UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

or

Commission file number: 000-26326

PROFESSIONAL VETERINARY PRODUCTS, LTD.

10077 South 134^th Street
Omaha, Nebraska 68138
(402) 331-4440
(Address and telephone number of registrant’s principal executive offices)

     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 and 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 o   No þ

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

     Yes o   No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (February 28, 2005).

Common Stock, $1.00 par value, 1,981

PROFESSIONAL VETERINARY PRODUCTS, LTD.
INDEX TO 10-Q FOR THE QUARTERLY
PERIOD ENDED JANUARY 31, 2005

PART I    FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

To the Board of Directors and Stockholders
Professional Veterinary Products, Ltd.
Omaha, NE

INDEPENDENT ACCOUNTANT’S REPORT

     We have reviewed the accompanying consolidated balance sheet of Professional Veterinary Products, Ltd. (a Nebraska Corporation) and subsidiaries as of January 31, 2005, and the related statements of consolidated income for the three month and six month periods ended January 31, 2005 and 2004 and the consolidated statements of cash flows for the six month periods ended January 31, 2005 and 2004. These financial statements are the responsibility of the company’s management.

     We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

     Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.

     We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Professional Veterinary Products, Ltd. and subsidiaries as of July 31, 2004, and the related statements of income, retained earnings and cash flows for the year then ended (not presented herein); and in our report dated October 7, 2004, we expressed an unqualified opinion on those financial statements. In our opinion the information set forth in the accompanying consolidated balance sheet as of July 31, 2004, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.

/s/ Quick & McFarlin, P.C.
Quick & McFarlin, P.C.
Omaha, Nebraska
March 7, 2005

1

PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES

     See notes to the condensed, consolidated financial statements.

2

PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES

     See notes to the condensed, consolidated financial statements.

3

PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES

     See notes to the condensed, consolidated financial statements.

4

PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES

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 six months ended January 31, 2005 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 overhead to the cost 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.

     In December 2004, the FASB issued SFAS No. 152, Accounting for Real Estate Time-Sharing Transactions — an amendment of FASB Statement No. 66, SFAS No. 153, Exchanges of Nonmonetary Assets - - an amendment of APB Opinion No. 29, and SFAS No. 123 (Revised 2004), Share-Based Payment. These standards do not effect the Company’s financial position, cash flows or results of operations.

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PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO THE CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2005
(unaudited)
(in thousands, except per share data)

NOTE 3 — PROPERTY AND EQUIPMENT

     Major classes of property and equipment consist of the following:

NOTE 4 — LINE OF CREDIT

     In December 2004, the Company increased the amount of the revolving line of credit from $25,000 to $40,000. This agreement is scheduled to expire in January 2008. The short-term borrowing amounts outstanding under this credit facility were $12,051 and $10,174 at January 31, 2005 and July 31, 2004, respectively. Interest is payable at a variable rate, subject to change each fiscal quarter, equal to the London InterBank Offered Rate (LIBOR) plus a percentage based on the Company’s leverage ratio. The line of credit is secured by substantially all of the Company’s assets.

NOTE 5 — 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 1,238 and 1,180 at January 31, 2005 and 2004, respectively.

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PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO THE CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2005
(unaudited)
(in thousands, except per share data)

NOTE 6 — 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 1,958 at January 31, 2005 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 January 31, 2005 was $2,125.

NOTE 7 — 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 six months ended January 31, 2005 and 2004, benefits accrued and expensed were $258 and $209, 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 $878 and $659 at January 31, 2005 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 six months ended January 31, included the following components:

     The weighted average discount rate and rate of increase in compensation levels used to compute the actuarial present value of projected benefit obligations were 6.25% and 4.00%, respectively, at July 31, 2004. The Company expects to recognize $516 of net periodic benefit cost for this postretirement plan in 2005.

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PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO THE CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2005
(unaudited)
(in thousands, except per share data)

NOTE 8 — COMMITMENTS AND CONTINGENT LIABILITIES

     Stock Redemption — The Company is required by its Articles of Incorporation to repurchase stock within ninety 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 January 31, 2005.

     Major Customer, Major Suppliers and Credit Concentrations — Other financial instruments, which potentially subject the Company to concentrations of credit risk, are trade accounts receivable and trade payables. One customer comprised a significant individual receivable consisting of 13.2% and 11.3% of the Company’s receivables at January 31, 2005 and July 31, 2004, respectively. One vendor comprised a significant individual payable consisting of 42.5% and 56.2% of the Company’s payables at January 31, 2005 and July 31, 2004, respectively.

     Estimated Rebate — Due to changes in manufacturer contracts and reductions in sales performance incentives earned by the Company, the estimated shareholder performance rebate accrued for the six months ended January 31, 2005 was $680 versus $3,237 for the prior comparative period.

     Other — The Company is subject to claims and other actions arising in the ordinary course of business. Some of these claims and actions may result 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.

NOTE 9 — 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.

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PROFESSIONAL VETERINARY PRODUCTS, LTD. AND SUBSIDIARIES
NOTES TO THE CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2005
(unaudited)
(in thousands, except per share data)

NOTE 9 — SEGMENT INFORMATION (CONTINUED)

     The following table summarizes the Company’s operations by business segment: