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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------|------------|---------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                              |
| ** ** | ** ** | **For the quarter ended June 30, 2008**                                                            |
| ** ** | ** ** | ** **                                                                                              |
| ** ** | ** ** | **OR**                                                                                                  |
| ** ** | ** ** | ** **                                                                                              |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transitionperiodfrom                to                **

** **

**CommissionFile Number:  000-51468**

 

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**MWIVETERINARY SUPPLY, INC.**

(Exact name ofRegistrant as specified in its Charter)

 

| **Delaware**                                               | ** ** | **02-0620757**                           |
|------------------------------------------------------------|------------|------------------------------------------|
| (State  of Incorporation)                                  |       | (I.R.S.  Employer Identification Number) |
|                                                       |       |                                     |
| **651 S. Stratford Drive, Suite 100**                 | ** ** | ** **                               |
| **Meridian, ID**                                           | ** ** | **83642**                                |
| (Address  of principal executive offices)                  |       | (Zip  Code)                              |
|                                                       |       |                                     |
| **(800) 824-3703**                                         |
| (Registrant’s  telephone number, including area code) |

 

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Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports) and (2) has been subject to such filing requirements for thepast 90 days. Yes x No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See 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 markwhether the Registrant is a shell company (as defined in Rule 12b-2 of theAct). Yes o No x

 

The number of shares ofthe Registrant’s common stock, $0.01 par value, outstanding as of July 30,2008 was 12,053,147.

 

 

 

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**MWI VETERINARY SUPPLY, INC.**

 

**INDEX**

 
| **PART I.**  | **FINANCIAL  INFORMATION**                                                                                    | ** ** |
|-------------------|---------------------------------------------------------------------------------------------------------------|------------|
|              |                                                                                                          |       |
| **Item 1.**       | **Financial Statements (Unaudited)**                                                                          | ** ** |
|              | Condensed  Consolidated Statements of Income for the three and nine months ended  June 30, 2008 and 2007 | 3          |
|              |                                                                                                          |       |
|              | Condensed  Consolidated Balance Sheets as of June 30, 2008 and September 30,  2007                  | 4          |
|              |                                                                                                          |       |
|              | Condensed  Consolidated Statements of Cash Flows for the nine months ended June 30,  2008 and 2007       | 5          |
|              |                                                                                                          |       |
|              | Notes  to Condensed Consolidated Financial Statements                                                         | 6          |
|              |                                                                                                          |       |
|              | Report of  Independent Registered Public Accounting Firm                                                      | 13         |
|              |                                                                                                          |       |
| **Item 2.**       | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**               | 14         |
|              |                                                                                                          |       |
| **Item 3.**       | **Quantitative  and Qualitative Disclosures About Market Risk**                                               | 19         |
|              |                                                                                                          |       |
| **Item 4.**       | **Controls and Procedures**                                                                                   | 19         |
|              |                                                                                                          |       |
| **PART II.** | **OTHER INFORMATION**                                                                                         | ** ** |
|              |                                                                                                          |       |
| ** **        | **Cautionary Statement**                                                                                      | 21         |
|              |                                                                                                          |       |
| **Item 1.**       | **Legal Proceedings**                                                                                         | 22         |
| ** **        | ** **                                                                                                    | ** ** |
| **Item 1A.**      | **Risk Factors**                                                                                              | 22         |
| ** **        | ** **                                                                                                    | ** ** |
| **Item 2.**       | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                              | 22         |
|              |                                                                                                          |       |
| **Item 3.**       | **Defaults Upon  Senior Securities**                                                                          | 22         |
|              |                                                                                                          |       |
| **Item 4.**       | **Submission of  Matters to a Vote of Security Holders**                                                      | 23         |
|              |                                                                                                          |       |
| **Item 5.**       | **Other Information**                                                                                         | 23         |
|              |                                                                                                          |       |
| **Item 6.**       | **Exhibits**                                                                                                  | 23         |

 

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**PART I.  FINANCIAL INFORMATION**

 

**Item 1.    Financial Statements**

 

**MWI VETERINARY SUPPLY, INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOME**

**Dollars and shares in thousands, except per sharedata**

**(unaudited)**

 
| ** **                                    | ** ** | **Three months ended June 30,** | ** ** | **Nine months ended June 30,** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                            | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| Revenues:                                     |       |                                                |       |                                               |       |   |   |   |   |
| Product sales                                 |       | $                                                   | 196,325    |                                               | $          | 173,548 |   | $ | 568,089 |   | $ | 486,646 |   |
| Product sales to  related party               |       | 8,689                                               |       | 7,750                                              |       | 28,728 |   | 26,176 |   |
| Commissions                                   |       | 3,263                                               |       | 2,555                                              |       | 9,781 |   | 7,129 |   |
| Total revenues                                |       | 208,277                                             |       | 183,853                                            |       | 606,598 |   | 519,951 |   |
|                                          |       |                                                |       |                                               |       |   |   |   |   |
| Cost of product  sales                        |       | 177,970                                             |       | 158,391                                            |       | 518,238 |   | 444,318 |   |
| Gross profit                                  |       | 30,307                                              |       | 25,462                                             |       | 88,360 |   | 75,633 |   |
|                                          |       |                                                |       |                                               |       |   |   |   |   |
| Selling, general  and administrative expenses |       | 20,802                                              |       | 18,302                                             |       | 62,515 |   | 53,802 |   |
| Depreciation and  amortization                |       | 757                                                 |       | 603                                                |       | 2,250 |   | 1,774 |   |
| Operating income                              |       | 8,748                                               |       | 6,557                                              |       | 23,595 |   | 20,057 |   |
|                                          |       |                                                |       |                                               |       |   |   |   |   |
| Other income  (expense):                      |       |                                                |       |                                               |       |   |   |   |   |
| Interest expense                              |       | (53                                                 | )          | (76                                                | )          | (218 | ) | (505 | ) |
| Earnings of  equity method investees          |       | 37                                                  |       | 35                                                 |       | 129 |   | 122 |   |
| Other                                         |       | 115                                                 |       | 243                                                |       | 467 |   | 434 |   |
| Total other  income (expense), net            |       | 99                                                  |       | 202                                                |       | 378 |   | 51 |   |
|                                          |       |                                                |       |                                               |       |   |   |   |   |
| Income before  taxes                          |       | 8,847                                               |       | 6,759                                              |       | 23,973 |   | 20,108 |   |
| Income tax  expense                           |       | (3,429                                              | )          | (2,499                                             | )          | (9,477 | ) | (7,556 | ) |
|                                          |       |                                                |       |                                               |       |   |   |   |   |
| Net income                                    |       | $                                                   | 5,418      |                                               | $          | 4,260 |   | $ | 14,496 |   | $ | 12,552 |   |
|                                          |       |                                                |       |                                               |       |   |   |   |   |
| Earnings per  common share:                   |       |                                                |       |                                               |       |   |   |   |   |
| Basic                                         |       | $                                                   | 0.45       |                                               | $          | 0.36 |   | $ | 1.20 |   | $ | 1.07 |   |
| Diluted                                       |       | $                                                   | 0.44       |                                               | $          | 0.35 |   | $ | 1.18 |   | $ | 1.05 |   |
|                                          |       |                                                |       |                                               |       |   |   |   |   |
| Weighted average  common shares outstanding:  |       |                                                |       |                                               |       |   |   |   |   |
| Basic                                         |       | 12,051                                              |       | 11,904                                             |       | 12,049 |   | 11,679 |   |
| Diluted                                       |       | 12,298                                              |       | 12,168                                             |       | 12,297 |   | 11,967 |   |

 

SeeNotes to Condensed Consolidated Financial Statements

 

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**MWI VETERINARY SUPPLY, INC.CONDENSED CONSOLIDATED BALANCE SHEETS**

