QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) | |
(Address of Principal Executive Offices) | (Zip Code) |
Title of each class | Trading Symbol(s) | Name of exchange on which registered |
☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | ||||||
Smaller reporting company | Emerging growth company |
Page | |
July 27, 2019 | April 27, 2019 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | $ | |||||
Receivables, net of allowance for doubtful accounts | |||||||
Inventory | |||||||
Prepaid expenses and other current assets | |||||||
Total current assets | |||||||
Property and equipment, net | |||||||
Operating lease right-of-use assets | — | ||||||
Long-term receivables, net | |||||||
Goodwill | |||||||
Identifiable intangibles, net | |||||||
Other non-current assets | |||||||
Total assets | $ | $ | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | $ | |||||
Accrued payroll expense | |||||||
Other accrued liabilities | |||||||
Operating lease liabilities | — | ||||||
Current maturities of long-term debt | |||||||
Total current liabilities | |||||||
Long-term debt | |||||||
Non-current operating lease liabilities | — | ||||||
Other non-current liabilities | |||||||
Total liabilities | |||||||
Stockholders’ equity: | |||||||
Common stock, $.01 par value: 600,000 shares authorized; 95,470 and 95,272 shares issued and outstanding | |||||||
Additional paid-in capital | |||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | |||
Retained earnings | |||||||
Unearned ESOP shares | ( | ) | ( | ) | |||
Total Patterson Companies, Inc. stockholders' equity | |||||||
Noncontrolling interests | |||||||
Total stockholders’ equity | |||||||
Total liabilities and stockholders’ equity | $ | $ |
Three Months Ended | |||||||
July 27, 2019 | July 28, 2018 | ||||||
Net sales | $ | $ | |||||
Cost of sales | |||||||
Gross profit | |||||||
Operating expenses | |||||||
Operating income | |||||||
Other income (expense): | |||||||
Other income, net | |||||||
Interest expense | ( | ) | ( | ) | |||
Income (loss) before taxes | ( | ) | |||||
Income tax expense (benefit) | ( | ) | |||||
Net income (loss) | ( | ) | |||||
Net loss attributable to noncontrolling interests | ( | ) | ( | ) | |||
Net income (loss) attributable to Patterson Companies, Inc. | $ | $ | ( | ) | |||
Earnings (loss) per share attributable to Patterson Companies, Inc.: | |||||||
Basic | $ | $ | ( | ) | |||
Diluted | $ | $ | ( | ) | |||
Weighted average shares: | |||||||
Basic | |||||||
Diluted | |||||||
Dividends declared per common share | $ | $ | |||||
Comprehensive income (loss): | |||||||
Net income (loss) | $ | $ | ( | ) | |||
Foreign currency translation loss | ( | ) | ( | ) | |||
Cash flow hedges, net of tax | |||||||
Comprehensive income (loss) | $ | $ | ( | ) |
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Unearned ESOP Shares | Non-controlling Interests | Total | ||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||||
Balance at April 28, 2018 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||
Foreign currency translation | — | — | — | ( | ) | — | — | — | ( | ) | ||||||||||||||||||||
Cash flow hedges | — | — | — | — | — | — | ||||||||||||||||||||||||
Net income (loss) | — | — | — | — | ( | ) | — | ( | ) | ( | ) | |||||||||||||||||||
Dividends declared | — | — | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||||||
Common stock issued and related tax benefits | — | — | — | — | ||||||||||||||||||||||||||
Stock based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||
ESOP activity | — | — | — | — | — | — | ||||||||||||||||||||||||
Increase from asset acquisition | — | — | — | — | — | — | ||||||||||||||||||||||||
Balance at July 28, 2018 | ( | ) | ( | ) | ||||||||||||||||||||||||||
Foreign currency translation | — | — | — | ( | ) | — | — | — | ( | ) | ||||||||||||||||||||
Cash flow hedges | — | — | — | — | — | — | ||||||||||||||||||||||||
Net income (loss) | — | — | — | — | — | ( | ) | |||||||||||||||||||||||
Dividends declared | — | — | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||||||
Common stock issued and related tax benefits | — | — | — | — | ||||||||||||||||||||||||||
Stock based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||
Balance at October 27, 2018 | ( | ) | ( | ) | ||||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | — | ||||||||||||||||||||||||
Cash flow hedges | — | — | — | — | — | — | ||||||||||||||||||||||||
Net income (loss) | — | — | — | — | — | ( | ) | |||||||||||||||||||||||
Dividends declared | — | — | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||||||
Common stock issued and related tax benefits | — | — | — | — | ||||||||||||||||||||||||||
Stock based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||
Balance at January 26, 2019 | ( | ) | ( | ) | ||||||||||||||||||||||||||
Foreign currency translation | — | — | — | ( | ) | — | — | — | ( | ) | ||||||||||||||||||||
Cash flow hedges | — | — | — | — | — | — | ||||||||||||||||||||||||
Net income (loss) | — | — | — | — | — | ( | ) | |||||||||||||||||||||||
Dividends declared | — | — | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||||||
Common stock issued and related tax benefits | — | — | — | — | ||||||||||||||||||||||||||
Stock based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||
ESOP activity | — | — | — | — | — | — | ||||||||||||||||||||||||
Balance at April 27, 2019 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ |
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Unearned ESOP Shares | Non-controlling Interests | Total | ||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||||
Balance at April 27, 2019 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||
Foreign currency translation | — | — | — | ( | ) | — | — | — | ( | ) | ||||||||||||||||||||
Cash flow hedges | — | — | — | — | — | — | ||||||||||||||||||||||||
Net income (loss) | — | — | — | — | — | ( | ) | |||||||||||||||||||||||
Dividends declared | — | — | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||||||
Common stock issued and related tax benefits | ( | ) | — | — | — | — | ( | ) | ||||||||||||||||||||||
Stock based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||
ESOP activity | — | — | — | — | — | — | ||||||||||||||||||||||||
Adoption of ASU 2016-02 | — | — | — | — | — | — | ||||||||||||||||||||||||
Adoption of ASU 2018-02 | — | — | — | ( | ) | — | — | — | ||||||||||||||||||||||
Balance at July 27, 2019 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ |
Three Months Ended | |||||||
July 27, 2019 | July 28, 2018 | ||||||
Operating activities: | |||||||
Net income (loss) | $ | $ | ( | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||
Depreciation | |||||||
Amortization | |||||||
Investment gain | ( | ) | |||||
Non-cash employee compensation | |||||||
Deferred consideration in securitized receivables | ( | ) | ( | ) | |||
Change in assets and liabilities, net of acquired | |||||||
Net cash provided by (used in) operating activities | ( | ) | |||||
Investing activities: | |||||||
Additions to property and equipment | ( | ) | ( | ) | |||
Collection of deferred purchase price receivables | |||||||
Other investing activities | |||||||
Net cash provided by investing activities | |||||||
Financing activities: | |||||||
Dividends paid | ( | ) | ( | ) | |||
Retirement of long-term debt | ( | ) | ( | ) | |||
Draw on revolving credit | |||||||
Other financing activities | ( | ) | |||||
Net cash used in financing activities | ( | ) | ( | ) | |||
Effect of exchange rate changes on cash | ( | ) | ( | ) | |||
Net change in cash and cash equivalents | |||||||
Cash and cash equivalents at beginning of period | |||||||
Cash and cash equivalents at end of period | $ | $ |
Three Months Ended | |||||
July 27, 2019 | July 28, 2018 | ||||
Gain on investment | |||||
Loss on interest rate swap agreements | ( | ) | |||
Other | |||||
Other income, net |
Three Months Ended | |||||
July 27, 2019 | July 28, 2018 | ||||
Denominator for basic EPS – weighted average shares | |||||
Effect of dilutive securities – stock options, restricted stock and stock purchase plans | |||||
Denominator for diluted EPS – weighted average shares |
Remainder of 2020 | $ | |||
2021 | ||||
2022 | ||||
2023 | ||||
2024 | ||||
After 2024 | ||||
Total lease payments | ||||
Less: imputed interest | ( | ) | ||
Present value of lease liabilities | $ |
Three months ended | ||||
July 27, 2019 | ||||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | |||
Lease assets obtained in exchange for new operating lease liabilities | $ |
July 27, 2019 | |||
Weighted-average remaining lease term - operating leases | |||
Weighted-average discount rate - operating leases | % |
