Introduction
The following discussion should be read in conjunction with our condensed, consolidated financial statements provided under Part I, Item I of this Quarterly report on Form 10-Q. We have included herein statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We generally identify forward-looking statements in this report using words like "believe," "intend," "expect," "estimate," "may," "plan," "should plan," "project," "contemplate," "anticipate," "predict," "potential," "continue," or similar expressions. You may find some of these statements below and elsewhere in this report. These forward-looking statements are not historical facts and are inherently uncertain and outside of our control. Any or all of our forward-looking statements in this report may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this report will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. Factors that may cause our plans, expectations, future financial condition and results to change are described throughout this report and in our Annual Report on Form 10-K, particularly in "Risk Factors," Part I, Item 1A of that report.
The forward-looking information set forth in this Quarterly report on Form 10-Q is as of August 7, 2009, and we undertake no duty to update this information. Shareholders and prospective investors can find information filed with the SEC after August 7, 2009 at our website athttp://investor.vcaantech.com or at the SEC's website at www.sec.gov .
We are a leading national animal healthcare company. We provide veterinary services and diagnostic testing to support veterinary care and we sell diagnostic imaging equipment, other medical technology products and related services to veterinarians. Our reportable segments are as follows:
• Our Animal Hospital segment operates the largest network of freestanding, full-service animal hospitals in the nation. Our animal hospitals offer a full range of general medical and surgical services for companion animals. We treat diseases and injuries, offer pharmaceutical and retail products and perform a variety of pet wellness programs, including health examinations, diagnostic testing, routine vaccinations, spaying, neutering and dental care. At June 30, 2009, our animal hospital network consisted of 480 animal hospitals in 40 states.

• Our Laboratory segment operates the largest network of veterinary diagnostic laboratories in the nation. Our laboratories provide sophisticated testing and consulting services used by veterinarians in the detection, diagnosis, evaluation, monitoring, treatment and prevention of diseases and other conditions affecting animals. At June 30, 2009, our Laboratory network consisted of 46 laboratories serving all 50 states and certain areas in Canada.

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

The practice of veterinary medicine is subject to seasonal fluctuation. In particular, demand for veterinary services is significantly higher during the warmer months because pets spend a greater amount of time outdoors where they are more likely to be injured and are more susceptible to disease and parasites. In addition, use of veterinary services may be affected by levels of flea infestation, heartworm and ticks, and the number of daylight hours. Executive Overview
During the three months ended June 30, 2009, we experienced continued success generating positive revenue growth. Although the sustained weak economic environment continued to hinder our ability to grow Animal Hospital same-store revenue, as we have done in the past, we focused our efforts on completing selective acquisitions and on controlling overall expenses. As a result of these efforts, we were able to effectively maintain our overall consolidated gross margin and increase earnings.

 Acquisitions and Facilities
   Our growth strategy includes the acquisition of independent animal hospitals.
We currently anticipate that we will acquire $60.0 million to $70.0 million of
annualized Animal Hospital revenue in 2009. In addition, we also evaluate the
acquisition of animal hospital chains, laboratories, or related businesses if
favorable opportunities are presented. The following table summarizes the
changes in the number of facilities operated by our Animal Hospital and
Laboratory segments during the six months ended June 30, 2009:

        Animal Hospitals:
        Beginning of period                                           471
        Acquisitions                                                   14
        Acquisitions relocated into our existing animal hospitals      (3 )
        Closed                                                         (2 )

        End of period                                                 480


        Laboratories:
        Beginning of period                                            44
        Acquisitions (1)                                                -
        Created                                                         2

        End of period                                                  46

(1) During the six months ended June 30, 2009 we acquired one pathology office, bringing the total number of pathology offices to four. Pathology offices are not included in our laboratory count.

The following table summarizes the preliminary purchase price paid by us for the 14 animal hospitals and one pathology office we acquired during the six months ended June 30, 2009, and the preliminary allocation of the purchase price (in thousands):

       Preliminary Purchase Price:
       Cash (1)                                                    $ 24,928
       Non-cash note conversion to equity interest in subsidiary      5,700
       Other liabilities assumed                                      4,892

       Total                                                       $ 35,520


       Preliminary Allocation of the Purchase Price:
       Tangible assets                                             $  5,754
       Identifiable intangible assets                                 4,332
       Goodwill (2)                                                  25,434

       Total                                                       $ 35,520

(1) The $3.2 million difference between cash paid for acquisitions per this schedule and per the condensed, consolidated statement of cash flows is due to payments of earn-outs and holdbacks and acquisition adjustments related to previous acquisitions.

(2) We expect that $17.2 million of the goodwill recorded for these acquisitions as of June 30, 2009 will be fully deductible for income tax purposes.

In addition to the purchase price listed above we made cash payments for real estate acquired in connection with our purchase of animal hospitals totaling $3.8 million for the six months ended June 30, 2009.

Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, which require management to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and on other factors that management believes to be reasonable. Actual results may differ from those estimates. Critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements. A discussion of such critical accounting policies, which include revenue recognition, valuation of goodwill and other intangible assets, income taxes, and self-insured liabilities can be found in our 2008 Annual Report on Form 10-K. There have been no material changes to those policies as of this Quarterly Report on Form 10-Q for the period ended June 30, 2009.
Valuation of Goodwill
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"), we are required to test our goodwill for impairment annually, or sooner if circumstances indicate an impairment may exist. During the quarter ended March 31, 2009, as a result of a decline in the sales volume at our Medical Technology reporting unit we evaluated the related goodwill for impairment. We calculated an estimate of the fair value of the Medical Technology reporting unit which indicated that there was no impairment. However, the fair value did not significantly exceed its respective book value. During the current quarter we experienced an increase in sales and accordingly once again concluded that no impairment existed. However, it is considered at least reasonably possible that our determination that goodwill is not impaired could change in the near term should the current economic condition worsen. We will continue to monitor the results of all of our business segments and perform additional valuations as necessary. Otherwise we will perform our regularly scheduled annual impairment analysis of all our reporting units in October 2009 which will include both discounted cash flow techniques and market comparables.
Consolidated Results of Operations
The following table sets forth components of our condensed, consolidated income statements expressed as a percentage of revenue: