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EXCEL - IDEA: XBRL DOCUMENT - MWI Veterinary Supply, Inc.Financial_Report.xls
EX-15 - EXHIBIT 15 - MWI Veterinary Supply, Inc.exhibit15.htm
EX-32 - EXHIBIT 32 - MWI Veterinary Supply, Inc.exhibit32.htm
EX-31.2 - EXHIBIT 31.2 - MWI Veterinary Supply, Inc.exhibit31_2.htm
EX-31.1 - EXHIBIT 31.1 - MWI Veterinary Supply, Inc.exhibit31_1.htm
EX-10.1 - EXHIBIT 10.1 - MWI Veterinary Supply, Inc.exhibit10_1.htm
EX-10.2 - EXHIBIT 10.2 - MWI Veterinary Supply, Inc.exhibit10_2.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
 

 
FORM 10-Q
 

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

 
For the quarterly period ended June 30, 2011
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
For the transition period from                      to                      
 
Commission File Number:  000-51468



MWI VETERINARY SUPPLY, INC.
(Exact name of registrant as specified in its Charter)



Delaware
 
02-0620757
(State of Incorporation)
 
(I.R.S. Employer Identification Number)
     
3041 W. Pasadena Dr.
   
Boise, ID
 
83705
(Address of principal executive offices)
 
(Zip Code)
     
(208) 955-8930
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes x  No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o        
 
Accelerated filer  
x
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting company   
o

 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of July 22, 2011 was 12,562,563.



 

 
MWI VETERINARY SUPPLY, INC.
 
INDEX
 

 
PART I.
 
FINANCIAL INFORMATION
 
       
Item 1.
 
Financial Statements (Unaudited)
 
   
       
   
       
   
       
   
       
   
       
Item 2.
 
       
Item 3.
 
       
Item 4.
 
       
PART II.
   
       
   
       
Item 1.
 
       
Item 1A.
 
       
Item 2.
 
       
Item 3.
 
       
Item 4.
 
       
Item 5.
 
       
Item 6.
 


 
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1. Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MWI VETERINARY SUPPLY, INC.
 
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
 
Dollars and shares in thousands, except per share data
 
 
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Nine months ended June 30,
 
 
 
2011 
 
2010 
 
2011 
 
2010 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Product sales
$
 393,706 
 
$
 334,242 
 
$
 1,089,830 
 
$
 827,614 
 
Product sales to related party
 
 10,560 
 
 
 9,113 
 
 
 38,401 
 
 
 30,687 
 
Commissions
 
 6,470 
 
 
 4,332 
 
 
 15,791 
 
 
 12,094 
 
 
Total revenues
 
 410,736 
 
 
 347,687 
 
 
 1,144,022 
 
 
 870,395 
Cost of product sales
 
 356,649 
 
 
 303,750 
 
 
 988,877 
 
 
 750,927 
Gross profit
 
 54,087 
 
 
 43,937 
 
 
 155,145 
 
 
 119,468 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
 33,663 
 
 
 27,435 
 
 
 97,160 
 
 
 75,448 
Depreciation and amortization
 
 1,723 
 
 
 1,438 
 
 
 4,879 
 
 
 3,559 
Operating income
 
 18,701 
 
 
 15,064 
 
 
 53,106 
 
 
 40,461 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 (166)
 
 
 (171)
 
 
 (600)
 
 
 (389)
 
Earnings of equity method investees
 
 51 
 
 
 45 
 
 
 187 
 
 
 155 
 
Other
 
 116 
 
 
 57 
 
 
 394 
 
 
 299 
 
 
Total other income (expense), net
 
 1 
 
 
 (69)
 
 
 (19)
 
 
 65 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before taxes
 
 18,702 
 
 
 14,995 
 
 
 53,087 
 
 
 40,526 
Income tax expense
 
 (7,312)
 
 
 (5,858)
 
 
 (20,537)
 
 
 (15,884)
Net income
$
 11,390 
 
$
 9,137 
 
$
 32,550 
 
$
 24,642 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
 0.91 
 
$
 0.74 
 
$
 2.61 
 
$
 2.02 
 
Diluted
$
 0.91 
 
$
 0.74 
 
$
 2.60 
 
$
 1.99 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 12,484 
 
 
 12,265 
 
 
 12,453 
 
 
 12,215 
 
Diluted
 
 12,526 
 
 
 12,408 
 
 
 12,507 
 
 
 12,380 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 


MWI VETERINARY SUPPLY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars and shares in thousands, except per share data
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
June 30,
 
September 30,
 
 
 
2011 
 
2010 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
Cash and cash equivalents
$
 989 
 
$
 911 
 
Receivables, net
 
 210,516 
 
 
 189,428 
 
Inventories
 
 174,915 
 
 
 175,292 
 
Prepaid expenses and other current assets
 
 5,175 
 
 
 8,729 
 
Deferred income taxes
 
 2,165 
 
 
 1,556 
 
 
Total current assets
 
 393,760 
 
 
 375,916 
 
 
 
 
 
 
 
 
Property and equipment, net
 
 23,968 
 
 
 15,238 
Goodwill
 
 49,279 
 
 
 47,330 
Intangibles, net
 
 25,807 
 
 
 26,710 
Other assets, net
 
 6,756 
 
 
 2,738 
Total assets
$
 499,570 
 
$
 467,932 
 
 
 
 
 
 
 
 
Liabilities And Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
Credit facilities
$
 13,943 
 
$
 10,140 
 
Accounts payable
 
 175,029 
 
 
 183,604 
 
Accrued expenses
 
 17,243 
 
 
 15,118 
 
Note payable
 
 - 
 
 
 2,000 
 
Current portion of long-term debt and capital lease obligations
 
 928 
 
 
 1,631 
 
 
Total current liabilities
 
 207,143 
 
 
 212,493 
 
 
 
 
 
 
 
 
Deferred income taxes
 
 5,997 
 
 
 5,310 
 
 
 
 
 
 
 
 
Long-term debt and capital lease obligations
 
 570 
 
 
 953 
 
 
 
 
 
 
 
 
Other long-term liabilities
 
 2,381 
 
 
 2,389 
 
 
 
 
 
 
 
 
Commitments and contingencies (see Note 14)
 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ Equity
 
 
 
 
 
 
Common stock $0.01 par value, 40,000 authorized; 12,559 and
 
 
 
 
 
 
 
12,457 shares issued and outstanding, respectively
 
 126 
 
 
 125 
 
Additional paid in capital
 
 133,241 
 
 
 129,675 
 
Retained earnings
 
 149,458 
 
 
 116,908 
 
Accumulated other comprehensive income
 
 654 
 
 
 79 
 
 
Total stockholders’ equity
 
 283,479 
 
 
 246,787 
Total liabilities and stockholders’ equity
$
 499,570 
 
$
 467,932 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements.
 
 
 
 
 


MWI VETERINARY SUPPLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended June 30,
 
 
 
 
 
2011 
 
2010 
Cash Flows From Operating Activities:
 
 
 
 
 
 
Net income
$
 32,550 
 
$
 24,642 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
 
 4,888 
 
 
 3,568 
 
 
Amortization of debt issuance costs
 
 50 
 
 
 41 
 
 
Stock-based compensation
 
 887 
 
 
 490 
 
 
Deferred income taxes
 
 32 
 
 
 (108)
 
 
Earnings of equity method investees
 
 (187)
 
 
 (155)
 
 
Gain on disposal of property and equipment
 
 - 
 
 
 (9)
 
 
Excess tax benefit of exercise of common stock options
 
 (2,271)
 
 
 (1,829)
 
 
Pension payment
 
 - 
 
 
 (2,047)
 
 
Other
 
 (83)
 
 
 - 
 
 
Changes in operating assets and liabilities (net of effects of business acquisitions):
 
 
 
 
 
 
 
 
Receivables
 
 (16,269)
 
 
 (12,072)
 
 
 
Inventories
 
 4,273 
 
 
 (8,282)
 
 
 
Prepaid expenses and other current assets
 
 5,530 
 
 
 155 
 
 
 
Accounts payable
 
 (13,505)
 
 
 6,365 
 
 
 
Accrued expenses
 
 2,386 
 
 
 (159)
 
 
 
 
Net cash provided by operating activities
 
 18,281 
 
 
 10,600 
 
 
 
 
 
 
 
 
 
 
Cash Flows From Investing Activities:
 
 
 
 
 
 
 
Business acquisitions, net of cash acquired
 
 (7,000)
 
 
 (39,511)
 
 
Purchases of property and equipment
 
 (10,280)
 
 
 (1,862)
 
 
Other investments
 
 (4,283)
 
 
 (97)
 
 
 
 
Net cash used in investing activities
 
 (21,563)
 
 
 (41,470)
 
 
 
 
 
 
 
 
 
 
Cash Flows From Financing Activities:
 
 
 
 
 
 
 
Borrowings on credit facilities
 
 232,630 
 
 
 124,776 
 
 
Payments on credit facilities
 
 (228,895)
 
 
 (108,900)
 
 
Proceeds from issuance of common stock
 
 297 
 
 
 178 
 
 
Proceeds from exercise of stock options
 
 89 
 
 
 368 
 
 
Excess tax benefit of exercise of common stock options
 
 2,271 
 
 
 1,829 
 
 
Debt issuance costs
 
 - 
 
 
 (116)
 
 
Payment on long-term debt and capital lease obligations
 
 (3,117)
 
 
 (616)
 
 
 
 
Net cash provided by financing activities
 
 3,275 
 
 
 17,519 
 
 
 
 
 
 
 
 
 
 
Effect of Exchange Rate on Cash and Cash Equivalents
 
 85 
 
 
 (43)
 
 
 
 
 
 
 
 
 
 
Increase/(Decrease) in Cash and Cash Equivalents
 
 78 
 
 
 (13,394)
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents at Beginning of Period
 
 911 
 
 
 14,302 
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents at End of Period
$
 989 
 
$
 908 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements.
 
 
 
 
 


MWI VETERINARY SUPPLY, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Dollars and sterling pounds in thousands, except share and per share data
 
(unaudited)
 
NOTE 1 — GENERAL
 
Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements include the results of operations, financial position and cash flows of MWI Veterinary Supply, Inc. and its wholly-owned subsidiaries (collectively referred to as “we,” “us,” and “our” throughout this Form 10-Q).  All material intercompany balances have been eliminated.
 
In the opinion of our management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary to present fairly, in all material respects, our results for the periods presented. These condensed consolidated financial statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our 2010 Annual Report on Form 10-K filed with the SEC on November 23, 2010.  The results of operations for the three and nine months ended months ended June 30, 2011 are not necessarily indicative of results to be expected for the entire fiscal year.
 
Our unaudited condensed consolidated balance sheet as of September 30, 2010 has been derived from the audited consolidated balance sheet as of that date.
 
Use of Estimates
 
The accompanying unaudited condensed consolidated financial statements have been prepared on the accrual basis of accounting using accounting principles generally accepted in the United States. In preparing financial information, we use certain estimates and assumptions that may affect the reported amounts and disclosures. Some of these estimates require difficult, subjective and complex judgments about matters that are inherently uncertain. As a result, actual results could differ materially from these estimates. Estimates are used when accounting for, among other items, sales returns, allowance for doubtful accounts, customer incentives, vendor rebates, inventories, goodwill and intangible assets, income taxes, impairment of long-lived assets, depreciation and amortization, employee benefits, unearned income and contingencies. The estimates of fair value of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date and reported amounts of revenue and expenses for the periods are based on assumptions that we believe to be reasonable.
 
Revenue Recognition
 
We sell products we source from vendors to our customers through either a “buy/sell” transaction or an agency relationship with our vendors. In a “buy/sell” transaction, we purchase or take inventory of products from the vendor. When a customer places an order with us, we pick, pack, ship and invoice the customer for the order. We recognize revenue from “buy/sell” transactions as product sales when the product is delivered to the customer. We accept product returns from our customers. We estimate returns based on historical experience and recognize these estimated returns as a reduction of product sales. Product returns have historically not been significant to our financial statements. We record revenues net of sales tax.  In an agency relationship, we generally do not purchase and take inventory of products from vendors. We receive an order from a customer, then transmit the order to the vendor, who picks, packs and ships the order to the customer. In some cases, the vendor invoices and collects payment from the customer, while in other cases we invoice and collect payment from the customer on behalf of the vendor. We receive a commission payment for soliciting the order from the customer and for providing other customer service activities. Commissions are recognized when the services upon which the commissions are based are complete. Gross billings from agency contracts were $101,376 and $92,504 for the three months ended June 30, 2011 and 2010, respectively, and generated commission revenue of $6,470 and $4,332, respectively.  Gross billings from agency contracts were $282,637 and $234,788 for the nine months ended June 30, 2011 and 2010, respectively, and generated commission revenue of $15,791 and $12,094, respectively.
 
Cost of Product Sales and Vendor Rebates
 
Cost of product sales consist of our inventory product cost, including shipping and delivery costs to and from our distribution centers.  Vendor rebates are recorded based on the terms of the contracts or programs with each vendor.  Many of our vendors’ rebate programs are based on a calendar year.  We may receive quarterly, semi-annual or annual performance-based rebates from third-party vendors based upon attainment of certain sales and/or purchase goals. Sales rebates are classified in the accompanying condensed consolidated statements of income as a reduction to cost of product sales at the time the sales performance measures are achieved. Purchase rebates are measured against inventory purchases from the vendors and are classified as a reduction of inventory until the product is sold. When the inventory is sold and purchase measures are achieved, purchase rebates are recognized as a reduction to cost of product sales.
 
Historically, actual results have not significantly deviated from those determined using the estimates described above. We expect that our estimates in the future will continue to be reasonable as our rebates are based on specific vendor program goals and are principally recorded upon achievement of sales or purchase performance measures. Vendors may change or eliminate rebate programs from year to year.
 

NOTE 2 — EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
 
In June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that amends the consolidation guidance applicable to variable interest entities and requires additional disclosures concerning an enterprise’s continuing involvement with variable interest entities. The guidance is effective for our fiscal year beginning October 1, 2010. We have adopted this guidance and it did not have a material impact on our consolidated financial statements.
 
In May 2011, the FASB issued guidance to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between generally accepted accounting principles in the United States and International Financial Reporting Standards. The guidance changes certain fair value measurement principles and enhances the disclosure requirements, particularly for Level 3 fair value measurements. The guidance is effective for our fiscal year beginning October 1, 2012.  We do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements.
 
 In June 2011, the FASB issued guidance on the presentation of comprehensive income in an entity's financial statements. The guidance requires that comprehensive income be presented either in one continuous statement or in two separate but consecutive statements presenting the components of net income and its total, the components of other comprehensive income and its total, and total comprehensive income. The guidance also requires that reclassification adjustments from other comprehensive income to net income be presented in both the components of net income and the components of other comprehensive income. The guidance is effective for our fiscal year beginning October 1, 2012.  We do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements.
 

NOTE 3 BUSINESS ACQUISITIONS
 
On March 21, 2011, MWI Veterinary Supply Co. (“MWI Co.”) purchased substantially all of the assets of Nelson Laboratories Limited Partnership (“Nelson”) for $7,000 in cash.  Nelson is a distributor of animal health products to over 1,100 veterinary practices, primarily in the Midwestern United States.  This acquisition allows us to better serve our customers in this region of the United States.  An intangible asset representing customer relationships acquired in the acquisition has an estimated useful life of 10 years. The amount recorded in goodwill is expected to be deductible for tax purposes over 15 years.
 
On February 8, 2010, MWI Co. purchased all of the outstanding share capital of Centaur Services Limited (“Centaur”), based in the United Kingdom for an initial purchase price of $44,053, consisting of $42,053 in cash and $2,000 in a note payable which was paid on February 8, 2011.  Subsequent to the acquisition of Centaur, we funded $2,047 to the pension plan of Centaur as required by the terms of the share purchase agreement.  Centaur is a supplier of animal health products to veterinarians in the United Kingdom.  Centaur distributes products to both the companion animal market and production animal market.  The acquisition of Centaur has allowed us to expand into the international markets.  We incurred $1,100 of direct acquisition-related expenses during fiscal year 2010.  The intangible assets acquired in the acquisition have estimated useful lives between 1 and 20 years, which include customer relationships, trade names and other intangible assets.  The amount recorded in goodwill will not be deductible for tax purposes.
 
 
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition, which may be adjusted during the allocation period as defined in ASC 280.  These purchase price allocations are based on a combination of valuations and analyses.
 

 
 
 
2011 
 
2010 
 
Cash
 
$
 - 
 
$
 674 
 
Receivables
 
 
 4,041 
 
 
 32,371 
 
Inventories
 
 
 3,594 
 
 
 17,830 
 
Other current assets
 
 
 - 
 
 
 480 
 
Property and equipment
 
 
 1,900 
 
 
 5,275 
 
Goodwill
 
 
 1,823 
 
 
 9,483 
 
Intangibles
 
 
 140 
 
 
 17,658 
 
Total assets acquired
 
 
 11,498 
 
 
 83,771 
 
 
 
 
 
 
 
 
 
Accounts payable
 
 
 4,498 
 
 
 25,811 
 
Accrued expenses
 
 
 - 
 
 
 5,299 
 
Other liabilities
 
 
 - 
 
 
 10,476 
 
Total liabilities assumed
 
 
 4,498 
 
 
 41,586 
 
 
 
 
 
 
 
 
 
Net assets acquired
 
$
 7,000 
 
$
 42,185 

The following table presents supplemental pro forma information as if the acquisition of Centaur had occurred on October 1, 2009 for the nine months ended June 30, 2010 (unaudited):
 

 
 
Unaudited Pro Forma Consolidated Results
 
 
 
 Nine months ended June 30, 2010
 
 
Revenues
$
 955,011 
 
 
Net Income
$
 25,727 
 

For the pro forma calculation, we used an average foreign currency exchange rate for the period presented and the annual net income as a percentage of revenues for purposes of determining the net income for interim periods.  The unaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations would have been had we completed the acquisition on October 1, 2009.  Additionally, the unaudited pro forma consolidated results do not purport to project the future results of operations of the combined company.
 

NOTE 4 RECEIVABLES
 

 
 
June 30,
 
September 30,
 
 
 
2011 
 
2010 
 
 
Trade
$
 197,351 
 
$
 177,317 
 
 
Vendor rebates and programs
 
 15,647 
 
 
 14,681 
 
 
 
 
 212,998 
 
 
 191,998 
 
 
Allowance for doubtful accounts
 
 (2,482)
 
 
 (2,570)
 
 
 
$
 210,516 
 
$
 189,428 
 

Product sales resulting from transactions with Banfield, The Pet Hospital (“Banfield”) were approximately 6% and 9% of total product sales during the three months ended June 30, 2011 and 2010, respectively.  Product sales resulting from transactions with Banfield were approximately 6% and 10% of total product sales during the nine months ended June 30, 2011 and 2010, respectively.  Approximately 8% of our trade receivables resulted from transactions with Banfield as of June 30, 2011 and September 30, 2010.
 


NOTE 5 PROPERTY AND EQUIPMENT
 

 
 
June 30,
 
September 30,
 
 
 
2011 
 
2010 
 
 
Land
$
 1,729 
 
$
 261 
 
 
Building and leasehold improvements
 
 13,386 
 
 
 5,870 
 
 
Machinery, furniture and equipment
 
 20,879 
 
 
 17,495 
 
 
Computer equipment
 
 5,255 
 
 
 4,886 
 
 
Construction in progress
 
 997 
 
 
 1,626 
 
 
 
 
 42,246 
 
 
 30,138 
 
 
Accumulated depreciation
 
 (18,278)
 
 
 (14,900)
 
 
 
$
 23,968 
 
$
 15,238 
 

Depreciation expense was $1,266 and $1,046 for the three months ended June 30, 2011 and 2010, respectively.  Depreciation expense was $3,612 and $2,659 for the nine months ended June 30, 2011 and 2010, respectively.
 

NOTE 6 GOODWILL AND INTANGIBLES
 
The changes in the carrying value of goodwill are as follows:
 

 
Goodwill as of September 30, 2010
 
 
 
$
 47,330 
 
 
 
Acquisition activity
 
 
 
 
 1,823 
 
 
 
Foreign currency adjustments
 
 
 
 
 126 
 
 
Goodwill as of June 30, 2011
 
 
 
$
 49,279 
 

Balances of intangibles are as follows:
 

 
 
 
 
 
June 30,
 
September 30,
 
 
 
 
Useful Lives
 
2011 
 
2010 
 
 
Amortizing:
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
9-20 years
 
$
 25,378 
 
$
 25,027 
 
 
Covenants not to compete
 
1-5 years
 
 
 814 
 
 
 811 
 
 
Other
 
3-7 years
 
 
 461 
 
 
 458 
 
 
 
 
 
 
 
 26,653 
 
 
 26,296 
 
 
Accumulated amortization
 
 
 
 
 (4,640)
 
 
 (3,361)
 
 
 
 
 
 
 
 22,013 
 
 
 22,935 
 
 
Non-Amortizing:
 
 
 
 
 
 
 
 
 
 
Trade names and patents
 
 
 
 
 3,794 
 
 
 3,775 
 
 
 
 
 
 
$
 25,807 
 
$
 26,710 
 

Amortization expense was $459 and $395 for the three months ended June 30, 2011 and 2010, respectively.  Amortization expense was $1,276 and $909 for the nine months ended June 30, 2011 and 2010, respectively.  Estimated future annual amortization expense related to intangible assets as of June 30, 2011 follows:
 

 
 
Amount
 
 
Remainder of 2011
$
 371 
 
 
2012 
 
 1,623 
 
 
2013 
 
 1,538 
 
 
2014 
 
 1,532 
 
 
2015 
 
 1,379 
 
 
Thereafter
 
 15,570 
 
 
 
$
 22,013 
 

NOTE 7 DEBT
 
The following table presents the outstanding debt and capital lease obligations as of June 30, 2011 and September 30, 2010:
 

 
 
 
 
June 30,
 
 
September 30,
 
 
 
 
 
2011 
 
 
2010 
 
 
Revolving credit facility, 1.63% as of June 30, 2011
$
 10,500 
 
$
 9,600 
 
 
Sterling revolving credit facility, 1.69% as of June 30, 2011
 
 3,443 
 
 
 540 
 
 
Note payable (1)
 
 - 
 
 
 2,000 
 
 
Capital lease obligations (2)
 
 1,498 
 
 
 1,811 
 
 
Term note
 
 - 
 
 
 773 
 
 
Total debt and capital lease obligations
 
 15,441 
 
 
 14,724 
 
 
 
Less: Long-term debt and capital lease obligations
 
 (570)
 
 
 (953)
 
 
Total debt included in current liabilities
$
 14,871 
 
$
 13,771 
 
 
 
 
 
 
 
 
 
 
 
(1) Note payable was related to the acquisition of Centaur and was paid in full on February 8, 2011.
 
 
(2) The capital lease obligations have varying maturity dates.
 

Revolving Credit Facility — On August 10, 2010, MWI Co., our wholly-owned subsidiary as borrower, entered into a Second Amendment to its Credit Agreement (“the facility”) with us and Memorial Pet Care, Inc., as guarantors, and Bank of America, N.A. and Wells Fargo Bank, N.A. (the “lenders”).  Under the facility, the aggregate revolving commitment of the lenders is $100,000.  The maturity date of the loans under the facility is March 1, 2013.  The variable interest rate is equal to the Daily LIBOR Floating Rate or the LIBOR 1-month fixed rate (at MWI Co.’s option) plus a margin ranging from 1.50% to 2.25%.  The lenders also receive an unused line fee and letter of credit fee which is equal to 0.2% of the unused amount of the facility.  The facility contains financial covenants, including a fixed charge ratio and a funded debt to EBITDA calculation.  We were in compliance with all of the covenants as of June 30, 2011 and September 30, 2010.
 
Sterling revolving credit facility— As of September 30, 2010, Centaur operated with a credit facility with Fortis Bank as the lender, which allowed for borrowings in the aggregate of £12,000.  This facility had a variable interest rate equal to a base rate of 0.50% plus GBP one-month LIBOR plus a margin of 0.85%.
 
On November 5, 2010, Centaur terminated the Fortis facility and entered into a £12,500 unsecured revolving line of credit facility (the “sterling revolving credit facility”) with Wells Fargo Bank, N.A. London Branch (“Wells Fargo”).  The sterling revolving credit facility is for a three year term with interest paid at the end of the applicable one month, three month or six month interest period.  Interest is based on LIBOR for the applicable interest period plus an applicable margin of 1.05% to 1.90%.  The facility contains financial covenants requiring Centaur to maintain a minimum tangible net worth of £3,000 which is to be calculated at the end of each fiscal year.
 


NOTE 8 FAIR VALUE OF FINANCIAL INSTRUMENTS
 
Current fair value accounting guidance includes a hierarchy that is intended to increase consistency and comparability in fair value measurements and disclosures.  This hierarchy prioritizes inputs to valuation techniques based on observable and unobservable data.  The guidance categorizes these inputs used in measuring fair value into three levels which include the following:
 
·  
Level 1 – observable inputs such as quoted prices in active markets;
 
·  
Level 2 – inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly.  These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and
 
·  
Level 3 – unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
 
Financial instruments include cash and cash equivalents, receivables and accounts payable, and the fair values approximate book values due to their short maturities.  The majority of our capital leases have lease terms of three years and their fair values approximate book values due to their short maturities.
 
In August 2010, we amended our revolving credit facility.  Because this amendment was done recently and includes interest rates based on current market conditions, we believe that the estimated fair value of our long-term debt (including current maturities) was materially the same as our carrying value.
 
In November 2010, we refinanced our sterling revolving credit facility.  Because this amendment was done recently and includes interest rates based on current market conditions, we believe that the estimated fair value of our long-term debt (including current maturities) was materially the same as our carrying value.
 

NOTE 9 COMMON STOCK AND STOCK-BASED AWARDS
 
 
2002 Stock Plan
 
We have a 2002 Stock Plan (the “2002 Plan”) to provide our directors, executives and other key employees with additional incentives by allowing them to acquire an ownership interest in us and, as a result, encouraging them to contribute to our success. As of June 30, 2011 and September 30, 2010, we had 76,410 and 164,788 shares, respectively, of our common stock available for issuance under the 2002 Plan. The options granted under the 2002 Plan are nonqualified stock options that have an exercise price per share equal to fair market value of the common stock at the time of grant. The term of each option is determined by our board of directors or by a designated committee of the board.  The term of any option may not exceed ten years from the date of grant.  As of June 30, 2011, 15,970 options to purchase common stock were outstanding with a weighted average exercise price of $0.18 per share and expiring through June 2012.
 
 
2005 Stock Plan
 
We have a 2005 Stock-Based Award and Incentive Compensation Plan (the “2005 Plan”), under which we may offer restricted and unrestricted shares of our common stock and grant options to purchase shares of our common stock to selected employees and non-employee directors. The purpose of the 2005 Plan is to promote our long-term financial success by attracting, retaining and rewarding eligible participants. As of June 30, 2011 and September 30, 2010, we had 979,878 and 991,970 shares, respectively, of our common stock available for issuance under the 2005 Plan. As of June 30, 2011, 31,273 options to purchase common stock were outstanding with a weighted average exercise price of $17.83 per share and expiring through September 2015.
 
The 2005 Plan permits us to grant stock options (both incentive stock options and non-qualified stock options), restricted and unrestricted stock and deferred stock. The compensation committee will determine the number and type of stock-based awards to each participant, the exercise price of each award, the duration of the award (not to exceed ten years), vesting provisions and all other terms and conditions of such award in individual award agreements. The 2005 Plan provides that upon termination of employment with us, unless determined otherwise by the compensation committee at the time options are granted, the exercise period for vested awards will generally be limited, provided that vested awards will be canceled immediately upon a termination for cause or voluntary termination. The 2005 Plan provides for the cancellation of all unvested awards upon termination of employment with us, unless determined otherwise by the compensation committee at the time awards are granted.
 
We did not grant common stock options during each of the nine months ended June 30, 2011 and 2010.  During the nine months ended June 30, 2011 and 2010, we issued 5,550 and 2,000 shares of restricted stock under the 2005 Plan.  We also granted 6,000 shares of unrestricted stock to non-employee directors during each of the nine months ended June 30, 2011 and 2010.  During the three months ended June 30, 2011 and 2010, we recognized $235 and $98 of compensation expense related to stock grants, respectively.  During the nine months ended June 30, 2011 and 2010, we recognized $1,139 and $528 of compensation expense related to stock grants, respectively.
 
We also have an employee stock purchase plan (“ESPP”) that allows substantially all employees to purchase shares of our common stock at 95% of the fair market value on the date of purchase.  The purchase date is the last trading date of the purchase periods, which begin in March, June, September and December.  Employees accumulate amounts through payroll deductions during the purchase period of between 1% and 10% but no more than $20 annually.  An employee is allowed to purchase a maximum of 200 shares per purchase period.  During the nine months ended June 30, 2011 and 2010, we issued 4,420 and 4,454 shares, respectively, of our common stock under the ESPP.
 

NOTE 10 INCOME TAXES
 
Our effective tax rate for each of the three months ended June 30, 2011 and 2010 was 39.1%.  Our effective tax rate for the nine months ended June 30, 2011 and 2010 was 38.7% and 39.2%, respectively.  The decrease in the effective tax rate is primarily due to the impact of the Centaur acquisition, which includes direct acquisition-related expenses in the prior year that were non-deductible for tax purposes as well as Centaur’s contribution to earnings at a lower effective tax rate.
 
As of June 30, 2011, we had $23 of unrecognized tax benefits, of which $15 would impact our effective rate if recognized. Our policy for classifying interest and penalties associated with unrecognized tax benefits is to include such items in income tax expense.  The amount of interest and penalties recognized during the three months ended June 30, 2011 and 2010 was not material.
 
We filed Form 3115 Application of Change in Accounting Method with the Internal Revenue Service during the fiscal year ended September 30, 2008.  We filed an advance consent request for a non-automatic account method change for tax purposes for which we received approval during the three months ended March 31, 2011.  The method change will make revenue recognition for tax purposes the same as revenue recognized for book purposes.  The approval of the method change decreased the liability for unrecognized tax benefits by $175 for the nine months ended June 30, 2011.
 
With few exceptions, we are no longer subject to income tax examination for years before 2005 in the U.S. and significant state and local jurisdictions.  We are no longer subject to income tax examination for years before 2009 in significant foreign jurisdictions.
 



NOTE 11 — COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share data)
 

 
 
 
Three months ended June 30,
 
 
 
2011 
 
2010 
 
 
 
Basic
 
Diluted
 
Basic
 
Diluted
 
Net income
$
 11,390 
 
$
 11,390 
 
$
 9,137 
 
$
 9,137 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
 12,484 
 
 
 12,484 
 
 
 12,265 
 
 
 12,265 
 
Effect of diluted securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock options and restricted stock
 
 
 
 
 42 
 
 
 
 
 
 143 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average diluted shares outstanding
 
 
 
 
 12,526 
 
 
 
 
 
 12,408 
 
Earnings per share
$
 0.91 
 
$
 0.91 
 
$
 0.74 
 
$
 0.74 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Anti-dilutive shares excluded from calculation
 
 
 
 
 - 
 
 
 
 
 
 - 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended June 30,
 
 
 
2011 
 
2010 
 
 
 
Basic
 
Diluted
 
Basic
 
Diluted
 
Net income
$
 32,550 
 
$
 32,550 
 
$
 24,642 
 
$
 24,642 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
 12,453 
 
 
 12,453 
 
 
 12,215 
 
 
 12,215 
 
Effect of diluted securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock options and restricted stock
 
 
 
 
 54 
 
 
 
 
 
 165 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average diluted shares outstanding
 
 
 
 
 12,507 
 
 
 
 
 
 12,380 
 
Earnings per share
$
 2.61 
 
$
 2.60 
 
$
 2.02 
 
$
 1.99 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Anti-dilutive shares excluded from calculation
 
 
 
 
 - 
 
 
 
 
 
 - 

NOTE 12 RELATED PARTIES
 
MWI Co. holds a 50.0% membership interest in Feeders’ Advantage LLC (“Feeders’ Advantage”).  MWI Co. charged Feeders’ Advantage for certain operating and administrative services in the amounts of $193 and $172 for the three months ended June 30, 2011 and 2010, respectively.  MWI Co. charged Feeders’ Advantage for certain operating and administrative services in the amounts of $645 and $563 for the nine months ended June 30, 2011 and 2010, respectively.  Sales of products to Feeders’ Advantage were $10,560 and $9,113, which represented 3% of total product sales for each of the three months ended June 30, 2011 and 2010.  Sales of products to Feeders’ Advantage were $38,401 and $30,687, which represented 3% and 4% of total product sales for the nine months ended June 30, 2011 and 2010, respectively.
 