Derivative type | Classification | July 27, 2019 | April 27, 2019 | |||||
Assets: | ||||||||
Interest rate contracts | Other non-current assets | $ | $ | |||||
Liabilities: | ||||||||
Interest rate contracts | Other accrued liabilities | |||||||
Interest rate contracts | Other non-current liabilities | |||||||
Total liability derivatives | $ | $ |
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) | ||||||||||
Three Months Ended | ||||||||||
Derivatives in cash flow hedging relationships | Income statement location | July 27, 2019 | July 28, 2018 | |||||||
Interest rate contracts | Interest expense | $ | ( | ) | $ | ( | ) |
Amount of Gain (Loss) Recognized in Income on Derivatives | ||||||||||
Three Months Ended | ||||||||||
Derivatives not designated as hedging instruments | Income statement location | July 27, 2019 | July 28, 2018 | |||||||
Interest rate contracts | Other income, net | $ | ( | ) | $ |
Level 2 - | Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
Level 3 - | Unobservable inputs for which there is little or no market data available. These inputs reflect management’s assumptions of what market participants would use in pricing the asset or liability. |
July 27, 2019 | |||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: | |||||||||||||||
Cash equivalents | $ | $ | $ | $ | |||||||||||
DPP receivable - receivables securitization program | |||||||||||||||
DPP receivable - customer financing | |||||||||||||||
Derivative instruments | |||||||||||||||
Total assets | $ | $ | $ | $ | |||||||||||
Liabilities: | |||||||||||||||
Derivative instruments | $ | $ | $ | $ |
April 27, 2019 | |||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: | |||||||||||||||
Cash equivalents | $ | $ | $ | $ | |||||||||||
DPP receivable - receivables securitization program | |||||||||||||||
DPP receivable - customer financing | |||||||||||||||
Derivative instruments | |||||||||||||||
Total assets | $ | $ | $ | $ | |||||||||||
Liabilities: | |||||||||||||||
Derivative instruments | $ | $ | $ | $ |
Three Months Ended | |||||||
July 27, 2019 | July 28, 2018 | ||||||
Consolidated net sales | |||||||
United States | $ | $ | |||||
United Kingdom | |||||||
Canada | |||||||
Total | $ | $ | |||||
Dental net sales | |||||||
United States | $ | $ | |||||
Canada | |||||||
Total | $ | $ | |||||
Animal Health net sales | |||||||
United States | $ | $ | |||||
United Kingdom | |||||||
Canada | |||||||
Total | $ | $ | |||||
Corporate net sales | |||||||
United States | $ | $ | |||||
Total | $ | $ |
Three Months Ended | |||||||
July 27, 2019 | July 28, 2018 | ||||||
Consolidated net sales | |||||||
Consumable | $ | $ | |||||
Equipment and software | |||||||
Value-added services and other | |||||||
Total | $ | $ | |||||
Dental net sales | |||||||
Consumable | $ | $ | |||||
Equipment and software | |||||||
Value-added services and other | |||||||
Total | $ | $ | |||||
Animal Health net sales | |||||||
Consumable | $ | $ | |||||
Equipment and software | |||||||
Value-added services and other | |||||||
Total | $ | $ | |||||
Corporate net sales | |||||||
Value-added services and other | $ | $ | |||||
Total | $ | $ |
Three Months Ended | |||||||
July 27, 2019 | July 28, 2018 | ||||||
Operating income (loss) | |||||||
Dental | $ | $ | |||||
Animal Health | |||||||
Corporate | ( | ) | ( | ) | |||
Consolidated operating income | $ | $ |
July 27, 2019 | April 27, 2019 | ||||||
Total assets | |||||||
Dental | $ | $ | |||||
Animal Health | |||||||
Corporate | |||||||
Total assets | $ | $ |
Cash Flow Hedges | Currency Translation Adjustment | Total | |||||||||
AOCL at April 27, 2019 | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||
Other comprehensive loss before reclassifications | ( | ) | ( | ) | |||||||
Amounts reclassified from AOCL | ( | ) | ( | ) | |||||||
AOCL at July 27, 2019 | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Three Months Ended | |||||
July 27, 2019 | July 28, 2018 | ||||
Net sales | 100.0 | % | 100.0 | % | |
Cost of sales | 78.2 | 78.8 | |||
Gross profit | 21.8 | 21.2 | |||
Operating expenses | 20.5 | 20.9 | |||
Operating income | 1.3 | 0.3 | |||
Other income (expense) | 1.7 | (0.7 | ) | ||
Income (loss) before taxes | 3.0 | (0.4 | ) | ||
Income tax expense (benefit) | 0.8 | (0.1 | ) | ||
Net income (loss) | 2.2 | (0.3 | ) | ||
Net loss attributable to noncontrolling interests | — | — | |||
Net income (loss) attributable to Patterson Companies, Inc. | 2.2 | % | (0.3 | )% |
Exhibit No. | Exhibit Description | |
10.1 | ||
10.2 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101 | (Filed Electronically) The following financial information from our Quarterly Report on Form 10-Q for the period ended July 27, 2019, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the condensed consolidated balance sheets, (ii) the condensed consolidated statements of income and other comprehensive income, (iii) the condensed consolidated statements of changes in stockholders’ equity, (iv) the condensed consolidated statements of cash flows and (v) the notes to the condensed consolidated financial statements.(*) | |
104 | (Filed Electronically) The cover page from our Quarterly Report on Form 10-Q for the period ended July 27, 2019 is formatted in Inline XBRL (Extensible Business Reporting Language).(*) |
PATTERSON COMPANIES, INC. | |||
(Registrant) | |||
Dated: September 4, 2019 | By: | /s/ Donald J. Zurbay | |
Donald J. Zurbay | |||
Chief Financial Officer and Treasurer | |||
(Principal Financial Officer and Principal Accounting Officer) | |||
A. | Retirement Date. Effective July 1, 2019, Employee’s position as an employee of the Company shall hereby end (the “Retirement Date”). |
B. | Separation. Effective on the Retirement Date, Employee shall have no further rights deriving from Employee’s employment by the Company, and shall not be entitled to any further compensation or non-vested benefits, except as provided in this Agreement and/or in accordance with applicable law. |
A. | Salary. Employee shall be paid his current salary through the Retirement Date. Employee shall receive no salary after the Retirement Date. |
B. | Bonus. Employee shall not be entitled to receive any incentive bonus payments under the Company’s Management Incentive Compensation Plan or any other plan of the Company. |
C. | Health and Welfare Benefits. All health and welfare benefits applicable to Employee shall continue in effect until July 31, 2019. Beginning August 1, 2019, Employee shall be permitted to elect to continue health coverage then in effect under Patterson’s plan pursuant to COBRA, 26 U.S.C. § 9801 et seq.; provided, however, that the cost of any such coverage shall be at Employee’s expense. |
D. | Restricted Stock Awards/Restricted Stock Units. Employee’s unvested Restricted Stock Awards (“RSAs”) and Restricted Stock Units (“RSUs”) under the Company’s Amended and Restated Equity Incentive Plan and the Company’s 2015 Omnibus Incentive Plan (collectively, the “Equity Incentive Plans”) shall continue to vest through the Retirement Date. Pursuant to the terms of the Employee’s Restricted Stock Award Agreements and Restricted Stock Unit Award Agreements, Employee agrees that any RSAs and RSUs that have not vested on or prior to the Retirement Date are forfeited and cancelled. For avoidance of doubt, Employee shall not receive any additional RSAs or RSUs. |
E. | Capital Accumulation Plan. Employee may continue to participate in the Company’s Capital Accumulation Plan (“CAP”) according to its terms through the Retirement Date. Employee agrees that Section 5(g)(iii) of the CAP applies as of the Retirement Date. |
F. | Performance Stock Units. Employee’s unvested Performance Stock Units (“PSUs”) under the Company’s Equity Incentive Plans shall continue to vest, subject to achievement of required performance metrics, through the Retirement Date. Pursuant to the terms of Employee’s Performance Stock Unit Award Agreements, Employee agrees that any PSUs that have not vested on or prior to the Retirement Date are forfeited and cancelled. For avoidance of doubt, Employee shall not receive any additional PSUs. |
G. | Non-Qualified Stock Options. Employee’s unvested Non-Qualified Stock Options (“NQSOs”) under the Company’s Equity Incentive Plans shall continue to vest through the Retirement Date. For avoidance of doubt, all outstanding NQSOs held by Employee as of the Retirement Date will, to the extent exercisable as of such date, remain exercisable for a period of 90 days after such date (but in no event after the expiration date of any such NQSO). Pursuant to the terms of Employee’s Non-Qualified Stock Option Award Agreements, Employee agrees that any NQSOs that have not vested on or prior to the Retirement Date are forfeited and cancelled. For avoidance of doubt, Employee shall not receive any additional NQSOs. |
