10-K405/A 1 d10k405a.txt FORM 10-K405/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended July 31, 2001; or [_] 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: 000-26326 PROFESSIONAL VETERINARY PRODUCTS, LTD. (Exact name of Registrant as specified in its charter) Nebraska 5047 37-1119387 (State or other jurisdiction of (Primary Standard Industrial (IRS Employer Incorporation or organization) Classification Code Number) Identification No.)
10077 South 134/th/ Street Omaha, Nebraska 68138 (402) 331-4440 (Address and telephone number of Registrant's principal executive offices) Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, par value $1.00 per share (Title of Class) 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 proceeding 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 if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K ((S) 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of September 30, 2001, the aggregate market value of the voting and non-voting Common Stock held by non-affiliates of the Registrant was $4,644,000. Shares of Common Stock held by each executive officer and director of the Registrant have been excluded in that such persons may be deemed to be affiliates of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of September 30, 2001, 1,548 shares of the Registrant's Common Stock were outstanding. The Undersigned Registrant hereby amends the following item of its Annual Report on Form 10-K for the year ended July 31, 2001, as set forth below. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1) Financial Statements (a)(3) Exhibits (a)(1) The following financial statements are filed as part of this report: Independent Auditor's Reports ................................................. F-1 Consolidated Balance Sheet at July 31, 2001 and Balance Sheet at July 31, 2000 ...................................... F-2 Consolidated Statements of Income at July 31, 2001 and Statements of Income at July 31, 2000 and 1999 ....................... F-3 Consolidated Statements of Retained Earnings at July 31, 2001 and Statements of Retained Earnings at July 31, 2000 and 1999............. F-4 Consolidated Statements of Cash Flow at July 31, 2001 and Statements of Cash Flow and July 31, 2000 and 1999 ............... F-5 Notes to Financial Statements ................................................. F-6 Schedule of Operating, General and Administrative Expenses ............................................................. F-13
MARVIN E. JEWELL & CO., P.C. Certified Public Accountants Letterhead Independent Auditor's Report ---------------------------- To the Board of Directors Professional Veterinary Products, Ltd. Omaha, Nebraska We have audited the accompanying consolidated balance sheets of Professional Veterinary Products, Ltd., a Nebraska corporation, and subsidiaries as of July 31, 2001, and the related consolidating statements of income, retained earnings, cash flows and accompanying schedule for the year then ended. We have also audited the balance sheet of Professional Veterinary Products, Ltd. and subsidiaries as of July 31, 2000 and 1999, and the related consolidated statements of income, retained earnings, cash flows and accompanying schedule for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as, evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the July 31, 2001 consolidated financial statements referred to above present fairly, in all material respects, the individual and consolidated financial position of Professional Veterinary Products, Ltd. and subsidiaries as of July 31, 2001 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the July 31, 2000 and 1999 financial statements referred to above present fairly, in all material respects, the financial position of Professional Veterinary Products, Ltd. as of July 31, 2000 and 1999 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Marvin E. Jewell & Co., P.C. Lincoln, Nebraska September 5, 2001 F-1 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Consolidated Balance Sheet - July 31, 2001 and PROFESSIONAL VETERINARY PRODUCTS, LTD. Balance Sheet - July 31, 2000
Assets ------ Current assets: 2001 2000 ---- ---- Cash ................................................................................ $ 656,821 - Accounts receivable, trade, less allowance for doubtful 18,273,259 20,635,551 accounts (0) ..................................................................... Accounts receivable, stock .......................................................... 114,876 77,709 Accounts receivable, other .......................................................... 128,427 933,116 Prepaid income taxes ................................................................ 121,433 - Inventory ........................................................................... 22,342,323 28,426,707 ------------ ------------ Total current assets ............................................................. 41,637,139 50,073,083 ------------ ------------ Property and equipment ............................................................... 8,916,402 8,640,410 Less accumulated depreciation ....................................................... 