##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 For the fiscal year ended
July 31, 2005; or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 For the transition period
from  to .
 Commission file number: 000-26326
 PROFESSIONAL VETERINARY PRODUCTS, LTD.
  Nebraska
    
    37-1119387(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 th   (402) 331-4440  (Address and telephone number of Registrants principal executive offices)
 
 Common Stock, par value $1.00 per share  (Title of Class)
 o þ
 þ
 o þ
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 PagePART IITEM 1.
    
    BUSINESS
    
    
    1ITEM 2.
    
    PROPERTIES
    
    
    7ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    8ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    8PART IIITEM 5.
    
    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    8ITEM 6.
    
    SELECTED FINANCIAL DATA
    
    
    9ITEM 7.
    
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    10ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    29ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    30ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    30ITEM 9A.
    
    CONTROLS AND PROCEDURES
    
    
    30ITEM 9B.
    
    OTHER INFORMATION
    
    
    31PART IIIITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    31ITEM 11.
    
    EXECUTIVE COMPENSATION
    
    
    31ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    
    
    31ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    32ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    32PART IVITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    32SIGNATURES
    
    II-3Statement Re: Computation of Per Share EarningsComputation of Ratio of Earnings to Fixed ChargesConsent of Quick & McFarlin, P.C.Power of Attorney Executed by Buddy D. RayPower of Attorney Executed by Chester L. RawsonPower of Attorney Executed by Amy Lynne HintonPower of Attorney Executed by Steven E. WrightPower of Attorney Executed by Scott A. ShueyPower of Attorney Executed by G.W. Buckaloo, Jr.Power of Attorney Executed by Tom LattaPower of Attorney Executed by William SwartzSection 302 Certification of Company's CEOSection 302 Certification of Company's CFOSection 906 Certifications of Company's CEO and CFOSchedule of Allowances




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##### Table of Contents



PART I
  
 ITEM 1. BUSINESS
 Overview
     Background
  1




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Value-Added Services
     Our Shareholders
   Rebates to Shareholders
  2




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Company Subsidiaries
  Operating Segments
  Financial Information About Geographic Areas
  MARKETLink
  3




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Customers and Suppliers
    4




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The Animal Health Industry
     5




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Competition
    Government Regulation
   6




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Environmental Considerations
  Employees
  Trademarks
  
 ITEM 2. PROPERTIES
     7




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ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
     (1)
 Total Number
    
    Maximumof Shares
    
    Number ofPurchased as
    
    Shares ThatPart of
    
    May Yet BePublicly
    
    PurchasedTotal Number
    
    Average
    
    Announced
    
    Under theof Shares
    
    Price Paid
    
    Plans or
    
    Plans orPeriod
    
    Purchased
    
    Per Share
    
    Programs(2)
    
    Programs(3)August 1  August 31, 2004
    
    
    7
    
    
    $
    3,000
    
    
    
    
    
    
    
    1,952September 1  September 30, 2004
    
    
    4
    
    
    $
    3,000
    
    
    
    
    
    
    
    1,952October 1  October 31, 2004
    
    
    2
    
    
    $
    3,000
    
    
    
    
    
    
    
    1,954November 1  November 30, 2004
    
    
    4
    
    
    $
    3,000
    
    
    
    
    
    
    
    1,955December 1  December 31, 2004
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    1,971January 1  January 31, 2005
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    1,977February 1  February 28, 2005
    
    
    2
    
    
    $
    3,000
    
    
    
    
    
    
    
    1,981March 1  March 31, 2005
    
    
    3
    
    
    $
    3,000
    
    
    
    
    
    
    
    1,985
 8




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Total Number
    
    Maximumof Shares
    
    Number ofPurchased as
    
    Shares ThatPart of
    
    May Yet BePublicly
    
    PurchasedTotal Number
    
    Average
    
    Announced
    
    Under theof Shares
    
    Price Paid
    
    Plans or
    
    Plans orPeriod
    
    Purchased
    
    Per Share
    
    Programs(2)
    
    Programs(3)April 1  April 30, 2005
    
    
    2
    
    
    $
    3,000
    
    
    
    
    
    
    
    1,995May 1  May 31, 2005
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    2,003June 1  June 30, 2005
    
    
    5
    
    
    $
    3,000
    
    
    
    
    
    
    
    2,008July 1  July 31, 2005
    
    
    1
    
    
    $
    3,000
    
    
    
    
    
    
    
    2,019Total:
    
    
    30
    
    
    $
    3,000
    
    
    
    
    
    
    
    2,019
 
 (1)
    
    The Companys Bylaws require the Company to repurchase stock within ninety (90)
days of receiving written notice from a shareholder requesting redemption of his, her,
or its stock, and under the Articles of Incorporation, the Company may repurchase
shares of any shareholder who is no longer a veterinarian or veterinary clinic or owes
money to the Company and fails to make required payments. The redemption amount is
the original purchase price of the stock paid by the shareholder. In the event of the
death of a shareholder, the Company shall purchase such share within one year of the
date of death of the shareholder from the legal representative or from the estate of
the deceased shareholder at the price the deceased shareholder paid for such share of
stock. Currently, the price of each share is fixed at $3,000 as provided in the
Articles of Incorporation. There is no expiration date.(2)
    
    Since inception, each shareholder of the Company has been entitled to have
his, her, or its share redeemed in accordance with the Articles of Incorporation and
Bylaws.(3)
    
    The maximum number of shares that may be purchased by the Company varies
from time to time due to the addition of new shareholders and on-going redemption of
shares. Each shareholder of the Company may have his, her, or its share redeemed in
accordance with the Articles of Incorporation and Bylaws. 
 ITEM 6. SELECTED FINANCIAL DATA
  2001
    
    2002
    
    2003
    
    2004
    
    2005(Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)Net sales and other
revenues
    
    
    197,523
    
    
    
    239,922
    
    
    
    298,919
    
    
    
    335,421
    
    
    
    387,249Operating income
    
    
    1,320
    
    
    
    2,143
    
    
    
    5,177
    
    
    
    5,292
    
    
    
    4,610Net income
    
    
    387
    
    
    
    1,109
    
    
    
    3,214
    
    
    
    2,978
    
    
    
    2,536Income per share:Operating income
    
    
    912.08
    
    
    
    1,386.42
    
    
    
    2,987.10
    
    
    
    4,421.11
    
    
    
    3,677.01Net Income
    
    
    267.58
    
    
    
    717.14
    
    
    
    1,854.47
    
    
    
    2,487.77
    
    
    
    2,022.61Redeemable common shares
outstanding used in the
calculation
    
    
    1,447
    
    
    
    1,546
    
    
    
    1,733
    
    
    
    1,197
    
    
    
    1,254Total assets
    
    
    50,737
    
    
    
    68,634
    
    
    
    84,402
    
    
    
    84,751
    
    
    
    85,266Total long-term obligations
    
    
    5,565
    
    
    
    5,076
    
    
    
    7,972
    
    
    
    5,982
    
    
    
