Tableof Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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| **x**                                         | **QUARTERLY REPORT PURSUANT TO SECTION 13 or  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-----------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|
| ** **                                    | ** **                                                                                                            |
| **For the quarter ended March 31, 2009** |
| ** **                                    |
| **OR**                                        |
| ** **                                    |
| **o**                                         | **TRANSITION  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**              |
|                                          |
|                                               |                                                                                                                       |  |

**For the transition periodfrom                      to                      **

** **

**Commission File Number:  000-51468**

 

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**MWIVETERINARY SUPPLY, INC.**

(Exact name of Registrantas specified in its Charter)

 

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

 

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Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports) and (2) hasbeen subject to such filing requirements for the past90 days. Yes x No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T during the preceding 12 months (or for such shorter periodthat the registrant was required to submit and post such files).   Yes o  No  o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See the definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
| Large accelerated filer o                                                                     | Accelerated filer  x          |
|----------------------------------------------------------------------------------------------------|-----------------------------------------|
|                                                                                               |                                    |
| Non-accelerated filer   o  (Do not check if a smaller  reporting company) | Smaller reporting company   o |

 

Indicate by check markwhether the Registrant is a shell company (as defined in Rule 12b-2 of theAct). Yes o No x

 

The number of shares ofthe Registrant’s common stock, $0.01 par value, outstanding as of April 27,2009 was 12,117,738.

 

 

 

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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, 2009 and 2008 | 3          |
|              |       |                                                                                                          |       |
|              |       | Condensed  Consolidated Balance Sheets as of March 31, 2009 and September 30,  2008                 | 4          |
|              |       |                                                                                                          |       |
|              |       | Condensed  Consolidated Statements of Cash Flows for the six months ended March 31,  2009 and 2008       | 5          |
|              |       |                                                                                                          |       |
|              |       | Notes to  Condensed Consolidated Financial Statements                                                         | 6          |
|              |       |                                                                                                          |       |
|              |       | Report of  Independent Registered Public Accounting Firm                                                      | 13         |
|              |       |                                                                                                          |       |
| **Item 2.**       | ** ** | **Management’s Discussion and  Analysis of Financial Condition and Results of Operations**               | 14         |
|              |       |                                                                                                          |       |
| **Item 3.**       | ** ** | **Quantitative and  Qualitative Disclosures About Market Risk**                                               | 19         |
|              |       |                                                                                                          |       |
| **Item 4.**       | ** ** | **Controls and Procedures**                                                                                   | 19         |
|              |       |                                                                                                          |       |
| **PART II.** | ** ** | **OTHER INFORMATION**                                                                                         |       |
|              |       |                                                                                                          |       |
| ** **        | ** ** | **Cautionary Statement**                                                                                      | 20         |
|              |       |                                                                                                          |       |
| **Item 1.**       | ** ** | **Legal Proceedings**                                                                                         | 21         |
| ** **        | ** ** | ** **                                                                                                    |       |
| **Item 1A.**      | ** ** | **Risk Factors**                                                                                              | 21         |
| ** **        | ** ** | ** **                                                                                                    |       |
| **Item 2.**       | ** ** | **Unregistered Sales of  Equity Securities and Use of Proceeds**                                              | 23         |
| ** **        | ** ** | ** **                                                                                                    |       |
| **Item 3.**       | ** ** | **Defaults Upon Senior  Securities**                                                                          | 23         |
| ** **        | ** ** | ** **                                                                                                    |       |
| **Item 4.**       | ** ** | **Submission of Matters to  a Vote of Security Holders**                                                      | 23         |
| ** **        | ** ** | ** **                                                                                                    |       |
| **Item 5.**       | ** ** | **Other Information**                                                                                         | 23         |
| ** **        | ** ** | ** **                                                                                                    | ** ** |
| **Item 6.**       | ** ** | **Exhibits**                                                                                                  | 24         |

 

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**PART I.  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,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                    | ** ** | **2009**                              | ** ** | **2008**                            | ** ** | **2009** | ** ** | **2008** | ** ** |
| Revenues:                                     |       |                                  |       |                                |       |   |   |   |   |
| Product sales                                 |       | $                                     | 199,620    |                                | $          | 182,461 |   | $ | 416,236 |   | $ | 371,764 |   |
| Product sales to  related party               |       | 11,137                                |       | 8,922                               |       | 23,467 |   | 20,039 |   |
| Commissions                                   |       | 3,755                                 |       | 3,577                               |       | 6,628 |   | 6,518 |   |
| Total revenues                                |       | 214,512                               |       | 194,960                             |       | 446,331 |   | 398,321 |   |
|                                          |       |                                  |       |                                |       |   |   |   |   |
| Cost of product  sales                        |       | 182,878                               |       | 166,692                             |       | 381,042 |   | 340,268 |   |
| Gross profit                                  |       | 31,634                                |       | 28,268                              |       | 65,289 |   | 58,053 |   |
|                                          |       |                                  |       |                                |       |   |   |   |   |
| Selling, general  and administrative expenses |       | 21,498                                |       | 20,410                              |       | 44,631 |   | 41,713 |   |
| Depreciation and  amortization                |       | 867                                   |       | 746                                 |       | 1,702 |   | 1,493 |   |
| Operating income                              |       | 9,269                                 |       | 7,112                               |       | 18,956 |   | 14,847 |   |
|                                          |       |                                  |       |                                |       |   |   |   |   |
| Other income  (expense):                      |       |                                  |       |                                |       |   |   |   |   |
| Interest expense                              |       | (75                                   | )          | (114                                | )          | (139 | ) | (165 | ) |
| Earnings of  equity method investees          |       | 55                                    |       | 41                                  |       | 121 |   | 92 |   |
| Other                                         |       | 127                                   |       | 117                                 |       | 276 |   | 352 |   |
| Total other  income (expense), net            |       | 107                                   |       | 44                                  |       | 258 |   | 279 |   |
|                                          |       |                                  |       |                                |       |   |   |   |   |
| Income before  taxes                          |       | 9,376                                 |       | 7,156                               |       | 19,214 |   | 15,126 |   |
| Income tax  expense                           |       | (3,589                                | )          | (2,778                              | )          | (7,478 | ) | (6,048 | ) |
|                                          |       |                                  |       |                                |       |   |   |   |   |
| Net income                                    |       | $                                     | 5,787      |                                | $          | 4,378 |   | $ | 11,736 |   | $ | 9,078 |   |
|                                          |       |                                  |       |                                |       |   |   |   |   |
| Earnings per  common share:                   |       |                                  |       |                                |       |   |   |   |   |
| Basic                                         |       | $                                     | 0.48       |                                | $          | 0.36 |   | $ | 0.97 |   | $ | 0.75 |   |
| Diluted                                       |       | $                                     | 0.47       |                                | $          | 0.36 |   | $ | 0.95 |   | $ | 0.74 |   |
|                                          |       |                                  |       |                                |       |   |   |   |   |
| Weighted average  common shares outstanding:  |       |                                  |       |                                |       |   |   |   |   |
| Basic                                         |       | 12,076                                |       | 12,050                              |       | 12,073 |   | 12,048 |   |
| Diluted                                       |       | 12,296                                |       | 12,298                              |       | 12,296 |   | 12,297 |   |

 

