UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-16783

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)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common stock, $0.001 par value

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   No .

Indicate the number of shares outstanding of each of the issuer’s class of common stock as of the latest practicable date: Common stock, $0.001 par value 36,736,081 shares as of May 10, 2002.

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TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONDENSED, CONSOLIDATED BALANCE SHEETS As of March 31, 2002 and December 31, 2001
		CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended March 31, 2002 and 2001
		CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2002 and 2001
		NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE

VCA ANTECH, INC.
FORM 10-Q
MARCH 31, 2002

TABLE OF CONTENTS

		Page Number
Part I.	Financial Information
Item 1.	Financial Statements		3
	Condensed, Consolidated Balance Sheets as of March 31, 2002 and
	December 31, 2001 (Unaudited)		3
	Condensed, Consolidated Statements of Operations for the Three Months
	Ended March 31, 2002 and 2001 (Unaudited)		4
	Condensed, Consolidated Statements of Cash Flows for the Three Months
	Ended March 31, 2002 and 2001 (Unaudited)		5
	Notes to Condensed, Consolidated Financial Statements		6
Item 2.	Management's Discussion and Analysis of Financial Condition and
	Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		35
Part II.	Other Information
Item 1.	Legal Proceedings		36
Item 2.	Changes in Securities		36
Item 3.	Defaults Upon Senior Securities		37
Item 4.	Submission of Matters to a Vote of Security Holders		37
Item 5.	Other Information		37
Item 6.	Exhibits and Reports on Form 8-K		37
	Signature		38

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VCA ANTECH, INC. AND SUBSIDIARIES
CONDENSED, CONSOLIDATED BALANCE SHEETS
As of March 31, 2002 and December 31, 2001
(Unaudited)
(In thousands, except par value)

			March 31,			December 31,
			2002			2001
ASSETS
Current assets:
	Cash and cash equivalents		$	17,854		$	7,103
	Trade accounts receivable, less allowance for uncollectible accounts of $5,323 and $5,241 at March 31, 2002 and December 31, 2001, respectively			21,547			18,036
	Inventory, prepaid expense and other			7,124			6,879
	Deferred income taxes			7,364			7,364
	Prepaid income taxes			—			2,782
		Total current assets		53,889			42,164
Property and equipment, net				89,868			89,244
Other assets:
	Goodwill, net			319,367			317,262
	Covenants not to compete, net			4,560			4,827
	Deferred financing costs, net			10,913			11,380
	Other assets			3,981			3,644
		Total assets	$	482,578		$	468,521
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term obligations		$	5,250		$	5,159
	Accounts payable			7,877			7,313
	Accrued payroll and related liabilities			13,000			11,717
	Accrued interest			6,964			2,254
	Income taxes payable			1,663			—
	Other accrued liabilities			14,911			16,351
		Total current liabilities		49,665			42,794
Long-term obligations, less current portion				380,350			379,173
Deferred income taxes				1,684			1,684
Minority interest				5,124			5,106
		Total liabilities		436,823			428,757
Stockholders’ equity:
	Common stock, par value $0.001, 75,000 shares authorized, 36,736 shares outstanding as of March 31, 2002 and December 31, 2001			37			37
	Additional paid-in capital			188,840			188,840
	Accumulated deficit			(140,959	)		(146,594	)
	Accumulated comprehensive loss—unrealized loss on investment			(1,488	)		(1,855	)
	Notes receivable from stockholders			(675	)		(664	)
		Total stockholders’ equity		45,755			39,764
		Total liabilities and stockholders’ equity	$	482,578		$	468,521

The accompanying notes are an integral part of these condensed, consolidated balance sheets.

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VCA ANTECH, INC. AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2002 and 2001
(Unaudited)
(In thousands, except per share amounts)

		2002		2001
Revenue		$	104,695	$	95,680
Direct costs (includes non-cash compensation of $565 for the period ended March 31, 2001; excludes operating depreciation of $2,246 and $1,995 for the periods ended March 31, 2002 and 2001, respectively)			72,588		69,462
			32,107		26,218
Selling, general and administrative (includes non-cash compensation of $2,479 for the period ended March 31, 2001)			8,622		10,558
Depreciation and amortization			3,163		6,254
Loss on sale of assets			—		143
	Operating income		20,322		9,263
Net interest expense			9,989		11,153
Other income			93		—
Minority interest in income of subsidiaries			402		275
	Income (loss) before provision for income taxes		10,024		(2,165	)
Provision for income taxes			4,389		824
	Net income (loss)	$	5,635	$	(2,989	)
Increase in carrying amount of redeemable preferred stock			—		5,028
	Net income (loss) available to common stockholders	$	5,635	$	(8,017	)
	Basic earnings (loss) per common share	$	0.15	$	(0.46	)
	Diluted earnings (loss) per common share	$	0.15	$	(0.46	)
Shares used for computing basic earnings (loss) per share			36,736		17,524
Shares used for computing diluted earnings (loss) per share			37,081		17,524

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

4

VCA ANTECH, INC. AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2002 and 2001
(Unaudited)
(In thousands)

				2002			2001
Cash flows from operating activities:
	Net income (loss)			$	5,635		$	(2,989	)
		Adjustments to reconcile net income (loss) to net cash provided by operating activities:
			Depreciation and amortization		3,163			6,254
			Amortization of deferred financing costs and debt discount		457			531
			Provision for uncollectible accounts		620			554
			Non-cash compensation		—			3,044
			Interest paid in kind on senior subordinated notes		2,168			3,875
			Loss on sale of assets		—			143
			Minority interest in income of subsidiaries		402			275
			Distributions to minority interest partners		(384	)		(338	)
			Increase in accounts receivable		(4,119	)		(3,280	)
			Decrease (increase) in inventory, prepaid expense and other assets		(230	)		341
			Increase in accounts payable and accrued liabilities		3,021			3,325
			Increase (decrease) in accrued interest		4,710			(1,442	)
			Decrease in prepaid income taxes		2,782			664
			Increase in income taxes payable		1,663			—
	Net cash provided by operating activities				19,888			10,957
Cash flows from investing activities:
			Business acquisitions, net of cash acquired		(3,011	)		(10,728	)
			Real estate acquired in connection with business acquisitions		—			(475	)
			Property and equipment additions, net		(3,168	)		(2,302	)
			Proceeds from sale of assets		—			370
			Other		(23	)		(939	)
	Net cash used in investing activities				(6,202	)		(14,074	)
Cash flows from financing activities:
			Repayment of long-term obligations		(1,253	)		(1,814	)
			Payment of deferred financing costs and recapitalization		(1,682	)		(1,169	)
	Net cash used in financing activities				(2,935	)		(2,983	)
Increase (decrease) in cash and cash equivalents					10,751			(6,100	)
Cash and cash equivalents at beginning of period					7,103			10,519
Cash and cash equivalents at end of period				$	17,854		$	4,419

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

5

VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(Unaudited)

(1) General

         The accompanying unaudited condensed, consolidated financial statements of VCA Antech, Inc. and subsidiaries (the “Company” or “VCA”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements as permitted under applicable rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the Company’s consolidated financial statements and footnotes thereto included in the Company’s 2001 Annual Report on Form 10-K.

(2) Acquisitions

         During the first quarter of 2002, the Company purchased three animal hospitals, for an aggregate consideration (including acquisition costs) of $2.5 million, consisting of $2.2 million in cash and the assumption of liabilities totaling $300,000. The $2.5 million aggregate purchase price was allocated as follows: $64,000 to tangible assets, $2.1 million to goodwill and $300,000 to other intangible assets.

(3) Calculation of Per Share Amounts

         Below is a reconciliation of the income (loss) and shares used in the computations of the basic and diluted earnings (loss) per share (“EPS”) (amounts in thousands, except per share amounts):

			Three Months Ended
			March 31,
			2002		2001
Net income (loss)			$	5,635	$	(2,989	)
Increase in carrying amount of redeemable preferred stock				—		(5,028	)
Income (loss) available to common shareholders (basic and diluted)			$	5,635	$	(8,017	)
Weighted average common shares outstanding:
	Basic			36,736		17,524
	Effect of dilutive common shares:
		Stock options		345		—
	Diluted			37,081		17,524
Earnings (loss) per share:
	Basic		$	0.15	$	(0.46	)
	Diluted		$	0.15	$	(0.46	)

         For the three months ended March 31, 2001, the effect of anti-dilutive common shares of 1,150,000 and 489,000 from outstanding warrants and stock options, respectively, have been excluded from EPS calculations.

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(4) Comprehensive Income (Loss)

         Below is a calculation of comprehensive income (loss) (in thousands):

	Three Months Ended
	March 31,
	2002			2001
Net income (loss)	$	5,635		$	(2,989	)
Cumulative effect of change to new accounting principle		—			(525	)
Unrealized gain on hedging instruments		460			—
Less portion of unrealized gain recognized in net income		(93	)		—
Net comprehensive income (loss)	$	6,002		$	(3,514	)

         All gains on hedging instruments are the result of an interest rate collar agreement. See footnote (7), “Derivatives” for additional information. By the end of the agreement, these unrealized gains will offset against unrealized losses recognized in prior periods and will in aggregate net to zero. Accordingly, there has been no income tax benefit or expense relating to these unrealized gains and losses recognized in the Company’s net income (loss) or comprehensive income (loss).

(5) Lines of Business

         During the three months ended March 31, 2002 and 2001, the Company had three reportable segments: Laboratory, Animal Hospital and Corporate. These segments are strategic business units that have different products, services and functions. The segments are managed separately because each is a distinct and different business venture with unique challenges, rewards and risks. The Laboratory segment provides testing services for veterinarians both associated with the Company and independent of the Company. The Animal Hospital segment provides veterinary services for companion animals and sells related retail products. Corporate provides selling, general and administrative support for the other segments and recognizes revenue associated with consulting agreements.

         The accounting policies of the segments are the same as those described in the summary of significant accounting policies as detailed in the Company’s consolidated financial statements and footnotes thereto included in the 2001 Annual Report on Form 10-K. The Company evaluates performance of segments based on profit or loss before income taxes, interest income, interest expense and minority interest, which are evaluated on a consolidated level. For purposes of reviewing the operating performance of the segments, all intercompany sales and purchases are accounted for as if they were transactions with independent third parties at current market prices.