    5,109Total number of shares
subject to mandatory
redemption(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    716
    
    
    
    731Total number of redeemable
common shares(1)
    
    
    1,534
    
    
    
    1,544
    
    
    
    1,845
    
    
    
    1,236
    
    
    
    1,288
 
 (1)
    
    For additional information on the Companys shares, see Note 6 to the 2005 Consolidated
Financial Statements. 9




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-Looking Statements
 This Annual Report on Form 10-K contains forward-looking statements. Forward-looking
statements are contained principally in the sections entitled Business, Risk Factors That May
Affect Future Results and Managements Discussion and Analysis of Financial Condition and Results
of Operations. These 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;
    
    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. We discuss many of these
risks in this Annual Report on Form 10-K in greater detail under the heading Risk Factors That May
Affect Future Results. Also, these statements represent our estimates and assumptions only as of
the date of this Annual Report on Form 10-K, and we undertake no obligation to publicly update or
revise these forward-looking statements.
 Restatement of Previously Reported Financial Statements
  Note on Common Stock
  10




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Overview
       Current Assets
  Current Liabilities
  11




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Results of Operations
  Summary Consolidated Results of Operations Table
 July 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2003(Restated)
    
    
    (Restated)(In Thousands)Net sales and other revenue
    
    $
    387,249
    
    
    $
    335,421
    
    
    $
    298,919Cost of sales
    
    
    349,375
    
    
    
    301,393
    
    
    
    268,008Gross profit
    
    
    37,874
    
    
    
    34,028
    
    
    
    30,911Operating, general and
administrative expenses
    
    
    33,264
    
    
    
    28,736
    
    
    
    25,734Operating income
    
    
    4,610
    
    
    
    5,292
    
    
    
    5,177Interest expense, net
    
    
    (680
    )
    
    
    (678
    )
    
    
    (308
    )Other income (expense)
    
    
    98
    
    
    
    113
    
    
    
    119Income before taxes
    
    
    4,028
    
    
    
    4,727
    
    
    
    4,988Income tax expense
    
    
    1,492
    
    
    
    1,749
    
    
    
    1,774Net income
    
    $
    2,536
    
    
    $
    2,978
    
    
    $
    3,214Beginning retained earnings
    
    
    9,195
    
    
    
    6,217
    
    
    
    3,003Ending retained earnings
    
    $
    11,731
    
    
    $
    9,195
    
    
    $
    6,217
    12




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Contractual Obligations and Commitments
  PAYMENTS DUE BY PERIODLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsLoans payable to banks
    
    $
    2,721
    
    
    $
    2,721
    
    
    $
    
    
    
    $
    
    
    
    
    Capital lease commitments
    
    
    263
    
    
    
    137
    
    
    
    126
    
    
    
    
    
    
    
    Operating lease commitments
    
    
    759
    
    
    
    38
    
    
    
    696
    
    
    
    25
    
    
    
    Long-term debt obligations
(including current
portion)(1)
    
    
    5,916
    
    
    
    933
    
    
    
    1,994
    
    
    
    2,989
    
    
    
    Total contractual
obligations(2)
    
    $
    9,659
    
    
    $
    3,829
    
    
    $
    2,816
    
    
    $
    3,014
    
    
    
    
 
 (1)
    
    Interest payments due on long-term debt for less than 1 year are $374, 1-3 years are $567,
3-5 years are $199, and after 5 years are $0.(2)
    
    See Note 8 of the Consolidated Financial Statements for additional information.  Operating Segments
  13




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Year EndedJuly 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2003(in thousands)NET SALES AND OTHER REVENUEWholesale Distribution
    
    $
    386,073
    
    
    $
    333,290
    
    
    $
    297,007Logistics Services
    
    
    1,930
    
    
    
    1,246
    
    
    
    2,076Direct Customer Services
    
    
    42,926
    
    
    
    31,479
    
    
    
    24,223Eliminations
    
    
    (43,680
    )
    
    
    (30,594
    )
    
    
    (24,387
    )Consolidated Total
    
    $
    387,249
    
    
    $
    335,421
    
    
    $
    298,919COST OF SALESWholesale Distribution
    
    
    352,980
    
    
    
    303,248
    
    
    
    269,582Logistics Services
    
    
    1,877
    
    
    
    1,190
    
    
    
    1,955Direct Customer Services
    
    
    37,432
    
    
    
    27,325
    
    
    
    20,842Eliminations
    
    
    (42,914
    )
    
    
    (30,370
    )
    
    
    (24,371
    )Consolidated Total
    
    $
    349,375
    
    
    $
    301,393
    
    
    $
    268,008OPERATING, GENERAL AND
ADMINISTRATIVE EXPENSESWholesale Distribution
    
    
    28,420
    
    
    
    24,692
    
    
    
    22,245Logistics Services
    
    
    1
    
    
    
    
    
    
    
    1Direct Customer Services
    
    
    4,843
    
    
    
    4,044
    
    
    
    3,488Eliminations
    
    
    
    
    
    
    
    
    
    
    Consolidated Total
    
    $
    33,264
    
    
    $
    28,736
    
    
    $
    25,734BUSINESS SEGMENT ASSETSWholesale Distribution
    
    $
    84,574
    
    
    $
    84,128
    
    
    $
    83,842Logistics Services
    
    
    300
    
    
    
    248
    
    
    
    192Direct Customer Services
    
    
    10,131
    
    
    
    666
    
    
    
    394Eliminations
    
    
    (9,739
    )
    
    
    (291
    )
    
    
    (26
    )Consolidated Total
    
    $
    85,266
    
    
    $
    84,751
    
    
    $
    84,402
 Wholesale Distribution
  14




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Logistics Services
    15




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Direct Customer Services
      16




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Seasonality in Operating Results
   Liquidity and Capital Resources
      17




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Operating Activities.
 Investing Activities.
 18




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Financing Activities.
 Inflation
  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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New Accounting Pronouncements
 Inventory Costs  an amendment of ARB No. 43, Chapter
4.
 Accounting Changes and Error Corrections. Reporting Accounting Changes in Interim Financial Statements Accounting Changes
 Risk Factors That May Affect Future Results
  Our Operating Results May Fluctuate Due to Factors Outside of Managements Control
  
    
    vendor rebates;
    
    seasonality;
    
    the impact of economic factors on the national veterinary practices;
    
    the timing and effectiveness of marketing programs offered by our vendors;
    
    the timing of the introduction of new products and services;
    
    the timing and effectiveness of capital expenditures;
    
    changes in manufacturer contracts; and
    
    competition.
 21




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Failure to Manage Growth Could Impair Our Business
   
    
    Sales and marketing programs;
    
    Customer support programs;
    
    Current and new product and service lines;
    
    Technological support which equals or exceeds our competitors;
    
    Vendor relationships;
    
    Recruitment and training of new personnel; and
    
    Operational and financial control systems.
  Loss of Key Personnel Could Harm Our Business
   22




