<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the fiscal year ended July 31, 2000; 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 134th 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 (Section 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. / /
As of September 30, 2000, the aggregate market value of the voting and
non-voting Common Stock held by non-affiliates of the Registrant was $4,134,000.
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,
2000, 1,386 shares of the Registrant's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Registrant's 2000
Annual Meeting of Stockholders to be filed within 120 days of the fiscal year
ended July 31, 2000 are incorporated by reference in Items 10, 11, 12 and 13 of
Part III of this Annual Report on Form 10-K.
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PROFESSIONAL VETERINARY PRODUCTS, LTD.
INDEX TO 10-K FOR THE ANNUAL
PERIOD ENDED JULY 31, 2000
<TABLE>
<S> <C>
PART I
ITEM 1. BUSINESS ............................................................. 1
ITEM 2. PROPERTIES ........................................................... 4
ITEM 3. LEGAL PROCEEDINGS .................................................... 4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .................. 4
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS .................................................. 5
ITEM 6. SELECTED FINANCIAL DATA .............................................. 5
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION ................................... 6
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .......... 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ......................... 10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND
FINANCIAL DISCLOSURE ................................................ 10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT ...................... 10
ITEM 11. EXECUTIVE COMPENSATION .............................................. 10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT .......................................................... 11
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...................... 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K ......................................................... II-1
SIGNATURES ........................................................................ II-3
</TABLE>
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PART I
ITEM 1. BUSINESS
The Company is a leading wholesale distributor of animal health
products to practicing veterinarians. The Company also offers a broad array
of prescription, non-prescription and sundry items to assist veterinarians in
their practice. The Company does not sell pet foods. A small quantity of feed
additive type products are sold by the Company.
The Company distributes approximately 18,000 different items
including biologicals, pharmaceuticals, parasiticides, instruments and
equipment. Routinely some 11,000 items are inventoried for immediate
shipment. The balance of items are either drop-shipped from the manufacturer
to the customer or are special order items.
As of July 31, 2000, the Company had 1,381 shareholder veterinary
clinics. These shareholders are principally located from the Rocky Mountains
to the Atlantic Seaboard with some presence in the South. No
shareholder/customer represented more than 1% of the Company's total revenues
during the past fiscal year.
Due to the geographical location of the majority of its shareholders
nearly 65% of the Company's gross sales are related to products used for the
treatment and/or prevention of diseases in food animals. The balance of
product sales are for the treatment and/or prevention of diseases in
companion animals and equine.
The Company primarily sells branded products as marketed by the major
animal health manufacturers and suppliers. The Company does not currently
private label any products, but would consider a private label product
agreement if there was a decisive competitive advantage for doing such.
The Company's business strategy is to be the leading supplier of
animal health products to veterinary clinics by offering a complete
assortment of items at competitive prices which are supported by superior
levels of customer service. The Company believes that this strategy provides
it with a competitive advantage by combining the broad product selection with
everyday low prices and support from very efficient operations. The
shareholder veterinary clinics are able to lower their product acquisition
costs, which both increases profitability and gives them a competitive market
advantage.
The Company has heavily invested in electronic information systems to
maximize efficiencies. All phases of the transactional process are
electronically driven. The Company believes this advanced electronic
technology will assist in earlier adoption of electronic commerce through the
internet by both its customers and suppliers.
VALUE-ADDED SERVICES
The Company offers its customers and suppliers a comprehensive menu of
value-added services. These services allow individual customers various
selections based on their individual needs. The Company manages a database of
all transactions so that its customers may maximize their participation in
promotions frequently offered by suppliers. The customer is periodically
apprised, either by phone or mailings, of their level of participation in these
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promotions. This promotional tracking service gives the customer the option to
maximize their participation in a promotion which can ultimately increase their
profitability and allow them to more effectively compete in certain markets.
The Company has developed a multi-day inventory management and
purchasing techniques seminar for its customers. This seminar is held at the
Company's headquarters. The customer is trained to better use the Company's
resources and also be increasingly efficient in managing their product and
inventory activities.
The Company has Electronic Data Interchange (EDI) capability which
provides the supplier with product sales and movement. The supplier is able to
monitor sales activities, advertising effectiveness and market trends in an
efficient manner. The Company also assists the manufacturer in the design of
effective promotions. The historical transactional database and the promotional
tracking service are unique tools to assist the manufacturer in tailoring
effective promotions.
REBATES TO SHAREHOLDERS
The Company and its shareholders are in a contractual relationship
evidenced in the Company's Articles of Incorporation which requires that all
sales of Company products to Company shareholders be at no more than 5% over
the cost of the Company as determined by the Company's certified public
accountant. Based on this requirement, the Company's certified public
accounting firm annually makes a determination of the Company's product
costs. This valuation of product costs is then multiplied by 105% and
compared to the Company's product sales. Amounts in excess of the 105%
computation are overcharges which are then rebated back to shareholders by
credit memo. Such rebates are made on a pro rata basis to shareholders, based
on the aggregate amount of products purchased by each shareholder during the
year for which the rebate is made. Rebates are included in the Company's
financial statements and are netted against sales on the Company's income
statement/balance sheet.
THE ANIMAL HEALTH INDUSTRY
A national veterinary organization lists over 22,000 veterinary
practices in the United States. There are some 45,000 veterinarians
practicing in the various disciplines of veterinary medicine. This survey
indicated nearly 71% of the veterinarians in private clinical practice
predominately specialize in companion animal medicine.
The U.S. animal health manufacturer sales of biologicals,
pharmaceuticals, insecticides and other packaged goods was over $4.0 billion
for 1999. This segment of business in which the Company participates is
intended to meet the product and supply needs of the private clinical
practice.
Sundry items such as collars, leashes, cages, books, aquatic supplies
and equine tack are primarily sold through retail pet supply outlets. These
products typically are not purchased from veterinary practices. The Company
makes a few of these items available; however, annual sales are very minimal.
Consolidation is a primary force reshaping the animal health industry.
Sales by the top ten animal health product manufacturers account for over 75% of
the U.S. market. At this time,
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the top five U.S. animal health product companies have a market share that
exceeds 50% of the total animal health business.
Livestock production continues the consolidation spiral that started
a number of years ago. Agribusiness integrators continue to build larger
livestock raising facilities. Improved management systems coupled with new
preventative products have resulted in an ongoing reduction in food animal
product sales for the past several years. There also has been a loss of
market share in several key product groups due to generic competition. The
generic products generally sell for lower prices which causes a pricing
deflation in the market.
