fy2010_3q10q.htm

10-Q 1 fy2010_3q10q.htm 10-Q 3QFY2010 fy2010_3q10q.htm

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 March 31, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-33273

ANIMAL HEALTH INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)

Delaware		71-0982698
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

7 Village Circle, Suite 200 Westlake, Texas		76262
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (817) 859-3000

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 ¨

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 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 ¨ Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller Reporting Company x

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

As of April 27, 2010, 24,329,670 shares of the registrant’s common stock were outstanding.

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ANIMAL HEALTH INTERNATIONAL, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)		2
Consolidated Balance Sheets		2
Consolidated Statements of Operations		3
Consolidated Statements of Comprehensive Income (Loss)		4
Consolidated Statements of Cash Flows		5
Notes to Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

Item 3. Quantitative and Qualitative Disclosures About Market Risk		21

Item 4. Controls and Procedures		21

PART II. OTHER INFORMATION		22

Item 1. Legal Proceedings		22

Item 1A. Risk Factors		22

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		22

Item 3. Defaults Upon Senior Securities		22

Item 4. Submission of Matters to a Vote of Security Holders		22

Item 5. Other Information		22

Item 6. Exhibits		22

Signature		23
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION

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PART 1. FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Financial Statements

ANIMAL HEALTH INTERNATIONAL, INC.

Consolidated Balance Sheets

(In thousands, excluding share information)

(Unaudited)

	June 30, 2009			March 31, 2010
Assets
Current assets :
Cash and cash equivalents	$	2,749		$	1,738
Accounts receivable, net		74,441			87,216
Current portion of notes receivable		126			197
Income tax receivable		1,001			3,725
Merchandise inventories, net		89,315			103,020
Deferred income taxes		3,358			1,952
Prepaid expenses		2,319			2,138
Total current assets		173,309			199,986

Noncurrent assets :
Notes receivable, net of current portion		280			144
Property, plant, and equipment, net		16,043			15,132
Goodwill		60,334			62,245
Customer relationships		28,022			25,468
Noncompete agreements		3,436			2,629
Trademarks and trade names		33,170			33,170
Debt issue costs and other assets, net of accumulated amortization of $2,017 and $2,784, respectively		3,671			3,239
Total assets	$	318,265		$	342,013

Liabilities and Stockholders’ Equity
Current liabilities :
Accounts payable	$	83,567		$	84,369
Accrued liabilities		13,055			11,289
Current portion of long-term debt		7,179			457
Total current liabilities		103,801			96,115

Noncurrent liabilities :
Long-term debt, net of current portion		119,913			146,213
Deferred lease incentives		1,101			1,127
Deferred income taxes		23,069			23,491
Total liabilities		247,884			266,946

Commitments and contingencies (note 12)

Stockholders’ equity :
Preferred stock, par value $0.01 per share. Authorized 10,000,000 shares, issued and outstanding 0 shares		—			—
Common stock, par value $0.01 per share. Authorized 90,000,000 shares, issued and outstanding 24,329,670 shares		243			243
Additional paid-in capital		132,912			133,371
Accumulated deficit		(58,853	)		(58,262	)
Accumulated other comprehensive loss		(3,921	)		(285	)
Total stockholders’ equity		70,381			75,067

Total liabilities and stockholders’ equity	$	318,265		$	342,013

See accompanying Notes to Unaudited Consolidated Financial Statements.

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ANIMAL HEALTH INTERNATIONAL, INC.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,						Nine Months Ended March 31,
	2009			2010			2009			2010
Net sales	$	150,931		$	165,126		$	504,431		$	496,942
Costs and expenses:
Direct cost of products sold (excludes depreciation and amortization)		125,602			137,773			416,534			414,227
Salaries, wages, commissions, and related benefits		10,820			12,817			36,969			38,378
Selling, general, and administrative		11,407			9,771			35,273			30,538
Depreciation and amortization		2,039			2,005			6,169			6,005
Operating income		1,063			2,760			9,486			7,794

Other income (expense):
Other income		206			133			624			433
Interest expense		(1,877	)		(2,714	)		(6,500	)		(7,293	)
Income (loss) before income taxes		(608	)		179			3,610			934
Income tax benefit (expense)		284			(59	)		(1,381	)		(343	)
Net income (loss)	$	(324	)	$	120		$	2,229		$	591

Earnings (loss) per common share:
Basic	$	(0.01	)	$	0.00		$	0.09		$	0.02
Diluted	$	(0.01	)	$	0.00		$	0.09		$	0.02
Weighted average shares outstanding:
Basic		24,330			24,330			24,330			24,330
Diluted		24,330			24,428			24,330			24,436

See accompanying Notes to Unaudited Consolidated Financial Statements.

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ANIMAL HEALTH INTERNATIONAL, INC.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

	Three months ended March 31,					Nine months ended March 31,
	2009			2010		2009			2010
Net income (loss)	$	(324	)	$	120	$	2,229		$	591

Other comprehensive income (loss):
Unrealized gain (loss) on derivative instruments, net of tax		359			621		(972	)		1,957
Foreign currency translation adjustment		(239	)		663		(1,555	)		1,679

Total comprehensive income (loss)	$	(204	)	$	1,404	$	(298	)	$	4,227

See accompanying Notes to Unaudited Consolidated Financial Statements.

