-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SlkegiJ/8mfxQEn1zkdeoNn1fxWbNSbVvRFE2HL4bnQapxJ0dKRKZmD7BGinQfhH 2b4n4CNsZSAqh9fBTi2Oxw== 0000950131-96-003443.txt : 19960729 0000950131-96-003443.hdr.sgml : 19960729 ACCESSION NUMBER: 0000950131-96-003443 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960427 FILED AS OF DATE: 19960726 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATTERSON DENTAL CO CENTRAL INDEX KEY: 0000891024 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 410886515 STATE OF INCORPORATION: MN FISCAL YEAR END: 0427 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20572 FILM NUMBER: 96599293 BUSINESS ADDRESS: STREET 1: 1031 MENDOTA HEIGHTS ROAD CITY: ST PAUL STATE: MN ZIP: 55120-1419 BUSINESS PHONE: 6126861600 MAIL ADDRESS: STREET 1: 1100 EAST 80TH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55450 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended April 27, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from __________ to __________ Commission File No. 0-20572 PATTERSON DENTAL COMPANY (Exact name of registrant as specified in its charter) Minnesota 41-0886515 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1031 Mendota Heights Road St. Paul, Minnesota 55120 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (612) 686-1600 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by nonaffiliates of the registrant as of July 15, 1996 was approximately $427,296,000. As of July 15, 1996, there were 21,551,616 shares of Common Stock of the registrant issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the document listed below have been incorporated by reference into the indicated part of this Form 10-K. Document Incorporated Part of Form 10-K --------------------- ----------------- Proxy Statement for 1996 Annual Meeting of Shareholders Part III FORM 10-K INDEX
Page PART I........................................................................... 1 Item 1. BUSINESS......................................................... 1 Item 2. PROPERTIES....................................................... 7 Item 3. LEGAL PROCEEDINGS................................................ 7 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 8 PART II.......................................................................... 8 Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.............................................. 8 Item 6. SELECTED CONSOLIDATED FINANCIAL DATA............................. 9 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................. 10 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 15 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............................. 28 PART III......................................................................... 28 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 28 Item 11. EXECUTIVE COMPENSATION........................................... 29 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................................................... 29 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 29 PART IV.......................................................................... 29 Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.......................................................... 29 SIGNATURES.................................................................. 31
i PART I ITEM 1. BUSINESS GENERAL Patterson Dental Company ("Patterson" or the "Company") distributes dental supplies and equipment in the United States and Canada. The Company currently supplies a full line of over 70,000 products to dentists, dental laboratories and institutions. These products include supplies such as x-ray film and solutions, impression materials and restorative materials, hand instruments and sterilization and protective products and equipment such as x-ray machines, handpieces, dental chairs, dental handpiece control units, diagnostic equipment, sterilizers, dental lights and compressors. The Company's product line includes approximately 1,500 private-label products sold under the Patterson name. Patterson also offers customers a full range of related services including dental equipment installation, maintenance and repair, dental office design and equipment financing. Unless otherwise indicated, all references to Patterson or the Company include its subsidiaries: Direct Dental Supply Co.; Patterson Dental Canada, Inc.; and Patterson Dental Supply, Inc. The Company markets its products and services through more than 750 direct sales representatives and equipment specialists who operate through 90 sales offices in the United States and Canada. The Company processes an average of more than 8,000 customer orders each business day using a computerized order processing network that links the Company's sales offices and 9 distribution centers. The Company estimates that 97% of its consumable goods orders are shipped complete within 24 hours. Customers may order through a sales representative or directly from the Company by mail, telephone and, for selected customers, electronically through the Company's personal computer-based remote order entry system (REMO) or hand-held bar code scanner (PDXpress/TM/). To support its marketing efforts and facilitate order entry, Patterson publishes an annual catalog containing approximately 10,000 dental products; a semiannual publication, Patterson Today, featuring dental equipment; and periodic direct mail advertisements highlighting popular and specially priced items. In May 1985, a holding company formed by the Company's management and certain investors purchased the Company's predecessor, then a Delaware corporation, from a subsidiary of The Beatrice Companies, Inc. Following the acquisition, management implemented strategies to enhance profitability through improving operating efficiency and the quality and breadth of customer service. The Company instituted a computerized order processing network, improved inventory tracking and other management information systems, introduced centralized purchasing, and reduced the number of distribution locations in the U.S. from 56 to 8. Management also enhanced revenue growth through internal expansion and strategic acquisitions, including the 1987 acquisition of the third largest U.S. distributor of dental products and the 1993 acquisition of the second largest distributor of dental products in Canada. As a result of implementing these strategies, net sales increased from $165.8 million for fiscal 1986 to $581.9 million for fiscal 1996, operating margins increased every year since fiscal 1985 and profitability increased from an operating loss for fiscal 1986 to operating income of $43.7 million for fiscal 1996. INDUSTRY BACKGROUND Patterson estimates that sales of dental supplies and equipment in the United States and Canada were approximately $2.5 billion in 1995. Total expenditures for dental services in the United States increased from $13.3 billion in 1980 to $40.0 billion in 1994. Per capita expenditures increased from $60 in 1980 to $150 in 1994 and are forecasted to reach $270 by the year 2005. The Company believes that the demand for dental services and dental equipment and supplies will continue to be influenced by the following factors: . Demographics. The U.S. population grew from 235.1 million in 1980 to 271.0 million in 1994, and is expected to reach 295.7 million by 2005. The median age of the population is also increasing and Patterson believes that older dental patients spend more on a per capita basis for dental services. . Dental products and techniques. Technological developments in dental products have contributed to advances in dental techniques and procedures, including cosmetic dentistry and dental implantation. . Demand for certain dental procedures. Demand is growing for preventive dentistry and periodontic (the treatment of gums), endodontic (root canals), orthodontic (braces) and other dental procedures which enable patients to keep their natural teeth longer and improve their appearance. . Demand for infection control products. Greater public awareness and new regulations and guidelines instituted by OSHA, the American Dental Association and state regulatory authorities have resulted in increased use of infection control (asepsis) products such as protective clothing, gloves, facemasks and sterilization equipment to prevent the spread of communicable diseases such as AIDS, hepatitis and herpes. . Coverage by dental plans. An increasing percentage of dental services are being funded by private dental insurance. The Health Care Financing Administration statistics on expenditures for dental services in the United States indicate that private dental insurance paid approximately 51% of the $42.2 billion in total expenditures for 1994 as compared to approximately 30% of the $14.4 billion in total expenditures for 1980. According to the American Dental Association, there are over 140,000 dentists practicing in the United States in approximately 100,000 dental practices, representing a fragmented, geographically diverse market. Dental supplies and equipment are purchased by dentists from full-service dental distributors such as Patterson, through mail order distributors, or, as to certain products, directly from manufacturers. Full-service distributors typically employ a sales force to make calls on dental offices and to provide quick response time, personal attention and product knowledge. With the introduction of new products and technologies, dentists are demanding more sophisticated, personalized service from distributors of dental products. The Company believes that it is well positioned to compete as a full-service distributor of dental products, based primarily on its qualified and motivated sales force, experienced service technicians, broad range of products and services, accurate and timely delivery, strategic location of sales offices and distribution centers, and competitive pricing. PATTERSON'S STRATEGY Patterson's objective is to remain the leading national distributor of dental supplies, equipment and related services while continuing to improve its profitability and enhance its value to customers. To achieve this objective, Patterson has adopted a strategy of emphasizing its full-service capabilities, using technology to enhance customer service, continuing to improve operating efficiencies, and growing through internal expansion and acquisitions. Emphasizing Full-Service Capabilities. Patterson believes that its customers value full service and responsive delivery of quality supplies and equipment, in addition to competitive prices. Customers also increasingly expect suppliers to be knowledgeable about products and services. Patterson currently supplies a full line of over 70,000 different inventoried items. Patterson generally ships within 24 hours from distribution centers located strategically throughout the United States. The Company's knowledgeable sales representatives and equipment specialists assist customers in the selection and purchasing of supplies and equipment and provide consultation on office design, equipment requirements and financing. Equipment installation, maintenance and repair is performed by Patterson's trained service technicians. 2 Using Technology to Enhance Customer Service. The Company's computerized, remote order entry systems, REMO and PDXpress/TM/, permit Patterson's customers to order products rapidly and accurately from Patterson 24 hours a day, seven days a week. In addition, by utilizing technologies such as computer-aided design (CAD), Patterson is able to provide faster generation and revision of dental office blueprints and a more effective dental office design presentation. Continuing to Improve Operating Efficiencies. Patterson continues to implement programs designed to improve operating efficiencies. These programs include enhancing its management information and product handling systems and consolidating its distribution centers to improve product availability and to reduce redundancies in personnel, equipment and certain inventories. In addition, by offering its electronic order entry systems to dentists, Patterson enables its sales representatives to spend more time with existing customers and to call on additional customers. Growing through Internal Expansion and Acquisitions. The Company intends to continue to grow by opening additional sales offices, hiring established sales representatives, hiring and training college graduates as territory sales representatives, and acquiring other distributors in order to enter new markets and expand its customer base. In August 1987, Patterson acquired the D.L. Saslow Co., which at the time was the third largest distributor of dental products in the United States. Between 1989 and 1996, Patterson acquired the customer base and certain assets of smaller distributors in Boston; Portland, Maine; Memphis; Salt Lake City; the Washington, D.C. area; Raleigh, North Carolina; Akron, Ohio; St. Louis; Erie (Pa.), Kansas City, Omaha, Youngstown, San Antonio and the Tampa-Orlando-Miami area. In addition, Patterson also expanded by opening additional sales offices and hiring established sales representatives in Baltimore; Tulsa; Charlotte, North Carolina; and Greenville, Columbia and Charleston, South Carolina. In October 1993, the Company completed the acquisition of Healthco International, Inc.'s Canadian subsidiary, Healthco Canada, Inc. Now known as Patterson Dental Canada, Inc., this subsidiary, which the Company believes is one of the two largest full service dental products distributors in Canada, employs approximately 385 people, 107 of whom are sales representatives. Patterson Dental Canada, Inc. has eleven sales offices throughout Canada, including its headquarters facility in Montreal, which also serves as its distribution center for Canada. The Company believes that it is well positioned to take advantage of expected continued consolidation in the dental products distribution industry. PRODUCTS Patterson distributes approximately 70,000 dental products categorized as supplies, equipment and other. The following table shows the approximate percentages of net sales contributed by sales category for the last four fiscal years:
1993 1994 1995 1996 ----- ----- ----- ----- Supplies.... 61% 62% 62% 60 Equipment... 29 27 27 29 Other....... 10 11 11 11 --- --- --- --- Total.... 100% 100% 100% 100% === === === ===
