Mail Stop 6010
May 18, 2005
James F. Cleary, Jr.
President and Chief Executive Officer
MWI Veterinary Supply, Inc.
651 S. Stratford Drive, Suite 100
Meridan, Idaho 83642
Re: MWI Veterinary Supply, Inc.
Registration Statement on Form S-1
File No. 333-124264
Dear Mr. Cleary:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your documents in
response to these comments. If you disagree, we will consider
your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form S-1
General
1. Please note that when you file a pre-effective amendment
containing pricing-related information, we may have additional
comments.
2. Please note that when you file a pre-effective amendment that
includes your price range, it must be bone fide. We interpret this
to
mean that your range may not exceed $2 if you price below $20 and
10%
if you price above $20.
3. Please provide us proofs of all graphic, visual or photographic
information you will provide in the printed prospectus prior to
its
use, for example in a preliminary prospectus. Please note we may
have comments regarding this material.
General
4. Prior to requesting acceleration for effectiveness, please
refer
to Item 3-12 of Regulation S-X and file an amended registration
statement on Form S-1 to include your most recent interim
financial
statements as of and for the period ended March 31, 2005. In doing
so, please also file as an exhibit an updated, signed consent
report
from your independent accountants.
Prospectus Summary, page 1
5. The summary section should provide a brief, but balanced
description of the key aspects of the company as of the latest
practicable date. Currently you only appear to discuss the
positive
aspects of your company. Please revise the summary to also
discuss
any negative aspects of your company`s experience. In addition,
since
you have included a summary of your company`s strategies to
strengthen you position, please include a balancing discussion
that
discusses the negative aspects and risks associated with your
business strategies.
6. Please provide us with an annotated copy of third party
documentation supporting your statement "We are a leading
distributor
of animal health products to veterinarians across the United
States."
In addition, please provide us with a marked copy of the
information
you attribute to the Animal Health Institute and American
Veterinary
Medical Association, respectively, in this section as well as in
your
Business section.
Summary Consolidated Financial and Operating Data, page 7
7. We note that you present the non-GAAP measure, EBITDA, as an
indicator of your performance. The elimination of recurring items
from the most comparable GAAP measure appears to have the effect
of
smoothing earnings. While the acceptability of a non-GAAP
financial
measure that eliminates recurring items from the most comparable
GAAP
measure depends on all facts and circumstances, we do not believe
that a non-GAAP measure that has the effect of smoothing earnings
is
appropriate. In addition, we note the following regarding the
items
that you exclude from your presentation of EBITDA:
a.) there is a past pattern of these items occurring in each
reporting period;
b.) the financial impact of these items will not disappear or
become
immaterial in the future; and,
c.) there is no unusual reason that the company can substantiate
to
identify the special nature of these items.
The above raises significant questions about management`s
assertions
as to the usefulness of EBITDA to measure performance and the
appropriateness of its presentation in accordance with Item 10 of
Regulation S-K. Please refer to "Frequently Asked Questions
Regarding the Use of Non-GAAP Financial Measures" on our website
at
www.sec.gov/divisions/corpfin/faqs/nongaapfaq.htm that we issued
on
June 13, 2003. Please revise your filing to remove all references
to
this measure or tell us how your disclosure complies with Item 10
of
Regulation S-K.
Risk Factors, page 8
8. We note your disclosure in the introductory paragraph of this
section where you state, "The risks and uncertainties described
below
are not the only risks and uncertainties we face." This sentence
suggests that not all known risks or uncertainties are described
in
this section. Please amend your disclosure to state that all
material risks are described in the risk factors section, and
ensure
that the statement is true.
9. We note from your disclosure in the Use of Proceeds section on
page 20 that your net proceeds will be used to primarily repay
debt
and to redeem all of your Series A preferred stock held by your
principal shareholders. In that regard, please consider adding a
risk
factor that indicates you expect to retain none of your offering
proceeds for any other purposes. Please also identify the
shareholders who will benefit from the redemption and their
relationship to the company, other than as principal shareholders.
In
the alternative, please tell us why you do not believe such a risk
factor is necessary.
10. We note your disclose under the heading "Dividend Policy."
Please consider adding a risk factor indicating that investors
will
only see a return on their investment if the value of the shares
appreciates since you currently intend to retain future earnings
to
develop and expand your business. In the alternative, please tell
us
why you do not believe such a risk factor is necessary.
