##### 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 March 31, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 001-16783
 
 VCA Antech, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    95-4097995(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 12401 West Olympic Boulevard
Los Angeles, California 90064-1022  (Address of principal executive offices)
 (310) 571-6500  (Registrants telephone number, including area code)
 þ o
  þ o o
 o þ




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##### 



VCA ANTECH, INC.
FORM 10-Q
MARCH 31, 2007
 TABLE OF CONTENTS
 PageNumberPart I. Financial InformationItem 1. Financial Statements (Unaudited)Condensed, Consolidated Balance Sheets as of March 31, 2007 and
December 31, 2006
    
    
    1Condensed, Consolidated Income Statements for the Three Months Ended
March 31, 2007 and 2006
    
    
    2Condensed, Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2007 and 2006
    
    
    3Notes to Condensed, Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23Part II. Other InformationItem 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3. Defaults Upon Senior Securities
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    25Item 6. Exhibits
    
    
    25Signature
    
    
    26Exhibit Index
    
    
    27EXHIBIT 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 March 31, 2007 and December 31, 2006
 (Unaudited)
 (In thousands, except par value)
 March 31,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    38,245
    
    
    $
    45,104Trade accounts receivable, less allowance for uncollectible accounts of $11,227
and $11,195 at March 31, 2007 and December 31, 2006, respectively
    
    
    49,228
    
    
    
    44,491Inventory
    
    
    21,491
    
    
    
    21,420Prepaid expenses and other
    
    
    13,381
    
    
    
    13,492Deferred income taxes
    
    
    16,526
    
    
    
    14,935Prepaid income taxes
    
    
    
    
    
    
    13,523Total current assets
    
    
    138,871
    
    
    
    152,965Property and
equipment, less accumulated depreciation and amortization of $115,954
and $111,165 at March 31, 2007 and December 31, 2006,
respectively
    
    
    180,692
    
    
    
    166,033Other assets:Goodwill
    
    
    652,339
    
    
    
    625,748Other intangible assets, net
    
    
    16,604
    
    
    
    16,293Deferred financing costs, net
    
    
    918
    
    
    
    979Other
    
    
    12,299
    
    
    
    9,939Total assets
    
    $
    1,001,723
    
    
    $
    971,957LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term obligations
    
    $
    5,645
    
    
    $
    6,648Accounts payable
    
    
    21,457
    
    
    
    23,328Accrued payroll and related liabilities
    
    
    31,594
    
    
    
    33,864Income taxes payable
    
    
    3,145
    
    
    
    Other accrued liabilities
    
    
    31,713
    
    
    
    30,961Total current liabilities
    
    
    93,554
    
    
    
    94,801Long-term obligations, less current portion
    
    
    382,768
    
    
    
    384,067Deferred income taxes
    
    
    42,233
    
    
    
    39,804Other liabilities
    
    
    12,251
    
    
    
    13,294Minority interest
    
    
    9,615
    
    
    
    9,686Commitments and contingenciesPreferred stock, par value $0.001, 11,000 shares authorized, none outstanding
    
    
    
    
    
    
    Stockholders equity:Common stock, par value $0.001, 175,000 shares authorized, 83,990 and 83,560
shares outstanding as of March 31, 2007 and December 31, 2006, respectively
    
    
    84
    
    
    
    84Additional paid-in capital
    
    
    278,038
    
    
    
    275,013Accumulated earnings
    
    
    182,899
    
    
    
    154,586Accumulated other comprehensive income
    
    
    281
    
    
    
    622Total stockholders equity
    
    
    461,302
    
    
    
    430,305Total liabilities and stockholders equity
    
    $
    1,001,723
    
    
    $
    971,957
  1




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##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
 
 CONDENSED, CONSOLIDATED INCOME STATEMENTS
 For the Three Months Ended March 31, 2007 and 2006
 (Unaudited)
 (In thousands, except per share amounts)
 Three Months EndedMarch 31,2007
    
    
    2006Revenue
    
    $
    265,145
    
    
    $
    234,180Direct costs
    
    
    189,225
    
    
    
    170,659Gross profit
    
    
    75,920
    
    
    
    63,521Selling, general and administrative expense
    
    
    21,473
    
    
    
    18,885Write-down and loss (gain) on sale of assets
    
    
    122
    
    
    