See Notes to CondensedConsolidated 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,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                                                                                       | ** ** | **2009**           | ** ** | **2008**               | ** ** |
| **Assets**                                                                                                       | ** ** | ** **         | ** ** | ** **             | ** ** |
| ** **                                                                                                       | ** ** | ** **         | ** ** | ** **             | ** ** |
| Current Assets:                                                                                                  |       |               |       |                   |       |
| Cash and cash  equivalents                                                                                       |       | $                  | 131        |                   | $          | 3,419 |   |
| Receivables, net                                                                                                 |       | 135,023            |       | 128,564                |       |
| Inventories                                                                                                      |       | 116,982            |       | 118,403                |       |
| Prepaid expenses  and other current assets                                                                       |       | 2,756              |       | 3,168                  |       |
| Deferred income  taxes                                                                                           |       | 1,466              |       | 809                    |       |
| Total current  assets                                                                                            |       | 256,358            |       | 254,363                |       |
|                                                                                                             |       |               |       |                   |       |
| Property and  equipment, net                                                                                     |       | 9,199              |       | 9,687                  |       |
| Goodwill                                                                                                         |       | 37,610             |       | 37,727                 |       |
| Intangibles, net                                                                                                 |       | 10,608             |       | 10,945                 |       |
| Other assets,  net                                                                                               |       | 2,155              |       | 2,083                  |       |
| Total assets                                                                                                     |       | $                  | 315,930    |                   | $          | 314,805 |   |
|                                                                                                             |       |               |       |                   |       |
| **Liabilities  And Stockholders’ Equity**                                                                   | ** ** | ** **         | ** ** | ** **             | ** ** |
| ** **                                                                                                       | ** ** | ** **         | ** ** | ** **             | ** ** |
| Current  Liabilities:                                                                                            |       |               |       |                   |       |
| Line-of-credit                                                                                                   |       | $                  | 14,700     |                   | $          | — |   |
| Accounts payable                                                                                                 |       | 97,892             |       | 123,003                |       |
| Accrued expenses                                                                                                 |       | 8,837              |       | 9,854                  |       |
| Current  maturities of long-term debt                                                                            |       | 97                 |       | 97                     |       |
| Total current  liabilities                                                                                       |       | 121,526            |       | 132,954                |       |
|                                                                                                             |       |               |       |                   |       |
| Deferred income  taxes                                                                                           |       | 1,222              |       | 751                    |       |
|                                                                                                             |       |               |       |                   |       |
| Long-term debt                                                                                                   |       | —             |       | 97                     |       |
|                                                                                                             |       |               |       |                   |       |
| Commitments and  contingencies                                                                                   |       |               |       |                   |       |
|                                                                                                             |       |               |       |                   |       |
| **Stockholders’  Equity**                                                                                   | ** ** | ** **         | ** ** | ** **             | ** ** |
| Common stock  $0.01 par value, 40,000 authorized; 12,117 and 12,098 shares issued and  outstanding, respectively |       | 121                |       | 121                    |       |
| Additional paid  in capital                                                                                      |       | 122,762            |       | 122,319                |       |
| Retained  earnings                                                                                               |       | 70,299             |       | 58,563                 |       |
| Total  stockholders’ equity                                                                                 |       | 193,182            |       | 181,003                |       |
| Total  liabilities and stockholders’ equity                                                                 |       | $                  | 315,930    |                   | $          | 314,805 |   |

 

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,** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                         | ** ** | **2009**                            | ** ** | **2008** | ** ** |
| **Cash  Flows From Operating Activities:**                                         | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $                                   | 11,736     |   | $ | 9,078 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                |       |   |   |
| Depreciation and  amortization                                                     |       | 1,708                               |       | 1,499 |   |
| Amortization of  debt issuance costs                                               |       | 21                                  |       | 21 |   |
| Stock-based  compensation                                                          |       | 137                                 |       | 45 |   |
| Deferred income  taxes                                                             |       | (186                                | )          | (474 | ) |
| Earnings of  equity method investees                                               |       | (121                                | )          | (92 | ) |
| Loss on disposal  of property and equipment                                        |       | 28                                  |       | — |   |
| Tax benefit of  common stock options                                               |       | (224                                | )          | (123 | ) |
| Changes in operating  assets and liabilities (net of effects of acquisitions):     |       |                                |       |   |   |
| Receivables                                                                        |       | (6,518                              | )          | (5,941 | ) |
| Inventories                                                                        |       | 1,421                               |       | (12,795 | ) |
| Prepaid expenses  and other current assets                                         |       | 412                                 |       | 375 |   |
| Accounts payable                                                                   |       | (24,570                             | )          | 6,933 |   |
| Accrued expenses                                                                   |       | (793                                | )          | (265 | ) |
| Net cash used in  operating activities                                             |       | (16,949                             | )          | (1,739 | ) |
|                                                                               |       |                                |       |   |   |
| **Cash  Flows From Investing Activities:**                                         | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Business  acquisitions                                                             |       | 117                                 |       | (4,548 | ) |
| Purchases of  property and equipment                                               |       | (1,372                              | )          | (990 | ) |
| Other                                                                              |       | (50                                 | )          | (27 | ) |
| Net cash used in  investing activities                                             |       | (1,305                              | )          | (5,565 | ) |
|                                                                               |       |                                |       |   |   |
| **Cash  Flows From Financing Activities:**                                         | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Net borrowings  on line-of-credit                                                  |       | 14,700                              |       | — |   |
| Proceeds from  stock options                                                       |       | 12                                  |       | 75 |   |
| Tax benefit of  common stock options                                               |       | 224                                 |       | 123 |   |
| Payment on  long-term debt                                                         |       | (97                                 | )          | (97 | ) |
| Issuance of  common stock                                                          |       | 127                                 |       | — |   |
| Net cash  provided by financing activities                                         |       | 14,966                              |       | 101 |   |
|                                                                               |       |                                |       |   |   |
| **Decrease  in Cash and Cash Equivalents**                                         |       | (3,288                              | )          | (7,203 | ) |
| ** **                                                                         | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Cash and Cash  Equivalents at Beginning of Period                                  |       | 3,419                               |       | 8,599 |   |
|                                                                               |       |                                |       |   |   |
| Cash and Cash  Equivalents at End of Period                                        |       | $                                   | 131        |   | $ | 1,396 |   |

 

See Notes to CondensedConsolidated Financial Statements

 

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

 

## **NOTE 1 —GENERAL**

##  

**Basisof Presentation**

 

The accompanyingunaudited condensed consolidated financial statements include the results ofoperations, financial position and cash flows of MWI Veterinary Supply, Inc.and its wholly-owned subsidiaries (collectively referred to as “we,” “us,” and “our”throughout this Form 10-Q).  Allmaterial intercompany balances have been eliminated.

 

In the opinion of ourmanagement, the accompanying unaudited condensed consolidated financialstatements include all adjustments necessary to present fairly, in all materialrespects, our results for the periods presented. These condensed consolidatedfinancial statements have been prepared by us pursuant to the rules andregulations of the Securities and Exchange Commission (“SEC”).  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States have beencondensed or omitted pursuant to such rules and regulations.  These condensed consolidated financialstatements should be read in conjunction with the consolidated financialstatements and accompanying notes included in our 2008 Annual Report on Form 10-Kfiled with the SEC on November 24, 2008. The results of operations for the three and six months ended March 31,2009 are not necessarily indicative of results to be expected for the entirefiscal year.

 

Our unaudited condensedconsolidated balance sheet as of September 30, 2008 has been derived fromthe audited consolidated balance sheet as of that date.

 

**Useof Estimates**

 

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

 

**RevenueRecognition**

 

*We sell products we source from vendors to our customersthrough either a “buy/sell” transaction or an agency relationship with ourvendors. In a “buy/sell” transaction, we purchase or take inventory of productsfrom the vendor. When a customer places an order with us, we pick, pack, shipand invoice 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 historically not been significant to ourfinancial statements. We record revenues net of sales tax.  In an agency relationship, we generally donot purchase and take inventory of products from vendors. We receive an orderfrom a customer, then transmit the order to the vendor, who picks, packs andships the order to the customer. In some cases, the vendor invoices andcollects payment from the customer, while in other cases we invoice and collectpayment from the customer on behalf of the vendor. We receive a commissionpayment for soliciting the order from the customer and for providing othercustomer service activities. Commissions are recognized when the services uponwhich the commissions are based are complete.*Gross billings from agency contracts were$75,471 and $73,923 for the three months ended March 31, 2009 and 2008,respectively, and generated commission revenue of $3,755 and $3,577,respectively.  Gross billings from agencycontracts were $123,137 and $114,740 for the six months ended March 31,2009 and 2008, respectively, and generated commission revenue of $6,628 and$6,518, respectively.

 

**Costof Product Sales and Vendor Rebates**

 

*Cost of product salesconsist of our inventory product cost, including shipping costs to and from ourdistribution centers. Vendor rebates are recorded based on the terms of thecontracts or programs with each vendor. We may receive quarterly,*

 

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*semi-annual or annualperformance-based rebates from third-party vendors based upon attainment ofcertain sales and/or purchase goals. Sales rebates are classified in theaccompanying consolidated statements of income as a reduction to cost ofproduct sales at the time the sales performance measures are achieved. Purchaserebates are measured against inventory purchases from the vendors and areclassified as a reduction of inventory until the product is sold. When theinventory is sold and purchase measures are achieved, purchase rebates arerecognized as a reduction to cost of product sales.*

 

*Historically, actualresults have not significantly deviated from those determined using theestimates described above. We expect that our estimates in the future will continueto be reasonable as our rebates are based on specific vendor program goals andare principally recorded upon achievement of sales or purchase performancemeasures. Vendors may change or eliminate rebate programs from year to year.*

 

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

 

In September 2006, the FASB issued Statement ofFinancial Accounting Standards (“SFAS”) No. 157, *Fair ValueMeasurements* (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fairvalue according to generally accepted accounting principles and expandsdisclosure requirements regarding fair value measurements.  This statement emphasizes that fair valueshould be determined based on assumptions market participants would use toprice the asset or liability.  SFAS 157was effective for financial assets for our fiscal year beginning October 1,2008.  The implementation of SFAS 157 didnot have a material effect on our consolidated financial statements.  FASB Staff Position 157-2 (“FSP 157-2”) delayedthe implementation of SFAS 157 for nonfinancial assets and liabilities, exceptfor items that are recognized or disclosed at fair value in the financialstatements on a recurring basis (at least annually). FSP 157-2 is effective fornonfinancial assets and liabilities for our fiscal year beginning October 1,2009.  The adoption of this statement isnot expected to have a material impact on our consolidated financialstatements.

