MWI Veterinary Supply (MWIV) 10-Q 2007 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2007
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
Commission File Number:  000-51468

MWI VETERINARY SUPPLY, INC.

(Exact name of Registrant as specified in its Charter)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  o Accelerated Filer  x Non-Accelerated Filer  o

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

The number of shares of the Registrant’s common stock, $0.01 par value, outstanding as of July 30, 2007 was 12,015,178.

MWI VETERINARY SUPPLY, INC.

INDEX

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

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PART I.  FINANCIAL INFORMATION

Item 1.    Financial Statements

MWI VETERINARY SUPPLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Dollars and shares in thousands, except per share data
(unaudited)

	Three months ended June 30,						Nine months ended June 30,
	2007			2006			2007			2006
Revenues:
Product sales	$	173,548		$	154,295		$	486,646		$	414,598
Product sales to related party	7,750			7,467			26,176			24,823
Commissions	2,555			2,190			7,129			5,696
Total revenues	183,853			163,952			519,951			445,117
Cost of product sales	158,391			141,041			444,318			379,526
Gross profit	25,462			22,911			75,633			65,591
Selling, general and administrative expenses	18,302			16,389			53,802			46,040
Depreciation and amortization	603			495			1,774			1,410
Operating income	6,557			6,027			20,057			18,141
Other income (expense):
Interest expense	(76		)	(466		)	(505		)	(1,599		)
Earnings of equity method investees	35			35			122			117
Other	243			84			434			250
Total other income (expense), net	202			(347		)	51			(1,232		)
Income before taxes	6,759			5,680			20,108			16,909
Income tax expense	(2,499		)	(1,911		)	(7,556		)	(6,346		)
Net income	$	4,260		$	3,769		$	12,552		$	10,563
Earnings per share:
Basic	$	0.36		$	0.36		$	1.07		$	1.00
Diluted	$	0.35		$	0.35		$	1.05		$	0.97
Weighted average common shares outstanding:
Basic	11,904			10,610			11,679			10,592
Diluted	12,168			10,916			11,967			10,888

See Notes to Condensed Consolidated Financial Statements

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MWI VETERINARY SUPPLY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars and shares in thousands, except per share data
(unaudited)

	June 30,		September 30,
	2007		2006
Assets
Current Assets:
Cash	$	12,329	$	37
Receivables, net	97,170		99,518
Inventories	85,444		85,083
Prepaid expenses and other current assets	1,924		2,651
Deferred income taxes	886		502
Total current assets	197,753		187,791
Property and equipment, net	7,799		7,053
Goodwill	31,904		31,562
Intangibles, net	6,067		2,381
Other assets, net	2,231		1,772
Total assets	$	245,754	$	230,559
Liabilities And Stockholders’ Equity
Current Liabilities:
Line-of-credit	$	—	$	10,559
Accounts payable	83,804		82,561
Accrued expenses	5,849		6,919
Current maturities of long-term debt	97		97
Total current liabilities	89,750		100,136
Deferred income taxes	432		505
Long-term debt	195		292
Commitments and contingencies
Stockholders’ Equity
Common stock $0.01 par value, 40,000 authorized; 12,015 and 11,549 shares issued and outstanding, respectively	120		115
Additional paid in capital	120,677		107,483
Retained earnings	34,580		22,028
Total stockholders’ equity	155,377		129,626
Total liabilities and stockholders’ equity	$	245,754	$	230,559

See Notes to Condensed Consolidated Financial Statements

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MWI VETERINARY SUPPLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
(unaudited)

	Nine months ended June 30,
	2007			2006
Cash Flows From Operating Activities:
Net income	$	12,552		$	10,563
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,782			1,417
Amortization of debt issuance costs	52			105
Stock-based compensation expense	60			—
Deferred income taxes	(457		)	(322		)
Earnings of equity method investees	(122		)	(117		)
Loss (gain) on disposal of property and equipment	18			(61		)
Tax benefit of common stock options	(1,104		)	—
Other	(10		)	(3		)
Changes in operating assets and liabilities:
Receivables	2,711			(13,104		)
Inventories	369			(9,727		)
Prepaid expenses and other current assets	763			331
Accounts payable	942			11,232
Accrued expenses	(158		)	690
Net cash provided by operating activities	17,398			1,004
Cash Flows From Investing Activities:
Business acquisitions	(4,610		)	(3,549		)
Purchases of property and equipment	(2,118		)	(2,830		)
Deposit for property and equipment acquisition	—			(1,429		)
Sale of property and equipment	—			1,455
Other	(250		)	2
Net cash used in investing activities	(6,978		)	(6,351		)
Cash Flows From Financing Activities:
Issuance of common stock, net of issuance costs	11,252			—
Proceeds from stock options	296			353
Tax benefit of common stock options	1,104			72
Payment on long-term debt	(97		)	(133		)
Net borrowings/(payments) on line-of-credit	(10,559		)	5,077
Debt issuance costs	(124		)	—
Net cash provided by financing activities	1,872			5,369
Increase in Cash	12,292			22
Cash at Beginning of Period	37			31
Cash at End of Period	$	12,329		$	53

See Notes to Condensed Consolidated Financial Statements

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

NOTE 1 — GENERAL

Basis of Presentation

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

In the opinion of our management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary to present fairly, in all material respects, our results for the periods presented. These condensed consolidated financial statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our 2006 Annual Report on Form 10-K filed with the SEC on November 22, 2006.  The results of operations for the three and nine months ended June 30, 2007 are not necessarily indicative of results to be expected for the entire fiscal year.

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

Use of Estimates

The accompanying unaudited condensed consolidated financial statements have been prepared on the accrual basis of accounting using accounting principles generally accepted in the United States. In preparing financial information, we use certain estimates and assumptions that may affect the reported amounts and disclosures. Some of these estimates require difficult, subjective and complex judgments about matters that are inherently uncertain. As a result, actual results could differ from these 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 and contingencies. The estimates of fair value of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date and reported amounts of revenue and expenses for the periods are based on assumptions that we believe to be reasonable.