    (118
    )Operating income
    
    
    54,325
    
    
    
    44,754Interest expense, net
    
    
    5,773
    
    
    
    6,312Other (income) expense
    
    
    55
    
    
    
    (66
    )Income before minority interest and provision for income taxes
    
    
    48,497
    
    
    
    38,508Minority interest in income of subsidiaries
    
    
    846
    
    
    
    774Income before provision for income taxes
    
    
    47,651
    
    
    
    37,734Provision for income taxes
    
    
    19,338
    
    
    
    8,075Net income
    
    $
    28,313
    
    
    $
    29,659Basic earnings per common share
    
    $
    0.34
    
    
    $
    0.36Diluted earnings per common share
    
    $
    0.33
    
    
    $
    0.35Shares used for computing basic earnings per share
    
    
    83,924
    
    
    
    82,813Shares used for computing diluted earnings per share
    
    
    85,649
    
    
    
    84,583
  2




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##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
 
 CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Three Months Ended March 31, 2007 and 2006
 (Unaudited)
 (In thousands)
 Three Months EndedMarch 31,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    28,313
    
    
    $
    29,659Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    5,931
    
    
    
    5,422Amortization of debt costs
    
    
    61
    
    
    
    132Provision for uncollectible accounts
    
    
    1,425
    
    
    
    1,562Write-down and loss (gain) on sale of assets
    
    
    122
    
    
    
    (118
    )Share-based compensation
    
    
    1,217
    
    
    
    776Excess tax benefit from exercise of stock options
    
    
    (922
    )
    
    
    (1,277
    )Minority interest in income of subsidiaries
    
    
    846
    
    
    
    774Distributions to minority interest partners
    
    
    (645
    )
    
    
    (798
    )Deferred income taxes
    
    
    1,159
    
    
    
    2,917Other
    
    
    (142
    )
    
    
    (235
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (6,040
    )
    
    
    (2,132
    )Inventory, prepaid expenses and other assets
    
    
    (398
    )
    
    
    (222
    )Accounts payable and other accrued liabilities
    
    
    (2,279
    )
    
    
    (6,578
    )Accrued payroll and related liabilities
    
    
    (2,270
    )
    
    
    (3,430
    )Income taxes
    
    
    17,637
    
    
    
    11,300Net cash provided by operating activities
    
    
    44,015
    
    
    
    37,752Cash flows used in investing activities:Business acquisitions, net of cash acquired
    
    
    (32,203
    )
    
    
    (15,863
    )Real estate acquired in connection with business acquisitions
    
    
    (7,929
    )
    
    
    (1,779
    )Property and equipment additions
    
    
    (11,875
    )
    
    
    (7,860
    )Proceeds from sale of assets
    
    
    1,564
    
    
    
    286Other
    
    
    110
    
    
    
    76Net cash used in investing activities
    
    
    (50,333
    )
    
    
    (25,140
    )Cash flows used in financing activities:Repayment of long-term obligations
    
    
    (2,302
    )
    
    
    (41,416
    )Proceeds from issuance of common stock under stock option plans
    
    
    839
    
    
    
    1,219Excess tax benefit from exercise of stock options
    
    
    922
    
    
    
    1,277Net cash used in financing activities
    
    
    (541
    )
    
    
    (38,920
    )Decrease in cash and cash equivalents
    
    
    (6,859
    )
    
    
    (26,308
    )Cash and cash equivalents at beginning of period
    
    
    45,104
    
    
    
    58,488Cash and cash equivalents at end of period
    
    $
    38,245
    
    
    $
    32,180
  3




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##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2007
 (Unaudited)
 1. General
   2. Acquisitions
  Consideration:Cash
    
    $
    31,092Liabilities assumed
    
    
    1,150Total
    
    $
    32,242Purchase Price Allocation:Tangible assets
    
    $
    1,809Identifiable intangible assets
    
    
    1,275Goodwill (1)
    
    
    29,158Total
    
    $
    32,242
 
 (1)
    
    We expect that $27.5 million of the goodwill recorded for these acquisitions 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
    
    

Technology
    
    
    TotalBalance as of December 31, 2006
    
    $
    95,310
    
    
    $
    511,278
    
    
    $
    19,160
    
    
    $
    625,748Goodwill acquired
    
    
    