H. | Company Car/Cellular Phone/Computer. On or prior to the Company’s 2017 Annual Meeting, Employee was provided the opportunity to purchase for his personal use the vehicle which the Company had been leasing for him. Within 21 days after the Retirement Date, the Company shall transfer to Employee the service agreement for the cellular phone currently assigned to Employee and paid for by the Company. Following the Retirement Date, Employee may retain the Company laptop computer assigned to him. Employee acknowledges and agrees that, as of the date of his execution of this Agreement, Employee has pursuant to Section III(H) of this Agreement returned any electronic materials or property of the Company existing or stored on the cellular phone and the laptop computer. |
I. | Severance Payment. In exchange for the terms of this Agreement, Employee shall receive a severance payment in the amount of $1,100,000. This total severance amount shall be paid to Employee in equal installments pursuant to the Company’s regular payroll dates and procedures during the period between the effective date of this Agreement and June 30, 2020. Said payments will commence no later than 60 days after the Retirement Date provided that Employee has signed and not rescinded this Agreement. |
J. | Acknowledgment. Employee acknowledges that the consideration provided in this Agreement is good and valuable consideration in exchange for the Agreement, and includes payments and benefits to which he is not otherwise entitled. |
K. | Withholding. Patterson shall withhold from the compensation payable to Employee under this Section II all appropriate deductions necessary for Patterson to satisfy its withholding obligations under federal, state and local income and employment tax laws. |
A. | Non-Encouragement Provision. Employee agrees that he will not instigate, cause, advise or encourage any other persons, groups of persons, corporations, partnerships or any other entity to file litigation against the Company. |
B. | Litigation Hold. Employee agrees that during his employment with the Company he was provided with, and became subject to, one or more Company-issued litigation hold notices directing him to preserve specific categories of documents and electronically stored information (“ESI”) that may be potentially relevant to an existing or threatened legal action (“Potential Evidence”). Employee represents and warrants that he will make reasonable and good faith efforts to preserve all Potential Evidence in Employee’s possession, custody or control. This commitment to preserve Potential Evidence shall extend to any and all ESI (and its metadata) existing on: (1) any free-standing or networked computer or server in Employee’s personal possession, including any laptop, mobile phone, tablet, digital music device or digital camera and (2) any device that may store ESI, including internal and external hard or flash disk drives, as well as any optical or magnetic media. Employee further represents and warrants that he will make best efforts to cooperate with the Company in connection with any legal obligation that the Company may have in the future to obtain, review and produce any Potential Evidence in Employee’s possession, custody or control. |
C. | Cooperation in Pending or Transitional Matters. Employee shall make himself available to the Company to answer questions, provide information and otherwise cooperate with the Company in any pending or transitional matters on which he may have worked or about which he may have personal knowledge. Employee agrees to cooperate fully with the Company, including its attorneys, managers and accountants, in connection with any transitional matters, potential or actual litigation, or other real or potential disputes, which directly or indirectly involve the Company. |
D. | Non-competition and Notification. Through June 30, 2020, Employee agrees not to directly or indirectly engage in, be interested in, or be employed by, anywhere in the United States, Canada or the United Kingdom, any direct competitor of the Company (including, without limitation, Henry Schein, Inc., Benco Dental Supply Company, Burkhart Dental Supply Co., and Amazon.com, Inc.) or any other business which offers, markets or sells any service or product that competes directly with any services or products of the Company. By way of example, but not by way of limitation, “any service or product that competes directly with any services or products of the Company” includes dental services, dental products, animal health services and animal health products. For purposes of this provision, Employee shall be deemed to be interested in a business if he is engaged or interested in that business as a stockholder, director, officer, employee, salesperson, sales representative, agent, partner, individual proprietor, consultant, or otherwise, but not if such interest is limited solely to the ownership of 2% or less of the equity or debt securities of any class of a corporation whose shares are listed for trading on a national securities exchange or traded in the over-the-counter market. |
E. | No Solicitation of Employees. Through June 30, 2020, Employee shall not directly or indirectly, whether individually or as an owner, agent, representative, consultant or employee, participate or assist any individual or business entity to solicit, employ or conspire with others to employ any of the Company’s employees. The term “employ” for purposes of this section means to enter into an arrangement for services as a full-time or part-time employee, independent contractor, agent or otherwise. |
F. | Board Membership. Employee agrees that through June 30, 2020, Employee will not become a member of or otherwise join any organization’s governing board without prior written consent of the Company’s Board of Directors. |
G. | Confidential Information. Employee acknowledges that in the course of his employment with the Company, he has had access to Confidential Information. “Confidential Information” includes but is not limited to information not generally known to the public, in spoken, printed, electronic or any other form or medium relating directly or indirectly to: business processes, practices, policies, plans, documents, operations, services and strategies; contracts, transactions, and potential transactions; negotiations and pending negotiations; proprietary information, trade secrets and intellectual property; supplier and vendor agreements, strategies, plans and information; financial information and results, accounting information and records; legal strategies and information; marketing plans and strategies; pricing strategies; personnel information and staffing and succession planning practices and strategies; internal controls and security policies, strategies and procedures; and/or other confidential business information that he has learned, received or used at any time during his employment with Patterson whether or not such information has been previously identified as confidential or proprietary. |
H. | Company Property and Return of Property. Subject to Employee’s rights to retain the devices under Section II(H) of this Agreement, Employee acknowledges that as of the Retirement Date he will return his Patterson-issued cellular phone and his Patterson-issued computer to the Company for creating an image of the information contained on those devices and processing to ensure the return of any electronic materials or property of the Company existing or stored on those devices. Within 21 days after the Retirement Date, he will return all originals and copies of any documents, materials or property of Patterson, whether generated by him or any other person on his behalf or on behalf of Patterson or its vendors. All documents, files, records, reports, policies, training materials, communications materials, lists and information, e-mail messages, products, keys and access cards, cellular phones, computers, other materials, equipment, physical and electronic property, whether or not pertaining to Confidential Information, which were furnished to Employee by the Company, purchased or leased at the expense of the Company, or produced by the Company or Employee in connection with Employee’s employment will be and remain the sole property of the Company, except as otherwise provided herein. All copies of property, whether in tangible or intangible form, are also the property of the Company. Employee agrees that he will not retain any paper or electronic copies of these documents and materials. |