The companion animal market is experiencing considerable growth.
Several new therapeutic and preventative products have contributed to most of
this increased sales volume. Nutraceuticals (nutritional pharmaceuticals)
have an increasing presence in the companion animal market. During the past
five years companion animal product sales have grown from 25% to 40% of the
total U.S. market.
COMPETITION
Distribution of animal health products is characterized by either
"ethical" or "OTC" channels of product movement. Ethical distribution is
defined as those sales of goods to licensed veterinarians for use in their
professional practice. Many of these products are prescription and must only
be sold to a licensed professional. OTC (over-the-counter) distribution is
the movement of non-prescription goods to the animal owner and the end user.
Many of these products will also be purchased by the licensed veterinarian
for professional use or for resale to their client.
There are numerous ethical distribution companies operating in the
same geographical regions as the Company and competition in this distribution
industry is intense. Most of the competitors generally offer a similar range
of products at prices often comparable to the Company's. The Company seeks to
distinguish itself from its competitors by offering a higher level of
customer service as well as having its principal customers also as its
shareholders/owners. In addition to competition from other distributors, the
Company also faces existing and potentially increased competition from
manufacturers and suppliers who distribute some percentage of their products
directly to veterinarians. Although the Company competes against direct sales
by manufacturers and suppliers, it is often able to compete with such direct
sales by adding new value-added services and pricing differentiation.
The Company's customers, licensed practicing veterinarians, compete
with the OTC distributors for the sale of products to the animal owner.
Several large OTC distributors sell products directly to the large
agribusiness integrator or the livestock owner. Pet food and supplies are
sold by a highly fragmented industry which includes supermarkets, discount
stores and other mass merchandisers, specialty pet stores, direct mail houses
and veterinarians. The Company does not sell products directly to the animal
owner and therefore does not compete with its customer for the sale of such
product.
The role of the animal health distributor has changed dramatically
during the last decade. Successful distributors have shifted from a selling
mentality to providing products and services in a consultative environment.
Declining profit margins typify current financial trends. Currently there is
an over capacity in the animal health distribution network, although there
have
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been few animal health distributor mergers or acquisitions. The Company
believes it must continue to add value to the distribution channel, and
reduce the redundancies that exist, while removing unnecessary costs
associated with product movement.
GOVERNMENT REGULATION
Both state and federal government agencies regulate the distribution
of certain animal health products. The Company is subject to regulation by
the U.S. Department of Agriculture, the Food and Drug Administration and the
Drug Enforcement Administration. Several State Boards of Pharmacy require the
Company to be licensed in their state for the sale of animal health products
within their jurisdiction. Each state (as well as certain cities and
counties) requires the Company to collect sales taxes/use taxes on differing
types of animal health products.
The Company is subject to laws governing its relationship with
employees, including minimum wage requirements, overtime, working conditions
and citizenship requirements.
ENVIRONMENTAL CONSIDERATIONS
The Company does not manufacture, re-label or in any way alter the
composition or packaging of products. All products are distributed in
compliance with the relevant rules and regulations as approved by various
State and Federal Regulatory Agencies. The Company's distribution business
practices create no impact on the environment.
EMPLOYEES
As of September 30, 2000 the Company had 173 employees. The Company
is not subject to any collective bargaining agreements and has not
experienced any work stoppages. The Company considers its relationship with
its employees to be good.
ITEM 2. PROPERTIES
The Company owns its building, which contains nearly 100,000 square
feet of open warehouse space and 30,000 square feet of finished office area.
The building is a new facility the Company constructed and completed in late
1999 and is located on 9.6 acres of land in a newly developed industrial
subdivision of Omaha, Nebraska. The latest in technology was incorporated
into the design of the new facility to maximize distribution efficiencies.
The building is subject to a first and second mortgage held by US Bank.
ITEM 3. LEGAL PROCEEDINGS
The Company has not been informed of any legal matters that would
have a material adverse effect on its financial condition, results of
operation or cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended July 31, 2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's
common stock. Ownership of the Company's stock is limited to licensed,
practicing veterinarians (or businesses comprised of veterinarians such as a
partnership or corporation). Each veterinarian shareholder is limited to
ownership of one share of stock, which is purchased at the fixed price of
$3,000. The share of stock may not be sold or transferred, except back to the
Company at the same $3,000 price. On July 31, 2000, there were 1,381 record
holders of the Company's common stock.
The Company has never declared or paid any cash dividends on the
common stock. The Company intends to retain any future earnings for funding
growth of the Company's business and therefore does not currently anticipate
paying cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The historical selected financial data set forth below for the five
years ended July 31, 2000 are derived from the Company's Financial Statements
included elsewhere in this report and should be read in conjunction with
those financial statements and notes thereto.
<TABLE>
<CAPTION>
FISCAL YEARS
STATED IN DOLLARS 1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF DATA
REVENUES $67,999,340 $80,938,835 $94,245,375 $122,253,200 $178,547,153
Cost of goods sold 62,103,482 73,701,533 85,261,574 111,875,873 161,934,175
Gross profit 5,895,858 7,237,302 8,983,801 10,377,327 16,612,978
Operating, general and 5,794,348 7,077,385 8,725,912 10,366,843 15,202,927
administrative expenses
Operating income 101,510 159,917 257,889 10,484 1,410,051
Other income 120,787 125,256 161,205 486,355 372,795
Other expenses (148,291) (208,407) (244,111) 263,198 905,880
Income before income taxes 74,006 76,766 174,983 233,641 876,966
Income taxes 28,469 30,736 73,440 92,907 320,367
Net income $45,537 $46,030 $101,543 $140,734 $556,599
Net income per share:
Basic earnings per share $50.30 $47.65 $96.89 $118.46 $403.04
Basic common shares outstanding 906 966 1,048 1,188 1,381
used in the calculation
SUPPLEMENTAL OPERATING DATA
Net cash provided by (used in) ($320,149) ($647,441) ($2,115,978) $1,863,413 ($5,691,783)
operating activities
Net cash provided by (used in) (610,821) (194,181) (442,604) (1,033,443) (6,676,998)
investing activities
Net cash provided by (used in) 745,938 721,767 1,317,233 1,372,564 10,877,188
financing activities
</TABLE>
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<TABLE>
<CAPTION>
FISCAL YEARS
STATED IN DOLLARS 1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital $2,106,023 $2,456,944 $2,698,906 $1,052,710 $1,975,467
Total Assets 12,859,118 14,175,862 20,007,753 28,358,152 59,700,070
Total long-term obligations 1,364,594 1,301,609 1,225,089 0 6,013,631
**Total short-term borrowings 557,726 1,062,985 3,285,273 4,413,238 8,216,400
Shareholder equity 3,136,917 3,542,947 3,891,490 4,453,224 5,588,823
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE
INDICATED IN SUCH FORWARD-LOOKING STATEMENTS. THE FOLLOWING DISCUSSION OF THE
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN
THIS REPORT.