 

In December 2007, the FASB issued SFAS No. 141(Revised), *Business Combinations* (“SFAS 141-R”).  SFAS 141-R retains the purchase method ofaccounting for acquisitions, but requires a number of changes, includingchanges in the way assets and liabilities are recognized in the purchaseaccounting. It changes the recognition of assets acquired and liabilitiesassumed arising from contingencies, requires the capitalization of in-processresearch and development at fair value and requires the expensing ofacquisition-related costs as incurred, among other items. The statement will applyprospectively to any business combinations occurring in our fiscal yearbeginning October 1, 2009.

 

In December 2007, the FASB issued SFAS No. 160,*Noncontrolling Interests in Consolidated FinancialStatements, an amendment of ARB 51* (“SFAS 160”).  This statement amends Accounting ResearchBulletin No. 51, *Consolidated FinancialStatements*, to establish accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary. Noncontrolling interests shall be reclassified to equity,consolidated net income shall be adjusted to include net income attributable tononcontrolling interests and consolidated comprehensive income shall beadjusted to include comprehensive income attributable to the noncontrollinginterests.  SFAS 160 is effective for ourfiscal year beginning October 1, 2009. The adoption of this statement is not expected to have a material impacton our consolidated financial statements.

 

In April 2008, the FASB issued FASB StaffPosition FAS 142-3 (“FSP 142-3”), which amends the list of factors an entityshould consider in determining the useful life of recognized intangible assetsunder FASB Statement 142.  FSP 142-3 iseffective for our fiscal year beginning October 1, 2009.  We are currently evaluating the expectedimpact, if any, that FSP 142-3 will have on our consolidated financialstatements.

 

**NOTE 3**—**BUSINESS ACQUISITION**

 

InJuly 2008, we acquired substantially all of the assets of AAHA ServicesCorporation, operating as AAHA MARKETLink (“AAHA MARKETLink”) for approximately$8,676, net of cash acquired of $1,320 (including direct acquisition costs ofapproximately $212).  The purchase priceof $8,676 was reduced by $117 during the six months ended March 31, 2009as a result of a post-closing working capital adjustment.  Based near Denver, Colorado, AAHA MARKETLinkwas a distributor of animal health products to members of the American AnimalHospital Association.

 

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**NOTE 4**—**RECEIVABLES**

 
| ** **                       | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|----------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                       | ** ** | **2009**           | ** ** | **2008**               | ** ** |
| Trade                            |       | $                  | 127,160    |                   | $          | 118,242 |   |
| Vendor rebates  and programs     |       | 9,845              |       | 11,200                 |       |
|                             |       | 137,005            |       | 129,442                |       |
| Allowance for  doubtful accounts |       | (1,982             | )          | (878                   | )          |
|                             |       | $                  | 135,023    |                   | $          | 128,564 |   |

 

Product sales resultingfrom transactions with a single customer were 11% and 10% of total productsales during the three and six months ended March 31, 2009, respectively,and 10% and 9% of total products sales during the three and six months ended March 31,2008, respectively. Approximately 11% and 10% of our trade receivables resultedfrom transactions with this single customer as of March 31, 2009 and September 30,2008, respectively.

 

**NOTE 5 —PROPERTY AND EQUIPMENT**

 
| ** **                          | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|-------------------------------------|------------|--------------------|------------|------------------------|------------|
|                                | ** ** | **2009**           | ** ** | **2008**               | ** ** |
| Land                                |       | $                  | 20         |                   | $          | 20 |   |
| Leasehold  improvements             |       | 3,548              |       | 3,094                  |       |
| Machinery,  furniture and equipment |       | 12,618             |       | 11,587                 |       |
| Computer  equipment                 |       | 3,233              |       | 3,428                  |       |
| Construction in  progress           |       | 98                 |       | 1,626                  |       |
|                                |       | 19,517             |       | 19,755                 |       |
| Accumulated  depreciation           |       | (10,318            | )          | (10,068                | )          |
|                                |       | $                  | 9,199      |                   | $          | 9,687 |   |

 

Depreciation expense was$662 and $595 for the three months ended March 31, 2009 and 2008,respectively.  Depreciation expense was$1,291 and $1,218 for the six months ended March 31, 2009 and 2008,respectively.

 

**NOTE 6**—**INTANGIBLES**

 
| ** **                | ** ** | ** **       | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|---------------------------|------------|------------------|------------|--------------------|------------|------------------------|------------|
| ** **                | ** ** | **Useful Lives** | ** ** | **2009**           | ** ** | **2008**               | ** ** |
| Amortizing:               |       |             |       |               |       |                   |       |
| Customer  relationships   |       | 9-20 years       |       | $                  | 9,076      |                   | $          | 9,076 |   |
| Covenants not to  compete |       | 1-5 years        |       | 686                |       | 686                    |       |
| Other                     |       | 3-5 years        |       | 257                |       | 257                    |       |
|                      |       |             |       | 10,019             |       | 10,019                 |       |
| Accumulated  amortization |       |             |       | (1,763             | )          | (1,346                 | )          |
|                      |       |             |       | 8,256              |       | 8,673                  |       |
| Non-Amortizing:           |       |             |       |               |       |                   |       |
| Trade names and  patents  |       |             |       | 2,352              |       | 2,272                  |       |
|                      |       |             |       | $                  | 10,608     |                   | $          | 10,945 |   |

 

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Amortization expense was$208 and $154 for the three months ended March 31, 2009 and 2008,respectively.  Amortization expense was$417 and $281 for the six months ended March 31, 2009 and 2008,respectively.  Estimated future annualamortization expense related to intangible assets as of March 31, 2009follows:

 
| ** **        | ** ** | **Amount** |
|-------------------|------------|------------|
| Remainder of 2009 |       | $          | 412 |
| 2010              |       | 803        |
| 2011              |       | 786        |
| 2012              |       | 760        |
| 2013              |       | 675        |
| Thereafter        |       | 4,820      |
|              |       | $          | 8,256 |

 

Theabove projection of amortization expense includes preliminary estimates ofintangible assets and lives associated with the acquisition of substantiallyall of the assets of AAHA MARKETLink. These amounts may be adjusted during the allocation period as defined inSFAS No. 141, *Business Combinations*.

 

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

 

**Line-of-Credit**—On December 13, 2006, MWIVeterinary Supply Co., our wholly-owned subsidiary (“MWI Co.”) as borrower,entered into an unsecured credit agreement with us and Memorial Pet Care, Inc.(our wholly-owned subsidiary), as guarantors, and Bank of America, N.A. andWells Fargo Bank, N.A., (collectively, the “lenders”) for the provision of arevolving credit facility (the “facility”). The facility allows for borrowings in the aggregate of $70,000, with theright to request an increase in the commitment of the lenders to $100,000.  The facility has a maturity date of December 1,2011 and a variable interest rate equal to the Daily LIBOR Floating Rate or theLIBOR 1-month fixed rate plus a margin ranging from 0.7% to 1.25% or the PrimeRate (at our option).  The lenders alsoreceive an unused line fee and letter of credit fee equal to 0.125% of theunused amount of the facility. Our outstanding balance on the facility at eachof March 31, 2009 and September 30, 2008 was $14,700 and $0,respectively, and the interest rate for the facility was 1.21% as of March 31,2009.

 

The facility containscertain financial covenants as well as other restrictive covenants. As of March 31,2009, we were in compliance with all covenants in the facility.  The facility allows for the issuance of up to$10,000 in letters of credit. The letters of credit would typically act as aguarantee of payment to certain third-parties in accordance with specifiedterms and conditions. We had no letters of credit at March 31, 2009 andfour letters of credit totaling $400 at September 30, 2008. There were nooutstanding borrowings on these letters of credit at either March 31, 2009or September 30, 2008.

 

**Long-TermDebt**—In January 2005,we issued a promissory note in the aggregate principal amount of $487 inpartial consideration for the purchase of substantially all the assets of VetpoDistributors, Inc. The note bears interest at the prime rate (3.25% at March 31,2009), 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 $97and $194 at March 31, 2009 and September 30, 2008, respectively.

 

**NOTE 8**—**COMMON STOCK AND STOCK-BASED AWARDS**

 

We have two stock-basedaward plans: the 2002 Stock Option Plan and the Amended and Restated 2005Stock-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, 2009, 404,311 options topurchase common stock were outstanding (347,903 options vested and exercisable)with a weighted average exercise price of $2.94 and expiring through September 2015.

