10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-16783

VCA Antech, Inc.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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, 86,422,044 shares as of May 3, 2011.

VCA Antech, Inc. and Subsidiaries
Form 10-Q
March 31, 2011

Table of Contents

		Page
		Number
Part I.	Financial Information
Item 1.	Financial Statements (Unaudited)
	Condensed, Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010		1
	Condensed, Consolidated Income Statements for the Three Months Ended March 31, 2011 and 2010		2
	Condensed, Consolidated Statements of Equity for the Three Months Ended March 31, 2011 and 2010		3
	Condensed, Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010		4
	Notes to Condensed, Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26
Item 4.	Controls and Procedures		26
Part II.	Other Information
Item 1.	Legal Proceedings		26
Item 1A.	Risk Factors		26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		26
Item 3.	Defaults Upon Senior Securities		27
Item 5.	Other Information		27
Item 6.	Exhibits		27
	Signature		28
	Exhibit Index		29
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)

	March 31,		December 31,
	2011		2010
Assets
Current assets:
Cash and cash equivalents	$	130,399	$	97,126
Trade accounts receivable, less allowance for uncollectible accounts of $13,404 and $13,801 at March 31, 2011 and December 31, 2010, respectively		54,888		49,224
Inventory		43,057		40,760
Prepaid expense and other		19,349		21,138
Deferred income taxes		18,875		19,019
Prepaid income taxes		8,727		19,047
Total current assets		275,295		246,314
Property and equipment, less accumulated depreciation and amortization of $208,693 and $198,157 at March 31, 2011 and December 31, 2010, respectively		334,343		331,687
Goodwill		1,094,704		1,092,480
Other intangible assets, net		44,940		46,986
Notes receivable, net		6,113		6,429
Deferred financing costs, net		6,312		6,700
Other		34,143		35,826
Total assets	$	1,795,850	$	1,766,422
Liabilities and Equity
Current liabilities:
Current portion of long-term debt	$	27,753	$	28,101
Accounts payable		30,710		31,970
Accrued payroll and related liabilities		46,465		35,754
Other accrued liabilities		41,533		45,769
Total current liabilities		146,461		141,594
Long-term debt, less current portion		492,046		498,935
Deferred income taxes		87,616		82,131
Other liabilities		25,906		28,478
Total liabilities		752,029		751,138
Commitments and contingencies:
Redeemable noncontrolling interests		6,218		5,799
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, 86,418 and 86,179 shares outstanding as of March 31, 2011 and December 31, 2010, respectively		86		86
Additional paid-in capital		347,619		347,848
Retained earnings		679,092		650,253
Accumulated other comprehensive income		1,102		737
Total VCA Antech, Inc. stockholders’ equity		1,027,899		998,924
Noncontrolling interests		9,704		10,561
Total equity		1,037,603		1,009,485
Total liabilities and equity	$	1,795,850	$	1,766,422

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

1

VCA Antech, Inc. and Subsidiaries

Condensed, Consolidated Income Statements

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended
	March 31,
	2011		2010
Revenue	$	355,123	$	330,734
Direct costs		275,345		247,939
Gross profit		79,778		82,795
Selling, general and administrative expense		26,183		26,140
Net loss on sale of assets		89		25
Operating income		53,506		56,630
Interest expense, net		4,019		3,167
Other expense		58		25
Income before provision for income taxes		49,429		53,438
Provision for income taxes		18,933		20,506
Net income		30,496		32,932
Net income attributable to noncontrolling interests		1,657		997
Net income attributable to VCA Antech, Inc.	$	28,839	$	31,935
Basic earnings per share	$	0.33	$	0.37
Diluted earnings per share	$	0.33	$	0.37
Weighted-average shares outstanding for basic earnings per share		86,355		85,824
Weighted-average shares outstanding for diluted earnings per share		87,245		86,870

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

2

VCA Antech, Inc. and Subsidiaries

Condensed, Consolidated Statements of Equity

(Unaudited)

(In thousands)

										Accumulated
					Additional					Other
	Common Stock				Paid-In			Retained		Comprehensive			Noncontrolling
	Shares		Amount		Capital			Earnings		(Loss) Income			Interests			Total
Balances, December 31, 2009		85,584	$	86	$	335,114		$	540,010	$	(163	)	$	11,429		$	886,476
Net income (excludes $169 and $105 related to redeemable and mandatorily redeemable noncontrolling interests, respectively)		—		—		—			31,935		—			723			32,658
Foreign currency translation adjustment		—		—		—			—		167			—			167
Unrealized gain on foreign currency, net of tax		—		—		—			—		111			—			111
Unrealized loss on hedging instruments, net of tax		—		—		—			—		(1	)		—			(1	)
Losses on hedging instruments reclassified to income, net of tax		—		—		—			—		233			—			233
Distribution to noncontrolling interests		—		—		—			—		—			(798	)		(798	)
Purchase of noncontrolling interests		—		—		—			—		—			(233	)		(233	)
Share-based compensation		—		—		2,088			—		—			—			2,088
Issuance of common stock under stock incentive plans		334		—		2,858			—		—			—			2,858
Stock repurchases		—		—		(2,253	)		—		—			—			(2,253	)
Excess tax benefit from stock options		—		—		264			—		—			—			264
Tax shortfall and other from stock options and awards		—		—		(502	)		—		—			—			(502	)
Balances, March 31, 2010		85,918	$	86	$	337,569		$	571,945	$	347		$	11,121		$	921,068
Balances, December 31, 2010		86,179	$	86	$	347,848		$	650,253	$	737		$	10,561		$	1,009,485
Net income (excludes $595 and $629 related to redeemable and mandatorily redeemable noncontrolling interests, respectively)		—		—		—			28,839		—			433			29,272
Foreign currency translation adjustment		—		—		—			—		249			—			249
Unrealized gain on foreign currency, net of tax		—		—		—			—		116			—			116
Distribution to noncontrolling interests		—		—		—			—		—			(415	)		(415	)
Purchase of noncontrolling interests		—		—		263			—		—			(875	)		(612	)
Share-based compensation		—		—		1,068			—		—			—			1,068
Issuance of common stock under stock incentive plans		239		—		1,175			—		—			—			1,175
Stock repurchases		—		—		(2,337	)		—		—			—			(2,337	)
Excess tax benefit from stock options		—		—		185			—		—			—			185
Tax shortfall and other from stock options and awards		—		—		(583	)		—		—			—			(583	)
Balances, March 31, 2011		86,418	$	86	$	347,619		$	679,092	$	1,102		$	9,704		$	1,037,603