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There is No Market for Our Stock and the Value of the Stock Will Not Increase
  It is Unlikely We Will Pay Dividends
  We Rely on Strategic Relationships to Generate Revenue
  
    
    Extend the reach of our distribution and services to the various participants in the
veterinary industry;
    
    Obtain specialized expertise; and
    
    Generate revenue.
   Performance or Security Problems With Our Systems Could Damage Our Business
  23




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We Face Significant Competition
    You May be Forced to Sell Your Shares Back to the Company, and We May Lack the Funds to Repurchase
All of the Shares
   Investors May Fail to Pay the Installment Payments
  24




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We May Not Be Able To Raise Needed Capital In the Future
  Our Substantial Leverage Could Harm Our Business By Limiting Our Available Cash and Our Access To
Additional Capital
  
    
    it may limit our and our subsidiaries ability to obtain additional funds for
working capital, capital expenditures, debt service requirements, or other purposes on
favorable terms or at all;
    
    a substantial portion of our cash flows from operations must be dedicated to the
payment of principal and interest on our indebtedness and thus will not be available
for other purposes, including operations, capital expenditures and future business
opportunities;
    
    it may limit our ability to adjust to changing market conditions and place us at a
competitive disadvantage compared to those of our competitors that are less leveraged;
    
    we may be more vulnerable than a less leveraged company to a downturn in a general
economic conditions or in our business; or
    
    we may be unable to carry out capital spending that is important to our growth.
  Our Variable Rate Indebtedness Subjects Us To Interest Rate Risk, Which Could Cause Our Debt
Service Obligations To Increase Significantly
  25




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We Rely Substantially On Third-Party Suppliers, and the Loss Of Products or Delays In Product
Availability From One Or More Third-Party Supplier Could Substantially Harm Our Business
   
    
    If an existing agreement expires or a certain product line is discontinued, then we
would not be able to continue to offer our customers the same breadth of products and
our sales and operating results would likely suffer unless we are able to find an
alternate supply of a similar product.
    
    Current agreements, or agreements we may negotiate in the future, may commit us to
certain minimum purchase or other spending obligations. It is possible we will not be
able to create the market demand to meet such obligations, which would create an
increased drain on our financial resources and liquidity.
    
    If market demand for our products increases suddenly, our current suppliers might
not be able to fulfill our commercial needs, which would require us to seek new
manufacturing arrangements or new sources of supply and may result in substantial
delays in meeting market demand. If we consistently generate more demand for a product
than a given supplier is capable of handling, it could lead to large backorders and
potentially lost sales to competitive products that are readily available. This also
could require us to seek new sources of supplies.
    
    We may not be able to control or adequately monitor the quality of products we
receive from our suppliers. Poor quality products could damage our reputation with our
customers.
    
    Some of our third party suppliers are subject to ongoing periodic unannounced
inspection by regulatory authorities, including the FDA, DEA, EPA and other federal and
state agencies for compliance with strictly enforced regulations, and we do not have
control over our suppliers compliance with these regulations and standards. Violations
could potentially lead to interruptions in supply that could cause us to lose sales to
readily available competitive products.
  We Rely Upon Third Parties to Ship Products to Our Customers and Interruptions in Their Operations
Could Harm Our Business, Financial Condition and Results of Operations
  26




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We Are Exposed To Potential Risks From Recent Legislation Requiring Companies To Evaluate Their
Internal Control Over Financial Reporting
  Changes in the Veterinary Distribution Industry Could Adversely Affect Our Business
   Our Business, Financial Condition And Results of Operations Depend Upon Maintaining Our
Relationships With Vendors
   27




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An Adverse Change in Vendor Rebates Could Negatively Affect Our Results of Operation
  Our Quarterly Operating Results May Fluctuate Significantly
  If We Fail to Comply With or Become Subject to More Onerous Government Regulations, Our Business
Could be Adversely Affected
  28




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      29




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
    
    
    Added additional personnel to the finance department to assist with internal
controls over financial reporting;
    
    Provided an independent consultant with financial expertise to advise the Companys
board of directors; and
    
    Improved process for documentation and review of significant accounting entries.
  30




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Changes in Internal Controls
  Limitations on the Effectiveness of Controls
  
 ITEM 9B. OTHER INFORMATION
  
 PART III
  
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  
 31




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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a)
    
    Financial Statements
  Report of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets as of July 31, 2005 and
July 31, 2004 (Restated)
    
    
    F-2Consolidated Statements of Income and Retained Earnings Years Ended
July 31, 2005, 2004 (Restated), and 2003 (Restated)
    
    
    F-3Consolidated Statements of Cash Flows Years Ended July 31, 2005, 2004,
and 2003
    
    
    F-4Notes to Consolidated Financial Statements
    
    
    F-5
 32




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
 F-1




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PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 July 31, 2005 and 2004 (Restated)
 (in thousands, except share data)
 July 31,
    
    
    July 31,2005
    
    
    2004(Restated)ASSETSCURRENT ASSETSCash
    
    $
    2,118
    
    
    $
    2,545Accounts receivable, less allowance for doubtful
accounts $970 and $821, respectively
    
    
    27,970
    
    
    
    22,117Accounts receivable, related parties
    
    
    3,802
    
    
    
    3,248Inventory, less allowance for obsolete inventory $152 and $129, respectively
    
    
    34,670
    
    
    
    40,682Deferred tax asset
    
    
    1,178
    
    
    
    952Other current assets
    
    
    933
    
    
    
    836Total current assets
    
    
    70,671
    
    
    
    70,380NET PROPERTY AND EQUIPMENT
    
    
    10,483
    
    
    
    10,564OTHER ASSETSIntangible assets, less accumulated
amortization $14 and $12, respectively
    
    
    11
    
    
    
    13Intangible retirement asset
    
    
    1,107
    
    
    
    1,326Investment in unconsolidated affiliates
    
    
    1,803
    
    
    
    1,720Cash value life insurance
    
    
    1,190
    
    
    
    728Other assets
    
    
    1
    
    
    
    20Total other assets
    
    
    4,112
    
    
    
    3,807TOTAL ASSETS
    
    $
    85,266
    
    
    $
    84,751LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESNote payable, bank
    
    $
    2,721
    
    
    $
    10,174Current portion of long-term debt and capital lease obligation
    
    
    1,070
    
    
    
    2,000Accounts payable
    
    
    51,544
    
    
    
    45,216Accounts payable, related parties
    
    
    809
    
    
    
    840Other current liabilities
    
    
    4,704
    
    
    
    3,815Total current liabilities
    
    
    60,848
    
    
    
    62,045LONG-TERM LIABILITIESLong-term debt and capital lease obligation, less current portion
    
    
    5,109
    
    
    
    5,982Accrued retirement benefits, less current portion
    
    
    1,107
    
    
    
    1,326Deferred tax liability
    
    
    504
    
    
    
    457Shares subject to mandatory redemption, $1 par value; issued and
outstanding 731 shares and 716 shares, respectively
    
    
    2,170
    
    
    
