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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarterly period ended October 31, 2005
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 For the transition period from ___________ to ____________.
  PROFESSIONAL VETERINARY PRODUCTS, LTD.
  Nebraska
    
    37-1119387(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 th
  ý  ̈
   ̈ ý
   ̈ ý




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PART I FINANCIAL INFORMATION
    
    
    1ITEM 1: FINANCIAL STATEMENTS
    
    
    2INDEPENDENT ACCOUNTANTS REPORT
    
    
    2CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 2005
(UNAUDITED) AND JULY 31, 2005
    
    
    3CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTH
PERIODS ENDED OCTOBER 31, 2005 AND 2004 (UNAUDITED)
    
    
    4CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
MONTHS ENDED OCTOBER 31, 2005 AND 2004 (UNAUDITED)
    
    
    5NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
    
    
    6ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    12ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
    
    
    21ITEM 4: CONTROLS AND PROCEDURES
    
    
    22PART II OTHER INFORMATION
    
    
    23ITEM 1: LEGAL PROCEEDINGS
    
    
    23ITEM 1A RISK FACTORS
    
    
    23ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
    
    
    23ITEM 3: DEFAULTS UPON SENIOR SECURITIES
    
    
    23ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    24ITEM 5: OTHER INFORMATION
    
    
    24ITEM 6: EXHIBITS
    
    
    24SIGNATURESConsent302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of CEO and CFO
 1




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ITEM 1: FINANCIAL STATEMENTS
 
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     
 2




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PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
 October 31,
    
    
    July 31,2005
    
    
    2005ASSETSCURRENT ASSETSCash
    
    $
    2,395
    
    
    $
    2,118Accounts receivable, net of allowance for doubtful
accounts $995 and $970, respectively
    
    
    34,963
    
    
    
    27,970Accounts receivable, related party
    
    
    4,292
    
    
    
    3,802Inventory, less allowance for obsolete inventory $152 and $152, respectively
    
    
    45,801
    
    
    
    34,670Deferred tax asset
    
    
    1,231
    
    
    
    1,178Other current assets
    
    
    522
    
    
    
    933Total current assets
    
    
    89,204
    
    
    
    70,671NET PROPERTY AND EQUIPMENT
    
    
    10,598
    
    
    
    10,483OTHER ASSETSIntangible assets, less accumulated amortization $15 and $14, respectively
    
    
    10
    
    
    
    11Intangible retirement asset
    
    
    999
    
    
    
    1,107Investment in unconsolidated affiliates
    
    
    1,803
    
    
    
    1,803Cash value life insurance
    
    
    1,370
    
    
    
    1,190Other assets
    
    
    1
    
    
    
    1Total other assets
    
    
    4,183
    
    
    
    4,112TOTAL ASSETS
    
    $
    103,985
    
    
    $
    85,266LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESNote payable, bank
    
    $
    10,987
    
    
    $
    2,721Current portion of long-term debt and capital lease obligation
    
    
    1,055
    
    
    
    1,070Accounts payable
    
    
    60,307
    
    
    
    51,544Accounts payable, related parties
    
    
    1,992
    
    
    
    809Other current liabilities
    
    
    4,908
    
    
    
    4,704Total current liabilities
    
    
    79,249
    
    
    
    60,848LONG-TERM LIABILITIESLong-term debt and capital lease obligation, less current portion
    
    
    4,852
    
    
    
    5,109Accrued retirement benefits, less current portion
    
    
    999
    
    
    
    1,107Deferred tax liability
    
    
    531
    
    
    
    504Shares subject to mandatory redemption, $1 par value; issued and
outstanding 728 shares and 731 shares, respectively
    
    
    2,165
    
    
    
    2,170Total long-term liabilities
    
    
    8,547
    
    
    
    8,890TOTAL LIABILITIES
    
    
    87,796
    
    
    
    69,738COMMITMENTS AND CONTINGENT LIABILITIES  SEE NOTE 11REDEEMABLE COMMON STOCK  SEE NOTE 6
    
    
    3,802
    
    
    
    3,797STOCKHOLDERS EQUITYRetained earnings
    
    
    12,387
    
    
    
    11,731Total stockholders equity
    
    
    12,387
    
    
    
    11,731TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    103,985
    
    
    $
    85,266
 See notes to the condensed,
consolidated financial statements 3




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PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES


Three Months EndedOctober 31,
    
    
    October 31,2005
    
    
    2004NET SALES AND OTHER REVENUE
    
    $
    98,611
    
    
    $
    98,972COST OF SALES
    
    
    88,843
    
    
    
    90,006Gross Profit
    
    
    9,768
    
    
    