"Our operating results may fluctuate due to factors outside of
management`s control," page 8
11. Please describe if any of the factors you have described in
this
risk factor have historically impacted your results of operations
and
financial condition in a negative manner. If so, please briefly
describe the specific factors and how they impacted you.
"An adverse change in vendor rebates could negatively affect our
business," page 8
12. Please describe if historically if you have experienced a
negative material impact on your results of operations and
financial
condition due to an adverse change in vendor rebates. If so,
please
describe the incidence and how it impacted you.
"Our business, financial condition and results of operations
depend
upon . . . .," page 10
13. Please identify every vendor who supplied 10% or more of your
product sales. Please also indicate if you have any formal
agreements with such vendors. If so, please provide the material
terms of any agreements, including termination provisions. You
should also file the agreements as exhibits.
14. You indicate that you have agreements with some of your
vendors.
Please quantify how many vendors you have written agreements with.
"We rely upon third parties to ship products to our customers and
interruptions . . . .," page 11
15. Please describe if historically you have experienced a
negative
material impact on your results of operations and financial
condition
due to conditions in the transportation industry experienced by
UPS
or shipping costs charged by UPS. If so, please describe the
incidence and how it impacted you.
"Loss of key management or sales representatives could harm our
business," page 14
16. Please indicate if you have entered into any employment
agreements with any executive officers. If so, please also provide
the expiration date of such agreements.
17. Please briefly discuss any aspects of your business that make
you
less attractive than other companies to potential employees.
"We may be subject to product liability and other claims in the
ordinary course . . . .," page 14
18. Please disclose the coverage amount and any limitations on any
product liability insurance policies you maintain.
"We may not be able to raise needed capital in the future," page
15
19. Please indicate how long you expect your existing capital
resources without proceeds from the offering will be sufficient to
conduct your operations.
20. Please divide this risk factor into two risk factors: one
addressing the consequences of not obtaining sufficient capital
and
the other addressing the negative consequences of obtaining
capital,
such as dilution.
"Concentration of ownership among our existing executive officers,
directors . . . .," page 16
21. Please also revise this risk factor to include disclosure that
BRS is entitled to designate five members and Agri Beef Co. is
entitled to designate one member to your board so long as each
entity
maintains a certain percentage of common stock ownership. Please
also
specify the certain percentage each must maintain in order to
designate members of your board and how much each of these
entities
currently hold and will expect to hold after the offering.
"You will incur immediate and substantial dilution as a result of
this offering," page 18
22. Please revise this risk factor to explain also that investors
who
purchase shares will contribute ___% of the total amount to fund
the
company but will own only ___% of the outstanding share capital
and
___% of the voting rights.
Use of Proceeds, page 20
23. Please explain why the Series A preferred shares will be
repurchased instead of using the proceeds to further your business
activities? Are you required to redeem the preferred shares and,
if
so, why?
24. Please also explain why you are repaying your borrowings under
your credit facility as it appears you intend to take on
additional
borrowings subsequently thereafter to have funds available for
general corporate purposes. Are you required to pay down the
borrowing by a certain time?
Management`s Discussion and Analysis of Financial Condition, page
27
25. You indicate that you cannot know in advance when a vendor
will
switch between the "buy/sell" and agency models. Please explain
the
reasons you cannot know in advance as it appears you have written
agreements with some of your vendors.
Results of Operations, page 29
26. Please revise your tabular presentation and the underlying
discussion of your results of operations to separate and
distinguish
the predecessor and successor financial information. Specifically,
your "pro forma" presentation of the combined results appears akin
to
a "pooling of interests," which does not reflect the substance of
the
business combination in accordance with GAAP.
27. In all cases where you attribute a material change in
financial
statement amounts to more than one factor, please ensure that you
have quantified the effect of each material factor on the amount.
We
believe that such quantification is required by Financial
Reporting
Codification Section 501.04. Additionally, in accordance with Item
303(a)(3)(iii) of Regulation S-K, please consider disclosing
whether
the material increases in product sales from period to period
relate
to specific products or product lines, including those newly
introduced.
Liquidity and Capital Resources, page 35
28. Please include a more robust discussion and analysis of your
operating cash flows to address the underlying reasons for the
comparative changes in your working capital components for the
financial statement periods presented. In doing so, please refer
to
Commission Release No. 33-8350: "Interpretation- Commission
Guidance
Regarding Management`s Discussion and Analysis of Financial
Condition
and Results of Operations," which you can find on our website at
www.sec.gov/rules/interp/33-8350.htm.