 

We granted no commonstock options during each of the three and six months ended March 31, 2009and 2008.  During the three months ended March 31,2009 and 2008, we did not issue any shares of restricted stock under the 2005Plan.  During the six months ended March 31,2009 and 2008, we issued 0 and 4,000 shares of restricted stock under the 2005Plan, respectively, which vest ratably over 5 years.  During the three months ended March 31,2009 and 2008, we recognized $89 and $32 of compensation expense related torestricted stock grants, respectively. During the six months ended March 31, 2009 and 2008, we recognized$179 and $62 of compensation expense related to restricted stock grants,respectively.  At March 31, 2009,1,483,631 shares were available to be issued under our stock-based award plans.

 

We also have an employeestock purchase plan (“ESPP”) that allows substantially all employees topurchase shares of our common stock at 95% of the fair market value on the dateof purchase.  The purchase date is thelast trading date of the purchase period, which begins in March, June, September andDecember.  Employees accumulate amountsthrough payroll 

 

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deductions during thepurchase period of between 1% and 10% but no more than $20,000 annually.  An employee is allowed to purchase a maximumof 200 shares per purchase period.  Duringthe three and six months ended March 31, 2009, we issued 2,269 and 5,326shares, respectively, of our common stock under the ESPP.  At March 31, 2009, there were 493,103shares available to be issued under the ESPP.

 

**NOTE 9**—**INCOME TAXES**

 

Oureffective tax rate for the three months ended March 31, 2009 and 2008 was38.3% and 38.8%, respectively.  Oureffective tax rate for the six months ended March 31, 2009 and 2008 was38.9% and 40.0%, respectively.  Thechange in effective rate is due to resolution of certain unrecognized taxbenefits.

 

Asof March 31, 2009, we had $226 of unrecognized tax benefits, of which $27would impact our effective rate if recognized. Our policy for classifyinginterest and penalties associated with unrecognized tax benefits is to includesuch items in income tax expense.  Theamount of interest and penalties recognized during the three and six monthsended March 31, 2009 was not material.

 

Wefiled Form 3115 Application of Change in Accounting Method with theInternal Revenue Service during the fiscal year ended September 30,2008.  We filed an advance consentrequest for a non-automatic account method change for tax purposes for which wehad not received approval prior to our reporting period end.  The method change will make revenue recognitionfor tax purposes the same as revenue recognized for book purposes. We expectresolution within the next twelve months which would decrease the liability foruncertain tax benefits by approximately $185.

 

Additionally,we are in the process of entering into voluntary disclosure agreements withcertain state jurisdictions and it is reasonably possible that these will besettled within the next twelve months, which would decrease the liability foruncertain tax benefits by approximately $41 as a result of the payment ofadditional tax expected to be due. Settlement of any particular position wouldusually require the use of cash.  Theresolution of a matter would be recognized as an adjustment to our income taxexpense and our effective tax rate in the period of resolution.  With few exceptions, we are no longer subjectto income tax examination for years before 2003 in the U.S. and significantstate and local jurisdictions.

##  

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## **NOTE 10 —COMPUTATION OF EARNINGS PER SHARE***(Inthousands, except per share data)*

 
| ** **                                      | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                      | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| ** **                                      | ** ** | **Basic**                             | ** ** | **Diluted** | ** ** | **Basic** | ** ** | **Diluted** | ** ** |
| Net income                                      |       | $                                     | 5,787      |   | $ | 5,787 |   | $ | 4,378 |   | $ | 4,378 |   |
| Weighted average  common shares outstanding     |       | 12,076                                |       | 12,076 |   | 12,050 |   | 12,050 |   |
| Effect of  diluted securities                   |       |                                  |       |   |   |   |   |   |   |
| Stock options  and restricted stock             |       |                                  |       | 220 |   |   |   | 248 |   |
| Weighted average  diluted shares outstanding    |       |                                  |       | 12,296 |   |   |   | 12,298 |   |
| Earnings per  share                             |       | $                                     | 0.48       |   | $ | 0.47 |   | $ | 0.36 |   | $ | 0.36 |   |
| Anti-dilutive  shares excluded from calculation |       |                                  |       | — |   |   |   | — |   |

 
|                                            | ** ** | **Six  months ended March 31,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------|------------|
|                                            | ** ** | **2009**                             | ** ** | **2008** | ** ** |
|                                            | ** ** | **Basic**                            | ** ** | **Diluted** | ** ** | **Basic** | ** ** | **Diluted** | ** ** |
| Net income                                      |       | $                                    | 11,736     |   | $ | 11,736 |   | $ | 9,078 |   | $ | 9,078 |   |
| Weighted average  common shares outstanding     |       | 12,073                               |       | 12,073 |   | 12,048 |   | 12,048 |   |
| Effect of  diluted securities                   |       |                                 |       |   |   |   |   |   |   |
| Stock options  and restricted stock             |       |                                 |       | 223 |   |   |   | 249 |   |
| Weighted average  shares outstanding            |       |                                 |       | 12,296 |   |   |   | 12,297 |   |
| Earnings per  share                             |       | $                                    | 0.97       |   | $ | 0.95 |   | $ | 0.75 |   | $ | 0.74 |   |
| Anti-dilutive  shares excluded from calculation |       |                                 |       | — |   |   |   | — |   |

 

**NOTE 11**—**RELATED PARTIES**

 

MWI Co. holds a 50.0%membership interest in Feeders’ Advantage. MWI Co. charged Feeders’ Advantage for certain operating andadministrative services in the amounts of $193 and $129 for the three monthsended March 31, 2009 and 2008, respectively, and $372 and $286 for the sixmonths ended March 31, 2009 and 2008, respectively.  Sales of products to Feeders’ Advantage were$11,138 and $8,921 for the three months ended March 31, 2009 and 2008,respectively, which represented 5% of total product sales during both of thethree months ended March 31, 2009 and 2008.  Sales of products to Feeders’ Advantage were$23,468 and $20,038 for the six months ended March 31, 2009 and 2008,respectively, which represented 5% of total product sales during both of thesix months ended March 31, 2009 and 2008.

 

MWI Co. provides Feeders’Advantage with a line-of-credit to finance its day-to-day operations. Thisline-of-credit bears interest at the prime rate. The interest due on theline-of-credit is calculated and charged to Feeders’ Advantage on the last dayof each month. Conversely, to the extent MWI Co. has a payable balance due toFeeders’ Advantage, the payable balance accrues interest in favor of Feeders’Advantage at the average federal funds rates in effect for that month. As of March 31,2009 and September 30, 2008, MWI Co. had a payable balance to Feeders’Advantage of $1,302 and $429, respectively.

 

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**NOTE 12 — STATEMENTS OF CASH FLOWS — SUPPLEMENTAL ANDNON-CASH DISCLOSURES**

 
| ** **                                             | ** ** | **Six months ended March 31,** | ** ** |
|--------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                             | ** ** | **2009**                            | ** ** | **2008** | ** ** |
| *Supplemental  Disclosures*                            | * *   | * *                            | * *   | * * | * * |
| Cash paid for  interest                                |       | $                                   | 104        |   | $ | 128 |   |
| Cash paid for  income taxes                            |       | 7,152                               |       | 6,272 |   |
| *Non-cash  Activities*                                 | * *   | * *                            | * *   | * * | * * |
| Equipment  acquisitions financed with accounts payable |       | 39                                  |       | 150 |   |
|                                                        |            |                                     |            |  |  |  |  |

 

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

 

## 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, 2009, we were not a party to any material pendinglegal proceedings and were not aware of any claims that could have a materialadverse effect on our financial position, results of operations or cash flows.

 

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**REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM**

** **

To the Board of Directorsand Stockholders of

MWI Veterinary Supply, Inc.

Meridian, ID

 

We have reviewed theaccompanying condensed consolidated balance sheet of MWI Veterinary Supply, Inc.and subsidiaries (the “Corporation”) as of March 31, 2009, and the relatedcondensed consolidated statements of income for the three-month and six-monthperiods ended March 31, 2009 and 2008, and of cash flows for the six-monthperiods ended March 31, 2009 and 2008. These interim financial statements are the responsibility of theCorporation’s management.

 

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

 

Based on our 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, 2008 andthe related consolidated statements of income, stockholders’ equity, and cashflows for the year then ended (not presented herein); and in our report dated November 21,2008, we expressed an unqualified opinion on those consolidated financialstatements. In our opinion, the information set forth in the accompanyingcondensed consolidated balance sheet as of September 30, 2008 is fairlystated, in all material respects, in relation to the consolidated balance sheetfrom which it has been derived.

 

 
| /s/ DELOITTE &  TOUCHE LLP |   |
|-------------------------------------|--------|
| Boise, ID                           |   |
| April 30, 2009                 |   |

 

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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 than30,000 products sourced from over 500 vendors to approximately 19,000veterinary practices nationwide.  Wecurrently operate out of twelve strategically located distribution centers.  Products we sell include pharmaceuticals,vaccines, parasiticides, diagnostics, capital equipment, supplies, veterinarypet food and nutritional products.  Wemarket these products to veterinarians in both the companion animal andproduction animal markets. We operate within a single reporting segment and areprimarily located within the United States.