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ANIMAL HEALTH INTERNATIONAL, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	March 31,
	2009			2010
Cash flows from operating activities :
Net income	$	2,229		$	591
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation and amortization		6,169			6,005
Amortization of debt issue costs		507			766
Amortization of loss on settlement of interest rate swap agreements		—			1,241
Bad debt expense		140			356
Stock compensation expense		1,044			459
Gain on sale of equipment		(171	)		(38	)
Deferred income taxes		(497	)		1,599
Changes in operating assets and liabilities (working capital):
Accounts receivable		8,144			(13,361	)
Merchandise inventories		(3,389	)		(12,487	)
Income taxes receivable/payable		(328	)		(2,100	)
Prepaid expenses		(644	)		202
Accounts payable		3,403			5,589
Accrued liabilities and other		(592	)		(2,443	)

Net cash provided by (used for) operating activities		16,015			(13,621	)

Cash flows from investing activities:
Purchase of property, plant, and equipment		(2,111	)		(1,690	)
Disposition (purchase) of other assets		295			(457	)
Purchase price adjustments		(2,856	)		(1,911	)
Proceeds from sale of equipment		430			153
Net changes in notes receivable		376			400

Net cash used for investing activities		(3,866	)		(3,505	)

Cash flows from financing activities:
Repayment of long-term debt		(955	)		(2,988	)
Settlement of terminated interest rate swap agreements		—			(3,348	)
Net borrowings (repayments) under revolving credit facilities		(8,247	)		26,485
Debt issue costs		(39	)		(63	)
Change in overdraft balances		(3,489	)		(3,731	)

Net cash provided by (used for) financing activities		(12,730	)		16,355

Effect of exchange rate changes on cash and cash equivalents		(167	)		(240	)

Net decrease in cash and cash equivalents		(748	)		(1,011	)

Cash and cash equivalents, beginning of period		2,452			2,749

Cash and cash equivalents, end of period	$	1,704		$	1,738

See accompanying Notes to Unaudited Consolidated Financial Statements.

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ANIMAL HEALTH INTERNATIONAL, INC.

Notes to consolidated financial statements

(Dollars in thousands, except share and per share data)

(Unaudited)

(1) Organization

Animal Health International, Inc. (AHII), was incorporated in Delaware in May 2005. Through its wholly-owned subsidiaries, Walco International, Inc. and Kane Veterinary Supplies, Ltd. (Kane, note 3, collectively, with AHII, the Company), the Company’s primary business activity is the sale and distribution of animal health products, supplies, services and technology through operating divisions located throughout the United States, Canada and Taiwan.

(2) Summary of significant accounting policies

(a) Basis of consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly, in all material respects, the results of the Company for the periods presented. These consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended June 30, 2009 included in the Company’s Annual Report on Form 10-K. The results of operations for the three and nine months ended March 31, 2010 are not necessarily indicative of results to be expected for the entire fiscal year.

(b) Rebates

Inventory rebates are recognized when estimable and probable and include inventory purchase rebates and sales-related rebates. Inventory purchase rebates received are capitalized into inventory while sales-related rebates are recorded as a reduction of direct cost of products sold.

In January 2007, the Company reserved 2,500,000 shares of its common stock for the issuance of awards under the 2007 Stock Option and Incentive Plan. In November 2009, the Company amended and restated the 2007 Stock Option and Incentive Plan, and reserved an additional 1,100,000 shares of its common stock for the issuance of awards.

In January 2007, the Company issued options to purchase an aggregate of 749,300 shares under terms established by the 2007 Stock Option and Incentive Plan. The Company also issued options to purchase 9,500 shares in May 2007, an additional 750,000 shares in both November 2007 and November 2008, and 411,125 in December 2009. The options vest over a four-year period, carry a ten-year term, and have an exercise price of $11.00 per share for the initial 749,300 shares, $13.53 per share for the 9,500 shares granted in May 2007, $11.47 per share for the 750,000 shares granted in November 2007, $2.37 per share for the 750,000 shares granted in November 2008, and $2.65 per share for the 411,125 shares granted in December 2009. The options issued are incentive stock options, which are not performance-based and vest with continued employment. Unexercised options may be forfeited in the event of termination of employment. Options to purchase 362,975 shares were vested and had a weighted average exercise price of $7.07, and a weighted average remaining contract term of 7.8 years, but no options were exercised as of March 31, 2010. In December 2009, the Company issued 838,875 restricted stock units to certain employees. These units vest over a four-year period, have an indefinite life, and convert to shares of common stock upon certain triggering events. The units carried a fair value of $2.15 upon their issuance, and the expense related to these units during the three and nine months ended March 31, 2010 was $91 and $121, respectively.

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During May 2009, the Company’s senior management voluntarily surrendered 1,018,500 options for no consideration. The voluntary surrender was not accompanied by a concurrent grant of a replacement award nor any other valuable consideration. Accordingly, the unrecognized compensation expense related to these stock options of $1,803 was recognized as compensation expense in the fourth quarter of fiscal 2009. After accounting for the 838,875 restricted stock units granted to employees, the 360,720 deferred stock units granted to non-employee members of the Board of Directors, and the 1,357,800 stock options issued to employees that have not been forfeited or surrendered, there were 1,042,605 shares of common stock reserved for future issuance at March 31, 2010.

The Company uses the Black-Scholes formula to estimate the value of stock options granted to employees and expects to continue to use this option valuation model. The Company includes a forfeiture estimate in the amount of compensation expense being recognized. The forfeiture estimate is based on historical employee turnover rates. The estimated fair value of the options is amortized to expense on a straight-line basis over the four-year vesting period.

