##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

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|------------------------------------------------- |  | ----------------------------------------------------------------------------------------
|x                                                 |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 
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|For the quarterly period ended September 30, 2002
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|OR                                               
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|o                                                 |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-16783

VCA ANTECH, INC.

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 95-4097995
(I.R.S. Employer
Identification No.)

12401 West Olympic Boulevard
Los Angeles, California 90064-1022
(Address of principal executive offices)

(310) 571-6500
(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common stock, $0.001 par value

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past
90 days.      Yesx   No   o.

Indicate the number of shares outstanding of each of the issuers class of
common stock as of the latest practicable date: Common stock, $0.001 par value
36,762,975 shares as of November 8, 2002.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                                                                                              |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED, CONSOLIDATED BALANCE SHEETS As of September 30, 2002 and December 31, 2001 (Unaudited)                           
|                              |                                                                                               | CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Nine Months Ended September 30, 2002 and 2001 (Unaudited)
|                              |                                                                                               | CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2002 and 2001 (Unaudited)          
|                              |                                                                                               | NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS                                                                       
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 2. CHANGES IN SECURITIES                                                                
|                              | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                              | ITEM 5. OTHER INFORMATION                                                                    
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|                              |                                                                                               | SIGNATURE                                                                                                                   
|                              |                                                                                               | Certification                                                                                                               
|                              |                                                                                               | Certification                                                                                                               
|                              |                                                                                               | EXHIBIT INDEX                                                                                                               
|EXHIBIT 99.1                 
|EXHIBIT 99.2                 



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##### Table of Contents



VCA ANTECH, INC.
FORM 10-Q
SEPTEMBER 30, 2002

TABLE OF CONTENTS

|         |  |                                                                                       |  |                                                                                                                              |    |             |    | 
|-------- |  | ------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------- | -- | ----------- | -- | 
|         |  |                                                                                       |  |                                                                                                                              |    | Page Number
|         |  |                                                                                       |  |                                                                                                                              |    |            
|Part I.  |  | Financial Information                                                                 |  |                                                                                                                              |    |            
|        
|        
|        
|        
|Item 1.  |  | Financial Statements                                                                  |  |                                                                                                                              |    |            
|        
|        
|        
|        
|         |  |                                                                                       |  | Condensed, Consolidated Balance Sheets as of September 30, 2002 and
December 31, 2001 (Unaudited)                            |    |             | 3  | 
|        
|        
|        
|        
|         |  |                                                                                       |  | Condensed, Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 2002 and 2001 (Unaudited) |    |             | 4  | 
|        
|        
|        
|        
|         |  |                                                                                       |  | Condensed, Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2002 and 2001 (Unaudited)           |    |             | 5  | 
|        
|        
|        
|        
|         |  |                                                                                       |  | Notes to Condensed, Consolidated Financial Statements                                                                        |    |             | 6  | 
|        
|        
|        
|        
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations |  |                                                                                                                              | 24 |            
|        
|        
|        
|        
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                                                                                              | 48 |            
|        
|        
|        
|        
|Item 4.  |  | Controls and Procedures                                                               |  |                                                                                                                              | 48 |            
|        
|        
|        
|        
|Part II. |  | Other Information                                                                     |  |                                                                                                                              |    |            
|        
|        
|        
|        
|Item 1.  |  | Legal Proceedings                                                                     |  |                                                                                                                              | 49 |            
|        
|        
|        
|        
|Item 2.  |  | Changes in Securities                                                                 |  |                                                                                                                              | 49 |            
|        
|        
|        
|        
|Item 3.  |  | Defaults Upon Senior Securities                                                       |  |                                                                                                                              | 49 |            
|        
|        
|        
|        
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  |                                                                                                                              | 50 |            
|        
|        
|        
|        
|Item 5.  |  | Other Information                                                                     |  |                                                                                                                              | 50 |            
|        
|        
|        
|        
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                                              | 50 |            
|        
|        
|        
|        
|         |  |                                                                                       |  | Signature                                                                                                                    |    |             | 51 | 
|        
|        
|        
|        
|         |  |                                                                                       |  | Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002                           |    |             | 52 | 
|        
|        
|        
|        
|         |  |                                                                                       |  | Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002                           |    |             | 53 | 
|        
|        
|        
|        
|         |  |                                                                                       |  | Exhibit Index                                                                                                                |    |             | 54 | 

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




VCA ANTECH, INC. AND SUBSIDIARIES
CONDENSED, CONSOLIDATED BALANCE SHEETS
As of September 30, 2002 and December 31, 2001
(Unaudited)
(In thousands, except par value)

|                                            |                                                                                                                                                             |                                            |         |               |         |              |         |          |         | 
|------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------- | ------- | ------------ | ------- | -------- | ------- | 
|                                            |                                                                                                                                                             |                                            |         | September 30, |         | December 31,
|                                            |                                                                                                                                                             |                                            |         | 2002          |         | 2001        
|                                            |                                                                                                                                                             |                                            |         |               |         |             
|ASSETS                                      |                                                                                                                                                             |                                            |         |               |         |              |         |         
|                                           
|                                           
|                                           
|                                           
|Current assets:                             |                                                                                                                                                             |                                            |         |               |         |              |         |         
|                                           
|                                           
|                                           
|                                           
|                                            | Cash and cash equivalents                                                                                                                                   |                                            | $       | 32,358        |         |              | $       | 7,103    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Trade accounts receivable, less allowance for uncollectible accounts of
$6,011 and $5,241 at September 30, 2002 and December 31, 2001,
respectively         |                                            |         | 20,791        |         |              |         | 18,036   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Inventory, prepaid expenses and other                                                                                                                       |                                            |         | 7,880         |         |              |         | 6,879    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Deferred income taxes                                                                                                                                       |                                            |         | 9,682         |         |              |         | 7,364    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Prepaid income taxes                                                                                                                                        |                                            |         |              |         |              |         | 2,782    |        
|                                            |                                                                                                                                                             |                                            |         |               |         |              |         |         
|                                            |                                                                                                                                                             | Total current assets                       |         |               | 70,711  |              |         |          | 42,164  | 
|                                           
|                                           
|                                           
|                                           
|Property and equipment, net                 |                                                                                                                                                             |                                            | 93,604  |               |         |              | 89,244  |         
|                                           
|                                           
|                                           
|                                           
|Other assets:                               |                                                                                                                                                             |                                            |         |               |         |              |         |         
|                                           
|                                           
|                                           
|                                           
|                                            | Goodwill, net                                                                                                                                               |                                            |         | 332,543       |         |              |         | 317,262  |        
|                                           
|                                           
|                                           
|                                           
|                                            | Covenants not to compete, net                                                                                                                               |                                            |         | 4,522         |         |              |         | 4,827    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Deferred financing costs, net                                                                                                                               |                                            |         | 7,394         |         |              |         | 11,380   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Other assets                                                                                                                                                |                                            |         | 4,606         |         |              |         | 3,644    |        
|                                            |                                                                                                                                                             |                                            |         |               |         |              |         |         
|                                            |                                                                                                                                                             | Total assets                               |         | $             | 513,380 |              |         | $        | 468,521 | 
|                                            |                                                                                                                                                             |                                            |         |               |         |              |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY        |                                                                                                                                                             |                                            |         |               |         |              |         |         
|                                           
|                                           
|                                           
|                                           
|Current liabilities:                        |                                                                                                                                                             |                                            |         |               |         |              |         |         
|                                           
|                                           
|                                           
|                                           
|                                            | Current portion of long-term obligations                                                                                                                    |                                            | $       | 1,793         |         |              | $       | 5,159    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accounts payable                                                                                                                                            |                                            |         | 9,131         |         |              |         | 7,313    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accrued payroll and related liabilities                                                                                                                     |                                            |         | 14,509        |         |              |         | 11,717   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accrued interest                                                                                                                                            |                                            |         | 5,659         |         |              |         | 2,254    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Income taxes payable                                                                                                                                        |                                            |         | 2,035         |         |              |         |         |        
|                                           
|                                           
|                                           
|                                           
|                                            | Other accrued liabilities                                                                                                                                   |                                            |         | 13,195        |         |              |         | 16,351   |        
|                                            |                                                                                                                                                             |                                            |         |               |         |              |         |         
|                                            |                                                                                                                                                             | Total current liabilities                  |         |               | 46,322  |              |         |          | 42,794  | 
|                                           
|                                           
|                                           
|                                           
|Long-term obligations, less current portion |                                                                                                                                                             |                                            | 387,041 |               |         |              | 379,173 |         
|                                           
|                                           
|                                           
|                                           
|Deferred income taxes                       |                                                                                                                                                             |                                            | 9,371   |               |         |              | 1,684   |         
|                                           
|                                           
|                                           
|                                           
|Minority interest                           |                                                                                                                                                             |                                            | 5,732   |               |         |              | 5,106   |         
|                                           
|                                           
|                                           
|                                           
|Stockholders equity:                       |                                                                                                                                                             |                                            |         |               |         |              |         |         
|                                           
|                                           
|                                           
|                                           
|                                            | Common stock, par value $0.001, 75,000 shares authorized, 36,761 and
36,736 shares outstanding as of September 30, 2002 and December 31,
2001, respectively |                                            |         | 37            |         |              |         | 37       |        
|                                           
|                                           
|                                           
|                                           
|                                            | Additional paid-in capital                                                                                                                                  |                                            |         | 188,865       |         |              |         | 188,840  |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accumulated deficit                                                                                                                                         |                                            |         | (123,429      | )       |              |         | (146,594 | )      
|                                           
|                                           
|                                           
|                                           
|                                            | Accumulated comprehensive lossunrealized loss on hedging instruments                                                                                       |                                            |         | (319          | )       |              |         | (1,855   | )      
|                                           
|                                           
|                                           
|                                           
|                                            | Notes receivable from stockholders                                                                                                                          |                                            |         | (240          | )       |              |         | (664     | )      
|                                            |                                                                                                                                                             |                                            |         |               |         |              |         |         
|                                            |                                                                                                                                                             | Total stockholders equity                 |         |               | 64,914  |              |         |          | 39,764  | 
|                                            |                                                                                                                                                             |                                            |         |               |         |              |         |         
|                                            |                                                                                                                                                             | Total liabilities and stockholders equity |         | $             | 513,380 |              |         | $        | 468,521 | 
|                                            |                                                                                                                                                             |                                            |         |               |         |              |         |         

The accompanying notes are an integral part of these condensed, consolidated financial statements.

3



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##### Table of Contents






VCA ANTECH, INC. AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2002 and 2001
(Unaudited)
(In thousands, except per share)

|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |       |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ---------------------------------------------------------------------- | ------- | ------------------ | ------ | ----------------- | ------- | ----- | ------ | ---- | ------- | ----- | ------ | - | ------- | ----- | ------- | -
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         | Three Months Ended |        | Nine Months Ended
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         | September 30,      |        | September 30,    
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                  
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         | 2002               |        | 2001              |         | 2002  |        | 2001
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                   |         |       |        |     
|Revenue                                                                                                                                                                                                                                                                                                                                                     |                                                    | $                                                                      | 114,972 |                    |        | $                 | 102,636 |       |        | $    | 336,892 |       |        | $ | 305,365 |      
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|Direct costs (excludes operating depreciation of $2,399 and
$2,105 for the three months ended September 30, 2002
and 2001, respectively, and $7,007 and $6,183 for the
nine months ended September 30, 2002 and 2001,
respectively; includes non-cash compensation of $283
and $1,412 for the three and nine months ended
September 30, 2001, respectively) |                                                    |                                                                        | 77,157  |                    |        |                   | 70,681  |       |        |      | 226,749 |       |        |   | 213,454 |      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        | 37,815  |                    |        |                   | 31,955  |       |        |      | 110,143 |       |        |   | 91,911  |      
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|Selling, general and administrative expense (includes non-
cash compensation of $1,240 and $6,199 for the three
and nine months ended September 30, 2001, respectively)                                                                                                                                                                                     |                                                    |                                                                        | 8,732   |                    |        |                   | 9,591   |       |        |      | 25,893  |       |        |   | 30,365  |      
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|Depreciation and amortization                                                                                                                                                                                                                                                                                                                               |                                                    |                                                                        | 3,028   |                    |        |                   | 6,432   |       |        |      | 9,330   |       |        |   | 19,121  |      
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|Write-down and (gain) loss on sale of assets                                                                                                                                                                                                                                                                                                                |                                                    |                                                                        | (80     | )                  |        |                   | (92     | )     |        |      | (80     | )     |        |   | 8,745   |      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    | Operating income                                                       |         |                    | 26,135 |                   |         |       | 16,024 |      |         |       | 75,000 |   |         |       | 33,680  |  
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|Net interest expense                                                                                                                                                                                                                                                                                                                                        |                                                    |                                                                        | 10,208  |                    |        |                   | 10,317  |       |        |      | 30,541  |       |        |   | 32,387  |      
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|Other (income) expense                                                                                                                                                                                                                                                                                                                                      |                                                    |                                                                        | (5      | )                  |        |                   | 4       |       |        |      | (159    | )     |        |   | 233     |      
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|Minority interest in income of subsidiaries                                                                                                                                                                                                                                                                                                                 |                                                    |                                                                        | 430     |                    |        |                   | 404     |       |        |      | 1,360   |       |        |   | 1,104   |      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    | Income (loss) before provision for income taxes and
extraordinary item |         |                    | 15,502 |                   |         |       | 5,299  |      |         |       | 43,258 |   |         |       | (44     | )
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|Provision for income taxes                                                                                                                                                                                                                                                                                                                                  |                                                    |                                                                        | 6,466   |                    |        |                   | 3,275   |       |        |      | 18,092  |       |        |   | 6,741   |      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    | Income (loss) before extraordinary item                                |         |                    | 9,036  |                   |         |       | 2,024  |      |         |       | 25,166 |   |         |       | (6,785  | )
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|Extraordinary loss on early extinguishment of debt (net
of income tax benefit of $1,390)                                                                                                                                                                                                                                                                    |                                                    |                                                                        | 2,001   |                    |        |                   |        |       |        |      | 2,001   |       |        |   |        |      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    | Net income (loss)                                                      |         |                    | 7,035  |                   |         |       | 2,024  |      |         |       | 23,165 |   |         |       | (6,785  | )
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|Increase in carrying amount of redeemable preferred stock                                                                                                                                                                                                                                                                                                   |                                                    |                                                                        |        |                    |        |                   | 5,362   |       |        |      |        |       |        |   | 15,583  |      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    | Net income (loss) available to common stockholders                     |         | $                  | 7,035  |                   |         | $     | (3,338 | )    |         | $     | 23,165 |   |         | $     | (22,368 | )
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |      
|Basic earnings (loss) per common share:                                                                                                                                                                                                                                                                                                                     |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |      
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                            | Income (loss) before extraordinary item            |                                                                        | $       | 0.24               |        |                   | $       | (0.19 | )      |      | $       | 0.68  |        |   | $       | (1.27 | )      
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                            | Extraordinary loss on early extinguishment of debt |                                                                        |         | (0.05              | )      |                   |         |      |        |      |         | (0.05 | )      |   |         |      |        
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |      
|                                                                                                                                                                                                                                                                                                                                                            | Earnings (loss) per common share                   |                                                                        | $       | 0.19               |        |                   | $       | (0.19 | )      |      | $       | 0.63  |        |   | $       | (1.27 | )      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |      
|Diluted earnings (loss) per common share:                                                                                                                                                                                                                                                                                                                   |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |      
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                            | Income (loss) before extraordinary item            |                                                                        | $       | 0.24               |        |                   | $       | (0.19 | )      |      | $       | 0.68  |        |   | $       | (1.27 | )      
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                            | Extraordinary loss on early extinguishment of debt |                                                                        |         | (0.05              | )      |                   |         |      |        |      |         | (0.05 | )      |   |         |      |        
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |      
|                                                                                                                                                                                                                                                                                                                                                            | Earnings (loss) per common share                   |                                                                        | $       | 0.19               |        |                   | $       | (0.19 | )      |      | $       | 0.63  |        |   | $       | (1.27 | )      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |      
|Shares used for computing basic earnings (loss) per share                                                                                                                                                                                                                                                                                                   |                                                    |                                                                        | 36,756  |                    |        |                   | 17,878  |       |        |      | 36,744  |       |        |   | 17,643  |      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |      
|Shares used for computing diluted earnings (loss) per share                                                                                                                                                                                                                                                                                                 |                                                    |                                                                        | 37,094  |                    |        |                   | 17,878  |       |        |      | 37,088  |       |        |   | 17,643  |      
|                                                                                                                                                                                                                                                                                                                                                            |                                                    |                                                                        |         |                    |        |                   |         |       |        |      |         |       |        |   |         |      

The accompanying notes are an integral part of these condensed, consolidated financial statements.

4



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##### Table of Contents






VCA ANTECH, INC. AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2002 and 2001
(Unaudited)
(In thousands)

|                                                 |                                           |                                                                                          |                                                                     |         |                   |          |        |         |   |         |  
|------------------------------------------------ | ----------------------------------------- | ---------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ------- | ----------------- | -------- | ------ | ------- | - | ------- | -
|                                                 |                                           |                                                                                          |                                                                     |         | Nine Months Ended
|                                                 |                                           |                                                                                          |                                                                     |         | September 30,    
|                                                 |                                           |                                                                                          |                                                                     |         |                  
|                                                 |                                           |                                                                                          |                                                                     |         | 2002              |          | 2001  
|                                                 |                                           |                                                                                          |                                                                     |         |                   |          |       
|Cash flows from operating activities:            |                                           |                                                                                          |                                                                     |         |                   |          |        |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Net income (loss)                         |                                                                                          | $                                                                   | 23,165  |                   |          | $      | (6,785  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           | Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |                                                                     |         |                   |          |        |         |   |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Depreciation and amortization                                       |         |                   | 9,330    |        |         |   | 19,121  |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Amortization of deferred financing costs and debt discounts         |         |                   | 1,264    |        |         |   | 1,667   |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Provision for uncollectible accounts                                |         |                   | 2,347    |        |         |   | 2,182   |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Extraordinary loss on early extinguishment of debt                  |         |                   | 3,391    |        |         |   |        |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Non-cash compensation                                               |         |                   |         |        |         |   | 7,611   |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Interest paid in kind on 15.5% senior notes                         |         |                   | 7,045    |        |         |   | 12,259  |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Write-down and (gain) loss on sale of assets                        |         |                   | (80      | )      |         |   | 8,745   |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Minority interest in income of subsidiaries                         |         |                   | 1,360    |        |         |   | 1,104   |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Distributions to minority interest partners                         |         |                   | (1,339   | )      |         |   | (1,083  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Increase in accounts receivable                                     |         |                   | (5,055   | )      |         |   | (3,736  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Decrease (increase) in inventory, prepaid expenses and other assets |         |                   | (918     | )      |         |   | 685     |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Increase (decrease) in accounts payable and accrued liabilities     |         |                   | 3,945    |        |         |   | (307    | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Increase in accrued payroll and related liabilities                 |         |                   | 2,792    |        |         |   | 3,930   |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Increase (decrease) in accrued interest                             |         |                   | 3,405    |        |         |   | (1,547  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Decrease in prepaid income taxes                                    |         |                   | 2,782    |        |         |   | 479     |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Increase in income taxes payable                                    |         |                   | 2,035    |        |         |   |        |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Increase in deferred income tax asset                               |         |                   | (2,318   | )      |         |   | (1,180  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Increase in deferred income tax liability                           |         |                   | 7,687    |        |         |   | 6,171   |  
|                                                 |                                           |                                                                                          |                                                                     |         |                   |          |        |        
|                                                 | Net cash provided by operating activities |                                                                                          |                                                                     | 60,838  |                   |          |        | 49,316  |  
|                                                 |                                           |                                                                                          |                                                                     |         |                   |          |        |        
|Cash flows from investing activities:            |                                           |                                                                                          |                                                                     |         |                   |          |        |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Business acquisitions, net of cash acquired                         |         |                   | (17,845  | )      |         |   | (20,615 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Real estate acquired in connection with business acquisitions       |         |                   |         |        |         |   | (675    | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Property and equipment additions, net                               |         |                   | (13,405  | )      |         |   | (9,929  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Proceeds from sale of assets                                        |         |                   | 1,391    |        |         |   | 603     |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Other                                                               |         |                   | 159      |        |         |   | 285     |  
|                                                 |                                           |                                                                                          |                                                                     |         |                   |          |        |        
|                                                 | Net cash used in investing activities     |                                                                                          |                                                                     | (29,700 | )                 |          |        | (30,331 | )
|                                                 |                                           |                                                                                          |                                                                     |         |                   |          |        |        
|Cash flows from financing activities:            |                                           |                                                                                          |                                                                     |         |                   |          |        |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Repayment of long-term obligations                                  |         |                   | (145,978 | )      |         |   | (3,735  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Proceeds from issuance of long-term debt                            |         |                   | 143,061  |        |         |   |        |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Payment of accrued financing and recapitalization costs             |         |                   | (3,415   | )      |         |   | (2,138  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Proceeds from issuance of common stock under stock option plans     |         |                   | 25       |        |         |   |        |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                           |                                                                                          | Other                                                               |         |                   | 424      |        |         |   |        |  
|                                                 |                                           |                                                                                          |                                                                     |         |                   |          |        |        
|                                                 | Net cash used in financing activities     |                                                                                          |                                                                     | (5,883  | )                 |          |        | (5,873  | )
|                                                 |                                           |                                                                                          |                                                                     |         |                   |          |        |        
|Increase in cash and cash equivalents            |                                           |                                                                                          | 25,255                                                              |         |                   |          | 13,112 |        
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of period |                                           |                                                                                          | 7,103                                                               |         |                   |          | 10,519 |        
|                                                 |                                           |                                                                                          |                                                                     |         |                   |          |        |        
|Cash and cash equivalents at end of period       |                                           | $                                                                                        | 32,358                                                              |         |                   | $        | 23,631 |        
|                                                 |                                           |                                                                                          |                                                                     |         |                   |          |        |        

The accompanying notes are an integral part of these condensed, consolidated financial statements.

5



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##### Table of Contents






VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(Unaudited)



|(1) |  | General
|--- |  | -------

The accompanying unaudited, condensed, consolidated financial statements
of VCA Antech, Inc. and subsidiaries (the Company or VCA) have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and in accordance with the
rules and regulations of the United States Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements as permitted under applicable rules and regulations. In
the opinion of management, all adjustments considered necessary for a fair
presentation have been included. The results of operations for the three and
nine months ended September 30, 2002 are not necessarily indicative of the
results to be expected for the full year. For further information, refer to
the Companys consolidated financial statements and footnotes thereto included
in the Companys 2001 Annual Report on Form 10-K.



|(2) |  | Acquisitions
|--- |  | ------------

During the third quarter of 2002, the Company purchased seven animal
hospitals, for an aggregate consideration (including acquisition costs) of
$6.8 million, consisting of $6.3 million in cash and the assumption of
liabilities totaling $500,000. The $6.8 million aggregate purchase price was
allocated as follows: $200,000 to tangible assets, $6.2 million to goodwill
and $359,000 to other intangible assets.

During the nine months ended September 30, 2002, the Company purchased 18
animal hospitals, for an aggregate consideration (including acquisition costs)
of $16.1 million, consisting of $15.1 million in cash and the assumption of
liabilities totaling $1.0 million. The $16.1 million aggregate purchase price
was allocated as follows: $449,000 to tangible assets, $14.7 million to
goodwill and $956,000 to other intangible assets.

During the nine months ended September 30, 2002, the Company also made
payments in the amount of approximately $2.7 million related to contractual
obligations related to prior year acquisitions.

6



---



##### Table of Contents





|(3) |  | Calculation of Per Share Amounts
|--- |  | --------------------------------

Below is a reconciliation of the income (loss) and shares used in the
computations of the basic and diluted earnings (loss) per share (EPS) (in
thousands, except per share amounts):

|                                                                              |                                                    |               |       |                    |     |                   |        |        |   |      |        |        |     |   |         |        |   | 
|----------------------------------------------------------------------------- | -------------------------------------------------- | ------------- | ----- | ------------------ | --- | ----------------- | ------ | ------ | - | ---- | ------ | ------ | --- | - | ------- | ------ | - | 
|                                                                              |                                                    |               |       | Three Months Ended |     | Nine Months Ended
|                                                                              |                                                    |               |       | September 30,      |     | September 30,    
|                                                                              |                                                    |               |       |                    |     |                  
|                                                                              |                                                    |               |       | 2002               |     | 2001              |        | 2002   |   | 2001
|                                                                              |                                                    |               |       |                    |     |                   |        |        |   |     
|Income (loss) before extraordinary item                                       |                                                    | $             | 9,036 |                    |     | $                 | 2,024  |        |   | $    | 25,166 |        |     | $ | (6,785  | )     
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Increase in carrying amount of redeemable
preferred stock                     |                                                    |               |      |                    |     |                   | 5,362  |        |   |      |       |        |     |   | 15,583  |       
|                                                                              |                                                    |               |       |                    |     |                   |        |        |   |      |        |        |     |   |         |       
|Income (loss) available to common
stockholders before extraordinary item      |                                                    |               | 9,036 |                    |     |                   | (3,338 | )      |   |      | 25,166 |        |     |   | (22,368 | )     
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Extraordinary loss on early extinguishment of
debt, net of income tax benefit |                                                    |               | 2,001 |                    |     |                   |       |        |   |      | 2,001  |        |     |   |        |       
|                                                                              |                                                    |               |       |                    |     |                   |        |        |   |      |        |        |     |   |         |       
|Net income (loss) available to common
stockholders (basic and diluted)        |                                                    | $             | 7,035 |                    |     | $                 | (3,338 | )      |   | $    | 23,165 |        |     | $ | (22,368 | )     
|                                                                              |                                                    |               |       |                    |     |                   |        |        |   |      |        |        |     |   |         |       
|Weighted average common shares outstanding:                                   |                                                    |               |       |                    |     |                   |        |        |   |      |        |        |     |   |         |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Basic                                              |               |       | 36,756             |     |                   |        | 17,878 |   |      |        | 36,744 |     |   |         | 17,643 |  
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Effect of dilutive common stock
equivalents:       |               |       |                    |     |                   |        |        |   |      |        |        |     |   |         |        |  
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                                    | Stock options |       |                    | 338 |                   |        |        |  |      |        |        | 344 |   |         |        |  | 
|                                                                              |                                                    |               |       |                    |     |                   |        |        |   |      |        |        |     |   |         |       
|                                                                              | Diluted                                            |               |       | 37,094             |     |                   |        | 17,878 |   |      |        | 37,088 |     |   |         | 17,643 |  
|                                                                              |                                                    |               |       |                    |     |                   |        |        |   |      |        |        |     |   |         |       
|Basic earnings (loss) per common share:                                       |                                                    |               |       |                    |     |                   |        |        |   |      |        |        |     |   |         |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Income (loss) before extraordinary item            |               | $     | 0.24               |     |                   | $      | (0.19  | ) |      | $      | 0.68   |     |   | $       | (1.27  | )
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Extraordinary loss on early
extinguishment of debt |               |       | (0.05              | )   |                   |        |       |   |      |        | (0.05  | )   |   |         |       |  
|                                                                              |                                                    |               |       |                    |     |                   |        |        |   |      |        |        |     |   |         |       
|                                                                              | Earnings (loss) per common share                   |               | $     | 0.19               |     |                   | $      | (0.19  | ) |      | $      | 0.63   |     |   | $       | (1.27  | )
|                                                                              |                                                    |               |       |                    |     |                   |        |        |   |      |        |        |     |   |         |       
|Diluted earnings (loss) per common share:                                     |                                                    |               |       |                    |     |                   |        |        |   |      |        |        |     |   |         |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Income (loss) before extraordinary item            |               | $     | 0.24               |     |                   | $      | (0.19  | ) |      | $      | 0.68   |     |   | $       | (1.27  | )
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Extraordinary loss on early
extinguishment of debt |               |       | (0.05              | )   |                   |        |       |   |      |        | (0.05  | )   |   |         |       |  
|                                                                              |                                                    |               |       |                    |     |                   |        |        |   |      |        |        |     |   |         |       
|                                                                              | Earnings (loss) per common share                   |               | $     | 0.19               |     |                   | $      | (0.19  | ) |      | $      | 0.63   |     |   | $       | (1.27  | )
|                                                                              |                                                    |               |       |                    |     |                   |        |        |   |      |        |        |     |   |         |       

The anti-dilutive effect of 1,150,000 shares of common stock equivalents
from outstanding warrants has been excluded from EPS calculations for both the
three and nine months ended September 30, 2001. Additionally, the
anti-dilutive effect of 538,000 and 651,000 shares from outstanding stock
options have been excluded from EPS calculations for the three and nine months
ended September 30, 2001, respectively.



|(4) |  | Comprehensive Income (Loss)
|--- |  | ---------------------------

Below is a calculation of comprehensive income (loss) (in thousands):

|                                                                            |  |                    |       |                   |  |      |       |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                            |  | Three Months Ended |       | Nine Months Ended
|                                                                            |  | September 30,      |       | September 30,    
|                                                                            |  |                    |       |                  
|                                                                            |  | 2002               |       | 2001              |  | 2002 |       | 2001
|                                                                            |  |                    |       |                   |  |      |       |     
|Net income (loss)                                                           |  | $                  | 7,035 |                   |  | $    | 2,024 |      |  | $ | 23,165 |   |  | $ | (6,785 | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Cumulative effect of change to new accounting
principle                     |  |                    |      |                   |  |      |      |      |  |   |       |   |  |   | (525   | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Unrealized gain (loss) on hedging instruments                               |  |                    | 645   |                   |  |      | (883  | )    |  |   | 1,695  |   |  |   | (1,726 | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Less portion of unrealized (gain) loss
recognized
as other (income) expense |  |                    | (5    | )                 |  |      | 4     |      |  |   | (159   | ) |  |   | 233    |  
|                                                                            |  |                    |       |                   |  |      |       |      |  |   |        |   |  |   |        |  
|Net comprehensive income (loss)                                             |  | $                  | 7,675 |                   |  | $    | 1,145 |      |  | $ | 24,701 |   |  | $ | (8,803 | )
|                                                                            |  |                    |       |                   |  |      |       |      |  |   |        |   |  |   |        |  

7



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##### Table of Contents



All gains and losses on hedging instruments are the result of an interest
rate collar agreement. See Footnote (8), Derivatives  for additional
information. By the end of the agreement, these unrealized gains will offset
against unrealized losses recognized in prior periods and will in aggregate net
to zero. Accordingly, there has been no income tax benefit or expense relating
to these unrealized gains and losses recognized in the Companys net income
(loss) or comprehensive income (loss). The unrealized gains and losses
recognized as other (income) expense relate to the ineffective portion of the
interest rate collar agreement.



|(5) |  | Extraordinary Loss on Early Extinguishment of Debt
|--- |  | --------------------------------------------------

On August 29, 2002, the Company refinanced its senior credit facility by
borrowing $143.1 million in Senior Term C notes and used these proceeds to pay
the entire outstanding principal balance on the Senior Term A and B notes. In
conjunction with the transaction the Company wrote off $3.4 million in deferred
financing costs as an extraordinary loss on early extinguishment of debt, which
provided a related tax benefit of $1.4 million.



|(6) |  | Lines of Business
|--- |  | -----------------

During the three and nine months ended September 30, 2002 and 2001, the
Company had three reportable segments: Laboratory, Animal Hospital and
Corporate. These segments are strategic business units that have different
products, services and functions. The segments are managed separately because
each is a distinct and different business venture with unique challenges,
rewards and risks. The Laboratory segment provides testing services for
veterinarians both associated with the Company and independent of the Company.
The Animal Hospital segment provides veterinary services for companion animals
and sells related retail products. Corporate provides selling, general and
administrative support for the other segments and recognizes revenue associated
with a consulting agreement.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies as detailed in the Companys
consolidated financial statements and footnotes thereto included in the 2001
Annual Report on Form 10-K. The Company evaluates performance of segments
based on profit or loss before income taxes, interest income, interest expense
and minority interest, which are evaluated on a consolidated level. For
purposes of reviewing the operating performance of the segments, all
intercompany sales and purchases are accounted for as if they were transactions
with independent third parties at current market prices.

8



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##### Table of Contents



Below is a summary of certain financial data for each of the three
segments (in thousands):

|                                      |                                   |  |            |         |          |  |           |         |              |  |       |         |              |  |   |        |   |  |   |         | 
|------------------------------------- | --------------------------------- |  | ---------- | ------- | -------- |  | --------- | ------- | ------------ |  | ----- | ------- | ------------ |  | - | ------ | - |  | - | ------- | 
|                                      |                                   |  |            |         |          |  | Animal    |         |              |  |       |         | Intercompany |  |   |        |  
|                                      |                                   |  | Laboratory |         | Hospital |  | Corporate |         | Eliminations |  | Total
|                                      |                                   |  |            |         |          |  |           |         |              |  |      
|Three Months Ended September 30,
2002 |                                   |  |            |         |          |  |           |         |              |  |       |         |              |  |   |        |   |  |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Revenue                           |  | $          | 38,650  |          |  | $         | 78,118  |              |  | $     | 500     |              |  | $ | (2,296 | ) |  | $ | 114,972 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Operating income (loss)           |  |            | 13,523  |          |  |           | 16,012  |              |  |       | (3,400  | )            |  |   |       |   |  |   | 26,135  | 
|                                     
|                                     
|                                     
|                                     
|                                      | Depreciation/amortization expense |  |            | 715     |          |  |           | 1,961   |              |  |       | 352     |              |  |   |       |   |  |   | 3,028   | 
|                                     
|                                     
|                                     
|                                     
|                                      | Capital expenditures              |  |            | 4,501   |          |  |           | 2,417   |              |  |       | 283     |              |  |   |       |   |  |   | 7,201   | 
|                                     
|                                     
|                                     
|                                     
|Three Months Ended September 30,
2001 |                                   |  |            |         |          |  |           |         |              |  |       |         |              |  |   |        |   |  |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Revenue                           |  | $          | 33,471  |          |  | $         | 70,531  |              |  | $     | 500     |              |  | $ | (1,866 | ) |  | $ | 102,636 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Operating income (loss)           |  |            | 9,512   |          |  |           | 11,459  |              |  |       | (4,947  | )            |  |   |       |   |  |   | 16,024  | 
|                                     
|                                     
|                                     
|                                     
|                                      | Depreciation/amortization expense |  |            | 1,153   |          |  |           | 3,688   |              |  |       | 1,591   |              |  |   |       |   |  |   | 6,432   | 
|                                     
|                                     
|                                     
|                                     
|                                      | Capital expenditures              |  |            | 670     |          |  |           | 2,515   |              |  |       | 440     |              |  |   |       |   |  |   | 3,625   | 
|                                     
|                                     
|                                     
|                                     
|Nine Months Ended September 30, 2002  |                                   |  |            |         |          |  |           |         |              |  |       |         |              |  |   |        |   |  |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Revenue                           |  | $          | 116,911 |          |  | $         | 225,383 |              |  | $     | 1,500   |              |  | $ | (6,902 | ) |  | $ | 336,892 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Operating income (loss)           |  |            | 41,596  |          |  |           | 43,306  |              |  |       | (9,902  | )            |  |   |       |   |  |   | 75,000  | 
|                                     
|                                     
|                                     
|                                     
|                                      | Depreciation/amortization expense |  |            | 2,138   |          |  |           | 6,166   |              |  |       | 1,026   |              |  |   |       |   |  |   | 9,330   | 
|                                     
|                                     
|                                     
|                                     
|                                      | Capital expenditures              |  |            | 5,931   |          |  |           | 6,372   |              |  |       | 1,102   |              |  |   |       |   |  |   | 13,405  | 
|                                     
|                                     
|                                     
|                                     
|Nine Months Ended September 30, 2001  |                                   |  |            |         |          |  |           |         |              |  |       |         |              |  |   |        |   |  |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Revenue                           |  | $          | 101,855 |          |  | $         | 207,665 |              |  | $     | 1,500   |              |  | $ | (5,655 | ) |  | $ | 305,365 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Operating income (loss)           |  |            | 27,527  |          |  |           | 29,770  |              |  |       | (23,617 | )            |  |   |       |   |  |   | 33,680  | 
|                                     
|                                     
|                                     
|                                     
|                                      | Depreciation/amortization expense |  |            | 3,457   |          |  |           | 10,829  |              |  |       | 4,835   |              |  |   |       |   |  |   | 19,121  | 
|                                     
|                                     
|                                     
|                                     
|                                      | Capital expenditures              |  |            | 1,548   |          |  |           | 6,418   |              |  |       | 1,963   |              |  |   |       |   |  |   | 9,929   | 
|                                     
|                                     
|                                     
|                                     
|At September 30, 2002                 |                                   |  |            |         |          |  |           |         |              |  |       |         |              |  |   |        |   |  |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Identifiable assets               |  | $          | 114,913 |          |  | $         | 341,106 |              |  | $     | 57,361  |              |  |   |       |   |  | $ | 513,380 | 
|                                     
|                                     
|                                     
|                                     
|At December 31, 2001                  |                                   |  |            |         |          |  |           |         |              |  |       |         |              |  |   |        |   |  |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Identifiable assets               |  | $          | 110,466 |          |  | $         | 322,657 |              |  | $     | 35,398  |              |  |   |       |   |  | $ | 468,521 | 

Below is a reconciliation between total segment operating income after
eliminations and consolidated income (loss) before provision for income taxes
as reported on the condensed, consolidated statements of operations (in
thousands):

|                                                  |                                                                        |   |                    |        |                   |   |        |       |      |   |        |        |  |   |        |     |  
|------------------------------------------------- | ---------------------------------------------------------------------- | - | ------------------ | ------ | ----------------- | - | ------ | ----- | ---- | - | ------ | ------ |  | - | ------ | --- | -
|                                                  |                                                                        |   | Three Months Ended |        | Nine Months Ended
|                                                  |                                                                        |   | September 30,      |        | September 30,    
|                                                  |                                                                        |   |                    |        |                  
|                                                  |                                                                        |   | 2002               |        | 2001              |   | 2002   |       | 2001
|                                                  |                                                                        |   |                    |        |                   |   |        |       |     
|Total segment operating income after
eliminations |                                                                        | $ | 26,135             |        |                   | $ | 16,024 |       |      | $ | 75,000 |        |  | $ | 33,680 |    
|                                                 
|                                                 
|                                                 
|                                                 
|Net interest expense                              |                                                                        |   | 10,208             |        |                   |   | 10,317 |       |      |   | 30,541 |        |  |   | 32,387 |    
|                                                 
|                                                 
|                                                 
|                                                 
|Other (income) expense                            |                                                                        |   | (5                 | )      |                   |   | 4      |       |      |   | (159   | )      |  |   | 233    |    
|                                                 
|                                                 
|                                                 
|                                                 
|Minority interest in income of subsidiaries       |                                                                        |   | 430                |        |                   |   | 404    |       |      |   | 1,360  |        |  |   | 1,104  |    
|                                                  |                                                                        |   |                    |        |                   |   |        |       |      |   |        |        |  |   |        |    
|                                                  | Income (loss) before provision for income
taxes and extraordinary item |   | $                  | 15,502 |                   |   | $      | 5,299 |      |   | $      | 43,258 |  |   | $      | (44 | )
|                                                  |                                                                        |   |                    |        |                   |   |        |       |      |   |        |        |  |   |        |    



|(7) |  | Other (Income) Expense
|--- |  | ----------------------

As a result of changes in the time value of an interest rate collar
agreement, the Company recognized a non-cash gain of $5,000 and a non-cash loss
of $4,000 during the three months ended September 30, 2002 and 2001,
respectively, and recognized a non-cash gain of $159,000 and a non-cash loss of
$233,000 during the nine months ended September 30, 2002 and 2001,
respectively. See Footnote (8), Derivatives for additional information.

9



---



##### Table of Contents





|(8) |  | Derivatives
|--- |  | -----------

The Company entered into a no-fee interest rate collar agreement with
Wells Fargo Bank effective November 15, 2000 and expiring November 15, 2002,
(the Collar Agreement). The Collar Agreement is based on the London
interbank offer rate (LIBOR), which resets monthly, and has a cap and floor
notional amount of $62.5 million, with a cap and floor interest rate of 7.5%
and 5.9%, respectively. As a result of LIBOR rates being below the floor
interest rate of 5.9%, the Company made payments under this agreement amounting
to $666,000 and $347,000 for the three months ended September 30, 2002 and
2001, respectively, and $1.9 million and $600,000 for the nine months ended
September 30, 2002 and 2001, respectively. These payments have been reported
as part of interest expense.

The Collar Agreement is accounted for as a cash flow hedge with its market
value reported as a liability on the balance sheet. This liability decreased
approximately $1.7 million to $326,000 at September 30, 2002 from $2.0 million
at December 31, 2001. Of this decrease, $1.5 million has been recognized in
comprehensive income and the other $159,000 has been recognized in other
income. The valuation of the Collar Agreement is determined by Wells Fargo
Bank. As the result of adopting Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities,
in 2001, the Company recorded a cumulative adjustment to other comprehensive
income of approximately $525,000 during the nine months ended September 30,
2001.

When the Collar Agreement expires on November 15, 2002, the Company
intends to enter into additional derivative contracts to hedge against part or
all of the risk of increasing interest rates that would increase interest
payments on the $142.7 million of Senior Term C notes, which are based on
variable rates.



|(9) |  | Goodwill and Other Intangible Assets
|--- |  | ------------------------------------

In June 2001, the Financial Accounting Standards Board, (the FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill
and Other Intangible Assets. SFAS No. 142 prohibits the amortization of
goodwill and intangible assets with indefinite useful lives. SFAS No. 142
requires that these assets be reviewed for impairment at least annually, or
whenever there is an indication of impairment. Intangible assets with finite
lives will continue to be amortized over their estimated useful lives and
reviewed for impairment in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.

SFAS No. 142 requires companies to allocate their goodwill to identifiable
reporting units, which are then tested for impairment using a two-step process
detailed in the statement. The first step requires comparing the fair value of
each reporting unit with its carrying amount, including goodwill. If that fair
value exceeds the carrying amount, the second step of the process is not
necessary and there are no impairment issues. If that fair value does not
exceed that carrying amount, companies must perform the second step that
requires a hypothetical allocation of the fair value of the reporting unit to
the reporting units assets and liabilities as if the unit were just purchased
by the company at the fair value price. In this hypothetical purchase, the
excess of the fair value of the reporting unit over its re-evaluated,
marked-to-market net assets would be the new basis for the reporting units
goodwill and a write down to this new value would be recognized as an expense.

The Company adopted SFAS No. 142 on January 1, 2002. In doing so, it
determined that it had two reporting units, Laboratory and Animal Hospital. On
April 15, 2002, an independent valuation group concluded that the fair value of
the Companys reporting units exceeded its carrying value and accordingly, as
of that date, there were no goodwill impairment issues. The Company plans to
perform a valuation of its reporting units in January of each year, or upon
significant changes in the Companys business environment.

As of September 30, 2002 the Companys goodwill, net of accumulated
amortization was $332.5 million. The Company recorded $2.3 million and $6.9
million in goodwill amortization, for the three and nine months ended September
30, 2001, respectively. Because of the adoption of SFAS No. 142 there was no
amortization of goodwill for the three and nine months ended September 30,
2002.

10



---



##### Table of Contents



The following table presents net income (loss) available to common
stockholders and earnings (loss) per share as if SFAS No. 142 had been adopted
as of January 1, 2001 (in thousands):

|                                                   |                                            |                            |       |                    |       |                   |        |       |        |      |        |      |        |   |         |       |         |  
|-------------------------------------------------- | ------------------------------------------ | -------------------------- | ----- | ------------------ | ----- | ----------------- | ------ | ----- | ------ | ---- | ------ | ---- | ------ | - | ------- | ----- | ------- | -
|                                                   |                                            |                            |       | Three Months Ended |       | Nine Months Ended
|                                                   |                                            |                            |       | September 30,      |       | September 30,    
|                                                   |                                            |                            |       |                    |       |                  
|                                                   |                                            |                            |       | 2002               |       | 2001              |        | 2002  |        | 2001
|                                                   |                                            |                            |       |                    |       |                   |        |       |        |     
|Net income (loss) available to common
stockholders |                                            | $                          | 7,035 |                    |       | $                 | (3,338 | )     |        | $    | 23,165 |      |        | $ | (22,368 | )    
|                                                  
|                                                  
|                                                  
|                                                  
|Add back goodwill amortization, net of tax         |                                            |                            |      |                    |       |                   | 1,765  |       |        |      |       |      |        |   | 5,206   |      
|                                                   |                                            |                            |       |                    |       |                   |        |       |        |      |        |      |        |   |         |      
|                                                   |                                            | Adjusted net income (loss) |       | $                  | 7,035 |                   |        | $     | (1,573 | )    |        | $    | 23,165 |   |         | $     | (17,162 | )
|                                                   |                                            |                            |       |                    |       |                   |        |       |        |      |        |      |        |   |         |      
|Basic earnings (loss) per share:                   |                                            |                            |       |                    |       |                   |        |       |        |      |        |      |        |   |         |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Reported net income (loss)                 |                            | $     | 0.19               |       |                   | $      | (0.19 | )      |      | $      | 0.63 |        |   | $       | (1.27 | )      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Goodwill amortization, net of tax          |                            |       |                   |       |                   |        | 0.10  |        |      |        |     |        |   |         | 0.30  |        
|                                                   |                                            |                            |       |                    |       |                   |        |       |        |      |        |      |        |   |         |      
|                                                   | Adjusted basic earning (loss) per share    |                            | $     | 0.19               |       |                   | $      | (0.09 | )      |      | $      | 0.63 |        |   | $       | (0.97 | )      
|                                                   |                                            |                            |       |                    |       |                   |        |       |        |      |        |      |        |   |         |      
|Diluted earnings (loss) per share:                 |                                            |                            |       |                    |       |                   |        |       |        |      |        |      |        |   |         |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Reported net income (loss)                 |                            | $     | 0.19               |       |                   | $      | (0.19 | )      |      | $      | 0.63 |        |   | $       | (1.27 | )      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Goodwill amortization, net of tax          |                            |       |                   |       |                   |        | 0.10  |        |      |        |     |        |   |         | 0.30  |        
|                                                   |                                            |                            |       |                    |       |                   |        |       |        |      |        |      |        |   |         |      
|                                                   | Adjusted diluted earnings (loss) per share |                            | $     | 0.19               |       |                   | $      | (0.09 | )      |      | $      | 0.63 |        |   | $       | (0.97 | )      
|                                                   |                                            |                            |       |                    |       |                   |        |       |        |      |        |      |        |   |         |      

The following table presents the changes in the carrying amount of
goodwill for the nine months ended September 30, 2002 (in thousands):

|                                                 |  |            |        |          |  |        |         |  |  |   |         | 
|------------------------------------------------ |  | ---------- | ------ | -------- |  | ------ | ------- |  |  | - | ------- | 
|                                                 |  |            |        |          |  | Animal |         |  |  |  
|                                                 |  | Laboratory |        | Hospital |  | Total 
|                                                 |  |            |        |          |  |       
|Balance as of January 1, 2002                    |  | $          | 85,101 |          |  | $      | 232,161 |  |  | $ | 317,262 | 
|                                                
|                                                
|                                                
|                                                
|Goodwill acquired and purchase price
adjustments |  |            |       |          |  |        | 15,281  |  |  |   | 15,281  | 
|                                                 |  |            |        |          |  |        |         |  |  |   |         | 
|Balance as of September 30, 2002                 |  | $          | 85,101 |          |  | $      | 247,442 |  |  | $ | 332,543 | 
|                                                 |  |            |        |          |  |        |         |  |  |   |         | 

In addition to goodwill, the Company has other intangible assets as
follows (in thousands):

|                         |       |   |                          |        |              |   |              |        |   |   |       |       | 
|------------------------ | ----- | - | ------------------------ | ------ | ------------ | - | ------------ | ------ | - | - | ----- | ----- | 
|                         |       |   | As of September 30, 2002
|                         |       |   |                         
|                         |       |   | Gross Carrying           |        | Accumulated  |   | Net Carrying
|                         |       |   | Amount                   |        | Amortization |   | Amount      
|                         |       |   |                          |        |              |   |             
|Covenants not to compete |       | $ | 12,301                   |        |              | $ | (7,779       | )      |   | $ | 4,522 |      
|                        
|                        
|                        
|                        
|Client lists             |       |   | 579                      |        |              |   | (461         | )      |   |   | 118   |      
|                         |       |   |                          |        |              |   |              |        |   |   |       |      
|                         | Total |   | $                        | 12,880 |              |   | $            | (8,240 | ) |   | $     | 4,640 | 
|                         |       |   |                          |        |              |   |              |        |   |   |       |      

The aggregate amortization related to other intangible assets was as
follows (in thousands):

|                                   |  |                    |     |                   |  |      |       |      |  |   |       |  |  |   |       | 
|---------------------------------- |  | ------------------ | --- | ----------------- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                                   |  | Three Months Ended |     | Nine Months Ended
|                                   |  | September 30,      |     | September 30,    
|                                   |  |                    |     |                  
|                                   |  | 2002               |     | 2001              |  | 2002 |       | 2001
|                                   |  |                    |     |                   |  |      |       |     
|Aggregate amortization expense (1) |  | $                  | 276 |                   |  | $    | 1,715 |      |  | $ | 1,297 |  |  | $ | 5,158 | 
|                                   |  |                    |     |                   |  |      |       |      |  |   |       |  |  |   |       | 



|(1) |  | Does not include goodwill amortization of $2.3 million and $6.9
million for the three and nine months ended
September 30, 2001, respectively. There was no goodwill amortization
recorded in 2002.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11



---



##### Table of Contents



Estimated amortization expense for other intangible assets for the next
five years is as follows (in thousands):

|                    |  |   |       | 
|------------------- |  | - | ----- | 
|For the Year Ending
|December 31,       
|                   
|2002                |  | $ | 1,773 | 
|                   
|                   
|                   
|                   
|2003                |  | $ | 1,814 | 
|                   
|                   
|                   
|                   
|2004                |  | $ | 1,802 | 
|                   
|                   
|                   
|                   
|2005                |  | $ | 1,492 | 
|                   
|                   
|                   
|                   
|2006                |  | $ | 1,389 | 



|(10) |  | Accounting Pronouncements
|---- |  | -------------------------

Asset Retirement Obligations

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The Company will adopt SFAS
No. 143 in the first quarter of fiscal year 2003. The Company does not expect
the adoption of SFAS No. 143 to have a material impact on its consolidated
financial statements.

Impairment of Long-Lived Assets

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which establishes one accounting
model to be used for long-lived assets to be disposed of by sale and broadens
the presentation for discontinued operations to include more disposal
transactions. SFAS No. 144 supercedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets to be Disposed of by Sale, and the accounting
and reporting provisions relating to the impairment or disposal of long-lived
assets of Accounting Principles Board Opinion No. 30 (APB No. 30), Reporting
the Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. The Company adopted SFAS No. 144 on January 1, 2002, with no
material impact to its financial statements.

Gains and Losses from Extinguishment of Debt and Capital Leases

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, to be applied in fiscal years beginning after May 15, 2002, with
early adoption encouraged.

Under SFAS No. 145, gains and losses from extinguishment of debt should be
classified as extraordinary items only if they meet the criteria of APB No. 30.
Under APB No. 30, events are considered extraordinary only if they possess a
high degree of abnormality and are not likely to recur in the foreseeable
future. Any gains or losses on extinguishment of debt that do not meet the
criteria of APB No. 30 shall be classified as a component of income from
recurring operations. In addition, any gains or losses on extinguishment of
debt that were classified as an extraordinary item in prior periods presented
that do not meet the criteria of APB No. 30 shall be reclassified as a
component of income from recurring operations.

The Company will adopt SFAS No. 145 at the beginning of fiscal year 2003.
As detailed in Footnote (5), Extraordinary Loss on Early Extinguishment of
Debt, the Company recognized an extraordinary loss related to the early
extinguishment of debt of approximately $3.4 million, before taxes, during the
three months ended September 30, 2002. In addition, the Company recognized
extraordinary losses related to the early extinguishment of debt, before taxes
in the amount of approximately $17.2 million and $4.5 million during years 2001
and 2000, respectively. The Company does not believe these losses on
extinguishment of debt meet the criteria of APB No. 30 as the Company has
historically participated in and may continue to participate in periodic debt
refinancing. As a result of adopting SFAS No. 145, the Company will reclassify
losses on extinguishment of debt from extraordinary losses to a component of
income from recurring operations. This reclassification will not impact net
income.

12



---



##### Table of Contents



SFAS No. 145 also amends SFAS No. 13, Accounting for Leases. Under SFAS
No. 145, if a capital lease is modified such that it becomes an operating
lease, a gain or loss must be recognized similar to the accounting used for
sale-leaseback transactions as provided in SFAS No. 28 and No. 98. At
September 30, 2002, the Company had capital lease obligations of $43,000.
Although the Company may enter into more capital leases, management does not
expect this provision of SFAS No. 145 to have a material impact on its
financial statements.

Costs Associated with Exit or Disposal of Activities

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 requires that
liabilities associated with exit or disposal activities be recognized when a
company is committed to future payment of those liabilities under a binding,
legal obligation. SFAS No. 146 supercedes Emerging Issues Task Force Issue No.
94-3, Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring),which required that exit and disposal costs be recognized as
liabilities when a company formalized its plan for exiting or disposing of an
activity even if no legal obligation had been established.

SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002, however early adoption is encouraged.
Costs associated with exit or disposal activities will be recognized in income
from continuing operations before income taxes, unless these are costs
associated with discontinued operations, which would require disclosure as part
of discontinued operations, net of taxes. The Company has no plans to exit or
dispose of any of its business activities under the definition of SFAS No. 146,
nor does the Company anticipate that SFAS No. 146 will change any of its
business practices.

Goodwill Impairment Test

In August 2002, the FASBs Emerging Issues Task Force (EITF) issued EITF
Issue No. 02-13, Deferred Income Tax Considerations in Applying the Goodwill
Impairment Test in FASB No. 142, Goodwill and Other Intangible Assets.EITF
Issue No. 02-13 was issued to provide guidance on how to account for deferred
tax balances in determining a reporting units fair value, a reporting units
carrying amount and the implied fair value of goodwill. The consensus in this
issue will be applied prospectively in performing either the first or second
step of the impairment test required by SFAS No. 142 for tests performed after
September 12, 2002. The Company has not determined yet what impact EITF Issue
No. 02-13 will have on its consolidated financial statements.



|(11) |  | Reclassifications
|---- |  | -----------------

Certain 2001 balances have been reclassified to conform to the 2002
financial statement presentation.



|(12) |  | Commitments and Contingencies
|---- |  | -----------------------------

The laws of many states prohibit business corporations from providing, or
holding themselves out as providers of, veterinary medical care. These laws
vary from state to state and are enforced by the courts and by regulatory
authorities with broad discretion. The Company operates 58 animal hospitals in
11 states with these laws. The Company may experience difficulty in expanding
operations into other states with similar laws. Given varying and uncertain
interpretations of the veterinary laws of each state, the Company may not be in
compliance with restrictions on the corporate practice of veterinary medicine
in all states. A determination that the Company is in violation of applicable
restrictions on the practice of veterinary medicine in any state in which it
operates could have a material adverse effect, particularly if the Company were
unable to restructure its operations to comply with the requirements of that
state.

