Edgar Filing: VCA ANTECH INC

e10vq

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 September 30, 2010


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 incorporation or organization)		(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)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: common stock, $0.001 par value, 86,174,866 shares as of November 2, 2010.

VCA Antech, Inc. and Subsidiaries
Form 10-Q
September 30, 2010

Table of Contents


	Page
	Number
Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Condensed, Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009		1

Condensed, Consolidated Income Statements for the Three and Nine Months Ended September 30, 2010 and 2009		2

Condensed, Consolidated Statements of Equity for the Nine Months Ended September 30, 2010 and 2009		3

Condensed, Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009		4

Notes to Condensed, Consolidated Financial Statements		5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3. Quantitative and Qualitative Disclosures About Market Risk		33

Item 4. Controls and Procedures		33

Part II. Other Information

Item 1. Legal Proceedings		34

Item 1A. Risk Factors		34

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34

Item 3. Defaults Upon Senior Securities		34

Item 5. Other Information		34

Item 6. Exhibits		34

Signature		36

Exhibit Index		37
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VCA Antech, Inc. and Subsidiaries

Condensed, Consolidated Balance Sheets

(Unaudited)

(In thousands, except par value)


	September 30,		December 31,
	2010		2009
Assets

Current assets:
Cash and cash equivalents	$	132,233	$	145,181
Trade accounts receivable, less allowance for uncollectible accounts of $13,448 and $13,015 at September 30, 2010 and December 31, 2009, respectively		51,606		49,186
Inventory		34,580		32,031
Prepaid expense and other		20,785		27,242
Deferred income taxes		19,445		18,318
Prepaid income taxes		15,598		6,252

Total current assets		274,247		278,210
Property and equipment, less accumulated depreciation and amortization of $193,185 and $167,506 at September 30, 2010 and December 31, 2009, respectively		324,222		289,415
Goodwill		1,074,316		985,674
Other intangible assets, net		45,854		44,280
Notes receivable, net		6,216		5,153
Deferred financing costs, net		6,689		581
Other		31,953		24,091

Total assets	$	1,763,497	$	1,627,404


Liabilities and Equity

Current liabilities:
Current portion of long-term debt	$	28,202	$	17,195
Accounts payable		28,464		28,326
Accrued payroll and related liabilities		39,873		33,539
Other accrued liabilities		50,959		43,298

Total current liabilities		147,498		122,358
Long-term debt, less current portion		502,177		527,860
Deferred income taxes		90,089		75,197
Other liabilities		29,307		10,651

Total liabilities		769,071		736,066

Commitments and contingencies
Preferred stock, par value $0.001, 11,000 shares authorized, none outstanding		—		—

VCA Antech, Inc. stockholders’ equity:
Common stock, par value $0.001, 175,000 shares authorized, 86,087 and 85,584 shares outstanding as of September 30, 2010 and December 31, 2009, respectively		86		86
Additional paid-in capital		344,895		335,114
Accumulated earnings		628,780		540,010
Accumulated other comprehensive income (loss)		347		(163	)

Total VCA Antech, Inc. stockholders’ equity		974,108		875,047
Noncontrolling interests		20,318		16,291

Total equity		994,426		891,338

Total liabilities and equity	$	1,763,497	$	1,627,404

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

VCA Antech, Inc. and Subsidiaries

Condensed, Consolidated Income Statements

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Revenue	$	358,703		$	338,562		$	1,043,356		$	999,288
Direct costs		273,404			247,985			781,778			729,194

Gross profit		85,299			90,577			261,578			270,094
Selling, general and administrative expense		27,105			24,695			94,290			70,553
Net loss on sale of assets		152			409			163			5,604

Operating income		58,042			65,473			167,125			193,937
Interest expense, net		3,619			4,808			9,564			16,652
Debt retirement costs		2,550			—			2,550			—
Other income		(180	)		(1	)		(490	)		(131	)

Income before provision for income taxes		52,053			60,666			155,501			177,416
Provision for income taxes		23,466			23,180			63,465			68,081

Net income		28,587			37,486			92,036			109,335
Net income attributable to noncontrolling interests		1,156			1,125			3,266			3,259

Net income attributable to VCA Antech, Inc	$	27,431		$	36,361		$	88,770		$	106,076


Basic earnings per share	$	0.32		$	0.43		$	1.03		$	1.25

Diluted earnings per share	$	0.32		$	0.42		$	1.02		$	1.23


Weighted-average shares outstanding for basic earnings per share		86,086			85,217			85,985			84,909

Weighted-average shares outstanding for diluted earnings per share		86,964			86,431			86,998			85,893

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

VCA Antech, Inc. and Subsidiaries

Condensed, Consolidated Statements of Equity

(Unaudited)

(In thousands)


										Accumulated
					Additional					Other
	Common Stock				Paid-In			Accumulated		Comprehensive			Noncontrolling
	Shares		Amount		Capital			Earnings		(Loss) Income			Interests			Total
Balances, December 31, 2008		84,633	$	85	$	308,674		$	408,582	$	(6,352	)	$	12,846		$	723,835
Net income		—		—		—			106,076		—			3,259			109,335
Foreign currency translation adjustment		—		—		—			—		592			—			592
Unrealized gain on foreign currency, net of tax		—		—		—			—		288			—			288
Unrealized loss on hedging instruments, net of tax		—		—		—			—		(801	)		—			(801	)
Losses on hedging instruments reclassified to income, net of tax		—		—		—			—		4,791			—			4,791
Formation of noncontrolling interests		—		—		—			—		—			3,440			3,440
Distribution to noncontrolling interests		—		—		—			—		—			(3,018	)		(3,018	)
Restricted stock unit grant		—		—		1,941			—		—						1,941
Share-based compensation		—		—		5,940			—		—			—			5,940
Issuance of common stock under stock incentive plans		808		—		13,110			—		—			—			13,110
Stock repurchases		—		—		(561	)		—		—			—			(561	)
Tax benefit from stock options and awards		—		—		1,445			—		—			—			1,445

Balances, September 30, 2009		85,441	$	85	$	330,549		$	514,658	$	(1,482	)	$	16,527		$	860,337


Balances, December 31, 2009		85,584	$	86	$	335,114		$	540,010	$	(163	)	$	16,291		$	891,338
Net income		—		—		—			88,770		—			3,266			92,036
Foreign currency translation adjustment		—		—		—			—		103			—			103
Unrealized gain on foreign currency, net of tax		—		—		—			—		175			—			175
Unrealized loss on hedging instruments, net of tax		—		—		—			—		(1	)		—			(1	)
Losses on hedging instruments reclassified to income, net of tax		—		—		—			—		233			—			233
Formation of noncontrolling interests		—		—		—			—		—			4,559			4,559
Distribution to noncontrolling interests		—		—		—			—		—			(3,314	)		(3,314	)
Purchase of noncontrolling interests		—		—		—			—		—			(484	)		(484	)
Share-based compensation		—		—		7,490			—		—			—			7,490
Issuance of common stock under stock incentive plans		503		—		4,781			—		—			—			4,781
Stock repurchases		—		—		(2,292	)		—		—			—			(2,292	)
Tax benefit from stock options and awards		—		—		370			—		—			—			370
Tax shortfall and other from stock options and awards		—		—		(568	)		—		—			—			(568	)

Balances, September 30, 2010		86,087	$	86	$	344,895		$	628,780	$	347		$	20,318		$	994,426

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

VCA Antech, Inc. and Subsidiaries

Condensed, Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Nine Months Ended
	September 30,
	2010			2009
Cash flows from operating activities:
Net income	$	92,036		$	109,335
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		33,387			28,986
Amortization of debt issue costs		461			363
Provision for uncollectible accounts		5,388			5,075
Debt retirement costs		2,550			—
Net loss on sale of assets		163			5,604
Share-based compensation		7,490			5,940
Deferred income taxes		10,992			16,057
Excess tax benefit from exercise of stock options		(370	)		(591	)
Other		(550	)		(299	)
Changes in operating assets and liabilities:
Accounts receivable		(7,533	)		(8,312	)
Inventory, prepaid expense and other assets		(1,754	)		(7,820	)
Accounts payable and other accrued liabilities		7,038			742
Accrued payroll and related liabilities		3,717			(4,339	)
Income taxes		(9,545	)		5,580

Net cash provided by operating activities		143,470			156,321

Cash flows from investing activities:
Business acquisitions, net of cash acquired		(45,023	)		(51,853	)
Real estate acquired in connection with business acquisitions		(5,834	)		(3,828	)
Property and equipment additions		(47,675	)		(38,522	)
Proceeds from sale of assets		15			123
Other		188			(440	)

Net cash used in investing activities		(98,329	)		(94,520	)

Cash flows from financing activities:
Repayment of debt		(548,560	)		(5,898	)
Proceeds from issuance of long-term debt		500,000			—
Payment of financing costs		(9,112	)		—
Distributions to noncontrolling interest partners		(3,314	)		(3,018	)
Proceeds from issuance of common stock under stock option plans		4,781			13,110
Excess tax benefit from exercise of stock options		370			591
Stock repurchases		(2,292	)		(561	)

Net cash (used in) provided by financing activities		(58,127	)		4,224

Effect of currency exchange rate changes on cash and cash equivalents		38			17

(Decrease) increase in cash and cash equivalents		(12,948	)		66,042
Cash and cash equivalents at beginning of period		145,181			88,959

Cash and cash equivalents at end of period	$	132,233		$	155,001


Supplemental disclosures of cash flow information:
Interest paid	$	9,207		$	16,329
Income taxes paid	$	62,018		$	46,444

Supplemental schedule of noncash investing and financing activities:
Detail of acquisitions:
Fair value of assets acquired	$	104,251		$	72,303
Cash paid for acquisitions		(42,827	)		(48,042	)
Cash paid to bondholders		(29,532	)		—
Contingent consideration		(259	)		(712	)
Noncash note conversion to equity interest in subsidiary		—			(5,700	)

Liabilities assumed	$	31,633		$	17,849

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

VCA Antech, Inc. and Subsidiaries

Notes to Condensed, Consolidated Financial Statements

September 30, 2010

(Unaudited)

1. Nature of Operations

Our company, VCA Antech, Inc. (“VCA”) is a Delaware corporation formed in 1986 and is based in Los Angeles, California. We are an animal healthcare company with three strategic segments: animal hospitals (“Animal Hospital”), veterinary diagnostic laboratories (“Laboratory”) and veterinary medical technology (“Medical Technology”).

Our animal hospitals offer a full range of general medical and surgical services for companion animals. Our animal hospitals treat diseases and injuries, provide pharmaceutical products and perform a variety of pet-wellness programs, including health examinations, diagnostic testing, vaccinations, spaying, neutering and dental care. At September 30, 2010, we operated 523 animal hospitals throughout 40 states.

We operate a full-service veterinary diagnostic laboratory network serving all 50 states and certain areas in Canada. Our laboratory network provides sophisticated testing and consulting services used by veterinarians in the detection, diagnosis, evaluation, monitoring, treatment and prevention of diseases and other conditions affecting animals. At September 30, 2010, we operated 49 laboratories of various sizes located strategically throughout the United States and Canada.

Our Medical Technology segment sells digital radiography and ultrasound imaging equipment, provides education and training on the use of that equipment, provides consulting and mobile imaging services, and sells software and ancillary services to the veterinary market.

