**UNITED STATES****SECURITIESAND 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, 2008**                                                                                                                                                                                                                                                                 |
| ** **                                                                                                                                                                                                                                                                                                     | ** **                                                                                                             | ** ** |
| **OR**                                                                                                                                                                                                                                                                                                         |
| ** **                                                                                                                                                                                                                                                                                                     |
| **o**                                                                                                                                                                                                                                                                                                          | **TRANSITION REPORT PURSUANT TO  SECTION 13 or 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**               |
|                                                                                                                                                                                                                                                                                                           |                                                                                                                   |   |
| **For  the transition period  from                      to                      ** |

 

**Commission File Number:  000-51468**

 

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**MWIVETERINARY SUPPLY, INC.**

(Exact name of Registrantas specified in its Charter)

 

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

 

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Indicate by check 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 markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company”in Rule 12b-2 of the Exchange Act.

 

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

 

Indicate by check 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 30,2008 was 12,050,673.

 

 

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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, 2008 and 2007 | 3          |
|              |       |                                                                                                          |       |
|              |       | Condensed Consolidated  Balance Sheets as of March 31, 2008 and September 30, 2007                  | 4          |
|              |       |                                                                                                          |       |
|              |       | Condensed Consolidated  Statements of Cash Flows for the six months ended March 31, 2008 and  2007       | 5          |
|              |       |                                                                                                          |       |
|              |       | Notes to Condensed  Consolidated Financial Statements                                                         | 6          |
|              |       |                                                                                                          |       |
|              |       | Report of  Independent Registered Public Accounting Firm                                                      | 13         |
|              |       |                                                                                                          |       |
| **Item 2.**       | ** ** | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**               | 14         |
|              |       |                                                                                                          |       |
| **Item 3.**       | ** ** | **Quantitative  and Qualitative Disclosures About Market Risk**                                               | 20         |
|              |       |                                                                                                          |       |
| **Item 4.**       | ** ** | **Controls and  Procedures**                                                                                  | 20         |
|              |       |                                                                                                          |       |
| **PART II.** | ** ** | **OTHER INFORMATION**                                                                                         | ** ** |
|              |       |                                                                                                          |       |
| ** **        | ** ** | **Cautionary Statement**                                                                                      | 21         |
|              |       |                                                                                                          |       |
| **Item 1.**       | ** ** | **Legal Proceedings**                                                                                         | 22         |
| ** **        | ** ** | ** **                                                                                                    | ** ** |
| **Item 1A.**      | ** ** | **Risk Factors**                                                                                              | 22         |
| ** **        | ** ** | ** **                                                                                                    | ** ** |
| **Item 2.**       | ** ** | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                              | 22         |
|              |       |                                                                                                          |       |
| **Item 3.**       | ** ** | **Defaults Upon  Senior Securities**                                                                          | 22         |
|              |       |                                                                                                          |       |
| **Item 4.**       | ** ** | **Submission  of Matters to a Vote of Security Holders**                                                      | 23         |
|              |       |                                                                                                          |       |
| **Item 5.**       | ** ** | **Other Information**                                                                                         | 23         |
|              |       |                                                                                                          |       |
| **Item  6.**      | ** ** | **Exhibits**                                                                                                  | 23         |

 

2

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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,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                             | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| Revenues:                                     |       |                                                 |       |                                               |       |   |   |   |   |
| Product sales                                 |       | $                                                    | 182,461    |                                               | $          | 163,311 |   | $ | 371,764 |   | $ | 313,098 |   |
| Product sales to  related party               |       | 8,922                                                |       | 8,867                                              |       | 20,039 |   | 18,426 |   |
| Commissions                                   |       | 3,577                                                |       | 2,875                                              |       | 6,518 |   | 4,574 |   |
| Total revenues                                |       | 194,960                                              |       | 175,053                                            |       | 398,321 |   | 336,098 |   |
|                                          |       |                                                 |       |                                               |       |   |   |   |   |
| Cost of product  sales                        |       | 166,692                                              |       | 150,631                                            |       | 340,268 |   | 285,927 |   |
| Gross profit                                  |       | 28,268                                               |       | 24,422                                             |       | 58,053 |   | 50,171 |   |
|                                          |       |                                                 |       |                                               |       |   |   |   |   |
| Selling, general  and administrative expenses |       | 20,410                                               |       | 17,806                                             |       | 41,713 |   | 35,500 |   |
| Depreciation and  amortization                |       | 746                                                  |       | 602                                                |       | 1,493 |   | 1,171 |   |
| Operating income                              |       | 7,112                                                |       | 6,014                                              |       | 14,847 |   | 13,500 |   |
|                                          |       |                                                 |       |                                               |       |   |   |   |   |
| Other income  (expense):                      |       |                                                 |       |                                               |       |   |   |   |   |
| Interest expense                              |       | (114                                                 | )          | (160                                               | )          | (165 | ) | (429 | ) |
| Earnings of  equity method investees          |       | 41                                                   |       | 42                                                 |       | 92 |   | 87 |   |
| Other                                         |       | 117                                                  |       | 101                                                |       | 352 |   | 191 |   |
| Total other  income (expense), net            |       | 44                                                   |       | (17                                                | )          | 279 |   | (151 | ) |
|                                          |       |                                                 |       |                                               |       |   |   |   |   |
| Income before  taxes                          |       | 7,156                                                |       | 5,997                                              |       | 15,126 |   | 13,349 |   |
| Income tax  expense                           |       | (2,778                                               | )          | (2,309                                             | )          | (6,048 | ) | (5,057 | ) |
|                                          |       |                                                 |       |                                               |       |   |   |   |   |
| Net income                                    |       | $                                                    | 4,378      |                                               | $          | 3,688 |   | $ | 9,078 |   | $ | 8,292 |   |
|                                          |       |                                                 |       |                                               |       |   |   |   |   |
| Earnings per  common share:                   |       |                                                 |       |                                               |       |   |   |   |   |
| Basic                                         |       | $                                                    | 0.36       |                                               | $          | 0.32 |   | $ | 0.75 |   | $ | 0.72 |   |
| Diluted                                       |       | $                                                    | 0.36       |                                               | $          | 0.31 |   | $ | 0.74 |   | $ | 0.70 |   |
|                                          |       |                                                 |       |                                               |       |   |   |   |   |
| Weighted average  common shares outstanding:  |       |                                                 |       |                                               |       |   |   |   |   |
| Basic                                         |       | 12,050                                               |       | 11,566                                             |       | 12,048 |   | 11,562 |   |
| Diluted                                       |       | 12,298                                               |       | 11,863                                             |       | 12,297 |   | 11,862 |   |

 