OVERVIEW
The Company was chartered on August 2, 1982 as a Missouri corporation.
Since January 1, 1983 the Company has operated from various facilities in Omaha,
Nebraska. The Company shareholders approved Amended and Restated Articles of
Incorporation at the Company's 1999 Annual Meeting to permit the Company to
become a Nebraska corporation. The Company surrendered its Missouri charter and
became a Nebraska corporation on September 22, 1999. The Company's fiscal year
begins on August 1 and concludes on July 31 of the following year.
The Company is one of the largest distributors of animal health products
to veterinarians who practice food animal medicine in the United States. The
Company was founded in 1982 by veterinarians whose primary interests were "food
animal" related. The changing trends of veterinary medicine has resulted in a
gradual shift toward the sale of more "companion animal" products.
The Company's sales have increased from $62.6 million in fiscal year
1995 to $174.8 million in fiscal year 2000, and the Company expects this trend
of increases in sales to continue. The Company will continue our strategy of
supporting the food animal veterinarian with a broad range of products and
value-added services. However, sales in the food animal sector are subject to
very low margins. In view of the increasing maturity of the food animal market
the Company must continue to look for future growth in the companion animal
sector.
Historically companion animal product related transactions have enjoyed
higher margins than sales of food animal products. However, as competition
increases in the companion animal sector it is likely that margins will begin to
erode. The Company believes there is likely to be consolidation of the many
small privately owned veterinary clinics, which will result in an increasing
number of larger veterinary practice business units. As a result, the larger
veterinary practices will have increased purchasing leverage and will negotiate
for lower product costs which will reduce margins at the distribution level and
impact Company revenue and net income.
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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, invoiced to the customer, followed by payment
from the customer to the Company. There are several product lines where the
Company provides all transactional activities described above, except that
the manufacturer retains title to the product.
A second transaction model used by the Company is termed the "agency
agreement". Under this approach, the Company receives orders for products
from its customer. The Company transmits the order to the manufacturer who
then picks, packs, ships, invoices and collects payment from the customer.
The Company receives a commission payment for soliciting the order as well as
other customer service activities. The Company's operating expenses
associated with this type of sale may be lower than the traditional buy/sell
transaction. Agency selling allows the manufacturer and the Company to
immediately react to market conditions. This arrangement allows the
manufacturer to establish and standardize price of its products in the
market. This current information often is used by the Company and the various
manufacturers to develop data based marketing programs.
The mode of selling products to veterinarians is dictated by the
manufacturer. There has been a recent slight shift away from agency
agreements returning to the traditional buy/sell transactional business model.
Product returns from the Company's customers and to the Company's
suppliers occur in the ordinary course of business. The Company extends to
its customers the same return of goods policies as extended to the Company by
the various manufacturers. The Company does not believe its operations will
be adversely impacted due to the return of products.
RESULTS OF OPERATIONS
The following discussion is based upon the historical results of
operation for fiscal 1998, 1999 and 2000.
FISCAL 1998 COMPARED TO FISCAL 1997:
Net sales for the year ending July 31, 1998 increased by 15.7% or
$12.3 million for the year. Sales for the year totaled $90.6 million compared
to $78.3 million for the previous fiscal year. The growth was attributable to
increased sales to existing veterinary shareholders and also the addition of
new shareholders. During the year 82 veterinary practices became shareholders
of the Company. On July 31, 1998 there were 1,048 shareholders of the Company.
Gross profit increased by $1.8 million to $9.0 million compared to
$7.2 million for the previous fiscal year. Gross profit as a percentage of
total revenues were 9.5% in fiscal 1998 compared to 9.0% in fiscal 1997.
Operating, general and administrative expenses increased by $1.6
million to $8.7 million compared to $7.1 million for the previous fiscal
year. Such operating, general and
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administrative expenses as a percentage of total revenues fiscal 1998 was
9.3% vs. 8.7% in fiscal 1997.
FISCAL 1999 COMPARED TO FISCAL 1998:
Net sales for the fiscal year ending July 31, 1999 increased by 31.0%
or $28.1 million. Sales for the 1999 fiscal year totaled $118.7 million
compared to $90.6 million for the previous fiscal year. The growth was
attributable to increased sales to existing veterinary shareholders and also
the addition of new shareholders. During the year 140 veterinary practices
became shareholders of the Company. On July 31, 1999 there were 1,188
shareholders of the Company.
Gross profit increased by $1.4 million to $10.4 million compared to
$9.0 million for the previous fiscal year. Gross profit as a percentage of
total revenues was 8.5% in fiscal 1999 compared to 9.5% in fiscal 1998.
Operating, general and administrative expenses increased by $1.6
million to $10.3 million in fiscal year 1999 compared to $8.7 million for the
previous year. Such operating, general and administrative expenses as a
percentage of total revenues fiscal 1999 was 8.5% vs. 9.3% in fiscal 1998.
FISCAL 2000 COMPARED TO FISCAL 1999:
Net sales for the fiscal year ending July 31, 2000 increased by 47.2%
or $56.0 million. Sales for the 2000 fiscal year totaled $174.8 million
compared to $118.8 million for the previous fiscal year. The growth was
attributable to increased sales to existing veterinary shareholders and also
the addition of new shareholders. During the year 193 veterinary practices
became shareholders of the Company. On July 31, 2000 there were 1,381
shareholders of the Company.
Gross profit increased by $6.2 million to $16.6 million compared to
$10.4 million for the previous fiscal year. Gross profit as a percentage of
total revenues was 9.3% in fiscal 2000 compared to 8.5% in fiscal 1999.
Operating, general and administrative expenses increased by $4.8
million to $15.2 million in fiscal year 2000 compared to $10.4 million for
the previous year. Such operating, general and administrative expenses as a
percentage of total revenues fiscal 2000 was 8.5% vs. 8.5% in fiscal 1999.
SEASONALITY IN OPERATING RESULTS
The Company's quarterly sales and operating results have varied
significantly in the past and will likely continue to do so in the future.
