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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 26, 1997.
________ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File No. 0-20572
PATTERSON DENTAL COMPANY
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(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-0886515
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(State of Incorporation) (IRS Employer Identification No.)
1031 Mendota Heights Road, St. Paul, Minnesota 55120
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(Address of Principal Executive Offices)
(Zip Code)
(612) 686-1600
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(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
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Patterson Dental Company has outstanding 21,929,346 shares of common stock as of
August 23, 1997.
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PATTERSON DENTAL COMPANY
INDEX
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Page
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements 3-7
Condensed Consolidated Balance Sheets as of
July 26, 1997 and April 26, 1997 3
Condensed Consolidated Statements of Income for the
three months ended July 26, 1997 and July 27, 1996 4
Condensed Consolidated Statements of Cash Flows for the
three months ended July 26, 1997 and July 27, 1996 5
Notes to Condensed Consolidated Financial
Statements 6-7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-10
PART II - OTHER INFORMATION 10
Signatures 11
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Safe Harbor Statement Under The Private Securities Litigation Reform Act Of
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1995:
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This Form 10-Q for the period ended July 26, 1997 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 25, 1997, and other documents filed with
the Securities and Exchange Commission. See also Factors That May Affect Future
Operating Results beginning on page nine of this Form 10-Q.
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PART I FINANCIAL INFORMATION
PATTERSON DENTAL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
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<CAPTION>
July 26, April 26,
1997 1997
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(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 8,018 $ 9,095
Receivables, net...................................... 86,017 90,897
Inventory............................................. 65,457 60,335
Prepaid expenses...................................... 2,241 2,789
Deferred taxes........................................ 1,178 1,178
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Total current assets.............................. 162,911 164,294
Property and equipment, net.............................. 35,231 34,532
Intangibles, net......................................... 43,198 43,747
Other, net............................................... 1,969 1,889
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Total assets...................................... $243,309 $244,462
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 35,662 $ 46,597
Accrued payroll expense............................ 7,578 11,941
Other accrued expenses............................. 9,077 9,152
Income taxes payable............................... 6,701 1,890
Current maturities of long-term debt............... 186 186
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Total current liabilities................... 59,204 69,766
Long-term debt........................................... 2,897 2,790
Deferred taxes........................................... 1,362 1,362
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Total liabilities........................... 63,463 73,918
Deferred credits......................................... 7,576 7,797
Stockholders' equity:
Common stock....................................... 219 218
Additional paid in capital......................... 57,397 55,227
Cumulative translation adjustment.................. (526) (664)
Retained earnings.................................. 130,249 123,035
Note receivable from ESOP.......................... (15,069) (15,069)
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Total stockholders' equity.................. 172,270 162,747
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Total liabilities and stockholders' equity.. $243,309 $244,462
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</TABLE>
See accompanying notes.
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PATTERSON DENTAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
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<CAPTION>
Three Months Ended
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July 26, July 27,
1997 1996
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<S> <C> <C>
Net sales......................................... $173,311 $142,193
Cost of sales..................................... 110,013 92,098
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Gross profit...................................... 63,298 50,095
Operating expenses................................ 50,134 40,949
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Operating income.................................. 13,164 9,146
Other income and expense:
Amortization of deferred credits............ 221 221
Finance income, net......................... 125 458
Interest expense............................ (101) (96)
Profit (loss) on currency exchange.......... (9) (9)
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Income before income taxes........................ 13,400 9,720
Income taxes...................................... 5,137 3,488
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Net income........................................ $ 8,263 $ 6,232
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Earnings per common and common equivalent share... $ 0.38 $ 0.29
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Weighted average common and common equivalent
shares outstanding.............................. 21,840 21,581
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</TABLE>
See accompanying notes.
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PATTERSON DENTAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
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<CAPTION>
Three Months Ended
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July 26, July 27,
1997 1996
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Operating activities:
Net income............................................. $ 8,263 $ 6,232
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation....................................... 1,317 979
Amortization of goodwill........................... 587 ---
Amortization of deferrals.......................... (221) (279)
Bad debt expense................................... 198 66
Change in assets and liabilities, net of acquired.. (9,703) (8,381)
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Net cash provided by (used in) operating activities....... 441 (1,383)
Investing activities:
Additions to property and equipment, net............... (1,878) (886)
Acquisitions........................................... 0 (1,460)
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Net cash used in investing activities.................... (1,878) (2,346)
Financing activities:
Payments and retirement of long-term debt and
obligations under capital leases..................... (48) (36)
Common stock issued, net............................... 404 280
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Net cash provided by financing activities................. 356 244
Effect of exchange rate changes on cash................... 4 (22)
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Net decrease in cash and cash equivalents................. (1,077) (3,507)
Cash and cash equivalents at beginning of period.......... 9,095 46,056
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Cash and cash equivalents at end of period................ $ 8,018 $42,549
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</TABLE>
See accompanying notes.
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PATTERSON DENTAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
July 26, 1997
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 26, 1997, and the results of operations
and cash flows for the periods ended July 26, 1997, and July 27, 1996. Such
adjustments are of a normal recurring nature. The results of operations for the
quarter ended July 26, 1997, and July 27, 1996, are not necessarily indicative
of the results to be expected for the full year. The balance sheet at April 26,
1997, 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 1997 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 1998 and 1997 represents the 13 weeks ended July 26, 1997
and July 27, 1996, respectively.
3. On October 1, 1996 the Company purchased the Colwell division of Deluxe
Corporation ("Colwell") for an aggregate purchase price of $61.0 million. The
acquisition was accounted for as a purchase and, accordingly, the net assets and
results of operations are included in the accompanying financial statements
since the date of acquisition. The following unaudited pro forma summary
presents the consolidated results of operations as if the acquisition had
occurred at the beginning of the period presented. The pro forma information
does not purport to be indicative of the results of operations that would have
occurred had the acquisition been made as of that date or future results.
<TABLE>
<CAPTION>
Three Months Ended
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July 27, 1996
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(In thousands except per share data)
<S> <C>
Net sales $156,057
Net income 6,877
Earnings per share $0.32
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On July 17, 1997 the Company acquired EagleSoft Incorporated in a transaction
accounted for as a pooling of interests. The acquisition was not material to
the financial statements.
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4. On August 26, 1997 the Company acquired approximately 91% of Canadian Dental
Supply Limited in a stock for stock exchange. The transaction will be accounted
for as a pooling of interests. Canadian Dental's revenues for the year ended
September 30,1996 were approximately $26 million. In connection with the
transaction, Patterson assumed approximately $6.5 million of debt and issued
105,886 shares of its common stock. The Company expects to issue approximately
9,056 additional shares to acquire 100% ownership.
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.
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<CAPTION>
Three Months Ended
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July 26, July 27,
1997 1996
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Net sales.................................. 100.0% 100.0%
Cost of sales.............................. 63.5% 64.8%
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Gross profit............................... 36.5% 35.2%
Operating expenses......................... 28.9% 28.8%
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Operating income........................... 7.6% 6.4%
Other income and expense, net.............. 0.1% 0.4%
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Income before income taxes................. 7.7% 6.8%
Income taxes............................... 2.9% 2.4%
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Net income................................. 4.8% 4.4%
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QUARTER ENDED JULY 26, 1997 COMPARED TO QUARTER ENDED JULY 27, 1996.
Net Sales. The Company's net sales increased $31.1 million or 21.9%
to $173.3 million for the quarter ended July 26, 1997 ("Current Quarter")
from $142.2 million for the quarter ended July 27, 1996 ("Prior Quarter").
The Current Quarter includes $13.5 million of Colwell sales. The Prior
Quarter did not contain any Colwell sales since Colwell was acquired during
the second quarter of last year. Excluding Colwell, sales were up $17.6
million or 12.4% due primarily to increased volume.
Gross Profit. Gross profit margin increased to 36.5% for the Current
Quarter from 35.2% for the Prior Quarter. The 1.3 percentage point gross
profit margin increase is due mainly to higher margins from Colwell. Gross
profit increased 26.4% to $63.3 million for the Current Quarter from $50.1
million for the Prior Quarter. The increase in gross profit was due
primarily to increased volume.
Operating Expenses. Operating expenses increased 22.4% to $50.1
million for the Current Quarter from $40.9 million for the Prior Quarter.
The increase in operating expenses was primarily related to the increase in
sales. Operating expenses as a percent of sales increased to 28.9% from
28.8% due to higher operating expenses as a percent of sales at Colwell.
Operating Income. Operating income increased $4.0 million or 43.9% to
$13.2 million for the Current Quarter from $9.1 million for the Prior
Quarter. Operating income as a percent of net sales grew to 7.6% from
6.4%, due primarily to higher gross profit margins discussed earlier.
Finance Income. Finance income, net of expenses, was $125,000 for the
Current Quarter compared to $458,000 for the Prior Quarter. The decrease
of $333,000 was caused by a reduction of investable cash balances from the
prior quarter which were utilized for the Colwell acquisition.
Income Taxes. The effective income tax rate increased to 38.3% for
the Current Quarter from 35.9% for the Prior Quarter. The increase in the
effective tax rate resulted primarily from a loss in the Current Quarter in
our Canadian subsidiary for which there was no tax benefit. In the Prior
Quarter, our
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Canadian subsidiary generated a profit and utilized net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Available liquid resources at July 26, 1997 consisted of $8.0 million cash
and cash equivalents and $50.3 million available under bank lines. The
Company believes that funds from operations and the remainder of its credit
lines are sufficient to meet any other existing and presently anticipated
needs.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company wishes to caution shareholders and prospective investors that
the following important factors, among others, could in the future affect the
Company's actual operating results which could differ materially from those
expressed in any forward-looking statements made by the Company. The statements
under this caption are intended to serve as cautionary statements within the
meaning of the Private Securities Litigation Reform Act of 1995. The following
information is not intended to limit in any way the characterization of other
statements or information under other captions as cautionary statements for such
purpose. The order in which such factors appear below should not be construed
to indicate their relative importance or priority.
. Reduced growth in expenditures for dental services by private dental
insurance plans.
. Accuracy of the Company's assumptions concerning future per capita
expenditures for dental services, including assumptions as to population
growth and the demand for preventive dental services such as
periodontic, endodontic and orthodontic procedures.
. The rate of growth in demand for infection control products currently
used for prevention of the spread of communicable diseases such as AIDS,
hepatitis and herpes.
. The effects of health care reform, increasing emphasis on controlling
health care costs and legislation or regulation of health care pricing,
all of which may affect the ability of dentists to obtain reimbursement
for use of new and state-of-the-art procedures and technologies.
. The amount and growth of the Company's selling, general and
administrative expenses.
. The effects of, and changes in, U.S. and world social and economic
conditions, monetary and fiscal conditions, laws and regulations, other
activities of governments, agencies and similar organizations, trade
policies and taxes, import and other charges, inflation and monetary
fluctuations; the ability or inability of the Company to obtain or hedge
against foreign currencies, foreign exchange rates and fluctuations in
those rates.
9
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. Ability of the Company to retain its base of customers and to increase
its market share.
. The ability of the Company to maintain satisfactory relationships with
qualified and motivated sales personnel.
. Changes in economics of dentistry affecting dental practice growth and
the demand for dental products, including the ability and willingness of
dentists to invest in high-technology diagnostic and therapeutic
products.
. The Company's ability to meet increased competition from national,
regional and full-service distributors and mail-order distributors of
dental products, while maintaining current or improved profit margins.
. Continued ability to maintain satisfactory relationships with key
vendors and the ability of the Company to create relationships with
additional manufacturers of quality, innovative products.
. Future operating results of the Company's Colwell Systems division
depend upon its ability to attract and retain customers by offering
quick response time and innovative products that meet industry reporting
standards. Because the cost of paper stock represents over half the cost
of its paper and printed products, future operating results may be
subject to fluctuations in paper prices. In addition, the introduction
of computer-based technologies into the management of health care
practices may affect future demand for printed products.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Item 27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
All other items under Part II have been omitted because they are inapplicable or
the answers are negative, or, in the case of legal proceedings, were previously
reported in the annual report on Form 10-K filed July 25, 1997.
10
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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 5, 1997.
By: /s/ Ronald E. Ezerski
--------------------------
Ronald E. Ezerski
Vice President and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-25-1998
<PERIOD-END> JUL-26-1997
<CASH> 8,018
<SECURITIES> 0
<RECEIVABLES> 90,721
<ALLOWANCES> 4,704
<INVENTORY> 65,457
<CURRENT-ASSETS> 162,911
<PP&E> 52,369
<DEPRECIATION> 17,138
<TOTAL-ASSETS> 243,309
<CURRENT-LIABILITIES> 59,204
<BONDS> 2,897
0
0
<COMMON> 219
<OTHER-SE> 172,051
<TOTAL-LIABILITY-AND-EQUITY> 243,309
<SALES> 173,311
<TOTAL-REVENUES> 173,311
<CGS> 110,013
<TOTAL-COSTS> 110,013
<OTHER-EXPENSES> 49,936
<LOSS-PROVISION> 198
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> 13,400
<INCOME-TAX> 5,137
<INCOME-CONTINUING> 8,263
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,263
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
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