10-K/A 1 d10ka.txt FORM 10-K/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 (ss. 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 items 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 Report ........................................................ F-1 Consolidated Balance Sheets for the year ended July 31, 2001 and 2000 ............... F-2 Consolidated Statements of Income for the year ended July 31, 2001, 2000 and 1999 ........................................................................ F-3 Consolidated Statements of Stockholders' Equity for the year ended July 31, 2001, 2000 and 1999 ............................................................. F-4 Consolidated Statements of Cash Flow for the year ended July 31, 2001, 2000 and 1999 ................................................................... F-5 Notes to Financial Statements ....................................................... F-6
1 QUICK & MCFARLIN, 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. and subsidiaries as of July 31, 2001 and 2000, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended July 31, 2001. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Professional Veterinary Products, Ltd. and subsidiaries as of July 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2001, in conformity with accounting principles generally accepted in the United States of America. As described in Note 15, these consolidated financial statements have been restated for the change in accounting for the investment in an affiliate, for stock subscriptions receivable, and for certain reclassifications relating to sales promotion revenue. /s/ Quick & McFarlin, P.C. Omaha, Nebraska April 19, 2002, except for Notes 1(j), 1(k) and 16, as to which the date is July 31, 2002 and Note 15, as to which the date is August 19, 2002 F-1 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Consolidated Balance Sheets As of July 31, 2001 (Restated) and 2000 (Restated) (in Thousands, except share data)
Assets ------ Current assets: July 31, 2001 July 31, 2000 (Restated) (Restated) Cash ................................................................. 657 - Accounts receivable, trade, less allowance for doubtful accounts (0) .. 15,783 20,006 Accounts receivable, related parties .................................. 2,490 629 Accounts receivable, other ............................................ 129 933 Prepaid income taxes .................................................. 122 - Inventory ............................................................. 22,342 28,427 ------ ------ Total current assets ........................................... 41,523 49,995 ------ ------ Property and equipment ................................................... 8,916 8,640 Less accumulated depreciation ......................................... 1,433 896 ------ ------ 7,483 7,744 ------ ------ Other assets: Goodwill less accumulated amortization $60 (2001), $45 (2000) .......................................... 166 181 Loan origination fee less accumulated amortization $5 (2001), $3 (2000) ............................................ 15 17 Trademark, less accumulated amortization $1 (2001), $1 (2000) ........................................... 4 4 Investments in unconsolidated affiliates ............................ 1,513 1,635 Cash value life insurance ........................................... 33 30 Deferred income tax asset ........................................... - 6 ------ ------ 1,731 1,873 ------ ------ 50,737 59,612 ====== ====== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Bank overdraft ....................................................... - 399 Notes payable, bank .................................................. 4,294 8,216 Current portion of long-term debt .................................... 456 420 Accounts payable, trade .............................................. 31,950 36,154 Accounts payable, related parties .................................... 535 1,082 Other current liabilities ............................................ 1,532 1,827 ------ ------ Total current liabilities ...................................... 38,767 48,098 Long-term debt ........................................................... 5,565 6,013 Deferred income tax liability ............................................ 94 - ------ ------ Total liabilities .............................................. 44,426 54,111 ------ ------ Stockholders' equity: Common stock, $1 par value per share. Authorized 30,000 shares; issued and outstanding 1,557 (January 31, 2002), 1,534 shares (2001), 1,381 shares (2000) ........................................ 2 1 Paid-in capital ....................................................... 4,415 3,993 Retained earnings ..................................................... 1,894 1,507 ------ ------ 6,311 5,501 ------ ------ 50,737 59,612 ====== ======
