##### 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, 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
MARCH 31, 2006
  
 TABLE OF CONTENTS
 PageNumberPart I.
    
    Financial InformationItem 1.
    
    Financial Statements (Unaudited)Condensed, Consolidated Balance Sheets as of March 31, 2006 and
December 31, 2005
    
    
    1Condensed, Consolidated Income Statements for the Three Months Ended
March 31, 2006 and 2005
    
    
    2Condensed, Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2006 and 2005
    
    
    3Notes to Condensed, Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    25Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    26Item 1A.
    
    Risk
Factors
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3.
    
    Defaults Upon Senior Securities
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    26Item 5.
    
    Other
Information
    
    
    26Item 6.
    
    Exhibits
    
    
    26Signature
    
    
    27Exhibit
Index
    
    
    28Exhibit 4.1Exhibit 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, 2006 and December 31, 2005
 (Unaudited)
 (In thousands, except par value)
 March 31,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    32,180
    
    
    $
    58,488Trade accounts receivable, less allowance for uncollectible accounts of $10,173
and $9,409 at March 31, 2006 and December 31, 2005, respectively
    
    
    36,773
    
    
    
    36,104Inventory
    
    
    17,309
    
    
    
    17,856Prepaid expenses and other
    
    
    10,507
    
    
    
    9,867Deferred income taxes
    
    
    12,168
    
    
    
    10,972Prepaid income taxes
    
    
    2,314
    
    
    
    12,337Total current assets
    
    
    111,251
    
    
    
    145,624Property and equipment, less accumulated depreciation and amortization of $97,680
and $93,305 at March 31, 2006 and December 31, 2005, respectively
    
    
    150,600
    
    
    
    143,781Other assets:Goodwill
    
    
    603,191
    
    
    
    586,444Other intangible assets, net
    
    
    10,674
    
    
    
    10,735Deferred financing costs, net
    
    
    1,208
    
    
    
    1,340Other
    
    
    9,994
    
    
    
    9,149Total assets
    
    $
    886,918
    
    
    $
    897,073LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term obligations
    
    $
    5,667
    
    
    $
    5,884Accounts payable
    
    
    19,561
    
    
    
    20,718Accrued payroll and related liabilities
    
    
    21,771
    
    
    
    25,201Accrued interest
    
    
    207
    
    
    
    306Other accrued liabilities
    
    
    29,976
    
    
    
    28,860Total current liabilities
    
    
    77,182
    
    
    
    80,969Long-term obligations, less current portion
    
    
    409,046
    
    
    
    446,828Deferred income taxes
    
    
    35,129
    
    
    
    30,803Other liabilities
    
    
    13,476
    
    
    
    19,775Minority interest
    
    
    9,923
    
    
    
    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, 82,942 and 82,759
shares outstanding as of March 31, 2006 and December 31, 2005, respectively
    
    
    83
    
    
    
    83Additional paid-in capital
    
    
    261,674
    
    
    
    258,402Retained earnings
    
    
    78,716
    
    
    
    49,057Accumulated other comprehensive income
    
    
    1,689
    
    
    
    1,209Total stockholders equity
    
    
    342,162
    
    
    
    308,751Total liabilities and stockholders equity
    
    $
    886,918
    
    
    $
    897,073
  1




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##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
 
 CONDENSED, CONSOLIDATED INCOME STATEMENTS
For the Three Months Ended March 31, 2006 and 2005
(Unaudited)
(In thousands, except per share amounts)
 Three Months EndedMarch 31,2006
    
    
    2005Revenue
    
    $
    234,180
    
    
    $
    186,863Direct
costs
    
    
    170,659
    
    
    
    136,336Gross
profit
    
    
    63,521
    
    
    
    50,527Selling, general and administrative expense
    
    
    18,885
    
    
    
    14,132Gain on sale of assets
    
    
    (118
    )
    
    
    (10
    )Operating income
    
    
    44,754
    
    
    