2. Basis of Presentation

Our accompanying unaudited, condensed, consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements as permitted under applicable rules and regulations. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. The results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the full year ending December 31, 2010. For further information, refer to our consolidated financial statements and notes thereto included in our 2009 Annual Report on Form 10-K.

Certain reclassifications have been made herein to 2009 amounts to conform to the current year presentation. For the three and nine months ended September 30, 2009, we reclassified certain business operations from our Medical Technology segment to our Laboratory segment to conform to the current year presentation; the reclassifications did not have a material impact on either of our segments.

The preparation of our condensed, consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed, consolidated financial statements and notes thereto. Actual results could differ from those estimates.

3. Multiple-Deliverable Revenue Arrangements

In October 2009, the FASB issued new accounting guidance related to multiple-deliverable revenue arrangements. The new guidance was designed to result in financial reporting that better reflects the underlying economics of multiple-deliverable transactions. We early adopted the new guidance on January 1, 2010, which resulted in the more timely recognition of revenue in our Medical Technology business segment. The early adoption resulted in the recognition of approximately $1.1 million and $3.1 million in incremental revenue for the three and nine months ended September, 2010, respectively, in comparison to the revenue that would have been recognized under previous accounting guidance.

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

3. Multiple-Deliverable Revenue Arrangements, continued

Our Medical Technology business segment sells Digital Radiography (“DR”) imaging equipment to end users and to distributors in international markets which includes receptor plates, related computer equipment, software and additional related equipment, with one year of warranty support on the receptor plates and items related to the plates, and technical support on all software provided with the equipment. Distributors sell the DR products and warranties to the end customers and are responsible for all support provided directly to the end customer. The support that we provide to distributors is limited to the machines that are under a current support program and includes a level of warranty coordination, support and facilitation, including technical support related to the receptor plates, and receptor plate replacement during warranty repair ensuring limited down time to the end customer.

Under the new accounting guidance, sales arrangement consideration is allocated at the inception of the arrangement to all deliverables using the relative selling price method, whereby any discount in the arrangement is allocated proportionally to each deliverable on the basis of each deliverable’s selling price. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE nor TPE is available. For elements where VSOE is available, VSOE of fair value is based on the price for those products and services when sold separately by us or the price established by management with the relevant authority. TPE of selling price is the price of our, or any of our competitor’s, largely interchangeable products or services in stand-alone sales to similarly situated customers.

We do not currently have VSOE for our DR imaging equipment as units are not sold on a stand-alone basis without the related support packages. As this is also true for our competitors, TPE of selling price is also unavailable. We therefore use the ESP to allocate the arrangement consideration related to our DR imaging equipment. Our ESP was based upon the actual selling price of our DR equipment bundled with our Sound Assurance warranty. We calculated the stand-alone selling price of the DR equipment using a cost plus margin approach. The stand-alone cost in most cases was determined using manufacturer data. The margin however was based upon the amount received on the actual sale of the bundled product, which does not differ materially from the margin exclusive of the post-contract customer support (“PCS”). By utilizing this cost plus actual margin method we were able to incorporate both our internal pricing strategies in addition to external market conditions.

In domestic markets we have VSOE for our PCS as the support package is sold on a stand-alone basis. Our PCS agreements normally include a warranty on the receptor plate and technical support on the software elements. In foreign markets however, we do not have VSOE on the receptor plate warranties. Accordingly we use a similar cost plus margin approach to determine the ESP.

The changes made under the new accounting guidance did not cause any changes in the units of accounting related to our arrangements.

The new guidance resulted in a different allocation of revenue to the deliverables in the current fiscal year, which changed the pattern and timing of revenue recognition for these elements but did not change the total revenue to be recognized for the arrangement. Revenue and gross profit increased by approximately $1.1 million and $271,000, respectively, for the three months ending September 30, 2010 and by $3.1 million and $816,000, respectively, for the nine months ending September 30, 2010, primarily as a result of the acceleration of revenue related to the delivery of the equipment in international markets.

We are not able to reasonably estimate the effect of adopting these standards on future financial periods as the impact will vary based on the nature and volume of new or materially modified arrangements in any given period.

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

4. Goodwill and Other Intangible Assets

Goodwill

Goodwill represents the excess of the aggregate of the consideration transferred, the fair value of any noncontrolling interest in the acquiree and for a business combination achieved in stages, the acquisition-date fair value of any previously held equity interest over the net of the fair value of identifiable assets acquired and liabilities assumed. The following table presents the changes in the carrying amount of our goodwill for the nine months ended September 30, 2010 (in thousands):


	Animal					Medical
	Hospital			Laboratory		Technology		Total
Balance as of December 31, 2009	$	861,868		$	96,285	$	27,521	$	985,674
Goodwill acquired		83,505			7		—		83,512
Goodwill related to noncontrolling interests		3,237			—		—		3,237
Other ⁽¹⁾		(756	)		507		2,142		1,893

Balance as of September 30, 2010	$	947,854		$	96,799	$	29,663	$	1,074,316


⁽¹⁾		Other includes purchase-price adjustments which consist primarily of an adjustment to the valuation of deferred tax assets, buy-outs, earn-out payments and foreign currency translation adjustments.

Other Intangible Assets

In addition to goodwill, we have amortizable intangible assets at September 30, 2010 and December 31, 2009 as follows (in thousands):


	As of September 30, 2010							As of December 31, 2009
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
Noncontractual customer relationships	$	45,537	$	(12,464	)	$	33,073	$	38,359	$	(8,077	)	$	30,282
Covenants not-to-compete		14,039		(7,875	)		6,164		14,748		(7,785	)		6,963
Favorable lease asset		5,491		(2,524	)		2,967		5,406		(2,150	)		3,256
Trademarks		3,704		(852	)		2,852		3,362		(494	)		2,868
Technology		2,189		(1,414	)		775		2,209		(1,332	)		877
Client lists		35		(12	)		23		60		(26	)		34

Total	$	70,995	$	(25,141	)	$	45,854	$	64,144	$	(19,864	)	$	44,280

The following table summarizes our aggregate amortization expense related to other intangible assets (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Aggregate amortization expense	$	2,484	$	2,013	$	6,825	$	5,643

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

4. Goodwill and Other Intangible Assets, continued

The estimated amortization expense related to intangible assets for the remainder of 2010 and each of the succeeding years thereafter as of September 30, 2010 is as follows (in thousands):


Remainder of 2010	$	2,631
2011		9,809
2012		8,715
2013		6,504
2014		5,475
Thereafter		12,720

Total	$	45,854

5. Other Accrued Liabilities

Other accrued liabilities consisted of the following (in thousands):


	September 30,		December 31,
	2010		2009
Deferred revenue	$	9,397	$	12,497
Holdbacks		3,236		1,640
Accrued health insurance		4,734		4,484
Deferred rent		3,326		2,989
Accrued workers’ compensation insurance		1,567		2,217
Customer deposits		3,019		3,783
Other		25,680		15,688

	$	50,959	$	43,298

6. Long-Term Obligations

In August 2010, we entered into a new senior credit facility that provided $500.0 million of senior term notes and a $100.0 million revolving credit facility. The terms of the new senior credit facility are discussed in this footnote under Senior Credit Facility. The funds borrowed under the new senior term notes were used to retire our existing senior term notes in the principal amount of $505.4 million. In connection with the refinancing transactions, we wrote off previously deferred financing costs and paid financing costs. We incurred $9.4 million in debt retirement costs, of which approximately $2.6 million, or $1.6 million after tax were recognized as part of income from continuing operations and approximately $6.8 million were capitalized as deferred financing costs. Included in the $2.6 million of debt retirement costs included in income from continuing operations was approximately $232,000 in previously deferred financing costs that were written off as part of the transaction. The following table summarizes our long-term obligations at September 30, 2010 and December 31, 2009 (in thousands):


	September 30,			December 31,
	2010			2009
Revolver	$	—		$	—
Senior term notes (LIBOR + 2.25%)		500,000			—
Senior term notes (LIBOR + 1.50%)		—			516,889
Other debt and capital lease obligations		30,379			28,166

Total debt obligations		530,379			545,055
Less — current portion		(28,202	)		(17,195	)

	$	502,177		$	527,860

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

6. Long-Term Obligations, continued

Senior Credit Facility

In August 2010 we entered into a new senior credit facility with various lenders for $600 million of senior secured credit facilities with Bank of America, N.A. as the syndication agent and Wells Fargo Bank, N.A. as the administrative agent. The senior credit facility includes $500 million of senior term notes and a $100 million revolving credit facility. The revolving credit facility allows us to borrow up to an aggregate principal amount of $100 million and may be used to borrow, on a same-day notice under a swing line, the lesser of $10 million or the aggregate unused amount of the revolving credit facility then in effect. At September 30, 2010 we had no borrowings outstanding under our revolving credit facility.

Interest Rate. In general, borrowings under the senior term notes and the revolving credit facility bear interest, at our option, on either:

	•		the base rate (as defined below); or

	•		the adjusted Eurodollar rate (as defined below) plus a margin of 2.25% (Level III, see table below) per annum until the date of delivery of the compliance certificate and the financial statements for the period ending March 31, 2011, at which time the applicable margin will be determined by reference to the leverage ratio in effect from time to time as set forth in the following table:


		Applicable Margin for			Applicable Revolving
Level	Leverage Ratio	Eurodollar Rate Loans			Commitment Fee %
I	> 2.75:1.00		2.75	%		0.50	%
II	< 2.75:1.00 and > 2.25:1.00		2.50	%		0.50	%
III	< 2.25:1.00 and > 1.75:1.00		2.25	%		0.50	%
IV	< 1.75:1.00 and > 1.25:1.00		2.00	%		0.50	%
V	< 1.25:1.00		1.75	%		0.375	%

The base rate is a rate per annum equal to the greatest of Wells Fargo’s prime rate in effect on such day, the Federal funds effective rate in effect on such day plus 0.50% and the adjusted Eurodollar rate for a one-month interest period commencing on such day plus 1.0%. The adjusted Eurodollar rate is defined as the rate per annum obtained by dividing (1) the rate of interest offered to Wells Fargo on the London interbank market by (2) a percentage equal to 100% minus the stated maximum rate of all reserve requirements applicable to any member bank of the Federal Reserve System in respect of “Eurocurrency liabilities.”

Maturity and Principal Payments. The senior term notes mature on August 19, 2015. Principal payments on the senior term notes are paid quarterly in the amount of $6.3 million for the first two years beginning on December 31, 2010, quarterly payments of $9.4 million for the two years following, and quarterly payments of $12.5 million for the three quarters prior to maturity at which time the remaining balance is due. The following table sets forth the remaining scheduled principal payments for our senior term notes (in thousands):


2010	$	6,250
2011		25,000
2012		28,125
2013		37,500
2014		40,625
Thereafter		362,500

Total	$	500,000

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

6. Long-Term Obligations, continued

The revolving credit facility matures on August 19, 2015. Principal payments on the revolving credit facility are made at our discretion with the entire unpaid amount due at maturity.

Guarantees and Security. We and each of our wholly-owned subsidiaries guarantee the outstanding debt under the senior credit facility. These borrowings, along with the guarantees of the subsidiaries, are further secured by substantially all of our consolidated assets. In addition, these borrowings are secured by a pledge of substantially all of the capital stock, or similar equity interests, of our wholly-owned subsidiaries.

