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Table of Contents

 

 

 

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 quarterly period ended December 31, 2009

 

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 of Incorporation)

 

(I.R.S. Employer Identification Number)

 

 

 

651 S. Stratford Drive, Suite 100
Meridian, ID

 

83642

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(208) 955-8930

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No o

 

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

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company  o

(Do not check if a smaller reporting company)

 

 

 

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 February 1, 2010 was 12,218,236.

 

 

 



Table of Contents

 

MWI VETERINARY SUPPLY, INC.

 

INDEX

 

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

Condensed Consolidated Statements of Income for the three months ended December 31, 2009 and 2008

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of December 31, 2009 and September 30, 2009

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2009 and 2008

 

5

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

11

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

12

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

17

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

18

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

 

Cautionary Statement

 

18

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

19

 

 

 

 

 

Item 1A.

 

Risk Factors

 

19

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

20

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

20

 

 

 

 

 

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

20

 

 

 

 

 

Item 5.

 

Other Information

 

20

 

 

 

 

 

Item 6.

 

Exhibits

 

20

 

2



Table of Contents

 

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 December 31,

 

 

 

2009

 

2008

 

Revenues:

 

 

 

 

 

Product sales

 

$

221,479

 

$

216,616

 

Product sales to related party

 

11,058

 

12,330

 

Commissions

 

3,574

 

2,873

 

Total revenues

 

236,111

 

231,819

 

 

 

 

 

 

 

Cost of product sales

 

200,102

 

198,164

 

Gross profit

 

36,009

 

33,655

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

22,421

 

23,133

 

Depreciation and amortization

 

855

 

835

 

Operating income

 

12,733

 

9,687

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Interest expense

 

(40

)

(64

)

Earnings of equity method investees

 

57

 

66

 

Other

 

107

 

149

 

Total other income (expense), net

 

124

 

151

 

 

 

 

 

 

 

Income before taxes

 

12,857

 

9,838

 

Income tax expense

 

(5,023

)

(3,889

)

 

 

 

 

 

 

 

 

Net income

 

$

7,834

 

$

5,949

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

Basic

 

$

0.64

 

$

0.49

 

Diluted

 

$

0.63

 

$

0.48

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

Basic

 

12,173

 

12,071

 

Diluted

 

12,356

 

12,295

 

 

See Notes to Condensed Consolidated Financial Statements

 

3



Table of Contents

 

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

 

 

 

December 31,

 

September 30,

 

 

 

2009

 

2009

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

10,841

 

$

14,302

 

Receivables, net

 

133,501

 

142,485

 

Inventories

 

131,689

 

116,119

 

Prepaid expenses and other current assets

 

3,440

 

3,946

 

Deferred income taxes

 

1,793

 

1,517

 

Total current assets

 

281,264

 

278,369

 

 

 

 

 

 

 

Property and equipment, net

 

9,079

 

9,313

 

Goodwill

 

37,610

 

37,610

 

Intangibles, net

 

9,987

 

10,194

 

Other assets, net

 

2,490

 

2,433

 

Total assets

 

$

340,430

 

$

337,919

 

 

 

 

 

 

 

Liabilities And Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Line-of-credit

 

$

 

$

 

Accounts payable

 

109,565

 

117,830

 

Accrued expenses

 

13,054

 

10,767

 

Current maturities of long-term debt

 

97

 

97

 

Total current liabilities

 

122,716

 

128,694

 

 

 

 

 

 

 

Deferred income taxes

 

1,510

 

1,298

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

Common stock $0.01 par value, 40,000 authorized; 12,218 and 12,196 shares issued and outstanding, respectively

 

122

 

122

 

Additional paid in capital

 

124,780

 

124,337

 

Retained earnings

 

91,302

 

83,468

 

Total stockholders’ equity

 

216,204

 

207,927

 

Total liabilities and stockholders’ equity

 

$

340,430

 

$

337,919

 

 

See Notes to Condensed Consolidated Financial Statements

 

4



Table of Contents

 

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

 

 

 

Three months ended December 31,

 

 

 

2009

 

2008

 

Cash Flows From Operating Activities:

 

 

 

 

 

Net income

 

$

7,834

 

$

5,949

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

858

 

838

 

Amortization of debt issuance costs

 

11

 

11

 

Stock-based compensation

 

70

 

54

 

Deferred income taxes

 

(64

)

(25

)

Earnings of equity method investees

 

(47

)

(66

)

Loss on disposal of property and equipment

 

 

29

 

Tax benefit of common stock options

 

(305

)

(223

)

Changes in operating assets and liabilities (net of effects of acquisitions):

 

 

 

 

 

Receivables

 

8,973

 

(9,910

)

Inventories

 

(15,570

)

(15,790

)

Prepaid expenses and other current assets

 

524

 

340

 

Accounts payable

 

(8,165

)

15,124

 

Accrued expenses

 

2,592

 

1,856

 

Net cash used in operating activities

 

(3,289

)

(1,813

)

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

Business acquisitions

 

 

117

 

Purchases of property and equipment

 

(517

)

(1,173

)

Other

 

(36

)

(63

)

Net cash used in investing activities

 

(553

)

(1,119

)

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

Issuance of common stock, net of issuance costs

 

62

 

72

 

Proceeds from stock options

 

14

 

4

 

Tax benefit of common stock options

 

305

 

223

 

Net cash provided by financing activities

 

381

 

299

 

 

 

 

 

 

 

Decrease in Cash and Cash Equivalents

 

(3,461

)

(2,633

)

 

 

 

 

 

 

Cash and Cash Equivalents at Beginning of Period

 

14,302

 

3,419

 

 

 

 

 

 

 

Cash and Cash Equivalents at End of Period

 

$

10,841

 

$

786

 

 

See Notes to Condensed Consolidated Financial Statements

 

5



Table of Contents

 

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.  We have evaluated all subsequent events through February 4, 2010, the date the financial statements were issued.

 

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 2009 Annual Report on Form 10-K filed with the SEC on November 20, 2009.  The results of operations for the three months ended December 31, 2009 are not necessarily indicative of results to be expected for the entire fiscal year.

 

Our unaudited condensed consolidated balance sheet as of September 30, 2009 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 materially 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, 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 historically 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 $54,427 and $47,666 for the three months ended December 31, 2009 and 2008, respectively, and generated commission revenue of $3,574 and $2,873, respectively.

 

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Table of Contents

 

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. Vendor rebates are recorded based on the terms of the contracts or programs with each vendor.  Many of our vendors’ rebate programs are based on a calendar year.  We may receive quarterly, semi-annual or 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.

 

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.

 

NOTE 2 — EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

 

In June 2009, the Financial Accounting Standards Board issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which has now been codified under Accounting Standards Codification 810.  This accounting standard amends the consolidation guidance applicable to variable interest entities and requires additional disclosures concerning an enterprise’s continuing involvement with variable interest entities. The statement is effective for our fiscal year beginning October 1, 2010. We are currently evaluating the expected impact, if any, that this standard will have on our consolidated financial statements.

 

NOTE 3 RECEIVABLES

 

 

 

December 31,

 

September 30,

 

 

 

2009

 

2009

 

Trade

 

$

120,961

 

$

132,369

 

Vendor rebates and programs

 

15,762

 

13,122

 

 

 

136,723

 

145,491

 

Allowance for doubtful accounts

 

(3,222

)

(3,006

)

 

 

$

133,501

 

$

142,485

 

 

Product sales resulting from transactions with Banfield, The Pet Hospital (“Banfield”) were approximately 11% and 9% of total product sales during the three months ended December 31, 2009 and 2008, respectively. Approximately 13% of our trade receivables resulted from transactions with Banfield as of December 31, 2009 and September 30, 2009.

 

NOTE 4 PROPERTY AND EQUIPMENT

 

 

 

December 31,

 

September 30,

 

 

 

2009

 

2009

 

Land

 

$

20

 

$

20

 

Leasehold improvements

 

3,736

 

3,566

 

Machinery, furniture and equipment

 

13,532

 

12,792

 

Computer equipment

 

3,599

 

3,325

 

Construction in progress

 

370

 

1,140

 

 

 

21,257

 

20,843

 

Accumulated depreciation

 

(12,178

)

(11,530

)

 

 

$

9,079

 

$

9,313

 

 

Depreciation expense was $651 and $629 for the three months ended December 31, 2009 and 2008, respectively.

 

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Table of Contents

 

NOTE 5 INTANGIBLES

 

 

 

 

 

December 31,

 

September 30,

 

 

 

Useful Lives

 

2009

 

2009

 

Amortizing:

 

 

 

 

 

 

 

Customer relationships

 

9-20 years

 

$

9,076

 

$

9,076

 

Covenants not to compete

 

1-5 years

 

686

 

686

 

Other

 

3-5 years

 

257

 

257

 

 

 

 

 

10,019

 

10,019

 

Accumulated amortization

 

 

 

(2,384

)

(2,177

)

 

 

 

 

7,635

 

7,842

 

Non-Amortizing:

 

 

 

 

 

 

 

Trade names and patents

 

 

 

2,352

 

2,352

 

 

 

 

 

$

9,987

 

$

10,194

 

 

Amortization expense was $207 and $209 for the three months ended December 31, 2009 and 2008, respectively.  Estimated future annual amortization expense related to intangible assets as of December 31, 2009 follows:

 

 

 

Amount

 

Remainder of 2010

 

$

597

 

2011

 

786

 

2012

 

758

 

2013

 

674

 

2014

 

668

 

Thereafter

 

4,152

 

 

 

$

7,635

 

 

NOTE 6 CREDIT FACILITY AND LONG-TERM DEBT

 

Line-of-Credit—On December 13, 2006, MWI Veterinary Supply Co., our wholly-owned subsidiary (“MWI Co.”) as borrower, entered into an unsecured credit agreement with us and Memorial Pet Care, Inc. (our wholly-owned subsidiary), as guarantors, and Bank of America, N.A. 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 plus a margin ranging from 0.7% to 1.25% or the Prime Rate (at our option).  The lenders also receive an unused line fee and letter of credit fee equal to 0.125% of the unused amount of the facility. We had no outstanding balance on the facility at both December 31, 2009 and September 30, 2009, and the interest rate for the facility was 0.87% as of December 31, 2009.