    36,405Interest expense, net
    
    
    6,312
    
    
    
    6,667Other (income) expense
    
    
    (66
    )
    
    
    64Minority interest in income of subsidiaries
    
    
    774
    
    
    
    685Income before provision for income taxes
    
    
    37,734
    
    
    
    28,989Provision for income taxes
    
    
    8,075
    
    
    
    11,743Net
income
    
    $
    29,659
    
    
    $
    17,246Basic earnings per common share
    
    $
    0.36
    
    
    $
    0.21Diluted earnings per common share
    
    $
    0.35
    
    
    $
    0.21Shares used for computing basic earnings per share
    
    
    82,813
    
    
    
    82,220Shares used for computing diluted earnings per share
    
    
    84,583
    
    
    
    83,511
  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, 2006 and 2005
(Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    29,659
    
    
    $
    17,246Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    5,422
    
    
    
    4,342Amortization of debt costs
    
    
    132
    
    
    
    209Provision for uncollectible accounts
    
    
    1,562
    
    
    
    1,033Gain on sale of assets
    
    
    (118
    )
    
    
    (10
    )Share-based compensation
    
    
    776
    
    
    
    Minority interest in income of subsidiaries
    
    
    774
    
    
    
    685Distributions to minority interest partners
    
    
    (798
    )
    
    
    (656
    )Deferred income taxes
    
    
    2,917
    
    
    
    1,004Excess tax benefit from exercise of stock options
    
    
    (1,277
    )
    
    
    Other
    
    
    (235
    )
    
    
    (248
    )Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (2,132
    )
    
    
    (3,771
    )Increase in inventory, prepaid expenses and other assets
    
    
    (222
    )
    
    
    (2,429
    )Increase (decrease) in accounts payable and other accrued liabilities
    
    
    (6,479
    )
    
    
    2,059Increase (decrease) in accrued payroll and related liabilities
    
    
    (3,430
    )
    
    
    1,892Increase (decrease) in accrued interest
    
    
    (99
    )
    
    
    4,191Decrease in prepaid income taxes
    
    
    11,300
    
    
    
    9,821Net cash provided by operating activities
    
    
    37,752
    
    
    
    35,368Cash flows used in investing activities:Business acquisitions, net of cash acquired
    
    
    (15,863
    )
    
    
    (14,322
    )Real estate acquired in connection with business acquisitions
    
    
    (1,779
    )
    
    
    (221
    )Property and equipment additions
    
    
    (7,860
    )
    
    
    (7,209
    )Proceeds from sale of assets
    
    
    286
    
    
    
    92Other
    
    
    76
    
    
    
    77Net cash used in investing activities
    
    
    (25,140
    )
    
    
    (21,583
    )Cash flows used in financing activities:Repayment of long-term obligations
    
    
    (41,416
    )
    
    
    (3,414
    )Proceeds from issuance of common stock under stock option plans
    
    
    1,219
    
    
    
    191Excess tax benefit from exercise of stock options
    
    
    1,277
    
    
    
    Net cash used in financing activities
    
    
    (38,920
    )
    
    
    (3,223
    )Increase (decrease) in cash and cash equivalents
    
    
    (26,308
    )
    
    
    10,562Cash and cash equivalents at beginning of period
    
    
    58,488
    
    
    
    30,964Cash and cash equivalents at end of period
    
    $
    32,180
    
    
    $
    41,526
  3




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##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
 1. General
  2. Acquisitions
  Consideration:Cash
    
    $
    14,934Notes payable and other liabilities assumed
    
    
    4,244Total
    
    $
    19,178Purchase Price Allocation:Goodwill (1)
    
    $
    16,234Identifiable intangible assets
    
    
    800Tangible assets
    
    
    2,144Total
    
    $
    19,178
 
 (1)
    
    We expect that $12.4 million of the goodwill recorded for these acquisitions as of March 31,
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
    
    
    
    
    
    
    16,234
    
    
    
    
    
    
    
    16,234Other (1)
    