 

OurDallas, Texas distribution center moved from a 35,000 square foot facility to a70,000 square foot facility in November 2008.  In January 2009, we consolidated ourdistribution center in San Antonio, Texas into our Dallas, Texas distributioncenter.

 

Historically,we estimate that approximately two-thirds of our total revenues have beengenerated from sales to the companion animal market and one-third from sales tothe production animal market. The state of the overall economy and consumerspending have impacted both markets, while volatile commodity prices in grain,corn and feeder cattle and changes in weather patterns have also affecteddemand in the production animal market. Both markets have been integral to our financial results and we intendto continue supporting both markets.

 

Webelieve that growth in the companion animal market has slowed recently as aresult of a decrease in consumer spending and a general slowdown in theeconomy.  Historically, growth in thecompanion animal market has been due to the increasing number of householdswith companion animals, increased expenditures on animal health andpreventative care, an aging pet population, advancements in pharmaceuticals anddiagnostic testing and extensive marketing programs sponsored by companionanimal nutrition and pharmaceutical companies. While the average order size forcompanion animal health products is often smaller than production animal healthproducts, companion animal health products typically have higher margins. Weintend to continue to penetrate this market through internal growth initiativesand selective acquisitions.

 

Productsales in the production animal market have been negatively impacted byincreasing volatility in commodity prices such as corn, grain and feedercattle, changes in weather patterns that allow cattle to graze for longerperiods and changes in the general economy. We believe that this is not a permanent condition in the market and thatdemand will return as prices normalize. We intend to continue to supportproduction animal veterinarians with a broad range of products and value addedservices. Historically, sales in this market have been largely driven byspending on animal health products to improve productivity, weight gain anddisease prevention, as well as a growing focus on food safety.

 

*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 othercases we invoice and collect payment from the customer on behalf of the vendor.We receive a commission payment for soliciting the order from the customer andfor providing other customer service activities. The aggregate revenue wereceive in agency transactions constitutes the “commissions” line item on ourstatement of income and is recorded in conformity with accounting principlesgenerally accepted in the United States. The vendor determines the method weuse to sell the products. Historically, vendors have occasionally switchedbetween the “buy/sell” and agency models for particular products in response tomarket conditions related to that particular product. A switch between modelscan impact our revenues, gross margin, gross margin percentage and operatingincome.

 

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Ourtop ten vendors supplied products that accounted for approximately 70% and 71%of our revenues for the six months ended March 31, 2009 and 2008,respectively, and 72% of our revenues for the fiscal year ended September 30,2008.  Pfizer supplied products thataccounted for approximately 26% and 24% of our revenues during the six monthsended March 31, 2009 and 2008, respectively, and  23% of our revenues for our fiscal year endedSeptember 30, 2008.  Fort Dodgesupplied products that accounted for approximately 11% of our revenues duringboth of the six months ended March 31, 2009 and 2008, and 12% of ourrevenues for our fiscal year ended September 30, 2008.  Intervet-Schering, a subsidiary of ScheringPlough Corporation (“Schering Plough”), supplied products that accounted forapproximately 10% and 9% of our revenues during the six months ended March 31,2009 and 2008, respectively, and 9% of our revenues for our fiscal year ended September 30,2008.  Merial Limited (“Merial”), a jointventure between Merck & Co., Inc. and Sanofi-Aventis S.A.,supplies the majority of their products to us under an agencyrelationship.  Commission revenuegenerated from Merial products accounted for approximately 52% and 62% of totalcommission revenues for the six months ended March 31, 2009 and 2008,respectively, and 60% of total commission revenues for our fiscal year ended September 30,2008.  Of the Pfizer supplied products,production animal products under a livestock agreement accounted forapproximately 16% and 18% of our revenues during the six months ended March 31,2009 and 2008, respectively and approximately 17% of our revenues for ourfiscal year ended September 30, 2008.

 

OnJanuary 26, 2009, Pfizer and Wyeth announced that they had entered into amerger agreement under which Pfizer will acquire all of the outstanding stockof Wyeth.  Pfizer and Fort Dodge, whichis a division of Wyeth, are our two largest vendors as measured by ourrevenues.  On March 9, 2009, Merckand Schering-Plough announced that they had entered into a merger agreementunder which Merck will acquire all of the outstanding stock of Schering-Plough.

 

*Vendor Rebates*

 

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

 

On December 12, 2008, we entered into a 2009Livestock Products Distribution Agreement (the “Agreement”) with Pfizer, Inc.which was effective January 1, 2009. Under the Agreement, MWI is entitled to distribute Pfizer’s livestockproducts to customers in the livestock field. The Agreement allows for a reduced fee for logistics and has eliminatedincentive fees and rebates compared to the 2008 Livestock ProductsAgreement.  MWI is required to maintainsufficient inventory levels to meet customer demand and to store products inaccordance with their respective label instructions.  The Agreement expires on December 31,2009 and may be terminated by either party with or without cause upon 30 daysprior written notice.

 

*Acquisitions*

 

InJuly 2008, we acquired substantially all of the assets of AAHAMARKETLink.  Based near Denver, Colorado,AAHA MARKETLink was a distributor of animal health products to members ofAmerican Animal Health Association.

 

For more information onour business, see our Annual Report on Form 10-K filed with the SEC on November 24,2008.

 

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**Results of Operations**

 

Thefollowing table summarizes our results of operations for the three and sixmonths ended March 31, 2009 and 2008, in dollars and as a percentage oftotal revenues.

 
| ** **                                                  | ** ** | **Three Months Ended March 31,** | ** ** | **Six Months Ended March 31,** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                  | ** ** | **2009**                                             | ** ** | **%**                                              | ** ** | **2008** | ** ** | **%** | ** ** | **2009** | ** ** | **%** | ** ** | **2008** | ** ** | **%** | ** ** |
| Revenues:                                                   |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Product sales                                               |       | $                                                    | 199,620    |                                               | 93.1       | % | $ | 182,461 |   | 93.6 | % | $ | 416,236 |   | 93.3 | % | $ | 371,764 |   | 93.4 | % |
| Product sales to  related party                             |       | 11,137                                               |       | 5.2                                                | %          | 8,922 |   | 4.6 | % | 23,467 |   | 5.2 | % | 20,039 |   | 5.0 | % |
| Commissions                                                 |       | 3,755                                                |       | 1.7                                                | %          | 3,577 |   | 1.8 | % | 6,628 |   | 1.5 | % | 6,518 |   | 1.6 | % |
| Total revenues                                              |       | 214,512                                              |       | 100.0                                              | %          | 194,960 |   | 100.0 | % | 446,331 |   | 100.0 | % | 398,321 |   | 100.0 | % |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of product  sales                                      |       | 182,878                                              |       | 85.3                                               | %          | 166,692 |   | 85.5 | % | 381,042 |   | 85.4 | % | 340,268 |   | 85.4 | % |
| Gross profit                                                |       | 31,634                                               |       | 14.7                                               | %          | 28,268 |   | 14.5 | % | 65,289 |   | 14.6 | % | 58,053 |   | 14.6 | % |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general  and administrative expenses               |       | 21,498                                               |       | 10.0                                               | %          | 20,410 |   | 10.5 | % | 44,631 |   | 10.0 | % | 41,713 |   | 10.5 | % |
| Depreciation and  amortization                              |       | 867                                                  |       | 0.4                                                | %          | 746 |   | 0.4 | % | 1,702 |   | 0.4 | % | 1,493 |   | 0.4 | % |
| Operating income                                            |       | 9,269                                                |       | 4.3                                                | %          | 7,112 |   | 3.6 | % | 18,956 |   | 4.2 | % | 14,847 |   | 3.7 | % |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income  (expense):                                    |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                            |       | (75                                                  | )          | 0.0                                                | %          | (114 | ) | -0.1 | % | (139 | ) | 0.0 | % | (165 | ) | 0.0 | % |
| Earnings of  equity method investees                        |       | 55                                                   |       | 0.0                                                | %          | 41 |   | 0.0 | % | 121 |   | 0.0 | % | 92 |   | 0.0 | % |
| Other                                                       |       | 127                                                  |       | 0.1                                                | %          | 117 |   | 0.1 | % | 276 |   | 0.1 | % | 352 |   | 0.1 | % |
| Total other  income (expense), net                          |       | 107                                                  |       | 0.1                                                | %          | 44 |   | 0.0 | % | 258 |   | 0.1 | % | 279 |   | 0.1 | % |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before  taxes                                        |       | 9,376                                                |       | 4.4                                                | %          | 7,156 |   | 3.6 | % | 19,214 |   | 4.3 | % | 15,126 |   | 3.8 | % |
| Income tax  expense                                         |       | (3,589                                               | )          | -1.7                                               | %          | (2,778 | ) | -1.4 | % | (7,478 | ) | -1.7 | % | (6,048 | ) | -1.5 | % |
| Net income                                                  |       | $                                                    | 5,787      |                                               | 2.7        | % | $ | 4,378 |   | 2.2 | % | $ | 11,736 |   | 2.7 | % | $ | 9,078 |   | 2.3 | % |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings per  common share:                                 |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                       |       | $                                                    | 0.48       |                                               |       |   | $ | 0.36 |   |   |   | $ | 0.97 |   |   |   | $ | 0.75 |   |   |   |
| Diluted                                                     |       | $                                                    | 0.47       |                                               |       |   | $ | 0.36 |   |   |   | $ | 0.95 |   |   |   | $ | 0.74 |   |   |   |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average  common shares outstanding (in thousands): |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                       |       | 12,076                                               |       |                                               |       | 12,050 |   |   |   | 12,073 |   |   |   | 12,048 |   |   |   |
| Diluted                                                     |       | 12,296                                               |       |                                               |       | 12,298 |   |   |   | 12,296 |   |   |   | 12,297 |   |   |   |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Data:                                                 |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Product sales  from Internet as a percentage of sales       |       | 31                                                   | %          |                                               |       | 27 | % |   |   | 29 | % |   |   | 25 | % |   |   |
| Field sales  representatives (at end of period)             |       | 187                                                  |       |                                               |       | 173 |   |   |   | 187 |   |   |   | 173 |   |   |   |
| Telesales  representatives (at end of period)               |       | 135                                                  |       |                                               |       | 130 |   |   |   | 135 |   |   |   | 130 |   |   |   |
| Fill rate (1)                                               |       | 98                                                   | %          |                                               |       | 98 | % |   |   | 98 | % |   |   | 98 | % |   |   |