    2,110Total long-term liabilities
    
    
    8,890
    
    
    
    9,875TOTAL LIABILITIES
    
    
    69,738
    
    
    
    71,920COMMITMENTS AND CONTINGENT LIABILITIES  SEE NOTE 11REDEEMABLE COMMON STOCK  SEE NOTE 6
    
    
    3,797
    
    
    
    3,636STOCKHOLDERS EQUITYRetained earnings
    
    
    11,731
    
    
    
    9,195Total stockholders equity
    
    
    11,731
    
    
    
    9,195TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    85,266
    
    
    $
    84,751
  F-2




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
 Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
 (in thousands, except per share amounts)
 July 31,
    
    
    July 31,
    
    
    July 31,2005
    
    
    2004
    
    
    2003(Restated)
    
    
    (Restated)NET SALES AND OTHER REVENUE
    
    $
    387,249
    
    
    $
    335,421
    
    
    $
    298,919COST OF SALES
    
    
    349,375
    
    
    
    301,393
    
    
    
    268,008Gross profit
    
    
    37,874
    
    
    
    34,028
    
    
    
    30,911OPERATING, GENERAL AND
ADMINISTRATIVE EXPENSES
    
    
    33,264
    
    
    
    28,736
    
    
    
    25,734Operating income
    
    
    4,610
    
    
    
    5,292
    
    
    
    5,177OTHER INCOME (EXPENSE)Interest income
    
    
    553
    
    
    
    471
    
    
    
    767Interest expense
    
    
    (1,233
    )
    
    
    (1,149
    )
    
    
    (1,075
    )Equity in earnings of unconsolidated affiliate
    
    
    84
    
    
    
    137
    
    
    
    92Other
    
    
    14
    
    
    
    (24
    )
    
    
    27Other expense  net
    
    
    (582
    )
    
    
    (565
    )
    
    
    (189
    )Income before taxes
    
    
    4,028
    
    
    
    4,727
    
    
    
    4,988Income tax expense
    
    
    1,492
    
    
    
    1,749
    
    
    
    1,774NET INCOME
    
    
    2,536
    
    
    
    2,978
    
    
    
    3,214BEGINNING RETAINED EARNINGS
    
    
    9,195
    
    
    
    6,217
    
    
    
    3,003ENDING RETAINED EARNINGS
    
    $
    11,731
    
    
    $
    9,195
    
    
    $
    6,217EARNINGS PER REDEEMABLE COMMON SHARE
    
    $
    2,022.61
    
    
    $
    2,487.77
    
    
    $
    1,854.47Weighted average redeemable common
shares outstanding
    
    
    1,254
    
    
    
    1,197
    
    
    
    1,733SUPPLEMENTAL INFORMATIONNet sales and other revenue  related parties
    
    $
    40,193
    
    
    $
    33,718
    
    
    $
    27,325Purchases  related parties
    
    $
    11,855
    
    
    $
    15,616
    
    
    $
    14,908
  F-3




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended July 31, 2005, 2004 and 2003
 (in thousands)
 July 31,
    
    
    July 31,
    
    
    July 31,2005
    
    
    2004
    
    
    2003CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    2,536
    
    
    $
    2,978
    
    
    $
    3,214Adjustments to reconcile net income to net cash
from operating activities:Depreciation and amortization
    
    
    1,265
    
    
    
    1,105
    
    
    
    1,105(Gain) loss on sale of property
    
    
    (14
    )
    
    
    24
    
    
    
    (27
    )Retirement benefits
    
    
    516
    
    
    
    418
    
    
    
    232Cash value of life insurance
    
    
    (462
    )
    
    
    (433
    )
    
    
    (227
    )Deferred income tax
    
    
    (179
    )
    
    
    (484
    )
    
    
    (208
    )Allowance for doubtful accounts
    
    
    149
    
    
    
    61
    
    
    
    407Allowance for obsolete inventory
    
    
    23
    
    
    
    129
    
    
    
    Equity in loss (income) from affiliate
    
    
    (84
    )
    
    
    (137
    )
    
    
    (92
    )(Increase) decrease in:Receivables
    
    
    (6,556
    )
    
    
    1,425
    
    
    
    (7,565
    )Inventory
    
    
    5,989
    
    
    
    (1,865
    )
    
    
    (1,826
    )Other current assets
    
    
    (97
    )
    
    
    (476
    )
    
    
    (453
    )Other assets
    
    
    19
    
    
    
    (4
    )
    
    
    (16
    )Increase (decrease) in:Accounts payable
    
    
    6,297
    
    
    
    (1,120
    )
    
    
    1,488Other current liabilities
    
    
    374
    
    
    
    (1,500
    )
    
    
    2,082Total adjustments
    
    
    7,240
    
    
    
    (2,857
    )
    
    
    (5,100
    )Net cash provided (consumed) by operating activities
    
    
    9,776
    
    
    
    121
    
    
    
    (1,886
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (1,200
    )
    
    
    (1,378
    )
    
    
    (2,561
    )Proceeds from sale of assets
    
    
    32
    
    
    
    
    
    
    
    41Net cash consumed by investing activities
    
    
    (1,168
    )
    
    
    (1,378
    )
    
    
    (2,520
    )CASH FLOWS FROM FINANCING ACTIVITIESNet short-term borrowings
    
    
    (7,453
    )
    
    
    409
    
    
    
    2,868Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    4,000Proceeds from capital lease obligation
    
    
    208
    
    
    
    
    
    
    
    343Payments of long-term debt and capital lease obligation
    
    
    (2,011
    )
    
    
    (1,353
    )
    
    
    (580
    )Net proceeds from issuance of shares
subject to mandatory redemption
    
    
    60
    
    
    
    117
    
    
    
    Net proceeds from issuance of redeemable common stock
    
    
    161
    
    
    
    283
    
    
    
    797Net cash provided (consumed) by financing activities
    
    
    (9,035
    )
    
    
    (544
    )
    
    
    7,428Net increase (decrease) in cash
    
    
    (427
    )
    
    
    (1,801
    )
    
    
    3,022Cash at beginning of year
    
    
    2,545
    
    
    
    4,346
    
    
    
    1,324Cash at end of year
    
    $
    2,118
    
    
    $
    2,545
    
    
    $
    4,346Supplemental disclosure of cash flow information:Interest paid
    
    $
    1,198
    
    
    $
    1,139
    
    
    $
    1,045Income taxes paid
    
    $
    1,822
    
    
    $
    3,866
    
    
    $
    876
  F-4




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
 (in thousands, except per share data)
 NOTE 1  BUSINESS DESCRIPTION:
  NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 Basis of Consolidation 
 Use of Estimates 
 Revenue Recognition 
 Cash and Cash Equivalents 
 Accounts Receivable 
 Inventory 
 F-5




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
 Property, Equipment and Depreciation 
 Building
    
