<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X
----- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15
(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the
Quarterly Period ended July 27, 1996.
----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15
(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission File No. 0-20572
PATTERSON DENTAL COMPANY
------------------------
(Exact Name of Registrant as Specified in its Charter)
MINNESOTA 41-0886515
--------- ----------
(State of Incorporation) (IRS Employer Identification No.)
1031 MENDOTA HEIGHTS ROAD, ST. PAUL, MINNESOTA 55120
----------------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(612) 686-1600
--------------
(Registrant's Telephone Number, Including Area Code)
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 preceding 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 at least the past 90 days.
X
----- Yes ----- No
Patterson Dental Company has outstanding 21,635,016 shares of common stock as of
August 14, 1996.
Page 1 of 9
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PATTERSON DENTAL COMPANY
INDEX
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<CAPTION>
Page
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements 3-6
Condensed Consolidated Balance Sheets as of
July 27, 1996 and April 27, 1996 3
Condensed Consolidated Statements of Income for the
three months ended July 27, 1996 and July 29, 1995 4
Condensed Consolidated Statements of Cash Flows for the
three months ended July 27, 1996 and July 29, 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-9
PART II - OTHER INFORMATION
Signatures 9
</TABLE>
Safe Harbor Statement Under The Private Securities Litigation Reform Act Of
1995:
This Form 10-Q for the period ended July 27, 1996 contains certain forward-
looking statements as defined in the Private Securities Litigation Reform Act of
1995, which may be identified by the use of forward-looking terminology such as
"may", "will", "expect", "anticipate", "estimate", "believe", "goal", or
"continue", or comparable terminology that involves risks and uncertainties and
that are qualified in their entirety by cautionary language set forth in the
Company's Form 10-K report filed July 26, 1996, and other documents filed with
the Securities and Exchange Commission.
Page 2
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PART I FINANCIAL INFORMATION
PATTERSON DENTAL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
July 27, April 27,
1996 1996
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(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 42,549 $ 46,056
Receivables, net............................. 70,929 77,215
Inventory.................................... 54,677 48,787
Prepaid expenses............................. 2,781 1,729
Deferred taxes............................... 898 898
-------- --------
Total current assets..................... 171,834 174,685
Property and equipment, net..................... 25,710 25,740
Other........................................... 2,317 2,375
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Total assets............................. $199,861 $202,800
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LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Accounts payable............................. $ 34,357 $ 42,520
Accrued payroll expense...................... 6,345 9,504
Other accrued expenses....................... 8,502 8,421
Income taxes payable......................... 4,466 2,220
Current maturities of long-term debt......... 154 151
-------- --------
Total current liabilities................ 53,824 62,816
Long-term debt.................................. 2,954 3,024
Deferred taxes.................................. 1,157 1,157
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Total liabilities........................ 57,935 66,997
Deferred credits................................ 8,461 8,682
Stockholders' equity:
Preferred stock.............................. -- 21,885
Common stock................................. 216 177
Additional paid in capital................... 53,561 31,435
Cumulative translation adjustment............ (357) (189)
Retained earnings............................ 95,945 89,713
Note receivable from ESOP.................... (15,900) (15,900)
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Total stockholders' equity............... 133,465 127,121
-------- --------
Total liabilities and stockholders'
equity................................... $199,861 $202,800
======== ========
</TABLE>
See accompanying notes.
Page 3
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PATTERSON DENTAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
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July 27, July 29,
1996 1995
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<S> <C> <C>
Net sales.......................................... $142,193 $134,340
Cost of sales...................................... 92,098 86,662
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Gross profit....................................... 50,095 47,678
Operating expenses................................. 40,949 37,777
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Operating income................................... 9,146 9,901
Other income and expense:
Amortization of deferred credits.............. 221 221
Finance income, net........................... 458 238
Interest expense.............................. (96) (106)
Profit (loss) on currency exchange........... (9) 1
-------- --------
Income before income taxes......................... 9,720 10,255
Income taxes....................................... 3,488 3,936
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Net income......................................... $ 6,232 $ 6,319
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Net income available for common shareholders....... $ 6,232 $ 6,167
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Earnings per common and common equivalent share.... $0.29 $0.29
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Weighted average common and common equivalent
shares outstanding................................ 21,581 21,515
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</TABLE>
See accompanying notes.