**Dollars and shares in thousands, except per sharedata(unaudited)**

 
| ** **                                                                                                       | ** ** | **June 30,** | ** ** | **September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|------------------------|------------|
| ** **                                                                                                       | ** ** | **2008**          | ** ** | **2007**               | ** ** |
| **Assets**                                                                                                       |       |              |       |                   |       |
|                                                                                                             |       |              |       |                   |       |
| Current Assets:                                                                                                  |       |              |       |                   |       |
| Cash and cash  equivalents                                                                                       |       | $                 | 12,764     |                   | $          | 8,599 |   |
| Receivables, net                                                                                                 |       | 107,704           |       | 111,676                |       |
| Inventories                                                                                                      |       | 119,160           |       | 94,623                 |       |
| Prepaid expenses  and other current assets                                                                       |       | 1,955             |       | 2,362                  |       |
| Deferred income  taxes                                                                                           |       | 1,094             |       | 518                    |       |
| Total current  assets                                                                                            |       | 242,677           |       | 217,778                |       |
|                                                                                                             |       |              |       |                   |       |
| Property and  equipment, net                                                                                     |       | 8,643             |       | 9,206                  |       |
| Goodwill                                                                                                         |       | 34,598            |       | 32,964                 |       |
| Intangibles, net                                                                                                 |       | 7,295             |       | 5,014                  |       |
| Other assets,  net                                                                                               |       | 2,022             |       | 2,232                  |       |
| Total assets                                                                                                     |       | $                 | 295,235    |                   | $          | 267,194 |   |
|                                                                                                             |       |              |       |                   |       |
| **Liabilities  And Stockholders’ Equity**                                                                   |       |              |       |                   |       |
|                                                                                                             |       |              |       |                   |       |
| Current  Liabilities:                                                                                            |       |              |       |                   |       |
| Line-of-credit                                                                                                   |       | $                 | —     |                   | $          | — |   |
| Accounts payable                                                                                                 |       | 110,876           |       | 98,724                 |       |
| Accrued expenses                                                                                                 |       | 8,277             |       | 7,693                  |       |
| Current  maturities of long-term debt                                                                            |       | 97                |       | 97                     |       |
| Total current  liabilities                                                                                       |       | 119,250           |       | 106,514                |       |
|                                                                                                             |       |              |       |                   |       |
| Deferred income  taxes                                                                                           |       | 582               |       | 474                    |       |
|                                                                                                             |       |              |       |                   |       |
| Long-term debt                                                                                                   |       | 97                |       | 195                    |       |
|                                                                                                             |       |              |       |                   |       |
| Other long-term  liabilities                                                                                     |       | 249               |       | —                 |       |
|                                                                                                             |       |              |       |                   |       |
| Commitments and  contingencies                                                                                   |       |              |       |                   |       |
|                                                                                                             |       |              |       |                   |       |
| **Stockholders’  Equity**                                                                                   |       |              |       |                   |       |
| Common stock  $0.01 par value, 40,000 authorized; 12,053 and 12,024 shares issued and outstanding,  respectively |       | 121               |       | 120                    |       |
| Additional paid  in capital                                                                                      |       | 121,794           |       | 120,988                |       |
| Retained  earnings                                                                                               |       | 53,142            |       | 38,903                 |       |
| Total  stockholders’ equity                                                                                 |       | 175,057           |       | 160,011                |       |
| Total  liabilities and stockholders’ equity                                                                 |       | $                 | 295,235    |                   | $          | 267,194 |   |

 

See Notes to CondensedConsolidated Financial Statements

 

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**MWI VETERINARY SUPPLY, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**Dollars in thousands(unaudited)**

 
| ** **                                                                         | ** ** | **Nine months ended June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2008**                                           | ** ** | **2007** | ** ** |
| **Cash  Flows From Operating Activities:**                                         |       |                                               |       |   |   |
| Net income                                                                         |       | $                                                  | 14,496     |   | $ | 12,552 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                               |       |   |   |
| Depreciation and  amortization                                                     |       | 2,259                                              |       | 1,782 |   |
| Amortization of  debt issuance costs                                               |       | 32                                                 |       | 52 |   |
| Stock-based  compensation                                                          |       | 77                                                 |       | 60 |   |
| Deferred income  taxes                                                             |       | (468                                               | )          | (457 | ) |
| Earnings of  equity method investees                                               |       | (129                                               | )          | (122 | ) |
| Loss on disposal  of property and equipment                                        |       | 1                                                  |       | 18 |   |
| Tax benefit of  common stock options                                               |       | (130                                               | )          | (1,104 | ) |
| Other                                                                              |       | —                                             |       | (10 | ) |
| Changes in  operating assets and liabilities (net of effects of acquisitions):     |       |                                               |       |   |   |
| Receivables                                                                        |       | 4,716                                              |       | 2,711 |   |
| Inventories                                                                        |       | (24,300                                            | )          | 369 |   |
| Prepaid expenses  and other current assets                                         |       | 408                                                |       | 763 |   |
| Accounts payable                                                                   |       | 12,223                                             |       | 942 |   |
| Accrued expenses                                                                   |       | 561                                                |       | (158 | ) |
| Net cash  provided by operating activities                                         |       | 9,746                                              |       | 17,398 |   |
|                                                                               |       |                                               |       |   |   |
| **Cash  Flows From Investing Activities:**                                         |       |                                               |       |   |   |
| Business  acquisitions                                                             |       | (4,548                                             | )          | (4,610 | ) |
| Purchases of  property and equipment                                               |       | (1,460                                             | )          | (2,118 | ) |
| Other                                                                              |       | 300                                                |       | (250 | ) |
| Net cash used in  investing activities                                             |       | (5,708                                             | )          | (6,978 | ) |
|                                                                               |       |                                               |       |   |   |
| **Cash  Flows From Financing Activities:**                                         |       |                                               |       |   |   |
| Issuance of  common stock, net of issuance costs                                   |       | —                                             |       | 11,252 |   |
| Proceeds from  stock options                                                       |       | 94                                                 |       | 296 |   |
| Tax benefit of  common stock options                                               |       | 130                                                |       | 1,104 |   |
| Payment on  long-term debt                                                         |       | (97                                                | )          | (97 | ) |
| Net payments on  line-of-credit                                                    |       | —                                             |       | (10,559 | ) |
| Debt issuance  costs                                                               |       | —                                             |       | (124 | ) |
| Net cash  provided by financing activities                                         |       | 127                                                |       | 1,872 |   |
|                                                                               |       |                                               |       |   |   |
| **Increase  in Cash and Cash Equivalents**                                         |       | 4,165                                              |       | 12,292 |   |
|                                                                               |       |                                               |       |   |   |
| Cash and Cash  Equivalents at Beginning of Period                                  |       | 8,599                                              |       | 37 |   |
|                                                                               |       |                                               |       |   |   |
| Cash and Cash  Equivalents at End of Period                                        |       | $                                                  | 12,764     |   | $ | 12,329 |   |

 

SeeNotes to Condensed Consolidated Financial Statements

 

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**MWI VETERINARY SUPPLY, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Dollars in thousands, except per share data(unaudited)**

 

## **NOTE 1 — GENERAL**

##  

**Basis of Presentation**

 

Theaccompanying unaudited condensed consolidated financial statements include theresults of operations, financial position and cash flows of MWI VeterinarySupply, Inc. and its wholly-owned subsidiaries (collectively referred toas “we,” “us,” and “our” throughout this Form 10-Q).  All material intercompany balances have beeneliminated.

 

In theopinion of our management, the accompanying unaudited condensed consolidatedfinancial statements include all adjustments necessary to present fairly, inall material respects, our results for the periods presented. These condensedconsolidated financial statements have been prepared by us pursuant to the rules andregulations of the Securities and Exchange Commission (“SEC”).  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States have beencondensed or omitted pursuant to such rules and regulations.  These condensed consolidated financialstatements should be read in conjunction with the consolidated financialstatements and accompanying notes included in our 2007 Annual Report on Form 10-Kfiled with the SEC on November 21, 2007. The results of operations for the three and nine months ended June 30,2008 are not necessarily indicative of results to be expected for the entirefiscal year.

 

Ourunaudited condensed consolidated balance sheet as of September 30, 2007has been derived from the audited consolidated balance sheet as of that date.

 

**Use of Estimates**

 

*The*accompanyingunaudited condensed consolidated financial statements have been prepared on theaccrual basis of accounting using accounting principles generally accepted inthe United States. In preparing financial information, we use certain estimatesand assumptions that may affect the reported amounts and disclosures. Some ofthese estimates require difficult, subjective and complex judgments aboutmatters that are inherently uncertain. As a result, actual results could differmaterially from these estimates. Estimates are used when accounting for salesreturns, allowance for doubtful accounts, customer incentives, vendor rebates,inventories, goodwill and intangible assets, income taxes, impairment oflong-lived assets, depreciation and amortization, employee benefits, unearnedincome and contingencies. The estimates of fair value of assets and liabilitiesand the disclosure of contingent assets and liabilities as of the balance sheetdate and reported amounts of revenue and expenses for the periods are based onassumptions that we believe to be reasonable.

 

**Revenue Recognition**

 

*We sell products we source fromvendors to our customers through either a “buy/sell” transaction or an agencyrelationship with our vendors. In a “buy/sell” transaction, we purchase or takeinventory 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 recognizerevenue from “buy/sell” transactions as product sales when the product isdelivered to the customer. We accept product returns from our customers. Weestimate returns based on historical experience and recognize these estimatedreturns as a reduction of product sales. Product returns have not beensignificant to our financial statements. We record revenues net of salestax.  In an agency relationship, wegenerally do not purchase and take inventory of products from vendors. Wereceive an order from a customer, then transmit the order to the vendor, whopicks, packs and ships the order to the customer. In some cases, the vendorinvoices and collects payment from the customer, while in other cases weinvoice and collect payment from the customer on behalf of the vendor. Wereceive a commission payment for soliciting the order from the customer and forproviding other customer service activities. Commissions are recognized whenthe services upon which the commissions are based are complete.*Grossbillings from agency contracts were $66,195 and $54,286 for the three monthsended June 30, 2008 and 2007, respectively, and generated commissionrevenue of $3,263 and $2,555, respectively. Gross billings from agency contracts were $180,935 and $143,874 for thenine months ended June 30, 2008 and 2007, respectively, and generatedcommission revenue of $9,781 and $7,129, respectively.

