Summary of Significant Accounting Policies | 12 Months Ended |
Sep. 30, 2013 |
Summary of Significant Accounting Policies [Abstract] | ' |
Summary of Significant Accounting Policies | ' |
2. Summary of Significant Accounting Policies |
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Principles of Consolidation — The accompanying consolidated financial statements consist of MWI Veterinary Supply, Inc. and its wholly-owned subsidiaries, collectively referred to herein as “MWI” or the “Company.” All intercompany transactions have been eliminated. We use the equity method of accounting for our investments in entities in which we have significant influence; generally this represents an ownership interest between 20% and 50%. Our share of income or loss from these investments is reported as increases or decreases in the respective investment with a corresponding amount reported as other income/(expense). |
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Basis of Accounting and Use of Estimates — The accompanying 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 allowance for doubtful accounts, customer incentives, vendor rebates, inventories, goodwill and intangible assets, income taxes 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. |
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Segment Information — We are a distributor of animal health products to veterinarians. Our financial results are disclosed as one reportable segment. We identified two operating segments based on geographic areas but aggregate based on applicable accounting standards. We determined that the two operating segments have similar operating margins and are expected to maintain this similarity into the future. Additionally, our products, customers, operations, delivery to market and regulatory environments are all similar in nature. |
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Foreign Currency Translation — For our international operations, local currencies have been determined to be the functional currencies. We translate functional currency assets and liabilities to their U.S. dollar equivalents at rates in effect at the balance sheet date and record these translation adjustments in Stockholders’ Equity – Accumulated Other Comprehensive Income/(Loss). We translate functional currency statement of income amounts to their U.S. dollar equivalents at average rates for the period. |
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Other Comprehensive Income — Comprehensive income includes cumulative foreign currency translation adjustments and actuarial adjustments on pension valuation. At September 30, 2013, accumulated other comprehensive income is comprised of actuarial adjustments, net of tax, of ($66), and foreign currency translation adjustments of $1,984. |
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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, ship and 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. We record revenues net of sales tax. 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 complete. Gross billings from agency contracts were $349,006, $332,343 and $371,024 for the years ended September 30, 2013, 2012 and 2011, respectively, and generated commission revenue of $18,851, $16,979 and $20,655 for the years ended September 30, 2013, 2012 and 2011, respectively. |
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Cost of Product Sales and Vendor Rebates — Cost of product sales consist of our inventory product cost, including shipping costs to and from our distribution centers. Costs of fulfillment are included in selling, general and administrative costs. Vendor rebates are recorded based on the terms of the contracts or programs with each vendor. We receive quarterly, 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 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. |
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Historically, actual results have not significantly deviated from those determined using the estimates described above. We expect that our estimates in the future will continue to be reasonable as our rebates are based on specific vendor program goals and are principally recorded upon achievement of sales or purchase performance measures. Vendors may change or eliminate rebate programs from year to year. |
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Customer Incentives — Customer incentives are accrued based on the terms of the contracts with each customer. These incentive programs provide that the customer receive an incentive based on their product purchases or attainment of performance goals. Incentives are estimated based on the specific terms in each agreement, historical experience and product growth rates. Incentives are recognized as a reduction to product sales. |
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Cash and Cash Equivalents — Cash equivalents consist of highly liquid investments with a maturity of three months or less from the date of purchase. Our banking arrangements allow us to fund outstanding checks when presented to the financial institution for payment. |
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Inventories — Inventories, consisting of pharmaceuticals, vaccines, parasiticides, diagnostics, micro feed ingredients, capital equipment and technology, supplies and nutritional products, are stated at the lower of cost (on a moving-average basis) or market. |
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Property and Equipment — Property and equipment are stated at cost and depreciation is computed using the straight-line method over the estimated useful lives, which include the shorter of useful life or lease term for leasehold improvements, of the related assets as follows: |
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| Buildings | | 25 to 35 years | |
| Machinery, furniture and equipment | | 3 to 15 years | |
| Computer equipment | | 3 to 7 years | |
| Leasehold improvements | | 1 to 10 years | |
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The cost and accumulated depreciation of items sold or retired are removed from the property accounts and any resulting gain or loss is reflected in net income. Repairs and maintenance are expensed as incurred and improvements are capitalized. |
We periodically review long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. No impairments were identified during the fiscal years ended September 30, 2013, 2012 and 2011. |
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Goodwill and Intangible Assets — We recognize the excess purchase price over the fair value of net assets acquired and liabilities assumed in a business combination as goodwill on the consolidated balance sheet. We perform an annual impairment test on goodwill as of September 30th each year. We calculate the fair value of each reporting unit using both an income approach and a market approach, and compare the fair value to its book value. We have concluded that there was no impairment during the fiscal years ended September 30, 2013, 2012 and 2011. Impairment tests will continue to be performed at least annually and more frequently if circumstances indicate a possible impairment. |
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Identifiable intangible assets primarily include customer relationships, trademarks and patents, technology and covenants not to compete and are amortized, as necessary, over their useful lives or contractual term which range from 1-20 years. We review both indefinite-lived and definite-lived identifiable intangible assets at least annually for impairment or when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. No impairments were identified during the fiscal years ended September 30, 2013, 2012 and 2011. |
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Other Assets — Included in other assets are our equity method investments and investments in entities accounted for under the cost method of accounting, which includes an investment in Cubex of $4,000. We periodically evaluate these investments for other-than-temporary impairment using both qualitative and quantitative criteria, or when indicators of impairment are noted. In the event an investment is deemed to be other-than-temporarily impaired, we would recognize the loss component in the consolidated statements of income. Other assets also consist of debt issuance costs that are being amortized over the term of the related debt. |
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Earnings Per Common Share — Basic earnings per common share is calculated based on the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per common share is based on the weighted-average number of outstanding common shares plus the weighted-average number of potential outstanding common shares. Potential common shares that would increase earnings per share amounts are antidilutive and are, therefore, excluded from the earnings per common share computations. Earnings per common share is computed separately for each period presented. |
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Income Taxes — Income taxes are accounted for under the asset and liability method. Deferred income taxes are recognized to provide for temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred taxes are measured using enacted tax rates in effect during the years in which the temporary differences are expected to reverse. |
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Concentrations of Risk — Our financial instruments that are exposed to concentrations of credit risk consist primarily of our receivables. Our customers are geographically dispersed throughout the United States and United Kingdom. In the United Kingdom, we rely on a smaller number of relatively larger customers than does our business in the United States. These customers in the aggregate accounted for 14.5% and 18.1% of our consolidated accounts receivable balance as of September 30, 2013 and December 31, 2012, respectively, and one significant customer accounted for 2.6% and 7.6% of our consolidated accounts receivable balance as of September 30, 2013 and December 31, 2012, respectively. We routinely assess the financial strength of our customers and review their credit history before extending credit. In addition, we establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. |
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Advertising — Advertising costs are expensed when incurred and are included as part of selling, general and administrative expenses. Advertising costs were $1,165, $1,203 and $723 in fiscal years 2013, 2012 and 2011, respectively. |
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Recently Issued and New Accounting Pronouncements —In January 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which includes bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending arrangements that are either offset on the balance sheet or subject to an enforceable master netting arrangement or similar agreement. This guidance is effective for our fiscal year beginning October 1, 2013. We do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements. |
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In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which provides additional disclosure requirements for items reclassified out of accumulated other comprehensive income. This guidance is effective for our fiscal year beginning October 1, 2013. We do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements. |
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