1,433,156 896,198 ------------ ------------ 7,483,246 7,744,212 ------------ ------------ Other assets: Organization expense less accumulated amortization $60,556 (2001), $45,444 (2000) ................................................... 166,242 181,354 Loan origination fee less accumulated amortization $4,833 (2001), $2,833 (2000) ..................................................... 15,167 17,167 Trademark, less accumulated amortization $972 (2001), $639 (2000) ............................................ 4,028 4,361 Investments ......................................................................... 1,643,850 1,643,850 Cash value life insurance ........................................................... 32,379 30,077 Deferred income tax asset ........................................................... - 5,966 ------------ ------------ 1,861,666 1,882,775 ------------ ------------ $ 50,982,051 $ 59,700,070 ============ ============ Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Bank overdraft ...................................................................... - 398,914 Notes payable, bank ................................................................. 4,293,713 8,216,400 Current portion of long-term debt ................................................... 455,924 419,603 Accounts payable, trade ............................................................. 32,484,688 37,235,692 Accrued interest .................................................................... 64,505 110,611 Accrued expenses .................................................................... 585,224 525,505 Accrued wages ....................................................................... 541,289 611,097 Accrued profit-sharing .............................................................. 341,207 347,861 Accrued income taxes ................................................................ - 231,933 Deferred income tax liability ....................................................... 93,959 - ------------ ------------ Total current liabilities 38,860,509 48,097,616 ------------ ------------ Long-term debt 5,565,035 6,013,631 ------------ ------------ Stockholders' equity: Common stock, $1 par value per share. Authorized 30,000 shares; issued and outstanding 1,534 shares (2001), 1,381 shares (2000) .............................................................. 1,534 1,381 Paid-in capital ..................................................................... 4,529,466 4,070,619 Retained earnings ................................................................... 2,025,507 1,516,823 ------------ ------------ 6,556,507 5,588,823 ------------ ------------ $ 50,982,051 59,700,070 ============ ============
See accompanying notes to financial statements and independent auditor's report. F-2 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Consolidated Statement of Income - July 31, 2001 and PROFESSIONAL VETERINARY PRODUCTS, LTD. Statements of Income - July 31, 2000 and 1999
Amount Percent ------ ------- 2001 2000 1999 2001 2000 1999 ---- ---- ---- ---- ---- ---- Revenues: Net Sales ...................... 195,974,134 174,791,078 118,760,595 98.31 97.90 97.14 Shipping ....................... 168,747 119,373 101,435 .08 .07 .08 Commissions .................... 1,332,578 1,325,276 1,630,808 .67 .74 1.33 Sales promotion ................ 1,817,234 2,272,181 1,716,677 .91 1.27 1.41 Annual meeting reimbursement ................ - - 16,609 - - .02 Contracted services ............ 5,625 - - .01 - - Miscellaneous .................. 42,343 39,245 27,076 .02 .02 .02 ------------ ----------- ----------- ------ ------ ------ 199,340,661 178,547,153 122,253,200 100.00 100.00 100.00 ------------ ----------- ----------- ------ ------ ------ Cost of sales: Net purchases ................. 186,486,057 168,625,655 114,061,177 93.55 94.45 93.30 Freight out ................... 4,739,125 3,627,670 2,451,266 2.38 2.03 2.00 Less vendor rebates ........... (9,564,763) (10,319,150) (4,636,570) (4.80) (5.78) (3.79) ------------ ----------- ----------- ------ ------ ------ 181,660,419 161,934,175 111,875,873 91.13 90.70 91.51 ------------ ----------- ----------- ------ ------ ------ Gross profit ........... 17,680,242 16,612,978 10,377,327 8.87 9.30 8.49 Operating, general and administrative expenses (Schedule) ........................ 16,360,464 15,202,927 10,366,843 8.21 8.51 8.48 ------------ ----------- ----------- ------ ------ ------ Operating income........ 1,319,778 1,410,051 10,484 .66 .79 .01 ------------ ----------- ----------- ------ ------ ------ Other income (expense): Interest income ........... 504,436 372,795 249,143 .25 .21 .20 Interest expense .......... (1,006,078) (862,420) (263,198) (.50) (.49) (.22) Gain (loss) on sale of property and equipment .............. (2,560) (43,460) 237,212 - (.02) .20 ------------ ----------- ----------- ------ ------ ------ (504,202) (533,085) 223,157 (.25) (.30) .18 ------------ ----------- ----------- ------ ------ ------ Income before taxes ....... 815,576 876,966 233,641 .41 .49 .19 Income taxes ...................... 306,892 320,367 92,907 .15 .18 .08 ------------ ----------- ----------- ------ ------ ------ Net income .............. $ 508,684 556,599 140,734 .26 .31 .11 ============ =========== =========== ====== ====== ====== Net earnings per share of common stock ................... $ 351.54 437.92 128.52 ============ =========== ===========