 

**Cost of Product Sales and Vendor Rebates**

 

*Costof product sales consist of our inventory product cost, including shippingcosts to and from our distribution centers. Vendor rebates are recorded basedon the terms of the contracts or programs with each vendor. We receivequarterly,*

 

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*trimester,semi-annual and annual performance-based rebates from third-party vendors basedupon attainment of certain sales and/or purchase goals. Sales rebates areclassified in the accompanying consolidated statements of income as a reductionto cost of product sales at the time the sales performance measures areachieved. Purchase rebates are measured against inventory purchases from thevendors and are classified as a reduction of inventory until the product issold. When the inventory is sold and purchase measures are achieved, purchaserebates are recognized as a reduction to cost of product sales.*

 

*Historically,actual results have not significantly deviated from those determined using theestimates described above. We expect that our estimates in the future willcontinue to be reasonable as our rebates are based on specific vendor programgoals and are principally recorded upon achievement of sales or purchaseperformance measures. Vendors may change rebate programs from year to year.*

 

**NOTE 2 —EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS**

 

On October 1, 2007,we adopted the provisions of Financial Accounting Standards Board (“FASB”)Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes*(“FIN 48”). See Note 9 – Income Taxes.

 

In September 2006,the SEC issued Staff Accounting Bulletin No. 108, *Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements* (“SAB 108”), which providesguidance on quantifying and evaluating the materiality of unrecordedmisstatements.  SAB 108 was effective forour fiscal year beginning October 1, 2007. The adoption of SAB 108 did not have a material effect on ourconsolidated financial statements.

 

In September 2006,the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157,*Fair Value Measurements* (“SFAS 157”).  SFAS 157 defines fair value, establishes aframework for measuring fair value according to generally accepted accountingprinciples and expands disclosure requirements regarding fair valuemeasurements.  This statement emphasizesthat fair value should be determined based on assumptions market participantswould use to price the asset or liability. SFAS 157 is effective for financial assets for our fiscal year beginningOctober 1, 2008.  FASB StaffPosition 157-2 (“FSP 157-2”) delayed the implementation of SFAS 157 fornonfinancial assets and liabilities, except for items that are recognized ordisclosed at fair value in the financial statements on a recurring basis (atleast annually). SFAS 157 is effective for nonfinancial assets and liabilitiesfor our fiscal year beginning October 1, 2009.  We are currently evaluating the impact, ifany, that SFAS 157 will have on our consolidated financial statements.

 

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (“SFAS 159”).  SFAS 159 permits entities to choose tomeasure certain financial assets and liabilities at fair value. The provisionsof SFAS 159 are effective for our fiscal year beginning October 1, 2008.We are currently evaluating the impact, if any, that SFAS 159 will have on ourconsolidated financial statements.

 

In December 2007, theFASB issued SFAS No. 141 (Revised), *Business Combinations*(“SFAS 141-R”).  SFAS 141-R retains thepurchase method of accounting for acquisitions, but requires a number ofchanges, including changes in the way assets and liabilities are recognized inthe purchase accounting. It changes the recognition of assets acquired andliabilities assumed arising from contingencies, requires the capitalization ofin-process research and development at fair value and requires the expensing ofacquisition-related costs as incurred, among other items. The statement willapply prospectively to any business combinations occurring in our fiscal yearbeginning October 1, 2009.

 

In December 2007,the FASB issued SFAS No. 160, *Noncontrolling Interestsin Consolidated Financial Statements, an amendment of ARB 51* (“SFAS160”).  This statement amends AccountingResearch Bulletin No. 51, *Consolidated FinancialStatements*, to establish accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary. Noncontrolling interests shall be reclassified to equity,consolidated net income shall be adjusted to include net income attributable tononcontrolling interests and consolidated comprehensive income shall beadjusted to include comprehensive income attributable to the noncontrollinginterests.  SFAS 160 is effective for ourfiscal year beginning October 1, 2009. We are currently evaluating the expected impact, if any, that SFAS 160will have on our consolidated financial statements.

 

In April 2008, theFASB issued FASB Staff Position FAS 142-3 (“FSP 142-3”), which amends the listof factors an entity should consider in determining the useful life ofrecognized intangible assets under FASB Statement 142.  FSP 142-3 is effective for our fiscal yearbeginning October 1, 2009.  We arecurrently evaluating the expected impact, if any, that FSP 142-3 will have onour consolidated financial statements.

 

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**NOTE 3**—**BUSINESS ACQUISITION**

 

In October 2007, we acquired substantially allof the assets of Tri V Services, Inc. (“Tri V”) for approximately $5,111,consisting of $4,606 in cash (including direct acquisition costs ofapproximately $106) and 12,692 shares of restricted common stock valued at thetime of the issuance at approximately $505. The purchase price was reduced by $8 as a result of a post closingworking capital adjustment that was completed during the nine months ended June 30,2008.  Based near Detroit,Michigan, Tri V was a distributor with an 11-year history of providing animalhealth products to approximately 850 veterinary practices, with a particularfocus on emergency clinics and ophthalmology specialists.

 

The following table summarizes the preliminaryestimated fair values of the assets acquired and liabilities assumed at thedate of the acquisition.  Thesepreliminary purchase price allocations are based on a combination of third-partyvaluations and internal analyses and may be adjusted during the allocationperiod as defined in SFAS No. 141, *Business Combinations*.

 
| Receivables                |   | $      | 750    |   |   |   |
|----------------------------|--------|--------|--------|--------|--------|--------|
| Inventories                |   | 237    |   |   |   |
| Intangibles                |   | 2,710  |   |   |   |
| Goodwill                   |   | 1,683  |   |   |   |
| Total assets  acquired     |   | 5,380  |   |   |   |
|                       |   |   |   |   |   |
| Accounts payable           |   | 277    |   |   |   |
| Total  liabilities assumed |   | 277    |   |   |   |
|                       |   |   |   |   |   |
| Net assets  acquired       |   | $      | 5,103  |   |   |   |

 

**NOTE 4**—**RECEIVABLES**

 
| ** **                       | ** ** | **June 30,** | ** ** | **September 30,** | ** ** |
|----------------------------------|------------|-------------------|------------|------------------------|------------|
| ** **                       | ** ** | **2008**          | ** ** | **2007**               | ** ** |
| Trade                            |       | $                 | 98,111     |                   | $          | 100,422 |   |
| Vendor rebates  and programs     |       | 10,378            |       | 11,725                 |       |
| Interest                         |       | —            |       | 61                     |       |
| Related party                    |       | 4                 |       | 342                    |       |
|                             |       | 108,493           |       | 112,550                |       |
| Allowance for  doubtful accounts |       | (789              | )          | (874                   | )          |
|                             |       | $                 | 107,704    |                   | $          | 111,676 |   |

 

Productsales resulting from transactions with a single customer were 11% and 10% oftotal product sales during the three and nine months ended June 30, 2008,respectively, and 10% of total product sales during the three and nine monthsended June 30, 2007. Approximately 14% and 10% of our trade receivablesresulted from transactions with this single customer as of June 30, 2008and September 30, 2007, respectively.

 

Productsales resulting from transactions with Feeders’ Advantage LLC (“Feeders’Advantage”), a related party, were 4% and 5% of total product sales during thethree and nine months ended June 30, 2008, respectively, and 4% and 5% oftotal product sales during the three and nine months ended June 30, 2007,respectively.

 

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**NOTE 5**—**PROPERTY AND EQUIPMENT**

 
| ** **                                 | ** ** | **June 30,** | ** ** | **September 30,** | ** ** |
|--------------------------------------------|------------|-------------------|------------|------------------------|------------|
| ** **                                 | ** ** | **2008**          | ** ** | **2007**               | ** ** |
| Land                                       |       | $                 | 20         |                   | $          | 20 |   |
| Leasehold  improvements                    |       | 3,073             |       | 2,257                  |       |
| Machinery,  furniture and equipment        |       | 11,872            |       | 10,744                 |       |
| Computer  equipment                        |       | 3,329             |       | 3,825                  |       |
| Construction  in progress                  |       | 249               |       | 1,586                  |       |
|                                       |       | 18,543            |       | 18,432                 |       |
| Accumulated  depreciation and amortization |       | (9,900            | )          | (9,226                 | )          |
|                                       |       | $                 | 8,643      |                   | $          | 9,206 |   |

 

Depreciationexpense for the three months ended June 30, 2008 and 2007 was $601 and$529, respectively, and $1,819 and $1,551 for the nine months ended June 30,2008 and 2007, respectively.