See accompanying notes to consolidated financial statements. F-2 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Consolidated Statements of Income Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (in Thousands, except per share amounts)
July 31, July 31, July 31, 2001 2000 1999 (Restated) (Restated) (Restated) Net sales and other revenue $ 197,523 176,275 120,536 Cost of sales 181,660 161,934 111,876 --------- --------- --------- Gross profit 15,863 14,341 8,660 Operating, general and administrative expenses 14,543 12,931 8,649 --------- --------- --------- Operating income 1,320 1,410 11 --------- --------- --------- Other income (expense): Interest income 504 373 249 Interest expense (1,006) (862) (263) Other (2) (44) 237 --------- --------- --------- (504) (533) 223 --------- --------- --------- Equity in loss of affiliate (122) (9) - --------- --------- --------- Income before taxes 694 868 234 Income taxes 307 321 93 --------- --------- --------- Net income $ 387 547 141 ========= ========= ========= Net earnings per share of common stock $ 267.58 430.55 128.52 ========= ========= =========
See accompanying notes to consolidated financial statements. F-3 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (in Thousands, except Common Shares Issued)
Common Additional Shares Common Paid-in Retained Issued Stock Capital Earnings Total Balance at July 31, 1998 1,048 $ 1 $ 2,993 $ 819 $ 3,813 Issuance of stock 157 - 471 - 471 Redemption of stock (17) - (50) - (50) Net change in Accounts receivable, stock - - (62) - (62) Net income - - - 141 141 --------- ---------- ----------- -------- -------- Balance at July 31, 1999 1,188 1 3,352 960 4,313 (restated) Issuance of stock 211 633 - 633 Redemption of stock (18) - (54) - (54) Net change in Accounts receivable, stock - - 62 - 62 Net income - - - 547 547 --------- ---------- ----------- -------- -------- Balance at July 31, 2000 1,381 1 3,993 1,507 5,501 (restated) Issuance of stock 172 1 515 - 516 Redemption of stock (19) - (57) - (57) Net change in Accounts receivable, stock - - ( 36) - (36) Net income - - - 387 387 --------- ---------- ----------- -------- -------- Balance at July 31, 2001 (restated) 1,534 $ 2 $ 4,415 $ 1,894 $ 6,311 ========= ========== =========== ======== ========
See accompanying notes to consolidated financial statements. F-4 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (in Thousands)
July 31, 2001 July 31, 2000 July 31, 1999 (Restated) (Restated) (Restated) Cash flows from operating activities: Net income $ 387 $ 547 $ 141 ----------- ----------- ----------- Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 563 443 288 (Gain) loss on sale of property 2 43 (237) Equity loss in affiliate 122 9 - Adjustments for working capital changes: (Increase) decrease in: Receivables 3,167 (10,430) (6,632) Inventories 6,085 (15,839) 418 Cash value life insurance (3) (30) - Deferred income tax 100 (6) - Increase (decrease) in: Accounts payable (4,751) 19,058 7,736 Accrued expenses and income taxes payable (417) 513 149 ----------- ----------- ----------- Total adjustments 4,868 (6,239) 1,722 ----------- ----------- ----------- Net cash from operating activities 5,255 (5,692) 1,863 ----------- ----------- ----------- Cash flows from investing activities: Purchase of property and equipment (287) (5,292) (2,762) Purchase of trademark - - (5) Purchase of investments - (1,500) (144) Proceeds from sale of property - 115 1,878 ----------- ----------- ----------- Net cash from investing activities (287) (6,677) (1,033) ----------- ----------- ----------- Cash flows from financing activities: Net loan proceeds (reduction) (4,334) 10,236 1,013 Bank overdraft (399) 399 (1,110) Net proceeds from issuance of common stock 422 641 360 ----------- ----------- ----------- Net cash from financing activities (4,311) 11,276 263 ----------- ----------- ----------- Net increase (decrease) in cash 657 (1,093) 1,093 Cash at beginning of year - 1,093 - ----------- ----------- ----------- Cash at end of year $ 657 $ - $ 1,093 =========== =========== =========== Supplemental disclosure of cash flow information: Interest paid $ 1,052 774 $ 258 =========== =========== =========== Income taxes paid $ 560 $ 106 $ 117 =========== =========== ===========
