**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

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**FORM 10-Q**

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**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

**Forthe quarter ended March 31, 2007**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe transition periodfrom                      to**

**CommissionFile Number:  000-51468**

**MWI VETERINARY SUPPLY, INC.**

(Exact name of Registrantas specified in its Charter)

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| **Delaware**                              |   | **02-0620757**                           |
|-------------------------------------------|--------|------------------------------------------|
| (State or other  jurisdiction)            |   | (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’stelephone number, including area code)

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Indicate by check mark whether the Registrant(1) has filed all reports required to be filed by Section 13 or15(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 mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. 
| Large Accelerated Filer    o |   | Accelerated  Filer  x |   | Non-Accelerated  Filer  o |
|----------------------------------------|--------|---------------------------------|--------|-------------------------------------|

 

Indicate by check mark whether the Registrant is ashell company (as defined in Rule 12b-2 of the Act). Yes o   No x

The number of shares of the Registrant’s common stock,$0.01 par value, outstanding as of April 23, 2007 was 11,996,660.

 

 

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**MWIVETERINARY SUPPLY, INC.**

**INDEX**

 
| **PART I.**  | ** ** | **FINANCIAL INFORMATION**                                                                                | ** ** | ** ** |
|--------------|------------|----------------------------------------------------------------------------------------------------------|------------|------------|
|         |       |                                                                                                     |       |       |
| **Item 1.**  | ** ** | **Financial Statements  (Unaudited)**                                                                    | ** ** | ** ** |
|         |       | Condensed  Consolidated Statements of Income for the three and six months ended March  31, 2007 and 2006 |       |       |
|         |       |                                                                                                     |       |       |
|         |       | Condensed  Consolidated Balance Sheets as of March 31, 2007 and September 30, 2006                       |       |       |
|         |       |                                                                                                     |       |       |
|         |       | Condensed  Consolidated Statements of Cash Flows for the six months ended March 31, 2007  and 2006       |       |       |
|         |       |                                                                                                     |       |       |
|         |       | Notes to  Condensed Consolidated Financial Statements                                                    |       |       |
|         |       |                                                                                                     |       |       |
|         |       | Report of  Independent Registered Public Accounting Firm                                                 |       |       |
|         |       |                                                                                                     |       |       |
| **Item 2.**  | ** ** | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**          |       |       |
|         |       |                                                                                                     |       |       |
| **Item 3.**  | ** ** | **Quantitative  and Qualitative Disclosures About Market Risk**                                          |       |       |
|         |       |                                                                                                     |       |       |
| **Item 4.**  | ** ** | **Controls and  Procedures**                                                                             |       |       |
|         |       |                                                                                                     |       |       |
| **PART II.** | ** ** | **OTHER INFORMATION**                                                                                    | ** ** | ** ** |
|         |       |                                                                                                     |       |       |
|         | ** ** | **Cautionary  Statement**                                                                                |       |       |
|         |       |                                                                                                     |       |       |
| **Item 1.**  | ** ** | **Legal Proceedings**                                                                                    |       |       |
| ** **   | ** ** | ** **                                                                                               | ** ** | ** ** |
| **Item 1A.** | ** ** | **Risk Factors**                                                                                         |       |       |
| ** **   | ** ** | ** **                                                                                               | ** ** | ** ** |
| **Item 2.**  | ** ** | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                         |       |       |
| ** **   | ** ** | ** **                                                                                               | ** ** | ** ** |
| **Item 3.**  | ** ** | **Defaults Upon  Senior Securities**                                                                     |       |       |
| ** **   | ** ** | ** **                                                                                               | ** ** | ** ** |
| **Item 4.**  | ** ** | **Submission of  Matters to a Vote of Security Holders**                                                 |       |       |
| ** **   | ** ** | ** **                                                                                               | ** ** | ** ** |
| **Item 5.**  | ** ** | **Other Information**                                                                                    |       |       |
| ** **   | ** ** | ** **                                                                                               | ** ** | ** ** |
| **Item  6.** | ** ** | **Exhibits**                                                                                             |       |       |

 

2

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**PARTI.  FINANCIAL INFORMATION**

**Item 1.    Financial Statements**

**MWI VETERINARY SUPPLY, INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOMEDollars and shares in thousands, except per share data(unaudited)**
| ** **                                    | ** ** | **Three months ended March 31,** | ** ** | **Six months ended March 31,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                             | ** ** | **2006**                                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues:                                     |       |                                                 |       |                                               |       |   |   |   |   |
| Product sales                                 |       | $                                                    | 163,311    |                                               | $          | 133,255 |   | $ | 313,098 |   | $ | 260,303 |   |
| Product sales to  related party               |       | 8,867                                                |       | 8,001                                              |       | 18,426 |   | 17,356 |   |
| Commissions                                   |       | 2,875                                                |       | 2,093                                              |       | 4,574 |   | 3,506 |   |
| Total revenues                                |       | 175,053                                              |       | 143,349                                            |       | 336,098 |   | 281,165 |   |
|                                          |       |                                                 |       |                                               |       |   |   |   |   |
| Cost of product sales                         |       | 150,631                                              |       | 123,421                                            |       | 285,927 |   | 238,485 |   |
| Gross profit                                  |       | 24,422                                               |       | 19,928                                             |       | 50,171 |   | 42,680 |   |
|                                          |       |                                                 |       |                                               |       |   |   |   |   |
| Selling, general and  administrative expenses |       | 17,806                                               |       | 15,099                                             |       | 35,500 |   | 29,652 |   |
| Depreciation and  amortization                |       | 602                                                  |       | 473                                                |       | 1,171 |   | 915 |   |
| Operating income                              |       | 6,014                                                |       | 4,356                                              |       | 13,500 |   | 12,113 |   |
|                                          |       |                                                 |       |                                               |       |   |   |   |   |
| Other income (expense):                       |       |                                                 |       |                                               |       |   |   |   |   |
| Interest expense                              |       | (160                                                 | )          | (578                                               | )          | (429 | ) | (1,133 | ) |
| Earnings of  equity method investees          |       | 42                                                   |       | 37                                                 |       | 87 |   | 82 |   |
| Other                                         |       | 101                                                  |       | 77                                                 |       | 191 |   | 167 |   |
| Total other expense,  net                     |       | (17                                                  | )          | (464                                               | )          | (151 | ) | (884 | ) |
|                                          |       |                                                 |       |                                               |       |   |   |   |   |
| Income before taxes                           |       | 5,997                                                |       | 3,892                                              |       | 13,349 |   | 11,229 |   |
| Income tax expense                            |       | (2,309                                               | )          | (1,537                                             | )          | (5,057 | ) | (4,435 | ) |
| Net income                                    |       | $                                                    | 3,688      |                                               | $          | 2,355 |   | $ | 8,292 |   | $ | 6,794 |   |
|                                          |       |                                                 |       |                                               |       |   |   |   |   |
| Earnings per share:                           |       |                                                 |       |                                               |       |   |   |   |   |
| Basic                                         |       | $                                                    | 0.32       |                                               | $          | 0.22 |   | $ | 0.72 |   | $ | 0.64 |   |
| Diluted                                       |       | $                                                    | 0.31       |                                               | $          | 0.22 |   | $ | 0.70 |   | $ | 0.62 |   |
|                                          |       |                                                 |       |                                               |       |   |   |   |   |
| Weighted average common  shares outstanding:  |       |                                                 |       |                                               |       |   |   |   |   |
| Basic                                         |       | 11,566                                               |       | 10,586                                             |       | 11,562 |   | 10,582 |   |
| Diluted                                       |       | 11,863                                               |       | 10,884                                             |       | 11,862 |   | 10,873 |   |
|                                          |       |                                                 |       |                                               |       |   |   |   |   |

 

See Notes toCondensed Consolidated Financial Statements

 