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

3

VCA Antech, Inc. and Subsidiaries

Condensed, Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Three Months Ended
	March 31,
	2011			2010
Cash flows from operating activities:
Net income	$	30,496		$	32,932
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		13,380			10,707
Amortization of debt issue costs		388			132
Provision for uncollectible accounts		1,297			1,492
Net loss on sale of assets		89			25
Share-based compensation		1,068			2,088
Deferred income taxes		8,035			7,232
Excess tax benefit from exercise of stock options		(185	)		(264	)
Other		(358	)		(114	)
Changes in operating assets and liabilities:
Trade accounts receivable		(6,933	)		(6,511	)
Inventory, prepaid expense and other assets		1,417			644
Accounts payable and other accrued liabilities		(8,120	)		(288	)
Accrued payroll and related liabilities		10,734			9,954
Income taxes		9,922			12,527
Net cash provided by operating activities		61,230			70,556
Cash flows from investing activities:
Business acquisitions, net of cash acquired		(5,812	)		(9,247	)
Real estate acquired in connection with business acquisitions		(1,200	)		(1,300	)
Property and equipment additions		(12,034	)		(16,049	)
Proceeds from sale of assets		22			6
Other		(131	)		(61	)
Net cash used in investing activities		(19,155	)		(26,651	)
Cash flows from financing activities:
Repayment of debt		(7,301	)		(10,822	)
Distributions to noncontrolling interest partners		(652	)		(989	)
Proceeds from issuance of common stock under stock option plans		1,175			2,858
Excess tax benefit from exercise of stock options		185			264
Stock repurchases		(2,337	)		(2,253	)
Net cash used in financing activities		(8,930	)		(10,942	)
Effect of currency exchange rate changes on cash and cash equivalents		128			53
Increase in cash and cash equivalents		33,273			33,016
Cash and cash equivalents at beginning of period		97,126			145,181
Cash and cash equivalents at end of period	$	130,399		$	178,197
Supplemental disclosures of cash flow information:
Interest paid	$	3,778		$	3,196
Income taxes paid	$	976		$	747
Supplemental schedule of noncash investing and financing activities:
Detail of acquisitions:
Fair value of assets acquired	$	5,350		$	8,868
Cash paid for acquisitions		(5,150	)		(8,528	)
Holdbacks		(200	)		—
Contingent consideration		—			(7	)
Liabilities assumed	$	—		$	333

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

4

VCA Antech, Inc. and Subsidiaries

Notes to Condensed, Consolidated Financial Statements

March 31, 2011

(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 March 31, 2011, we operated 528 animal hospitals throughout 41 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 March 31, 2011, we operated 52 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 months ended March 31, 2011 are not necessarily indicative of the results to be expected for the full year ending December 31, 2011. For further information, refer to our consolidated financial statements and notes thereto included in our 2010 Annual Report on Form 10-K.

     Certain reclassifications have been made herein to 2010 amounts to conform to the current year presentation. In our condensed, consolidated balance sheet for the year ended December 31, 2010, we corrected certain errors in presentation by reclassifying $5.8 million to temporary equity (mezzanine) from noncontrolling interests included in permanent equity related to partnership agreements that contain certain terms which may require us to purchase the partners’ equity based upon certain contingencies. As these agreements do not contain a mandatory redemption clause, the balances are now correctly classified in temporary equity (mezzanine). Additionally, we reclassified $506,000 from noncontrolling interests in permanent equity to other liabilities related to our mandatorily redeemable partnership interests. The change in classification of our redeemable noncontrolling interests also impacts our condensed, consolidated statement of equity for the three months ended March, 31, 2010, accordingly certain amounts related to redeemable noncontrolling interests were reclassified from the noncontrolling interests column in the statement, see Note 11, Noncontrolling Interests, which presents a summary of the amounts reclassified.

     During the quarter ended March 31, 2011, we corrected an error related to our deferred revenue and related deferred cost for certain equipment sales governed by recently revised accounting guidance related to multiple element arrangements. The correction resulted in the recognition of $4.0 million of previously deferred revenue and $3.8 million of previously deferred costs in our Medical Technology segment.