    
    
    
    29,226
    
    
    
    
    
    
    
    29,226Other (1)
    
    
    
    
    
    
    (2,635
    )
    
    
    
    
    
    
    (2,635
    )Balance as of March 31, 2007
    
    $
    95,310
    
    
    $
    537,869
    
    
    $
    19,160
    
    
    $
    652,339
 
 (1)
    
    Comprised of purchase price adjustments and the contribution of assets in return for a minority
interest in a partially-owned subsidiary.  As of March 31, 2007
    
    
    As of December 31, 2006Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountCovenants not-to-compete
    
    $
    13,489
    
    
    $
    (6,318
    )
    
    $
    7,171
    
    
    $
    12,687
    
    
    $
    (6,169
    )
    
    $
    6,518Non-contractual customer
relationships
    
    
    9,869
    
    
    
    (1,767
    )
    
    
    8,102
    
    
    
    9,869
    
    
    
    (1,553
    )
    
    
    8,316Technology
    
    
    1,270
    
    
    
    (631
    )
    
    
    639
    
    
    
    1,270
    
    
    
    (568
    )
    
    
    702Trademarks
    
    
    582
    
    
    
    (141
    )
    
    
    441
    
    
    
    569
    
    
    
    (127
    )
    
    
    442Contracts
    
    
    380
    
    
    
    (238
    )
    
    
    142
    
    
    
    397
    
    
    
    (231
    )
    
    
    166Client lists
    
    
    512
    
    
    
    (403
    )
    
    
    109
    
    
    
    506
    
    
    
    (357
    )
    
    
    149Total
    
    $
    26,102
    
    
    $
    (9,498
    )
    
    $
    16,604
    
    
    $
    25,298
    
    
    $
    (9,005
    )
    
    $
    16,293
  Three Months EndedMarch 31,2007
    
    
    2006Aggregate amortization expense
    
    $
    965
    
    
    $
    860
  Remainder of 2007
    
    $
    2,8442008
    
    
    3,2372009
    
    
    2,1932010
    
    
    1,4402011
    
    
    970Thereafter
    
    
    5,920Total
    
    $
    16,604
 5




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##### Table of Contents



4. Share-Based Compensation
  5. Income Taxes
  6. Calculation of Earnings per Common Share
  Three Months EndedMarch 31,2007
    
    
    2006Net income
    
    $
    28,313
    
    
    $
    29,659Weighted-average common shares outstanding:Basic
    
    
    83,924
    
    
    
    82,813Effect of dilutive potential common shares:Stock options
    
    
    1,725
    
    
    
    1,770Diluted
    
    
    85,649
    
    
    
    84,583Basic earnings per common share
    
    $
    0.34
    
    
    $
    0.36Diluted earnings per common share
    
    $
    0.33
    
    
    $
    0.35
 7. Lines of Business
   6




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##### Table of Contents



Animal
    
    
    Medical
    
    
    
    
    
    
    IntercompanyLaboratory
    
    
    Hospital
    
    
    Technology
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalThree Months Ended March 31, 2007External revenue
    
    $
    67,242
    
    
    $
    187,171
    
    
    $
    10,732
    
    
    $
    
    
    
    $
    
    
    
    $
    265,145Intersegment revenue
    
    
    6,355
    
    
    
    
    
    
    
    440
    
    
    
    
    
    
    
    (6,795
    )
    
    
    Total revenue
    
    
    73,597
    
    
    
    187,171
    
    
    
    11,172
    
    
    
    
    
    
    
    (6,795
    )
    
    
    265,145Direct costs
    
    
    37,595
    
    
    
    151,591
    
    
    
    6,861
    
    
    
    
    
    
    
    (6,822
    )
    
    
    189,225Gross profit
    
    
    36,002
    
    
    
    35,580
    
    
    
    4,311
    
    
    
    
    
    
    
    27
    
    
    
    75,920Selling, general and administrative
expense
    
    
    4,967
    
    
    
    5,560
    
    
    
    2,935
    
    
    
    8,011
    
    
    
    
    
    
    
    21,473Write-down of assets
    
    
    
    
    
    
    122
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122Operating income (loss)
    
    $
    31,035
    
    
    $
    29,898
    
    
    $
    1,376
    
    
    $
    (8,011
    )
    
