##### Table of Contents







UNITED STATES
SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q


þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended June 30, 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
    
    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




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
June 30, 2009
 Table of Contents
 PageNumberPart I.
    
    Financial InformationItem 1.
    
    Financial Statements (Unaudited)Condensed, Consolidated Balance Sheets as of June 30, 2009 and
December 31, 2008
    
    
    1Condensed, Consolidated Income Statements for the Three and Six Months
Ended June 30, 2009 and 2008
    
    
    2Condensed, Consolidated Statements of Equity for the Six Months
Ended June 30, 2009 and 2008
    
    
    3Condensed, Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2009 and 2008
    
    
    4Notes to Condensed, Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4.
    
    Controls and Procedures
    
    
    34Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    35Item 1A.
    
    Risk Factors
    
    
    35Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3.
    
    Defaults Upon Senior Securities
    
    
    35Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    35Item 5.
    
    Other Information
    
    
    35Item 6.
    
    Exhibits
    
    
    35Signature
    
    
    36Exhibit Index
    
    
    37EX-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)
 June 30,
    
    
    December 31,2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    138,895
    
    
    $
    88,959Trade accounts receivable, less allowance for uncollectible accounts of $11,725
and $11,025 at June 30, 2009 and December 31, 2008, respectively
    
    
    49,169
    
    
    
    43,453Inventory
    
    
    26,322
    
    
    
    26,631Prepaid expenses and other
    
    
    19,689
    
    
    
    18,800Deferred income taxes
    
    
    16,980
    
    
    
    15,938Prepaid income taxes
    
    
    4,105
    
    
    
    5,287Total current assets
    
    
    255,160
    
    
    
    199,068Property and equipment, less accumulated depreciation and amortization of $152,179
and $138,431 at June 30, 2009 and December 31, 2008, respectively
    
    
    276,663
    
    
    
    263,443Goodwill
    
    
    951,701
    
    
    
    922,057Other intangible assets, net
    
    
    36,195
    
    
    
    35,645Notes receivable, net
    
    
    4,660
    
    
    
    12,893Deferred financing costs, net
    
    
    826
    
    
    
    1,067Other
    
    
    17,699
    
    
    
    14,865Total assets
    
    $
    1,542,904
    
    
    $
    1,449,038Liabilities and EquityCurrent liabilities:Current portion of long-term obligations
    
    $
    8,178
    
    
    $
    7,771Accounts payable
    
    
    28,967
    
    
    
    26,087Accrued payroll and related liabilities
    
    
    43,150
    
    
    
    42,840Other accrued liabilities
    
    
    42,237
    
    
    
    46,424Total current liabilities
    
    
    122,532
    
    
    
    123,122Long-term obligations, less current portion
    
    
    540,682
    
    
    
    544,860Deferred income taxes
    
    
    61,295
    
    
    
    47,331Other liabilities
    
    
    9,408
    
    
    
    9,890Total liabilities
    
    
    733,917
    
    
    
    725,203Commitments and contingenciesPreferred 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, 84,872 and 84,633
shares outstanding as of June 30, 2009 and December 31, 2008, respectively
    
    
    85
    
    
    
    85Additional paid-in capital
    
    
    316,772
    
    
    
    308,674Accumulated earnings
    
    
    478,297
    
    
    
    408,582Accumulated other comprehensive loss
    
    
    (3,094
    )
    
    
    (6,352
    )Total VCA Antech, Inc. stockholders equity
    
    
    792,060
    
    
    
    710,989Noncontrolling interest
    
    
    16,927
    
    
    
    12,846Total equity
    
    
    808,987
    
    
    
    723,835Total liabilities and equity
    
    $
    1,542,904
    
    
    $
    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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    $
    344,876
    
    
    $
    334,434
    
    
    $
    660,726
    
    
    $
    642,266Direct costs
    
    
    247,264
    
    
    
    237,468
    
    
    
    480,673
    
    
    
    462,269Gross profit
    
    
    97,612
    
    
    
    96,966
    
    
    
    180,053
    
    
    
    179,997Selling, general and administrative expense
    
    
    23,205
    
    
    
    22,809
    
    
    
    46,394
    
    
    
    45,987Write-off of internal-use software
    
    
    5,271
    
    
    
    
    
    
    
    5,271
    
    
    
    Loss (gain) on sale of assets
    
    
    172
    
    
    
    127
    
    
    
    (76
    )
    
    
    (57
    )Operating income
    
    
    68,964
    
    
    
    74,030
    
    
    
    128,464
    
    
    
    134,067Interest expense, net
    
    
    5,726
    
    
    
    7,045
    
    
    
    11,844
    
    
    
    14,660Other income
    
    
    (20
    )
    
    
    (309
    )
    
    
    (130
    )
    
    
    (132
    )Income before provision for income taxes
    
    
    63,258
    
    
    
    67,294
    
    
    
    116,750
    
    
    
    119,539Provision for income taxes
    
    
    24,290
    
    
    
    25,893
    
    
    
    44,901
    
    
    
    45,979Net income
    
    
    38,968
    
    
    
    41,401
    
    
    
    71,849
    
    
    
    73,560Net income attributable to noncontrolling interests
    
    
    1,223
    
    
    
    1,084
    
    
    
    2,134
    
    
    
    2,041Net income attributable to VCA Antech, Inc.
    
    $
    37,745
    
    
    $
    40,317
    
    
    $
    69,715
    
    
    $
    71,519Basic earnings per share
    
    $
    0.45
    
    
    $
    0.48
    
    
    $
    0.82
    
    
    $
    0.85Diluted earnings per share
    
    $
    0.44
    
    
    $
    0.47
    
    
    $
    0.81
    
    
    $
    0.83Weighted-average shares outstanding
for basic earnings per share
    
    
    84,825
    
    
    
    84,371
    
    
    
    84,753
    
    
    
    84,359Weighted-average shares outstanding
for diluted earnings per share
    
    
    85,937
    
    
    
    85,725
    
    
    
    85,629
    
    
    
    85,805
  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
    
    
    Income (Loss)
    
    
    Interest
    
    
    TotalBalances, December 31, 2007
    
    
    84,335
    
    
    $
    84
    
    
    $
    296,037
    
    
    $
    275,598
    
    
    $
    (3,335
    )
    