     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.

5

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

3.   Goodwill and Other Intangible Assets

   Goodwill

     The following table presents the changes in the carrying amount of our goodwill for the three months ended March 31, 2011 (in thousands):

	Animal					Medical
	Hospital			Laboratory		Technology		Total
Balance as of December 31, 2010	$	965,999		$	96,818	$	29,663	$	1,092,480
Goodwill acquired		4,439			6		—		4,445
Other (1)		(2,239	)		18		—		(2,221	)
Balance as of March 31, 2011	$	968,199		$	96,842	$	29,663	$	1,094,704

⁽¹⁾ Other includes acquisition-price adjustments which consist primarily of an adjustment related to deferred taxes, buy-outs and foreign currency translation adjustments.

     We had no accumulated impairment losses as of March 31, 2011.

   Other Intangible Assets

     Our amortizable intangible assets at March 31, 2011 and December 31, 2010 are as follows (in thousands):

	As of March 31, 2011							As of December 31, 2010
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
Noncontractual customer relationships	$	49,282	$	(16,027	)	$	33,255	$	48,686	$	(14,188	)	$	34,498
Covenants not-to-compete		13,824		(8,166	)		5,658		14,459		(8,311	)		6,148
Favorable lease asset		5,486		(2,806	)		2,680		5,486		(2,672	)		2,814
Trademarks		3,716		(1,095	)		2,621		3,749		(986	)		2,763
Technology		2,189		(1,480	)		709		2,189		(1,447	)		742
Client lists		35		(18	)		17		35		(14	)		21
Total	$	74,532	$	(29,592	)	$	44,940	$	74,604	$	(27,618	)	$	46,986

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

	Three Months Ended
	March 31,
	2011		2010
Aggregate amortization expense	$	2,655	$	2,154

6

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

3.   Goodwill and Other Intangible Assets, continued

     The estimated amortization expense related to intangible assets for the remainder of 2011 and each of the succeeding years thereafter as of March 31, 2011 is as follows (in thousands):

Remainder of 2011	$	7,896
2012		9,609
2013		7,381
2014		5,136
2015		3,292
Thereafter		11,626
Total	$	44,940

4.   Other Accrued Liabilities

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

	March 31,		December 31,
	2011		2010
Deferred revenue	$	7,464	$	8,617
Accrued health insurance		5,382		4,970
Deferred rent		3,627		3,456
Accrued consulting fees		2,760		2,760
Holdbacks and earnouts		2,319		2,447
Customer deposits		2,128		2,966
Accrued lab service rebates		40		2,535
Other		17,813		18,018
	$	41,533	$	45,769

5.   Fair Value Measurements

     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.

     Long-Term Debt. The fair value of debt at March 31, 2011 and December 31, 2010 is based upon the ask price quoted from an external source, which is considered a Level 2 input.

7

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

5. Fair Value Measurements, continued

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

	As of March 31, 2011				As of December 31, 2010
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Variable-rate long-term debt	$	487,500	$	487,500	$	493,750	$	496,219

     At March 31, 2011 and December 31, 2010, we did not have any applicable nonrecurring measurements of nonfinancial assets and nonfinancial liabilities.

6.   Share-Based Compensation

Stock Option Activity

     A summary of our stock option activity for the three months ended March 31, 2011 is as follows (in thousands):

				Weighted-
				Average
	Stock			Exercise
	Options			Price
Outstanding at December 31, 2010		3,323		$	16.45
Exercised		(75	)		15.60
Outstanding at March 31, 2011		3,248		$	16.47
Exercisable at March 31, 2011		2,908		$	16.40
Expected to vest at March 31, 2011		324		$	17.04

     There were no stock options granted during the three months ended March 31, 2011. The aggregate intrinsic value of our stock options exercised during the three months ended March 31, 2011 was $694,000, and the actual tax benefit realized on options exercised during the period was $271,000.

     At March 31, 2011 there was $1.3 million of total unrecognized compensation cost related to our stock options. This cost is expected to be recognized over a weighted-average period of one year.

     The compensation cost that has been charged against income for stock options for the three months ended March 31, 2011 and 2010 was $347,000 and $471,000, respectively. The corresponding income tax benefit recognized was $136,000 and $183,000 for the three months ended March 31, 2011 and 2010, respectively.

   Nonvested Stock Activity

     During the three months ended March 31, 2011 we granted 4,470 shares of nonvested common stock. This award was granted to one of our nonexecutive employees and will vest in four equal annual installments from the grant date.

     Total compensation cost charged against income related to nonvested stock awards was $721,000 and $1.6 million for the three months ended March 31, 2011 and 2010, respectively. The corresponding income tax benefit recognized in the income statement was $281,000 and $629,000 for the three months ended March 31, 2011 and 2010, respectively.