 

**NOTE 6**—**INTANGIBLES**

 
| ** **                | ** ** | **June 30,** | ** ** | **September 30,** |   |
|---------------------------|------------|-------------------|------------|------------------------|--------|
| ** **                | ** ** | **2008**          | ** ** | **2007**               |   |
| Amortizing:               |       |              |       |                   |   |
| Customer  lists           |       | $                 | 5,246      |                   | $      | 3,186 |   |
| Covenants  not to compete |       | 666               |       | 356                    |   |
| Other                     |       | 248               |       | 168                    |   |
|                      |       | 6,160             |       | 3,710                  |   |
| Accumulated  amortization |       | (1,138            | )          | (698                   | )      |
|                      |       | 5,022             |       | 3,012                  |   |
| Non-Amortizing:           |       |              |       |                   |   |
| Trade  names and patents  |       | 2,273             |       | 2,002                  |   |
|                      |       | $                 | 7,295      |                   | $      | 5,014 |   |

 

Amortizationexpense was $159 and $78 for the three months ended June 30, 2008 and2007, respectively, and $440 and $231 for the nine months ended June 30,2008 and 2007, respectively.  Intangibleassets are amortized over their expected useful life, which generally rangesfrom 5-20 years.  Estimated future annualamortization expense related to intangible assets as of June 30, 2008follows:

 
| ** **         | ** ** | **Amount** | ** ** |
|--------------------|------------|------------|------------|
| Remainder  of 2008 |       | $          | 160        |   |
| 2009               |       | 636        |       |
| 2010               |       | 609        |       |
| 2011               |       | 592        |       |
| 2012               |       | 566        |       |
| Thereafter         |       | 2,459      |       |
|               |       | $          | 5,022      |   |

 

The above projection of amortization expenseincludes preliminary estimates of intangible assets and lives associated withthe acquisition of substantially all of the assets of Tri V.  These amounts may be adjusted during the allocationperiod as defined in SFAS No. 141, *Business Combinations*.

 

**NOTE 7**—**CREDIT FACILITY AND LONG-TERM DEBT**

 

**Line-of-Credit**—On December 13, 2006,MWI Veterinary Supply Co., our wholly-owned subsidiary (“MWI Co.”) as borrower,entered into an unsecured credit agreement with us and Memorial Pet Care, Inc.(our wholly-owned subsidiary), as guarantors, and Bank of America, N.A. andWells Fargo Bank, N.A., (collectively, the “lenders”) for the provision of arevolving credit facility (the “facility”). The facility allows for borrowings in the aggregate of $70,000, with theright to request an increase in the commitment of the lenders to $100,000.  The facility has a maturity date of December 1,2011 and a variable interest rate equal to the Daily LIBOR Floating Rate or theLIBOR 1-month fixed rate (at our option) plus a margin 

 

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rangingfrom 0.7% to 1.25%.  The lenders alsoreceive an unused line fee and letter of credit fee equal to 0.125% of theunused amount of the facility. Our outstanding balance on the facility at June 30,2008 and September 30, 2007 was $0, and the interest rate for the facilitywas 4.30% as of June 30, 2008.

 

Thefacility contains certain financial covenants as well as other restrictivecovenants. The facility allows for the issuance of up to $10,000 in letters ofcredit. The letters of credit typically act as a guarantee of payment tocertain third-parties in accordance with specified terms and conditions. We hadten letters of credit totaling $840 at June 30, 2008 and eleven letters ofcredit totaling $940 at September 30, 2007. There were no outstandingborrowings on these letters of credit at either June 30, 2008 or September 30,2007.

 

**Long-Term Debt**—In January 2005, weissued a promissory note in the aggregate principal amount of $487 in partialconsideration for the purchase of substantially all the assets of VetpoDistributors, Inc. The note bears interest at the prime rate (5.0% at June 30,2008), payable quarterly. The principal of the note is payable in five equalannual installments, the first of which was due on January 1, 2006.  The balance on this promissory note was $194and $292 at June 30, 2008 and September 30, 2007, respectively.

 

**NOTE 8**—**STOCK OPTIONS**

 

Wehave two stock-based award plans, the 2002 Stock Option Plan and the Amendedand Restated 2005 Stock-Based Incentive Compensation Plan (the “2005 Plan”).  The 2005 Plan allows our Board of Directorsto grant common stock options, restricted stock, deferred units and otherstock-based awards to directors, executives and other key employees.  These plans have been developed to provideadditional incentives by allowing equity ownership in our Company and, as aresult, encouraging participants to contribute to our success.  At June 30, 2008, 429,767 options topurchase common stock were outstanding (316,951 options vested and exercisable)with a weighted average exercise price of $3.11 and expiring through September 2015.

 

Wegranted no common stock options during the three and nine months ended June 30,2008 and 2007.  During the three and ninemonths ended June 30, 2008, we issued 1,000 and 5,000 shares of restrictedstock under the 2005 Plan, respectively, which vest ratably over 5 years.  During the three and nine months ended June 30,2007, we issued 0 and 8,000 shares of restricted stock under the 2005 Plan,respectively, which vest ratably over 5 years. During the three months ended June 30, 2008 and 2007, we recognized$32 and $23 of compensation expense related to restricted stock grants,respectively.   During the nine monthsended June 30, 2008 and 2007, we recognized $94 and $65 of compensationexpense related to restricted stock grants, respectively.  At June 30, 2008, 1,541,190 shares wereavailable to be issued under our stock-based award plans.

 

**NOTE 9**—**INCOME TAXES**

 

In 2006, the FASB issued FIN 48, which clarifiesthe accounting for uncertainty in tax positions.  FIN 48 requires that management evaluate itstax positions for all open tax years to determine if the position is morelikely than not to be sustained upon examination by taxing authorities havingfull knowledge of all relevant information. We adopted the provisions of FIN 48 as of October 1, 2007, thebeginning of our 2008 fiscal year.  As aresult of the adoption of FIN 48, we reported a cumulative effect adjustment of$258 which reduced our retained earnings.

 

On October 1, 2007, we had $449 ofunrecognized tax benefits, of which $292 would impact our effective rate, ifrecognized. There were no changes to these amounts during the three or ninemonths ended June 30, 2008. Our policy for classifying interest andpenalties associated with unrecognized tax benefits is to include such items inincome tax expense.  As of the date ofadoption, gross interest and penalties associated with unrecognized taxbenefits were $122 and $38, respectively. The amount of interest and penalties recognized during the three andnine months ended June 30, 2008 was not material.

 

We file income tax returns in the U.S. federaljurisdiction and other various state and local jurisdictions.  A number of years may elapse before anuncertain tax position is audited and finally resolved.  While it is often difficult to predict thefinal outcome or the timing of resolution of any particular uncertain taxposition, we believe that our liability for uncertain tax benefits reflects themost probable outcome.  We adjust theliability, as well as the related interest, in light of changing facts andcircumstances.  Settlement of anyparticular position would usually require the use of cash.  The resolution of a matter would berecognized as an adjustment to our income tax expense and our effective taxrate in the period of resolution.    Wehave begun the process to enter into voluntary disclosure agreements withcertain state jurisdictions and it is reasonably possible that these will besettled within the next twelve months, which would decrease the liability foruncertain tax benefits by approximately $304 as a result of the payment ofadditional tax expected to be due.  Withfew exceptions, we are no longer subject to income tax examination for yearsbefore 2003 in the U.S. and significant state and local jurisdictions.

 

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Our effective tax rate for the three monthsended June 30, 2008 and 2007 was 38.8% and 37.0%, respectively.  Our effective tax rate for the nine monthsended June 30, 2008 and 2007 was 39.5% and 37.6%, respectively.  The change in our effective tax rate is dueto a change in our estimates related to state taxes as a result of the adoptionof FIN 48.

 

## **NOTE 10 — COMPUTATION OF EARNINGS PER SHARE***(In thousands, except per sharedata)*

 
| ** **                                                       | ** ** | **Three months ended June 30,** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                       | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| ** **                                                       | ** ** | **Basic**                                           | ** ** | **Diluted** | ** ** | **Basic** | ** ** | **Diluted** | ** ** |
| Net income                                                       |       | $                                                   | 5,418      |   | $ | 5,418 |   | $ | 4,260 |   | $ | 4,260 |   |
| Weighted average  common shares outstanding                      |       | 12,051                                              |       | 12,051 |   | 11,904 |   | 11,904 |   |
| Effect of  diluted securities Stock options and restricted stock |       |                                                |       | 247 |   |   |   | 264 |   |
| Weighted average  diluted shares outstanding                     |       |                                                |       | 12,298 |   |   |   | 12,168 |   |
| Earnings per  share                                              |       | $                                                   | 0.45       |   | $ | 0.44 |   | $ | 0.36 |   | $ | 0.35 |   |
| Anti-dilutive  shares excluded from calculation                  |       |                                                |       | — |   |   |   | — |   |

 
| ** **                                                       | ** ** | **Nine months ended June 30,** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                       | ** ** | **2008**                                           | ** ** | **2007** | ** ** |
| ** **                                                       | ** ** | **Basic**                                          | ** ** | **Diluted** | ** ** | **Basic** | ** ** | **Diluted** | ** ** |
| Net income                                                       |       | $                                                  | 14,496     |   | $ | 14,496 |   | $ | 12,552 |   | $ | 12,552 |   |
| Weighted average  common shares outstanding                      |       | 12,049                                             |       | 12,049 |   | 11,679 |   | 11,679 |   |
| Effect of  diluted securities Stock options and restricted stock |       |                                               |       | 248 |   |   |   | 288 |   |
| Weighted average  shares outstanding                             |       |                                               |       | 12,297 |   |   |   | 11,967 |   |
| Earnings per  share                                              |       | $                                                  | 1.20       |   | $ | 1.18 |   | $ | 1.07 |   | $ | 1.05 |   |
| Anti-dilutive  shares excluded from calculation                  |       |                                               |       | — |   |   |   | — |   |

 

**NOTE 11**—**RELATED PARTIES**

 

MWICo. holds a 50.0% membership interest in Feeders’ Advantage.  MWI Co. charged Feeders’ Advantage forcertain operating and administrative services in the amounts of $126 and $116for the three months ended June 30, 2008 and 2007, respectively, and $412and $402 for the nine months ended June 30, 2008 and 2007,respectively.  Sales of products toFeeders’ Advantage were $8,688 and $7,746 for the three months ended June 30,2008 and 2007, respectively, and $28,726 and $26,170 for the nine months ended June 30,2008 and 2007, respectively.