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,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                                                                                       | ** ** | **2008**           | ** ** | **2007**               | ** ** |
| **Assets**                                                                                                       |       |               |       |                   |       |
|                                                                                                             |       |               |       |                   |       |
| Current Assets:                                                                                                  |       |               |       |                   |       |
| Cash and cash  equivalents                                                                                       |       | $                  | 1,396      |                   | $          | 8,599 |   |
| Receivables, net                                                                                                 |       | 118,363            |       | 111,676                |       |
| Inventories                                                                                                      |       | 107,656            |       | 94,623                 |       |
| Prepaid expenses  and other current assets                                                                       |       | 1,987              |       | 2,362                  |       |
| Deferred income  taxes                                                                                           |       | 984                |       | 518                    |       |
| Total current  assets                                                                                            |       | 230,386            |       | 217,778                |       |
|                                                                                                             |       |               |       |                   |       |
| Property and  equipment, net                                                                                     |       | 8,874              |       | 9,206                  |       |
| Goodwill                                                                                                         |       | 34,598             |       | 32,964                 |       |
| Intangibles, net                                                                                                 |       | 7,453              |       | 5,014                  |       |
| Other assets,  net                                                                                               |       | 2,323              |       | 2,232                  |       |
| Total assets                                                                                                     |       | $                  | 283,634    |                   | $          | 267,194 |   |
|                                                                                                             |       |               |       |                   |       |
| **Liabilities  And Stockholders’ Equity**                                                                   |       |               |       |                   |       |
|                                                                                                             |       |               |       |                   |       |
| Current  Liabilities:                                                                                            |       |               |       |                   |       |
| Line-of-credit                                                                                                   |       | $                  | —     |                   | $          | — |   |
| Accounts payable                                                                                                 |       | 105,685            |       | 98,724                 |       |
| Accrued expenses                                                                                                 |       | 7,460              |       | 7,693                  |       |
| Current  maturities of long-term debt                                                                            |       | 97                 |       | 97                     |       |
| Total current  liabilities                                                                                       |       | 113,242            |       | 106,514                |       |
|                                                                                                             |       |               |       |                   |       |
| Deferred income  taxes                                                                                           |       | 466                |       | 474                    |       |
|                                                                                                             |       |               |       |                   |       |
| Long-term debt                                                                                                   |       | 97                 |       | 195                    |       |
|                                                                                                             |       |               |       |                   |       |
| Other long-term  liabilities                                                                                     |       | 249                |       | —                 |       |
|                                                                                                             |       |               |       |                   |       |
| Commitments and  contingencies                                                                                   |       |               |       |                   |       |
|                                                                                                             |       |               |       |                   |       |
| **Stockholders’  Equity**                                                                                   |       |               |       |                   |       |
| Common stock  $0.01 par value, 40,000 authorized; 12,051 and 12,024 shares issued and  outstanding, respectively |       | 121                |       | 120                    |       |
| Additional paid  in capital                                                                                      |       | 121,735            |       | 120,988                |       |
| Retained  earnings                                                                                               |       | 47,724             |       | 38,903                 |       |
| Total  stockholders’ equity                                                                                 |       | 169,580            |       | 160,011                |       |
| Total  liabilities and stockholders’ equity                                                                 |       | $                  | 283,634    |                   | $          | 267,194 |   |

 

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,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2008**                                           | ** ** | **2007** | ** ** |
| **Cash  Flows From Operating Activities:**                                                   |       |                                               |       |   |   |
| Net income                                                                                   |       | $                                                  | 9,078      |   | $ | 8,292 |   |
| Adjustments to  reconcile net income to net cash provided by/(used in) operating activities: |       |                                               |       |   |   |
| Depreciation and  amortization                                                               |       | 1,499                                              |       | 1,175 |   |
| Amortization of  debt issuance costs                                                         |       | 21                                                 |       | 42 |   |
| Stock-based  compensation                                                                    |       | 45                                                 |       | 38 |   |
| Deferred income  taxes                                                                       |       | (474                                               | )          | (369 | ) |
| Earnings of  equity method investees                                                         |       | (92                                                | )          | (87 | ) |
| Loss on disposal  of property and equipment                                                  |       | —                                             |       | 18 |   |
| Tax benefit of  common stock options                                                         |       | (123                                               | )          | (89 | ) |
| Other                                                                                        |       | —                                             |       | (9 | ) |
| Changes in operating  assets and liabilities (net of effects of acquisition):                |       |                                               |       |   |   |
| Receivables                                                                                  |       | (5,941                                             | )          | (4,708 | ) |
| Inventories                                                                                  |       | (12,795                                            | )          | 4,525 |   |
| Prepaid expenses  and other current assets                                                   |       | 375                                                |       | 586 |   |
| Accounts payable                                                                             |       | 6,933                                              |       | (3,622 | ) |
| Accrued expenses                                                                             |       | (265                                               | )          | (148 | ) |
| Net cash  provided by/(used in) operating activities                                         |       | (1,739                                             | )          | 5,644 |   |
|                                                                                         |       |                                               |       |   |   |
| **Cash  Flows From Investing Activities:**                                                   |       |                                               |       |   |   |
| Business  acquisitions                                                                       |       | (4,548                                             | )          | — |   |
| Purchases of  property and equipment                                                         |       | (990                                               | )          | (1,752 | ) |
| Other                                                                                        |       | (27                                                | )          | 54 |   |
| Net cash used in  investing activities                                                       |       | (5,565                                             | )          | (1,698 | ) |
|                                                                                         |       |                                               |       |   |   |
| **Cash  Flows From Financing Activities:**                                                   |       |                                               |       |   |   |
| Proceeds from  stock options                                                                 |       | 75                                                 |       | 173 |   |
| Tax benefit of  common stock options                                                         |       | 123                                                |       | 89 |   |
| Payment on  long-term debt                                                                   |       | (97                                                | )          | (97 | ) |
| Net payments on  line-of-credit                                                              |       | —                                             |       | (3,987 | ) |
| Debt issuance  costs                                                                         |       | —                                             |       | (124 | ) |
| Net cash  provided by/(used in) financing activities                                         |       | 101                                                |       | (3,946 | ) |
|                                                                                         |       |                                               |       |   |   |
| **Decrease  in Cash and Cash Equivalents**                                                   |       | (7,203                                             | )          | — |   |
|                                                                                         |       |                                               |       |   |   |
| Cash and Cash  Equivalents at Beginning of Period                                            |       | 8,599                                              |       | 37 |   |
|                                                                                         |       |                                               |       |   |   |
| Cash and Cash  Equivalents at End of Period                                                  |       | $                                                  | 1,396      |   | $ | 37 |   |

 

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 been condensedor omitted pursuant to such rules and regulations.  These condensed consolidated financialstatements should be read in conjunction with the consolidated financialstatements and accompanying notes included in our 2007 Annual Report on Form 10-Kfiled with the SEC on November 21, 2007. The results of operations for the three and six months ended March 31,2008 are not necessarily indicative of results to be expected for the entirefiscal year.

 

Our unaudited condensedconsolidated balance sheet as of September 30, 2007 has been derived fromthe audited consolidated balance sheet as of that date.

 

**Useof Estimates**

 

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

 

**RevenueRecognition**

 

*We sell products we source from vendors to our customers througheither a “buy/sell” transaction or an agency relationship with our vendors. Ina “buy/sell” transaction, we purchase or take inventory of products from thevendor. When a customer places an order with us, we pick, pack, ship andinvoice the customer for the order. We recognize revenue from “buy/sell”transactions as product sales when the product is delivered to the customer. Weaccept product returns from our customers. We estimate returns based onhistorical experience and recognize these estimated returns as a reduction ofproduct sales. Product returns have not been significant to our financialstatements. 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.*Grossbillings from agency contracts were $73,923 and $59,105 for the three monthsended March 31, 2008 and 2007, respectively, and generated commissionrevenue of $3,577 and $2,875, respectively. Gross billings from agency contracts were $114,740 and $89,588 for thesix months ended March 31, 2008 and 2007, respectively, and generatedcommission revenue of $6,518 and $4,574, respectively.

 

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

 

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

 

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

 

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

 

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

 

In September 2006, the FASB issued Statement 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 157is effective for our fiscal year beginning October 1, 2008.  We are currently evaluating the impact, ifany, that SFAS 157 will have on our consolidated financial statements.