8

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

6.   Share-Based Compensation, continued

     At March 31, 2011, there was $7.4 million of unrecognized compensation cost related to these nonvested shares, which will be recognized over a weighted-average period of 2.9 years. A summary of our nonvested stock activity for the three months ended March 31, 2011 is as follows:

				Grant Date
				Weighted-
				Average Fair
				Value
	Shares			Per Share
Outstanding at December 31, 2010		686,511		$	26.16
Granted		4,470		$	25.17
Vested		(257,816	)	$	30.98
Forfeited/Canceled		(1,896	)	$	30.35
Outstanding at March 31, 2011		431,269		$	23.25

7.   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 attributable to VCA Antech, Inc. 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
	March 31,
	2011		2010
Net income attributable to VCA Antech, Inc.	$	28,839	$	31,935
Weighted-average common shares outstanding:
Basic		86,355		85,824
Effect of dilutive potential common shares:
Stock options		690		870
Nonvested shares		200		176
Diluted		87,245		86,870
Basic earnings per share	$	0.33	$	0.37
Diluted earnings per share	$	0.33	$	0.37

     For the three months ended March 31, 2011 and 2010, potential common shares of 46,270 and 79,918, respectively, were excluded from the computation of diluted earnings per share because their inclusion would have had an antidilutive effect.

9

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

8.   Comprehensive Income

     Total comprehensive income consists of net income and the other comprehensive income during the three months ended March 31, 2011 and 2010. The following table provides a summary of comprehensive income (in thousands):

	Three Months Ended
	March 31,
	2011			2010
Net income(1)	$	30,496		$	32,932
Other comprehensive income:
Foreign currency translation adjustments		249			167
Unrealized gain on foreign currency		189			182
Tax expense		(73	)		(71	)
Unrealized loss on hedging instruments		—			(2	)
Tax benefit		—			1
Losses on hedging instruments reclassified to income		—			382
Tax benefit		—			(149	)
Other comprehensive income		365			510
Total comprehensive income		30,861			33,442
Comprehensive income attributable to noncontrolling interests(1)		(1,657	)		(997	)
Comprehensive income attributable to VCA Antech, Inc.	$	29,204		$	32,445

⁽¹⁾ Includes $1.2 million and $274,000 for March 31, 2011 and March 31, 2010, respectively, related to redeemable and mandatorily redeemable noncontrolling interests.

9.   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 2010 Annual Report on Form 10-K. 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.

10

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

9.   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		Technology		Corporate			Eliminations			Total
Three Months Ended March 31, 2011
External revenue	$	269,941		$	69,096	$	16,086	$	—		$	—		$	355,123
Intercompany revenue		—			10,453		3,010		—			(13,463	)		—
Total revenue		269,941			79,549		19,096		—			(13,463	)		355,123
Direct costs		230,388			42,819		14,638		—			(12,500	)		275,345
Gross profit		39,553			36,730		4,458		—			(963	)		79,778
Selling, general and administrative expense		6,083			6,636		3,556		9,908			—			26,183
Net loss on sale and disposal of assets		78			11		—		—			—			89
Operating income (loss)	$	33,392		$	30,083	$	902	$	(9,908	)	$	(963	)	$	53,506
Depreciation and amortization	$	9,873		$	2,471	$	657	$	680		$	(301	)	$	13,380
Capital expenditures	$	9,535		$	1,236	$	759	$	958		$	(454	)	$	12,034
Three Months Ended March 31, 2010
External revenue	$	246,668		$	69,400	$	14,666	$	—		$	—		$	330,734
Intercompany revenue		—			8,780		1,131		—			(9,911	)		—
Total revenue		246,668			78,180		15,797		—			(9,911	)		330,734
Direct costs		204,991			41,652		10,966		—			(9,670	)		247,939
Gross profit		41,677			36,528		4,831		—			(241	)		82,795
Selling, general and administrative expense		5,587			6,154		3,515		10,884			—			26,140
Net loss on sale and disposal of assets		(16	)		1		40		—			—			25
Operating income (loss)	$	36,106		$	30,373	$	1,276	$	(10,884	)	$	(241	)	$	56,630
Depreciation and amortization	$	7,352		$	2,413	$	601	$	581		$	(240	)	$	10,707
Capital expenditures	$	13,128		$	832	$	82	$	2,327		$	(320	)	$	16,049
At March 31, 2011
Total assets	$	1,327,137		$	223,407	$	68,286	$	193,016		$	(15,996	)	$	1,795,850
At December 31, 2010
Total assets	$	1,320,619		$	215,483	$	69,082	$	175,297		$	(14,059	)	$	1,766,422

10.   Commitments and Contingencies

     We have certain commitments, including operating leases and acquisition agreements. These items are discussed in detail in our consolidated financial statements and notes thereto included in our 2010 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, we will be obligated to pay an additional $1.2 million. Under the current business combination accounting guidance contingent consideration, such as earn-out liabilities, are 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.

11

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

10.   Commitments and Contingencies, continued

   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.

11.   Noncontrolling Interests

     We own some of our animal hospitals in partnerships with noncontrolling interest holders. We consolidate our partnerships in our consolidated financial statements because our ownership interest in these partnerships is equal to or greater than 50.1% and we control these entities. We record noncontrolling interest in income of subsidiaries equal to our partners’ percentage ownership of the partnerships’ income. We also record changes in the redemption value of our mandatorily redeemable and redeemable noncontrolling interests in net income attributable to noncontrolling interests in our condensed, consolidated statements of income. We reflect our noncontrolling partners’ cumulative share in the equity of the respective partnerships as either noncontrolling interests in equity, mandatorily redeemable noncontrolling interests in other liabilities or redeemable noncontrolling interests in temporary equity (mezzanine).