         Below is a summary of certain financial data for each of the three segments (in thousands):

				Animal					Intercompany
		Laboratory		Hospital		Corporate			Eliminations			Total
Three Months Ended March 31, 2002
	Revenue	$	37,657	$	68,644	$	500		$	(2,106	)	$	104,695
	Operating income (loss)		12,725		10,697		(3,100	)		—			20,322
	Depreciation/amortization expense		697		2,136		330			—			3,163
	Capital expenditures		605		2,137		426			—			3,168
Three Months Ended March 31, 2001
	Revenue	$	32,677	$	64,354	$	500		$	(1,851	)	$	95,680
	Operating income (loss)		7,920		6,511		(5,168	)		—			9,263
	Depreciation/amortization expense		1,161		3,494		1,599			—			6,254
	Capital expenditures		464		1,378		460			—			2,302
At March 31, 2002
	Identifiable assets		112,485		325,645		44,448			—			482,578
At December 31, 2001
	Identifiable assets		110,466		322,657		35,398			—			468,521

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         Below is a reconciliation between total segment operating income after eliminations and consolidated income (loss) before provision for income taxes as reported on the condensed, consolidated statements of operations (in thousands):

	Three Months Ended
	March 31,
	2002			2001
Total segment operating income after eliminations	$	20,322		$	9,263
Net interest expense		(9,989	)		(11,153	)
Other income		93			—
Minority interest in income of subsidiaries		(402	)		(275	)
Income (loss) before provision for income taxes	$	10,024		$	(2,165	)

(6) Other Income

         For the three months ended March 31, 2002, the Company recognized a non-cash gain of $93,000 for changes in the time value of a collar agreement. See footnote (7), “Derivatives”, for additional information.

(7) Derivatives

         As a requirement of the Company’s senior debt obligations, the Company entered into an arrangement to hedge interest rate exposure for a minimum notional amount of $62.0 million and a minimum term of two years. On November 13, 2000, the Company entered into a no-fee interest rate collar agreement with Wells Fargo Bank effective November 15, 2000 and expiring November 15, 2002, (the “Collar Agreement”). The Collar Agreement is based on the London interbank offer rate (“LIBOR”), which resets monthly, and has a cap and floor notional amount of $62.5 million, with a cap and floor interest rate of 7.5% and 5.9%, respectively. During the three months ended March 31, 2002 and 2001, the Company made payments under this agreement amounting to $615,000 and $39,000, respectively, resulting from LIBOR rates being below the floor interest rate of 5.9%. These payments have been reported as part of interest expense.

         The Collar Agreement is accounted for as a cash flow hedge with its market value reported as a liability in the balance sheet. This liability decreased approximately $460,000 to $1.5 million at March 31, 2002 from $2.0 million at December 31, 2001. Of this decrease, $367,000 has been recognized in comprehensive income and the other $93,000 has been recognized in other income. The valuation of the collar agreement is determined by Wells Fargo Bank. As the result of adopting Statement of Financial Accounting Standards (“SFAS”) No. 133 in 2001, the Company recorded a cumulative adjustment to other comprehensive income of approximately $525,000 during the three months ended March 31, 2001.

         With the exception of the Collar Agreement, management does not intend to enter into derivative contracts in the future.

(8) Accounting Pronouncements

         In June 2001, the Financial Accounting Standards Board, (“FASB”) issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. SFAS No. 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives.

         The Company adopted SFAS No. 142 on January 1, 2002. As of March 31, 2002 the Company’s goodwill balance was $319.4 million and for the three months ended March 31, 2001 the Company recorded $2.3 million in goodwill amortization. Because of the adoption of SFAS No. 142 there was no amortization of goodwill for the three months ended March 31, 2002. The Company will test goodwill for impairment using the two-step process described in SFAS No. 142. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. The Company expects to complete the two-step process by June 30, 2002. The

8

Company has not yet determined the amount of the potential impairment loss, if any. Any impairment recognized in association with the adoption of SFAS No. 142 will be accounted for as a cumulative adjustment for a change in accounting principle.

         The following table presents net income (loss) and earnings (loss) per share as if SFAS No. 142 had been adopted as of January 1, 2001:

		Three Months Ended
		March 31,
		2002		2001
Net income (loss)		$	5,635	$	(2,989	)
Add back goodwill amortization, net of tax			—		1,710
Adjusted net income (loss)		$	5,635	$	(1,279	)
Basic earnings (loss) per share:
	Reported net income (loss)	$	0.15	$	(0.46	)
	Goodwill amortization, net of tax		—		0.10
	Adjusted net income (loss)	$	0.15	$	(0.36	)
Diluted earnings (loss) per share:
	Reported net income (loss)	$	0.15	$	(0.46	)
	Goodwill amortization, net of tax		—		0.10
Adjusted net income (loss)		$	0.15	$	(0.36	)

         In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company will adopt SFAS No. 143 in the first quarter of fiscal year 2003. The Company is evaluating the impact of the adoption of SFAS No. 143 on the consolidated financial statements.

         In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which establishes one accounting model to be used for long-lived assets to be disposed of by sale and broadens the presentation for discontinued operations to include more disposal transactions. SFAS No. 144 supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets to be Disposed of by Sale, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The Company adopted SFAS No. 144 effective January 1, 2002.

(9) Reclassifications

         Certain 2001 balances have been reclassified to conform to the 2002 financial statement presentation.

(10) Commitments and Contingencies

         The laws of many states prohibit business corporations from providing, or holding themselves out as providers of, veterinary medical care. These laws vary from state to state and are enforced by the courts and by regulatory authorities with broad discretion. The Company operates 55 animal hospitals in 11 states with these laws. The Company may experience difficulty in expanding operations into other states with similar laws. Given varying and uncertain interpretations of the veterinary laws of each state, the Company may not be in compliance with restrictions on the corporate practice of veterinary medicine in all states. A determination that the Company is in violation of applicable restrictions on the practice of veterinary medicine in any state in which it operates could have a material adverse effect, particularly if the Company were unable to restructure its operations to comply with the requirements of that state.

         The Company currently is a party to a lawsuit in the State of Ohio in which that state has alleged that the management of a veterinary medical group licensed to practice veterinary medicine in that state violates the Ohio statute prohibiting business corporations from providing or holding themselves out as providers of veterinary

9

medical care. On March 20, 2001, the trial court in the case entered summary judgment in favor of the State of Ohio and issued an order enjoining the Company from operating in the State of Ohio in a manner that is in violation of the state statute. In response, the Company has restructured its operations in the State of Ohio in a manner believed to conform to the state law and the court’s order. The Attorney General of the State of Ohio informed the Company that it disagrees with its position that the Company is in compliance with the court’s order. In June 2001, the Company appeared at a status conference before the trial court at which time the court directed the parties to meet together to attempt to settle this matter. Consistent with the trial court’s directive, the Company engaged in discussions with the Attorney General’s office in the State of Ohio. The parties appeared at an additional status conference in February 2002. The parties were not able to reach a settlement prior to the February status conference. At that status conference, the court ordered the parties to participate in a court-supervised settlement conference that was scheduled for March 19, 2002. The court postponed the settlement conference until April 19, 2002. Pursuant to discussions with the Ohio Attorney General at the settlement conference, we are in the process of further restructuring our operations in Ohio. The next settlement conference has yet to be scheduled. If a settlement cannot be reached, the Company would be required to discontinue operations in the state. The five animal hospitals in the State of Ohio had a net book value of $6.2 million as of March 31, 2002. If the Company was required to discontinue operations in the State of Ohio, it may not be able to dispose of the hospital assets for their book value. The animal hospitals located in the State of Ohio generated revenue and operating income of $440,000 and $90,000, respectively, in the three months ended March 31, 2002 and $441,000 and $122,000, respectively, in the three months ended March 31, 2001.

         All of the states in which the Company operates impose various registration requirements. To fulfill these requirements, each facility has been registered with appropriate governmental agencies and, where required, have appointed a licensed veterinarian to act on behalf of each facility. All veterinary doctors practicing in the Company’s clinics are required to maintain valid state licenses to practice.

(11) Subsequent Events

         From April 1, 2002 through May 10, 2002, the Company has acquired four animal hospitals for an aggregate consideration (including acquisition costs) of $1.9 million, consisting of $1.8 million in cash, and the assumption of liabilities of $110,000.

(12) Condensed, Consolidating Information

         In 2000, the Company established a legal structure comprised of a holding company and an operating company. VCA is the holding company. Vicar Operating, Inc. (“Vicar”) is the operating company and wholly-owned by VCA. Vicar owns the capital stock of all of the Company’s subsidiaries.

         In connection with Vicar’s issuance in November 2001 of $170.0 million of 9.875% senior subordinated notes, VCA and each existing and future domestic wholly-owned restricted subsidiary of Vicar (the “Guarantor Subsidiaries”) have, jointly and severally, fully and unconditionally guaranteed the 9.875% senior subordinated notes. These guarantees are unsecured and subordinated in right of payment to all existing and future indebtedness outstanding under the senior debt credit agreement and any other indebtedness permitted to be incurred by Vicar under the terms of the indenture agreement for the 9.875% senior subordinated notes.

         Vicar’s subsidiaries are composed of wholly-owned restricted subsidiaries and partnerships. The partnerships may elect to serve as guarantors of Vicar’s obligations, however, none of the partnerships have elected to do so, (the “Non-Guarantor Subsidiaries”). Vicar conducts all of its business through and derives virtually all of its income from its subsidiaries. Therefore, Vicar’s ability to make required payments with respect to its indebtedness (including the 9.875% senior subordinated notes) and other obligations depends on the financial results and condition of its subsidiaries and its ability to receive funds from its subsidiaries.

10

         Pursuant to Rule 3-10 of Regulation S-X, the following condensed consolidating information is for VCA, Vicar, the wholly-owned Guarantor and the Non-Guarantor Subsidiaries with respect to the 9.875% senior subordinated notes. This condensed financial information has been prepared from the books and records maintained by VCA, Vicar, the Guarantor and the Non-Guarantor Subsidiaries. The condensed financial information may not necessarily be indicative of results of operations or financial position had the Guarantors and Non-Guarantor Subsidiaries operated as independent entities. The separate financial statements of the Guarantor Subsidiaries are not presented because management has determined they would not be material to investors.