Debt Covenants. The senior credit facility contains certain financial covenants pertaining to fixed charge coverage and leverage ratios. In addition, the senior credit facility has restrictions pertaining to capital expenditures, acquisitions and the payment of cash dividends on all classes of stock. We believe the most restrictive covenant is the fixed charge coverage ratio. At September 30, 2010 we had a fixed charge coverage ratio of 1.57 to 1.00, which was in compliance with the required ratio of no less than 1.20 to 1.00.

Interest Rate Swap Agreements

In accordance with current accounting guidance, all investments in derivatives are recorded at fair value. A derivative is typically defined as an instrument whose value is “derived” from an underlying instrument, index or rate, has a notional amount, requires little or no initial investment and can be net settled. Our derivatives are reported as current assets and liabilities or other non-current assets or liabilities as appropriate.

We use interest rate swap agreements to mitigate our exposure to increasing interest rates as well as to maintain an appropriate mix of fixed-rate and variable-rate debt.

If we determine that contracts are effective at meeting our risk reduction and correlation criteria we account for them using hedge accounting. Under hedge accounting, we recognize the effective portion of changes in the fair value of the contracts in other comprehensive income and the ineffective portion in earnings. If we determine that contracts do not, or no longer, meet our risk reduction and correlation criteria, we account for them under a fair-value method recognizing changes in the fair value in earnings in the period of change. If we determine that a contract no longer meets our risk reduction and correlation criteria, or if the derivative expires, we recognize in earnings any accumulated balance in other comprehensive income related to the contract in the period of determination. For interest rate swap agreements accounted for under hedge accounting, we assess the effectiveness based on changes in their intrinsic value with changes in the time value portion of the contract reflected in earnings. All cash payments made or received under the contracts are recognized in interest expense.

Credit exposure associated with nonperformance by the counterparties to derivative instruments is generally limited to the uncollateralized fair value of the asset related to instruments recognized in the consolidated balance sheets. We attempt to mitigate the risk of nonperformance by selecting counterparties with high credit ratings and monitoring their creditworthiness and by diversifying derivative amounts with multiple counterparties.

The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under the agreements and are not representative of the potential for gain or loss on these instruments. Interest rates affect the fair value of derivatives. The fair values generally represent the estimated amounts that we would expect to receive or pay upon termination of the contracts at the reporting date. The fair values are based upon dealer quotes when available or an estimate using values obtained from independent pricing services, costs to settle or quoted market prices of comparable instruments.

As of the quarter ended March 31, 2010, all of our interest rate swap agreements had expired and we have not entered into any new agreements during the quarters ended June 30, 2010 and September 30, 2010.

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

6. Long-Term Obligations, continued

The following table summarizes cash paid and ineffectiveness reported in earnings as a result of our interest rate swap agreements (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Cash paid ⁽¹⁾	$	—	$	1,895	$	382	$	7,867
Recognized loss (gain) from ineffectiveness ⁽²⁾	$	—	$	1	$	—	$	(70	)


(1)		Our interest rate swap agreements effectively converted a certain amount of our variable-rate debt under our senior credit facility to fixed-rate for purposes of hedging against the risk of increasing interests rates. The above table depicts cash payments to the counterparties on our swap agreements. These payments are offset by a corresponding decrease in interest paid on our variable-rate debt under our senior credit facility. These amounts are included in interest expense, net in our condensed, consolidated income statements.

(2)		These recognized losses and gains are included in other income in our condensed, consolidated income statements.

7. Fair Value Measurements

Current fair value accounting guidance includes a hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The current guidance establishes a three-tiered fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

	•		Level 1. Observable inputs such as quoted prices in active markets;

	•		Level 2. Inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and

	•		Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Fair Value of Financial Instruments

The FASB accounting guidance requires disclosure of fair value information about financial instruments, whether or not recognized in the accompanying condensed, consolidated balance sheets. Fair value as defined by the guidance is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value estimates of financial instruments are not necessarily indicative of the amounts we might pay or receive in actual market transactions. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash and Cash Equivalents. These balances include cash and cash equivalents with maturities of less than three months. The carrying amount approximates fair value due to the short-term maturities of these instruments.

Receivables, Less Allowance for Doubtful Accounts, Accounts Payable and Certain Other Accrued Liabilities. Due to their short-term nature, fair value approximates carrying value.

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

7. Fair Value Measurements, continued

Long-Term Debt. We believe the carrying value of our variable-rate senior term debt at September 30, 2010 is a reasonable estimate of fair value. We believe the carrying value of our variable-rate debt at December 31, 2009 was not a reasonable estimate of fair value due to changes in the credit markets during 2009. We estimated the fair value of our variable-rate debt using discounted cash flow techniques utilizing current market rates, which incorporate our credit risk.

The following table reflects the carrying value and fair value of our long-term debt (in thousands):


	As of September 30, 2010				As of December 31, 2009
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Variable-rate long-term debt	$	500,000	$	500,000	$	516,889	$	513,053

Interest Rate Swap Agreements. We use the market approach to measure fair value for our interest rate swap agreements. The market approach uses prices and other relevant information generated by market transactions involving comparable assets or liabilities.

The following table reflects the fair value of our interest rate swap agreements, which is measured on a recurring basis as defined by the FASB accounting guidance (in thousands):

Basis of Fair Value Measurement

Quoted Prices

Significant Other

Significant

In Active Markets

Observable

Unobservable

for Identical Items

Inputs

Balance

(Level 1)

(Level 2)

(Level 3)

At December 31, 2009

Other accrued liabilities

380

—

380

—

As of September 30, 2010, we do not have any applicable non-recurring measurements of non-financial assets and non-financial liabilities.

8. Share-Based Compensation

Stock Option Activity

A summary of our stock option activity for the nine months ended September 30, 2010 is as follows (in thousands):


				Weighted-
				Average
	Stock			Exercise
	Options			Price
Outstanding at December 31, 2009		4,300		$	16.72
Exercised		(331	)		14.41
Cancelled		(48	)		19.81

Outstanding at September 30, 2010		3,921		$	16.88


Exercisable at September 30, 2010		3,199		$	16.84


Expected to vest at September 30, 2010		689		$	17.04

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

8. Share-Based Compensation, continued

There were no stock options granted during the nine months ended September 30, 2010. The aggregate intrinsic value of our stock options exercised during the three and nine months ended September 30, 2010 was $166,000, and $2.1 million, respectively, and the actual tax benefit realized on options exercised during these periods was $64,000 and $827,000, respectively.

At September 30, 2010 there was $1.9 million of total unrecognized compensation cost related to our stock options. This cost is expected to be recognized over a weighted-average period of 1.4 years.

The compensation cost that has been charged against income for stock options for the three months ended September 30, 2010 and 2009 was $414,000 and $471,000, respectively. The corresponding income tax benefit recognized was $161,000 and $183,000 for the three months ended September 30, 2010 and 2009, respectively.

The compensation cost that has been charged against income for stock options for the nine months ended September 30, 2010 and 2009 was $2.2 million and $1.5 million, respectively. The corresponding income tax benefit recognized was $872,000 and $574,000 for the nine months ended September 30, 2010 and 2009, respectively.

Nonvested Stock Activity

There were 240,400 nonvested common stock awards granted to employees during the three and nine months ended September 30, 2010. These awards will vest in equal annual installments over four years from the date of the grant. In addition, during the nine months ended September 30, 2010 we granted 11,104 shares of nonvested common stock to our non-employee directors, which will vest in equal annual installments over three years from the date of grant.

Total compensation cost charged against income related to nonvested stock awards was $1.2 million and $1.5 million for the three months ended September 30, 2010 and 2009, respectively. The corresponding income tax benefit recognized in the income statement was $476,000 and $603,000 for the three months ended September 30, 2010 and 2009, respectively.

Total compensation cost charged against income related to nonvested stock awards was $5.2 million and $4.5 million for the nine months ended September 30, 2010 and 2009, respectively. The corresponding income tax benefit recognized in the income statement was $2.0 and $1.7 million for the nine months ended September 30, 2010 and 2009, respectively.

At September 30, 2010, there was $9.8 million of unrecognized compensation cost related to these nonvested shares, which will be recognized over a weighted-average period of 3.0 years. A summary of our nonvested stock activity for the nine months ended September 30, 2010 is as follows:


				Grant Date
				Weighted-
				Average Fair
				Value
	Shares			Per Share
Outstanding at December 31, 2009		691,764		$	30.54
Granted		251,504		$	20.56
Vested		(262,275	)	$	31.79
Forfeited/Canceled		(10,355	)	$	30.35

Outstanding at September 30, 2010		670,638		$	26.31

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

8. Share-Based Compensation, continued

Restricted Stock Unit Activity

Pursuant to the terms of the 2006 Equity Incentive Plan, on April 17, 2009, we awarded 84,757 restricted stock units in lieu of cash bonuses to our four senior executive officers for services performed in fiscal year 2008. Restricted stock units differ from the nonvested stock awards mentioned above in that the restricted stock units were fully vested or earned by the employee on the grant date; however, are restricted such that the participant will not have any right, title, or interest in, or otherwise be considered the owner of, any of the shares of common stock covered by the restricted stock units until such shares of common stock are settled. The restricted stock units will be settled upon the first to occur of the following: May 1, 2012, the date of the senior executive’s separation from service, death or disability, or the date of a change in control. The restricted stock units had a grant date fair value of $22.90 per share resulting in a total value of $1.9 million and the grant was reported as a non-cash financing activity for the September 30, 2009 period. There were no restricted stock grants for the September 30, 2010 period.

9. Calculation of Earnings per Share

Basic earnings per share is calculated by dividing net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding, after giving effect to all dilutive potential common shares outstanding during the period. Basic and diluted earnings per share were calculated as follows (in thousands, except per share amounts):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Net income attributable to VCA Antech, Inc	$	27,431	$	36,361	$	88,770	$	106,076


Weighted-average common shares outstanding:
Basic		86,086		85,217		85,985		84,909
Effect of dilutive potential common shares:
Stock options		632		951		812		779
Nonvested shares		246		263		201		205

Diluted		86,964		86,431		86,998		85,893


Basic earnings per share	$	0.32	$	0.43	$	1.03	$	1.25

Diluted earnings per share	$	0.32	$	0.42	$	1.02	$	1.23

For the three months ended September 30, 2010 and 2009, potential common shares of 1,162,389 and 9,111, respectively, were excluded from the computation of diluted earnings per share because their inclusion would have had an antidilutive effect.

For the nine months ended September 30, 2010 and 2009, potential common shares of 13,919 and 1,227,008, respectively, were excluded from the computation of diluted earnings per share because their inclusion would have had an antidilutive effect.