See accompanying notes to financial statements and independent auditor's report. F-3 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Consolidated Statement of Retained Earnings - July 31, 2001 and PROFESSIONAL VETERINARY PRODUCTS, LTD. Statements of Retained Earnings - July 31, 2000 and 1999
Additional Accounts Total Common Paid-In Retained Receivable Stockholders' Stock Capital Earnings Stock Equity ------------------ ----------------- ------------- --------------- --------------- Balance at 7/31/96 906 $ 2,644,094 671,917 - 3,316,917 Issuance of stock 92 275,908 - - 276,000 Redemption of stock (32) (95,968) - - (96,000) Net Income - - 46,030 - 46,030 ------------------ ----------------- ------------- --------------- --------------- Balance at 7/31/97 966 2,824,034 717,947 - 3,542,947 Issuance of stock 100 299,900 - - 300,000 Redemption of stock (18) (52,982) - - (53,000) Net income - - 101,543 - 101,543 ------------------ ----------------- ------------- --------------- --------------- Balance at 7/31/98 1,048 3,070,952 819,490 - 3,891,490 Issuance of stock 157 470,843 - - 471,000 Redemption of stock (17) (49,983) - - (50,000) Net income - - 140,734 - 140,734 ------------------ ----------------- ------------- --------------- --------------- Balance at 7/31/99 1,188 3,491,812 960,224 - 4,453,224 Issuance of stock 211 632,789 - - 633,000 Redemption of stock (18) (53,982) - - (54,000) Accounts receivable stock - - - (64,167) (64,167) Net income - - 556,599 - 556,599 ------------------ ----------------- ------------- --------------- --------------- Balance at 7/31/00 1,381 4,070,619 1,516,823 (64,167) 5,524,656 Issuance of stock 172 515,828 - - 516,000 Redemption of stock (19) (56,981) - - (57,000) Net change in accounts receivable stock - - - (21,417) (21,417) Net income - - 508,684 - 508,684 ------------------ ----------------- ------------- --------------- --------------- Balance at 7/31/01 1,534 $ 4,529,466 2,025,507 (85,584) 6,470,923 ================== ================= ============= =============== ===============
See accompanying notes to financial statements and independent auditor's report. F-4 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Consolidated Statement of Cash Flows - July 31, 2001 and PROFESSIONAL VETERINARY PRODUCTS, LTD. Statements of Cash Flows - July 31, 2000 and 1999
2000 1999 2001 ---- ---- ---- Cash flows from operating activities: Net income ......................................... $ 508,684 556,599 140,734 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization .................. $ 562,956 443,108 287,814 Gain (loss) on sale of property ................ 2,560 43,460 (237,212) Adjustments for working capital changes: (Increases) decrease in: Receivables ................................ 3,129,185 (10,430,441) (6,631,793) Inventories ................................ 6,084,384 (15,839,475) 418,081 Cash value life insurance .................. (2,302) (30,077) - Deferred income tax ........................ 99,925 (5,966) - Increase (decrease) in: Accounts payable ............................ (4,751,004) 19,058,909 7,736,566 Accrued expenses ............................ (62,849) 298,074 173,766 Income taxes payable ........................ (353,366) 214,026 (24,533) ----------- ----------- ---------- Total adjustments ........................... 4,710,119 (6,248,382) 1,722,679 ----------- ---------- ----------- Net cash provided (used) by ................ 5,218,803 (5,691,783) 1,863,413 operating activities Cash flows from investing activities: Purchase of property and equipment ................. (287,106) (5,292,415) (2,762,815) Purchase of trademark .............................. - (5,000) Purchase of investments ............................ - (1,500,000) (143,850) Proceeds from sale of property ..................... - 115,417 1,878,222 ----------- ----------- ---------- Net cash provided (used) by investing activities .......................... (287,106) (6,676,998) (1,033,433) Cash flows from financing activities: Net loan proceeds (reduction) ...................... (4,334,962) 10,236,396 1,012,731 Net proceeds from issuance of common stock ...................................... 459,000 640,792 359,833 ----------- ----------- ---------- Net cash provided (used) by financing activities ....................... (3,875,962) 10,877,188 1,372,564 ----------- ---------- ----------- Net increase (decrease) in cash .................... 1,055,735 (1,491,593) 2,202,534 Cash (deficit) at beginning of year ................ (398,914) 1,092,679 (1,109,855) ----------- ---------- ----------- Cash (deficit) at end of year ...................... $ 656,821 (398,914) 1,092,679 =========== ========== =========== Supplementary disclosures of cash flow information: Interest paid .................................. $ 1,052,184 774,421 257,725 =========== ========== =========== Income taxes paid .............................. $ 560,333 106,162 117,440 =========== ========== ===========
