Introduction
The following discussion should be read in conjunction with our condensed, consolidated financial statements provided under Part I, Item I of this Quarterly report on Form 10-Q. We have included herein statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We generally identify forward-looking statements in this report using words like "believe," "intend," "expect," "estimate," "may," "plan," "should plan," "project," "contemplate," "anticipate," "predict," "potential," "continue," or similar expressions. You may find some of these statements below and elsewhere in this report. These forward-looking statements are not historical facts and are inherently uncertain and outside of our control. Any or all of our forward-looking statements in this report may turn out to be wrong. They can be affected by inaccurate assumptions we might make, or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this report will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. Factors that may cause our plans, expectations, future financial condition and results to change are described throughout this report and in our Annual Report on Form 10-K, particularly in "Risk Factors," Part I, Item 1A of that report.
The forward-looking information set forth in this Quarterly Report on Form 10-Q is as of November 6, 2009, and we undertake no duty to update this information. Shareholders and prospective investors can find information filed with the SEC after November 6, 2009 at our website at http://investor.vcaantech.com or at the SEC's website at www.sec.gov.
We are a leading national animal healthcare company. We provide veterinary services and diagnostic testing to support veterinary care and we sell diagnostic imaging equipment, other medical technology products and related services to veterinarians. Our reportable segments are as follows:
• Our Animal Hospital segment operates the largest network of freestanding, full-service animal hospitals in the nation. Our animal hospitals offer a full range of general medical and surgical services for companion animals. We treat diseases and injuries, offer pharmaceutical and retail products and perform a variety of pet wellness programs, including health examinations, diagnostic testing, routine vaccinations, spaying, neutering and dental care. At September 30, 2009, our animal hospital network consisted of 482 animal hospitals in 40 states.

• Our Laboratory segment operates the largest network of veterinary diagnostic laboratories in the nation. Our laboratories provide sophisticated testing and consulting services used by veterinarians in the detection, diagnosis, evaluation, monitoring, treatment and prevention of diseases and other conditions affecting animals. At September 30, 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.
Our revenue has been adversely impacted by the current economic recession. We are unable to forecast the timing or degree of any economic recovery. Further, trends in the general economy may not be reflected in our business at the same time or in the same degree as in the general economy. The timing and degree of any economic recovery, and its impact on our business, are among the important factors that could cause our actual results to differ from our forward-looking information.
Executive Overview
During the three months ended September 30, 2009, we generated revenue growth in spite of the sustained weak economic environment. Although our Animal Hospital same-store revenue declined, we achieved an increase in consolidated revenue through selective animal hospital acquisitions and our acquisition of Eklin Medical Systems,

Inc. ("Eklin") on July 1, 2009. Despite the challenges presented by current economic conditions we were able to maintain our consolidated gross margin, Laboratory internal revenue and our overall earnings.
Acquisitions and Facilities
Our growth strategy includes the acquisition of independent animal hospitals. We currently anticipate that we will acquire $50.0 million to $60.0 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 nine months ended September 30, 2009:

        Animal Hospitals:
        Beginning of period                                           471
        Acquisitions                                                   18
        Acquisitions relocated into our existing animal hospitals      (4 )
        Closed                                                         (3 )

        End of period                                                 482


        Laboratories:
        Beginning of period                                            44
        Acquisitions                                                    2
        Acquisitions relocated into our existing laboratories          (2 )
        Created                                                         2

        End of period                                                  46

The following table summarizes the aggregate purchase price that we paid for the 18 animal hospitals and two laboratories we acquired during the nine months ended September 30, 2009, and the allocation of the purchase price (in thousands):

       Purchase Price:
       Cash (1)                                                    $ 35,559
       Non-cash note conversion to equity interest in subsidiary      5,700
       Contingent consideration                                         712

       Total                                                       $ 41,971


       Allocation of the Purchase Price:
       Tangible assets                                             $  7,450
       Identifiable intangible assets                                 6,906
       Goodwill (2)                                                  32,914
       Other liabilities assumed                                     (5,299 )

       Total                                                       $ 41,971

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

(2) We expect that $19.3 million of the goodwill recorded for these acquisitions as of September 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 nine months ended September 30, 2009.

Acquisition of Eklin Medical Systems, Inc. On July 1, 2009, we acquired Eklin, a leading seller of digital radiography and ultrasound systems in the veterinary market. We acquired Eklin for a purchase price of $12.5 million, net of cash acquired of $1.0 million. The following table summarizes the purchase price and allocation of the purchase price (in thousands):

                  Purchase Price:
                  Cash (1)                            $  12,483

                  Total                               $  12,483


                  Allocation of the Purchase Price:
                  Tangible assets                     $   6,555
                  Identifiable intangible assets          7,351
                  Goodwill (1)                           11,127
                  Other liabilities assumed             (12,550 )

                  Total                               $  12,483

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

(2) We expect that $2.9 million of the goodwill recorded for this acquisition as of September 30, 2009 will be fully deductible for income tax purposes.

In addition we incurred $551,000 in transaction costs which were expensed. Eklin has been combined with Sound Technologies, Inc. ("STI") and is reported within our Medical Technology segment.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"), which require management to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and on other factors that management believes to be reasonable. Actual results may differ from those estimates. Critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements. A discussion of such critical accounting policies, which include revenue recognition, valuation of goodwill and other intangible assets, income taxes, and self-insured liabilities can be found in our 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 September 30, 2009.
Valuation of Goodwill
In accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("Codification"), 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 in 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. Subsequent to the first quarter we experienced an increase in sales from STI and the acquisition of Eklin, and accordingly once again concluded that no impairment existed. However, it is reasonably possible that we could incur an impairment to goodwill 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. We will perform our regularly scheduled annual impairment analysis of all our reporting units as of October 31, 2009 which will include both discounted cash flow techniques and market comparables, where applicable.