The Company currently is a party to a lawsuit in the State of Ohio in
which that state has alleged that the management of a veterinary medical group
licensed to practice veterinary medicine in that state violates the Ohio
statute prohibiting business corporations from providing or holding themselves
out as providers of veterinary medical care. On March 20, 2001, the trial
court in the case entered summary judgment in favor of the State of Ohio and
issued an order enjoining the Company from operating in the State of Ohio in a
manner that is in violation of the state statute. In response, the Company
restructured its operations in the State of Ohio in a manner believed to
conform to the state law and the courts order. The Attorney General of the
State of Ohio informed the Company

13



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##### Table of Contents



that it disagreed with the Companys position that the Company is in
compliance with the courts order. In June 2001, the Company appeared at a
status conference before the trial court at which time the court directed the
parties to meet together to attempt to settle this matter. Consistent with the
trial courts directive, the Company engaged in discussions with the Attorney
Generals office in the State of Ohio. The parties were not able to reach a
settlement prior to an additional status conference that occurred in February
2002. At that status conference, the court ordered the parties to participate
in a court-supervised settlement conference that occurred in April 2002.
Pursuant to discussions with the Ohio Attorney General at that settlement
conference, the Company submitted to the Ohio Attorney General a revised
management agreement that incorporates further revisions to the structure of
its operations in Ohio. Following its review of the revised agreement, the
Ohio Attorney General requested further revisions to the management agreement,
and, in response, the Company has submitted a further revised agreement which
is consistent with those suggestions and which currently is under review by the
Ohio Attorney General. If a settlement cannot be reached, the Company may be
required to discontinue operations in the state. The five animal hospitals in
the State of Ohio had a net book value of $6.4 million as of September 30,
2002. If the Company was required to discontinue operations in the State of
Ohio, it may not be able to dispose of the hospital assets for their book
value. The animal hospitals located in the State of Ohio generated revenue and
operating income of $1.6 million and $461,000, respectively, for the nine
months ended September 30, 2002, and $2.1 million and $409,000, for the year
ended December 31, 2001.

On November 30, 2001, two majority stockholders of a company that merged
with Zoasis.com, Inc. in June 2000 filed a civil complaint against VCA,
Zoasis.com, Inc. and Robert Antin. In the merger, the two stockholders
received a less than 10% interest in Zoasis. At the same time, VCA acquired a
less than 20% interest in Zoasis.com, Inc. for an investment of $5.0 million.
Robert Antin, VCAs Chief Executive Officer, President and Chairman of the
Board, is the majority stockholder of Zoasis.com and serves on its board of
directors. The complaint alleges securities fraud under California law, common
law fraud, negligent misrepresentation and declaratory judgment arising from
the plaintiffs investment in Zoasis.com. On December 31, 2001, the Company
filed a demurrer to the complaint. On February 25, 2002, the plaintiffs filed
an opposition to the Companys demurrer, and on March 1, 2002, the Company
filed our reply to plaintiffs opposition. On March 7, 2002, the Companys
demurrer was denied. On March 22, 2002, the Company filed an answer to
plaintiffs complaint denying all allegations in the complaint, and the Company
filed a counter claim alleging breach of contract and claim and delivery. The
Company is currently involved in the discovery process. A status conference
was held on May 9, 2002 at which the judge ordered the parties to participate
in mediation. Mediation occurred on August 7, 2002, and no settlement was
reached. The court has scheduled a final status conference for January 31,
2003, and a trial date of February 14, 2003.

All of the states in which the Company operates impose various
registration requirements. To fulfill these requirements, each facility has
been registered with appropriate governmental agencies and, where required,
have appointed a licensed veterinarian to act on behalf of each facility. All
veterinarians practicing in animal hospitals owned or operated by the Company
are required to maintain valid state licenses to practice.



|(13) |  | Subsequent Events
|---- |  | -----------------

Acquisitions

From October 1, 2002 through November 8, 2002, the Company acquired one
animal hospital and one laboratory for an aggregate consideration (including
acquisition costs) of $3.0 million, consisting of $2.4 million in cash, and the
assumption of liabilities totaling $595,000.

Repayment of 13.5% Senior Subordinated and 15.5% Senior Notes

On October 24, 2002, the Company borrowed $25.0 million in additional
Senior Term C notes under the credit and guaranty agreement. The proceeds from
this borrowing and $25.2 million of cash on-hand were used to voluntarily repay
the remaining principal balance of $15.0 million for the Companys 13.5% senior
subordinated notes and repay $30.0 million of its 15.5% senior notes. As a
result of repaying these notes, the Company will recognize an additional
extraordinary loss, net of income tax benefit, of approximately $5.5 million
during the fourth quarter of 2002.

14



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##### Table of Contents



Swap Agreement

On November 7, 2002 the Company entered into a no-fee swap agreement with
Wells Fargo Bank effective November 29, 2002 and expiring November 29, 2004.
The agreement swaps monthly variable LIBOR rates for a fixed rate of 2.22% on a
notional amount of $40.0 million. The agreement qualifies for hedge
accounting.



|(14) |  | Condensed, Consolidating Information
|---- |  | ------------------------------------

In 2000, the Company established a legal structure comprised of a holding
company and an operating company. VCA is the holding company. Vicar
Operating, Inc. (Vicar) is the operating company and wholly-owned by VCA.
Vicar owns the capital stock of all of the Companys other subsidiaries.

In connection with Vicars issuance in November 2001 of $170.0 million of
9.875% senior subordinated notes, VCA and each existing and future domestic
wholly-owned restricted subsidiary of Vicar (the Guarantor Subsidiaries)
have, jointly and severally, fully and unconditionally guaranteed the 9.875%
senior subordinated notes. These guarantees are unsecured and subordinated in
right of payment to all existing and future indebtedness outstanding under the
senior debt credit agreement and any other indebtedness permitted to be
incurred by Vicar under the terms of the indenture agreement for the 9.875%
senior subordinated notes.

Vicars subsidiaries are composed of wholly-owned restricted subsidiaries
and partnerships. The partnerships may elect to serve as guarantors of Vicars
obligations, however, none of the partnerships have elected to do so (the
Non-Guarantor Subsidiaries). Vicar conducts all of its business through and
derives virtually all of its income from its subsidiaries. Therefore, Vicars
ability to make required payments with respect to its indebtedness (including
the 9.875% senior subordinated notes) and other obligations depends on the
financial results and condition of its subsidiaries and its ability to receive
funds from its subsidiaries.

Pursuant to Rule 3-10 of Regulation S-X, the following condensed,
consolidating information is for VCA, Vicar, the Guarantor and Non-Guarantor
Subsidiaries with respect to the 9.875% senior subordinated notes. This
condensed financial information has been prepared from the books and records
maintained by VCA, Vicar, the Guarantor and Non-Guarantor Subsidiaries. The
condensed financial information may not necessarily be indicative of results of
operations or financial position had the Guarantors and Non-Guarantor
Subsidiaries operated as independent entities. The separate financial
statements of the Guarantor Subsidiaries are not presented because management
has determined they would not be material to investors.

15



---



##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING BALANCE SHEETS
As of September 30, 2002
(Unaudited)
(In thousands)

|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |          |         | 
|------------------------------------------- | ---------------------------------------- | ------------------------------------------ | ------- | -------- | ------- | ----- | -------- | ------------ | ------- | ------------ | ------- | ----------- | ------- | ------------- | ------ | ------ | ------ |  | -------- | -------- | -------- | - | ------- | -------- | ------- | 
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         | Guarantor   |         | Non-Guarantor |        |        |        |  |          |          |          |  
|                                            |                                          |                                            |         | VCA      |         | Vicar |          | Subsidiaries |         | Subsidiaries |         | Elimination |         | Consolidated 
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |              
|Current assets:                             |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                           
|                                           
|                                           
|                                           
|                                            | Cash and equivalents                     |                                            | $       |         |         |       | $        | 30,460       |         |              | $       | 1,717       |         |               | $      | 181    |        |  | $        |         |          |   | $       | 32,358   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Trade accounts receivable, net           |                                            |         |         |         |       |          |             |         |              |         | 20,094      |         |               |        | 697    |        |  |          |         |          |   |         | 20,791   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Inventory, prepaid expenses and other    |                                            |         |         |         |       |          | 1,246        |         |              |         | 6,060       |         |               |        | 574    |        |  |          |         |          |   |         | 7,880    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Deferred income taxes                    |                                            |         |         |         |       |          | 9,682        |         |              |         |            |         |               |        |       |        |  |          |         |          |   |         | 9,682    |        
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                            |                                          | Total current assets                       |         |          |        |       |          |              | 41,388  |              |         |             | 27,871  |               |        |        | 1,452  |  |          |          |         |   |         |          | 70,711  | 
|                                           
|                                           
|                                           
|                                           
|Property and equipment, net                 |                                          |                                            |        |          |         |       | 7,877    |              |         |              | 83,133  |             |         |               | 2,594  |        |        |  |         |          |          |   | 93,604  |         
|                                           
|                                           
|                                           
|                                           
|Other assets:                               |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                           
|                                           
|                                           
|                                           
|                                            | Goodwill, net                            |                                            |         |         |         |       |          |             |         |              |         | 310,012     |         |               |        | 22,531 |        |  |          |         |          |   |         | 332,543  |        
|                                           
|                                           
|                                           
|                                           
|                                            | Covenants not to compete, net            |                                            |         |         |         |       |          |             |         |              |         | 3,807       |         |               |        | 715    |        |  |          |         |          |   |         | 4,522    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Deferred financing costs, net            |                                            |         | 714      |         |       |          | 6,680        |         |              |         |            |         |               |        |       |        |  |          |         |          |   |         | 7,394    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Other assets                             |                                            |         | 246      |         |       |          | 456          |         |              |         | 2,137       |         |               |        | 1,767  |        |  |          |         |          |   |         | 4,606    |        
|                                           
|                                           
|                                           
|                                           
|Investment in subsidiaries                  |                                          |                                            | 152,635 |          |         |       | 227,997  |              |         |              | 24,094  |             |         |               |       |        |        |  | (404,726 | )        |          |   |        |         
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                            |                                          | Total assets                               |         | $        | 153,595 |       |          | $            | 284,398 |              |         | $           | 451,054 |               |        | $      | 29,059 |  |          | $        | (404,726 | ) |         | $        | 513,380 | 
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|Current liabilities:                        |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                           
|                                           
|                                           
|                                           
|                                            | Current portion of long-term
obligations |                                            | $       |         |         |       | $        | 1,484        |         |              | $       | 305         |         |               | $      | 4      |        |  | $        |         |          |   | $       | 1,793    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accounts payable                         |                                            |         |         |         |       |          | 5,978        |         |              |         | 3,153       |         |               |        |       |        |  |          |         |          |   |         | 9,131    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accrued payroll and related liabilities  |                                            |         |         |         |       |          | 8,176        |         |              |         | 6,016       |         |               |        | 317    |        |  |          |         |          |   |         | 14,509   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accrued interest                         |                                            |         |         |         |       |          | 5,649        |         |              |         | 10          |         |               |        |       |        |  |          |         |          |   |         | 5,659    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Income taxes payable                     |                                            |         |         |         |       |          | 2,035        |         |              |         |            |         |               |        |       |        |  |          |         |          |   |         | 2,035    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Other accrued liabilities                |                                            |         |         |         |       |          | 9,719        |         |              |         | 3,338       |         |               |        | 138    |        |  |          |         |          |   |         | 13,195   |        
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                            |                                          | Total current liabilities                  |         |          |        |       |          |              | 33,041  |              |         |             | 12,822  |               |        |        | 459    |  |          |          |         |   |         |          | 46,322  | 
|                                           
|                                           
|                                           
|                                           
|Long-term obligations, less current
portion |                                          |                                            | 61,240  |          |         |       | 324,825  |              |         |              | 976     |             |         |               |       |        |        |  |         |          |          |   | 387,041 |         
|                                           
|                                           
|                                           
|                                           
|Deferred income taxes                       |                                          |                                            |        |          |         |       | 9,371    |              |         |              |        |             |         |               |       |        |        |  |         |          |          |   | 9,371   |         
|                                           
|                                           
|                                           
|                                           
|Minority interest                           |                                          |                                            |        |          |         |       |         |              |         |              |        |             |         |               |       |        |        |  | 5,732    |          |          |   | 5,732   |         
|                                           
|                                           
|                                           
|                                           
|Intercompany payable (receivable)           |                                          |                                            | 27,441  |          |         |       | (235,474 | )            |         |              | 209,259 |             |         |               | (1,226 | )      |        |  |         |          |          |   |        |         
|                                           
|                                           
|                                           
|                                           
|Stockholders equity:                       |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                           
|                                           
|                                           
|                                           
|                                            | Common stock                             |                                            |         | 37       |         |       |          |             |         |              |         |            |         |               |        |       |        |  |          |         |          |   |         | 37       |        
|                                           
|                                           
|                                           
|                                           
|                                            | Additional paid-in capital               |                                            |         | 188,865  |         |       |          |             |         |              |         |            |         |               |        |       |        |  |          |         |          |   |         | 188,865  |        
|                                           
|                                           
|                                           
|                                           
|                                            | Retained earnings (accumulated
deficit)  |                                            |         | (123,429 | )       |       |          | 152,954      |         |              |         | 227,997     |         |               |        | 29,826 |        |  |          | (410,777 | )        |   |         | (123,429 | )      
|                                           
|                                           
|                                           
|                                           
|                                            | Accumulated comprehensive loss           |                                            |         | (319     | )       |       |          | (319         | )       |              |         |            |         |               |        |       |        |  |          | 319      |          |   |         | (319     | )      
|                                           
|                                           
|                                           
|                                           
|                                            | Notes receivable from stockholders       |                                            |         | (240     | )       |       |          |             |         |              |         |            |         |               |        |       |        |  |          |         |          |   |         | (240     | )      
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                            |                                          | Total stockholders equity                 |         |          | 64,914  |       |          |              | 152,635 |              |         |             | 227,997 |               |        |        | 29,826 |  |          |          | (410,458 | ) |         |          | 64,914  | 
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                            |                                          | Total liabilities and stockholders
Equity |         | $        | 153,595 |       |          | $            | 284,398 |              |         | $           | 451,054 |               |        | $      | 29,059 |  |          | $        | (404,726 | ) |         | $        | 513,380 | 
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         

16



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##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING BALANCE SHEETS
As of December 31, 2001
(Unaudited)
(In thousands)

|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |          |         | 
|------------------------------------------- | ---------------------------------------- | ------------------------------------------ | ------- | -------- | ------- | ----- | -------- | ------------ | ------- | ------------ | ------- | ----------- | ------- | ------------- | ----- | ------ | ------ |  | -------- | -------- | -------- | - | ------- | -------- | ------- | 
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         | Guarantor   |         | Non-Guarantor |       |        |        |  |          |          |          |  
|                                            |                                          |                                            |         | VCA      |         | Vicar |          | Subsidiaries |         | Subsidiaries |         | Elimination |         | Consolidated 
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |              
|Current assets:                             |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                           
|                                           
|                                           
|                                           
|                                            | Cash and equivalents                     |                                            | $       |         |         |       | $        | 3,467        |         |              | $       | 3,260       |         |               | $     | 376    |        |  | $        |         |          |   | $       | 7,103    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Trade accounts receivable, net           |                                            |         |         |         |       |          |             |         |              |         | 17,702      |         |               |       | 334    |        |  |          |         |          |   |         | 18,036   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Inventory, prepaid expenses and other    |                                            |         |         |         |       |          | 1,165        |         |              |         | 5,160       |         |               |       | 554    |        |  |          |         |          |   |         | 6,879    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Deferred income taxes                    |                                            |         |         |         |       |          | 7,364        |         |              |         |            |         |               |       |       |        |  |          |         |          |   |         | 7,364    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Prepaid income taxes                     |                                            |         |         |         |       |          | 2,782        |         |              |         |            |         |               |       |       |        |  |          |         |          |   |         | 2,782    |        
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                            |                                          | Total current assets                       |         |          |        |       |          |              | 14,778  |              |         |             | 26,122  |               |       |        | 1,264  |  |          |          |         |   |         |          | 42,164  | 
|                                           
|                                           
|                                           
|                                           
|Property and equipment, net                 |                                          |                                            |        |          |         |       | 8,421    |              |         |              | 78,225  |             |         |               | 2,598 |        |        |  |         |          |          |   | 89,244  |         
|                                           
|                                           
|                                           
|                                           
|Other assets:                               |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                           
|                                           
|                                           
|                                           
|                                            | Goodwill, net                            |                                            |         |         |         |       |          |             |         |              |         | 298,198     |         |               |       | 19,064 |        |  |          |         |          |   |         | 317,262  |        
|                                           
|                                           
|                                           
|                                           
|                                            | Covenants not to compete, net            |                                            |         |         |         |       |          |             |         |              |         | 4,211       |         |               |       | 616    |        |  |          |         |          |   |         | 4,827    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Deferred financing costs, net            |                                            |         | 780      |         |       |          | 10,600       |         |              |         |            |         |               |       |       |        |  |          |         |          |   |         | 11,380   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Other assets                             |                                            |         | 320      |         |       |          | 498          |         |              |         | 1,986       |         |               |       | 840    |        |  |          |         |          |   |         | 3,644    |        
|                                           
|                                           
|                                           
|                                           
|Investment in subsidiaries                  |                                          |                                            | 123,842 |          |         |       | 179,391  |              |         |              | 19,920  |             |         |               |      |        |        |  | (323,153 | )        |          |   |        |         
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                            |                                          | Total assets                               |         | $        | 124,942 |       |          | $            | 213,688 |              |         | $           | 428,662 |               |       | $      | 24,382 |  |          | $        | (323,153 | ) |         | $        | 468,521 | 
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|Current liabilities:                        |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                           
|                                           
|                                           
|                                           
|                                            | Current portion of long-term obligations |                                            | $       |         |         |       | $        | 4,766        |         |              | $       | 389         |         |               | $     | 4      |        |  | $        |         |          |   | $       | 5,159    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accounts payable                         |                                            |         |         |         |       |          | 5,223        |         |              |         | 2,074       |         |               |       | 16     |        |  |          |         |          |   |         | 7,313    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accrued payroll and related liabilities  |                                            |         |         |         |       |          | 5,019        |         |              |         | 6,440       |         |               |       | 258    |        |  |          |         |          |   |         | 11,717   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accrued interest                         |                                            |         |         |         |       |          | 2,254        |         |              |         |            |         |               |       |       |        |  |          |         |          |   |         | 2,254    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Other accrued liabilities                |                                            |         |         |         |       |          | 13,373       |         |              |         | 2,968       |         |               |       | 10     |        |  |          |         |          |   |         | 16,351   |        
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                            |                                          | Total current liabilities                  |         |          |        |       |          |              | 30,635  |              |         |             | 11,871  |               |       |        | 288    |  |          |          |         |   |         |          | 42,794  | 
|                                           
|                                           
|                                           
|                                           
|Long-term obligations, less current
portion |                                          |                                            | 54,345  |          |         |       | 324,152  |              |         |              | 672     |             |         |               | 4     |        |        |  |         |          |          |   | 379,173 |         
|                                           
|                                           
|                                           
|                                           
|Deferred income taxes                       |                                          |                                            |        |          |         |       | 1,684    |              |         |              |        |             |         |               |      |        |        |  |         |          |          |   | 1,684   |         
|                                           
|                                           
|                                           
|                                           
|Minority interest                           |                                          |                                            |        |          |         |       |         |              |         |              |        |             |         |               |      |        |        |  | 5,106    |          |          |   | 5,106   |         
|                                           
|                                           
|                                           
|                                           
|Intercompany payable (receivable)           |                                          |                                            | 30,833  |          |         |       | (266,625 | )            |         |              | 236,728 |             |         |               | (936  | )      |        |  |         |          |          |   |        |         
|                                           
|                                           
|                                           
|                                           
|Stockholders equity:                       |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                           
|                                           
|                                           
|                                           
|                                            | Common stock                             |                                            |         | 37       |         |       |          |             |         |              |         |            |         |               |       |       |        |  |          |         |          |   |         | 37       |        
|                                           
|                                           
|                                           
|                                           
|                                            | Additional paid-in capital               |                                            |         | 188,840  |         |       |          |             |         |              |         |            |         |               |       |       |        |  |          |         |          |   |         | 188,840  |        
|                                           
|                                           
|                                           
|                                           
|                                            | Retained earnings (accumulated deficit)  |                                            |         | (146,594 | )       |       |          | 125,697      |         |              |         | 179,391     |         |               |       | 25,026 |        |  |          | (330,114 | )        |   |         | (146,594 | )      
|                                           
|                                           
|                                           
|                                           
|                                            | Accumulated comprehensive loss           |                                            |         | (1,855   | )       |       |          | (1,855       | )       |              |         |            |         |               |       |       |        |  |          | 1,855    |          |   |         | (1,855   | )      
|                                           
|                                           
|                                           
|                                           
|                                            | Notes receivable from stockholders       |                                            |         | (664     | )       |       |          |             |         |              |         |            |         |               |       |       |        |  |          |         |          |   |         | (664     | )      
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                            |                                          | Total stockholders equity                 |         |          | 39,764  |       |          |              | 123,842 |              |         |             | 179,391 |               |       |        | 25,026 |  |          |          | (328,259 | ) |         |          | 39,764  | 
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                            |                                          | Total liabilities and stockholders
equity |         | $        | 124,942 |       |          | $            | 213,688 |              |         | $           | 428,662 |               |       | $      | 24,382 |  |          | $        | (323,153 | ) |         | $        | 468,521 | 
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         

17



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##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2002
(Unaudited)
(In thousands)

|                                                               |                                                                                     |   |       |       |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |        | 
|-------------------------------------------------------------- | ----------------------------------------------------------------------------------- | - | ----- | ----- | ----- | - | ------------ | ------ | ------------ | - | ----------- | ------ | ------------- | - | ----- | ----- |  | - | ------- | ------- | - | - | ------- | ------ | 
|                                                               |                                                                                     |   |       |       |       |   |              |        |              |   | Guarantor   |        | Non-Guarantor |   |       |       |  |   |         |         |  
|                                                               |                                                                                     |   | VCA   |       | Vicar |   | Subsidiaries |        | Subsidiaries |   | Elimination |        | Consolidated 
|                                                               |                                                                                     |   |       |       |       |   |              |        |              |   |             |        |              
|Revenue                                                        |                                                                                     | $ |      |       |       | $ | 500          |        |              | $ | 105,480     |        |               | $ | 9,228 |       |  | $ | (236    | )       |   | $ | 114,972 |       
|                                                              
|                                                              
|                                                              
|                                                              
|Direct costs                                                   |                                                                                     |   |      |       |       |   |             |        |              |   | 70,573      |        |               |   | 6,820 |       |  |   | (236    | )       |   |   | 77,157  |       
|                                                               |                                                                                     |   |       |       |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                                               |                                                                                     |   |      |       |       |   | 500          |        |              |   | 34,907      |        |               |   | 2,408 |       |  |   |        |         |   |   | 37,815  |       
|                                                              
|                                                              
|                                                              
|                                                              
|Selling, general and administrative
expense                    |                                                                                     |   |      |       |       |   | 3,628        |        |              |   | 4,733       |        |               |   | 371   |       |  |   |        |         |   |   | 8,732   |       
|                                                              
|                                                              
|                                                              
|                                                              
|Depreciation and amortization                                  |                                                                                     |   |      |       |       |   | 352          |        |              |   | 2,497       |        |               |   | 179   |       |  |   |        |         |   |   | 3,028   |       
|                                                              
|                                                              
|                                                              
|                                                              
|Gain on sale of assets                                         |                                                                                     |   |      |       |       |   | (80          | )      |              |   |            |        |               |   |      |       |  |   |        |         |   |   | (80     | )     
|                                                               |                                                                                     |   |       |       |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                                               | Operating income (loss)                                                             |   |       |      |       |   |              | (3,400 | )            |   |             | 27,677 |               |   |       | 1,858 |  |   |         |        |   |   |         | 26,135 | 
|                                                              
|                                                              
|                                                              
|                                                              
|Net interest expense                                           |                                                                                     |   | 2,408 |       |       |   | 7,813        |        |              |   | 21          |        |               |   | (34   | )     |  |   |        |         |   |   | 10,208  |       
|                                                              
|                                                              
|                                                              
|                                                              
|Other income                                                   |                                                                                     |   |      |       |       |   | (5           | )      |              |   |            |        |               |   |      |       |  |   |        |         |   |   | (5      | )     
|                                                              
|                                                              
|                                                              
|                                                              
|Equity interest in income of subsidiaries                      |                                                                                     |   | 8,507 |       |       |   | 17,035       |        |              |   | 1,462       |        |               |   |      |       |  |   | (27,004 | )       |   |   |        |       
|                                                               |                                                                                     |   |       |       |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                                               | Income before minority interest,
provision for income taxes, and
extraordinary item |   |       | 6,099 |       |   |              | 5,827  |              |   |             | 29,118 |               |   |       | 1,892 |  |   |         | (27,004 | ) |   |         | 15,932 | 
|                                                              
|                                                              
|                                                              
|                                                              
|Minority interest in income of
subsidiaries                    |                                                                                     |   |      |       |       |   |             |        |              |   |            |        |               |   |      |       |  |   | 430     |         |   |   | 430     |       
|                                                               |                                                                                     |   |       |       |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                                               | Income (loss) before provision for
income taxes and extraordinary
item              |   |       | 6,099 |       |   |              | 5,827  |              |   |             | 29,118 |               |   |       | 1,892 |  |   |         | (27,434 | ) |   |         | 15,502 | 
|                                                              
|                                                              
|                                                              
|                                                              
|Provision (benefit) for income taxes                           |                                                                                     |   | (936  | )     |       |   | (4,681       | )      |              |   | 12,083      |        |               |   |      |       |  |   |        |         |   |   | 6,466   |       
|                                                               |                                                                                     |   |       |       |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                                               | Income before extraordinary item                                                    |   |       | 7,035 |       |   |              | 10,508 |              |   |             | 17,035 |               |   |       | 1,892 |  |   |         | (27,434 | ) |   |         | 9,036  | 
|                                                              
|                                                              
|                                                              
|                                                              
|Extraordinary loss on early
extinguishment of debt, net of tax |                                                                                     |   |      |       |       |   | 2,001        |        |              |   |            |        |               |   |      |       |  |   |        |         |   |   | 2,001   |       
|                                                               |                                                                                     |   |       |       |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                                               | Net income                                                                          |   | $     | 7,035 |       |   | $            | 8,507  |              |   | $           | 17,035 |               |   | $     | 1,892 |  |   | $       | (27,434 | ) |   | $       | 7,035  | 
|                                                               |                                                                                     |   |       |       |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       