I. | General Waiver and Release by Employee. As a material inducement to the Company to enter into this Agreement, and in consideration of the Company’s promise to make the payments set forth in this Agreement, Employee hereby knowingly and voluntarily releases Patterson, its affiliated and related entities, and any of their respective direct or indirect subsidiaries, and its and their respective officers, employees, agents, insurers, representatives, counsel, shareholders, directors, successors and assigns (“Releasees”) from all liability for damages or claims of any kind arising out of any actions, decisions, or events occurring through the date of Employee’s execution of this Agreement. |
J. | Class Action Waiver. Any dispute, controversy or claim arising out of, relating to or in connection with this Agreement, including the breach, termination or validity thereof, shall be finally resolved by arbitration. The tribunal shall have the power to rule on any challenge to its own jurisdiction or to the validity or enforceability of any portion of the agreement to arbitrate. The Parties agree to arbitrate solely on an individual basis, and that this agreement to arbitrate does not permit class arbitration or any claims brought as a plaintiff or class member in any class or representative arbitration proceeding. The arbitral tribunal may not consolidate more than one person’s claims, and may not otherwise preside over any form of a representative or class proceeding. In the event the prohibition on class arbitration is deemed invalid or unenforceable, then the remaining portions of the arbitration agreement will remain in force. |
K. | No Waiver of Rights. Employee understands this release does not apply to any claims or rights that the law does not allow to be waived, any claims or rights that may arise after the date that he signs this release, or any claims for breach of this Agreement. Moreover, nothing in this release including but not limited to the release of claims, the promise not to sue, the confidentiality obligations, and the return of property provision generally prevents Employee, without providing prior notice to the Company, from filing a charge or complaint with or from participating in an investigation or proceeding conducted by or contacting or communicating with the EEOC, NLRB, SEC, FINRA, or any other federal, state or local agency charged with the enforcement of any laws, although by signing this release Employee is waiving his right to individual relief based on claims asserted in such a charge or complaint or receipt of any award for providing information to such governmental agency, except where such a waiver is prohibited under SEC rules or other applicable law. |
L. | Reasonable and Necessary. Employee acknowledges that he was a key employee of the Company and that Employee participated in and contributed to key phases of the Company’s operations. Employee agrees that the covenants provided for in this Section III are reasonable and necessary to protect the Company and its confidential information, goodwill and other legitimate business interests and, without such protection, the Company’s customer and client relationships and competitive advantage would be materially adversely affected. Employee agrees that the provisions of this Section III are an essential inducement to the Company to enter into this Agreement and they are in addition to, rather than in lieu of, any similar or related covenants to which Employee is a party or by which he is bound. Employee further acknowledges that the restrictions contained in this Section III shall not impose an undue hardship on him since he has general business skills which may be used in industries other than that in which the Company conducts its business and shall not deprive Employee of his livelihood. In exchange for Employee agreeing to be bound by these reasonable and necessary covenants, the Company is providing Employee with the benefits as set forth in this Agreement, including without limitation the compensation set forth in Section II. Employee acknowledges and agrees that these benefits constitute full and adequate consideration for his obligations hereunder and will be provided only if he signs and does not rescind this Agreement. In the event Employee breaches the terms of this Section III, the severance and other payments made to Employee hereunder are subject to cessation and repayment as set forth in Section V(A) of this Agreement. |
A. | Effect of Breach. In the event that Employee breaches any provision of this Agreement, Patterson will have no further obligations under this Agreement and Employee agrees that all payments yet to be paid under this Agreement shall immediately cease and be forfeited and Employee will immediately repay all moneys paid to him under this Agreement to which he is not otherwise entitled absent this Agreement, together with the attorneys’ fees and costs incurred to collect the money and to seek injunctive relief. |
B. | Knowing and Voluntary Execution. Employee acknowledges that this Agreement confirms the resignation of Employee’s employment with Patterson and that this Agreement is entered into knowingly and voluntarily with full recognition and acceptance of the consequences of such act. Employee agrees that the payments listed above exceed that to which he would otherwise have been entitled, and that the extra payment is in exchange for signing this Agreement. Employee further acknowledges that he has had an opportunity to consult with the attorneys of his choice to explain the terms of this Agreement and the consequences of signing it. |
C. | No Admission. This Agreement is not an admission by Patterson that it has acted wrongfully and Patterson disclaims any liability to Employee or any other person on the part of itself, its affiliated and related entities, and any of their respective direct or indirect subsidiaries, and its and their respective officers, employees, agents, insurers, representatives, counsel, shareholders, directors, successors and assigns. |
D. | Governing Law. This Agreement and the legal relations between the Parties shall be governed by and construed and enforced in accordance with the laws of the State of Minnesota. If any part of this Agreement is construed to be in violation of the law, such part will be modified to achieve the objective of the Parties to the fullest extent permitted and the balance of this Agreement shall remain in full force and effect. |
E. | Entire Agreement. Employee and the Company each represent and warrant that no promise or inducement has been offered or made except as set forth and that the consideration stated is the sole consideration for this Agreement. This Agreement is a complete agreement and states fully all agreements, understandings, promises, and commitments between Employee and the Company as to the resignation of Employee’s employment. If any portion of this Agreement is held to be void and unenforceable by a court of competent jurisdiction, the waiver and release set forth in Section III of this Agreement shall nevertheless be binding upon the Parties and remain in full force and effect. |
F. | No Oral Amendments. This Agreement may not be changed except by an instrument in writing signed by the Parties. |
G. | Counterparts. The Parties agree that this Agreement may be executed in counterparts and each executed counterpart shall be as effective as a signed original. Photographic or faxed copies of such signed counterparts may be used in lieu of the originals for any purpose. |
H. | Successors and Assigns. The Parties agree that this Agreement shall be binding upon and inure to the benefit of all Parties and their respective representatives, predecessors, heirs, successors and assigns. |
I. | Defense to Future Claims. Employee agrees that in the event that any claim, suit or action shall be commenced by him against the Company arising out of any charge, claim or cause of action of any nature whatsoever, known or unknown, including, but not limited to, claims, suits or actions relating to his employment with Patterson or any prior agreement with Patterson, through this date, this Agreement shall constitute a complete defense to any such claims, suits or actions so instituted. |