Revenue Recognition

We sell products we source from vendors to our customers through either a “buy/sell” transaction or an agency relationship with our vendors. In a “buy/sell” transaction, we purchase or take inventory of products from the vendor. When a customer places an order with us, we pick, pack and ship products, and then invoice the customer for the order. We recognize revenue from “buy/sell” transactions as product sales when the product is delivered to the customer. We accept product returns from our customers. We estimate returns based on historical experience and recognize these estimated returns as a reduction of product sales. Product returns have not been significant to our financial statements. In an agency relationship, we generally do not purchase and take inventory of products from vendors. We receive an order from a customer, then transmit the order to the vendor, who picks, packs and ships the order to the customer. In some cases, the vendor invoices and collects payment from the customer, while in other cases we invoice and collect payment from the customer on behalf of the vendor. We receive a commission payment for soliciting the order from the customer and for providing other customer service activities. Commissions are recognized when the services upon which the commissions are based are completed. Gross billings from agency contracts were $54,286 and $40,675 for the three months ended June 30, 2007 and 2006, respectively, and generated commission revenue of $2,555 and $2,190, respectively. Gross billings from agency contracts were $143,874 and $112,895 for the nine months ended June 30, 2007 and 2006, respectively, and generated commission revenue of $7,129 and $5,696, respectively.

Cost of Product Sales and Vendor Rebates

Costof product sales consist of our inventory product cost, including shipping costs to and from our distribution centers. Vendor rebates are recorded based on the terms of the contracts or programs with each vendor. We receive quarterly, trimester, semi-annual and annual performance-based rebates from third-party vendors based upon attainment of certain sales and/or purchase goals. Sales rebates are classified in the accompanying consolidated statements of income as a reduction to

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

Reclassifications

Certain reclassifications, none of which affected results of operations, have been made to the accompanying condensed consolidated financial statements for prior periods to conform to current year presentation.

NOTE 2 — EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2005, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 154, Accounting Changes and Error Corrections (“SFAS 154”). SFAS 154 replaces FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and replaces Accounting Principles Board (“APB”) Opinion No. 20, Accounting Changes. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after March 15, 2005 and was effective for us the fiscal year beginning October 1, 2006. The adoption of SFAS 154 did not have a material effect on our consolidated financial statements.

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

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value according to accounting principles generally accepted in the United States, and expands disclosure requirements regarding fair value measurements. This statement emphasizes that fair value should be determined based on assumptions market participants would use to price the asset or liability. SFAS 157 is effective for our fiscal year and interim period beginning October 1, 2008. We are currently evaluating the expected impact, if any, that SFAS 157 will have on our consolidated financial statements.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”), which provides guidance on quantifying and evaluating the materiality of unrecorded misstatements. SAB 108 is effective for our fiscal year beginning October 1, 2007. We are currently evaluating the expected impact, if any, that SAB 108 will have on our consolidated financial statements.

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

NOTE 3 — BUSINESS ACQUISITION

In June 2007, we acquired substantially all of the assets of Securos, Inc. (“Securos”) and International Veterinary Distribution Network, Inc. (“IVDN”) for approximately $5,096, consisting of $4,610 in cash and 13,058 shares of restricted common stock valued at the time of the issuance at approximately $486.  Additional contingent consideration will be paid to Securos and IVDN shareholders if certain defined financial targets are achieved in each year through 2011 and is currently estimated to be approximately $1.1 million. These additional payments will increase the purchase price and goodwill at the time the financial targets are achieved.  Based in Charlton, MA, Securos is a provider of veterinary orthopedic products in the United States and select countries abroad.  Also based in Charlton, MA, IVDN sources private label products in the categories of veterinary surgical consumables and equipment and handheld instruments.

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The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition.  These preliminary purchase price allocations are based on a combination of third-party valuations and internal analyses and may be adjusted during the allocation period as defined in SFAS No. 141, Business Combinations.

Receivables	$	353
Inventories	731
Property and equipment	286
Intangibles	3,907
Goodwill	343
Other assets	60
Total assets acquired	5,680
Accounts payable	569
Other liabilities	15
Total liabilities assumed	584
Net assets acquired	$	5,096

NOTE 4 — RECEIVABLES

	June 30,			September 30,
	2007			2006
Trade	$	89,758		$	90,454
Vendor rebates and programs	8,240			9,818
Interest	69			—
Related party	18			400
	98,085			100,672
Allowance for doubtful accounts	(915		)	(1,154		)
	$	97,170		$	99,518

Product sales resulting from transactions with a single customer were 10% of total product sales during both the three and nine months ended June 30, 2007 and 2006. Approximately 11% and 10% of our trade receivables resulted from transactions with this single customer as of June 30, 2007 and September 30, 2006, respectively.

Product sales resulting from transactions with Feeders’ Advantage LLC (“Feeders’ Advantage”), a related party, were 4% and 5% of total product sales during the three and nine months ended June 30, 2007, respectively.  Product sales resulting from transactions with Feeders’ Advantage were 5% and 6% of total product sales during the three and nine months ended June 30, 2006, respectively.

NOTE 5 — PROPERTY AND EQUIPMENT

	June 30,			September 30,
	2007			2006
Land	$	20		$	20
Buildings and leasehold improvements	2,161			1,779
Machinery, furniture and equipment	10,423			9,138
Computer equipment	3,035			2,899
Construction in progress	827			377
	16,466			14,213
Accumulated depreciation and amortization	(8,667		)	(7,160		)
	$	7,799		$	7,053

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Depreciation expense for the three months ended June 30, 2007 and 2006 was $529 and $440, respectively, and $1,551 and $1,266 for the nine months ended June 30, 2007 and 2006, respectively.