 

In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assets andFinancial Liabilities* (“SFAS 159”). SFAS 159 permits entities to choose to measure certain financial assetsand liabilities at fair value. The provisions of SFAS 159 are effective for ourfiscal year beginning October 1, 2008. We are currently evaluating theimpact, if any, that SFAS 159 will have 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 willapply prospectively 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. We are currently evaluating the expected impact, if any, that SFAS 160will have on our consolidated financial statements.

 

**NOTE 3**—**BUSINESS ACQUISITION**

 

InOctober 2007, we acquired substantially all of the assets of Tri VServices, Inc. (“Tri V”) for approximately $5,111, consisting of $4,606 incash (including direct acquisition costs of approximately $106) and 12,692shares of restricted common stock valued at the time of the issuance atapproximately $505.  The purchase pricewas reduced by $8 as a result of

 

7

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apost closing working capital adjustment that was completed during the threemonths ended March 31, 2008.  Basednear Detroit, Michigan, Tri V was a distributor with an 11-year history ofproviding animal health products to approximately 850 veterinary practices,with a particular focus on emergency clinics and ophthalmology specialists.

 

Thefollowing table summarizes the preliminary estimated fair values of the assetsacquired and liabilities assumed at the date of the acquisition.  These preliminary purchase price allocationsare based on a combination of third-party valuations and internal analyses andmay be adjusted during the allocation period as defined in SFAS No. 141, *Business Combinations*.

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

 

**NOTE 4**—**RECEIVABLES**

 
| ** **                       | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|----------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                       | ** ** | **2008**           | ** ** | **2007**               | ** ** |
| Trade                            |       | $                  | 107,917    |                   | $          | 100,422 |   |
| Vendor rebates  and programs     |       | 11,365             |       | 11,725                 |       |
| Interest                         |       | 1                  |       | 61                     |       |
| Related party                    |       | 9                  |       | 342                    |       |
|                             |       | 119,292            |       | 112,550                |       |
| Allowance for  doubtful accounts |       | (929               | )          | (874                   | )          |
|                             |       | $                  | 118,363    |                   | $          | 111,676 |   |

 

Product sales resultingfrom transactions with a single customer were 10% and 9% of total product salesduring the three and six months ended March 31, 2008, respectively, and 9%of total product sales during the three and six months ended March 31,2007. Approximately 10% of our trade receivables resulted from transactionswith this single customer as of March 31, 2008 and September 30,2007.

 

Product sales resultingfrom transactions with Feeders’ Advantage LLC (“Feeders’ Advantage”), a relatedparty, were 5% of total product sales during the three and six months ended March 31,2008, and 5% and 6% during the three and six months ended March 31, 2007,respectively.

 

**NOTE 5**—**PROPERTY AND EQUIPMENT**

 
| ** **                                 | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|--------------------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                 | ** ** | **2008**           | ** ** | **2007**               | ** ** |
| Land                                       |       | $                  | 20         |                   | $          | 20 |   |
| Leasehold  improvements                    |       | 2,987              |       | 2,257                  |       |
| Machinery,  furniture and equipment        |       | 11,839             |       | 10,744                 |       |
| Computer  equipment                        |       | 2,957              |       | 3,825                  |       |
| Construction in  progress                  |       | 384                |       | 1,586                  |       |
|                                       |       | 18,187             |       | 18,432                 |       |
| Accumulated  depreciation and amortization |       | (9,313             | )          | (9,226                 | )          |
|                                       |       | $                  | 8,874      |                   | $          | 9,206 |   |

 

8

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Depreciation expense forthe three months ended March 31, 2008 and 2007 was $595 and $528,respectively, and $1,218 and $1,022 for the six months ended March 31,2007, respectively.

 

**NOTE 6**—**INTANGIBLES**

 
| ** **                | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|---------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                | ** ** | **2008**           | ** ** | **2007**               | ** ** |
| Amortizing:               |       |               |       |                   |       |
| Customer lists            |       | $                  | 5,245      |                   | $          | 3,186 |   |
| Covenants not to  compete |       | 666                |       | 356                    |       |
| Other                     |       | 248                |       | 168                    |       |
|                      |       | 6,159              |       | 3,710                  |       |
| Accumulated  amortization |       | (979               | )          | (698                   | )          |
|                      |       | 5,180              |       | 3,012                  |       |
| Non-Amortizing:           |       |               |       |                   |       |
| Trade names and  patents  |       | 2,273              |       | 2,002                  |       |
|                      |       | $                  | 7,453      |                   | $          | 5,014 |   |

 

Amortization expense was$154 and $76 for the three months ended March 31, 2008 and 2007,respectively, and $281 and $153 for the six months ended March 31, 2008and 2007, respectively.  Intangibleassets are amortized over their expected useful life, which generally rangesfrom 5-20 years.  Estimated future annualamortization expense related to intangible assets as of March 31, 2008follows:

 
| ** **         | ** ** | **Amount** | ** ** |
|--------------------|------------|------------|------------|
| Remainder of  2008 |       | $          | 316        |   |
| 2009               |       | 631        |       |
| 2010               |       | 609        |       |
| 2011               |       | 592        |       |
| 2012               |       | 566        |       |
| Thereafter         |       | 2,466      |       |
|               |       | $          | 5,180      |   |

 

Theabove projection of amortization expense includes preliminary estimates ofintangible assets and lives associated with the acquisition of substantiallyall of the assets of Tri V.  Theseamounts may be adjusted during the allocation period as defined in SFAS No. 141,*Business Combinations*.

 

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

 

**Line-of-Credit**—OnDecember 13, 2006, MWI Veterinary Supply Co., (our wholly-ownedsubsidiary) as borrower, entered into an unsecured credit agreement with us andMemorial Pet Care, Inc. (our wholly-owned subsidiary), as guarantors, andBank of America, N.A. and Wells Fargo Bank, N.A., (collectively, the “lenders”)for the provision of a revolving credit facility (the “facility”).  The facility allows for borrowings in theaggregate of $70,000, with the right to request an increase in the commitmentof the lenders to $100,000.  The facilityhas a maturity date of December 1, 2011 and a variable interest rate equalto the Daily LIBOR Floating Rate or the LIBOR 1-month fixed rate (at ouroption) plus a margin ranging from 0.7% to 1.25%.  The lenders also receive an unused line feeand letter of credit fee equal to 0.125% of the unused amount of the facility.Our outstanding balance on the facility at March 31, 2008 and September 30,2007 was $0, and the interest rate for the facility was 3.88% as of March 31,2008.  This facility replaced thefive-year Credit Agreement dated June 18, 2002 between MWI VeterinarySupply Co. and Bank of America, N.A.

 

The line-of-creditcontains certain financial covenants as well as other restrictive covenants.The facility allows for the issuance of up to $10,000 in letters of credit. Theletters of credit typically act as a guarantee of payment to certainthird-parties in accordance with specified terms and conditions. We hadthirteen letters of credit totaling $1,140 at March 31, 2008 and elevenletters of credit totaling $940 at September 30, 2007. There were nooutstanding borrowings on these letters of credit at either March 31, 2008or September 30, 2007.

 

9

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**Long-TermDebt**—In January 2005, we issued a promissory note in theaggregate principal amount of $487 in partial consideration for the purchase ofsubstantially all the assets of Vetpo Distributors, Inc. The note bearsinterest at the prime rate (5.25% at March 31, 2008), payable quarterly.The principal of the note is payable in five equal annual installments, thefirst of which was due on January 1, 2006. The balance on this promissory note was $194 and $292 at March 31,2008 and September 30, 2007, respectively.

