NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 29, 2017
(Dollars, except per share amounts, and shares in thousands)
1. Summary of Significant Accounting Policies
Description of Business
Patterson Companies, Inc. (referred to herein as “Patterson” or in the first person notations “we,” “our,” and “us”) is a value-added specialty distributor serving the U.S. and Canadian dental supply and the U.S., Canadian and U.K. animal health supply markets. Patterson has
three
reportable segments: Dental, Animal Health and Corporate.
Basis of Presentation
The consolidated financial statements include the accounts of our wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. The respective assets of PDC Funding Company, LLC and PDC Funding Company II, LLC would be available first and foremost to satisfy the claims of their respective creditors. There are no known creditors of PDC Funding Company, LLC or PDC Funding Company II, LLC.
Fiscal Year End
We operate with a 52-53 week accounting convention with our fiscal year ending on the last Saturday in April. Fiscal years 2017, 2016 and 2015 ended on
April 29, 2017
,
April 30, 2016
and
April 25, 2015
, respectively. Fiscal years 2017 and 2015 consisted of 52 weeks, while fiscal year 2016 consisted of 53 weeks. Fiscal year 2018 will end on April 28, 2018 and will consist of 52 weeks.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. 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.
Reclassifications
None.
Cash and Cash Equivalents
Cash equivalents consist primarily of investments in money market funds and government securities. The maturity of these securities at the time of purchase is
90 days
or less. All cash and cash equivalents are classified as available-for-sale and carried at fair value, which approximates cost.
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 all inventories, except for foreign inventories, which are valued using the first-in, first-out ("FIFO") method. Inventories valued at LIFO represented
84%
and
84%
of total inventories at
April 29, 2017
and
April 30, 2016
, respectively.
The accumulated LIFO reserve was
$77,816
at
April 29, 2017
and
$76,501
at
April 30, 2016
. We believe 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. Depreciation is calculated on the straight-line method over estimated useful lives of up to
39 years
for buildings or the expected remaining life of purchased buildings, the term of the lease for leasehold improvements,
3
to
10 years
for computer hardware and software, and
5
to
10 years
for furniture and equipment.
Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill represents the excess of cost over the fair value of identifiable net assets of businesses acquired. We have
two
reporting units as of
April 29, 2017
; dental and animal health. Our Corporate reportable segment's assets and liabilities, and net sales and expenses, are allocated to the
two
reporting units. Other indefinite-lived intangible assets include copyrights, trade names and trademarks.
We evaluate goodwill at least annually. If we determine that the fair value of the reporting unit may be less than its carrying amount, we evaluate goodwill using a two-step impairment test. Otherwise, we conclude that no impairment is indicated and we do not perform the two-step impairment test. In fiscal
2017
, we determined it was appropriate to perform a two-step impairment test.
The first step of the goodwill impairment test compares the book value of a reporting unit, including goodwill, with its fair value, as determined primarily by its discounted cash flows. If the book value of a reporting unit exceeds its fair value, the second step of the impairment test is performed to determine the amount of goodwill impairment loss to be recorded. The determination of fair value involves uncertainties because it requires management to make assumptions and to apply judgment to estimate industry and economic factors and the profitability of future business strategies. Patterson conducts impairment testing based on current business strategy in light of present industry and economic conditions, as well as future expectations. Additionally, in assessing goodwill for impairment, the reasonableness of the implied control premium is considered based on market capitalizations and recent market transactions.
Other indefinite-lived intangible assets are assessed for impairment by comparing the carrying value of an asset with its fair value. If the carrying value exceeds fair value, an impairment loss is recognized in an amount equal to the excess. The determination of fair value involves assumptions, including projected revenues and gross profit levels, as well as consideration of any factors that may indicate potential impairment.
In the fourth quarter of fiscal
2017
, management completed its annual goodwill and other indefinite-lived intangible asset impairment tests and determined there was
no
impairment, and that our dental reporting unit was not at risk of failing step 1. The animal health reporting unit has a higher level of sensitivity to impairment as management currently assesses the various estimates and assumptions used to conduct these tests. Adverse changes to one or more of these estimates or assumptions could cause us to recognize a material impairment charge on this reporting unit. At April 29, 2017, the estimated fair value of the animal health reporting unit exceeded its book value by approximately
11%
.