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

10. Comprehensive Income

Total comprehensive income consists of net income and the other comprehensive income during the three and nine months ended September 30, 2010 and 2009. The following table provides a summary of comprehensive income (in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Net income	$	28,587		$	37,486		$	92,036		$	109,335
Other comprehensive income:
Foreign currency translation adjustments		172			415			103			592
Unrealized gain on foreign currency		364			316			287			473
Tax expense		(142	)		(124	)		(112	)		(185	)
Unrealized loss on hedging instruments		—			(245	)		(2	)		(1,315	)
Tax benefit		—			96			1			514
Losses on hedging instruments reclassified to income		—			1,895			382			7,867
Tax benefit		—			(741	)		(149	)		(3,076	)

Other comprehensive income		394			1,612			510			4,870

Total comprehensive income		28,981			39,098			92,546			114,205
Comprehensive income attributable to noncontrolling interests		1,156			1,125			3,266			3,259

Comprehensive income attributable to VCA Antech, Inc	$	27,825		$	37,973		$	89,280		$	110,946

11. Lines of Business

Our reportable segments are Animal Hospital, Laboratory and Medical Technology. These segments are strategic business units that have different services, products and/or functions. The segments are managed separately because each is a distinct and different business venture with unique challenges, risks and rewards. Our Animal Hospital segment provides veterinary services for companion animals and sells related retail and pharmaceutical products. Our Laboratory segment provides diagnostic laboratory testing services for veterinarians, both associated with our animal hospitals and those independent of us. Our Medical Technology segment sells digital radiography and ultrasound imaging equipment, related computer hardware, software and ancillary services to the veterinary market. We also operate a corporate office that provides general and administrative support services for our other segments.

The accounting policies of our segments are essentially the same as those described in the summary of significant accounting policies included in our 2009 Annual Report on Form 10-K. See Note 3, Multiple-Deliverable Revenue Arrangements, for an update on our revenue recognition policies as a result of implementing the FASB’s accounting guidance on multiple-deliverable revenue arrangements. We evaluate the performance of our segments based on gross profit and operating income. For purposes of reviewing the operating performance of our segments all intercompany sales and purchases are generally accounted for as if they were transactions with independent third parties at current market prices.

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

11. Lines of Business, continued

The following is a summary of certain financial data for each of our segments (in thousands):


	Animal				Medical					Intercompany
	Hospital		Laboratory ⁽¹⁾		Technology ⁽¹⁾		Corporate			Eliminations			Total ⁽¹⁾
Three Months Ended September 30, 2010
External revenue	$	276,739	$	67,872	$	14,092	$	—		$	—		$	358,703
Intercompany revenue		—		9,420		3,314		—			(12,734	)		—

Total revenue		276,739		77,292		17,406		—			(12,734	)		358,703
Direct costs		230,113		42,579		12,152		—			(11,440	)		273,404

Gross profit		46,626		34,713		5,254		—			(1,294	)		85,299
Selling, general and administrative expense		5,599		6,804		3,731		10,971			—			27,105
Net loss on sale and disposal of assets		114		20		17		1			—			152

Operating income (loss)	$	40,913	$	27,889	$	1,506	$	(10,972	)	$	(1,294	)	$	58,042


Depreciation and amortization	$	8,258	$	2,464	$	606	$	616		$	(263	)	$	11,681
Capital expenditures	$	16,969	$	1,599	$	428	$	1,394		$	(640	)	$	19,750

Three Months Ended September 30, 2009
External revenue	$	257,385	$	69,712	$	11,465	$	—		$	—		$	338,562
Intercompany revenue		—		8,167		1,850		—			(10,017	)		—

Total revenue		257,385		77,879		13,315		—			(10,017	)		338,562
Direct costs		206,172		41,976		9,247		—			(9,410	)		247,985

Gross profit		51,213		35,903		4,068		—			(607	)		90,577
Selling, general and administrative expense		5,162		5,621		3,753		10,159			—			24,695
Net loss on sale and disposal of assets		400		1		1		7			—			409

Operating income (loss)	$	45,651	$	30,281	$	314	$	(10,166	)	$	(607	)	$	65,473


Depreciation and amortization	$	6,777	$	2,377	$	603	$	603		$	(214	)	$	10,146
Capital expenditures	$	10,571	$	2,388	$	347	$	557		$	(549	)	$	13,314


⁽¹⁾		Certain prior year amounts have been reclassified to reflect the transfer of certain business operations to the Laboratory segment from the Medical Technology segment. The reclassifications did not have a material impact on either of our segments.

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

11. Lines of Business, continued


	Animal				Medical					Intercompany
	Hospital		Laboratory ⁽¹⁾		Technology ⁽¹⁾		Corporate			Eliminations			Total ⁽¹⁾
Nine Months Ended September 30, 2010
External revenue	$	791,002	$	210,531	$	41,823	$	—		$	—		$	1,043,356
Intercompany revenue		—		27,913		5,982		—			(33,895	)		—

Total revenue		791,002		238,444		47,805		—			(33,895	)		1,043,356
Direct costs		653,671		126,647		33,373		—			(31,913	)		781,778

Gross profit		137,331		111,797		14,432		—			(1,982	)		261,578
Selling, general and administrative expense		16,859		19,485		10,650		47,296			—			94,290
Net loss on sale and disposal of assets		63		21		71		8			—			163

Operating income (loss)	$	120,409	$	92,291	$	3,711	$	(47,304	)	$	(1,982	)	$	167,125


Depreciation and amortization	$	23,240	$	7,273	$	1,812	$	1,815		$	(753	)	$	33,387
Capital expenditures	$	39,946	$	3,937	$	634	$	4,579		$	(1,421	)	$	47,675

Nine Months Ended September 30, 2009
External revenue	$	757,030	$	213,987	$	28,271	$	—		$	—		$	999,288
Intercompany revenue		—		24,930		4,092		—			(29,022	)		—

Total revenue		757,030		238,917		32,363		—			(29,022	)		999,288
Direct costs		609,520		125,909		21,542		—			(27,777	)		729,194

Gross profit		147,510		113,008		10,821		—			(1,245	)		270,094
Selling, general and administrative expense		15,924		16,832		8,959		28,838			—			70,553
Net loss on sale and disposal of assets		270		28		7		5,299			—			5,604

Operating income (loss)	$	131,316	$	96,148	$	1,855	$	(34,137	)	$	(1,245	)	$	193,937


Depreciation and amortization	$	19,636	$	6,865	$	1,327	$	1,759		$	(601	)	$	28,986
Capital expenditures	$	29,447	$	6,506	$	665	$	3,235		$	(1,331	)	$	38,522

At September 30, 2010
Total assets	$	1,290,635	$	214,191	$	71,101	$	202,555		$	(14,985	)	$	1,763,497

At December 31, 2009
Total assets	$	1,158,891	$	207,043	$	71,019	$	201,024		$	(10,573	)	$	1,627,404


⁽¹⁾		Certain prior year amounts have been reclassified to reflect the transfer of certain business operations to the Laboratory segment from the Medical Technology segment. The reclassifications did not have a material impact on either of our segments.

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

12. Commitments and Contingencies

We have certain commitments, including operating leases and purchase agreements. These items are discussed in detail in our consolidated financial statements and notes thereto included in our 2009 Annual Report on Form 10-K. We also have contingencies as follows:

a. Earn-Out Payments

We have contractual arrangements in connection with certain acquisitions that were accounted for under previous business combinations accounting guidance, whereby additional cash may be paid to former owners of acquired companies upon attainment of specified financial criteria as set forth in the respective agreements. The amount to be paid cannot be determined until the earn-out periods expire and the attainment of criteria is established. If the specified financial criteria are attained, at September 30, 2010, we will be obligated to pay an additional $1.3 million. We adopted new accounting guidance regarding business combinations for acquisitions with acquisition dates of January 1, 2009 or later. Under the new guidance contingent consideration, such as earn-out liabilities, are now recognized as part of the consideration transferred on the acquisition date and a corresponding liability is recorded based on the fair value of the liability if the fair value is known or determinable. The changes in fair value are recognized in earnings where applicable at each reporting period.

b. Other Contingencies

We have certain contingent liabilities resulting from litigation and claims incident to the ordinary course of our business. We believe that the probable resolution of such contingencies will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

13. Subsequent Events

On November 1, 2010, we acquired the remaining 29.6% interest in Pet DRx Corporation (“Pet DRx”), a provider of veterinary primary care and specialized services to companion animals. The acquisition expands our presence in the California market. Under the agreement we acquired Pet DRx for a total purchase price of $41.3 million of which approximately $4.1 million was disbursed subsequent to the quarter ended September 30, 2010. The results of Pet DRx are reported within our Animal Hospital segment.


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


	Page
Introduction		20

Executive Overview		20

Critical Accounting Policies		22

Consolidated Results of Operations		23

Segment Results		25

Liquidity and Capital Resources		29

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 November 8, 2010, and we undertake no duty to update this information. Shareholders and prospective investors can find information filed with the SEC after November 8, 2010 at our website at http://investor.vcaantech.com or at the SEC’s website at www.sec.gov.

We are a leading national animal healthcare company. We provide veterinary services and diagnostic testing to support veterinary care and we sell diagnostic imaging equipment, other medical technology products and related services to veterinarians. Our reportable segments are as follows:

	•		Our Animal Hospital segment operates the largest network of freestanding, full-service animal hospitals in the nation. Our animal hospitals offer a full range of general medical and surgical services for companion animals. We treat diseases and injuries, offer pharmaceutical and retail products and perform a variety of pet wellness programs, including health examinations, diagnostic testing, routine vaccinations, spaying, neutering and dental care. At September 30, 2010, our animal hospital network consisted of 523 animal hospitals in 40 states.

	•		Our Laboratory segment operates the largest network of veterinary diagnostic laboratories in the nation. Our laboratories provide sophisticated testing and consulting services used by veterinarians in the detection, diagnosis, evaluation, monitoring, treatment and prevention of diseases and other conditions affecting animals. At September 30, 2010, our Laboratory network consisted of 49 laboratories serving all 50 states and certain areas in Canada.

	•		Our Medical Technology segment sells digital radiography and ultrasound imaging equipment, related computer hardware, software and ancillary services.

The practice of veterinary medicine is subject to seasonal fluctuation. In particular, demand for veterinary services is significantly higher during the warmer months because pets spend a greater amount of time outdoors where they are more likely to be injured and are more susceptible to disease and parasites. In addition, use of veterinary services may be affected by levels of flea infestation, heartworm and ticks, and the number of daylight hours.

Our revenue has been adversely impacted by the current economic recession. We are unable to forecast the timing or degree of any economic recovery. Further, trends in the general economy may not be reflected in our business at the same time or in the same degree as in the general economy. The timing and degree of any economic recovery, and its impact on our business, are among the important factors that could cause our actual results to differ from our forward-looking information.

Executive Overview

During the three and nine months ended September 30, 2010, the slow pace of the economic recovery continued to impact organic revenue growth in both our Animal Hospital and Laboratory business segments. We achieved an increase in consolidated revenue through acquired animal hospitals and internal revenue growth in our Medical Technology business segment. Our Animal Hospital same-store revenue declined 4.0% and 2.5% for the three and nine months ended September 30, 2010, respectively. Our Laboratory internal revenue declined 0.9% and 0.4% for the three and nine months ended September 30, 2010. Our overall earnings for the quarter and year-to-date included $2.6 million, or $1.6 million net of tax, in costs related to the refinancing of our long-term debt and $5.4 million, or $3.5 million net of tax, related to additional state tax payments required as a result of a tax settlement reached during the quarter. The nine months ended

September 30, 2010 was also affected by the impact of charges for executive compensation related to consulting agreements entered into during the second quarter.