During the fiscal year 2006, the Company relocated from its existing, owned distribution center to a new larger leased facility located in Denver, Colorado and sold the owned distribution center. The sale of the distribution center closed in February 2006, resulting in a gain of approximately $62 that is recorded in selling, general and administrative expenses in the condensed consolidated statement of income.

NOTE 6 — INTANGIBLES

	June 30,			September 30,
	2007			2006
Amortizing:
Customer lists	$	4,145		$	2,410
Covenants not to compete	356			256
Other	168			36
	4,669			2,702
Accumulated amortization	(604		)	(373		)
	4,065			2,329
Non-Amortizing:
Trade names and Patents	2,002			52
	$	6,067		$	2,381

Amortization expense was $78 and $57 for the three months ended June 30, 2007 and 2006, respectively, and $231 and $151 for the nine months ended June 30, 2007 and 2006, respectively.  Intangible assets are amortized over their expected useful life, which generally ranges from 5-20 years.  Estimated future annual amortization expense related to intangible assets as of June 30, 2007 follows:

	Amount
Remainder of 2007	$	109
2008	438
2009	438
2010	416
2011	398
Thereafter	2,266
	$	4,065

The above projection of amortization expense includes preliminary estimates of intangible assets and lives associated with the acquisition of Securos and IVDN.  These amounts 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—On December 13, 2006, MWI Veterinary Supply Co., (our wholly-owned subsidiary) as borrower, entered into an unsecured credit agreement with us and Memorial Pet Care, Inc., as guarantors, and Bank of America, N.A. and Wells Fargo Bank, N.A., (collectively, the “lenders”) for the provision of a revolving credit facility (the “facility”).  The facility allows for borrowings in the aggregate of $70,000, with the right to request an increase in the commitment of the lenders to $100,000.  The facility has a maturity date of December 1, 2011 and a variable interest rate equal to the Daily LIBOR Floating Rate or the LIBOR 1-month fixed rate (at our option) plus a margin ranging from 0.7% to 1.25%.  The lenders also receive an unused line fee and letter of credit fee equal to 0.125% of the unused amount of the facility. Our outstanding balance on the facility at June 30, 2007 was zero and the interest rate for the facility was 6.2% as of that date.  This facility replaced the five-year Credit Agreement dated June 18, 2002 between MWI Veterinary Supply Co. and Bank of America, N.A., which had an outstanding balance at September 30, 2006 of $10,559.

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The line-of-credit contains certain financial covenants as well as other restrictive covenants. The facility allows for the issuance of up to $10,000 in letters of credit. The letters of credit typically act as a guarantee of payment to certain third-parties in accordance with specified terms and conditions. We had eleven letters of credit totaling $780 at both June 30, 2007 and September 30, 2006. There were no outstanding borrowings on these letters of credit at either June 30, 2007 or September 30, 2006.

Long-Term Debt—In January 2005, we issued a promissory note in the aggregate principal amount of $487 in partial consideration for the purchase of substantially all the assets of Vetpo Distributors, Inc. The note bears interest at the prime rate (8.25% at June 30, 2007), payable quarterly. The principal of the note is payable in five equal annual installments, the first of which was due on January 1, 2006.  The balance on this promissory note was $292 at June 30, 2007 and $389 at September 30, 2006.

NOTE 8 — STOCK OPTIONS

We have two stock-based award plans, the 2002 Stock Option Plan and the Amended and Restated 2005 Stock-Based Incentive Compensation Plan (the “2005 Plan”).  The 2005 Plan allows our Board of Directors to grant common stock options, restricted stock, deferred units and other stock-based awards to directors, executives and other key employees.  These plans have been developed to provide additional incentives by allowing equity ownership in our company and, as a result, encouraging participants to contribute to our success.  At June 30, 2007, 444,113 options to purchase common stock were outstanding (274,889 options vested and exercisable) with a weighted average exercise price of $3.35 and expiring through September 2015.  During the three months ended June 30, 2007, we did not grant any shares of restricted stock under the 2005 Plan.  At June 30, 2007, 1,566,528 shares were available to be issued under our stock-based award plans.

Effective October 1, 2005, we adopted the provisions of SFAS No. 123- (Revised), Share-Based Payment (“SFAS 123-R”) for our share-based compensation plans. We previously accounted for these plans under the recognition and measurement principals of APB No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), as amended by SFAS No. 148, Accounting for Stock Based Compensation—Transition and Disclosure (“SFAS 148”). Under APB No. 25, no compensation expense was recorded in earnings for the stock-based awards granted under our stock-based award plans. The pro forma effects on net income and earnings per share for stock-based awards were instead disclosed in a footnote to the financial statements. Under SFAS 123-R, all share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense in earnings over the requisite service period.

We adopted SFAS 123-R using the modified prospective method. Under this transition method, compensation expense includes the expense for all share-based awards granted prior to, but not yet vested as of October 1, 2005, excluding those options initially valued using the minimum value method.  At October 1, 2005, all of our options to purchase common stock were either vested and exercisable or were initially valued using the minimum value method.  Therefore no compensation expense was recognized for these stock-based awards in our fiscal year ended September 30, 2006.  We granted no common stock options during the three and nine months ended June 30, 2007.  During the three and nine months ended June 30, 2007, we recognized $23 and $65 of compensation expense related to restricted stock grants, respectively.  During the three and nine months ended June 30, 2006, we recognized $6 and $7 of compensation expense related to restricted stock grants, respectively.

NOTE 9 — INCOME TAXES

Our effective tax rate for the three months ended June 30, 2007 and 2006 was 37.0% and 33.6%, respectively.  Our effective tax rate for the nine months ended June 30, 2007 and 2006 was 37.6% and 37.5%, respectively.  The change in the effective rate for the three and nine months ended June 30, 2007 as compared to the same period in the prior fiscal year was primarily a result of changes in our estimated state income tax rate partially due to the utilization of state tax credits.