    40 yearsFurniture, fixtures and equipment
    
    7 yearsComputer equipment
    
    5 yearsSoftware
    
    3-5 years
  Capitalized Leases 
 Goodwill and Other Intangible Assets  Goodwill and Other Intangible Assets
  F-6




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
 Long-Lived Assets  Accounting for the Impairment or Disposal of Long-Lived
Assets
 Income
Taxes 
 Advertising 
 Direct Shipping and Handling Costs 
 Fair Value of Financial Instruments 
 Concentrations of Credit Risk 
 Major Customer, Major Suppliers and Credit Concentrations-
 Common
Stock Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity.
 F-7




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
  Earnings Per Share  Earnings per Share
 Recent Accounting Pronouncements  Inventory Costs  an amendment of ARB No. 43, Chapter 4.
 Accounting Changes and Error Corrections. Reporting Accounting Changes in Interim Financial Statements Accounting Changes
 Reclassifications 
 F-8




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE 3  REBATES:
  2005
    
    
    2004Accounts receivable, net of allowance
    
    $
    36,995
    
    
    $
    30,625Less  rebates
    
    
    5,223
    
    
    
    5,260Accounts receivable, net
    
    $
    31,772
    
    
    $
    25,365
  2005
    
    
    2004
    
    
    2003Gross sales and other revenues
    
    $
    392,472
    
    
    $
    340,681
    
    
    $
    305,200Less  rebates
    
    
    5,223
    
    
    
    5,260
    
    
    
    6,281Net sales and other revenue
    
    $
    387,249
    
    
    $
    335,421
    
    
    $
    298,919
 NOTE 4  PROPERTY AND EQUIPMENT:
  2005
    
    
    2004Land
    
    $
    1,762
    
    
    $
    1,762Buildings
    
    
    5,045
    
    
    
    5,045Leasehold improvements
    
    
    550
    
    
    
    188Equipment
    
    
    7,911
    
    
    
    7,12015,268
    
    
    
    14,115Less  accumulated depreciation
    
    
    4,908
    
    
    
    3,79410,360
    
    
    
    10,321Construction in progress
    
    
    123
    
    
    
    243Net property, plant, and equipment
    
    $
    10,483
    
    
    $
    10,564
 F-9




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE 5  INVESTMENT IN UNCONSOLIDATED AFFILIATES:
  2005
    
    
    2004Investment in SERVCO (equity method)
    
    $
    1,659
    
    
    $
    1,576Investment in Agri-Laboratories, Ltd. (cost method)
    
    
    144
    
    
    
    144$
    1,803
    
    
    $
    1,720
  NOTE 6  SHARES SUBJECT TO MANDATORY REDEMPTION AND REDEEMABLE COMMON STOCK:
  F-10




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE 6  SHARES SUBJECT TO MANDATORY REDEMPTION AND REDEEMABLE COMMON STOCK (continued):
  Shares SubjectRedeemable
    
    
    to MandatoryCommon Stock
    
    
    Redemption
    
    
    TotalNumber of shares issued and outstanding July 31, 2002
    
    
    1,544
    
    
    
    
    
    
    
    1,544Issuance of redeemable common stock
    
    
    330
    
    
    
    
    
    
    
    330Redemption of redeemable common stock
    
    
    (29
    )
    
    
    
    
    
    
    (29
    )Number of shares issued and outstanding July 31, 2003
    
    
    1,845
    
    
    
    
    
    
    
    1,845Issuance of redeemable common stock
    
    
    144
    
    
    
    
    
    
    
    144Redemption of redeemable common stock
    
    
    (37
    )
    
    
    
    
    
    
    (37
    )Recognition of liability per SFAS No. 150
    
    
    (716
    )
    
    
    716
    
    
    
    Number of shares issued and outstanding July 31, 2004
    
    
    1,236
    
    
    
    716
    
    
    
    1,952Issuance of redeemable common stock
    
    
    67
    
    
    
    39
    
    
    
    106Redemption of redeemable common stock
    
    
    (15
    )
    
    
    (24
    )
    
    
    (39
    )Number of shares issued and outstanding July 31, 2005
    
    
    1,288
    
    
    
    731
    
    
    
    2,019Carrying amount/redemption amount  July 31, 2002
    
    $
    4,549
    
    
    $
    
    
    
    $
    4,549Issuance of redeemable common stock
    
    
    990
    
    
    
    
    
    
    
    990Redemption of redeemable common stock
    
    
    (87
    )
    
    
    
    
    
    
    (87
    )Net change in accounts receivable, stock
    
    
    (106
    )
    
    
    
    
    
    
    (106
    )Carrying amount/redemption amount  July 31, 2003
    
    
    5,346
    
    
    
    
    
    
    
    5,346Issuance of redeemable common stock
    
    
    432
    
    
    
    
    
    
    
    432Redemption of redeemable common stock
    
    
    (109
    )
    
    
    
    
    
    
    (109
    )Net change in accounts receivable, stock
    
    
    77
    
    
    
    
    
    
    
    77Recognition of liability per SFAS No. 150
    
    
    (2,110
    )
    
    
    2,110
    
    
    
    Carrying amount/redemption amount  July 31, 2004
    
    
    3,636
    
    
    
    2,110
    
    
    
    5,746Issuance of redeemable common stock
    
    
    201
    
    
    
    117
    
    
    
    318Redemption of redeemable common stock
    
    
    (45
    )
    
    
    (72
    )
    
    
    (117
    )Net change in accounts receivable, stock
    
    
    5
    
    
    
    15
    
    
    
    20Carrying amount/redemption amount  July 31, 2005
    
    $
    3,797
    
    
    $
    2,170
    
    
    $
    5,967
   F-11




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE 6
 SHARES SUBJECT TO MANDATORY REDEMPTION AND REDEEMABLE COMMON STOCK (continued):
  NOTE 7
 INCOME TAXES:
  2005
    
    
    2004
    
    
    2003CurrentFederal
    
    $
    1,486
    
    
    $
    1,931
    
    
    $
    1,855State
    
    
    186
    
    
    
    302
    
    
    
    1271,672
    
    
    
    2,233
    
    
    
    1,982DeferredFederal
    
    
    (170
    )
    
    
    (420
    )
    
    
    (195
    )State
    
    
    (10
    )
    
    
    (64
    )
    
    
    (13
    )(180
    )
    
    
    (484
    )
    
    
    (208
    )Total
    
    $
    1,492
    
    
    $
    1,749
    
    
    $
    1,774
  2005
    
    
    2004
    
    
    2003Expected tax at U.S. statutory rate
    
    $
    1,370
    
    
    $
    1,607
    
    
    $
    1,696State taxes, net of federal effect
    
    
    95
    
    
    
    199
    
    
    
    83Other, net
    
    
    27
    
    
    
    (57
    )
    
    
    (5
    )$
    1,492
    
    
    $
    1,749
    
    
    $
    1,774
 F-12




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE 7
 INCOME TAXES (continued):
  2005
    
    
    2004Current deferred tax asset (liability):Uniform capitalization
    
    $
    262
    
    
    $
    311Allowance for doubtful accounts
    
    
    388
    
    
    
