##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 001-16783
 
 VCA ANTECH, INC.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of
incorporation or organization)
    
    95-4097995(I.R.S. Employer
Identification No.)
 12401 West Olympic Boulevard
Los Angeles, California 90064-1022  (Address of principal executive offices)
 (310) 571-6500  (Registrants telephone number, including area code)
 þ o
  þ o o
 o þ




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##### 



VCA ANTECH, INC.
FORM 10-Q
JUNE 30, 2006
 TABLE OF CONTENTS
 PageNumberPart I. Financial InformationItem 1. Financial Statements (Unaudited)Condensed, Consolidated Balance Sheets as of June 30, 2006 and
December 31, 2005
    
    
    1Condensed, Consolidated Income Statements for the Three and Six Months Ended
June 30, 2006 and 2005
    
    
    2Condensed, Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2006 and 2005
    
    
    3Notes to Condensed, Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27Part II. Other InformationItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3. Defaults Upon Senior Securities
    
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28Item 5. Other Information
    
    
    28Item 6. Exhibits
    
    
    28Signature
    
    
    29Exhibit Index
    
    
    30EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 VCA ANTECH, INC. AND SUBSIDIARIES
 
 CONDENSED, CONSOLIDATED BALANCE SHEETS
 As of June 30, 2006 and December 31, 2005
 (Unaudited)
 (In thousands, except par value)
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,801
    
    
    $
    58,488Trade accounts receivable, less allowance for uncollectible accounts of $10,818
and $9,409 at June 30, 2006 and December 31, 2005, respectively
    
    
    39,734
    
    
    
    36,104Inventory
    
    
    18,851
    
    
    
    17,856Prepaid expenses and other
    
    
    13,779
    
    
    
    9,867Deferred income taxes
    
    
    11,952
    
    
    
    10,972Prepaid income taxes
    
    
    9,913
    
    
    
    12,337Total current assets
    
    
    115,030
    
    
    
    145,624Property and equipment, less accumulated depreciation and amortization of $102,205
and $93,305 at June 30, 2006 and December 31, 2005, respectively
    
    
    154,188
    
    
    
    143,781Other assets:Goodwill
    
    
    610,658
    
    
    
    586,444Other intangible assets, net
    
    
    14,495
    
    
    
    10,735Deferred financing costs, net
    
    
    1,114
    
    
    
    1,340Other
    
    
    10,357
    
    
    
    9,149Total assets
    
    $
    905,842
    
    
    $
    897,073LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term obligations
    
    $
    6,619
    
    
    $
    5,884Accounts payable
    
    
    17,317
    
    
    
    20,718Accrued payroll and related liabilities
    
    
    24,675
    
    
    
    25,201Accrued interest
    
    
    246
    
    
    
    306Other accrued liabilities
    
    
    31,349
    
    
    
    28,860Total current liabilities
    
    
    80,206
    
    
    
    80,969Long-term obligations, less current portion
    
    
    386,729
    
    
    
    446,828Deferred income taxes
    
    
    36,734
    
    
    
    30,803Other liabilities
    
    
    13,803
    
    
    
    19,775Minority interest
    
    
    10,282
    
    
    
    9,947Commitments and contingenciesPreferred stock, par value $0.001, 11,000 shares authorized, none outstanding
    
    
    
    
    
    
    Stockholders equity:Common stock, par value $0.001, 175,000 shares authorized, 83,254 and 82,759
shares outstanding as of June 30, 2006 and December 31, 2005, respectively
    
    
    83
    
    
    
    83Additional paid-in capital
    
    
    267,840
    
    
    
    258,402Retained earnings
    
    
    108,269
    
    
    
    49,057Accumulated other comprehensive income
    
    
    1,896
    
    
    
    1,209Total stockholders equity
    
    
    378,088
    
    
    
    308,751Total liabilities and stockholders equity
    
    $
    905,842
    
    
    $
    897,073
  1




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##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
 
 CONDENSED, CONSOLIDATED INCOME STATEMENTS
 For the Three and Six Months Ended June 30, 2006 and 2005
 (Unaudited)
 (In thousands, except per share amounts)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue
    
    $
    255,150
    
    
    $
    206,584
    
    
    $
    489,330
    
    
    $
    393,447Direct costs
    
    
    180,188
    
    
    
    145,849
    
    
    
    350,847
    
    
    
    282,185Gross profit
    
    
    74,962
    
    
    
    60,735
    
    
    
    138,483
    
    
    
    111,262Selling, general and administrative expense
    
    
    19,484
    
    
    
    15,417
    
    
    
    38,369
    
    
    
    29,549Gain on sale of assets
    
    
    (85
    )
    
    
    (78
    )
    
    
    (203
    )
    
    
    (88
    )Operating income
    
    
    55,563
    
    
    
    45,396
    
    
    
    100,317
    
    
    
    81,801Interest expense, net
    
    
    5,927
    
    
    
    6,081
    
    
    
    12,239
    
    
    
    12,748Debt
retirement costs
    
    
    
    
    
    
    19,282
    
    
    
    
    
    
    
    19,282Other (income) expense
    
    
    (31
    )
    
    
    67
    
    
    
    (97
    )
    
    
    131Minority interest in income of subsidiaries
    
    
    900
    
    
    
    846
    
    
    
    1,674
    
    
    
    1,531Income before provision for income taxes
    
    
    48,767
    
    
    
    19,120
    
    
    
    86,501
    
    
    
    48,109Provision for income taxes
    
    
    19,214
    
    
    
    7,858
    
    
    
    27,289
    
    
    
    19,601Net income
    
    $
    29,553
    
    
    $
    11,262
    
    
    $
    59,212
    
    
    $
    28,508Basic earnings per common share
    
    $
    0.36
    
    
    $
    0.14
    
    
    $
    0.71
    
    
    $
    0.35Diluted earnings per common share
    
    $
    0.35
    
    
    $
    0.13
    
    
    $
    0.70
    
    
    $
    0.34Shares used for computing basic earnings per share
    
    
    83,118
    
    
    