11

VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

CONDENSED, CONSOLIDATING BALANCE SHEETS
As of March 31, 2002
(Unaudited)
(In thousands)

											Non-
									Guarantor		Guarantor
			VCA			Vicar			Subsidiaries		Subsidiaries			Elimination			Consolidated
Current assets:
	Cash and equivalents		$	—		$	15,820		$	1,869	$	165		$	—		$	17,854
	Trade accounts receivable, net			—			10			20,902		635			—			21,547
	Inventory prepaid expenses and other			—			735			5,860		529			—			7,124
	Deferred income taxes			—			7,364			—		—			—			7,364
		Total current assets		—			23,929			28,631		1,329			—			53,889
Property and equipment, net				—			8,481			78,839		2,548			—			89,868
Other assets:
	Goodwill, net			—			—			300,010		19,357			—			319,367
	Covenants not to compete, net			—			—			3,692		868			—			4,560
	Deferred financing costs, net			780			10,133			—		—			—			10,913
	Other assets			321			802			1,690		1,168			—			3,981
Investment in subsidiaries				130,964			191,819			20,418		—			(343,201	)		—
	Total assets		$	132,065		$	235,164		$	433,280	$	25,270		$	(343,201	)	$	482,578
Current liabilities:
	Current portion of long-term obligations		$	—		$	4,893		$	355	$	2		$	—		$	5,250
	Accounts payable			—			4,697			3,169		11			—			7,877
	Accrued payroll and related liabilities			—			7,036			5,668		296			—			13,000
	Accrued interest			—			6,964			—		—			—			6,964
	Income taxes payable			—			1,663			—		—			—			1,663
	Other accrued liabilities			—			12,161			2,693		57			—			14,911
		Total current liabilities		—			37,414			11,885		366			—			49,665
Long-term obligations, less current portion				56,476			322,892			978		4			—			380,350
Deferred income taxes				—			1,684			—		—			—			1,684
Minority interest				—			—			—		—			5,124			5,124
Intercompany payable (receivable)				29,834			(257,790	)		228,598		(642	)		—			—
Stockholders’ equity:
	Common stock			37			—			—		—			—			37
	Additional paid-in capital			188,840			—			—		—			—			188,840
	Retained earnings (accumulated deficit)			(140,959	)		132,452			191,819		25,542			(349,813	)		(140,959	)
	Accumulated comprehensive loss			(1,488	)		(1,488	)		—		—			1,488			(1,488	)
	Notes receivable from stockholders			(675	)		—			—		—			—			(675	)
		Total stockholders’ equity		45,755			130,964			191,819		25,542			(348,325	)		45,755
		Total liabilities and stockholders’ equity	$	132,065		$	235,164		$	433,280	$	25,270		$	(343,201	)	$	482,578

12

VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

CONDENSED, CONSOLIDATING BALANCE SHEETS
As of December 31, 2001
(Unaudited)
(In thousands)

											Non-
									Guarantor		Guarantor
			VCA			Vicar			Subsidiaries		Subsidiaries			Elimination			Consolidated
Current assets:
	Cash and equivalents		$	—		$	3,467		$	3,260	$	376		$	—		$	7,103
	Trade accounts receivable, net			—			—			17,702		334			—			18,036
	Inventory, prepaid expenses and other			—			1,165			5,160		554			—			6,879
	Deferred income taxes			—			7,364			—		—			—			7,364
	Prepaid income taxes			—			2,782			—		—			—			2,782
		Total current assets		—			14,778			26,122		1,264			—			42,164
Property and equipment, net				—			8,421			78,225		2,598			—			89,244
Other assets:
	Goodwill, net			—			—			298,198		19,064			—			317,262
	Covenants not to compete, net			—			—			4,211		616			—			4,827
	Deferred financing costs, net			780			10,600			—		—			—			11,380
	Other assets			320			498			1,986		840			—			3,644
Investment in subsidiaries				123,842			179,391			19,920		—			(323,153	)		—
	Total assets		$	124,942		$	213,688		$	428,662	$	24,382		$	(323,153	)	$	468,521
Current liabilities:
	Current portion of long-term obligations		$	—		$	4,766		$	389	$	4		$	—		$	5,159
	Accounts payable			—			5,223			2,074		16			—			7,313
	Accrued payroll and related liabilities			—			5,019			6,440		258			—			11,717
	Accrued interest			—			2,254			—		—			—			2,254
	Other accrued liabilities			—			13,373			2,968		10			—			16,351
		Total current liabilities		—			30,635			11,871		288			—			42,794
Long-term obligations, less current portion				54,345			324,152			672		4			—			379,173
Deferred income taxes				—			1,684			—		—			—			1,684
Minority interest				—			—			—		—			5,106			5,106
Intercompany payable (receivable)				30,833			(266,625	)		236,728		(936	)		—			—
Stockholders’ equity:
	Common stock			37			—			—		—			—			37
	Additional paid-in capital			188,840			—			—		—			—			188,840
	Retained earnings (accumulated deficit)			(146,594	)		125,697			179,391		25,026			(330,114	)		(146,594	)
	Accumulated comprehensive loss			(1,855	)		(1,855	)		—		—			1,855			(1,855	)
	Notes receivable from stockholders			(664	)		—			—		—			—			(664	)
		Total stockholders’ equity		39,764			123,842			179,391		25,026			(328,259	)		39,764
		Total liabilities and stockholders’ equity	$	124,942		$	213,688		$	428,662	$	24,382		$	(323,153	)	$	468,521

13

VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2002
(Unaudited)
(In thousands)

										Non-
								Guarantor		Guarantor
		VCA			Vicar			Subsidiaries		Subsidiaries			Elimination			Consolidated
Revenue		$	—		$	500		$	96,426	$	7,961		$	(192	)	$	104,695
Direct costs			—			—			66,977		5,803			(192	)		72,588
			—			500			29,449		2,158			—			32,107
Selling, general and administrative			—			3,269			5,047		306			—			8,622
Depreciation and amortization			—			328			2,667		168			—			3,163
	Operating income (loss)		—			(3,097	)		21,735		1,684			—			20,322
Net interest expense			2,141			7,845			30		(27	)		—			9,989
Other income			—			93			—		—			—			93
Equity interest in income of subsidiaries			6,755			12,428			1,309		—			(20,492	)		—
	Income before minority interest and provision for income taxes		4,614			1,579			23,014		1,711			(20,492	)		10,426
Minority interest in income of subsidiaries			—			—			—		—			402			402
	Income (loss) before provision for income taxes		4,614			1,579			23,014		1,711			(20,894	)		10,024
Provision (benefit) for income taxes			(1,021	)		(5,176	)		10,586		—			—			4,389
	Net income (loss)	$	5,635		$	6,755		$	12,428	$	1,711		$	(20,894	)	$	5,635

14

VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2001
(Unaudited)
(In thousands)

										Non-
								Guarantor		Guarantor
		VCA			Vicar			Subsidiaries		Subsidiaries			Elimination			Consolidated
Revenue		$	—		$	500		$	89,023	$	6,306		$	(149	)	$	95,680
Direct costs			—			—			64,795		4,816			(149	)		69,462
			—			500			24,228		1,490			—			26,218
Selling, general and administrative			—			3,926			6,407		225			—			10,558
Depreciation and amortization			—			1,599			4,427		228			—			6,254
Loss on sale of assets			—			143			—		—			—			143
	Operating income (loss)		—			(5,168	)		13,394		1,037			—			9,263
Net interest expense			3,875			7,241			55		(18	)		—			11,153
Equity interest in income of subsidiaries			(463	)		7,624			780		—			(7,941	)		—
	Income (loss) before minority interest and provision for income taxes		(4,338	)		(4,785	)		14,119		1,055			(7,941	)		(1,890	)
Minority interest in income of subsidiaries			—			—			—		—			275			275
	Income (loss) before provision for income taxes		(4,338	)		(4,785	)		14,119		1,055			(8,216	)		(2,165	)
Provision (benefit) for income taxes			(1,349	)		(4,322	)		6,495		—			—			824
	Net income (loss)	$	(2,989	)	$	(463	)	$	7,624	$	1,055		$	(8,216	)	$	(2,989	)

15

VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2002
(Unaudited)
(In thousands)

													Non-
										Guarantor			Guarantor
				VCA			Vicar			Subsidiaries			Subsidiaries			Elimination			Consolidated
Cash from operating activities:
	Net income (loss)			$	5,635		$	6,755		$	12,428		$	1,711		$	(20,894	)	$	5,635
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Equity interest in earnings of subsidiaries			(6,755	)		(12,428	)		(1,309	)		—			20,492			—
		Depreciation and amortization			—			328			2,667			168			—			3,163
		Amortization of deferred financing costs and debt discount			—			457			—			—			—			457
		Provision for uncollectible accounts			—			—			556			64			—			620
		Interest paid in kind on senior subordinated notes			2,168			—			—			—			—			2,168
		Minority interest in income of subsidiaries			—			—			—			—			402			402
		Distributions to minority interest partners			—			(384	)		—			—			—			(384	)
		Increase in accounts receivable			—			(10	)		(3,744	)		(365	)		—			(4,119	)
		Decrease (increase) in inventory, prepaid expense and other assets			—			117			(372	)		25			—			(230	)
		Increase in accounts payable and accrued liabilities			—			7,038			660			33			—			7,731
		Decrease in prepaid income taxes			—			—			2,782			—			—			2,782
		Increase (decrease) in income tax payable			—			4,445			(2,782	)		—			—			1,663
		Increase (decrease) in intercompany payable (receivable)			(1,048	)		14,575			(11,680	)		(1,847	)		—			—
Net cash provided by (used in) operating activities					—			20,893			(794	)		(211	)		—			19,888
Cash flows from investing activities:
		Business acquisitions, net of cash acquired			—			(3,011	)		—			—			—			(3,011	)
		Property and equipment additions, net			—			(2,563	)		(605	)		—			—			(3,168	)
		Other			—			(31	)		8			—			—			(23	)
			Net cash used in investing activities		—			(5,605	)		(597	)		—			—			(6,202	)
Cash flows from financing activities:
		Repayment of long-term obligations			—			(1,253	)		—			—			—			(1,253	)
		Payment of deferred financing costs and recapitalization			—			(1,682	)		—			—			—			(1,682	)
			Net cash used in financing activities		—			(2,935	)		—			—			—			(2,935	)
Increase (decrease) in cash and equivalents					—			12,353			(1,391	)		(211	)		—			10,751
Cash and equivalents at beginning of year					—			3,467			3,260			376			—			7,103
Cash and equivalents at end of year				$	—		$	15,820		$	1,869		$	165		$	—		$	17,854

16

VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2001
(Unaudited)
(In thousands)

												Non-
									Guarantor			Guarantor
			VCA			Vicar			Subsidiaries			Subsidiaries			Elimination			Consolidated
Cash from operating activities:
	Net income (loss)		$	(2,989	)	$	(463	)	$	7,624		$	1,055		$	(8,216	)	$	(2,989	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Equity interest in earnings of subsidiaries		463			(7,624	)		(780	)		—			7,941			—
		Depreciation and amortization		—			1,599			4,427			228			—			6,254
		Amortization of deferred financing costs and debt discount		8			523			—			—			—			531
		Provision for uncollectible accounts		—			—			509			45			—			554
		Non-cash compensation		—			304			2,740			—			—			3,044
		Interest paid in kind on senior subordinated notes		3,875			—			—			—			—			3,875
		Loss on sale of assets		—			143			—			—			—			143
		Minority interest in income of subsidiaries		—			—			—			—			275			275
		Distributions to minority interest partners		—			(338	)		—			—			—			(338	)
		Increase in accounts receivable		—			—			(3,235	)		(45	)		—			(3,280	)
		Decrease (increase) in inventory, prepaid expense and other assets		(8	)		(89	)		484			(46	)		—			341
		Increase (decrease) in accounts payable and accrued liabilities		—			(318	)		2,185			16			—			1,883
		Increase in prepaid income taxes		—			664			—			—			—			664
		Increase (decrease) in intercompany payable (receivable)		(1,349	)		14,436			(11,938	)		(1,149	)		—			—
	Net cash provided by operating activities			—			8,837			2,016			104			—			10,957
Cash flows from investing activities:
		Business acquisitions, net of cash acquired		—			(10,728	)		—			—			—			(10,728	)
		Real estate acquired in connection with business acquisitions		—			(475	)		—			—			—			(475	)
		Property and equipment additions, net		—			(1,844	)		(458	)		—			—			(2,302	)
		Proceeds from sale of assets		—			370			—			—			—			370
		Other		—			—			(939	)		—			—			(939	)
	Net cash used in investing activities			—			(12,677	)		(1,397	)		—			—			(14,074	)
Cash flows from financing activities:
		Repayment of long-term obligations		—			(1,814	)		—			—			—			(1,814	)
		Payment of deferred financing costs and recapitalization		—			(1,169	)		—			—			—			(1,169	)
	Net cash used in financing activities			—			(2,983	)		—			—			—			(2,983	)
Increase (decrease) in cash and equivalents				—			(6,823	)		619			104			—			(6,100	)
Cash and equivalents at beginning of year				—			8,165			2,073			281			—			10,519
Cash and equivalents at end of year			$	—		$	1,342		$	2,692		$	385		$	—		$	4,419

17

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

         The following discussion should be read in conjunction with our condensed, consolidated financial statements provided under Part I, Item 1 of this quarterly report on Form 10-Q. Certain statements contained herein may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed more fully herein.