See accompanying notes to consolidated financial statements. F-5 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (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. This 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. This 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 consolidated 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 on these financial statements and are the responsibility of the parent entity. Summary of significant accounting policies: (a) Principles of consolidation: The consolidated financial statements include the accounts of Professional Veterinary Products, Ltd. and its wholly owned subsidiaries. The term "Company" used herein means Professional Veterinary Products, Ltd. and its subsidiaries, unless otherwise indicated by the context. All material intercompany accounts and transactions have been eliminated in consolidation. Investments in companies in which the Company exercises significant influence, but not control, are accounted for using the equity method of accounting. Investments in companies in which the Company has less than a 20% ownership interest, and does not exercise significant influence, are accounted for at cost. (b) Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. While actual results could differ from these estimates, management believes these estimates are reasonable. F-6 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (1) Summary of significant accounting policies (continued): (c) Concentration of cash balances: The Company's cash funds are located in a single financial institution. The bank accounts, at times, exceeded the $100,000 federally insured limit. (d) Accounts receivable: Management considered accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts was deemed necessary by management. (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 the resulting gain or loss is 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 accelerated depreciation methods. Estimated useful lives for financial purposes are as follows: Building ................................ 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. F-7 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (1) Summary of significant accounting policies (continued): (h) Intangible assets and goodwill: Intangible assets consist principally of goodwill, loan fees and trademarks. Amortization expense for goodwill and other intangibles was $87, $25, and $15 for 2001, 2000, and 1999, respectively. Management periodically evaluates the recoverability of goodwill and other intangible assets which would be adjusted for a permanent decline in value, if any, as measured by the recoverability from projected future cash flows from the acquired businesses. These analyses necessarily involve significant management judgment. Amortization has been computed on intangible assets as follows: Goodwill .......... 15 and 20 years, straight-line Loan fees ......... term of the related note, straight-line (amortized expense is included in interest) Trademark ......... 15 years, straight-line (i) 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 relate primarily to depreciable assets (use of different depreciation methods and lives for financial statement and income tax purposes), and Uniform Capitalization Rules IRS 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. F-8 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (1) Summary of significant accounting policies (continued): (j) Revenue recognition: In accordance with generally accepted accounting principles, revenue is recognized when the transaction is both realized or realizable and earned. The Company recognizes revenue when the customer receives the product. Shipping terms are generally FOB customer. The Company and/or its shipper have the risk of loss until delivery to the customer. Upon receipt of the product by the customer, title and risk of loss passes to that customer. The Company sells animal health products which constitute all of its gross sales. There are two major types of transactions that affect the flow of products to the Company's customers. Traditional "buy/sell" transactions account for approximately ninety percent of the Company's business. In this type of transaction the customer places an order with the Company, which is then picked, packed, shipped, and invoiced to the customer, followed by payment from the customer to the Company. In most traditional "buy/sell" transactions the Company, rather than the manufacturer, sets the price of the products. There are a few product lines where the Company provides all transactional activities described above, except that the manufacturer retains title to the product. The manufacturer retains title in accordance with the distribution agreements for these products. Within these agreements the manufacturer determines if any promotional funds or rebates will be given to the Company. These "consignment" transactions account for approximately five percent of the Company's business. The Company inventories these products for the manufacturer but does not pay the manufacturer until the product is sold to the customer and reported to the manufacturer. The Company is responsible for maintaining