Supplies. Patterson offers a wide range of consumable dental products such as x-ray film and solutions; impression materials; restorative materials (composites and alloys); hand instruments; sterilization products; infection control products such as protective clothing, gloves and facemasks; paper, cotton and other disposable products; toothbrushes and a full line of dental accessories including instruments, burs and diamonds. Patterson markets its own private label line of dental supplies consisting of approximately 1,500 items, including anesthetics, instruments, preventative and restorative products, and cotton and paper products. Compared to most name brand supplies, the private label line provides lower prices for the Company's customers and higher margins for the Company. 3 Equipment. Patterson offers a wide range of dental equipment including x- ray machines, high and low speed handpieces, dental chairs, dental handpiece control units, diagnostic equipment, sterilizers, dental lights and compressors. The Company has obtained distribution rights for the KCP-1000/TM/, an innovative product for cavity preparation. In addition, the Company is the exclusive distributor of the Welch Allyn Reveal(R) intra-oral camera, and its lighted mouth mirror, Denlight(R). Since fiscal 1995, the Company began distributing two new products, a thermal disinfector for cleaning dental instruments prior to sterilization, and the Virtual i O(R) eyeglasses, an audio-video patient distraction device with which the patient can view movies or television while undergoing dental treatment. Patterson estimates that approximately 90% of its equipment sales are made to established dentists, dental laboratories and institutions and that the remainder are made to dentists and dental clinics establishing new practices. Most of the equipment sold by Patterson is custom- ordered. Other. Other includes repair parts and labor, and teeth for use in dentures. SERVICES Patterson offers a broad range of services to its customers to support supply and equipment sales. Equipment Installation, Repair and Maintenance. To keep their practices running efficiently, dentists require reliable performance from their equipment. All major equipment sold by Patterson includes installation and Patterson's 90- day labor warranty at no additional charge. Patterson also provides complete repair and maintenance service for all dental equipment, whether or not purchased from Patterson, including 24-hour handpiece repair service. Patterson's service technicians call on dental offices throughout the United States for equipment repair and maintenance. A computerized scheduling, tracking and billing system documents and instantly retrieves customer repair histories, and helps Patterson to keep frequently needed repair items in inventory. Electronic Order Entry Systems. Patterson's computerized remote order entry systems permit customers to place orders from their offices directly to Patterson 24 hours a day, seven days a week. Remote Order Entry (REMO), introduced in 1987, gives customers direct and immediate access through a personal computer to a database containing Patterson's complete inventory. In September 1991, the Company began offering "use installed" customers PDXpress, a computerized order entry system utilizing a hand-held bar code scanner. PDXpress eliminates handwritten order forms by permitting a user to scan a product bar code from an inventory tag system or from Patterson's bar-coded catalog. More than 5,500 Patterson customers currently utilize either REMO or PDXpress to order dental supplies. REMO and PDXpress are provided at no additional charge to customers who maintain certain minimum purchase requirements. Dental Office Design. Patterson provides dental office layout and design services through its staff of 94 equipment specialists. Through the use of Patterson's own computer-aided design (CAD) program, equipment specialists can create original or revised dental office blueprints in a fraction of the time required to produce conventional drawings. Customers purchasing major equipment items receive dental office design services at no additional charge. Equipment Financing. The Company arranges financing for qualified purchasers of equipment. The Company sells its retail installment contracts to a third party or, alternatively, arranges financing/leasing through a third party. In fiscal 1996, the Company originated over $42 million of equipment finance contracts. Equipment financing is provided by BA Credit Corp., a unit of BankAmerica, pursuant to an agreement entered into in July 1993. Applications for financing originated by the Company are reviewed by BA Credit Corp. which upon approval may purchase the equipment and lease it to the customer or purchase an installment sale contract from the Company without recourse. In May 1994, the Company entered into a Receivables Purchase Agreement with PNC Bank, National Association, under which PNC Bank committed to purchase, on a limited recourse basis, the Company's 4 installment sale contracts secured by dental equipment. The Company services the accounts, for which it receives servicing fees. PNC Bank's initial commitment of $15 million was increased to $25 million effective August 1995. As of April 27, 1996, no significant amount was available for purchase under this facility by PNC Bank. PNC Bank's commitment to purchase additional contracts expired effective May 1996. In April 1996, the Company entered into a Contract Purchase Agreement with First Bank National Association, under which First Bank committed to purchase from the Company, on a limited recourse basis, the Company's installment sale contracts secured by dental equipment. The Company services the accounts. First Bank has committed up to a combined $30 million for both installment contract receivables outstanding and unsecured borrowings under a revolving credit agreement with the Company. As of April 27, 1996, First Bank had purchased $6.7 million under the Contract Purchase Agreement. SALES AND MARKETING During fiscal 1996, Patterson sold its products to over 73,000 customers who made one or more purchases of supplies during the year. Patterson's customers include dentists, dental laboratories and institutions. No single customer accounted for more than 1% of sales during fiscal 1995, and Patterson is not dependent on any customer or group of customers. Due to the fragmented nature of the dental products market, Patterson believes that a large sales force is necessary to reach potential customers and to provide full service. As of April 27, 1996, Patterson employed approximately 750 trained sales representatives, 94 of whom were equipment specialists. Each representative works within an assigned sales territory from one of 90 sales offices under the supervision of a branch sales manager. Sales representatives are all Patterson employees and are generally compensated on a commission basis, with some representatives receiving a base salary and commission. To assist its sales representatives, Patterson publishes a variety of catalogs and fliers containing product and service information. Patterson's customers receive an annual, full-line product catalog containing over 10,000 inventoried items. A separate catalog limited to high-volume products contains bar coding and product numbers, permitting PDXpress/TM/ users to enter orders electronically 24 hours a day, seven days a week. Selected consumable supplies, new products, specially priced items and high-demand items such as asepsis products are promoted through merchandise fliers printed bimonthly and distributed to over 100,000 dentists nationwide. In addition, equipment sold by the Company is featured in the Company's semiannual publication, Patterson Today, which also includes articles on dental office design, trends in dental practice, products and services offered by Patterson, and information on equipment maintenance. The Company believes that its computerized remote order entry systems, REMO and PDXpress/TM/, help to establish relationships with new customers and increase loyalty among existing customers. Patterson provides these systems at no additional cost to customers who maintain certain minimum purchase requirements. DISTRIBUTION Patterson ships its supplies from 9 distribution centers. The Company's 90 sales offices in the United States and Canada are configured with display areas where the latest dental equipment can be demonstrated. Equipment inventory is also staged at sales offices before delivery to dental offices for installation. Patterson processes an average of more than 8,000 orders per day. A customer can place an order through a sales representative, by telephone utilizing a Patterson catalog or other publication and, for selected customers, electronically utilizing REMO or PDXpress. All orders are routed through one of the Company's branch offices and are entered into a computerized ordering, shipping and inventory system, which links each of the Company's distribution centers. If an item is not available in the distribution center nearest to the customer, the computer system automatically directs shipment of the item from another center. As items are 5 ordered, the system automatically records reductions in the inventory of the items. Each order is printed out in the shipping department of the appropriate distribution center, where employees pick and pack the order. All orders are checked for accuracy before shipment by common carrier. The Company estimates that 97% of its consumable goods orders are shipped complete within 24 hours. In order to assure the availability of products for delivery to customers, the Company must maintain significant working capital to enable it to carry substantial inventories at its distribution centers. The Company's inventory consists mostly of dental supply items; equipment is generally custom- ordered by customers. By utilizing its computerized inventory management and ordering systems, the Company is able to accurately predict inventory turns in order to minimize inventory levels for each item. Sources of Supply The Company obtains dental products from approximately 1,100 vendors. In calendar 1996, the Company's top 10 vendors and single largest vendor accounted for approximately 58% and 9%, respectively, of the cost of products sold. There is more than one source of supply for almost all of the categories of products sold by the Company. Competition The highly competitive U.S. dental products distribution industry consists principally of national, regional and local full-service distributors and mail-order distributors. In addition to Patterson and two other national, full-service firms, Sullivan Dental Products, Inc. and the Henry Schein Company ("Schein"), there are at least 20 full-service distributors which operate on a regional level, and hundreds of small local distributors. Approximately 28 of these independent distributors are members of a purchasing group known as the ADC buying group ("ADC"). ADC purchases dental products and obtains volume discounts for the benefit of its members. ADC members, who market and sell products independently, are believed to have combined sales exceeding those of the Company. Although the Company does not have reliable information regarding the market share of mail-order companies, it believes that Schein is the largest mail-order company. Patterson believes that it competes with full-service distributors and mail-order distributors based primarily on its qualified and motivated sales force, experienced service technicians, broad range of products and services, accurate and timely delivery, strategic location of sales offices and distribution centers, and competitive pricing. Trademarks Patterson has registered with the United States Patent and the Trademark Office the marks "Patterson" and "PDXpress." The Company believes that the Patterson mark is well recognized in the dental products industry and by dental professionals, and is therefore a valuable asset of the Company. Employees As of April 27, 1996, the Company employed 2,500 people in the United States and Canada on a full-time basis, consisting of 108 management employees, 769 sales representatives, 607 service technicians, 619 office, clerical and administrative employees and 397 distribution employees. Patterson has not experienced a shortage of qualified personnel in the past, and believes that it will be able to attract such employees in the future. None of Patterson's employees is subject to collective bargaining agreements or represented by a union. The Company considers its relations with its employees to be good. Governmental Regulation The manufacture of certain dental equipment and devices distributed by the Company is subject to regulation by the United States Food and Drug Administration (the "FDA") pursuant to the Federal Food, 6 Drug and Cosmetic Act and the Medical Device Amendments of 1976, and regulations promulgated thereunder. Such regulation is imposed primarily on manufacturers of medical devices. The Safe Medical Devices Act of 1990 (the "SMDA") requires manufacturers, distributors and end-users to report information that "reasonably suggests" that there is a probability that a device marketed by a distributor has caused or contributed to a death, serious illness or serious injury. The Company believes that it is in compliance with the SMDA. Item 2. PROPERTIES As of April 27, 1996, Patterson's 98 facilities consisted of 88 sales offices, 7 distribution centers, two combined sales office/distribution centers, and its headquarters building. All but six facilities are leased and, with few exceptions, such leases are for three to five-year terms. As of April 27, 1996, the Company leased approximately 631,000 square feet at an annual cost of $6.40 per square foot. The Company considers its facilities to be well-maintained and suitable for its purposes. The Company has made a significant investment in computer, data processing and automated office equipment systems and it plans to continuously upgrade these systems. The Company believes that technology-based systems are crucial in supporting its operating efficiency and providing it with a competitive advantage. Item 3. LEGAL PROCEEDINGS The Company has been involved in various legal proceedings arising in the ordinary course of business. Some of these proceedings involve claims against the Company for alleged personal injuries arising out of the use of dental products manufactured by third parties and distributed by the Company. The Company believes that if any of such cases are determined in favor of the claimants, the manufacturers of such products would have primary responsibility for any damages because Patterson is a distributor of finished goods manufactured by third parties. In the event that a manufacturer of a defective product is unable to pay a judgment for which the Company may be jointly liable, the Company could have liability for the entire judgment. Since May 1985 the Company has maintained products liability insurance coverage for any potential liability for claims arising out of products sold by the Company. The Company believes that any liabilities which might result from pending cases and claims relating to events occurring after May 1985 would be adequately covered by such insurance and that any unfavorable results in such cases would not have a material adverse effect on the Company's business or financial condition. With respect to claims relating to events occurring prior to May 1985, the agreement providing for the acquisition of Patterson from The Beatrice Companies, Inc. provides that Beatrice and its successors are obligated to indemnify the Company for losses exceeding a litigation reserve established at the time of the acquisition plus $200,000. As of April 27, 1996, the litigation reserve had a balance of $49,000. Beatrice has not been notified of pending litigation and has not contested its obligation to indemnify the Company. In the past, lawsuits have been brought against the Company and other defendants, including product manufacturers and distributors, by individuals claiming injuries allegedly suffered as a result of exposure to amalgam alloys containing mercury. Each of these lawsuits was dismissed with a result favorable to the Company, and no such claims are currently pending. While the Company believes that such claims will not have a material adverse effect on its business or financial condition, no assurance can be given that additional litigation will not be commenced in the future against the Company and manufacturers of amalgams if adverse regulatory actions concerning the use and exposure to such products are adopted, or reliable scientific data are released concerning harmful effects of amalgams containing mercury. Further, although the Company has insurance coverage for product liability claims relating to events occurring after May 1985 and is entitled to indemnification from third parties under certain circumstances, there is no assurance that any such additional litigation would not have a material adverse effect on the Company's business or financial condition in the future. 7 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the Company's shareholders during the three-month period ended April 27, 1996. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock began trading under the symbol "PDCO" on the NASDAQ National Market System in October 1992. The following table sets forth the range of high and low sale prices for the Company's Common Stock for each full quarterly period within the two most recent fiscal years. Quotations for such periods are as reported by NASDAQ for National Market System issues.