Historically, the Company's sales are seasonal with peak sales in the late
spring and early fall. The cyclical nature is directly tied to the
significant amount of business the Company does in the livestock sector.
Product use cycles are directly related to certain medical procedures
performed by veterinarians on livestock during the late spring and early fall.
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In the last few years the Company has been selling more companion
animal related products. These products tend to have a seasonal nature which
minimally overlaps the livestock business cycles. The net result is a
reduction of the cyclical seasonal nature of the business. Minimizing the
cyclical nature of the Company's business has allowed for more efficient
utilization of all resources.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements relate primarily to working
capital, the expansion of our operations to accommodate sales growth. The
Company maintains significant inventory levels to fulfill our operating
commitment to its customers. Historically, the Company has financed its cash
requirements primarily from short-term bank borrowings and cash from
operations.
For the fiscal year ending July 1997, net cash used by operating
activities of $647,441 was primarily attributable to increases of $525,777 in
accounts receivable and $1,207,904 in inventories. These were partially
offset by an increase of $492,484 in accounts payable. Net cash used by
operating activities of $2,115,978 in fiscal year ending July 1998 was
primarily attributable to increases of $1,493,853 in accounts receivable and
$4,473,791 in inventories. These were partially offset by an increase of
$2,594,480 in accounts payable. Net cash provided by operating activities of
$1,863,413 in fiscal year ending July 1999 was primarily attributable to an
increase of $6,631,793 in accounts receivable. It was partially offset by
increases of $418,081 in inventories and $7,736,556 in accounts payable. In
the fiscal year ending July 2000, net cash used by operating activities of
$5,691,783 was primarily attributable to increases of $10,430,441 in accounts
receivable and $15,839,475 in inventories. These were partially offset by an
increase of $19,058,909 in accounts payable.
Net cash used by investing activities of $194,181 in fiscal year
ending July 1997 was primarily attributable to investments in property and
equipment. In the fiscal year ending July 1998, net cash used by investing
activities of $442,604 was primarily attributable to investments in property
and equipment. Net cash used by investing activities of $1,033,443 in fiscal
year ending July 1999 was primarily attributable to investments in property
and equipment. Net cash used by investing activities of $6,676,998 in fiscal
year ending July 2000 was primarily attributable to investments in property
and equipment.
In the fiscal year ending July 1997, net cash provided by financing
activities of $721,767 was primarily attributable to increases of $500,000 in
loan proceeds and $279,493 from net proceeds from issuance of common stock.
Net cash provided by financing activities of $1,317,233 in fiscal year ending
July 1998 was primarily attributable to increases of $1,035,913 in loan
proceeds and $281,320 from net proceeds from issuance of common stock. Net
cash provided by financing activities of $1,372,564 in fiscal year ending
July 1999 was primarily attributable to increases of $1,012,731 in loan
proceeds and $359,833 from net proceeds from issuance of common stock. In the
fiscal year ending July 2000, net cash provided by financing activities of
$10,877,188 was primarily attributable to increases of $10,236,396 in loan
proceeds and $640,792 from net proceeds from issuance of common stock.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks primarily from changes in U.S.
interest rates. The Company does not engage in financial transactions for
trading or speculative purposes.
The interest payable on the Company's revolving line of credit is based
on variable interest rates and is therefore affected by changes in market
interest rates. If interest rates on variable rate debt rose .925 percentage
points (a 10% change from the interest rate as of July, 31, 2000), assuming no
change in the Company's outstanding balance under the line of credit
(approximately $8,216,400 as of July 31, 2000), the Company's annualized income
before taxes and cash flows from operating activities would decline by
approximately $76,002.
ITEM 8. FINANCIAL STATEMENTS
See "Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K" for the Company's Consolidated Financial Statements, and the notes
thereto, and the financial statement schedules filed as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLSOURE
There has been no current report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
PART III
Incorporated by reference in Items 10 to 13 below are certain sections
of the Company's definitive proxy statement, to be filed pursuant to Regulation
14A within 120 days after July 31, 2000.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Incorporated by reference in this Annual Report is the information
required by this Item 10 contained in the sections entitled "Proposal: Election
of Directors", "Information About Directors and Executive Officers" and "Section
16(b) Beneficial Ownership Reporting Compliance" of the Company's definitive
proxy statement, to be filed pursuant to Regulation 14A with the SEC within 120
days after July 31, 2000.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference in this Annual Report is the information
required by this Item 11 contained in the section entitled "Information About
Directors and Executive Officers -- Executive Compensation", of the Company's
definitive proxy statement, to be filed pursuant to Regulation 14A with the SEC
within 120 days after July 31, 2000.
10
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No stockholder of the Company is a beneficial owner of more than five
percent of the Company's common stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference in this Annual Report is the information
required by this Item 13 contained in the section entitled the "Information
About Directors and Executive Officers--Certain Transactions" of the Company's
definitive proxy statement, to be filed pursuant to Regulation 14A with the SEC
within 120 days after July 31, 2000.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE INCLUDED IN THIS REPORT AT THE PAGE NUMBERS
INDICATED:
<TABLE>
<CAPTION>
(1) Financial Statements and Schedules: Page No.
<S> <C>
Independent Auditor's Reports .....................................F-1
Balance Sheets at July 31, 2000 and July 31, 1999 .................F-3
Statements of Income for the year ended July 31, 2000
July 31, 1999 and July 31, 1998 ............................F-5
Statements of Retained Earnings for the year ended
July 31, 2000, July 31, 1999 and July 31, 1998 .............F-6
Statements of Cash Flow for the year ended July 31, 2000,
July 31, 1999 and July 31, 1998 ............................F-7
Notes to Financial Statements .....................................F-8
Schedule of Operating, General and Administrative
Expenses ...................................................F-16
</TABLE>
(2) Supplemental Financial Statement Schedules
All supplemental schedules are omitted because of the absence of
conditions under which they are required or because the information is shown in
the Financial Statements or notes thereto.
11
<PAGE>
[MARVIN E. JEWELL & CO., P.C.
Certified Public Accountants
Letterhead]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Professional Veterinary Products, Ltd.
Omaha, Nebraska
We have audited the accompanying balance sheets of Professional
Veterinary Products, Ltd., a Nebraska corporation, as of July 31, 2000 and 1999,
and the related statements of income, retained earnings, cash flows and
accompanying schedule for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion of these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present
fairly, in all material respects, the financial position of Professional
Veterinary Products, Ltd. as of July 31, 2000 and 1999, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Marvin E. Jewell & Co., P.C.