insurance on the products, but the value of the product is not included in the inventory for accounting purposes. (k) Advertising: The Company expenses advertising costs as incurred. Advertising expense was $30, $25, and $16 for the years ended 2001, 2000, and 1999, respectively. The Company receives sales promotion monies through various contracted agreements which manufacturers use specifically to promote their products to veterinarian purchasers. The sales promotion value is passed on to the veterinarian based upon their level of product purchases prescribed in the contracted agreements. (l) Direct shipping and handling costs: Freight and other direct shipping costs are included in "Cost of sales" on the Consolidated Statements of Income. Direct handling costs, which represent primarily direct compensation costs of employees who pick, pack and otherwise prepare, if necessary, merchandise for shipment to the Company's customers are reflected in "Operating, general and administrative expenses." F-9 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (1) Summary of significant accounting policies (continued): (m) Fair value of financial instruments: The carrying amounts reported on the balance sheets approximate the fair value for cash, short-term borrowings, and all other variable rate debt (including borrowings under credit agreements). The carrying amounts reported for long-term debt approximate fair value because the interest approximates current market rates for financial instruments with similar maturities and terms. (n) 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 the 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. (o) Earnings per share: Financial Accounting Standards Board Statement No. 128, Earnings per Share ("SFAS No. 128") promulgates accounting standards for the computation and manner of presentation of the Company's earnings per share data. Under SFAS No. 128 the Company is required to present basic and diluted earnings per share. Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. There are no securities that are convertible to common stock that would cause further dilution. The weighted average number of common shares outstanding was 1,447 for July 31, 2001, 1,271 for July 31, 2000, and 1,095 for July 31, 1999. (p) Reclassifications: Certain prior year amounts have been reclassified to conform to the July 31, 2001 presentation. F-10 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (1) Summary of significant accounting policies (continued): (q) New accounting pronouncements: In June 2001, the Financial Accounting Standards Board issued FASB Statement No. 142, Goodwill and Other Intangible Assets ("FAS 142"). FAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, FAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in FAS 142. FAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. FAS 142 also requires the Company to complete a transitional goodwill impairment test within six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of FAS 142. The Company will adopt FAS 142 in the first quarter of the fiscal year ending July 31, 2003. The Company believes that the adoption of FAS 142 will not have a material impact on the Company's financial position or results of operation. In August 2001, the FASB issued FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("FAS 144"). This statement superceded FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("FAS 121") and amends Accounting Principles Board Opinion No. 30, Reporting Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. FAS 144 retains the fundamental provisions of FAS 121 for recognition and measurement of impairment, but amends the accounting and reporting standards for segments of a business to be disposed of. FAS 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The provisions of FAS 144 generally are to be applied prospectively. The Company will adopt FAS 144 in the first quarter of fiscal year ending July 31, 2003. The Company believes that the adoption of FAS 144 will not have a material impact on the Company's financial position or results of operations. (2) Concentration of credit risk: Financial instruments, which potentially subject the Company to concentrations of credit risk, include trade receivables. One customer comprised 12.5% of the Company's receivables at July 31, 2001. There were no significant individual receivables at July 31, 2000. F-11 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (3) Rebates: At each fiscal year end, the Company nets rebates due to stockholders against accounts receivable. Rebates are paid in the form of credits against future purchases, never in cash. The Company offset accounts receivable for overcharges on sales in excess of an agreed to profit margin as follows: 2001 2000 ---- ---- Accounts receivable $ 23,141 $ 26,749 Less rebates (4,868) (6,114) -------- -------- Accounts receivable, net $ 18,273 $ 20,635 ======== ======== Net sales and other revenue reported on the Consolidated Statements of Income were reduced by rebates as follows:
2001 2000 1999 ---- ---- ---- Gross sales and other revenue $202,391 $182,389 $125,425 Less rebates (4,868) (6,114) (4,889) -------- -------- -------- Net sales and other revenue $197,523 $176,275 $120,536 ======== ======== ========
(4) Property and equipment:
Cost Book Value ---- ---------- 2001 2000 2001 2000 ---- ---- ---- ---- Land $ 954 $ 954 $ 954 $ 954 Buildings 4,715 4,715 4,519 4,637 Equipment 3,247 2,971 2,010 2,153 ------- -------- ------- -------- $ 8,916 $ 8,640 $ 7,483 $ 7,744 ======= ======== ======= ========
F-12 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (5) Investment in unconsolidated affiliates: The Company purchased a 20% interest in AAHA Services Corp. in June, 2000 for $1,500. The remaining 80% is owned by American Animal Hospital Association (AAHA). The Company determined that it has significant influence over AAHA Services Corp and accordingly should account for its 20% ownership interest using the "equity method" of accounting for investments. The excess of purchase price over underlying equity in the amount of $1,500 (which represents goodwill) is being amortized by the straight-line method over 20 years. The Company purchased less than a 5% interest in Agri-Laboratories, Ltd., which is carried at cost. The amounts presented on the balance sheet can be detailed as follows:
2001 2000 ---- ---- Investment in AAHA Services Corp (equity method), net of amortization and 20% equity method loss $ 1,369 $ 1,491 Investment in Agri-Laboratories, Ltd. (cost method) 144 144 -------- -------- $ 1,513 $ 1,635 ======== ========
(6) Common Stock: The Company is authorized to issue 30,000 shares of common stock with a par value of $1.00. Issued and outstanding shares amounted to 1,534 at July 31, 2001 and 1,381 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 the price the shareholder paid for the share. (7) Deferred 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 - Uniform capitalization $ 37 $ 48 Noncurrent deferred tax liability - Accumulated depreciation (131) (42) ----- ----- Net noncurrent deferred tax asset (liability) per financials (94) 6 Prior year deferred tax asset (liability) 6 - ----- ----- Deferred tax expense 100 (6) Taxes currently payable 207 327 ----- ----- Income tax expense $ 307 $ 321 ===== =====
F-13 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (8) Reconciliation of income tax expense: A reconciliation of income tax expense at the U.S. federal statutory income tax rate to actual income tax expense is as follows:
2001 2000 1999 ---- ---- ---- Income tax at federal statutory rate $ 236 $ 296 $ 75 State taxes, net of federal taxes 6 8 1 Amortization of goodwill 24 3 - Nondeductible and other items 41 14 17 ----- ----- ---- $ 307 $ 321 $ 93 ===== ===== ====
(9) Long-term debt: 2001 2000 ---- ---- Note payable, bank, 7.42% interest $ 3,860 $ 3,951 Note payable, bank, 9.10% interest 1,114 1,192 Note payable, bank, 8.66% interest 1,047 1,290 ------- ------- 6,021 6,433 Less current portion due within one year (456) (420) ------- ------- $ 5,565 $ 6,013 ======= =======
Note payable, bank, 7.42% interest: Monthly installments of principal and interest of $32 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 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 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. Total yearly principal payments of long-term debt are due as follows:
Note Payable Note Payable Note Payable bank, 7.42% bank, 9.10% bank, 8.66% Total ----------- ----------- ----------- ----- 2002 $ 101 $ 86 $ 269 $ 456 2003 109 94 293 496 2004 117 103 319 539 2005 126 113 166 405 2006 136 124 - 260 Thereafter 3,271 594 - 3,865 ------- ------ ----- ------- $ 3,860 $1,114 $1,047 $ 6,021 ======= ===== ===== =======
F-14 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (9) Long-term debt (continued): The Company has in place a revolving line of credit that provides for borrowings of up to $15,000. The agreement provides for payment on demand, or if no demand is made, in one payment of all outstanding principal plus all accrued unpaid interest on December 1, 2001. Interest is payable at .25% under the U.S. Bank National Association Reference Rate. The balances due on this line of credit were $4,294 and $8,216 for 2001 and 2000, respectively. The weighted average interest rates of borrowings outstanding under the revolving credit agreement were 8.35%, 8.44%, and 7.71% for 2001, 2000, and 1999 respectively. The line of credit is collateralized by all business assets. All the above loan agreements