    $
    10,207
    
    
    $
    578,591Net
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,519
    
    
    
    
    
    
    
    2,041
    
    
    
    73,560Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    (18
    )Unrealized loss on hedging
instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,086
    )
    
    
    
    
    
    
    (1,086
    )Losses on hedging instruments
reclassified to income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,461
    
    
    
    
    
    
    
    1,461Formation of noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,769
    
    
    
    1,769Distribution to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,456
    )
    
    
    (1,456
    )Purchase of noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (158
    )
    
    
    (158
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    3,322
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,322Stock option activity and awards
    
    
    62
    
    
    
    
    
    
    
    892
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    892Tax benefit from stock options and awards
    
    
    
    
    
    
    
    
    
    
    355
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    355Balances, June 30, 2008
    
    
    84,397
    
    
    $
    84
    
    
    $
    300,606
    
    
    $
    347,117
    
    
    $
    (2,978
    )
    
    $
    12,403
    
    
    $
    657,232Balances, December 31, 2008
    
    
    84,633
    
    
    $
    85
    
    
    $
    308,674
    
    
    $
    408,582
    
    
    $
    (6,352
    )
    
    $
    12,846
    
    
    $
    723,835Net
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,715
    
    
    
    
    
    
    
    2,134
    
    
    
    71,849Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177
    
    
    
    
    
    
    
    177Unrealized gain on foreign currency,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    96Unrealized loss on hedging
instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (652
    )
    
    
    
    
    
    
    (652
    )Losses on hedging instruments
reclassified to income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,637
    
    
    
    
    
    
    
    3,637Formation of noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,440
    
    
    
    3,440Distribution to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,493
    )
    
    
    (1,493
    )Restricted stock unit grant
    
    
    
    
    
    
    
    
    
    
    1,941
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,941Share-based compensation
    
    
    
    
    
    
    
    
    
    
    3,920
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,920Stock option activity and awards
    
    
    239
    
    
    
    
    
    
    
    2,895
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,895Stock repurchases
    
    
    
    
    
    
    
    
    
    
    (549
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (549
    )Tax benefit from stock options and awards
    
    
    
    
    
    
    
    
    
    
    154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154Tax shortfall and other from stock
options and awards
    
    
    
    
    
    
    
    
    
    
    (263
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (263
    )Balances, June 30, 2009
    
    
    84,872
    
    
    $
    85
    
    
    $
    316,772
    
    
    $
    478,297
    
    
    $
    (3,094
    )
    
    $
    16,927
    
    
    $
    808,987
  3




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Condensed, Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 Six Months EndedJune 30,2009
    
    
    2008Cash flows from operating activities:Net
income
    
    $
    71,849
    
    
    $
    73,560Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    18,840
    
    
    
    15,325Amortization of debt issue costs
    
    
    241
    
    
    
    233Provision for uncollectible accounts
    
    
    2,936
    
    
    
    2,008Gain on sale of assets
    
    
    (76
    )
    
    
    (57
    )Share-based compensation
    
    
    3,920
    
    
    
    3,322Deferred income taxes
    
    
    10,944
    
    
    
    5,431Excess tax benefit from exercise of stock options
    
    
    (154
    )
    
    
    (355
    )Write-off of internal-use software
    
    
    5,271
    
    
    
    Other
    
    
    (218
    )
    
    
    (246
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (7,989
    )
    
    
    (8,004
    )Inventory, prepaid expenses and other assets
    
    
    (2,929
    )
    
    
    (4,519
    )Accounts payable and other accrued liabilities
    
    
    4,357
    
    
    
    2,307Accrued payroll and related liabilities
    
    
    2,134
    
    
    
    1,465Income taxes
    
    
    1,073
    
    
    
    10,979Net cash provided by operating activities
    
    
    110,199
    
    
    
    101,449Cash flows from investing activities:Business acquisitions, net of cash acquired
    
    
    (28,144
    )
    
    
    (80,367
    )Real estate acquired in connection with business acquisitions
    
    
    (3,828
    )
    
    
    (13,098
    )Property and equipment additions
    
    
    (25,208
    )
    
    
    (25,543
    )Proceeds from sale of assets
    
    
    108
    
    
    
    1,753Other
    
    
    (281
    )
    
    
    (14,987
    )Net cash used in investing activities
    
    
    (57,353
    )
    
    
    (132,242
    )Cash flows from financing activities:Repayment of long-term obligations
    
    
    (3,899
    )
    
    
    (3,925
    )Distributions to noncontrolling interest partners
    
    
    (1,493
    )
    
    
    (1,456
    )Proceeds from issuance of common stock under stock option plans
    
    
    2,895
    
    
    
    892Excess tax benefit from exercise of stock options
    
    
    154
    
    
    
    355Stock repurchases
    
    
    (549
    )
    
    
    Net cash used in financing activities
    
    
    (2,892
    )
    
    
    (4,134
    )Effect of currency exchange rate changes on cash and cash equivalents
    
    
    (18
    )
    
    
    (15
    )Increase (decrease) in cash and cash equivalents
    
    
    49,936
    
    
    
    (34,942
    )Cash and cash equivalents at beginning of period
    
    
    88,959
    
    
    
    110,866Cash and cash equivalents at end of period
    
    $
    138,895
    
    
    $
    75,924Supplemental disclosures of cash flow information:Interest paid.
    
    $
    12,316
    
    
    $
    14,288Income taxes paid
    
    $
    32,884
    
    
    $
    29,569Supplemental schedule of non-cash investing and financing activities:Detail of acquisitions:Fair value of assets acquired
    
    $
    35,520
    
    
    $
    82,235Cash paid for acquisitions
    
    
    (24,928
    )
    
    
    (78,022
    )Non-cash note conversion to equity interest in subsidiary
    
    
    (5,700
    )
    
    
    Liabilities assumed
    
    $
    4,892
    
    
    $
    4,213
  4




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements
June 30, 2009
(Unaudited)
 1. Nature of Operations
     2. Basis of Presentation
 Noncontrolling Interests in Consolidated Financial Statements  an amendment of Accounting
Research Bulletins (ARB) No. 51 (SFAS No. 160).
   3. Goodwill and Other Intangible Assets
 Determination of the Useful Life of
Intangible Assets 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
    
    
    25,342
    
    
    
    92
    
    
    