    329Inventory valuation
    
    
    61
    
    
    
    52Deferred compensation
    
    
    467
    
    
    
    260$
    1,178
    
    
    $
    952Noncurrent deferred tax asset (liability):Excess of tax over book depreciation
    
    $
    (482
    )
    
    $
    (475
    )Amortization
    
    
    42
    
    
    
    48Profit in SERVCO
    
    
    (64
    )
    
    
    (30
    )$
    (504
    )
    
    $
    (457
    )
 NOTE 8
 LONG-TERM DEBT:
  2005
    
    
    2004Note payable, maturing in 2005, secured by certain
assets, 9.10% interest
    
    $
    
    
    
    $
    836Note payable, maturing in 2005, secured by certain
assets, 8.66% interest
    
    
    
    
    
    
    169Note payable, maturing in 2008, secured by certain
assets, 5.77% interest
    
    
    2,492
    
    
    
    3,244Note payable, maturing in 2009, secured by certain
assets, 7.42% interest
    
    
    3,425
    
    
    
    3,546Capital lease obligation, expiring in 2006, secured
by computer equipment, 4.58% interest
    
    
    70
    
    
    
    187Capital lease obligation, expiring in 2008, secured
by computer equipment, 6.19% interest
    
    
    192
    
    
    
    6,179
    
    
    
    7,982Less  current portion
    
    
    1,070
    
    
    
    2,000$
    5,109
    
    
    $
    5,982
  2006
    
    $
    1,0702007
    
    
    1,0632008
    
    
    1,0572009
    
    
    2,9892010
    
    
    $
    6,179
 F-13




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE 8
 LONG-TERM DEBT (continued):
   NOTE 9
 RELATED PARTY TRANSACTIONS:
  2005
    
    

2004Affiliate (SERVCO)
    
    $
    3,621
    
    
    $
    2,966Board of Directors
    
    
    173
    
    
    
    276Officer and employees
    
    
    8
    
    
    
    6$
    3,802
    
    
    $
    3,248
  2005
    
    
    2004
    
    
    2003Affiliate (SERVCO)
    
    $
    37,771
    
    
    $
    31,725
    
    
    $
    24,289Board of Directors
    
    
    2,340
    
    
    
    1,914
    
    
    
    2,959Officer and employees
    
    
    82
    
    
    
    79
    
    
    
    77$
    40,193
    
    
    $
    33,718
    
    
    $
    27,325
  2005
    
    
    2004Affiliate (SERVCO)
    
    $
    422
    
    
    $
    0Agri-Laboratories
    
    
    387
    
    
    
    840$
    809
    
    
    $
    840
  F-14




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE
10  PROFIT-SHARING AND 401(k) RETIREMENT PLAN:
     2005
    
    
    2004Change in Benefit Obligation:Projected benefit obligation  July 31
    
    $
    2,743
    
    
    $
    2,094Service cost
    
    
    192
    
    
    
    151Interest cost
    
    
    171
    
    
    
    131Actuarial loss
    
    
    (352
    )
    
    
    367Benefit Payments
    
    
    
    
    
    
    Projected benefit obligation  July 31
    
    $
    2,754
    
    
    $
    2,743Fair Value of Plan Assets  July 31
    
    $
    
    
    
    $
    Funded Status:Funded status
    
    $
    (2,754
    )
    
    $
    (2,743
    )Unrecognized actuarial loss
    
    
    103
    
    
    
    472Unrecognized prior service cost
    
    
    1,485
    
    
    
    1,621Net amount recognized
    
    $
    (1,166
    )
    
    $
    (650
    )Balance Sheet Amounts:Accrued retirement benefits
    
    $
    (2,273
    )
    
    $
    (1,976
    )Intangible retirement asset
    
    
    1,107
    
    
    
    1,326Net amount recognized
    
    $
    (1,166
    )
    
    $
    (650
    )
 F-15




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE
10  PROFIT-SHARING AND 401(k) RETIREMENT PLAN (continued):
  2005
    
    
    2004Service cost
    
    $
    192
    
    
    $
    151Interest cost
    
    
    171
    
    
    
    131Amortization of prior losses
    
    
    17
    
    
    
    Amortization of unrecognized prior service costs
    
    
    136
    
    
    
    136Net periodic cost
    
    $
    516
    
    
    $
    418
  NOTE
11  COMMITMENTS AND CONTINGENT LIABILITIES:
 Operating and Capital Leases 
 Operating
    
    
    Capital2006
    
    $
    362
    
    
    $
    1472007
    
    
    262
    
    
    
    762008
    
    
    110
    
    
    
    572009
    
    
    24
    
    
    
    2010
    
    
    1
    
    
    
    Total minimum payments
    
    $
    759
    
    
    
    280Less  interest on capital leases
    
    
    
    
    
    
    18Present value of net minimum lease payments (incl. in Note 8)
    
    
    
    
    
    $
    262
  Stock
Redemption 
 Other

 F-16




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE
11  COMMITMENTS AND CONTINGENT LIABILITIES (continued):
 Agreements
 Subsequent
Events 
 NOTE
12  GOODWILL IMPAIRMENT:
   F-17




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE
12  GOODWILL IMPAIRMENT (continued):
  2005
    
    
    2004
    
    
    2003Net income as reported
    
    $
    2,536
    
    
    $
    2,978
    
    
    $
    3,214Impairment charge
    
    
    
    
    
    
    
    
    
    
    151Pro forma net income
    
    $
    2,536
    
    
    $
    2,978
    
    
    $
    3,365Earnings per share as reported
    
    $
    2,022.61
    
    
    $
    2,487.77
    
    
    $
    1,854.47Impairment charge
    
    
    
    
    
    
    
    
    
    
    87.21Pro forma net earnings per share
    
    $
    2,022.61
    
    
    $
    2,487.77
    
    
    $
    1,941.68
 NOTE
13  SEGMENT INFORMATION:
    Disclosures About Segments of an Enterprise and
Related Information.
 F-18




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE
13  SEGMENT INFORMATION (continued):
  DirectWholesale
    
    Logistics
    
    Customer
    
    
    
    
    
    ConsolidatedDistribution
    
    Services
    
    Services
    
    Eliminations
    
    TotalFor the year endedJuly 31, 2005Net sales and other revenue
    
    $
    386,073
    
    
    $
    1,930
    
    
    $
    42,926
    
    
    $
    (43,680
    )
    
    $
    387,249Cost of sales
    
    
    352,980
    
    
    
    1,877
    
    
    
    37,432
    
    
    
    (42,914
    )
    
    $
    349,375Operating, general and
administrative expenses
    
    
    28,420
    
    
    
    1
    
    
    
    4,843
    
    
    
    
    
    
    $
    33,264Operating income
    
    
    4,673
    
    
    
    52
    
    
    
    651
    
    
    
    (766
    )
    
    $
    4,610Income before taxes
    
    $
    4,028
    
    
    $
    52
    
    
    $
    714
    
    
    $
    (766
    )
    