   a. Mandatorily Redeemable Noncontrolling Interests

     The terms of some of our partnership agreements require us to purchase the partner’s equity in the partnership in the event of the partner’s death. We report these redeemable noncontrolling interests at their estimated redemption value and classify them as liabilities due to the certainty of the related event. We recognize changes in the obligation in net income attributable to noncontrolling interests. At March 31, 2011 and December 31, 2010, these liabilities were $2.3 million and $1.7 million, respectively and are included in other liabilities in our consolidated balance sheets.

   b. Redeemable Noncontrolling Interests

     We also enter into partnership agreements whereby the minority partner is issued certain “put” rights. These rights are normally exercisable at the sole discretion of the minority partner. We report these redeemable noncontrolling interests at their estimated redemption value and classify them in temporary equity (mezzanine). We recognize changes in the obligation in net income attributable to noncontrolling interests. At March 31, 2011 and December 31, 2010, balances in temporary equity related to these types of arrangements were $6.2 million and $5.8 million, respectively.

     The following table provides a summary of redeemable noncontrolling interests (in thousands):

	Income		Redeemable
	Statement		Noncontrolling
	Impact		Interests
Balance as of December 31, 2009			$	4,369
Noncontrolling interest	$	169
Redemption value change		—		169
Formation of noncontrolling interests				450
Distribution to noncontrolling interests				(87	)
Balance as of March 31, 2010			$	4,901
Balance as of December 31, 2010			$	5,799
Noncontrolling interest	$	193
Redemption value change		402		595
Distribution to noncontrolling interests				(176	)
Balance as of March 31, 2011			$	6,218

12

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

	Page
Introduction		14
Executive Overview		14
Critical Accounting Policies		16
Consolidated Results of Operations		17
Segment Results		18
Liquidity and Capital Resources		22

13

Introduction

     The following discussion should be read in conjunction with our condensed, consolidated financial statements provided under Part I, Item I of this Quarterly report on Form 10-Q. We have included herein statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We generally identify forward-looking statements in this report using words like “believe,” “intend,” “expect,” “estimate,” “may,” “plan,” “should plan,” “project,” “contemplate,” “anticipate,” “predict,” “potential,” “continue,” or similar expressions. You may find some of these statements below and elsewhere in this report. These forward-looking statements are not historical facts and are inherently uncertain and outside of our control. Any or all of our forward-looking statements in this report may turn out to be wrong. They can be affected by inaccurate assumptions we might make, or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this report will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. Factors that may cause our plans, expectations, future financial condition and results to change are described throughout this report and in our Annual Report on Form 10-K, particularly in “Risk Factors,” Part I, Item 1A of that report.

     The forward-looking information set forth in this Quarterly Report on Form 10-Q is as of May 10, 2011, and we undertake no duty to update this information. Shareholders and prospective investors can find information filed with the SEC after May 10, 2011 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 March 31, 2011, our animal hospital network consisted of 528 animal hospitals in 41 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 March 31, 2011, our laboratory network consisted of 52 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 and competition. 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 months ended March 31, 2011, we experienced improvement in our overall revenue growth in comparison to previous quarters, despite continued economic pressures. We achieved an increase in consolidated revenue through acquired animal hospitals and internal revenue growth in our Laboratory business segment. Our Animal Hospital same-store revenue declined 2.2% for the three months ended March 31, 2011. Our Laboratory internal revenue increased 1.7% for the three months ended March 31, 2011. The overall economic environment and lower margins at our acquired animal hospitals resulted in a decline in operating income.

14

   Acquisitions

     Our growth strategy includes the acquisition of independent animal hospitals. We currently anticipate that we will acquire $55 million to $65 million of annualized Animal Hospital revenue in 2011. 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 three months ended March 31, 2011:

Animal Hospitals:
Beginning of period	528
Acquisitions	2
Sold, closed or merged	(2	)
End of period	528
Laboratories:
Beginning of period	50
Acquisitions	1
Created	1
End of period	52

     The following table summarizes the aggregate consideration for the two independent animal hospitals and one laboratory acquired during the three months ended March 31, 2011, and the allocation of the acquisition price (in thousands):

Consideration:
Cash (1)	$	5,150
Holdback		200
Fair value of total consideration transferred	$	5,350
Allocation of the Purchase Price:
Tangible assets	$	173
Identifiable intangible assets		732
Goodwill (2)		4,445
Total	$	5,350

(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 $4.4 million of the goodwill recorded for these acquisitions as of March 31, 2011 will be fully deductible for income tax purposes.

     In addition to the acquisition price listed above, are cash payments for real estate acquired in connection with our acquisition of animal hospitals totaling $1.2 million for the three months ended March 31, 2011. The price paid was determined to be fair market value.

15

   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 acquisition price was $41.3 million.

     The following table summarizes the acquisition price and the final allocation of the acquisition price (in thousands):

Consideration:
Cash paid to bondholders	$	29,532
Cash paid to shareholders		7,670
Cash paid for holdbacks		750
Fair value of total consideration transferred	$	37,952
Allocation of the Purchase Price:
Tangible assets	$	20,211
Identifiable intangible assets		3,074
Goodwill (1)		42,547
Other liabilities assumed		(27,880	)
Total	$	37,952

⁽¹⁾ We expect that $6.4 million of goodwill will be fully deductible for income tax purposes, of which $5.8 million remains as of March 31, 2011.