    8,966OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    8,439
    
    
    
    8,027Operating income
    
    
    1,329
    
    
    
    939OTHER INCOME (EXPENSE)Interest income
    
    
    112
    
    
    
    140Interest expense
    
    
    (337
    )
    
    
    (278
    )Other expense, net
    
    
    (225
    )
    
    
    (138
    )Income before taxes
    
    
    1,104
    
    
    
    801Income tax expense
    
    
    449
    
    
    
    303NET INCOME
    
    $
    655
    
    
    $
    498EARNINGS PER REDEEMABLE COMMON SHARE
    
    $
    509.21
    
    
    $
    403.45Weighted average redeemable common shares outstanding
    
    
    1,287
    
    
    
    1,234SUPPLEMENTAL INFORMATIONNet sales and other revenue, related parties
    
    $
    11,379
    
    
    $
    9,706Purchases, related parties
    
    $
    2,833
    
    
    $
    3,248
  4




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PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES


October 31,
    
    
    October 31,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    655
    
    
    $
    498Adjustments to reconcile net income to net cash from
operating activities:Depreciation and amortization
    
    
    343
    
    
    
    291Retirement benefits
    
    
    108
    
    
    
    129Cash value of life insurance
    
    
    (180
    )
    
    
    (217
    )Deferred income tax
    
    
    (26
    )
    
    
    (132
    )Allowance for doubtful accounts
    
    
    25
    
    
    
    174Allowance for obsolete inventory
    
    
    
    
    
    
    23(Increase) decrease in:Receivables
    
    
    (7,507
    )
    
    
    (13,881
    )Inventory
    
    
    (11,131
    )
    
    
    (7,623
    )Other current assets
    
    
    411
    
    
    
    392Other assets
    
    
    
    
    
    
    8Increase (decrease) in:Accounts payable
    
    
    9,946
    
    
    
    25,179Other current liabilities
    
    
    96
    
    
    
    865Total adjustments
    
    
    (7,915
    )
    
    
    5,208Net cash provided (consumed) by operating activities
    
    
    (7,260
    )
    
    
    5,706CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (457
    )
    
    
    (368
    )Net cash consumed by investing activities
    
    
    (457
    )
    
    
    (368
    )CASH FLOWS FROM FINANCING ACTIVITIESNet short-term borrowings (repayment)
    
    
    8,266
    
    
    
    (5,301
    )Payments on long-term debt and capital lease obligation
    
    
    (272
    )
    
    
    (352
    )Net proceeds (payments) from issuance of shares subject
to mandatory redemption
    
    
    (5
    )
    
    
    5Net proceeds from issuance of redeemable common stock
    
    
    5
    
    
    
    14Net cash provided (consumed) by financing activities
    
    
    7,994
    
    
    
    (5,634
    )Net increase (decrease) in cash
    
    
    277
    
    
    
    (296
    )Cash at beginning of period
    
    
    2,118
    
    
    
    2,545Cash at end of period
    
    $
    2,395
    
    
    $
    2,249SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest paid
    
    $
    309
    
    
    $
    302Income taxes paid
    
    $
    26
    
    
    $
    89


See notes to the condensed, consolidated financial statements.



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PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
 NOTE 1  BASIS OF PRESENTATION
      NOTE 2  RECENT ACCOUNTING PRONOUNCEMENTS
 Accounting for Rental Costs Incurred during a Construction Period
 6




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PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
 NOTE 3  PROPERTY AND EQUIPMENT:
  October 31,
    
    
    July 31,2005
    
    
    2005Land
    
    $
    1,762
    
    
    $
    1,762Buildings
    
    
    5,045
    
    
    
    5,045Leasehold improvements
    
    
    557
    
    
    
    550Equipment
    
    
    8,208
    
    
    
    7,91115,572
    
    
    
    15,268Less  Accumulated depreciation
    
    
    5,250
    
    
    
    4,90810,322
    
    
    
    10,360Construction in progress
    
    
    276
    
    
    
    123Net property, plant and equipment
    
    $
    10,598
    
    
    $
    10,483
 NOTE 4  LINE OF CREDIT:
   NOTE 5  EARNINGS PER SHARE:
 Earnings per Share
 NOTE 6  SHARES SUBJECT TO MANDATORY REDEMPTION AND REDEEMABLE COMMON
STOCK:
  7




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PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
 NOTE 6  SHARES SUBJECT TO MANDATORY REDEMPTION AND REDEEMABLE COMMON
STOCK (continued):
    NOTE 7  POST RETIREMENT BENEFITS:
  8




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PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
 NOTE 7  POST RETIREMENT BENEFITS (continued):
  October 31,2005
    