    82,343
    
    
    
    82,966
    
    
    
    82,282Shares used for computing diluted earnings per share
    
    
    84,838
    
    
    
    83,874
    
    
    
    84,699
    
    
    
    83,709
  2




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##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
 
 CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Six Months Ended June 30, 2006 and 2005
 (Unaudited)
 (In thousands)
 Six Months EndedJune 30,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    59,212
    
    
    $
    28,508Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    10,851
    
    
    
    8,785Amortization of debt costs
    
    
    226
    
    
    
    351Provision for uncollectible accounts
    
    
    2,976
    
    
    
    2,025Debt retirement costs
    
    
    
    
    
    
    19,282Gain on sale of assets
    
    
    (203
    )
    
    
    (88
    )Share-based compensation
    
    
    1,445
    
    
    
    Minority interest in income of subsidiaries
    
    
    1,674
    
    
    
    1,531Distributions to minority interest partners
    
    
    (1,339
    )
    
    
    (1,145
    )Deferred income taxes
    
    
    4,701
    
    
    
    2,713Excess tax benefit from exercise of stock options
    
    
    (3,939
    )
    
    
    Other
    
    
    (561
    )
    
    
    (377
    )Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (6,182
    )
    
    
    (6,265
    )Increase in inventory, prepaid expenses and other assets
    
    
    (4,555
    )
    
    
    (4,894
    )Increase (decrease) in accounts payable and other accrued liabilities
    
    
    (6,420
    )
    
    
    3,425Decrease in accrued payroll and related liabilities
    
    
    (526
    )
    
    
    (1,822
    )Increase (decrease) in accrued interest
    
    
    (60
    )
    
    
    1,544Decrease in prepaid income taxes
    
    
    6,841
    
    
    
    852Net cash provided by operating activities
    
    
    64,141
    
    
    
    54,425Cash flows from investing activities:Business acquisitions, net of cash acquired
    
    
    (30,172
    )
    
    
    (22,174
    )Real estate acquired in connection with business acquisitions
    
    
    (1,781
    )
    
    
    (221
    )Property and equipment additions
    
    
    (15,067
    )
    
    
    (14,681
    )Proceeds from sale of assets
    
    
    297
    
    
    
    338Other
    
    
    161
    
    
    
    3,039Net cash used in investing activities
    
    
    (46,562
    )
    
    
    (33,699
    )Cash flows from financing activities:Repayment of long-term obligations
    
    
    (62,781
    )
    
    
    (409,187
    )Proceeds from the issuance of long-term obligations
    
    
    
    
    
    
    475,000Payment of financing costs
    
    
    
    
    
    
    (3,216
    )Proceeds from issuance of common stock under stock option plans
    
    
    3,576
    
    
    
    1,228Excess tax benefit from exercise of stock options
    
    
    3,939
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (55,266
    )
    
    
    63,825Increase (decrease) in cash and cash equivalents
    
    
    (37,687
    )
    
    
    84,551Cash and cash equivalents at beginning of period
    
    
    58,488
    
    
    
    30,964Cash and cash equivalents at end of period
    
    $
    20,801
    
    
    $
    115,515
  3




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##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2006
 (Unaudited)
 1. General
   2. Acquisitions
  Consideration:Cash
    
    $
    28,977Notes payable and other liabilities assumed
    
    
    4,645Total
    
    $
    33,622Purchase Price Allocation:Tangible assets
    
    $
    3,998Identifiable intangible assets (1)
    
    
    5,488Goodwill (2)
    
    
    24,136Total
    
    $
    33,622
 
 (1)
    
    The acquired identifiable intangible assets have a weighted-average useful life of
approximately 19.0 years and are comprised of non-contractual customer relationships of $3.9
million (25-year weighted-average useful life), covenants not-to-compete of $1.6 million
(5-year weighted-average useful life) and client lists of $10,000 (3-year weighted average
useful life).(2)
    
    We expect that $20.3 million of the goodwill recorded for these acquisitions as of June 30,
2006 will be fully deductible for income tax purposes. Other Acquisition Payments
  4




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##### Table of Contents



3. Goodwill and Other Intangible Assets
  Animal
    
    
    MedicalLaboratory
    
    
    Hospital
    
    
    Equipment
    
    
    TotalBalance as of December 31, 2005
    
    $
    94,246
    
    
    $
    473,038
    
    
    $
    19,160
    
    
    $
    586,444Goodwill acquired
    
    
    851
    
    
    
    23,285
    
    
    
    
    
    
    
    24,136Other (1)
    
    
    
    
    
    
    99
    
    
    
    
    
    
    
    99Goodwill related to sale of animal hospitals
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    (21
    )Balance as of June 30, 2006
    
    $
    95,097
    
    
    $
    496,401
    
    
    $
    19,160
    
    
    $
    610,658
 
 (1)
    
    Comprised of purchase price adjustments.  As of June 30, 2006
    
    
    As of December 31, 2005Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountCovenants not-to-compete
    
    $
    12,098
    
    
    $
    (5,430
    )
    
    $
    6,668
    
    
    $
    11,145
    
    
    $
    (4,970
    )
    
    $
    6,175Non-contractual customer
relationships
    
    
    7,238
    
    
    
    (1,130
    )
    
    
    6,108
    
    
    
    3,235
    
    
    
    (701
    )
    
    
    2,534Technology
    
    
    1,270
    
    
    
    (441
    )
    
    
    829
    
    
    
    1,270
    
    
    
    (314
    )
    
    
    956Trademarks
    
    
    569
    
    
    
    (99
    )
    
    
    470
    
    
    
    569
    
    
    
    (70
    )
    
    
    499Contracts
    
    
    397
    
    
    
    (181
    )
    
    
    216
    
    
    
    397
    
    
    
    (129
    )
    
    
    268Client lists
    
    
    464
    
    
    
    (260
    )
    