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**MWI VETERINARY SUPPLY, INC.CONDENSED CONSOLIDATED BALANCE SHEETSDollars and shares in thousands, except per share data(unaudited)**
| ** **                                                                                                       | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                                                                                       | ** ** | **2007**           | ** ** | **2006**               | ** ** |
| **Assets**                                                                                                       | ** ** | ** **         | ** ** | ** **             | ** ** |
| ** **                                                                                                       | ** ** | ** **         | ** ** | ** **             | ** ** |
| Current Assets:                                                                                                  |       |               |       |                   |       |
| Cash                                                                                                             |       | $                  | 37         |                   | $          | 37 |   |
| Receivables, net                                                                                                 |       | 104,227            |       | 99,518                 |       |
| Inventories                                                                                                      |       | 80,557             |       | 85,083                 |       |
| Prepaid expenses  and other current assets                                                                       |       | 2,039              |       | 2,651                  |       |
| Deferred income  taxes                                                                                           |       | 819                |       | 502                    |       |
| Total current  assets                                                                                            |       | 187,679            |       | 187,791                |       |
|                                                                                                             |       |               |       |                   |       |
| Property and equipment,  net                                                                                     |       | 7,685              |       | 7,053                  |       |
| Goodwill                                                                                                         |       | 31,562             |       | 31,562                 |       |
| Intangibles, net                                                                                                 |       | 2,238              |       | 2,381                  |       |
| Other assets, net                                                                                                |       | 1,911              |       | 1,772                  |       |
| Total assets                                                                                                     |       | $                  | 231,075    |                   | $          | 230,559 |   |
|                                                                                                             |       |               |       |                   |       |
| **Liabilities And Stockholders’  Equity**                                                                   | ** ** | ** **         | ** ** | ** **             | ** ** |
| ** **                                                                                                       | ** ** | ** **         | ** ** | ** **             | ** ** |
| Current Liabilities:                                                                                             |       |               |       |                   |       |
| Line-of-credit                                                                                                   |       | $                  | 6,572      |                   | $          | 10,559 |   |
| Accounts payable                                                                                                 |       | 78,859             |       | 82,561                 |       |
| Accrued expenses                                                                                                 |       | 6,681              |       | 6,919                  |       |
| Current  maturities of long-term debt                                                                            |       | 97                 |       | 97                     |       |
| Total current  liabilities                                                                                       |       | 92,209             |       | 100,136                |       |
|                                                                                                             |       |               |       |                   |       |
| Deferred income taxes                                                                                            |       | 453                |       | 505                    |       |
|                                                                                                             |       |               |       |                   |       |
| Long-term debt                                                                                                   |       | 195                |       | 292                    |       |
|                                                                                                             |       |               |       |                   |       |
| Commitments and  contingencies                                                                                   |       |               |       |                   |       |
|                                                                                                             |       |               |       |                   |       |
| **Stockholders’ Equity**                                                                                    | ** ** | ** **         | ** ** | ** **             | ** ** |
| Common stock  $0.01 par value, 40,000 authorized; 11,569 and 11,549 shares issued and  outstanding, respectively |       | 116                |       | 115                    |       |
| Additional paid  in capital                                                                                      |       | 107,782            |       | 107,483                |       |
| Retained  earnings                                                                                               |       | 30,320             |       | 22,028                 |       |
| Total  stockholders’ equity                                                                                 |       | 138,218            |       | 129,626                |       |
| Total liabilities and stockholders’ equity                                                                  |       | $                  | 231,075    |                   | $          | 230,559 |   |

 

See Notes to CondensedConsolidated Financial Statements

 

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**MWI VETERINARY SUPPLY, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSDollars in thousands(unaudited)**
| ** **                                                                         | ** ** | **Six months ended March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2007**                                           | ** ** | **2006** | ** ** |
| **Cash Flows From Operating  Activities:**                                         | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $                                                  | 8,292      |   | $ | 6,794 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                               |       |   |   |
| Depreciation and  amortization                                                     |       | 1,175                                              |       | 918 |   |
| Amortization of  debt issuance costs                                               |       | 42                                                 |       | 70 |   |
| Stock-based  compensation expense                                                  |       | 38                                                 |       | — |   |
| Deferred income  taxes                                                             |       | (369                                               | )          | (148 | ) |
| Earnings of  equity method investees                                               |       | (87                                                | )          | (82 | ) |
| Loss (gain) on  disposal of property and equipment                                 |       | 18                                                 |       | (62 | ) |
| Tax benefit of  common stock options                                               |       | (89                                                | )          | — |   |
| Other                                                                              |       | (9                                                 | )          | (9 | ) |
| Changes in  operating assets and liabilities:                                      |       |                                               |       |   |   |
| Receivables                                                                        |       | (4,708                                             | )          | (5,192 | ) |
| Inventories                                                                        |       | 4,525                                              |       | 4,959 |   |
| Prepaid expenses  and other current assets                                         |       | 586                                                |       | 214 |   |
| Accounts payable                                                                   |       | (3,622                                             | )          | (5,731 | ) |
| Accrued expenses                                                                   |       | (148                                               | )          | 272 |   |
| Net cash  provided by operating activities                                         |       | 5,644                                              |       | 2,003 |   |
|                                                                               |       |                                               |       |   |   |
| **Cash Flows From Investing  Activities:**                                         | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Purchases of  property and equipment                                               |       | (1,752                                             | )          | (2,238 | ) |
| Deposit for  property and equipment acquisition                                    |       | —                                             |       | (1,414 | ) |
| Sale of property  and equipment                                                    |       | —                                             |       | 1,455 |   |
| Other                                                                              |       | 54                                                 |       | 6 |   |
| Net cash used in  investing activities                                             |       | (1,698                                             | )          | (2,191 | ) |
|                                                                               |       |                                               |       |   |   |
| **Cash Flows From Financing Activities:**                                          | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Proceeds from  stock options                                                       |       | 173                                                |       | 271 |   |
| Tax benefit of  common stock options                                               |       | 89                                                 |       | 53 |   |
| Payment on  long-term debt                                                         |       | (97                                                | )          | (97 | ) |
| Net payments on  line-of-credit                                                    |       | (3,987                                             | )          | (36 | ) |
| Debt issuance  costs                                                               |       | (124                                               | )          | — |   |
| Net cash  provided by/(used in) financing activities                               |       | (3,946                                             | )          | 191 |   |
|                                                                               |       |                                               |       |   |   |
| **Increase in Cash**                                                               |       | —                                             |       | 3 |   |
| ** **                                                                         | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Cash at Beginning of  Period                                                       |       | 37                                                 |       | 31 |   |
|                                                                               |       |                                               |       |   |   |
| Cash at End of Period                                                              |       | $                                                  | 37         |   | $ | 34 |   |
|                                                                               |       |                                               |       |   |   |
| *Supplemental Disclosures:*                                                        | * *   | * *                                           | * *   | * * | * * |
| Cash paid for interest                                                             |       | $                                                  | 444        |   | $ | 1,013 |   |
| Cash paid for income tax                                                           |       | $                                                  | 4,675      |   | $ | 3,992 |   |
| *Noncash Activities:*                                                              | * *   | * *                                           | * *   | * * | * * |
| Equipment acquisitions financed with accounts payable                              |       | $                                                  | 52         |   | $ | 30 |   |

 

See Notes toCondensed Consolidated Financial Statements

 

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**MWI VETERINARY SUPPLY, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSDollars in thousands, except per share data(unaudited)**

## **NOTE1 — 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 to as “we,”“us,” and “our” throughout this Form 10-Q). All material intercompany balances have been eliminated.

In the opinion of our management, the accompanyingunaudited condensed consolidated financial statements include all adjustmentsnecessary to present fairly, in all material respects, our results for theperiods presented. These condensed consolidated financial statements have beenprepared by us pursuant to the rules and regulations of the Securities andExchange Commission (“SEC”).  Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States have been condensed or omitted pursuant to such rules andregulations.  These condensedconsolidated financial statements should be read in conjunction with theconsolidated financial statements and accompanying notes included in our 2006Annual Report on Form 10-K filed with the SEC on November 22, 2006.  The results of operations for the three andsix months ended March 31, 2007 are not necessarily indicative of results to beexpected for the entire fiscal year.