18



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##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2001
(Unaudited)
(In thousands)

|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |        | 
|------------------------------------------- | -------------------------------------------------------------- | - | ------ | ----- | ----- | - | ------------ | ------ | ------------ | - | ----------- | ------ | ------------- | - | ----- | ----- |  | - | ------- | ------- | - | - | ------- | ------ | 
|                                            |                                                                |   |        |       |       |   |              |        |              |   | Guarantor   |        | Non-Guarantor |   |       |       |  |   |         |         |  
|                                            |                                                                |   | VCA    |       | Vicar |   | Subsidiaries |        | Subsidiaries |   | Elimination |        | Consolidated 
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              
|Revenue                                     |                                                                | $ |       |       |       | $ | 500          |        |              | $ | 93,939      |        |               | $ | 8,366 |       |  | $ | (169    | )       |   | $ | 102,636 |       
|                                           
|                                           
|                                           
|                                           
|Direct costs                                |                                                                |   |       |       |       |   |             |        |              |   | 64,710      |        |               |   | 6,140 |       |  |   | (169    | )       |   |   | 70,681  |       
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                            |                                                                |   |       |       |       |   | 500          |        |              |   | 29,229      |        |               |   | 2,226 |       |  |   |        |         |   |   | 31,955  |       
|                                           
|                                           
|                                           
|                                           
|Selling, general and administrative
expense |                                                                |   |       |       |       |   | 3,948        |        |              |   | 5,335       |        |               |   | 308   |       |  |   |        |         |   |   | 9,591   |       
|                                           
|                                           
|                                           
|                                           
|Depreciation and amortization               |                                                                |   |       |       |       |   | 1,591        |        |              |   | 4,558       |        |               |   | 283   |       |  |   |        |         |   |   | 6,432   |       
|                                           
|                                           
|                                           
|                                           
|Gain on sale of assets                      |                                                                |   |       |       |       |   | (92          | )      |              |   |            |        |               |   |      |       |  |   |        |         |   |   | (92     | )     
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                            | Operating income (loss)                                        |   |        |      |       |   |              | (4,947 | )            |   |             | 19,336 |               |   |       | 1,635 |  |   |         |        |   |   |         | 16,024 | 
|                                           
|                                           
|                                           
|                                           
|Net interest expense                        |                                                                |   | 4,229  |       |       |   | 6,062        |        |              |   | 31          |        |               |   | (5    | )     |  |   |        |         |   |   | 10,317  |       
|                                           
|                                           
|                                           
|                                           
|Other (income) expense                      |                                                                |   |       |       |       |   | 4            |        |              |   |            |        |               |   |      |       |  |   |        |         |   |   | 4       |       
|                                           
|                                           
|                                           
|                                           
|Equity interest in income of subsidiaries   |                                                                |   | 4,454  |       |       |   | 11,093       |        |              |   | 1,236       |        |               |   |      |       |  |   | (16,783 | )       |   |   |        |       
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                            | Income before minority interest and
provision for income taxes |   |        | 225   |       |   |              | 80     |              |   |             | 20,541 |               |   |       | 1,640 |  |   |         | (16,783 | ) |   |         | 5,703  | 
|                                           
|                                           
|                                           
|                                           
|Minority interest in income of
subsidiaries |                                                                |   |       |       |       |   |             |        |              |   |            |        |               |   |      |       |  |   | 404     |         |   |   | 404     |       
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                            | Income before provision for
income taxes                       |   |        | 225   |       |   |              | 80     |              |   |             | 20,541 |               |   |       | 1,640 |  |   |         | (17,187 | ) |   |         | 5,299  | 
|                                           
|                                           
|                                           
|                                           
|Provision (benefit) for income taxes        |                                                                |   | (1,799 | )     |       |   | (4,374       | )      |              |   | 9,448       |        |               |   |      |       |  |   |        |         |   |   | 3,275   |       
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                            | Net income                                                     |   | $      | 2,024 |       |   | $            | 4,454  |              |   | $           | 11,093 |               |   | $     | 1,640 |  |   | $       | (17,187 | ) |   | $       | 2,024  | 
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       

19



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##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2002
(Unaudited)
(In thousands)

|                                                               |                                                                                    |   |        |        |       |   |              |        |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |        | 
|-------------------------------------------------------------- | ---------------------------------------------------------------------------------- | - | ------ | ------ | ----- | - | ------------ | ------ | ------------ | - | ----------- | ------ | ------------- | - | ------ | ----- |  | - | ------- | ------- | - | - | ------- | ------ | 
|                                                               |                                                                                    |   |        |        |       |   |              |        |              |   | Guarantor   |        | Non-Guarantor |   |        |       |  |   |         |         |  
|                                                               |                                                                                    |   | VCA    |        | Vicar |   | Subsidiaries |        | Subsidiaries |   | Elimination |        | Consolidated 
|                                                               |                                                                                    |   |        |        |       |   |              |        |              |   |             |        |              
|Revenue                                                        |                                                                                    | $ |       |        |       | $ | 1,500        |        |              | $ | 309,421     |        |               | $ | 26,642 |       |  | $ | (671    | )       |   | $ | 336,892 |       
|                                                              
|                                                              
|                                                              
|                                                              
|Direct costs                                                   |                                                                                    |   |       |        |       |   |             |        |              |   | 208,057     |        |               |   | 19,363 |       |  |   | (671    | )       |   |   | 226,749 |       
|                                                               |                                                                                    |   |        |        |       |   |              |        |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                                               |                                                                                    |   |       |        |       |   | 1,500        |        |              |   | 101,364     |        |               |   | 7,279  |       |  |   |        |         |   |   | 110,143 |       
|                                                              
|                                                              
|                                                              
|                                                              
|Selling, general and administrative
expense                    |                                                                                    |   |       |        |       |   | 10,456       |        |              |   | 14,389      |        |               |   | 1,048  |       |  |   |        |         |   |   | 25,893  |       
|                                                              
|                                                              
|                                                              
|                                                              
|Depreciation and amortization                                  |                                                                                    |   |       |        |       |   | 1,026        |        |              |   | 7,776       |        |               |   | 528    |       |  |   |        |         |   |   | 9,330   |       
|                                                              
|                                                              
|                                                              
|                                                              
|Gain on sale of assets                                         |                                                                                    |   |       |        |       |   | (80          | )      |              |   |            |        |               |   |       |       |  |   |        |         |   |   | (80     | )     
|                                                               |                                                                                    |   |        |        |       |   |              |        |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                                               | Operating income (loss)                                                            |   |        |       |       |   |              | (9,902 | )            |   |             | 79,199 |               |   |        | 5,703 |  |   |         |        |   |   |         | 75,000 | 
|                                                              
|                                                              
|                                                              
|                                                              
|Net interest expense                                           |                                                                                    |   | 6,935  |        |       |   | 23,614       |        |              |   | 83          |        |               |   | (91    | )     |  |   |        |         |   |   | 30,541  |       
|                                                              
|                                                              
|                                                              
|                                                              
|Other income                                                   |                                                                                    |   |       |        |       |   | (159         | )      |              |   |            |        |               |   |       |       |  |   |        |         |   |   | (159    | )     
|                                                              
|                                                              
|                                                              
|                                                              
|Equity interest in income of subsidiaries                      |                                                                                    |   | 27,257 |        |       |   | 48,606       |        |              |   | 4,434       |        |               |   |       |       |  |   | (80,297 | )       |   |   |        |       
|                                                               |                                                                                    |   |        |        |       |   |              |        |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                                               | Income before minority interest,
provision for income taxes and
extraordinary item |   |        | 20,322 |       |   |              | 15,249 |              |   |             | 83,550 |               |   |        | 5,794 |  |   |         | (80,297 | ) |   |         | 44,618 | 
|                                                              
|                                                              
|                                                              
|                                                              
|Minority interest in income of
subsidiaries                    |                                                                                    |   |       |        |       |   |             |        |              |   |            |        |               |   |       |       |  |   | 1,360   |         |   |   | 1,360   |       
|                                                               |                                                                                    |   |        |        |       |   |              |        |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                                               | Income before provision for income
taxes and extraordinary item                    |   |        | 20,322 |       |   |              | 15,249 |              |   |             | 83,550 |               |   |        | 5,794 |  |   |         | (81,657 | ) |   |         | 43,258 | 
|                                                              
|                                                              
|                                                              
|                                                              
|Provision (benefit) for income taxes                           |                                                                                    |   | (2,843 | )      |       |   | (14,009      | )      |              |   | 34,944      |        |               |   |       |       |  |   |        |         |   |   | 18,092  |       
|                                                               |                                                                                    |   |        |        |       |   |              |        |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                                               | Income before extraordinary item                                                   |   |        | 23,165 |       |   |              | 29,258 |              |   |             | 48,606 |               |   |        | 5,794 |  |   |         | (81,657 | ) |   |         | 25,166 | 
|                                                              
|                                                              
|                                                              
|                                                              
|Extraordinary loss on early
extinguishment of debt, net of tax |                                                                                    |   |       |        |       |   | 2,001        |        |              |   |            |        |               |   |       |       |  |   |        |         |   |   | 2,001   |       
|                                                               |                                                                                    |   |        |        |       |   |              |        |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                                               | Net income                                                                         |   | $      | 23,165 |       |   | $            | 27,257 |              |   | $           | 48,606 |               |   | $      | 5,794 |  |   | $       | (81,657 | ) |   | $       | 23,165 | 
|                                                               |                                                                                    |   |        |        |       |   |              |        |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       

20



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##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2001
(Unaudited)
(In thousands)

|                                             |                                                                |   |        |         |       |   |              |         |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |        |  
|-------------------------------------------- | -------------------------------------------------------------- | - | ------ | ------- | ----- | - | ------------ | ------- | ------------ | - | ----------- | ------ | ------------- | - | ------ | ----- |  | - | ------- | ------- | - | - | ------- | ------ | -
|                                             |                                                                |   |        |         |       |   |              |         |              |   | Guarantor   |        | Non-Guarantor |   |        |       |  |   |         |         |  
|                                             |                                                                |   | VCA    |         | Vicar |   | Subsidiaries |         | Subsidiaries |   | Elimination |        | Consolidated 
|                                             |                                                                |   |        |         |       |   |              |         |              |   |             |        |              
|Revenue                                      |                                                                | $ |       |         |       | $ | 1,500        |         |              | $ | 281,814     |        |               | $ | 22,538 |       |  | $ | (487    | )       |   | $ | 305,365 |       
|                                            
|                                            
|                                            
|                                            
|Direct costs                                 |                                                                |   |       |         |       |   |             |         |              |   | 197,342     |        |               |   | 16,599 |       |  |   | (487    | )       |   |   | 213,454 |       
|                                             |                                                                |   |        |         |       |   |              |         |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                             |                                                                |   |       |         |       |   | 1,500        |         |              |   | 84,472      |        |               |   | 5,939  |       |  |   |        |         |   |   | 91,911  |       
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative
expense  |                                                                |   |       |         |       |   | 11,537       |         |              |   | 18,010      |        |               |   | 818    |       |  |   |        |         |   |   | 30,365  |       
|                                            
|                                            
|                                            
|                                            
|Depreciation and amortization                |                                                                |   |       |         |       |   | 4,835        |         |              |   | 13,533      |        |               |   | 753    |       |  |   |        |         |   |   | 19,121  |       
|                                            
|                                            
|                                            
|                                            
|Write-down and (gain) loss on sale of
assets |                                                                |   |       |         |       |   | 8,745        |         |              |   |            |        |               |   |       |       |  |   |        |         |   |   | 8,745   |       
|                                             |                                                                |   |        |         |       |   |              |         |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                             | Operating income (loss)                                        |   |        |        |       |   |              | (23,617 | )            |   |             | 52,929 |               |   |        | 4,368 |  |   |         |        |   |   |         | 33,680 |  
|                                            
|                                            
|                                            
|                                            
|Net interest expense                         |                                                                |   | 12,332 |         |       |   | 19,976       |         |              |   | 102         |        |               |   | (23    | )     |  |   |        |         |   |   | 32,387  |       
|                                            
|                                            
|                                            
|                                            
|Other expense                                |                                                                |   |       |         |       |   | 233          |         |              |   |            |        |               |   |       |       |  |   |        |         |   |   | 233     |       
|                                            
|                                            
|                                            
|                                            
|Equity interest in income of subsidiaries    |                                                                |   | 1,194  |         |       |   | 30,302       |         |              |   | 3,287       |        |               |   |       |       |  |   | (34,783 | )       |   |   |        |       
|                                             |                                                                |   |        |         |       |   |              |         |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                             | Income before minority interest and
provision for income taxes |   |        | (11,138 | )     |   |              | (13,524 | )            |   |             | 56,114 |               |   |        | 4,391 |  |   |         | (34,783 | ) |   |         | 1,060  |  
|                                            
|                                            
|                                            
|                                            
|Minority interest in income of
subsidiaries  |                                                                |   |       |         |       |   |             |         |              |   |            |        |               |   |       |       |  |   | 1,104   |         |   |   | 1,104   |       
|                                             |                                                                |   |        |         |       |   |              |         |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                             | Income (loss) before provision for
income taxes                |   |        | (11,138 | )     |   |              | (13,524 | )            |   |             | 56,114 |               |   |        | 4,391 |  |   |         | (35,887 | ) |   |         | (44    | )
|                                            
|                                            
|                                            
|                                            
|Provision (benefit) for income taxes         |                                                                |   | (4,353 | )       |       |   | (14,718      | )       |              |   | 25,812      |        |               |   |       |       |  |   |        |         |   |   | 6,741   |       
|                                             |                                                                |   |        |         |       |   |              |         |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                             | Net income (loss)                                              |   | $      | (6,785  | )     |   | $            | 1,194   |              |   | $           | 30,302 |               |   | $      | 4,391 |  |   | $       | (35,887 | ) |   | $       | (6,785 | )
|                                             |                                                                |   |        |         |       |   |              |         |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       

21



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##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2002
(Unaudited)
(In thousands)

|                                                 |                                                                                             |                                                                     |   |        |         |       |        |              |          |              |        |             |         |               |      |       |        |   |   |         |        |   |        |         |          |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | - | ------ | ------- | ----- | ------ | ------------ | -------- | ------------ | ------ | ----------- | ------- | ------------- | ---- | ----- | ------ | - | - | ------- | ------ | - | ------ | ------- | -------- | -
|                                                 |                                                                                             |                                                                     |   |        |         |       |        |              |          |              |        | Guarantor   |         | Non-Guarantor |      |       |        |   |   |         |        |  
|                                                 |                                                                                             |                                                                     |   | VCA    |         | Vicar |        | Subsidiaries |          | Subsidiaries |        | Elimination |         | Consolidated 
|                                                 |                                                                                             |                                                                     |   |        |         |       |        |              |          |              |        |             |         |              
|Cash from operating activities:                  |                                                                                             |                                                                     |   |        |         |       |        |              |          |              |        |             |         |               |      |       |        |   |   |         |        |   |        |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Net income                                                                                  |                                                                     | $ | 23,165 |         |       | $      | 27,257       |          |              | $      | 48,606      |         |               | $    | 5,794 |        |   | $ | (81,657 | )      |   | $      | 23,165  |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net income to net
cash provided by (used in) operating
activities: |                                                                     |   |        |         |       |        |              |          |              |        |             |         |               |      |       |        |   |   |         |        |   |        |         |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Equity interest in earnings of subsidiaries                         |   |        | (27,257 | )     |        |              | (48,606  | )            |        |             | (4,434  | )             |      |       |       |   |   |         | 80,297 |   |        |         |         |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Depreciation and amortization                                       |   |        |        |       |        |              | 1,026    |              |        |             | 7,776   |               |      |       | 528    |   |   |         |       |   |        |         | 9,330    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Amortization of deferred financing costs
and debt discount          |   |        | (84     | )     |        |              | 1,348    |              |        |             |        |               |      |       |       |   |   |         |       |   |        |         | 1,264    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Provision for uncollectible accounts                                |   |        |        |       |        |              |         |              |        |             | 2,068   |               |      |       | 279    |   |   |         |       |   |        |         | 2,347    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Extraordinary loss on early extinguishment
of debt                  |   |        |        |       |        |              | 3,391    |              |        |             |        |               |      |       |       |   |   |         |       |   |        |         | 3,391    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Interest paid in kind on senior
subordinated notes                  |   |        | 7,045   |       |        |              |         |              |        |             |        |               |      |       |       |   |   |         |       |   |        |         | 7,045    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Gain on sale of assets                                              |   |        |        |       |        |              | (80      | )            |        |             |        |               |      |       |       |   |   |         |       |   |        |         | (80      | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Minority interest in income of subsidiaries                         |   |        |        |       |        |              |         |              |        |             |        |               |      |       |       |   |   |         | 1,360  |   |        |         | 1,360    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Distributions to minority interest partners                         |   |        |        |       |        |              | (1,339   | )            |        |             |        |               |      |       |       |   |   |         |       |   |        |         | (1,339   | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Increase in accounts receivable                                     |   |        |        |       |        |              |         |              |        |             | (4,413  | )             |      |       | (642   | ) |   |         |       |   |        |         | (5,055   | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Decrease (increase) in inventory, prepaid
expenses and other assets |   |        | 74      |       |        |              | (155     | )            |        |             | (817    | )             |      |       | (20    | ) |   |         |       |   |        |         | (918     | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Increase in accounts payable and accrued
liabilities                |   |        |        |       |        |              | 1,358    |              |        |             | 2,544   |               |      |       | 43     |   |   |         |       |   |        |         | 3,945    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Increase (decrease) in accrued payroll and
related liabilities      |   |        |        |       |        |              | 3,157    |              |        |             | (365    | )             |      |       |       |   |   |         |       |   |        |         | 2,792    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Increase in accrued interest                                        |   |        |        |       |        |              | 3,395    |              |        |             | 10      |               |      |       |       |   |   |         |       |   |        |         | 3,405    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Decrease in prepaid income taxes                                    |   |        |        |       |        |              | 2,782    |              |        |             |        |               |      |       |       |   |   |         |       |   |        |         | 2,782    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Increase in income tax payable                                      |   |        |        |       |        |              | 2,035    |              |        |             |        |               |      |       |       |   |   |         |       |   |        |         | 2,035    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Increase in deferred income tax asset                               |   |        |        |       |        |              | (2,318   | )            |        |             |        |               |      |       |       |   |   |         |       |   |        |         | (2,318   | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Increase in deferred income tax liability                           |   |        |        |       |        |              | 7,687    |              |        |             |        |               |      |       |       |   |   |         |       |   |        |         | 7,687    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Increase (decrease) in intercompany
payable (receivable)            |   |        | (3,392  | )     |        |              | 55,869   |              |        |             | (46,300 | )             |      |       | (6,177 | ) |   |         |       |   |        |         |         |  
|                                                 |                                                                                             |                                                                     |   |        |         |       |        |              |          |              |        |             |         |               |      |       |        |   |   |         |        |   |        |        
|                                                 | Net cash provided by (used in) operating
activities                                         |                                                                     |   | (449   | )       |       |        | 56,807       |          |              |        | 4,675       |         |               |      | (195  | )      |   |   |        |        |   |        | 60,838  |         
|                                                 |                                                                                             |                                                                     |   |        |         |       |        |              |          |              |        |             |         |               |      |       |        |   |   |         |        |   |        |        
|Cash flows from investing activities:            |                                                                                             |                                                                     |   |        |         |       |        |              |          |              |        |             |         |               |      |       |        |   |   |         |        |   |        |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Business acquisitions, net of cash acquired                         |   |        |        |       |        |              | (17,845  | )            |        |             |        |               |      |       |       |   |   |         |       |   |        |         | (17,845  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Property and equipment additions, net                               |   |        |        |       |        |              | (7,475   | )            |        |             | (5,930  | )             |      |       |       |   |   |         |       |   |        |         | (13,405  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Proceeds from sale of assets                                        |   |        |        |       |        |              | 1,391    |              |        |             |        |               |      |       |       |   |   |         |       |   |        |         | 1,391    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Other                                                               |   |        |        |       |        |              | 447      |              |        |             | (288    | )             |      |       |       |   |   |         |       |   |        |         | 159      |  
|                                                 |                                                                                             |                                                                     |   |        |         |       |        |              |          |              |        |             |         |               |      |       |        |   |   |         |        |   |        |        
|                                                 | Net cash used in investing activities                                                       |                                                                     |   |       |         |       |        | (23,482      | )        |              |        | (6,218      | )       |               |      |      |        |   |   |        |        |   |        | (29,700 | )       
|                                                 |                                                                                             |                                                                     |   |        |         |       |        |              |          |              |        |             |         |               |      |       |        |   |   |         |        |   |        |        
|Cash flows from financing activities:            |                                                                                             |                                                                     |   |        |         |       |        |              |          |              |        |             |         |               |      |       |        |   |   |         |        |   |        |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Repayment of long-term obligations                                  |   |        |        |       |        |              | (145,978 | )            |        |             |        |               |      |       |       |   |   |         |       |   |        |         | (145,978 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Proceeds from issuance of long term debt                            |   |        |        |       |        |              | 143,061  |              |        |             |        |               |      |       |       |   |   |         |       |   |        |         | 143,061  |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Payment of accrued financing and
recapitalization costs             |   |        |        |       |        |              | (3,415   | )            |        |             |        |               |      |       |       |   |   |         |       |   |        |         | (3,415   | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Proceeds from issuance of common stock
under stock option plans     |   |        | 25      |       |        |              |         |              |        |             |        |               |      |       |       |   |   |         |       |   |        |         | 25       |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Other                                                               |   |        | 424     |       |        |              |         |              |        |             |        |               |      |       |       |   |   |         |       |   |        |         | 424      |  
|                                                 |                                                                                             |                                                                     |   |        |         |       |        |              |          |              |        |             |         |               |      |       |        |   |   |         |        |   |        |        
|                                                 | Net cash provided by (used in) financing
activities                                         |                                                                     |   | 449    |         |       |        | (6,332       | )        |              |        |            |         |               |      |      |        |   |   |        |        |   |        | (5,883  | )       
|                                                 |                                                                                             |                                                                     |   |        |         |       |        |              |          |              |        |             |         |               |      |       |        |   |   |         |        |   |        |        
|Increase (decrease) in cash and cash equivalents |                                                                                             |                                                                     |  |        |         |       | 26,993 |              |          |              | (1,543 | )           |         |               | (195 | )     |        |   |  |         |        |   | 25,255 |        
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of year   |                                                                                             |                                                                     |  |        |         |       | 3,467  |              |          |              | 3,260  |             |         |               | 376  |       |        |   |  |         |        |   | 7,103  |        
|                                                 |                                                                                             |                                                                     |   |        |         |       |        |              |          |              |        |             |         |               |      |       |        |   |   |         |        |   |        |        
|Cash and cash equivalents at end of year         |                                                                                             | $                                                                   |  |        |         | $     | 30,460 |              |          | $            | 1,717  |             |         | $             | 181  |       |        | $ |  |         |        | $ | 32,358 |        
|                                                 |                                                                                             |                                                                     |   |        |         |       |        |              |          |              |        |             |         |               |      |       |        |   |   |         |        |   |        |        

22



---



##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2001
(Unaudited)
(In thousands)

|                                               |                                           |                                               |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |         |   |         |  
|---------------------------------------------- | ----------------------------------------- | --------------------------------------------- | ------------------------------------------------------------------ | ------ | --- | ------ | ------ | ------- | ------------ | ------- | ------------ | ------ | ----------- | ------- | ------------- | ----- |  | ------ | - | ------- | - | ------ | ------ | ------- | - | ------- | -
|                                               |                                           |                                               |                                                                    |        |     |        |        |         |              |         |              |        | Guarantor   |         | Non-Guarantor |       |  |        |   |         |   |        |       
|                                               |                                           |                                               |                                                                    |        | VCA |        | Vicar  |         | Subsidiaries |         | Subsidiaries |        | Elimination |         | Consolidated 
|                                               |                                           |                                               |                                                                    |        |     |        |        |         |              |         |              |        |             |         |              
|Cash from operating activities:                |                                           |                                               |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|                                              
|                                              
|                                              
|                                              
|                                               | Net income (loss)                         |                                               | $                                                                  | (6,785 | )   |        | $      | 1,194   |              |         | $            | 30,302 |             |         | $             | 4,391 |  |        | $ | (35,887 | ) |        | $      | (6,785  | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                           | Adjustments
to reconcile net income (loss) to |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                           | net cash provided by operating activities:    |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |         |   |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Equity interest in earnings of subsidiaries                        |        |     | (1,194 | )      |         |              | (30,302 | )            |        |             | (3,287  | )             |       |  |       |   |         |   | 34,783 |        |         |   |        |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Depreciation and amortization                                      |        |     |       |        |         |              | 4,835   |              |        |             | 13,533  |               |       |  | 753    |   |         |   |       |        |         |   | 19,121  |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Amortization of deferred financing costs
and debt discount         |        |     | 97     |        |         |              | 1,570   |              |        |             |        |               |       |  |       |   |         |   |       |        |         |   | 1,667   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Provision for uncollectible accounts                               |        |     |       |        |         |              |        |              |        |             | 1,959   |               |       |  | 223    |   |         |   |       |        |         |   | 2,182   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Non-cash compensation                                              |        |     |       |        |         |              | 771     |              |        |             | 6,840   |               |       |  |       |   |         |   |       |        |         |   | 7,611   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Interest paid in kind on senior
subordinated notes                 |        |     | 12,259 |        |         |              |        |              |        |             |        |               |       |  |       |   |         |   |       |        |         |   | 12,259  |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Write-down and loss on sale of assets                              |        |     |       |        |         |              | 8,745   |              |        |             |        |               |       |  |       |   |         |   |       |        |         |   | 8,745   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Minority interest in income of subsidiaries                        |        |     |       |        |         |              |        |              |        |             |        |               |       |  |       |   |         |   | 1,104  |        |         |   | 1,104   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Distributions to minority interest partners                        |        |     |       |        |         |              | (1,083  | )            |        |             |        |               |       |  |       |   |         |   |       |        |         |   | (1,083  | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Increase in accounts receivable, net                               |        |     |       |        |         |              |        |              |        |             | (3,435  | )             |       |  | (301   | ) |         |   |       |        |         |   | (3,736  | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Decrease (increase) in inventory, prepaid
expense and other assets |        |     | (25    | )      |         |              | 177     |              |        |             | 624     |               |       |  | (91    | ) |         |   |       |        |         |   | 685     |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Increase (decrease) in accounts payable
and accrued liabilities    |        |     |       |        |         |              | (790    | )            |        |             | 483     |               |       |  |       |   |         |   |       |        |         |   | (307    | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Increase (decrease) in accrued payroll and
related liabilities     |        |     |       |        |         |              | 3,900   |              |        |             | (19     | )             |       |  | 49     |   |         |   |       |        |         |   | 3,930   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Increase (decrease) in accrued interest                            |        |     |       |        |         |              | (1,678  | )            |        |             | 131     |               |       |  |       |   |         |   |       |        |         |   | (1,547  | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Decrease in prepaid income taxes                                   |        |     |       |        |         |              | 479     |              |        |             |        |               |       |  |       |   |         |   |       |        |         |   | 479     |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Increase in deferred income tax asset                              |        |     |       |        |         |              | (1,180  | )            |        |             |        |               |       |  |       |   |         |   |       |        |         |   | (1,180  | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Increase in deferred income tax liability                          |        |     |       |        |         |              | 6,171   |              |        |             |        |               |       |  |       |   |         |   |       |        |         |   | 6,171   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Decrease (increase) in intercompany
payable (receivable)           |        |     | (4,352 | )      |         |              | 52,837  |              |        |             | (43,588 | )             |       |  | (4,897 | ) |         |   |       |        |         |   |        |  
|                                               |                                           |                                               |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|                                               | Net cash provided by operating activities |                                               |                                                                    |       |     |        |        | 45,646  |              |         |              | 3,543  |             |         |               | 127   |  |        |   |        |   |        |        | 49,316  |  
|                                               |                                           |                                               |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|Cash flows from investing activities:          |                                           |                                               |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Business acquisitions, net of cash acquired                        |        |     |       |        |         |              | (20,615 | )            |        |             |        |               |       |  |       |   |         |   |       |        |         |   | (20,615 | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Real estate acquired in connection with
business acquisitions      |        |     |       |        |         |              | (675    | )            |        |             |        |               |       |  |       |   |         |   |       |        |         |   | (675    | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Property and equipment additions, net                              |        |     |       |        |         |              | (8,381  | )            |        |             | (1,548  | )             |       |  |       |   |         |   |       |        |         |   | (9,929  | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Proceeds from sale of assets                                       |        |     |       |        |         |              | 603     |              |        |             |        |               |       |  |       |   |         |   |       |        |         |   | 603     |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Other                                                              |        |     |       |        |         |              | 195     |              |        |             | 90      |               |       |  |       |   |         |   |       |        |         |   | 285     |  
|                                               |                                           |                                               |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|                                               | Net cash used in investing activities     |                                               |                                                                    |       |     |        |        | (28,873 | )            |         |              | (1,458 | )           |         |               |      |  |        |   |        |   |        |        | (30,331 | )
|                                               |                                           |                                               |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|Cash flows from financing activities:          |                                           |                                               |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Repayment of long-term obligations                                 |        |     |       |        |         |              | (3,735  | )            |        |             |        |               |       |  |       |   |         |   |       |        |         |   | (3,735  | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                           |                                               | Payment of accrued financing and
recapitalization costs            |        |     |       |        |         |              | (2,138  | )            |        |             |        |               |       |  |       |   |         |   |       |        |         |   | (2,138  | )
|                                               |                                           |                                               |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|                                               | Net cash used in financing activities     |                                               |                                                                    |       |     |        |        | (5,873  | )            |         |              |       |             |         |               |      |  |        |   |        |   |        |        | (5,873  | )
|                                               |                                           |                                               |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|Increase in cash and cash equivalents          |                                           |                                               |                                                                   |        |     |        | 10,900 |         |              |         | 2,085        |        |             |         | 127           |       |  |        |  |         |   |        | 13,112 |        
|                                              
|                                              
|                                              
|                                              
|Cash and cash equivalents at beginning of year |                                           |                                               |                                                                   |        |     |        | 8,165  |         |              |         | 2,073        |        |             |         | 281           |       |  |        |  |         |   |        | 10,519 |        
|                                               |                                           |                                               |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|Cash and cash equivalents at end of year       |                                           | $                                             |                                                                   |        |     | $      | 19,065 |         |              | $       | 4,158        |        |             | $       | 408           |       |  | $      |  |         |   | $      | 23,631 |        
|                                               |                                           |                                               |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        

23



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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following discussion should be read in conjunction with our condensed,
consolidated financial statements provided under Part I, Item 1 of this
quarterly report on Form 10-Q. Certain statements contained herein may
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements involve a number of
risks, uncertainties and other factors that could cause actual results to
differ materially, as discussed more fully herein.