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NOTE 10 — COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share data)

	Three months ended June 30,
	2007				2006
	Basic		Diluted		Basic		Diluted
Net income	$	4,260	$	4,260	$	3,769	$	3,769
Weighted average common shares outstanding	11,904		11,904		10,610		10,610
Effect of diluted securities Stock options and restricted stock			264				306
Weighted average shares outstanding			12,168				10,916
Earnings per share	$	0.36	$	0.35	$	0.36	$	0.35
Anti-dilutive shares excluded from calculation			—				1

	Nine months ended June 30,
	2007				2006
	Basic		Diluted		Basic		Diluted
Net income	$	12,552	$	12,552	$	10,563	$	10,563
Weighted average common shares outstanding	11,679		11,679		10,592		10,592
Effect of diluted securities Stock options and restricted stock			288				296
Weighted average shares outstanding			11,967				10,888
Earnings per share	$	1.07	$	1.05	$	1.00	$	0.97
Anti-dilutive shares excluded from calculation			—				1

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. charged Feeders’ Advantage for certain operating and administrative services in the amounts of $116 and $120 for the three months ended June 30, 2007 and 2006, respectively, and $402 and $398 for the nine months ended June 30, 2007 and 2006, respectively.  Sales of products to Feeders’ Advantage were $7,746 and $7,467 for the three months ended June 30, 2007 and 2006, respectively, and $26,170 and $24,822 for the nine months ended June 30, 2007 and 2006, respectively.

MWI Veterinary Supply Co. provides Feeders’ Advantage with a line-of-credit to finance its day-to-day operations. This line-of-credit bears interest at the prime rate. The interest due on the line-of-credit is calculated and charged to Feeders’ Advantage on the last day of each month. Conversely, to the extent MWI Veterinary Supply Co. has a payable balance due to Feeders’ Advantage, the payable balance accrues interest in favor of Feeders’ Advantage at the average federal funds rates in effect for that month. As of June 30, 2007, MWI Veterinary Supply Co. had a payable balance with Feeders’ Advantage of $357.  As of September 30, 2006, MWI Veterinary Supply Co. had a receivable balance with Feeder’s Advantage of $397.

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NOTE 12 — STATEMENTS OF CASH FLOWS – SUPPLEMENTAL AND NON CASH DISCLOSURES

	Nine months ended June 30,
	2007		2006
Supplemental Disclosures
Cash paid for interest	$	482	$	1,433
Cash paid for income taxes	7,057		6,296
Noncash Activities
Issuance of unregistered restricted common stock for asset acquisition	486		995
Equipment acquisitions financed with accounts payable	41		50

NOTE 13 — CONTINGENCIES AND COMMITMENTS

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

Putney Inc. v. Pfizer Inc. and MWI Veterinary Supply, Inc., United States District Court, D. Me. 2007

Putney sells to veterinary distributors a generic, human-approved form of a pharmaceutical sold by Pfizer. Since December of 2006, MWI has been party to a Distribution Agreement with Putney pursuant to which MWI purchases Putney’s product for resale.  Pfizer has contended that the sale and promotion of Putney’s product is unlawful.  Putney has sued Pfizer and MWI seeking a declaration that the sale and promotion of Putney’s product is lawful.  Putney also alleges, as against MWI, that MWI has disparaged Putney’s product, has breached the Distribution Agreement, and is obligated to indemnify Putney. No amount of damages is specified. Pfizer has filed a counterclaim, against Putney, in which it makes no claims of any type against MWI. MWI has yet to answer the complaint, and intends to contest vigorously any allegation that it has breached any agreement, disparaged Putney’s product, or is otherwise liable to Putney in any way. As the action has just been filed, and as it is not clear to what extent MWI will remain involved in or affected by this dispute, it is not possible to evaluate the likely outcome or to estimate damages, if any.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have reviewed the accompanying condensed consolidated balance sheet of MWI Veterinary Supply, Inc. and subsidiaries (the “Company”) as of June 30, 2007, and the related condensed consolidated statements of income for the three-month and nine-month periods ended June 30, 2007 and 2006, and of cash flows for the nine-month periods ended June 30, 2007 and 2006. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of MWI Veterinary Supply, Inc. and subsidiaries as of September 30, 2006, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated November 21, 2006, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 2006, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

Boise, Idaho

July 30, 2007

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

All dollar amounts are presented in thousands, except for per share amounts.

Overview

We are a leading distributor of animal health products to veterinarians across the United States.  We distribute more than 11,000 products sourced from over 400 vendors to approximately 15,000 veterinary practices nationwide from twelve strategically located distribution centers.  Products we sell include pharmaceuticals, vaccines, parasiticides, diagnostics, capital equipment, supplies, veterinary pet food and nutritional products.  We market these products to veterinarians in both the companion animal and production animal markets. Historically, approximately two-thirds of our total revenues have been generated from sales to the companion animal market and one-third from sales to the production animal market.  The increasing maturity of the production animal market results in lower margins on product sales relative to the companion animal market.  While the average order size for companion animal health products is often smaller than production animal health products, companion animal health products typically have higher margins.

Common Stock Offerings 

On August 3, 2005, we completed our initial public offering in which we sold an aggregate of 4,983,334 shares (including the exercise of the underwriters’ over-allotment option) of our common stock at a price to the public of $17 per share.  We received net proceeds of $77,159 after deducting the underwriting discounts and offering expenses.  We used the net proceeds to redeem all of our Series A preferred stock for approximately $39,789 and to repay approximately $37,370 of borrowings outstanding on the revolving credit facility 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 $32.25 per share.  We used the net proceeds of $27,341 received from this offering to pay down our borrowings on our former revolving credit facility.  On April 20, 2007, we issued 348,974 shares of our common stock at a price to the public of $35.00 per share.  We used the net proceeds received from this offering to pay down our borrowings on our revolving credit facility and for general corporate purposes.