Refinancing Transactions

On August 19, 2010 we refinanced our senior credit facility. The new senior credit facility provides for $500 million of senior term notes and a $100 million revolving credit facility. Both the senior term notes and the revolving credit facility are priced at LIBOR plus 225 basis points, a 75 basis point increase from our previous credit facility, see Note 6, Long-Term Obligations, in our condensed, consolidated financial statements of this quarterly report on Form 10-Q for a more detailed discussion of applicable interest rates on our new debt. In conjunction with these refinancing transactions, we incurred $9.4 million in debt retirement costs of which approximately $2.6 million, or $1.6 million after tax were recognized as part of income from continuing operations for the three and nine months ended September 30, 2010 and the remaining $6.8 million were capitalized as deferred financing costs which will be amortized over the term of the credit facility. Included in the $2.6 million of debt retirement costs included in income from continuing operations was approximately $232,000 of previously deferred financing costs that were written off as part of the transaction.

Acquisitions and Facilities

Our growth strategy includes the acquisition of independent animal hospitals. We currently anticipate that we will acquire $110 million to $120 million, inclusive of Pet DRx Corporation, of annualized Animal Hospital revenue by the end of 2010. We also evaluate the acquisition of animal hospital chains and laboratories, or related businesses if favorable opportunities are presented. The following table summarizes the changes in the number of facilities operated by our Animal Hospital and Laboratory segments during the nine months ended September 30, 2010:


Animal Hospitals:
Beginning of period		489
Acquisitions		40
Sold, closed or merged		(6	)

End of period		523


Laboratories:
Beginning of period		47
Acquisitions		—
Acquisitions relocated into our existing laboratories		(1	)
Created		3

End of period		49

The following table summarizes the aggregate consideration for the 17 independent animal hospitals and three laboratories acquired during the nine months ended September 30, 2010, and the allocation of the purchase price (in thousands):

Consideration:
Cash ⁽¹⁾	$	38,294
Contingent consideration		259

Fair value of total consideration transferred	$	38,553


Allocation of the Purchase Price:
Tangible assets	$	2,425
Identifiable intangible assets		5,614
Goodwill ⁽²⁾		34,208
Other liabilities assumed		(3,694	)

Total	$	38,553


⁽¹⁾		See the Cash Flows from Investing Activities section in the Liquidity and Capital Resources discussion for reconciliation of cash paid for acquisitions per this schedule to the condensed, consolidated statement of cash flows.


⁽²⁾		We expect that $24.4 million of the goodwill recorded for these acquisitions as of September 30, 2010 will be fully deductible for income tax purposes.

In addition to the purchase price listed above, we made cash payments for real estate acquired in connection with our acquisition of animal hospitals totaling $5.8 million for the nine months ended September 30, 2010.

Acquisition of Pet DRx Corporation

On July 1, 2010, we acquired a 70.4% interest in Pet DRx Corporation (“Pet DRx”), a provider of veterinary primary care and specialized services to companion animals. Pet DRx operated 23 animal hospitals in California at the time of its acquisition. The acquisition expands our presence in the California market. We acquired the remaining portion of Pet DRx in November 2010. The aggregate purchase price in both steps was $41.3 million. Our condensed, consolidated financial statements reflect the operating results of Pet DRx since July 1, 2010.

The following table summarizes the purchase price in the first step of the Pet DRx acquisition and the preliminary allocation of the purchase price (in thousands):


Consideration:
Cash paid to bondholders	$	29,532
Cash paid to shareholders	$	4,520

Fair value of total consideration transferred	$	34,052


Allocation of the Purchase Price:
Tangible assets	$	7,668
Identifiable intangible assets		3,074
Goodwill ⁽¹⁾		51,908
Other liabilities assumed		(25,428	)

Total		37,222
Noncontrolling interest		(3,170	)

	$	34,052


Acquisition-related costs (included in selling, general and administrative expense in our income statement for the three months ended September 30, 2010)	$	1,236


Acquisition-related costs (included in selling, general and administrative expense in our income statement for the nine months ended September 30, 2010)	$	2,108


⁽¹⁾		As of September 30, 2010, we have not finalized the determination of the amount of goodwill that will be deductible for income tax purposes.

The allocation of the purchase price is preliminary because certain events have not occurred or have not been completed or finalized, including but not limited to, the valuation of assets, including intangible assets, and liabilities.

The purchase price paid in the second step of the Pet DRx acquisition will be first reflected in our financial statements for the fourth quarter 2010.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), which require management to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and on other factors that management believes to be reasonable. Actual results may differ from those estimates. Critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements. A discussion of such critical accounting policies, which include revenue recognition, valuation of goodwill and other intangible assets, income taxes, and self-insured liabilities can be found in our 2009 Annual Report on Form 10-K. During the quarter ended March 31, 2010, we implemented new accounting guidance related to multiple-deliverable revenue arrangements. Other than the changes to our revenue recognition policies there have been no other material changes to the policies noted above as of this quarterly report on Form 10-Q for the period ended September 30, 2010.

Medical Technology Revenue

We sell our digital radiography imaging equipment with multiple elements, including hardware, software licenses and/or services. Under new accounting guidance, tangible products containing software components and nonsoftware components that function together to deliver the tangible product’s essential functionality are now accounted for under the FASB’s guidance pertaining to multiple-deliverable revenue arrangements. These types of arrangements were previously accounted for under software accounting guidance. Accordingly, we now account for our digital radiography imaging equipment under this revised guidance.

Sales arrangement consideration is allocated at the inception of the arrangement to all deliverables using the relative selling price method, whereby any discount in the arrangement is allocated proportionally to each deliverable on the basis of each deliverable’s selling price. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE nor TPE is available. For elements where VSOE is available, VSOE of fair value is based on the price for those products and services when sold separately by us or the price established by management with the relevant authority. TPE of selling price is the price of our, or any of our competitor’s, largely interchangeable products or services in stand-alone sales to similarly situated customers. Our ESP was based upon the actual selling price of our DR equipment bundled with our Sound Assurance warranty. We calculated the stand-alone selling price of the DR equipment using a cost plus margin approach. The stand-alone cost in most cases was determined using manufacturer data. The margin however was based upon the amount received on the actual sale of the bundled product, which does not differ materially from the margin exclusive of the post-contract customer support (“PCS”). By utilizing this cost plus actual margin method we were able to incorporate both our internal pricing strategies in addition to external market conditions.

We do not currently have VSOE for our digital radiography imaging equipment as units are not sold on a stand-alone basis without support packages. As this is also true for our competitors, TPE of selling price is also unavailable. We therefore use the ESP to determine the selling price of our digital radiography imaging equipment using the methodology mentioned above. See Note 3, Multiple-Deliverable Revenue Arrangements, in our condensed, consolidated financial statements of this quarterly report on Form 10-Q for a more detailed discussion.

We recognize revenue when the services are provided or at the time of delivery or installation and customer acceptance. Generally, at the time of delivery and installation of equipment the only undelivered item is the PCS. This obligation is contractually defined in both terms of scope and period. For the PCS, we recognize the revenue for these services on a straight-line basis over the period of support and we expense the costs of these services as they are incurred.

Consolidated Results of Operations

The following table sets forth components of our condensed, consolidated income statements expressed as a percentage of revenue:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Revenue:
Animal Hospital		77.1	%		76.0	%		75.8	%		75.8	%
Laboratory		21.5			23.1			22.9			23.9
Medical Technology		4.9			3.9			4.6			3.2
Intercompany		(3.5	)		(3.0	)		(3.3	)		(2.9	)

Total revenue		100.0			100.0			100.0			100.0
Direct costs		76.2			73.2			74.9			73.0

Gross profit		23.8			26.8			25.1			27.0
Selling, general and administrative expense		7.6			7.4			9.0			7.1
Net loss on sale of assets		—			0.1			0.1			0.5

Operating income		16.2			19.3			16.0			19.4
Interest expense, net		1.0			1.4			0.9			1.6
Debt retirement costs		0.7			—			0.2			—

Income before provision for income taxes		14.5			17.9			14.9			17.8
Provision for income taxes		6.5			6.8			6.1			6.9

Net income		8.0			11.1			8.8			10.9
Net income attributable to noncontrolling interests		0.4			0.4			0.3			0.3

Net income attributable to VCA Antech, Inc		7.6	%		10.7	%		8.5	%		10.6	%

Revenue

The following table summarizes our revenue (in thousands, except percentages):


	Three Months Ended September 30,															Nine Months Ended September 30,
	2010						2009									2010						2009
				% of						% of			%						% of						% of			%
	$			Total			$			Total			Change			$			Total			$			Total			Change
Animal Hospital	$	276,739			77.1	%	$	257,385			76.0	%		7.5	%	$	791,002			75.8	%	$	757,030			75.8	%		4.5	%
Laboratory ⁽¹⁾		77,292			21.5	%		77,879			23.1	%		(0.8	)%		238,444			22.9	%		238,917			23.9	%		(0.2	)%
Medical Technology ⁽¹⁾		17,406			4.9	%		13,315			3.9	%		30.7	%		47,805			4.6	%		32,363			3.2	%		47.7	%
Intercompany		(12,734	)		(3.5	)%		(10,017	)		(3.0	)%		27.1	%		(33,895	)		(3.3	)%		(29,022	)		(2.9	)%		16.8	%

Total revenue	$	358,703			100.0	%	$	338,562			100.0	%		5.9	%	$	1,043,356			100.0	%	$	999,288			100.0	%		4.4	%


⁽¹⁾		Prior year amounts have been adjusted to reflect the reclassification of certain business operations from our Medical Technology segment to our Laboratory segment. The reclassifications did not have a material impact on either segment.

Consolidated revenue increased $20.1 million for the three months ended September 30, 2010 and $44.1 million for the nine months ended September 30, 2010 as compared to the same periods in the prior year. The increase was attributable to revenue from acquired animal hospitals and increased revenue from our Medical Technology business segment. The increase was partially offset by a decline in Animal Hospital same-store revenue. Our Animal Hospital same-store revenue declined 4.0% and 2.5% for the three and nine months ended September 30, 2010, respectively. As mentioned previously, our organic growth rates were impacted by the slow pace of the economic recovery.

Gross Profit

The following table summarizes our gross profit in both dollars and as a percentage of applicable revenue, or gross margin (in thousands, except percentages):


	Three Months Ended September 30,															Nine Months Ended September 30,
	2010						2009									2010						2009
				Gross						Gross			%						Gross						Gross			%
	$			Margin			$			Margin			Change			$			Margin			$			Margin			Change
Animal Hospital	$	46,626			16.8	%	$	51,213			19.9	%		(9.0	)%	$	137,331			17.4	%	$	147,510			19.5	%		(6.9	)%
Laboratory ⁽¹⁾		34,713			44.9	%		35,903			46.1	%		(3.3	)%		111,797			46.9	%		113,008			47.3	%		(1.1	)%
Medical Technology ⁽¹⁾		5,254			30.2	%		4,068			30.6	%		29.2	%		14,432			30.2	%		10,821			33.4	%		33.4	%
Intercompany		(1,294	)					(607	)								(1,982	)					(1,245	)

Total gross profit	$	85,299			23.8	%	$	90,577			26.8	%		(5.8	)%	$	261,578			25.1	%	$	270,094			27.0	%		(3.2	)%


⁽¹⁾		Prior year amounts have been adjusted to reflect the reclassification of certain business operations from our Medical Technology segment to our Laboratory segment. The reclassifications did not have a material impact on either segment.