HIGH LOW ------- ------ Fiscal 1995 First Quarter... 23-13/16 16-3/4 Second Quarter.. 21 15-3/4 Third Quarter... 22-5/8 17-1/4 Fourth Quarter.. 25-1/2 20-1/4 Fiscal 1996 First Quarter... 27-1/4 21-3/4 Second Quarter.. 28-1/2 22-3/4 Third Quarter... 28-5/16 23-1/2 Fourth Quarter.. 31-3/4 24-1/2
On July 15, 1996, the number of holders of record of Common Stock was 1,232. The transfer agent for the Company's Common Stock is Norwest Bank Minnesota, N.A., 161 North Concord Exchange, South St. Paul, Minnesota, 55075- 0738, telephone: (612) 450-4064. The Company has not paid any dividends on its Common Stock since its initial public offering and expects that for the foreseeable future it will follow a policy of retaining earnings in order to finance the continued development of its business. Payment of dividends is within the discretion of the Company's Board of Directors and will depend upon the earnings, capital requirements and operating and financial condition of the Company, among other factors. 8 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (In thousands, except per share amounts)
Fiscal Years Ended --------------------------------------------------------------------------------------------------- April April April April April April April April April April 27, 29, 30, 24, 25, 27, 28, 29, 30, 25, 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Statement of Operations Data: - ----------------------------- Net sales $581,893 $532,598 $466,882 $342,826 $277,057 $243,130 $220,583 $218,177 $198,188 $157,979 Cost of sales 376,507 342,868 301,239 223,501 180,226 156,785 142,138 143,684 129,833 103,089 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Gross profit 205,386 189,730 165,643 119,325 96,831 86,345 78,445 74,493 68,355 54,890 Operating expenses 161,676 151,640 134,317 99,032 83,319 75,017 70,459 67,761 62,315 53,727 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Operating income 43,710 38,090 31,326 20,293 13,512 11,328 7,986 6,732 6,040 1,163 Other income (expense) - net 1,998 1,043 643 134 (945) (871) 1,061 1,176 1,305 1,731 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Income before income taxes and extraordinary item 45,708 39,133 31,969 20,427 12,567 10,457 9,047 7,908 7,345 2,894 Income taxes 16,961 14,953 12,683 7,219 4,041 3,128 3,015 2,680 63 3 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Income before extraordinary item $ 28,747 24,180 19,286 13,208 8,526 7,329 6,032 5,228 7,282 2,891 Extraordinary item (less income tax benefit of $281) --- --- --- (453) --- --- --- --- --- --- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Net income $ 28,747 $ 24,180 $ 19,286 $ 12,755 $ 8,526 $ 7,329 $ 6,032 $ 5,228 $ 7,282 $ 2,891 ======== ======== ======== ======== ======== ======== ======== ======== ======== ======== Earnings per common and common equivalent share:(1) Earnings before extraordinary item $ 1.31 $ 1.10 $ 0.87 $ 0.62 $ 0.38 $ 0.32 $ 0.30 $ 0.26 $ 0.36 $ 0.14 Loss - extraordinary item -- -- -- (0.02) -- -- -- -- -- -- -------- -------- -------- ------- -------- -------- -------- -------- -------- -------- Net Earnings $1.31 $1.10 $0.87 $0.60 $0.38 $0.32 $0.30 $0.26 $0.36 $0.14 ======== ======== ======== ======= ======== ======== ======== ======== ======== ======== Weighted average common and common equivalent shares outstanding (1) 21,539 21,488 21,485 19,842 18,498 18,474 20,334 20,111 20,124 20,690 Dividends per common share (1) --- --- --- --- --- --- --- $0.49 --- --- Balance Sheet Data: - --------------------------- Working capital $111,869 $ 87,229 $ 72,301 $ 56,546 $ 35,227 $ 30,616 $ 31,355 $ 37,584 $ 41,166 $ 33,781 Total assets 202,800 170,768 136,196 104,630 75,250 64,554 61,267 63,055 69,041 53,918 Total debt 3,175 3,324 9,064 21 19,224 21,634 3,640 14,173 14,137 16,780 Stockholders' equity 127,121 97,191 72,179 53,142 10,686 2,202 17,086 10,934 15,066 7,724
____________ (1) Amounts are adjusted for stock splits. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion below contains forward-looking statements that involve risks and uncertainties relating to the future performance of the Company, and actual events or results may differ materially. In evaluating such statements, shareholders and prospective investors should specifically review the various factors identified under the caption "Factors That May Affect Future Operating Results" which could cause actual results to differ materially from those indicated in such forward-looking statements. RESULTS OF OPERATIONS - --------------------- The following table summarizes the results of operations over the past three fiscal years. Each item is shown as a percent of that year's net sales:
1996 1995 1994 ------ ------ ------ Net sales............ 100.0% 100.0% 100.0% Cost of sales........ 64.7 64.4 64.5 ----- ----- ----- Gross profit......... 35.3 35.6 35.5 Operating expenses... 27.8 28.5 28.8 ----- ----- ----- Operating income..... 7.5 7.1 6.7 Other income......... 0.3 0.2 0.1 ----- ----- ----- Income before taxes.. 7.8 7.3 6.8 Income taxes......... 2.9 2.8 2.7 ----- ----- ----- Net income........... 4.9% 4.5% 4.1% ===== ===== =====
FISCAL 1996 COMPARED TO FISCAL 1995 Net Sales. Net sales increased 9.3% to $581.9 million for fiscal 1996 compared with $532.6 million in fiscal 1995. Supplies constituted 60% of sales in fiscal 1996 vs. 62% in fiscal 1995, and equipment accounted for 29% vs. 27%. Other products and services were 11% of sales for both periods. The increase in sales is attributable primarily to higher unit sales in most of the Company's product lines and to a lesser extent price increases. The unit increases occurred primarily in equipment sales and more specifically in the sale of Reveal interoral cameras, which accounted for 2.8% of the 9.3% sales increase. The number of customers who purchased consumable dental supplies from the Company was 73,600 and the average consumable sales per customer increased 9.2% to $4,600 in fiscal 1996. Gross Profit. As a result of increased sales, gross profit increased 8.3% to $205.4 million for fiscal 1996 compared to $189.7 million for fiscal 1995. Gross margin decreased to 35.3% in fiscal 1996 from 35.6% in fiscal 1995. The reduction in gross margin was primarily the result of the increase in equipment sales as a percent of total sales and the lower margin on equipment sales compared to supply sales, and a larger LIFO adjustment in fiscal 1996. Operating Expenses. Operating expenses increased 6.6% to $161.7 million for fiscal 1996 compared with $151.6 million for fiscal 1995. Increased sales volume was the main reason for the increase in operating expenses. The U.S. operating expenses as a percent of sales decreased in fiscal 1996. The U.S. operation's decrease in operating expense ratio was due mainly to its ability to move more product through its distribution system without incurring a proportionate increase in expenses. The U.S. operating expense ratio declined to 27.0% from 27.7%, and the Company's Canadian subsidiary operating expense ratio remained unchanged at 35.0%. As a result, the consolidated operating expense ratio declined to 27.8% from 28.5%. 10 Operating Income. Operating income increased 14.8% to $43.7 million for fiscal 1996 compared with $38.1 million for fiscal 1995. Operating income as a percent of sales increased to 7.5% from 7.1% due primarily to the decrease in operating expenses as a percent of sales. Other Income. Other income was $1,998,000 in fiscal 1996 compared with $1,043,000 in fiscal 1995. The gain was due mainly to an increase in interest income from financing customers' equipment purchases and short-term investment of excess cash. Income Taxes. The Company's effective tax rate was 37.1% for fiscal 1996 and 38.2% for fiscal 1995. The decrease in the effective tax rate results primarily from higher profits in our Canadian subsidiary and utilization of the Canadian subsidiary's net operating loss carryforwards, and an increase in tax- exempt interest income. The Company's Canadian subsidiary's income before taxes increased 95% to $1.4 million for fiscal 1996 from $0.7 million in fiscal 1995. Net Income. Net income increased $4.6 million, or 18.9%, to $28.7 million for fiscal 1996 on a 9.3% increase in sales. Net income of $28.7 million represented a 25.6% return on average equity compared with a return on average equity of 28.6% for fiscal 1995. FISCAL 1995 COMPARED TO FISCAL 1994 Net Sales. Net sales increased 14.1% to $532.6 million for fiscal 1995 compared with $466.9 million in fiscal 1994. The sales mix was identical for both years, with supplies constituting 62%, equipment 27% and other products and services 11%. Fiscal 1995 consisted of 52 weeks of Canadian subsidiary sales and fiscal 1994 consisted of 30 weeks of Canadian subsidiary sales (the Canadian subsidiary was acquired on October 1, 1993). The additional 22 weeks of Canadian subsidiary sales contributed 4.9% of the total 14.1% increase in sales. The remaining 9.2% increase in sales is attributable primarily to higher unit sales in most of the Company's product lines and to a lesser extent price increases. The growth in unit sales was offset by one less selling week in the U.S. for fiscal 1995. The number of customers who purchased consumable dental supplies from the Company was 75,200 and the average consumable sales per customer increased 12.7% to $4,200 in fiscal 1995. Gross Profit. As a result of increased sales, gross profit increased 14.5% to $189.7 million for fiscal 1995 compared with $165.6 million for fiscal 1994. Gross margin as a percent of sales increased to 35.6% in fiscal 1995 from 35.5% in fiscal 1994. The improvement in gross margin can be attributed to the additional 22 weeks of the Company's Canadian subsidiary sales in fiscal 1995, and the higher margins associated with the Company's Canadian subsidiary sales. The improvement in gross margin was partially offset by the higher LIFO adjustment in fiscal 1995 ($785,000) versus fiscal 1994 ($190,000). See note 1 of Notes to Consolidated Financial Statements - Summary of Significant Accounting Policies - Inventory. Operating Expenses. Operating expenses increased 12.9% to $151.6 million for fiscal 1995 compared with $134.3 million for fiscal 1994. Increased sales volume was the main reason for the increase in operating expenses. Both the U.S. and the Company's Canadian subsidiary operating expenses as a percent of sales decreased in fiscal 1995. The U.S. operation's decrease in operating expense ratio was due mainly to its ability to move more product through its distribution system without incurring a proportionate increase in expenses. The Canadian subsidiary's decrease in operating expense ratio results from cost reductions and increased sales. The rate at which the Canadian subsidiary's ratio declined is not expected to be as great next year. The U.S. operating expense ratio declined to 27.7% from 28.0%, and the Company's Canadian subsidiary operating expense ratio declined from 40.6% to 35.0%. As a result, the consolidated operating expense ratio declined to 28.5% from 28.8%. Operating Income. Operating income increased 21.6% to $38.1 million for fiscal 1995 compared with $31.3 million for fiscal 1994. Operating income as a percent of sales increased to 7.1% from 6.7% due 11 primarily to the decrease in operating expenses as a percent of sales, and to a lesser extent from the increase in gross margin. Other Income. Other income was $1,043,000 in fiscal 1995 compared with $643,000 in fiscal 1994. The gain was due mainly to a $315,000 increase in income earned on financing of customer equipment purchases. Income Taxes. The Company's effective tax rate was 38.2% for fiscal 1995 and 39.7% for fiscal 1994. The decrease in the effective tax rate results primarily from a profit in our Canadian subsidiary and utilization of the Canadian subsidiary's net operating loss carryforwards, versus a loss in the prior year for which no tax benefit was recognized. Net Income. Net income increased $4.9 million, or 25.4%, to $24.2 million for fiscal 1995 on a 14.1% increase in sales. The Company's Canadian subsidiary net income increased by $1.9 million to a profit of $0.7 million for fiscal 1995 from a loss of $1.2 million for fiscal 1994. Net income of $24.2 million represented a 28.6% return on average equity compared with return on average equity of 30.8% for fiscal 1994. Liquidity and Capital Resources The following table summarizes certain balance sheet items as a percent of total assets.