Sales

We sell products that we source from our vendors to our customers through either a “buy/sell” transaction or an agency relationship with our vendors. In a “buy/sell” transaction, we purchase or take inventory of products from our vendors. When a customer places an order, we pick, pack and ship products, and then invoice the customer for the order. We record sales from “buy/sell” transactions, which account for the majority of our business, as revenue in conformity with accounting principles generally accepted in the United States. In an agency relationship, we generally do not purchase and take inventory of products from vendors. When we receive an order from a customer, we transmit the order to the vendor, who picks, packs and ships the order to our customer. In some cases, the vendor invoices and collects payment from the customer, while in other cases we invoice and collect payment from the customer on behalf of the vendor. We receive a commission payment for soliciting the order from the customer and for providing other customer service activities. The aggregate revenue we receive in agency transactions constitutes the “commissions” line item on our statement of income and is recorded in conformity with accounting principles generally accepted in the United States. The vendor determines the method we use to sell the products. Historically, vendors have occasionally switched between the “buy/sell” and agency models for particular products in response to market conditions related to that particular product. A switch between models can impact our revenues, gross margin, gross margin percentage and operating income.

Vendor Rebates

We typically renegotiate vendor contracts annually.  These vendor contracts may include terms defining rebates, commissions and exclusivity requirements. Vendor rebates based on sales are classified in our accompanying consolidated statements of income as a reduction to cost of product sales at the time the sales performance measures are achieved.  Purchase rebates are measured against inventory purchases from the vendors and are a reduction of inventory until the product is sold.  When the inventory is sold, purchase rebates are recognized as a reduction to cost of product sales. Many of our vendors’ rebate programs are based on a calendar year. Historically, the three months ended December 31 has been our most significant quarter for recognition of rebates. During the calendar year 2006, certain of our vendors modified their

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

Securos, Inc. and International Veterinary Distribution Network, Inc. Acquisition

In June 2007, we acquired substantially all of the assets of Securos, Inc. (“Securos”) and International Veterinary Distribution Network, Inc. (“IVDN”) for approximately $5,096, consisting of $4,610 in cash and 13,058 shares of restricted common stock valued at the time of the issuance at approximately $486.  Additional contingent consideration will be paid to Securos and IVDN shareholders if certain defined financial targets are achieved in each year through 2011 and is currently estimated to be approximately $1.1 million. These additional payments will increase the purchase price and goodwill at the time the financial targets are achieved.  Based in Charlton, MA, Securos is a provider of veterinary orthopedic products in the United States and select countries abroad.  Also based in Charlton, MA, IVDN sources private label products in the categories of veterinary surgical consumables and equipment and handheld instruments.  Our headcount increased by 20 employees as a result of this acquisition.

Northland Veterinary Supply, Ltd. Acquisition

In May 2006, we acquired substantially all of the assets of Northland Veterinary Supply, Ltd. (“Northland”) for approximately $4,546, consisting of $3,551 in cash (including direct acquisition costs of approximately $116) and 28,744 shares of restricted common stock valued at the time of issuance at approximately $995.  Based in Clear Lake, Wisconsin, Northland is a distributor of animal health products to veterinary practices and producers across the Midwestern portion of the United States.

For more information on our business, see our Annual Report on Form 10-K filed with the SEC on November 22, 2006.

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Results of Operations

The following table summarizes our results of operations for the three and nine months ended June 30, 2007 and 2006, in dollars and as a percentage of total revenues.

	Three Months Ended June 30,										Nine Months Ended June 30,
	2007			%		2006			%		2007			%		2006			%
Revenues:
Product sales	$	173,548		94.4	%	$	154,295		94.1	%	$	486,646		93.6	%	$	414,598		93.1	%
Product sales to related party	7,750			4.2	%	7,467			4.6	%	26,176			5.0	%	24,823			5.6	%
Commissions	2,555			1.4	%	2,190			1.3	%	7,129			1.4	%	5,696			1.3	%
Total revenues	183,853			100.0	%	163,952			100.0	%	519,951			100.0	%	445,117			100.0	%
Cost of product sales	158,391			86.1	%	141,041			86.0	%	444,318			85.5	%	379,526			85.3	%
Gross profit	25,462			13.9	%	22,911			14.0	%	75,633			14.5	%	65,591			14.7	%
Selling, general and administrative expenses	18,302			10.0	%	16,389			10.0	%	53,802			10.3	%	46,040			10.3	%
Depreciation and amortization	603			0.3	%	495			0.3	%	1,774			0.3	%	1,410			0.3	%
Operating income	6,557			3.6	%	6,027			3.7	%	20,057			3.9	%	18,141			4.1	%
Other income (expense):
Interest expense	(76		)	0.0	%	(466		)	-0.3	%	(505		)	-0.1	%	(1,599		)	-0.4	%
Earnings of equity method investees	35			0.0	%	35			0.0	%	122			0.0	%	117			0.0	%
Other	243			0.1	%	84			0.1	%	434			0.1	%	250			0.1	%
Total other income (expense), net	202			0.1	%	(347		)	-0.2	%	51			0.0	%	(1,232		)	-0.3	%
Income before taxes	6,759			3.7	%	5,680			3.5	%	20,108			3.9	%	16,909			3.8	%
Income tax expense	(2,499		)	-1.4	%	(1,911		)	-1.2	%	(7,556		)	-1.5	%	(6,346		)	-1.4	%
Net income	$	4,260		2.3	%	$	3,769		2.3	%	$	12,552		2.4	%	$	10,563		2.4	%
Earnings per share:
Basic	$	0.36				$	0.36				$	1.07				$	1.00
Diluted	$	0.35				$	0.35				$	1.05				$	0.97
Weighted average common shares outstanding (in thousands):
Basic	11,904					10,610					11,679					10,592
Diluted	12,168					10,916					11,967					10,888
Other Data:
Product sales from Internet as a percentage of sales	25		%			22		%			24		%			23		%
Field sales representatives (at  end of period)	165					146					165					146
Telesales representatives (at  end of period)	117					99					117					99
Fill rate (1)	98		%			98		%			98		%			98		%