    $
    4,028Business segment assets
    
    $
    84,574
    
    
    $
    300
    
    
    $
    10,131
    
    
    $
    (9,739
    )
    
    $
    85,266For the year endedJuly 31, 2004Net sales and other revenue
    
    $
    333,290
    
    
    $
    1,246
    
    
    $
    31,479
    
    
    $
    (30,594
    )
    
    $
    335,421Cost of sales
    
    
    303,248
    
    
    
    1,190
    
    
    
    27,325
    
    
    
    (30,370
    )
    
    
    301,393Operating, general and
administrative expenses
    
    
    24,692
    
    
    
    
    
    
    
    4,044
    
    
    
    
    
    
    
    28,736Operating income
    
    
    5,350
    
    
    
    56
    
    
    
    111
    
    
    
    (225
    )
    
    
    5,292Income before taxes
    
    $
    4,727
    
    
    $
    56
    
    
    $
    169
    
    
    $
    (225
    )
    
    $
    4,727Business segment assets
    
    $
    84,128
    
    
    $
    248
    
    
    $
    666
    
    
    $
    (291
    )
    
    $
    84,751For the year endedJuly 31, 2003Net sales and other revenue
    
    $
    297,007
    
    
    $
    2,076
    
    
    $
    24,223
    
    
    $
    (24,387
    )
    
    $
    298,919Cost of sales
    
    
    269,582
    
    
    
    1,955
    
    
    
    20,842
    
    
    
    (24,371
    )
    
    
    268,008Operating, general and
administrative expenses
    
    
    22,245
    
    
    
    1
    
    
    
    3,488
    
    
    
    
    
    
    
    25,734Operating income
    
    
    5,180
    
    
    
    120
    
    
    
    (108
    )
    
    
    (15
    )
    
    
    5,177Income before taxes
    
    $
    4,988
    
    
    $
    120
    
    
    $
    (105
    )
    
    $
    (15
    )
    
    $
    4,988Business segment assets
    
    $
    83,842
    
    
    $
    192
    
    
    $
    394
    
    
    $
    (26
    )
    
    $
    84,402
 F-19




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE
14  RESTATEMENT OF FINANCIAL STATEMENTS:
  F-20




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##### Table of Contents



PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2005, 2004 (Restated) and 2003 (Restated)
(in thousands, except per share data)
 NOTE
15  SELECTED QUARTERLY FINANCIAL DATA:
  Quarters ended
    
    Year endedOctober 31,
    
    January 31,
    
    April 30,
    
    July 31,
    
    July 31,2002
    
    2003
    
    2003
    
    2003
    

2003
(restated)Revenues
    
    $
    75,236
    
    
    $
    68,025
    
    
    $
    74,624
    
    
    $
    81,034
    
    
    $
    298,919Gross profit
    
    
    6,723
    
    
    
    8,107
    
    
    
    8,887
    
    
    
    7,194
    
    
    
    30,911Operating income
    
    
    301
    
    
    
    1,730
    
    
    
    2,601
    
    
    
    545
    
    
    
    5,177Net income
    
    
    114
    
    
    
    964
    
    
    
    1,723
    
    
    
    413
    
    
    
    3,214Net income per
redeemable common
share
    
    $
    69.66
    
    
    $
    560.45
    
    
    $
    980.33
    
    
    $
    227.66
    
    
    $
    1,854.47Redeemable common
shares outstanding
    
    
    1,641
    
    
    
    1,721
    
    
    
    1,757
    
    
    
    1,812
    
    
    
    1,733
 Quarters ended
    
    Year endedOctober 31,
    
    January 31,
    
    April 30,
    
    July 31,
    
    July 31,2003
    
    2004
    
    2004
    
    2004
    

2004
(restated)Revenues
    
    $
    88,442
    
    
    $
    73,446
    
    
    $
    85,075
    
    
    $
    88,458
    
    
    $
    335,421Gross profit
    
    
    8,624
    
    
    
    9,462
    
    
    
    8,427
    
    
    
    7,515
    
    
    
    34,028Operating income
    
    
    1,310
    
    
    
    2,815
    
    
    
    1,065
    
    
    
    102
    
    
    
    5,292Net income
    
    
    778
    
    
    
    1,662
    
    
    
    503
    
    
    
    35
    
    
    
    2,978Net income per
redeemable common
share
    
    $
    662.00
    
    
    $
    1,403.25
    
    
    $
    417.94
    
    
    $
    27.86
    
    
    $
    2,487.77Redeemable common
shares outstanding
    
    
    1,176
    
    
    
    1,185
    
    
    
    1,202
    
    
    
    1,225
    
    
    
    1,197
 Quarters ended
    
    Year endedOctober 31,
    
    January 31,
    
    April 30,
    
    July 31,
    
    July 31,2004
    
    2005
    
    2005
    
    2005
    
    2005Revenues
    
    $
    98,972
    
    
    $
    90,718
    
    
    $
    102,689
    
    
    $
    94,870
    
    
    $
    387,249Gross profit
    
    
    8,966
    
    
    
    10,929
    
    
    
    10,618
    
    
    
    7,361
    
    
    
    37,874Operating income
    
    
    939
    
    
    
    2,465
    
    
    
    1,847
    
    
    
    (641
    )
    
    
    4,610Net income
    
    
    498
    
    
    
    1,452
    
    
    
    1,017
    
    
    
    (431
    )
    
    
    2,536Net income per share
redeemable common
share
    
    $
    403.45
    
    
    $
    1,169.93
    
    
    $
    807.67
    
    
    $
    (337.02
    )
    
    $
    2,022.61Weighted average
redeemable common
shares outstanding
    
    
    1,234
    
    
    
    1,241
    
    
    
    1,260
    
    
    
    1,279
    
    
    
    1,254
 F-21




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##### Table of Contents



Exhibits
 Regulation S-KExhibit Number
    
    Document3.1
    
    Second Amended and Restated Articles of Incorporation of Professional Veterinary
Products (6)3.2
    
    Second Amended and Restated Bylaws of Professional Veterinary Products, Ltd. (7)4.1
    
    Certificate of Professional Veterinary Products, Ltd. (1)4.2
    
    Second Amended and Restated Articles of Incorporation of Professional Veterinary
Products, Ltd., which defines the rights of holders of the securities being
registered (6)4.3
    
    Second Amended and Restated Bylaws of Professional Veterinary Products, Ltd., which
defines the rights of holders of the securities being registered (7)10.1
    
    Warranty Deed for real estate at 10100 J Street, Omaha, Nebraska from Professional
Veterinary Products, Ltd. to Duane E. and Barbara G. Miller (1)10.2
    
    Warranty Deed for real estate at 10077 South 134th Street, Omaha,
Nebraska from Hilltop Industrial Park to Professional Veterinary Products, Ltd. (1)10.3
    
    Lease of building located at 10100 J Street, Omaha, Nebraska between Professional
Veterinary Products, Ltd. and Duane E. and Barbara G. Miller (1)10.4
    