 

The facility contains certain financial covenants as well as other restrictive covenants. As of December 31, 2009, we were in compliance with all covenants in the facility.  The facility allows for the issuance of up to $10,000 in letters of credit. The letters of credit would typically act as a guarantee of payment to certain third-parties in accordance with specified terms and conditions. We had no letters of credit outstanding at either December 31, 2009 or September 30, 2009.

 

NOTE 7 COMMON STOCK AND STOCK-BASED AWARDS

 

2002 Stock Plan

 

We have a 2002 Stock Plan (the “2002 Plan”) to provide our directors, executives and other key employees with additional incentives by allowing them to acquire an ownership interest in us and, as a result, encouraging them to contribute to our success. As of December 31, 2009 and 2008, we had 323,804 and 402,220 shares, respectively, of our common stock available for issuance under the 2002 Plan. The options granted under the 2002 Plan are nonqualified stock options that have an exercise price per share equal to fair market value of the common stock at the time of grant. The term of each option is determined by our board of directors or by a designated committee of the board.  The term of any option may not exceed ten years from the date of grant.  As of December 31, 2009, 263,364 options to purchase common stock were outstanding with a weighted average exercise price of $0.18 per share and expiring through June 2012.

 

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Table of Contents

 

2005 Stock Plan

 

In July 2005, we adopted the 2005 Stock-Based Award and Incentive Compensation Plan (the “2005 Plan”). Under the 2005 Plan as amended, we may offer restricted shares of our common stock and grant options to purchase shares of our common stock to selected employees and non-employee directors. The purpose of the 2005 Plan is to promote our long-term financial success by attracting, retaining and rewarding eligible participants. As of December 31, 2009 and 2008 we had 1,064,771 and 1,081,199 shares, respectively, of our common stock available for issuance under the 2005 Plan. As of December 31, 2009, 54,967 options to purchase common stock were outstanding with a weighted average exercise price of $18.06 per share and expiring through September 2015.

 

The 2005 Plan permits us to grant stock options (both incentive stock options and non-qualified stock options), restricted stock and deferred stock. The compensation committee will determine the number and type of stock-based awards to each participant, the exercise price of each award, the duration of the award (not to exceed ten years), vesting provisions and all other terms and conditions of such award in individual award agreements. The 2005 Plan provides that upon termination of employment with us, unless determined otherwise by the compensation committee at the time options are granted, the exercise period for vested awards will generally be limited, provided that vested awards will be canceled immediately upon a termination for cause or voluntary termination. The 2005 Plan provides for the cancellation of all unvested awards upon termination of employment with us, unless determined otherwise by the compensation committee at the time awards are granted.

 

We granted no common stock options during each of the three months ended December 31, 2009 and 2008.  During the three months ended December 31, 2009 and 2008, we did not issue any shares of restricted stock under the 2005 Plan.  During the three months ended December 31, 2009 and 2008, we recognized $95 and $91 of compensation expense related to restricted stock grants, respectively.

 

We also have an employee stock purchase plan (“ESPP”) that allows substantially all employees to purchase shares of our common stock at 95% of the fair market value on the date of purchase.  The purchase date is the last trading date of the purchase period, which begins in March, June, September and December.  Employees accumulate amounts through payroll deductions during the purchase period of between 1% and 10% but no more than $20,000 annually.  An employee is allowed to purchase a maximum of 200 shares per purchase period.  During the three months ended December 31, 2009 and 2008, we issued 1,770 and 3,057 shares, respectively, of our common stock under the ESPP.  As of December 31, 2009, there were 487,661 shares available to be issued under the ESPP.

 

NOTE 8 INCOME TAXES

 

Our effective tax rate for the three months ended December 31, 2009 and 2008 was 39.1% and 39.5%, respectively.  The change in our effective tax rate is due to a change in our estimates related to state taxes.

 

As of December 31, 2009, we had $205 of unrecognized tax benefits, of which $15 would impact our effective rate if recognized. Our policy for classifying interest and penalties associated with unrecognized tax benefits is to include such items in income tax expense.  The amount of interest and penalties recognized during the three months ended December 31, 2009 and 2008 was not material.