 

**NOTE 8**—**STOCK OPTIONS**

 

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, 2008, 430,962 options topurchase common stock were outstanding (318,146 options vested and exercisable)with a weighted average exercise price of $3.15 and expiring through September 2015.  During the three and six months ended March 31,2008, we issued 0 and 4,000 shares of restricted stock under the 2005 Plan,respectively, which vest annually for up to 5 years.  During the three and six months ended March 31,2007, we issued 1,000 and 8,000 shares of restricted stock under the 2005 Plan,respectively, which vest annually for up to 5 years.  At March 31, 2008, 1,543,164 shares wereavailable to be issued under our stock-based award plans.

 

We granted no commonstock options during the three and six months ended March 31, 2008 and2007.  During the three months ended March 31,2008 and 2007, we recognized $32 and $22 of compensation expense related torestricted stock grants, respectively.  During the six months ended March 31, 2008 and 2007, we recognized$62 and $42 of compensation expense related to restricted stock grants,respectively.

 

**NOTE 9**—**INCOME TAXES**

 

In2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty intax positions.  FIN 48 requires thatmanagement evaluate its tax positions for all open tax years to determine ifthe position is more likely than not to be sustained upon examination by taxingauthorities having full knowledge of all relevant information.  We adopted the provisions of FIN 48 as of October 1,2007, the beginning of our 2008 fiscal year. As a result of the adoption of FIN 48, we reported a cumulative effectadjustment of $258 which reduced our retained earnings.

 

OnOctober 1, 2007, we had $449 of unrecognized tax benefits, of which $292would impact our effective rate, if recognized. There were no changes to theseamounts during the three or six months ended March 31, 2008. Our policyfor classifying interest and penalties associated with unrecognized taxbenefits is to include such items in income tax expense.  As of the date of adoption, gross interestand penalties associated with unrecognized tax benefits were $122 and $38,respectively.  The amount of interest andpenalties recognized during the three and six months ended March 31, 2008was not material.

 

Wefile income tax returns in the U.S. federal jurisdiction and other variousstate and local jurisdictions.  A numberof years may elapse before an uncertain tax position is audited and finallyresolved.  While it is often difficult topredict the final outcome or the timing of resolution of any particularuncertain tax position, we believe that our liability for uncertain taxbenefits reflects the most probable outcome. We adjust the liability, as well as the related interest, in light ofchanging facts and circumstances. Settlement of any particular position would usually require the use ofcash.  The resolution of a matter wouldbe recognized as an adjustment to our income tax expense and our effective taxrate in the period of resolution.    Wehave begun the process to enter into voluntary disclosure agreements withcertain state jurisdictions and it is reasonably possible that these will besettled within the next twelve months, which would decrease the liability foruncertain tax benefits by approximately $304 as a result of the payment ofadditional tax expected to be due.  Withfew exceptions, we are no longer subject to income tax examination for yearsbefore 2003 in the U.S. and significant state and local jurisdictions.

 

Oureffective tax rate for the three months ended March 31, 2008 and 2007 was38.8% and 38.5%, respectively.  Oureffective tax rate for the six months ended March 31, 2008 and 2007 was40.0% and 37.9%, respectively.  Thechange in our effective tax rate is due to a change in our estimates related tostate taxes as a result of the adoption of FIN 48.

 

10

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

 

| ** **                                                       | ** ** | **Three months ended March 31,** | ** ** |
|------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                       | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| ** **                                                       | ** ** | **Basic**                                            | ** ** | **Diluted** | ** ** | **Basic** | ** ** | **Diluted** | ** ** |
| Net income                                                       |       | $4,378                                               |       | $4,378 |   | $3,688 |   | $3,688 |   |
| Weighted average  common shares outstanding                      |       | 12,050                                               |       | 12,050 |   | 11,566 |   | 11,566 |   |
| Effect of  diluted securities Stock options and restricted stock |       |                                                 |       | 248 |   |   |   | 297 |   |
| Weighted average  diluted shares outstanding                     |       |                                                 |       | 12,298 |   |   |   | 11,863 |   |
| Earnings per  share                                              |       | $0.36                                                |       | $0.36 |   | $0.32 |   | $0.31 |   |
| Anti-dilutive  shares excluded from calculation                  |       |                                                 |       | — |   |   |   | — |   |

 

| ** **                                                       | ** ** | **Six months ended March 31,** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                       | ** ** | **2008**                                           | ** ** | **2007** | ** ** |
| ** **                                                       | ** ** | **Basic**                                          | ** ** | **Diluted** | ** ** | **Basic** | ** ** | **Diluted** | ** ** |
| Net income                                                       |       | $9,078                                             |       | $9,078 |   | $8,292 |   | $8,292 |   |
| Weighted average  common shares outstanding                      |       | 12,048                                             |       | 12,048 |   | 11,562 |   | 11,562 |   |
| Effect of  diluted securities Stock options and restricted stock |       |                                               |       | 249 |   |   |   | 300 |   |
| Weighted average  shares outstanding                             |       |                                               |       | 12,297 |   |   |   | 11,862 |   |
| Earnings per  share                                              |       | $0.75                                              |       | $0.74 |   | $0.72 |   | $0.70 |   |
| Anti-dilutive  shares excluded from calculation                  |       |                                               |       | — |   |   |   | — |   |

 

**NOTE 11**—**RELATED PARTIES**

 

MWI Veterinary Supply Co., our wholly-owned subsidiary, holds a 50.0%membership interest in Feeders’ Advantage. MWI Veterinary Supply Co. chargedFeeders’ Advantage for certain operating and administrative services in theamounts of $129 and $137 for the three months ended March 31, 2008 and2007, respectively, and $286 and $286 for the six months ended March 31,2008 and 2007, respectively.  Sales ofproducts to Feeders’ Advantage were $8,921 and $8,865 for the three monthsended March 31, 2008 and 2007, respectively, and $20,038 and $18,424 forthe six months ended March 31, 2008 and 2007, respectively.

 

MWI Veterinary Supply Co.provides Feeders’ Advantage with a line-of-credit to finance its day-to-dayoperations. This line-of-credit bears interest at the prime rate. The interestdue on the line-of-credit is calculated and charged to Feeders’ Advantage onthe last day of each month. Conversely, to the extent MWI Veterinary Supply Co.has a payable balance due to Feeders’ Advantage, the payable balance accruesinterest in favor of Feeders’ Advantage at the average federal funds rates ineffect for that month. As of March 31, 2008, MWI Veterinary Supply Co. hada payable balance with Feeders’ Advantage of $1,100.  As of September 30, 2007, MWI VeterinarySupply Co. had a receivable balance with Feeders’ Advantage of $336.