See accompanying notes to financial statements and independent auditor's report. F-5 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements - July 31, 2001 and PROFESSIONAL VETERINARY PRODUCTS, LTD. Notes to Financial Statements - July 31, 2000 (1) Organization and summary of significant accounting policies: Organization: Professional Veterinary Products, Ltd. was incorporated in the State of Missouri in 1982. The corporation was domesticated in Nebraska on September 22, 1999. The corporation was formed to buy, sell and warehouse pharmaceuticals and other veterinary related items. The purpose of the corporation is to act as a wholesale distributor primarily to shareholders. Shareholders are limited to the ownership of one share of stock and must be a licensed veterinarian or business entity comprised of licensed veterinarians. Exact Logistics, LLC was organized in the State of Nebraska on December 6, 2000. The limited liability company is 100% owned by Professional Veterinary Products, Ltd. The purpose of the LLC is to act as a logistics partner to warehouse and ship products to other animal health distributors. ProConn, LLC was organized in the State of Nebraska on December 6, 2000. The limited liability company is 100% owned by Professional Veterinary Products, Ltd. The purpose of the LLC is to act as a supplier of animal health products to the producer or consumer. Professional Veterinary Products, Ltd., Exact Logistics, LLC and ProConn, LLC are presented as combined financial statements because they are related through common ownership and control. Their accounting policies follow generally accepted accounting principles and conform to the common practices of the industry in which they are engaged. Exact Logistics, LLC and ProConn, LLC are single member limited liability companies with Professional Veterinary Products, Ltd. as their only corporate member. They have elected to be treated as an unincorporated branch of the parent entity for financial and income tax purposes. All income taxes of the unincorporated branches are reflected and are the responsibility of the parent entity. Summary of significant accounting policies: (a) Basis of accounting: The corporation uses the accrual method of accounting for consolidating financial statement and income tax purposes. (b) Consolidation policy: These financial statements include the accounts of Professional Veterinary Products, Ltd. and its single-member limited liability companies Exact Logistics, LLC and ProConn, LLC. All material intercompany accounts and transactions have been eliminated. (c) Concentration of cash balances: The Company's cash funds are located in a single financial institution. The amount on deposit at July 31, 2001 and 2000 exceeded the $100,000 federally insured limit. (d) Accounts receivable: Management considers accounts receivable to be fully collectible, accordingly, no allowance for doubtful accounts is required. See independent auditor's report. F-6 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements - July 31, 2001 and PROFESSIONAL VETERINARY PRODUCTS, LTD. Notes to Financial Statements - July 31, 2000 (continued) (1) Summary of significant accounting policies (continued): (d) Accounts receivable (continued): Accounts receivable arising from stock sales is presented as a deduction from stockholders' equity to the extent the receivable was not paid in cash prior to the date of the reports. Amounts paid prior are presented as the asset Accounts receivable, stock. Summary of breakdown:
2001 2000 ---- ---- Total accounts receivable, stock 114,876 77,709 Accounts receivable, stock (asset) - paid prior to report dates: September 5, 2001 (29,292) - September 20, 2000 - (13,542) ---------- -------- Accounts receivable, stock (deduction from stockholders' equity) $ 85,584 64,167 ========== ========
(e) Inventory: Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method of valuation. All products included in inventory are finished goods held for resale. (f) Property and equipment and depreciation: Property and equipment are stated at cost. When an asset is sold or retired, its cost and related accumulated depreciation is eliminated from both the asset and the accumulated depreciation accounts respectively and resulting gains or losses are included in income. Major additions are capitalized and depreciated over their estimated useful lives. For financial reporting purposes, the Company uses the straight-line method and for income tax purposes, the Company uses the accelerated depreciation method. Estimated useful lives for financial purposes are as follows: Buildings.................................. 40 years Furniture, Fixtures and Equipment.......... 7 years Computer Equipment......................... 5 years Software................................... 