 

We filed Form 3115 Application of Change in Accounting Method with the Internal Revenue Service during the fiscal year ended September 30, 2008.  We filed an advance consent request for a non-automatic account method change for tax purposes for which we had not received approval prior to our reporting period end.  The method change will make revenue recognition for tax purposes the same as revenue recognized for book purposes. We expect resolution within the next twelve months which would decrease the liability for unrecognized tax benefits by approximately $182.

 

Additionally, we are in the process of entering into voluntary disclosure agreements with certain state jurisdictions and it is possible that these matters may be settled within the next twelve months, which would decrease the liability for unrecognized tax benefits by approximately $23 as a result of the payment of additional tax expected to be due. Settlement of any particular position would usually require the use of cash.  The resolution of a matter would be recognized as an adjustment to our income tax expense and our effective tax rate in the period of resolution.  With few exceptions, we are no longer subject to income tax examination for years before 2004 in the U.S. and significant state and local jurisdictions.

 

9



Table of Contents

 

NOTE 9 — COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share data)

 

 

 

Three months ended December 31,

 

 

 

2009

 

2008

 

 

 

Basic

 

Diluted

 

Basic

 

Diluted

 

Net income

 

$

7,834

 

$

7,834

 

$

5,949

 

$

5,949

 

Weighted average common shares outstanding

 

12,173

 

12,173

 

12,071

 

12,071

 

Effect of diluted securities Stock options and restricted stock

 

 

 

183

 

 

 

224

 

Weighted average diluted shares outstanding

 

 

 

12,356

 

 

 

12,295

 

Earnings per share

 

$

0.64

 

$

0.63

 

$

0.49

 

$

0.48

 

Anti-dilutive shares excluded from calculation

 

 

 

 

 

 

 

 

NOTE 10 RELATED PARTIES

 

MWI Co. holds a 50.0% membership interest in Feeders’ Advantage LLC (“Feeders’ Advantage”).  MWI Co. charged Feeders’ Advantage for certain operating and administrative services in the amounts of $207 and $179 for the three months ended December 31, 2009 and 2008, respectively.  Sales of products to Feeders’ Advantage were $11,058 and $12,330 for the three months ended December 31, 2009 and 2008, respectively, which represented 5% of total product sales for both of the three months ended December 31, 2009 and 2008.

 

MWI 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 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 December 31, 2009, MWI Co. had a payable balance from Feeders’ Advantage of $794, and as of September 30, 2009, MWI Co. had a payable balance to Feeders’ Advantage of $210.

 

NOTE 11 — STATEMENTS OF CASH FLOWS — SUPPLEMENTAL AND NON-CASH DISCLOSURES

 

 

 

Three months ended December 31,

 

 

 

2009

 

2008

 

Supplemental Disclosures

 

 

 

 

 

Cash paid for interest

 

$

23

 

$

45

 

Cash paid for income taxes

 

340

 

168

 

Non-cash Activities

 

 

 

 

 

Equipment acquisitions financed with accounts payable

 

19

 

122

 

 

NOTE 12 COMMITMENTS AND CONTINGENCIES

 

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. At December 31, 2009, we were not a party to any material pending legal proceedings and were not aware of any claims that could have a material adverse effect on our financial position, results of operations or cash flows.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

MWI Veterinary Supply, Inc.

Meridian, ID

 

We have reviewed the accompanying condensed consolidated balance sheet of MWI Veterinary Supply, Inc. and subsidiaries (the “Corporation”) as of December 31, 2009, and the related condensed consolidated statements of income and of cash flows for the three-month periods ended December 31, 2009 and 2008.  These interim financial statements are the responsibility of the Corporation’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, 2009 and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated November 20, 2009, 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, 2009 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, ID

February 4, 2010

 

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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 market our products to veterinarians in both the companion and production animal markets. Our growth has primarily been from internal growth initiatives and, to a lesser extent, selective acquisitions.  We operate within a single reporting segment and are primarily located within the United States.

 

Historically, we estimate that 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 state of the overall economy and consumer spending have impacted both markets, with tightening credit markets, volatile commodity prices in milk, grain, corn and feeder cattle, and changes in weather patterns also affecting demand in the production animal market.  Both markets have been integral to our financial results and we intend to continue supporting both markets.

 

We believe that the companion animal market has slowed as a result of a decrease in consumer spending.  Historically, growth in the companion animal market has been due to the increasing number of households with companion animals, increased expenditures on animal health and preventative care, an aging pet population, advancements in pharmaceuticals and diagnostic testing and extensive marketing programs sponsored by companion animal nutrition and pharmaceutical companies. 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. We intend to continue to penetrate this market through internal growth initiatives and selective acquisitions.  We believe that some of our customers in this market have experienced liquidity issues as a result of the tightening credit markets.