Our unaudited condensed consolidated balance sheet asof September 30, 2006 has been derived from the audited consolidated balancesheet as of that date.

**Use of Estimates**

*The*accompanyingconsolidated financial statements have been prepared on the accrual basis ofaccounting using accounting principles generally accepted in the United States.In preparing financial information, we use certain estimates and assumptionsthat may affect the reported amounts and disclosures. Some of these estimatesrequire difficult, subjective, and complex judgments about matters that areinherently uncertain. As a result, actual results could differ from theseestimates. Estimates are used when accounting for sales returns, allowance fordoubtful accounts, customer incentives, vendor rebates, inventories, goodwilland intangible assets, income taxes, impairment of long-lived assets,depreciation and amortization, employee benefits, unearned income andcontingencies. The estimates of fair value of assets and liabilities and thedisclosure of contingent assets and liabilities as of the balance sheet dateand reported amounts of revenue and expenses for the periods are based onassumptions that we believe to be reasonable.

**Revenue Recognition**

*We*sellproducts we source from vendors to our customers through either a “buy/sell”transaction or an agency relationship with our vendors. In a “buy/sell”transaction, we purchase or take inventory of products from the vendor. When acustomer places an order with us, we pick, pack and ship products, and theninvoice the customer for the order. We recognize revenue from “buy/sell”transactions as product sales when the product is delivered to the customer. Weaccept product returns from our customers. We estimate returns based onhistorical experience and recognize these estimated returns as a reduction ofproduct sales. Product returns have not been significant to our financialstatements. In an agency relationship, we generally do not purchase and takeinventory of products from vendors. We receive an order from a customer, thentransmit the order to the vendor, who picks, packs and ships the order to thecustomer. In some cases, the vendor invoices and collects payment from thecustomer, while in other cases we invoice and collect payment from the customeron behalf of the vendor. We receive a commission payment for soliciting theorder from the customer and for providing other customer service activities.Commissions are recognized when the services upon which the commissions arebased are completed. Gross billings from agency contracts were $59,105 and$45,350 for the three months ended March 31, 2007 and 2006, respectively, andgenerated commission revenue of $2,875 and $2,093, respectively. Gross billingsfrom agency contracts were $89,588 and $72,220 for the six months ended March31, 2007 and 2006, respectively, and generated commission revenue of $4,574 and$3,506, respectively.

**Cost of Product Sales and Vendor Rebates**

*Cost***of product sales consist of ourinventory product cost, including shipping costs to and from our distributioncenters. Vendor rebates are recorded based on the terms of the contracts orprograms with each vendor. We receive quarterly, trimester, semi-annual andannual performance-based rebates from third-party vendors based upon attainmentof certain sales and/or purchase goals. Sales rebates are classified in theaccompanying consolidated statements of income as a reduction to

6

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cost of product sales at the time thesales performance measures are achieved. Purchase rebates are measured againstinventory purchases from the vendors and are classified as a reduction ofinventory until the product is sold. When the inventory is sold and purchasemeasures are achieved, purchase rebates are recognized as a reduction to costof product sales.

**Reclassifications**

Certain reclassifications, none of whichaffected results of operations, have been made to the accompanying condensedconsolidated financial statements for prior periods to conform to current yearpresentation.

## **NOTE2 — EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS**

In May 2005, theFinancial Accounting Standards Board (the “FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 154, *AccountingChanges and Error Corrections*(“SFAS 154”)*.*SFAS 154replaces FASB Statement No. 3, *ReportingAccounting Changes in Interim Financial Statements*, and replacesAccounting Principles Board (“APB”) Opinion No. 20, *Accounting Changes.*SFAS 154 is effectivefor accounting changes and corrections of errors made in fiscal years beginningafter March 15, 2005 and was effective for us the fiscal year beginningOctober 1, 2006. The adoption of SFAS 154 did not have a materialeffect on our consolidated financial statements.

In July 2006, theFASB issued Interpretation No. 48 (“FIN 48”), *Accountingfor Uncertainty in Income Taxes*, which clarifies the accounting foruncertainty in income taxes recognized in the financial statements inaccordance with FASB Statement No. 109, *Accountingfor Income Taxes*. FIN 48 provides guidance on the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. FIN 48 also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods, disclosures,and transition. FIN 48 is effective for our fiscal year beginningOctober 1, 2007. We are currently evaluating the expected impact, if any,that FIN 48 will have on our consolidated financial statements.

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*(“SFAS 157”). SFAS 157 defines fair value, establishes a framework formeasuring fair value according to accounting principles generally accepted inthe United States, and expands disclosure requirements regarding fair valuemeasurements. This statement emphasizes that fair value should be determinedbased on assumptions market participants would use to price the asset orliability. SFAS 157 is effective for our fiscal year and interim periodbeginning October 1, 2008. We are currently evaluating the expectedimpact, if any, that SFAS 157 will have on our consolidated financialstatements.

In September 2006,the Securities and Exchange Commission (“SEC”) issued Staff Accounting BulletinNo. 108 (“SAB 108”), which provides guidance on quantifying and evaluatingthe materiality of unrecorded misstatements. SAB 108 is effective for ourfiscal year beginning October 1, 2007. We are currently evaluating theexpected impact, if any, that SAB 108 will have on our consolidated financialstatements.

In February 2007, theFASB 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 arecurrently evaluating the expected impact, if any, that SFAS 159 will have onour consolidated financial statements.

**NOTE 3**—**RECEIVABLES**

|                                  | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|----------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                       | ** ** | **2007**           | ** ** | **2006**               | ** ** |
| Trade                            |       | $                  | 96,388     |                   | $          | 90,454 |   |
| Vendor rebates  and programs     |       | 8,914              |       | 9,818                  |       |
| Related party                    |       | 8                  |       | 400                    |       |
|                             |       | 105,310            |       | 100,672                |       |
| Allowance for  doubtful accounts |       | (1,083             | )          | (1,154                 | )          |
|                             |       | $                  | 104,227    |                   | $          | 99,518 |   |

 

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Productsales resulting from transactions with a single customer were 9% of totalproduct sales during the three and six months ended March 31, 2007, and 9%during the three and six months ended March 31, 2006. Approximately 9% and 10%of our trade receivables resulted from transactions with this single customeras of March 31, 2007 and September 30, 2006, respectively.

Productsales resulting from transactions with Feeders’ Advantage LLC (“FeedersAdvantage”), a related party, were 5% of total product sales during the threemonths ended March 31, 2007, 6% during the six months ended March 31, 2007 and6% during the three and six months ended March 31, 2006.

**NOTE 4**—**PROPERTY AND EQUIPMENT**

|                                            | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|--------------------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                 | ** ** | **2007**           | ** ** | **2006**               | ** ** |
| Land                                       |       | $                  | 20         |                   | $          | 20 |   |
| Buildings and  leasehold improvements      |       | 2,107              |       | 1,779                  |       |
| Machinery,  furniture and equipment        |       | 10,079             |       | 9,138                  |       |
| Computer  equipment                        |       | 2,987              |       | 2,899                  |       |
| Construction in  progress                  |       | 630                |       | 377                    |       |
|                                       |       | 15,823             |       | 14,213                 |       |
| Accumulated  depreciation and amortization |       | (8,138             | )          | (7,160                 | )          |
|                                       |       | $                  | 7,685      |                   | $          | 7,053 |   |

 

Depreciationexpense for the three months ended March 31, 2007 and 2006 was $528 and $429,respectively, and $1,022 and $826 for the six months ended March 31, 2007 and2006, respectively.

Duringthe three-months ended March 31, 2006 the Company relocated from its existing,owned distribution center to a new larger leased facility located in Denver,Colorado and sold the owned distribution center. The sale of the distributioncenter closed in February 2006, resulting in a gain of approximately $62 thatis recorded in selling, general and administrative expenses in the condensedconsolidated statement of income.

**NOTE 5**—**INTANGIBLES**

|                           | ** ** | ** **           | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|---------------------------|------------|----------------------|------------|--------------------|------------|------------------------|------------|
| ** **                | ** ** | **Useful Life** | ** ** | **2007**           | ** ** | **2006**               | ** ** |
| Amortizing:               |       |                 |       |               |       |                   |       |
| Customer lists            |       | 9-10 years           |       | $                  | 2,410      |                   | $          | 2,410 |   |
| Covenants not to compete  |       | 5 years              |       | 256                |       | 256                    |       |
| Other                     |       | 5 years              |       | 36                 |       | 36                     |       |
|                      |       |                 |       | 2,702              |       | 2,702                  |       |
| Accumulated  amortization |       |                 |       | (526               | )          | (373                   | )          |
|                      |       |                 |       | 2,176              |       | 2,329                  |       |
| Non-Amortizing:           |       |                 |       |               |       |                   |       |
| Trade names               |       |                 |       | 62                 |       | 52                     |       |
|                      |       |                 |       | $                  | 2,238      |                   | $          | 2,381 |   |

 

Amortizationexpense was $76 and $47 for the three months ended March 31, 2007 and 2006,respectively, and $153 and $94 for the six months ended March 31, 2007 and2006, respectively . Estimated future annual amortization expense related tointangible assets as of March 31, 2007 follows:

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|                    | ** ** | **Amount** | ** ** |
|--------------------|------------|------------|------------|
| Remainder of  2007 |       | $          | 156        |   |
| 2008               |       | 309        |       |
| 2009               |       | 309        |       |
| 2010               |       | 286        |       |
| 2011               |       | 269        |       |
| Thereafter         |       | 847        |       |
|               |       | $          | 2,176      |   |

 

**NOTE 6**—**CREDIT FACILITY AND LONG-TERM DEBT**

**Line-of-Credit**—On December 13, 2006, MWIVeterinary Supply Co., (our wholly-owned subsidiary) as borrower, entered intoan unsecured credit agreement with us and Memorial Pet Care, Inc., asguarantors, and Bank of America, N.A. and Wells Fargo Bank, N.A.,(collectively, the “lenders”) for the provision of a revolving credit facility(the “facility”).  The facility allowsfor borrowings in the aggregate of $70,000, with the right to request anincrease in the commitment of the lenders to $100,000.  The facility has a maturity date of December1, 2011 and a variable interest rate equal to the Daily LIBOR Floating Rate orthe LIBOR 1-month fixed rate (at our option) plus a margin ranging from 0.7% to1.25%.  The lenders also receive anunused line fee and letter of credit fee equal to 0.125% of the unused amountof the facility. Our outstanding balance on the facility at March 31, 2007 was$6,572 and the interest rate for the facility was 6.2% as of that date.  This facility replaced the five-year CreditAgreement dated June 18, 2002 between MWI Veterinary Supply Co. and Bank ofAmerica, N.A., which had an outstanding balance at September 30, 2006 of$10,559.

Theline-of-credit contains certain financial covenants as well as otherrestrictive covenants. The facility allows for the issuance of up to $10,000 inletters of credit. The letters of credit typically act as a guarantee ofpayment to certain third-parties in accordance with specified terms andconditions. We had thirteen letters of credit totaling $980 at March 31, 2007and eleven letters of credit totaling $780 at September 30, 2006. There were nooutstanding borrowings on these letters of credit at either March 31, 2007 orSeptember 30, 2006.

**Long-Term Debt**—In January 2005, we issued apromissory 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 (8.25% at March31, 2007), 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 $292at March 31, 2007 and $389 at September 30, 2006.

**NOTE 7**—**STOCK OPTIONS**

We havetwo stock-based award plans, the 2002 Stock Plan and the Amended and Restated2005 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 March 31, 2007, 528,305 options topurchase common stock were outstanding (359,081 options vested and exercisable)with a weighted average exercise price of $3.06 and expiring through September2015.  During the three months endedMarch 31, 2007, we granted 1,000 shares of restricted stock, which vestannually over 5 years.  At March 31,2007, 1,650,560 shares were available to be issued under our stock-based awardplans.

EffectiveOctober 1, 2005, we adopted the provisions of SFAS No. 123-(Revised), *Share-Based Payment* (“SFAS 123-R”) forour share-based compensation plans. We previously accounted for these plansunder the recognition and measurement principals of APB No. 25, *Accounting for Stock Issued to Employees* (“APB No. 25”), asamended by SFAS No. 148, *Accounting for Stock BasedCompensation—Transition and Disclosure* (“SFAS 148”). Under APB No.25, no compensation expense was recorded in earnings for the stock-based awardsgranted under our stock-based award plans. The pro forma effects on net incomeand earnings per share for stock-based awards were instead disclosed in afootnote to the financial statements. Under SFAS 123-R, all share-basedcompensation is measured at the grant date, based on the fair value of theaward, and is recognized as an expense in earnings over the requisite serviceperiod.

We adoptedSFAS 123-R using the modified prospective method. Under this transition method,compensation expense includes the expense for all share-based awards grantedprior to, but not yet vested as of October 1, 2005, excluding those

9

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optionsinitially valued using the minimum value method.  At October 1, 2005, all of our options topurchase common stock were either vested and exercisable or were initiallyvalued using the minimum value method. Therefore no compensation expense was recognized for these stock-basedawards in our fiscal year ended September 30, 2006.  We granted no common stock options during thethree and six months ended March 31, 2007. During the three and six months ended March 31, 2007, we recognized $22and $42 of compensation expense related to restricted stock grants,respectively.  During the three and sixmonths ended March 31, 2006, we recognized $1 of compensation expense relatedto restricted stock grants.

**NOTE 8**—**INCOME TAXES**

Oureffective tax rate for the three months ended March 31, 2007 and 2006 was 38.5%and 39.5%, respectively.  Our effectivetax rate for the six months ended March 31, 2007 and 2006 was 37.9% and 39.5%,respectively.  The decrease in theeffective rate for the three and six months ended March 31, 2007 as compared tothe same period in the prior fiscal year was primarily a result of a decreasein our estimated state income tax rate due to the utilization of state taxcredits.

## **NOTE9 — COMPUTATION OF EARNINGS PER SHARE***(In thousands, except per sharedata)*

| ** **                                      | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                      | ** ** | **Basic**                                            | ** ** | **Diluted** | ** ** | **Basic** | ** ** | **Diluted** | ** ** |
| Net income                                      |       | $                                                    | 3,688      |   | $ | 3,688 |   | $ | 2,355 |   | $ | 2,355 |   |
| Weighted average  common shares outstanding     |       | 11,566                                               |       | 11,566 |   | 10,586 |   | 10,586 |   |
| Effect of  diluted securities                   |       |                                                 |       |   |   |   |   |   |   |
| Stock options and restricted stock              |       |                                                 |       | 297 |   |   |   | 298 |   |
| Weighted average  shares outstanding            |       | 11,863                                               |       | 10,884 |   |   |   |   |   |
| Earnings per  share                             |       | $                                                    | 0.32       |   | $ | 0.31 |   | $ | 0.22 |   | $ | 0.22 |   |
| Anti-dilutive shares  excluded from calculation |       |                                                 |       | — |   |   |   | 2 |   |

 
| ** **                                      | ** ** | **Six months ended March 31,** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                           | ** ** | **2006** | ** ** |
| ** **                                      | ** ** | **Basic**                                          | ** ** | **Diluted** | ** ** | **Basic** | ** ** | **Diluted** | ** ** |
| Net income                                      |       | $                                                  | 8,292      |   | $ | 8,292 |   | $ | 6,794 |   | $ | 6,794 |   |
| Weighted average  common shares outstanding     |       | 11,562                                             |       | 11,562 |   | 10,582 |   | 10,582 |   |
| Effect of  diluted securities                   |       |                                               |       |   |   |   |   |   |   |
| Stock options and restricted stock              |       |                                               |       | 300 |   |   |   | 291 |   |
| Weighted average  shares outstanding            |       |                                               |       | 11,862 |   |   |   | 10,873 |   |
| Earnings per  share                             |       | $                                                  | 0.72       |   | $ | 0.70 |   | $ | 0.64 |   | $ | 0.62 |   |
| Anti-dilutive shares  excluded from calculation |       |                                               |       | — |   |   |   | 2 |   |

 

**NOTE 10**—**RELATED PARTIES**

MWI VeterinarySupply Co., our wholly-owned subsidiary, holds a 50.0% membership interest inFeeders’ Advantage. MWI Veterinary Supply Co. charged Feeders’ Advantage forcertain operating and administrative services in the amounts of $137 and $126for the three months ended March 31, 2007 and 2006, respectively, and $286 and$278 for the six months ended March 31, 2007 and 2006, respectively.  Sales of products to Feeders’ Advantage were$8,865 and $8,001 for the three months ended March 31, 2007 and 2006,respectively, and $18,424 and $17,355 for the six months ended March 31, 2007and 2006, respectively.