         The forward-looking information set forth in this quarterly report on Form 10-Q is as of May 10, 2002, and we undertake no duty to update this information. Should events occur subsequent to May 10, 2002 that make it necessary to update the forward-looking information contained in this Form 10-Q, the updated forward-looking information will be filed with the Securities and Exchange Commission in a quarterly report on Form 10-Q or a current report on Form 8-K, each of which will be available at our website at www.vcaantech.com. More information about potential factors that could affect our business and financial results is included in the section entitled “Risk Factors.”

Overview

         We operate a leading animal health care services company and operate the largest networks of veterinary diagnostic laboratories and free-standing, full-service animal hospitals in the United States. Our network of veterinary diagnostic laboratories 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. Our animal hospitals offer a full range of general medical and surgical services for companion animals. We treat diseases and injuries, offer pharmaceutical products and perform a variety of pet wellness programs, including routine vaccinations, health examinations, diagnostic testing, spaying, neutering and dental care.

         Our company was formed in 1986 by Robert Antin, Arthur Antin and Neil Tauber, who have served since our inception as our Chief Executive Officer, Chief Operating Officer and Senior Vice President of Development, respectively. During the 1990s, we established a premier position in the veterinary diagnostic laboratory and animal hospital markets through both internal growth and acquisitions. By 1997, we achieved a critical mass, building a laboratory network of 12 laboratories servicing animal hospitals in all 50 states and completing acquisitions for a total of 160 animal hospitals. At March 31, 2002, our laboratory network consisted of 16 laboratories serving all 50 states and our animal hospital network consisted of 216 animal hospitals in 33 states. We primarily focus on generating internal growth to increase revenue and profitability. In order to augment internal growth, we may selectively acquire laboratories and intend to acquire approximately 15 to 25 animal hospitals per year, depending upon the attractiveness of candidates and the strategic fit with our existing operations.

18

         The following table summarizes our growth in facilities for the periods presented:

		Three Months Ended
		March 31,
		2002			2001
Laboratories:
	Beginning of period		16			15
	Acquisitions and new facilities		—			—
	Relocated into other labs operated by us		—			—
	End of period		16			15
Animal hospitals:
	Beginning of period		214			209
	Acquisitions		3			9
	Relocated into hospitals operated by us		(1	)		(4	)
	Sold or closed		—			(1	)
	End of period		216			213
	Owned at end of period		161			160
	Managed at end of period		55			53

Basis of Reporting

General

         Our discussion and analysis of our financial condition and results of operations are based upon our condensed, consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. We report our operations in three segments: laboratory, animal hospital and corporate. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expense, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition

         Revenue is recognized only after the following criteria are met:

• there exists adequate evidence of the transaction;

• delivery of goods has occurred or services have been rendered; and

• the price is not contingent on future activity and collectibility is reasonably assured.

Laboratory Revenue

         A portion of laboratory revenue is intercompany revenue that was generated by providing laboratory services to our animal hospitals. This revenue is eliminated in the condensed, consolidated statements of operations.

         Laboratory revenue is presented net of discounts. Some discounts, such as those given to clients for prompt payment, are applied to clients’ accounts in periods subsequent to the period the revenue was recognized. Such discounts not yet applied to clients’ accounts are estimated and deducted from revenue in the period the related revenue was recognized. Such estimates are based upon historical experience. Errors in estimates would not have a material effect on our financial statements.

19

Animal Hospital Revenue

         Animal hospital revenue is comprised of revenue of the animal hospitals that we own and the management fees of animal hospitals that we manage. Certain states prohibit business corporations from providing or holding themselves out as providers of veterinary medical care. In these states, we enter into arrangements with a veterinary medical group that provides all veterinary medical care, although we manage the administrative functions associated with the operation of the animal hospitals and we own or lease the hospital facility. In return for our services, the veterinary medical group pays us a management fee. We do not consolidate the operations of animal hospitals that we manage. However, for purposes of calculating same-facility revenue growth in our animal hospitals, we use the combined revenue of animal hospitals owned and managed for the entire periods presented. Same-facility revenue growth includes revenue generated by customers referred from our relocated animal hospitals.

Other Revenue

         Other revenue is comprised of consulting fees from Heinz Pet Products relating to the marketing of its proprietary pet food.

Direct Costs

         Laboratory direct costs are comprised of all costs of laboratory services, including salaries of veterinarians, technicians and other non-administrative, laboratory-based personnel, facilities rent, occupancy costs and supply costs. Animal hospital direct costs are comprised of all costs of services and products at the hospitals, including salaries of veterinarians, technicians and all other hospital-based personnel employed by the hospitals we own, facilities rent, occupancy costs, supply costs and costs of goods sold associated with the retail sales of pet food and pet supplies.

Selling, General and Administrative

         Our selling, general and administrative expense is divided between our laboratory, animal hospital and corporate segments. Laboratory selling, general and administrative expense consists primarily of sales and administrative personnel and selling, marketing and promotional expense. Animal hospital selling, general and administrative expense consists primarily of field management and administrative personnel, recruiting and marketing expense. Corporate selling, general and administrative expense consists of administrative expense at our headquarters, including the salaries of corporate officers, professional expense, rent and occupancy costs.

EBITDA and Adjusted EBITDA

         EBITDA is operating income (loss) before depreciation and amortization. Adjusted EBITDA for the 2001 period represents EBITDA adjusted to exclude management fees paid pursuant to our management services agreement with Leonard Green & Partners which was terminated in November 2001, non-cash compensation and loss on sale of assets. No adjustments have been made to the EBITDA calculation for 2002. Corporate EBITDA is comprised of other revenue less corporate selling, general and administrative expense, adjusted to exclude non-cash compensation.

         EBITDA and Adjusted EBITDA (“EBITDA”) are not measures of financial performance under generally accepted accounting principles, or GAAP. EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. We believe EBITDA is a useful measure of our operating performance as it reflects earnings before the impact of items that may change from period to period for reasons not directly related to our operations, such as the depreciation and amortization, interest and taxes and other non-operating or non-recurring items, which occurred in 2001. EBITDA is also an important component of the financial ratios included in our debt covenants and provides us with a measure of our ability to service our debt and meet capital expenditure requirements from our operating results. Our calculation of EBITDA may not be comparable to similarly titled measures reported by other companies.

20

Non-Cash Compensation

         Some stock options issued in 2000 qualified as variable stock options. Related to these variable stock options, we recorded non-cash compensation of approximately $3.0 million in the three months ended March 31, 2001. In August 2001, all of these options were exercised or cancelled. Non-cash compensation is included in laboratory direct costs and in selling, general and administrative expense.

Software Development Costs

         We frequently research, develop and implement new software to be used internally, or enhance our existing internal software. We develop the software using our own employees and/or outside consultants. Most costs associated with the development of new software are expensed as incurred, particularly in the preliminary planning stages and the post-implementation and training stages. Costs related directly to the software design, coding, testing and installation are capitalized. Costs related to upgrades or enhancements of existing systems are capitalized if the modifications result in additional functionality.

Critical Accounting Policies and Significant Estimates

         Under accounting principles generally accepted in the United States, management is required to make assumptions and estimates that directly impact our consolidated financial statements and related disclosures. Because of the uncertainties inherent in making assumptions and estimates, actual results in future periods may differ significantly from our assumptions and estimates. Management bases its assumptions and estimates on historical experience and on various other factors believed to be reasonable under the circumstances. The following represent what management believes are the critical accounting policies most affected by significant management estimates and judgments.

Worker’s Compensation Expense

         On October 8, 2001, we entered into a one-year workers’ compensation insurance policy with a $250,000 per-occurrence deductible and a stop-loss aggregate deductible of $4.7 million. We have determined that $3.3 million is a reasonable estimate of expected claims losses under this policy and we are accruing for these losses over the twelve-month period ending September 30, 2002. In determining this estimate, in conjunction with the insurance carrier, we reviewed our five-year history of total claims losses, ratio of losses to premiums paid, payroll growth and the current risk control environment. We are pre-funding estimated claims losses to the insurance carrier of approximately $2.9 million.

Goodwill Impairment

         Goodwill relating to acquisitions represents the purchase price paid and liabilities assumed in excess of the fair market value of net assets acquired. Under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, we will test goodwill for impairment using the prescribed two-step process. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. We adopted SFAS No. 142 January 1, 2002. We expect to complete our initial screen for potential impairment by June 30, 2002. We have not yet determined the amount of the potential impairment loss, if any. Any impairment recognized in association with the adoption of SFAS No. 142 will be accounted for as a cumulative effect of a change in accounting principle.

Long-lived Asset Impairment

         We adopted SFAS No. 144, Accounting for the Impairment of Disposal of Long-Lived Assets on January 1, 2002. Under SFAS No. 144, we will continually evaluate whether events, circumstances or net losses at the entity level have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision or that the remaining balance of these assets may not be recoverable. When factors indicate that these assets should be evaluated for possible impairment, we will estimate the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the long-lived assets in question. If that estimate is less than the carrying value of the assets under review, we will recognize an impairment loss equal to that difference.

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Legal Settlements

         We are a party to various legal proceedings that arise in the ordinary course of business. Although we cannot determine the ultimate disposition of these proceedings, we can use judgment to reasonably estimate our liability for legal settlement costs that may arise as a result of these proceedings. Based on our prior experience, the nature of the current proceedings, and our insurance policy coverage for such matters, we have accrued $450,000 for legal settlements as part of other accrued liabilities.

Results of Operations

         The following table sets forth components of our statements of operations data expressed as a percentage of revenue for the three months ended March 31, 2002 and 2001:

			2002			2001
Revenue:
	Laboratory			36.0	%		34.1	%
	Animal hospital			65.5			67.3
	Other			0.5			0.5
	Intercompany			(2.0	)		(1.9	)
		Total revenue		100.0			100.0
Direct costs				69.3			72.6
Selling, general and administrative				8.3			11.0
Depreciation and amortization				3.0			6.5
Loss on sale of assets				—			0.2
		Operating income		19.4			9.7
Net interest expense				9.5			11.7
Other income				0.1			—
Minority interest in income of subsidiaries				0.4			0.3
Provision for income taxes				4.2			0.8
		Net income (loss)		5.4	%		(3.1	)%

         The following table is a summary of the components of operating income by segment for the three months ended March 31, 2002 and 2001 (dollars in thousands):

										Inter-
					Animal					company
			Laboratory		Hospital		Corporate			Eliminations			Total
2002
	Revenue		$	37,657	$	68,644	$	500		$	(2,106	)	$	104,695
	Direct costs			21,562		53,132		—			(2,106	)		72,588
	Selling, general and administrative			2,673		2,679		3,270			—			8,622
	Depreciation and amortization			697		2,136		330			—			3,163
		Operating income (loss)	$	12,725	$	10,697	$	(3,100	)	$	—		$	20,322
2001
	Revenue		$	32,677	$	64,354	$	500		$	(1,851	)	$	95,680
	Direct costs			20,319		50,994		—			(1,851	)		69,462
	Selling, general and administrative			3,277		3,355		3,926			—			10,558
	Depreciation and amortization			1,161		3,494		1,599			—			6,254
	Loss on sale of assets			—		—		143			—			143
		Operating income (loss)	$	7,920	$	6,511	$	(5,168	)	$	—		$	9,263

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Revenue

         The following table summarizes our revenue for the three months ended March 31, 2002 and 2001 (dollars in thousands):

		2002			2001			% Change
Laboratory		$	37,657		$	32,677			15.2	%
Animal hospital			68,644			64,354			6.7	%
Other			500			500
Intercompany			(2,106	)		(1,851	)
	Total revenue	$	104,695		$	95,680			9.4	%

Laboratory Revenue

         Laboratory revenue increased $5.0 million, or 15.2%, for the three months ended March 31, 2002 comparable to the same period in the prior year. However, the first quarter of 2002 contained one more billing day than the first quarter of 2001. This increase, all of which was from internal growth, resulted from the increase in the overall number of tests and requisitions and an increase in the average revenue per requisition. These increases primarily were the result of the continued emphasis on selling our pet health and wellness programs and the implementation of a price increase for most tests in February 2002.

Animal Hospital Revenue

         The following table summarizes our animal hospital revenue as reported and the combined revenue of animal hospitals that we owned and managed had we consolidated the operating results of the animal hospitals we managed into our operating results for the three months ended March 31, 2002 and 2001 (dollars in thousands):

		2002			2001			% Change
Animal hospital revenue as reported		$	68,644		$	64,354			6.7	%
Less: Management fees paid to us by veterinary medical groups			(9,705	)		(8,614	)
Add: Revenue of animal hospitals managed			18,315			16,366
	Combined revenue of animal hospitals owned and managed	$	77,254		$	72,106			7.1	%

         Animal hospital revenue as reported increased $4.3 million, or 6.7%, for the three months ended March 31, 2002 compared to the same period in the prior year. The increase in animal hospital revenue primarily resulted from the acquisition of 15 animal hospitals that we owned, managed or relocated into other hospitals owned by us subsequent to March 31, 2001. The increase in animal hospital revenue also was due to same-facility revenue growth of 2.0%. However, the first quarter of 2002 contained one less revenue day than in the same quarter in 2001. Same-facility revenue growth primarily was due to increases in the average amount spent per visit and revenue generated by customers referred from our relocated animal hospitals.

Direct Costs

         The following table summarizes our direct costs and our direct costs as a percentage of applicable revenue for the three months ended March 31, 2002 and 2001 (dollars in thousands):

		2002						2001
					% of						% of
		$			Revenue			$			Revenue			% Change
Laboratory		$	21,562			57.3	%	$	20,319			62.2	%		6.1	%
Animal hospital			53,132			77.4	%		50,994			79.2	%		4.2	%
Intercompany			(2,106	)					(1,851	)					13.8	%
	Total direct costs	$	72,588			69.3	%	$	69,462			72.6	%		4.5	%

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Laboratory Direct Costs

         Laboratory direct costs increased $1.2 million, or 6.1%, for the three months ended March 31, 2002 compared to the same period in the prior year. Laboratory direct costs as a percentage of laboratory revenue was 57.3% and 62.2% for the three months ended March 31, 2002 and 2001, respectively. However, laboratory direct costs for the three months ended March 31, 2001 include non-cash compensation of $565,000. Excluding non-cash compensation, laboratory direct costs as a percentage of laboratory revenue would have been 60.5% for the three months ended March 31, 2001. The decreases in laboratory direct costs as a percentage of laboratory revenue during these periods primarily were attributable to additional operating leverage gained on increases in laboratory revenue.

Animal Hospital Direct Costs

         The following table summarizes our animal hospital direct costs as reported and the combined direct costs of animal hospitals owned and managed had we consolidated the operating results of the animal hospitals we manage into our operating results for the three months ended March 31, 2002 and 2001 (dollars in thousands):

	2002						2001
				% of						% of
				Combined						Combined
	$			Revenue			$			Revenue			% Change
Animal hospital direct costs as reported	$	53,132			77.4	%	$	50,994			79.2	%		4.2	%
Add: Direct costs of animal hospitals managed		18,315						16,366
Less: Management fees charged by us to veterinary medical groups		(9,705	)					(8,614	)
Combined direct costs of animal hospitals owned and managed	$	61,742			79.9	%	$	58,746			81.5	%		5.1	%

         Animal hospital direct costs as reported increased $2.1 million, or 4.2%, for the three months ended March 31, 2002 compared to the same period in the prior year. Animal hospital direct costs as a percentage of animal hospital revenue decreased to 77.4% for the three months ended March 31, 2002 from 79.2% for the three months ended March 31, 2001. The decreases in animal hospital direct costs as a percentage of animal hospital revenue during these periods primarily were attributable to additional operating leverage gained on increases in animal hospital revenue, because most of the costs associated with this business do not increase proportionately with increases in the volume of services rendered.

Selling, General and Administrative

         The following table summarizes our selling, general and administrative expense and expense as a percentage of applicable revenue for the three months ended March 31, 2002 and 2001 (dollars in thousands):

		2002					2001
				% of					% of
		$		Revenue			$		Revenue			% Change
Laboratory		$	2,673		7.1	%	$	3,277		10.0	%		(18.4	)%
Animal hospital			2,679		3.9	%		3,355		5.2	%		(20.1	)%
Corporate			3,270		3.1	%		3,926		4.1	%		(16.7	)%
	Total selling, general and administrative	$	8,622		8.2	%	$	10,558		11.0	%		(18.3	)%

Laboratory Selling, General and Administrative

         Laboratory selling, general and administrative expense for the three months ended March 31, 2002 decreased $604,000, or 18.4%, compared to the same period in the prior year. Laboratory selling, general and administrative expense includes non-cash compensation of $1.1 million for the three months ended March 31, 2001. Excluding the non-cash compensation, laboratory selling, general and administrative expense would have increased $543,000, or 25.5% for the three months ended March 31, 2002, compared to the same period in the prior year and

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represented 7.1% and 6.5% of laboratory revenue for the three months ended March 31, 2002 and 2001, respectively. This increase primarily was due to an increase in commission payments to sales representatives, which was caused by an increase in sales as well as additional legal settlement costs accrued in 2002.

Animal Hospital Selling, General and Administrative

         Animal hospital selling, general and administrative expense for the three months ended March 31, 2002 decreased $676,000, or 20.1%, compared to the same period in the prior year. Animal hospital selling, general and administrative expense includes non-cash compensation of $1.0 million for the three months ended March 31, 2001. Excluding the non-cash compensation, animal hospital selling, general and administrative expense would have increased $348,000, or 14.9%, for the three months ended March 31, 2002, compared to the same period in the prior year and represented 3.9% and 3.6% as a percentage of animal hospital revenue, respectively. This increase primarily was due to the addition of a number of field management positions, primarily regional medical director positions.

Corporate Selling, General and Administrative

         Corporate selling, general and administrative expense for the three months ended March 31, 2002 decreased $656,000, or 16.7%, compared to the same period in the prior year. Corporate selling, general and administrative expense for the three months ended March 31, 2001 includes non-cash compensation of $308,000 and management fees of $620,000 paid pursuant to our management agreement with Leonard Green & Partners that was terminated in November 2001. Excluding the non-cash compensation and management fees, corporate selling, general and administrative expense would have been 3.1% as a percentage of total revenue for the three months ended March 31, 2001 and would have increased $272,000, or 9.1%, for the three months ended March 31, 2002, compared to the same period in the prior year. This increase primarily was due to increased professional services and shareholder relations costs as a result of becoming a public company.

Adjusted EBITDA

         The following table summarizes our Adjusted EBITDA and our Adjusted EBITDA as a percentage of applicable revenue for the three months ended March 31, 2002 and 2001 (dollars in thousands):

		2002						2001
					% of						% of
		$			Revenue			$			Revenue			% Change
Laboratory Adjusted EBITDA (1)		$	13,422			35.6	%	$	10,793			33.0	%		24.4	%
Animal hospital Adjusted EBITDA (2)			12,833			18.7	%		11,029			17.1	%		16.4	%
Other revenue			500						500
Corporate selling, general and administrative (3)			(3,270	)		3.1	%		(2,998	)		3.1	%
	Total Adjusted EBITDA	$	23,485			22.4	%	$	19,324			20.2	%		21.5	%

(1)	For the three months ended March 31, 2001, laboratory EBITDA was adjusted to exclude non-cash compensation of $1.7 million. There were no adjustments in 2002.
(2)	For the three months ended March 31, 2001, animal hospital EBITDA was adjusted to exclude non-cash compensation of $1.0 million. There were no adjustments in 2002.
(3)	For the three months ended March 31, 2001, corporate selling, general and administrative expense was adjusted to exclude non-cash compensation of $308,000 and management fees of $620,000. There were no adjustments in 2002.

Depreciation and Amortization

         Depreciation and amortization expense decreased $3.1 million, or 49.4%, for the three months ended March 31, 2002 compared to the comparable period in the prior year.

         As a result of the implementation of SFAS No. 142, we will no longer amortize goodwill as of January 1, 2002. For a detailed discussion of SFAS No. 142, see “New Accounting Pronouncements.” For the three months ended March 31, 2001 we had $2.3 million of goodwill amortization expense. In addition to the impact of SFAS No. 142, we terminated our non-competition agreements with members of senior management in November of 2001.

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Net Interest Expense

         Net interest expense decreased $1.2 million, or 10.4%, to $10.0 million for the three months ended March 31, 2002 from $11.2 million for the three months ended March 31, 2001. The decrease in net interest expense primarily was due to the effect of decreasing interest rates on our variable rate obligations, and the refinancing of a portion of our higher-yield, fixed rate debt with lower-yield, fixed rate debt.

Other Income

         Other income of $93,000 for the three months ended March 31, 2002, consisted of a non-cash gain on a hedging instrument resulting from the changes in the time value of our collar agreement.