    
    204
    
    
    
    461
    
    
    
    (158
    )
    
    
    303Total
    
    $
    22,036
    
    
    $
    (7,541
    )
    
    $
    14,495
    
    
    $
    17,077
    
    
    $
    (6,342
    )
    
    $
    10,735
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Aggregate
amortization
expense
    
    $
    868
    
    
    $
    793
    
    
    $
    1,728
    
    
    $
    1,596
  Remainder of 2006
    
    $
    1,8032007
    
    
    3,2802008
    
    
    2,6602009
    
    
    1,6172010
    
    
    881Thereafter
    
    
    4,254Total
    
    $
    14,495
 5




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##### Table of Contents



4. Share-Based Compensation Plans
 Stock Incentive Plans
  Adoption of SFAS No. 123R
 Accounting for Stock
Issued to Employees.
 Share-Based Payment
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2006
    
    
    June 30, 2006Share-based employee compensation:Laboratory direct cost
    
    $
    160
    
    
    $
    320Laboratory selling, general and administrative expense
    
    
    126
    
    
    
    254Animal hospital selling, general and administrative expense
    
    
    216
    
    
    
    431Corporate selling, general and administrative expense
    
    
    167
    
    
    
    440669
    
    
    
    1,445Tax benefit
    
    
    (259
    )
    
    
    (544
    )Net decrease in net income
    
    $
    410
    
    
    $
    901Effect on:Basic earnings per common share
    
    $
    
    
    
    $
    0.01Diluted earnings per common share
    
    $
    
    
    
    $
    0.01Effect on:Cash flows from operating activities
    
    
    
    
    
    $
    (3,939
    )Cash flows from financing activities
    
    
    
    
    
    $
    3,939
 6




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##### Table of Contents



Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2005
    
    
    June 30, 2005Net income, as reported
    
    $
    11,262
    
    
    $
    28,508Deduct: Total share-based employee compensation determined
under fair-value based method for all awards, net of tax
    
    
    (1,309
    )
    
    
    (3,954
    )Pro forma net income
    
    $
    9,953
    
    
    $
    24,554Earnings per common share:Basic  as reported
    
    $
    0.14
    
    
    $
    0.35Basic  Pro forma
    
    $
    0.12
    
    
    $
    0.30Diluted  as reported
    
    $
    0.13
    
    
    $
    0.34Diluted  Pro forma
    
    $
    0.12
    
    
    $
    0.29
  Calculation of Fair Value
  Three Months
    
    Six MonthsEnded
    
    EndedJune 30, 2005
    
    June 30, 2005Expected volatility (1)
    
    39.1%
    
    39.1%  to  39.6%Weighted-average volatility (1)
    
    39.1%
    
    39.5%Expected dividends
    
    0.0%
    
    0.0%Expected term (2)
    
    5 years
    
    5 yearsRisk-free rate (3)
    
    4.0%
    
    3.9%  to  4.2%
 
 (1)
    
    We estimate the volatility of our common stock on the date of grant based on historical
volatility.(2)
    
    The expected term represents the period of time that we expect the options to be outstanding.
We estimated the expected term based on the history of grants and exercises.(3)
    
    The risk-free interest rate is based on the implied yield in effect at the time of option
grant on U.S. Treasury zero-coupon issues with equivalent remaining terms.  7




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##### Table of Contents



Stock Option Activity
  WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateExercise
    
    
    Term
    
    
    IntrinsicShares
    
    
    Price
    
    
    (Years)
    
    
    ValueOptions outstanding at January 1, 2006
    
    
    6,090
    
    
    $
    14.58Granted
    
    
    
    
    
    
    Exercised
    
    
    (495
    )
    
    
    7.22Canceled
    
    
    (19
    )
    
    
    12.15Options outstanding at June 30, 2006
    
    
    5,576
    
    
    $
    15.24
    
    
    
    5.6
    
    
    $
    93,047Options exercisable at June 30, 2006
    
    
    4,315
    
    
    $
    15.54
    
    
    
    5.7
    
    
    $
    70,735Options expected to vest at June 30, 2006
    
    
    1,218
    
    
    $
    14.23
    
    
    
    5.1
    
    
    $
    21,555
   5. Long-Term Obligations and Interest Rate Hedging Agreements
    6. Income Taxes
  8




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##### Table of Contents



7. Calculation of Earnings per Common Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    29,553
    
    
    $
    11,262
    
    
    $
    59,212
    
    
    $
    28,508Weighted average common shares outstanding:Basic
    
    
    83,118
    
    
    
    82,343
    
    
    
    82,966
    
    
    
    82,282Effect of dilutive potential common shares:Stock options
    
    
    1,720
    
    
    
    1,531
    
    
    
    1,733
    
    
    
    1,427Diluted
    
    
    84,838
    
    
    
    83,874
    
    
    
    84,699
    
    
    
    83,709Basic earnings per common share
    
    $
    0.36
    
    
    $
    0.14
    
    
    $
    0.71
    
    
    $
    0.35Diluted earnings per common share
    
    $
    0.35
    
    
    $
    0.13
    
    
    $
    0.70
    
    
    $
    0.34
 8. Lines of Business
   9




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##### Table of Contents



Animal
    
    
    Medical
    
    
    
    
    
    
    IntercompanyLaboratory
    
    
    Hospital
    
    
    Technology
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalThree Months Ended June 30, 2006External revenue
    
    $
    61,577
    
    
    $
    186,002
    
    
    $
    7,571
    
    
    $
    
    
    
    $
    
    
    
    $
    255,150Intersegment revenue
    
    
    5,896
    
    
    
    
    
    
    
    829
    
    
    
    
    
    
    
    (6,725
    )
    
    
    Total revenue
    
    
    67,473
    
    
    
    186,002
    
    
    
    8,400
    
    
    
    
    
    
    
    (6,725
    )
    
    
    255,150Direct costs
    
    
    34,949
    
    
    
    146,351
    
    
    