The forward-looking information set forth in this quarterly report on Form
10-Q is as of November 8, 2002, and we undertake no duty to update this
information. Should events occur subsequent to November 8, 2002 that make it
necessary to update the forward-looking information contained in this Form
10-Q, the updated forward-looking information will be filed with the Securities
and Exchange Commission in a quarterly report on Form 10-Q or a current report
on Form 8-K, each of which will be available at our website at
www.vcaantech.com. More information about potential factors that could affect
our business and financial results is included in the section entitled Risk
Factors.

Overview

We operate a leading animal health care services company and operate the
largest networks of veterinary diagnostic laboratories and free-standing,
full-service animal hospitals in the United States. Our network of veterinary
diagnostic laboratories provides sophisticated testing and consulting services
used by veterinarians in the detection, diagnosis, evaluation, monitoring,
treatment and prevention of diseases and other conditions affecting animals.
Our animal hospitals offer a full range of general medical and surgical
services for companion animals. We treat diseases and injuries, offer
pharmaceutical products and perform a variety of pet wellness programs,
including routine vaccinations, health examinations, diagnostic testing,
spaying, neutering and dental care.

Our company was formed in 1986 by Robert Antin, Arthur Antin and Neil
Tauber, who have served since our inception as our Chief Executive Officer,
Chief Operating Officer and Senior Vice President, respectively. During the
1990s, we established a premier position in the veterinary diagnostic
laboratory and animal hospital markets through both internal growth and
acquisitions. By 1997, we achieved a critical mass, building a laboratory
network of 12 laboratories servicing animal hospitals in all 50 states and
completing acquisitions for a total of 160 animal hospitals. At September 30,
2002, our laboratory network consisted of 19 laboratories serving all 50 states
and our animal hospital network consisted of 225 animal hospitals in
33 states.
We primarily focus on generating internal growth to increase revenue and
profitability. In order to augment internal growth, we may selectively acquire
laboratories and intend to acquire approximately 15 to 25 animal hospitals per
year, depending upon the attractiveness of candidates and the strategic fit
with our existing operations.

24



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##### Table of Contents



The following table summarizes our growth in facilities for the periods
presented:

|                  |                                          |  |                    |     |                   |  |      |     |      |  |  |     |   |  |  |     |  
|----------------- | ---------------------------------------- |  | ------------------ | --- | ----------------- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | -
|                  |                                          |  | Three Months Ended |     | Nine Months Ended
|                  |                                          |  | September 30,      |     | September 30,    
|                  |                                          |  |                    |     |                  
|                  |                                          |  | 2002               |     | 2001              |  | 2002 |     | 2001
|                  |                                          |  |                    |     |                   |  |      |     |     
|Laboratories:     |                                          |  |                    |     |                   |  |      |     |      |  |  |     |   |  |  |    
|                 
|                 
|                 
|                 
|                  | Beginning of period                      |  |                    | 18  |                   |  |      | 15  |      |  |  | 16  |   |  |  | 15  |  
|                 
|                 
|                 
|                 
|                  | Acquisitions and new facilities          |  |                    | 1   |                   |  |      |    |      |  |  | 3   |   |  |  |    |  
|                 
|                 
|                 
|                 
|                  | Relocated into other labs operated by us |  |                    |    |                   |  |      |    |      |  |  |    |   |  |  |    |  
|                  |                                          |  |                    |     |                   |  |      |     |      |  |  |     |   |  |  |    
|                  | End of period                            |  |                    | 19  |                   |  |      | 15  |      |  |  | 19  |   |  |  | 15  |  
|                  |                                          |  |                    |     |                   |  |      |     |      |  |  |     |   |  |  |    
|Animal hospitals: |                                          |  |                    |     |                   |  |      |     |      |  |  |     |   |  |  |    
|                 
|                 
|                 
|                 
|                  | Beginning of period                      |  |                    | 220 |                   |  |      | 211 |      |  |  | 214 |   |  |  | 209 |  
|                 
|                 
|                 
|                 
|                  | Acquisitions                             |  |                    | 7   |                   |  |      | 5   |      |  |  | 18  |   |  |  | 18  |  
|                 
|                 
|                 
|                 
|                  | Relocated into hospitals operated by us  |  |                    | (2  | )                 |  |      | (2  | )    |  |  | (7  | ) |  |  | (10 | )
|                 
|                 
|                 
|                 
|                  | Sold or closed                           |  |                    |    |                   |  |      |    |      |  |  |    |   |  |  | (3  | )
|                  |                                          |  |                    |     |                   |  |      |     |      |  |  |     |   |  |  |    
|                  | End of period                            |  |                    | 225 |                   |  |      | 214 |      |  |  | 225 |   |  |  | 214 |  
|                  |                                          |  |                    |     |                   |  |      |     |      |  |  |     |   |  |  |    
|                  | Owned at end of period                   |  |                    | 167 |                   |  |      | 161 |      |  |  | 167 |   |  |  | 161 |  
|                 
|                 
|                 
|                 
|                  | Managed at end of period                 |  |                    | 58  |                   |  |      | 53  |      |  |  | 58  |   |  |  | 53  |  

Basis of Reporting

General

Our discussion and analysis of our financial condition and results of
operations are based upon our condensed, consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. We report our operations in three segments:
laboratory, animal hospital and corporate. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue and expense, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

Revenue Recognition

Revenue is recognized only after the following criteria are met:



| |  |  | there exists adequate evidence of the transaction;                                      
| | - |  | ----------------------------------------------------------------------------------------
|
| |  |  | delivery of goods has occurred or services have been rendered; and                      
|
| |  |  | the price is not contingent on future activity and collectibility is reasonably assured.

Laboratory Revenue

A portion of laboratory revenue is intercompany revenue that was generated
by providing laboratory services to our animal hospitals. This revenue is
eliminated in the condensed, consolidated statements of operations.

Laboratory revenue is presented net of discounts. Some discounts, such as
those given to clients for prompt payment, are applied to clients accounts in
periods subsequent to the period the revenue was recognized. These discounts
which are not yet applied to clients accounts are estimated and deducted from
revenue in the period the related revenue was recognized. These estimates are
based upon historical experience. Errors in estimates would not have a
material effect on our financial statements.

25



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##### Table of Contents



Animal Hospital Revenue

Animal hospital revenue is comprised of revenue of the animal hospitals
that we own and the management fees of animal hospitals that we manage.
Certain states prohibit business corporations from providing or holding
themselves out as providers of veterinary medical care. In these states, we
enter into arrangements with a veterinary medical group that provides all
veterinary medical care, while we manage the administrative functions
associated with the operation of the animal hospitals and we own or lease the
hospital facility. In return for our services, the veterinary medical group
pays us management fees. We do not consolidate the operations of animal
hospitals that we manage. However, for purposes of calculating same-facility
revenue growth in our animal hospitals, we use the combined revenue of animal
hospitals owned and managed for the entire periods presented. Same-facility
revenue growth includes revenue generated by customers referred from relocated
or combined animal hospitals.

Other Revenue

Other revenue is comprised of consulting fees from Heinz Pet Products
relating to the marketing of its proprietary pet food.

Direct Costs

Laboratory direct costs are comprised of all costs of laboratory services,
including salaries of veterinarians, technicians and other non-administrative,
laboratory-based personnel, facilities rent, occupancy costs and supply costs.
Animal hospital direct costs are comprised of all costs of services and
products at the hospitals, including salaries of veterinarians, technicians and
all other hospital-based personnel employed by the hospitals we own, facilities
rent, occupancy costs, supply costs, certain marketing and promotional expenses
and costs of goods sold associated with the retail sales of pet food and pet
supplies. Direct costs do not include salaries of veterinarians, technicians
and certain other hospital-based personnel employed by the hospitals we manage.
As a result, our direct costs are lower as a percentage of revenue than if we
had consolidated the operating results of the animal hospitals we manage into
our operating results.

Selling, General and Administrative

Our selling, general and administrative expense is divided between our
laboratory, animal hospital and corporate segments. Laboratory selling,
general and administrative expense consists primarily of sales and
administrative personnel and selling, marketing and promotional expense.
Animal hospital selling, general and administrative expense consists primarily
of field management and administrative personnel, recruiting and certain
marketing expenses. Corporate selling, general and administrative expense
consists of administrative expense at our headquarters, including the salaries
of corporate officers, professional expense, rent and occupancy costs.

EBITDA and Adjusted EBITDA

EBITDA is operating income before depreciation and amortization. Adjusted
EBITDA for the 2001 periods represent EBITDA adjusted to exclude management
fees paid pursuant to our management services agreement with Leonard Green &
Partners which was terminated in November 2001, non-cash compensation and
write-down of assets. No adjustments have been made to the
EBITDA calculations for 2002.

EBITDA and Adjusted EBITDA are not measures of financial performance under
generally accepted accounting principles, or GAAP. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity. We
believe EBITDA is a useful measure of our operating performance as it reflects
earnings before the impact of items that may change from period to period for
reasons not directly related to our operations, such as depreciation and
amortization, interest and taxes and other non-operating or non-recurring items
that occurred in 2001. EBITDA is also an important component of the financial
ratios included in our debt covenants and provides us with a measure of our
ability to service our debt and meet capital expenditure requirements from our
operating results. Our calculation of EBITDA may not be comparable to
similarly titled measures reported by other companies.

26



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##### Table of Contents



Non-Cash Compensation

Certain stock options granted in 2000 qualified as variable stock options.
Related to these variable stock options, we recorded non-cash compensation of
approximately $1.5 million and $7.6 million in the three and nine months ended
September 30, 2001, respectively. Non-cash compensation is included in
laboratory direct costs and in selling, general and administrative expense. In
August 2001, all of these options were exercised.

Software Development Costs

We frequently research, develop and implement new software to be used
internally, or enhance our existing internal software. We develop the software
using our own employees and/or outside consultants. Most costs associated with
the development of new software are expensed as incurred, particularly in the
preliminary planning stages and the post-implementation and training stages.
Costs related directly to the software design, coding, testing and installation
are capitalized. Costs related to upgrades or enhancements of existing systems
are capitalized if the modifications result in additional functionality.

Critical Accounting Policies and Significant Estimates

Under accounting principles generally accepted in the United States,
management is required to make assumptions and estimates that directly impact
our consolidated financial statements and related disclosures. Because of the
uncertainties inherent in making assumptions and estimates, actual results in
future periods may differ significantly from our assumptions and estimates.
Management bases its assumptions and estimates on historical experience and on
various other factors believed to be reasonable under the circumstances. The
following represent what management believes are the critical accounting
policies most affected by significant management estimates and judgments.

Workers Compensation Expense

On October 8, 2001, we entered into a one-year workers compensation
insurance policy with a $250,000 per-occurrence deductible and a stop-loss
aggregate deductible of $4.7 million. We have determined that $3.9 million is
a reasonable estimate of expected claims losses under this policy and we are
accruing for these losses over the twelve-month period ending September 30,
2002. In determining this estimate, in conjunction with the insurance
carrier, we reviewed our five-year history of total claims losses, ratio of
losses to premiums paid, payroll growth and the current risk control
environment. We are pre-funding estimated claims losses to the insurance
carrier of approximately $2.9 million.

Impairment of Goodwill

Goodwill relates to acquisitions and represents the purchase price paid
and liabilities assumed in excess of the fair market value of tangible assets
acquired. Under the provisions of Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets, we are required to
allocate our goodwill to identifiable reporting units, which are then tested
for impairment using a two-step process detailed in the statement. The first
step requires comparing the fair value of each reporting unit with its carrying
amount, including goodwill. If that fair value exceeds the carrying amount,
the second step of the process is not necessary and there are no impairment
issues. If that fair value does not exceed that carrying amount, companies
must perform the second step that requires a hypothetical allocation of the
fair value of the reporting unit to the reporting units assets and liabilities
as if the unit were just purchased by the company at the fair value price. In
this hypothetical purchase, the excess of the fair value of the reporting unit
over its re-evaluated, marked-to-market net assets would be the new basis for
the reporting units goodwill and a write-down to this new value would be
recognized as an expense.

We have determined that we have two reporting units, laboratory and animal
hospital. We hired independent valuation experts to estimate the fair market
value of these reporting units. The independent valuation experts concluded
that the estimated value for each reporting unit is greater than the carrying
amount of the net assets for those reporting units. Therefore, no impairment
issues exist, and the second step of the test is not necessary. We plan to
perform a valuation of our reporting units in the fourth quarter of each year
or upon significant changes in our business environment.

27



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##### Table of Contents



Impairment of Long-lived Assets

We adopted SFAS No. 144, Accounting for the Impairment of Disposal of
Long-Lived Assetson January 1, 2002. Under SFAS No. 144, we will continually
evaluate whether events, circumstances or net losses at the entity level have
occurred that indicate the remaining estimated useful life of long-lived assets
may warrant revision or that the remaining balance of these assets may not be
recoverable. When factors indicate that these assets should be evaluated for
possible impairment, we will estimate the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the long-lived
assets in question. If that estimate is less than the carrying value of the
assets under review, we will recognize an impairment loss equal to that
difference.

Legal Settlements

We are a party to various legal proceedings. Although we cannot determine
the ultimate disposition of these proceedings, we can use judgment to
reasonably estimate our liability for legal settlement costs that may arise as
a result of these proceedings. Based on our prior experience, the nature of
the current proceedings, and our insurance policy coverage for such matters, we
have accrued $900,000 as of September 30, 2002 for legal settlements as part of
other accrued liabilities.

Results of Operations

The following table sets forth components of our statements of operations
data expressed as a percentage of revenue for the three and nine months ended
September 30, 2002 and 2001:

|                                                                 |                 |                   |      |                    |       |                   |      |      |       |      |      |      |       |   |      |      |       |   
|---------------------------------------------------------------- | --------------- | ----------------- | ---- | ------------------ | ----- | ----------------- | ---- | ---- | ----- | ---- | ---- | ---- | ----- | - | ---- | ---- | ----- | --
|                                                                 |                 |                   |      | Three Months Ended |       | Nine Months Ended
|                                                                 |                 |                   |      | September 30,      |       | September 30,    
|                                                                 |                 |                   |      |                    |       |                  
|                                                                 |                 |                   |      | 2002               |       | 2001              |      | 2002 |       | 2001
|                                                                 |                 |                   |      |                    |       |                   |      |      |       |     
|Revenue:                                                         |                 |                   |      |                    |       |                   |      |      |       |      |      |      |       |   |      |     
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Laboratory      |                   |      | 33.6               | %     |                   |      | 32.6 | %     |      |      | 34.7 | %     |   |      | 33.4 | %    
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Animal hospital |                   |      | 68.0               |       |                   |      | 68.7 |       |      |      | 66.9 |       |   |      | 68.0 |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Other           |                   |      | 0.4                |       |                   |      | 0.5  |       |      |      | 0.4  |       |   |      | 0.5  |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Intercompany    |                   |      | (2.0               | )     |                   |      | (1.8 | )     |      |      | (2.0 | )     |   |      | (1.9 | )    
|                                                                 |                 |                   |      |                    |       |                   |      |      |       |      |      |      |       |   |      |     
|                                                                 |                 | Total revenue     |      |                    | 100.0 |                   |      |      | 100.0 |      |      |      | 100.0 |   |      |      | 100.0 |   
|                                                                
|                                                                
|                                                                
|                                                                
|Direct costs                                                     |                 |                   | 67.1 |                    |       |                   | 68.9 |      |       |      | 67.3 |      |       |   | 69.9 |     
|                                                                
|                                                                
|                                                                
|                                                                
|Selling, general and administrative expense                      |                 |                   | 7.6  |                    |       |                   | 9.3  |      |       |      | 7.7  |      |       |   | 9.9  |     
|                                                                
|                                                                
|                                                                
|                                                                
|Depreciation and amortization                                    |                 |                   | 2.7  |                    |       |                   | 6.3  |      |       |      | 2.7  |      |       |   | 6.3  |     
|                                                                
|                                                                
|                                                                
|                                                                
|Write-down and (gain) loss on sale of assets                     |                 |                   | (0.1 | )                  |       |                   | (0.1 | )    |       |      |     |      |       |   | 2.9  |     
|                                                                 |                 |                   |      |                    |       |                   |      |      |       |      |      |      |       |   |      |     
|                                                                 |                 | Operating income  |      |                    | 22.7  |                   |      |      | 15.6  |      |      |      | 22.3  |   |      |      | 11.0  |   
|                                                                
|                                                                
|                                                                
|                                                                
|Net interest expense                                             |                 |                   | 8.9  |                    |       |                   | 10.1 |      |       |      | 9.0  |      |       |   | 10.6 |     
|                                                                
|                                                                
|                                                                
|                                                                
|Other expense                                                    |                 |                   |     |                    |       |                   |     |      |       |      |     |      |       |   | 0.1  |     
|                                                                
|                                                                
|                                                                
|                                                                
|Minority interest in income of subsidiaries                      |                 |                   | 0.4  |                    |       |                   | 0.4  |      |       |      | 0.4  |      |       |   | 0.3  |     
|                                                                
|                                                                
|                                                                
|                                                                
|Provision for income taxes                                       |                 |                   | 5.6  |                    |       |                   | 3.1  |      |       |      | 5.4  |      |       |   | 2.2  |     
|                                                                
|                                                                
|                                                                
|                                                                
|Extraordinary loss on early extinguishment
of debt, net of taxes |                 |                   | 1.7  |                    |       |                   |     |      |       |      | 0.6  |      |       |   |     |     
|                                                                 |                 |                   |      |                    |       |                   |      |      |       |      |      |      |       |   |      |     
|                                                                 |                 | Net income (loss) |      |                    | 6.1   | %                 |      |      | 2.0   | %    |      |      | 6.9   | % |      |      | (2.2  | )%
|                                                                 |                 |                   |      |                    |       |                   |      |      |       |      |      |      |       |   |      |     

28



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##### Table of Contents



The following table is a summary of the components of operating income by
segment (in thousands):

|                                      |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |         |        | 
|------------------------------------- | ----------------------------------- | ----------------------- | - | ---------- | ------ | -------- | - | --------- | ------ | ------------ | - | ----- | ------ | ------- | - | ------ | - |  | - | ------- | ------ | 
|                                      |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   | Inter- |   |  |   |        
|                                      |                                     |                         |   |            |        |          |   | Animal    |        |              |   |       |        | company |   |        |   | 
|                                      |                                     |                         |   | Laboratory |        | Hospital |   | Corporate |        | Eliminations |   | Total
|                                      |                                     |                         |   |            |        |          |   |           |        |              |   |      
|Three Months Ended
September 30, 2002 |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Revenue                             |                         | $ | 38,650     |        |          | $ | 78,118    |        |              | $ | 500   |        |         | $ | (2,296 | ) |  | $ | 114,972 |       
|                                     
|                                     
|                                     
|                                     
|                                      | Direct costs                        |                         |   | 21,849     |        |          |   | 57,604    |        |              |   |      |        |         |   | (2,296 | ) |  |   | 77,157  |       
|                                     
|                                     
|                                     
|                                     
|                                      | Selling, general and administrative |                         |   | 2,563      |        |          |   | 2,541     |        |              |   | 3,628 |        |         |   |       |   |  |   | 8,732   |       
|                                     
|                                     
|                                     
|                                     
|                                      | Depreciation and amortization       |                         |   | 715        |        |          |   | 1,961     |        |              |   | 352   |        |         |   |       |   |  |   | 3,028   |       
|                                     
|                                     
|                                     
|                                     
|                                      | Gain on sale of assets              |                         |   |           |        |          |   |          |        |              |   | (80   | )      |         |   |       |   |  |   | (80     | )     
|                                      |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |        
|                                      |                                     | Operating income (loss) |   | $          | 13,523 |          |   | $         | 16,012 |              |   | $     | (3,400 | )       |   | $      |  |  |   | $       | 26,135 | 
|                                      |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |        
|Three Months Ended
September 30, 2001 |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Revenue                             |                         | $ | 33,471     |        |          | $ | 70,531    |        |              | $ | 500   |        |         | $ | (1,866 | ) |  | $ | 102,636 |       
|                                     
|                                     
|                                     
|                                     
|                                      | Direct costs                        |                         |   | 20,081     |        |          |   | 52,466    |        |              |   |      |        |         |   | (1,866 | ) |  |   | 70,681  |       
|                                     
|                                     
|                                     
|                                     
|                                      | Selling, general and administrative |                         |   | 2,725      |        |          |   | 2,918     |        |              |   | 3,948 |        |         |   |       |   |  |   | 9,591   |       
|                                     
|                                     
|                                     
|                                     
|                                      | Depreciation and amortization       |                         |   | 1,153      |        |          |   | 3,688     |        |              |   | 1,591 |        |         |   |       |   |  |   | 6,432   |       
|                                     
|                                     
|                                     
|                                     
|                                      | Gain on sale of assets              |                         |   |           |        |          |   |          |        |              |   | (92   | )      |         |   |       |   |  |   | (92     | )     
|                                      |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |        
|                                      |                                     | Operating income (loss) |   | $          | 9,512  |          |   | $         | 11,459 |              |   | $     | (4,947 | )       |   | $      |  |  |   | $       | 16,024 | 
|                                      |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |        

|                                     |                                              |                         |   |            |        |          |   |           |        |              |   |        |         |         |   |        |   |  |   |         |        | 
|------------------------------------ | -------------------------------------------- | ----------------------- | - | ---------- | ------ | -------- | - | --------- | ------ | ------------ | - | ------ | ------- | ------- | - | ------ | - |  | - | ------- | ------ | 
|                                     |                                              |                         |   |            |        |          |   |           |        |              |   |        |         |         |   | Inter- |   |  |   |        
|                                     |                                              |                         |   |            |        |          |   | Animal    |        |              |   |        |         | company |   |        |   | 
|                                     |                                              |                         |   | Laboratory |        | Hospital |   | Corporate |        | Eliminations |   | Total 
|                                     |                                              |                         |   |            |        |          |   |           |        |              |   |       
|Nine Months Ended
September 30, 2002 |                                              |                         |   |            |        |          |   |           |        |              |   |        |         |         |   |        |   |  |   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Revenue                                      |                         | $ | 116,911    |        |          | $ | 225,383   |        |              | $ | 1,500  |         |         | $ | (6,902 | ) |  | $ | 336,892 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Direct costs                                 |                         |   | 65,545     |        |          |   | 168,106   |        |              |   |       |         |         |   | (6,902 | ) |  |   | 226,749 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Selling, general and
administrative          |                         |   | 7,632      |        |          |   | 7,805     |        |              |   | 10,456 |         |         |   |       |   |  |   | 25,893  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Depreciation and amortization                |                         |   | 2,138      |        |          |   | 6,166     |        |              |   | 1,026  |         |         |   |       |   |  |   | 9,330   |       
|                                    
|                                    
|                                    
|                                    
|                                     | Write-down and (gain) loss on
sale of assets |                         |   |           |        |          |   |          |        |              |   | (80    | )       |         |   |       |   |  |   | (80     | )     
|                                     |                                              |                         |   |            |        |          |   |           |        |              |   |        |         |         |   |        |   |  |   |        
|                                     |                                              | Operating income (loss) |   | $          | 41,596 |          |   | $         | 43,306 |              |   | $      | (9,902  | )       |   | $      |  |  |   | $       | 75,000 | 
|                                     |                                              |                         |   |            |        |          |   |           |        |              |   |        |         |         |   |        |   |  |   |        
|Nine Months Ended
September 30, 2001 |                                              |                         |   |            |        |          |   |           |        |              |   |        |         |         |   |        |   |  |   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Revenue                                      |                         | $ | 101,855    |        |          | $ | 207,665   |        |              | $ | 1,500  |         |         | $ | (5,655 | ) |  | $ | 305,365 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Direct costs                                 |                         |   | 61,566     |        |          |   | 157,543   |        |              |   |       |         |         |   | (5,655 | ) |  |   | 213,454 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Selling, general and
administrative          |                         |   | 9,305      |        |          |   | 9,523     |        |              |   | 11,537 |         |         |   |       |   |  |   | 30,365  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Depreciation and amortization                |                         |   | 3,457      |        |          |   | 10,829    |        |              |   | 4,835  |         |         |   |       |   |  |   | 19,121  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Write-down and loss on sale of
assets        |                         |   |           |        |          |   |          |        |              |   | 8,745  |         |         |   |       |   |  |   | 8,745   |       
|                                     |                                              |                         |   |            |        |          |   |           |        |              |   |        |         |         |   |        |   |  |   |        
|                                     |                                              | Operating income (loss) |   | $          | 27,527 |          |   | $         | 29,770 |              |   | $      | (23,617 | )       |   | $      |  |  |   | $       | 33,680 | 
|                                     |                                              |                         |   |            |        |          |   |           |        |              |   |        |         |         |   |        |   |  |   |        

Revenue

The following table summarizes our revenue (in thousands):

|                |               |   |                                  |         |                                 |   |        |         |      |  |      |      |        |   |         |         |  |   |         |         |   |  |      |      |  
|--------------- | ------------- | - | -------------------------------- | ------- | ------------------------------- | - | ------ | ------- | ---- |  | ---- | ---- | ------ | - | ------- | ------- |  | - | ------- | ------- | - |  | ---- | ---- | -
|                |               |   | Three Months Ended September 30, |         | Nine Months Ended September 30,
|                |               |   |                                  |         |                                
|                |               |   |                                  |         |                                 |   |        |         |      |  | %    |      |        |   |         |         |  |   |         |         | %
|                |               |   | 2002                             |         | 2001                            |   | Change |         | 2002 |  | 2001 |      | Change
|                |               |   |                                  |         |                                 |   |        |         |      |  |      |      |       
|Laboratory      |               | $ | 38,650                           |         |                                 | $ | 33,471 |         |      |  | 15.5 | %    |        | $ | 116,911 |         |  | $ | 101,855 |         |   |  | 14.8 | %   
|               
|               
|               
|               
|Animal hospital |               |   | 78,118                           |         |                                 |   | 70,531 |         |      |  | 10.8 | %    |        |   | 225,383 |         |  |   | 207,665 |         |   |  | 8.5  | %   
|               
|               
|               
|               
|Other           |               |   | 500                              |         |                                 |   | 500    |         |      |  |      |      |        |   | 1,500   |         |  |   | 1,500   |         |   |  |      |     
|               
|               
|               
|               
|Intercompany    |               |   | (2,296                           | )       |                                 |   | (1,866 | )       |      |  |      |      |        |   | (6,902  | )       |  |   | (5,655  | )       |   |  |      |     
|                |               |   |                                  |         |                                 |   |        |         |      |  |      |      |        |   |         |         |  |   |         |         |   |  |      |     
|                | Total revenue |   | $                                | 114,972 |                                 |   | $      | 102,636 |      |  |      | 12.0 | %      |   | $       | 336,892 |  |   | $       | 305,365 |   |  |      | 10.3 | %
|                |               |   |                                  |         |                                 |   |        |         |      |  |      |      |        |   |         |         |  |   |         |         |   |  |      |     

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Laboratory Revenue

Laboratory revenue increased $5.2 million, or 15.5% for the three months
ended September 30, 2002 and increased $15.1 million, or 14.8% for the nine
months ended September 30, 2002 compared to the same prior-year
periods. The three months ended September 30, 2002 contains one
less billing day than the prior-year quarter. The nine-month periods
contain the same number of billing days. The components of
same-facility revenue growth, as adjusted to eliminate revenue from
the one extra billing day in the three months ended
September 30, 2001, were as follows:

|                              |                                          |  |                    |      |                    |  |     |      |  
|----------------------------- | ---------------------------------------- |  | ------------------ | ---- | ------------------ |  | --- | ---- | -
|                              |                                          |  | Three Months Ended |      | Nine Months Ended 
|                              |                                          |  | September 30, 2002 |      | September 30, 2002
|                              |                                          |  |                    |      |                   
|Sales volume                  |                                          |  | 8.9                | %    |                    |  | 5.7 | %   
|                             
|                             
|                             
|                             
|Average price per requisition |                                          |  | 8.1                |      |                    |  | 9.1 |     
|                             
|                             
|                             
|                             
|                              | Same-facility revenue growth
as adjusted |  |                    | 17.0 | %                  |  |     | 14.8 | %
|                              |                                          |  |                    |      |                    |  |     |     

These increases in volume and average price per requisition were primarily
the result of continued emphasis on selling our pet health and wellness
programs, which increased our sales volume and the type and number of
tests per requisition, and implementation of a price increase for
most tests in February 2002. The same-facility revenue growth, as
adjusted, for the three months ended September 30, 2002 is not
indicative of future trends, as revenue for the prior-year quarter
was negatively impacted by the events of September 11, 2001.