    
    
    
    
    
    534
    
    
    
    
    
    
    
    534Goodwill related to sale of animal hospital
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    (21
    )Balance as of March 31, 2006
    
    $
    94,246
    
    
    $
    489,785
    
    
    $
    19,160
    
    
    $
    603,191
 
 (1)
    
    Comprised of purchase price adjustments.  As of March 31, 2006
    
    
    As of December 31, 2005Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountCovenants not-to-compete
    
    $
    11,573
    
    
    $
    (5,164
    )
    
    $
    6,409
    
    
    $
    11,145
    
    
    $
    (4,970
    )
    
    $
    6,175Non-contractual customer
relationships
    
    
    3,368
    
    
    
    (982
    )
    
    
    2,386
    
    
    
    3,235
    
    
    
    (701
    )
    
    
    2,534Technology
    
    
    1,270
    
    
    
    (377
    )
    
    
    893
    
    
    
    1,270
    
    
    
    (314
    )
    
    
    956Trademarks
    
    
    569
    
    
    
    (85
    )
    
    
    484
    
    
    
    569
    
    
    
    (70
    )
    
    
    499Contracts
    
    
    397
    
    
    
    (155
    )
    
    
    242
    
    
    
    397
    
    
    
    (129
    )
    
    
    268Client lists
    
    
    465
    
    
    
    (205
    )
    
    
    260
    
    
    
    461
    
    
    
    (158
    )
    
    
    303Total
    
    $
    17,642
    
    
    $
    (6,968
    )
    
    $
    10,674
    
    
    $
    17,077
    
    
    $
    (6,342
    )
    
    $
    10,735
  Three Months EndedMarch 31,2006
    
    
    2005Aggregate amortization expense
    
    $
    860
    
    
    $
    804
  Remainder of 2006
    
    $
    2,4492007
    
    
    2,9722008
    
    
    2,3412009
    
    
    1,2982010
    
    
    563Thereafter
    
    
    1,051Total
    
    $
    10,674
 5




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4. Share-Based Compensation Plans
 Stock Incentive Plans
   Adoption of SFAS No. 123R
 Accounting for Stock
Issued to Employees.
 Share-Based Payment
 6




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##### Table of Contents



Three MonthsEndedMarch 31, 2006Share-based employee compensation:Laboratory direct cost
    
    $
    160Laboratory selling, general and administrative expense
    
    
    128Animal hospital selling, general and administrative expense
    
    
    215Corporate selling, general and administrative expense
    
    
    273776Tax
benefit
    
    
    (285
    )Net decrease in net income
    
    $
    491Effect on:Basic earnings per common share
    
    $
    (0.01
    )Diluted earnings per common share
    
    $
    (0.01
    )Effect on:Cash flows from operating activities
    
    $
    (1,277
    )Cash flows from financing activities
    
    $
    1,277
  Three MonthsEndedMarch 31, 2005Net income, as reported
    
    $
    17,246Deduct: Total share-based employee compensation determined
under fair-value based method for all awards, net of tax
    
    
    (2,303
    )Pro forma net income
    
    $
    14,943Earnings per common share:Basic  as reported
    
    $
    0.21Basic  Pro
forma
    
    $
    0.18Diluted  as reported
    
    $
    0.21Diluted  Pro forma
    
    $
    0.18
  7




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Calculation of Fair Value
  Risk-free interest rate (1)
    
    
    4.1
    %Dividend yield
    
    
    0.0
    %Expected volatility (2)
    
    
    39.5
    %Weighted-average fair value
    
    $
    7.98Expected term (3)
    
    5 years
 
 (1)
    
    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.(2)
    
    We estimate the volatility of our common stock on the date of grant based on historical
volatility.(3)
    
    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.   Stock Option Activity
  WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateExercise
    
    
    Term
    
    
    IntrinsicShares
    
    
    Price
    
    
    (Years)
    