MWI Co. provides Feeders’ Advantage with a line-of-credit to finance its day-to-day operations. This line-of-credit bears interest at the prime rate. The interest due on the line-of-credit is calculated and charged to Feeders’ Advantage on the last day of each month. Conversely, to the extent MWI Co. has a payable balance due to Feeders’ Advantage, the payable balance accrues interest in favor of Feeders’ Advantage at the average federal funds rates in effect for that month. MWI Co. had a payable balance to Feeders’ Advantage of $653 and $281 as of June 30, 2011 and September 30, 2010, respectively.
 
 
NOTE 13   STATEMENTS OF CASH FLOWS – SUPPLEMENTAL AND NON-CASH DISCLOSURES
 

 
 
Nine months ended June 30,
 
 
 
2011 
 
2010 
 
 
Supplemental Disclosures
 
 
 
 
 
 
 
Cash paid for interest
$
 416 
 
$
 258 
 
 
Cash paid for income taxes
 
 14,436 
 
 
 13,563 
 
 
Non-cash Activities
 
 
 
 
 
 
 
Note payable issued related to Centaur acquisition
 
 - 
 
 
 2,000 
 
 
Equipment acquisitions financed with accounts payable
 
 102 
 
 
 130 
 

NOTE 14 COMMITMENTS AND CONTINGENCIES
 
From time to time, in the normal course of business, we may become a party to legal proceedings that may have an adverse effect on our financial position, results of operations and cash flows. At June 30, 2011, we were not a party to any material pending legal proceedings and were not aware of any claims that could have a material adverse effect on our financial position, results of operations or cash flows.
 

NOTE 15 OTHER COMPREHENSIVE INCOME
 
The components of comprehensive income were as follows:
 

 
 
 
Three months ended June 30,
 
Nine months ended June 30,
 
 
 
2011 
 
2010 
 
2011 
 
2010 
Net income
$
 11,390 
 
$
 9,137 
 
$
 32,550 
 
$
 24,642 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
 
 (245)
 
 
 36 
 
 
 575 
 
 
 (1,706)
 
 
Total comprehensive income
$
 11,145 
 
$
 9,173 
 
$
 33,125 
 
$
 22,936 


 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of
MWI Veterinary Supply, Inc.
Boise, Idaho

We have reviewed the accompanying condensed consolidated balance sheet of MWI Veterinary Supply, Inc. and subsidiaries (the "Corporation") as of June 30, 2011, and the related condensed consolidated statements of income for the three-month and nine-month periods ended June 30, 2011 and 2010, and of cash flows for the nine-month periods ended June 30, 2011 and 2010. These interim financial statements are the responsibility of the Corporation’s management.
 
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
 
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
 
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of MWI Veterinary Supply, Inc. and subsidiaries as of September 30, 2010, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated November 23, 2010, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 2010 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
 
/s/ DELOITTE & TOUCHE LLP
Boise, Idaho
July 29, 2011


Item 2.                      Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
All dollar amounts are presented in thousands, except for per share amounts.
 
Overview
 
We are a leading distributor of animal health products to veterinarians in the United States and the United Kingdom. We sell our products to veterinarians in both the companion and production animal markets. Our growth has primarily been from internal growth initiatives and, to a lesser extent, selective acquisitions.  On March 21, 2011, we acquired substantially all of the assets of Nelson Laboratories Limited Partnership (“Nelson”), which is a distributor of animal health products to veterinarians in the midwestern United States.  On February 8, 2010, we acquired the outstanding share capital of Centaur Services Limited (“Centaur”), which is a supplier of animal health products in the United Kingdom.  We operate under a single reporting segment.
 
Historically, we estimate that approximately two-thirds of our total revenues have been generated from sales to the companion animal market and one-third from sales to the production animal market. The state of the overall economy in both the United States and the United Kingdom and consumer spending have impacted both the companion animal and production animal markets, with tightening credit markets, volatile commodity prices in milk, grain, corn and feeder cattle, and changes in weather patterns also affecting demand in the production animal market.  Both the companion animal and production animal markets have been integral to our financial results and we intend to continue supporting both markets.
 
Industry
 
We believe that the companion animal market in both the United States and the United Kingdom has slowed as a result of a decrease in consumer spending.  Historically, growth in the companion animal market has been due to the increasing number of households with companion animals, increased expenditures on animal health and preventative care, an aging pet population, advancements in pharmaceuticals and diagnostic testing and extensive marketing programs sponsored by companion animal nutrition and pharmaceutical companies. While the average order size for companion animal health products is often smaller than production animal health products, companion animal health products typically have higher margins. We intend to continue to penetrate this market through internal growth initiatives and selective acquisitions.  We believe that some of our customers in this market have experienced liquidity issues as a result of the tightening credit markets.
 
Product sales in the production animal market in both the United States and the United Kingdom are impacted by volatility in commodity prices such as milk, corn, grain and feeder cattle, changes in weather patterns that allow cattle to graze for longer periods and changes in the general economy.  Milk price declines in the dairy market have a significant impact on dairy farmers.  This creates cash-flow challenges for these farmers and in turn, could impact the time it takes for us to collect our outstanding accounts receivable from these customers as well as affect the overall collectability of these accounts.  However, we still believe that it is important to our business to service this market and we intend to continue to support production animal veterinarians with a broad range of products and value-added services. Historically, sales in this market have been largely driven by spending on animal health products to improve productivity, weight gain and disease prevention, as well as a growing focus on food safety.
 
We generally extend some level of credit to our customers without requiring collateral, which exposes us to credit risk.  If customers’ cash flow or operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain other sources of credit, they may not be able to pay or may delay payment to us, or in some cases may return products to us. We continually assess our customers’ ability to pay us and adjust our allowance for doubtful accounts, as necessary.
 
Our quarterly sales and operating results have varied significantly in the past, and will likely continue to do so in the future. Historically, our total revenues have typically been higher during the spring and fall months due to increased sales of production animal products. Product use cycles for production animal products are directly related to medical procedures performed by veterinarians on production animals during the spring and fall months. These buying patterns can also be affected by the marketing programs or price increase announcements of vendors and distributors, which can cause veterinarians to purchase production animal health products earlier than those products are needed. This kind of early purchasing may reduce our sales in the months these purchases would have otherwise been made.
 
Sales
 
We sell products that we source from our vendors to our customers through either a “buy/sell” transaction or an agency relationship with our vendors. In a “buy/sell” transaction, we purchase or take inventory of products from our vendors. When a customer places an order with us, we pick, pack, ship and invoice the customer for the order. We record sales from “buy/sell” transactions, which account for the vast majority of our business, as revenues in conformity with generally accepted accounting principles in the United States. In an agency relationship, we generally do not purchase and take inventory of products from our vendors. When we receive an order from our customer, we transmit the order to our vendor, who picks, packs and ships the order to our customer. In some cases, our vendor invoices and collects payment from our customer, while in other cases we invoice and collect payment from our customer on behalf of our vendor. We receive a commission payment for soliciting the order from our customer and for providing other customer service activities. The aggregate revenues we receive in agency transactions constitute the “commissions” line item on our consolidated statements of income and are recorded in conformity with accounting principles generally accepted in the United States. Our vendors determine the method we use to sell our products. Historically, vendors have occasionally switched between the “buy/sell” and agency models for particular products in response to market conditions related to that particular product. A switch between models can impact our revenues and our operating income. We cannot know in advance when a vendor will switch between the “buy/sell” and agency models or what impact, if any, such a change may have. A switch can occur even with vendors with whom we have written agreements, because most of our agreements with vendors have relatively short terms and are terminable with or without cause on short notice, normally 30 to 90 days. The impact of any individual change from a “buy/sell” to an agency model depends on the costs and expenses associated with a particular product, and can have either a positive or a negative effect on our profitability.
 
We typically renegotiate vendor contracts annually.  These vendor contracts may include terms defining margins, rebates, commissions, exclusivity requirements and the manner in which we go to market.  For example, vendors could require us to distribute their products on an exclusive basis, which could cause us to forego distributing competing products which may also be profitable.  Conversely, competitors could obtain exclusive rights to market particular products, which we would be unable to market.  If we lose the right to distribute products under such exclusive agreements, we may lose access to certain products and lose a competitive advantage.  Exclusivity agreements could allow potential competitors to sell products that we cannot offer and erode our market share.  In addition, vendors have the ability to expand the distributors that they use which could have a material adverse effect on our business.
 