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MWI VeterinarySupply Co. provides Feeders’ Advantage with a line-of-credit to finance itsday-to-day operations. This line-of-credit bears interest at the prime rate.The interest due on the line-of-credit is calculated and charged to Feeders’Advantage on the last day of each month. Conversely, to the extent MWIVeterinary Supply Co. has a payable balance due to Feeders’ Advantage, thepayable balance accrues interest in favor of Feeders’ Advantage at the averagefederal funds rates in effect for that month. As of March 31, 2007, MWIVeterinary Supply Co. had a payable balance with Feeders’ Advantage of$359.  As of September 30, 2006, MWIVeterinary Supply Co. had a receivable balance with Feeder’s Advantage of $397.

**NOTE 11**—**CONTINGENCIES AND COMMITMENTS**

From time to time, in thenormal course of business, we may become a party to legal proceedings that mayhave an adverse effect on our financial position, results of operations andcash flows.  At March 31, 2007, we werenot a party to any material pending legal proceedings and were not aware of anyclaims that could have a material adverse effect on our financial position,results of operations or cash flow.

**NOTE12**— **SUBSEQUENT EVENT**

On April 17, 2007, theCompany announced the pricing of the previously announced offering of commonstock. On April 20, 2007, the Company issued 348,974 shares of common stock andcertain selling stockholders sold 2,326,493 shares of common stock which weresubsequently sold to the public for $35.00 per share. The Company receivedestimated net proceeds of $11,142 after deducting the underwriting discountsand offering expenses. The Company did not receive any of the proceeds from theshares of common stock sold by the selling stockholders. The Company used thenet proceeds from the transaction to repay borrowings on its revolving creditfacility under our credit agreement and for general corporate purposes.

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directorsand Stockholders of MWI Veterinary Supply, Inc.Meridian, Idaho

We have reviewed theaccompanying condensed consolidated balance sheet of MWI Veterinary Supply,Inc. and subsidiaries (the “Company”) as of March 31, 2007, and therelated condensed consolidated statements of income for the three-month andsix-month periods ended March 31, 2007 and 2006, and of cash flows for thesix-month periods ended March 31, 2007 and 2006. These interim financialstatements are the responsibility of the Corporation’s management.

We conducted our reviewsin accordance with the standards of the Public Company Accounting OversightBoard (United States). A review of interim financial information consistsprincipally of applying analytical procedures and making inquiries of personsresponsible for financial and accounting matters. It is substantially less inscope than an audit conducted in accordance with the standards of the PublicCompany Accounting Oversight Board (United States), the objective of which isthe expression of an opinion regarding the financial statements taken as awhole. Accordingly, we do not express such an opinion.

Based on our reviews, 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, 2006, and therelated consolidated statements of income, comprehensive income, stockholders’equity, and cash flows for the year then ended (not presented herein); and inour report dated November 21, 2006, we expressed an unqualified opinion onthose consolidated financial statements. In our opinion, the information setforth in the accompanying condensed consolidated balance sheet as ofSeptember 30, 2006, is fairly stated, in all material respects, inrelation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLPBoise, IdahoApril 24, 2007

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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**

Weare a leading distributor of animal health products to veterinarians across theUnited States.  We distribute more than11,000 products sourced from over 400 vendors to approximately 15,000veterinary practices nationwide from twelve strategically located distributioncenters.  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.

*Common Stock Offerings *

On August 3, 2005, we completed our initial public offering in which wesold an aggregate of 4,983,334 shares (including the exercise of theunderwriters’ over-allotment option) of our common stock at a price to thepublic of $17 per share.  We received netproceeds of $77,159 after deducting the underwriting discounts and offeringexpenses.  We used the net proceeds toredeem all of our Series A preferred stock for approximately $39,789 and torepay approximately $37,370 of borrowings outstanding on the revolving creditfacility under our former credit agreement. In the fourth quarter of our fiscal year 2006, we issued 908,846 shares(including the shares issued upon the partial exercise of the underwriters’over-allotment option) of our common stock at a price to the public of $32.25per share.  We used the net proceeds of$27,341 received from this offering to pay down our borrowings on our formerrevolving credit facility.  On April 20,2007, we issued 348,974 shares of our common stock at a price to the public of$35.00 per share.  We used the netproceeds received from this offering to pay down our borrowings on ourrevolving credit facility and for general business purposes.

*Sales*

Wesell products that we source from our vendors to our customers through either a“buy/sell” transaction or an agency relationship with our vendors. In a “buy/sell”transaction, we purchase or take inventory of products from our vendors. When acustomer places an order, we pick, pack and ship products, and then invoice thecustomer for the order. We record sales from “buy/sell” transactions, whichaccount for the majority of our business, as revenue in conformity withaccounting principles generally accepted in the United States. In an agencyrelationship, we generally do not purchase and take inventory of products fromvendors. When we receive an order from a customer, we transmit the order to thevendor, who picks, packs and ships the order to our customer. In some cases,the vendor invoices and collects payment from the customer, while in other caseswe invoice 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. The aggregate revenue we receivein agency transactions constitutes the “commissions” line item on our statementof income and is recorded in conformity with accounting principles generallyaccepted in the United States. The vendor determines the method we use to sellthe products. 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.

*Vendor Rebates*

We typically renegotiatevendor contracts annually.  These vendorcontracts may include terms defining rebates, commissions and exclusivityrequirements. Vendor rebates based on sales are classified in our accompanyingconsolidated statements of income as a reduction to cost of product sales atthe time the sales performance measures are achieved.  Purchase rebates are measured againstinventory purchases from the vendors and are a reduction of inventory until theproduct is sold.  When the inventory issold, purchase rebates are recognized as a reduction to cost of product sales.Many of our vendors’ rebate programs are based on a calendar year.Historically, the three months ended December 31 has been our most significantquarter for recognition of rebates. During the calendar year 2006, certain ofour vendors modified their

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rebate programs with us.These rebate program modifications changed the revenue growth targets fromannual-weighted calendar year targets to either quarterly or trimester growthtargets. These modifications resulted in rebates previously expected to beearned and recognized in our first 2007 fiscal quarter ended December 31, 2006,to be recognized in our fiscal year 2006.

*Northland Veterinary Supply, Ltd. Acquisition*

OnMay 8, 2006, we acquired substantially all of the assets of NorthlandVeterinary Supply, Ltd. (“Northland”) for approximately $4,546, consisting of$3,551 in cash (including direct acquisition costs of approximately $116) and28,744 shares of unregistered restricted common stock valued at the time ofissuance at approximately $995.  Based inClear Lake, Wisconsin, Northland is a distributor of animal health products toveterinary practices and producers across the Midwestern portion of the UnitedStates.

Formore information on our business, see our Annual Report on Form 10-K filed withthe SEC on November 22, 2006.