    $
    27
    
    
    $
    54,325Depreciation and amortization
    
    $
    1,353
    
    
    $
    3,870
    
    
    $
    379
    
    
    $
    418
    
    
    $
    (89
    )
    
    $
    5,931Capital expenditures
    
    $
    3,123
    
    
    $
    6,956
    
    
    $
    248
    
    
    $
    1,610
    
    
    $
    (62
    )
    
    $
    11,875Three Months Ended March 31, 2006External revenue
    
    $
    56,126
    
    
    $
    170,523
    
    
    $
    7,531
    
    
    $
    
    
    
    $
    
    
    
    $
    234,180Intersegment revenue
    
    
    5,411
    
    
    
    
    
    
    
    461
    
    
    
    
    
    
    
    (5,872
    )
    
    
    Total revenue
    
    
    61,537
    
    
    
    170,523
    
    
    
    7,992
    
    
    
    
    
    
    
    (5,872
    )
    
    
    234,180Direct costs
    
    
    32,987
    
    
    
    137,926
    
    
    
    5,490
    
    
    
    
    
    
    
    (5,744
    )
    
    
    170,659Gross profit
    
    
    28,550
    
    
    
    32,597
    
    
    
    2,502
    
    
    
    
    
    
    
    (128
    )
    
    
    63,521Selling, general and administrative
expense
    
    
    4,094
    
    
    
    4,823
    
    
    
    2,651
    
    
    
    7,317
    
    
    
    
    
    
    
    18,885Loss (gain) on sale of assets
    
    
    10
    
    
    
    (128
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (118
    )Operating income (loss)
    
    $
    24,446
    
    
    $
    27,902
    
    
    $
    (149
    )
    
    $
    (7,317
    )
    
    $
    (128
    )
    
    $
    44,754Depreciation and amortization
    
    $
    1,072
    
    
    $
    3,528
    
    
    $
    401
    
    
    $
    452
    
    
    $
    (31
    )
    
    $
    5,422Capital expenditures
    
    $
    770
    
    
    $
    6,730
    
    
    $
    47
    
    
    $
    440
    
    
    $
    (127
    )
    
    $
    7,860At March 31, 2007Total assets
    
    $
    176,600
    
    
    $
    711,562
    
    
    $
    51,668
    
    
    $
    68,632
    
    
    $
    (6,739
    )
    
    $
    1,001,723At December 31, 2006Total assets
    
    $
    167,363
    
    
    $
    671,975
    
    
    $
    53,161
    
    
    $
    85,533
    
    
    $
    (6,075
    )
    
    $
    971,957
 8. Commitments and Contingencies
  a. Earn-out Payments
  b. Officers Compensation
   7




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c. Other Contingencies
  9. Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB No. 115
 10. Subsequent Event
  8




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 PageNumberIntroduction
    
    
    10Executive Overview
    
    
    10Results of Operations
    
    
    12Liquidity and Capital Resources
    
    
    17Critical Accounting Policies
    
    
    20Recent Accounting Pronouncements
    
    
    22Forward-Looking Statements
    
    
    23
 9




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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 May
8, 2007, and we undertake no duty to update this information. Shareholders and prospective
investors can find information filed with the SEC after May 8, 2007 at our website at http://investor.vcaantech.com or at the SECs website at www.sec.gov .
       
 Executive Overview
  10




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##### Table of Contents



Acquisitions and Facilities
  Animal hospitals:Beginning of period
    
    
    379Acquisitions
    
    
    12Acquisitions relocated into our existing animal hospitals
    
    
    (3
    )Closed
    
    
    (1
    )End of period
    
    
    387
  Subsequent Event
     11




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Results of Operations
  Three Months EndedMarch 31,2007
    
    2006Revenue:Laboratory
    
    
    27.8
    %
    
    
    26.3
    %Animal hospital
    
    
    70.6
    
    
    
    72.8Medical technology
    
    
    4.2
    
    
    
    3.4Intercompany
    
    
    (2.6
    )
    
    
    (2.5
    )Total revenue
    
    
    100.0
    
    
    
    100.0Direct costs
    
    
    71.4
    
    
    
    72.9Gross profit
    
    
    28.6
    
    
    
    27.1Selling, general and administrative expense
    
    
    8.1
    
    
    