Many of our vendors’ rebate programs are based on a calendar year.  Historically, the three months ended December 31 has been our most significant quarter for recognition of rebates.  Vendor rebates based on sales are classified in our accompanying consolidated statements of income as a reduction to cost of product sales at the time the sales performance measures are achieved. Purchase rebates are measured against inventory purchases from the vendors and are a reduction of inventory until the product is sold. When the inventory is sold, purchase rebates are recognized as a reduction to cost of product sales.
 
Historically, our contract with Merial to sell their flea, tick and heartworm products included an exclusivity requirement.  This requirement did not permit us to sell or distribute other competing flea, tick and heartworm products.  Beginning calendar year 2010, we agreed with Merial to begin a non-exclusive arrangement where we are permitted to sell and distribute other competing products.  Some of these competing products were sold under buy-sell arrangements, while others were sold under agency arrangements.  Merial’s flea, tick and heartworm products are primarily sold under an agency arrangement.  This addition of buy-sell arrangements for certain flea, tick and heartworm products has had an impact on how our revenues are reported, since under agency sales, only commissions are reported as revenues, while for buy-sell products the total sale price of the product is reported as revenue.  Effective February 20, 2011, we entered into a Second Amendment to the 2010-2011 Merial Independent Sales Agent Agreement (“Second Amendment”).  Under the Second Amendment, we are prohibited from distributing non-Merial fipronil-containing products, although we are not restricted from distributing other competing flea, tick and heartworm products.  The Second Amendment also extends the term of the Agreement to December 31, 2012, and commission and rebate rates are amended.
 
Vendor Consolidation
 
In the United States, our top ten vendors supplied products that accounted for approximately 70% and 68% of our revenues for the nine months ended June 30, 2011 and 2010, respectively, and 71% of our revenues for the fiscal year ended September 30, 2010.  Pfizer supplied products that accounted for approximately 24% and 25% of our revenues during the nine months ended June 30, 2011 and 2010, respectively, and 25% of our revenues for our fiscal year ended September 30, 2010.  Of the Pfizer supplied products, production animal products under a livestock agreement accounted for approximately 12% and 11% of our revenues during the nine months ended June 30, 2011 and 2010, respectively, and approximately 12% of our revenues for our fiscal year ended September 30, 2010.  Merck (formerly known as Intervet/Schering-Plough) supplied products that accounted for approximately 11% and 10% of our revenues during the nine months ended June 30, 2011 and 2010, respectively, and 10% of our revenues for our fiscal year ended September 30, 2010.  Boehringer Ingelheim supplied products that accounted for approximately 9% and 10% of our revenues during the each of the nine months ended June 30, 2011 and 2010, respectively, and 10% of our revenues for our fiscal year ended September 30, 2010.  Merial, a subsidiary of Sanofi-Aventis, supplies the majority of their products to us under an agency relationship.  Commission revenue generated from Merial products accounted for approximately 48% and 50% of total commission revenues during the nine months ended June 30, 2011 and 2010, respectively, and 49% of total commission revenues for our fiscal year ended September 30, 2010.
 
For more information on our business, see our Annual Report on Form 10-K filed with the SEC on November 23, 2010.
 



Results of Operations
 
The following table summarizes our results of operations for the three and nine months ended June 30, 2011 and 2010, in dollars and as a percentage of total revenues.
 

 
 
 
 
Three months ended June 30,
 
Nine months ended June 30,
 
 
 
 
2011 
 
%
 
2010 
 
%
 
2011 
 
%
 
2010 
 
%
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Product sales
$
 393,706 
 
95.9 
%
 
$
 334,242 
 
96.1 
%
 
$
 1,089,830 
 
95.3 
%
 
$
 827,614 
 
95.1 
%
 
Product sales to related party
 
 10,560 
 
2.5 
%
 
 
 9,113 
 
2.6 
%
 
 
 38,401 
 
3.3 
%
 
 
 30,687 
 
3.5 
%
 
Commissions
 
 6,470 
 
1.6 
%
 
 
 4,332 
 
1.3 
%
 
 
 15,791 
 
1.4 
%
 
 
 12,094 
 
1.4 
%
 
 
 
Total revenues
 
 410,736 
 
100.0 
%
 
 
 347,687 
 
100.0 
%
 
 
 1,144,022 
 
100.0 
%
 
 
 870,395 
 
100.0 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of product sales
 
 356,649 
 
86.8 
%
 
 
 303,750 
 
87.4 
%
 
 
 988,877 
 
86.4 
%
 
 
 750,927 
 
86.3 
%
Gross profit
 
 54,087 
 
13.2 
%
 
 
 43,937 
 
12.6 
%
 
 
 155,145 
 
13.6 
%
 
 
 119,468 
 
13.7 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SG&A expenses
 
 33,663 
 
8.2 
%
 
 
 27,435 
 
7.9 
%
 
 
 97,160 
 
8.5 
%
 
 
 75,448 
 
8.7 
%
Depreciation and amortization
 
 1,723 
 
0.4 
%
 
 
 1,438 
 
0.4 
%
 
 
 4,879 
 
0.5 
%
 
 
 3,559 
 
0.4 
%
Operating income
 
 18,701 
 
4.6 
%
 
 
 15,064 
 
4.3 
%
 
 
 53,106 
 
4.6 
%
 
 
 40,461 
 
4.6 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 (166)
 
%
 
 
 (171)
 
%
 
 
 (600)
 
%
 
 
 (389)
 
%
 
Earnings of equity method
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
investees
 
 51 
 
%
 
 
 45 
 
%
 
 
 187 
 
%
 
 
 155 
 
%
 
Other
 
 116 
 
%
 
 
 57 
 
%
 
 
 394 
 
%
 
 
 299 
 
%
 
 
 
Total other income (expense)
 
 1 
 
%
 
 
 (69)
 
%
 
 
 (19)
 
%
 
 
 65 
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before taxes
 
 18,702 
 
4.6 
%
 
 
 14,995 
 
4.3 
%
 
 
 53,087 
 
4.6 
%
 
 
 40,526 
 
4.6 
%
Income tax expense
 
 (7,312)
 
(1.8)
%
 
 
 (5,858)
 
(1.7)
%
 
 
 (20,537)
 
(1.8)
%
 
 
 (15,884)
 
(1.8)
%
Net income
$
 11,390 
 
2.8 
%
 
$
 9,137 
 
2.6 
%
 
$
 32,550 
 
2.8 
%
 
$
 24,642 
 
2.8 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
 0.91 
 
 
 
 
$
 0.74 
 
 
 
 
$
 2.61 
 
 
 
 
$
 2.02 
 
 
 
 
Diluted
$
 0.91 
 
 
 
 
$
 0.74 
 
 
 
 
$
 2.60 
 
 
 
 
$
 1.99 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 12,484 
 
 
 
 
 
 12,265 
 
 
 
 
 
 12,453 
 
 
 
 
 
 12,215 
 
 
 
 
Diluted
 
 12,526 
 
 
 
 
 
 12,408 
 
 
 
 
 
 12,507 
 
 
 
 
 
 12,380 
 
 
 



Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
 
Total Revenues.  Total revenues increased 18.1% to $410,736 for the three months ended June 30, 2011, from $347,687 for the three months ended June 30, 2010.  Revenue growth in the United States was 18.9% for the quarter ended June 30, 2011, compared to the same period in the prior fiscal year.  Revenue growth in the United Kingdom was 14.1% for the quarter ended June 30, 2011, compared to the same period in the prior fiscal year, consisting of 4.3% organic growth and 9.8% growth related to foreign currency exchange. The growth in organic revenues in the United States came from increased business as a result of the bankruptcy and liquidation of a competitor that is no longer in business, growth from our e-commerce platform and the addition of sales representatives over the past twelve months. Organic revenues attributable to existing customers represented approximately 40% of the growth in revenues during the three months ended June 30, 2011.  Organic revenues attributable to new customers represented approximately 60% of the growth in revenues during the three months ended June 30, 2011. For the purpose of calculating growth rates of new and existing customer revenue, we have defined a new customer as a customer that did not purchase product from us in the corresponding fiscal quarter of the prior year, with the remaining customer base being considered existing customers.  Revenues from new customers for each fiscal quarter are summed to arrive at the estimated year-to-date revenue for new customers.
 
Product sales to related party increased by 15.9% to $10,560 for the three months ended June 30, 2011, from $9,113 for the three months ended June 30, 2010.  Commissions increased 49.4% to $6,470 for the three months ended June 30, 2011, from $4,332 for the three months ended June 30, 2010 primarily due to achieving an incentive from one of our vendors, which was not achieved in the prior fiscal year, as well as an increase in commission rates and gross billings from agency contracts.
 