April 27, 1996 April 29, 1995 --------------- --------------- Total assets 100.0% 100.0% Current assets 86.1 86.3 Current liabilities 31.0 35.2 Long-term debt 1.5 1.9 Deferred tax liability 0.6 0.4 Stockholders' equity 62.7 56.9
Working capital rose 28.2% to $111.9 million at the end of fiscal 1996 compared with $87.2 million in fiscal 1995. The increase in working capital occurred primarily in cash and cash equivalents which resulted from net profits of $28.7 million for the fiscal year ended April 27, 1996. The current ratio increased from 2.4 to 1 to 2.8 to 1 during this period. Patterson continues to maintain appropriate balance sheet liquidity with cash and receivables representing 61% of total assets at fiscal year end 1996. The quick ratio was at 2.0 to 1 at year-end 1996. Capital expenditures net of dispositions were $6.9 million in fiscal 1996 compared with $6.2 million in fiscal 1995. In fiscal 1996, $4.3 million was invested in the new California distribution center, and $1.1 million was invested in new data processing equipment including remote order entry systems (REMO and PDXpress/TM/). The planned fiscal 1997 capital expenditures are $5.7 million, which includes $3.2 million in new data processing equipment. At the end of fiscal 1996, the Company had $46.1 million in cash; long-term debt of $3.0 million, which consisted of the mortgage on its Montreal facility; and a $30.0 million bank credit agreement. The bank credit agreement provides for unsecured borrowings and sales of installment contract receivables of up to a combined $30 million until April, 1997. The agreement requires that the Company maintain a minimum current ratio, maximum leverage ratio and minimum net worth. The Company was in compliance with the covenants at April 27, 1996. The Company believes it has sufficient capital, committed bank lines and additional borrowing capacity to meet existing and presently anticipated needs. 12 ASSET MANAGEMENT The following table summarizes the Company's days sales outstanding, inventory turnover, and sales per employee over the past three fiscal years:
1996 1995 1994 ---- ---- ---- Day sales outstanding 45 45 46 Inventory turnover(1) 7.1 7.1 7.7 Sales per employee (000's) $233 $228 $239
(1) The inventory values used in this calculation are the LIFO inventory values for U.S. inventories and the FIFO inventory value for Canadian inventories. Days sales outstanding have remained relatively constant over the past three years. The inventory balance decreased $11.4 million to $48.8 million at the end of fiscal 1996 from $60.2 million at the end of fiscal 1995. The decrease was due primarily to the forward buying opportunities that were taken advantage of at the end of fiscal 1995, which were not available at the end of fiscal 1996. EFFECT OF INFLATION Inflation has not had a significant effect on the Company's operations and the Company believes that supplier price increases can be passed on to its customers. 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 rate of 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 13 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. . 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. 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Patterson Dental Company We have audited the accompanying consolidated balance sheets of Patterson Dental Company as of April 27, 1996 and April 29, 1995, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended April 27, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the consolidated financial position of Patterson Dental Company at April 27, 1996 and April 29, 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended April 27, 1996, in conformity with generally accepted accounting principles. As discussed in the notes to the financial statements, the Company changed its method of estimating inventory cost indices used in its LIFO inventory valuation in fiscal 1995. Minneapolis, Minnesota Ernst & Young LLP May 29, 1996, except for Note 7 as to which the date is July 3, 1996 15 PATTERSON DENTAL COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) ASSETS
APRIL 27, APRIL 29, 1996 1995 Current assets: Cash and cash equivalents...................................................... $ 46,056 $ 13,570 Receivables, net of allowance for doubtful accounts of $4,872 and $5,412 at April 27, 1996 and April 29, 1995, respectively............................. 77,215 70,736 Inventory...................................................................... 48,787 60,188 Prepaid expenses............................................................... 1,729 2,079 Deferred taxes................................................................. 898 847 -------- -------- Total current assets......................................................... 174,685 147,420 Property and equipment, net...................................................... 25,740 22,486 Other............................................................................ 2,375 862 -------- -------- Total assets................................................................. $202,800 $170,768 ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Accounts payable.............................................................. $ 42,520 $ 42,998 Accrued payroll expense....................................................... 9,504 7,958 Other accrued expenses........................................................ 8,421 7,383 Income taxes payable.......................................................... 2,220 1,716 Current maturities of long-term debt.......................................... 151 136 -------- -------- Total current liabilities.................................................. 62,816 60,191 Long-term debt................................................................... 3,024 3,188 Deferred taxes................................................................... 1,157 631 -------- -------- Total liabilities................................................................ 66,997 64,010 Deferred credits................................................................. 8,682 9,567 Commitments and contingent liabilities Stockholders' equity: Preferred Stock Series A, $.01 par value, $11.20 per share liquidation value: Authorized shares - 10,000,000 Issued and outstanding shares - 3,553,627, and 3,564,050 at April 27, 1996 and April 29, 1995, respectively....................... 21,885 21,949 Preferred Stock, $.01 par value: Authorized shares - 20,000,000............................................ - - Common stock, $.01 par value: Authorized shares - 100,000,000 Issued and outstanding shares - 17,701,435, and 17,627,949 at April 27, 1996 and April 29, 1995, respectively....................... 177 176 Additional paid-in capital.................................................... 31,435 30,360 Cumulative translation adjustment............................................. (189) (92) Retained Earnings............................................................. 89,713 61,587 Note receivable from ESOP..................................................... (15,900) (16,789) -------- -------- Total stockholders' equity................................................. 127,121 97,191 -------- -------- Total liabilities and stockholders' equity................................. $202,800 $170,768 ======== ========
16 PATTERSON DENTAL COMPANY CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
YEAR ENDED ----------------------------------- APRIL 27, APRIL 29, APRIL 30, 1996 1995 1994 ---------- ---------- ----------- Net sales................................. $581,893 $532,598 $466,882 Cost of sales............................. 376,507 342,868 301,239 -------- -------- -------- Gross profit.............................. 205,386 189,730 165,643 Operating expenses........................ 161,676 151,640 134,317 -------- -------- -------- Operating income.......................... 43,710 38,090 31,326 Other income and expense: Amortization of deferred credits...... 885 885 885 Finance income, net................... 1,518 632 317 Interest expense...................... (410) (503) (533) Profit (loss) on currency exchange.... 5 29 (26) -------- -------- -------- Income before income taxes................ 45,708 39,133 31,969 Income taxes.............................. 16,961 14,953 12,683 -------- -------- -------- Net income................................ $ 28,747 $ 24,180 $ 19,286 ======== ======== ======== Net income available for common shareholders................... $ 28,125 $ 23,572 $ 18,685 ======== ======== ======== Earnings per common and common equivalent share...................... $1.31 $1.10 $0.87 ======== ======== ======== Weighted average common and common equivalent shares outstanding.. 21,539 21,488 21,485 ======== ======== ========
17 PATTERSON DENTAL COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands, except per share amounts)
PREFERRED ADDITIONAL CUMULATIVE NOTE STOCK COMMON PAID-IN TRANSLATION RETAINED RECEIVABLE SERIES A STOCK CAPITAL ADJUSTMENT EARNINGS FROM ESOP TOTAL --------- ------ ---------- ----------- -------- ---------- -------- Balance at April 24, 1993......... $22,000 $117 $30,088 $ - $19,389 $(18,452) $ 53,142 Tax benefit on unallocated ESOP Shares.................. - - - - 292 - 292 Change in translation adjustment..................... - - - (420) - - (420) Common stock issued, net........ (4) - 4 - - - - Dividend paid................... - - - - (893) - (893) Cash payments received on note receivable from ESOP........... - - - - - 772 772 Stock split (3 for 2)........... - 59 - - (59) - - Net income...................... - - - - 19,286 - 19,286 --------- ------ ---------- ----------- ------- ---------- -------- Balance at April 30, 1994......... 21,996 176 30,092 (420) 38,015 (17,680) 72,179 Tax benefit on unallocated ESOP shares.................... - - - - 283 - 283 Change in translation adjustment..................... - - - 328 - - 328 Common stock issued, net........ (47) - 268 - - - 221 Dividend paid................... - - - - (891) - (891) Cash payments received on note receivable from ESOP........... - - - - - 891 891 Net income...................... - - - - 24,180 - 24,180 --------- ------ ---------- ----------- ------- ---------- -------- Balance at April 29, 1995......... 21,949 176 30,360 (92) 61,587 (16,789) 97,191 Tax benefit on unallocated ESOP shares.................... - - - - 268 - 268 Change in translation adjustment..................... - - - (97) - - (97) Common stock issued, net........ (64) 1 1,075 - - - 1,012 Dividend paid................... - - - - (889) - (889) Cash payments received on note receivable from ESOP........... - - - - - 889 889 Net income...................... - - - - 28,747 - 28,747 --------- ------ ---------- ----------- ------- ---------- -------- Balance at April 27, 1996......... $21,885 $177 $31,435 $(189) $89,713 $(15,900) $127,121 ========= ====== ========== =========== ======= ========== ========
18 PATTERSON DENTAL COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