    8.0Operating income
    
    
    20.5
    
    
    
    19.1Interest expense, net
    
    
    2.2
    
    
    
    2.7Income before minority interest and provision for income taxes
    
    
    18.3
    
    
    
    16.4Minority interest in income of subsidiairies
    
    
    0.3
    
    
    
    0.3Income before provision for income taxes
    
    
    18.0
    
    
    
    16.1Provision for income taxes
    
    
    7.3
    
    
    
    3.4Net income
    
    
    10.7
    %
    
    
    12.7
    %
 12




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##### Table of Contents



Revenue
  Three Months Ended March 31,% of
    
    
    
    
    
    
    % of2007
    
    
    Total
    
    
    2006
    
    
    Total
    
    
    % ChangeLaboratory
    
    $
    73,597
    
    
    
    27.8
    %
    
    $
    61,537
    
    
    
    26.3
    %
    
    
    19.6
    %Animal hospital
    
    
    187,171
    
    
    
    70.6
    %
    
    
    170,523
    
    
    
    72.8
    %
    
    
    9.8
    %Medical technology
    
    
    11,172
    
    
    
    4.2
    %
    
    
    7,992
    
    
    
    3.4
    %
    
    
    39.8
    %Intercompany
    
    
    (6,795
    )
    
    
    (2.6
    )%
    
    
    (5,872
    )
    
    
    (2.5
    )%
    
    
    15.7
    %Total revenue
    
    $
    265,145
    
    
    
    100.0
    %
    
    $
    234,180
    
    
    
    100.0
    %
    
    
    13.2
    %
 Laboratory Revenue
  Three Months Ended March 31,2007
    
    
    2006
    
    
    % ChangeLaboratory Revenue:Internal growth:Number of requisitions (1)
    
    
    3,070
    
    
    
    2,624
    
    
    
    17.0
    %Average revenue per requisition (2)
    
    $
    23.52
    
    
    $
    23.45
    
    
    
    0.3
    %Total internal revenue (1)
    
    $
    72,217
    
    
    $
    61,537
    
    
    
    17.4
    %Acquired revenue (3)
    
    
    1,380
    
    
    
    Total
    
    $
    73,597
    
    
    $
    61,537
    
    
    
    19.6
    %
 
 (1)
    
    Internal revenue and requisitions were calculated using laboratory operating results,
adjusted to exclude the operating results of acquired laboratories for the comparable periods
that we did not own those laboratories in the prior year, and adjusted for the impact
resulting from any differences in the number of billing days in comparable periods.(2)
    
    Computed by dividing internal revenue by the number of requisitions.(3)
    
    Acquired revenue represents the revenue of laboratories acquired in 2006.   13




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##### Table of Contents



Animal Hospital Revenue
  Three Months Ended March 31,2007
    
    
    2006
    
    
    % ChangeAnimal Hospital Revenue:Same-store facilities:Orders (1)(2)
    
    
    1,254
    
    
    
    1,255
    
    
    
    (0.1
    )%Average revenue per order (3)
    
    $
    139.74
    
    
    $
    132.30
    
    
    
    5.6
    %Same-store revenue (1)
    
    $
    175,195
    
    
    $
    166,036
    
    
    
    5.5
    %Net acquired revenue (4)
    
    
    11,976
    
    
    
    4,487Total
    
    $
    187,171
    
    
    $
    170,523
    
    
    
    9.8
    %
 
 (1)
    
    Same-store revenue and orders were calculated using animal hospital operating results,
adjusted to exclude the operating results for newly acquired animal hospitals that we did
not own a full 12 months from the beginning of the applicable period. Same-store revenue also
includes revenue generated by customers referred from our relocated or combined animal
hospitals, including those merged upon acquisition.(2)
    
    The change in orders may not calculate exactly due to rounding.(3)
    
    Computed by dividing same-store revenue by same-store orders. The average revenue per order
may not calculate exactly due to rounding.(4)
    
    Net acquired revenue represents the revenue from animal hospitals acquired, net of
revenue from animal hospitals sold or closed, on or after the beginning of the
comparable period, which was January 1, 2006 for the above analysis. Fluctuations in net
acquired revenue occur due to the volume, size and timing of acquisitions and dispositions
during the periods from this date through the end of the applicable period.   Medical Technology Revenue
 Critical Accounting
Policies
 Intercompany Revenue
  14