Lincoln, Nebraska
September 20, 2000
F-1
<PAGE>
[MARVIN E. JEWELL & CO., P.C.
Certified Public Accountants
Letterhead]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Professional Veterinary Products, Ltd.
Omaha, Nebraska
We have audited the accompanying balance sheets of Professional
Veterinary Products, Ltd., a Nebraska corporation, as of July 31, 1999 and 1998,
and the related statements of income, retained earnings, cash flows and
accompanying schedule for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion of these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present
fairly, in all material respects, the financial position of Professional
Veterinary Products, Ltd. as of July 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Marvin E. Jewell & Co., P.C.
Lincoln, Nebraska
September 22, 1999
F-2
<PAGE>
PROFESSIONAL VETERINARY PRODUCTS, LTD.
Balance Sheets
July 31, 2000 and 1999
<TABLE>
<CAPTION>
Assets
Current assets: 2000 1999
------------ ------------
<S> <C> <C>
Cash $ - 1,092,679
Accounts receivable, trade, less allowance 26,749,894 14,839,192
for doubtful accounts (0)
Accounts receivable, rebate (6,114,343) (4,889,037)
Accounts receivable, stock 77,709 139,501
Accounts receivable, other 933,116 1,188,071
Inventory 28,426,707 12,587,232
------------ ------------
Total current assets 50,073,083 24,957,638
------------ ------------
Property and equipment 8,640,410 4,640,831
Less accumulated depreciation 896,198 1,604,504
------------ ------------
7,744,212 3,036,327
------------ ------------
Other assets:
Organization expense less
Accumulated amortization
$45,444 (2000), $30,322 (1999) 181,354 196,476
Loan origination fee less
Accumulated amortization
$2,833 (2000), $833 (1999) 17,167 19,167
Trademark, less accumulated
Amortization
$639 (2000), $306 (1999) 4,361 4,694
Investments 1,643,850 143,850
Cash value life insurance 30,077 -
Deferred income tax 5,966 -
------------ ------------
1,882,775 364,187
------------ ------------
$ 59,700,070 28,358,152
============ ============
</TABLE>
See accompanying notes to financial statements and independent auditor's report.
F-3
<PAGE>
PROFESSIONAL VETERINARY PRODUCTS, LTD.
Balance Sheets (continued)
July 31, 2000 and 1999
Liabilities and Stockholders' Equity
------------------------------------
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Current liabilities:
Bank overdraft $ 398,914 -
Notes payable, bank 8,216,400 4,319,388
Notes payable, other - 93,850
Current portion of long-term debt 419,603 -
Accounts payable, trade 37,235,692 18,176,783
Accrued interest 110,611 22,613
Accrued expenses 525,505 547,887
Accrued wages 611,097 484,462
Accrued profit-sharing 347,861 242,038
Accrued income taxes 231,933 17,907
------------ ------------
Total current liabilities 48,097,616 23,904,928
------------ ------------
Long-term debt 6,013,631 -
------------ ------------
Stockholders' equity:
Common stock, $1 par value per share
Authorized 30,000 shares; issued and
Outstanding 1,381 shares (2000), 1,381 1,188
1,188 shares (1999)
Paid-in capital 4,070,619 3,491,812
Retained earnings 1,516,823 960,224
------------ ------------
5,588,823 4,453,224
------------ ------------
$ 59,700,070 28,358,152
============ ============
</TABLE>
See accompanying notes to financial statements and independent auditor's report.
F-4
<PAGE>
PROFESSIONAL VETERINARY PRODUCTS, LTD.
Statements of Income
July 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Gross sales $ 180,905,421 123,649,623 94,206,241 101.32 101.14 99.96
Less Rebate (6,114,343) (4,889,037) (3,565,009) (3.42) (4.00) (3.78)
-------------- -------------- -------------- ------ ------ ------
Net Sales 174,791,078 118,760,595 90,641,232 97.90 97.14 96.18
Shipping 119,373 101,435 82,252 .07 .08 .09
Commissions 1,325,276 1,630,808 1,778,811 .74 1.33 1.89
Sales promotion 2,272,181 1,716,677 1,699,629 1.27 1.41 1.80
Annual meeting - 16,609 12,055 - .02 .01
reimbursement
Miscellaneous 39,245 27,076 31,399 .02 .02 .03
-------------- -------------- -------------- ------ ------ ------
178,547,153 122,253,200 94,245,375 100.00 100.00 100.00
-------------- -------------- -------------- ------ ------ ------
Cost of sales:
Net purchases 168,625,655 114,061,177 86,689,358 94.45 93.30 91.98
Freight out 3,627,670 2,451,266 1,974,411 2.03 2.00 2.09
Less vendor rebates (10,319,150) (4,636,570) (3,402,195) (5.78) (3.79) (3.60)
-------------- -------------- -------------- ------ ------ ------
161,934,175 111,875,873 85,261,574 90.70 91.51 90.47
-------------- -------------- -------------- ------ ------ ------
Gross profit 16,612,978 10,377,327 8,983,801 9.30 8.49 9.53
Operating, general and
administrative expenses
(Schedule)
15,202,927 10,366,843 8,725,912 8.51 8.48 9.26
-------------- -------------- -------------- ------ ------ ------
Operating income 1,410,051 10,484 257,889 .79 .01 .27
-------------- -------------- -------------- ------ ------ ------
Other income (expense):
Interest income 372,795 249,143 161,205 .21 .20 .17
Interest expense (862,420) (263,198) (244,111) (.49) (.22) (.25)
Gain (loss) on sale
of Property and
equipment (43,460) 237,212 - (.02) .20 -
-------------- -------------- -------------- ------ ------ ------
(533,085) 223,157 174,983 (.03) .18 .19
-------------- -------------- -------------- ------ ------ ------
Income before income
taxes 876,966 233,641 174,983 .49 .19 .19
Income taxes 320,367 92,907 73,440 .18 .08 .08
-------------- -------------- -------------- ------ ------ ------
Net income $ 556,599 140,734 101,543 .31 .11 .11
============== ============== ============== ====== ====== ======
</TABLE>
See accompanying notes to financial statements and independent auditor's report.
F-5
<PAGE>
PROFESSIONAL VETERINARY PRODUCTS, LTD.
Statements of Retained Earnings
Fiscal year ended July 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $960,224 819,490 717,947
Net income 556,599 140,734 101,543
---------- ------- -------
Balance at end of year $1,516,823 960,224 819,490
========== ======= =======
</TABLE>
See accompanying notes to financial statements and independent auditor's report.