YEAR ENDED -------------------------------- APRIL 27, APRIL 29, APRIL 30, 1996 1995 1994 ---------- ---------- ---------- OPERATING ACTIVITIES: Net income................................................. $28,747 $ 24,180 $ 19,286 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation............................................ 3,776 3,305 2,510 Amortization of deferrals............................... (1,024) (876) (875) Bad debt expense........................................ 472 681 792 Deferred taxes.......................................... 475 234 10 Change in assets and liabilities net of acquired: Increase in receivables.............................. (7,017) (6,599) (10,499) (Increase) decrease in inventory..................... 12,539 (15,641) (9,167) Increase (decrease) in accounts payable.............. (657) 13,319 4 Increase in accrued liabilities...................... 2,488 2,927 952 Other changes from operating activities, net......... 1,164 (107) 245 ------- -------- -------- Net cash provided by operating activities............ 40,963 21,423 3,258 INVESTING ACTIVITIES: Additions to property and equipment, net................... (6,906) (6,175) (8,951) Acquisitions............................................... (2,401) - (8,399) ------- -------- -------- Net cash used in investing activities...................... (9,307) (6,175) (17,350) FINANCING ACTIVITIES: Payments and retirement of long-term debt and obligations under capital leases...................................... (138) (118) (4,717) Increase (decrease) in revolving credit.................... - (5,685) 5,685 Payment of dividend........................................ (889) (891) (893) Cash payments received on note receivable from ESOP........ 889 891 772 Common stock issued, net................................... 1,012 229 - ------- -------- -------- Net cash (used in) provided by financing activities........ 874 (5,574) 847 Effect of exchange rate changes on cash.................... (44) 18 (5) ------- -------- -------- Net increase (decrease) in cash and cash equivalents....... 32,486 9,692 (13,250) Cash and cash equivalents at beginning of period........... 13,570 3,878 17,128 ------- -------- -------- Cash and cash equivalents at end of period................. $46,056 $ 13,570 $ 3,878 ======= ======== ======== SUPPLEMENTAL DISCLOSURES: Income taxes paid.......................................... $15,977 $ 14,993 $ 12,109 Interest paid.............................................. 413 509 804
19 PATTERSON DENTAL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 27, 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of the Company's wholly owned subsidiaries Direct Dental Supply Company and Patterson Dental Canada Inc. All significant intercompany transactions have been eliminated in consolidation. Description of Business The Company is the largest provider of dental equipment, supplies and services to dentists, institutional customers and dental laboratories in North America, operating from 98 locations with approximately 2,500 employees. The Company distributes approximately 70,000 dental products from over 1,100 manufacturers, offering specialty items and services including the Patterson private label line of dental items. Fiscal Year End The fiscal year end for the Company is the last Saturday in April. Fiscal year 1994 included fifty-three weeks. Cash and Cash Equivalents Cash equivalents consist of investments in money market funds and floating rate municipal bonds. Cost approximates fair value. Inventory Inventory consists of merchandise held for sale and is stated at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method for domestic inventories and the first-in, first-out (FIFO) method for foreign inventories. Inventories valued at LIFO represent 83% of total inventories at April 27, 1996 and 85% at April 29, 1995. In the fourth quarter of fiscal 1995, the Company adopted an internally-generated price index to estimate the change in its inventory costs for use in its LIFO inventory valuation. Previously, the Company used the consumer price index for non-prescription medical equipment and supplies to estimate inventory cost changes. The Company believes that the internal price index better reflects the impact of its inventory cost changes. This change resulted in a reduction of fiscal 1995's cost of sales of approximately $1,800 and an increase in fiscal 1995's net income of approximately $.05 per share. The cumulative effect could not be determined. The accumulated LIFO provision was $9,733 at April 27, 1996, and $8,179 at April 29, 1995. The Company believes that inventory replacement cost exceeds the inventory balance by an amount approximating the LIFO reserve. Property and Equipment Property and equipment are stated at cost. The Company provides depreciation on the straight-line method over estimated useful lives of 40 years for buildings, 3 to 20 years for leasehold improvements or the 20 term of the lease, if less, 5 years for data processing equipment, and 5 to 10 years for office furniture and equipment. Earnings Per Common Share Earnings per share information assumes the conversion of Patterson Preferred to Common at the ratio of 1 to 1.08 for shares held by the ESOP. Patterson Preferred along with dilutive stock options are common stock equivalents. For purposes of this computation, net income was reduced by an amount equal to the preferred stock dividends, net of applicable taxes. Such reduction reflects the additional compensation expense necessary to fund the ESOP, absent such dividends. Income Taxes The Company adopted the provisions of the Financial Accounting Standards Board (FASB) Statement No. 109, "Accounting for Income Taxes" in its financial statements in the first quarter of the year ended April 30, 1994. The adoption of the standard did not have a material impact on financial position or results of operations. Under Statement 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of Statement 109, income tax expense was determined using the liability method prescribed by Statement 96. Statement 109 changed the recognition and measurement criteria for deferred tax assets. In addition, Statement 109 requires that the benefit from the tax deductibility of dividends paid on unallocated shares held by an ESOP be treated as a direct credit to stockholder's equity whereas under Statement 96 such benefit was treated as a reduction of income tax expense. Employee Stock Ownership Plan Compensation expense related to the Company's defined contribution ESOP is computed based on the shares allocated method. Such amounts have been reduced by related Preferred Stock dividends. The Patterson Preferred Stock Series A (Patterson Preferred) pays an annual dividend of $.25 per share, cumulative and is non-participating. All preferred shares outstanding are held by Patterson's Employee Stock Ownership Plan (ESOP). The shares are redeemable at the option of Patterson any time after June 30, 1996, or earlier upon the occurrence of certain events, some of which are related to the market price of Patterson's Common Stock at a redemption price of $11.20 per share. Patterson Preferred is redeemable at the option of the holder at a redemption price equal to the greater of $11.20 per share plus accumulated dividends, or the fair market value under certain circumstances. Upon distribution ESOP participants receive the greater of the then fair market value or $11.20 per share. Patterson has the option of settling all redemptions and distributions out of the ESOP in either cash, Common Stock or a combination thereof, except participants may elect to receive Common Stock. Patterson Preferred is convertible to Common Stock at the ratio of 1.08 common shares for each share of Patterson Preferred prior to redemption. The holder of Patterson Preferred has the right to vote on a per share basis equal to the 1.08 conversion ratio. Cash dividends on Common Stock cannot be declared or paid until accumulated dividends on Patterson Preferred have been paid or declared and provided for. 21 Deferred Credits Negative goodwill (deferred credit) arose through the purchase of the Patterson business in fiscal 1986 and D.L. Saslow Co., Inc. in fiscal 1988. The Company is amortizing the deferred credits on a straight-line basis over 20 years. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Long-Lived Assets In 1997, the Company will be subject to the provisions of FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt Statement 121 in the first quarter of 1997 and, based on current circumstances, does not believe the effect of adoption will be material. Prior Year Reclassifications Certain reclassifications have been made to the 1995 financial statements to conform to the 1996 presentation. 2. ACQUISITIONS During 1996, the Company acquired all of the common stock of Barber Dental Supply, Inc., located in Omaha, Nebraska. Barber was merged into the Company. The Company also acquired certain assets of Eagle Dental Supply, Inc., located in Kansas City, Missouri. Both acquisitions have been accounted for as purchases and, accordingly, their net assets and operating results are included in the Company's financial statements from the respective dates of acquisition. The pro forma impact of the acquisitions on the Company's results of operations for all years presented was not material. On October 1, 1993, the Company purchased for cash consideration of approximately $8.4 million, Healthco Canada Inc., a wholly owned subsidiary of Healthco International, Inc. Healthco Canada Inc. was engaged in the sale and distribution of dental products in Canada. 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 1994 fiscal period. The proforma information does not purport to be indicative of the results of operations that would have occurred had the acquisition been made as of those dates, or results which may occur in the future. 22 Year Ended April 30, 1994 --------------
Net sales $490,366 Income before taxes 30,706 Net income 18,095 Earnings per share $0.79
3. PROPERTY AND EQUIPMENT
APRIL 27, APRIL 29, 1996 1995 --------- ---------- Land................................... $ 2,698 $ 2,549 Buildings.............................. 12,637 9,941 Leasehold improvements................. 1,219 1,155 Furniture and equipment................ 8,138 5,778 Data processing equipment.............. 13,036 12,127 -------- ------- 37,728 31,550 Accumulated depreciation............... (11,988) (9,064) -------- ------- $ 25,740 $22,486 ======== =======
4. LONG-TERM DEBT
APRIL 27, APRIL 29, 1996 1995 ---------- --------- Mortgage.......................... $ 3,095 $ 3,216 Obligations under capital leases.. 80 108 -------- ------- 3,175 3,324 Less current maturities........... 151 136 -------- ------- $ 3,024 $ 3,188 ======== =======
The Company has a revolving credit agreement which provides for unsecured borrowings and sales of installment contract receivables of up to a combined $30 million until April 1997. The agreement requires that the Company maintain a minimum current ratio, maximum leverage ratio and minimum net worth. The Company was in compliance with the covenants at April 27, 1996. The mortgage obligation is an 11 1/2%, 20 year mortgage starting in 1988 on 5,000 Canadian dollars. The mortgage covers Patterson Dental Canada's Montreal building. Monthly payments are 52 Canadian dollars. Long-term debt becomes due: $151 in 1997, $169 in 1998, $165 in 1999, $168 in 2000, $188 in 2001 and the balance thereafter. 5. LEASES The Company leases facilities for its branch locations and office equipment. These leases are accounted for as operating leases. Future minimum rental payments under noncancelable operating leases are as follows for the years ending in April:
1997............................. $ 3,696 1998............................. 3,380 1999............................. 2,664
23 2000............................................. 1,800 2001............................................. 861 Thereafter....................................... 605 ------- Total minimum payments required.................. $13,006 =======
Rent expense was $4,542, $4,529 and $4,125 for the years ended April 27, 1996, April 29, 1995 and April 30, 1994, respectively. 6. INCOME TAXES For financial reporting purposes, income before income taxes includes the following components:
1996 1995 1994 -------- ------- -------- Income (loss) before income taxes: United States.......................... $44,290 $38,404 $33,153 Canada................................. 1,418 729 (1,184) ------- ------- ------- Total................................. $45,708 $39,133 $31,969 ======= ======= =======
Significant components of the provision for income taxes are as follows
1996 1995 1994 ------- ------- -------- Current: Federal................................ $13,642 $12,022 $10,536 Foreign................................ - - - State.................................. 2,844 2,697 2,137 ------- ------- ------ Total current......................... 16,486 14,719 12,673 Deferred: Federal................................ 418 191 9 Foreign................................ - - - State.................................. 57 43 1 ------- ------ ------- Total deferred........................ 475 234 10 ------- ------- ------- Provisions for income taxes................. $16,961 $14,953 $12,683 ======= ======= =======
Significant components of the Company's deferred tax liabilities and assets as of April 27, 1996 and April 29, 1995, are as follows:
1996 1995 -------- -------- Canadian net operating loss carryforward. $ 4,162 $ 5,972 Bad debt allowance....................... 918 914 Unicap COS............................... 521 894 ESOP unearned compensation............... 351 112 Inventory obsolescence reserve........... 286 327 Hospital insurance....................... 225 280 Vacation pay accrual..................... 195 188 LIFO reserve............................. (1,288) (1,815) Depreciation............................. (522) (597) Financing income......................... (835) -- Other.................................... (110) (87) Valuation allowance...................... (4,162) (5,972) -------- -------
24 Total................................... $ (259) $ 216 ======= =======
Deferred income tax expense (benefit) results from temporary differences in the recognition of income and expense items for tax and financial statement reporting purposes. Income tax expense varies from the amount computed using the U.S. statutory rate. Causes of these differences and the related tax effects are shown below:
1996 1995 1994 ---- ---- ---- Tax at U.S. statutory rate................... $15,998 $13,697 $11,189 State tax provision, net of federal benefit.. 1,886 1,781 1,390 Effect of foreign (income) losses............ (496) (256) 414 ESOP dividend on allocated preferred stock... (74) (63) (54) Amortization of deferred credit.............. (310) (310) (310) Other........................................ (43) 104 54 ------- ------- ------- $16,961 $14,953 $12,683 ======= ======= =======
At April 27, 1996, the Company had net operating loss carryforwards of $10,006 for Canadian income tax purposes that expire in years 1998 through 2001. Those carryforwards resulted from the Company's fiscal 1994 acquisition of Healthco Canada Inc. (see Note 2 - "Acquisitions"). For financial reporting purposes, a valuation allowance of $4,162 has been established to reduce the deferred tax assets to their net realizable value. 7. EMPLOYEE BENEFIT PLANS Employee Stock Ownership Plan (ESOP) During 1990, the Company's Board of Directors adopted a leveraged ESOP. During fiscal 1991, under the provisions of the plan and related financing arrangements, the Company loaned the ESOP $22,000 for the purpose of acquiring its then outstanding preferred stock. The cost of the ESOP is borne by the Company through annual contributions to the plan in amounts determined by the Board of Directors. Shares of stock acquired by the plan are allocated to each employee who has completed l,000 hours of service during the plan year. During l996, 1995 and 1994, shares with a cost of $800, $900 and $800 respectively, were earned and allocated to ESOP participants. During 1996, 1995 and 1994, the ESOP funding was effected through a preferred stock dividend aggregating $889, $891 and $893, respectively, which served to reduce recorded compensation expense. At April 27, 1996 and April 29, 1995, indebtedness of the ESOP to the Company is shown as a deduction from stockholders' equity in the consolidated balance sheet. At April 27, 1996, 974,900 shares of the ESOP preferred stock were allocated to participants and had a fair value of $33,195. On June 24, 1996, the Company called for redemption all of the outstanding shares of the Preferred Stock Series A which had a redemption value of $39,792 plus accrued dividends of $231. The trustee for the ESOP converted the Preferred Shares into 3,837,083 shares of Common Stock on July 3, 1996. Had the stock conversion occurred on April 25, 1993, earnings per share would have been unchanged for each of the three years in the period ended April 27, 1996. Stock Option Plan In June 1992, the Company adopted the Patterson Dental Company 1992 Stock Option Plan (the "Plan"). The Plan provides for the granting of options to designated employees and non-employees, including consultants to the Company, to purchase up to a maximum of 1,350,000 shares of Common Stock. The Plan is administered by the Stock Option Committee, which determines the employees, officers and others who are 25 to receive options, the type of option to be granted, and the number of shares subject to each option and the exercise price of each option. Stock options must be granted at an exercise price not less than the fair market value of the Common Stock on the dates the options are granted (or, for persons who own more than 10% of the Company's outstanding voting stock, not less than 110% of such fair market value). No options have been granted to date under the Plan. Director Stock Option Plan In June 1992, the Company adopted the 1992 Director Stock Option Plan (the "Director Option Plan"), pursuant to which 225,000 shares of Common Stock have been reserved for the grant of non-statutory stock options to the Company's outside directors. Options are granted at the fair market value on the date of grant and are exercisable for a period of four years commencing one year after the date of grant. At April 27, 1996, the Company's current outside directors held the following options:
Date of Grant Granted Exercised Held Price Per Share ------------- ------- --------- ------ --------------- 9/1/92 45,000 15,000 30,000 $10.67 10/1/93 18,000 - 18,000 $21.83 10/1/94 18,000 - 18,000 $18.00 10/1/95 18,000 - 18,000 $26.50 ------ ------ ------ 99,000 15,000 84,000 ====== ====== ======
Employee Stock Purchase Plan In June 1992, the Company adopted a employee stock purchase plan (the "Stock Purchase Plan"). A total of 225,000 shares of Common Stock are reserved for issuance under the Stock Purchase Plan. The Stock Purchase Plan, which is intended to qualify under Section 423 of the Internal Revenue Code is administered by the Board of Directors of the Company, or by a committee appointed by the Board of Directors. Employees are eligible to participate after a year of employment with the Company if they are employed for at least 20 hours per week and more than five months per year. The Stock Purchase Plan permits eligible employees to purchase Common Stock through payroll deductions, which may not exceed 10% of an employee's compensation, at 85% of the lower of the fair market value of the Common Stock on the offering date or at the end of each three-month period following the offering date during the applicable offering period. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically on termination of employment with the Company. Employees purchased 50,747 and 13,279 shares in 1996 and 1995, respectively. At April 27, 1996, 160,974 shares were available for purchase under the plan. The Company follows the guidance in accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations to account for its stock-based plans. 8. LITIGATION In the ordinary course of business, the Company is subject to a variety of product-related and employment related liability claims. The Company's management and legal counsel believe that the loss, if any, resulting from these claims will be substantially covered by insurance or third party indemnification, and any uninsured losses from such claims will not have a materially adverse effect on its operations or financial position. 26 9. OPERATIONS BY GEOGRAPHIC AREA The Company operates predominantly in one industry segment, the distribution of dental supplies, equipment and related services. The following is a summary of the Company's operations in different geographic areas:
Year Ended ------------------------------- April 27, April 29, April 30, 1996 1995 1994 --------- --------- --------- Net sales from unaffiliated customers: United States $526,055 $478,361 $437,723 Canada 55,838 54,237 29,159 Operating income: United States $ 41,744 $ 36,112 $ 31,986 Canada 1,966 1,978 (660) Identifiable assets: United States $176,135 $144,665 $115,026 Canada 26,665 26,103 21,170
10. QUARTERLY RESULTS (unaudited) Quarterly results are determined in accordance with the accounting policies used for annual data and include certain items based upon estimates for the entire year. All fiscal quarters include results for 13 weeks. The following table summarizes results for fiscal 1996 and 1995.
Three Months Ended --------------------------------------------- April 27, January 27, October 28, July 29, 1996 1996 1995 1995 --------- ----------- ----------- -------- Net sales................ $155,172 $148,672 $143,709 $134,340 Gross profit............. 55,295 52,148 50,265 47,678 Operating income......... 12,344 10,780 10,685 9,901 Net income............... 8,413 7,016 6,999 6,319 Earnings per common and common equivalent share. $0.38 $0.32 $0.32 $0.29 Three Months Ended --------------------------------------------- April 29, January 29, October 29, July 30, 1995 1995 1994 1994 --------- ---------- ----------- -------- Net sales................ $140,510 $136,536 $131,926 $123,626 Gross profit............. 52,177 47,801 46,323 43,429 Operating income......... 11,201 9,356 9,282 8,251 Net income............... 7,009 6,009 5,947 5,215 Earnings per common and common equivalent share. $0.32 $0.27 $0.27 $0.24
27 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the directors of the Company is incorporated herein by reference to the descriptions set forth under the caption "Election of Directors" in the Company's Proxy Statement for its Annual Meeting of Shareholders to be held September 9, 1996 (the "1996 Proxy Statement"). Set forth below are the names, ages and positions of the executive officers of the Company.