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**Resultsof Operations**

The following table summarizes ourresults of operations for the three and six months ended March 31, 2007 and2006, in dollars and as a percentage of total revenues.
| ** **                                                  | ** ** | **Three Months Ended March 31,** | ** ** | **Six Months Ended March 31,** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                  | ** ** | **2007**                                             | ** ** | **%**                                              | ** ** | **2006** | ** ** | **%** | ** ** | **2007** | ** ** | **%** | ** ** | **2006** | ** ** | **%** | ** ** |
| Revenues:                                                   |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Product sales                                               |       | $                                                    | 163,311    |                                               | 93.3       | % | $ | 133,255 |   | 93.0 | % | $ | 313,098 |   | 93.2 | % | $ | 260,303 |   | 92.6 | % |
| Product sales to related party                              |       | 8,867                                                |       | 5.1                                                | %          | 8,001 |   | 5.5 | % | 18,426 |   | 5.5 | % | 17,356 |   | 6.2 | % |
| Commissions                                                 |       | 2,875                                                |       | 1.6                                                | %          | 2,093 |   | 1.5 | % | 4,574 |   | 1.3 | % | 3,506 |   | 1.2 | % |
| Total revenues                                              |       | 175,053                                              |       | 100.0                                              | %          | 143,349 |   | 100.0 | % | 336,098 |   | 100.0 | % | 281,165 |   | 100.0 | % |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of product  sales                                      |       | 150,631                                              |       | 86.0                                               | %          | 123,421 |   | 86.1 | % | 285,927 |   | 85.1 | % | 238,485 |   | 84.8 | % |
| Gross profit                                                |       | 24,422                                               |       | 14.0                                               | %          | 19,928 |   | 13.9 | % | 50,171 |   | 14.9 | % | 42,680 |   | 15.2 | % |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general  and administrative expenses               |       | 17,806                                               |       | 10.2                                               | %          | 15,099 |   | 10.5 | % | 35,500 |   | 10.6 | % | 29,652 |   | 10.5 | % |
| Depreciation and  amortization                              |       | 602                                                  |       | 0.3                                                | %          | 473 |   | 0.3 | % | 1,171 |   | 0.3 | % | 915 |   | 0.3 | % |
| Operating income                                            |       | 6,014                                                |       | 3.5                                                | %          | 4,356 |   | 3.1 | % | 13,500 |   | 4.0 | % | 12,113 |   | 4.4 | % |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income  (expense):                                    |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                            |       | (160                                                 | )          | -0.1                                               | %          | (578 | ) | -0.4 | % | (429 | ) | -0.1 | % | (1,133 | ) | -0.4 | % |
| Earnings of equity method investees                         |       | 42                                                   |       | 0.0                                                | %          | 37 |   | 0.0 | % | 87 |   | 0.0 | % | 82 |   | 0.0 | % |
| Other                                                       |       | 101                                                  |       | 0.0                                                | %          | 77 |   | 0.0 | % | 191 |   | 0.1 | % | 167 |   | 0.0 | % |
| Total other expense, net                                    |       | (17                                                  | )          | -0.1                                               | %          | (464 | ) | -0.4 | % | (151 | ) | 0.0 | % | (884 | ) | -0.4 | % |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before  taxes                                        |       | 5,997                                                |       | 3.4                                                | %          | 3,892 |   | 2.7 | % | 13,349 |   | 4.0 | % | 11,229 |   | 4.0 | % |
| Income tax  expense                                         |       | (2,309                                               | )          | -1.3                                               | %          | (1,537 | ) | -1.1 | % | (5,057 | ) | -1.5 | % | (4,435 | ) | -1.6 | % |
| Net income                                                  |       | $                                                    | 3,688      |                                               | 2.1        | % | $ | 2,355 |   | 1.6 | % | $ | 8,292 |   | 2.5 | % | $ | 6,794 |   | 2.4 | % |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings per  share:                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                       |       | $                                                    | 0.32       |                                               |       |   | $ | 0.22 |   |   |   | $ | 0.72 |   |   |   | $ | 0.64 |   |   |   |
| Diluted                                                     |       | $                                                    | 0.31       |                                               |       |   | $ | 0.22 |   |   |   | $ | 0.70 |   |   |   | $ | 0.62 |   |   |   |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average  common shares outstanding (in thousands): |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                       |       | 11,566                                               |       |                                               |       | 10,586 |   |   |   | 11,562 |   |   |   | 10,582 |   |   |   |
| Diluted                                                     |       | 11,863                                               |       |                                               |       | 10,884 |   |   |   | 11,862 |   |   |   | 10,873 |   |   |   |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Data:                                                 |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Product sales from Internet as a percentage of sales        |       | 23                                                   | %          |                                               |       | 23 | % |   |   | 23 | % |   |   | 23 | % |   |   |
| Field sales representatives (at end of period)              |       | 159                                                  |       |                                               |       | 142 |   |   |   | 159 |   |   |   | 142 |   |   |   |
| Telesales representatives (at end of period)                |       | 110                                                  |       |                                               |       | 95 |   |   |   | 110 |   |   |   | 95 |   |   |   |
| Fill rate(1)                                                |       | 98                                                   | %          |                                               |       | 97 | % |   |   | 98 | % |   |   | 98 | % |   |   |

----

(1)             Defined as, for anyperiod, the dollar value of orders shipped the same day they were placed fromany distribution center expressed as a percentage of the total dollar value ofthe orders placed by customers in the period.

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**Three Months Ended March 31, 2007 Compared to Three MonthsEnded March 31, 2006**

*Total Revenues*. Total revenues increased 22.1% to $175,053 for the three months endedMarch 31, 2007 from $143,349 for the three months ended March 31, 2006.  This increase was attributable to an increasein product sales volumes of a wide variety of products to both new and existingcustomers.  Revenues attributable to newcustomers represented approximately 60% of the growth in total revenues duringthe three months ended March 31, 2007. Included in the new customer growth wereapproximately $3,950 of revenues attributable to new customers acquired as aresult of the acquisition of Northland that was completed on May 8, 2006.Revenues attributable to existing customers represented approximately 40% ofthe growth in total revenues during the three months ended March 31, 2007.  For the purpose of calculating growth ratesof new and existing customer revenue, we have defined a new customer as acustomer that did not purchase product from us in the corresponding fiscal quarterof the prior year, with the remaining customer base being considered anexisting customer.  Also contributing torevenue growth was the increase in commissions on our agency sales of 37.4% to$2,875 for the three months ended March 31, 2007 from $2,093 for the sameperiod of the prior fiscal year.

*Gross Profit*. Gross profit increased by 22.6% to $24,422 for the three months endedMarch 31, 2007 from $19,928 for the three months ended March 31, 2006.  This increase in gross profit was a result ofincreased total revenues as discussed above as compared to the three monthsended March 31, 2006.  Gross profit as apercentage of total revenues increased 0.1% to 14.0% for the three months endedMarch 31, 2007 compared to 13.9% for the same period in the prior year.  Actual rebate dollars increased approximately$76 for the three months ended March 31, 2007 as compared to the same period inthe prior fiscal year, due to higher sales growth with a key vendor offset bylower sales growth with another key vendor.

*Selling, General and Administrative (“SG&A”)*.  SG&A increased 17.9% to $17,806 for thethree months ended March 31, 2007 from $15,099 for the three months ended March31, 2006.  This dollar increase wasprimarily due to increased compensation costs as a result of additionalheadcount of 124 team members, including 30 new field sales and telesalesrepresentatives.  Employee benefits andworkers’ compensation costs increased as a result of the growth in headcount,as well as higher health insurance costs due to growth in the volume andmagnitude of individual claims.  Alsocontributing to the growth in SG&A were increased occupancy and locationcosts due to the expansion of a number of distribution centers and salesgrowth, and higher credit card fees as a result of customer usage.

*Depreciation and Amortization. *Depreciation and amortization expenseincreased 27.3% to $602 for the three months ended March 31, 2007 from $473 forthe three months ended March 31, 2006. This increase was primarily a result of the new distribution center inOrlando, Florida that opened in June 2006 as well as the relocation andexpansion of the distribution center in Atlanta, Georgia in January 2007 andthe expansion of the distribution centers in Clear Lake, Wisconsin; Denver,Colorado and Glendale, Arizona.