 

Product sales in the production animal market have been negatively impacted by volatility in commodity prices such as milk, corn, grain and feeder cattle, changes in weather patterns that allow cattle to graze for longer periods and changes in the general economy.  Milk price declines in the dairy market over the last two years have had a significant impact on dairy farmers.  This has created cash-flow challenges for these farmers and in turn, has impacted the time it takes for us to collect our outstanding accounts receivable from these customers.  However, we still believe that it is important to our business to service this market and we intend to continue to support production animal veterinarians with a broad range of products and value-added services. Historically, sales in this market have been largely driven by spending on animal health products to improve productivity, weight gain and disease prevention, as well as a growing focus on food safety.

 

We generally extend some level of credit to our customers without requiring collateral, which exposes us to credit risk.  If customers’ cash flow or operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain other sources of credit, they may not be able to pay or may delay payment to us, or in some cases may return products to us. We continually assess our customers’ ability to pay us and adjust our allowance for doubtful accounts, as necessary.

 

Our quarterly sales and operating results have varied significantly in the past, and will likely continue to do so in the future. Historically, our total revenues have typically been higher during the spring and fall months due to increased sales of production animal products. Product use cycles for production animal products are directly related to medical procedures performed by veterinarians on production animals during the spring and fall months. These buying patterns can also be affected by the marketing programs or price increase announcements of vendors and distributors, which can cause veterinarians to purchase production animal health products earlier than those products are needed. This kind of early purchasing may reduce our sales in the months these purchases would have otherwise been made.

 

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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 with us, we pick, pack, ship and invoice the customer for the order. We record sales from “buy/sell” transactions, which account for the vast majority of our business, as revenues in conformity with generally accepted accounting principles in the United States. In an agency relationship, we generally do not purchase and take inventory of products from our vendors. When we receive an order from our customer, we transmit the order to our vendor, who picks, packs and ships the order to our customer. In some cases, our vendor invoices and collects payment from our customer, while in other cases we invoice and collect payment from our customer on behalf of our vendor. We receive a commission payment for soliciting the order from our customer and for providing other customer service activities. The aggregate revenues we receive in agency transactions constitute the “commissions” line item on our consolidated statements of income and are recorded in conformity with accounting principles generally accepted in the United States. Our vendors determine the method we use to sell our 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 and our operating income. We cannot know in advance when a vendor will switch between the “buy/sell” and agency models or what impact, if any, such a change may have. A switch can occur even with vendors with whom we have written agreements, because most of our agreements with vendors have relatively short terms and are terminable with or without cause on short notice, normally 30 to 90 days. The impact of any individual change from a “buy/sell” to an agency model depends on the costs and expenses associated with a particular product, and can have either a positive or a negative effect on our profitability.

 

Historically, our contract with Merial to sell their flea, tick and heartworm products included an exclusivity requirement.  This requirement did not permit us to sell or distribute other competing flea, tick and heartworm products.  During the course of our contract negotiations with Merial for calendar year 2010, we agreed with Merial to begin a non-exclusive arrangement for 2010 where we will be permitted to sell and distribute other competing products.  Some of these competing products will be sold under buy-sell arrangements, while others will be sold under agency arrangements.  Merial’s flea, tick and heartworm products are sold under an agency arrangement.  This switch to buy-sell arrangements for certain flea, tick and heartworm products will have an impact on how our revenues are reported, since under agency sales, only commissions are reported as revenues, while for buy-sell products the total sale price of the product is reported as revenue.

 

On October 15, 2009, Pfizer completed its acquisition of Wyeth.  Prior to this acquisition, Pfizer and Fort Dodge, a division of Wyeth, were our two largest vendors as measured by our revenues.  In connection with this acquisition, Pfizer divested certain animal health products to Boehringer Ingelheim.  Fort Dodge supplied products that accounted for approximately 11% of our revenues for fiscal year 2009.  Of this amount, based on information received from the Federal Trade Commission, Pfizer and Boehringer Ingelheim, we estimate that approximately 43% of such revenues were attributable to products now owned by Pfizer and approximately 57% of such revenues were attributable to products now owned by Boehringer Ingelheim.  We are currently negotiating new contracts with Pfizer and Boehringer Ingelheim for calendar year 2010.

 

On November 3, 2009, Merck and Schering-Plough completed their merger under which Merck acquired all of the outstanding stock of Schering-Plough.  Merial was a joint venture between Merck and Sanofi-Aventis, and Sanofi-Aventis acquired Merck’s interest in Merial shortly before Merck and Schering-Plough completed their merger.  Merck has announced that Sanofi-Aventis has an option to combine the Intervet/Schering-Plough Animal Health business with Merial to form an animal health joint venture that would be equally owned by the new Merck and Sanofi-Aventis.  If the option is exercised by Sanofi-Aventis, the formation of the new animal health joint venture would be subject to approval by the relevant regulatory authorities.  Merial and Intervet-Schering are also two of our larger vendors.  We are currently negotiating new contracts with each of these companies for calendar year 2010.