Gross Profit.  Gross profit increased by 23.1% to $54,087 for the three months ended June 30, 2011, from $43,937 for the three months ended June 30, 2010.  The change in gross profit is primarily a result of increased total revenues as discussed above.  Gross profit as a percentage of total revenues was 13.2% and 12.6% for the three months ended June 30, 2011 and 2010, respectively.  This increase in gross profit as a percentage of total revenues was due to the incentive that was discussed above and an overall increase in product margin, partially offset by a decrease in vendor rebates.  Vendor rebates for the three months ended June 30, 2011 decreased by approximately $205 compared to the three months ended June 30, 2010.
 
Selling, General and Administrative (“SG&A”).  SG&A expenses increased 22.7% to $33,663 for the three months ended June 30, 2011, from $27,435 for the three months ended June 30, 2010.  The increase in SG&A expenses was primarily due to compensation costs from increased headcount to support the revenue growth, as well as an increase in bank service fees related to customer credit card usage.  SG&A expenses as a percentage of total revenues were 8.2% for the three months ended June 30, 2011, compared to 7.9% for the three months ended June 30, 2010.
 
Income Tax Expense. Our effective tax rate for each of the three months ended June 30, 2011 and 2010 was 39.1%.
 
Nine Months Ended June 30, 2011 Compared to Nine Months Ended June 30, 2010
 
Total Revenues.  Total revenues increased 31.4% to $1,144,022 for the nine months ended June 30, 2011, from $870,395 for the nine months ended June 30, 2010.  Revenue growth in the United States was 22.4% for the nine months ended June 30, 2011, compared to the same period in the prior fiscal year.  Revenue growth in the United Kingdom was 108.2% for the nine months ended June 30, 2011 as compared to the same period in the prior year as we owned Centaur for the full nine months this fiscal year compared to approximately five months in the same period in the prior fiscal year.  The growth in organic revenues in the United States came from increased business as a result of the bankruptcy and liquidation of a competitor that is no longer in business, a broader product line with new flea, tick and heartworm products, growth from our e-commerce platform and the addition of sales representatives over the past twelve months. Organic revenues attributable to existing customers represented approximately 44% of the growth in revenues during the nine months ended June 30, 2011.  Organic revenues attributable to new customers represented approximately 56% of the growth in revenues during the nine months ended June 30, 2011. For the purpose of calculating growth rates of new and existing customer revenue, we have defined a new customer as a customer that did not purchase product from us in the corresponding fiscal quarter of the prior year, with the remaining customer base being considered an existing customer.  Revenues from new customers for each fiscal quarter are summed to arrive at the estimated year-to-date revenue for new customers.  Additionally, the organic growth was partially due to the increase in revenues from the sale of flea, tick and heartworm products that we did not sell in the three months ended December 31, 2010 due to our previously exclusive arrangement with Merial.  Certain new flea, tick and heartworm products that we now distribute are sold under “buy/sell” arrangements while most flea, tick and heartworm products in the past were sold under an agency agreement.  The product sales under a “buy-sell” arrangement results in greater revenue than product sales under an agency arrangement because we recognize product sales under a “buy-sell” arrangement as total sales net of estimated product returns and sales tax, whereas we only recognize commission revenue in product sales under an agency relationship.
 
Product sales to related party increased by 25.1% to $38,401 for the nine months ended June 30, 2011, from $30,687 for the nine months ended June 30, 2010.  Commissions increased 30.6% to $15,791 for the nine months ended June 30, 2011, from $12,094 for the nine months ended June 30, 2010.
 
Gross Profit.  Gross profit increased by 29.9% to $155,145 for the nine months ended June 30, 2011, from $119,468 for the nine months ended June 30, 2010.  The change in gross profit is primarily a result of increased total revenues as discussed above including the additional gross profit from Centaur.  Gross profit as a percentage of total revenues was 13.6% and 13.7% for the nine months ended June 30, 2011 and 2010, respectively.  Gross profit as a percentage of total revenues decreased due to the addition of Centaur because Centaur's gross profit as a percentage of total revenues is generally lower than MWI's, which serves to reduce the overall gross margin of the consolidated Company when compared to our results for the same period in the prior year.  Vendor rebates for the nine months ended June 30, 2011 increased by approximately $2,760 compared to the nine months ended June 30, 2010 due to the organic revenue growth.
 
Selling, General and Administrative (“SG&A”).  SG&A expenses increased 28.8% to $97,160 for the nine months ended June 30, 2011, from $75,448 for the nine months ended June 30, 2010.  This increase was primarily due to the organic revenue growth as well as the addition of Centaur’s operating expenses. SG&A expenses as a percentage of total revenues decreased to 8.5% for the nine months ended June 30, 2011 from 8.7% for the nine months ended June 30, 2010.  SG&A expenses as a percentage of total revenues decreased due, in part, to the addition of Centaur because Centaur’s SG&A expenses as a percentage of total revenues are generally lower than MWI’s, which serves to reduce the overall SG&A expenses as a percentage of total revenues when compared to our results for the same period in the prior year.
 
Income Tax Expense. Our effective tax rate for the nine months ended June 30, 2011 and 2010 was 38.7% and 39.2%, respectively.  The decrease in the effective tax rate is primarily due to the impact of the Centaur acquisition, which includes direct acquisition-related expenses in the prior year that were non-deductible for tax purposes as well as Centaur’s contribution to earnings at a lower effective tax rate.
 
Critical Accounting Policies
 
The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.  The accompanying condensed consolidated financial statements are prepared using the same critical accounting policies discussed in our Annual Report on Form 10-K filed with the SEC on November 23, 2010.
 
Liquidity and Capital Resources
 
Our principal sources of liquidity are cash flows generated from operations and borrowings on our credit facilities. We use capital primarily to fund day-to-day operations and to maintain sufficient inventory levels in order to promptly fulfill customer orders and to expand our operations and sales growth. We believe our capital resources, including our ability to borrow funds from our credit facilities, will be sufficient to meet our anticipated cash needs for at least the next twelve months.
 
Our lenders may have suffered losses related to their lending and other financial relationships, especially because of the general weakening of the national economy and increased financial instability of many borrowers.  As a result, the lenders may become insolvent or tighten their lending standards, which could make it more difficult for us to borrow under our revolving credit facility, extend the terms of our revolving credit facility or obtain alternative financing on favorable terms or at all.  Our financial condition and results of operations could be adversely affected if we were unable to draw funds under our revolving credit facility because of a lender default or if we fail to obtain other cost-effective financing.
 
We generally extend some level of credit to our customers. If customers’ cash flow or operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain other sources of credit, they may not be able to pay or may delay payment to us, or in some cases may return products to us. Any inability of current and/or potential customers to pay us for our products and/or services due to their deteriorating financial condition or otherwise may adversely affect our results of operations and financial condition.
 
On August 10, 2010, MWI Co., our wholly-owned subsidiary as borrower, entered into a Second Amendment, to its Credit Agreement (“the facility”) with us and Memorial Pet Care, Inc., as guarantors, and Bank of America, N.A. and Wells Fargo Bank, N.A. (the “lenders”).  Under the facility, the aggregate revolving commitment of the lenders is $100,000.  The maturity date of the loans under the facility is March 1, 2013.  The variable interest rate is equal to the Daily LIBOR Floating Rate or the LIBOR 1-month fixed rate (at MWI Co.’s option) plus a margin ranging from 1.50% to 2.25%.  The lenders also receive an unused line fee and letter of credit fee which is equal to 0.2% of the unused amount of the facility.  The facility contains financial covenants, including a fixed charge ratio and a funded debt to EBITDA calculation.  We were in compliance with both of these covenants as of June 30, 2011.  Our outstanding balance on the revolving credit facility at June 30, 2011 and September 30, 2010 was $10,500 and $9,600, respectively, and the interest rate was 1.63% as of June 30, 2011.
 
On November 5, 2010, Centaur entered into a £12,500 unsecured revolving line of credit facility (the “sterling revolving credit facility”) with Wells Fargo Bank, N.A. London Branch (“Wells Fargo”).  The sterling revolving credit facility is for a three year term with interest paid at the end of the applicable one month, three month or nine month interest period.  Interest is based on LIBOR for the applicable interest period plus an applicable margin of 1.05% to 1.90%.  The facility contains financial covenants requiring Centaur to maintain a minimum tangible net worth of £3,000 which is to be calculated at end of each fiscal year.  Our outstanding balance on the revolving credit facility at June 30, 2011 was £2,149, or $3,443 using the current exchange rate as of June 30, 2011, and the interest rate was 1.69% as of June 30, 2011.
 