J. | Section 409A. Notwithstanding any other provision of this Agreement to the contrary, the Parties agree that the payments hereunder shall be exempt from, or satisfy the applicable requirements, if any, of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) in a manner that will preclude the imposition of penalties described in Code Section 409A. Payments made pursuant to this Agreement are intended to satisfy the short-term deferral rule or separation pay exception within the meaning of Code Section 409A. |
K. | Acknowledgement. Employee affirms that he has read this Agreement and been advised that he has twenty-one (21) days from the date he received it to sign this Agreement, and that he has been advised in writing to consult with an attorney prior to signing this Agreement. Employee affirms that the provisions of this Agreement are understandable to him and he has entered into this Agreement freely and voluntarily. |
Dated: July 1, 2019 | /s/ Scott P. Anderson Scott P. Anderson |
Dated: July 19, 2019 | By: /s/ Mark S. Walchirk |
/s/ Mark S. Walchirk |
Mark S. Walchirk |
President and Chief Executive Officer |
/s/ Donald J. Zurbay |
Donald J. Zurbay |
Chief Financial Officer and Treasurer |
/s/ Mark S. Walchirk |
Mark S. Walchirk |
President and Chief Executive Officer |
September 4, 2019 |
/s/ Donald J. Zurbay |
Donald J. Zurbay |
Chief Financial Officer and Treasurer |
September 4, 2019 |
Segment Reporting - Narrative (Detail) |
3 Months Ended |
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Jul. 27, 2019
Segment
| |
Segment Reporting [Abstract] | |
Number of reportable segments | 3 |
Legal Proceedings Legal (Details) |
3 Months Ended | |||||
---|---|---|---|---|---|---|
Mar. 15, 2019
defendants
subsidiary
|
Oct. 01, 2018
USD ($)
|
Aug. 28, 2018
USD ($)
|
Jul. 12, 2018
defendants
|
Feb. 12, 2018
USD ($)
|
Jul. 27, 2019
USD ($)
states
|
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Loss Contingencies [Line Items] | ||||||
Damages sought | $ 0 | |||||
Number of states | states | 50 | |||||
Class Action Complaints Against Henry Schein Inc., Benco Dental Supply Company And Patterson Companies, Inc. | ||||||
Loss Contingencies [Line Items] | ||||||
Litigation settlement expenses | $ 17,666,000 | |||||
Litigation settlement reserve | $ 28,263,000 | |||||
Kirsten Johnsen V. Scott P Anderson Et Al | ||||||
Loss Contingencies [Line Items] | ||||||
Stock repurchased | $ 412,800,000 | $ 412,800,000 | ||||
National Prescription Opiate Litigation, MDL No. 2804 | ||||||
Loss Contingencies [Line Items] | ||||||
Number of defendants | defendants | 67 | 26 | ||||
Number of subsidiaries | subsidiary | 2 |
General - Computation of Basic and Diluted Earnings Per Share (EPS) (Detail) - shares shares in Thousands |
3 Months Ended | |
---|---|---|
Jul. 27, 2019 |
Jul. 28, 2018 |
|
Earnings Per Share [Abstract] | ||
Denominator for basic earnings per share – weighted average shares (in shares) | 93,795 | 92,529 |
Effect of dilutive securities - stock options, restricted stock and stock purchase plans (in shares) | 828 | 0 |
Denominator for diluted earnings per share – weighted average shares (in shares) | 94,623 | 92,529 |
Segment Reporting (Tables) |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Information about Reportable Segments | The following tables present information about our reportable segments:
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Segment and Geographic Data |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment and Geographic Data | Segment and Geographic Data We present three reportable segments: Dental, Animal Health and Corporate. Dental and Animal Health are strategic business units that offer similar products and services to different customer bases. Dental provides a virtually complete range of consumable dental products, equipment and software, turnkey digital solutions and value-added services to dentists, dental laboratories, institutions, and other healthcare professionals throughout North America. Animal Health is a leading, full-line distributor in North America and the U.K. of animal health products, services and technologies to both the production-animal and companion-pet markets. Our Corporate segment is comprised of general and administrative expenses, including home office support costs in areas such as information technology, finance, legal, human resources and facilities. In addition, customer financing and other miscellaneous sales are reported within Corporate results. Corporate assets consist primarily of cash and cash equivalents, accounts receivable, property and equipment and long-term receivables. We evaluate segment performance based on operating income. The costs to operate the fulfillment centers are allocated to the operating units based on the through-put of the unit. The following tables present information about our reportable segments:
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Derivative Financial Instruments |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | Derivative Financial Instruments We are a party to certain offsetting and identical interest rate cap agreements entered into to fulfill certain covenants of the equipment finance contract sale agreements. The interest rate cap agreements also provide a credit enhancement feature for the financing contracts sold by PDC Funding and PDC Funding II to the commercial paper conduit. The interest rate cap agreements are canceled and new agreements are entered into periodically to maintain consistency with the dollar maximum of the sale agreements and the maturity of the underlying financing contracts. As of July 27, 2019, PDC Funding had purchased an interest rate cap from a bank with a notional amount of $525,000 and a maturity date of July 2026. We sold an identical interest rate cap to the same bank. As of July 27, 2019, PDC Funding II had purchased an interest rate cap from a bank with a notional amount of $100,000 and a maturity date of December 2025. We sold an identical interest rate cap to the same bank. These interest rate cap agreements do not qualify for hedge accounting treatment and, accordingly, we record the fair value of the agreements as an asset or liability and the change as income or expense during the period in which the change occurs. In January 2014, we entered into a forward interest rate swap agreement with a notional amount of $250,000 and accounted for it as a cash flow hedge, in order to hedge interest rate fluctuations in anticipation of refinancing the 5.17% senior notes due March 25, 2015. These notes were repaid on March 25, 2015 and replaced with new $250,000 3.48% senior notes due March 24, 2025. A cash payment of $29,003 was made in March 2015 to settle the interest rate swap. This amount is recorded in other comprehensive income (loss), net of tax, and is recognized as interest expense over the life of the related debt. We utilize forward interest rate swap agreements to hedge against interest rate fluctuations that impact the amount of net sales we record related to our customer financing contracts. These interest rate swap agreements do not qualify for hedge accounting treatment and, accordingly, we record the fair value of the agreements as an asset or liability and the change as income or expense during the period in which the change occurs. As of April 27, 2019, the remaining notional amount for these interest rate swap agreements was $553,719, with the latest maturity date in fiscal 2026. During the three months ended July 27, 2019, we entered into a forward interest rate swap agreement with a notional amount of $72,798. As of July 27, 2019, the remaining notional amount for all outstanding interest rate swap agreements was $565,756, with the latest maturity date in fiscal 2027. Net cash payments of $122 were made during the three months ended July 27, 2019 to settle a portion of our liabilities related to these interest rate swap agreements. These payments are reflected as cash outflows in the consolidated statements of cash flows within net cash provided by (used in) operating activities. The following presents the fair value of derivative instruments included in the condensed consolidated balance sheets:
The following tables present the pre-tax effect of derivative instruments on the condensed consolidated statements of income:
There were no gains or losses recognized in OCI on cash flow hedging derivatives during the three months ended July 27, 2019 or July 28, 2018. We recorded no ineffectiveness during the three month periods ended July 27, 2019 and July 28, 2018. As of July 27, 2019, the estimated pre-tax portion of accumulated other comprehensive loss that is expected to be reclassified into earnings over the next twelve months is $2,900, which will be recorded as an increase to interest expense.