Animal Hospital Revenue

The following table summarizes our animal hospital revenue as reported and
the combined revenue of animal hospitals that we owned and managed, had we
consolidated the operating results of the animal hospitals we managed into our
operating results (in thousands):

|                                                              |  |                                  |         |                                 |  |        |        |      |  |      |      |        |  |   |         |   |  |   |         |   |  |  |     |  
|------------------------------------------------------------- |  | -------------------------------- | ------- | ------------------------------- |  | ------ | ------ | ---- |  | ---- | ---- | ------ |  | - | ------- | - |  | - | ------- | - |  |  | --- | -
|                                                              |  | Three Months Ended September 30, |         | Nine Months Ended September 30,
|                                                              |  |                                  |         |                                
|                                                              |  |                                  |         |                                 |  |        |        |      |  | %    |      |        |  |   |         |   |  |   |         | %
|                                                              |  | 2002                             |         | 2001                            |  | Change |        | 2002 |  | 2001 |      | Change
|                                                              |  |                                  |         |                                 |  |        |        |      |  |      |      |       
|Animal hospital revenue as reported                           |  | $                                | 78,118  |                                 |  | $      | 70,531 |      |  |      | 10.8 | %      |  | $ | 225,383 |   |  | $ | 207,665 |   |  |  | 8.5 | %
|                                                             
|                                                             
|                                                             
|                                                             
|Less: Management fees paid to us by
veterinary medical groups |  |                                  | (11,520 | )                               |  |        | (9,309 | )    |  |      |      |        |  |   | (33,713 | ) |  |   | (28,270 | ) |  |  |     |  
|                                                             
|                                                             
|                                                             
|                                                             
|Add: Revenue of animal hospitals managed                      |  |                                  | 21,246  |                                 |  |        | 17,581 |      |  |      |      |        |  |   | 61,501  |   |  |   | 52,580  |   |  |  |     |  
|                                                              |  |                                  |         |                                 |  |        |        |      |  |      |      |        |  |   |         |   |  |   |         |   |  |  |     |  
|Combined revenue of animal hospitals
Owned and managed        |  | $                                | 87,844  |                                 |  | $      | 78,803 |      |  |      | 11.5 | %      |  | $ | 253,171 |   |  | $ | 231,975 |   |  |  | 9.1 | %
|                                                              |  |                                  |         |                                 |  |        |        |      |  |      |      |        |  |   |         |   |  |   |         |   |  |  |     |  

Animal hospital revenue as reported increased $7.6 million, or 10.8%, for
the three months ended September 30, 2002 and $17.7 million, or 8.5%, for the
nine months ended September 30, 2002 compared to the same prior-year periods.
These increases in animal hospital revenue resulted from the acquisition of
animal hospitals and same-facility revenue growth.

Combined revenue of animal hospitals that we owned and managed increased
$9.0 million, or 11.5% for the three months ended September 30, 2002 compared
to the same prior-year period. This increase is primarily the result of
same-facility revenue growth of 5.7%, or $4.4 million, and net acquired revenue
of $4.6 million. Net acquired revenue is from the change in revenue that
results from hospitals that are acquired, sold or closed on or subsequent to
July 1, 2001. In addition, the three months ended September 30, 2002 included
one additional business day as compared to the same prior-year period.
Same-facility revenue growth, adjusted to exclude the additional business day,
was 4.7% for the three months ended September 30, 2002. Combined revenue of
animal hospitals that we owned and managed increased $21.2 million, or 9.1% for
the nine months ended September 30, 2002 compared to the same prior-year
period. This increase is primarily the result of same-facility growth of 3.6%,
or $7.9 million, and net acquired revenue of $13.3 million. Net acquired
revenue is from the change in revenue that results from the hospitals that are
acquired, sold or closed on or subsequent to January 1, 2001. Same-facility
revenue growth was primarily due to increases in the average amount spent per
visit and revenue generated by customers referred from relocated or combined
animal hospitals. Discussions in medical literature suggest than small animals
may not require as many or as frequent vaccinations as is currently accepted
practice. Any reduction in the number of visits to our hospitals resulting
from less frequent vaccinations will negatively impact our ability to

30



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##### Table of Contents



continue to achieve same-facility revenue growth rates consistent with our
current levels. In addition, products and supplies that we currently sell are
becoming available in other distribution channels that may adversely affect our
sales and the number of client visits to our hospitals.

Direct Costs

The following table summarizes our direct costs and our direct costs as a
percentage of applicable revenue (in thousands):

|                |                    |   |                                  |        |                                 |  |      |      |         |   |        |        |      |  |         |      |   |  |         |     |        |   |         |         |  |  |      |      |   |   |         |         |  |  |      |      |   |  |     |     |  
|--------------- | ------------------ | - | -------------------------------- | ------ | ------------------------------- |  | ---- | ---- | ------- | - | ------ | ------ | ---- |  | ------- | ---- | - |  | ------- | --- | ------ | - | ------- | ------- |  |  | ---- | ---- | - | - | ------- | ------- |  |  | ---- | ---- | - |  | --- | --- | -
|                |                    |   | Three Months Ended September 30, |        | Nine Months Ended September 30,
|                |                    |   |                                  |        |                                
|                |                    |   | 2002                             |        | 2001                            |  |      |      |         |   | 2002   |        | 2001 |  |         |      |  
|                |                    |   |                                  |        |                                 |  |      |      |         |   |        |        |      |  |         |      |  
|                |                    |   |                                  |        |                                 |  | % of |      |         |   |        |        | % of |  | %       |      |   |  |         |     | % of   |   |         |         |  |  | % of |      | %
|                |                    |   | $                                |        | Revenue                         |  | $    |      | Revenue |   | Change |        | $    |  | Revenue |      | $ |  | Revenue |     | Change
|                |                    |   |                                  |        |                                 |  |      |      |         |   |        |        |      |  |         |      |   |  |         |     |       
|Laboratory      |                    | $ | 21,849                           |        |                                 |  | 56.5 | %    |         | $ | 20,081 |        |      |  | 60.0    | %    |   |  | 8.8     | %   |        | $ | 65,545  |         |  |  | 56.1 | %    |   | $ | 61,566  |         |  |  | 60.4 | %    |   |  | 6.5 | %  
|               
|               
|               
|               
|Animal hospital |                    |   | 57,604                           |        |                                 |  | 73.7 | %    |         |   | 52,466 |        |      |  | 74.4    | %    |   |  | 9.8     | %   |        |   | 168,106 |         |  |  | 74.6 | %    |   |   | 157,543 |         |  |  | 75.9 | %    |   |  | 6.7 | %  
|               
|               
|               
|               
|Intercompany    |                    |   | (2,296                           | )      |                                 |  |      |      |         |   | (1,866 | )      |      |  |         |      |   |  |         |     |        |   | (6,902  | )       |  |  |      |      |   |   | (5,655  | )       |  |  |      |      |   |  |     |    
|                |                    |   |                                  |        |                                 |  |      |      |         |   |        |        |      |  |         |      |   |  |         |     |        |   |         |         |  |  |      |      |   |   |         |         |  |  |      |      |   |  |     |    
|                | Total direct costs |   | $                                | 77,157 |                                 |  |      | 67.1 | %       |   | $      | 70,681 |      |  |         | 68.9 | % |  |         | 9.2 | %      |   | $       | 226,749 |  |  |      | 67.3 | % |   | $       | 213,454 |  |  |      | 69.9 | % |  |     | 6.2 | %
|                |                    |   |                                  |        |                                 |  |      |      |         |   |        |        |      |  |         |      |   |  |         |     |        |   |         |         |  |  |      |      |   |   |         |         |  |  |      |      |   |  |     |    

Laboratory Direct Costs

Laboratory direct costs increased $1.8 million, or 8.8%, for the three
months ended September 30, 2002 and $4.0 million, or 6.5%, for the nine months
ended September 30, 2002 compared to the same prior-year periods. Laboratory
direct costs as percentages of laboratory revenue were 56.5% and 60.0% for the
three months ended September 30, 2002 and 2001 and 56.1% and 60.4% for the nine
months ended September 30, 2002 and 2001. However, laboratory direct costs for
the three and nine months ended September 30, 2001 include non-cash
compensation of $283,000 and $1.4 million. Excluding non-cash compensation,
laboratory direct costs as a percentage of laboratory revenue would have been
59.2% and 59.1% for the three and nine months ended September 30, 2001. The
current year decreases in laboratory direct costs as a percentage of laboratory
revenue as compared to the same prior-year periods primarily were attributable
to additional operating leverage gained on increases in laboratory revenue.

Animal Hospital Direct Costs

The following table summarizes our animal hospital direct costs as
reported and the combined direct costs of animal hospitals owned and managed
had we consolidated the operating results of the animal hospitals we managed
into our operating results (in thousands):

|                                                                 |  |                                  |         |         |  |      |      |         |  |          |        |      |  |  |      |   |  |  |      |  
|---------------------------------------------------------------- |  | -------------------------------- | ------- | ------- |  | ---- | ---- | ------- |  | -------- | ------ | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                 |  | Three Months Ended September 30,
|                                                                 |  |                                 
|                                                                 |  | 2002                             |         | 2001    |  |      |      |        
|                                                                 |  |                                  |         |         |  |      |      |        
|                                                                 |  |                                  |         |         |  | % of |      |         |  |          |        | % of |  |  |      |  
|                                                                 |  | $                                |         | Revenue |  | $    |      | Revenue |  | % Change
|                                                                 |  |                                  |         |         |  |      |      |         |  |         
|Animal hospital direct costs as reported                         |  | $                                | 57,604  |         |  |      | 73.7 | %       |  | $        | 52,466 |      |  |  | 74.4 | % |  |  | 9.8  | %
|                                                                
|                                                                
|                                                                
|                                                                
|Add: Direct costs of animal hospitals managed                    |  |                                  | 21,246  |         |  |      |      |         |  |          | 17,581 |      |  |  |      |   |  |  |      |  
|                                                                
|                                                                
|                                                                
|                                                                
|Less: Management fees charged by us to
veterinary medical groups |  |                                  | (11,520 | )       |  |      |      |         |  |          | (9,309 | )    |  |  |      |   |  |  |      |  
|                                                                 |  |                                  |         |         |  |      |      |         |  |          |        |      |  |  |      |   |  |  |      |  
|Combined direct costs of animal
hospitals owned and managed      |  | $                                | 67,330  |         |  |      | 76.6 | %       |  | $        | 60,738 |      |  |  | 77.1 | % |  |  | 10.9 | %
|                                                                 |  |                                  |         |         |  |      |      |         |  |          |        |      |  |  |      |   |  |  |      |  

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|                                                                 |  |                                 |         |         |  |      |      |         |  |          |         |      |  |  |      |   |  |  |     |  
|---------------------------------------------------------------- |  | ------------------------------- | ------- | ------- |  | ---- | ---- | ------- |  | -------- | ------- | ---- |  |  | ---- | - |  |  | --- | -
|                                                                 |  | Nine Months Ended September 30,
|                                                                 |  |                                
|                                                                 |  | 2002                            |         | 2001    |  |      |      |        
|                                                                 |  |                                 |         |         |  |      |      |        
|                                                                 |  |                                 |         |         |  | % of |      |         |  |          |         | % of |  |  |      |  
|                                                                 |  | $                               |         | Revenue |  | $    |      | Revenue |  | % Change
|                                                                 |  |                                 |         |         |  |      |      |         |  |         
|Animal hospital direct costs as reported                         |  | $                               | 168,106 |         |  |      | 74.6 | %       |  | $        | 157,543 |      |  |  | 75.9 | % |  |  | 6.7 | %
|                                                                
|                                                                
|                                                                
|                                                                
|Add: Direct costs of animal hospitals managed                    |  |                                 | 61,501  |         |  |      |      |         |  |          | 52,580  |      |  |  |      |   |  |  |     |  
|                                                                
|                                                                
|                                                                
|                                                                
|Less: Management fees charged by us to
veterinary medical groups |  |                                 | (33,713 | )       |  |      |      |         |  |          | (28,270 | )    |  |  |      |   |  |  |     |  
|                                                                 |  |                                 |         |         |  |      |      |         |  |          |         |      |  |  |      |   |  |  |     |  
|Combined direct costs of animal
hospitals owned and managed      |  | $                               | 195,894 |         |  |      | 77.4 | %       |  | $        | 181,853 |      |  |  | 78.4 | % |  |  | 7.7 | %
|                                                                 |  |                                 |         |         |  |      |      |         |  |          |         |      |  |  |      |   |  |  |     |  

Combined
direct costs of animal hospitals owned and managed increased $6.6
million, or 10.9% for the three months ended September 30, 2002
and the $14.0 million or 7.7% for the nine months ended
September 30, 2002.
Combined direct costs of animal hospitals owned and managed as a
percentage of animal hospital revenue decreased to 76.6% for the
three months ended September 30, 2002 from 77.1% from the prior
year period and decreased to 77.4% for the nine months ended
September 30, 2002 from 78.4% for the prior year period.

Animal hospital direct costs as reported increased $5.1 million, or 9.8%,
for the three months ended September 30, 2002 and $10.6 million, or 6.7%, for
the nine months ended September 30, 2002 compared to the same prior-year
periods. Animal hospital direct costs as reported as a percentage of animal hospital
revenue decreased to 73.7% for the three months ended September 30, 2002 from
74.4% for the prior-year period and decreased to 74.6% for the nine months
ended September 30, 2002 from 75.9% for the prior-year
period.

These decreases
in animal hospital direct costs as a percentage of animal hospital revenue
during these periods primarily were attributable to additional operating
leverage gained on increases in animal hospital revenue, because most of the
costs associated with this business do not increase proportionately with
increases in the volume of services rendered.

Selling, General and Administrative Expense

The following table summarizes our selling, general and administrative
expense (SG&A) and our expense as a percentage of applicable revenue (in
thousands):

|                |            |   |                                  |       |                                 |  |      |     |         |   |        |       |      |  |         |     |   |  |         |      |        |   |        |        |  |  |      |     |   |   |        |        |  |  |     |     |   |  |       |       |   
|--------------- | ---------- | - | -------------------------------- | ----- | ------------------------------- |  | ---- | --- | ------- | - | ------ | ----- | ---- |  | ------- | --- | - |  | ------- | ---- | ------ | - | ------ | ------ |  |  | ---- | --- | - | - | ------ | ------ |  |  | --- | --- | - |  | ----- | ----- | --
|                |            |   | Three Months Ended September 30, |       | Nine Months Ended September 30,
|                |            |   |                                  |       |                                
|                |            |   | 2002                             |       | 2001                            |  |      |     |         |   | 2002   |       | 2001 |  |         |     |  
|                |            |   |                                  |       |                                 |  |      |     |         |   |        |       |      |  |         |     |  
|                |            |   |                                  |       |                                 |  | % of |     |         |   |        |       | % of |  | %       |     |   |  |         |      | % of   |   |        |        |  |  | % of |     | %
|                |            |   | $                                |       | Revenue                         |  | $    |     | Revenue |   | Change |       | $    |  | Revenue |     | $ |  | Revenue |      | Change
|                |            |   |                                  |       |                                 |  |      |     |         |   |        |       |      |  |         |     |   |  |         |      |       
|Laboratory      |            | $ | 2,563                            |       |                                 |  | 6.6  | %   |         | $ | 2,725  |       |      |  | 8.1     | %   |   |  | (5.9    | )%   |        | $ | 7,632  |        |  |  | 6.5  | %   |   | $ | 9,305  |        |  |  | 9.1 | %   |   |  | (18.0 | )%   
|               
|               
|               
|               
|Animal hospital |            |   | 2,541                            |       |                                 |  | 3.3  | %   |         |   | 2,918  |       |      |  | 4.1     | %   |   |  | (12.9   | )%   |        |   | 7,805  |        |  |  | 3.5  | %   |   |   | 9,523  |        |  |  | 4.6 | %   |   |  | (18.0 | )%   
|               
|               
|               
|               
|Corporate       |            |   | 3,628                            |       |                                 |  | 3.2  | %   |         |   | 3,948  |       |      |  | 3.8     | %   |   |  | (8.1    | )%   |        |   | 10,456 |        |  |  | 3.1  | %   |   |   | 11,537 |        |  |  | 3.8 | %   |   |  | (9.4  | )%   
|                |            |   |                                  |       |                                 |  |      |     |         |   |        |       |      |  |         |     |   |  |         |      |        |   |        |        |  |  |      |     |   |   |        |        |  |  |     |     |   |  |       |      
|                | Total SG&A |   | $                                | 8,732 |                                 |  |      | 7.6 | %       |   | $      | 9,591 |      |  |         | 9.3 | % |  |         | (9.0 | )%     |   | $      | 25,893 |  |  |      | 7.7 | % |   | $      | 30,365 |  |  |     | 9.9 | % |  |       | (14.7 | )%
|                |            |   |                                  |       |                                 |  |      |     |         |   |        |       |      |  |         |     |   |  |         |      |        |   |        |        |  |  |      |     |   |   |        |        |  |  |     |     |   |  |       |      

Laboratory SG&A

Laboratory SG&A for the three months ended September 30, 2002 decreased
$162,000, or 5.9%, compared to the same prior-year period. Laboratory SG&A for
the nine months ended September 30, 2002 decreased $1.7 million, or 18.0%,
compared to the same prior-year period. However, laboratory SG&A includes
non-cash compensation of $573,000 for the three months ended September 30, 2001
and $2.9 million for the nine months ended September 30, 2001. If non-cash
compensation were excluded from the three months ended September 30, 2001,
current period laboratory SG&A would have increased $411,000 or 19.1%, compared
to the same prior-year period. Prior year laboratory SG&A would have been 6.4%
of laboratory revenue as compared to 6.6% for the three months ended September
30, 2002. If non-cash compensation were excluded from the nine months ended
September 30, 2001, current period laboratory SG&A would have increased $1.2
million, or 18.6%, compared to the same prior-year period. Prior year
laboratory SG&A would have been 6.3% of laboratory revenue as compared to 6.5%
for the nine months ended September 30, 2002.

These increases in laboratory SG&A in 2002 as compared to 2001, as
adjusted to exclude non-cash compensation, were primarily due to the salaries
associated with new sales representatives, an increase in commission payments
to sales representatives due to increased sales, additional marketing costs
incurred on our pet health and wellness programs, and an increase in legal
costs in 2002.

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Animal Hospital SG&A

Animal hospital SG&A for the three months ended September 30, 2002
decreased $377,000 or 12.9%, compared to the same prior-year period. Animal
hospital SG&A for the nine months ended September 30, 2002 decreased $1.7
million, or 18.0%, compared to the same prior-year period. However, animal
hospital SG&A includes non-cash compensation of $512,000 for the three months
ended September 30, 2001 and $2.6 million for the nine months ended September
30, 2001. If non-cash compensation were excluded from the three months ended
September 30, 2001, current period animal hospital SG&A would have increased
$135,000 or 5.6%, compared to the same prior-year period. Prior year animal
hospital SG&A would have been 3.4% as a percentage of animal hospital revenue
as compared to 3.3% for the three months ended September 30, 2002. If
non-cash compensation were excluded for the nine months ended September 30,
2001, current period animal hospital SG&A would have increased $842,000 or
12.1%, compared to the same prior-year period. Prior year animal hospital
SG&A would have been 3.4% of animal hospital revenue as compared to 3.5% for
the nine months ended September 30, 2002.

These increases in animal hospital SG&A in 2002 as compared to 2001, as
adjusted to exclude non-cash compensation, primarily were due to the salaries
associated with the addition of regional medical directors, and an increase in
legal costs in 2002.

Corporate SG&A

Corporate SG&A for the three months ended September 30, 2002 decreased
$320,000 or 8.1% compared to the same prior-year period. Corporate SG&A for
the nine months ended September 30, 2002 decreased $1.1 million or 9.4%,
compared to the same prior-year period. However, corporate SG&A for the three
months ended September 30, 2001 includes non-cash compensation of $155,000 and
management fees of $620,000 paid pursuant to our management agreement with
Leonard Green & Partners that was terminated in November 2001. Corporate SG&A
for the nine months ended September 30, 2001 includes non-cash compensation of
$771,000 and management fees of $1.9 million, as described above. If non-cash
compensation and management fees were excluded from the three months ended
September 30, 2001, current year corporate SG&A would have increased $455,000,
or 14.3%, compared to the same prior-year period. Prior year corporate SG&A
would have been 3.1% as a percentage of total revenue as compared to 3.2% for
the three months ended September 30, 2002. If non-cash compensation and
management fees were excluded from the nine months ended September 30, 2001,
current year corporate SG&A would have increased $1.6 million, or 17.4%,
compared to the same prior-year period. Prior year corporate SG&A would have
been 2.9% as a percentage of total revenue as compared to 3.1% for the nine
months ended September 30, 2002.

These increases in corporate SG&A in 2002 as compared to 2001, as adjusted
to exclude non-cash compensation and management fees, were primarily due to the
fees associated with increased professional services and insurance costs as a
result of becoming a publicly-traded company and accounting fees incurred in
connection with changing our external auditors from Arthur Andersen LLP to KPMG
LLP.

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##### Table of Contents



Adjusted EBITDA

The following tables summarize our Adjusted EBITDA and our Adjusted EBITDA
as a percentage of applicable revenue (in thousands):

|                                                  |                       |   |                                  |        |         |  |      |      |         |   |          |        |      |  |      |      |   |  |      |      |  
|------------------------------------------------- | --------------------- | - | -------------------------------- | ------ | ------- |  | ---- | ---- | ------- | - | -------- | ------ | ---- |  | ---- | ---- | - |  | ---- | ---- | -
|                                                  |                       |   | Three Months Ended September 30,
|                                                  |                       |   |                                 
|                                                  |                       |   | 2002                             |        | 2001    |  |      |      |        
|                                                  |                       |   |                                  |        |         |  |      |      |        
|                                                  |                       |   |                                  |        |         |  | % of |      |         |   |          |        | % of |  |      |      |  
|                                                  |                       |   | $                                |        | Revenue |  | $    |      | Revenue |   | % Change
|                                                  |                       |   |                                  |        |         |  |      |      |         |   |         
|Laboratory Adjusted EBITDA (1)                    |                       | $ | 14,238                           |        |         |  | 36.8 | %    |         | $ | 11,521   |        |      |  | 34.4 | %    |   |  | 23.6 | %   
|                                                 
|                                                 
|                                                 
|                                                 
|Animal hospital Adjusted EBITDA (2)               |                       |   | 17,973                           |        |         |  | 23.0 | %    |         |   | 15,659   |        |      |  | 22.2 | %    |   |  | 14.8 | %   
|                                                 
|                                                 
|                                                 
|                                                 
|Other revenue                                     |                       |   | 500                              |        |         |  |      |      |         |   | 500      |        |      |  |      |      |   |  |      |     
|                                                 
|                                                 
|                                                 
|                                                 
|Corporate selling, general and administrative (3) |                       |   | (3,628                           | )      |         |  | (3.2 | )%   |         |   | (3,173   | )      |      |  | (3.1 | )%   |   |  |      |     
|                                                 
|                                                 
|                                                 
|                                                 
|Gain on sale of assets                            |                       |   | 80                               |        |         |  |      |      |         |   | 92       |        |      |  |      |      |   |  |      |     
|                                                  |                       |   |                                  |        |         |  |      |      |         |   |          |        |      |  |      |      |   |  |      |     
|                                                  | Total Adjusted EBITDA |   | $                                | 29,163 |         |  |      | 25.4 | %       |   | $        | 24,599 |      |  |      | 24.0 | % |  |      | 18.6 | %
|                                                  |                       |   |                                  |        |         |  |      |      |         |   |          |        |      |  |      |      |   |  |      |     



|(1) |  | For the three months ended September 30, 2001, laboratory EBITDA was adjusted to exclude non-cash compensation of $856,000. There were no such adjustments in 2002.                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | For the three months ended September 30, 2001, animal hospital EBITDA was adjusted to exclude non-cash compensation of $512,000. There were no such adjustments in 2002.                                                               
|   
|   
|   
|   
|(3) |  | For the three months ended September 30, 2001, corporate selling, general and administrative expense was adjusted to exclude non-cash compensation of $155,000 and management fees of
$620,000. There were no such adjustments in 2002.

|                                                  |                       |   |                                 |        |         |  |      |      |         |   |          |        |      |  |      |      |   |  |      |      |  
|------------------------------------------------- | --------------------- | - | ------------------------------- | ------ | ------- |  | ---- | ---- | ------- | - | -------- | ------ | ---- |  | ---- | ---- | - |  | ---- | ---- | -
|                                                  |                       |   | Nine Months Ended September 30,
|                                                  |                       |   |                                
|                                                  |                       |   | 2002                            |        | 2001    |  |      |      |        
|                                                  |                       |   |                                 |        |         |  |      |      |        
|                                                  |                       |   |                                 |        |         |  | % of |      |         |   |          |        | % of |  |      |      |  
|                                                  |                       |   | $                               |        | Revenue |  | $    |      | Revenue |   | % Change
|                                                  |                       |   |                                 |        |         |  |      |      |         |   |         
|Laboratory Adjusted EBITDA (1)                    |                       | $ | 43,734                          |        |         |  | 37.4 | %    |         | $ | 35,264   |        |      |  | 34.6 | %    |   |  | 24.0 | %   
|                                                 
|                                                 
|                                                 
|                                                 
|Animal hospital Adjusted EBITDA (2)               |                       |   | 49,472                          |        |         |  | 22.0 | %    |         |   | 43,159   |        |      |  | 20.8 | %    |   |  | 14.6 | %   
|                                                 
|                                                 
|                                                 
|                                                 
|Other revenue                                     |                       |   | 1,500                           |        |         |  |      |      |         |   | 1,500    |        |      |  |      |      |   |  |      |     
|                                                 
|                                                 
|                                                 
|                                                 
|Corporate selling, general and administrative (3) |                       |   | (10,456                         | )      |         |  | (3.1 | )%   |         |   | (8,906   | )      |      |  | (2.9 | )%   |   |  |      |     
|                                                 
|                                                 
|                                                 
|                                                 
|Gain (loss) on sale of assets                     |                       |   | 80                              |        |         |  |      |      |         |   | (125     | )      |      |  |      |      |   |  |      |     
|                                                  |                       |   |                                 |        |         |  |      |      |         |   |          |        |      |  |      |      |   |  |      |     
|                                                  | Total Adjusted EBITDA |   | $                               | 84,330 |         |  |      | 25.0 | %       |   | $        | 70,892 |      |  |      | 23.2 | % |  |      | 19.0 | %
|                                                  |                       |   |                                 |        |         |  |      |      |         |   |          |        |      |  |      |      |   |  |      |     



|(1) |  | For the nine months ended September 30, 2001, laboratory EBITDA was adjusted to exclude non-cash compensation of $4.3 million. There were no such adjustments in 2002.                                                                    
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | For the nine months ended September 30, 2001, animal hospital EBITDA was adjusted to exclude non-cash compensation of $2.6 million. There were no such adjustments in 2002.                                                               
|   
|   
|   
|   
|(3) |  | For the nine months ended September 30, 2001, corporate selling, general and administrative expense was adjusted to exclude non-cash compensation of $771,000 and management fees of $1.9 million. There
were no such adjustments in 2002.