 

The surviving companies from these transactions will have high market shares with respect to certain animal health products, and they could use their increased leverage in the channel to negotiate terms with distributors that are materially worse to the distributor than the terms that we have been able to negotiate with Pfizer, Fort Dodge, Boehringer Ingelheim, Merial and Intervet-Schering individually while they were competing with each other. There also remains uncertainty related to any changes to the terms that may be included in the vendor contracts we negotiate for the upcoming year as a result of these transactions.  There is also a possibility of product disruption as these companies integrate their operations which could adversely impact our financial results.  Further consolidation among animal health products vendors could result in our vendors further increasing their market share, which could give vendors greater pricing power and make it easier for such vendors to sell their products directly to animal health customers, both of which could decrease our net sales and profitability.

 

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Our top ten vendors supplied products that accounted for approximately 68% and 73% of our revenues for the three months ended December 31, 2009 and 2008, respectively, and 74% of our revenues for the fiscal year ended September 30, 2009.  Pfizer supplied products that accounted for approximately 25% and 31% of our revenues during the three months ended December 31, 2009 and 2008, respectively, and  24% of our revenues for our fiscal year ended September 30, 2009.  Of the Pfizer supplied products, production animal products under a livestock agreement accounted for approximately 13% and 23% of our revenues during the three months ended December 31, 2009 and 2008, respectively and approximately 14% of our revenues for our fiscal year ended September 30, 2009.  Fort Dodge supplied products that accounted for approximately 1% and 9% of our revenues during the three months ended December 31, 2009 and 2008, respectively, and 11% of our revenues for our fiscal year ended September 30, 2009.  Intervet-Schering, a subsidiary of Schering Plough, supplied products that accounted for approximately 10% and 8% of our revenues during the three months ended December 31, 2009 and 2008, respectively, and 11% of our revenues for our fiscal year ended September 30, 2009.  Boehringer Ingelheim supplied products that accounted for approximately 7% and 3% of our revenues during the three months ended December 31, 2009 and 2008, respectively, and 4% of our revenues for our fiscal year ended September 30, 2009.  Merial, a subsidiary of Sanofi-Aventis,  supplies the majority of their products to us under an agency relationship.  Commission revenue generated from Merial products accounted for approximately 53% and 36% of total commission revenues for the three months ended December 31, 2009 and 2008, respectively, and 56% of total commission revenues for our fiscal year ended September 30, 2009.

 

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.

 

Acquisitions

 

In July 2008, we acquired substantially all of the assets of AAHA MARKETLink.  Based near Denver, Colorado, AAHA MARKETLink was a distributor of animal health products to members of American Animal Hospital Association.

 

For more information on our business, see our Annual Report on Form 10-K filed with the SEC on November 20, 2009.

 

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Results of Operations

 

The following table summarizes our results of operations for the three months ended December 31, 2009 and 2008, in dollars and as a percentage of total revenues.

 

 

 

Three Months Ended December 31,

 

 

 

2009

 

%

 

2008

 

%

 

Revenues:

 

 

 

 

 

 

 

 

 

Product sales

 

$

221,479

 

93.8

%

$

216,616

 

93.5

%

Product sales to related party

 

11,058

 

4.7

%

12,330

 

5.3

%

Commissions

 

3,574

 

1.5

%

2,873

 

1.2

%

Total revenues

 

236,111

 

100.0

%

231,819

 

100.0

%

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

200,102

 

84.7

%

198,164

 

85.5

%

Gross profit

 

36,009

 

15.3

%

33,655

 

14.5

%

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

22,421

 

9.5

%

23,133

 

10.0

%

Depreciation and amortization

 

855

 

0.4

%

835

 

0.3

%

Operating income

 

12,733

 

5.4

%

9,687

 

4.2

%

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest expense

 

(40

)

0.0

%

(64

)

0.0

%

Earnings of equity method investees

 

57

 

0.0

%

66

 

0.0

%

Other

 

107

 

0.0

%

149

 

0.1

%

Total other income (expense), net

 

124

 

0.0

%

151

 

0.1

%

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

12,857

 

5.4

%

9,838

 

4.3

%

Income tax expense

 

(5,023

)

-2.1

%

(3,889

)

-1.7

%

Net income

 

$

7,834

 

3.3

%

$

5,949

 

2.6

%

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.64

 

 

 

$

0.49

 

 

 

Diluted

 

$

0.63

 

 

 

$

0.48

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (in thousands):

 

 

 

 

 

 

 

 

 

Basic

 

12,173

 

 

 

12,071

 

 

 

Diluted

 

12,356

 

 

 

12,295

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

Product sales from Internet as a percentage of sales

 

32

%

 

 

27

%

 

 

Field sales representatives (at end of period)

 

204

 

 

 

192

 

 

 

Telesales representatives (at end of period)

 

143

 

 

 

138

 

 

 