    
    ValueOptions outstanding at January 1, 2006
    
    
    6,090
    
    
    $
    14.58Granted
    
    
    
    
    
    
    Exercised
    
    
    (183
    )
    
    
    6.67Canceled
    
    
    (10
    )
    
    
    3.23Options outstanding at March 31, 2006
    
    
    5,897
    
    
    $
    14.85
    
    
    
    5.8
    
    
    $
    80,392Options exercisable at March 31, 2006
    
    
    4,575
    
    
    $
    15.07
    
    
    
    5.9
    
    
    $
    61,345
   5. Long-Term Obligations
  8




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##### Table of Contents



6. Income Taxes
  7. Calculation of Earnings per Common Share
  Three Months EndedMarch 31,2006
    
    
    2005Net
income
    
    $
    29,659
    
    
    $
    17,246Weighted average common shares outstanding:Basic
    
    
    82,813
    
    
    
    82,220Effect of dilutive potential common shares:Stock options
    
    
    1,770
    
    
    
    1,291Diluted
    
    
    84,583
    
    
    
    83,511Basic earnings per common share
    
    $
    0.36
    
    
    $
    0.21Diluted earnings per common share
    
    $
    0.35
    
    
    $
    0.21
 8. Lines of Business
   9




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Animal
    
    
    Medical
    
    
    
    
    
    
    IntercompanyLaboratory
    
    
    Hospital
    
    
    Technology
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalThree 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
    )
    
    $
    7,860Three Months Ended March 31, 2005External revenue
    
    $
    49,310
    
    
    $
    133,354
    
    
    $
    4,199
    
    
    $
    
    
    
    $
    
    
    
    $
    186,863Intersegment revenue
    
    
    4,129
    
    
    
    
    
    
    
    285
    
    
    
    
    
    
    
    (4,414
    )
    
    
    Total revenue
    
    
    53,439
    
    
    
    133,354
    
    
    
    4,484
    
    
    
    
    
    
    
    (4,414
    )
    
    
    186,863Direct costs
    
    
    29,570
    
    
    
    107,619
    
    
    
    3,445
    
    
    
    
    
    
    
    (4,298
    )
    
    
    136,336Gross profit
    
    
    23,869
    
    
    
    25,735
    
    
    
    1,039
    
    
    
    
    
    
    
    (116
    )
    
    
    50,527Selling, general and administrative
expense
    
    
    3,365
    
    
    
    3,703
    
    
    
    1,567
    
    
    
    5,497
    
    
    
    
    
    
    
    14,132Gain on sale of assets
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Operating income (loss)
    
    $
    20,504
    
    
    $
    22,042
    
    
    $
    (528
    )
    
    $
    (5,497
    )
    
    $
    (116
    )
    
    $
    36,405Depreciation and amortization
    
    $
    902
    
    
    $
    2,744
    
    
    $
    299
    
    
    $
    397
    
    
    $
    
    
    
    $
    4,342Capital expenditures
    
    $
    1,681
    
    
    $
    3,881
    
    
    $
    120
    
    
    $
    1,832
    
    
    $
    (305
    )
    
    $
    7,209At March 31, 2006Total assets
    
    $
    156,156
    
    
    $
    637,706
    
    
    $
    44,903
    
    
    $
    51,036
    
    
    $
    (2,883
    )
    
    $
    886,918At December 31, 2005Total assets
    
    $
    146,902
    
    
    $
    614,492
    
    
    $
    47,114
    
    
    $
    90,977
    
    
    $
    (2,412
    )
    
    $
    897,073
 9. Commitments and Contingencies
  a. Earn-out Payments
  10




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b. Officers Compensation
       c. Other Contingencies
  10. Reclassifications
  11. Subsequent Events
  11