    Construction Agreement for building at 10077 South 134th Street, Omaha,
Nebraska between Professional Veterinary Products, Ltd. and Mudra Construction,
Ltd. (1)10.5
    
    Sales Agency Agreement between Professional Veterinary Products, Ltd. and Bayer
Corporation (1)*10.6
    
    Sales Agent Agreement between Professional Veterinary Products, Ltd. and Merial LLC
(1)*10.7
    
    Select Distributors Marketing Agreement between Professional Veterinary Products,
Ltd. and the Animal Health Group of Pfizer, Inc. (1)*10.8
    
    Supply and Distribution Agreement between Professional Veterinary Products, Ltd.
and Schering-Plough Animal Health Corporation (1)*10.9
    
    Distributor Agreement between Professional Veterinary Products, Ltd. and The Upjohn
Company (1)*10.10
    
    Distribution Agreement between Professional Veterinary Products, Ltd. and Fort
Dodge Animal Health (1)10.11
    
    Purchase and Sale Agreement between Professional Veterinary Products, Ltd., AAHA
Services Corporation and American Animal Hospital Association (2)10.12
    
    Lease of building located in York, Pennsylvania between Professional Veterinary
Products, Ltd. and Kinsley Equities II Limited Partnership (3)10.13
    
    Amended and Restated Loan Agreement dated May 12, 2003 between Professional
Veterinary Products, Ltd., ProConn, LLC, Exact Logistics, LLC and U.S. Bank,
N.A.(4)10.14
    
    Revolving Promissory Note dated May 12, 2003 between Professional Veterinary
Products, Ltd., ProConn, LLC, Exact Logistics, LLC and U.S. Bank, N.A.(4)10.15
    
    Term Promissory Note dated May 12, 2003 between Professional Veterinary Products,
Ltd., ProConn, LLC, Exact Logistics, LLC and U.S. Bank, N.A.(4)10.16
    
    Security Agreement (PA Equipment) dated May 12, 2003 between Professional
Veterinary Products, Ltd. and U.S. Bank, N.A.(4)10.17
    
    Security Agreement (Blanket) dated May 12, 2003 between Professional Veterinary
Products, Ltd. and U.S. Bank, N.A. (4)10.18
    
    Security Agreement dated May 12, 2003 between ProConn, LLC and U.S. Bank, N.A.(4)10.19
    
    Security Agreement dated May 12, 2003 between Exact Logistics and U.S. Bank, N.A.(4)10.20
    
    Assignment of Lease and Rents dated May 12, 2003 between Professional Veterinary
Products, Ltd. and U.S. Bank, N.A. (4)10.21
    
    Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture
Filing dated May 12, 2003 between Professional Veterinary Products, Ltd. and U.S.
Bank, N.A. (4)10.22
    
    Supplemental Executive Retirement Plan (4)10.23
    
    Revolving Promissory Note dated December 28, 2004 among Professional Veterinary
Products, Ltd., ProConn, LLC, Exact Logistics, LLC and U.S. Bank, National
 II-1




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##### Table of Contents



Regulation S-KExhibit Number
    
    DocumentAssociation (6)10.24
    
    Second Amendment to the Amended and Restated Loan Agreement dated December 28,
2004, among Professional Veterinary Products, Ltd., ProConn, LLC, Exact Logistics,
LLC and U.S. Bank, National Association (6)11
    
    Statement re Computation of Per Share Earnings (#)12
    
    Computation of Ratio of Earnings to Fixed Charges (#)21
    
    List of Subsidiaries (5)23
    
    Consent of Quick & McFarlin, P.C. (#)24.1
    
    Power of Attorney executed by Buddy D. Ray (#)24.2
    
    Power of Attorney executed by Chester L. Rawson (#)24.3
    
    Power of Attorney executed by Amy Lynne Hinton (#)24.4
    
    Power of Attorney executed by Steven E. Wright (#)24.5
    
    Power of Attorney executed by Scott A. Shuey (#)24.6
    
    Power of Attorney executed by G.W. Buckaloo, Jr. (#)24.7
    
    Power of Attorney executed by Tom Latta (#)24.8
    
    Power of Attorney executed by William Swartz (#)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 the Companys CEO (#)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 the Companys CFO (#)32
    
    Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, by the Companys CEO and CFO (#)99
    
    Schedule of Allowances (#)
  
 (1)
    
    Form S-1 Registration Statement No. 333-86629 filed on September 7, 1999.(2)
    
    Post-Effective Amendment No. 1 to the Form S-1 Registration Statement No.
333-86629 filed on November 3, 2000.(3)
    
    Form 10-K for the fiscal year ended July 31, 2002 filed on October 29, 2002.(4)
    
    Post-Effective Amendment No. 1 to the Form S-1 Registration Statement No.
333-72962 filed on August 29, 2003.(5)
    
    Form S-1 Registration Statement No. 333-72962 filed on November 8, 2001.(6)
    
    Form 10-Q Quarterly Report for the period ended January 31, 2005 filed March
17, 2005(7)
    
    Form 8-K Current Report dated March 7, 2005 and filed March 11, 2005.  
 (#)
    
    Filed herewith.(*)
    
    Portions of these exhibits have been redacted pursuant to a request for
confidential treatment which was granted by the Securities and Exchange Commission. II-2




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##### Table of Contents



SIGNATURES
  Date: October 27, 2005PROFESSIONAL VETERINARY PRODUCTS, LTD.By:
    
    /s/ Dr. Lionel L. Reilly

Dr. Lionel L. Reilly, President and CEO
  Signature
    
    Capacity
    
    Date/s/ Dr. Lionel L. Reilly

Dr. Lionel L. Reilly
    
    President & CEO
(principal executive officer)
    
    October 27, 2005/s/ Neal B. Soderquist

Neal B. Soderquist
    
    Chief Financial Officer
and Vice President
(principal financial officer)
    
    October 27, 2005/s/ Buddy D. Ray*

Dr. Buddy D. Ray
    
    Director
    
    October 27, 2005/s/ G. W. Buckaloo, Jr.*

Dr. G.W. Buckaloo, Jr.
    
    Director
    
    October 27, 2005/s/ Tom Latta*

Dr. Tom Latta
    
    Director
    
    October 27, 2005/s/ Steven E. Wright*

Dr. Steven E. Wright
    
    Director
    
    October 27, 2005/s/ Amy Lynne Hinton*

Dr. Amy Lynne Hinton
    
    Director
    
    October 27, 2005/s/ Chester L. Rawson*

Dr. Chester L. Rawson
    
    Director
    
    October 27, 2005
 II-3




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##### Table of Contents



Signature
    
    Capacity
    
    Date/s/ William Swartz*

Dr. William Swartz
    
    Director
    
    October 27, 2005
 *By:
    
    /s/ Dr. Lionel L. Reilly

   Dr. Lionel L. Reilly
   As: Attorney-in-fact
 II-4