Fill rate (1)

 

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 December 31, 2009 Compared to Three Months Ended December 31, 2008

 

Total Revenues.  Total revenues increased 1.9% to $236,111 for the three months ended December 31, 2009, from $231,819 for the three months ended December 31, 2008.  Revenue growth from companion animal product sales continued to increase in line with historical double-digit growth rates.  Revenue from production animal product sales was negatively impacted by a change in a livestock contract with one of our largest vendors from the contract that was in place during the quarter ended December 31, 2008, as well as unfavorable economic conditions for livestock producers and the timing of price increases.  The livestock contract with one of our largest vendors in place during the quarter ended December 31, 2008 provided opportunities for incentives and rebates which the new contract that commenced on January 1, 2009 did not include.  Additionally, there were several price increases announced in the prior year that were effective on January 1, 2009 which caused increased buying to occur during the quarter ended December 31, 2008.  There was not the same level of price increases announced during the quarter ended December 31, 2009.  Revenues from existing customers decreased by approximately 4% as a result of the items described above.  Revenues from new customers accounted for growth of approximately 6%.  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 existing customers.  Commissions on agency sales increased 24.4% to $3,574 for the three months ended December 31, 2009, from $2,873 for the three months ended December 31, 2008.  The increase in commissions was partially due to incentives that were achieved during the quarter ended December 31, 2009 that were not achieved in the same period of the prior fiscal year.

 

Gross Profit.  Gross profit increased by 7.0% to $36,009 for the three months ended December 31, 2009, from $33,655 for the three months ended December 31, 2008.  Gross profit as a percentage of total revenues was 15.3% and 14.5% for the three months ended December 31, 2009 and 2008, respectively.  Our product margin improved due to a shift in the mix of product revenues for the quarter ended December 31, 2009, compared to the same period in the prior fiscal year.  Vendor rebates for the three months ended December 31, 2009 decreased by approximately $850 compared to the three months ended December 31, 2008.  This decrease was primarily a result of the elimination of the livestock rebate opportunity from one of our largest vendors, partially offset by improvements in rebates from other vendors.  Our gross profit also benefited from an improvement in freight costs as a percentage of total revenues compared to the same period in the prior fiscal year.

 

Selling, General and Administrative (“SG&A”).  SG&A expenses decreased 3.1% to $22,421 for the three months ended December 31, 2009, from $23,133 for the three months ended December 31, 2008.  SG&A expenses as a percentage of total revenues improved to 9.5% for the three months ended December 31, 2009 compared to 10.0% for the three months ended December 31, 2008. The dollar decrease was primarily due to a lower bad debt expense, location expenses and travel expenses.  Our allowance for doubtful accounts increased approximately $215 during the quarter ended December 31, 2009, compared to approximately $650 during the quarter ended December 31, 2008.

 

Income Tax Expense.  Our effective tax rate for the three months ended December 31, 2009 and 2008 was 39.1% and 39.5%, respectively.  The change in our effective tax rate is due to a change in our estimates related to state taxes.

 

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 20, 2009.

 

Liquidity and Capital Resources

 

Our principal sources of liquidity are cash flows generated from operations and borrowings on our revolving credit facility under our 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 growth. We believe our capital resources, including our ability to borrow funds from our revolving credit facility, will be sufficient to meet our anticipated cash needs for at least the next twelve months.  Bank of America, N.A. and Wells Fargo, N.A. are the lenders under our revolving credit facility.  The revolving credit facility allows for borrowings in the aggregate of $70,000, with the right to request an increase in the commitment to $100,000. The facility has a maturity date of December 1, 2011 and a variable interest rate equal to the Daily LIBOR Floating Rate or the LIBOR 1-month fixed rate plus a margin ranging from 0.7% to 1.25% or the Prime Rate (at our option).  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 December 31, 2009 was $0, and the interest rate for the facility was .87% as of December 31, 2009.

 

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The facility allows for the issuance of up to $10,000 in letters of credit. The letters of credit typically act as guarantees of payment to certain third parties in accordance with specified terms and conditions. We had no letters of credit outstanding at either December 31, 2009 or September 30, 2009.

 

Our lenders may have suffered losses related to their lending and other financial relationships, especially because of the general weakening of the national economy and increased financial instability of many borrowers.  As a result, the lenders may become insolvent or tighten their lending standards, which could make it more difficult for us to borrow under our revolving credit facility, extend the terms of our revolving credit facility or obtain alternative financing on favorable terms or at all.  Our financial condition and results of operations could be adversely affected if we were unable to draw funds under our revolving credit facility because of a lender default or if we fail to obtain other cost-effective financing.

 

We generally extend some level of credit to our customers. If customers’ cash flow or operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain other sources of credit, they may not be able to pay or may delay payment to us, or in some cases may return products to us. Any inability of current and/or potential customers to pay us for our products and/or services due to their deteriorating financial condition or otherwise may adversely affect our results of operations and financial condition.