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 PageNumberIntroduction
    
    13Executive Overview
    
    13Results of Operations
    
    14Liquidity and Capital Resources
    
    20Critical Accounting Policies
    
    22Recent Accounting Pronouncements
    
    24Forward-Looking Statements
    
    25
 12




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##### Table of Contents



Introduction
 The following discussion should be read in conjunction with our condensed, consolidated
financial statements provided under Part I, Item I of this quarterly report on Form 10-Q. We have
included herein statements that constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. We generally identify forward-looking statements
in this report using words like believe, intend, expect, estimate, may, plan, should
plan, project, contemplate, anticipate, predict, potential, continue, or similar
expressions. You may find some of these statements below and elsewhere in this report. These
forward-looking statements are not historical facts and are inherently uncertain and outside of our
control. Any or all of our forward-looking statements in this report may turn out to be wrong.
They can be affected by inaccurate assumptions we might make or by known or unknown risks and
uncertainties. Many factors mentioned in our discussion in this report will be important in
determining future results. Consequently, no forward-looking statement can be guaranteed. Actual
future results may vary materially. Factors that may cause our plans, expectations, future
financial condition and results to change are described throughout this report and in our annual
report on Form 10-K, particularly in Risk Factors, Part I, Item 1A of that report.
 The forward-looking information set forth in this quarterly report on Form 10-Q is as of May
8, 2006, and we undertake no duty to update this information. Shareholders and prospective
investors can find information filed with the SEC after May 8, 2006 at our website at www.investor.vcaantech.com www.sec.gov .
  Laboratory.
 Animal hospitals.
 Medical technology.
 Corporate.
  
 Executive Overview
 Share-Based Payment
 13




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##### Table of Contents



Acquisitions and Facilities
   Animal hospitals:Facilities at December 31,
2005
    
    
    367Acquisitions
    
    
    8Acquisitions relocated into hospitals operated by us
    
    
    (1
    )Sold or
closed
    
    
    (1
    )Facilities at March 31,
2006
    
    
    373
 
 Results of Operations
  Inter-Animal
    
    
    Medical
    
    
    
    
    
    
    companyLaboratory
    
    
    Hospital
    
    
    Technology
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalThree Months Ended March 31, 2006Revenue
    
    $
    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
    )
    
    $
    5,422Three Months Ended March 31, 2005Revenue
    
    $
    53,439
    
    
    $
    133,354
    
    
    $
    4,484
    
    
    $
    
    
    
    $
    (4,414
    )
    
    $
    186,863Direct costs
    
    
    29,570
    
    
    
    107,619
    
    
    
    3,445
    
    
    
    
    
    
    
    (4,298
    )
    
    
    136,336Gross profit
    
    
    23,869
    
    
    
    25,735
    
    
    
    1,039
    
    
    
    
    
    
    
    (116
    )
    
    
    50,527Selling, general and administrative
expense
    
    
    3,365
    
    
    
    3,703
    
    
    
    1,567
    
    
    
    5,497
    
    
    
    
    
    
    
    14,132Gain on sale of assets
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Operating income (loss)
    
    $
    20,504
    
    
    $
    22,042
    
    
    $
    (528
    )
    
    $
    (5,497
    )
    
    $
    (116
    )
    
    $
    36,405Depreciation and amortization
    
    $
    902
    
    
    $
    2,744
    
    
    $
    299
    
    
    $
    397
    
    
    $
    
    
    
    $
    4,342
 14




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##### Table of Contents



Three Months EndedMarch 31,2006
    
    2005Revenue:Laboratory
    
    
    26.3
    %
    
    
    28.6
    %Animal hospital
    
    
    72.8
    
    
    
    71.4Medical technology
    
    
    3.4
    
    
    
    2.4Intercompany
    
    
    (2.5
    )
    
    
    (2.4
    )Total revenue
    
    
    100.0
    
    
    
    100.0Direct costs
    
    
    72.9
    
    
    
    73.0Gross profit
    
    
    27.1
    
    
    
    27.0Selling, general and administrative expense
    
    
    8.0
    
    
    
    7.5Operating income
    
    
    19.1
    
    
    
    19.5Interest expense, net
    
    
    2.7
    
    
    