3 years Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. (g) Cash and cash equivalents: The corporation considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. See independent auditor's report. F-7 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements - July 31, 2001 and PROFESSIONAL VETERINARY PRODUCTS, LTD. Notes to Financial Statements - July 31, 2000 (continued) (1) Summary of significant accounting policies (continued): (h) Amortization: Organizational costs are being amortized over sixty months on a straight-line basis. Financing costs are being amortized over the term of the note on a straight-line basis. This amortization is included in interest expense in the income statement. The intangible costs are being amortized over fifteen years on a straight-line basis. We will expense the organizational costs and report as the cumulative effect of a change in accounting principle for the year ending July 31, 2002. Restatement of previously issued financial statements is not permitted per paragraph 21 of SOP 98-5. (i) Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. (j) Income taxes: Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences related primarily to depreciable assets (use of difference depreciation methods and lives for financial statement and income tax purposes), and Uniform Capitalization Rules Code Sec. 263A (capitalization of direct and indirect costs associated with resale activities). The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses and tax credits that are available to offset future taxable income. Exact Logistics, LLC and ProConn, LLC are single member limited liability companies with Professional Veterinary Products, Ltd. as their only corporate member. They have elected to be treated as an unincorporated branch of the parent entity for income tax purposes. All income taxes of the unincorporated branches are reflected and are the responsibility of the parent entity. See independent auditor's report. F-8 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements - July 31, 2001 and PROFESSIONAL VETERINARY PRODUCTS, LTD. Notes to Financial Statements - July 31, 2000 (continued) (1) Summary of significant accounting policies (continued): (k) Revenue Recognition: Revenue is recognized when products are shipped to customers. Invoices accompany the shipment. The Company sells animal health products which constitutes all of its gross sales. Sales promotion revenue is money paid to the Company by various manufacturers to promote their products. The promotions are created by the manufacturer and passed on to the consumer by the Company. Sales promotion costs deducted on the Schedule of Operating, General and Administrative Expenses are those related to the sales promotion revenue included in revenue on the Statement of Income. Advertising and marketing costs are expensed when the costs are incurred. (l) Assets - Recognition and Measurement of Impairment The Company policy is to recognize an impairment loss in accordance with SFAS 121 if the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of asset. The Company reviews long-lived assets and identifiable intangibles to be held and used for impairment whenever events or changes in circumstances indicated that the carrying amount of an asset may not be recoverable. An impairment loss recognized would be measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. No current impairment exists and none have been recognized. (2) Rebates: For the fiscal year ended July 31, the Company netted rebates due to stockholders against accounts receivable. The Company offset accounts receivable for overcharges on sales in excess of an agreed to profit margin of 5% as follows:
2001 2000 Accounts Receivable $ 23,140,929 26,749,894 Less Rebates (4,867,670) (6,114,343) ------------ ---------- Accounts Receivable, trade $ 18,273,259 20,635,551 ============ ===========
Net sales reported on the Statement of Income have been reduced by rebates as follows:
2001 2000 Gross Sales $ 200,841,804 180,905,421 Less Rebates (4,867,670) ------------- (6,114,343) --------- Net Sales $ 195,974,134 ============= 174,791,078 ===========
Rebates are paid in the form of credits against future purchases, never in cash. See independent auditor's report. F-9 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements - July 31, 2001 and PROFESSIONAL VETERINARY PRODUCTS, LTD. Notes to Financial Statements - July 31, 2000 (continued) (3) Property and equipment:
Accumulated Book Value ---------- Cost Depreciation 2001 2000 ---- ------------ ---- ---- Land............. $ 953,780 - 953,780 953,780 Buildings........ 4,715,527 196,064 4,519,463 4,637,352 Equipment........ 3,247,095 1,237,092 2,010,003 2,153,080 ----------- --------- --------- --------- $ 8,916,402 1,433,156 7,483,246 7,744,212 =========== ========= ========= ========= (4) Investments - Non Marketable: The Company has invested in AAHA Services Corp., of which they own 20%. The remaining 80% is owned by American Animal Hospital Association (AAHA). AAHA operates AAHA Services Corp. without regard to the views of Professional Veterinary Products, Ltd. The investment is, therefore, carried at cost. The Company has invested in Agri-Laboratories, Ltd., of which they own less than 5%. The investment is carried at cost. 2001 2000 ---- ---- Investment in AAHA Services Corp.................. $ 1,500,000 1,500,000 Investment in Agri-Laboratories, Ltd.............. 143,850 143,850 ----------- --------- $ 1,643,850 143,850 =========== =========