 

----

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

 

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**Three Months Ended March 31, 2009 Compared to ThreeMonths Ended March 31, 2008**

 

*Total Revenues*.  Total revenues increased 10.0% to $214,512for the three months ended March 31, 2009, from $194,960 for the threemonths ended March 31, 2008. Revenues grew primarily due to increased sales from new customers.  New and existing customers representedapproximately 93% and 7%, respectively, of the growth in total revenues duringthe three months ended March 31, 2009. For the purpose of calculating growth rates of new and existing customerrevenue, we have defined a new customer as a customer that did not purchaseproduct from us in the corresponding fiscal quarter of the prior year, with theremaining customer base being considered existing customers.  Included in the new customer growth wereapproximately $2,891 of revenues attributable to new customers acquired as aresult of the acquisition of substantially all of the assets of AAHA MARKETLinkas of July 1, 2008.  Additionally,we had approximately $5,235 of incremental revenues as a result of theacquisition of substantially all of the assets of AAHA MARKETLink fromcustomers who had previously been purchasing from both MWI and AAHAMARKETLink.  Product sales to relatedparty increased by 24.8% to $11,137 for the quarter ended March 31, 2009,compared to $8,922 for the quarter ended March 31, 2008 due to increasedplacements into feedlots for Feeders’ Advantage during the quarter compared tothe same period in the prior year.  Commissions increased 5.0% to $3,755 for the three months ended March 31,2009, from $3,577 for the three months ended March 31, 2008.

 

*Gross Profit*.  Gross profit increased by 11.9% to $31,634for the three months ended March 31, 2009, from $28,268 for the threemonths ended March 31, 2008.  Grossprofit as a percentage of total revenues was 14.7% and 14.5% for the three monthsended March 31, 2009 and 2008, respectively. The increase in gross profitas a percentage of total revenues was due to improved freight costs as apercentage of revenues as well as an improvement in product margin during thequarter, partially offset by a decrease in vendor rebates.  Vendor rebates decreased approximately $400for the three months ended March 31, 2009 compared to the three monthsended March 31, 2008.  This decreasewas due to the approximately $400 that was earned in the quarter ended March 31,2008 that stemmed from a difference with a key vendor over a rebate that wasexpected to be earned in the quarter ended December 31, 2007.

 

*Selling, General and Administrative (“SG&A”)*.  SG&A expenses increased 5.3% to $21,498for the three months ended March 31, 2009, from $20,410 for the threemonths ended March 31, 2008. SG&A expenses as a percentage of revenues were 10.0% and 10.5% forthe three months ended March 31, 2009 and 2008, respectively, due tooperating leverage and cost-control measures. The dollar increase in SG&Aexpenses was primarily due to increased compensation costs as well as anincrease in our allowance for doubtful accounts, partially offset by decreasesin fees to outside service providers and travel expenses.  Our total headcount decreased by 6 employeesas of March 31, 2009, compared to March 31, 2008 due to operationalchanges made during the quarter.  Oursales headcount increased by 19 employees as of March 31, 2009, comparedto March 31, 2008 to 187 field sales representatives and 135 telesalesrepresentatives.

 

*Depreciation and Amortization. *Depreciationand amortization expense increased 16.2% to $867 for the three months ended March 31,2009, from $746 for the three months ended March 31, 2008.  This increase was primarily the result ofamortization related to the AAHA MARKETLink acquisition.  Depreciation expense also increased as aresult of capital expenditures since March 31, 2008 related toimprovements in our distribution centers and information technology systems.

 

*Other Income (Expense)*.  Other income (expense) increased 143.2% to$107 in income for the three months ended March 31, 2009 from $44 inincome for the three months ended March 31, 2008. This increase in otherincome (expense) was due to a decline in interest expense of $39 to $75 for thethree months ended March 31, 2009, compared to $114 for the three monthsended March 31, 2008.  This decreasein interest expense was a result of the lower interest rates during thequarter, partially offset by a higher outstanding balance on our revolvingcredit facility.

 

*Income Tax Expense*.  Our effective tax rate for the three monthsended March 31, 2009 and 2008 was 38.3% and 38.8%, respectively.

 

**Six Months Ended March 31, 2009 Compared to Six MonthsEnded March 31, 2008**

 

*Total Revenues*.  Total revenues increased 12.1% to $446,331for the six months ended March 31, 2009, from $398,321 for the six monthsended March 31, 2008.  Revenues grewprimarily due to increased sales from new customers.  New and existing customers representedapproximately 80% and 20%, respectively, of the growth in total revenues duringthe six months ended March 31, 2009. Included in the new customer growth were approximately $5,259 ofrevenues attributable to 

 

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newcustomers acquired as a result of the acquisition of substantially all of theassets of AAHA MARKETLink as of July 1, 2008.  Additionally, we had approximately $10,742 ofincremental revenues as a result of the acquisition of substantially all of theassets of AAHA MARKETLink from customers who had previously been purchasingfrom both MWI and AAHA MARKETLink. Product sales to related party increased by 17.1% to $23,467 for the sixmonths ended March 31, 2009, compared to $20,039 for the six months ended March 31,2008.  Commissions increased 1.7% to$6,628 for the six months ended March 31, 2009, from $6,518 for the sixmonths ended March 31, 2008.

 

*Gross Profit*.  Gross profit increased by 12.5% to $65,289for the six months ended March 31, 2009, from $58,053 for the six monthsended March 31, 2008.  Gross profitas a percentage of total revenues was 14.6% for both of the six months ended March 31,2009 and 2008. Gross profit as a percentage of revenues benefited from animprovement in freight costs as a percentage of revenues but was offset by adecrease in commission revenues as a percentage of revenues.  Vendor rebates increased approximately $800for the six months ended March 31, 2009 compared to the six months ended March 31,2008.

 

*Selling, General and Administrative*.  SG&A expenses increased 7.0% to $44,631for the six months ended March 31, 2009, from $41,713 for the six months endedMarch 31, 2008.  SG&A expensesas a percentage of revenues were 10.0% and 10.5% for the six months ended March 31,2009 and 2008, respectively, due to operating leverage and cost-controlmeasures. The dollar increase in SG&A expenses was primarily due toincreased compensation costs as well as an increase in our allowance fordoubtful accounts.

 

*Depreciation and Amortization. *Depreciationand amortization expense increased 14.0% to $1,702 for the six months ended March 31,2009, from $1,493 for the six months ended March 31, 2008.  This increase was primarily the result ofamortization related to the AAHA MARKETLink acquisition.  Depreciation expense also increased as aresult of capital expenditures since March 31, 2008 related toimprovements in our distribution centers and information technology systems.

 

*Other Income (Expense)*.  Other income (expense) decreased 7.5% to $258in income for the six months ended March 31, 2009 from $279 in income forthe six months ended March 31, 2008. This decrease in other income(expense) was due to a decline in interest revenue of $105 to $3 for the sixmonths ended March 31, 2009, compared to $108 for the six months ended March 31,2008.  This decrease was a result of thelower interest rates coupled with a lower cash balance during the six monthsended March 31, 2009.

 

*Income Tax Expense*.  Our effective tax rate for the six monthsended March 31, 2009 and 2008 was 38.9% and 40.0%, respectively.  The change in the effective tax rate is dueto resolution of certain unrecognized tax benefits.