    3.6Minority interest in income of subsidiairies
    
    
    0.3
    
    
    
    0.4Income before provision for income taxes
    
    
    16.1
    
    
    
    15.5Provision for income taxes
    
    
    3.4
    
    
    
    6.3Net income
    
    
    12.7
    %
    
    
    9.2
    %
 Revenue
  Three Months Ended March 31,% of
    
    
    
    
    
    
    % of2006
    
    
    Total
    
    
    2005
    
    
    Total
    
    
    % ChangeLaboratory
    
    $
    61,537
    
    
    
    26.3
    %
    
    $
    53,439
    
    
    
    28.6
    %
    
    
    15.2
    %Animal hospital
    
    
    170,523
    
    
    
    72.8
    %
    
    
    133,354
    
    
    
    71.4
    %
    
    
    27.9
    %Medical technology
    
    
    7,992
    
    
    
    3.4
    %
    
    
    4,484
    
    
    
    2.4
    %
    
    
    78.2
    %Intercompany
    
    
    (5,872
    )
    
    
    (2.5
    )%
    
    
    (4,414
    )
    
    
    (2.4
    )%
    
    
    33.0
    %Total revenue
    
    $
    234,180
    
    
    
    100.0
    %
    
    $
    186,863
    
    
    
    100.0
    %
    
    
    25.3
    %
 Laboratory Revenue
  Three Months Ended March 31,2006
    
    
    2005
    
    
    % ChangeLaboratory Revenue:Number of requisitions
    
    
    2,624
    
    
    
    2,263
    
    
    
    16.0
    %Average revenue per requisition (1)
    
    $
    23.45
    
    
    $
    23.61
    
    
    
    (0.7
    )%Total
    
    $
    61,537
    
    
    $
    53,439
    
    
    
    15.2
    %
 
 (1)
    
    Computed by dividing total internal revenue by the number of requisitions. 15
    Table of Contents     Animal Hospital Revenue
  Three Months Ended March 31,2006
    
    
    2005
    
    
    % ChangeAnimal Hospital Revenue:Same-store facilities:Orders (1)
    
    
    1,057
    
    
    
    1,087
    
    
    
    (2.8
    )%Average revenue per order (2)
    
    $
    129.45
    
    
    $
    119.63
    
    
    
    8.2
    %Same-store revenue (1)
    
    $
    136,939
    
    
    $
    129,994
    
    
    
    5.3
    %Business day adjustment (3)
    
    
    1,667
    
    
    
    Net acquired revenue (4)
    
    
    31,917
    
    
    
    3,360Total
    
    $
    170,523
    
    
    $
    133,354
    
    
    
    27.9
    %
 
 (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 quarter 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)
    
    Computed by dividing same-store revenue by same-store orders.(3)
    
    The business day adjustment reflects the impact of one additional business day for the three
months ended March 31, 2006 as compared to the three months ended March 31, 2005.(4)
    
    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 January 1, 2005 for the above analysis. 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.   16




---



##### Table of Contents



Medical Technology Revenue
 Critical Accounting Policies
  Intercompany Revenue
  Gross Profit
  Three Months Ended March 31,2006
    
    
    2005Gross
    
    
    
    
    
    
    GrossProfit
    
    
    
    
    
    
    Profit
    
    
    %$
    
    
    Margin
    
    
    $
    
    
    Margin
    
    
    ChangeLaboratory
    
    $
    28,550
    
    
    
    46.4
    %
    
    $
    23,869
    
    
    
    44.7
    %
    
    
    19.6
    %Animal hospital
    
    
    32,597
    
    
    
    19.1
    %
    
    
    25,735
    
    
    
    19.3
    %
    
    
    26.7
    %Medical technology
    
    
    2,502
    
    
    
    31.3
    %
    
    
    1,039
    
    
    
    23.2
    %
    
    
    140.8
    %Intercompany
    
    
    (128
    )
    
    
    
    
    