     The pro forma impacts on revenue and earnings have not been disclosed as the amounts were immaterial to the financial statements as a whole.

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 2010 Annual Report on Form 10-K. There have been no material changes to the policies noted above as of this quarterly report on Form 10-Q for the period ended March 31, 2011.

16

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
	March 31,
	2011			2010
Revenue:
Animal Hospital		76.0	%		74.6	%
Laboratory		22.4			23.6
Medical Technology		5.4			4.8
Intercompany		(3.8	)		(3.0	)
Total revenue		100.0			100.0
Direct costs		77.5			75.0
Gross profit		22.5			25.0
Selling, general and administrative expense		7.4			7.9
Operating income		15.1			17.1
Interest expense, net		1.2			0.9
Income before provision for income taxes		13.9			16.2
Provision for income taxes		5.3			6.2
Net income		8.6			10.0
Net income attributable to noncontrolling interests		0.5			0.3
Net income attributable to VCA Antech, Inc.		8.1	%		9.7	%

   Revenue

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

	Three Months Ended March 31,
	2011						2010
				% of						% of			%
	$			Total			$			Total			Change
Animal Hospital	$	269,941			76.0	%	$	246,668			74.6	%		9.4	%
Laboratory		79,549			22.4	%		78,180			23.6	%		1.8	%
Medical Technology		19,096			5.4	%		15,797			4.8	%		20.9	%
Intercompany		(13,463	)		(3.8	)%		(9,911	)		(3.0	)%		35.8	%
Total revenue	$	355,123			100.0	%	$	330,734			100.0	%		7.4	%

     Consolidated revenue increased $24.4 million for the three months ended March 31, 2011 as compared to the same period in the prior year. The increase was attributable to revenue from acquired animal hospitals and increased revenue from our Medical Technology and Laboratory business segments. The increase in Medical Technology revenue was due to a one-time cumulative adjustment related to certain products. The overall increase was partially offset by a decline in Animal Hospital same-store revenue. Our Animal Hospital same-store revenue declined 2.2% for the three months ended March 31, 2011.

17

   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 March 31,
	2011						2010
				Gross						Gross			%
	$			Margin			$			Margin			Change
Animal Hospital	$	39,553			14.7	%	$	41,677			16.9	%		(5.1	)%
Laboratory		36,730			46.2	%		36,528			46.7	%		0.6	%
Medical Technology		4,458			23.3	%		4,831			30.6	%		(7.7	)%
Intercompany		(963	)					(241	)
Total gross profit	$	79,778			22.5	%	$	82,795			25.0	%		(3.6	)%

     Consolidated gross profit decreased $3.0 million for the three months ended March 31, 2011 as compared to the same period in the prior year. The decrease was primarily due to a decline in Animal Hospital same-store revenue which impacted the same-store Animal Hospital gross margin.

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 March 31,
	2011			2010			% Change
Revenue	$	269,941		$	246,668			9.4	%
Gross profit	$	39,553		$	41,677			(5.1	)%
Gross margin		14.7	%		16.9	%

     Animal Hospital revenue increased $23.3 million for the three months ended March 31, 2011 as compared to the same period 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 March 31,
	2011		2010		% Change
Same-store facilities:
Orders (1)		1,495		1,567		(4.6	)%
Average revenue per order (2)	$	160.09	$	156.20		2.5	%
Same-store revenue (1)	$	239,357	$	244,696		(2.2	)%
Net acquired revenue (3)		30,584		1,972
Total	$	269,941	$	246,668		9.4	%

(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.

18

⁽³⁾ Net acquired revenue represents the revenue from those animal hospitals acquired, net of revenue from those animal hospitals sold or closed, on or after the beginning of the comparable period, which was April 1, 2010 for the three 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 months ended March 31, 2011 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 months ended March 31, 2011 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 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. Prices increases are typically implemented in February of each year. Price increases in 2011 approximated 3% to 4% on most services at the majority of our animal hospitals.

     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 14.7% for the three months ended March 31, 2011 as compared to 16.9% in the prior year period. Our same-store gross margin decreased to 14.9% for the three months ended March 31, 2011 as compared to 16.9% for the prior year period.

     The decrease in same-store gross margin for the three months ended March 31, 2011 was primarily due to the decline in same-store revenue; increased depreciation and amortization expense was offset by decreased labor costs. 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 March 31,
	2011			2010			% Change
Revenue	$	79,549		$	78,180			1.8	%
Gross profit	$	36,730		$	36,528			0.6	%
Gross margin		46.2	%		46.7	%

19

     Laboratory revenue increased $1.4 million for the three months ended March 31, 2011 as compared to the same period 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 March 31,
	2011		2010		% Change
Internal growth:
Number of requisitions (1)		3,203		3,213		(0.3	)%
Average revenue per requisition (2)	$	24.83	$	24.33		2.1	%
Total internal revenue (1)	$	79,531	$	78,180		1.7	%
Acquired revenue (3)		18		—
Total	$	79,549	$	78,180		1.8	%

(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 increase in Laboratory revenue for the three months ended March 31, 2011 was due to an increase in internal revenue attributable to an increase 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 months ended March 31, 2011 as compared to prior period due to price increases which ranged from 3% to 4% in February 2011. The price increases were impacted by various factors including changes in the mix, performing lower-priced tests historically performed at the animal hospitals, a decrease in higher-priced tests as a result of the current economic environment and the overall competitive 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 46.2% for the three months ended March 31, 2011 as compared to 46.7% in the prior year period. The decrease in gross margin was a result of an increase in employee costs including health care and worker’s compensation and increased transportation costs.