 

11

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**NOTE 12 – STATEMENTS OF CASH FLOWS – SUPPLEMENTAL AND NONCASH DISCLOSURES**

 
| ** **                                             | ** ** | **Six months ended March 31,** | ** ** |
|--------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                             | ** ** | **2008**                                           | ** ** | **2007** | ** ** |
| *Supplemental  Disclosures*                            |       |                                               |       |   |   |
| Cash paid for  interest                                |       | $                                                  | 128        |   | $ | 444 |   |
| Cash paid for  income taxes                            |       | 6,272                                              |       | 4,675 |   |
| *Noncash  Activities*                                  |       |                                               |       |   |   |
| Equipment  acquisitions financed with accounts payable |       | 150                                                |       | 52 |   |
|                                                        |            |                                                    |            |  |  |  |  |

 

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

 

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

##  

*Putney Inc.(“Putney”)  v. Pfizer Inc.(“Pfizer”)  and MWI Veterinary Supply, Inc., UnitedStates District Court, D. Me. 2007*

 

Putney sells toveterinarians and distributors a generic, human-approved form of apharmaceutical sold by Pfizer.  MWI was aparty to a Distribution Agreement with Putney pursuant to which MWI purchasedPutney’s product for resale.  Pfizer has contendedthat the sale and promotion of Putney’s product is unlawful.  In fiscal year 2007, Putney sued MWI andPfizer seeking a declaration that the sale and promotion of Putney’s product islawful.  Putney also alleged, as againstMWI, that MWI disparaged Putney’s product, breached the Distribution Agreement,and is obligated to indemnify Putney.  InMarch 2008, MWI paid Putney $50 in a negotiated settlement and all claimsagainst MWI were dismissed with prejudice.

 

12

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**REPORTOF INDEPENDENT REGISTERED 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, 2008, and the relatedcondensed consolidated statements of income for the three-month and six-monthperiods ended March 31, 2008 and 2007, and of cash flows for the six-monthperiods ended March 31, 2008 and 2007. 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, 2007,and the related consolidated statements of income, stockholders’ equity, andcash flows for the year then ended (not presented herein); and in our reportdated November 20, 2007, we expressed an unqualified opinion on thoseconsolidated financial statements.  Inour opinion, the information set forth in the accompanying condensedconsolidated balance sheet as of September 30, 2007, is fairly stated, inall material respects, in relation to the consolidated balance sheet from whichit has been derived.

 

 

/s/ DELOITTE &TOUCHE LLP

May 1, 2008

 

13

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

 

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

 

**Overview**

 

Weare a leading distributor of animal health products to veterinarians across theUnited States.  We distribute more than11,000 products sourced from over 450 vendors to approximately 16,000veterinary practices nationwide from thirteen strategically located distributioncenters.  Our thirteenth distributioncenter, located in Edwardsville, Kansas, began operations in October 2007and has approximately 105,000 square feet of capacity.  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. Historically, approximately two-thirds of our totalrevenues have been generated from sales to the companion animal market andone-third from sales to the production animal market.  The increasing maturity of the productionanimal market results in lower margins on product sales relative to thecompanion animal market.  While theaverage order size for companion animal health products is often smaller thanproduction animal health products, companion animal health products typicallyhave higher margins.  The animal healthproduct industry continues to experience increased pricing competition whichalso has had an impact on product margin.

 

*Common Stock Offerings*

 

On August 3,2005, we completed our initial public offering in which we sold an aggregate of4,983,334 shares (including the exercise of the underwriters’ over-allotmentoption) of our common stock at a price to the public of $17 per share.  We received net proceeds of $77,159 afterdeducting the underwriting discounts and offering expenses.  We used the net proceeds to redeem all of ourSeries A preferred stock for approximately $39,789 and to repayapproximately $37,370 of borrowings outstanding on the revolving creditfacility under our former credit agreement. In the fourth quarter of our fiscal year 2006, we issued 908,846 shares(including the shares issued upon the partial exercise of the underwriters’over-allotment option) of our common stock at a price to the public of $32.25per share.  We used the net proceeds of$27,341 received from this offering to pay down our borrowings on our formerrevolving credit facility.  In the thirdquarter of our fiscal year 2007, we issued 348,974 shares of our common stockat a price to the public of $35.00 per share. We used the net proceeds of $11,252 received from this offering to paydown our borrowings on our revolving credit facility and for general corporatepurposes.

 

*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.

 

*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

 

14

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product is sold. When the inventory is sold, purchase rebates are recognized as areduction to cost of product sales. Many of our vendors’ rebate programs arebased on a calendar year.

 

*Tri V Services Inc. Acquisition*

 

InOctober 2007, we acquired substantially all of the assets of Tri VServices, Inc. (“Tri V”) for approximately $5,111, consisting of $4,606 incash (including direct acquisition costs of approximately $106) and 12,692shares of restricted common stock valued at the time of the issuance atapproximately $505.  The purchase pricewas reduced by $8 as a result of a post closing working capital adjustment thatwas completed during the three months ended March 31, 2008.  Based near Detroit, Michigan, Tri Vwas a distributor with an 11-year history of providing animal health productsto approximately 850 veterinary practices, with a particular focus on emergencyclinics and ophthalmology specialists.

 

*Securos, Inc. and International VeterinaryDistribution Network, Inc. Acquisition*

 

In June 2007, weacquired substantially all of the assets of Securos, Inc. andInternational Veterinary Distribution Network, Inc. (collectively “Securos”)for approximately $5,147, consisting of $4,661 in cash (including directacquisition costs of approximately $177) and 13,058 shares of restricted commonstock valued at the time of the issuance at approximately $486.  The purchase price was reduced by $50 as aresult of a post closing working capital adjustment that was completed duringthe six months ended March 31, 2008. Additional contingentconsideration will be paid to Securos shareholders if certain defined financialtargets are achieved in each year through 2011. This is currently estimated to be approximately $1.0 million. Theseadditional payments will increase the purchase price and goodwill at the timethe financial targets are achieved.  Basedin Charlton, Massachusetts, Securos is a provider of veterinary orthopedicproducts in the United States and select foreign countries.  Securos sources private label products in thecategories of veterinary surgical consumables and equipment and handheldinstruments.

 

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

 

15

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**Results of Operations**

 

Thefollowing table summarizes our results of operations for the three and sixmonths ended March 31, 2008 and 2007, in dollars and as a percentage oftotal revenues.