F-6
<PAGE>
PROFESSIONAL VETERINARY PRODUCTS, LTD.
Statements of Cash Flows
Fiscal year ended July 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 556,599 140,734 101,543
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization $ 443,108 287,814 412,543
Gain (loss) on sale of property 43,460 (237,212) -
Adjustments for working capital
Changes:
(Increases) decrease in:
Receivables (10,430,441) (6,631,793) (1,493,853)
Inventories (15,839,475) 418,081 (4,472,791)
Cash value life insurance (30,077) - -
Deferred income tax (5,966) -
Increase (decrease) in:
Accounts payable 19,058,909 7,736,566 2,594,480
Accrued expenses 298,074 173,766 701,196
Income taxes 214,026 (24,533) 41,904
---------- ---------- ----------
Total adjustments (6,248,382) 1,722,679 (2,217,521)
---------- ---------- ----------
Net cash provided (used) by
operating activities (5,691,783) 1,863,413 (2,115,978)
Cash flows from investing activities:
Purchase of property and equipment (5,292,415) (2,762,815) (442,604)
Purchase of trademark - (5,000) -
Purchase of investments (1,500,000) (143,850) -
Proceeds from sale of property 115,417 1,878,222 -
---------- ---------- ----------
Net cash provided (used) by
investing activities (6,676,998) (1,033,433) (442,604)
Cash flows from financing activities:
Net loan proceeds (reduction) 10,236,396 1,012,731 1,035,913
Net proceeds from issuance of
Common stock 640,792 359,833 281,320
---------- ---------- ----------
Net cash provided by
Financing activities 10,877,188 1,372,564 1,317,233
---------- ---------- ----------
Net increase (decrease) in cash (1,491,593) 2,202,534 (1,241,349)
Cash (deficit) at beginning of period 1,092,679 (1,109,855) 131,494
---------- ---------- ----------
Cash (deficit) at end of period $ (398,914) 1,092,679 (1,109,855)
=========== ========== ==========
Supplementary disclosures of cash
Flow information:
Interest paid $ 774,421 257,725 238,851
=========== ========== ==========
Income taxes paid $ 106,162 117,440 31,536
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements and independent auditor's report.
F-7
<PAGE>
PROFESSIONAL VETERINARY PRODUCTS, LTD.
Notes to Financial Statements
(Information with respect to July 31, 2000 and 1999)
(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.
Summary of significant accounting policies:
(a) Basis of accounting:
The corporation uses the accrual method of accounting
for financial statement and income tax purposes.
(b) Concentration of cash balances:
The Company's cash funds are located in a single
financial institution. The amount on deposit at July
31, 2000 and 1999 exceeded the $100,000 federally
insured limit.
(c) Accounts receivable:
Management considers accounts receivable to be fully
collectible, accordingly, no allowance for doubtful
accounts is required.
(d) Inventory:
Inventory is valued at the lower of cost or market on
the first-in, first-out basis.
(e) Property and equipment depreciation:
Property and equipment are stated at cost. 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.
See independent auditor's report.
F-8
<PAGE>
(f) 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.
(g) Amortization:
Organizational costs are being amortized over sixty
months on a straight-line basis.
Financing costs are being amortized over the term of
the note on a straight-line basis. This amortization
is included in interest expense in the income
statement.
The intangible costs are being amortized over fifteen
years on a straight-line basis.
(h) Use of estimates:
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those
estimates.
(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 related primarily to
depreciable assets (use of difference depreciation
methods and lives for financial statement and
income tax purposes), and Uniform Capitalization
Rules Code Sec. 263A (capitalization of direct and
indirect costs associated with resale activities).
The deferred tax assets and liabilities represent
the future tax return consequences of those
differences, which will either be deductible or
taxable when the assets and liabilities are
recovered or settled. Deferred taxes are also
recognized for operating losses and tax credits
that are available to offset future taxable income.
(2) For the fiscal year ending July 31, 2000, the Company recognized
liabilities for overcharges on sales in excess of an agreed to
profit margin of 5% totaling $6,114,343 (2000), $4,889,037
(1999).
F-9
<PAGE>
(3) Property and equipment:
<TABLE>
<CAPTION>
Book Value
Accumulated ----------
Cost Depreciation 2000 1999
---- ------------ ---- ----
<S> <C> <C> <C> <C>
Land $ 953,780 - 953,780 953,780
Buildings 4,715,527 78,175 4,637,352 1,684,221
Equipment 2,971,103 818,023 2,153,080 398,326
------------ ------------ ------------ ------------
$ 8,640,410 896,198 7,744,212 3,036,327
============ ============ ============ ============
</TABLE>
(4) Investments - Non Marketable:
The Company has invested in AAHA Services Corp., of which they own 20%.
The remaining 80% is owned by American Animal Hospital Association
(AAHA). AAHA operates AAHA Services Corp. without regard to the views
of Professional Veterinary Products, Ltd. The investment is,
therefore, carried at cost.
The Company has invested in Agri-Laboritories, Ltd., of which they own
5%. The investment is carried at cost.
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Investment in AAHA Services Corp. $ 1,500,000 -
Investment in Agri-Laboratories, Inc. 143,850 143,850
------------ ------------
$ 1,643,850 143,850
============ ============
</TABLE>
(5) Cash surrender value of life insurance:
The Company owns insurance policies on the Chief Executive Officer. The
total face value of the policies on the life of the Chief Executive
Officer was $385,000 at July 31, 2000 and 1999.
F-10
<PAGE>
(6) 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%):
<TABLE>
<CAPTION>
2000
----
<S> <C>
Noncurrent deferred tax asset -
Inventory overhead costs
Capitalized for tax purposes $47,600
Noncurrent deferred tax liability -
Accumulated depreciation (41,634)
--------
Net noncurrent deferred tax asset
Per financials $5,966
========
Reconciliation:
Taxes currently payable $326,333
Net noncurrent deferred tax asset (5,966)
--------
Income tax provision per financials $320,367
========
</TABLE>
(7) Long-term debt:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Note payable, bank, 7.42% interest $ 3,950,442 -
Note payable, bank, 9.10% interest 1,192,534 -
Note payable, bank, 8.66% interest 1,290,258 -
----------- ----------
6,433,234 -
Less current portion due within one year (419,603) -
----------- ----------
$ 6,013,631 -
=========== ==========
</TABLE>
Note payable, bank, 7.42% interest:
Monthly installments of principal and interest of $32,028
commencing January 1, 2000 with final installment and entire
unpaid principal balance due on June 1, 2009. Loan is
collateralized by land and building.