Depreciation and Amortization

Depreciation and amortization expense decreased $3.4 million, or 52.9%,
for the three months ended September 30, 2002 and decreased $9.8 million, or
51.2%, for the nine months ended September 30, 2002, compared to the same
prior-year periods.

This decrease is primarily related to our implementation of SFAS No. 142,
the result of which was that we no longer amortized goodwill as of January 1,
2002. For a detailed discussion of SFAS No. 142, see New Accounting
Pronouncements. For the three and nine months ended September 30, 2001 we had
$2.3 million and $6.9 million of goodwill amortization expense, respectively.
Additionally, in November 2001, we terminated non-competition agreements with
members of senior management. For the three and nine months ended September
30, 2001, we had expense related to the amortization of non-competition
agreements of $1.3 million and $3.9 million, respectively.

Net Interest Expense

Net interest expense decreased $109,000 or 1.1% to $10.2 million for the
three months ended September 30, 2002 from $10.3 million for the three months
ended September 30, 2001. Net interest expense decreased $1.9 million, or
5.7%, to $30.5 million for the nine months ended September 30, 2002 from $32.4
million for the nine months ended September 30, 2001.

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The decrease in net interest expense primarily was due to the effect of
decreasing interest rates on our variable-rate obligations, and the refinancing
of a portion of our higher-yield, fixed-rate debt with lower-yield, fixed-rate
debt.

Other (Income) Expense

Other (income) expense consisted of non-cash gains or losses on a hedging
instrument resulting from changes in the time value of our collar agreement.
See Footnote (8), Derivatives to the Notes to Condensed, Consolidated
Financial Statements for additional information.

Provision for Income Taxes

Our effective income tax rate for each period can vary from the statutory
rate primarily due to the non-deductibility for income tax purposes of certain
items. In 2001, our effective income tax rate varied from the statutory rate
primarily due to the non-deductibility of the amortization of a portion of
goodwill, the recognition of non-cash compensation and the write-down of
zero-tax-basis assets. In 2002, our effective income tax rate is comparable to
the statutory rate.

Minority Interest in Income of Subsidiaries

Minority interest in income of subsidiaries represents our partners
proportionate share of net income generated by our subsidiaries that we do not
wholly own. The increases in minority interest for the three and nine months
ended September 30, 2002 were the result of a change in the proportionate
ownership percentages of the subsidiaries, primarily due to an increase in the
number of partners.

Increase in Carrying Amount of Redeemable Preferred Stock

The holders of our series A redeemable preferred stock and our series B
redeemable preferred stock were entitled to receive dividends at a rate of 14%
and 12%, respectively. The dividends not paid in cash compounded quarterly.
The dividends earned during the three and nine months ended September 30, 2001
were added to the liquidation preference of the preferred stock. In November
2001, we redeemed all of the outstanding series A and series B redeemable
preferred stock using proceeds from our initial public offering.

Extraordinary Loss on Early Extinguishment of Debt

On August 29, 2002 we refinanced our senior credit facility by borrowing
$143.1 million in Senior Term C notes and used these proceeds to pay the entire
outstanding principal balance on the Senior Term A and B notes. In conjunction
with the transaction we wrote off $3.4 million in deferred financing costs as
an extraordinary loss on early extinguishment of debt that provided a related
tax benefit of $1.4 million.

Liquidity and Capital Resources

Discussion of 2002

Our cash and cash equivalents increased to $32.4 million at September 30,
2002, from $7.1 million at December 31, 2001. The increase is primarily from
$60.8 million provided by operating activities offset by $29.7 million used in
investing activities and $5.9 million used in financing activities.

Net cash of $60.8 million provided by operating activities consisted
primarily of $23.2 million of net income adjusted for non-cash expenses of
$23.3 million, a $3.4 million increase in accrued interest, a $2.8 million
decrease in prepaid income taxes, a $2.0 million increase in income taxes
payable, a $5.4 million net change in deferred tax assets and liabilities and
approximately $700,000 provided by working capital changes.

Net cash of $29.7 million used in investing activities during the nine
months ended September 30, 2002 includes $13.4 million to purchase property and
equipment and $17.8 million related to the acquisition of 18 animal hospitals
and current payments made related to animal hospitals acquired in prior
periods.

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Net cash of $5.9 million used in financing activities during the nine
months ended September 30, 2002 is primarily the result of regularly-scheduled
debt payments of $2.9 million and payments related to accrued financing costs
of $3.4 million. In addition, we borrowed approximately $143.1 million in
Senior Term C notes, and used the proceeds to repay all of our outstanding
Senior Term A and B notes of $143.1 million.

Future Cash Requirements

We expect to fund our liquidity needs primarily from operating cash flows,
cash on hand and, if needed, borrowings under our $50.0 million revolving
credit facility, which we have not utilized as of September 30, 2002. We
believe these sources of funds will be sufficient to continue our operations
and planned capital expenditures and satisfy our scheduled principal and
interest payments under debt and capital lease obligations for at least the
next 12 months. However, a significant portion of our cash requirements will
be determined by the pace and size of our acquisitions.

Estimated future uses of cash for the remainder of 2002 include capital
expenditures for land, buildings and equipment of approximately $4.1 million.
In addition, we intend to use available liquidity to continue our growth
through the selective acquisition of animal hospitals, primarily for cash. We
continue to examine acquisition opportunities in the laboratory field, which
may impose additional cash requirements. Our acquisition program contemplates
the acquisition of 15 to 25 animal hospitals per year and a planned cash
commitment of up to $30.0 million. However, we may purchase either fewer or
greater number of facilities depending upon opportunities that present
themselves and our cash requirements may change accordingly. In addition,
although we intend to primarily use cash in our acquisitions, we may use debt
or stock to the extent we deem it appropriate.

In October 2002, we used $25.2 million of cash on hand and incurred
additional borrowings of $25.0 million under our senior credit facility to
voluntarily repay the entire $15.0 million principal balance on our 13.5%
senior subordinated notes and $30.0 million of our 15.5% senior notes, plus
fees and prepayment premiums. See Description of Indebtedness for additional
information. After this transaction, we will use approximately $624,000 of
cash during the remainder of 2002 to pay mandatory principal payments due on
our outstanding indebtedness.

Description of Indebtedness

Senior Term Notes and Revolving Credit Facility

In September 2000, we entered into a credit and guaranty agreement for
$300.0 million of senior secured credit facilities, which included a $50.0
million revolving credit facility as well as Senior Term A and B notes. On
August 29, 2002, we refinanced our senior credit facility by borrowing $143.1
million in Senior Term C notes and used these proceeds to pay the entire
outstanding principal balance on the Senior Term A and B notes. In conjunction
with the transaction we wrote off $3.4 million in deferred financing costs as
extraordinary loss on early extinguishment of debt, which provided a related
tax benefit of $1.4 million.

The August 2002 senior credit facility refinancing resulted in a 63 basis
point reduction in the weighted average interest rate of our senior term notes.

Borrowings under the credit and guaranty agreement bear interest, at our
option, on either the base rate, which is the higher of the administrative
agents prime rate or the Federal funds rate plus 0.5%, or the adjusted
eurodollar rate, which is the rate per annum obtained by dividing (1) the rate
of interest offered to the administrative agent on the London interbank market
by (2) a percentage equal to 100% minus the stated maximum rate of all reserve
requirements applicable to any member bank of the Federal Reserve System in
respect of eurocurrency liabilities. The base rate margins for the revolving
credit facility range from 1.00% to 2.25% per annum and the margin for the
Senior Term C notes is 2.00%. The eurodollar rate margins for the revolving
credit facility range from 2.00% to 3.25% per annum and the margin for the
Senior Term C notes is 3.00%.

As of September 30, 2002, we had $142.7 million principal amount
outstanding under the Senior Term C notes and we had not utilized the revolving
credit facility. The Senior Term C notes mature in September 2008 and the
revolving credit facility matures in September 2006.

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The credit and guaranty agreement contains certain financial covenants
pertaining to interest coverage, fixed charge coverage and leverage ratios. In
addition, the credit and guaranty agreement has restrictions pertaining to
capital expenditures, acquisitions and the payment of dividends on all classes
of stock. We currently believe the most restrictive covenant is the
fixed-charge coverage ratio, which is calculated on a last twelve-month basis
by dividing pro forma adjusted EBITDA by fixed charges. Fixed charges are
defined as cash interest expense, scheduled principal payments on debt
obligations, capital expenditures, management fees paid and provision for
income taxes. At September 30, 2002, we had a fixed charge coverage ratio of
1.50 to 1.00. The credit and guaranty agreement requires a fixed-charge
coverage ratio of no less than 1.10 to 1.00.

Senior Subordinated Notes

In September 2000, we issued $20.0 million principal amount of senior
subordinated notes due on September 20, 2010. As of September 30, 2002, the
outstanding principal balance of our senior subordinated notes was $15.0
million. On October 24, 2002 we prepaid the entire outstanding balance of
these notes. See October 2002 Debt Prepayment below.

In November 2001, Vicar, our wholly-owned subsidiary, issued $170.0
million principal amount of senior subordinated notes due December 1, 2009,
which were exchanged on June 13, 2002 for substantially similar securities that
are registered under the Securities Act. Interest on these senior subordinated
notes is 9.875% per annum, payable semi-annually in arrears in cash. As of
September 30, 2002, the outstanding principal balance of these senior
subordinated notes was $170.0 million. We and each existing and future
domestic wholly-owned restricted subsidiary of Vicar have jointly and
severally, fully and unconditionally guaranteed these notes. These guarantees
are unsecured and subordinated in right of payment to all existing and future
indebtedness outstanding under the credit and guaranty agreement and any other
indebtedness permitted to be incurred by Vicar under the terms of the indenture
agreement for these notes.

Senior Notes

In September 2000, we issued $100.0 million principal amount of senior
notes due September 20, 2010. Interest on our senior notes is 15.5% per annum,
payable semi-annually in arrears in cash or by issuance of additional senior
notes. We have issued $25.9 million in additional senior notes to pay interest
since the issue date. As of September 30, 2002, the outstanding principal
balance of our senior notes was $66.7 million.

On October 24, 2002 we prepaid $30.0 million principal amount on our
senior notes plus accrued interest and prepayment premium. See October 2002
Debt Prepayment below.

Other Debt

We have secured seller notes, unsecured debt and capital leases which
total $1.7 million at September 30, 2002.

October 2002 Debt Prepayment

On October 24, 2002 we prepaid $30.0 million principal amount of our 15.5%
senior notes and retired all of our outstanding 13.5% senior subordinated notes
in the aggregate principal amount of $15.0 million. We prepaid these notes
with funds from an additional $25.0 million of Senior Term C notes issued under
the our senior credit facility and $25.2 million of cash on hand. For the next
twelve months, this net reduction in debt and the lower effective interest rate
will result in an estimated net annual pre-tax savings of approximately $5.0
million in interest expense calculated assuming a 5.0% rate on our variable
Senior Term C notes and an opportunity cost of 1.5% for the cash used.

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In connection with this repayment we expect to incur approximately $9.6
million of costs, including $4.8 million in prepayment premium and transaction
costs, and $4.8 million in non-cash costs pertaining to the write-off of
unamortized discount and deferred financing costs associated with the debt
retired. These charges will be recognized during the fourth quarter of 2002
as an extraordinary loss in the amount of approximately $5.5 million, net of
income tax benefit.

Future Cash Obligations for Long-Term Debt, Interest and Operating Leases

The following table sets forth our scheduled principal, interest and other
contractual annual cash obligations due by us for each of the years ending
December 31, adjusted to reflect the impact of the no-fee swap agreement with
Wells Fargo, which becomes effective November 29, 2002, the additional Senior
Term C notes borrowed and the voluntary repayment of our 13.5% senior
subordinated notes and a portion of our 15.5% senior notes, which occurred in
October 2002 (in thousands):

|                            |  |       |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |        |  |  |   |        |  |  |   |         | 
|--------------------------- |  | ----- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---------- | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------- | 
|                            |  | Total |         | 2002 |  | 2003 |        | 2004 |  | 2005 |        | 2006 |  | Thereafter
|                            |  |       |         |      |  |      |        |      |  |      |        |      |  |           
|Long-term debt              |  | $     | 378,538 |      |  | $    | 3,541  |      |  | $    | 1,894  |      |  | $          | 1,860  |  |  | $ | 4,044  |  |  | $ | 21,487 |  |  | $ | 345,712 | 
|                           
|                           
|                           
|                           
|Fixed interest              |  |       | 174,720 |      |  |      | 20,694 |      |  |      | 19,333 |      |  |            | 19,134 |  |  |   | 21,328 |  |  |   | 22,448 |  |  |   | 71,783  | 
|                           
|                           
|                           
|                           
|Variable interest           |  |       | 54,675  |      |  |      | 7,588  |      |  |      | 5,926  |      |  |            | 7,584  |  |  |   | 11,013 |  |  |   | 11,744 |  |  |   | 10,820  | 
|                           
|                           
|                           
|                           
|Collar agreement            |  |       | 2,340   |      |  |      | 2,340  |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|                           
|                           
|                           
|                           
|PIK interest                |  |       | 16,610  |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   | 16,610 |  |  |   |       |  |  |   |        | 
|                           
|                           
|                           
|                           
|Capital lease obligations   |  |       | 79      |      |  |      | 79     |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|                           
|                           
|                           
|                           
|Operating leases            |  |       | 192,612 |      |  |      | 12,247 |      |  |      | 12,530 |      |  |            | 12,575 |  |  |   | 12,285 |  |  |   | 12,165 |  |  |   | 130,810 | 
|                           
|                           
|                           
|                           
|Other long-term
obligations |  |       | 2,424   |      |  |      | 2,424  |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|                            |  |       |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |        |  |  |   |        |  |  |   |         | 
|                            |  | $     | 821,998 |      |  | $    | 48,913 |      |  | $    | 39,683 |      |  | $          | 41,153 |  |  | $ | 65,280 |  |  | $ | 67,844 |  |  | $ | 559,125 | 
|                            |  |       |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |        |  |  |   |        |  |  |   |         | 

We have both fixed-rate and variable-rate debt. Our variable-rate debt is
based on a variable-rate component plus a fixed margin. We projected the
variable-rate component to be 1.83%, 1.68%, 2.90%, 3.75% and 4.27% for years
2002 through 2006, respectively. Our consolidated financial statements
included in our 2001 Annual Report on Form 10-K discuss these variable-rate
notes in more detail.

Through March 2005, interest on our 15.5% senior notes is payable
semi-annually and, at our option, in cash or by issuing additional senior
notes. The additional senior notes are considered paid-in-kind interest,
commonly referred to as PIK interest, and are reflected in the above table.
They have the same terms as the original notes except they mature in September
2005. We have issued additional senior notes for all of our historical
interest payments on the 15.5% senior notes and intend to continue doing so
through March 2005. After March 2005, interest is payable semi-annually, in
cash.

Our Collar Agreement

On November 13, 2000, we entered into a no-fee interest rate collar
agreement with Wells Fargo Bank effective November 15, 2000 and expiring
November 15, 2002. Our collar agreement is considered a cash flow hedge based
on the London interbank offer rate, or LIBOR, pays out monthly, resets monthly
and has a cap and floor notional amount of $62.5 million, with a cap rate of
7.5% and floor rate of 5.9%.

The actual cash paid by us as a result of LIBOR rates falling below the
floor of our collar agreement is recorded as a component of earnings. For the
nine months ended September 30, 2002, we have made payments of $1.9 million
that are included in interest expense.

At September 30, 2002, the fair market value of our collar agreement was a
net liability to us of $326,000 and is included in other accrued liabilities on
our balance sheet.

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On November 7, 2002 we entered into a no-fee swap agreement with Wells
Fargo Bank effective November 29, 2002 and expiring November 29, 2004. The
agreement swaps monthly variable LIBOR rates for a fixed rate of 2.22% on a
notional amount of $40.0 million. The agreement qualifies for hedge
accounting.

We are considering entering into additional interest rate strategies to
take advantage of the current rate environment. We have not yet determined
what those strategies will be or their possible impact.

New Accounting Pronouncements

Goodwill and Other Intangible Assets

In June 2001, the Financial Accounting Standards Board, (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets. SFAS No. 142 prohibits the amortization of goodwill
and intangible assets with indefinite useful lives. SFAS No. 142 requires that
these assets be reviewed for impairment at least annually, or whenever there is
an indication of impairment. Intangible assets with finite lives will continue
to be amortized over their estimated useful lives and reviewed for impairment
in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.

SFAS No. 142 requires companies to allocate their goodwill to identifiable
reporting units, which are then tested for impairment using a two-step process
detailed in the statement. The first step requires comparing the fair value of
each reporting unit with its carrying amount, including goodwill. If that fair
value exceeds the carrying amount, the second step of the process is not
necessary and there are no impairment issues. If that fair value does not
exceed that carrying amount, companies must perform the second step that
requires a hypothetical allocation of the fair value of the reporting unit to
the reporting units assets and liabilities as if the unit were just purchased
by the company at the fair value price. In this hypothetical purchase, the
excess of the fair value of the reporting unit over its re-evaluated,
marked-to-market net assets would be the new basis for the reporting units
goodwill and a write down to this new value would be recognized as an expense.

We adopted SFAS No. 142 on January 1, 2002. In doing so, we determined
that we have two reporting units, Laboratory and Animal Hospital. On April 15,
2002, an independent valuation group concluded that the fair value of our
reporting units exceeded their carrying value and accordingly, as of that date,
we concluded there were no goodwill impairment issues. We plan to perform a
valuation of our reporting units annually, or upon significant changes in our
business environment.

As of September 30, 2002 our goodwill, net of accumulated amortization,
was $332.5 million. We recorded $2.3 million and $6.9 million in goodwill
amortization, for the three and nine months ended September 30, 2001,
respectively. Because of the adoption of SFAS No. 142 there was no
amortization of goodwill for the three and nine months ended September 30,
2002.

Goodwill Impairment Test

In August 2002, the FASBs Emerging Issues Task Force (EITF) issued EITF
Issue No. 02-13, Deferred Income Tax Considerations in Applying the Goodwill
Impairment Test in FASB No. 142, Goodwill and Other Intangible Assets.EITF
Issue No. 02-13 was issued to provide guidance on how to account for deferred
tax balances in determining a reporting units fair value, a reporting units
carrying amount and the implied fair value of goodwill. The consensus in this
issue will be applied prospectively in performing either the first or second
step of the impairment test required by SFAS No. 142 for tests performed after
September 12, 2002. We have not determined yet what impact EITF Issue No.
02-13 will have on our consolidated financial statements.

Asset Retirement Obligations

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. We will adopt SFAS No. 143
in the first quarter of fiscal year 2003. We do not expect the adoption of
SFAS No. 143 to have a material impact on our financial statements.

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Impairment of Long-Lived Assets

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which establishes one accounting
model to be used for long-lived assets to be disposed of by sale and broadens
the presentation for discontinued operations to include more disposal
transactions. SFAS No. 144 supercedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets to be Disposed of by Sale, and the accounting
and reporting provisions of Accounting Principles Board Opinion No. 30 (APB
No. 30), Reporting the Results of Operations  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. We adopted SFAS No. 144 on
January 1, 2002 without material impact on our financial statements.

We will continually evaluate whether events, circumstances or net losses
at the entity level have occurred that indicate the remaining estimated useful
life of long-lived assets may warrant revision or that the remaining balance of
these assets may not be recoverable. When factors indicate that these assets
should be evaluated for possible impairment, we will estimate the sum of the
undiscounted cash flows expected to result from the use and eventual
disposition of the long-lived assets in question. If that estimate is less
than the carrying value of the assets under review, we will recognize an
impairment loss equal to that difference.

Gains and Losses from Extinguishment of Debt and Capital Leases

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, to be applied in fiscal years beginning after May 15, 2002 with
early adoption encouraged.

Under SFAS No. 145, gains and losses from extinguishment of debt should be
classified as extraordinary items only if they meet the criteria of APB No. 30.
Under APB No. 30, events are considered extraordinary only if they possess a
high degree of abnormality and are not likely to recur in the foreseeable
future. Any gains or losses on extinguishment of debt that do not meet the
criteria of APB No. 30 shall be classified as a component of income from
recurring operations. In addition, any gains or losses on extinguishment of
debt that were classified as an extraordinary item in prior periods presented
that do not meet the criteria of APB No. 30 shall be reclassified as a
component of income from recurring operations.

We will adopt SFAS No. 145 at the beginning of fiscal year 2003. As
detailed in Footnote (5), Extraordinary Loss on Early Extinguishment of Debt,
we recognized extraordinary losses related to the early extinguishment of debt
of approximately $3.4 million, before taxes, during the three months ended
September 30, 2002. We also expect to incur an additional extraordinary loss
in the fourth quarter of 2002 related to additional prepayment of debt in the
amount of $5.5 million, net of income tax benefit. In addition, we recognized
extraordinary losses related to the early extinguishment of debt, before taxes
in the amount of approximately $17.2 million and $4.5 million during years 2001
and 2000, respectively. We do not believe these losses on extinguishment of
debt meet the criteria of APB No. 30 as we have historically participated in
and may continue to participate in periodic debt refinancing. As a result of
adopting SFAS No. 145, we will reclassify the losses on extinguishment of debt
from extraordinary losses to a component of income from recurring operations
for filings subsequent to January 1, 2003. This reclassification will not
impact net income.

SFAS No. 145 also amends SFAS No. 13, Accounting for Leases. Under SFAS
No. 145, if a capital lease is modified such that it becomes an operating
lease, a gain or loss must be recognized similar to the accounting used for
sale-leaseback transactions as provided in SFAS No. 28 and No. 98. At
September 30, 2002, we had capital lease obligations of $43,000. Although the
Company may enter into more capital leases, management does not expect SFAS No.
145 to have a material impact on its financial statements.

Costs Associated with Exit or Disposal of Activities

In June 2002, FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities.SFAS No. 146 requires that liabilities
associated with exit or disposal activities be recognized when a company is
committed to future payment of those liabilities under a binding, legal
obligation. SFAS No. 146 nullifies Emerging Issues Task Force Issue No. 94-3,
Liability Recognition for Certain Employee Termination

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Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring),which required that exit and disposal costs be recognized
as liabilities when a company formalized its plan for exiting or disposing of
an activity even if no legal obligation had been established.

SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002, however early adoption is encouraged.
Currently, we have no plans to exit or dispose of any of its business
activities that would require the use of SFAS No. 146 nor do we anticipate that
SFAS No. 146 will change any of our business practices.

Outlook

In our third quarter of 2002, we reported earnings per diluted share
before extraordinary item of $0.24, which was $0.04 above the street consensus.
In light of these results, we raised our targets for 2002. Our goal for 2002
income before extraordinary loss on early extinguishment of debt has increased
to a range of $27 to $28 million and our goal for 2002 EBITDA is a range of
$100 to $103 million. Based upon 37.2 million shares expected to be
outstanding, annual earnings per diluted share before extraordinary loss on
early extinguishment of debt for 2002 is currently expected to be $0.74.

Our future results of operations in this outlook involve a number of risks
and uncertainties that are discussed below. We believe that we have the
service offerings, facilities, personnel, and competitive and financial
resources for continued business success, but future revenue, costs, margins
and profits are all influenced by a number of factors, all of which are
inherently difficult to forecast.

Risk Factors

This Quarterly Report on Form 10-Q, including Risk Factors set forth
below, contains forward-looking statements that involve risks and
uncertainties, as well as assumptions that, if they never materialize or prove
incorrect, could cause our results and the results of our consolidated
subsidiaries to differ materially from those expressed or implied by these
forward-looking statements. All statements other than statements of historical
fact are statements that could be deemed forward-looking statements, including
any projections of earnings, revenue or other financial items; any statements
of the plans, strategies and objectives of management for future operations;
any statement concerning proposed new services or developments; any statements
regarding the future economic conditions or performance; any statements of
belief; and any statements of assumptions underlying any of the foregoing. The
risks, uncertainties and assumptions referred to above include difficulty of
managing our growth and integrating our new acquisitions and other risks that
are described from time to time in our Securities and Exchange Commission
reports, including but not limited to the items discussed below.

If we are unable to effectively execute our growth strategy, we may not achieve
our desired economies of scale and our margins and profitability may decline.

Our success depends in part on our ability to build on our position as a
leading animal health care services company through a balanced program of
internal growth initiatives and selective acquisitions of established animal
hospitals and laboratories. If we cannot implement or effectively execute
these initiatives and acquisitions, our results of operations will be adversely
affected. Even if we effectively implement our growth strategy, we may not
achieve the economies of scale that we have experienced in the past or that we
anticipate. Our internal growth rate may decline and could become negative.
Our laboratory internal revenue growth has fluctuated between 9.1% and 12.6%
for each fiscal year from 1998 through 2001. Similarly, our animal hospital
same-facility revenue growth rate has fluctuated between 2.6% and 7.0% over the
same fiscal years. Our internal growth may continue to fluctuate and may be
below our historical rates. Any reductions in the rate of our internal growth
may cause our revenues and margins to decrease. Our historical growth rates
and margins are not necessarily indicative of future results.

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Our business and results of operations may be adversely affected if we are
unable to manage our growth effectively.

Since January 1, 1996, we have experienced rapid growth and expansion.
Our failure to manage our growth effectively may increase our costs of
operations and hinder our ability to execute our business strategy. Our rapid
growth has placed, and will continue to place, a significant strain on our
management and operational systems and resources. At January 1, 1996, we
operated 59 hospitals, operated laboratories servicing approximately 9,000
customers in 27 states and had approximately 1,150 full-time equivalent
employees. At September 30, 2002, we operated 225 hospitals, operated
laboratories servicing approximately 13,000 customers in all 50 states and had
approximately 3,500 full-time equivalent employees. If our business continues
to grow, we will need to improve and enhance our overall financial and
managerial controls, reporting systems and procedures, and expand, train and
manage our workforce in order to maintain control of expense and achieve
desirable economies of scale. We also will need to increase the capacity of
our current systems to meet additional demands.

Difficulties integrating new acquisitions may impose substantial costs and
cause other problems for us.