Consolidated gross profit decreased $5.3 million for the three months ended September 30, 2010 and $8.5 million for the nine months ended September 30, 2010 as compared to the same periods in the prior year. The decrease was primarily due to a decline in Animal Hospital same-store revenue and a decline in both acquired and same-store Animal Hospital gross margins and to a lesser extent a decline in internal revenue and gross margin in our Laboratory segment. The decreases in our gross margin for the three and nine months ended September 30, 2010 was partially offset by increased gross profit in our Medical Technology segment from increased sales.

Segment Results

Animal Hospital Segment

The following table summarizes revenue, gross profit and gross margin for our Animal Hospital segment (in thousands, except percentages):


	Three Months Ended September 30,									Nine Months Ended September 30,
	2010			2009			% Change			2010			2009			Change
Revenue	$	276,739		$	257,385			7.5	%	$	791,002		$	757,030			4.5	%
Gross profit	$	46,626		$	51,213			(9.0	)%	$	137,331		$	147,510			(6.9	)%
Gross margin		16.8	%		19.9	%					17.4	%		19.5	%

Animal Hospital revenue increased $19.4 million for the three months ended September 30, 2010 and $34.0 million for the nine months ended September 30, 2010 as compared to the same periods in the prior year. The components of the increase are summarized in the following table (in thousands, except percentages and average revenue per order):


	Three Months Ended September 30,							Nine Months Ended September 30,
	2010		2009		% Change			2010		2009		% Change
Same-store facilities:
Orders ⁽¹⁾		1,596		1,680		(5.0	)%		4,585		4,804		(4.6	)%
Average revenue per order ⁽²⁾	$	153.69	$	152.10		1.0	%	$	155.85	$	152.56		2.2	%

Same-store revenue ⁽¹⁾	$	245,330	$	255,506		(4.0	)%	$	714,532	$	732,870		(2.5	)%
Business day adjustment ⁽³⁾		1,591		—					1,614		—
Net acquired revenue ⁽⁴⁾		29,818		1,879					74,856		24,160

Total	$	276,739	$	257,385		7.5	%	$	791,002	$	757,030		4.5	%


⁽¹⁾		Same-store revenue and orders were calculated using Animal Hospital operating results, adjusted to exclude the operating results for newly acquired animal hospitals that we did not own as of the beginning of the comparable period in the prior year. 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. The average revenue per order may not calculate exactly due to rounding.

⁽³⁾		The business day adjustment reflects the impact of one additional business day in 2010 as compared to 2009 for both periods presented.

⁽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 July 1, 2009 for the three month analysis and January 1, 2009 for the nine month analysis. Fluctuations in net acquired revenue occur due to the volume, size, and timing of acquisitions and dispositions during the periods from this date through the end of the applicable period.

We believe that factors contributing to the continued decline in our volume of same-store orders during the three and nine months ended September 30, 2010 include the continued impact of the current economic environment and the wide availability of many pet-related products, traditionally sold in our animal hospitals, in retail stores and other distribution channels such as the Internet.

In addition, our business strategy is to place a greater emphasis on comprehensive wellness visits and advanced medical procedures, which typically generate higher priced orders. The migration of lower priced orders from our animal hospitals to other distribution channels mentioned above and our emphasis on comprehensive wellness visits has over the past several years resulted in a decrease in lower priced orders and an increase in higher priced orders. However, this trend did not continue during the three and nine months ended September 30, 2010 when we experienced a decrease in the number of both lower and higher priced orders, which we believe is primarily a consequence of current economic

conditions in the United States, and the impact of changes in our overall business environment on the mix of tests performed.

Price increases also contributed to the increase in the average revenue per order. Prices at each of our animal hospitals are reviewed regularly and adjustments are made based on market considerations, demographics and our costs. These adjustments historically have approximated 3% to 6% on most services at the majority of our animal hospitals and are typically implemented in February of each year; however, price increases in 2010 have generally ranged between 2% and 3%.

Animal Hospital gross profit is calculated as Animal Hospital revenue less Animal Hospital direct costs. Animal Hospital direct costs are comprised of all costs of services and products at the animal hospitals, including, but not limited to, salaries of veterinarians, technicians and all other animal hospital-based personnel, facilities rent, occupancy costs, supply costs, depreciation and amortization, certain marketing and promotional expenses, and costs of goods sold associated with the retail sales of pet food and pet supplies.

Our combined Animal Hospital gross margin decreased to 16.8% for the three months ended September 30, 2010 and to 17.4% for the nine months ended September 30, 2010 as compared to 19.9% and 19.5% in the prior year periods. Our same-store gross margin decreased to 17.3% for the three months ended September 30, 2010 and to 18.0% for the nine months ended September 30, 2010 as compared to 20.0% and 19.7% for the prior year periods.

The decrease in same-store gross margin for the three and nine months ended September 30, 2010 was primarily due to the decline in same-store revenue compounded by increases in compensation costs, including health insurance, marketing, and depreciation and amortization expense. The combined Animal Hospital gross margin was further impacted by the lower gross margin from our acquired animal hospitals.

Over the last several years we have acquired a significant number of animal hospitals. Many of these newly acquired animal hospitals have a lower gross margin at the time of acquisition than our same-store facilities. Subsequently, we have improved the lower gross margin at our acquired animal hospitals, in the aggregate, by improving animal hospital revenue, reducing costs and/or increasing operating leverage.

Laboratory Segment

The following table summarizes revenue and gross profit for our Laboratory segment (in thousands, except percentages):


	Three Months Ended September 30,									Nine Months Ended September 30,
	2010			2009			% Change			2010			2009			% Change
Revenue	$	77,292		$	77,879			(0.8	)%	$	238,444		$	238,917			(0.2	)%
Gross profit	$	34,713		$	35,903			(3.3	)%	$	111,797		$	113,008			(1.1	)%
Gross margin		44.9	%		46.1	%					46.9	%		47.3	%
Laboratory revenue decreased $587,000 for the three months ended September 30, 2010 and $473,000 for the nine months ended September 30, 2010 as compared to the same periods in the prior year. The components of the changes in Laboratory revenue are detailed below (in thousands, except percentages and average revenue per requisition):

	Three Months Ended September 30,									Nine Months Ended September 30,
	2010			2009			% Change			2010			2009			% Change
Internal growth:
Number of requisitions ⁽¹⁾		3,232			3,332			(3.0	)%		10,001			10,271			(2.6	)%
Average revenue per requisition ⁽²⁾	$	23.89		$	23.37			2.2	%	$	23.79		$	23.26			2.3	%

Total internal revenue ⁽¹⁾	$	77,209		$	77,879			(0.9	)%	$	237,938		$	238,917			(0.4	)%
Acquired revenue ⁽³⁾		83			—						506			—

Total	$	77,292		$	77,879			(0.8	)%	$	238,444		$	238,917			(0.2	)%


⁽¹⁾		Internal revenue and requisitions were calculated using Laboratory operating results, adjusted to exclude the operating results of acquired laboratories that we did not own as of the beginning of the comparable period in the prior year, and


		adjusted for the impact resulting from any differences in the number of billing days in comparable periods, if applicable.

⁽²⁾		Computed by dividing internal revenue by the number of requisitions.

⁽³⁾		Acquired revenue represents the current year period revenue recognized from our acquired laboratories that we did not own as of the beginning of the comparable period in the prior year.

The decrease in Laboratory revenue for the three and nine months ended September 30, 2010 was due to a decrease in internal revenue attributable to a decline in volume partially offset by increases in average revenue per requisition. In prior years requisitions from internal growth have been driven by an ongoing trend in veterinary medicine to focus on the importance of laboratory diagnostic testing in the diagnosis, early detection and treatment of diseases, and the migration of certain tests to outside laboratories that have historically been performed in animal hospitals. While these factors historically have resulted in significant increases in internal requisitions, the economic environment and increased competition continue to impact requisitions in the current year.

The average revenue per requisition increased slightly for the three and nine months ended September 30, 2010 as compared to prior year periods due to price increases which ranged from 3% to 4% in both February 2010 and February 2009. The price increases were offset by other factors including changes in the mix, performing lower-priced tests historically performed at the animal hospitals, and a decrease in higher-priced tests as a result of the current economic environment.

Laboratory gross profit is calculated as Laboratory revenue less Laboratory direct costs. Laboratory direct costs are comprised of all costs of laboratory services, including but not limited to, salaries of veterinarians, specialists, technicians and other laboratory-based personnel, transportation and delivery costs, facilities rent, occupancy costs, depreciation and amortization and supply costs.

Our Laboratory gross margin decreased to 44.9% and 46.9% for the three and nine months ended September 30, 2010, respectively, as compared to 46.1% and 47.3% in the prior year periods. The decreases in gross margin are primarily due to revenue declines, as well as increases in transportation costs from added routes and pick-ups, and increased costs from added laboratory locations, which typically experience higher costs as a percentage of revenue in the first years of operation.

Medical Technology Segment

The following table summarizes revenue and gross profit for our Medical Technology segment (in thousands, except percentages):


	Three Months Ended September 30,									Nine Months Ended September 30,
	2010			2009			% Change			2010			2009			% Change
Revenue	$	17,406		$	13,315			30.7	%	$	47,805		$	32,363			47.7	%
Gross profit	$	5,254		$	4,068			29.2	%	$	14,432		$	10,821			33.4	%
Gross margin		30.2	%		30.6	%					30.2	%		33.4	%

Medical Technology revenue increased $4.1 million for the three months ended September 30, 2010 and $15.4 million for the nine months ended September 30, 2010 as compared to the prior year periods. The increases for the three months ended September 30, 2010 were due to increases in the unit sales of each of our digital radiography equipment product lines and ultrasound equipment sales. The increases for the nine months ended September 30, 2010 were due to the above mentioned increases in digital radiography equipment sales, partially due to the July 1, 2009 Eklin acquisition and increased customer service and ultrasound equipment sales. Medical Technology revenue also benefited from a change in our revenue recognition policy due to the implementation of new accounting guidance. See Note 3, Multiple-Deliverable Revenue Arrangements.

Medical Technology gross profit is calculated as Medical Technology revenue less Medical Technology direct costs. Medical Technology direct costs are comprised of all product and service costs, including, but not limited to, all costs of equipment, related products and services, salaries of technicians, support personnel, trainers, consultants and other non-administrative personnel, depreciation and amortization and supply costs.

Medical Technology gross profit increased $1.2 million for the three months ended September 30, 2010 and $3.6 million for the nine months ended September 30, 2010 as compared to the prior year periods. Gross margin decreased to 30.2% for the three and nine months ended September 30, 2010 as compared to 30.6% and 33.4% in the prior year periods.

The increase in gross profit is attributable to the increase in revenue as discussed above. The decline in gross margin for the three and nine months ended September 30, 2010 was due to changes in product mix.

Intercompany Revenue

Laboratory revenue for the three and nine months ended September 30, 2010 included intercompany revenue of $9.4 million and $27.9 million, respectively, that was generated by providing laboratory services to our animal hospitals. Medical Technology revenue for the three and nine months ended September 30, 2010 included intercompany revenue of $3.3 million and $6.0 million, respectively, that was generated by providing products and services to our animal hospitals and laboratories. For purposes of reviewing the operating performance of our business segments, all intercompany transactions are accounted for as if the transaction was with an independent third party at current market prices. For financial reporting purposes, intercompany transactions are eliminated as part of our consolidation.