*Other Expenses*. Other expenses decreased 96.3% to $17 for the three months ended March31, 2007 from $464 for the three months ended March 31, 2006. This decrease inother expenses was due to a reduction in interest expense of $418 as comparedto the same period in the prior year, primarily as a result of the loweraverage loan balance on the facility.  Weused the proceeds from the sale of common stock in our follow-on offering inthe fourth quarter of our fiscal year 2006 to pay down the loan balance.

*Income Tax Expense*.  Our effective tax rate for the three monthsended March 31, 2007 and 2006 was 38.5% and 39.5%, respectively.   The decrease in the effective rate in thethree months ended March 31, 2007 as compared to the same period in the priorfiscal year was primarily a result of a decrease in our estimated state incometax rate due to the utilization of state tax credits.

**Six Months Ended March 31, 2007 Compared to Six Months EndedMarch 31, 2006**

*Total Revenues*. Total revenues increased 19.5% to $336,098 for the six months endedMarch 31, 2007 from $281,165 for the six months ended March 31, 2006.  This increase was attributable to an increasein product sales volumes of a wide variety of products to both new and existingcustomers.  Revenues attributable to newcustomers represented approximately 70% of the growth in total revenues duringthe six months ended March 31, 2007. Included in the new customer growth wereapproximately $6,650 of revenues attributable to new customers acquired as aresult of the acquisition of Northland that was completed on May 8, 2006.Revenues attributable to existing customers represented approximately 30% ofthe growth in total revenues during the six months ended March 31, 2007.  For the purpose of calculating growth rates ofnew and existing

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customerrevenue, we have defined a new customer as a customer that did not purchaseproduct from us in the corresponding six months of the prior year, with theremaining customer base being considered an existing customer.  Also contributing to revenue growth was theincrease in commissions on our agency sales of 30.5% to $4,574 for the sixmonths ended March 31, 2007 from $3,506 for the same period of the prior fiscalyear.

*Gross Profit*. Gross profit increased by 17.6% to $50,171 for the six months endedMarch 31, 2007 from $42,680 for the six months ended March 31, 2006.  This increase in gross profit was a result ofincreased total revenues as discussed above as compared to the six months endedMarch 31, 2006.  Gross profit as a percentageof total revenues decreased approximately 0.3% to 14.9% for the six monthsended March 31, 2007 from 15.2% for the same period in the prior year.  This decrease was due to decreased vendorrebates as a percentage of total revenues. Vendor rebates have historically been highest during our first fiscalquarter ended December 31, since certain significant vendor rebate programswere designed to include annual targets to be achieved based on the calendaryear.  Vendor modifications to rebateprograms during the calendar year 2006 from annual-weighted calendar yeargrowth targets to either quarterly or trimester growth targets resulted in ashift of rebate dollars that historically would have been earned in our firstquarter of our fiscal year 2007 ended December 31, 2006 to be earned in ourfiscal year 2006.  Included in vendorrebates for the fiscal year 2006 were approximately $2,500 ($1,500 after tax)due to this shift in the timing of rebates. Actual rebate dollars increased $372 for the six months ended March 31,2007 as compared to the same period of the prior fiscal year.

*Selling, General and Administrative (“SG&A”)*.  SG&A increased 19.7% to $35,500 for thesix months ended March 31, 2007 from $29,652 for the six months ended March 31,2006.  This dollar increase was primarilydue to increased compensation costs as a result of additional headcount of 124team members, including 30 new field sales and telesales representatives.  Employee benefits and workers’ compensationcosts increased as a result of the growth in headcount, as well as higherhealth insurance costs due to a growth in the volume and magnitude ofindividual claims.  Also contributing tothe growth in SG&A were increased location costs due to to the expansion ofa number of distribution centers and sales growth, and higher credit card feesas a result of customer usage.

*Depreciation and Amortization. *Depreciation and amortization expenseincreased 28.0% to $1,171 for the six months ended March 31, 2007 from $915 forthe six months ended March 31, 2006. This increase was primarily a result of the new distribution center inOrlando, Florida that opened in June 2006 as well as the relocation andexpansion of the distribution center in Atlanta, Georgia in January 2007 andthe expansion of the distribution centers in Clear Lake, Wisconsin; Denver,Colorado and Glendale, Arizona.

*Other Expenses*. Other expenses decreased 82.9% to $151 for the six months ended March31, 2007 from $884 for the six months ended March 31, 2006. This decrease inother expenses was due to a reduction in interest expense of $704 as comparedto the same period in the prior year, primarily as a result of the loweraverage loan balance on the facility.  Weused the proceeds from the sale of common stock in our follow-on offering inthe fourth quarter of our fiscal year 2006 to pay down the loan balance.

*Income Tax Expense*.  Our effective tax rate for the six monthsended March 31, 2007 and 2006 was 37.9% and 39.5%, respectively.   The decrease in the effective rate in thesix months ended March 31, 2007 as compared to the same period in the priorfiscal year was primarily a result of a decrease in our estimated state incometax rate due to the utilization of state tax credits.

**Critical Accounting Policies**

Thepreparation of financial statements requires management to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues andexpenses and related disclosure of contingent assets and liabilities.  The accompanying condensed consolidatedfinancial statements are prepared using the same critical accounting policiesdiscussed in our Annual Report on Form 10-K filed with the SEC on November 22,2006.

**Liquidity and Capital Resources**

Our principal sources ofliquidity are cash flow generated from operations and borrowings on therevolving credit facility under the credit agreement. We use capital primarilyto fund day-to-day operations and to maintain sufficient inventory levels inorder to promptly fulfill customer orders and to expand our operations andsales growth.  We believe our capitalresources will be sufficient to meet our anticipated cash needs for at leastthe next twelve months.

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MWISupply Co., (our wholly-owned subsidiary) has a line-of-credit under arevolving credit facility with two lenders. 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 December1, 2011 and a variable interest rate equal to the Daily LIBOR Floating Rate orthe LIBOR 1-month fixed rate (at our option) plus a margin ranging from 0.7% to1.25%.  The lenders also receive anunused line fee and letter of credit fee equal to 0.125% of the unused amountof the facility. Our outstanding balance on the facility at March 31, 2007 was$6,572 and the interest rate on the facility was 6.2% as of this date.  The line-of-credit contains certain financialcovenants 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 a guarantee of payment to certain thirdparties in accordance with specified terms and conditions. We had thirteenletters of credit totaling $980 at March 31, 2007 and eleven letters of credittotaling $780 at September 30, 2006. There were no outstanding borrowings onthese letters of credit at either March 31, 2007 or September 30, 2006.

*Operating Activities*.  For the six months ended March 31, 2007, cashprovided by operations was $5,644 and was primarily attributable to net incomeof $8,292 and a reduction in inventories of $4,525 due to the timing ofinventory purchases in anticipation of price increases.  These changes were offset by an increase inreceivables of $4,708 due to the nature of terms extended and timing ofcollections and by an decrease in accounts payable of $3,622.

For thesix months ended March 31, 2006, cash provided by operations was $2,003, andwas primarily attributable to net income of $6,794 and a reduction ininventories of $4,959 offset by an increase in receivables of $5,192 and adecrease in accounts payable of $5,731. The decrease in inventories fromSeptember 30, 2005 to March 31, 2006 were a result of higher inventory levelsat September 30, 2005 due to seasonal purchases related to production animalsand due to purchases of products in advance of price increases.

*Investing Activities.*  For the six months ended March 31, 2007, netcash used in investing activities was $1,698 and was primarily due to thepurchase of property and equipment related to the relocation of our existingdistribution center to a larger distribution center in Atlanta, Georgia andimprovements to our distribution centers in Clear Lakes, Wisconsin, Nampa,Idaho and Denver, Colorado.  We also madeimprovements to our information technology infrastructure throughout theCompany.

For thesix months ended March 31, 2006, net cash used in investing activities was$2,191 and was primarily due to capital expenditures of $2,238 related torelocating the Company’s existing distribution center to a new largerdistribution center in Denver, Colorado and due to the purchase of equipmentfor a new distribution center in Orlando, Florida.  During the three-months ended March 31, 2006the Company completed its sale of a distribution center previously operated inDenver, Colorado for $1,455.