(5) Cash Surrender value of life insurance: The Company owns insurance policies on the Chief Executive Officer. The total face value of the policies on the life of the Chief Executive Officer was $ 375,000 at July 31, 2001. (6) The Company is authorized to issue 30,000 shares of common stock with a par value of $1.00. Issued and outstanding were 1,534 shares at July 31, 2001 and 1,381 shares at July 31, 2000. Holders of common stock are entitled to a) one vote for each share held on matters submitted to a vote of stockholders, b) a ratable share of dividends declared and c) in the event of liquidation or dissolution, a ratable share of earnings after liabilities. Shareholders are not permitted to dispose of their stock except by a sale back to the Company. The shareholder must give the Company written notice of the proposed sale and the Company must redeem for cash the share of stock within ninety days of receiving such notice, at a price of $3000. See independent auditor's report. F-10 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements - July 31, 2001 and PROFESSIONAL VETERINARY PRODUCTS, LTD. Notes to Financial Statements - July 31, 2000 (continued) (7) Income taxes: The company's total noncurrent deferred tax asset and noncurrent deferred tax liabilities at July 31 are as follows (computed at the statutory rate 34%):
2001 2000 ---- ---- Noncurrent deferred tax asset - Inventory overhead costs $ 37,400 47,600 capitalized for tax purposes............................. Noncurrent deferred tax liability - (131,359) (41,634) Accumulated depreciation...................................... ----------- --------- Net noncurrent deferred tax asset (93,959) 5,966 per financials................................................ 5,966 - Prior year deferred tax asset (liability)....................... ----------- --------- 99,925 (5,966 Deferred tax expense............................................ 255,503 326,333 Taxes currently payable ----------- --------- $ 355,428 320,367 Income tax provision per financials ----------- --------- (8) Long-term debt: 2001 2000 ---- ---- Note payable, bank, 7.42% interest............................... $ 3,860,284 3,950,442 Note payable, bank, 9.10% interest............................... 1,115,150 1,192,534 Note payable, bank, 8.66% interest............................... 1,045,525 1,290,258 ----------- --------- 6,020,959 6,433,234 Less current portion due within one year......................... (455,924) (419,603) ----------- --------- $ 5,565,035 6,013,631 =========== =========
Note payable, bank, 7.42% interest: Monthly installments of principal and interest of $32,028 commencing January 1, 2000 with a final installment and entire unpaid principal balance due on June 1, 2009. Loan is collateralized by land and building. Note payable, bank, 9.10% interest: Monthly installments of principal and interest of $15,352 commencing July 1, 2000 with a final installment and entire unpaid principal balance due on May 1, 2010. Loan is collateralized by land and building. Note payable, bank, 8.66% interest: Monthly installments of principal and interest of $29,032 commencing February 1, 2000 with a final installment and entire unpaid principal balance due on January 1, 2005. Loan is collateralized by all business assets. See independent auditor's report. F-11 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements - July 31, 2001 and PROFESSIONAL VETERINARY PRODUCTS, LTD. Notes to Financial Statements - July 31, 2000 (continued) (8) Long-term debt (continued): Total yearly payments of long-term debt are due as follows:
Note Payable Note Payable Note Payable bank, 7.42% bank, 9.10% bank, 8.66% Interest Interest Interest Total -------- -------- -------- ----- 2002 .............. $ 101,306 86,288 268,330 455,924 2003 .............. 109,084 94,477 292,512 496,073 2004 .............. 117,459 103,442 318,873 539,774 2005 .............. 126,477 113,258 165,810 405,545 2006 .............. 136,188 124,005 - 260,193 2007 - 2020 ....... 3,269,770 593,680 - 3,863,450 ---------- --------- --------- --------- $3,860,284 1,115,150 1,045,525 6,020,959 ========== ========= ========= =========
The maximum amount available on the revolving line of credit is $15,000,000. The balances due on this line of credit were $4,293,713 and $8,216,400 for 2001 and 2000 respectively. The interest rate as of July 31 was 6.50% (2001) and 9.25% (2000), or .25% under the Index. All the above loan agreements are with US Bank. These loans are collateralized by substantially all of the assets of the Company. These loans agreements contain certain covenants to related financial ratios. Covenants relating interest bearing debt to tangible net worth were waived by the bank for July 31, 2000. The covenants were met for July 31, 2001. (9) Commitments and contingent liabilities - leases: On February 18, 1998, the company entered into a lease with Nebraska Leasing Services, Inc. for the purpose of leasing a truck. The lease minimum rentals were $451 per month for a term of 36 months with a final rental installment of $12,000. The lease expired January 18, 2001. On July 28, 1997, the company entered into a lease with IBM Credit Corporation for the purpose of leasing related computer hardware. The lease minimum rentals are $6,541 per month. The lease expires July 30, 2002. On August 14, 1998, the company entered into a lease with IBM Credit Corporation for the purpose of leasing related computer hardware. The lease minimum rentals are $3,107 per month for a term of 48 months. The lease expires August 14, 2002. On August 31, 1999, the company entered into a lease with IOS Capital for the purpose of leasing