PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED OCTOBER 31, 2004
(unaudited)
(in thousands, except per share data)
NOTE 1 – BASIS OF PRESENTATION
The accompanying condensed, consolidated financial statements of
Professional Veterinary Products, Ltd., and its wholly-owned subsidiaries (the
Company) have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and in
accordance with the rules and regulations of the United States Securities and
Exchange Commission (the SEC). Accordingly, these condensed, consolidated
financial statements do not include all of the information and footnotes
required by accounting principles generally accepted in the United States for
complete financial statements.
The information contained in the financial statements is unaudited. The
statements reflect all normal and recurring adjustments which, in the opinion
of management, are necessary for a fair statement of the results for the
interim periods presented. All significant intercompany accounts and
transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
These condensed, consolidated financial statements should be read in
conjunction with the Company’s consolidated financial statements and notes
thereto included in the Company’s Annual Report on Form 10-K for the year ended
July 31, 2004 filed with the SEC. The Company follows the same accounting
policies in preparation of interim financial statements. These policies are
presented in Note 2 to the Consolidated Financial Statements included on Form
10-K referred to above.
The results of operations and cash flows for the three months ended
October 31, 2004 are not necessarily indicative of the results to be expected
for the fiscal year ending July 31, 2005 or any other period. Certain amounts
from prior periods have been reclassified to conform to the current period’s
presentation.
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 151,
Inventory Costs – an
amendment of ARB No. 43, Chapter 4.
SFAS No. 151 clarifies the accounting for
abnormal amounts of idle facility expense, freight, handling costs and wasted
material. SFAS No. 151 requires that abnormal amounts be recognized as current
period charges regardless of whether they meet the criterion of “so abnormal.”
In addition, SFAS No. 151 required that allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of the
production facilities. This standard does not effect the Company’s financial
position, cash flows or results of operations.
PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED OCTOBER 31, 2004
(unaudited)
(in thousands, except per share data)
NOTE 3 – EARNINGS PER SHARE
SFAS No. 128,
Earnings per Share
promulgates accounting standards for the
computation and manner of presentation of the Company’s earnings per share
data. Under SFAS No. 128, the Company is required to present basic and diluted
earnings per share. Basic earnings per share is computed by dividing net
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. In accordance with SFAS No. 150, the
weighted-average number of common shares outstanding for the period does not
include the shares subject to mandatory redemption. Diluted earnings per share
reflect the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
There are no securities that are convertible to common stock that would cause
further dilution. The weighted average number of common shares outstanding was
1,234 and 1,176 at October 31, 2004 and 2003, respectively.
NOTE 4 – COMMON STOCK
The Company is authorized to issue 30,000 shares of common stock with a
par value of $1. Issued and outstanding shares amounted to 1,946 at October
31, 2004 and 1,952 at July 31, 2004. Holders of common stock are entitled to:
a) one vote for each share held on matters submitted to a vote of stockholders,
b) a ratable share of dividends declared and c) in the event of liquidation or
dissolution, a ratable share of monies after liabilities. Shareholders are not
permitted to dispose of their stock except by a sale back to the Company. The
shareholder must give the Company written notice of the proposed sale and the
Company must redeem for cash the share of stock within ninety days of receiving
such notice, at the price the shareholder paid for the share. Shares held by
single member limited liability companies and sole proprietorships are
mandatorily redeemable upon death of the holder at the price the shareholder
paid for the share. The amount to be paid upon death of these shareholders as
of October 31, 2004 was $2,115. An analysis of common stock and shares subject
to mandatory redemption for the three months ended October 31, 2004 is as
follows:
PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED OCTOBER 31, 2004
(unaudited)
(in thousands, except per share data)
NOTE 5 – POSTRETIREMENT BENEFITS
On January 1, 2003, the Company adopted a Supplemental Executive
Retirement Plan (SERP). The SERP is a nonqualified defined benefit plan
pursuant to which the Company will pay supplemental pension benefits to certain
key employees upon retirement based upon the employees’ years of service and
compensation. For the three months ended October 31, 2004 and 2003, benefits
accrued and expensed were $129 and $105, respectively. The plan is an unfunded
supplemental retirement plan and is not subject to the minimum funding
requirements of the Employee Retirement Income Security Act (ERISA). While the
SERP is an unfunded plan, the Company is informally funding the plan through
life insurance contracts on the participants. The life insurance contracts had
cash surrender values of $875 and $659 at October 31, 2004 and July 31, 2004,
respectively.
In December 2003, the FASB issued SFAS No. 132 (revised 2003),
Employers’
Disclosures About Pensions and Other Postretirement Benefits.
The provisions of
this statement do not change the measurement and recognition provisions of SFAS
No. 87,
Employers’ Accounting for Pensions,
SFAS No. 88,
Employers’ Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits
and SFAS No. 106,
Employers’ Accounting for Postretirement
Benefits Other than Pensions.
Disclosures in this note reflect the revised
requirements under SFAS No. 132 (revised).
Net periodic benefit costs for the Company’s SERP for the three months
ended October 31, included the following components:
October 31,
2004
2003
Service cost
$
48
$
38
Interest cost
43
33
Amortization of prior losses
4
—
Amortization of unrecognized prior service cost
34
34
Net periodic benefit cost
$
129
$
105
NOTE 6 – COMMITMENTS AND CONTINGENT LIABILITIES
Stock Redemption —
The Company is required by its Articles of
Incorporation to repurchase stock within 90 days of receiving written notice
from the shareholder requesting redemption of their stock. The redemption
amount is the original purchase price of the stock paid by the shareholder.
The Company was contingently liable for $5.8 million as of October 31, 2004.
Other —
The Company is subject to claims and other actions arising in the
ordinary course of business. Some of these claims and actions have resulted in
lawsuits where the Company is a defendant. Management believes that the
ultimate obligations if any, which may result from unfavorable outcomes of such
lawsuits, will not have a material adverse effect on the financial position,
results of
operations or cash flows of the Company and such obligations, if any, would be
adequately covered by insurance.
PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED OCTOBER 31, 2004
(unaudited)
(in thousands, except per share data)
NOTE 7 – SEGMENT INFORMATION
The Company has three reportable segments: Wholesale Distribution,
Logistics Services and Direct Customer Services. The Wholesale Distribution
segment is a wholesaler of pharmaceuticals and other veterinary related items.
This segment distributes products primarily to Company shareholders, who are
licensed veterinarians or business entities comprised of licensed
veterinarians. The Logistics Services segment provides logistics and
distribution service operations for vendors of animal health products. The
Logistic Services segment serves its customers by consolidating, packaging and
delivering animal health products closer to the final destination, resulting in
reduced freight costs and improved delivery performance. The Direct Customer
Services segment serves as a supplier of animal health products to the producer
or consumer. Animal health products are shipped to locations closer to the
final destination. The segment’s trucking operations transport the products
directly to the producer or consumer.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies as detailed in the Company’s
consolidated financial statements and footnotes thereto included in the Annual
Report on Form 10-K for the year ended July 31, 2004, filed with the SEC. The
Company evaluates performance based on profit or loss from operations before
income taxes. The Company’s reportable segments are strategic business units
that serve different types of customers in the animal health industry. The
separate financial information of each segment is presented consistent with the
way results are regularly evaluated by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
The following table summarizes the Company’s operations by business
segment:
PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED OCTOBER 31, 2004
(unaudited)
(in thousands, except per share data)
NOTE 8 – RECLASSIFICATIONS
Certain reclassifications have been made to the prior year condensed,
consolidated financial statements to conform to the current year presentation.
Such reclassifications had no impact on results of operation or shareholders’
equity.
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