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

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Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006

Total Revenues.  Total revenues increased 12.1% to $183,853 for the three months ended June 30, 2007 from $163,952 for the three months ended June 30, 2006.  Revenue growth was negatively impacted late in the quarter because one of our key vendors offered a significant marketing program late in the third quarter of fiscal 2006 that was not offered in the third quarter of fiscal 2007, and another key vendor announced a July 1, 2007 price increase that was less comprehensive than their July 1, 2006 price increase.  The increase in revenues for the quarter ended June 30, 2007 was attributable to an increase in product sales volumes of a wide variety of products to both new and existing customers.  Revenues attributable to new customers represented approximately 83% of the growth in total revenues during the three months ended June 30, 2007. Revenues attributable to existing customers represented approximately 17% of the growth in total revenues during the three months ended June 30, 2007.  For the purpose of calculating growth rates of new and existing customer revenue, we have defined a new customer as a customer that did not purchase product from us in the corresponding fiscal quarter of the prior year, with the remaining customer base being considered an existing customer.  Also contributing to revenue growth was the increase in commissions on our agency sales of 16.7% to $2,555 for the three months ended June 30, 2007 from $2,190 for the same period of the prior fiscal year.

Gross Profit.  Gross profit increased by 11.1% to $25,462 for the three months ended June 30, 2007 from $22,911 for the three months ended June 30, 2006.  This increase in gross profit was a result of increased total revenues as discussed above as compared to the three months ended June 30, 2006.  Gross profit as a percentage of total revenues decreased 0.1% to 13.9% for the three months ended June 30, 2007 compared to 14.0% for the same period in the prior year.  Actual rebate dollars decreased approximately $1,000 for the three months ended June 30, 2007 as compared to the same period in the prior fiscal year, due to lower sales growth in the current quarter with a key vendor.  The decrease in rebate dollars was largely offset by improvements in our cost of product sales as our product margin improved in the quarter ended June 30, 2007 as compared to the quarter ended June 30, 2006.

Selling, General and Administrative (“SG&A”).  SG&A expenses increased 11.7% to $18,302 for the three months ended June 30, 2007 from $16,389 for the three months ended June 30, 2006.  SG&A expenses as a percentage of revenues remained consistent at 10.0%.  The dollar increase was primarily due to increased compensation costs as a result of additional headcount of 97 team members, including 19 new field sales and 18 telesales representatives.  The increase in total headcount also includes an additional 20 employees added as a result of the Securos and IVDN acquisitions in June 2007.  Employee benefits increased as a result of the growth in headcount, as well as higher health insurance costs due to growth in the volume and magnitude of individual claims.  Also contributing to the growth in SG&A expenses were increased occupancy and location costs due to the expansion of a number of distribution centers and sales growth and higher credit card fees as a result of customer usage.

Depreciation and Amortization.  Depreciation and amortization expense increased 21.8% to $603 for the three months ended June 30, 2007 from $495 for the three months ended June 30, 2006.  This increase was primarily the result of a number of capital expenditures, with the majority of those coming from new or expanded distribution centers.  These additions or expansions include facilities in Orlando, Florida; Atlanta, Georgia; Clear Lake, Wisconsin; Denver, Colorado; and Glendale, Arizona.  Additionally, we have also made improvements to our information technology infrastructure.

Other Expenses.  Other expenses decreased 158.2% to $202 in income for the three months ended June 30, 2007 from $347 in expense for the three months ended June 30, 2006. This decrease in other expenses was due to a decline in interest expense of $390 to $76 for the three months ended June 30, 2007 compared to $466 for the three months ended June 30, 2006.  This decrease was a result of the lower average loan balance on the facility.  We used the proceeds from the sale of common stock in our follow-on offerings in the fourth quarter of our fiscal year 2006 and the third quarter of our fiscal year 2007 to pay down the loan balance.  The follow-on offering in the third quarter of fiscal year 2007 coupled with positive cash from operations allowed us to maintain a positive cash balance during much of the quarter.

Income Tax Expense.  Our effective tax rate for the three months ended June 30, 2007 and 2006 was 37.0% and 33.6%, respectively.   The change in the effective rate in the three months ended June 30, 2007 as compared to the same period in the prior fiscal year was primarily a result of a change in our estimated state income tax rate partially due to the utilization of state tax credits.

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Nine Months Ended June 30, 2007 Compared to Nine Months Ended June 30, 2006

Total Revenues.  Total revenues increased 16.8% to $519,951 for the nine months ended June 30, 2007 from $445,117 for the nine months ended June 30, 2006.  This increase was attributable to an increase in product sales volumes of a wide variety of products to both new and existing customers.  Revenues attributable to new customers represented approximately 73% of the growth in total revenues during the nine months ended June 30, 2007. Revenues attributable to existing customers represented approximately 27% of the growth in total revenues during the nine months ended June 30, 2007.  For the purpose of calculating growth rates of new and existing customer revenue, we have defined a new customer as a customer that did not purchase product from us in the corresponding nine months of the prior year, with the remaining customer base being considered an existing customer.  Also contributing to revenue growth was the increase in commissions on our agency sales of 25.2% to $7,129 for the nine months ended June 30, 2007 from $5,696 for the same period of the prior fiscal year.