    
    
    
    
    25,434Goodwill related to noncontrolling interests
    
    
    3,440
    
    
    
    
    
    
    
    
    
    
    
    3,440Other
(1)
    
    
    712
    
    
    
    58
    
    
    
    
    
    
    
    770Balance as of June 30, 2009
    
    $
    836,697
    
    
    $
    95,844
    
    
    $
    19,160
    
    
    $
    951,701
 
 (1)
    
    Other includes purchase price adjustments, buy-outs and currency translation adjustments. Other Intangible Assets
  As of June 30, 2009
    
    
    As of December 31, 2008Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountNon-contractual customer
relationships
    
    $
    29,878
    
    
    $
    (5,606
    )
    
    $
    24,272
    
    
    $
    26,412
    
    
    $
    (3,689
    )
    
    $
    22,723Covenants not-to-compete
    
    
    14,301
    
    
    
    (6,756
    )
    
    
    7,545
    
    
    
    16,195
    
    
    
    (8,001
    )
    
    
    8,194Favorable lease asset
    
    
    4,119
    
    
    
    (293
    )
    
    
    3,826
    
    
    
    4,689
    
    
    
    (629
    )
    
    
    4,060Technology
    
    
    1,270
    
    
    
    (1,203
    )
    
    
    67
    
    
    
    1,270
    
    
    
    (1,076
    )
    
    
    194Trademarks
    
    
    770
    
    
    
    (298
    )
    
    
    472
    
    
    
    699
    
    
    
    (251
    )
    
    
    448Client
lists
    
    
    73
    
    
    
    (60
    )
    
    
    13
    
    
    
    84
    
    
    
    (58
    )
    
    
    26Total
    
    $
    50,411
    
    
    $
    (14,216
    )
    
    $
    36,195
    
    
    $
    49,349
    
    
    $
    (13,704
    )
    
    $
    35,645
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Aggregate amortization expense
    
    $
    1,823
    
    
    $
    1,743
    
    
    $
    3,630
    
    
    $
    2,947
 6




---



##### 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
    
    $
    3,7422010
    
    
    6,9902011
    
    
    6,1652012
    
    
    5,2762013
    
    
    3,226Thereafter
    
    
    10,796Total
    
    $
    36,195
 4. Noncontrolling Interests
  5. Other Accrued Liabilities
  June 30,
    
    
    December 31,2009
    
    
    2008Accrued workers compensation insurance
    
    $
    4,116
    
    
    $
    4,436Deferred revenue
    
    
    7,344
    
    
    
    7,303Interest rate swap liability
    
    
    3,926
    
    
    
    8,899Other
    
    
    26,851
    
    
    
    25,786$
    42,237
    
    
    $
    46,424
 6. Interest Rate Swap Agreements
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedging
Activities
 Accounting for Derivative Instruments and Hedging Activities,
 7




---



##### 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
    
    5.51%
    
    5.34%
    
    2.64%Notional amount (in millions)
    
    $50.0
    
    $100.0
    
    $100.0Effective date
    
    6/20/2006
    
    6/11/2007
    
    2/12/2008Expiration date
    
    6/30/2009
    
    12/31/2009
    
    2/26/2010Counterparty
    
    Goldman Sachs
    
    Goldman Sachs
    
    Wells FargoQualifies for hedge accounting
    
    Yes
    
    Yes
    
    Yes
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008Cash paid (1)
    
    $
    2,727
    
    
    $
    1,703
    
    
    $
    5,972
    
    
    $
    2,391Recognized gain from ineffectiveness (2)
    
    $
    (22
    )
    
    $
    (213
    )
    
    $
    (71
    )
    
    $
    (36
    )
 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
 (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 for purposes of controlling cash paid
for interest. 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.(2)
    
    These recognized gains are included in other income in our Condensed, Consolidated Income
Statements.
 7. Fair Value Measurements
 Fair Value
Measurement
  
    
    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 Instrument
 Disclosures
about Fair Value of Financial Instruments Interim Financial Reporting
  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 June 30, 2009
    
    
    As of December 31, 2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueVariable-rate long-term debt
    
    $
    519,585
    
    
    $
    508,926
    
    
    $
    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 June 30, 2009Other accrued
liabilities
    
    $
    (3,926
    )
    
    $
    
    
    
    $
    (3,926
    )
    
    $
    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
    
    
    (89,005
    )
    
    $
    32.77Forfeited/Canceled
    
    
    (10,875
    )
    
    $
    34.12Outstanding at June 30, 2009
    
    
    636,451
    
    
    $
    31.17
 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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income attributable to VCA Antech, Inc.
    
    $
    37,745
    
    
    $
    40,317
    
    
    $
    69,715
    
    
    $
    71,519Weighted-average common shares outstanding:Basic
    
    
    84,825
    
    
    
    84,371
    
    
    
    84,753
    
    
    
    84,359Effect of dilutive potential common shares:Stock options
    
    
    902
    
    
    
    1,244
    
    
    
    709
    
    
    
    1,333Non-vested shares
    
    
    210
    
    
    
    110
    
    
    
    167
    
    
    
    113Diluted
    
    
    85,937
    
    
    
    85,725
    
    
    
    85,629
    
    
    
    85,805Basic earnings per share
    
    $
    0.45
    
    
    $
    0.48
    
    
    $
    0.82
    
    
    $
    0.85Diluted earnings per share
    
    $
    0.44
    
    
    $
    0.47
    
    
    $
    0.81
    
    
    $
    0.83
   10. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    38,968
    
    
    $
    41,401
    
    
    $
    71,849
    
    
    $
    73,560Other comprehensive income:Foreign currency translation adjustments
    
    
    355
    
    
    
    (18
    )
    
    
    177
    
    
    
    (18
    )Unrealized gain on foreign currency
    
    
    252
    
    
    
    
    
    
    
    157
    
    
    
    Tax
expense
    
    
    (98
    )
    
    
    
    
    
    
    (61
    )
    
    
    Unrealized (loss) gain on hedging instruments
    
    
    (456
    )
    
    
    3,675
    
    
    
    (1,070
    )
    
    
    (1,765
    )Tax benefit (expense)
    
    
    178
    
    
    
    (1,438
    )
    
    
    418
    
    
    
    679Losses on hedging instruments reclassified to income
    
    
    2,727
    
    
    
    1,703
    
    
    
    5,972
    
    
    
    2,391Tax
benefit
    
    
    (1,066
    )
    
    
    (662
    )
    
    
    (2,335
    )
    
    
    (930
    )Other comprehensive income
    
    
    1,892
    
    
    
    3,260
    
    
    
    3,258
    
    
    
    357Total comprehensive income
    
    
    40,860
    
    
    
    44,661
    
    
    
    75,107
    
    
    
    73,917Comprehensive income attributable to noncontrolling interests
    
    
    1,223
    
    
    
    1,084
    
    
    
    2,134
    
    
    
    2,041Comprehensive income attributable to VCA Antech, Inc.
    
    $
    39,637
    
    
    $
    43,577
    
    
    $
    72,973
    
    
    $
    71,876
 12




---



##### 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 June 30, 2009External
revenue
    
    $
    261,287
    
    
    $
    74,358
    
    
    $
    9,231
    
    
    $
    
    
    
    $
    
    
    
    $
    344,876Intercompany revenue
    
    
    
    
    
    
    8,453
    
    
    
    1,397
    
    
    
    
    
    
    
    (9,850
    )
    
    
    Total
revenue
    
    
    261,287
    
    
    
    82,811
    
    
    
    10,628
    
    
    
    
    
    
    
    (9,850
    )
    
    
    344,876Direct
costs
    
    
    208,154
    
    
    
    41,781
    
    
    
    6,795
    
    
    
    
    
    
    
    (9,466
    )
    
    
    247,264Gross
profit
    
    
    53,133
    
    
    
    41,030
    
    
    
    3,833
    
    
    
    
    
    
    
    (384
    )
    
    
    97,612Selling, general and administrative expense
    
    
    5,378
    
    
    
    5,644
    
    
    
    2,658
    
    
    
    9,525
    
    
    
    
    
    
    
    23,205Write-off of internal-use software
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,271
    
    
    
    
    
    
    
    5,271Loss on sale of assets
    
    
    129
    
    
    
    25
    
    
    
    5
    
    
    
    13
    
    
    
    
    
    
    
    172Operating income (loss)
    
    $
    47,626
    
    
    $
    35,361
    
    
    $
    1,170
    
    
    $
    (14,809
    )
    
    $
    (384
    )
    
    $
    68,964Depreciation and amortization
    
    $
    6,560
    
    
    $
    2,280
    
    
    $
    380
    
    
    $
    668
    
    
    $
    (200
    )
    
    $
    9,688Capital expenditures
    
    $
    9,753
    
    
    $
    1,989
    
    
    $
    238
    
    
    $
    1,793
    
    
    $
    (410
    )
    
    $
    13,363Three Months Ended June 30, 2008External
revenue
    
    $
    251,001
    
    
    $
    73,591
    
    
    $
    9,842
    
    
    $
    
    
    
    $
    
    
    
    $
    334,434Intercompany revenue
    
    
    
    
    
    
    8,249
    
    
    
    1,996
    
    
    
    
    
    
    
    (10,245
    )
    
    
    Total
revenue
    
    
    251,001
    
    
    
    81,840
    
    
    
    11,838
    
    
    
    
    
    
    
    (10,245
    )
    
    
    334,434Direct
costs
    
    
    198,381
    
    
    
    40,966
    
    
    
    7,616
    
    
    
    
    
    
    
    (9,495
    )
    
    
    237,468Gross
profit
    
    
    52,620
    
    
    
    40,874
    
    
    
    4,222
    
    
    
    
    
    
    
    (750
    )
    
    
    96,966Selling, general and administrative expense
    
    
    5,694
    
    
    
    5,185
    
    
    
    2,948
    
    
    
    8,982
    
    
    
    
    
    
    
    22,809Loss on sale of assets
    
    
    104
    
    
    
    11
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    127Operating income (loss)
    
    $
    46,822
    
    
    $
    35,678
    
    
    $
    1,274
    
    
    $
    (8,994
    )
    
    $
    (750
    )
    
    $
    74,030Depreciation and amortization
    
    $
    5,535
    
    
    $
    1,808
    
    
    $
    404
    
    
    $
    454
    
    
    $
    (139
    )
    
    $
    8,062Capital expenditures
    
    $
    12,091
    
    
    $
    3,637
    
    
    $
    175
    
    
    $
    617
    
    
    $
    (440
    )
    
    $
    16,080
 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
    
    
    TotalSix Months Ended June 30, 2009External revenue
    
    $
    499,645
    
    
    $
    143,850
    
    
    $
    17,231
    
    
    $
    
    
    
    $
    
    
    
    $
    660,726Intercompany revenue
    
    
    
    
    
    
    16,450
    
    
    
    2,555
    
    
    
    
    
    
    
    (19,005
    )
    
    
    Total revenue
    
    
    499,645
    
    
    
    160,300
    
    
    
    19,786
    
    
    
    
    
    
    
    (19,005
    )
    
    
    660,726Direct costs
    
    
    403,348
    
    
    
    83,264
    
    
    
    12,428
    
    
    
    
    
    
    
    (18,367
    )
    
    
    480,673Gross
profit
    
    
    96,297
    
    
    
    77,036
    
    
    
    7,358
    
    
    
    
    
    
    
    (638
    )
    
    
    180,053Selling, general and administrative expense
    
    
    10,762
    
    
    
    11,211
    
    
    
    5,742
    
    
    
    18,679
    
    
    
    
    
    
    
    46,394Write-off of internal-use software
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,271
    
    
    
    
    
    
    
    5,271(Gain) loss on sale of assets
    
    
    (130
    )
    
    
    27
    
    
    
    6
    
    
    
    21
    
    
    
    
    
    
    
    (76
    )Operating income (loss)
    
    $
    85,665
    
    
    $
    65,798
    
    
    $
    1,610
    
    
    $
    (23,971
    )
    
    $
    (638
    )
    
    $
    128,464Depreciation and amortization
    
    $
    12,859
    
    
    $
    4,463
    
    
    $
    749
    
    
    $
    1,156
    
    
    $
    (387
    )
    
    $
    18,840Capital expenditures
    
    $
    18,876
    
    
    $
    4,118
    
    
    $
    318
    
    
    $
    2,678
    
    
    $
    (782
    )
    
    $
    25,208Six Months Ended June 30, 2008External revenue
    
    $
    477,101
    
    
    $
    142,649
    
    
    $
    22,516
    
    
    $
    
    
    
    $
    
    
    
    $
    642,266Intercompany revenue
    
    
    
    
    
    
    15,920
    
    
    
    3,171
    
    
    
    
    
    
    
    (19,091
    )
    
    
    Total revenue
    
    
    477,101
    
    
    
    158,569
    
    
    
    25,687
    
    
    
    
    
    
    
    (19,091
    )
    
    
    642,266Direct costs
    
    
    383,344
    
    
    
    80,353
    
    
    
    16,552
    
    
    
    
    
    
    
    (17,980
    )
    
    
    462,269Gross
profit
    
    
    93,757
    
    
    
    78,216
    
    
    
    9,135
    
    
    
    
    
    
    
    (1,111
    )
    
    
    179,997Selling, general and administrative expense
    
    
    11,172
    
    
    
    10,136
    
    
    
    6,382
    
    
    
    18,297
    
    
    
    
    
    
    
    45,987(Gain) loss on sale of assets
    
    
    (89
    )
    
    
    
    
    
    
    20
    
    
    
    12
    
    
    
    
    
    
    
    (57
    )Operating income (loss)
    
    $
    82,674
    
    
    $
    68,080
    
    
    $
    2,733
    
    
    $
    (18,309
    )
    
    $
    (1,111
    )
    
    $
    134,067Depreciation and amortization
    
    $
    10,418
    
    
    $
    3,455
    
    
    $
    801
    
    
    $
    913
    
    
    $
    (262
    )
    
    $
    15,325Capital expenditures
    
    $
    19,146
    
    
    $
    5,415
    
    
    $
    257
    
    
    $
    1,442
    
    
    $
    (717
    )
    
    $
    25,543At June 30, 2009Total assets
    
    $
    1,117,137
    
    
    $
    203,309
    
    
    $
    41,394
    
    
    $
    190,720
    
    
    $
    (9,656
    )
    
    $
    1,542,904At 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. Officers Compensation
     c. Other Contingencies
  15




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
 13. Recent Accounting Pronouncements
 Business Combinations Business Combinations Accounting
for Income Taxes
 Interim Disclosures about Fair
Value of Financial Instruments
 Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies
 Subsequent Events
 Amendments to FASB Interpretation No. 46(R) Consolidation of Variable Interest
Entities
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 The Hierarchy of Generally Accepted
Accounting Principles The FASB Accounting Standards Codification
 16




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##### Table of Contents



VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
 14. Subsequent Events
  17




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 PageNumberIntroduction
    
    
    19Executive Overview
    
    
    19Critical Accounting Policies
    
    
    21Consolidated Results of Operations
    
    
    21Segment Results
    
    
    23Liquidity and Capital Resources
    
    
    28Recent Accounting Pronouncements
    
    
    32
 18




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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
August 7, 2009, and we undertake no duty to update this information. Shareholders and prospective
investors can find information filed with the SEC after August 7, 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 June 30, 2009, our animal hospital network consisted of 480 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 June 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
  19




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##### Table of Contents



Acquisitions and Facilities
  Animal Hospitals:Beginning of period
    
    
    471Acquisitions
    
    
    14Acquisitions relocated into our existing animal hospitals
    
    
    (3
    )Closed
    
    
    (2
    )End of period
    
    
    480Laboratories:Beginning of period
    
    
    44Acquisitions (1)
    
    
    Created
    
    
    2End of period
    
    
    46
 
 (1)
    
    During the six months ended June 30, 2009 we acquired one pathology office, bringing the
total number of pathology offices to four. Pathology offices are not included in our
laboratory count.  Preliminary Purchase Price:Cash
(1)
    
    $
    24,928Non-cash note conversion to equity interest in subsidiary
    
    
    5,700Other liabilities assumed
    
    
    4,892Total
    
    $
    35,520Preliminary Allocation of the Purchase Price:Tangible assets
    
    $
    5,754Identifiable intangible assets
    
    
    4,332Goodwill
(2)
    
    
    25,434Total
    
    $
    35,520
 
 (1)
    
    The $3.2 million difference between cash paid for acquisitions per this schedule and per the
condensed, consolidated statement of cash flows is due to payments of earn-outs and holdbacks
and acquisition adjustments related to previous acquisitions.(2)
    
    We expect that $17.2 million of the goodwill recorded for these acquisitions as of June 30,
2009 will be fully deductible for income tax purposes.  20




---



##### Table of Contents



Critical Accounting Policies
  Valuation of Goodwill
 Goodwill and
Other Intangible Assets
 
 Consolidated Results of Operations
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008Revenue:Animal Hospital
    
    
    75.8
    %
    
    
    75.1
    %
    
    
    75.6
    %
    
    
    74.3
    %Laboratory
    
    
    24.0
    
    
    
    24.5
    
    
    
    24.3
    
    
    
    24.7Medical Technology
    
    
    3.1
    
    
    
    3.5
    
    
    
    3.0
    
    
    
    4.0Intercompany
    
    
    (2.9
    )
    
    
    (3.1
    )
    
    
    (2.9
    )
    
    
    (3.0
    )Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Direct costs
    
    
    71.7
    
    
    
    71.0
    
    
    
    72.7
    
    
    
    72.0Gross profit
    
    
    28.3
    
    
    
    29.0
    
    
    
    27.3
    
    
    
    28.0Selling, general and administrative expense
    
    
    6.7
    
    
    
    6.8
    
    
    
    7.0
    
    
    
    7.2Write-off of internal-use software
    
    
    1.5
    
    
    
    
    
    
    
    0.9
    
    
    
    Loss (gain) on sale of assets
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    (0.1
    )Operating income
    
    
    20.0
    
    
    
    22.1
    
    
    
    19.4
    
    
    
    20.9Interest expense, net
    
    
    1.7
    
    
    
    2.1
    
    
    
    1.7
    
    
    
    2.3Other income
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    Income before provision for income taxes
    
    
    18.3
    
    
    
    20.1
    
    
    
    17.7
    
    
    
    18.6Provision for income taxes
    
    
    7.0
    
    
    
    7.7
    
    
    
    6.8
    
    
    
    7.2Net income
    
    
    11.3
    
    
    
    12.4
    
    
    
    10.9
    
    
    
    11.4Net income attributable to noncontrolling interests
    
    
    0.4
    
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3Net income attributable to VCA Antech, Inc
    
    
    10.9
    %
    
    
    12.1
    %
    
    
    10.6
    %
    
    
    11.1
    %
 21




---



##### Table of Contents



Revenue
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008% of
    
    
    
    
    
    
    % of
    
    
    %
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    %$
    
    
    Total
    
    
    $
    
    
    Total
    
    
    Change
    
    
    $
    
    
    Total
    
    
    $
    
    
    Total
    
    
    ChangeAnimal Hospital
    
    $
    261,287
    
    
    
    75.8
    %
    
    $
    251,001
    
    
    
    75.1
    %
    
    
    4.1
    %
    
    $
    499,645
    
    
    
    75.6
    %
    
    $
    477,101
    
    
    
    74.3
    %
    
    
    4.7
    %Laboratory
    
    
    82,811
    
    
    
    24.0
    %
    
    
    81,840
    
    
    
    24.5
    %
    
    
    1.2
    %
    
    
    160,300
    
    
    
    24.3
    %
    
    
    158,569
    
    
    
    24.7
    %
    
    
    1.1
    %Medical Technology
    
    
    10,628
    
    
    
    3.1
    %
    
    
    11,838
    
    
    
    3.5
    %
    
    
    (10.2
    )%
    
    
    19,786
    
    
    
    3.0
    %
    
    
    25,687
    
    
    
    4.0
    %
    
    
    (23.0
    )%Intercompany
    
    
    (9,850
    )
    
    
    (2.9
    )%
    
    
    (10,245
    )
    
    
    (3.1
    )%
    
    
    (3.9
    )%
    
    
    (19,005
    )
    
    
    (2.9
    )%
    
    
    (19,091
    )
    
    
    (3.0
    )%
    
    
    (0.5
    )%Total revenue
    
    $
    344,876
    
    
    
    100.0
    %
    
    $
    334,434
    
    
    
    100.0
    %
    
    
    3.1
    %
    
    $
    660,726
    
    
    
    100.0
    %
    
    $
    642,266
    
    
    
    100.0
    %
    
    
    2.9
    %
  Gross Profit
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008Gross
    
    
    
    
    
    
    Gross
    
    
    %
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    Gross
    
    
    %$
    
    
    Margin
    
    
    $
    
    
    Margin
    
    
    Change
    
    
    $
    
    
    Margin
    
    
    $
    
    
    Margin
    
    
    ChangeAnimal Hospital
    
    $
    53,133
    
    
    
    20.3
    %
    
    $
    52,620
    
    
    
    21.0
    %
    
    
    1.0
    %
    
    $
    96,297
    
    
    
    19.3
    %
    
    $
    93,757
    
    
    
    19.7
    %
    
    
    2.7
    %Laboratory
    
    
    41,030
    
    
    
    49.5
    %
    
    
    40,874
    
    
    
    49.9
    %
    
    
    0.4
    %
    
    
    77,036
    
    
    
    48.1
    %
    
    
    78,216
    
    
    
    49.3
    %
    
    
    (1.5
    )%Medical Technology
    
    
    3,833
    
    
    
    36.1
    %
    
    
    4,222
    
    
    
    35.7
    %
    
    
    (9.2
    )%
    
    
    7,358
    
    
    
    37.2
    %
    
    
    9,135
    
    
    
    35.6
    %
    
    
    (19.5
    )%Intercompany
    
    
    (384
    )
    
    
    
    
    
    
    (750
    )
    
    
    
    
    
    
    
    
    
    
    (638
    )
    
    
    
    
    
    
    (1,111
    )Total gross profit
    
    $
    97,612
    
    
    
    28.3
    %
    
    $
    96,966
    
    
    
    29.0
    %
    
    
    0.7
    %
    
    $
    180,053
    
    
    
    27.3
    %
    
    $
    179,997
    
    
    
    28.0
    %
    
    
    0.0
    %
  22




---



##### Table of Contents



Segment Results
 Animal Hospital Segment
  Three Months Ended June 30,
    
    Six Months Ended June 30,%
    
    
    
    
    
    
    
    
    
    %2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeRevenue
    
    $
    261,287
    
    
    $
    251,001
    
    
    
    4.1
    %
    
    $
    499,645
    
    
    $
    477,101
    
    
    
    4.7
    %Gross profit
    
    $
    53,133
    
    
    $
    52,620
    
    
    
    1.0
    %
    
    $
    96,297
    
    
    $
    93,757
    
    
    
    2.7
    %Gross margin
    
    
    20.3
    %
    
    
    21.0
    %
    
    
    
    
    
    
    19.3
    %
    
    
    19.7
    %
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    % Change
    
    
    2009
    
    
    2008
    
    
    % ChangeSame-store facilities:Orders (1)(2)
    
    
    1,560
    
    
    
    1,660
    
    
    
    (6.1
    )%
    
    
    2,867
    
    
    
    3,059
    
    
    
    (6.3
    )%Average revenue per order (3)
    
    $
    152.21
    
    
    $
    147.94
    
    
    
    2.9
    %
    
    $
    151.93
    
    
    $
    146.79
    
    
    
    3.5
    %Same-store revenue (1)
    
    $
    237,376
    
    
    $
    245,573
    
    
    
    (3.3
    )%
    
    $
    435,615
    
    
    $
    448,992
    
    
    
    (3.0
    )%Business day adjustment (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,806Net acquired revenue (5)
    
    
    23,911
    
    
    
    5,428
    
    
    
    
    
    
    
    64,030
    
    
    
    25,303Total
    
    $
    261,287
    
    
    $
    251,001
    
    
    
    4.1
    %
    
    $
    499,645
    
    
    $
    477,101
    
    
    
    4.7
    %
 
 (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 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 six months
ended June 30, 2009 as compared to the six months ended June 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 April 1, 2008 for the three month analysis and January 1, 2008
for the six month analysis. Fluctuations in net acquired revenue occur due to the volume,
size, and timing of acquisitions and dispositions during the periods from this date through
the end of the applicable period.  23




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##### Table of Contents



Laboratory Segment
  Three Months Ended June 30,
    
    Six Months Ended June 30,%
    
    
    
    
    
    
    
    
    
    %2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeRevenue
    
    $
    82,811
    
    
    $
    81,840
    
    
    
    1.2
    %
    
    $
    160,300
    
    
    $
    158,569
    
    
    
    1.1
    %Gross profit
    
    $
    41,030
    
    
    $
    40,874
    
    
    
    0.4
    %
    
    $
    77,036
    
    
    $
    78,216
    
    
    
    (1.5
    )%Gross margin
    
    
    49.5
    %
    
    
    49.9
    %
    
    
    
    
    
    
    48.1
    %
    
    
    49.3
    %
 24




---



##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    % Change
    
    
    2009
    
    
    2008
    
    
    % ChangeInternal growth:Number of requisitions (1)
    
    
    3,618
    
    
    
    3,599
    
    
    
    0.5
    %
    
    
    6,850
    
    
    
    6,796
    
    
    
    0.8
    %Average revenue per requisition (2)
    
    $
    22.77
    
    
    $
    22.74
    
    
    
    0.1
    %
    
    $
    23.27
    
    
    $
    23.19
    
    
    
    0.3
    %Total internal revenue (1)
    
    $
    82,369
    
    
    $
    81,840
    
    
    
    0.6
    %
    
    $
    159,370
    
    
    $
    157,572
    
    
    
    1.1
    %Billing day adjustment (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    997Acquired revenue (4)
    
    
    442
    
    
    
    
    
    
    
    
    
    
    
    930
    
    
    
    Total
    
    $
    82,811
    
    
    $
    81,840
    
    
    
    1.2
    %
    
    $
    160,300
    
    
    $
    158,569
    
    
    
    1.1
    %
 
 (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 six months
ended June 30, 2009 as compared to the six months ended June 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.     25




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##### Table of Contents



Medical Technology Segment
  Three Months Ended June 30,
    
    Six Months Ended June 30,%
    
    
    
    
    
    
    
    
    
    %2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeRevenue
    
    $
    10,628
    
    
    $
    11,838
    
    
    
    (10.2
    )%
    
    $
    19,786
    
    
    $
    25,687
    
    
    
    (23.0
    )%Gross profit
    
    $
    3,833
    
    
    $
    4,222
    
    
    
    (9.2
    )%
    
    $
    7,358
    
    
    $
    9,135
    
    
    
    (19.5
    )%Gross margin
    
    
    36.1
    %
    
    
    35.7
    %
    
    
    
    
    
    
    37.2
    %
    
    
    35.6
    %
      Intercompany Revenue
  26




---



##### Table of Contents



Selling, General and Administrative Expense
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008% of
    
    
    
    
    
    
    % of
    
    
    %
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    %$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    Change
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    ChangeAnimal Hospital
    
    $
    5,378
    
    
    
    2.1
    %
    
    $
    5,694
    
    
    
    2.3
    %
    
    
    (5.5
    )%
    
    $
    10,762
    
    
    
    2.2
    %
    
    $
    11,172
    
    
    
    2.3
    %
    
    
    (3.7
    )%Laboratory
    
    
    5,644
    
    
    
    6.8
    %
    
    
    5,185
    
    
    
    6.3
    %
    
    
    8.9
    %
    
    
    11,211
    
    
    
    7.0
    %
    
    
    10,136
    
    
    
    6.4
    %
    
    
    10.6
    %Medical Technology
    
    
    2,658
    
    
    
    25.0
    %
    
    
    2,948
    
    
    
    24.9
    %
    
    
    (9.8
    )%
    
    
    5,742
    
    
    
    29.0
    %
    
    
    6,382
    
    
    
    24.8
    %
    
    
    (10.0
    )%Corporate
    
    
    9,525
    
    
    
    2.8
    %
    
    
    8,982
    
    
    
    2.7
    %
    
    
    6.0
    %
    
    
    18,679
    
    
    
    2.8
    %
    
    
    18,297
    
    
    
    2.8
    %
    
    
    2.1
    %Total SG&A
    
    $
    23,205
    
    
    
    6.7
    %
    
    $
    22,809
    
    
    
    6.8
    %
    
    
    1.7
    %
    
    $
    46,394
    
    
    
    7.0
    %
    
    $
    45,987
    
    
    
    7.2
    %
    
    
    0.9
    %
  Operating Income
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    2008% of
    
    
    
    
    
    
    % of
    
    
    %
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    %$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    Change
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    ChangeAnimal Hospital
    
    $
    47,626
    
    
    
    18.2
    %
    
    $
    46,822
    
    
    
    18.7
    %
    
    
    1.7
    %
    
    $
    85,665
    
    
    
    17.1
    %
    
    $
    82,674
    
    
    
    17.3
    %
    
    
    3.6
    %Laboratory
    
    
    35,361
    
    
    
    42.7
    %
    
    
    35,678
    
    
    
    43.6
    %
    
    
    (0.9
    )%
    
    
    65,798
    
    
    
    41.0
    %
    
    
    68,080
    
    
    
    42.9
    %
    
    
    (3.4
    )%Medical Technology
    
    
    1,170
    
    
    
    11.0
    %
    
    
    1,274
    
    
    
    10.8
    %
    
    
    (8.2
    )%
    
    
    1,610
    
    
    
    8.1
    %
    
    
    2,733
    
    
    
    10.6
    %
    
    
    (41.1
    )%Corporate
    
    
    (14,809
    )
    
    
    (4.3
    )%
    
    
    (8,994
    )
    
    
    (2.7
    )%
    
    
    64.7
    %
    
    
    (23,971
    )
    
    
    (3.6
    )%
    
    
    (18,309
    )
    
    
    (2.9
    )%
    
    
    30.9
    %Intercompany
    
    
    (384
    )
    
    
    3.9
    %
    
    
    (750
    )
    
    
    7.3
    %
    
    
    (48.8
    )%
    
    
    (638
    )
    
    
    3.4
    %
    
    
    (1,111
    )
    
    
    5.8
    %
    
    
    (42.6
    )%Total operating income
    
    $
    68,964
    
    
    
    20.0
    %
    
    $
    74,030
    
    
    
    22.1
    %
    
    
    (6.8
    )%
    
    $
    128,464
    
    
    