 
| ** **                                                  | ** ** | **Three Months Ended March 31,** | ** ** | **Six Months Ended March 31,** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                  | ** ** | **2008**                                             | ** ** | **%**                                              | ** ** | **2007** | ** ** | **%** | ** ** | **2008** | ** ** | **%** | ** ** | **2007** | ** ** | **%** | ** ** |
| Revenues:                                                   |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Product sales                                               |       | $                                                    | 182,461    |                                               | 93.6       | % | $ | 163,311 |   | 93.3 | % | $ | 371,764 |   | 93.4 | % | $ | 313,098 |   | 93.2 | % |
| Product sales to  related party                             |       | 8,922                                                |       | 4.6                                                | %          | 8,867 |   | 5.1 | % | 20,039 |   | 5.0 | % | 18,426 |   | 5.5 | % |
| Commissions                                                 |       | 3,577                                                |       | 1.8                                                | %          | 2,875 |   | 1.6 | % | 6,518 |   | 1.6 | % | 4,574 |   | 1.3 | % |
| Total revenues                                              |       | 194,960                                              |       | 100.0                                              | %          | 175,053 |   | 100.0 | % | 398,321 |   | 100.0 | % | 336,098 |   | 100.0 | % |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of product  sales                                      |       | 166,692                                              |       | 85.5                                               | %          | 150,631 |   | 86.0 | % | 340,268 |   | 85.4 | % | 285,927 |   | 85.1 | % |
| Gross profit                                                |       | 28,268                                               |       | 14.5                                               | %          | 24,422 |   | 14.0 | % | 58,053 |   | 14.6 | % | 50,171 |   | 14.9 | % |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general  and administrative expenses               |       | 20,410                                               |       | 10.5                                               | %          | 17,806 |   | 10.2 | % | 41,713 |   | 10.5 | % | 35,500 |   | 10.6 | % |
| Depreciation and  amortization                              |       | 746                                                  |       | 0.4                                                | %          | 602 |   | 0.3 | % | 1,493 |   | 0.4 | % | 1,171 |   | 0.3 | % |
| Operating income                                            |       | 7,112                                                |       | 3.6                                                | %          | 6,014 |   | 3.5 | % | 14,847 |   | 3.7 | % | 13,500 |   | 4.0 | % |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income  (expense):                                    |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                            |       | (114                                                 | )          | -0.1                                               | %          | (160 | ) | -0.1 | % | (165 | ) | 0.0 | % | (429 | ) | -0.1 | % |
| Earnings of  equity method investees                        |       | 41                                                   |       | 0.0                                                | %          | 42 |   | 0.0 | % | 92 |   | 0.0 | % | 87 |   | 0.0 | % |
| Other                                                       |       | 117                                                  |       | 0.1                                                | %          | 101 |   | 0.0 | % | 352 |   | 0.1 | % | 191 |   | 0.1 | % |
| Total other  income (expense), net                          |       | 44                                                   |       | 0.0                                                | %          | (17 | ) | -0.1 | % | 279 |   | 0.1 | % | (151 | ) | 0.0 | % |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before  taxes                                        |       | 7,156                                                |       | 3.6                                                | %          | 5,997 |   | 3.4 | % | 15,126 |   | 3.8 | % | 13,349 |   | 4.0 | % |
| Income tax  expense                                         |       | (2,778                                               | )          | -1.4                                               | %          | (2,309 | ) | -1.3 | % | (6,048 | ) | -1.5 | % | (5,057 | ) | -1.5 | % |
| Net income                                                  |       | $                                                    | 4,378      |                                               | 2.2        | % | $ | 3,688 |   | 2.1 | % | $ | 9,078 |   | 2.3 | % | $ | 8,292 |   | 2.5 | % |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings per  common share:                                 |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                       |       | $                                                    | 0.36       |                                               |       |   | $ | 0.32 |   |   |   | $ | 0.75 |   |   |   | $ | 0.72 |   |   |   |
| Diluted                                                     |       | $                                                    | 0.36       |                                               |       |   | $ | 0.31 |   |   |   | $ | 0.74 |   |   |   | $ | 0.70 |   |   |   |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average  common shares outstanding (in thousands): |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                       |       | 12,050                                               |       |                                               |       | 11,566 |   |   |   | 12,048 |   |   |   | 11,562 |   |   |   |
| Diluted                                                     |       | 12,298                                               |       |                                               |       | 11,863 |   |   |   | 12,297 |   |   |   | 11,862 |   |   |   |
|                                                        |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Data:                                                 |       |                                                 |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Product sales  from Internet as a percentage of sales       |       | 27                                                   | %          |                                               |       | 23 | % |   |   | 25 | % |   |   | 23 | % |   |   |
| Field sales  representatives (at end of period)             |       | 173                                                  |       |                                               |       | 159 |   |   |   | 173 |   |   |   | 159 |   |   |   |
| Telesales  representatives (at end of period)               |       | 130                                                  |       |                                               |       | 110 |   |   |   | 130 |   |   |   | 110 |   |   |   |
| Fill rate (1)                                               |       | 98                                                   | %          |                                               |       | 98 | % |   |   | 98 | % |   |   | 98 | % |   |   |

 

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

 

16

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**Three Months Ended March 31, 2008 Compared to ThreeMonths Ended March 31, 2007**

 

*Total Revenues*. Total revenues increased 11.4% to $194,960 for the three months ended March 31,2008 from $175,053 for the three months ended March 31, 2007.  Revenue growth in the quarter was partiallyinfluenced by a shift in the timing of price increases from two of our largestvendors.  These price increases wereannounced effective February 1, 2007 in the prior fiscal year but wereannounced effective January 1, 2008 in the current fiscal year.  This resulted in a shift of certain revenuesthat otherwise would have been earned in the quarter to our first fiscalquarter 2008, when revenues grew by approximately 26% from the same period inthe prior fiscal year.  Revenuesattributable to new customers represented approximately 75% of the growth intotal revenues during the three months ended March 31, 2008.  Revenues attributable to existing customersrepresented approximately 25% of the growth in total revenues during the threemonths ended March 31, 2008.  Forthe purpose of calculating growth rates of new and existing customer revenue,we have defined a new customer as a customer that did not purchase product fromus in the corresponding fiscal quarter of the prior year, with the remainingcustomer base being considered an existing customer.

 

*Gross Profit*. Gross profit increased by 15.7% to $28,268 for the three months ended March 31,2008 from $24,422 for the three months ended March 31, 2007.  Gross profit as a percentage of totalrevenues was 14.5% for the three months ended March 31, 2008 compared to14.0% for the same period in the prior year. Our product margin improved in the quarter as we experienced highercompanion animal revenues in the quarter ended March 31, 2008 compared tothe same period in fiscal 2007 as a result of the shift in timing of priceincreases, as well as increased commissions on our agency sales of 24.4%.  Vendor rebates decreased approximately $52for the quarter ended March 31, 2008 compared to the quarter ended March 31,2007.  In our press release issued January 31,2008, we reported that rebates for the three months ended December 31,2007 were approximately $1.0 million less than anticipated due to a differencewith a key vendor over the amount of rebate dollars that were expected duringthe quarter under their program.  Weearned approximately $400 of this amount in the three months ended March 31,2008.  Excluding this $400, our rebatesdecreased $452 for the quarter ended March 31, 2008 as a result of theshift in timing of when certain rebates were earned.

 

*Selling, General and Administrative (“SG&A”)*.  SG&A expenses increased 14.6% to $20,410for the three months ended March 31, 2008 from $17,806 for the threemonths ended March 31, 2007. SG&A expenses as a percentage of revenues increased to 10.5% for thethree months ended March 31, 2008 from 10.2% for the three months ended March 31,2007 because revenues in the quarter were lower than they otherwise would havebeen due to the price increases that were announced effective January 1,2008 which are described above. The dollar increase in SG&A expenses wasprimarily due to increased compensation costs as a result of additionalheadcount of 99 employees, including 34 new field sales and telesalesrepresentatives and additional employees added from the Tri V and Securosacquisitions as well as the new distribution center in Edwardsville, Kansas in October 2007.  We also experienced an increase in expensesrelated to fees and services due to higher legal costs and bank servicesfees.  With the addition of thedistribution center, we also had an increase in our location and occupancyexpenses.

 

*Depreciation and Amortization. *Depreciation and amortization expenseincreased 23.9% to $746 for the three months ended March 31, 2008 from$602 for the three months ended March 31, 2007.  This increase was primarily the result of anumber of capital expenditures, primarily from new or expanded distributioncenters.  Since March 31, 2007, weadded to or expanded our distribution centers in Atlanta, Georgia; Clear Lake,Wisconsin; and Nampa, Idaho and established the distribution center inEdwardsville, Kansas.  We have also madeimprovements to our information technology infrastructure, including thedevelopment of our new e-commerce website.

 

*Other Income (Expense)*.  Other income (expense) decreased 358.8% to$44 in income for the three months ended March 31, 2008 from $17 inexpense for the three months ended March 31, 2007. This decrease in otherexpenses was due to a decline in interest expense of $46 to $114 for the threemonths ended March 31, 2008, compared to $160 for the three months ended March 31,2007.  This decrease was a result of thelower average loan balance on the facility.

 

*Income Tax Expense*.  Our effective tax rate for the three monthsended March 31, 2008 and 2007 was 38.8% and 38.5%, respectively.   The change in the effective tax rate is aresult of an increase in our estimated state tax rate, which was revised as aresult of our FIN 48 analysis.  Weadopted FIN 48 effective October 1, 2007.