Page 4
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PATTERSON DENTAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
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July 27, July 29,
1996 1995
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<S> <C> <C>
Operating activities:
Net income............................................. $ 6,232 $ 6,319
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation....................................... 979 862
Amortization of deferrals.......................... (279) (218)
Bad debt expense................................... 66 190
Change in assets and liabilities, net of acquired.. (8,381) (3,245)
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Net cash provided by (used in) operating activities....... (1,383) 3,908
Investing activities:
Additions to property and equipment, net............... (886) (607)
Acquisitions........................................... (1,460) 0
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Net cash used in investing activities.................... (2,346) (607)
Financing activities:
Payments and retirement of long-term debt and
obligations under capital leases..................... (36) (33)
Common stock issued, net............................... 280 386
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Net cash provided by financing activities................. 244 353
Effect of exchange rate changes on cash................... (22) (7)
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Net increase (decrease) in cash and cash equivalents...... (3,507) 3,647
Cash and cash equivalents at beginning of period.......... 46,056 13,570
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Cash and cash equivalents at end of period................ $42,549 $17,217
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</TABLE>
See accompanying notes.
Page 5
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PATTERSON DENTAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
JULY 27, 1996
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly the financial position as of July 27, 1996, and the results of operations
and the cash flows for the periods ended July 27, 1996, and July 29, 1995. Such
adjustments are of a normal recurring nature. The results of operations for the
quarter ended July 27, 1996, and July 29, 1995, are not necessarily indicative
of the results to be expected for the full year. The balance sheet at April 27,
1996, is derived from the audited balance sheet as of that date. These
financial statements should be read in conjunction with the financial statements
included in the 1996 Annual Report on Form 10-K.
2. The fiscal year end of the Company is the last Saturday in April. The
first quarter of fiscal year 1997 and 1996 represents the 13 weeks ended
July 27, 1996 and July 29, 1995, respectively.
3. On July 3, 1996 all 3,552,856 shares of the Company's Preferred Stock
Series A held by the Patterson Dental Company Employee Stock Ownership
Plan ("ESOP") were converted to 3,837,083 shares of the Company's Common Stock
in accordance with the terms of the Preferred Stock Series A. The terms of the
constituent instrument defining the rights of holders of the Preferred Stock
Series A were not modified; however, upon the conversion of the shares of
Preferred Stock Series A to Common Stock, there were remaining no shares of
Preferred Stock Series A issued and outstanding. Previously, the ESOP was
funded through preferred stock dividends. With the conversion to common stock,
the ESOP will now be funded through a charge to operating expense. This annual
charge is estimated to be approximately $800,000.
Page 6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of net
sales represented by certain operational data.
<TABLE>
<CAPTION>
Three Months Ended
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July 27, July 29,
1996 1995
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<S> <C> <C>
Net sales...................... 100.0% 100.0%
Cost of sales.................. 64.8% 64.5%
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Gross profit................... 35.2% 35.5%
Operating expenses............. 28.8% 28.1%
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Operating income............... 6.4% 7.4%
Other income and expense, net.. 0.4% 0.2%
----- -----
Income before income taxes..... 6.8% 7.6%
Income taxes................... 2.4% 2.9%
----- -----
Net income..................... 4.4% 4.7%
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</TABLE>
QUARTER ENDED JULY 27, 1996 COMPARED TO QUARTER ENDED JULY 29, 1995.
NET SALES. The Company's net sales increased 5.8% to $142.2 million
for the quarter ended July 27, 1996 from $134.3 million for the quarter
ended July 29, 1995. The $7.9 million increase in sales is attributed
primarily to increased unit sales and, to a lessor extent, price increases.
Sales of sundry items increased by 9.1% compared with 6.8% growth reported
in the year-earlier quarter. Sales of equipment were flat when compared to
last years first quarter and after analyzing equipment sales by product
type and geographic region, the sales pattern does not suggest any
permanent shifts in long-term growth opportunities or trends.