 

MWICo. provides Feeders’ Advantage with a line-of-credit to finance its day-to-dayoperations. This line-of-credit bears interest at the prime rate. The interestdue on the line-of-credit is calculated and charged to Feeders’ Advantage onthe last day of each month. Conversely, to the extent MWI Co. has a payablebalance due to Feeders’ Advantage, the payable balance accrues interest in favorof Feeders’ Advantage at the average federal funds rates in effect for thatmonth. As of June 30, 2008, MWI Co. had a payable balance with Feeders’Advantage of $814.  As of September 30,2007, MWI Co. had a receivable balance with Feeders’ Advantage of $336.

 

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**NOTE 12 – STATEMENTS OF CASHFLOWS – SUPPLEMENTAL AND NON-CASH DISCLOSURES**

 
| ** **                                                              | ** ** | **Nine months ended June 30,** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                              | ** ** | **2008**                                           | ** ** | **2007** | ** ** |
| *Supplemental  Disclosures*                                             |       |                                               |       |   |   |
| Cash paid for  interest                                                 |       | $                                                  | 161        |   | $ | 482 |   |
| Cash paid for  income taxes                                             |       | 9,382                                              |       | 7,057 |   |
| *Non-cash  Activities*                                                  |       |                                               |       |   |   |
| Issuance of  unregistered restricted common stock for asset acquisition |       | —                                             |       | 486 |   |
| Equipment  acquisitions financed with accounts payable                  |       | 50                                                 |       | 41 |   |
|                                                                         |            |                                                    |            |  |  |  |  |

 

**NOTE 13**—**COMMITMENTS AND CONTINGENCIES**

 

## From time to time, in the normal course ofbusiness, we may become a party to legal proceedings that may have an adverseeffect on our financial position, results of operations and cash flows.Management presently believes that the ultimate outcome of these proceedingswill not have a material adverse effect on our financial position, cash flowsor results of operations.  However,litigation is subject to inherent uncertainties, and unfavorable outcomes couldoccur. An unfavorable outcome could include the payment of monetary damages or,in cases for which injunctive relief is sought, an injunction prohibiting usfrom selling one or more products or taking certain other actions.  Were an unfavorable outcome to occur, ourbusiness or results of operations could be materially harmed.

##  

**NOTE 14**—**SUBSEQUENT EVENT**

 

## Effective July 1, 2008, MWI Co. acquiredsubstantially all of the assets of AAHA Services Corporation, operating as AAHAMARKETLink, for a cash purchase price of approximately $10,000.  We simultaneously entered into long-termsponsorship and licensing agreements with American Animal Hospital Association(“AAHA”).  The sponsorship agreementprovides for a $1,500 sponsorship fee to be paid by MWI Co. to AAHA in paymentsof $150 per year over the next ten years. In return, we will be recognized as the exclusive endorsed distributorof animal health products for AAHA.   Thelicensing agreement allows MWI Co. to use the registered mark of “AAHAMARKETLink” as well as a non-exclusive license to use the AAHA name and theAAHA membership and mailing lists.  MWICo. has agreed to pay an annual license fee and royalty payment of a minimum of$25 in exchange for these rights.  Basedin Lakewood, Colorado, AAHA MARKETLink has twelve years of history sellinganimal health products to veterinary practices that are members of AAHA.

 

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**REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

** **

To the Board of Directorsand Stockholders of

MWI Veterinary Supply, Inc.

Meridian, ID

 

We have reviewed theaccompanying condensed consolidated balance sheet of MWI Veterinary Supply, Inc.and subsidiaries (the “Corporation”) as of June 30, 2008, and the relatedcondensed consolidated statements of income for the three-month and nine-monthperiods ended June 30, 2008 and 2007, and of cash flows for the nine-monthperiods ended June 30, 2008 and 2007. These interim financial statements are the responsibility of theCorporation’s management.

 

We conducted our reviewin accordance with the standards of the Public Company Accounting OversightBoard (United States).  A review ofinterim financial information consists principally of applying analyticalprocedures and making inquiries of persons responsible for financial andaccounting matters.  It is substantiallyless in scope than an audit conducted in accordance with the standards of thePublic Company Accounting Oversight Board (United States), the objective ofwhich is the expression of an opinion regarding the financial statements takenas a whole.  Accordingly, we do notexpress such an opinion.

 

Based on our review, weare not aware of any material modifications that should be made to suchcondensed consolidated interim financial statements for them to be inconformity with accounting principles generally accepted in the United Statesof America.

 

We have previouslyaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the consolidated balance sheet of MWIVeterinary Supply, Inc. and subsidiaries as of September 30, 2007,and the related consolidated statements of income, stockholders’ equity, andcash flows for the year then ended (not presented herein); and in our reportdated November 20, 2007, we expressed an unqualified opinion on thoseconsolidated financial statements.  Inour opinion, the information set forth in the accompanying condensedconsolidated balance sheet as of September 30, 2007, is fairly stated, inall material respects, in relation to the consolidated balance sheet from whichit has been derived.

 

 

/s/ DELOITTE &TOUCHE LLP

Boise, ID

July 31, 2008

 

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**Item 2.    Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

*Alldollar amounts are presented in thousands, except for per share amounts.*

 

**Overview**

 

We are a leading distributor of animal healthproducts to veterinarians across the United States.  During the nine months ended June 30,2008, we distributed more than 11,000 products sourced from over 450 vendors toapproximately 16,000 veterinary practices nationwide from thirteenstrategically located distribution centers. Our thirteenth distribution center, located in Edwardsville, Kansas,began operations in October 2007 and has approximately 105,000 square feetof capacity.  Products we sell includepharmaceuticals, vaccines, parasiticides, diagnostics, capital equipment,supplies, veterinary pet food and nutritional products.  We market these products to veterinarians inboth the companion animal and production animal markets. Historically,approximately two-thirds of our total revenues have been generated from salesto the companion animal market and one-third from sales to the productionanimal market.  The increasing maturityof the production animal market results in lower margins on product salesrelative to the companion animal market. While the average order size for companion animal health products isoften smaller than production animal health products, companion animal healthproducts typically have higher margins. The animal health product industry continues to experience increasedpricing competition which also has had an impact on product margin.

 

*Sales*

 

We sell products that we source from our vendorsto our customers through either a “buy/sell” transaction or an agencyrelationship with our vendors. In a “buy/sell” transaction, we purchase or takeinventory of products from our vendors. When a customer places an order, wepick, pack and ship products, and then invoice the customer for the order. Werecord sales from “buy/sell” transactions, which account for the majority ofour business, as revenue in conformity with accounting principles generallyaccepted in the United States. In an agency relationship, we generally do notpurchase and take inventory of products from vendors. When we receive an orderfrom a customer, we transmit the order to the vendor, who picks, packs andships the order to our customer. In some cases, the vendor invoices andcollects payment from the customer, while in other cases we invoice and collectpayment from the customer on behalf of the vendor. We receive a commissionpayment for soliciting the order from the customer and for providing othercustomer service activities. The aggregate revenue we receive in agencytransactions constitutes the “commissions” line item on our statement of incomeand is recorded in conformity with accounting principles generally accepted inthe United States. The vendor determines the method we use to sell theproducts. Historically, vendors have occasionally switched between the “buy/sell”and agency models for particular products in response to market conditionsrelated to that particular product. A switch between models can impact ourrevenues, gross margin, gross margin percentage and operating income.

 

Our top three vendors, Fort Dodge, Pfizer andVedco, supplied products that accounted for approximately 43%, 44% and 45% ofour revenues for our fiscal years ended September 30, 2007, 2006 and 2005,respectively, and approximately 41% during the nine months ended June 30,2008.  Pfizer supplied products thataccounted for approximately 21%, 19% and 17% of our revenues for our fiscalyears ended September 30, 2007, 2006 and 2005, respectively, andapproximately 21% during the nine months ended June 30, 2008.

 

*Vendor Rebates*

 

We typically renegotiate vendor contractsannually.  These vendor contracts mayinclude terms defining rebates, commissions and exclusivity requirements.Vendor rebates based on sales are classified in our accompanying consolidatedstatements of income as a reduction to cost of product sales at the time thesales performance measures are achieved. Purchase rebates are measured against inventory purchases from the vendorsand are a reduction of inventory until the product is sold.  When the inventory is sold, purchase rebatesare recognized as a reduction to cost of product sales. Many of our vendors’rebate programs are based on a calendar year.