 

17

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**Six Months Ended March 31, 2008 Compared to Six MonthsEnded March 31, 2007**

 

*Total Revenues*. Total revenues increased 18.5% to $398,321 for the six months ended March 31,2008 from $336,098 for the six months ended March 31, 2007.  Revenues attributable to new customersrepresented approximately 53% of the growth in total revenues during the sixmonths ended March 31, 2008. Revenues attributable to existing customers represented approximately47% of the growth in total revenues during the six months ended March 31,2008.  For the purpose of calculatinggrowth rates of new and existing customer revenue, we have defined a newcustomer as a customer that did not purchase product from us in thecorresponding fiscal quarter of the prior year, with the remaining customerbase being considered an existing customer. Also contributing to revenue growth was the increase in commissions onour agency sales of 42.5% to $6,518 for the six months ended March 31,2008, from $4,574 for the same period of the prior fiscal year. The growth incommissions was partially due to incentives which were achieved in the quarterended December 31, 2007.

 

*Gross Profit*. Gross profit increased by 15.7% to $58,053 for the six months ended March 31,2008 from $50,171 for the six months ended March 31, 2007.  Our gross profit benefited from the increasein revenues discussed above.  Grossprofit as a percentage of total revenues was 14.6% for the six months ended March 31,2008 compared to 14.9% for the same period in the prior year. The reduction inmargin was partially due to actual rebate dollars decreasing by approximately$819,000 for the six months ended March 31, 2008 as compared to the sameperiod in the prior fiscal year because of the shift in timing of when certainrebates were earned.

 

*Selling, General and Administrative (“SG&A”)*.  SG&A expenses increased 17.5% to $41,713for the six months ended March 31, 2008 from $35,500 for the six monthsended March 31, 2007.  SG&Aexpenses as a percentage of revenues decreased to 10.5% for the six monthsended March 31, 2008 from 10.6% for the six months ended March 31,2007 as a result of our growth in revenues. The dollar increase in SG&Aexpenses was primarily due to increased compensation costs as a result ofadditional headcount of 99 employees, including 34 new field sales andtelesales representatives and additional employees added from the Tri V andSecuros acquisitions as well as the new distribution center in Edwardsville,Kansas in October 2007.  We alsoexperienced an increase in expenses related to fees and services due to higherlegal costs and bank services fees.  Withthe addition of the distribution center, we also had an increase in ourlocation and occupancy expenses.

 

*Depreciation and Amortization. *Depreciation and amortization expenseincreased 27.5% to $1,493 for the six months ended March 31, 2008 from$1,171 for the six months ended March 31, 2007.  This increase was primarily the result of anumber of capital expenditures, primarily from new or expanded distributioncenters.  Since March 31, 2007, weadded to or expanded our distribution centers in Atlanta, Georgia; Clear Lake,Wisconsin; and Nampa, Idaho and established the distribution center inEdwardsville, Kansas.  We have also madeimprovements to our information technology infrastructure, including thedevelopment of our new e-commerce website.

 

*Other Income (Expense)*.  Other income (expense) decreased 284.8% to$279 in income for the six months ended March 31, 2008 from $151 inexpense for the six months ended March 31, 2007. This decrease in otherexpenses was due to a decline in interest expense of $264 to $165 for the sixmonths ended March 31, 2008, compared to $429 for the six months ended March 31,2007.  This decrease was a result of thelower average loan balance on the facility.

 

*Income Tax Expense*.  Our effective tax rate for the six monthsended March 31, 2008 and 2007 was 40.0% and 37.9%, respectively.   The change in the effective tax rate is aresult of an increase in our estimated state tax rate, which was revised as aresult of our FIN 48 analysis.  Weadopted FIN 48 effective October 1, 2007.

 

**Critical Accounting Policies**

 

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 21,2007.

 

**Liquidity and Capital Resources**

 

Ourprincipal sources of liquidity are cash flow generated from operations andborrowings on the revolving credit facility under the credit agreement. We usecapital primarily to fund day-to-day operations and to maintain sufficientinventory levels

 

18

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inorder to promptly fulfill customer orders and to expand our operations and sales.  We believe our capital resources will besufficient to meet our anticipated cash needs for at least the next twelvemonths.

 

MWI Veterinary SupplyCo., (our wholly-owned subsidiary) has a line-of-credit under a revolvingcredit facility with two lenders.  Thefacility allows for borrowings in the aggregate of $70,000, with the right torequest an increase in the commitment of the lenders to $100,000.  The facility has a maturity date of December 1,2011 and a variable interest rate equal to the Daily LIBOR Floating Rate or theLIBOR 1-month fixed rate (at our option) plus a margin ranging from 0.7% to1.25%.  The lenders also receive anunused line fee and letter of credit fee equal to 0.125% of the unused amountof the facility. Our outstanding balance on the facility at March 31, 2008was $0 and the interest rate on the facility was 3.88% as of this date.  The line-of-credit contains certain financialcovenants as well as other restrictive covenants.

 

The facility allows forthe issuance of up to $10,000 in letters of credit. The letters of credittypically act as a guarantee of payment to certain third parties in accordancewith specified terms and conditions. We had thirteen letters of credit totaling$1,140 at March 31, 2008 and eleven letters of credit totaling $940 at September 30,2007. There were no outstanding borrowings on these letters of credit at eitherMarch 31, 2008 or September 30, 2007.

 

*OperatingActivities*.  For thesix months ended March 31, 2008, cash used in operations was $1,739 andwas primarily attributable to net income of $9,078, an increase of receivablesof $5,941 due to higher revenue growth and extended payment terms during thefirst fiscal quarter, an increase in inventories of $12,795 due to inventoryplanning and an increase in accounts payable of $6,933 as a result of increasedinventory purchases.

 

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

 

*InvestingActivities.*  For thesix months ended March 31, 2008, net cash used in investing activities was$5,565 and was primarily due to the acquisition of Tri V for $4,598 coupledwith capital expenditures of $990, primarily related to distribution centerinfrastructure and technology.

 

For the six months ended March 31,2007, net cash used in investing activities was $1,698 and was primarily due tothe purchase of property and equipment related to the relocation of ourexisting distribution center to a larger distribution center in Atlanta,Georgia and improvements to our distribution centers in Clear Lakes, Wisconsin,Nampa, Idaho and Denver, Colorado.  Wealso made improvements to our information technology infrastructure throughoutthe Company.

 

*Financing Activities.*  Forthe six months ended March 31, 2008, net cash provided by financingactivities was $101, which was due to the proceeds and tax benefit of stockoption exercises of $198 offset by a payment on our long-term debt of $97. Ourrevolving credit facility is used to finance our working capital requirementsand fluctuates based on timing of payables and collection of receivables.

 

For the six months ended March 31,2007, net cash used in financing activities was $3,946, and was primarily attributableto payments on our revolving credit facility.

 

**Contractual Obligations and Guarantees**

 

For information on our contractualobligations and guarantees, see our Annual Report on Form 10-K filed on November 21,2007 with the SEC. During the six months ended March 31, 2008 there wereno material changes to the contractual obligations reported in our Form 10-Kon November 21, 2007, except as follows:

 

·                  Uponadoption of FIN 48 on October 1, 2007, the total liability forunrecognized tax benefits was $449. During the six months ended March 31, 2008, this amount did notchange significantly.