    19.4
    %
    
    $
    134,067
    
    
    
    20.9
    %
    
    
    (4.2
    )%
   27




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##### Table of Contents



Interest Expense, Net
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest expense (income):Senior term notes
    
    $
    2,573
    
    
    $
    5,563
    
    
    $
    5,160
    
    
    $
    12,576Interest rate hedging agreements
    
    
    2,727
    
    
    
    1,656
    
    
    
    5,972
    
    
    
    2,438Capital leases and other
    
    
    569
    
    
    
    401
    
    
    
    1,149
    
    
    
    1,042Amortization of debt costs
    
    
    121
    
    
    
    117
    
    
    
    241
    
    
    
    2335,990
    
    
    
    7,737
    
    
    
    12,522
    
    
    
    16,289Interest income
    
    
    (264
    )
    
    
    (692
    )
    
    
    (678
    )
    
    
    (1,629
    )Total interest expense, net of interest income
    
    $
    5,726
    
    
    $
    7,045
    
    
    $
    11,844
    
    
    $
    14,660
  Provision for Income Taxes
  
 Liquidity and Capital Resources
 Introduction
     28




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##### Table of Contents



Future Cash Flows
 Short-Term
   Long-Term
   Debt Related Covenants
    29




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##### Table of Contents



Historical Cash Flows
  Six Months EndedJune 30,2009
    
    
    2008Cash provided by (used in):Operating activities
    
    $
    110,199
    
    
    $
    101,449Investing activities
    
    
    (57,353
    )
    
    
    (132,242
    )Financing activities
    
    
    (2,892
    )
    
    
    (4,134
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (18
    )
    
    
    (15
    )Increase (decrease) in cash and cash equivalents
    
    
    49,936
    
    
    
    (34,942
    )Cash and cash equivalents at beginning of period
    
    
    88,959
    
    
    
    110,866Cash and cash equivalents at end of period
    
    $
    138,895
    
    
    $
    75,924
 Cash Flows from Operating Activities
  Cash Flows from Investing Activities
  Six Months EndedJune 30,2009
    
    
    2008
    
    
    VarianceInvesting Cash Flows:Acquisition of independent animal
hospitals and laboratories
    
    $
    (24,928
    )
    
    $
    (78,022
    )
    
    $
    53,094
    (1)Other
    
    
    (3,216
    )
    
    
    (2,345
    )
    
    
    (871)Total cash used for acquisitions
    
    
    (28,144
    )
    
    
    (80,367
    )
    
    
    52,223Property and equipment additions
    
    
    (25,208
    )
    
    
    (25,543
    )
    
    
    335Real estate acquired with acquisitions
    
    
    (3,828
    )
    
    
    (13,098
    )
    
    
    9,270
    (2)Proceeds from sale of assets
    
    
    108
    
    
    
    1,753
    
    
    
    (1,645)
    (3)Other
    
    
    (281
    )
    
    
    (14,987
    )
    
    
    14,706
    (4)Net cash used in investing activities
    
    $
    (57,353
    )
    
    $
    (132,242
    )
    
    $
    74,889
 
 (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)
    
    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.(3)
    
    The decrease in proceeds from sale of assets is primarily due to a significant land sale in
2008.(4)
    
    The decrease in other investing cash flows was primarily due to investments made in 2008
related to our expansion into other markets. 30




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##### Table of Contents



Cash Flows from Financing Activities
  Six Months EndedJune 30,2009
    
    
    2008
    
    
    VarianceFinancing Cash Flows:Repayment of long-term obligations
    
    $
    (3,899
    )
    
    $
    (3,925
    )
    
    $
    26Distributions to noncontrolling interest partners
    
    
    (1,493
    )
    
    
    (1,456
    )
    
    
    (37)
    (1)Proceeds from stock options exercises
    
    
    2,895
    
    
    
    892
    
    
    
    2,003
    (2)Excess tax benefits from stock options
    
    
    154
    
    
    
    355
    
    
    
    (201)Stock repurchases
    
    
    (549
    )
    
    
    
    
    
    
    (549)
    (3)Net cash used in financing activities
    
    $
    (2,892
    )
    
    $
    (4,134
    )
    
    $
    1,242
 
 (1)
    
    The distributions to noncontrolling interest partners represents cash payments to
noncontrolling interest partners for their portion of partnership income. As mentioned in
Note 4 in our June 30, 2009 Notes to Condensed, Consolidated Financial Statements, we adopted
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements  an amendment of
Accounting Research Bulletins (ARB) No. 51(SFAS No. 160) 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 six months ended June 30, 2009.(3)
    
    The stock repurchases in fiscal 2009 represent cash paid for taxes by VCA on behalf of
employees who elected to settle their income tax withholdings on vested stock awards with
stock. Off-Balance-Sheet Arrangements
  Interest Rate Swap Agreements
  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
  31




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##### Table of Contents



Description of Indebtedness
 Senior Credit Facility
    Other Debt and Capital Lease Obligations
  
 Recent Accounting Pronouncements
 Fair
Value Measurements
  Business Combinations Business Combinations Accounting
for Income Taxes
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedging
Activities
 32




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##### Table of Contents



Determination of the Useful Life of Intangible Assets Business Combinations
 Interim Disclosures about Fair Value of Financial Instruments
 Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies
 Subsequent Events
 Amendments to FASB Interpretation No. 46(R) Consolidation of Variable Interest
Entities
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 The Hierarchy of Generally Accepted
Accounting Principles The FASB Accounting Standards Codification
 33




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##### Table of Contents



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
    34




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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
  
    
    elected each of John M. Baumer and Frank Reddick as a Class I director; and
    
    ratified KPMG LLP as our independent registered accounting firm.
   Candidate
    
    For
    
    WithholdJohn M. Baumer
    
    
    62,059,519
    
    
    
    17,168,576Frank Reddick
    
    
    47,236,340
    
    
    
    31,991,755
  Proposal
    
    For
    
    Against
    
    AbstainRatify KPMG LLP as our independent registered accounting firm
    
    
    78,849,603
    
    
    
    291,965
    
    
    
    86,526
 
 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.
 35




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##### Table of Contents



SIGNATURE
  Date:  August 7, 2009
    By:
    /s/ Tomas W. FullerTomas W. FullerChief Financial Officer 36




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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.
 37