 

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*Tri V Services Inc. Acquisition*

 

In October 2007, we acquired substantially allof the assets of Tri V Services, Inc. (“Tri V”) for approximately $5,111,consisting of $4,606 in cash (including direct acquisition costs ofapproximately $106) and 12,692 shares of restricted common stock valued at thetime of the issuance at approximately $505. The purchase price was reduced by $8 as a result of a post closingworking capital adjustment that was completed during the nine months ended June 30,2008.  Based near Detroit,Michigan, Tri V was a distributor with an 11-year history of providing animalhealth products to approximately 850 veterinary practices, with a particularfocus on emergency clinics and ophthalmology specialists.

 

*Securos, Inc. andInternational Veterinary Distribution Network, Inc. Acquisition*

 

In June 2007, weacquired substantially all of the assets of Securos, Inc. and InternationalVeterinary Distribution Network, Inc. (collectively “Securos”) forapproximately $5,147, consisting of $4,661 in cash (including directacquisition costs of approximately $177) and 13,058 shares of restricted commonstock valued at the time of the issuance at approximately $486.  The purchase price was reduced by $50 as aresult of a post closing working capital adjustment that was completed duringthe nine months ended June 30, 2008. Additional contingentconsideration will be paid to the former shareholders of Securos if certaindefined financial targets are achieved in each year through 2011.  This is currently estimated to beapproximately $1,000. These additional payments will increase the purchase priceand goodwill at the time the financial targets are achieved.  Based in Charlton, Massachusetts,Securos is a provider of veterinary orthopedic products and sources privatelabel products in the categories of veterinary surgical consumables andequipment and handheld instruments. Securos also holds a majority interest in a company based in Germanywith operations in Europe.

 

For more information onour business, see our Annual Report on Form 10-K filed with the SEC on November 21,2007.

 

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**Results of Operations**

 

The following table summarizes our results ofoperations for the three and nine months ended June 30, 2008 and 2007, indollars and as a percentage of total revenues.

 
|                                                        |   | **Three Months Ended June 30,** |       | **Nine Months Ended June 30,** |       |
|-------------------------------------------------------------|--------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
|                                                        |   | **2008**                                            | ** ** | **%**                                              | ** ** | **2007** | ** ** | **%** | ** ** | **2008** | ** ** | **%** | ** ** | **2007** | ** ** | **%** |   |
| Revenues:                                                   |   |                                                |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Product sales                                               |   | $                                                   | 196,325    |                                               | 94.2       | % | $ | 173,548 |   | 94.4 | % | $ | 568,089 |   | 93.7 | % | $ | 486,646 |   | 93.6 | % |
| Product sales to  related party                             |   | 8,689                                               |       | 4.2                                                | %          | 7,750 |   | 4.2 | % | 28,728 |   | 4.7 | % | 26,176 |   | 5.0 | % |
| Commissions                                                 |   | 3,263                                               |       | 1.6                                                | %          | 2,555 |   | 1.4 | % | 9,781 |   | 1.6 | % | 7,129 |   | 1.4 | % |
| Total revenues                                              |   | 208,277                                             |       | 100.0                                              | %          | 183,853 |   | 100.0 | % | 606,598 |   | 100.0 | % | 519,951 |   | 100.0 | % |
|                                                        |   |                                                |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of product  sales                                      |   | 177,970                                             |       | 85.4                                               | %          | 158,391 |   | 86.1 | % | 518,238 |   | 85.4 | % | 444,318 |   | 85.5 | % |
| Gross profit                                                |   | 30,307                                              |       | 14.6                                               | %          | 25,462 |   | 13.9 | % | 88,360 |   | 14.6 | % | 75,633 |   | 14.5 | % |
|                                                        |   |                                                |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general  and administrative expenses               |   | 20,802                                              |       | 10.0                                               | %          | 18,302 |   | 10.0 | % | 62,515 |   | 10.3 | % | 53,802 |   | 10.3 | % |
| Depreciation and  amortization                              |   | 757                                                 |       | 0.4                                                | %          | 603 |   | 0.3 | % | 2,250 |   | 0.4 | % | 1,774 |   | 0.3 | % |
| Operating income                                            |   | 8,748                                               |       | 4.2                                                | %          | 6,557 |   | 3.6 | % | 23,595 |   | 3.9 | % | 20,057 |   | 3.9 | % |
|                                                        |   |                                                |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income  (expense):                                    |   |                                                |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                            |   | (53                                                 | )          | 0.0                                                | %          | (76 | ) | 0.0 | % | (218 | ) | 0.0 | % | (505 | ) | -0.1 | % |
| Earnings of  equity method investees                        |   | 37                                                  |       | 0.0                                                | %          | 35 |   | 0.0 | % | 129 |   | 0.0 | % | 122 |   | 0.0 | % |
| Other                                                       |   | 115                                                 |       | 0.0                                                | %          | 243 |   | 0.1 | % | 467 |   | 0.1 | % | 434 |   | 0.1 | % |
| Total other  income (expense), net                          |   | 99                                                  |       | 0.0                                                | %          | 202 |   | 0.1 | % | 378 |   | 0.1 | % | 51 |   | 0.0 | % |
|                                                        |   |                                                |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before  taxes                                        |   | 8,847                                               |       | 4.2                                                | %          | 6,759 |   | 3.7 | % | 23,973 |   | 4.0 | % | 20,108 |   | 3.9 | % |
| Income tax  expense                                         |   | (3,429                                              | )          | -1.6                                               | %          | (2,499 | ) | -1.4 | % | (9,477 | ) | -1.6 | % | (7,556 | ) | -1.5 | % |
| Net income                                                  |   | $                                                   | 5,418      |                                               | 2.6        | % | $ | 4,260 |   | 2.3 | % | $ | 14,496 |   | 2.4 | % | $ | 12,552 |   | 2.4 | % |
|                                                        |   |                                                |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings per  common share:                                 |   |                                                |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                       |   | $                                                   | 0.45       |                                               |       |   | $ | 0.36 |   |   |   | $ | 1.20 |   |   |   | $ | 1.07 |   |   |   |
| Diluted                                                     |   | $                                                   | 0.44       |                                               |       |   | $ | 0.35 |   |   |   | $ | 1.18 |   |   |   | $ | 1.05 |   |   |   |
|                                                        |   |                                                |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average  common shares outstanding (in thousands): |   |                                                |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                       |   | 12,051                                              |       |                                               |       | 11,904 |   |   |   | 12,049 |   |   |   | 11,679 |   |   |   |
| Diluted                                                     |   | 12,298                                              |       |                                               |       | 12,168 |   |   |   | 12,297 |   |   |   | 11,967 |   |   |   |
|                                                        |   |                                                |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Data:                                                 |   |                                                |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Product sales  from Internet as a percentage of sales       |   | 28                                                  | %          |                                               |       | 25 | % |   |   | 26 | % |   |   | 24 | % |   |   |
| Field sales  representatives (at end of period)             |   | 177                                                 |       |                                               |       | 165 |   |   |   | 177 |   |   |   | 165 |   |   |   |
| Telesales  representatives (at end of period)               |   | 134                                                 |       |                                               |       | 117 |   |   |   | 134 |   |   |   | 117 |   |   |   |
| Fill rate (1)                                               |   | 98                                                  | %          |                                               |       | 98 | % |   |   | 98 | % |   |   | 98 | % |   |   |

 

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(1)          Defined as,for any period, the dollar value of orders shipped the same day they wereplaced from any distribution center expressed as a percentage of the totaldollar value of the orders placed by customers in the period.

 

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**Three Months Ended June 30,2008 Compared to Three Months Ended June 30, 2007**

 

*Total Revenues*.  Total revenues increased 13.3% to $208,277for the three months ended June 30, 2008, from $183,853 for the threemonths ended June 30, 2007. Revenues attributable to new and existing customers representedapproximately 62% and 38%, respectively, of the growth in total revenues duringthe three months ended June 30, 2008. For the purpose of calculating growth rates of new and existing customerrevenue, we have defined a new customer as a customer that did not purchaseproduct from us in the corresponding fiscal quarter of the prior year, with theremaining customer base being considered existing customers.

 

*Gross Profit*.  Gross profit increased by 19.0% to $30,307for the three months ended June 30, 2008, from $25,462 for the threemonths ended June 30, 2007.  Grossprofit as a percentage of total revenues was 14.6% and 13.9% for the threemonths ended June 30, 2008 and 2007, respectively. Contributing to theincrease in gross profit was an increase in commissions on agency sales of27.7% to $3,263 for the quarter ended June 30, 2008, compared to $2,555for the same period in the prior fiscal year. Vendor rebates increased $1,713for the quarter ended June 30, 2008 compared to the quarter ended June 30,2007.  In our press release issued January 31,2008, we reported that rebates for the three months ended December 31,2007 were approximately $1,000 less than anticipated due to a difference with akey vendor over the amount of rebate dollars that were expected during thequarter under their program.  We earnedapproximately $350 of this amount in the three months ended June 30,2008.  Excluding this $350, our rebatesincreased $1,363 for the quarter ended June 30, 2008 primarily as a resultof the shift in timing of when certain rebates were earned. We earned certainrebates in the quarter ended June 30, 2008 that in the prior fiscal year werepartially earned during the quarter ended March 31, 2007.