    
    (116
    )Total gross profit
    
    $
    63,521
    
    
    
    27.1
    %
    
    $
    50,527
    
    
    
    27.0
    %
    
    
    25.7
    %
 Laboratory Gross Profit
   17




---



##### Table of Contents



Animal Hospital Gross Profit
   Medical Technology Gross Profit
    Selling, General and Administrative Expense
  Three Months Ended March 31,2006
    
    
    2005% of
    
    
    
    
    
    
    % of
    
    
    %$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    ChangeLaboratory
    
    $
    4,094
    
    
    
    6.7
    %
    
    $
    3,365
    
    
    
    6.3
    %
    
    
    21.7
    %Animal hospital
    
    
    4,823
    
    
    
    2.8
    %
    
    
    3,703
    
    
    
    2.8
    %
    
    
    30.2
    %Medical technology
    
    
    2,651
    
    
    
    33.2
    %
    
    
    1,567
    
    
    
    34.9
    %
    
    
    69.2
    %Corporate
    
    
    7,317
    
    
    
    3.1
    %
    
    
    5,497
    
    
    
    2.9
    %
    
    
    33.1
    %Total SG&A
    
    $
    18,885
    
    
    
    8.1
    %
    
    $
    14,132
    
    
    
    7.6
    %
    
    
    33.6
    %
 Laboratory SG&A
   Animal Hospital SG&A
  18




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##### Table of Contents



Medical Technology SG&A
   Corporate SG&A
   Interest Expense, Net
  Three Months EndedMarch 31,2006
    
    
    2005Interest expense:Senior term notes
    
    $
    6,414
    
    
    $
    2,4209.875% senior subordinated notes
    
    
    
    
    
    
    4,197Interest rate hedging agreements
    
    
    (201
    )
    
    
    (94
    )Capital leases and other
    
    
    413
    
    
    
    209Amortization of debt costs
    
    
    132
    
    
    
    2096,758
    
    
    
    6,941Interest income
    
    
    446
    
    
    
    274Total interest expense, net of interest income
    
    $
    6,312
    
    
    $
    6,667
 Liquidity and Capital Resources
 Provision for Income Taxes
  19




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##### Table of Contents



Liquidity and Capital Resources
  Three Months EndedMarch 31,2006
    
    
    2005Cash provided by (used in):Operating activities
    
    $
    37,752
    
    
    $
    35,368Investing activities
    
    
    (25,140
    )
    
    
    (21,583
    )Financing activities
    
    
    (38,920
    )
    
    
    (3,223
    )Increase (decrease) in cash and cash equivalents
    
    
    (26,308
    )
    
    
    10,562Cash and cash equivalents at beginning of year
    
    
    58,488
    
    
    
    30,964Cash and
cash equivalents at end of period
    
    $
    32,180
    
    
    $
    41,526
 Cash Flows from Operating Activities
   Cash Flows used in Investing Activities
   Cash Flows from Financing Activities
  20




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##### Table of Contents



Future Cash Requirements
  Total
    
    
    2006 (1)
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterLong-term debt
    
    $
    398,721
    
    
    $
    3,563
    
    
    $
    5,580
    
    
    $
    4,384
    
    
    $
    4,082
    
    
    $
    4,083
    
    
    $
    377,029Capital lease obligations
    
    
    15,992
    
    
    
    766
    
    
    
    1,040
    
    
    
    1,070
    
    
    
    1,144
    
    
    
    1,283
    
    
    
    10,689Operating leases
    
    
    512,723
    
    
    
    22,623
    
    
    
    29,409
    
    
    
    29,060
    
    
    
    28,422
    
    
    
    28,017
    
    
    
    375,192Fixed cash interest expense
    
    
    7,635
    
    
    
    1,069
    
    
    
    1,257
    
    
    
    1,329
    
    
    
    1,069
    
    
    
    767
    
    
    
    2,144Variable cash interest expense(2)
    
    
    150,917
    
    
    