Long-Lived Assets
Long-lived assets, including definite-lived intangible assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. Our definite-lived intangible assets primarily consist of customer lists. When impairment exists, the related assets are written down to fair value using level 3 inputs, as discussed further in Note 9. In fiscal 2017, we recorded a non-cash impairment charge of
$36,312
related to a distribution agreement intangible asset. Refer to Note 3 for more information.
Financial Instruments
We account for derivative financial instruments under the provisions of Accounting Standards Codification ("ASC") Topic 815, “Derivatives and Hedging.” Our use of derivative financial instruments is generally limited to managing well-defined interest rate risks. We do not use financial instruments or derivatives for any trading purposes.
Revenue Recognition
Revenues are generated from the sale of consumable products, equipment, software products and services, technical service parts and labor, freight and delivery charges, and other sources. Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and there is reasonable assurance of collection of the sale. Estimates for returns, damaged goods, rebates, loyalty programs and other revenue allowances are made at the time the revenue is recognized based on the historical experience for such items. In addition to revenues generated from the distribution of consumable products under conventional arrangements (buy/sell agreements) where the full market value of the product is recorded as revenue, the animal health segment may earn a small amount of commission income for services provided under agency agreements with certain pharmaceutical manufacturers. The services generally consist of detailing the product and taking the customer’s order. The agency agreement contrasts to a buy/sell agreement in that the animal health
segment does not purchase and handle the product or bill and collect from the customer in an agency relationship with a vendor.
Consumable product sales are recorded upon delivery, except in those circumstances where terms of the sale are FOB shipping point, in which case sales are recorded upon shipment. Commissions under agency agreements are recorded when the services are provided.
Equipment and software product revenues are recognized upon delivery and, if necessary, installation. In those circumstances where terms of the sale are FOB shipping point, revenues are recognized when products are transferred to the shipping carrier. Revenue derived from post contract customer support for software is deferred and recognized ratably over the period in which the support is provided. Patterson provides financing for select equipment and software sales. Revenue is recorded at the present value of the finance contract, with discount, if any, and interest income recognized over the life of the finance contract as other income, net in our consolidated statement of income. See Note 7 for more information regarding customer financing.
Other revenue, including freight and delivery charges and technical service parts and labor, is recognized when the related product revenue is recognized or when the product or services are provided to the customer.
The receivables that result from the recognition of revenue are reported net of the related allowances discussed above. Patterson maintains a valuation allowance based upon the expected collectability of receivables held. Estimates are used to determine the valuation allowance and are based on several factors, including historical collection data, economic trends and credit worthiness of customers. Receivables are written off when we determine the amounts to be uncollectible, typically upon customer bankruptcy or non-response to continuous collection efforts. The portions of receivable amounts that are not expected to be collected during the next twelve months are classified as long-term.
Patterson has a relatively large, dispersed customer base and no single customer accounts for more than
10%
of consolidated net sales. In addition, the equipment sold to customers under finance contracts generally serves as collateral for the contract and the customer provides a personal guarantee as well.
Net sales do not include sales tax as we are considered a pass-through conduit for collecting and remitting sales tax.
Patterson Advantage Loyalty Program
The Dental segment provides a point-based awards program to qualifying customers involving the issuance of “Patterson Advantage dollars” which can be used toward equipment and technology purchases. The program was initiated on January 1, 2009 and runs on a calendar year schedule. Patterson Advantage dollars earned during a program year expire one year after the end of the program year. The cost and corresponding liability associated with the program are recognized as contra-revenue in accordance with ASC Topic 605-50, “Revenue Recognition-Customer Payments and Incentives.” As of
April 29, 2017
, we believe we have sufficient experience with the program to reasonably estimate the amount of Patterson Advantage dollars that will not be redeemed and thus have recorded a liability for
87%
of the maximum potential amount that could be redeemed. We use the redemption recognition method and we recognize the estimated value of unused Advantage dollars as a percentage of Patterson Advantage dollars earned. Breakage recognized was immaterial to all periods presented.
Freight and Delivery Charges
Freight and delivery charges are included in cost of sales in the consolidated statements of income.
Advertising
We expense all advertising and promotional costs as incurred, except for direct marketing expenses, which are expensed over the shorter of the life of the asset or one year. Total advertising and promotional expenses were
$10,128
,
$12,113
and
$10,181
for fiscal years
2017
,
2016
and
2015
, respectively. There were
no
deferred direct-marketing expenses included in the consolidated balance sheets as of
April 29, 2017
and
April 30, 2016
.