 

*Selling, General andAdministrative (“SG&A”)*. SG&A expenses increased 13.7% to $20,802 for the three months ended June 30,2008, from $18,302 for the three months ended June 30, 2007.  SG&A expenses as a percentage of revenueswere 10.0% for each of the three months ended June 30, 2008 and 2007. Thedollar increase in SG&A expenses was primarily due to increasedcompensation costs, location and occupancy costs, and credit card and otherbank fees.  These costs increased as weadded 29 new field sales and telesales representatives, employees from theSecuros acquisition and the new distribution center in Edwardsville, Kansas.This distribution center also increased our capacity by approximately 105,000square feet.

 

*Depreciation andAmortization. *Depreciationand amortization expense increased 25.5% to $757 for the three months ended June 30,2008, from $603 for the three months ended June 30, 2007.  This increase was primarily the result ofcapital expenditures, primarily from new or expanded distribution centers.  Since June 30, 2007, we added to orexpanded our distribution centers in Atlanta, Georgia; Clear Lake, Wisconsin;and Nampa, Idaho, and established the distribution center in Edwardsville,Kansas.  We have also made improvementsto our information technology infrastructure, including the development of ournew e-commerce website.

 

*Other Income (Expense)*.  Other income (expense) decreased 51.0% to $99in income for the three months ended June 30, 2008 from $202 in income forthe three months ended June 30, 2007. This decrease in other income(expense) was due to a decline in interest revenue of $115 to $56 for the threemonths ended June 30, 2008, compared to $171 for the three months ended June 30,2007.  This decrease was a result of thelower average cash balance and lower interest rates during the quarter.

 

*Income Tax Expense*.  Our effective tax rate for the three monthsended June 30, 2008 and 2007 was 38.8% and 37.0%, respectively.   The change in the effective tax rate is aresult of an increase in our estimated state tax rate, which was revised as aresult of our FIN 48 analysis.  Weadopted FIN 48 effective October 1, 2007.

 

**Nine Months Ended June 30,2008 Compared to Nine Months Ended June 30, 2007**

 

*Total Revenues*.  Total revenues increased 16.7% to $606,598for the nine months ended June 30, 2008 from $519,951 for the nine monthsended June 30, 2007.  Revenuesattributable to new and existing customers represented approximately 55% and45%, respectively, of the growth in total revenues during the nine months endedJune 30, 2008.  For the purpose ofcalculating growth rates of new and existing customer revenue, we have defineda new customer as a customer that did not purchase product from us in thecorresponding fiscal period of the prior year, with the remaining customer basebeing considered existing customers.

 

*Gross Profit*.  Gross profit increased by 16.8% to $88,360for the nine months ended June 30, 2008, from $75,633 for the nine monthsended June 30, 2007.  Gross profitas a percentage of total revenues was 14.6% and 14.5% for the nine months endedJune 30, 2008 and 2007, respectively. Contributing to the gross profit was the increase in commissions on ouragency 

 

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sales of approximately 37.2% to $9,781 for thenine months ended June 30, 2008 from $7,129 for the same period in theprior fiscal year.  Actual rebate dollarsincreased by approximately $894 for the nine months ended June 30, 2008 ascompared to the same period in the prior fiscal year.

 

*Selling, General andAdministrative (“SG&A”)*. SG&A expenses increased 16.2% to $62,515 for the nine months ended June 30,2008, from $53,802 for the nine months ended June 30, 2007.  SG&A expenses as a percentage of revenueswere 10.3% for each of the nine months ended June 30, 2008 and 2007. Thedollar increase in SG&A expenses was primarily due to increasedcompensation costs and location and occupancy costs.  These costs increased as we added 29 newfield sales and telesales representatives, employees from the Securosacquisition and the new distribution center in Edwardsville, Kansas. Thisdistribution center also increased our capacity by approximately 105,000 squarefeet.

 

*Depreciation andAmortization. *Depreciationand amortization expense increased 26.8% to $2,250 for the nine months ended June 30,2008, from $1,774 for the nine months ended June 30, 2007.  This increase was primarily the result ofcapital expenditures, primarily from new or expanded distribution centers.  Since June 30, 2007, we added to orexpanded our distribution centers in Atlanta, Georgia; Clear Lake, Wisconsin;and Nampa, Idaho and established the distribution center in Edwardsville,Kansas.  We have also made improvementsto our information technology infrastructure, including the development of ournew e-commerce website.

 

*Other Income (Expense)*.  Other income (expense) increased 641.2% to$378 in income for the nine months ended June 30, 2008, from $51 in incomefor the nine months ended June 30, 2007. This increase in other income(expense) was due to a decline in interest expense of $287 to $218 for the ninemonths ended June 30, 2008, compared to $505 for the nine months ended June 30,2007.  This decrease was a result of thelower average loan balance and lower interest rate on the facility.

 

*Income Tax Expense*.  Our effective tax rate for the nine monthsended June 30, 2008 and 2007 was 39.5% and 37.6%, respectively.   The change in the effective tax rate is aresult of an increase in our estimated state tax rate, which was revised as aresult of our FIN 48 analysis.  Weadopted FIN 48 effective October 1, 2007.

 

**Critical Accounting Policies**

 

The preparation of financial statements requiresmanagement to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses and related disclosure of contingentassets and liabilities.  The accompanyingcondensed consolidated financial statements are prepared using the samecritical accounting policies discussed in our Annual Report on Form 10-Kfiled with the SEC on November 21, 2007.

 

**Liquidity and Capital Resources**

 

Our principal sources of liquidity are cash flowgenerated from operations and borrowings on the revolving credit facility underthe credit agreement. We use capital primarily to fund day-to-day operationsand to maintain sufficient inventory levels in order to promptly fulfillcustomer orders and to expand our operations and sales.  We believe our capital resources will besufficient to meet our anticipated cash needs for at least the next twelvemonths.

 

MWICo. has a line-of-credit under a revolving credit facility with twolenders.  The facility allows forborrowings in the aggregate of $70,000, with the right to request an increasein the commitment of the lenders to $100,000. The facility has a maturity date of December 1, 2011 and a variableinterest rate equal to the Daily LIBOR Floating Rate or the LIBOR 1-month fixedrate (at our option) plus a margin ranging from 0.7% to 1.25%.  The lenders also receive an unused line feeand letter of credit fee equal to 0.125% of the unused amount of the facility.Our outstanding balance on the facility at June 30, 2008 and September 30,2007 was $0 and the interest rate on the facility was 4.3% as of thisdate.  The line-of-credit containscertain financial covenants as well as other restrictive covenants.

 

Thefacility allows for the issuance of up to $10,000 in letters of credit. Theletters of credit typically act as guarantees of payment to certain thirdparties in accordance with specified terms and conditions. We had ten lettersof credit totaling $840 at June 30, 2008 and eleven letters of credittotaling $940 at September 30, 2007. There were no outstanding borrowingson these letters of credit at either June 30, 2008 or September 30,2007.

 

*Operating Activities*.  For the nine months ended June 30, 2008,cash provided by operations was $9,746 and was primarily attributable to netincome of $14,496, a decrease of receivables of $4,716 due to collection ofreceivables that had extended payment terms, an increase in inventories of$24,300 due to inventory stocking of the Kansas City distribution center and 

 

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opportunisticinventory purchases, and an increase in accounts payable of $12,223 due to theabove mentioned inventory purchases.

 

Forthe nine months ended June 30, 2007, cash provided by operations was$17,398 and was primarily attributable to net income of $12,552 and a reductionin receivables of $2,711 due to positive collections for the period with slowerrevenue growth in the quarter ended June 30, 2007.  The slow down in revenue growth also gaverise to improvements in other key areas on the balance sheet, includinginventories.

 

*Investing Activities.*  For the nine months ended June 30, 2008,net cash used in investing activities was $5,708 and was primarily due to theacquisition of Tri V for $4,598 coupled with capital expenditures of $1,460,primarily related to distribution center infrastructure and technology.

 

Forthe nine months ended June 30, 2007, net cash used in investing activitieswas $6,978 and was primarily due to the acquisition of Securos for $4,610coupled with capital expenditures of $2,118. We had approximately $1,600 in expenditures related to our distributioncenters and approximately $450 in expenditures related to informationtechnology projects.

 

*Financing Activities.*  Forthe nine months ended June 30, 2008, net cash provided by financingactivities was $127, which was due to the proceeds and tax benefit of stockoption exercises of $224 offset by a payment on our long-term debt of $97. Ourrevolving credit facility is used to finance our working capital requirementsand fluctuates based on timing of payables and collection of receivables.

 

For the nine months endedJune 30, 2007, net cash provided by financing activities was $1,872.  In April 2007, we issued 348,974 sharesof common stock resulting in cash of $11,252. This cash was used to pay down indebtedness on our revolving creditfacility.

 

**Contractual Obligations andGuarantees**

 

For information on ourcontractual obligations and guarantees, see our Annual Report on Form 10-Kfiled on November 21, 2007 with the SEC. During the nine months ended June 30,2008 there were no material changes to the contractual obligations reported inour Form 10-K on November 21, 2007, except as follows:

 

·              Uponadoption of FIN 48 on October 1, 2007, the total liability forunrecognized tax benefits was $449. During the nine months ended June 30, 2008, this amount did notchange significantly.

 

**Item 3. Quantitative and Qualitative Disclosures About Market Risk**

 

The Company is exposed to market risks primarilyfrom changes in interest rates in the United States. The Company does not engagein financial transactions for trading or speculative purposes.