 

19

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**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 the credit facility is based on variable interest rates andis therefore affected by changes in market interest rates. The outstandingbalance on the facility as of March 31, 2008 was $0.  Therefore, there was no exposure to marketrisks as of this date.  If there had beena balance on the facility of $70,000, which is the maximum available amount onthe facility, a change of 10% from the interest rate as of March 31, 2008,which was 3.88% (Daily LIBOR Floating Rate plus .70%), would have changedinterest by $272.

 

**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 Securities Exchange Act of 1934) as of March 31, 2008.  Based on this evaluation, the Chief ExecutiveOfficer and Chief Financial Officer concluded that the Company’s disclosurecontrols and procedures, including the accumulation and communication ofdisclosures to the Company’s Chief Executive Officer and Chief FinancialOfficer as appropriate to allow timely decisions regarding required disclosure,are effective to provide reasonable assurance that information required to bedisclosed by the Company in the reports that it files or submits under theSecurities Exchange Act of 1934 is recorded, processed, summarized and reportedwithin the time periods specified by the SEC’s rules and forms.

 

There were 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.

 

20

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**PART II.  OTHER INFORMATION**

 

**CautionaryStatement for Purposes of “Safe HarborProvisions” of the Private Securities Litigation Reform Act of 1995***This quarterly report on Form 10-Qcontains forward-looking statements within the meaning of the federal securitieslaws. Statements that are not historical facts, including statements about ourbeliefs and expectations, are forward-looking statements. Forward-lookingstatements include statements preceded by, followed by or that include thewords “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,”“estimate,” “target,” “project,” “intend” and similar expressions. Thesestatements include, among others, statements regarding our expected businessoutlook, anticipated financial and operating results, our business strategy andmeans 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;*

 

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

 

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

 

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

 

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

 

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

 

·                  *seasonality;*

 

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

 

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

 

·                  *competition.*

 

*Except as required 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.*

 

21

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## **Item 1. Legal Proceedings**

##  

## From time to time, in the normal course of business, we may become aparty to legal proceedings that may have an adverse effect on our financialposition, results of operations and cash flows. Management presently believesthat the ultimate outcome of these proceedings, including the proceedingsdescribed below, will not have a material adverse effect on our financialposition, cash flows or overall trends in results of operations.  However, litigation is subject to inherentuncertainties, and unfavorable outcomes could occur. An unfavorable outcomecould include the payment of monetary damages or, in cases for which injunctiverelief is sought, an injunction prohibiting us from selling one or moreproducts or taking certain other actions. Were an unfavorable outcome to occur, our business or results ofoperations could be materially harmed.

##  

*Putney Inc. v. Pfizer Inc. andMWI Veterinary Supply, Inc., United States District Court, D. Me. 2007*

 

Putney sells toveterinarians and distributors a generic, human-approved form of apharmaceutical sold by Pfizer.  MWI was aparty to a Distribution Agreement with Putney pursuant to which MWI purchasedPutney’s product for resale.  Pfizer hascontended that the sale and promotion of Putney’s product is unlawful.  In fiscal year 2007, Putney sued MWI andPfizer seeking a declaration that the sale and promotion of Putney’s product islawful.  Putney also alleged, as againstMWI, that MWI disparaged Putney’s product, breached the Distribution Agreement,and is obligated to indemnify Putney.  InMarch 2008, MWI paid Putney $50 in a negotiated settlement and all claimsagainst MWI were dismissed with prejudice.

 

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

##  

**There have been no materialchanges from our risk factors as previously reported in our Annual Report on Form 10-Kfor the year ended September 30, 2007*.***

** **

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

##  

## The table below provides information concerning our repurchase ofshares of our common stock during the three months ended March 31, 2008.

##  

**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,  2008 to January 31, 2008   |       | —                                       |       | —                                   |       | —                                                                                                                       |       | —                                                                                                                                                                            |       |
| February 1,  2008 to February 29, 2008 |       | —                                       |       | —                                   |       | —                                                                                                                       |       | —                                                                                                                                                                            |       |
| March 1,  2008 to March 31, 2008       |       | 151                                          | (1)        | $                                        | 34.16      |                                                                                                                         | —     |                                                                                                                                                                              | —     |   |
| Total                                            |       | 151                                          |       | $                                        | 34.16      |                                                                                                                         | —     |                                                                                                                                                                              | —     |   |

 

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(1)          Theseshares were withheld upon the vesting of employee restricted stock grants in connectionwith payment of required withholding taxes.

 

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

##  

None.

 

22

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##  

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

##  

The Company held itsAnnual Meeting of Stockholders on February 6, 2008 and transacted thefollowing business:

 

1)              Electionof Directors

 
| **Nominee**                   | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|-------------------------------|------------|--------------------|------------|-------------------------|------------|
| Keith E. Alessi               |       | 8,719,100          |       | 2,843,778               |       |
| Bruce C.  Bruckmann           |       | 10,824,379         |       | 738,499                 |       |
| James F.  Cleary, Jr.    |       | 10,824,076         |       | 738,802                 |       |
| John F. McNamara              |       | 11,521,144         |       | 41,734                  |       |
| A. Craig Olson                |       | 11,539,994         |       | 22,884                  |       |
| Robert N.  Rebholtz, Jr. |       | 9,331,962          |       | 2,230,916               |       |
| William J.  Robison           |       | 11,520,794         |       | 42,084                  |       |

 

2)              Ratificationof Appointment of Independent Registered Public Accountant

 
| **Votes For** | ** ** | **Votes Against** | ** ** | **Abstentions** | ** ** | **Broker Non-Vote** | ** ** |
|--------------------|------------|------------------------|------------|-----------------|------------|--------------------------|------------|
| 11,466,623         |       | 83,266                 |       | 12,989          |       | 0                        |       |

 

3)              Approvalof the Company’s 2008 Employee Stock Purchase Plan

 
| **Votes For** | ** ** | **Votes Against** | ** ** | **Abstentions** | ** ** | **Broker Non-Vote** | ** ** |
|--------------------|------------|------------------------|------------|-----------------|------------|--------------------------|------------|
| 10,871,149         |       | 10,812                 |       | 4,063           |       | 676,854                  |       |

 

## **Item 5. Other Information**

##  

None.

 

**Item 6. Exhibits**

 
| 10.1   |   | First Amendment to 2007 – 2008 Merial Independent  Sales Agent Agreement effective as of January 1, 2008 by and between  Merial Limited and MWI Veterinary Supply Co.† |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                  |
| 10.2   |   | Livestock Products Agreement between MWI Veterinary  Supply, Inc. and Pfizer, Inc. effective as of December 22,  2007†                                            |
|   |   |                                                                                                                                                                                  |
| 10.3   |   | MWI Veterinary Supply, Inc. 2008 Employee Stock  Purchase Plan                                                                                                                   |
|   |   |                                                                                                                                                                                  |
| 15     |   | Letter re: Unaudited Interim Financial Information                                                                                                                                    |
|   |   |                                                                                                                                                                                  |
| 31.1   |   | Certification of CEO Pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002                                                                                                  |
|   |   |                                                                                                                                                                                  |
| 31.2   |   | Certification of CFO Pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002                                                                                                  |
|   |   |                                                                                                                                                                                  |
| 32     |   | Certification Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                    |

 

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†  Certain portions of the exhibit have beenomitted pursuant to a confidential treatment request submitted to the SEC

 

23

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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: May 1, 2008 |     | /s/ Mary Patricia B. Thompson                                                    |
|                   |     | Mary Patricia B. Thompson                                                        |
| * *               | * * | *Senior  Vice President of Finance and  Administration, Chief Financial Officer* |

 

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