Provision for Income Taxes

         Provision for income taxes was $4.4 million and $824,000 for the three months ended March 31, 2002 and 2001, respectively. Our effective income tax rate for each period varies from the statutory rate primarily due to the non-deductibility for income tax purposes of the amortization of a portion of goodwill.

Minority Interest

         Minority interest in income of the consolidated subsidiaries was $402,000 and $275,000 for the three months ended March 31, 2002 and 2001, respectively. Minority interest in income represents our partners’ proportionate share of net income generated by our subsidiaries, which we do not wholly own.

Increase in Carrying Amount of Redeemable Preferred Stock

         The holders of our series A redeemable preferred stock and our series B redeemable preferred stock were entitled to receive dividends at a rate of 14% and 12%, respectively. The dividends not paid in cash compounded quarterly. The dividends earned during the three months ended March 31, 2001 were added to the liquidation preference of the preferred stock. In November 2001, the Company redeemed all of the outstanding series A and series B redeemable preferred stock.

Liquidity and Capital Resources

Discussion of 2002

         Cash and cash equivalents increased to $17.9 million at March 31, 2002 from $7.1 million at December 31, 2001. The increase primarily resulted from $19.9 million provided by operating activities offset by $6.2 million used in investing activities and $2.9 million used in financing activities.

         Net cash of $19.9 million provided by operating activities primarily consisted of $5.6 million of net income adjusted for non-cash expenses of $6.4 million, a $4.7 million increase in accrued interest, a $1.7 million increase in income taxes payable, and $1.5 million provided by other working capital changes.

         Net cash of $6.2 million used in investing activities primarily resulted from $3.2 million to purchase property and equipment and $3.0 million related to the acquisition of animal hospitals.

         Net cash of $2.9 million used in financing activities primarily resulted from the use of $1.3 million to repay debt obligations and $1.7 million to pay deferred financing costs.

Future Cash Requirements

         We expect to fund our liquidity needs primarily from operating cash flows, cash on hand and, if needed, borrowings under our $50.0 million revolving credit facility, which we have not utilized as of March 31, 2002. We believe these sources of funds will be sufficient to continue our operations and planned capital expenditures and

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satisfy our scheduled principal and interest payments under debt and capital lease obligations for at least the next 12 months. However, a significant portion of our cash requirements will be determined by the pace and size of our acquisitions.

         Estimated future uses of cash for the remainder of 2002 include capital expenditures for land, buildings and equipment of approximately $11.8 million. In addition, we intend to use available liquidity to continue our growth through the selective acquisition of animal hospitals, primarily for cash. We continue to examine acquisition opportunities in the laboratory field, which may impose additional cash requirements. Our acquisition program contemplates the acquisition of 15 to 25 animal hospitals per year and a planned cash commitment of up to $30.0 million. However, we may purchase either fewer or greater number of facilities depending upon opportunities that present themselves and our cash requirements may change accordingly. In addition, although we intend to primarily use cash in our acquisitions, we may use debt or stock to the extent we deem it appropriate.

         In addition to the foregoing, we will use approximately $3.9 million of cash for the remainder of 2002 to pay the mandatory principal payments due on our outstanding indebtedness. However, we may elect to pre-pay principal. See “Description of Indebtedness” below for additional cash obligations.

Description of Indebtedness

         In September 2000, we entered into a credit and guaranty agreement for $300.0 million of senior secured credit facilities. The credit and guaranty agreement includes a $50.0 million revolving credit facility as well as the senior term A and B notes. The revolving credit facility and senior term A notes mature in September 2006. The senior term B notes mature in September 2008. Borrowings under the credit and guaranty agreement bear interest, at our option, on either the base rate, which is the higher of the administrative agent’s prime rate or the Federal funds rate plus 0.5%, or the adjusted eurodollar rate, which is the rate per annum obtained by dividing (1) the rate of interest offered to the administrative agent 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.” The base rate margins for the senior term A notes and the revolving credit facility range from 1.00% to 2.25% per annum and the margin for the senior term B notes is 2.75%. The eurodollar rate margins for the senior term A notes and the revolving credit facility range from 2.00% to 3.25% per annum and the margin for the senior term B notes is 3.75%. As of March 31, 2002, we have not utilized the revolving credit facility. As of March 31, 2002, we have $23.4 million principal amount outstanding under the senior term A notes and $120.9 million principal amount outstanding under the senior term B notes.

         In September 2000, we issued $20.0 million principal amount of senior subordinated notes due on September 20, 2010. Interest on these senior subordinated notes is 13.5% per annum, payable in cash, semi-annually in arrears. As of March 31, 2002, the outstanding principal balance of our senior subordinated notes was $15.0 million.

         In September 2000, we issued $100.0 million principal amount of senior notes due September 20, 2010. Interest on our senior notes is 15.5% per annum payable semi-annually in arrears in cash or by issuance of additional senior notes. We have issued $21.0 million in additional senior notes to pay interest since the issue date. As of March 31, 2002, the outstanding principal balance of our senior notes was $61.8 million.

         In November 2001, we issued $170.0 million principal amount of senior subordinated notes due December 1, 2009. We have filed a registration statement with the Securities and Exchange Commission for an exchange offer in which these notes will be exchanged for substantially similar securities that are registered under the Securities Act. Interest on these senior subordinated notes is 9.875% per annum, payable semi-annually in arrears. As of March 31, 2002, the outstanding principal balance of these senior subordinated notes was $170.0 million. We and each existing and future domestic wholly-owned restricted subsidiary of our subsidiary, Vicar have, jointly and severally, fully and unconditionally guaranteed these notes. These guarantees are unsecured and subordinated in right of payment to all existing and future indebtedness outstanding under the credit and guaranty agreement and any other indebtedness permitted to be incurred by Vicar under the terms of the indenture agreement for these notes.

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         The credit and guaranty agreement contains certain financial covenants pertaining to interest coverage, fixed charge coverage and leverage ratios. In addition, the credit and guaranty agreement has restrictions pertaining to capital expenditures, acquisitions and the payment of dividends on all classes of stock. We believe the most restrictive covenant is the fixed charge coverage ratio. At March 31, 2002, we had a fixed charge coverage ratio of 1.60 to 1.00. The credit and guaranty agreement required a fixed charge coverage ratio of no less than 1.10 to 1.00 and requires a fixed charge coverage ratio of no less than 1.10 to 1.00 in future periods.

         The following table indicates our current contractual annual cash obligations:

	Total		2002		2003		2004		2005		2006		Thereafter
Long-term debt	$	391,431	$	5,159	$	5,456	$	6,160	$	22,089	$	21,971	$	330,596
Fixed interest		197,318		20,880		19,270		19,245		26,720		26,196		85,007
Variable interest		78,744		10,020		12,160		13,378		12,914		12,079		18,193
Collar agreement		2,080		2,080		—		—		—		—		—
PIK interest		37,104		—		—		—		37,104		—		—
Capital lease obligations		79		79		—		—		—		—		—
Operating leases		192,612		12,247		12,530		12,575		12,285		12,165		130,810
Other long-term obligations		2,424		2,424		—		—		—		—		—
	$	901,792	$	52,889	$	49,416	$	51,358	$	111,112	$	72,411	$	564,606

         We have both fixed rate and variable rate debt. Our variable rate debt is based on a variable rate component plus a fixed margin. We projected the variable rate component to be 3.35%, 5.13%, 6.38%, 6.50% and 6.65% for years 2002 through 2006, respectively. Our consolidated financial statements included in our 2001 Annual Report on Form 10-K discuss these variable rate notes in more detail.

         PIK interest is considered interest on our senior notes prior to September 20, 2005, which we pay by issuing additional senior notes in a principal amount equal to the interest. From January 1, 2002 through March 31, 2005, we plan to pay the interest on our senior notes by issuing additional senior notes in the amount of approximately $37.1 million, which will be paid in cash on September 20, 2005. Subsequent to September 20, 2005, we will be required to make semi-annual cash interest payments on our senior notes.

Our Collar Agreement

         On November 13, 2000, we entered into a no-fee interest rate collar agreement with Wells Fargo Bank, N.A. effective November 15, 2000 and expiring November 15, 2002. Our collar agreement is considered a cash flow hedge based on the London interbank offer rate, or LIBOR, pays out monthly, resets monthly and has a cap and floor notional amount of $62.5 million, with a cap rate of 7.5% and floor rate of 5.9%.

         Under SFAS No. 133, the actual cash paid by us as a result of LIBOR rates being below the floor of our collar agreement is recorded as a component of earnings. For the three months ending March 31, 2002, we have made payments of $615,000, which are included in interest expense.

         At March 31, 2002, the fair market value of our collar agreement was a net liability to us of $1.5 million. We have recorded that liability in our balance sheet as part of other accrued liabilities.

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New Accounting Pronouncements

Goodwill and Other Intangible Assets

         In July 2001, the Financial Accounting Standards Board, or FASB, issued SFAS No. 142, Goodwill and Other Intangible Assets, which changes the way companies account for intangible assets and goodwill associated with business combinations. The principal changes of SFAS No. 142 are as follows:

• All goodwill amortization ceased effective January 1, 2002.

• All goodwill acquired in acquisitions after June 30, 2001 was not subject to amortization.

• All goodwill will be reviewed annually, or as circumstances warrant, using the fair-value-based goodwill impairment tests discussed in SFAS No. 142. As of March 31, 2002, our net goodwill balance was $319.4 million.

         We will test goodwill for impairment using the two-step process described in SFAS No. 142. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. We expect to complete the two-step process by June 30, 2002. We have not yet determined the amount of the potential impairment loss, if any. Any impairment recognized in association with the adoption of SFAS No. 142 will be accounted for as a cumulative adjustment for a change in accounting principle.

Asset Retirement Obligations

         In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We will adopt SFAS No. 143 in the first quarter of fiscal year 2003. We are evaluating the impact of the adoption of SFAS No. 143 on our financial statements.

Impairment of Long-Lived Assets

         In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which establishes one accounting model to be used for long-lived assets to be disposed of by sale and broadens the presentation for discontinued operations to include more disposal transactions. SFAS No. 144 supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets to be Disposed of by Sale, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. We adopted SFAS No. 144 on January 1, 2002.

Outlook

         In our first quarter of 2002, we reported earnings per share of $0.15, or three cents better than street consensus, and Adjusted EBITDA of $23.5 million. In light of these results, we raised our targets for 2002. Our 2002 EBITDA goal has increased to a range of $99 to $102 million. We have increased our goal for 2002 net income to a range of $25 to $26 million. Based upon 37.3 million shares expected to be outstanding, on a diluted basis, annual earnings per share for 2002 is currently expected to be $0.67.

         Our future results of operations in this outlook involve a number of risks and uncertainties. We believe that we have the product offerings, facilities, personnel, and competitive and financial resources for continued business success, but future revenue, costs, margins and profits are all influenced by a number of factors, all of which are inherently difficult to forecast.