four copiers. The lease minimum rentals are $1,216 per month for a term of 48 months. The lease expires August 31, 2003. On September 1, 1999, the company entered into a lease with US Bancorp for the purpose of leasing two forklifts. The lease minimum rentals are $1,189 per month for a term of 48 months. The lease expires August 1, 2003. See independent auditor's report. F-12 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements - July 31, 2001 and PROFESSIONAL VETERINARY PRODUCTS, LTD. Notes to Financial Statements - July 31, 2000 (continued) (9) Commitments and contingent liabilities - leases (continued): On October 7, 1999, the company entered into a lease with Neopost Leasing for the purpose of leasing a postage meter. The lease minimum rentals are $687 per quarter for a term of 5 years. The lease expires February 7, 2005. On October 10, 1999, the company entered into a lease with US Bancorp for the purpose of leasing 50 scanners. The lease minimum rentals are $6,225 per month for a term of 36 months. The lease expires September 10, 2002. On November 10, 1999, the company entered into a lease with U.S. Bancorp Leasing & Financial for the purpose of leasing a floor scrubber. The lease minimum rentals are $306 per month for a term of 48 months. The lease expires October 10, 2003. On November 30, 1999, the company entered into a lease with IBM Credit Corporation for the purpose of leasing IBM maintenance. The lease minimum lease payments are $1,675 per month for a term of 36 months. The lease expires November 30, 2002. On November 30, 1999, the company entered into a lease with IOS Capital for the purpose of leasing related copier parts. The lease minimum rentals are $164 per month for a term of 60 months. The lease expires November 30, 2004. On February 15, 2000, the company entered into a lease with Chrysler Financial Company, LLC for the purpose of leasing a van. The lease minimum lease payments are $416 per month for a term of 36 months. The lease expires February 15, 2003. On March 6, 2000, the company entered into a lease with IBM Credit Corp for the purpose of leasing computer hardware. The lease minimum rentals are $6,193 per month for a term of 36 months. The lease expires February 6, 2003. On March 1, 2000, the company entered into a lease with P & L Capital Corp for the purpose of leasing 11 laptop computers. The lease minimum rentals are $1,627 per month for a term of 24 months. The lease expires February 1, 2002. On April 27, 2000, the company entered into a lease with Chrysler Financial Company, LLC for the purpose of leasing a vehicle. The lease minimum rentals are $669 per month for a term of 36 months. The lease expires April 27, 2003. On October 1, 2000, the company entered into a lease with US Bancorp Leasing for the purpose of leasing five forklifts. The lease minimum rentals are $2,572 per month for a term of 60 months. The lease expires September 1, 2005. On January 23, 2001, the company entered into a lease with P & L Capital Corp., Inc. for the purpose of leasing three Dell laptop computers. The lease minimum rentals are $394 per month for a term of 24 months. The lease expires January 1, 2003. See independent auditor's report. F-13 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements - July 31, 2001 and PROFESSIONAL VETERINARY PRODUCTS, LTD. Notes to Financial Statements - July 31, 2000 (continued) (9) Commitments and contingent liabilities - leases (continued): On April 17, 2001, the company entered into a lease with P & L Capital Corp., Inc. for the purpose of leasing one Dell laptop computer. The lease minimum rentals are $129 per month for a term of 24 months. The lease expires April 17, 2003. Minimum future obligations on operating leases in effect on July 31, 2001 are: Period ended July 31, 2002 ............... $ 384,470 Period ended July 31, 2003 ............... 146,140 Period ended July 31, 2004 ............... 38,935 Period ended July 31, 2005 ............... 33,577 Period ended July 31, 2006 ............... 5,143 ---------- $ 608,265 ========== The Company is required by its Articles of Incorporation to repurchase stock within 90 days of receiving written notice from the shareholder requesting a redemption of their stock. The redemption price is the price paid by the shareholder for such share of stock. Therefore, the Company is contingently liable in the amount of $4.5 million as of July 31, 2001. (10) Transactions between Board of Directors, key employees and the company. Professional Veterinary Products, Ltd. had sales to the Board of Directors and key employees for the period ended July 31 as follows:
2001 2000 ---- ---- Members of the Board of Directors ....... $ 2,856,581 3,237,383 Key employees ........................... 2,505 9,172 ----------- ---------- $ 2,859,086 3,246,555 =========== ==========