Selling, General and Administrative Expense

The following table summarizes our selling, general and administrative expense (“SG&A”) in both dollars and as a percentage of applicable revenue (in thousands, except percentages):


	Three Months Ended September 30,													Nine Months Ended September 30,
	2010					2009								2010					2009
			% of					% of			%					% of					% of			%
	$		Revenue			$		Revenue			Change			$		Revenue			$		Revenue			Change
Animal Hospital	$	5,599		2.0	%	$	5,162		2.0	%		8.5	%	$	16,859		2.1	%	$	15,924		2.1	%		5.9	%
Laboratory		6,804		8.8	%		5,621		7.2	%		21.0	%		19,485		8.2	%		16,832		7.0	%		15.8	%
Medical Technology ⁽¹⁾		3,731		21.4	%		3,753		28.2	%		(0.6	)%		10,650		22.3	%		8,959		27.7	%		18.9	%
Corporate		10,971		3.1	%		10,159		3.0	%		8.0	%		47,296		4.5	%		28,838		2.9	%		64.0	%

Total SG&A ⁽¹⁾	$	27,105		7.6	%	$	24,695		7.4	%		9.8	%	$	94,290		9.0	%	$	70,553		7.1	%		33.6	%


⁽¹⁾		Prior year amounts have been reclassified to conform to the current year’s presentation.

Consolidated SG&A increased $2.4 million for the three months ended September 30, 2010 and $23.7 million for the nine months ended September 30, 2010. The three and nine months ended September 30, 2010 included transaction costs of $1.2 million and $2.1 million, respectively, related to the Pet DRx acquisition. The nine months ended September 30, 2010 also included $14.5 million in estimated consulting and SERP expenses to be paid in accordance with consulting and SERP agreements entered into on June 30, 2010. Excluding these costs, consolidated SG&A increased $1.2 million and $7.1 million, respectively, for the three and nine months ended September 30, 2010. SG&A increases for the three and nine months ended September 30, 2010 were attributable to increased research and development costs and costs incurred to support the efforts of the sales team in our Laboratory segment. Additional SG&A increases for the nine months ended September 30, 2010 were primarily due to increases in other legal costs and costs incurred as a result of the continuing integration of Eklin in our Medical Technology segment.

Operating Income

The following table summarizes our operating income in both dollars and as a percentage of applicable revenue (in thousands, except percentages):


	Three Months Ended September 30,															Nine Months Ended September 30,
	2010						2009									2010						2009
				% of						% of			%						% of						% of			%
	$			Revenue			$			Revenue			Change			$			Revenue			$			Revenue			Change
Animal Hospital	$	40,913			14.8	%	$	45,651			17.7	%		(10.4	)%	$	120,409			15.2	%	$	131,316			17.3	%		(8.3	)%
Laboratory ⁽¹⁾		27,889			36.1	%		30,281			38.9	%		(7.9	)%		92,291			38.7	%		96,148			40.2	%		(4.0	)%
Medical Technology ⁽¹⁾		1,506			8.7	%		314			2.4	%		379.6	%		3,711			7.8	%		1,855			5.7	%		100.1	%
Corporate		(10,972	)					(10,166	)					7.9	%		(47,304	)					(34,137	)					38.6	%
Intercompany		(1,294	)					(607	)					113.2	%		(1,982	)					(1,245	)					59.2	%

Total operating income	$	58,042			16.2	%	$	65,473			19.3	%		(11.3	)%	$	167,125			16.0	%	$	193,937			19.4	%		(13.8	)%


⁽¹⁾		Prior year amounts have been adjusted to reflect the reclassification of certain business operations from our Medical Technology segment to our Laboratory segment. The reclassifications did not have a material impact on either segment.

The decrease in our consolidated operating income during the three and nine months ended September 30, 2010 was primarily due to the SG&A increases discussed above as well as the aforementioned decline in our Animal Hospital and Laboratory gross profit.

Interest Expense, Net

The following table summarizes our interest expense, net of interest income (in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Interest expense:
Senior term notes	$	2,892		$	2,406		$	7,467		$	7,566
Interest rate hedging agreements		—			1,895			382			7,867
Capital leases and other		732			567			1,855			1,716
Amortization of debt costs		222			122			461			363

		3,846			4,990			10,165			17,512
Interest income		(227	)		(182	)		(601	)		(860	)

Total interest expense, net of interest income	$	3,619		$	4,808		$	9,564		$	16,652

The decrease in net interest expense for the three and nine months ended September 30, 2010 was attributable to a decrease in the overall weighted average interest rate primarily due to the gradual expiration of all of our higher cost fixed-rate swap agreements during the last twelve months.

Provision for Income Taxes

The effective rate for the three and nine months ended September 30, 2010 was 46.1% and 41.7%, respectively, which reflects a tax expense of $5.4 million, or $3.5 million net of tax, recognized during the quarter ended September 30, 2010 related to settlement of taxes on 2004 through 2007 taxable income.

Liquidity and Capital Resources

Introduction

We generate cash primarily from payments made by customers for our veterinary services, payments from animal hospitals and other clients for our laboratory services, and from proceeds received from the sale of our imaging equipment and other related services. Our business historically has experienced strong liquidity, as fees for services provided in our animal hospitals are due at the time of service and fees for laboratory services are collected under standard industry terms. Our cash disbursements are primarily for payments related to the compensation of our employees, supplies and inventory purchases for our operating segments, occupancy and other administrative costs, interest expense, payments on long-term borrowings, capital expenditures and animal hospital acquisitions. Cash outflows fluctuate with the amount and timing of the settlement of these transactions.

We manage our cash, investments and capital structure so we are able to meet the short-term and long-term obligations of our business while maintaining financial flexibility and liquidity. We forecast, analyze and monitor our cash flows to enable investment and financing within the overall constraints of our financial strategy.

At September 30, 2010, our consolidated cash and cash equivalents totaled $132.2 million, representing a decrease of $13.0 million as compared to December 31, 2009. Cash flows generated from operating activities totaled $143.5 million in the nine months ended September 30, 2010, representing a decrease of $12.9 million as compared to the nine months ended September 30, 2009.

We have historically funded our working capital requirements, capital expenditures and investment in individual acquisitions from internally generated cash flows and we expect to continue to do so in the future. We have access to a revolving credit facility which was entered into during the quarter ended September 30, 2010 and expires August 2015. The funds borrowed under the new senior term notes were used to retire our existing senior term notes in the principal amount of $505.4 million. The new senior term notes and revolving credit facility bear interest based on the interest rate offered to our administrative agent on the London interbank market, or LIBOR, plus a margin of 2.25% per annum.

Historically we have been able to obtain cash from other borrowings. The availability of financing in the form of debt or equity however is influenced by many factors including our profitability, operating cash flows, debt levels, debt ratings, contractual restrictions, and market conditions. Although in the past we have been able to obtain financing for material transactions on terms we believe to be reasonable, there is a possibility that we may not be able to obtain financing on favorable terms in the future.

Future Cash Flows

Short-Term

Other than our acquisitions of certain animal hospital chains, we historically have funded our working capital requirements, capital expenditures and investments in animal hospital acquisitions from internally generated cash flows. We anticipate that our cash on hand and net cash provided by operations will be sufficient to meet our anticipated cash requirements for the next 12 months. If we consummate one or more significant acquisitions of animal hospital chains during this period, we may seek additional debt or equity financing.

For the year ended December 31, 2010, we expect to spend $110 million to $120 million, excluding real estate, related to the acquisition of independent animal hospitals and animal hospital chains. The ultimate number of acquisitions and cash used is largely dependent upon the attractiveness of the candidates and the strategic fit within our operations and as a consequence, our actual number of acquisitions and cash expenditures may be more or less than amounts currently estimated. From January 1, 2010 through September 30, 2010, we spent $72.4 million in connection with the acquisition of 40 animal hospitals, as well as $5.8 million for the related real estate. In addition, we expect to spend approximately $65.0 million in 2010 for both property and equipment additions and capital costs necessary to maintain our existing facilities, of which approximately $47.7 million had been expended at September 30, 2010.

Long-Term

Our long-term liquidity needs, other than those related to the day-to-day operations of our business, including commitments for operating leases, generally are comprised of scheduled principal and interest payments for our outstanding long-term indebtedness, capital expenditures related to the expansion of our business, and acquisitions in accordance with our growth strategy. As mentioned previously under the “Executive Overview” section, we completed the refinancing of our senior credit facility. Scheduled principal payments are to be repaid quarterly, see contractual obligations table included below for detail of amounts due by year. Principal payments are scheduled to begin on December 31, 2010.

We are unable to project with certainty whether our long-term cash flow from operations will be sufficient to repay our long-term debt when it comes due. If this cash flow is insufficient, we expect that we will need to refinance such indebtedness, amend its terms to extend maturity dates, or issue common stock on our company. Our management cannot make any assurances that such refinancing or amendments, if necessary, will be available on attractive terms, if at all.

Debt Related Covenants

Our new senior credit facility contains certain financial covenants pertaining to fixed-charge coverage and leverage ratios. In addition, the senior credit facility has restrictions pertaining to capital expenditures, acquisitions and the payment of cash dividends. As of September 30, 2010, we were in compliance with these covenants, including the two covenant ratios, the fixed-charge coverage ratio and the leverage ratio.

At September 30, 2010, we had a fixed-charge coverage ratio of 1.57 to 1.00, which was in compliance with the required ratio of no less than 1.20 to 1.00. The senior credit facility defines the fixed-charge coverage ratio as that ratio that is calculated on a last 12-month basis by dividing pro forma earnings before interest, taxes, depreciation and amortization, as defined by the senior credit facility (“pro forma earnings”), by fixed charges. Fixed charges are defined as

cash interest expense, scheduled principal payments on debt obligations, capital expenditures, and provision for income taxes. Pro forma earnings include 12 months of operating results for businesses acquired during the period.

At September 30, 2010, we had a leverage ratio of 1.92 to 1.00, which was in compliance with the required ratio of no more than 3.00 to 1.00. The senior credit facility defines the leverage ratio as that ratio which is calculated as total debt divided by pro forma earnings.

Historical Cash Flows

The following table summarizes our cash flows (in thousands):


	Nine Months Ended
	September 30,
	2010			2009
Cash provided by (used in):
Operating activities	$	143,470		$	156,321
Investing activities		(98,329	)		(94,520	)
Financing activities		(58,127	)		4,224
Effect of currency exchange rate changes on cash and cash equivalents		38			17

(Decrease) increase in cash and cash equivalents		(12,948	)		66,042
Cash and cash equivalents at beginning of period		145,181			88,959

Cash and cash equivalents at end of period	$	132,233		$	155,001

Cash Flows from Operating Activities

Net cash provided by operating activities decreased $12.9 million in the nine months ended September 30, 2010 as compared to the prior year period. This decrease was primarily due to lower operating income, compounded by an increase in cash paid for taxes, partially offset by a decrease in cash interest due to the expiration of our interest-rate swap agreements.