Risk Factors

         This Quarterly Report on Form 10-Q, including “Risk Factors” set forth below, contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results and the results of our consolidated subsidiaries to differ materially from those expressed or implied by these forward-looking statements. All statements other than statements of historical fact are

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statements that could be deemed forward-looking statements, including any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statement concerning proposed new products, services or developments; any statements regarding the future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include difficulty of managing our growth and integrating our new acquisitions and other risks that are described from time to time in our Securities and Exchange Commission reports, including but not limited to the items discussed in “Risk Factors” set forth below. We assume no obligation and do not intend to update these forward-looking statements.

If we are unable to effectively execute our growth strategy, we may not achieve our desired economies of scale and our margins and profitability may decline.

         Our success depends in part on our ability to build on our position as a leading animal health care services company through a balanced program of internal growth initiatives and selective acquisitions of established animal hospitals and laboratories. If we cannot implement or effectively execute these initiatives and acquisitions, our results of operations will be adversely affected. Even if we effectively implement our growth strategy, we may not achieve the economies of scale that we have experienced in the past or that we anticipate. Our internal growth rate may decline and could become negative. Our laboratory internal revenue growth has fluctuated between 9.1% and 12.6% for each fiscal year from 1998 through 2001. Similarly, our animal hospital same-facility revenue growth rate has fluctuated between 2.6% and 7.0% over the same fiscal years. Our internal growth may continue to fluctuate and may be below our historical rates. Any reductions in the rate of our internal growth may cause our revenues and margins to decrease. Our historical growth rates and margins are not necessarily indicative of future results.

Our business and results of operations may be adversely affected if we are unable to manage our growth effectively.

         Since January 1, 1996, we have experienced rapid growth and expansion. Our failure to manage our growth effectively may increase our costs of operations and hinder our ability to execute our business strategy. Our rapid growth has placed, and will continue to place, a significant strain on our management and operational systems and resources. At January 1, 1996, we operated 59 hospitals, operated laboratories servicing approximately 9,000 customers in 27 states and had approximately 1,150 employees. At March 31, 2002, we operated 216 hospitals, operated laboratories servicing approximately 13,000 customers in all 50 states and had approximately 3,500 employees. If our business continues to grow, we will need to improve and enhance our overall financial and managerial controls, reporting systems and procedures, and expand, train and manage our workforce in order to maintain control of expenses and achieve desirable economies of scale. We also will need to increase the capacity of our current systems to meet additional demands.

Difficulties integrating new acquisitions may impose substantial costs and cause other problems for us.

         Our success depends on our ability to timely and cost-effectively acquire, and integrate into our business, additional animal hospitals and laboratories. Any difficulties in the integration process may result in increased expense, loss of customers and a decline in profitability. We expect to acquire 15 to 25 animal hospitals per year, however, based on the opportunity, the number could be higher. Historically we have experienced delays and increased costs in integrating some hospitals primarily where we acquire a large number of hospitals in a single region at or about the same time. In these cases, our field management may spend a predominant amount of time integrating these new hospitals and less time managing our existing hospitals in those regions. During these periods, there may be less attention directed to marketing efforts or staffing issues. In these circumstances, we also have experienced delays in converting the systems of acquired hospitals into our systems, which results in increased payroll expenses to collect our results and delays in reporting our results, both for a particular region and on a consolidated basis. These factors have resulted in decreased revenue, increased costs and lower margins. We continue to face risks in connection with our acquisitions including:

• negative effects on our operating results;

• impairments of goodwill;

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• dependence on retention, hiring and training of key personnel, including specialists;

• impairment of intangible assets; and

• contingent and latent risks associated with the past operations of, and other unanticipated problems arising in, an acquired business.

         The process of integration may require a disproportionate amount of the time and attention of our management, which may distract management’s attention from its day-to-day responsibilities. In addition, any interruption or deterioration in service resulting from an acquisition may result in a customer’s decision to stop using us. For these reasons, we may not realize the anticipated benefits of an acquisition, either at all or in a timely manner. If that happens and we incur significant costs, it could have a material adverse impact on our business.

We require a significant amount of cash to service our debt and expand our business as planned.

         We have, and will continue to have, a substantial amount of debt. Our substantial amount of debt requires us to dedicate a significant portion of our cash flow from operations to pay down our indebtedness and related interest, thereby reducing the funds available to use for working capital, capital expenditures, acquisitions and general corporate purposes.

         At March 31, 2002, our debt, excluding unamortized discount, consisted primarily of:

• $144.2 million of outstanding borrowings under our senior credit facility;

• $246.8 million of outstanding senior notes and senior subordinated notes; and

• $1.6 million of other debt.

         The following table sets forth the principal and interest due by us for each of the years ending December 31:

		2002		2003		2004		2005		2006
Long-term debt		$	5,159	$	5,456	$	6,160	$	22,089	$	21,971
Fixed interest			20,880		19,270		19,245		26,720		26,196
Variable interest			10,020		12,160		13,378		12,914		12,079
Collar agreement			2,080		—		—		—		—
PIK interest			—		—		—		37,104		—
	Total	$	38,139	$	36,886	$	38,783	$	98,827	$	60,246

         We have both fixed rate and variable rate debt. Our variable rate debt is based on a variable rate component plus a fixed margin. We projected the variable rate component to be 3.35%, 5.13%, 6.38%, 6.50% and 6.65% for years 2002 through 2006, respectively. Our consolidated financial statements included in our Annual Report on Form 10-K discuss these variable rate notes in more detail.

         PIK interest is considered interest on our senior notes prior to September 20, 2005, which we pay by issuing additional senior notes in a principal amount equal to the interest. From January 1, 2002 through March 31, 2005, we plan to pay the interest on our senior notes by issuing additional senior notes in the amount of approximately $37.1 million, which will be paid in cash on September 20, 2005. Subsequent to September 20, 2005, we will be required to make semi-annual cash interest payments on our senior notes.

         Our ability to make payments on our debt, and to fund acquisitions, will depend on our ability to generate cash in the future. Insufficient cash flow could place us at risk of default under our debt agreements or could prevent us from expanding our business as planned. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our business may not generate sufficient cash flow from operations, our strategy to increase operating efficiencies may not be realized and future

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borrowings may not be available to us under our senior credit facility in an amount sufficient to enable us to service our debt or to fund our other liquidity needs. In order to meet our debt obligations, we may need to refinance all or a portion of our debt. We may not be able to refinance any of our debt on commercially reasonable terms or at all.

Our debt instruments adversely affect our ability to run our business.

         Our substantial amount of debt, as well as the guarantees of our subsidiaries and the security interests in our assets and those of our subsidiaries, could impair our ability to operate our business effectively and may limit our ability to take advantage of business opportunities. For example, our indentures and senior credit facility:

• limit our funds available to repay the senior notes and senior subordinated notes;

• limit our ability to borrow additional funds or to obtain other financing in the future for working capital, capital expenditures, acquisitions, investments and general corporate purposes;

• limit our ability to dispose of our assets, create liens on our assets or to extend credit;

• make us more vulnerable to economic downturns and reduce our flexibility in responding to changing business and economic conditions;

• limit our flexibility in planning for, or reacting to, changes in our business or industry;

• place us at a competitive disadvantage to our competitors with less debt; and

• restrict our ability to pay dividends, repurchase or redeem our capital stock or debt, or merge or consolidate with another entity.

         The terms of our indentures and senior credit facility allow us, under specified conditions, to incur further indebtedness, which would heighten the foregoing risks. If compliance with our debt obligations materially hinders our ability to operate our business and adapt to changing industry conditions, we may lose market share, our revenue may decline and our operating results may suffer.

Our failure to satisfy covenants in our debt instruments will cause a default under those instruments.

         In addition to imposing restrictions on our business and operations, our debt instruments include a number of covenants relating to financial ratios and tests. Our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. The breach of any of these covenants would result in a default under these instruments. An event of default would permit our lenders and other debtholders to declare all amounts borrowed from them to be due and payable, together with accrued and unpaid interest. Moreover, these lenders and other debtholders would have the option to terminate any obligation to make further extensions of credit under these instruments. If we are unable to repay debt to our senior lenders, these lenders and other debtholders could proceed against our assets.

Due to the fixed cost nature of our business, fluctuations in our revenue could adversely affect our operating income.

         Approximately 57.0% of our expense, particularly rent and personnel costs, are fixed costs and are based in part on expectations of revenue. We may be unable to reduce spending in a timely manner to compensate for any significant fluctuations in our revenue. Accordingly, shortfalls in revenues may adversely affect our operating income.

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The significant competition in the animal health care services industry could cause us to reduce prices or lose market share.

         The animal health care services industry is highly competitive with few barriers to entry. To compete successfully, we may be required to reduce prices, increase our operating costs or take other measures that could have an adverse effect on our financial condition, results of operations, margins and cash flow. If we are unable to compete successfully, we may lose market share.

         There are many clinical laboratory companies that provide a broad range of laboratory testing services in the same markets we service. Our largest competitor for outsourced laboratory testing services is Idexx Laboratories, Inc. Also, Idexx and several other national companies provide on-site diagnostic equipment that allows veterinarians to perform their own laboratory tests.

         Our primary competitors for our animal hospitals in most markets are individual practitioners or small, regional, multi-clinic practices. Also, regional pet care companies and some national companies, including operators of super-stores, are developing multi-regional networks of animal hospitals in markets in which we operate. Historically, when a competing animal hospital opens in close proximity to one of our hospitals, we have reduced prices, expanded our facility, retained additional qualified personnel, increased our marketing efforts or taken other actions designed to retain and expand our client base. As a result, our revenue may decline and our costs increase.

We may experience difficulties hiring skilled veterinarians due to shortages which could disrupt our business.

         As the pet population continues to grow, the need for skilled veterinarians continues to increase. If we are unable to retain an adequate number of skilled veterinarians, we may lose customers, our revenue may decline and we may need to sell or close animal hospitals. As of March 31, 2002, there were 28 veterinary schools in the country accredited by the American Veterinary Medical Association. These schools graduate approximately 2,100 veterinarians per year. There is a shortage of skilled veterinarians across the country, particularly in some regional markets in which we operate animal hospitals including Northern California. Attracting veterinarians to these regions may be difficult, due to the rural environment, an unwillingness to relocate and lower compensation. During these shortages in these regions, we may be unable to hire enough qualified veterinarians to adequately staff our animal hospitals, in which event we may lose market share and our revenues and profitability may decline.

If we fail to comply with governmental regulations applicable to our business, various governmental agencies may impose fines, institute litigation or preclude us from operating in certain states.

         The laws of many states prohibit business corporations from providing, or holding themselves out as providers of, veterinary medical care. These laws vary from state to state and are enforced by the courts and by regulatory authorities with broad discretion. As of March 31, 2002 we operated 55 animal hospitals in 11 states with these laws, including 21 in New York. We may experience difficulty in expanding our operations into other states with similar laws. Given varying and uncertain interpretations of the veterinary laws of each state, we may not be in compliance with restrictions on the corporate practice of veterinary medicine in all states. A determination that we are in violation of applicable restrictions on the practice of veterinary medicine in any state in which we operate could have a material adverse effect on us, particularly if we were unable to restructure our operations to comply with the requirements of that state.