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##### Table of Contents



Gross Profit
  Three Months Ended March 31,2007
    
    
    2006Gross
    
    
    
    
    
    
    Gross
    
    
    %$
    
    
    Margin
    
    
    $
    
    
    Margin
    
    
    ChangeLaboratory
    
    $
    36,002
    
    
    
    48.9
    %
    
    $
    28,550
    
    
    
    46.4
    %
    
    
    26.1
    %Animal hospital
    
    
    35,580
    
    
    
    19.0
    %
    
    
    32,597
    
    
    
    19.1
    %
    
    
    9.2
    %Medical technology
    
    
    4,311
    
    
    
    38.6
    %
    
    
    2,502
    
    
    
    31.3
    %
    
    
    72.3
    %Intercompany
    
    
    27
    
    
    
    
    
    
    
    (128
    )Total gross profit
    
    $
    75,920
    
    
    
    28.6
    %
    
    $
    63,521
    
    
    
    27.1
    %
    
    
    19.5
    %
 Laboratory Gross Profit
   Animal Hospital Gross Profit
   Medical Technology Gross Profit
   Critical
Accounting Policies
 15




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##### Table of Contents



Selling, General and Administrative Expense
  Three Months Ended March 31,2007
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    %$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    ChangeLaboratory
    
    $
    4,967
    
    
    6.7
    %
    
    
    $
    4,094
    
    
    6.7
    %
    
    
    21.3
    %Animal hospital
    
    
    5,560
    
    
    3.0
    %
    
    
    
    4,823
    
    
    2.8
    %
    
    
    15.3
    %Medical technology
    
    
    2,935
    
    
    26.3
    %
    
    
    
    2,651
    
    
    33.2
    %
    
    
    10.7
    %Corporate
    
    
    8,011
    
    
    3.0
    %
    
    
    
    7,317
    
    
    3.1
    %
    
    
    9.5
    %Total SG&A
    
    $
    21,473
    
    
    8.1
    %
    
    
    $
    18,885
    
    
    8.1
    %
    
    
    13.7
    %
 Laboratory SG&A
   Animal Hospital SG&A
   Medical Technology SG&A
   Corporate SG&A
   16




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##### Table of Contents



Write-down and Loss (Gain) on Sale of Assets
  Interest Expense, Net
  Three Months EndedMarch 31,2007
    
    
    2006Interest expense:Senior term notes
    
    $
    6,405
    
    
    $
    6,414Interest rate hedging agreements
    
    
    (489
    )
    
    
    (201
    )Capital leases and other
    
    
    350
    
    
    
    413Amortization of debt costs
    
    
    61
    
    
    
    1326,327
    
    
    
    6,758Interest income
    
    
    554
    
    
    
    446Total interest expense, net of interest income
    
    $
    5,773
    
    
    $
    6,312
  Provision for Income Taxes
  
 Liquidity and Capital Resources
  Three Months EndedMarch 31,2007
    
    
    2006Cash provided by (used in):Operating activities
    
    $
    44,015
    
    
    $
    37,752Investing activities
    
    
    (50,333
    )
    
    
    (25,140
    )Financing activities
    
    
    (541
    )
    
    
    (38,920
    )Decrease in cash and cash equivalents
    
    
    (6,859
    )
    
    
    (26,308
    )Cash and cash equivalents at beginning of period
    
    
    45,104
    
    
    
    58,488Cash and cash equivalents at end of period
    
    $
    38,245
    
    
    $
    32,180
 Cash Flows from Operating Activities
   17




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##### Table of Contents



Cash Flows from Investing Activities
 Subsequent Event
  Cash Flows from Financing Activities
 Subsequent Event
 Future
Contractual Cash Requirements
  Total
    
    
    2007 (1)
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterLong-term debt
    
    $
    373,450
    
    
    $
    3,568
    
    
    $
    4,181
    
    
    $
    3,879
    
    
    $
    3,880
    
    
    $
    357,942
    
    
    $
    Capital lease obligations
    
    
    14,963
    
    
    
    779
    
    
    
    1,070
    
    
    
    1,144
    
    
    
    1,283
    
    
    
    1,374
    
    
    