Income Taxes
The liability method is used to account for income tax expense. 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.
Valuation allowances are established for deferred tax assets if, after assessment of available positive and negative evidence, it is more likely than not that the deferred tax asset will not be fully realized.
Employee Stock Ownership Plan ("ESOP")
Compensation expense related to our defined contribution ESOP is computed based on the shares allocated method.
Self-insurance
Patterson is self-insured for certain losses related to general liability, product liability, automobile, workers’ compensation and medical claims. We estimate our liabilities based upon an analysis of historical data and actuarial estimates. While current estimates are believed reasonable based on information currently available, actual results could differ and affect financial results due to changes in the amount or frequency of claims, medical cost inflation or other factors. Historically, actual results related to these types of claims have not varied significantly from estimated amounts.
Stock-based Compensation
We recognize stock-based compensation expense based on estimated grant date fair values. The grant date fair value of stock options and stock purchases made through our Employee Stock Purchase Plan and our Capital Accumulation Plan are estimated using the Black-Scholes option pricing valuation model. The grant date fair value of performance stock units that vest upon meeting certain market conditions is estimated using the Monte Carlo valuation model. These valuations require estimates to be made including expected stock price volatility which considers historical volatility trends, implied future volatility based on certain traded options and other factors. We estimate the expected life of awards based on several factors, including types of participants, vesting schedules, contractual terms and various factors surrounding exercise behavior of different groups.
The grant date fair value of time-based restricted stock awards and restricted stock units is calculated based on the closing price of our common stock on the date of grant.
Compensation expense for all share-based payment awards is recognized over the requisite service period (or to the date a participant becomes eligible for retirement, if earlier) for awards that are expected to vest.
Comprehensive Income
Comprehensive income is computed as net income plus certain other items that are recorded directly to stockholders’ equity. Significant items included in comprehensive income are foreign currency translation adjustments and the effective portion of cash flow hedges, net of tax. Foreign currency translation adjustments do not include a provision for income tax because earnings from foreign operations are considered to be indefinitely reinvested outside the U.S. The income tax expense (benefit) related to cash flow hedge losses was
$1,057
,
$883
and
$(10,843)
for the fiscal years ended
April 29, 2017
,
April 30, 2016
and
April 25, 2015
, respectively.
Earnings Per Share
The amount of basic earnings per share is computed by dividing net income by the weighted average number of outstanding common shares during the period. The amount of diluted earnings per share is computed by dividing net income by the weighted average number of outstanding common shares and common share equivalents, when dilutive, during the period.
The following table sets forth the denominator for the computation of basic and diluted earnings per share. There were no material adjustments to the numerator.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
April 29, 2017
|
|
April 30, 2016
|
|
April 25, 2015
|
Denominator
|
|
|
|
|
|
Denominator for basic earnings per share – weighted average shares
|
94,897
|
|
|
97,222
|
|
|
98,989
|
|
Effect of dilutive securities – stock options, restricted stock and stock purchase plans
|
670
|
|
|
680
|
|
|
705
|
|
Denominator for diluted earnings per share – adjusted weighted average shares
|
95,567
|
|
|
97,902
|
|
|
99,694
|
|
Potentially dilutive securities representing
1,133
,
765
and
147
shares for fiscal years
2017
,
2016
and
2015
, respectively, were excluded from the calculation of diluted earnings per share because their effects were anti-dilutive.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers (Topic 606)". ASU No. 2014-09 supersedes the revenue recognition requirements in "Revenue Recognition (Topic 605)," and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB deferred the effective date of this pronouncement by one year to December 15, 2017 for annual reporting periods beginning after that date. Early adoption is permitted, but not before the original effective date, which for annual periods was December 15, 2016. Companies may use either a full retrospective or a modified retrospective approach to adopt the standard. We plan to adopt the new guidance in the first quarter of fiscal 2019 and are currently evaluating the standard, including the method we will use for adoption and the effect it will have on our financial statements. We do not expect the standard to materially affect our consolidated net earnings, financial position, or cash flows. We are currently evaluating the new standard as it relates to certain sales transactions in which products are shipped directly from the vendor to our customers. We currently report these sales on a gross basis, and are evaluating if we will be required to report these sales on a net basis. Such sales represented approximately
2%
of consolidated net sales in fiscal 2017. Any change to net presentation would not impact gross margin or earnings.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic 330), Simplifying the Measurement of Inventory." ASU 2015-11 requires inventory measured using any method other than LIFO or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than at the lower of cost or market. Subsequent measurement of inventory using the LIFO and retail inventory method is unchanged. We are required to adopt the new pronouncement in the first quarter of fiscal 2018, and plan to do so at that time. We are evaluating the effect of adopting this pronouncement, but do not, at this time, anticipate a material impact to our financial statements once implemented.