Peter L. Frechette 58 President and Director Ronald E. Ezerski 50 Vice President, Treasurer, Secretary and Director James W. Wiltz 50 Vice President, Sales and Distribution John V. Dodd 58 Vice President, Management Information Systems
The officers of the Company are elected annually and serve at the discretion of the Board of Directors. None of the Company's officers is employed pursuant to a written employment contract. BACKGROUND EXECUTIVE OFFICERS PETER L. FRECHETTE has been President of the Company since September 1982 and has been a director of Patterson since March 1983. Prior to joining Patterson, Mr. Frechette was employed by American Hospital Supply Corporation for 18 years, the last seven of which he served as president of its Scientific Products Division. Mr. Frechette holds an M.B.A. degree from Northwestern University and a B.S. degree in economics from the University of Wisconsin. RONALD E. EZERSKI has been Vice President, Treasurer and Secretary of the Company since December 1982 and was President of its subsidiary, Dental Capital Corporation, from December 1982 until October 1988 when it was merged into the Company. Mr. Ezerski has been a director of Patterson since March 1983. Prior to joining Patterson in December 1982, Mr. Ezerski was Controller and Treasurer of Estech, Inc., a subsidiary of Esmark, Inc. Prior to that, Mr. Ezerski was Manager of the Special Projects Department for two years at Esmark. Prior to his employment with Esmark, Mr. Ezerski spent eight years at Touche Ross & Co. as an assistant and then manager on its audit staff. Mr. Ezerski holds a B.S. degree in accounting from DePaul University and is a certified public accountant. JAMES W. WILTZ has been Vice President of the Company since it was acquired from The Beatrice Companies, Inc. and has been employed by Patterson since September 1969, initially as a territory sales representative, then an equipment specialist and later a branch manager. In 1980, Mr. Wiltz was appointed Vice President of the Midwestern Division and was appointed Vice President, Sales and Distribution in 1986. JOHN V. DODD joined Patterson in February 1989 as Vice President, Management Information Systems. Prior to joining Patterson, Mr. Dodd was Director of System Development for Ecolab, Inc. Mr. Dodd is a graduate of the University of Illinois and has been associated with G.D. Searle Corporation and Wilson Companies, where he implemented data processing programs for increased productivity in distribution organizations. Mr. Dodd has more than 25 years of experience in the management information systems area. 28 ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated herein by reference to the information set forth under the caption "Compensation of Executive Officers" in the 1996 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management of the Company is incorporated herein by reference to the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the 1996 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS. The following consolidated financial statements and supplementary data of the Company and its subsidiaries, required by Part II, Item 8 are filed herewith: Report of Independent Auditors Consolidated Balance Sheets as of April 27, 1996 and April 29, 1995 Consolidated Statements of Operations for the Years Ended April 27, 1996, April 29, 1995 and April 30, 1994 Consolidated Statements of Stockholders' Equity for the Years Ended April 27, 1996, April 29, 1995 and April 30, 1994 Consolidated Statements of Cash Flows for the Years Ended April 27, 1996, April 29, 1995 and April 30, 1994 Notes to Consolidated Financial Statements (A) 2. FINANCIAL STATEMENTS. The following financial statement schedule is filed herewith: Schedule II - - Valuation and Qualifying Accounts for the Years Ended April 27, 1996, April 29, 1995 and April 30, 1994. Schedules other than those listed above have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto. (A) (3) EXHIBITS. Exhibit ------- 3.1 The Company's Articles of Incorporation* 3.2 The Company's Bylaws, as amended* 4.1 Specimen form of the Company's Common Stock Certificate* 29 4.2 The Company's Articles of Incorporation, as amended (see Exhibit 3.1 and Exhibit 3.2) 4.3 The Company's Bylaws (see Exhibit 3.3) 10.1 Patterson Dental Company Employee Stock Ownership Plan, as amended* 10.2 Patterson Dental Company 1992 Stock Option Plan* 10.3 Patterson Dental Company 1992 Director Stock Option Plan* 10.4 Patterson Dental Company Employee Stock Purchase Plan* 10.5 Patterson Dental Company Capital Accumulation Plan 10.6 Incentive Compensation Program (Fiscal 1992)* 10.7 Dividend Payment Agreement dated June 25, 1990* 10.8 ESOP Loan Agreement dated June 15, 1990 as amended July 13, 1992* 10.9 Amended and Restated Term Promissory Note dated July 13, 1992* 11 Computation of Earnings Per Share 21 Subsidiaries** 23 Consent of Ernst & Young LLP 27 Financial Data Schedule * Incorporated by reference to the Registrant's Registration Statement on Form S-1 (No. 33-51304) filed with the Securities and Exchange Commission August 26, 1992. ** Incorporated by reference to the Registrant's Form 10-K for the fiscal year ended April 30, 1994. (B) REPORTS ON FORM 8-K. The Company did not file any reports on Form 8-K with the Securities and Exchange Commission during the quarter ended April 27, 1996. 30 SIGNATURES Pursuant to the requirements of section 13 or 15(d) 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 Dated: July 15, 1996 By /s/Peter L. Frechette ------------------------------------- Peter L. Frechette, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date ------------- /s/Peter L. Frechette President and Director (Principal July 15, 1996 - ----------------------- Executive Officer) Peter L. Frechette /s/Ronald E. Ezerski Vice President, Treasurer, Secretary July 15, 1996 - ----------------------- and Director (Principal Financial and Ronald E. Ezerski Accounting Officer) /s/David K. Beecken Director July 15, 1996 - ----------------------- David K. Beecken /s/Burt E. Swanson Director July 15, 1996 - ----------------------- Burt E. Swanson /s/Andre B. Lacy Director July 15, 1996 - ----------------------- Andre B. Lacy
31 Report of Independent Auditors The Board of Directors and Stockholders Patterson Dental Company We have audited the consolidated financial statements of Patterson Dental Company as of April 27, 1996 and April 29, 1995, and for each of the three years in the period ended April 27, 1996, and have issued our report thereon dated May 29, 1996 (included elsewhere in this Annual Report on Form 10-K). Our audits also included the financial statement schedule listed in Item 14(a) of this Annual Report on Form 10-K. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ Ernst & Young LLP Minneapolis, Minnesota May 29, 1996 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS PATTERSON DENTAL COMPANY (DOLLARS IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED BEGINNING COSTS AND TO OTHER BALANCE AT OF PERIOD EXPENSES ACCOUNTS - DEDUCTIONS END OF - ($) ($) DESCRIBE ($) DESCRIBE ($) PERIOD ($) --------- --------- ------------ ------------ ---------- Year ended April 27, 1996: Deducted from asset accounts: Allowance for doubtful accounts 5,412 472 - 1,012/(1)/ 4,872 ====== ===== =========== =========== ====== LIFO inventory adjustment 8,179 1,554 - 9,733 Inventory obsolescence reserve 1,106 1,137 - 1,229/(2)/ 1,014 ------ ----- ----------- ----------- ------ Total inventory reserve 9,285 2,691 - 1,229 10,747 ====== ===== =========== =========== ====== Year ended April 29, 1995: Deducted from asset accounts: Allowance for doubtful accounts 5,871 681 - 1,140/(1)/ 5,412 ====== ===== =========== =========== ====== LIFO inventory adjustment 7,394 785 - - 8,179 Inventory obsolescence reserve 3,558 1,386 - 3,838/(2)/ 1,106 ------ ----- ----------- ----------- ------ Total inventory reserve 10,952 2,171 - 3,838 9,285 ====== ===== =========== =========== ====== Year ended April 30, 1994: Deducted from asset accounts: Allowance for doubtful accounts 2,330 877 3,577/(3)/ 913/(1)/ 5,871 ====== ===== =========== =========== ====== LIFO inventory adjustment 7,204 190 - - 7,394 Inventory obsolescence reserve 694 1,086 2,928/(3)/ 1,150/(2)/ 3,558 ------ ----- ----------- ----------- ------ Total inventory reserve 7,898 1,276 2,928 1,150 10,952 ====== ===== =========== =========== ======
(1) Uncollectible accounts written off, net of recoveries. (2) Inventory disposed of and written off. (3) Acquisition of Healthco Canada Inc. and effect of changes in foreign currency exchange rates. 33 EX-10.5 2 CAPITAL ACCUMULATION PLAN EXHIBIT 10.5 PATTERSON DENTAL COMPANY CAPITAL ACCUMULATION PLAN SECTION 1. Purpose of the Plan. The name of this plan is PATTERSON DENTAL COMPANY CAPITAL ACCUMULATION PLAN (the "Plan"). The purpose of the Plan is to enable PATTERSON DENTAL COMPANY (the "Company") and its Subsidiaries to attract, retain and motivate officers and other key employees, to compensate them for their contributions to the growth and profits of the Company and to encourage ownership of stock in the Company on the part of such personnel. The Plan provides incentives to participating officers and other key employees which are linked directly to increases in stockholder value and will therefore inure to the benefit of all stockholders of the Company. SECTION 2. Definitions. For purposes of the Plan, capitalized terms not otherwise defined herein shall have the meanings set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Cause" means termination by the Company or a Subsidiary of a Participant's employment upon (i) the willful and continued failure by such Participant to substantially perform his duties with the Company or a Subsidiary (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to such Participant by the Board, which demand specifically identifies the manner in which the Board believes that such Participant has not substantially performed his duties, or (ii) the willful engaging by a Participant in conduct which is demonstrably and materially injurious to the Company or a Subsidiary, monetarily or otherwise, including a violation of Company policies as set forth in the Company's Policy and Procedure Manual, as the same may be amended from time to time, or policies adopted from time to time by the Company for officers and key employees and communicated in writing to Participants. For purposes of this Subsection, no act, or failure to act, on a Participant's part shall be deemed "willful" unless done, or omitted to be done, by such Participant not in good faith and without reasonable belief that his action or omission was in the best interest of the Company or a Subsidiary. (c) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (d) "Committee" means the Compensation Committee of the Board, appointed by the Board from among its members and shall consist of not less than three members thereof who are and shall remain Committee members only so long as they remain "disinterested persons" as defined in Rule 16b-3 under the Securities Exchange Act of 1934 ("Exchange Act"), as amended. (e) "Disability" means permanent and total disability as determined under any Company sponsored long-term disability plan or insurance program. (f) "Eligible Employee" means an employee of the Company or any Subsidiary as described in Section 3. (g) "Event of Acceleration" means the date upon which any of the following events occurs: (i) The Company acquires actual knowledge that any Person other than the Company, a Subsidiary or any employee benefit plan(s) sponsored by the Company or a Subsidiary has acquired the beneficial ownership (determined as provided in Rule 13d-3 under the Exchange Act in effect on 34 such date), directly or indirectly, of securities of the Company entitling such Person to 30% or more of the voting power of the Company; or (ii) A tender offer is made to acquire securities of the Company entitling the holders thereof to 30% or more of the voting power of the Company; or (iii) A solicitation subject to Rule 14a-11 under the Exchange Act (or any successor Rule) relating to the election or removal of 50% or more of the members of the Board or any class of the Board shall be made by any Person other than the Company or less than 51% of the members of the Board shall be Continuing Directors; or (iv) The shareholders of the Company shall approve a merger, consolidation, share exchange, division or sale or other disposition of assets of the Company as a result of which the shareholders of the Company immediately prior to such transaction shall not hold, directly or indirectly, immediately following such transaction, a majority of the voting power of (a) in the case of a merger or consolidation, the surviving or resulting corporation; (b) in the case of a share exchange, the acquiring corporation; or (c) in the case of division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation, which, immediately following the transaction, holds more than 10% of the consolidated assets of the Company immediately prior to the transaction. (h) "Participant" means an Eligible Employee selected by the Committee, pursuant to the Committee's authority in Section 6, to receive an award of Restricted Stock. (i) "Related Employment" means the employment of an individual by an employer which is neither the Company nor a Subsidiary provided (i) such employment is undertaken by the individual at the request of the Company or a Subsidiary, (ii) immediately prior to undertaking such employment, the individual was an officer or employee of the Company or a Subsidiary, or was engaged in Related Employment as herein defined and (iii) such employment is recognized by the Committee, in its sole discretion, as Related Employment for purposes of this Plan. The death or Disability of an individual during a period of Related Employment as herein defined shall be treated, for purposes of this Plan, as if the death or onset of Disability had occurred while the individual was an officer or employee of the Company or a Subsidiary. (j) "Restricted Stock" means an award of shares of Stock that is subject to the restrictions set forth in Section 5. (k) "Restricted Stock Award" means an award of common stock equal to that portion of a Participant's annual compensation subject to the Plan, divided by the fair market value of a share of Restricted Stock, determined in accordance with Section 5(a). (l) "Retirement" means retirement of a Participant from active employment with the Company or any Subsidiary on or after a Participant's 65th birthday. (m) "Stock" means the common stock of the Company. (n) "Subsidiary" means any corporation (other than the Company) 50% or more of the total combined voting power of all classes of stock of which is owned, directly or indirectly, by the Company. SECTION 3. Eligibility and Participation. Officers and other key employees of the Company or its Subsidiaries who are responsible for or contribute to the management, growth and/or profitability of the Company or its Subsidiaries shall be eligible to participate in the Plan. The Participants under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among Eligible Employees. An Employee selected by the Company shall affirmatively elect to participate in the Plan. A Participant may, on or before the first day of any fiscal quarter of the Company, elect to cease participation in the Plan, whereupon such participation shall be deemed to have been discontinued as of such first day of the fiscal quarter following the date such notice was given