Total compensation expense for these options and restricted stock units is $7,515 including the following amounts charged or to be charged to compensation expense each year ended June 30 over each four-year vesting period: $224 in 2007, $1,342 in 2008, $3,208 in 2009, $673 in 2010, $801 in 2011, $612 in 2012, $473 in 2013, and $182 in 2014. Compensation expense related to these options and restricted stock units totaled $360 and $214 for the three months ended March 31, 2009 and 2010, respectively, and $1,044 and $459 for the nine months ended March 31, 2009 and 2010, respectively. The weighted average remaining contract term for the options was 8.6 years at March 31, 2010.

A summary of stock option activity is as follows:

	Options			Weighted Average Exercise Prices		Weighted Average Fair Value at Grant Date
Balance at July 1, 2009		1,014,175		$	5.03		1.81
Granted		411,125			2.65		0.88
Exercised		—			—		—
Forfeited		(67,500	)		4.02		1.40

Balance at March 31, 2010		1,357,800		$	4.32	$	1.53

Intrinsic value for stock options is defined as the difference between the current market value and the exercise price. The exercise price of stock options outstanding and exercisable at March 31, 2010 exceeded the market value, and therefore, the aggregate intrinsic value for these stock options was $0 at March 31, 2010.

(d) Earnings per share

Earnings per share reflects application of the two class method. All classes of common stock participate pro rata in dividends. Therefore, the two class method of calculating earnings per share has been applied. Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect of stock options determined using the treasury stock method. The components of basic and diluted earnings per share are as follows (in thousands, except per share amounts):

	Three Months Ended March 31,							Nine Months Ended March 31,
	2009				2010			2009			2010
Net income available to common shareholders		$	(324	)		$	120		$	2,229		$	591
Basic weighted average shares outstanding			24,330				24,330			24,330			24,330
Dilutive effect of stock options and restricted stock			—				98			—			106

Diluted weighted average shares outstanding			24,330				24,428			24,330			24,436

Basic earnings per share		$	(0.01	)		$	0.00		$	0.09		$	0.02

Diluted earnings per share		$	(0.01	)		$	0.00		$	0.09		$	0.02

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(e) Effect of recently issued accounting pronouncements

A recent pronouncement by the Financial Accounting Standards Board (FASB) defines fair value, establishes a framework for measuring fair value in accordance with Generally Accepted Accounting Principles (GAAP), and expands disclosures about fair value measurements. The provisions of this pronouncement were adopted on a prospective basis for financial instruments in the first quarter of fiscal 2009 and had no impact upon the Company’s consolidated financial statements. Those provisions relate to financial assets and liabilities carried at fair value and fair value disclosures related to financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The provisions of the pronouncement for nonfinancial assets and nonfinancial liabilities became effective for the Company in the first quarter of fiscal 2010 and had no impact upon the Company’s consolidated financial statements.

A recent FASB pronouncement establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The pronouncement became effective for the Company in the first quarter of fiscal 2010. The impact that the pronouncement will have on future consolidated financial statements will vary with each future acquisition.

In June 2009, the FASB released a Codification, which establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with GAAP. This Codification explicitly recognizes rules and interpretive releases of the SEC under federal securities laws as authoritative GAAP for SEC registrants. The Codification became effective September 15, 2009, and did not have an impact upon the Company’s consolidated financial statements.

(3) Acquisitions

The Company acquired certain assets of Farm City Animal Supply, Inc. during the second fiscal quarter of 2007. Cash of $105 was paid during the quarter ended September 30, 2008, as an earn-out payment to certain selling stockholders of Farm City Animal Supply, Inc. During the quarter ended December 31, 2008, the Company received $74 in cash proceeds as a final settlement on the acquisition. The earn-out payment and settlement proceeds comprise a net $31 in purchase price adjustments that were accounted for as goodwill.

In October 2007, AHII acquired all of the outstanding stock of Kane for $22,184 in cash (plus $1,017 in direct acquisition costs). In addition, the Company is obligated to make additional cash payments to certain selling stockholders if certain performance targets are met through October 2010. Substantially all of these contingent payments, if any, will be accounted for as goodwill when and if earned. Kane is based in Edmonton, Canada, and is a leading distributor of animal health products in both the production and companion animal markets. During the quarter ended December 31, 2008, certain performance targets were met, and the Company paid $2,825 to certain selling stockholders in the same quarter. During the quarter ended December 31, 2009, certain performance targets were met, and in January of 2010, the Company paid $1,911 to certain selling stockholders. Both of these purchase price adjustments were accounted for as goodwill in the quarter earned.

The Company’s acquisitions serve to further the Company’s strategy to access additional product lines, sales representatives, customer opportunities, manufacturer relationships and sales territories.

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(4) Accounts receivable, net

	June 30, 2009			March 31, 2010
Trade accounts receivable	$	68,494		$	82,047
Vendor rebate receivables		8,239			5,956
Other receivables		1,116			167

		77,849			88,170
Less allowance for doubtful accounts		(3,408	)		(954	)

Accounts receivable, net	$	74,441		$	87,216

At June 30, 2009, the Company recorded a bad debt provision of $2,708 as a result of a dispute with a manufacturer regarding a rebate receivable. This receivable was written-off as uncollectible during the quarter ended March 31, 2010.

(5) Property, plant, and equipment, net

	June 30, 2009			March 31, 2010
Land	$	3,461		$	3,461
Buildings and improvements		4,378			4,434
Leasehold improvements		3,749			3,872
Construction in progress		26			52
Equipment:
Warehouse		2,359			2,471
Automotive		6,730			6,647
Office/software		5,392			6,126

		26,095			27,063
Less accumulated depreciation		(10,052	)		(11,931	)

Property, plant, and equipment, net	$	16,043		$	15,132

Depreciation expense was $918 and $885 for the three months ended March 31, 2009 and 2010, respectively, and $2,684 and $2,644 for the nine months ended March 31, 2009 and 2010, respectively.

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(6) Goodwill and other intangible assets

	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
June 30, 2009 :
Goodwill	Indefinite	$	60,334	$	—		$	60,334
Customer relationships	12 years		40,578		(12,556	)		28,022
Noncompete agreements	2-5 years		6,245		(2,809	)		3,436
Trademarks and trade names	Indefinite		33,170		—			33,170

		$	140,327	$	(15,365	)	$	124,962

March 31, 2010 :
Goodwill	Indefinite	$	62,245	$	—		$	62,245
Customer relationships	12 years		40,578		(15,110	)		25,468
Noncompete agreements	2-5 years		6,245		(3,616	)		2,629
Trademarks and trade names	Indefinite		33,170		—			33,170

		$	142,238	$	(18,726	)	$	123,512

Amortization expense related to intangible assets totaled $1,121 and $1,120 for the three months ended March 31, 2009 and 2010, respectively, and $3,485 and $3,361 for the nine months ended March 31, 2009 and 2010, respectively. Based on the current estimated useful lives assigned to intangibles assets, amortization expense for fiscal 2010, 2011, 2012, 2013, and 2014 is projected to total $4,482, $4,482, $4,229, $3,867, and $3,406, respectively.

The Company reviews its goodwill and other nonamortizing intangible assets for impairment annually at the close of the fiscal year or more frequently if indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a sustained, significant decline in the Company’s stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of the Company’s goodwill and other nonamortizing intangible assets and could have a material impact on the Company’s consolidated financial statements.

The Company’s stock price and market capitalization have improved in the past nine months, and the Company has experienced improved growth rates in the past nine months. As a result, the Company concluded that indicators had not emerged to indicate that impairment testing needed to be performed as of March 31, 2010. The Company will perform its annual impairment test at June 30, 2010.

(7) Long-term debt

	June 30, 2009			March 31, 2010
Credit agreement—Revolving credit facility	$	79,245		$	105,729
Credit agreement—Term Note		43,650			40,933
Liability for interest rate swap agreements		3,920			—
Other		277			8

		127,092			146,670
Less current portion		(7,179	)		(457	)

	$	119,913		$	146,213

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The Company has a $44,550 first lien term loan, which matures on May 31, 2011 and bears interest at an annual rate equal to LIBOR plus 2.0%, paid quarterly. The Company plans to continue to take advantage of this favorable rate and not extend, replace, or retire this debt until it is closer to maturity. Borrowings are collateralized by a first priority interest in and lien on all of the Company’s assets.

The Company’s revolving credit facility (the Revolver) is a $130,000 facility, which matures on the earlier of June 30, 2012, or 60 days prior to the final extended maturity date of the Term Note. The outstanding borrowings under the amended facility bear interest through July 20, 2009, at LIBOR plus 3.50% for U.S. borrowings and CDOR Rate plus 1% for Canadian borrowings, and thereafter at rates based upon the Company’s Leverage Ratio as defined in the amended Revolver with LIBOR-based rates ranging from LIBOR and CDOR Rate plus 3.00% to LIBOR and CDOR Rate plus 3.75%, and with Prime-based rates ranging from U.S. Prime and Canadian Prime Rate plus 0.50% to U.S. Prime and Canadian Prime Rate plus 1.25%. Borrowings remain collateralized by a first priority interest in and lien on all of the Company’s assets. At March 31, 2010, the Company’s availability under the Revolver totaled $24,844.

As of March 31, 2010, the interest rates for the Revolver ranged from 4.00% to 4.50%, and the interest rate for the first lien term loan was 2.25%. Additionally, the Company is required to pay a commitment fee on the daily unused amount of the Revolver at a per annum rate of 0.50%. Debt issue costs related to the Term Note and the Revolver have been capitalized and are being amortized over the remaining term of the underlying debt utilizing the straight-line method, which approximates the effective interest method. The credit agreements contain certain covenants that, among other things, restrict our ability to incur additional indebtedness, make certain payments, sell assets, enter into certain transactions with affiliates and create liens. Moreover, certain of these agreements require us to maintain specified financial ratios. The most restrictive covenant relates to the creation or assumption of additional indebtedness. The Company was in compliance with all financial covenants at March 31, 2010.

The Company has utilized cash flow hedge accounting and used derivative financial instruments to effectively convert a portion of its variable-rate debt to fixed-rate debt. In order to reduce cash interest expense over the last three quarters of fiscal 2010, the Company elected to terminate both of its interest rate swap agreements as of September 30, 2009 and paid the respective liabilities in October 2009.

The Company entered into a $43,000 notional value swap transaction with a financial institution effective April 18, 2007. The Company received a floating rate based on LIBOR and paid a fixed rate of 4.95%. The swap agreement had an original termination date of June 28, 2010. On September 30, 2009, the Company terminated the swap agreement, and the fair value of this swap was a net liability of $1,511 on that date.

The Company entered into a $52,000 million notional value swap transaction with a financial institution effective April 18, 2007. The Company received a floating rate based on LIBOR and paid a fixed rate of 4.95%. The swap agreement had an original termination date of May 7, 2010. On September 30, 2009, the Company terminated the swap agreement, and the fair value of this swap was a net liability of $1,837 on that date.

Swap agreement fair values are recorded on the consolidated balance sheet as a component of current portion of long-term debt. The fair values of the interest rate swap agreements were estimated based on current settlement prices and quoted market prices of comparable contracts. The Company calculated no ineffectiveness on both interest rate swap agreements at their termination on September 30, 2009. At March 31, 2010, an unrealized loss of $395, net of taxes of $263, is recorded on the consolidated balance sheet as accumulated other comprehensive income (loss). This unrealized loss will be amortized to interest expense over the remaining terms of the original swap agreements.

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The net receipts or payments from the interest rate swap agreements were recorded in interest expense. During the three months ended March 31, 2009, changes in the fair values of interest rate swap agreements totaled $598. During the nine months ended March 31, 2009 and 2010, changes in the fair value of interest rate swap agreements totaled $(1,620) and $572, respectively. The Company reclassified $786 during the three months ended March 31, 2009, and $1,754 and $1,047, respectively, during the nine months ended March 31, 2009 and 2010, from accumulated other comprehensive income (loss) to interest expense.

(8) Financial instruments

The fair value hierarchy prioritizes inputs to valuation techniques based on observable and unobservable data and categorizes the inputs into three levels: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities, Level 2 – Significant observable pricing inputs other than quoted prices included within Level 1 that are either directly or indirectly observable as of the reporting date (essentially, this represents inputs that are derived principally from or corroborated by observable market data), and Level 3 – Generally unobservable inputs, which are developed based on the best information available and may include the Company’s own internal data. Observable data should be used when available.

The following table presents the Company’s financial assets and liabilities measured as of March 31, 2010:

			Fair Value
	March 31, 2010		Level 1		Level 2		Level 3
Financial assets at cost :
Current portion of notes receivable	$	197
Notes receivable, net of current portion		144
Total	$	341

Financial assets at fair value :
Cash and cash equivalents		1,738		1,738		—		—
Total	$	1,738	$	1,738	$	—	$	—

Financial liabilities carried at historical proceeds :
Current portion of long-term debt	$	457
Long-term debt, net of current portion		146,213
Total	$	146,670

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(9) Preferred stock

As of March 31, 2010, the Company had one class of undesignated preferred stock authorized with no shares issued or outstanding. The Board of Directors of the Company may designate and issue preferred stock in one or more series. The Board of Directors can fix the rights, preferences and privileges of the shares of each series and any of its qualifications, limitations or restrictions.

(10) Related-party transactions

The Company has property lease agreements with certain employees. The Company incurred related rent expense of $76 and $9 for the three months ended March 31, 2009 and 2010, respectively, and $236 and $194 for the nine months ended March 31, 2009 and 2010, respectively. During the three months ended December 31, 2009, certain employees with whom the Company had such lease agreements ceased employment with the Company. As such, there were no remaining future obligations outstanding at March 31, 2010 with related parties.

(11) Income taxes

The Company’s effective tax rate was 46.7% and 33.0% for the three months ended March 31, 2009 and 2010, respectively, and 38.3% and 36.7% for the nine months ended March 31, 2009 and 2010, respectively. The decrease in the effective tax rate in the three months and nine months ended March 31, 2010, as compared to the same periods in the prior year was attributable to lower income subject to U.S. Federal income tax, which carries a higher tax rate than income subject to Canadian income taxes.

At March 31, 2010, there were no material unrecognized tax benefits. In addition, there were no accruals for the payment of interest and penalties related to income tax liabilities at March 31, 2010. The Company recognizes potential interest and penalties related to unrecognized tax benefits in income tax expense. As of March 31, 2010, the Company has open tax years for Federal purposes back to June 2006. For state purposes, the open years typically date back to June 2007, although some states remain open back to June 2006.

(12) Commitments and contingencies

The Company is involved in various matters of litigation arising in the normal course of business. Although the ultimate liability from existing or potential claims cannot be ascertained, management does not anticipate that any related outcomes would have a materially adverse effect on the Company’s financial position, operating results or cash flows.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands, except share and per share data)

Forward Looking Statements

This Quarterly Report on Form 10-Q (Form 10-Q) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In particular, statements contained in the Form 10-Q, including but not limited to, statements regarding the Company’s future results of operations and financial position, business strategy and plan prospects, projected revenue or costs and objectives of management for future operations, are forward-looking statements. These statements relate to the Company’s future plans, objectives, expectations and intentions and may be identified by words such as “may,” “will,” “should,” “expects,” “plans,” “anticipate,” “intends,” “target,” “projects,” “contemplates,” “believe,” “estimates,” “predicts,” “potential,” and “continue,” or the negative of these terms or other similar words. These statements are only predictions. We have based these forward looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, results of operations and financial condition. The outcome of the events described in these forward looking statements is subject to risks, uncertainties and other factors described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended June 30, 2009. Accordingly, you should not rely upon forward looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward looking statements will be achieved or occur, and actual results could differ materially from those projected in the forward looking statements. The forward looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

Overview

The Company, through its operating subsidiaries, sells more than 40,000 products sourced from over 1,500 manufacturers to over 71,000 customers, as well as provides consultative services to customers in the highly fragmented animal health products industry. Products the Company distributes include pharmaceuticals, vaccines, parasiticides, diagnostics, capital equipment, sanitizers, devices, supplies, and dairy lagoon treatment systems. The Company’s principal customers are veterinarians, production animal operators and animal health product retailers. The Company’s strategy is to become the leading worldwide provider of animal health products and services in the production animal and companion animal health products markets through (i) organic growth, (ii) expansion of its sales of proprietary products, (iii) improved operational efficiencies, and (iv) select acquisitions.

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Key factors and trends that have affected and the Company believes will continue to affect its operating results include:

·	Fluctuations in commodity prices;

·	Overall growth or contraction in the dairy industry;

·	Consolidation by the Company's customers in the dairy industry;

·	Increased focus on companion animal customers;

·	Changes in customer preferences; and

·	The impact of general economic trends on the Company's business.