*Financing Activities.*  Forthe six months ended March 31, 2007, net cash used in financing activities was$3,946, and was primarily attributable to payments on our revolving creditfacility.  Our revolving credit facilityis used to finance our working capital requirements and fluctuates based ontiming of payables and collection of receivables.

For thesix months ended March 31, 2006, net cash provided by financing activities was$191, and was primarily attributable to proceeds from the exercise of stockoptions and the related tax benefits.

**Contractual Obligations andGuarantees**

For information on our contractualobligations and guarantees, see our Annual Report on Form 10-K filed onNovember 22, 2006 with the SEC. During the six months ended March 31, 2007 weentered into the following leasing arrangements:

·                  InNovember 2006, we leased approximately 16,000 square feet of additionaldistribution center space located in Denver, Colorado with an incrementalaverage annual lease of $72 per year and expiring in 2013.

·                  Alsoin November 2006, we renewed one lease agreement and entered into a secondlease agreement for a combined 19,500 square foot distribution center locatedin Glendale, Arizona.  The lease expenseaverages $115 per year and the leases expire in 2009.

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·                  InMarch 2007, we leased approximately 5,500 square feet of additionaldistribution center space located in Nampa, Idaho with an incremental averageannual lease of $28 per year and expiring in 2012.

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

TheCompany is exposed to market risks primarily from changes in interest rates inthe United States. The Company does not engage in financial transactions fortrading or speculative purposes.

Theinterest payable on the facility is based on variable interest rates and istherefore affected by changes in market interest rates. If the interest rate onthe variable rate indebtedness increased 62 basis points (a 10.0% change fromthe interest rate as of March 31, 2007), assuming no change in the outstandingbalance on the facility ($6,572 as of March 31, 2007), the annualized incomebefore taxes and cash flows from operating activities would decline byapproximately $41. If the interest rate on the variable rate indebtednessdecreased 62 basis points (a 10.0% change from the interest rate as of March31, 2007), assuming no change in the outstanding balance on the facility, theannualized income before taxes and cash flows from operating activities wouldincrease by approximately $41.

**Item4.  Controls and Procedures**

Managementof the Company, including the Chief Executive Officer and the Chief FinancialOfficer of the Company, have evaluated the effectiveness of the Company’sdisclosure controls and procedures (as defined in Rule 13a-15(e) of theSecurities Exchange Act of 1934) as of March 31, 2007.  Based on this evaluation, the Chief ExecutiveOfficer and Chief Financial Officer concluded that the Company’s disclosurecontrols and procedures, including the accumulation and communication ofdisclosures to the Company’s Chief Executive Officer and Chief FinancialOfficer as appropriate to allow timely decisions regarding required disclosure,are effective to provide reasonable assurance that information required to bedisclosed by the Company in the reports that it files or submits under theSecurities Exchange Act of 1934 is recorded, processed, summarized and reportedwithin the time periods specified by the SEC’s rules and forms.

There were nochanges 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 within themeaning 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 are only predictions and are notguarantees of our performance. These statements are based on our management’sbeliefs and assumptions, which in turn are based on currently availableinformation. Important assumptions relating to the forward-looking statementsinclude, among others assumptions regarding demand for our products, theexpansion of product offerings geographically or through new applications, thetiming and cost of planned capital expenditures, competitive conditions andgeneral economic conditions. These assumptions could prove inaccurate.Forward-looking statements also involve known and unknown risks anduncertainties, which could cause actual results that differ materially fromthose contained in any forward-looking statement. Many of these factors arebeyond our ability to control or predict. Such factors include, but are notlimited to, the following:*

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

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

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

·                  *seasonality;*

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

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

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

·                  *competition.*

*Except as required by applicable law, including thesecurities laws of the United States and the rules and regulations of the SEC,we are under no obligation to publicly update or revise any forward-lookingstatements, whether as a result of any new information, future events orotherwise. You should not place undue reliance on our forward-lookingstatements. Although we believe that the expectations reflected in theforward-looking statements are reasonable, we cannot guarantee future resultsor performance.*

## **Item1.  Legal Proceedings**

## We are notcurrently a party to any material pending legal proceedings and are not awareof any claims that could have a materially adverse effect on our financialposition, results of operations or cash flows.

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## **Item1A.  Risk Factors**

**There have been no materialchanges from our risk factors as previously reported in our Annual Report onForm 10-K for the year ended September 30, 2006*.***

## **Item2.  Unregistered Sales of EquitySecurities and Use of Proceeds**

## None.

## **Item3.  Defaults Upon Senior Securities**

None.

## **Item4.  Submission of Matters to a Vote ofSecurity Holders**

The Company heldits Annual Meeting of Stockholders on February 7, 2007, and transacted thefollowing business:

1)              Election ofDirectors

| Nominee                  | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|--------------------------|------------|--------------------|------------|-------------------------|------------|
| Keith E. Alessi          |       | 10,965,151         |       | 46,415                  |       |
| Bruce C.  Bruckmann      |       | 10,898,010         |       | 113,556                 |       |
| James F. Cleary,  Jr.    |       | 10,901,110         |       | 110,456                 |       |
| John F. McNamara         |       | 10,729,545         |       | 282,021                 |       |
| A. Craig Olson           |       | 10,990,301         |       | 21,265                  |       |
| Robert N.  Rebholtz, Jr. |       | 10,665,454         |       | 346,112                 |       |
| William J. Robison       |       | 10,965,401         |       | 46,165                  |       |

 

2)              Ratification ofAppointment of Independent Registered Public Accountant

| Votes For | ** ** | **Votes Against** | ** ** | **Abstentions** | ** ** | **Broker Non-Vote** | ** ** |
|----------------|------------|------------------------|------------|-----------------|------------|--------------------------|------------|
| 10,965,850     |       | 44,659                 |       | 1,057           |       | 0                        |       |

 

3)              Approval ofAmendment to the Company’s 2005 Stock-Based Incentive Compensation Plan toPermit Non-employee Directors to Participate and Receive Awards

| Votes For | ** ** | **Votes Against** | ** ** | **Abstentions** | ** ** | **Broker Non-Vote** | ** ** |
|----------------|------------|------------------------|------------|-----------------|------------|--------------------------|------------|
| 9,199,713      |       | 846,121                |       | 12,670          |       | 953,062                  |       |

 

4)    Approval of the Amendment to the Company’sAmended and Restated Certificate of Incorporation to Increase the Number of AuthorizedShares.

| Votes For | ** ** | **Votes Against** | ** ** | **Abstentions** | ** ** | **Broker Non-Vote** | ** ** |
|----------------|------------|------------------------|------------|-----------------|------------|--------------------------|------------|
| 10,126,136     |       | 881,900                |       | 3,530           |       | 0                        |       |

 

## **Item5.  Other Information**

None.

**Item 6.  Exhibits**

| 10.1 |   | MWI Veterinary Supply,  Inc. Certificate of Amendment to Amended and Restated Certificate of  Incorporation, dated as of February 7, 2007, incorporated herein by reference  to Exhibit 3.1 of the Current Report on Form 8-K filed on February 8, 2007 |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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|        |   |                                                                                                                                                                                                           |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2   |   | MWI Veterinary  Supply, Inc. Amended and Restated 2005 Stock-Based Incentive Compensation  Plan, incorporated herein by reference to Exhibit 10.1 of the Current Report  on Form 8-K filed on February 8, 2007 |
|   |   |                                                                                                                                                                                                           |
| 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 theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.
|                       |     | MWI Veterinary Supply, Inc.                                                      |
|-----------------------|----------|----------------------------------------------------------------------------------|
|                  |     | (Registrant)                                                                     |
|                  |     |                                                                             |
|                  |     |                                                                             |
| Date: April 26,  2007 |     | /s/ Mary Patricia B. Thompson                                                    |
|                  |     | Mary Patricia B. Thompson                                                        |
|                  | * * | *Senior Vice President of Finance and   Administration, Chief Financial Officer* |

 

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