Cash Flows from Investing Activities

The table below presents the components of the changes in investing cash flows (in thousands):


	Nine Months Ended
	September 30,
	2010			2009			Variance
Investing Cash Flows:
Acquisition of independent animal hospitals and laboratories	$	(38,294	)	$	(35,559	)	$	(2,735	) ⁽¹⁾
Acquisition of Pet DRx .		(4,520	)		—			(4,520	)
Acquisition of Eklin		—			(12,483	)		12,483
Other		(2,209	)		(3,811	)		1,602	⁽²⁾

Total cash used for acquisitions		(45,023	)		(51,853	)		6,830

Property and equipment additions		(47,675	)		(38,522	)		(9,153	) ⁽³⁾
Real estate acquired with acquisitions		(5,834	)		(3,828	)		(2,006	) ⁽⁴⁾
Proceeds from sale of assets		15			123			(108	)
Other		188			(440	)		628

Net cash used in investing activities	$	(98,329	)	$	(94,520	)	$	(3,809	)


⁽¹⁾		The number of acquisitions will vary from year to year based upon the available pool of suitable candidates. A discussion of our acquisitions is provided above in our Executive Overview.

⁽²⁾		The decrease in cash used for acquisitions—other relates to timing differences in pay-outs of holdbacks.


⁽³⁾		The cash used to acquire property and equipment will vary from year to year based on upgrade requirements and expansion of our animal hospitals and laboratory facilities.

⁽⁴⁾		Due to the lower return on investment realized on acquired real estate we are highly selective in our decision to acquire real estate. The increase in cash used to acquire real estate is due to real estate purchased in connection with the acquisition of animal hospitals.

Cash Flows from Financing Activities

The table below presents the components of the changes in financing cash flows (in thousands):


	Nine Months Ended
	September 30,
	2010			2009			Variance
Financing Cash Flows:
Repayment of debt	$	(548,560	)	$	(5,898	)	$	(542,662	) ⁽¹⁾
Proceeds from issuance of long-term debt		500,000			—			500,000	⁽¹⁾
Payment of financing costs		(9,112	)		—			(9,112	) ⁽¹⁾
Distributions to noncontrolling interest partners		(3,314	)		(3,018	)		(296	) ⁽²⁾
Proceeds from stock options exercises		4,781			13,110			(8,329	) ⁽³⁾
Excess tax benefits from stock options		370			591			(221	)
Stock repurchases		(2,292	)		(561	)		(1,731	) ⁽⁴⁾

Net cash (used in) provided by financing activities	$	(58,127	)	$	4,224		$	(62,351	)


⁽¹⁾		The cash used for repayment of debt increased $542.7 million due to our August 19, 2010 debt refinance and the payoff of $29.5 million in debt related to the Pet DRx acquisition. Proceeds from the issuance of long-term debt increased also due to the August 19, 2010 debt refinance. Payments for financing costs incurred in connection with the August 19, 2010 debt refinancing. See Note 6, Long-Term Obligations, of this quarterly report on Form 10-Q.

⁽²⁾		The distributions to noncontrolling interest partners represent cash payments to noncontrolling interest partners for their portion of the partnerships’ excess cash.

⁽³⁾		The number of stock option exercises has decreased in comparison to the prior year as the prior year amount was impacted by the expiration of certain stock option grants.

⁽⁴⁾		The stock repurchases for the nine months ended September 30, 2010 and September 30, 2009 represents payments for employee stock delivered at vesting to pay for income taxes owed by the employee.

Future Contractual Cash Requirements

The following table sets forth material changes from the amounts reported in our 2009 Form 10-K to our scheduled principal, interest and other contractual cash obligations due by us for each of the years indicated as of September 30, 2010 (in thousands):


	Payment due by period
			Less than		1-3		3-5		More than
	Total		1 year		years		years		5 years
Contractual Obligations:
Long-term debt	$	500,000	$	25,000	$	100,000	$	375,000	$	—
Variable cash interest expense Term A ⁽¹⁾		52,947		12,315		32,630		8,002		—
Other long-term liabilities ⁽²⁾		31,097		2,940		5,609		4,937		17,611

	$	584,044	$	40,255	$	138,239	$	387,939	$	17,611


⁽¹⁾		The interest payments on our variable-rate senior term notes are based on rates effective as of September 30, 2010.

⁽²⁾		Includes future payments under our Supplemental Executive Retirement Program and Consulting Agreements.

Off-Balance-Sheet Financing Arrangements

Other than operating leases, as of September 30, 2010 we do not have any off-balance-sheet financing arrangements.

Interest Rate Swap Agreements

As of March 31, 2010, all of our interest rate swap agreements had expired. We did not enter into any new agreements during the quarters ended June 30, 2010 and September 30, 2010.

In the future, we may enter into additional interest rate strategies. However, we have not yet determined what those strategies will be or their possible impact.

Description of Indebtedness

Senior Credit Facility

At September 30, 2010, we had $500 million principal amount outstanding under our senior term notes and no borrowings outstanding under our new $100 million revolving credit facility.

We pay interest on our senior term notes based on the interest rate offered to our administrative agent on LIBOR plus a margin of 2.25% per annum.

The senior term notes and the revolving credit facility mature in August 2015.

Other Debt and Capital Lease Obligations

At September 30, 2010, we had seller notes secured by assets of certain animal hospitals, unsecured debt and capital leases that totaled $30.4 million.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At September 30, 2010, we had borrowings of $500 million under our senior credit facility with fluctuating interest rates based on market benchmarks such as LIBOR. For our variable-rate debt, changes in interest rates generally do not affect the fair market value, but do impact earnings and cash flow. For every 1.0% increase in LIBOR, we will pay an additional $4.3 million in pre-tax interest expense on an annualized basis for our senior term notes. Conversely, for every 1.0% decrease in LIBOR we will save $4.3 million in pre-tax interest expense on an annualized basis.

In the future, we may enter into interest rate strategies to mitigate our exposure to increasing interest rates as well as to maintain an appropriate mix of fixed-rate and variable-rate debt. However, we have not yet determined what those strategies may be or their possible impact.

ITEM 4. CONTROLS AND PROCEDURES

We carried out an evaluation required by the Exchange Act, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of the end of the period covered by this report.

We had previously disclosed a material weakness in our internal control over financial reporting in our quarterly report on Form 10-Q, filed on August 10, 2010 for the quarter ended June 30, 2010, relating to significant, material non-routine transactions. Our controls over such transactions require an analysis and review of any such transactions. We previously determined that we did not consistently perform such an analysis and review as required by our policy, specifically, our executive consulting agreements were not analyzed and reviewed as required by our policy.

We believe that we have fully remediated the material weakness in our internal control over financial reporting with respect to analyzing and reviewing all significant and material non-routine transactions as of September 30, 2010. We performed an analysis and review on all non-routine transactions that were deemed significant and material, without exception, in accordance with our policy.

Based on this remediation and current evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, our principal executive officer and principal financial officer concluded that, as of September 30, 2010, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

During our most recent fiscal quarter, as mentioned previously we analyzed and reviewed all significant and material non-routine transactions such that our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) has been materially affected, or is reasonably likely to have been materially affected.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur, or that all control issues and instances of fraud, if any, within the company have been detected.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not subject to any legal proceedings other than ordinarily routine litigation incidental to the conduct of our business.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in our 2009 Annual Report on Form 10-K.

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS


10.1		Credit and Guaranty Agreement, dated August 19, 2010, by and among Vicar Operating, Inc., VCA Antech, Inc., certain subsidiaries of Vicar Operating, Inc., as guarantors, various lenders from time to time partly thereto, Wells Fargo Bank N.A., as administrative agent, collateral agent, issuing bank and swing line lender, Bank of America, N.A., as syndication agent, and JP Morgan Chase Bank, N.A., U.S. Bank National Association, and Union Bank, N.A., as co-documentation agents. Portions of the schedules have been omitted pursuant to a request for confidential treatment.

10.2		Second Amendment to Credit and Guaranty Agreement, dated as of June 1, 2007, by and among Vicar Operating, Inc., VCA Antech, Inc., certain subsidiaries of Vicar Operating, Inc. as guarantors, various lenders from time to time party thereto, Goldman Sachs Credit Partners, L.P., as joint lead arranger and sole syndication agent, and Wells Fargo Bank, N.A., as joint lead arranger and administrative agent.

10.3		Credit Guaranty Agreement, dated May 16, 2005, by and among Vicar Operating, Inc., VCA Antech, Inc., certain subsidiaries of Vicar Operating, Inc., as guarantors, various lenders from time to time partly thereto, Goldman Sachs Credit Partners, L.P., as joint lead arranger, joint bookrunner and sole arranger, Wells Fargo


		Bank, N.A., as joint lead arranger, joint bookrunner and administrative agent and Union Bank of California, N.A, as documentation agent. Portions of the schedules have been omitted pursuant to a request for confidential treatment.

10.4		Amendment No. 1 to the Consulting Agreement by and between VCA Antech, Inc. and Neil Tauber. Original agreement furnished as Exhibit 10.7 on Form 8-K dated July 7, 2010.

10.5		Amendment No. 1 to the Consulting Agreement by and between VCA Antech, Inc. and Tomas W. Fuller. Original agreement furnished as Exhibit 10.7 on Form 8-K dated July 7, 2010. 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.

101.INS		XBRL Instance Document*

101.SCH		XBRL Taxonomy Extension Schema Document*

101.CAL		XBRL Taxonomy Extension Calculation Linkbase*

101.DEF		XBRL Taxonomy Definition Linkbase*

101.LAB		XBRL Taxonomy Extension Label Linkbase*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase*


*		Furnished, not filed.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 8, 2010.



Date: November 8, 2010	By:	/s/ Tomas W. Fuller
		Tomas W. Fuller
		Chief Financial Officer

EXHIBIT INDEX


Exhibit No.		Description

10.1		Credit and Guaranty Agreement, dated August 19, 2010, by and among Vicar Operating, Inc., VCA Antech, Inc., certain subsidiaries of Vicar Operating, Inc., as guarantors, various lenders from time to time partly thereto, Wells Fargo Bank N.A., as administrative agent, collateral agent, issuing bank and swing line lender, Bank of America, N.A., as syndication agent, and JP Morgan Chase Bank, N.A., U.S. Bank National Association, and Union Bank, N.A., as co-documentation agents. Portions of the schedules have been omitted pursuant to a request for confidential treatment.

10.2		Second Amendment to Credit and Guaranty Agreement, dated as of June 1, 2007, by and among Vicar Operating, Inc., VCA Antech, Inc., certain subsidiaries of Vicar Operating, Inc. as guarantors, various lenders from time to time party thereto, Goldman Sachs Credit Partners, L.P., as joint lead arranger and sole syndication agent, and Wells Fargo Bank, N.A., as joint lead arranger and administrative agent.

10.3		Credit Guaranty Agreement, dated May 16, 2005, by and among Vicar Operating, Inc., VCA Antech, Inc., certain subsidiaries of Vicar Operating, Inc., as guarantors, various lenders from time to time partly thereto, Goldman Sachs Credit Partners, L.P., as joint lead arranger, joint bookrunner and sole arranger, Wells Fargo Bank, N.A., as joint lead arranger, joint bookrunner and administrative agent and Union Bank of California, N.A, as documentation agent. Portions of the schedules have been omitted pursuant to a request for confidential treatment.

10.4		Amendment No. 1 to the Consulting Agreement by and between VCA Antech, Inc. and Neil Tauber. Original agreement furnished as Exhibit 10.7 on Form 8-K dated July 7, 2010.

10.5		Amendment No. 1 to the Consulting Agreement by and between VCA Antech, Inc. and Tomas W. Fuller. Original agreement furnished as Exhibit 10.7 on Form 8-K dated July 7, 2010. 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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.