Note payable, bank, 9.10% interest:
Monthly installments of principal and interest of $15,352
commencing July 1, 2000 with a final installment and entire
unpaid principal balance due on June 1, 2005. Loan is
collateralized by land and building.
F-11
<PAGE>
Note payable, bank, 8.66% interest:
Monthly installments of principal and interest of $29,032
commencing February 1, 2000 with a final installment and entire
unpaid principal balance due on January 1, 2005. Loan is
collateralized by all business assets.
Total yearly payments of long-term debt are due as follows:
<TABLE>
<CAPTION>
Note Payable Note Payable Note Payable Total
bank, 7.42% bank, 9.10% bank, 8.66%
interest interest interest
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
2001 $ 94,384 78,945 246,274 419,603
2002 101,631 86,437 268,469 456,537
2003 109,434 94,639 292,663 496,736
2004 117,836 103,620 319,038 540,494
2005 126,883 828,893 163,814 1,119,590
2006 - 2020 3,400,274 - - 3,400,274
------------ ------------ ------------ ------------
$3,950,442 1,192,534 1,290,258 6,433,234
============ ============ ============ ============
</TABLE>
The maximum amount available on the revolving line of credit is
$15,000,000. The balances due on this line of credit were $8,216,400 and
$2,000,000 for 2000 and 1999 respectively. The interest rate as of July
31, 2000 was 9.25% or .25% under the Index.
All the above loan agreements are with US Bank. These loans are
collateralized by substantially all of the assets of the Company.
These loan agreements contain certain covenants to related financial
ratios. Covenant relating interest bearing debt to tangible net worth
has been waived by the bank for July 31, 2000.
(8) Commitments and contingent liabilities - leases:
On July 28, 1997, the company entered into a lease with IBM Credit
Corporation for the purpose of leasing related computer hardware. The
lease minimum rentals are $6,541 per month. The lease expires July
30, 2002.
On February 18, 1998, the company entered into a lease with Nebraska
Leasing Services, Inc. for the purpose of leasing a truck. The lease
minimum rentals are $451.13 per month for a term of 36 months with a
final rental installment of $12,000. The lease expires January 18,
2001.
F-12
<PAGE>
On August 14, 1998, the company entered into a lease with IBM Credit
Corporation for the purpose of leasing related computer hardware. The
lease minimum rentals are $3,107 per month for a term of 48 months.
The lease expires August 14, 2002.
On August 31, 1999, the company entered into a lease with IOS Capital
for the purpose of leasing two copiers. The lease minimum rentals are
$1,216 per month for a term of 48 months. The lease expires August
31, 2003.
On September 1, 1999, the company entered into a lease with US
Bancorp Leasing & Financial for the purpose of leasing two forklifts.
The lease minimum rentals are $1,189 per month for a term of 48
months. The lease expires August 1, 2003.
On October 7, 1999, the company entered into a lease with Neopost
Leasing for the purpose of leasing a postage meter. The lease minimum
rentals are $687 per quarter for a term of 5 years. The lease expires
February 7, 2005.
On October 10, 1999, the company entered into a lease with US Bancorp
Leasing for the purpose of leasing 50 scanners. The lease minimum
rentals are $6,255 per month for a term of 36 months. The lease
expires September 10, 2002.
On November 10, 1999, the company entered into a lease with U.S.
Bancorp Leasing for the purpose of leasing a floor scrubber. The
lease minimum rentals are $306 per month for a term of 48 months. The
lease expires October 10, 2003.
On November 30, 1999, the company entered into a lease with IBM
Credit Corp for the purpose of leasing IBM Service Suite Maintenance.
The lease minimum lease rentals are $1,675 per month for a term of 36
months. The lease expires November 30, 2002.
On November 30, 1999, the company entered into a lease with IOS
Capital for the purpose of leasing related copier parts. The lease
minimum lease rentals are $164 per month for a term of 60 months. The
lease expires November 30, 2004.
On February 15, 2000, the company entered into a lease with Chrysler
Financial for the purpose of leasing a van. The lease minimum lease
payments are $416 per month for a term of 36 months. The lease
expires February 15, 2003.
On March 6, 2000, the company entered into a lease with IBM Credit
Corp for the purpose of leasing computer hardware. The lease minimum
rentals are $6,193 per month for a term of 36 months. The lease
expires February 6, 2003.
F-13
<PAGE>
On March 1, 2000, the company entered into a lease with P & L Capital
Corp for the purpose of leasing 11 laptop computers. The lease
minimum lease payments are $1,627 per month for a term of 24 months.
The lease expires February 1, 2002.
On April 27, 2000, the company entered into a lease with Chrysler
Financial for the purpose of leasing a vehicle. The lease minimum
rentals are $669 per month for a term of 36 months. The lease expires
April 27, 2003.
Minimum future obligations on operating leases in effect on July 31,
2000 are:
<TABLE>
<CAPTION>
Year ended Year ended Year ended Totals
July 31, 2001 July 31, 2002 July 31, 2003
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Computer hardware $ 78,492 78,792 - 156,984
expense
Vehicle lease expense 14,707 - - 14,707
Computer hardware 37,284 37,284 3,108 77,676
expense
Copier lease expense 14,592 14,592 14,592 43,776
Forklift lease expense 14,268 14,268 14,268 42,804
Postage meter lease 2,748 2,748 2,748 8,244
expense
Scanner lease expense 75,060 75,060 12,510 162,630
Equipment lease expense 3,672 3,672 3,672 11,016
Computer maintenance 20,100 20,100 6,700 46,900
expense
Copier lease expense 1,968 1,968 1,968 5,904
Vehicle lease expense 4,992 4,992 2,912 12,896
Computer hardware 74,316 74,316 43,351 191,983
expense
Computer hardware 19,524 11,389 - 30,913
expense
Vehicle lease expense 8,028 8,028 6,021 22,077
----- ----- ----- ------
$369,751 346,909 111,850 828,510
======== ======= ======= =======
</TABLE>
(9) Transactions between Board of Directors, key employees and the company.
Professional Veterinary Products, Ltd. had sales to the Board of
Directors and key employees for the period ended July 31 as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Members of the Board of Directors $3,237,383 2,843,718
Key employees 9,172 5,563
---------- ---------
$3,246,555 2,849,281
========== =========
</TABLE>
F-14
<PAGE>
(10) Profit-sharing and 401-K retirement plans:
The Company provides a non-contributory profit-sharing plan covering
all full-time employees who qualify as to age and length of service.
It has been the Company's policy to make contributions to the plan as
provided annually by the Board of Directors. The total provision for
the contribution to the plan was $347,861 for 2000 and $242,038 for
1999.
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 $114,593 and $88,849 for the years ended July 31, 2000 and 1999,
respectively.
F-15
<PAGE>
PROFESSIONAL VETERINARY PRODUCTS, LTD.
Schedule of Operating, General and Administrative Expenses
Years ended July 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Amount Percent
------- ---------
Years Ended July 31, Years Ended July 31,
--------------------- ---------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Salaries $ 6,646,651 4,745,347 4,107,946 3.72 3.88 4.36
Directors' fees 47,750 34,250 30,750 .03 .03 .03
Annual meeting 13,980 44,940 39,582 .01 .04 .04
Convention and 84,293 89,557 53,377 .05 .07 .07
seminars
Insurance 554,694 393,077 291,761 .31 .32 .30
Life Insurance 12,065 15,681 15,875 .01 .01 .02
Office supplies and 835,752 325,345 289,608 .47 .27 .30
expense
Operating supplies 1,126,498 815,023 545,764 .63 .67 .58
Equipment rent 356,213 234,983 192,541 .20 .19 .20
Telephone 285,714 212,562 155,783 .16 .17 .17
Utilities 91,524 50,988 49,743 .05 .04 .05
Accounting fees 43,451 33,330 28,770 .02 .03 .03
Legal fees 100,089 94,326 46,524 .06 .08 .05
Taxes, payroll 437,242 316,736 261,996 .24 .26 .28
Taxes, general 150,433 51,397 46,748 .08 .04 .05
Repairs and 373,436 252,345 101,492 .21 .21 .11
maintenance
Depreciation 425,653 269,760 395,758 .24 .22 .42
Amortization 15,453 15,440 15,134 .01 .01 .02
Contract labor 125,237 23,515 44,903 .07 .02 .05
Advertising 9,050 5,754 7,764 .01 .01 .01
Postage 71,671 51,345 35,447 .04 .04 .04
Travel and 393,054 347,062 272,043 .22 .28 .29
promotion
Dues and 41,377 26,014 19,456 .02 .02 .02
subscriptions
Profit sharing and 462,454 330,887 318,670 .26 .27 .34
pension contribution
Sales promotion 1,522,922 993,836 936,201 .85 .81 .99
Bank fees 587,184 402,980 297,323 .33 .33 .32
Equipment 217,533 52,227 45,559 .11 .04 .05
maintenance
Bad debts 14,586 3,784 - .01 .01 -
Miscellaneous 156,968 134,352 79,394 .09 .11 .07
----------- ---------- --------- ---- ---- ----
$15,202,927 10,366,843 8,725,912 8.51 8.48 9.26
=========== ========== ========= ==== ==== ====
</TABLE>
See accompanying notes to financial statements and independent auditor's report.
F-16
<PAGE>
(3) Exhibits
<TABLE>
<CAPTION>
REGULATION S-K DOCUMENT
EXHIBIT NUMBER
<S> <C>
3.1 Articles of Incorporation of Professional
Veterinary Products, Ltd. (1)
3.2 Bylaws of Professional Veterinary Products,
Ltd. (1)
4.1 Certificate of Professional Veterinary Products,
Ltd. (1)
4.2 Article V of the Articles of Incorporation of
Professional Veterinary Products, Ltd., which
defines the rights of holders of the securities
being registered (1)
4.3 Article II of the Bylaws of Professional
Veterinary Products, Ltd., which defines the
rights of holders of the securities being
registered (1)
5.1 Form of Opinion of Baird, Holm, McEachen,
Pedersen, Hamann & Strasheim (2)
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 Agency 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 (3).*
11.1 Statement re Computation of Per Share Earnings
(3).
12.1 Statement re Computation of Ratios (3).
15.1 Letter re Unaudited Interim Financial
Information (1).
23.1 Consent of Marvin E. Jewell & Co., P.C. (3).
II-1
<PAGE>
23.2 Form of consent of Baird, Holm, McEachen,
Pedersen, Hamann & Strasheim (1).
24.1 Power of Attorney executed by Michael Whitehair
(3).
24.2 Power of Attorney executed by Russ Weston (3).
24.3 Power of Attorney executed by Timothy Trayer
(3).
24.4 Power of Attorney executed by Kenneth Liska (3).
24.5 Power of Attorney executed by Wayne Rychnovsky
(3).
24.6 Power of Attorney executed by Raymond Ebert II
(3).
24.7 Power of Attorney executed by Mark Basinger (3).
24.8 Power of Attorney executed by Fred Garrison (3).
27.1 Financial Data Schedule (3).
99.1 No Action letter issued by Securities and
Exchange Commission on July 12, 1996 (1).
</TABLE>
(1) Previously filed as exhibits to the Form S-1 Registration
Statement filed on September 7, 1999.
(2) Previously filed as exhibits to the Pre-effective
Amendment No. 1 to the Form S-1 Registration Statement
filed on October 19, 1999.
(3) Filed herewith.
(*) Portions of this exhibit have been redated pursuant to a
request for confidential treatment which is currently being
reviewed by the Securities and Exchange Commission.
All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-K.
(b) REPORTS OF FORM 8-K
No reports on Form 8-K were filed during the fourth quarter.
II-2
<PAGE>
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: October 27, 2000
PROFESSIONAL VETERINARY PRODUCTS, LTD.
By: /s/ LIONEL L. REILLY
-----------------------------------
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.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<S> <C>
/s/ LIONEL L. REILLY President
------------------------
Lionel L. Reilly
/s/ NEAL B. SODERQUIST Chief Financial Officer
------------------------
Neal B. Soderquist
* Director
------------------------
Mark A. Basinger
* Director
------------------------
Raymond C. Ebert II
* Director
------------------------
Fred G. Garrison
II-3
<PAGE>
* Director
------------------------
Kenneth R. Liska
* Director
------------------------
Wayne E. Rychnovsky
* Director
------------------------
Timothy P. Trayer
* Director
------------------------
Russ R. Weston
* Director
------------------------
Michael L. Whitehair
*By: /s/ LIONEL L. REILLY
------------------------
Lionel L. Reilly
AS: ATTORNEY-IN-FACT
</TABLE>
II-4