   Medical Technology Segment

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

	Three Months Ended March 31,
	2011			2010			% Change
Revenue	$	19,096		$	15,797			20.9	%
Gross profit	$	4,458		$	4,831			(7.7	)%
Gross margin		23.3	%		30.6	%

20

     Medical Technology revenue increased $3.3 million for the three months ended March 31, 2011 as compared to the prior year period. The increase for the three months ended March 31, 2011 was due to a one-time cumulative adjustment as discussed in Note 2, Basis of Presentation. Excluding these changes revenue declined $717,000 or 4.5% primarily due to a decline in the amortization of deferred revenue related to prior period sales.

     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 decreased $373,000 for the three months ended March 31, 2011 as compared to the prior year period. Gross margin decreased to 23.3% for the three months ended March 31, 2011 as compared to 30.6% in the prior year period. The aforementioned increase in revenue related to the one-time cumulative adjustment related to certain products had approximately a $200,000 impact on gross profit as the units were predominantly sold at cost pursuant to an agreement assumed in the Eklin acquisition. The decrease in gross profit is primarily attributable to downward changes in pricing due to competitive pressures, which resulted in lower profit per unit. The decline in gross margin for the three months ended March 31, 2011 was attributable to the effects of the aforemented one-time cumulative adjustment related to certain products and as a result of changes in product mix and changes in pricing.

   Intercompany Revenue

     Laboratory revenue for the three months ended March 31, 2011 included intercompany revenue of $10.5 million that was generated by providing laboratory services to our animal hospitals. Medical Technology revenue for the three months ended March 31, 2011 included intercompany revenue of $3.0 million 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 March 31,
	2011					2010
			% of					% of			%
	$		Revenue			$		Revenue			Change
Animal Hospital	$	6,083		2.3	%	$	5,587		2.3	%		8.9	%
Laboratory		6,636		8.3	%		6,154		7.9	%		7.8	%
Medical Technology		3,556		18.6	%		3,515		22.3	%		1.2	%
Corporate		9,908		2.8	%		10,884		3.3	%		(9.0	)%
Total SG&A	$	26,183		7.4	%	$	26,140		7.9	%		0.2	%

     Consolidated SG&A increased marginally by $43,000 for the three months ended March 31, 2011. SG&A increases at our Animal Hospital and Laboratory business segments were mostly offset by decreased SG&A at Corporate, which declined primarily due to lower share-based compensation and a decrease in legal fees for the three months ended March 31, 2011 compared to the prior year period.

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   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 March 31,
	2011						2010
				% of						% of			%
	$			Revenue			$			Revenue			Change
Animal Hospital	$	33,392			12.4	%	$	36,106			14.6	%		(7.5	)%
Laboratory		30,083			37.8	%		30,373			38.9	%		(1.0	)%
Medical Technology		902			4.7	%		1,276			8.1	%		(29.3	)%
Corporate		(9,908	)					(10,884	)					(9.0	)%
Intercompany		(963	)					(241	)					299.6	%
Total operating income	$	53,506			15.1	%	$	56,630			17.1	%		(5.5	)%

     The decrease in our consolidated operating income during the three months ended March 31, 2011 was primarily due to the decline in our Animal Hospital gross profit, primarily as a result of the decline in same-store revenue.

   Interest Expense, Net

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

	Three Months Ended
	March 31,
	2011			2010
Interest expense:
Senior term notes	$	3,136		$	2,249
Interest rate hedging agreements		—			382
Capital leases and other		670			564
Amortization of debt costs		388			132
		4,194			3,327
Interest income		(175	)		(160	)
Total interest expense, net of interest income	$	4,019		$	3,167

     The increase in net interest expense for the three months ended March 31, 2011 was attributable to an increase in the overall weighted average interest rate primarily due to the cost of our senior term notes, which were refinanced in August of 2010 at a higher rate.

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.

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     At March 31, 2011, our consolidated cash and cash equivalents totaled $130.4 million, representing an increase of $33.3 million as compared to December 31, 2010. Cash flows generated from operating activities totaled $61.2 million in the three months ended March 31, 2011, representing a decrease of $9.3 million as compared to the three months ended March 31, 2010.

     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. As of March 31, 2011, we have access to an unused $100 million revolving credit facility, which allows us to maintain further operating and financial flexibility.

     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, 2011, we expect to spend $55 million to $65 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, 2011 through March 31, 2011, we spent $5.2 million in connection with the acquisition of two animal hospitals, as well as $1.2 million for the related real estate. In addition, we expect to spend approximately $75.0 million in 2011 for both property and equipment additions and capital costs necessary to maintain our existing facilities, of which approximately $12.0 million had been expended at March 31, 2011.

   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.

     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, amendments or equity offerings, if necessary, will be available on attractive terms, if at all.

   Debt Related Covenants

     Our 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 March 31, 2011, we were in compliance with these covenants, including the two covenant ratios, the fixed-charge coverage ratio and the leverage ratio.