    5,256
    
    
    
    
    
    
    
    (6,368
    )
    
    
    180,188Gross profit
    
    
    32,524
    
    
    
    39,651
    
    
    
    3,144
    
    
    
    
    
    
    
    (357
    )
    
    
    74,962Selling, general and administrative
expense
    
    
    4,349
    
    
    
    5,123
    
    
    
    2,549
    
    
    
    7,463
    
    
    
    
    
    
    
    19,484Gain on sale of assets
    
    
    (2
    )
    
    
    (83
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (85
    )Operating income (loss)
    
    $
    28,177
    
    
    $
    34,611
    
    
    $
    595
    
    
    $
    (7,463
    )
    
    $
    (357
    )
    
    $
    55,563Depreciation and amortization
    
    $
    1,080
    
    
    $
    3,569
    
    
    $
    373
    
    
    $
    444
    
    
    $
    (37
    )
    
    $
    5,429Capital expenditures
    
    $
    2,194
    
    
    $
    4,647
    
    
    $
    38
    
    
    $
    500
    
    
    $
    (172
    )
    
    $
    7,207Three Months Ended June 30, 2005External revenue
    
    $
    53,623
    
    
    $
    147,959
    
    
    $
    5,002
    
    
    $
    
    
    
    $
    
    
    
    $
    206,584Intersegment revenue
    
    
    4,654
    
    
    
    
    
    
    
    356
    
    
    
    
    
    
    
    (5,010
    )
    
    
    Total revenue
    
    
    58,277
    
    
    
    147,959
    
    
    
    5,358
    
    
    
    
    
    
    
    (5,010
    )
    
    
    206,584Direct costs
    
    
    30,899
    
    
    
    116,142
    
    
    
    3,700
    
    
    
    
    
    
    
    (4,892
    )
    
    
    145,849Gross profit
    
    
    27,378
    
    
    
    31,817
    
    
    
    1,658
    
    
    
    
    
    
    
    (118
    )
    
    
    60,735Selling, general and administrative
expense
    
    
    3,346
    
    
    
    3,807
    
    
    
    1,922
    
    
    
    6,342
    
    
    
    
    
    
    
    15,417Gain on sale of assets
    
    
    
    
    
    
    (78
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (78
    )Operating income (loss)
    
    $
    24,032
    
    
    $
    28,088
    
    
    $
    (264
    )
    
    $
    (6,342
    )
    
    $
    (118
    )
    
    $
    45,396Depreciation and amortization
    
    $
    878
    
    
    $
    2,907
    
    
    $
    302
    
    
    $
    372
    
    
    $
    (16
    )
    
    $
    4,443Capital expenditures
    
    $
    1,180
    
    
    $
    4,986
    
    
    $
    125
    
    
    $
    1,267
    
    
    $
    (86
    )
    
    $
    7,472
 10




---



##### Table of Contents



Animal
    
    
    Medical
    
    
    
    
    
    
    IntercompanyLaboratory
    
    
    Hospital
    
    
    Technology
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalSix Months Ended June 30, 2006External revenue
    
    $
    117,703
    
    
    $
    356,525
    
    
    $
    15,102
    
    
    $
    
    
    
    $
    
    
    
    $
    489,330Intersegment revenue
    
    
    11,307
    
    
    
    
    
    
    
    1,290
    
    
    
    
    
    
    
    (12,597
    )
    
    
    Total revenue
    
    
    129,010
    
    
    
    356,525
    
    
    
    16,392
    
    
    
    
    
    
    
    (12,597
    )
    
    
    489,330Direct costs
    
    
    67,936
    
    
    
    284,277
    
    
    
    10,746
    
    
    
    
    
    
    
    (12,112
    )
    
    
    350,847Gross profit
    
    
    61,074
    
    
    
    72,248
    
    
    
    5,646
    
    
    
    
    
    
    
    (485
    )
    
    
    138,483Selling, general and administrative
expense
    
    
    8,443
    
    
    
    9,946
    
    
    
    5,200
    
    
    
    14,780
    
    
    
    
    
    
    
    38,369Loss (gain) on sale of assets
    
    
    8
    
    
    
    (211
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (203
    )Operating income (loss)
    
    $
    52,623
    
    
    $
    62,513
    
    
    $
    446
    
    
    $
    (14,780
    )
    
    $
    (485
    )
    
    $
    100,317Depreciation and amortization
    
    $
    2,152
    
    
    $
    7,097
    
    
    $
    774
    
    
    $
    896
    
    
    $
    (68
    )
    
    $
    10,851Capital expenditures
    
    $
    2,964
    
    
    $
    11,377
    
    
    $
    85
    
    
    $
    940
    
    
    $
    (299
    )
    
    $
    15,067Six
Months Ended June 30, 2005External revenue
    
    $
    102,933
    
    
    $
    281,313
    
    
    $
    9,201
    
    
    $
    
    
    
    $
    
    
    
    $
    393,447Intersegment revenue
    
    
    8,783
    
    
    
    
    
    
    
    641
    
    
    
    
    
    
    
    (9,424
    )
    
    
    Total revenue
    
    
    111,716
    
    
    
    281,313
    
    
    
    9,842
    
    
    
    
    
    
    
    (9,424
    )
    
    
    393,447Direct costs
    
    
    60,469
    
    
    
    223,761
    
    
    
    7,145
    
    
    
    
    
    
    
    (9,190
    )
    
    
    282,185Gross profit
    
    
    51,247
    
    
    
    57,552
    
    
    
    2,697
    
    
    
    
    
    
    
    (234
    )
    
    
    111,262Selling, general and administrative
expense
    
    
    6,711
    
    
    
    7,510
    
    
    
    3,489
    
    
    
    11,839
    
    
    
    
    
    
    
    29,549Loss (gain) on sale of assets
    
    
    
    
    
    
    (88
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (88
    )Operating income (loss)
    
    $
    44,536
    
    
    $
    50,130
    
    
    $
    (792
    )
    