 

Operating Activities.  For the three months ended December 31, 2009, cash used in operations was $3,289 and was primarily attributable to net income of $7,834, coupled with a decrease of receivables of $8,973 due to collection of receivables with extended payment terms that related to sales from prior periods.  This improvement in cash was offset by an increase in inventory of $15,570 due to the strategic purchase of inventory from certain vendors as incentives were offered for those purchases and a decrease in accounts payable of $8,165 due primarily to the timing of payment to vendors for our payment of inventory purchases.

 

For the three months ended December 31, 2008, cash used in operations was $1,813 and was primarily attributable to net income of $5,949, an increase of receivables of $9,910 due to revenue growth, an increase in inventories of $15,790 due to inventory planning and strategic inventory purchases, and an increase in accounts payable of $15,124.  The increase in accounts payable was due to the above mentioned inventory planning offset by the use of cash discounts on inventory purchases.

 

Investing Activities.  For the three months ended December 31, 2009, net cash used in investing activities was $553 and was primarily due to capital expenditures of $517 related to technology investments.

 

For the three months ended December 31, 2008, net cash used in investing activities was $1,119 and was primarily due to capital expenditures of $1,173, related to distribution center infrastructure and technology investments.

 

Financing Activities.  For the three months ended December 31, 2009, net cash provided by financing activities was $381, which was primarily due to the tax benefit from stock option exercises of $305 and common stock issued under our employee stock purchase plan of $62.

 

For the three months ended December 31, 2008, net cash provided by financing activities was $299, which was due to the proceeds and tax benefit of stock option exercises of $223 and issuance of common stock under our employee stock purchase plan of $72.

 

Contractual Obligations and Guarantees

 

For information on our contractual obligations and guarantees, see our Annual Report on Form 10-K filed on November 20, 2009 with the SEC. During the three months ended December 31, 2009, there were no material changes to the contractual and other long-term obligations reported in our Form 10-K on November 20, 2009.

 

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.

 

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The interest payable on our revolving credit 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 December 31, 2009 was $0.  Therefore, there was no exposure to market risks as of that date.  If there had been a balance on the facility of $70,000, which is the maximum available amount on the facility, a change of 10% from the interest rate as of December 31, 2009, which was .87% (Daily LIBOR Floating Rate plus .70%), would have changed interest by $15 for the quarter ended December 31, 2009.

 

Item 4.  Controls and Procedures

 

Management of the Company, including the Chief Executive Officer and the Chief Financial Officer of the Company, has 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 December 31, 2009.  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.

 

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:

 

·                  the impact of vendor consolidation on our business;

 

·                  changes in or availability of vendor contracts or rebate programs;

 

·                  vendor rebates based upon attaining certain growth goals;

 

·                  changes in the way vendors introduce/deliver products to market;

 

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

 

·                  the impact of general economic trends on our business;

 

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

 

·                  extended shortage or backorder of a significant product by one of our vendors;

 

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·                  seasonality;

 

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

 

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

 

·                  the ability to borrow on our revolving credit facility, extend the terms of our revolving credit facility or obtain alternative financing on favorable terms or at all;

 

·                  the impact of tightening credit standards and/or access to credit on behalf of our customers and suppliers;

 

·                  unforeseen litigation;

 

·                  a disruption caused by adverse weather or other natural conditions;

 

·                  inability to ship products to the customer as a result of technological or shipping disruptions; 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.

 

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

 

Item 1.  Legal Proceedings

 

We are not currently a party to any material pending legal proceedings and are not aware of any claims that could have a material adverse effect on our financial position, results of operations or cash flows.

 

Item 1A.  Risk Factors

 

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009.

 

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

 

The table below provides information concerning our repurchase of shares of our common stock during the three months ended December 31, 2009.

 

Issuer Purchases of Equity Securities

 

Period

 

Total
Number of
Shares
Purchased

 

Average
Price
Paid per
Share

 

Total Number of
Shares
Purchased as
Part of Publicly
Announced Plans
or Programs

 

Maximum Number
(or Approximate
Dollar Value) of
Shares that May Yet
Be Purchased Under
the Plans or
Programs

 

 

 

 

 

 

 

 

 

 

 

October 1, 2009 to October 31, 2009

 

626

(1)

$

38.39

 

 

 

November 1, 2009 to November 30, 2009

 

 

 

 

 

December 1, 2009 to December 31, 2009

 

 

 

 

 

Total

 

626

(1)

$

38.39

 

 

 

 


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

 

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

 

15

Letter re: Unaudited Interim Financial Information

 

 

31.1

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

 

 

31.2

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

 

 

32

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

 

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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: February 4, 2010

/s/ Mary Patricia B. Thompson

 

Mary Patricia B. Thompson

 

Senior Vice President of Finance and
Administration, Chief Financial Officer

 

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