In January 2016, the FASB issued ASU No. 2016-01 "Financial Instruments- Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)", which amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income. We are required to adopt the ASU No. 2016-01 in the first quarter of fiscal 2019, and plan to do so at that time. Early adoption is permitted. We are evaluating the impact of adopting this pronouncement.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by most leases, as well as requires additional qualitative and quantitative disclosures. We are required to adopt ASU 2016-02 in the first quarter of fiscal 2020, with early adoption permitted. We are evaluating the impact of adopting this pronouncement.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." ASU No. 2016-09 eliminates the additional paid-in capital pool concept and requires that excess tax benefits and tax deficiencies be recorded in the income statement when awards are settled. ASU No. 2016-09 also addresses simplifications related to statement of cash flows classification, accounting for forfeitures, and minimum statutory tax withholding requirements. During the first quarter of fiscal 2017, we adopted ASU No. 2016-09. As a result of this adoption, we recognized
$2,493
of excess tax benefits
related to share-based payments in our provision for income taxes for the fiscal year ended
April 29, 2017
. These items were historically recorded in additional paid-in capital. In addition, for the fiscal year ended
April 29, 2017
, cash flows related to excess tax benefits are classified as an operating activity along with other income tax cash flows. No prior period amounts have been adjusted. Cash paid on employees' behalf related to shares withheld for tax purposes continues to be classified as a financing activity. Our share-based compensation expense in each period continues to reflect estimated forfeitures.
In August 2016, the FASB issues ASU No. 2016-15, "Statement of Cash Flows: Classification of Certain Cash Receipts and Payments." ASU No. 2016-15 provides guidance on eight specific cash flow issues with the objective of reducing diversity in practice. The guidance is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted in any interim or annual period. During the third quarter of fiscal 2017, we adopted ASU No. 2016-15 and it had no material impact on the consolidated financial statements.
2. Cash and Cash Equivalents
At
April 29, 2017
and
April 30, 2016
, cash and cash equivalents consisted of the following:
|
|
|
|
|
|
|
|
|
|
April 29, 2017
|
|
April 30, 2016
|
Cash on hand
|
$
|
88,161
|
|
|
$
|
122,844
|
|
Money market funds
|
6,798
|
|
|
14,609
|
|
Total
|
$
|
94,959
|
|
|
$
|
137,453
|
|
Cash on hand is generally in interest earning accounts.
3. Goodwill and Other Intangible Assets
The changes in the carrying value of goodwill for each of our reportable segments for the fiscal year ended
April 29, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2016
|
|
Other
Activity
|
|
Balance at April 29, 2017
|
Dental
|
$
|
139,129
|
|
|
$
|
(840
|
)
|
|
$
|
138,289
|
|
Animal Health
|
677,463
|
|
|
(2,205
|
)
|
|
675,258
|
|
Corporate
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
816,592
|
|
|
$
|
(3,045
|
)
|
|
$
|
813,547
|
|
Activity in fiscal 2017 primarily consists of the impact from foreign currency translation.
Balances of other intangible assets, excluding goodwill, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 29, 2017
|
|
April 30, 2016
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Unamortized - indefinite lived:
|
|
|
|
|
|
|
|
|
|
|
|
Copyrights, trade names and trademarks
|
$
|
29,900
|
|
|
$
|
—
|
|
|
$
|
29,900
|
|
|
$
|
29,900
|
|
|
$
|
—
|
|
|
$
|
29,900
|
|
Amortized - definite lived:
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
353,237
|
|
|
67,483
|
|
|
285,754
|
|
|
356,707
|
|
|
44,953
|
|
|
311,754
|
|
Trade names and trademarks
|
129,426
|
|
|
35,580
|
|
|
93,846
|
|
|
130,516
|
|
|
22,454
|
|
|
108,062
|
|
Developed technology and other
|
54,209
|
|
|
38,273
|
|
|
15,936
|
|
|
154,013
|
|
|
94,432
|
|
|
59,581
|
|
Total amortized intangible assets
|
536,872
|
|
|
141,336
|
|
|
395,536
|
|
|
641,236
|
|
|
161,839
|
|
|
479,397
|
|
Total identifiable intangible assets
|
$
|
566,772
|
|
|
$
|
141,336
|
|
|
$
|
425,436
|
|
|
$
|
671,136
|
|
|
$
|
161,839
|
|
|
$
|
509,297
|
|
In fiscal 2006, we extended our exclusive North American distribution relationship with Sirona Dental Systems for Sirona’s CEREC 3D dental restorative system. At that time, we paid a
$100,000
distribution fee to extend the
existing exclusive relationship for at least a
10
-year beginning in 2007. This distribution fee has been accounted for as an intangible asset in our Dental segment that has been amortized since 2007.