 

**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 24,2008.

 

**Liquidity and Capital Resources**

 

Ourprincipal sources of liquidity are cash flows generated from operations andborrowings on our revolving credit facility under our credit agreement. We usecapital primarily to fund day-to-day operations and to maintain sufficientinventory levels in order to promptly fulfill customer orders and to expand ouroperations and sales growth. We believe our capital resources, including ourability to borrow funds from our revolving credit facility, will be sufficientto meet our anticipated cash needs for at least the next twelve months.  Bank of America, N.A. and Wells Fargo, N.A.are the lenders for the revolving credit facility.  The revolving credit facility allows forborrowings in the aggregate of $70,000, with the right to request an increasein the commitment to $100,000. The facility has a maturity date of December 1,2011 and a variable interest rate equal to the Daily LIBOR Floating Rate or theLIBOR 1-month fixed rate plus a margin ranging from 0.7% to 1.25% or the PrimeRate (at our option).  The lenders alsoreceive an unused line fee and letter of credit fee equal to 0.125% of theunused amount of the facility. Our outstanding balance on the facility at March 31,2009 was $14,700.

 

The facility allows forthe issuance of up to $10,000 in letters of credit. The letters of credittypically act as guarantees of payment to certain third parties in accordancewith specified terms and conditions. We had no letters of credit at March 31,2009 and four letters of credit totaling $400 at September 30, 2008. Therewere no outstanding borrowings on these letters of credit at either March 31,2009 or September 30, 2008.

 

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Ourlenders may have suffered losses related to their lending and other financialrelationships, especially because of the general weakening of the nationaleconomy and increased financial instability of many borrowers.  As a result, the lenders may become insolventor tighten their lending standards, which could make it more difficult for usto borrow under our revolving credit facility or to obtain other financing onfavorable terms or at all.  Our financialcondition and results of operations could be adversely affected if we wereunable to draw funds under our revolving credit facility because of a lenderdefault or to obtain other cost-effective financing.

 

*OperatingActivities*.  For the six months ended March 31, 2009,cash used in operations was $16,949 and was primarily attributable to netincome of $11,736, a increase of receivables of $6,518 due to revenue growthand the impact of extended receivable terms which will be due during the June quarter,a decrease in inventories of $1,421 due to effective management of inventory,partially offset by strategic inventory purchases that were made in December 2008ahead of vendor price increases, and a decrease in accounts payable of $24,570due primarily to payment of inventory that was purchased in December 2008..

 

For the six months ended March 31,2008, cash used in operations was $1,739 and was primarily attributable to netincome of $9,078, an increase of receivables of $5,941 due to higher revenuegrowth and extended payment terms during the first fiscal quarter, an increasein inventories of $12,795 due to inventory planning and an increase in accountspayable of $6,933 as a result of increased inventory purchases.

 

*InvestingActivities.*  For the six months ended March 31, 2009,net cash used in investing activities was $1,305 and was primarily due tocapital expenditures of $1,372 related to distribution center infrastructure,including the relocation of the Dallas distribution center in November 2008and technology investments.

 

For the six months ended March 31,2008, net cash used in investing activities was $5,565 and was primarily due tothe acquisition of Tri V for $4,598 coupled with capital expenditures of $990,primarily related to distribution center infrastructure and technologyinvestments.

 

*Financing Activities.*  For the six months ended March 31, 2009, net cashprovided by financing activities was $14,966, which was primarily due to use of$14,700 on our revolving credit facility. Our revolving credit facility is used to finance our working capitalrequirements and fluctuates based on timing of payables and collection ofreceivables.

 

For the six months ended March 31,2008, net cash provided by financing activities was $101, which was due to theproceeds and tax benefit of stock option exercises of $198 offset by a paymenton our long-term debt of $97.

 

**Contractual Obligations and Guarantees**

 

For information on our contractualobligations and guarantees, see our Annual Report on Form 10-K filed on November 24,2008 with the SEC. During the three and six months ended March 31, 2009there were no material changes to the contractual and other long-termobligations reported in our Form 10-K on November 24, 2008, except asfollows:

 

The total liability for certain taxpositions decreased by $264 to $244 at March 31, 2009 due to resolution ofcertain tax liabilities.  We expectresolution of these tax positions to be finalized in the next twelve months.

 

**Item3.  Quantitative and QualitativeDisclosures 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 our revolving credit facility is based on variable interestrates and is therefore affected by changes in market interest rates. Theoutstanding balance on the facility as of March 31, 2009 was $14,700.  Based on a balance on the facility of$14,700, a change of 10% from the interest rate as of March 31, 2009,which was 1.2% (Daily LIBOR Floating Rate plus .70%), would have changedinterest by $18.

 

**Item4.  Controls and Procedures**

 

Managementof the Company, including the Chief Executive Officer and the Chief FinancialOfficer of the Company, has evaluated the effectiveness of the Company’sdisclosure controls and procedures (as defined in Rule 13a-15(e) ofthe 

 

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SecuritiesExchange Act of 1934) as of March 31, 2009.  Based on this evaluation, the Chief ExecutiveOfficer and Chief Financial Officer concluded that the Company’s disclosurecontrols and procedures, including the accumulation and communication of disclosuresto the Company’s Chief Executive Officer and Chief Financial Officer asappropriate to allow timely decisions regarding required disclosure, areeffective 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 no changes inthe Company’s internal control over financial reporting that occurred duringthe Company’s most recently completed fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

**PART II. OTHER INFORMATION**

 

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

** **

*This quarterly report on Form 10-Qcontains forward-looking statements within the meaning of the federalsecurities laws. Statements that are not historical facts, including statementsabout our beliefs and expectations, are forward-looking statements.Forward-looking statements include statements preceded by, followed by or thatinclude the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,”“plan,” “estimate,” “target,” “project,” “intend” and similar expressions.These statements include, among others, statements regarding our expectedbusiness outlook, anticipated financial and operating results, our business strategyand means to implement our strategy, our objectives, the amount and timing ofcapital expenditures, the amount and timing of interest expense, the likelihoodof our success in expanding our business, financing plans, budgets, workingcapital needs and sources of liquidity.*

 

*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 or availability of vendor rebate programs;*

 

·                  *the impact of vendor consolidation on our business;*

 

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

 

·                  *exclusivity requirements with certain vendors that mayprohibit us from distributing competing products manufactured by other vendors;*

 

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

 

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

 

·                  *extended shortage or backlog of a significant product by oneof our vendors;*

 

·                  *seasonality;*

 

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

 

·                  *the timing of the introduction of new products and servicesby our vendors;*

 

·                  *the ability to borrow on our credit line;*

 

·                  *unforeseen litigation;*

 

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·                  *a disruption caused by adverse weather or other naturalconditions;*

 

·                  *inability to ship products to the customer as a result oftechnological or shipping disruptions; and*

 

·                  *competition.*

 

*Except as required by applicable law, including thesecurities laws of the United States and the rules and regulations of theSEC, we are under no obligation to publicly update or revise anyforward-looking statements, whether as a result of any new information, futureevents or otherwise. 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.*

 

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

 

## **Item1.  Legal Proceedings**

##  

## We are not currently a partyto any material pending legal proceedings and are not aware of any claims thatcould have a material adverse effect on our financial position, results ofoperations or cash flows.

##  

## **Item1A.  Risk Factors**

##  

## Other than with respect tothe risk factors set forth below, there have been no material changes from therisk factors disclosed in the “Risk Factors” section of the Company’s AnnualReport on Form 10-K for the fiscal year ended September 30, 2008.

##  

***Our business, financial conditionand results of operations depend upon maintaining our relationships withvendors.***

*** ***

During the year ended September 30, 2008, wedistributed more than 30,000 products, of which over 15,000 were stocked in ourdistribution centers, sourced from approximately 500 vendors to over 19,000veterinary practices. We currently do not manufacture the vast majority of ourproducts and are dependent on these vendors for our supply of products. Our topten vendors supplied products that accounted for approximately 70% and 71% ofour revenues for the six months ended March 31, 2009 and 2008,respectively, and 72% of our revenues for the fiscal year ended September 30,2008.  Pfizer supplied products thataccounted for approximately 26% and 24% of our revenues during the six monthsended March 31, 2009 and 2008, respectively, and  23% of our revenues for our fiscal year endedSeptember 30.  Fort Dodge suppliedproducts that accounted for approximately 11% of our revenues during the sixmonths ended March 31, 2009 and 2008, and 12% of our revenues for ourfiscal year ended September 30, 2008. Intervet-Schering, a subsidiary of Schering Plough Corporation (“ScheringPlough”) supplied products that accounted for approximately 10% and 9% of ourrevenues during the six months ended March 31, 2009 and 2008,respectively, and 9% of our revenues for our fiscal year ended September 30,2008.  Merial Limited (“Merial”), a jointventure between Merck & Co., Inc. and Sanofi Aventis S.A.,supplies the majority of their products to us under an agency relationship.  Commission revenue generated from Merialproducts accounted for approximately 52% and 62% of total commission revenuesfor the six months ended March 31, 2009 and 2008, respectively, and 60% oftotal commission revenues for our fiscal year ended September 30,2008.  Of the Pfizer supplied products,production animal products under a livestock agreement accounted forapproximately 16% and 18% of our revenues during the six months ended March 31,2009 and 2008, respectively, and approximately 17% of our revenues for ourfiscal year ended September 30, 2008.