The Company generates revenue from customers in three ways. Over 97% of the Company’s revenue is generated through “buy/sell” transactions. The remainder comes from consignment and agency transactions. In the “buy/sell” transactions, the Company takes title to the inventory from its manufacturers. The Company sells products to customers and invoices them. “Buy/sell” transactions are advantageous to the Company over other sales methods because the Company takes title to the inventory and is able to promote these products on behalf of manufacturers and effectively manage the pricing and distribution of these products. For consignment sales, the Company does not take title to the product, but it does stock and ship product to and invoice the customer. For agency sales, the Company transmits orders from its customers to its manufacturers. The manufacturer ships the product directly to the Company’s customers and compensates the Company with a commission payment for handling the order from the customer and providing customer service. Manufacturers may occasionally switch between the “buy/sell” and agency methods for particular products. Currently and for the past three fiscal years, only one product with material sales has been treated as a consignment sale.

For more information on the Company’s business, see the Company’s Annual Report on Form 10-K.

Results of Operations

The following table summarizes the historical results of operations for the three and nine months ended March 31, 2009 and 2010, in dollars and as a percentage of net sales. The Company’s gross profit may not be comparable to other entities, since some entities include all of the costs related to their distribution network in cost of goods sold and others, like us, report non-direct costs instead in selling, general, and administrative expenses, and salaries, wages, commissions, and related benefits.

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Summary consolidated results of operations table

	Three Months Ended March 31,						Nine Months Ended March 31,
(in thousands, except number of representatives)	2009			2010			2009			2010
Net sales	$	150,931		$	165,126		$	504,431		$	496,942
Direct cost of products sold (excludes depreciation and amortization)		125,602			137,773			416,534			414,227

Gross profit		25,329			27,353			87,897			82,715

Selling, general, and administrative expenses (includes salary, wages, commission, and related benefits)		22,227			22,588			72,242			68,916
Depreciation and amortization		2,039			2,005			6,169			6,005

Operating income		1,063			2,760			9,486			7,794
Other income (expense):
Interest expense		(1,877	)		(2,714	)		(6,500	)		(7,293	)
Other income		206			133			624			433

Income (loss) before income taxes		(608	)		179			3,610			934
Income tax benefit (expense)		284			(59	)		(1,381	)		(343	)

Net income (loss)	$	(324	)	$	120		$	2,229		$	591

Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Direct cost of products sold (excludes depreciation and amortization)		83.2	%		83.4	%		82.6	%		83.4	%

Gross profit		16.8	%		16.6	%		17.4	%		16.6	%

Selling, general, and administrative expenses (includes salary, wages, commission, and related benefits)		14.7	%		13.7	%		14.3	%		13.8	%
Depreciation and amortization		1.4	%		1.2	%		1.2	%		1.2	%

Operating income		0.7	%		1.7	%		1.9	%		1.6	%
Other income (expense)
Interest expense		(1.2	)%		(1.7	)%		(1.3	)%		(1.5	)%
Other income		0.1	%		0.1	%		0.1	%		0.1	%

Income (loss) before income taxes		(0.4	)%		0.1	%		0.7	%		0.2	%
Income tax benefit (expense)		0.2	%		0.0	%		(0.3	)%		(0.1	)%

Net income (loss)		(0.2	)%		0.1	%		0.4	%		0.1	%

Other data:
Field sales representatives		219			217			219			217

Three months ended March 31, 2010 compared to three months ended March 31, 2009

Net sales. Net sales increased $14,195, or 9.4%, to $165,126 for the three months ended March 31, 2010, from $150,931 for the three months ended March 31, 2009. The increase in net sales was primarily attributable to increased sales to existing customers, the addition of new customers, and one-time vendor promotions that ended during the quarter. The number of field sales representatives decreased to 217 as of March 31, 2010, from 219 as of March 31, 2009, as a result of consolidation of underperforming territories.

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Gross profit. Gross profit increased $2,024, or 8.0%, to $27,353 for the three months ended March 31, 2010, from $25,329 for the three months ended March 31, 2009. Gross profit as a percentage of sales was 16.6% for the three months ended March 31, 2010, compared to 16.8% for the three months ended March 31, 2009. The increase in gross profit resulted from the increase in sales, partially offset by lower gross profit margins driven by declines in manufacturer rebates.

Selling, general, and administrative expenses. Selling, general, and administrative expenses increased $361, or 1.6%, to $22,588 for the three months ended March 31, 2010, from $22,227 for the three months ended March 31, 2009. The increase was primarily the result of an increase in variable selling and distribution expenses driven by higher sales volume, partially offset by cost reduction efforts. The fixed nature of certain expenses such as salaries, rent and computer related costs, drove a decrease in selling, general and administrative expenses as a percent of sales from 14.7% for the three months ended March 31, 2009, to 13.7% for the three months ended March 31, 2010.

Depreciation and amortization. Depreciation and amortization decreased slightly from $2,039 for the three months ended March 31, 2009, to $2,005 for the three months ended March 31, 2010. The decrease results primarily from lower amortization of intangible assets driven by certain noncompete agreements reaching the conclusion of their useful lives.

Other expenses. Other expenses increased $910, or 54.5%, to $2,581 for the three months ended March 31, 2010, from $1,671 for the three months ended March 31, 2009. The increase in other expenses was due to an increase in interest expense of $837 to $2,714 in the three months ended March 31, 2010, as compared to $1,877 in the three months ended March 31, 2009. This increase was due to higher debt than in the prior year as a result of an increased investment in working capital.

Income tax expenses. Income tax expense increased $343 to a tax expense of $59 for the three months ended March 31, 2010, from a $284 tax benefit for the three months ended March 31, 2009. The effective tax rate was 33.0% and 46.7% for the three months ended March 31, 2010 and 2009, respectively. This decrease in the effective tax rate was attributable to lower income subject to U.S. Federal income tax, which carries a higher tax rate than income subject to Canadian income taxes.

Nine months ended March 31, 2010 compared to nine months ended March 31, 2009

Net sales. Net sales decreased $7,489, or 1.5%, to $496,942 for the nine months ended March 31, 2010, from $504,431 for the nine months ended March 31, 2009. The decrease in net sales was primarily attributable to lower spending during the first six months of the year by production animal customers whose profits had been constrained by fluctuating commodity prices and the general economic slowdown. The number of field sales representatives decreased to 217 as of March 31, 2010, from 219 as of March 31, 2009, as a result of consolidation of underperforming territories.

Gross profit. Gross profit decreased $5,182, or 5.9%, to $82,715 for the nine months ended March 31, 2010, from $87,897 for the nine months ended March 31, 2009. Gross profit as a percentage of sales was 16.6% for the nine months ended March 31, 2010, compared to 17.4% for the nine months ended March 31, 2009. The decrease in gross profit resulted from the decline in sales in the first two quarters of the fiscal year combined with lower gross profit margins driven by declines in manufacturer rebates.

Selling, general, and administrative expenses. Selling, general, and administrative expenses decreased $3,326, or 4.6%, to $68,916 for the nine months ended March 31, 2010, from $72,242 for the nine months ended March 31, 2009. The decrease was primarily the result of a decrease in variable selling and distribution expenses driven by lower sales volume in the first two quarters of the fiscal year combined with cost reduction efforts, partially offset by the $350 accrual for settlement and related legal costs. These factors drove a slight decrease in selling, general and administrative expenses as a percent of sales from 14.3% for the nine months ended March 31, 2009, to 13.8% for the nine months ended March 31, 2010.

Depreciation and amortization. Depreciation and amortization decreased from $6,169 for the nine months ended March 31, 2009, to $6,005 for the nine months ended March 31, 2010. The decrease results from lower amortization of intangible assets driven by certain noncompete agreements reaching the conclusion of their useful lives.

Other expenses. Other expenses increased $984, or 16.7%, to $6,860 for the nine months ended March 31, 2010, from $5,876 for the nine months ended March 31, 2009. The increase in other expenses was primarily due to an increase in interest expense of $793 to $7,293 in the nine months ended March 31, 2010, as compared to $6,500 in the nine months ended March 31, 2009. This increase was due to higher debt than in the prior year as a result of an increased investment in working capital.

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Income tax expenses. Income tax expense decreased $1,038, or 75.2%, to $343 for the nine months ended March 31, 2010, from $1,381 for the nine months ended March 31, 2009. The effective tax rate was 36.7% and 38.3% for the nine months ended March 31, 2010 and 2009, respectively. This decrease in the effective tax rate was attributable to lower income subject to U.S. Federal income tax, which carries a higher tax rate than income subject to Canadian income taxes.

Liquidity and Capital Resources

The Company’s primary sources of liquidity are cash flows generated from operations and borrowings under the Company’s revolving credit facility. Funds are expended to provide working capital that enables the Company to maintain adequate inventory levels to promptly fulfill customer needs and expand operations. The Company expects its capital resources to be sufficient to meet anticipated cash needs for at least the next twelve months, and it expects cash flows from operations to be sufficient to reduce outstanding borrowings under the Company’s revolving credit agreement.

Operating activities. For the nine months ended March 31, 2010, net cash used for operating activities was $13,621, and was attributable to $591 in net income, $8,789 of non-cash costs, and a $1,599 change in deferred income taxes, all offset by an increase in working capital of $24,600. The non-cash costs included $6,005 of depreciation and amortization, $766 of debt issue cost amortization, $1,241 of amortization of loss on settlement of interest rate swap agreements, $356 of bad debt expense, and $459 of stock compensation expenses. The change in working capital included an increase in accounts receivable of $13,361, an increase in inventory of $12,487, an increase in income tax receivables of $2,100, and a decrease in accrued liabilities and other of $2,443, all partially offset by an increase in accounts payable of $5,589. The increase in accounts receivable resulted from strong sales at the close of the quarter that converted to cash early in the fourth quarter. The increase in inventory was due a rise in inventory purchases near the close of the quarter in anticipation of higher spring sales volume. The increase in inventory drove the increase in accounts payable. While accounts receivable and inventory levels as a percentage of sales were higher at March 31, 2010, the Company expects to manage these balances back to historical norms. The increase in income taxes receivable was due to the finalization of tax returns yielding a $1,792 tax refund received in April 2010. The decrease in accrued liabilities and other resulted primarily from payments of liabilities related to accrued non-recurring settlement and legal costs.

For the nine months ended March 31, 2009, net cash provided by operating activities was $16,015, and was attributable to $2,229 in net income and $7,689 of non-cash costs combined with a decrease in working capital of $6,594, all partially offset by a $497 change in deferred income taxes. The non-cash costs included $6,169 of depreciation and amortization, $507 of debt issue cost amortization, and $1,044 of stock option expenses. The change in working capital included a decrease in accounts receivable of $8,144 and an increase in accounts payable of $3,403, both partially offset by an increase in inventory of $3,389, an increase in prepaid expenses of $644, and a decrease in accrued liabilities and other of $592. The decrease in accounts receivable resulted from lower sales volume combined with strong collections of receivables from the prior quarter. The increase in inventory was due to inventory purchases near the close of the quarter in anticipation of higher spring sales volume. This increase in inventory drove the corresponding increase in accounts payable. The increase in prepaid expenses resulted primarily from the payment for a computer software maintenance agreement. The decrease in accrued liabilities and other resulted primarily from the payment of bonuses accrued in the prior year.