Our success depends on our ability to timely and cost-effectively acquire,
and integrate into our business, additional animal hospitals and laboratories.
Any difficulties in the integration process may result in increased expense,
loss of customers and a decline in profitability. We expect to acquire 15 to
25 animal hospitals per year, however, based on the opportunity, the number
could be higher. Historically we have experienced delays and increased costs
in integrating some hospitals primarily where we acquire a large number of
hospitals in a single region at or about the same time. In these cases, our
field management may spend a predominant amount of time integrating these new
hospitals and less time managing our existing hospitals in those regions.
During these periods, there may be less attention directed to marketing efforts
or staffing issues. In these circumstances, we also have experienced delays in
converting the systems of acquired hospitals into our systems, which results in
increased payroll expense to collect our results and delays in reporting our
results, both for a particular region and on a consolidated basis. These
factors have resulted in decreased revenue, increased costs and lower margins.
We continue to face risks in connection with our acquisitions including:



| |  |  | negative effects on our operating results;                                                                                            
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | impairments of goodwill;                                                                                                              
|
| |  |  | dependence on retention, hiring and training of key personnel, including specialists;                                                 
|
| |  |  | impairment of intangible assets; and                                                                                                  
|
| |  |  | contingent and latent risks associated with the past
operations of, and other unanticipated problems arising in, an
acquired business.

The process of integration may require a disproportionate amount of the
time and attention of our management, which may distract managements attention
from its day-to-day responsibilities. In addition, any interruption or
deterioration in service resulting from an acquisition may result in a
customers decision to stop using us. For these reasons, we may not realize
the anticipated benefits of an acquisition, either at all or in a timely
manner. If that happens and we incur significant costs, it could have a
material adverse impact on our business.

The carrying value of our goodwill could be subject to impairment write-downs.

At September 30, 2002, our balance sheet reflected $332.5 million of
goodwill, which is a substantial portion of our total assets of $513.4 million
at that date. We expect that the aggregate amount of goodwill on our balance
sheet will increase as a result of future acquisitions. We continually
evaluate whether events or circumstances have occurred that suggest that the
fair market value of each of our reporting units exceeds their carrying values.
If we determine that the fair market value of one of our reporting units does
not exceed its carrying value, this may result in an impairment write-down of
the goodwill for that reporting unit. The impairment write-down would be
reflected as expense and could have a material adverse effect on our results of
operations during the period in which we recognize the expense. In 2002, an
independent valuation group concluded that the fair value of

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our goodwill exceeded its carrying value and accordingly, as of that
date, there were no goodwill impairment issues. However, in the future we may
incur impairment charges related to the goodwill already recorded or arising
out of future acquisitions.

We require a significant amount of cash to service our debt and expand our
business as planned.

We have, and will continue to have, a substantial amount of debt. Our
substantial amount of debt requires us to dedicate a significant portion of our
cash flow from operations to pay down our indebtedness and related interest,
thereby reducing the funds available to use for working capital, capital
expenditures, acquisitions and general corporate purposes.

In October 2002, we borrowed $25.0 million in additional Senior Term C
notes. These proceeds and cash on-hand were used to voluntarily repay the
entire principal on our 13.5% senior subordinated notes and $30.0 million in
principal on our 15.5% senior notes. The following table details our debt
balances at September 30, 2002 and the pro forma balances as if the additional
Senior Term C notes were incurred and the voluntary repayment of our 13.5%
senior subordinated notes and a portion of our 15.5% senior notes had occurred
on September 30, 2002 (in thousands):

|                                 |                        |   |                          |         |            |   |           |   |  |   |         |         | 
|-------------------------------- | ---------------------- | - | ------------------------ | ------- | ---------- | - | --------- | - |  | - | ------- | ------- | 
|                                 |                        |   | As of September 30, 2002
|                                 |                        |   |                         
|                                 |                        |   | Actual                   |         | Adjustment |   | Pro Forma
|                                 |                        |   |                          |         |            |   |          
|Senior Term C notes              |                        | $ | 142,703                  |         |            | $ | 25,000    |   |  | $ | 167,703 |        
|                                
|                                
|                                
|                                
|13.5% senior subordinated notes  |                        |   | 15,000                   |         |            |   | (15,000   | ) |  |   |        |        
|                                
|                                
|                                
|                                
|9.875% senior subordinated notes |                        |   | 170,000                  |         |            |   |           |   |  |   | 170,000 |        
|                                
|                                
|                                
|                                
|15.5% senior notes               |                        |   | 66,715                   |         |            |   | (30,000   | ) |  |   | 36,715  |        
|                                
|                                
|                                
|                                
|Other                            |                        |   | 1,658                    |         |            |   |           |   |  |   | 1,658   |        
|                                 |                        |   |                          |         |            |   |           |   |  |   |         |        
|                                 |                        |   | 396,076                  |         |            |   |           |   |  |   | 376,076 |        
|                                
|                                
|                                
|                                
|Less  unamortized discount      |                        |   | (7,242                   | )       |            |   | 4,214     |   |  |   | (3,028  | )      
|                                 |                        |   |                          |         |            |   |           |   |  |   |         |        
|                                 | Total debt obligations |   | $                        | 388,834 |            |   |           |   |  |   | $       | 373,048 | 
|                                 |                        |   |                          |         |            |   |           |   |  |   |         |        

The following table sets forth our scheduled principal and interest
payments due by us for each of the years ending December 31, adjusted to
reflect the impact of the no-fee swap agreement with Wells Fargo, which becomes
effective November 29, 2002, the additional Senior Term C notes borrowed and
the voluntary repayment of our 13.5% senior subordinated notes and a portion of
our 15.5% senior notes, which occurred in October 2002 (in thousands):

|                  |       |   |        |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |        |        | 
|----------------- | ----- | - | ------ | ------ | ---- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                  |       |   | 2002   |        | 2003 |   | 2004   |        | 2005 |   | 2006  
|                  |       |   |        |        |      |   |        |        |      |   |       
|Long-term debt    |       | $ | 3,541  |        |      | $ | 1,894  |        |      | $ | 1,860  |        |  | $ | 4,044  |        |  | $ | 21,487 |       
|                 
|                 
|                 
|                 
|Fixed interest    |       |   | 20,694 |        |      |   | 19,333 |        |      |   | 19,134 |        |  |   | 21,328 |        |  |   | 22,448 |       
|                 
|                 
|                 
|                 
|Variable interest |       |   | 7,588  |        |      |   | 5,926  |        |      |   | 7,584  |        |  |   | 11,013 |        |  |   | 11,744 |       
|                 
|                 
|                 
|                 
|Collar agreement  |       |   | 2,340  |        |      |   |       |        |      |   |       |        |  |   |       |        |  |   |       |       
|                 
|                 
|                 
|                 
|PIK interest      |       |   |       |        |      |   |       |        |      |   |       |        |  |   | 16,610 |        |  |   |       |       
|                  |       |   |        |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |        |       
|                  | Total |   | $      | 34,163 |      |   | $      | 27,153 |      |   | $      | 28,578 |  |   | $      | 52,995 |  |   | $      | 55,679 | 
|                  |       |   |        |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |        |       

We have both fixed-rate and variable-rate debt. Our variable-rate debt is
based on a variable-rate component plus a fixed margin. We projected the
variable-rate component to be 1.83%, 1.68%, 2.90%, 3.75% and 4.27% for years
2002 through 2006, respectively. Our consolidated financial statements
included in our 2001 Annual Report on Form 10-K discuss these variable-rate
notes in more detail.

On November 7, 2002 we entered into a no-fee swap agreement with Wells
Fargo Bank effective November 29, 2002 and expiring November 29, 2004. The
agreement swaps monthly variable LIBOR rates for a fixed rate of 2.22% on a
notional amount of $40.0 million. The agreement qualifies for hedge
accounting.

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Through March 2005, interest on our 15.5% senior notes is payable
semi-annually and, at our option, in cash or by issuing additional senior
notes. The additional senior notes are considered PIK interest and are
reflected in the above table. They have the same terms as the original notes
except they mature in September 2005. We have issued additional senior notes
for all of our historical interest payments on the 15.5% senior notes and
intend to continue doing so through March 2005. After March 2005, interest is
payable semi-annually, in cash.

Our ability to make payments on our debt, and to fund acquisitions, will
depend on our ability to generate cash in the future. Insufficient cash flow
could place us at risk of default under our debt agreements or could prevent us
from expanding our business as planned. Our ability to generate cash is
subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control. Our business may not generate
sufficient cash flow from operations, our strategy to increase operating
efficiencies may not be realized and future borrowings may not be available to
us under our senior credit facility in an amount sufficient to enable us to
service our debt or to fund our other liquidity needs. In order to meet our
debt obligations, we may need to refinance all or a portion of our debt. We
may not be able to refinance any of our debt on commercially reasonable terms
or at all.

Our debt instruments adversely affect our ability to run our business.

Our substantial amount of debt, as well as the guarantees of our
subsidiaries and the security interests in our assets and those of our
subsidiaries, could impair our ability to operate our business effectively and
may limit our ability to take advantage of business opportunities. For
example, our indentures and senior credit facility:



| |  |  | limit our funds available to repay the senior notes and
senior subordinated notes;                                                                                                          
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | limit our ability to borrow additional funds or to obtain
other financing in the future for working capital, capital
expenditures, acquisitions, investments and general corporate
purposes;
|
| |  |  | limit our ability to dispose of our assets, create liens on
our assets or to extend credit;                                                                                                 
|
| |  |  | make us more vulnerable to economic downturns and reduce our
flexibility in responding to changing business and economic
conditions;                                                        
|
| |  |  | limit our flexibility in planning for, or reacting to, changes in our business or industry;                                                                                                 
|
| |  |  | place us at a competitive disadvantage to our competitors with less debt; and                                                                                                               
|
| |  |  | restrict our ability to pay dividends, repurchase or redeem
our capital stock or debt, or merge or consolidate with another
entity.                                                         

The terms of our indentures and senior credit facility allow us, under
specified conditions, to incur further indebtedness, which would heighten the
foregoing risks. If compliance with our debt obligations materially hinders
our ability to operate our business and adapt to changing industry conditions,
we may lose market share, our revenue may decline and our operating results may
suffer.

Our failure to satisfy covenants in our debt instruments will cause a default
under those instruments.

In addition to imposing restrictions on our business and operations, our
debt instruments include a number of covenants relating to financial ratios and
tests. Our ability to comply with these covenants may be affected by events
beyond our control, including prevailing economic, financial and industry
conditions. The breach of any of these covenants would result in a default
under these instruments. An event of default would permit our lenders and
other debtholders to declare all amounts borrowed from them to be due and
payable, together with accrued and unpaid interest. Moreover, these lenders
and other debtholders would have the option to terminate any obligation to make
further extensions of credit under these instruments. If we are unable to
repay debt to our senior lenders, these lenders and other debtholders could
proceed against our assets.

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Due to the fixed cost nature of our business, fluctuations in our revenue could
adversely affect our operating income.

Approximately 57% of our expense, particularly rent and personnel costs,
are fixed costs and are based in part on expectations of revenue. We may be
unable to reduce spending in a timely manner to compensate for any significant
fluctuations in our revenue. Accordingly, shortfalls in revenue may adversely
affect our operating income.

The significant competition in the animal health care services industry could
cause us to reduce prices or lose market share.

The animal diagnostic laboratory and animal health care service industries
are highly competitive with few barriers to entry. To compete successfully, we
may be required to reduce prices, increase our operating costs or take other
measures that could have an adverse effect on our financial condition, results
of operations, margins and cash flow. If we are unable to compete
successfully, we may lose market share.

There are many clinical laboratory companies that provide a broad range of
laboratory testing services in the same markets we service. Our largest
competitor for outsourced laboratory testing services is Idexx Laboratories,
Inc. which currently competes or intends to compete in most of the same markets
we are in. Also, Idexx and several other national companies provide on-site
diagnostic equipment that allows veterinarians to perform their own laboratory
tests.

Our primary competitors for our animal hospitals in most markets are
individual practitioners or small, regional, multi-clinic practices. Also,
regional pet care companies and some national companies, including operators of
super-stores, are developing multi-regional networks of animal hospitals in
markets in which we operate. Historically, when a competing animal hospital
opens in close proximity to one of our hospitals, we have reduced prices,
expanded our facility, retained additional qualified personnel, increased our
marketing efforts or taken other actions designed to retain and expand our
client base. As a result, our revenue may decline and our costs increase.

We may experience difficulties hiring skilled veterinarians due to shortages
that could disrupt our business.

As the pet population continues to grow, the need for skilled
veterinarians continues to increase. If we are unable to retain an adequate
number of skilled veterinarians, we may lose customers, our revenue may decline
and we may need to sell or close animal hospitals. As of September 30, 2002,
there were 28 veterinary schools in the country accredited by the American
Veterinary Medical Association. These schools graduate approximately 2,100
veterinarians per year. There is a shortage of skilled veterinarians across
the country, particularly in some regional markets in which we operate animal
hospitals including Northern California. During these shortages in these
regions, we may be unable to hire enough qualified veterinarians to adequately
staff our animal hospitals, in which event we may lose market share and our
revenues and profitability may decline.

If we fail to comply with governmental regulations applicable to our business,
various governmental agencies may impose fines, institute litigation or
preclude us from operating in certain states.

The laws of many states prohibit business corporations from providing, or
holding themselves out as providers of, veterinary medical care. These laws
vary from state to state and are enforced by the courts and by regulatory
authorities with broad discretion. As of September 30, 2002 we operated 58
animal hospitals in 11 states with these laws, including 21 in New York. We
may experience difficulty in expanding our operations into other states with
similar laws. Given varying and uncertain interpretations of the veterinary
laws of each state, we may not be in compliance with restrictions on the
corporate practice of veterinary medicine in all states. A determination that
we are in violation of applicable restrictions on the practice of veterinary
medicine in any state in which we operate could have a material adverse effect
on us, particularly if we were unable to restructure our operations to comply
with the requirements of that state.

We currently are a party to a lawsuit in the State of Ohio in which that
State has alleged that our management of a veterinary medical group licensed to
practice veterinary medicine in that state violates the Ohio statute
prohibiting business corporations from providing or holding themselves out as
providers of veterinary

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medical care. On March 20, 2001, the trial court in the case entered
summary judgment in favor of the State of Ohio and issued an order enjoining us
from operating in the State of Ohio in a manner that is in violation of the
State of Ohio statute. In response, we restructured our operations in the
State of Ohio in a manner believed to conform to the state law and the courts
order. The Attorney General of the State of Ohio informed us that it disagreed
with our position that we are in compliance with the courts order. In June
2001 we appeared at a status conference before the trial court, at which time
the court directed the parties to meet together to attempt to settle this
matter. Consistent with the trial courts directive, we engaged in discussions
with the Attorney Generals office in the State of Ohio. The parties were not
able to reach a settlement prior to an additional status conference that
occurred in February 2002. At that status conference, the court ordered the
parties to participate in a court-supervised settlement conference that
occurred in April 2002. Pursuant to discussions with the Ohio Attorney General
at that settlement conference, we submitted to the Ohio Attorney General a
revised management agreement that incorporates further revisions to the
structure of our operations in Ohio. Following its review of the revised
agreement, the Ohio Attorney General requested further revisions to the
management agreement, and, in response we have submitted a further revised
agreement that currently is under review by the Ohio Attorney General. We may
not be able to reach a settlement, in which case we may be required to
discontinue our operations in the state. Our five animal hospitals in the
State of Ohio have a net book value of $6.4 million as of September 30, 2002.
If we were required to discontinue our operations in the State of Ohio, we may
not be able to dispose of the hospital assets for their book value. The animal
hospitals located in the State of Ohio generated revenue and operating income
of $1.6 million and $461,000, respectively, for the nine months ended September
30, 2002, and $2.1 million and $409,000, for the year ended December 31, 2001.

All of the states in which we operate impose various registration
requirements. To fulfill these requirements, we have registered each of our
facilities with appropriate governmental agencies and, where required, have
appointed a licensed veterinarian to act on behalf of each facility. All
veterinarians practicing in our clinics are required to maintain valid state
licenses to practice.

Any failure in our information technology systems or disruption in our
transportation network could significantly increase testing turn-around time,
reduce our production capacity and otherwise disrupt our operations.

Our laboratory operations depend, in part, on the continued and
uninterrupted performance of our information technology systems and
transportation network. Our growth has necessitated continued expansion,
upgrade of our information technology systems and transportation network.
Sustained system failures or interruption in our transportation network or in
one or more of our laboratory operations could disrupt our ability to process
laboratory requisitions, perform testing, provide test results in a timely
manner and/or bill the appropriate party. We could lose customers and revenue
as a result of a system or transportation network failure.

Our computer systems are vulnerable to damage or interruption from a
variety of sources, including telecommunications failures, electricity
brownouts or blackouts, malicious human acts and natural disasters. Moreover,
despite network security measures, some of our servers are potentially
vulnerable to physical or electronic break-ins, computer viruses and similar
disruptive problems. Despite the precautions we have taken, unanticipated
problems affecting our systems could cause interruptions in our information
technology systems. Our insurance policies may not adequately compensate us
for any losses that may occur due to any failures in our systems.

In addition, over time we have significantly customized the computer
systems in our laboratory business. We rely on a limited number of employees
to upgrade and maintain these systems. If we were to lose the services of some
or all of these employees, it may be time-consuming for new employees to become
familiar with our systems, and we may experience disruptions in service during
these periods.

Any substantial reduction in the number of available flights or delays in
the departure of flights will disrupt our transportation network and our
ability to provide test results in a timely manner. In addition, our Test
Express service, which services customers outside of major metropolitan areas,
is dependent on flight services in and out of Memphis and the transportation
network of Federal Express. Any sustained interruption in either flight
services in Memphis or the transportation network of Federal Express would
result in increased turn-around time for the reporting of test results to
customers serviced by our Test Express service.

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The loss of Mr. Robert Antin, our Chairman, President and Chief Executive
Officer, could materially and adversely affect our business.

We are dependent upon the management and leadership of our Chairman,
President and Chief Executive Officer, Robert Antin. We have an employment
contract with Mr. Antin which may be terminated at the option of Mr. Antin. We
do not maintain any key man life insurance coverage for Mr. Antin. The loss of
Mr. Antin could materially adversely affect our business.

There is a concentration of ownership among our existing executive officers,
directors and principal stockholders.

Our executive officers, directors and principal stockholders beneficially
own, in the aggregate, approximately 35.6% of our outstanding common stock. As
a result, these stockholders are able to significantly affect our management,
our policies and all matters requiring stockholder approval. The directors
supported by these stockholders will be able to significantly affect decisions
relating to our capital structure, including decisions to issue additional
capital stock, implement stock repurchase programs and be in our indebtedness.
The effects of this concentration of ownership may deter hostile takeovers,
delay or prevent changes in control or changes in management, or limiting the
ability of our other stockholders to approve transactions that they may deem to
be in their best interests.

Political events and the uncertainly resulting from them may have a material
adverse effect on our operating results.

The terrorist attacks which took place in the United States on September
11, 2001, along with the United States military campaign against terrorism in
Afghanistan and elsewhere, ongoing violence in the Middle East and increasing
speculation regarding future military action against Iraq have created many
economic and political uncertainties, some of which may affect the markets in
which we operate, our operations and profitability and your investment. The
potential near-term and long-term effect these attacks may have for our
customers, the markets for our services and the U.S. economy are uncertain.
The consequences of any terrorist attacks, or any armed conflicts which may
result, are unpredictable and we may not be able to foresee events that could
have an adverse effect on our markets, our business or your investment.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have certain debt obligations as well as a collar agreement that are
exposed to market risk associated with variable interest rates. As of
September 30, 2002, we had borrowings of $142.7 million under our
senior credit facility with fluctuating interest rates based on market
benchmarks such as LIBOR. To reduce the risk of increasing interest rates, we
entered into a no-fee interest rate collar agreement with a cap and floor
notional amount of $62.5 million, a cap rate of 7.5% and a floor rate of 5.9%,
both based on LIBOR. The collar agreement expires November 15, 2002.

Accordingly, for the period January 1, 2002 to November 15, 2002:



| |  |  | if the benchmark rate is below 5.9% and a change in the rate
does not cause the benchmark to exceed 5.9%, every one-half percent
increase in the benchmark rate will cause interest expense to
increase by $445,000, while a one-half percent decrease will cause
interest expense to decrease by $445,000;                                              
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | if the benchmark rate is equal to or between 5.9% and 7.5%
and a change in the rate does not cause the benchmark to exceed 7.5%
or drop below 5.9%, every one-half percent increase in the benchmark
rate will cause interest expense to increase by $718,000, while a
one-half percent decrease will cause interest expense to decrease by
$718,000; and
|
| |  |  | if the benchmark rate is above 7.5% and a change in the rate
does not cause the benchmark to drop below 7.5%, every one-half
percent increase in the benchmark rate would cause interest expense
to increase by $445,000, while a one-half percent decrease would
cause interest expense to decrease by $445,000.                                        

On October 24, 2002 we repaid $30.0 million of our 15.5% senior notes and
retired all of our $15.0 million
outstanding 13.5% senior subordinated notes. Funds used to repay the debt and
related fees and transaction costs were derived from an additional $25.0
million of Senior Term C notes issued under our senior credit facility and
$25.2 million of cash on hand. As a result of this transaction we increased
the amount of our debt subject to fluctuating interest rates from $142.7
million at September 30, 2002 to $167.7 million.

On November 7, 2002 we entered into a no-fee swap agreement with Wells
Fargo Bank effective November 29, 2002 and expiring November 29, 2004. The
agreement swaps monthly variable LIBOR rates for a fixed rate of 2.22% on a
notional amount of $40.0 million.

The net impact of these two transactions reduced the amount of our debt
subject to the risk of fluctuating interest rates to $127.7 million. Based on
this $127.7 million, for every 1% increase or decrease in interest rates our
annual interest expense will increase or decrease by $1.3 million.

We are considering entering into additional interest rate strategies to
take advantage of the current rate environment. We have not yet determined
what those strategies may be or their possible impact.




ITEM 4. CONTROLS AND PROCEDURES

Within the 90-day period prior to the date of this report, we carried out
an evaluation under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-14(c) and 15d-14(c) of the Securities Exchange
Act of 1934. Based upon that evaluation, our Chief Executive Officer and our
Chief Financial Officer concluded that our disclosure controls and procedures
are effective in timely alerting us to material information required to be
included by us in this quarterly report on Form 10-Q.

There have been no significant changes in our internal controls, or in
other factors, which could significantly affect internal controls subsequent to
the date that we completed the evaluation.

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PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

The Ohio Attorney Generals office filed a lawsuit on December 14, 1998,
in the Franklin County Court of Common Pleas in the State of Ohio in which the
state alleged that our management of a veterinary medical group licensed to
practice veterinary medicine in that state violates the Ohio statute
prohibiting business corporations from providing, or holding themselves out as
providers of, veterinary medical care. On March 20, 2001, the trial court in
the case entered summary judgment in favor of the State of Ohio and issued an
order enjoining us from operating in the State of Ohio in a manner that is in
violation of the state statute. In response, we restructured our operations in
the State of Ohio in a manner believed to conform to the state law and the
courts order. The Attorney General of the State of Ohio informed us that it
disagreed with our position that we are in compliance with the courts order.
In June 2001, we appeared at a status conference before the trial court at
which time the court directed the parties to meet together to attempt to settle
this matter. Consistent with the trial courts directive, we engaged in
discussions with the Attorney Generals office in the State of Ohio. The
parties were not able to reach a settlement prior to an additional status
conference that occurred in February 2002. At that status conference, the
court ordered the parties to participate in a court-supervised settlement
conference that occurred in April 2002. Pursuant to discussions with the
Ohio Attorney General at that settlement conference, we submitted to the Ohio
Attorney General a revised management agreement that incorporates further
revisions to the structure of our operations in Ohio. Following its review of
the revised agreement, the Ohio Attorney General requested further revisions to
the management agreement, and, in response, we have submitted a further revised
agreement that currently is under review by the Ohio Attorney General. If a
settlement cannot be reached, the company would be required to discontinue
operations in the state. Our five animal hospitals in the State of Ohio have a
book value of $6.4 million as of September 30, 2002. If we were required to
discontinue our operations in the State of Ohio, we may not be able to dispose
of the hospital assets for their book value. The animal hospitals located in
the State of Ohio generated revenue and operating income of $1.6 million and
$461,000, respectively, for the nine months ended September 30, 2002, and $2.1
million and $409,000, for the year ended December 31, 2001.

On November 30, 2001, two majority stockholders of a company that merged
with Zoasis.com, Inc. in June 2000 filed a civil complaint against VCA,
Zoasis.com, Inc. and Robert Antin. In the merger, the two stockholders
received a less than 10% interest in Zoasis. At the same time, VCA acquired a
less than 20% interest in Zoasis.com, Inc. for an investment of $5.0 million.
Robert Antin, VCAs Chief Executive Officer, President and Chairman of the
Board, is the majority stockholder of Zoasis.com and serves on its board of
directors. The complaint alleges securities fraud under California law, common
law fraud, negligent misrepresentation and declaratory judgment arising from
the plaintiffs investment in Zoasis.com. On December 31, 2001, we filed a
demurrer to the complaint. On February 25, 2002, the plaintiffs filed an
opposition to our demurrer, and on March 1, 2002, we filed our reply to
plaintiffs opposition. On March 7, 2002, our demurrer was denied. On March
22, 2002, we filed an answer to plaintiffs complaint denying all allegations
in the complaint, and we filed a counter claim alleging breach of contract and
claim and delivery. We currently are involved in the discovery process. A
status conference was held on May 9, 2002 at which the judge ordered the
parties to participate in mediation. Mediation occurred on August 7, 2002,
and no settlement was reached. The court has scheduled a final status
conference for January 31, 2003, and a trial date of February 14, 2003.

We are a party to various other legal proceedings that arise in the
ordinary course of business. Although we cannot determine the ultimate
disposition of these proceedings, we can use judgment to reasonably estimate
our liability for legal settlement costs that may arise as a result of these
proceedings. Based on our prior experience, the nature of the current
proceedings and our insurance policy coverage for such matters, we have accrued
a minimal amount for legal settlements as part of other accrued liabilities.




ITEM 2. CHANGES IN SECURITIES

None




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

49



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

None




ITEM 5. OTHER INFORMATION

None




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:



| | 99.1 |  | Certification of Chief Executive Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- |  | ---------------------------------------------------------------------------------------------------
|
| | 99.2 |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.

(b)  Reports on Form 8-K:



| | (1) |  | Report on form 8-K, filed July 26, 2002,
reporting under item 5, earnings for the second quarter ended
June 30, 2002 and earnings guidance.                                                                                                                                                                                                                       
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Report on form 8-K, filed September 3, 2002,
reporting under item 5, the Fourth Amendment to the Credit &
Guaranty Agreement, which provided for the repayment of Senior
Term A and B notes with the proceeds from the issuance of
Senior Term C notes which bear a lower interest rate than the
weighted average interest rate for the Senior Term A and B
notes.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Los Angeles, State of
California, on todays date, November 14, 2002.

| |      |  |                                   
| | ---- |  | ----------------------------------
| | By:  |  | /s/ Tomas W. FullerTomas W. Fuller
| | Its: |  | Chief Financial Officer           

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Certification of
Chief Executive Officer
of VCA Antech, Inc.

I, Robert L. Antin, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of VCA Antech, Inc.;                                                                                                                                                                                                                                                       
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a. |  | Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c. |  | Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November 14, 2002.

|    |  |                                                            |  | 
|--- |  | ---------------------------------------------------------- |  | 
|By: |  | /s/ Robert L. AntinRobert L. Antin
Chief Executive Officer |  | 

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Certification of
Chief Financial Officer
of VCA Antech, Inc.

I, Tomas W. Fuller, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of VCA Antech, Inc.;                                                                                                                                                                                                                                                       
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a. |  | Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c. |  | Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November 14, 2002

|    |  |                                                            |  | 
|--- |  | ---------------------------------------------------------- |  | 
|By: |  | /s/ Tomas W. FullerTomas W. Fuller
Chief Financial Officer |  | 

53



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##### Table of Contents






EXHIBIT INDEX

|             |  |  |   | 
|------------ |  |  | - | 
|Exhibit 99.1 |  |  | 1 | 
|            
|            
|            
|            
|Exhibit 99.2 |  |  | 2 |