 

Our ability to sustain our gross profits has been, andwill continue to be, dependent in part upon our ability to obtain favorableterms and access to new and existing products from our vendors. These terms maybe subject to changes from time to time by vendors, such as changing from a “buy/sell”to an agency relationship, or from an agency to a “buy/sell” relationship. In a“buy/sell” transaction, we purchase or take inventory of products from ourvendors. Under an agency relationship, when we receive orders for products froma customer, we transmit the order to the vendor who then picks, packs and shipsthe products. Any changes from “buy/sell” to agency or from agency to “buy/sell”could adversely affect our revenues and operating income. The loss of one ormore of our large vendors, a material reduction in their supply of products tous or material changes in the terms we obtain from them could have a materialadverse effect on our business, financial condition and results of operations.

 

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Vendors may also choose to change the method in which products aretaken to market.  For example, a vendormay change our relationship from a complete distribution provider, includinglogistics and sales support, to only a logistics provider or only a salessupport provider.  Only doing one ofthese services would reduce our margin on any sale.  A change in the method in which products aretaken to market caused by any vendor could have a material adverse effect onour business.

 

Some of our current andfuture vendors may decide to compete with us in the future by pursuing orincreasing their efforts in direct marketing and sales of their products. Thesevendors could sell their products at lower prices and maintain a higher grossmargin on their product sales than we can. In this event, veterinarians oranimal owners may elect to purchase animal health products directly from thesevendors. Increased competition from any vendor of animal health products couldsignificantly reduce our market share and adversely impact our financialresults.

 

**Consolidation among our vendorscould be harmful to our business.**

 

On January 26, 2009,Pfizer and Wyeth announced that they had entered into a merger agreement underwhich Pfizer will acquire all of the outstanding stock of Wyeth.  Pfizer and Fort Dodge, a division of Wyeth,are our two largest vendors as measured by our revenues.  On March 9, 2009, Merck andSchering-Plough announced that they had entered into a merger agreement underwhich Merck will acquire all of the outstanding stock of Schering-Plough.  Merial Limited, a joint venture between Merck &Co., Inc. and Sanofi Aventis S.A., and Intervet-Schering, a subsidiary ofSchering-Plough, are also two of our largest vendors.  If the Pfizer-Wyeth and/orMerck-Schering-Plough mergers are consummated, the surviving companies willhave high market shares with respect to certain animal health products, andthey could use their increased leverage in the channel to negotiate terms withdistributors that are materially worse to the distributor than the terms thatwe have been able to negotiate with Pfizer, Fort Dodge, Merial andIntervet-Schering individually while they were competing with each other.

 

***An economic downturn couldmaterially adversely affect our business.***

*** ***

Our business may be materially adversely affected bynegative trends in the general economy that could reduce consumer discretionaryspending on animal health products. Levels of consumer spending have recently deteriorated significantly inthe United States and may remain depressed for the foreseeable future.  Some of the factors that could influence thelevels of consumer spending include continuing increases in fuel and otherenergy costs, conditions in the residential real estate and mortgage markets,unemployment levels,  healthcare costs,access to credit, consumer confidence and other macroeconomic factors affectingconsumer spending behavior.  In addition,volatility in commodity prices such as corn, grain and feeder cattle, changesin weather patterns causing cattle to graze for longer periods and changes inthe general economy may adversely impact the amount spent by animal owners inthe production animal market.  Ourbusiness ultimately depends on the ability and willingness of animal owners topay for our products. This dependence could make us more vulnerable to anyreduction in consumer confidence or disposable income than companies in otherindustries that are less reliant on consumer spending, such as the human healthcare industry, in which a large portion of payments are made by insuranceprograms.  Additionally, any cost-cuttingmeasures taken to offset the effects of an economic downturn could materiallyimpact our ability to generate future revenue growth.

 

We generally extend somelevel of credit to our customers. If customers’ cash flow or operating andfinancial performance deteriorates, or if they are unable to make scheduledpayments or obtain other sources of credit, they may not be able to pay or maydelay payment to us, or in some cases may return products to us. Any inabilityof current and/or potential customers to pay us for our products and/orservices due to their deteriorating financial condition or otherwise mayadversely affect our results of operations and financial condition.

 

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

##  

## The table below providesinformation concerning our repurchase of shares of our common stock during the threemonths ended March 31, 2009.

##  

**IssuerPurchases of Equity Securities**

 
| **Period**                                       | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average  Price  Paid per  Share** | ** ** | **Total Number of  Shares  Purchased as  Part of Publicly  Announced Plans  or Programs** | ** ** | **Maximum Number  (or Approximate  Dollar Value) of  Shares that May Yet  Be Purchased Under  the Plans or  Programs** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                             |       |                                         |       |                                     |       |                                                                                                                         |       |                                                                                                                                                                          |       |
| January 1,  2009 to January 31, 2009   |       | —                                       |       | —                                   |       | —                                                                                                                       |       | —                                                                                                                                                                        |       |
| February 1,  2009 to February 28, 2009 |       | 80                                           | (1)        | $                                        | 26.31      |                                                                                                                         | —     |                                                                                                                                                                          | —     |   |
| March 1,  2009 to March 31, 2009       |       | 151                                          | (1)        | $                                        | 25.06      |                                                                                                                         | —     |                                                                                                                                                                          | —     |   |
| Total                                            |       | 231                                          | (1)        | $                                        | 25.49      |                                                                                                                         | —     |                                                                                                                                                                          | —     |   |

 

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(1)   These shares were withheld upon the vesting ofemployee restricted stock grants in connection with payment of requiredwithholding taxes.

 

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

##  

None.

 

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

##  

The Company held itsAnnual Meeting of Stockholders on February 11, 2009 and transacted thefollowing business:

 

1)              Election of Directors

 
| **Nominee**                   | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|-------------------------------|------------|--------------------|------------|-------------------------|------------|
| Keith E. Alessi               |       | 9,832,159          |       | 1,716,286               |       |
| Bruce C.  Bruckmann           |       | 11,457,113         |       | 91,332                  |       |
| James F.  Cleary, Jr.    |       | 11,518,747         |       | 29,698                  |       |
| John F. McNamara              |       | 9,857,867          |       | 1,690,578               |       |
| A. Craig Olson                |       | 11,520,093         |       | 28,352                  |       |
| Robert N.  Rebholtz, Jr. |       | 11,520,408         |       | 28,037                  |       |
| William J.  Robison           |       | 11,493,558         |       | 54,887                  |       |

 

2)              Ratification of Appointment ofIndependent Registered Public Accountant

 
| **Votes For** | ** ** | **Votes Against** | ** ** | **Abstentions** | ** ** | **Broker Non-Vote** | ** ** |
|--------------------|------------|------------------------|------------|-----------------|------------|--------------------------|------------|
| 11,493,551         |       | 49,747                 |       | 5,147           |       | 0                        |       |

 

## **Item5.  Other Information**

##  

None.

 

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**Item 6. Exhibits**

 
| 10.1   |   | 2009 Pfizer Equine Products Marketing Agreement  between MWI Veterinary Supply Co. and Pfizer Inc. effective as of January 1,  2009 †         |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                               |
| 10.2   |   | Companion Animal AAHA MarketLink Management  Agreement between MWI Veterinary Supply Co. and Pfizer Inc. effective as of  March 1, 2009 †     |
|   |   |                                                                                                                                               |
| 10.3   |   | 2009 Strategic Brands Distribution Agreement between  MWI Veterinary Supply, Inc. and Pfizer Inc. effective as of January 1, 2009 †           |
|   |   |                                                                                                                                               |
| 10.4   |   | Companion Animal Select Brands Distribution  Agreement between MWI Veterinary Supply, Inc. and Pfizer Inc. effective as of  January 1, 2009 † |
|   |   |                                                                                                                                               |
| 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                  |

 

----

†              Certain portions of the exhibit have been omittedpursuant to a confidential treatment request submitted to the SEC.

 

SIGNATURE

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|                           | MWI Veterinary  Supply, Inc.                                                |
|---------------------------|----------------------------------------------------------------------------------|
|                      | (Registrant)                                                                     |
|                      |                                                                             |
|                      |                                                                             |
| Date: April 30, 2009 | /s/ Mary Patricia B. Thompson                                                    |
|                      | Mary Patricia B. Thompson                                                        |
| * *                  | *Senior Vice President of Finance and  Administration,  Chief Financial Officer* |

 

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