Gross Profit.  Gross profit increased by 15.3% to $75,633 for the nine months ended June 30, 2007 from $65,591 for the nine months ended June 30, 2006.  This increase in gross profit was a result of increased total revenues as discussed above as compared to the nine months ended June 30, 2006.  Gross profit as a percentage of total revenues decreased approximately 0.2% to 14.5% for the nine months ended June 30, 2007 from 14.7% for the same period in the prior year.  This decrease was due to decreased vendor rebates as a percentage of total revenues.  Vendor rebates have historically been highest during our first fiscal quarter ended December 31, since certain significant vendor rebate programs were designed to include annual targets to be achieved based on the calendar year.  Vendor modifications to rebate programs during the calendar year 2006 from annual-weighted calendar year growth targets to either quarterly or trimester growth targets resulted in a shift of rebate dollars that historically would have been earned in our first quarter of our fiscal year 2007 ended December 31, 2006 to be earned in our fiscal year 2006.  Included in vendor rebates for the fiscal year 2006 were approximately $2,500 ($1,500 after tax) due to this shift in the timing of rebates.  Actual rebate dollars decreased $643 for the nine months ended June 30, 2007 as compared to the same period of the prior fiscal year.

Selling, General and Administrative (“SG&A”).  SG&A expenses increased 16.9% to $53,802 for the nine months ended June 30, 2007 from $46,040 for the nine months ended June 30, 2006.  This dollar increase was primarily due to increased compensation costs as a result of additional headcount of 97 team members, including 19 new field sales and 18 telesales representatives.  The increase in total headcount also includes an additional 20 employees added as a result of the Securos and IVDN acquisitions in June 2007.  Other changes are the same as those described above under the three month explanation.

Depreciation and Amortization.  Depreciation and amortization expense increased 25.8% to $1,774 for the nine months ended June 30, 2007 from $1,410 for the nine months ended June 30, 2006.  The changes are the same as those described above under the three month explanation.

Other Expenses.  Other expenses decreased 104.1% to $51 in income for the nine months ended June 30, 2007 from $1,232 in expense for the nine months ended June 30, 2006. This decrease in other expenses was due to a reduction in interest expense of $1,094 to $505 for the nine months ended June 30, 2007 compared to $1,599 for the nine months ended June 30, 2006.  The change in interest expense is a result of the same reasons described above in the three month explanation.

Income Tax Expense.  Our effective tax rate for the nine months ended June 30, 2007 and 2006 was 37.6% and 37.5%, respectively.

Critical Accounting Policies

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

Liquidity and Capital Resources

Our principal sources of liquidity are cash flow generated from operations and borrowings on the revolving credit facility under the credit agreement. We use capital primarily to fund day-to-day operations and to maintain sufficient inventory levels in order to promptly fulfill customer orders and to expand our operations and sales.  We believe our capital resources will be sufficient to meet our anticipated cash needs for at least the next twelve months.

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MWI Veterinary Supply Co., (our wholly-owned subsidiary) has a line-of-credit under a revolving credit facility with two lenders.  The facility allows for borrowings in the aggregate of $70,000, with the right to request an increase in the commitment of the lenders to $100,000.  The facility has a maturity date of December 1, 2011 and a variable interest rate equal to the Daily LIBOR Floating Rate or the LIBOR 1-month fixed rate (at our option) plus a margin ranging from 0.7% to 1.25%.  The lenders also receive an unused line fee and letter of credit fee equal to 0.125% of the unused amount of the facility. Our outstanding balance on the facility at June 30, 2007 was zero and the interest rate on the facility was 6.2% as of this date.  The line-of-credit contains certain financial covenants as well as other restrictive covenants.

The facility allows for the issuance of up to $10,000 in letters of credit. The letters of credit typically act as a guarantee of payment to certain third parties in accordance with specified terms and conditions. We had eleven letters of credit totaling $780 at June 30, 2007 and September 30, 2006. There were no outstanding borrowings on these letters of credit at either June 30, 2007 or September 30, 2006.

Operating Activities.  For the nine months ended June 30, 2007, cash provided by operations was $17,398 and was primarily attributable to net income of $12,552 and a reduction in receivables of $2,711 due to positive collections for the period with slower revenue growth as previously discussed in the quarter ended June 30, 2007.  The slow down in revenue growth also gave rise to improvements in other key areas on the balance sheet, including inventories.

For the nine-months ended June 30, 2006, cash provided by operations was $1,004 and was primarily attributable to net income of $10,563 and an increase in accounts payable of $11,232, partially offset by increases in receivables of $13,104 and inventories of $9,727.  The increase in accounts payable was directly tied to the increase in inventory levels as a result of us purchasing products in advance of vendor price increases and purchases related to the new distribution center from the Northland acquisition and the opening of a new distribution center located in Orlando, Florida.  Increases in receivables were a result of the Company’s sales growth and due to extended payment terms to production animal veterinarians in response to market conditions.

Investing Activities.  For the nine months ended June 30, 2007, net cash used in investing activities was $6,978 and was primarily due to the acquisition of Securos and IVDN for $4,610 coupled with capital expenditures of $2,118.  We had approximately $1,600 in expenditures related to our facilities and approximately $450 in expenditures related to information technology projects.

For the nine-months ended June 30, 2006, net cash used in investing activities was $6,351.  Significant transactions impacting cash used in investing activities during the nine-months ended June 30, 2006 included the acquisition of Northland for $3,549 in cash, capital expenditures of $2,830 primarily related to relocating our existing distribution center to a new larger distribution center in Denver, Colorado and due to the purchase of equipment for a new distribution center in Orlando, Florida.  During the three-months ended March 31, 2006 we completed the sale of a distribution center previously operated in Denver, Colorado for $1,455.

Financing Activities.  For the nine months ended June 30, 2007, net cash provided by financing activities was $1,872.  In April 2007, we issued 348,974 shares of common stock resulting in cash of $11,252.  This cash was used to pay down our credit facility.  Our credit facility had a zero balance at June 30, 2007.

For the nine-months ended June 30, 2006, net cash provided by financing activities was $5,369, and was primarily attributable to borrowing on our credit facility.

Contractual Obligations and Guarantees

For information on our contractual obligations and guarantees, see our Annual Report on Form 10-K filed on November 22, 2006 with the SEC. During the nine months ended June 30, 2007 we entered into the following leasing arrangements:

·In November 2006, we leased approximately 16,000 square feet of additional distribution center space located in Denver, Colorado with an incremental average annual lease of $72 per year and expiring in 2013.

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·Also in November 2006, we renewed one lease agreement and entered into a second lease agreement for a combined 19,500 square foot distribution center located in Glendale, Arizona.  The lease expense averages $115 per year and the leases expire in 2009.

·In March 2007, we leased approximately 5,500 square feet of additional distribution center space located in Nampa, Idaho with an incremental average annual lease of $28 per year and expiring in 2012.

·In June 2007, we entered into a lease agreement for approximately 105,000 square feet for a distribution center located in Edwardsville, Kansas.  We agreed to lease approximately 80,000 square feet for the first eighteen (18) months and approximately 105,000 square feet for the remaining 102 months.  The lease expense averages $356 per year for the first part of the lease and $487 for the second part of the lease expiring in 2017.  The lease will commence on October 1, 2007.

·In July 2007, we leased approximately 15,000 square feet for a building in Sturbridge, Massachusetts in connection with the acquisitions of substantially all of the assets of Securos and IVDN.  The average annual lease is $77 and expires in 2012.  We expect Securos to relocate to this larger facility during our fiscal fourth quarter.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

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

The interest payable on the facility is based on variable interest rates and is therefore affected by changes in market interest rates. The outstanding balance on the facility as of June 30, 2007 was zero.  Therefore, there was no exposure to market risks as of this date.  If there had been a balance on the facility, a change of 10% from the interest rate as of June 30, 2007, which was 6.2%, would have impacted financial results.  We would not have expected the change to be material.

Item 4.  Controls and Procedures

Management of the Company, including the Chief Executive Officer and the Chief Financial Officer of the Company, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of June 30, 2007.  Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, including the accumulation and communication of disclosures to the Company’s Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure, are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II.  OTHER INFORMATION

Cautionary Statement for Purposes of “Safe Harbor Provisions” of the Private Securities Litigation Reform Act of 1995

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

Forward-looking statements are only predictions and are not guarantees of our performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others assumptions regarding demand for our products, the expansion of product offerings geographically or through new applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results that differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:

·vendor rebates based upon attaining certain growth goals;

·changes in the way vendors introduce products to market;

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

·regulatory changes;

·seasonality;

·the impact of general economic trends on our business;

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

·the timing of the introduction of new products and services by our vendors; and

·competition.

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

Item 1.  Legal Proceedings

From time to time, in the normal course of business, we may become a party to legal proceedings that may have an adverse effect on our financial position, results of operations and cash flows. Management presently believes that the ultimate outcome of these proceedings, including the proceedings described below, will not have a material adverse effect on our financial position, cash flows or overall trends in results of operations.  However, litigation is subject to inherent uncertainties, and unfavorable outcomes could occur. An unfavorable outcome could include the payment of monetary damages or, in cases for which injunctive relief is sought, an injunction prohibiting us from selling one or more products or

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taking certain other actions.  Were an unfavorable outcome to occur, our business or results of operations could be materially harmed.

Putney Inc. v. Pfizer Inc. and MWI Veterinary Supply, Inc., United States District Court, D. Me. 2007

Putney sells to veterinary distributors a generic, human-approved form of a pharmaceutical sold by Pfizer. Since December of 2006, MWI has been party to a Distribution Agreement with Putney pursuant to which MWI purchases Putney’s product for resale.  Pfizer has contended that the sale and promotion of Putney’s product is unlawful.  Putney has sued Pfizer and MWI seeking a declaration that the sale and promotion of Putney’s product is lawful.  Putney also alleges, as against MWI, that MWI has disparaged Putney’s product, has breached the Distribution Agreement, and is obligated to indemnify Putney. No amount of damages is specified. Pfizer has filed a counterclaim, against Putney, in which it makes no claims of any type against MWI. MWI has yet to answer the complaint, and intends to contest vigorously any allegation that it has breached any agreement, disparaged Putney’s product, or is otherwise liable to Putney in any way. As the action has just been filed, and as it is not clear to what extent MWI will remain involved in or affected by this dispute, it is not possible to evaluate the likely outcome or to estimate damages, if any.

Item 1A.  Risk Factors

There have been no material changes from our risk factors as previously reported in our Annual Report on Form 10-K for the year ended September 30, 2006.

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

On June 8, 2007, we issued an aggregate of 13,058 shares of restricted common stock to Securos, Inc. and International Veterinary Distribution Network, Inc. as part of the consideration for the purchase of substantially all the assets of Securos, Inc. and International Veterinary Distribution Network, Inc.  The securities described in this paragraph were issued in reliance upon the exemption from the registration requirements of the Securities Act, as set forth in Section 4(2) under the Securities Act and Regulation D promulgated thereunder relative to sales by an issuer not involving any public offering.

Item 3.  Defaults Upon Senior Securities

None.

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

None.

Item 5.  Other Information

None.

Item 6.  Exhibits

3.1MWI Veterinary Supply, Inc. Amended and Restated Certificate of Incorporation, as amended on July 30, 2007

3.2MWI Veterinary Supply, Inc. Amended and Restated Bylaws, as amended on July 30, 2007

10.1Livestock Products Agreement  between MWI Veterinary Supply, Inc. and Pfizer, Inc. effective as of December 23, 2006 †

10.2Rimadyl/Clavamox Distribution Agreement between MWI Veterinary Supply, Inc. and Pfizer, Inc. effective as of March 15, 2007 †

10.3Equine Products Marketing Agreement between MWI Veterinary Supply, Inc. and Pfizer, Inc. effective as of January 1, 2007 †

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15Letter re: Unaudited Interim Financial Information

31.1Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MWI Veterinary Supply, Inc.
	(Registrant)
Date: August 1, 2007	/s/ Mary Patricia B. Thompson
	Mary Patricia B. Thompson
	Senior Vice President of Finance and Administration, Chief Financial Officer

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