
    4.07%
    
    
    
    3.98%
    
    
    
    5.51%
    
    
    
    4.95%
    
    
    
    5.34%Notional amount (in millions)
    
    
    $50.0
    
    
    
    $50.0
    
    
    
    $50.0
    
    
    
    $75.0
    
    
    
    $100.0Effective date
    
    
    5/26/2005
    
    
    
    6/2/2005
    
    
    
    6/20/2006
    
    
    
    4/30/2007
    
    
    
    6/11/2007Expiration date
    
    
    5/26/2008
    
    
    
    5/31/2008
    
    
    
    6/30/2009
    
    
    
    4/30/2009
    
    
    
    12/31/2009Counterparties
    
    Goldman Sachs
    
    Wells Fargo
    
    Goldman Sachs
    
    Wells Fargo
    
    Goldman Sachs
   
 ITEM 4. CONTROLS AND PROCEDURES
  26




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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
 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.
 27




---



##### Table of Contents



SIGNATURE
  Date: November 6, 2007
    
    By:
    
    /s/ Tomas W. FullerTomas W. FullerChief Financial Officer
 28




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##### Table of Contents



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.
 29