    
    2004Service cost
    
    $
    38
    
    
    $
    48Interest cost
    
    
    36
    
    
    
    43Amortization of prior losses
    
    
    
    
    
    
    4Amortization of unrecognized prior service cost
    
    
    34
    
    
    
    34Net periodic benefit cost
    
    $
    108
    
    
    $
    129
 NOTE 8  COMMITMENTS AND CONTINGENT LIABILITIES:
 Stock Redemption 
 Major Customer, Major Suppliers and Credit Concentrations 
 Other 
 Agreements
 Subsequent Events 
 9




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PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
 NOTE 9  SEGMENT INFORMATION:
     DirectWholesale
    
    
    Logistics
    
    
    Customer
    
    
    
    
    
    
    ConsolidatedDistribution
    
    
    Services
    
    
    Services
    
    
    Eliminations
    
    
    TotalThree months ended October 31, 2005Net sales and other revenue
    
    $
    99,169
    
    
    $
    135
    
    
    $
    13,394
    
    
    $
    (14,087
    )
    
    $
    98,611Cost of sales
    
    
    90,979
    
    
    
    124
    
    
    
    11,697
    
    
    
    (13,957
    )
    
    
    88,843Operating, general and
administrative expenses
    
    
    6,858
    
    
    
    
    
    
    
    1,581
    
    
    
    
    
    
    
    8,439Operating income
    
    
    1,332
    
    
    
    11
    
    
    
    116
    
    
    
    (130
    )
    
    
    1,329Income before taxes
    
    
    1,104
    
    
    
    11
    
    
    
    119
    
    
    
    (130
    )
    
    
    1,104Business segment assets
    
    
    103,091
    
    
    
    311
    
    
    
    14,552
    
    
    
    (13,969
    )
    
    
    103,985Three months ended October 31, 2004Net sales and other revenue
    
    $
    99,736
    
    
    $
    1,047
    
    
    $
    11,696
    
    
    $
    (13,507
    )
    
    $
    98,972Cost of sales
    
    
    92,103
    
    
    
    1,011
    
    
    
    10,303
    
    
    
    (13,411
    )
    
    
    90,006Operating, general and
administrative expenses
    
    
    6,682
    
    
    
    
    
    
    
    1,345
    
    
    
    
    
    
    
    8,027Operating income
    
    
    951
    
    
    
    36
    
    
    
    48
    
    
    
    (96
    )
    
    
    939Income before taxes
    
    
    801
    
    
    
    36
    
    
    
    60
    
    
    
    (96
    )
    
    
    801Business segment assets
    
    
    104,863
    
    
    
    284
    
    
    
    909
    
    
    
    (400
    )
    
    
    105,656
 10




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PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
 NOTE 10  RECLASSIFICATIONS:
  11




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ITEM 2:
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Forward-Looking Statements
 This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking
statements are contained principally in the section entitled Managements Discussion and Analysis
of Financial Condition and Results of Operations. These forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performances or achievements
expressed or implied by the forward-looking statements. Forward-looking statements include, but are
not limited to, statements about:
 
    
    the current economic environment affecting the Company and the markets it serves;
    
    sources of revenues and anticipated revenues, including the contribution from the growth
of new products and markets;
    
    estimates regarding the Companys capital requirements and its need for additional financing;
    
    the Companys ability to attract customers and the market acceptance of its products;
    
    our ability to establish relationships with suppliers of products; and
    
    plans for future products and services and for enhancements of existing products and services.
 In some cases, you can identify forward-looking statements by terms such as may, intend,
might, will, should, could, would, expect, believe, estimate, predict,
potential, or the negative of these terms, and similar expressions intended to identify
forward-looking statements. These statements reflect our current views with respect to future
events and are based on assumptions and subject to risks and uncertainties. Given these
uncertainties, you should not place undue reliance on these statements. Also, these statements
represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q ,
and we undertake no obligation to publicly update or revise these forward-looking statements.
 These statements are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations
of our management and are subject to significant risks and uncertainties. Actual results may differ
from those set forth in the forward-looking statements. The following factors, among others, could
cause actual results to differ materially from those in forward-looking statements: decreased
demand for our products or services or loss of one or more of our major customers; surplus
inventories; loss of one or more of our major vendors; recessionary economic cycles; strikes, work
slow downs, or work stoppages at our vendors facilities poor weather conditions, decreases in
manufacturer or vendor rebates, increases in interest rates; and increases in the prices paid for
goods. Readers should review and consider these factors along with the various disclosures we make
in public filings with the Securities and Exchange Commission.
 Overview
  12