 

The interest payable on our revolving creditfacility is based on variable interest rates and is therefore affected bychanges in market interest rates. The outstanding balance on the facility as ofJune 30, 2008 was $0.  Therefore,there was no exposure to market risks as of this date.  If there had been a balance on the facilityof $70,000, which is the maximum available amount on the facility, a change of10% from the interest rate as of June 30, 2008, which was 4.3% (DailyLIBOR Floating Rate plus .70%), would have changed interest by $301.

 

**Item4.  Controls and Procedures**

 

Management of the Company, including the ChiefExecutive Officer and the Chief Financial Officer of the Company, has evaluatedthe effectiveness of the Company’s disclosure controls and procedures (asdefined in Rule 13a-15(e) of the Securities Exchange Act of 1934) asof June 30, 2008.  Based on thisevaluation, the Chief Executive Officer and Chief Financial Officer concludedthat the Company’s disclosure controls and procedures, including theaccumulation and communication of disclosures to the Company’s Chief ExecutiveOfficer and Chief Financial Officer as appropriate to allow timely decisionsregarding required disclosure, are effective to provide reasonable assurancethat information required to be disclosed by the Company in the reports that itfiles or submits under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified by the SEC’srules and forms.

 

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Therewere no changes in the Company’s internal control over financial reporting thatoccurred during the Company’s most recently completed fiscal quarter that havematerially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

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**PART II. OTHER INFORMATION**

 

**CautionaryStatement for Purposes of “Safe Harbor Provisions” of the Private SecuritiesLitigation Reform Act of 1995**

*Thisquarterly report on Form 10-Q contains forward-looking statements withinthe meaning of the federal securities laws. Statements that are not historicalfacts, including statements about our beliefs and expectations, areforward-looking statements. Forward-looking statements include statementspreceded 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, statementsregarding our expected business outlook, anticipated financial and operatingresults, our business strategy and means to implement our strategy, ourobjectives, the amount and timing of capital expenditures, the amount andtiming of interest expense, the likelihood of our success in expanding ourbusiness, financing plans, budgets, working capital needs and sources ofliquidity.*

 

*Forward-looking statements areonly predictions and are not guarantees of our performance. These statementsare based on our management’s beliefs and assumptions, which in turn are basedon currently available information. Important assumptions relating to theforward-looking statements include, among others, assumptions regarding demandfor our products, the expansion of product offerings geographically or throughnew applications, the timing and cost of planned capital expenditures,competitive conditions and general economic conditions. These assumptions couldprove inaccurate. Forward-looking statements also involve known and unknownrisks and uncertainties, which could cause actual results that differmaterially from those contained in any forward-looking statement. Many of thesefactors are beyond our ability to control or predict. Such factors include, butare not limited to, the following:*

 

·                 *vendor rebates based upon attaining certain growth goals;*

 

·                 *changes in or availability of vendor rebate programs;*

 

·                 *changes in the way vendors introduce products to market;*

 

·                 *exclusivity requirements with certain vendors that may prohibit us fromdistributing competing products manufactured by other vendors;*

 

·                 *the impact of general economic trends on our business;*

 

·                 *the recall of a significant product by one of our vendors;*

 

·                 *extended shortage or backlog of a significant product by one of ourvendors;*

 

·                 *seasonality;*

 

·                 *the timing and effectiveness of marketing programs offered by ourvendors;*

 

·                 *the timing of the introduction of new products and services by ourvendors; and*

 

·                 *competition.*

 

*Except as required byapplicable law, including the securities laws of the United States and the rules andregulations of the SEC, we are under no obligation to publicly update or reviseany forward-looking statements, whether as a result of any new information,future events or otherwise. You should not place undue reliance on ourforward-looking statements. Although we believe that the expectations reflectedin the forward-looking statements are reasonable, we cannot guarantee futureresults or performance.*

 

*Investors should also be aware that while we do,from time to time, communicate with securities analysts, it is against ourpolicy to disclose any material non-public information or other confidentialcommercial information. Accordingly, stockholders should not assume that weagree with any statement or report issued by any analyst irrespective of thecontent of the statement or report. Furthermore, we have a policy againstissuing or confirming financial forecasts or projections issued by others.Thus, to the extent that reports issued by securities analysts contain anyprojections, forecasts or opinions, such reports are not the responsibility ofMWI Veterinary Supply, Inc.*

 

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## **Item 1. Legal Proceedings**

##  

## From time to time, in the normal course ofbusiness, we may become a party to legal proceedings that may have an adverseeffect on our financial position, results of operations and cash flows.Management presently believes that the ultimate outcome of these proceedingswill not have a material adverse effect on our financial position, cash flowsor overall trends in results of operations. However, litigation is subject to inherent uncertainties, andunfavorable outcomes could occur. An unfavorable outcome could include thepayment of monetary damages or, in cases for which injunctive relief is sought,an injunction prohibiting us from selling one or more products or takingcertain other actions.  Were anunfavorable outcome to occur, our business or results of operations could bematerially harmed.

##  

## **Item 1A. Risk Factors**

##  

## Other than with respect to the risk factorset forth below, there have been no material changes from the risk factorsdisclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-Kfor the fiscal year ended September 30, 2007.

##  

## **Ourbusiness, financial condition and results of operations depend upon maintainingour relationships with vendors.**

##  

## Duringthe nine months ended June 30, 2008, we distributed more than 11,000products sourced from more than 450 vendors to over 16,000 veterinarypractices. We currently do not manufacture the vast majority of our productsand are dependent on these vendors for our supply of products. Our top threevendors, Fort Dodge, Pfizer and Vedco, supplied products that accounted forapproximately 43%, 44% and 45% of our revenues for our fiscal years ended September 30,2007, 2006 and 2005, respectively, and approximately 41% during the nine monthsended June 30, 2008.  Our tenlargest vendors supplied products that accounted for approximately 70%, 70% and73% of our revenues for the fiscal years ended September 30, 2007, 2006and 2005, respectively, and approximately 68% during the nine months ended June 30,2008.  Pfizer supplied products thataccounted for approximately 21%, 19% and 17% of our revenues for our fiscalyears ended September 30, 2007, 2006 and 2005, respectively, andapproximately 21% of our revenues during the nine months ended June 30,2008.

##  

## Ourability to sustain our gross profits has been, and will continue to be,dependent in part upon our ability to obtain favorable terms and access to newand existing products from our vendors. These terms may be subject to changesfrom time to time by vendors, such as changing from a “buy/sell” to an agencyrelationship, or from an agency to a “buy/sell” relationship. In a “buy/sell”transaction, we purchase or take inventory of products from our vendors. Underan agency relationship, when we receive orders for products from a customer, wetransmit the order to the vendor who then picks, packs and ships the products.Any changes from “buy/sell” to agency or from agency to “buy/sell” couldadversely affect our revenues and operating income. The loss of one or more ofour large vendors, a material reduction in their supply of products to us ormaterial changes in the terms we obtain from them could have a material adverseeffect on our business, financial condition and results of operations.

##  

## Someof our current and future vendors may decide to compete with us in the futureby pursuing or increasing their efforts in direct marketing and sales of theirproducts. These vendors could sell their products at lower prices and maintaina higher gross margin on their product sales than we can. In this event,veterinarians or animal owners may elect to purchase animal health productsdirectly from these vendors. Increased competition from any vendor of animalhealth products could significantly reduce our market share and adverselyimpact our financial results.

##  

## **Item 2. Unregistered Sales of Equity Securities and Use of Proceeds**

##  

None.

 

## **Item 3. Defaults Upon Senior Securities**

##  

None.

 

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## **Item 4. Submission of Matters to a Vote of Security Holders**

##  

## None.

##  

## **Item 5. Other Information**

##  

None.

 

**Item 6.  Exhibits**

 
| 10.1   |   | First Amendment to 2007  –2008 Merial Independent Sales Agent Agreement effective as of  January 1, 2008 by and between Merial Limited and MWI Veterinary Supply  Co., incorporated herein by reference to Exhibit 10.1 of the Company’s  Form 10-Q filed on May 1, 2008 |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                   |
| 10.2   |   | Livestock Products  Agreement between MWI Veterinary Supply, Inc. and Pfizer, Inc.  effective as of December 22, 2007, incorporated herein by reference to  Exhibit 10.2 of the Company’s Form 10-Q filed on May 1, 2008                                            |
|   |   |                                                                                                                                                                                                                                                                                                   |
| 10.3   |   | Amendment No. 1 to  the MWI Veterinary Supply, Inc. 2008 Employee Stock Purchase Plan                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                   |
| 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                                                                                                                                                                     |

 

SIGNATURE

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
|                           |     | MWI  Veterinary Supply, Inc.         |
|---------------------------|----------|-------------------------------------------|
|                      |     | (Registrant)                              |
|                      |     |                                      |
|                      |     |                                      |
| Date: July 31,  2008 |     | /s/ Mary Patricia B.  Thompson            |
|                      |     | Mary Patricia B.  Thompson                |
| * *                  | * * | *Senior Vice President of  Finance and*   |
| * *                  | * * | *Administration, Chief Financial Officer* |

 

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