    9,313Operating leases
    
    
    523,648
    
    
    
    31,521
    
    
    
    32,314
    
    
    
    32,212
    
    
    
    30,792
    
    
    
    30,594
    
    
    
    366,215Fixed cash interest expense
    
    
    6,235
    
    
    
    926
    
    
    
    1,329
    
    
    
    1,069
    
    
    
    767
    
    
    
    522
    
    
    
    1,622Variable cash interest expense (2)
    
    
    108,616
    
    
    
    19,095
    
    
    
    26,089
    
    
    
    26,547
    
    
    
    26,630
    
    
    
    10,255
    
    
    
    Swap agreements (2)
    
    
    (1,911
    )
    
    
    (1,133
    )
    
    
    (704
    )
    
    
    (74
    )
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    45,806
    
    
    
    12,614
    
    
    
    8,464
    
    
    
    8,982
    
    
    
    9,744
    
    
    
    6,002
    
    
    
    Other long-term liabilities (3)
    
    
    49,511
    
    
    
    
    
    
    
    65
    
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    49,381Earn-out payments (4)
    
    
    413
    
    
    
    363
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,120,731
    
    
    $
    67,733
    
    
    $
    72,858
    
    
    $
    73,824
    
    
    $
    73,096
    
    
    $
    406,689
    
    
    $
    426,531
 
 (1)
    
    Consists of the period from April 1, 2007 through December 31, 2007.(2)
    
    We have variable-rate debt. The interest payments on our variable-rate debt are based on a
variable-rate component plus a margin of 1.50%. For purposes of this computation, we have
assumed that the interest rate on our variable-rate debt (including the margin of 1.50%) will
be 6.9%, 7.1%, 7.3%, 7.4%, and 7.6% for years 2007 through 2011, respectively. These
estimates are based on interest rate projections used to price our interest rate swap
agreements. Our consolidated financial statements included in our 2006 annual report on Form
10-K discuss these variable-rate notes in more detail.(3)
    
    Includes deferred income taxes of $42.2 million.(4)
    
    Represents contractual arrangements whereby additional cash may be paid to former owners of
acquired businesses upon attainment of specified performance targets. Subsequent Event
 18




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##### Table of Contents



Debt Related Covenants
    Interest Rate Swap Agreements
  Fixed interest rate
    
    4.07%
    
    3.98%
    
    3.94%
    
    5.51%Notional amount
    
    $50 million
    
    $50 million
    
    $50 million
    
    $50 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
    19




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##### Table of Contents



Other Debt
  
 Critical Accounting Policies
  Revenue
 Laboratory and Animal Hospital Revenue
  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 delivered or accepted by the customer if installation is required. 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.
 20




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##### Table of Contents



Modification of SOP No. 97-2, Software
Revenue Recognition, With Respect to Certain Transactions
 Digital Radiography Imaging Equipment
    Ultrasound Imaging Equipment
  Digital Radiography And Ultrasound Imaging Equipment Sold Together
  Other Services
  21




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##### Table of Contents



Goodwill Impairment
   Income Taxes
 Accounting for Income Taxes
  Accounting for Uncertainty in Income Taxes  an interpretation of FASB
Statement No. 109
 
 Recent Accounting Pronouncements
  Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB No.115
 22




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##### Table of Contents



Forward-Looking Statements
 Risk Factors
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Fixed interest rate
    
    4.07%
    
    3.98%
    
    3.94%
    
    5.51%Notional amount
    
    $50 million
    
    $50 million
    
    $50 million
    
    $50 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
    23




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  24




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##### Table of Contents



ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 10.1
    
    VCA Antech, Inc. 2007 Annual Cash Incentive Plan. Incorporated by reference to
Annex A to the Registrants proxy statement on Schedule 14A filed on April 27, 2007.31.1
    
    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.
 25




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##### Table of Contents



SIGNATURE
  Date: May 8, 2007
    
    By:
    
    /s/ Tomas W. FullerTomas W. FullerChief Financial Officer
 26




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1*
    
    VCA Antech, Inc. 2007 Annual Cash Incentive Plan. Incorporated by reference to
Annex A to the Registrants proxy statement on Schedule 14A filed on April 27, 2007.31.1
    
    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.
 
 *
    
    Management contract or compensatory plan or arrangement. 27