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Restatement of Previously Reported Financial Statements
  Note on Common Stock
  Current Assets
  Current Liabilities
  Results of Operations
  13




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Summary Consolidated Results of Operations Table For Three Months Ended October 31, 2005
 Three Months EndedOctober 31,(in thousands)2005
    
    
2004Net sales and other revenue
    
    $
    98,611
    
    
    $
    98,972Cost of sales
    
    
    88,843
    
    
    
    90,006Gross profit
    
    
    9,768
    
    
    
    8,966Operating, general and administrative
expenses
    
    
    8,439
    
    
    
    8,027Operating income
    
    
    1,329
    
    
    
    939Interest expense, net
    
    
    (225
    )
    
    
    (138
    )Income before taxes
    
    
    1,104
    
    
    
    801Income tax expense
    
    
    449
    
    
    
    303Net income
    
    $
    655
    
    
    $
    498
 Three months ended October 31, 2005 as compared to three months ended October 31, 2004
      14




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Operating Segments  three months ended October 31, 2005 as compared to three months ended October
31, 2004
     Wholesale Distribution
     15




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Logistics Services
     Direct Customer Services
     16




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Seasonality in Operating Results
   Liquidity and Capital Resources
      17




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18




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Operating Activities.
 Investing Activities.
 Financing Activities
 Off-Balance Sheet Arrangements
  Critical Accounting Policies
   Use of Estimates
  19




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Revenue Recognition
  Inventories
  Major Customer, Major Suppliers and Credit Concentrations
  Income Taxes
  Goodwill and Other Intangible Assets
   20




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Recent Accounting Changes
 Accounting for Rental Costs Incurred during a Construction Period
 
 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      21




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ITEM 4: CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Controls
  Limitations on the Effectiveness of Controls
  22




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PART II
OTHER INFORMATION
 
 ITEM 1: LEGAL PROCEEDINGS
  
 ITEM 1A: RISK FACTORS
  
 ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    (1)
 Total Number of
    
    Maximum Number ofShares Purchased as
    
    Shares That May YetPart of Publicly
    
    Be Purchased UnderTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    the Plans orPeriod
    
    Shares Purchased
    
    
    Per Share
    
    
    Programs(2)
    
    Programs(3)August 1 - August 31, 2005
    
    
    6
    
    
    $
    3,000
    
    
    
    
    
    
    
    
    
    2,015September 1 - September 30, 2005
    
    
    2
    
    
    $
    3,000
    
    
    
    
    
    
    
    
    
    2,014October 1 - October 31, 2005
    
    
    5
    
    
    $
    3,000
    
    
    
    
    
    
    
    
    
    2,012Total:
    
    
    13
    
    
    $
    3,000
    
    
    
    
    
    
    
    
    
    2,012
    
 ITEM 3: DEFAULTS UPON SENIOR SECURITIES
  23




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ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5: OTHER INFORMATION
  
 ITEM 6: EXHIBITS
 Exhibit
No.
    

Description
 3.1
    
    Second Amended and Restated Articles of Incorporation of Professional Veterinary
Products Ltd. (1)3.2
    
    Second Amended and Restated Bylaws of Professional Veterinary Products, Ltd. (2)4.1
    
    Certificate of Professional Veterinary Products, Ltd. (3)4.2
    
    Second Amended and Restated Articles of Incorporation of Professional Veterinary
Products, Ltd. (1)4.3
    
    Second Amended and Restated Bylaws of Professional Veterinary Products, Ltd. (2)10.25
    
    Lease dated October 1, 2005 among Professional Veterinary Products, Ltd. and Steve
Lewis and Mike Mimms (4)10.26
    
    Lease Agreement dated November 8, 2005 between Professional Veterinary Products, Ltd.
and Independent Veterinary Group, LLC (4)23
    
    Consent of Quick & McFarlin, P.C. for the quarter ended October 31, 2005 #31.1(A)
    
    Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, by Dr. Lionel L. Reilly, the Companys Chief
Executive Officer #31.1(B)
    
    Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, by Neal Soderquist, the Companys Chief
Financial Officer #32
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, by Dr. Lionel L. Reilly, the Companys Chief Executive
Officer, and Neal Soderquist, the Companys Chief Financial Officer #
 
 #
    
    Filed herewith.   
  24
    Table of Contents   
 SIGNATURES
  Date:  December 14, 2005
    PROFESSIONAL VETERINARY PRODUCTS, LTD./s/ Dr. Lionel L. ReillyDr. Lionel L. Reilly,President and Chief Executive Officer/s/ Neal B. SoderquistNeal B. Soderquist, Chief Financial Officer andVice President