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General (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 27, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Other Nonoperating Income (Expense) [Table Text Block] | Other income, net consisted of the following:
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Computation of Basic and Diluted Earnings Per Share (EPS) | The following table sets forth the computation of the weighted average shares outstanding used to calculate basic and diluted earnings (loss) per share ("EPS"):
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Leases - Future Maturities of Lease Liabilities (Details) $ in Thousands |
Jul. 27, 2019
USD ($)
|
---|---|
Leases [Abstract] | |
Remainder of 2020 | $ 26,409 |
2021 | 28,128 |
2022 | 20,860 |
2023 | 11,630 |
2024 | 4,665 |
After 2024 | 1,339 |
Total lease payments | 93,031 |
Less: imputed interest | (5,418) |
Present value of lease liabilities | $ 87,613 |
Derivative Financial Instruments - Fair Value of Derivative Instruments Included in Condensed Consolidated Balance Sheets (Detail) - USD ($) $ in Thousands |
Jul. 27, 2019 |
Apr. 27, 2019 |
---|---|---|
Derivatives, Fair Value [Line Items] | ||
Interest rate contracts, assets, fair value | $ 149 | $ 380 |
Interest rate contracts, liabilities, fair value | 6,625 | 3,194 |
Other Noncurrent Assets | Interest rate contracts | ||
Derivatives, Fair Value [Line Items] | ||
Interest rate contracts, assets, fair value | 149 | 380 |
Other Accrued Liabilities | Interest rate contracts | ||
Derivatives, Fair Value [Line Items] | ||
Interest rate contracts, liabilities, fair value | 2,486 | 1,034 |
Other Noncurrent Liabilities | Interest rate contracts | ||
Derivatives, Fair Value [Line Items] | ||
Interest rate contracts, liabilities, fair value | $ 4,139 | $ 2,160 |
General (Policies) |
3 Months Ended |
---|---|
Jul. 27, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of Patterson Companies, Inc. (referred to herein as "Patterson" or in the first person notations "we," "our," and "us") as of July 27, 2019, and our results of operations and cash flows for the periods ended July 27, 2019 and July 28, 2018. Such adjustments are of a normal recurring nature. The results of operations for the three months ended July 27, 2019 are not necessarily indicative of the results to be expected for any other interim period or for the year ending April 25, 2020. These financial statements should be read in conjunction with the financial statements included in our 2019 Annual Report on Form 10-K filed on June 26, 2019. The unaudited condensed consolidated financial statements include the assets and liabilities of PDC Funding Company, LLC ("PDC Funding"), PDC Funding Company II, LLC ("PDC Funding II") and PDC Funding Company III, LLC ("PDC Funding III"), which are our wholly owned subsidiaries and separate legal entities formed under Minnesota law. PDC Funding and PDC Funding II are fully consolidated special purpose entities established to sell customer installment sale contracts to outside financial institutions in the normal course of their business. PDC Funding III is a fully consolidated special purpose entity established to sell certain receivables to unaffiliated financial institutions. The assets of PDC Funding, PDC Funding II and PDC Funding III would be available first and foremost to satisfy the claims of its creditors. There are no known creditors of PDC Funding, PDC Funding II or PDC Funding III.
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Fiscal Year End | Fiscal Year End We operate with a 52-53 week accounting convention with our fiscal year ending on the last Saturday in April. The first quarter of fiscal 2020 and 2019 represents the 13 weeks ended July 27, 2019 and the 13 weeks ended July 28, 2018, respectively. Fiscal 2020 will include 52 weeks and fiscal 2019 included 52 weeks.
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Comprehensive Income | Comprehensive Income Comprehensive income is computed as net income including certain other items that are recorded directly to stockholders’ equity. Significant items included in comprehensive income are foreign currency translation adjustments and the effective portion of cash flow hedges, net of tax. Foreign currency translation adjustments do not include a provision for income tax because earnings from foreign operations are considered to be indefinitely reinvested outside the U.S.
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Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by most leases, as well as requires additional qualitative and quantitative disclosures. We adopted the new guidance in the first quarter of fiscal 2020 on a modified retrospective basis through a cumulative-effect adjustment to the beginning retained earnings in the period of adoption. We elected the transition package of practical expedients provided within the guidance, which eliminated the requirements to reassess lease identification, lease classification and initial direct costs for leases commenced before the effective date. We elected not to separate lease from non-lease components and to exclude short-term leases from our consolidated balance sheets. The impact of adopting the new lease standard primarily relates to the recognition of a lease right-of-use (“ROU”) asset and current and non-current lease liabilities on the condensed consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As we cannot readily determine the rate implicit in most of our leases, we use an incremental borrowing rate determined by country of lease origin based on the anticipated lease term as determined at commencement date in determining the present value of lease payments. The new lease standard resulted in the recognition of lease ROU assets and liabilities of $86,046 and $88,333 as of April 28, 2019. In addition, $1,447 of net deferred gains on sale-leaseback transactions that existed as of April 27, 2019 were derecognized from our condensed consolidated balance sheet, with the offsetting impact being an adjustment to retained earnings as of April 28, 2019. The adoption of the guidance did not have a material impact on our condensed consolidated statements of income and other comprehensive income or condensed consolidated statements of cash flows as of the adoption date. Under the transition method of adoption, comparative information was not restated, but will continue to be reported under the standards in effect for those periods. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326),” which requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. We plan to adopt the new guidance in the first quarter of fiscal 2021. We are currently evaluating the impact of adopting this pronouncement. In February 2018, the FASB issued ASU No. 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which will allow a reclassification from accumulated other comprehensive income to retained earnings for the tax effects that are stranded in accumulated other comprehensive income as a result of tax reform. This standard also requires certain disclosures about stranded tax effects. We adopted ASU No. 2018-02 in the first quarter of fiscal 2020 and applied it in the period of adoption. As a result of the adoption, $2,707 was reclassified from accumulated other comprehensive loss to retained earnings in the first quarter of fiscal 2020.