Operating Activities.  For the nine months ended June 30, 2011, cash provided by operations was $18,281 and was primarily attributable to net income of $32,550 offset by changes in working capital.  Accounts payable decreased $13,505 as strategic inventory purchases were made during the quarter ended September 30, 2010 to support our organic growth of that quarter, and payments for those purchases were made during the nine months ended June 30, 2011 but we have kept inventory levels higher to support our growth.  Receivables increased $16,269 due to revenue growth.
 
For the nine months ended June 30, 2010, cash provided by operations was $10,600 and was primarily attributable to net income of $24,642 partially offset by an increase in accounts receivable of $12,072 due to the increase in revenues.   The increase in inventories of $8,282 and accounts payable of $6,365 were both due to the increase in revenues.
 
Investing Activities.  For the nine months ended June 30, 2011, net cash used in investing activities was $21,563.  We paid $7,000 in cash for the acquisition of Nelson. Additionally, we paid for capital expenditures of $10,280 which primarily related to an office building purchased in Boise, Idaho for our headquarters, equipment for our new distribution center in Visalia, California to accommodate the growth needs in that region and other distribution center technology.  Additionally, we made an investment in Cubex LLC, a technology based inventory management business, of $4,000.
 
For the nine months ended June 30, 2010, net cash used in investing activities was $41,470 and was primarily due to acquisition of Centaur of $39,511, net of cash acquired of $674, and capital expenditures of $1,862 related to distribution center infrastructure, including the relocation of the Holland, Michigan distribution center in September 2009 and technology investments.
 
Financing Activities.  For the nine months ended June 30, 2011, net cash provided by financing activities was $3,275, which was primarily due to net borrowings of $3,735 on our credit facilities.  Our revolving credit facilities are used to fund strategic acquisitions, make capital purchases and meet our working capital requirements.
 
For the nine months ended June 30, 2010, net cash provided by financing activities was $17,519, which was primarily due to net borrowings of $15,876 on our credit facilities.  Our revolving credit facility was used to finance the Centaur acquisition.  This was coupled with the tax benefit from stock option exercises of $1,829.
 
Contractual Obligations and Guarantees
 
For information on our contractual obligations and guarantees, see our Annual Report on Form 10-K filed on November 23, 2010 with the SEC.
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
 
We are exposed to market risks primarily from changes in interest rates, in particular, the Daily LIBOR Floating Rate, and foreign currency translation risk. We do not engage in financial transactions for trading or speculative purposes.  We do not hedge the translation of foreign currency profits into U.S. dollars.  We continually evaluate our foreign currency exchange rate risk and the different options available for managing such risk.
 
We are exposed to foreign currency risk due to our operations in the United Kingdom.  A hypothetical 10% change in the value of the U.S. dollar in relation to the British Pound, which is the Company’s most significant foreign currency exposure, would have changed net sales for the three months ended June 30, 2011 by approximately $6,500. This amount is not indicative of the hypothetical net earnings impact due to the partially offsetting impact of the currency exchange movements on cost of sales and operating expenses.
 
The interest payable on the facility is based on variable interest rates and is affected by changes in market interest rates. The outstanding balance on the revolving credit facility as of June 30, 2011 was $10,500.  Therefore, there was limited exposure to market risks as of this date.  If there had been a balance on the facility of $100,000, which is the maximum available amount on the facility, a change of 10% from the interest rate as of June 30, 2011, which was approximately 1.63% (Daily LIBOR Floating Rate plus a margin of 1.5%), would have changed interest by $41 for the three months ended June 30, 2011.
 

Item 4.  Controls and Procedures
 
Management of the Company, including the Chief Executive Officer and the Chief Financial Officer of the Company, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of June 30,.  Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, including the accumulation and communication of disclosures to the Company’s Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure, are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
 
There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 

 
 
PART II.  OTHER INFORMATION
 
Cautionary Statement for Purposes of “Safe Harbor Provisions” of the Private Securities Litigation Reform Act of 1995
 
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement our strategy, our objectives, the amount and timing of capital expenditures, the amount and timing of interest expense, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity.
 
Forward-looking statements are only predictions and are not guarantees of our performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results that differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:
 
·  
the impact of vendor consolidation on our business;
 
·  
changes in or availability of vendor contracts or rebate programs;
 
·  
vendor rebates based upon attaining certain growth goals;
 
·  
changes in the way vendors introduce/deliver products to market;
 
·  
exclusivity requirements with certain vendors that may prohibit us from distributing competing products manufactured by other vendors;
 
·  
risks associated with our international operations;
 
·  
transitional challenges associated with acquisitions, including the failure to achieve anticipated synergies;
 
·  
financial risks associated with acquisitions;
 
·  
the impact of general economic trends on our business;
 
·  
the recall of a significant product by one of our vendors;
 
·  
extended shortage or backorder of a significant product by one of our vendors;
 
·  
seasonality;
 
·  
the timing and effectiveness of marketing programs or price changes offered by our vendors;
 
·  
the timing of the introduction of new products and services by our vendors;
 
·  
the ability to borrow on our revolving credit facility, extend the terms of our revolving credit facility or obtain alternative financing on favorable terms or at all;
 
·  
risks from potential increases in variable interest rates;
 
·  
the impact of tightening credit standards and/or access to credit on behalf of our customers and suppliers;
 
·  
unforeseen litigation;
 
·  
a disruption caused by adverse weather or other natural conditions or disasters;
 
·  
inability to ship products to the customer as a result of technological or shipping disruptions; and
 
·  
competition.
 
Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, we are under no obligation to publicly update or revise any forward-looking statements, whether as a result of any new information, future events or otherwise. You should not place undue reliance on our forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance.
 
Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of MWI Veterinary Supply, Inc.
 

Item 1.  Legal Proceedings
 
We are not currently a party to any material pending legal proceedings and are not aware of any claims that could have a material adverse effect on our financial position, results of operations or cash flows.
 

Item 1A.  Risk Factors
 
There have been no material changes from the risk factors disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010, as modified by the risk factors disclosed in the “Risk Factors” section of the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2011.
 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
The table below provides information concerning our repurchase of shares of our common stock during the three months ended June 30, 2011.
 

Issuer Purchases of Equity Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Number of
 
Maximum Number (or
 
 
Total
 
 
 
 
 Shares Purchased
 
 Approximate Dollar
 
 
Number
 
Average
 
 as Part of Publicly
 
 Value) of Shares that May
 
 
 of Shares
 
Price Paid
 
 Announced Plans
 
 Yet Be Purchased Under
Period
 
 Purchased
 
per Share
 
 or Programs
 
the Plans or Programs
April 1 to April 30, 2011
 
 
$
 
 
May 1 to May 31, 2011
 
 
 
 
 
June 1 to June 30, 2011
 
 75 
 (1)
 
 79.80 
 
 
Total
 
 75 
 
$
79.80 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) These shares were withheld upon the vesting of employee stock grants in connection with payment of required withholding taxes.

Item 3.  Defaults Upon Senior Securities
 
None.
 
Item 4.  Removed and Reserved
 
None.
 
Item 5.  Other Information
 
None.
 
Item 6.  Exhibits
 
10.1
 
2011 Pfizer Equine Products Marketing Agreement between MWI Veterinary Supply, Inc. and Pfizer, Inc. effective as of January 1, 2011 †
     
10.2
 
Second Amendment to 2010-2011 Merial Independent Sales Agreement between MWI Veterinary Supply Co. and Merial Limited effective as of February 20, 2011 †
     
15
 
Letter re: Unaudited Interim Financial Information
     
31.1
 
Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2
 
Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32
 
 
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 
     
 101    Financials in XBRL format
 
† Certain portions of the exhibit have been omitted pursuant to a confidential treatment request submitted to and approved by the SEC.
 
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.
 
   
MWI Veterinary Supply, Inc.
 
   
(Registrant)
 
       
       
Date: July 29, 2011
    /s/ Mary Patricia B. Thompson  
   
Mary Patricia B. Thompson
 
   
Senior Vice President of Finance and Administration, Chief Financial Officer