    $
    (11,839
    )
    
    $
    (234
    )
    
    $
    81,801Depreciation and amortization
    
    $
    1,780
    
    
    $
    5,651
    
    
    $
    601
    
    
    $
    769
    
    
    $
    (16
    )
    
    $
    8,785Capital expenditures
    
    $
    2,861
    
    
    $
    8,867
    
    
    $
    245
    
    
    $
    3,099
    
    
    $
    (391
    )
    
    $
    14,681At June 30, 2006Total assets
    
    $
    159,532
    
    
    $
    647,189
    
    
    $
    47,602
    
    
    $
    54,990
    
    
    $
    (3,471
    )
    
    $
    905,842At December 31, 2005Total assets
    
    $
    146,902
    
    
    $
    614,492
    
    
    $
    47,114
    
    
    $
    90,977
    
    
    $
    (2,412
    )
    
    $
    897,073
 9. Recent Accounting Pronouncements
 Accounting for Uncertainty in
Income Taxesan interpretation of FASB Statement No. 109
 10. Commitments and Contingencies
  a. Earn-out Payments
 11




---



##### Table of Contents



b. Officers Compensation
       c. Other Contingencies
  11. Reclassifications
  12




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 PageNumberIntroduction
    
    
    14Executive Overview
    
    
    14Results of Operations
    
    
    16Liquidity and Capital Resources
    
    
    21Critical Accounting Policies
    
    
    24Recent Accounting Pronouncements
    
    
    26Forward-Looking Statements
    
    
    26
 13




---



##### Table of Contents



Introduction
 The following discussion should be read in conjunction with our condensed, consolidated
financial statements provided under Part I, Item I of this quarterly report on Form 10-Q . We have
included herein statements that constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. We generally identify forward-looking statements
in this report using words like believe, intend, expect, estimate, may, plan, should
plan, project, contemplate, anticipate, predict, potential, continue, or similar
expressions. You may find some of these statements below and elsewhere in this report. These
forward-looking statements are not historical facts and are inherently uncertain and outside of our
control. Any or all of our forward-looking statements in this report may turn out to be wrong.
They can be affected by inaccurate assumptions we might make or by known or unknown risks and
uncertainties. Many factors mentioned in our discussion in this report will be important in
determining future results. Consequently, no forward-looking statement can be guaranteed. Actual
future results may vary materially. Factors that may cause our plans, expectations, future
financial condition and results to change are described throughout this report and in our annual
report on Form 10-K , particularly in Risk Factors, Part I, Item 1A of that report.
 The forward-looking information set forth in this quarterly report on Form 10-Q is as of
August 7, 2006, and we undertake no duty to update this information. Shareholders and prospective
investors can find information filed with the SEC after August 7, 2006 at our website at www.investor.vcaantech.com or at the SECs website at www.sec.gov .
       
 Executive Overview
  14




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##### Table of Contents



Share-Based Payment
 Acquisitions and Facilities
  Laboratories:Facilities at December 31, 2005
    
    
    31Acquisitions
    
    
    1Acquisitions relocated into a laboratory operated by us
    
    
    (1
    )New facilities
    
    
    1Facilities at June 30, 2006
    
    
    32Animal hospitals:Facilities at December 31, 2005
    
    
    367Acquisitions
    
    
    12Acquisitions relocated into hospitals operated by us
    
    
    (1
    )Sold or closed
    
    
    (3
    )Facilities at June 30, 2006
    
    
    375
 15




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##### Table of Contents



Results of Operations
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Revenue:Laboratory
    
    
    26.4
    %
    
    
    28.2
    %
    
    
    26.4
    %
    
    
    28.4
    %Animal hospital
    
    
    72.9
    
    
    
    71.6
    
    
    
    72.9
    
    
    
    71.5Medical technology
    
    
    3.3
    
    
    
    2.6
    
    
    
    3.3
    
    
    
    2.5Intercompany
    
    
    (2.6
    )
    
    
    (2.4
    )
    
    
    (2.6
    )
    
    
    (2.4
    )Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Direct costs
    
    
    70.6
    
    
    
    70.6
    
    
    
    71.7
    
    
    
    71.7Gross profit
    
    
    29.4
    
    
    
    29.4
    
    
    
    28.3
    
    
    
    28.3Selling, general and administrative expense
    
    
    7.6
    
    
    
    7.5
    
    
    
    7.8
    
    
    
    7.5Gain on sale of assets
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    Operating income
    
    
    21.8
    
    
    
    22.0
    
    
    
    20.5
    
    
    
    20.8Interest expense, net
    
    
    2.3
    
    
    
    2.9
    
    
    
    2.5
    
    
    
    3.2Debt retirement costs
    
    
    
    
    
    
    9.3
    
    
    
    
    
    
    
    4.9Other expense
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Minority interest in income of subsidiairies
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.3
    
    
    
    0.4Income before provision for income taxes
    
    
    19.1
    
    
    
    9.3
    
    
    
    17.7
    
    
    
    12.2Provision for income taxes
    
    
    7.5
    
    
    
    3.8
    
    
    
    5.6
    
    
    
    5.0Net income
    
    
    11.6
    %
    
    
    5.5
    %
    
    
    12.1
    %
    
    
    7.2
    %
 Revenue
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    

% Change
    
    
    2006
    
    
    2005
    
    

% ChangeLaboratory
    
    $
    67,473
    
    
    $
    58,277
    
    
    
    15.8
    %
    
    $
    129,010
    
    
    $
    111,716
    
    
    
    15.5
    %Animal hospital
    
    
    186,002
    
    
    
    147,959
    
    
    
    25.7
    %
    
    
    356,525
    
    
    
    281,313
    
    
    
    26.7
    %Medical technology
    
    
    8,400
    
    
    
    5,358
    
    
    
    56.8
    %
    
    
    16,392
    
    
    
    9,842
    
    
    
    66.6
    %Intercompany
    
    
    (6,725
    )
    
    
    (5,010
    )
    
    
    34.2
    %
    
    
    (12,597
    )
    
    
    (9,424
    )
    
    
    33.7
    %Total revenue
    
    $
    255,150
    
    
    $
    206,584
    
    
    
    23.5
    %
    
    $
    489,330
    
    
    $
    393,447
    
    
    
    24.4
    %
 16




---



##### Table of Contents



Laboratory Revenue
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    % Change
    
    
    2006
    
    
    2005
    
    
    % ChangeInternal growth:Number of requisitions (1)
    
    
    2,977
    
    
    
    2,572
    
    
    
    15.7
    %
    
    
    5,601
    
    
    
    4,835
    
    
    
    15.8
    %Average revenue per
requisition (2)
    
    $
    22.49
    
    
    $
    22.66
    
    
    
    (0.8
    )%
    
    $
    22.94
    
    
    $
    23.11
    
    
    
    (0.7
    )%Total internal revenue (1)
    
    $
    66,959
    
    
    $
    58,277
    
    
    
    14.9
    %
    
    $
    128,496
    
    
    $
    111,716
    
    
    
    15.0
    %Net acquired revenue (3)
    
    
    514
    
    
    
    
    
    
    
    
    
    
    
    514
    
    
    
    Total
    
    $
    67,473
    
    
    $
    58,277
    
    
    
    15.8
    %
    
    $
    129,010
    
    
    $
    111,716
    
    
    
    15.5
    %
 
 (1)
    
    Internal revenue and requisitions were calculated using laboratory operating results,
adjusted to exclude the operating results of acquired laboratories for the comparable periods
that we did not own them in the prior year.(2)
    
    Computed by dividing internal revenue by the number of requisitions.(3)
    
    Acquired revenue represents the revenue of the laboratory acquired on May 1, 2006.   Animal Hospital Revenue
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    % Change
    
    
    2006
    
    
    2005
    
    
    % ChangeSame-store facilities:Orders (1)(2)
    
    
    1,166
    
    
    
    1,203
    
    
    
    (3.0
    )%
    
    
    2,187
    
    
    
    2,250
    
    
    
    (2.8
    )%Average revenue per order (3)
    
    $
    131.99
    
    
    $
    121.45
    
    
    
    8.7
    %
    
    $
    131.02
    
    
    $
    120.81
    
    
    
    8.5
    %Same-store revenue (1)
    
    $
    153,946
    
    
    $
    146,077
    
    
    
    5.4
    %
    
    $
    286,720
    
    
    $
    271,784
    
    
    
    5.5
    %Business day adjustment (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,664
    
    
    
    Net acquired revenue (5)
    
    
    32,056
    
    
    
    1,882
    
    
    
    
    
    
    
    68,141
    
    
    
    9,529Total
    
    $
    186,002
    
    
    $
    147,959
    
    
    
    25.7
    %
    
    $
    356,525
    
    
    $
    281,313
    
    
    
    26.7
    %
 17




---



##### Table of Contents



(1)
    
    Same-store revenue and orders were calculated using animal hospital operating results,
adjusted to exclude the operating results for the newly acquired animal hospitals that we did
not own a full 12 months from the beginning of the applicable period and adjusted for the
impact resulting from any differences in the number of business days in the periods presented.
Same-store revenue also includes revenue generated by customers referred from our relocated
or combined animal hospitals, including those merged upon acquisition.(2)
    
    The change in orders may not calculate exactly due to rounding.(3)
    
    Computed by dividing same-store revenue by same-store orders.
The average revenue per order may not calculate exactly due to
rounding.(4)
    
    The business day adjustment reflects the impact of one additional business day for the six
months ended June 30, 2006 as compared to the six months ended June 30, 2005.(5)
    
    Net acquired revenue represents the revenue from those animal hospitals acquired, net of
revenue from those animal hospitals sold or closed, on or after the beginning of the
comparable period, which was April 1, 2005 for the three months ended June 30, 2006, and
January 1, 2005 for the six months ended June 30, 2006. Fluctuations in net acquired revenue
occur due to the volume, size and timing of acquisitions and disposals during the periods from
this date through the end of the applicable period.   Medical Technology Revenue
 Critical Accounting Policies
  Intercompany Revenue
  18




---



##### Table of Contents



Gross Profit
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    
    
    
    
    2006
    
    
    2005Gross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossProfit
    
    
    
    
    
    
    Profit
    
    
    %
    
    
    
    
    
    
    Profit
    
    
    
    
    
    
    Profit
    
    
    %$
    
    
    Margin
    
    
    $
    
    
    Margin
    
    
    Change
    
    
    $
    
    
    Margin
    
    
    $
    
    
    Margin
    
    
    ChangeLaboratory
    
    $
    32,524
    
    
    
    48.2
    %
    
    $
    27,378
    
    
    
    47.0
    %
    
    
    18.8
    %
    
    $
    61,074
    
    
    
    47.3
    %
    
    $
    51,247
    
    
    
    45.9
    %
    
    
    19.2
    %Animal hospital
    
    
    39,651
    
    
    
    21.3
    %
    
    
    31,817
    
    
    
    21.5
    %
    
    
    24.6
    %
    
    
    72,248
    
    
    
    20.3
    %
    
    
    57,552
    
    
    
    20.5
    %
    
    
    25.5
    %Medical technology
    
    
    3,144
    
    
    
    37.4
    %
    
    
    1,658
    
    
    
    30.9
    %
    
    
    89.6
    %
    
    
    5,646
    
    
    
    34.4
    %
    
    
    2,697
    
    
    
    27.4
    %
    
    
    109.3
    %Intercompany
    
    
    (357
    )
    
    
    
    
    
    
    (118
    )
    
    
    
    
    
    
    
    
    
    
    (485
    )
    
    
    
    
    
    
    (234
    )Total gross profit
    
    $
    74,962
    
    
    
    29.4
    %
    
    $
    60,735
    
    
    
    29.4
    %
    
    
    23.4
    %
    
    $
    138,483
    
    
    
    28.3
    %
    
    $
    111,262
    
    
    
    28.3
    %
    
    
    24.5
    %
 Laboratory Gross Profit
   Animal Hospital Gross Profit
   Medical Technology Gross Profit
   19




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##### Table of Contents



Selling, General and Administrative Expense
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    
    
    
    
    2006
    
    
    2005% of
    
    
    
    
    
    
    % of
    
    
    %
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    %$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    Change
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    ChangeLaboratory
    
    $
    4,349
    
    
    
    6.4
    %
    
    $
    3,346
    
    
    
    5.7
    %
    
    
    30.0
    %
    
    $
    8,443
    
    
    
    6.5
    %
    
    $
    6,711
    
    
    
    6.0
    %
    
    
    25.8
    %Animal hospital
    
    
    5,123
    
    
    
    2.8
    %
    
    
    3,807
    
    
    
    2.6
    %
    
    
    34.6
    %
    
    
    9,946
    
    
    
    2.8
    %
    
    
    7,510
    
    
    
    2.7
    %
    
    
    32.4
    %Medical technology
    
    
    2,549
    
    
    
    30.3
    %
    
    
    1,922
    
    
    
    35.9
    %
    
    
    32.6
    %
    
    
    5,200
    
    
    
    31.7
    %
    
    
    3,489
    
    
    
    35.5
    %
    
    
    49.0
    %Corporate
    
    
    7,463
    
    
    
    2.9
    %
    
    
    6,342
    
    
    
    3.1
    %
    
    
    17.7
    %
    
    
    14,780
    
    
    
    3.0
    %
    
    
    11,839
    
    
    
    3.0
    %
    
    
    24.8
    %Total SG&A
    
    $
    19,484
    
    
    
    7.6
    %
    
    $
    15,417
    
    
    
    7.5
    %
    
    
    26.4
    %
    
    $
    38,369
    
    
    
    7.8
    %
    
    $
    29,549
    
    
    
    7.5
    %
    
    
    29.8
    %
 Laboratory SG&A
   Animal Hospital SG&A
   Medical Technology SG&A
   Corporate SG&A
   20




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##### Table of Contents



Interest Expense, Net
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Interest expense:Senior term notes
    
    $
    6,504
    
    
    $
    4,221
    
    
    $
    12,918
    
    
    $
    6,6419.875% senior subordinated notes
    
    
    
    
    
    
    2,145
    
    
    
    
    
    
    
    6,342Interest rate hedging agreements
    
    
    (370
    )
    
    
    (21
    )
    
    
    (571
    )
    
    
    (115
    )Capital leases and other
    
    
    197
    
    
    
    200
    
    
    
    609
    
    
    
    409Amortization of debt costs
    
    
    94
    
    
    
    142
    
    
    
    227
    
    
    
    3516,425
    
    
    
    6,687
    
    
    
    13,183
    
    
    
    13,628Interest income
    
    
    498
    
    
    
    606
    
    
    
    944
    
    
    
    880Total interest expense, net of interest income
    
    $
    5,927
    
    
    $
    6,081
    
    
    $
    12,239
    
    
    $
    12,748
 Liquidity and Capital Resources
 Provision for Income Taxes
  
 Liquidity and Capital Resources
  Six Months EndedJune 30,2006
    
    
    2005Cash provided by (used in):Operating activities
    
    $
    64,141
    
    
    $
    54,425Investing activities
    
    
    (46,562
    )
    
    
    (33,699
    )Financing activities
    
    
    (55,266
    )
    
    
    63,825Increase (decrease) in cash and cash equivalents
    
    
    (37,687
    )
    
    
    84,551Cash and cash equivalents at beginning of year
    
    
    58,488
    
    
    
    30,964Cash and cash equivalents at end of period
    
    $
    20,801
    
    
    $
    115,515
 Cash Flows from Operating Activities
   21




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##### Table of Contents



Cash Flows from Investing Activities
   Cash Flows from Financing Activities
  Future Cash Requirements
  Total
    
    
    2006 (1)
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterLong-term debt
    
    $
    377,607
    
    
    $
    3,332
    
    
    $
    4,396
    
    
    $
    4,181
    
    
    $
    3,879
    
    
    $
    3,880
    
    
    $
    357,939Capital lease obligations
    
    
    15,741
    
    
    
    515
    
    
    
    1,040
    
    
    
    1,070
    
    
    
    1,144
    
    
    
    1,283
    
    
    
    10,689Operating leases
    
    
    521,019
    
    
    
    15,099
    
    
    
    30,059
    
    
    
    28,055
    
    
    
    27,978
    
    
    
    27,863
    
    
    
    391,965Fixed cash interest expense
    
    
    7,275
    
    
    
    709
    
    
    
    1,257
    
    
    
    1,329
    
    
    
    1,069
    
    
    
    767
    
    
    
    2,144Variable cash interest expense (2)
    
    
    133,497
    
    
    
    13,561
    
    
    
    27,101
    
    
    
    27,191
    
    
    
    27,274
    
    
    
    27,710
    
    
    
    10,660Swap agreements (2)
    
    
    (4,867
    )
    
    
    (1,376
    )
    
    
    (2,388
    )
    
    
    (979
    )
    
    
    (124
    )
    
    
    
    
    
    
    Purchase obligations
    
    
    49,991
    
    
    
    9,269
    
    
    
    7,651
    
    
    
    8,383
    
    
    
    8,942
    
    
    
    9,744
    
    
    
    6,002Other long-term liabilities (3)
    
    
    44,779
    
    
    
    
    
    
    
    65
    
    
    
    65
    
    
    
    65
    
    
    
    
    
    
    
    44,584Earn-out payments (4)
    
    
    340
    
    
    
    140
    
    
    