    21,207
    
    
    
    28,939
    
    
    
    29,030
    
    
    
    29,688
    
    
    
    30,327
    
    
    
    11,726Swap agreements (2)
    
    
    (5,067
    )
    
    
    (1,879
    )
    
    
    (2,365
    )
    
    
    (823
    )
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    51,581
    
    
    
    10,859
    
    
    
    7,651
    
    
    
    8,383
    
    
    
    8,942
    
    
    
    9,744
    
    
    
    6,002Other long-term liabilities (3)
    
    
    42,418
    
    
    
    
    
    
    
    65
    
    
    
    65
    
    
    
    65
    
    
    
    
    
    
    
    42,223Earn-out payments (4)
    
    
    163
    
    
    
    163
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,175,083
    
    
    $
    58,371
    
    
    $
    71,576
    
    
    $
    72,498
    
    
    $
    73,412
    
    
    $
    74,221
    
    
    $
    825,005
 
 (1)
    
    Consists of the period from April 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
7.2%, 7.4%, 7.5%, 7.8%, 8.0% and 8.3% 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 $35.1 million.(4)
    
    Represents contractual arrangements whereby additional cash may be paid to former owners of
acquired businesses upon attainment of specified performance targets.  Debt Related Covenants
    21




---



##### Table of Contents



Interest Rate Hedging Agreements
  Fixed interest rate
    
    
    4.07
    %
    
    
    3.98
    %
    
    
    3.94
    %Notional amount
    
    $50.0 million
    
    $50.0 million
    
    $50.0 millionEffective date
    
    
    5/26/2005
    
    
    
    6/2/2005
    
    
    
    6/30/2005Expiration date
    
    
    5/26/2008
    
    
    
    5/31/2008
    
    
    
    6/30/2007Counterparties
    
    Goldman Sachs
    
    Wells Fargo
    
    Wells FargoQualifies for hedge accounting
    
    Yes
    
    Yes
    
    Yes
  Description of Indebtedness
 Senior Credit Facility
    Other Debt
  
 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.
 22




---



##### Table of Contents



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.
 Modification of SOP No. 97-2, Software
Revenue Recognition, With Respect to Certain Transactions
 Ultrasound Imaging Equipment
  23




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##### Table of Contents







Digital Radiography Equipment






Valuation of Goodwill






Income Taxes


Accounting for Income Taxes









Recent Accounting Pronouncements


Share-Based Payment.


24



---



##### Table of Contents



Share-Based
Compensation Plans,
 
 Forward-Looking Statements
 Risk Factors
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Fixed interest rate
    
    
    4.07
    %
    
    
    3.98
    %
    
    
    3.94
    %Notional amount
    
    $50.0 million
    
    $50.0 million
    
    $50.0 millionEffective date
    
    
    5/26/2005
    
    
    
    6/2/2005
    
    
    
    6/30/2005Expiration date
    
    
    5/26/2008
    
    
    
    5/31/2008
    
    
    
    6/30/2007Counterparties
    
    Goldman Sachs
    
    Wells Fargo
    
    Wells FargoQualifies for hedge accounting
    
    Yes
    
    Yes
    
    Yes
   
 ITEM 4. CONTROLS AND PROCEDURES
    25




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 3.1
    
    Second Amended and Restated Bylaws of Registrant. Incorporated by reference to Exhibit
3.1 to the Registrants current report on Form 8-K filed May 1, 2006.4.1
    
    2006 Equity Incentive Plan of VCA Antech, Inc.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.
 26




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##### Table of Contents



SIGNATURE
  Date: May 8, 2006
    
    By: /s/ Tomas W. FullerTomas W. FullerChief Financial Officer
 27




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description3.1
    
    
    Second Amended and Restated Bylaws of Registrant. Incorporated by reference to Exhibit 3.1
to the Registrants current report on Form 8-K filed May 1, 2006.4.1
    
    
    2006 Equity Incentive Plan of VCA Antech, Inc.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