         We currently are a party to a lawsuit in the State of Ohio in which that State has alleged that our management of a veterinary medical group licensed to practice veterinary medicine in that state violates the Ohio statute prohibiting business corporations from providing or holding themselves out as providers of veterinary medical care. On March 20, 2001, the trial court in the case entered summary judgment in favor of the State of Ohio and issued an order enjoining us from operating in the State of Ohio in a manner that is in violation of the State of Ohio statute. In response, we have restructured our operations in the State of Ohio in a manner that we believe conforms to the State of Ohio law and the court’s order. The Attorney General of the State of Ohio has informed us that it disagrees with our position that we are in compliance with the court’s order. In June 2001 we appeared at a status conference before the trial court, at which time the court directed the parties to meet together to attempt to settle this matter. Consistent with the trial court’s directive, we engaged in discussions with the Attorney General’s office in the State of Ohio. The parties appeared at an additional status conference in February 2002. The parties

33

were not able to reach a settlement prior to the February status conference. At that status conference, the court ordered the parties to participate in a court-supervised settlement conference that was scheduled for March 19, 2002. The court postponed the settlement conference until April 19, 2002. Pursuant to discussions with the Ohio Attorney General at the settlement conference, we are in the process of further restructuring our operations in Ohio. The next settlement conference has yet to be scheduled. We may not be able to reach a settlement, in which case we may be required to discontinue our operations in the state. Our five animal hospitals in the State of Ohio have a net book value of $6.2 million as of March 31, 2002. If we were required to discontinue our operations in the State of Ohio, we may not be able to dispose of the hospital assets for their book value. The animal hospitals located in the State of Ohio generated revenue and operating income of $440,000 and $90,000, respectively, in the three months ended March 31, 2002 and $441,000 and $122,000, respectively, in the three months ended March 31, 2001.

         All of the states in which we operate impose various registration requirements. To fulfill these requirements, we have registered each of our facilities with appropriate governmental agencies and, where required, have appointed a licensed veterinarian to act on behalf of each facility. All veterinarians practicing in our clinics are required to maintain valid state licenses to practice.

Any failure in our information technology systems or disruption in our transportation network could significantly increase testing turn-around time, reduce our production capacity and otherwise disrupt our operations.

         Our laboratory operations depend, in part, on the continued and uninterrupted performance of our information technology systems and transportation network. Our growth has necessitated continued expansion and upgrade of our information technology infrastructure and transportation network. Sustained system failures or interruption in our transportation network or in one or more of our laboratory operations could disrupt our ability to process laboratory requisitions, perform testing, provide test results in a timely manner and/or bill the appropriate party. We could lose customers and revenue as a result of a system or transportation network failure.

         Our computer systems are vulnerable to damage or interruption from a variety of sources, including telecommunications failures, electricity brownouts or blackouts, malicious human acts and natural disasters. Moreover, despite network security measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautions we have taken, unanticipated problems affecting our systems could cause interruptions in our information technology systems. Our insurance policies may not adequately compensate us for any losses that may occur due to any failures in our systems.

         Any substantial reduction in the number of available flights or delays in the departure of flights will disrupt our transportation network and our ability to provide test results in a timely manner. In addition, our Test Express service, which services customers outside of major metropolitan areas, is dependent on flight services in and out of Memphis and the transportation network of Federal Express. Any sustained interruption in either flight services in Memphis or the transportation network of Federal Express would result in increased turn-around time for the reporting of test results to customers serviced by our Test Express service.

The loss of Mr. Robert Antin, our Chairman, President and Chief Executive Officer, could materially and adversely affect our business.

         We are dependent upon the management and leadership of our Chairman, President and Chief Executive Officer, Robert Antin. We have an employment contract with Mr. Antin which may be terminated at the option of Mr. Antin. We do not maintain any key man life insurance coverage for Mr. Antin. The loss of Mr. Antin could materially adversely affect our business.

Concentration of ownership among our existing executive officers, directors and principal stockholders.

         Our executive officers, directors and principal stockholders beneficially own, in the aggregate, approximately 51.4% of our outstanding common stock. As a result, these stockholders are able to exercise control over all matters requiring stockholder approval and will have significant control over our management and policies. The directors elected by these stockholders will be able to make decisions affecting our capital structure, including decisions to issue additional capital stock, implement stock repurchase programs and incur indebtedness. This

34

control may have the effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management, or limiting the ability of our other stockholders to approve transactions that they may deem to be in their best interests.

Terrorism and the uncertainty of war may have a material adverse effect on our operating results.

         Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, the response initiated by the United States on October 7, 2001, and other acts of violence or war may affect the markets in which we operate, our operations and profitability and your investment. Further terrorist attacks against the United States or United States businesses may occur. The potential near-term and long-term effect these attacks may have for our customers, the markets for our services and the U.S. economy are uncertain. The consequences of any terrorist attacks, or any armed conflicts which may result, are unpredictable and we may not be able to foresee events that could have an adverse effect on our markets, our business or your investment.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We have certain debt obligations as well as a collar agreement that are exposed to market risk associated with variable interest rates. As of March 31, 2002, we had borrowings of $144.2 million under our senior secured credit facility with fluctuating interest rates based on market benchmarks such as LIBOR. To reduce the risk of increasing interest rates, we entered into a no-fee collar agreement with a cap and floor notional amount of $62.5 million, a cap rate of 7.5% and a floor rate of 5.9%, both based on LIBOR. The collar agreement expires November 15, 2002.

         Accordingly, for the period January 1, 2002 to November 15, 2002:

• if the benchmark rate is below 5.9% and a change in the rate does not cause the benchmark to exceed 5.9%, every one-half percent increase in the benchmark rate will cause interest expense to increase by $445,000, while a one-half percent decrease will cause interest expense to decrease by $445,000;

• if the bench rate is equal to or between 5.9% and 7.5% and a change in the rate does not cause the benchmark to exceed 7.5% or drop below 5.9%, every one-half percent increase in the benchmark rate will cause interest expense to increase by $718,000, while a one-half percent decrease will cause interest expense to decrease by $718,000; and

• if the benchmark rate is above 7.9% and a change in the rate does not cause the benchmark to drop below 7.9%, every one-half percent increase in the benchmark rate would cause interest expense to increase by $445,000, while a one-half percent decrease would cause interest expense to decrease by $445,000.

         At March 31, 2002 LIBOR was approximately 1.9%.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         The Ohio Attorney General’s office filed a lawsuit on December 14, 1998, in the Franklin County Court of Common Pleas in the State of Ohio in which the state alleged that our management of a veterinary medical group licensed to practice veterinary medicine in that state violates the Ohio statute prohibiting business corporations from providing, or holding themselves out as providers of, veterinary medical care. On March 20, 2001, the trial court in the case entered summary judgment in favor of the State of Ohio and issued an order enjoining us from operating in the State of Ohio in a manner that is in violation of the state statute. In response, we have restructured our operations in the State of Ohio in a manner that we believe conforms to the state law and the court’s order. The Attorney General of the State of Ohio informed us that it disagrees with our position that we are in compliance with the court’s order. In June 2001, we appeared at a status conference before the trial court at which time the court directed the parties to meet together to attempt to settle this matter. Consistent with the trial court’s directive, we engaged in discussions with the Attorney General’s office in the State of Ohio. The parties appeared at an additional status conference in February 2002. The parties were not able to reach a settlement prior to the February status conference. At that status conference, the court ordered the parties to participate in a court-supervised settlement conference that was scheduled for March 19, 2002. The court postponed the settlement conference until April 19, 2002. Pursuant to discussions with the Ohio Attorney General at the settlement conference, we are in the process of further restructuring our operations in Ohio. The next settlement conference has yet to be scheduled. If a settlement cannot be reached, the company would be required to discontinue operations in the state. Our five animal hospitals in the State of Ohio have a book value of $6.2 million as of March 31, 2002. If we were required to discontinue our operations in the State of Ohio, we may not be able to dispose of the hospital assets for their book value. The animal hospitals located in the State of Ohio generated revenue and operating income of $440,000 and $90,000, respectively, in the three months ended March 31, 2002, and $441,000 and $110,000, respectively, in the same period in the prior year.

         On November 30, 2001, two majority stockholders of a company that merged with Zoasis.com, Inc. in June 2000 filed a civil complaint against VCA, Zoasis.com, Inc. and Robert Antin. In the merger, the two stockholders received a less than 10% interest in Zoasis. At the same time, VCA acquired a less than 20% interest in Zoasis.com, Inc. for an investment of $5.0 million. Robert Antin, VCA’s Chief Executive Officer, President and Chairman of the Board, is the majority stockholder of Zoasis.com and serves on its board of directors. The complaint alleges securities fraud under California law, common law fraud, negligent misrepresentation and declaratory judgment arising from the plaintiffs’ investment in Zoasis.com. On December 31, 2001, we filed a demurrer to the complaint. On February 25, 2002, the plaintiffs filed an opposition to our demurrer, and on March 1, 2002, we filed our reply to plaintiffs’ opposition. On March 7, 2002, our demurrer was denied. On Mach 22, 2002, we filed an answer to plaintiffs’ complaint denying all allegations in the complaint, and we filed a counter claim alleging breach of contract and claim and delivery. We have responded to the plaintiffs’ initial discovery request and the preparation of our initial discovery request, and the plaintiffs have requested supplemental information following our initial discovery responses. The plaintiffs have responded to our initial discovery requests and we are in the process of determining the supplemental information we will request, if any. A status conference was held on May 9, 2002. The judge ordered the parties to choose a mediator by June 10, 2002 and complete mediation by September 6, 2002. In the event that this case goes to trial, a final status conference is set for November 22, 2002, and an estimated seven-day trial is set to begin December 2, 2002.

         We are a party to various other legal proceedings that arise in the ordinary course of business. Although we cannot determine the ultimate disposition of these proceedings, we can use judgment to reasonably estimate our liability for legal settlement costs that may arise as a result of these proceedings. Based on our prior experience, the nature of the current proceedings and our insurance policy coverage for such matters, we have accrued a minimal amount for legal settlements as part of other accrued liabilities.

ITEM 2. CHANGES IN SECURITIES

         None

36

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

         None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None

ITEM 5. OTHER INFORMATION

         None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)	Exhibits: – None.
(b)	Reports on Form 8-K:

(1)     Report on Form 8-K, filed February 22, 2002, reporting under Item 5, financial information for the fourth quarter and fiscal year ended December 31, 2001 and financial guidance for the fiscal year 2002.

(2)     Report on Form 8-K, filed April 25, 2002, reporting under Item 5, financial information for the first quarter of the fiscal year ended December 31, 2002 and updated financial guidance for the fiscal year 2002.

37

SIGNATURE

         Pursuant to the requirements 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, in the City of Los Angeles, State of California, on today’s date, May 10, 2002.

By:	/s/ Tomas W. Fuller Tomas W. Fuller
Its:	Chief Financial Officer

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