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     At March 31, 2011, we had a fixed-charge coverage ratio of 1.71 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 March 31, 2011, we had a leverage ratio of 1.96 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):

	Three Months Ended
	March 31,
	2011			2010
Cash provided by (used in):
Operating activities	$	61,230		$	70,556
Investing activities		(19,155	)		(26,651	)
Financing activities		(8,930	)		(10,942	)
Effect of currency exchange rate changes on cash and cash equivalents		128			53
Increase in cash and cash equivalents		33,273			33,016
Cash and cash equivalents at beginning of period		97,126			145,181
Cash and cash equivalents at end of period	$	130,399		$	178,197

   Cash Flows from Operating Activities

     Net cash provided by operating activities decreased $9.3 million in the three months ended March 31, 2011 as compared to the prior year period. This decrease was primarily due to decreases in working capital and lower operating income.

   Cash Flows from Investing Activities

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

	Three Months Ended
	March 31,
Investing Cash Flows:	2011			2010			Variance
Acquisition of independent animal hospitals and laboratories	$	(5,150	)	$	(8,528	)	$	3,378	(1)
Other		(662	)		(719	)		57	(2)
Total cash used for acquisitions and related real estate		(5,812	)		(9,247	)		3,435
Real estate acquired with acquisitions		(1,200	)		(1,300	)		100
Property and equipment additions		(12,034	)		(16,049	)		4,015	(3)
Proceeds from sale of assets		22			6			16
Other		(131	)		(61	)		(70	)
Net cash used in investing activities	$	(19,155	)	$	(26,651	)	$	7,496

(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.

24

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

   Cash Flows from Financing Activities

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

	Three Months Ended
	March 31,
Financing Cash Flows:	2011			2010			Variance
Repayment of debt	$	(7,301	)	$	(10,822	)	$	3,521	(1)
Distributions to noncontrolling interest partners		(652	)		(989	)		337	(2)
Proceeds from stock options exercises		1,175			2,858			(1,683	)(3)
Excess tax benefits from stock options		185			264			(79	)
Stock repurchases		(2,337	)		(2,253	)		(84	)(4)
Net cash used in financing activities	$	(8,930	)	$	(10,942	)	$	2,012

(1)	The cash used for repayment of debt decreased $3.5 million. The scheduled principal payment on our senior term debt was $6.3 million for March 31, 2011 compared to $1.3 million for March 31, 2010; however, the repayment of debt for March 31, 2010 also includes $8.8 million for the payment of excess cash flows pursuant to our previous credit agreement, which was renegotiated in August 2010. Our current credit agreement does not require the payment of such excess cash flows.
(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 three months ended March 31, 2011 and March 31, 2010 represent tax payments made on behalf of employees in lieu of stock certificates due to the employee on the vesting date.

   Off-Balance-Sheet Financing Arrangements

     Other than operating leases, as of March 31, 2011 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 and we have not entered into any new agreements.

     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 March 31, 2011, we had $487.5 million principal amount outstanding under our senior term notes and no borrowings outstanding under our $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.

25

     Other Debt and Capital Lease Obligations

     At March 31, 2011, we had seller notes secured by assets of certain animal hospitals, unsecured debt and capital leases that totaled $32.3 million.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     At March 31, 2011, we had borrowings of $487.5 million under our senior credit facility with fluctuating interest rates based on market benchmarks such as LIBOR. Changes in interest rates could adversely affect the market value of our variable-rate debt. There has been no change in our assessment of the impact of changes on interest expense for fluctuation in LIBOR since the year ended December 31, 2010. To mitigate our exposure to increasing interest rates we have historically entered into interest rate swap agreements that effectively convert a certain amount of our variable-rate debt to fixed-rate debt. As of March 31, 2011 we have no interest rate swap agreements.

     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. Based on this evaluation, our principal executive officer and principal financial officer concluded that 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, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

     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 2010 Annual Report on Form 10-K.

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

     None

26

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None

ITEM 5. OTHER INFORMATION

     None

ITEM 6. EXHIBITS

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.

27

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 May 10, 2011.

Date: May 10, 2011	By:	/s/ Tomas W. Fuller
	Tomas W. Fuller
	Chief Financial Officer

28

EXHIBIT INDEX

Exhibit No.		Description
	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.

29

EX-31.1

EXHIBIT 31.1

Certification of
Chief Executive Officer
of VCA Antech, Inc.

I, Robert L. Antin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of VCA Antech, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2011

/s/ Robert L. Antin
Robert L. Antin
Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of
Chief Financial Officer
of VCA Antech, Inc.

I, Tomas W. Fuller, certify that:

1. I have reviewed this quarterly report on Form 10-Q of VCA Antech, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2011

/s/ Tomas W. Fuller
Tomas W. Fuller
Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Certification of
Chief Executive Officer & Chief Financial Officer
of VCA Antech, Inc.

     This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies this quarterly report on Form 10-Q (the “Report”) for the period ended March 31, 2011 of VCA Antech, Inc. (the “Issuer”).

     Each of the undersigned, who are the Chief Executive Officer and Chief Financial Officer, respectively, of VCA Antech, Inc., hereby certify that, to the best of each such officer’s knowledge:

(i) the Report fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Dated: May 10, 2011

/s/ Robert L. Antin  

Robert L. Antin 

Chief Executive Officer 

/s/ Tomas W. Fuller  

Tomas W. Fuller  

Chief Financial Officer