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Technology Partner Innovations, LLC |
3 Months Ended |
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Jul. 27, 2019 | |
Business Combinations [Abstract] | |
Technology Partner Innovations, LLC | Technology Partner Innovations, LLC In the first quarter of fiscal 2019, we entered into an agreement with Cure Partners to form Technology Partner Innovations, LLC (TPI), which is launching a new cloud-based practice management software, NaVetor. Patterson and Cure Partners each contributed net assets of $4,000 to form TPI. We have determined that TPI is a variable interest entity, and we consolidate the results of operations of TPI as we have concluded that we are the primary beneficiary of TPI. During the three months ended July 27, 2019 and July 28, 2018, net loss attributable to the noncontrolling interest was $235 and $53, respectively. Noncontrolling interests on the condensed consolidated balance sheets at July 27, 2019 were $3,013.
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Customer Financing |
3 Months Ended |
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Jul. 27, 2019 | |
Receivables [Abstract] | |
Customer Financing | Customer Financing As a convenience to our customers, we offer several different financing alternatives, including a third party program and a Patterson-sponsored program. For the third party program, we act as a facilitator between the customer and the third party financing entity with no on-going involvement in the financing transaction. Under the Patterson-sponsored program, equipment purchased by creditworthy customers may be financed up to a maximum of $1,000. We generally sell our customers’ financing contracts to outside financial institutions in the normal course of our business. These financing arrangements are accounted for as a sale of assets under the provisions of ASC 860, Transfers and Servicing. We currently have two arrangements under which we sell these contracts. First, we operate under an agreement to sell a portion of our equipment finance contracts to commercial paper conduits with MUFG serving as the agent. We utilize PDC Funding to fulfill a requirement of participating in the commercial paper conduit. We receive the proceeds of the contracts upon sale to MUFG. At least 9.5% of the proceeds are held by the conduit as security against eventual performance of the portfolio. This percentage can be greater and is based upon certain ratios defined in the agreement with MUFG. The capacity under the agreement with MUFG at July 27, 2019 was $525,000. Second, we maintain an agreement with Fifth Third Bank ("Fifth Third") whereby Fifth Third purchases customers’ financing contracts. PDC Funding II sells its financing contracts to Fifth Third. We receive the proceeds of the contracts upon sale to Fifth Third. At least 11.0% of the proceeds are held by the conduit as security against eventual performance of the portfolio. This percentage can be greater and is based upon certain ratios defined in the agreement with Fifth Third. The capacity under the agreement with Fifth Third at July 27, 2019 was $100,000. We service the financing contracts under both arrangements, for which we are paid a servicing fee. The servicing fees we receive are considered adequate compensation for services rendered. Accordingly, no servicing asset or liability has been recorded. The portion of the purchase price for the receivables held by the conduits is deemed a DPP receivable, which is paid to the applicable special purpose entity as payments on the customers’ financing contracts are collected by Patterson from customers. The difference between the carrying amount of the receivables sold under these programs and the sum of the cash and fair value of the DPP receivable received at time of transfer is recognized as a gain on sale of the related receivables and recorded in net sales in the condensed consolidated statements of income and other comprehensive income. Expenses incurred related to customer financing activities are recorded in operating expenses in our condensed consolidated statements of income and other comprehensive income. During the three months ended July 27, 2019 and July 28, 2018, we sold $66,303 and $47,310 of contracts under these arrangements, respectively. In net sales in the condensed consolidated statements of income and other comprehensive income, we recorded a gain of $7,346 and $2,491 during the three months ended July 27, 2019 and July 28, 2018, respectively, related to these contracts sold. Included in cash and cash equivalents in the condensed consolidated balance sheets are $32,983 and $34,016 as of July 27, 2019 and April 27, 2019, respectively, which represent cash collected from previously sold customer financing contracts that have not yet been settled. Included in current receivables in the condensed consolidated balance sheets are $16,844 and $48,559 as of July 27, 2019 and April 27, 2019, respectively, of finance contracts we have not yet sold. A total of $565,756 of finance contracts receivable sold under the arrangements was outstanding at July 27, 2019. The DPP receivable under the arrangements was $110,753 and $121,657 as of July 27, 2019 and April 27, 2019, respectively. Since the internal financing program began in 1994, bad debt write-offs have amounted to less than 1% of the loans originated. The arrangements require us to maintain a minimum current ratio and maximum leverage ratio. We were in compliance with those covenants at July 27, 2019.