    150
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    $
    1,145,382
    
    
    $
    41,249
    
    
    $
    69,331
    
    
    $
    69,345
    
    
    $
    70,227
    
    
    $
    71,247
    
    
    $
    823,983
 
 (1)
    
    Consists of the period from July 1, 2006 through December 31, 2006.(2)
    
    We have variable-rate debt. The interest payments on our variable-rate debt are based on a
variable-rate component plus a fixed 1.50%. For purposes of this computation, we have assumed
that the interest rate on our variable-rate debt (including the fixed-rate portion) will be
7.3%, 7.3%, 7.4%, 7.5%, 7.7% and 7.9% for years 2006 through thereafter, respectively. These
estimates are based on interest rate projections used to price our interest rate swap
agreements. Our consolidated financial statements included in our 2005 annual report on Form
10-K discuss these variable-rate notes in more detail.(3)
    
    Includes deferred income taxes of $36.7 million.(4)
    
    Represents contractual arrangements whereby additional cash may be paid to former owners of
acquired businesses upon attainment of specified performance targets.  22




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##### Table of Contents



Debt Related Covenants
    Interest Rate Hedging Agreements
  Fixed interest rate
    
    
    4.07%
    
    
    
    3.98%
    
    
    
    3.94%
    
    
    
    5.51%Notional amount
    
    $50.0 million
    
    $50.0 million
    
    $50.0 million
    
    $50.0 millionEffective date
    
    
    5/26/2005
    
    
    
    6/2/2005
    
    
    
    6/30/2005
    
    
    
    6/20/2006Expiration date
    
    
    5/26/2008
    
    
    
    5/31/2008
    
    
    
    6/30/2007
    
    
    
    6/30/2009Counterparties
    
    Goldman Sachs
    
    Wells Fargo
    
    Wells Fargo
    
    Goldman SachsQualifies for hedge accounting
    
    Yes
    
    Yes
    
    Yes
    
    Yes
  Description of Indebtedness
 Senior Credit Facility
    Other Debt
 23




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##### Table of Contents



Critical Accounting Policies
  Revenue
 Laboratory and Animal Hospital Revenue
  
    
    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.
 Medical Technology Revenue
  Revenue Recognition Software Revenue Recognition
 
    
    Evidence of an arrangement: We consider a non-cancelable agreement signed by
the customer and us to be evidence of an arrangement.
    
    Delivery: We consider delivery to have occurred when the ultrasound imaging
equipment is delivered. We consider delivery to have occurred when the digital radiography
imaging equipment is either accepted by the customer if installation is required, or
delivered. We consider delivery to have occurred with respect to professional services
when those services are provided or on a straight-line basis over the service contract
term, based on the nature of the service or the terms of the contract.
    
    Fixed or determinable fee: We assess whether fees are fixed or determinable at
the time of sale and recognize revenue if all other revenue recognition requirements are
met. We generally consider payments that are due within six months to be fixed or
determinable based upon our successful collection history. We only consider fees to be
fixed or determinable if they are not subject to refund or adjustment.
    
    Collection is deemed probable: We conduct a credit review for all significant
transactions at the time of the arrangement to determine the credit worthiness of the
customer. Collection is deemed probable if we expect that the customer will be able to pay
amounts under the arrangement as payments become due. If
we determine that collection is not probable, we defer the revenue and recognize the
revenue upon cash collection.
 24




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##### Table of Contents



Modification of SOP No. 97-2, Software
Revenue Recognition, With Respect to Certain Transactions
 Ultrasound Imaging Equipment
  Digital Radiography Equipment
   Valuation of Goodwill
   Income Taxes
 Accounting for Income Taxes
 25




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##### Table of Contents



Recent Accounting Pronouncements.
 
 Recent Accounting Pronouncements
 Share-Based Payment. Share-Based
Compensation Plans,
 Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109
 
 Forward-Looking Statements
 Risk Factors
 26




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Fixed interest rate
    
    
    4.07%
    
    
    
    3.98%
    
    
    
    3.94%
    
    
    
    5.51%Notional amount
    
    $50.0 million
    
    $50.0 million
    
    $50.0 million
    
    $50.0 millionEffective date
    
    
    5/26/2005
    
    
    
    6/2/2005
    
    
    
    6/30/2005
    
    
    
    6/20/2006Expiration date
    
    
    5/26/2008
    
    
    
    5/31/2008
    
    
    
    6/30/2007
    
    
    
    6/30/2009Counterparties
    
    Goldman Sachs
    
    Wells Fargo
    
    Wells Fargo
    
    Goldman SachsQualifies for hedge accounting
    
    Yes
    
    Yes
    
    Yes
    
    Yes
   
 ITEM 4. CONTROLS AND PROCEDURES
    
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  27




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##### Table of Contents






ITEM 1A. RISK FACTORS







ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS




ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
    
    elected each of John M. Baumer and Frank Reddick as a Class I director;
    
    ratified KPMG LLP as our independent auditors; and
    
    approved the VCA Antech, Inc. 2006 Equity Incentive Plan.
  Candidate
    
    Yes Votes
    
    No Votes
    
    Abstain
    
    Broker Non-VoteJohn M. Baumer
    
    
    65,057,980
    
    
    
    
    
    
    
    9,129,038
    
    
    
    Frank Reddick
    
    
    41,101,066
    
    
    
    
    
    
    
    33,085,952
    
    
    
    
  Proposal
    
    Yes Votes
    
    No Votes
    
    Abstain
    
    Broker Non-VoteRatify KPMG LLP as our independent
auditors
    
    
    73,805,087
    
    
    
    358,710
    
    
    
    23,221
    
    
    
    Approve the VCA Antech, Inc. 2006
Equity Incentive Plan
    
    
    55,190,570
    
    
    
    12,613,352
    
    
    
    43,010
    
    
    
    6,340,086
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 28




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##### Table of Contents



SIGNATURE
  Date: August 7, 2006
    
    By:
    
    /s/ Tomas W. FullerTomas W. FullerChief Financial Officer
 29




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 30