Investing activities. For the nine months ended March 31, 2010, net cash used for investing activities was $3,505, and was primarily attributable to $1,911 in cash payments to certain selling stockholders of Kane for the achievement of certain purchase agreement performance targets and $1,690 of property, plant, and equipment purchases.

For the nine months ended March 31, 2009, net cash used for investing activities was $3,866, and was primarily attributable to $2,825 in cash payments to certain selling stockholders of Kane for the achievement of certain purchase agreement performance targets and $2,111 of property, plant and equipment purchases, partially offset by $430 of proceeds from the sale of equipment and $376 of notes receivable payments.

Financing activities. For the nine months ended March 31, 2010, net cash provided by financing activities was $16,355, and was primarily attributable to net borrowings on the revolving credit facility totaling $26,485, partially offset by an unfavorable change in overdraft balances of $3,731, principal payments on other debt totaling $2,988, and the settlement of liabilities related to terminated interest rate swap agreements totaling $3,348.

For the nine months ended March 31, 2009, net cash used for financing activities was $12,730, and was primarily attributable to net repayments from revolving credit facilities of $8,247, an unfavorable change in overdraft balances of $3,489, and $955 of repayments of long-term debt.

Capital resources. The Company has a $44,550 first lien term loan, which matures on May 31, 2011 and bears interest at an annual rate equal to LIBOR plus 2.0%, paid quarterly. The Company plans to continue to take advantage of this favorable rate and not extend, replace, or retire this debt until it is closer to maturity. Borrowings are collateralized by a first priority interest in and lien on all of the Company’s assets.

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Contractual Obligations

As of March 31, 2010, there were no material changes in the Company’s contractual obligations as disclosed in the Company’s Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

As of March 31, 2010, the Company did not have any off-balance sheet arrangements other than the operating lease commitments in the contractual obligations table as disclosed in the Company’s Annual Report on Form 10-K.

Recent Accounting Pronouncements

A recent pronouncement by the FASB defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. The provisions of this pronouncement were adopted on a prospective basis for financial instruments in the first quarter of fiscal 2009 and had no impact upon the Company’s consolidated financial statements. Those provisions relate to financial assets and liabilities carried at fair value and fair value disclosures related to financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The provisions of the pronouncement for nonfinancial assets and nonfinancial liabilities became effective for the Company in the first quarter of fiscal 2010 and had no impact upon the Company’s consolidated financial statements.

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Exposure to Interest Rates

The Company is exposed to certain market risks arising from transactions that are entered into in the normal course of business. As part of the Company’s financial risk management program, it has used certain derivative financial instruments to manage these risks. The Company does not engage in financial transactions for speculative purposes and therefore holds no derivative instruments for trading purposes. The Company’s exposure to market risk for changes in interest rates relates to variable interest rates on borrowings under the Company’s credit agreements. At March 31, 2010, $146.7 million of the Company’s debt remained subject to market risk for changes in interest rates. If the weighted average interest rate on the Company’s remaining variable rate indebtedness rose 34 basis points (a 10.0% change from the calculated weighted average interest rate as of March 31, 2010), assuming no change in the Company’s outstanding balance under its revolving credit facility and Term Note, the Company’s annualized income before taxes and cash flows from operating activities would decline by approximately $0.5 million. If the weighted average interest rate on the Company’s remaining variable rate indebtedness decreased 34 basis points (a 10.0% change from the calculated weighted average interest rate as of March 31, 2010), assuming no change in the Company’s outstanding balance under its revolving credit facility and Term Note, the Company’s annualized income before taxes and cash flows from operating activities would increase by approximately $0.5 million.

Exposure to Exchange Rates

AHII's subsidiaries are located in Canada and Taiwan. Due to the relative low volume of payments made by AHII through these subsidiaries, the Company does not believe that it has significant exposure to foreign currency exchange risks. The Company currently does not use derivative financial instruments to mitigate foreign currency exchange risks. The Company continues to review this issue and may consider hedging certain foreign exchange risks through the use of currency futures or options in future years.

Item 4.

Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2010. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2010, our chief executive officer and chief financial officer concluded that, as of such date, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

From time to time, we are a party to legal proceedings and claims arising in the ordinary course of business. We are not currently aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.

Item 1A.

Risk Factors

Not Applicable.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable.

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


Number		Description

10.1(1)*		Livestock Products Distribution Agreement entered into on March 17, 2010, and effective as of January 1, 2010, by and between Pfizer Inc. and Walco International, Inc.

31.1		Rule 13a-14(a)/15d-14(a) Certification, executed by James C. Robison, Chairman, President and Chief Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification, executed by William F. Lacey, Senior Vice President and Chief Financial Officer.

32.1**		Section 1350 Certifications, executed by James C. Robison, Chairman, President and Chief Executive Officer, and William F. Lacey, Senior Vice President and Chief Financial Officer.

*	Portions of Exhibit 10.1 have been redacted pursuant to a request for confidential treatment, and the redacted portions have been separately filed with the Securities and Exchange Commission.
**	This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, or otherwise subject to the liability of that Section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

(1)	Incorporated by reference to our Current Report on Form 8-K filed on March 22, 2010.

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SIGNATURE

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


		Animal Health International, Inc. (Registrant)

Date: May 4, 2010		/s/ William F. Lacey
		William F. Lacey
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)