are with US Bank. These loan 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. (10) Commitments and contingent liabilities - leases: The Company leases various equipment under noncancelable operating leases expiring through September 2005. Management expects that in the normal course of business, leases will be renewed or replaced by other leases. Minimum future obligations on operating leases in effect on July, 31, 2001 were as follows: Year ended July 31, 2002 $ 386 Year ended July 31, 2003 140 Year ended July 31, 2004 39 Year ended July 31, 2005 32 Year ended July 31, 2006 5 ------- $ 602 ======= Total lease expense was $399, $275, and $121 for 2001, 2000, and 1999, respectively. (11) Commitments and contingent liabilities - other: 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 was contingently liable for $4.5 million as of July 31, 2001. The Company is subject to claims and other actions arising in the ordinary course of business. Some of these claims and actions have resulted in lawsuits where the Company is a defendant. Management believes that the ultimate obligations if any, which may result from unfavorable outcomes of such lawsuits, will not have a material adverse effect on the financial position, results of operations or cash flows of the Company and that such obligations, if any, would be adequately covered by insurance. F-15 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (12) Related party transactions: In the normal course of business the Company sells to its directors, officers, and key employees under normal terms and conditions. Accounts receivable, related parties on the balance sheet include amounts receivable on demand as of July 31 from the following: 2001 2000 ---- ---- Affiliates (AAHA) $ 2,285 $ 412 Board of Directors 197 213 Officer 1 1 Employees 7 3 ------- ----- $ 2,490 $ 629 ======= ===== Accounts payable, related parties on the balance sheet include amounts payable on demand as of July 31 to the following: 2001 2000 ---- ---- Affiliates (Agri-Laboratories) $ 535 $ 1,082 ===== ======= Net sales on the Consolidated Statements of Income include sales to related parties as follows: 2001 2000 1999 ---- ---- ---- Affiliates (AAHA) $ 8,761 $ 4,080 - Board of Directors 2,857 3,238 $2,844 Officer 3 9 6 Employees 100 16 24 --------- ------- ------ $ 11,721 $ 7,343 $2,874 ========= ======= ====== Purchases from related parties were as follows: 2001 2000 1999 ---- ---- ---- Affiliates (Agri-Laboratories) $ 10,518 $ 6,894 $ 1,601 ======== ======= ======= (13) Profit-sharing and 401(k) retirement plan: 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, $348, and $242 for 2001, 2000, and 1999, respectively. 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, $115, and $89 for the years ended July 31, 2001, 2000, and 1999, respectively. F-16 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (14) Segment Information: The Company has one reportable segment which buys, sells, and warehouses animal health related items. The Company does not have separate strategic business units that offer different products or services. The Company did not receive over 10% of revenues from any single external customer. (15) Restatement of financial statements: Subsequent to the issuance of the Company's 2001 consolidated financial statements and the filing of its 2001 Annual Report on Form 10-K with the SEC, the Company's management determined that the accounting related to the equity method investment in AAHA Services Corp and the accounting for sales promotion monies received from various manufacturers would require restatement of the financial statements. The Company's restatement reflects the change of accounting for the investment in AAHA Services Corp. from the cost method to the equity method. It also reflects the reclassification of promotion monies received from manufacturers. Formerly the Company had recorded promotion monies as revenue. The restatement reflects the change to record promotion monies as a reduction of operating, general and administrative expenses. The restatement of promotion monies had no effect on operating income or net income for the periods presented. The effects on net income from these restatements are shown in the following table: 2001 2000 1999 ---- ---- ---- Net income as previously reported $ 509 $ 556 $ 141 Impact of restatement for: Equity in loss of affiliate (122) (9) - ------- ------- ------- Net income as restated $ 387 $ 547 $ 141 ======= ======= ======= F-17 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (15) Restatement of financial statements (continued): The effects on the accompanying financial statements from these restatements are shown in the following tables:
Consolidated Statement of Income Year Ended July 31, 2001 Previously Effect of Reported Restatement As Restated -------- ----------- ----------- Net sales and other revenue $ 199,340 ($1,817) $ 197,523 Cost of sales 181,660 - 181,660 --------- --------- --------- Gross profit 17,680 (1,817) 15,863 Operating, general and administrative expenses 16,360 (1,817) 14,543 --------- --------- --------- Operating income 1,320 - 1,320 Other income (expense) (504) - (504) Equity in loss of affiliate - (122) (122) --------- --------- --------- Income before taxes 816 (122) 694 Income taxes (307) - (307) ---------- --------- --------- Net income $ 509 ($122) $ 387 ========= ========= ========= Net income per share $ 351.55 ($83.97) $ 267.58 ========= ========= =========
F-18 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (15) Restatement of financial statements (continued):
Consolidated Statement of Income Year Ended July 31, 2000 Previously Effect of Reported Restatement As Restated -------- ----------- ----------- Net sales and other revenue $ 178,547 ($2,272) $ 176,275 Cost of sales 161,934 - 161,934 --------- -------- --------- Gross profit 16,613 (2,272) 14,341 Operating, general and administrative expenses 15,203 (2,272) 12,931 --------- ------- --------- Operating income 1,410 - 1,410 Other income (expense) (533) - (533) Equity in loss of affiliate - (9) (9) --------- -------- --------- Income before taxes 877 (9) 868 Income taxes (321) - (321) --------- -------- --------- Net income $ 556 $ (9) $ 547 ========= ======== ========= Net income per share $ 437.93 ($7.38) $ 430.55 ========= ======== =========
F-19 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (15) Restatement of financial statements (continued):
Consolidated Statement of Income Year Ended July 31, 1999 Previously Effect of Reported Restatement As Restated -------- ----------- ----------- Net sales and other revenue $ 122,253 ($1,717) $ 120,536 Cost of sales 111,876 - 111,876 --------- ---------- --------- Gross profit 10,377 (1,717) 8,660 Operating, general and Administrative expenses 10,366 (1,717) 8,649 --------- ---------- --------- Operating income 11 - 11 Other income (expense) 223 - 223 Equity in loss of affiliate - - - --------- ---------- --------- Income before taxes 234 - 234 Income taxes (93) - (93) --------- ---------- --------- Net income $ 141 $ - $ 141 ========= ========== ========= Net income per share $ 128.52 $ - $ 128.52 ========= ========== ========= For the fiscal years ended 2001 and 2000, accounts receivable - stock was reclassified to paid-in capital. Consolidated Balance Sheet As of July 31, 2001 As of July 31, 2000 Previously Previously Reported As Restated Reported As Restated -------- ----------- -------- ----------- Investments in unconsolidated affiliates 1,644 1,513 1,644 1,635 Total assets 50,982 50,737 59,700 59,612 Paid-in capital 4,529 4,415 4,071 3,993 Retained earnings 2,025 1,894 1,516 1,507 Total stockholders' equity 6,557 6,311 5,589 5,501
F-20 PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended July 31, 2001 (Restated), 2000 (Restated), and 1999 (Restated) (Amounts in Thousands, Except Per Share Data) (16) Selected quarterly financial data: The following presents certain unaudited quarterly financial data and certain audited, restated year end financial data:
Quarters Ended Year Ended October 31, 1999 January 31, 2000 April 30, 2000 July 31, 2000 July 31, 2000 (Restated) (Restated) (Restated) (Restated) (Restated) Revenues ................. $ 41,522 39,234 42,111 53,408 176,275 Gross profit ............. 3,060 3,696 3,380 4,205 14,341 Operating income ......... 207 566 (218) 855 1,410 Net income ............... 101 188 (348) 606 547 Net income per share ..... $ 84.14 151.13 (270.25) 450.17 430.55 Weighted average common shares outstanding .......... 1,200 1,243 1,289 1,347 1,271 Quarters Ended Year Ended October 31, 2000 January 31, 2001 April 30, 2001 July 31, 2001 July 31, 2001 (Restated) (Restated) (Restated) (Restated) (Restated) Revenues ................. $ 49,755 46,345 50,774 50,648 197,523 Gross profit ............. 3,500 3,698 3,751 4,914 15,863 Operating income ......... 697 19 (120) 724 1,320 Net income ............... 254 (148) (82) 363 387 Net income per share ..... $ 183.00 (104.39) (56.33) 240.23 267.58 Weighted average common shares outstanding .......... 1,388 1,420 1,465 1,515 1,447
F-21 (a)(3) Exhibits 23.1 Consent of Quick & McFarlin, P.C. 99.1 Certification pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 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: August 20, 2002 PROFESSIONAL VETERINARY PRODUCTS, LTD. By: /s/ Dr. Lionel L. Reilly --------------------------------- 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/ Dr. Lionel L. Reilly President -------------------------------------- Dr. 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