Critical Accounting Policies, page 38
29. Please revise your disclosures herein, giving consideration to
Commission Release No. 33-8350: "Interpretation- Commission
Guidance
Regarding Management`s Discussion and Analysis of Financial
Condition
and Results of Operations," to address the material implications
of
uncertainties associated with the methods, assumptions and
estimates
underlying each of your critical accounting measurements. More
specifically, please address the following:
a.) define or provide an analysis of the uncertainties involved in
applying a principle at a given time or the variability that is
reasonably likely to result from its application over time;
b.) specifically address why your accounting estimates or
assumptions
bear the risk of change;
c.) analyze, to the extent material, such factors as how accurate
each estimate/assumption has been in the past; how each has
changed
in the past; and whether each is reasonably likely to change in
the
future; and
d.) analyze each estimate/assumption`s specific sensitivity to
change, based on other materially different outcomes that are
reasonably likely to occur.
30. We note that your vendors base their performance rebate
programs
on sales growth goals that they establish with you at the
beginning
of each calendar year per the underlying contracts. Please clarify
for us, supplementally, your recognition of these vendor rebates
"at
the time the sales performance measures are achieved," as opposed
to
systematic recognition based on estimates over the underlying
contract periods. In providing us with this additional
information,
please address Issues 7 and 8 of EITF 02-16.
31. We acknowledge that you recognize revenue in accordance with
EITF
01-9 for your "customer incentives," as noted herein and within
your
"Summary of Significant Accounting Policies" in the accompanying
notes to your consolidated financial statements. We believe that
your
disclosure related to estimates of items that reduce your gross
revenue could be defined and improved as follows:
a). Disclose the type and amount of each accrual at the balance
sheet date and the effect that could result from using other
reasonably likely assumptions than those upon which you currently
rely. For example, please disclose a range of reasonably likely
amounts or another type of sensitivity analysis.
b). Disclose the factors that you consider in estimating each
accrual, such as historical product returns, levels of inventory
in
your distribution channels; estimated remaining product shelf
lives;
price changes from competitors and introductions of new products.
c). To the extent that the information you consider in b. is
quantifiable, disclose both quantitative and qualitative factors
and
discuss the extent of availability and your use of information
from
external sources; for example, end-customer demand data compared
to
inventory levels. In discussing your estimate of product returns,
consider disclosing, preferably by product and in tabular format,
the
total amount of product in sales dollars that could potentially be
returned as of the most recent balance sheet date, disaggregated
by
expiration period.
d). If applicable, discuss any shipments made as a result of
incentives and/or in excess of your customers` inventory levels in
the ordinary course of business. Please also discuss your revenue
recognition policy for such shipments.
e). You should also consider disclosing a roll-forward of the
liability for each estimate for the periods presented, showing the
following:
* beginning balance;
* current provision related to sales made in current period;
* current provision related to sales made in prior periods;
* actual returns or credits in current period related to sales
made
in current period;
* actual returns or credits in current period related to sales
made
in prior periods; and
* ending balance.
f). Finally, in your discussion of the results of operations for
the
period to period net sales revenue comparisons, discuss the amount
of
and reason for fluctuations with respect to each item/estimate
that
reduces gross revenue. Please address the effect that changes in
your
estimates with respect to each item had on your revenues and
operations for the applicable periods.
Business, page 42
Competitive Strengths, page 43
32. Please explain what you mean by "organic growth" in the first
bullet point of this section.
33. Please provide us with third party documentation supporting
your
statement that you are "also a leader in providing on-line
ordering,
valuable business information and value-added services through
[your]
Internet site . . . ."
Business- Products, page 44
34. We note your discussion of your three major market niches, by
product type. Please refer to paragraph 36 of SFAS No. 131
regarding
enterprise-wide disclosures and expand your discussion to include,
at
a minimum, the information required by paragraph 37 regarding each
your groups of similar products.
Management, page 53
35. The business description of each of your executive officers
and
directors should contain the business description for the last
five
years. In this regard, we not the following business description
appear to need revisions:
* Please indicate how long James M. Ross served as Chief Operating
Officer of Bergen Medical Corporation. If he held other positions
prior to joining you in April 2001, please so indicate.
* Please indicate what positions Keith E. Alessi held from
February
2000 to February 2003.
* It is unclear what position John F. McNamara currently holds.