to the Company. Notice by a Participant to cease participation in the Plan shall be given in writing by a Participant and shall be deemed given to the Company only when received by the Company at its principal 35 executive offices. Compensation subject to a Restricted Stock Award paid or payable to a Participant for the period prior to the date on which participation in the Plan ceases shall be payable in Restricted Stock and shall not be subject to refund, except as otherwise provided herein. SECTION 4. Amount and Form of Awards. (a) Awards of Restricted Stock under the Plan shall be determined by the Committee in its discretion. Awards will be made in lieu of cash payments of a percentage of the Participant's annual compensation and will be granted at such time as the Committee may in its sole discretion determine, and the Committee may also in its sole discretion provide for alternative methods for grants of awards. (b) The maximum number of shares of Stock which may be issued under the Plan, as Restricted Stock shall be not more than 1,000,000 shares of Stock, subject to adjustment as provided in Section 7, and such shares may be authorized but unissued shares, or previously issued shares reacquired by the Company, or both. In the event Restricted Stock is forfeited prior to the end of the period during which the restrictions on Restricted Stock expire, the shares of Stock called for by such award of Restricted Stock will become available for future awards. SECTION 5. Restricted Stock. (a) A Restricted Stock Award made to a Participant under the Plan will be determined and approved by the Committee. In order to reflect the impact of the restrictions on the value of the Restricted Stock, as well as the possibility of forfeiture of Restricted Stock, the fair market value of Stock shall be discounted at a rate of 25% in determining the number of shares of Restricted Stock to be awarded. The Committee may, when it deems appropriate, and in its sole discretion, provide for an alternative discount rate. For purposes of this Plan, the fair market value of Restricted Stock purchased pursuant to an award will be the average of the Stock's closing sale prices on the NASDAQ Stock Market for the one year period (or such lesser period of time as the Committee may specify) following the Restricted Stock Award specified by the Committee for payment of the Restricted Stock Award. The dollar value of an award will be divided by the discounted market value per share to determine the number of shares of Restricted Stock in an award. The value of fractional shares will be paid in cash. (b) A Participant shall not have any rights with respect to an award, unless or until such Participant has executed an agreement evidencing the award (a "Restricted Stock Award Agreement") and has delivered a fully executed copy thereof to the Company, within a period of 60 days after the date of the award (or such shorter period after the date of the award as the Committee may specify). The amount of a Restricted Stock Award shall be paid by payroll deduction from a Participant's compensation over a one-year period or such lesser period as the Committee shall specify. Each Participant who is awarded Restricted Stock may, but need not, be issued a stock certificate in respect of such shares of Restricted Stock. A "book entry" (i.e., a computerized or manual entry) shall be made in the records of the Company to evidence an award of shares of Restricted Stock to a Participant where no certificate is issued in the name of the Participant. Such Company records shall, absent manifest error, be binding on the Participants. Each certificate, if any, registered in the name of a Participant shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such award, substantially in the following form: The transferability of the certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of Patterson Dental Company Capital Accumulation Plan and a Restricted Stock Award Agreement entered into between the registered owner and Patterson Dental Company. Copies of such Plan and Agreement are on file in the offices of Patterson Dental Company. The Committee shall require that any stock certificate issued in the name of a Participant evidencing shares of Restricted Stock be held in the custody of the Company until the restrictions thereon shall have lapsed, and that, as a condition of such issuance of a certificate for Restricted Stock, the Participant shall have delivered a stock power, endorsed in blank, relating to the shares covered by such certificate. 36 (c) The shares of Restricted Stock issued pursuant to a Restricted Stock Award shall be subject to the following restrictions and conditions: (i) Subject to the provisions of the Plan and the Restricted Stock Award Agreements, during the three-year period (together with any extensions thereof approved as provided herein) commencing on the date of the Restricted Stock Award (the "Restricted Period"), the Participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Stock awarded under the Plan. The Committee may, in its sole discretion, (x) initially provide for an alternative Restricted Period or alter the three-year Restricted Period for a previously granted award (provided that the Committee may not extend the Restricted Period for a previously granted award without the Participant's written consent), (y) during any extension of such Restricted Period, provide for alternative restrictions (provided that nothing contained in this clause shall grant the Committee any additional powers under the Plan with respect to awards granted to or to be granted to persons who are subject to Section 16 of the Securities Exchange Act of 1934, as amended), and (z) provide for the lapse of any such restrictions in installments and accelerate or waive any such restrictions in whole or in part based on such factors and such circumstances as the Committee may determine, in its sole discretion, including, but not limited to, the Participant's Retirement, termination, death or Disability. (ii) Unless the Committee in its sole discretion shall determine otherwise at or prior to the time of the grant of any award, the Participant shall have the right to vote his shares of Restricted Stock during the Restricted Period. The Participant shall have the right to receive any regular dividends on such shares of Restricted Stock. The Committee shall in its sole discretion determine the Participant's rights with respect to extraordinary dividends on the shares of Restricted Stock, including, but not limited to, dividends payable in the common stock of the Company. (iii) Certificates for shares of Restricted Stock shall be delivered to the Participant promptly after, and only after, the Restricted Period shall expire (or such earlier time as the restrictions may lapse in accordance with paragraph (c)(i) of this Section 5) without forfeiture in respect of such shares of Restricted Stock. (d) Subject to the provisions of paragraph (c)(i) of this Section 5, the following provisions shall apply to a Participant's shares of Restricted Stock prior to the end of the Restricted Period relating thereto (including extensions thereof and Related Employment): (i) Upon the death or Disability of a Participant, the restrictions on his or her Restricted Stock shall immediately lapse. (ii) If, prior to reaching age 55, a Participant voluntarily terminates employment, such Participant shall forfeit his or her Restricted Stock. (iii) If, on or after the date a Participant has reached age 55, a Participant's employment is voluntarily terminated prior to Retirement, such Participant shall forfeit his or her Restricted Stock, but shall be entitled to receive in lieu thereof, on the first anniversary of such termination, provided he or she has not taken employment in competition with the Company, a cash payment equal to the portion of his or her compensation that had been paid in the form of such forfeited Restricted Stock, together with interest thereon at a rate to be determined from time to time by the Committee. (iv) If a Participant is involuntarily terminated without cause prior to Retirement, such Participant shall forfeit his or her Restricted Stock, but shall be entitled to receive in lieu thereof a cash payment equal to the portion of his or her compensation that had been paid in the form of such forfeited Restricted Stock, together with interest thereon at a rate to be determined from time to time by the Committee. (v) If a Participant's employment is involuntarily terminated for Cause prior to such Participant's 65th birthday, he or she shall forfeit his or her Restricted Stock, and no cash payment shall be made in respect thereto or in lieu thereof. 37 (vi) If employment of a Participant terminates upon Retirement, he or she shall receive his or her Restricted Stock upon expiration of the Restricted Period. (e) Notwithstanding any other provision contained in the Plan, in case any Event of Acceleration occurs, the Restricted Period applicable to any Restricted Stock Award shall be deemed to have expired and lapsed. SECTION 6. Administration. The Plan shall be administered by the Committee which shall be appointed by the Board and which shall serve at the pleasure of the Board. The Committee shall have the power and authority to grant Restricted Stock awards to Participants, pursuant to the terms of the Plan. In particular, the Committee shall have the authority: (i) to select those employees of the Company and its Subsidiaries who are Eligible Employees; (ii) to determine whether and to what extent Restricted Stock awards shall be granted to Participants hereunder; (iii) to determine the number of shares of Stock to be covered by each such award granted hereunder; (iv) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder; and (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, which shall govern all written instructions evidencing Restricted Stock. The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any award issued under the Plan; and to otherwise supervise the administration of the Plan. All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and the Participants. SECTION 7. Adjustments upon a Change in Common Stock. In the event of any change in the outstanding Stock of the Company by reason of any stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination or exchange of shares or other similar events if such change equitably requires an adjustment in the number or kind of shares that may be issued under the Plan pursuant to Section 4(b), such adjustment shall be made by the Committee and shall be conclusive and binding for all purposes of the Plan. SECTION 8. Amendment and Termination. The Plan may be amended or terminated at any time and from time to time by the Board, but no amendment which increases the aggregate number of shares of Stock which may be issued pursuant to the Plan (except as provided in Section 7) shall be effective unless and until the same is approved by the shareholders of the Company. Neither an amendment to the Plan nor the termination of the Plan shall adversely affect any right of any Participant with respect to any Restricted Stock award theretofore made without such Participant's written consent. 38 SECTION 9. General Provisions. (a) All certificates for shares issued pursuant to Restricted Stock awards may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All certificates for shares of Stock delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate references to such restrictions. (b) Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan shall not confer upon any employee of the Company or any Subsidiary any right to continued employment with the Company or a Subsidiary, as the case may be, nor shall it interfere in any way with the right of the Company or a Subsidiary to terminate the employment of any of its employees at any time. (c) No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. (d) A Participant's rights and interest under the Plan may not be assigned or transferred in whole or in part either directly or by operation of law or otherwise (except in the event of a Participant's death) including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner and no such right or interest of any Participant in the Plan shall be subject to any obligation or liability of such Participant. (e) The Company and its Subsidiaries shall have the right to deduct from any payment made under the Plan any federal, state or local income or other taxes required by law to be withheld with respect to such payment. It shall be a condition to the obligation of the Company to issue Stock upon the lapse of restrictions on Restricted Stock that the Participant pay to the Company, upon its demand, such amount as may be requested by the Company for the purpose of satisfying any liability to withhold federal, state or local income or other taxes. If the amount requested is not paid, the Company may refuse to issue shares. Unless the Committee shall in its sole discretion determine otherwise, payment for taxes required to be withheld may be made in whole or in part by an election by a Participant, in accordance with rules adopted by the Committee from time to time to have the Company withhold Stock otherwise issuable pursuant to the Plan having a fair market value equal to such tax liability. SECTION 10. Effective Date of Plan. The Plan shall be effective on the date it is adopted by the Board, subject to the approval of stockholders. 39 EX-11 3 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 PATTERSON DENTAL COMPANY COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
APRIL 27, APRIL 29, APRIL 30, 1996 1995 1994 --------- --------- --------- Earnings per share: Average shares outstanding 17,669 17,612 17,607 Net effect of assumed conversion of Patterson Preferred based on the if-converted method (1) 3,843 3,854 3,857 Net effect of dilutive stock options - based on the treasury stock method using average market price (2) 27 22 21 -------- -------- -------- Total 21,539 21,488 21,485 ======== ======== ======== Net income available for common shareholders (3) $28,125 $23,572 $18,685 ======== ======== ======== Net earnings $ 1.31 $ 1.10 $ 0.87 ======== ======== ========
(1) Assumes conversion of Patterson Preferred to Common at the ratio of 1 to 1.08. (2) Additional dilution using higher of average or ending market price is not material. Therefore, additional fully diluted presentation is not required. (3) Assumes the dividend eliminated upon conversion of preferred stock is offset by incremental ESOP compensation cost. 40 EX-23 4 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-56764) pertaining to the 1992 Stock Option Plan, 1992 Director Stock Option Plan, Employee Stock Purchase Plan and Employee Stock Ownership Plan, and the Registration Statement (Form S-8 No. 333-03583) pertaining to the Patterson Dental Company Capital Accumulation Plan of Patterson Dental Company of our reports dated May 29, 1996, with respect to the consolidated financial statements and the financial statement schedule included in this Annual Report (Form 10-K) of Patterson Dental Company for the year ended April 27, 1996. /s/ Ernst & Young LLP Minneapolis, Minnesota July 23, 1996 41 EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS APR-27-1996 APR-27-1996 46,056 0 82,087 4,872 48,787 174,685 37,728 11,988 202,800 62,816 3,024 177 0 21,885 105,059 202,800 581,893 581,893 376,507 376,507 161,676 472 410 45,708 16,961 28,747 0 0 0 28,747 1.31 1.31
-----END PRIVACY-ENHANCED MESSAGE-----