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Leases - Supplemental Information Related to Leases (Details) $ in Thousands |
3 Months Ended |
---|---|
Jul. 27, 2019
USD ($)
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Leases [Abstract] | |
Cash paid for amounts included in the measurement of operating lease liabilities | $ 9,319 |
Lease assets obtained in exchange for new operating lease liabilities | $ 8,073 |
Weighted-average remaining lease term - operating leases | 3 years 3 months 21 days |
Weighted-average discount rate - operating leases | 3.65% |
Derivative Financial Instruments - Effect of Derivative Instruments in Cash Flow Hedging Relationships on Condensed Consolidated Statements of Income and Other Comprehensive Income (OCI) (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Jul. 27, 2019 |
Jul. 28, 2018 |
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Derivative Instruments, Gain (Loss) [Line Items] | ||
Accumulated other comprehensive loss expected to be reclassified into earnings | $ (2,900) | |
Gain (loss) recognized in income on derivative | (3,785) | $ 0 |
Interest rate contract | ||
Derivative Instruments, Gain (Loss) [Line Items] | ||
Accumulated other comprehensive loss expected to be reclassified into earnings | (725) | (733) |
Interest rate contract | Other income, net | Not Designated as Hedging Instrument | ||
Derivative Instruments, Gain (Loss) [Line Items] | ||
Gain (loss) recognized in income on derivative | $ (3,785) | $ 0 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Jul. 27, 2019 |
Apr. 27, 2019 |
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Statement of Financial Position [Abstract] | ||
Common stock, par value, (in usd per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 600,000,000 | 600,000,000 |
Common Stock, shares, issued | 95,470,000 | 95,272,000 |
Common stock, shares outstanding | 95,470,000 | 95,272,000 |
General |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General | General Basis of Presentation In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of Patterson Companies, Inc. (referred to herein as "Patterson" or in the first person notations "we," "our," and "us") as of July 27, 2019, and our results of operations and cash flows for the periods ended July 27, 2019 and July 28, 2018. Such adjustments are of a normal recurring nature. The results of operations for the three months ended July 27, 2019 are not necessarily indicative of the results to be expected for any other interim period or for the year ending April 25, 2020. These financial statements should be read in conjunction with the financial statements included in our 2019 Annual Report on Form 10-K filed on June 26, 2019. The unaudited condensed consolidated financial statements include the assets and liabilities of PDC Funding Company, LLC ("PDC Funding"), PDC Funding Company II, LLC ("PDC Funding II") and PDC Funding Company III, LLC ("PDC Funding III"), which are our wholly owned subsidiaries and separate legal entities formed under Minnesota law. PDC Funding and PDC Funding II are fully consolidated special purpose entities established to sell customer installment sale contracts to outside financial institutions in the normal course of their business. PDC Funding III is a fully consolidated special purpose entity established to sell certain receivables to unaffiliated financial institutions. The assets of PDC Funding, PDC Funding II and PDC Funding III would be available first and foremost to satisfy the claims of its creditors. There are no known creditors of PDC Funding, PDC Funding II or PDC Funding III. The unaudited condensed consolidated financial statements also include the assets and liabilities of Technology Partner Innovations, LLC, which is further described in Note 8. Fiscal Year End We operate with a 52-53 week accounting convention with our fiscal year ending on the last Saturday in April. The first quarter of fiscal 2020 and 2019 represents the 13 weeks ended July 27, 2019 and the 13 weeks ended July 28, 2018, respectively. Fiscal 2020 will include 52 weeks and fiscal 2019 included 52 weeks. Other Income, Net Other income, net consisted of the following:
Comprehensive Income Comprehensive income is computed as net income including certain other items that are recorded directly to stockholders’ equity. Significant items included in comprehensive income are foreign currency translation adjustments and the effective portion of cash flow hedges, net of tax. Foreign currency translation adjustments do not include a provision for income tax because earnings from foreign operations are considered to be indefinitely reinvested outside the U.S. The income tax expense related to cash flow hedges was $171 and $184 for the three months ended July 27, 2019 and July 28, 2018, respectively. Earnings (Loss) Per Share The following table sets forth the computation of the weighted average shares outstanding used to calculate basic and diluted earnings (loss) per share ("EPS"):
Potentially dilutive securities representing 2,151 shares for the three months ended July 27, 2019, and 1,580 shares for the three months ended July 28, 2018, were excluded from the calculation of diluted EPS because their effects were anti-dilutive using the treasury stock method. For the three months ended July 28, 2018, 479 incremental shares related to dilutive securities were not included in the diluted EPS calculation because we reported a loss for this period. Shares related to dilutive securities have an anti-dilutive impact on EPS when a net loss is reported and therefore are not included in the calculation. Revenue Recognition Revenues are generated from the sale of consumable products, equipment and support, software and support, technical service parts and labor, and other sources. Revenues are recognized when or as performance obligations are satisfied. Performance obligations are satisfied when the customer obtains control of the goods or services. Consumable, equipment, software and parts sales are recorded upon delivery, except in those circumstances where terms of the sale are FOB shipping point, in which case sales are recorded upon shipment. Technical service labor is recognized as it is provided. Revenue derived from equipment and software support is recognized ratably over the period in which the support is provided. In addition to revenues generated from the distribution of consumable products under arrangements (buy/sell agreements) where the full market value of the product is recorded as revenue, we earn commissions for services provided under agency agreements. The agency agreement contrasts to a buy/sell agreement in that we do not have control over the transaction, as we do not have the primary responsibility of fulfilling the promise of the good or service and we do not bill or collect from the customer in an agency relationship. Commissions under agency agreements are recorded when the services are provided. Estimates for returns, damaged goods, rebates, loyalty programs and other revenue allowances are made at the time the revenue is recognized based on the historical experience for such items. The receivables that result from the recognition of revenue are reported net of related allowances. We maintain a valuation allowance based upon the expected collectability of receivables held. Estimates are used to determine the valuation allowance and are based on several factors, including historical collection data, economic trends and credit worthiness of customers. Receivables are written off when we determine the amounts to be uncollectible, typically upon customer bankruptcy or non-response to continuous collection efforts. The portions of receivable amounts that are not expected to be collected during the next twelve months are classified as long-term. Net sales do not include sales tax as we are considered a pass-through conduit for collecting and remitting sales tax. Contract Balances Contract balances represent amounts presented in our condensed consolidated balance sheets when either we have transferred goods or services to the customer or the customer has paid consideration to us under the contract. These contract balances include accounts receivable, contract assets and contract liabilities. Contract asset balances as of July 27, 2019 and April 27, 2019 were not material. Our contract liabilities primarily relate to advance payments from customers, upfront payments for software and support provided over time, and options that provide a material right to customers, such as our customer loyalty programs. At July 27, 2019 and April 27, 2019, contract liabilities of $21,472 and $22,004 were reported in other accrued liabilities, respectively. During the three months ended July 27, 2019, we recognized $6,217 of the amount previously deferred at April 27, 2019. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by most leases, as well as requires additional qualitative and quantitative disclosures. We adopted the new guidance in the first quarter of fiscal 2020 on a modified retrospective basis through a cumulative-effect adjustment to the beginning retained earnings in the period of adoption. We elected the transition package of practical expedients provided within the guidance, which eliminated the requirements to reassess lease identification, lease classification and initial direct costs for leases commenced before the effective date. We elected not to separate lease from non-lease components and to exclude short-term leases from our consolidated balance sheets. The impact of adopting the new lease standard primarily relates to the recognition of a lease right-of-use (“ROU”) asset and current and non-current lease liabilities on the condensed consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As we cannot readily determine the rate implicit in most of our leases, we use an incremental borrowing rate determined by country of lease origin based on the anticipated lease term as determined at commencement date in determining the present value of lease payments. The new lease standard resulted in the recognition of lease ROU assets and liabilities of $86,046 and $88,333 as of April 28, 2019. In addition, $1,447 of net deferred gains on sale-leaseback transactions that existed as of April 27, 2019 were derecognized from our condensed consolidated balance sheet, with the offsetting impact being an adjustment to retained earnings as of April 28, 2019. The adoption of the guidance did not have a material impact on our condensed consolidated statements of income and other comprehensive income or condensed consolidated statements of cash flows as of the adoption date. Under the transition method of adoption, comparative information was not restated, but will continue to be reported under the standards in effect for those periods. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326),” which requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. We plan to adopt the new guidance in the first quarter of fiscal 2021. We are currently evaluating the impact of adopting this pronouncement. In February 2018, the FASB issued ASU No. 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which will allow a reclassification from accumulated other comprehensive income to retained earnings for the tax effects that are stranded in accumulated other comprehensive income as a result of tax reform. This standard also requires certain disclosures about stranded tax effects. We adopted ASU No. 2018-02 in the first quarter of fiscal 2020 and applied it in the period of adoption. As a result of the adoption, $2,707 was reclassified from accumulated other comprehensive loss to retained earnings in the first quarter of fiscal 2020.
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