Please revise to clarify. If he is retired, please so indicate
and
provide his retirement date.
Director Compensation, page 55
36. Please explain why non-employee directors affiliated with
Bruckmann, Rosser, Sherrill & Co. II and Agri Beef Co. do not
receive
an annual retainer. We note you have disclosed the relationship
between these two entities and the Company in the subsection
entitled
"Formation" on page 59.
Certain Relationships and Related Party Transactions, page 59
Stockholders Agreement, page 59
37. Please specify the certain percentage of common stock
ownership
that each of BRS and Agri Beef must maintain in order to retain
their
ability to designate board members.
Certain Relationships and Related Party Transactions, page 59
Management Agreement, pages 59-60
38. Please disclose in the financial statements the agreement to
pay
$1.6 million to BRS LLC and $400,000 to Agri Beef Co. upon closing
of
the offering or tell us why you believe no disclosure is required.
Description of Capital Stock, page 63
39. Your current disclosure does not appear to provide all the
information required by Item 202 of Regulation S-K. For example,
your disclosure must provide any provision in your charter or
bylaws
that would delay, defer or prevent a change in control. To the
extent that no such provisions exist, please so indicate.
Underwriting, page 67
40. You indicate that some of the securities may be offered or
sold
electronically by your underwriters or other members of the
syndicate. Please tell us the procedures that will be used in
selling effort and how they intend to comply with the requirements
of
Section 5 of the Securities Act of 1933, particularly with regard
to
how offers and final confirmations will be made and how and when
purchasers will fund their purchases. Provide us copies of all
electronic communications including the proposed web pages.
41. We note that the underwriters have reserved up to five percent
of
the shares for sale directly to your employees, directors,
business
associates and other third parties. Please specify what category
of
people you refer to by "other third parties." In addition, please
supplementally describe the mechanics of how and when these shares
are offered and sold to investors in the directed share program
for
this offering. For example, tell us how the prospective
recipients
and number of reserved shares are determined. Tell us how and
when
the issuer and underwriter notified or intend to notify the
directed
share investors, including the types of communications used.
Discuss
the procedures these investors must follow in order to purchase
the
offered securities. Are directed share purchasers required to
establish accounts before the effective time, and, if so, what if
any
funds are put in newly established brokerage accounts before the
effective date? How do the procedures for the directed share
program
differ from the procedures for the general offering to the public?
Also, provide us with any materials given to potential purchasers
of
the reserved shares.
Notes to Consolidated Financial Statements
Note 1. Formation and Acquisition, page F-8
42. Please address the following comments regarding the formation
of
MWI Holdings, Inc. and your acquisition of MWI Veterinary Supply
Co.
Please also revise your current disclosure accordingly and
reference
the authoritative literature under U.S. GAAP that supports your
treatment.
a.) Provide us with basis for your accounting treatment regarding
your allocation of the purchase price to the net assets of MWI
Veterinary Supply Co. based on fair value. Per your disclosure in
"Certain Relationships and Related Party Transactions" on page 59,
it
appears that you purchased MWI Veterinary Supply Co. from a
related
party, which appears to preclude the recognition of goodwill in
connection with this transaction.
b.) Clarify in the note the related party nature of the
transaction.
c.) Supplement your determination that you did not acquire any
identifiable intangible assets apart from goodwill.
Exhibit List - page II-1
43. Please file as promptly as possible all exhibits, including
your
legal counsel opinion, as we will review them prior to granting
effectiveness of the registration statement. We may have further
comments upon examination of the exhibits.
Recent Sales of Unregistered Securities, page II-2
44. Please revise to indicate what exemption you are relying on
for
each of your unregistered offerings. It is not sufficient to
state
you relied on Section 4(2) or Regulation D.
45. For each offering, disclose the aggregate offering price.
* * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please file
your cover letter on EDGAR under the form type label CORRESP.
Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as defense in any
proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Amy Bruckner at (202) 551-3657 or Mary Mast at
(202)
551-3613 if you have questions regarding comments on the financial
statements and related matters. Please contact Song Brandon at
(202)
551-3621, John Krug, Senior Attorney at (202) 551-3862 or me at
(202)
551-3710 with any other questions.
Sincerely,
Jeffrey Riedler
Assistant Director
cc: James A. Lebovitz, Esq.
Stephen M. Leitzell, Esq.
Dechert LLP
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
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James F. Cleary, Jr.
MWI Veterinary Supply, Inc.
May 18, 2005
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