Page 7
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GROSS PROFIT. The Company's gross profit increased 5.1% to $50.1 million
for the quarter ended July 27, 1996 from $47.7 million for the quarter ended
July 29, 1995. The increase in gross profit was due primarily to the increase in
sales. The Company's gross profit margin decreased to 35.2% for the quarter
ended July 27, 1996 from 35.5% for the quarter ended July 29, 1995. The 30 basis
point gross margin decline reflected a flat U.S. gross margin and a decrease in
Canadian margin.
OPERATING EXPENSES. Operating expenses increased 8.4% to $40.9 million for
the quarter ended July 27, 1996 from $37.8 million for the quarter ended July
29, 1995. The increase in operating expenses is primarily related to the
increase in sales. Operating expenses as a percent of sales have increased from
28.1% to 28.8% due mainly to the following three items. First, the Company's
staffing level was set in anticipation of sales increases of 10% to 11%, not the
6% level recorded in the current quarter. Second, three acquisitions have
occurred since the year ago quarter and some duplicate expenses relating to
these acquisitions still exist. Third, prior to the current quarter, the ESOP
was funded through preferred stock dividends. With the conversion to common
stock, the ESOP is now funded through a quarterly charge to operating expenses
of approximately $200,000.
OPERATING INCOME. Operating income decreased 7.6% to $9.1 million for the
quarter ended July 27, 1996 from $9.9 million for the quarter ended July 29,
1995. Operating income as a percent of net sales decreased from 7.4% to 6.4%,
mainly as a result of the decrease in the gross profit margin and an increase in
operating expenses as a percent of sales in the U.S. operations.
FINANCE INCOME. Finance income, net of expenses, was $458,000 for the
quarter ended July 27, 1996 compared to $238,000 for the quarter ended July 29,
1995. Finance income increased $220,000 or 92.4% due primarily to short term
investment of cash.
INTEREST EXPENSE. Interest expense decreased to $96,000 for the quarter
ended July 27, 1996 from $106,000 for the quarter ended July 29, 1995. This
decrease is due mainly to a reduction in the use of the revolving bank loan.
INCOME TAXES. The effective income tax rate decreased to 35.9% for the
first quarter of fiscal 1997 from 38.4% for the year ago quarter and results
from lower state income taxes.
Page 8
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LIQUIDITY AND CAPITAL RESOURCES
Available liquid resources at July 27, 1996 consisted of $42.5 million cash
and cash equivalents and $17 million available on a $30 million bank line
of credit. Working capital has increased from $111.9 million as of April
27, 1996 to $118.0 million as of July 27, 1996, an increase of $6.1
million. The Company recently announced that it has signed a non-binding
letter of intent to acquire the Colwell division of Deluxe Corporation. The
consummation of this transaction will require the use of a substantial
portion of the Company's cash balances and a combination of new debt and
the Company's in place line of credit. The Company believes that funds from
operations and the remainder of its increased credit lines are sufficient
to meet any other existing and presently anticipated needs.
PART II OTHER INFORMATION
Item 2. Changes in Securities
- -----------------------------
See Note 3 in Notes To Condensed Consolidated Financial Statements.
Item 6. Reports of Form 8-K
- ---------------------------
No reports on Form 8-K were filed during the quarter for which this report
is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PATTERSON DENTAL COMPANY
(Registrant)
Dated: September 6, 1996.
By: /s/ Ronald E. Ezerski
--------------------------------
Ronald E. Ezerski
Vice President and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Page 9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-26-1997
<PERIOD-END> JUL-27-1996
<CASH> 42,549
<SECURITIES> 0
<RECEIVABLES> 75,560
<ALLOWANCES> 4,631
<INVENTORY> 54,677
<CURRENT-ASSETS> 171,834
<PP&E> 38,554
<DEPRECIATION> 12,844
<TOTAL-ASSETS> 199,861
<CURRENT-LIABILITIES> 53,824
<BONDS> 2,954
<COMMON> 216
0
0
<OTHER-SE> 133,249
<TOTAL-LIABILITY-AND-EQUITY> 199,861
<SALES> 142,193
<TOTAL-REVENUES> 142,193
<CGS> 92,098
<TOTAL-COSTS> 92,098
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> 9,720
<INCOME-TAX> 3,488
<INCOME-CONTINUING> 6,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,232
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