(11) Profit-sharing and 401-K retirement plans: The Company provides a non-contributory profit-sharing plan covering all full-time employees who qualify as to age and length of service. It has been the Company's policy to make contributions to the plan as provided annually by the Board of Directors. The total provision for the contribution to the plan was $341,207 for 2001 and $347,861 for 2000. The Company also provides a contributory 401-K retirement plan covering all full-time employees who qualify as to age and length of service. It is the Company's policy to match a maximum 15% employee contribution with a 3% contribution. The total provision to the plan was $142,227 and $114,593 for the period ended July 31, 2001 and 2000, respectively. See independent auditor's report. F-14 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements - July 31, 2001 and PROFESSIONAL VETERINARY PRODUCTS, LTD. Notes to Financial Statements - July 31, 2000 (continued) (12) Segment Information: Description of the types of products and services from which each reportable segment derives its revenues. The Company and subsidiaries have one reportable segment which is animal health related items. This segment buys, sells and warehouses these items. Measurement of segment profit or loss and segment assets. The accounting policies of the segment are the same as those described in the summary of significant accounting policies. The Company and subsidiaries evaluate performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses. Factors management used to identify the enterprise's reportable segments. The Company and subsidiaries do not have separate strategic business units that offer different products or services. Information about major customers. The Company and subsidiaries do not receive over 10% of revenues from any single external customer. See independent auditor's report. F-15 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Consolidated Schedule of Operating, General and Administrative Expenses - July 31, 2001 and PROFESSIONAL VETERINARY PRODUCTS, LTD. Schedule of Operating, General and Administrative Expenses - July 31, 2000 and 1999
Amount Percent ------ ------- Years Ended July 31, Years Ended July 31, -------------------- -------------------- 2001 2000 1999 2001 2000 1999 ---- ---- ---- ---- ---- ---- Salaries ........................ 7,416,707 6,646,651 4,745,347 3.72 3.72 3.88 Directors' fees ................. 53,375 47,750 34,250 .03 .03 .03 Annual meeting .................. - 13,980 44,940 - .01 .04 Convention and seminars ......... 124,193 84,293 89,557 .06 .05 .07 Insurance ....................... 753,353 554,694 393,077 .38 .31 .32 Life Insurance .................. 21,356 12,065 15,681 .01 .01 .01 Office supplies and expense ..... 597,630 835,752 325,345 .30 .47 .27 Operating supplies .............. 1,093,316 1,126,498 815,023 .55 .63 .67 Equipment rent .................. 387,699 356,213 234,983 .19 .20 .19 Telephone ....................... 213,978 285,714 212,562 .11 .16 .17 Utilities ....................... 105,964 91,524 50,988 .05 .05 .04 Accounting fees ................. 48,170 43,451 33,330 .02 .02 .03 Legal fees ...................... 110,363 100,089 94,326 .06 .06 .08 Taxes, payroll .................. 540,211 437,242 316,736 .27 .24 .26 Taxes, general .................. 235,051 150,433 51,397 .12 .08 .04 Repairs and maintenance ......... 143,369 373,436 252,345 .07 .21 .21 Depreciation .................... 545,509 425,653 269,760 .27 .24 .22 Amortization .................... 15,447 15,453 15,440 .01 .01 .01 Contract labor .................. 114,379 125,237 23,515 .06 .07 .02 Advertising ..................... 9,414 9,050 5,754 - .01 .01 Postage ......................... 96,660 71,671 71,671 .05 .04 .04 Travel and promotion ............ 498,346 393,054 347,062 .25 .22 .28 Dues and subscriptions .......... 22,147 41,377 26,014 .01 .02 .02 Profit sharing and pension contribution ............ 483,434 462,454 330,887 .24 .26 .27 Sales promotion ................. 1,374,787 1,522,922 993,836 .69 .85 .81 Bank fees ....................... 909,248 587,184 402,980 .46 .33 .33 Equipment maintenance ........... 100,566 217,533 52,227 .05 .11 .04 Bad debts ....................... 14,172 14,586 3,784 .01 .01 .01 Miscellaneous ................... 331,620 156,968 134,352 .17 .09 .11 ------------ ---------- ---------- ---- ---- ---- ................................ $ 16,360,464 15,202,927 10,366,843 8.21 8.51 8.48 ============ ========== ========== ==== ==== ====
See accompanying notes to financial statements and independent auditor's report. F-16 (a)(3) Exhibits 23.1 Consent of Marvin E. Jewell & Co., P.C. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: January 31, 2002 PROFESSIONAL VETERINARY PRODUCTS, LTD. By: /s/ Dr. Lionel L. Reilly ------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Capacity /s/ LIONEL L. REILLY President ---------------------------------- Lionel L. Reilly /s/ NEAL B. SODERQUIST Chief Financial Officer ---------------------------------- Neal B. Soderquist * Director ---------------------------------- Mark A. Basinger * Director ---------------------------------- Raymond C. Ebert II * Director ---------------------------------- Fred G. Garrison * Director ---------------------------------- Kenneth R. Liska * Director ---------------------------------- Wayne E. Rychnovsky * Director -------------------------------------------- Chester L. Rawson * Director -------------------------------------------- Amy Lynne Hinton * Director -------------------------------------------- Michael L. Whitehair *By: /s/ DR. LIONEL L. REILLY ------------------------------------ Dr. Lionel L. Reilly As: Attorney-in-fact