Based on our November 2016 decision not to extend sales exclusivity for the full Sirona portfolio of products, we recorded a pre-tax non-cash impairment charge of
$36,312
in our Dental segment in the third quarter fiscal 2017, related to the distribution fee associated with the CEREC product component of this arrangement. This charge was recorded within operating expenses in the consolidated statements of income and other comprehensive income.
With respect to the amortized intangible assets, future amortization expense is expected to approximate
$38,811
,
$36,320
,
$35,022
,
$34,919
and
$34,602
for fiscal years
2018
,
2019
,
2020
,
2021
and
2022
, respectively. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, changes in foreign currency exchange rates, impairment of intangible assets, accelerated amortization of intangible assets and other events.
4. Discontinued Operations
In August 2015, we sold all of the outstanding shares of common stock of Patterson Medical Holdings, Inc., our wholly owned subsidiary responsible for our rehabilitation supply business ("Patterson Medical"), for
$716,886
in cash to Madison Dearborn Partners. As additional consideration for the shares of Patterson Medical, we obtained a number of common units of the parent company of the buyer equal to
10%
of the common units outstanding at closing. Unlike the other common units, these units will only become entitled to begin participating in distributions to the common unit holders at such time, if any, as the Madison Dearborn Partners’ investor cash inflows equal or exceed
2.5
times the Madison Dearborn Partners’ investor cash outflows. These units are non-transferable.
In connection with the above described transaction, we also entered into a transition services agreement with our former subsidiary, pursuant to which Patterson Medical, as owned by Madison Dearborn Partners, is paying us to provide, among other things, certain information technology, distribution, facilities, finance, tax and treasury, and human resources services for up to
24 months
after closing.
We classified Patterson Medical’s results of operations as discontinued operations for all periods presented in the consolidated statements of income and other comprehensive income. The operations and cash flows of Patterson Medical have been eliminated from our continuing operations, which were previously recorded as the rehabilitation supply reportable segment. Net sales from discontinued operations were
$168,504
for fiscal year ended
April 30, 2016
. For the fiscal year ended
April 29, 2017
, net loss from discontinued operations was
$2,895
, which was due to a change in estimate of the tax impact of the sale of Patterson Medical.
5. Property and Equipment
Property and equipment consisted of the following items:
|
|
|
|
|
|
|
|
|
|
April 29, 2017
|
|
April 30, 2016
|
Land
|
$
|
11,518
|
|
|
$
|
11,585
|
|
Buildings
|
110,807
|
|
|
111,386
|
|
Leasehold improvements
|
25,173
|
|
|
26,291
|
|
Furniture and equipment
|
159,886
|
|
|
169,110
|
|
Computer hardware and software
|
206,402
|
|
|
141,727
|
|
Construction-in-progress
|
36,211
|
|
|
95,450
|
|
Property and equipment, gross
|
549,997
|
|
|
555,549
|
|
Accumulated depreciation
|
(251,545
|
)
|
|
(262,234
|
)
|
Property and equipment, net
|
$
|
298,452
|
|
|
$
|
293,315
|
|
6. Debt
Our long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
Interest Rate
|
|
April 29, 2017
|
|
April 30, 2016
|
Senior notes due fiscal 2018
(1)
|
5.75
|
%
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
Senior notes due fiscal 2019
(2)
|
2.95
|
%
|
|
60,000
|
|
|
60,000
|
|
Senior notes due fiscal 2022
(2)
|
3.59
|
%
|
|
165,000
|
|
|
165,000
|
|
Senior notes due fiscal 2024
(2)
|
3.74
|
%
|
|
100,000
|
|
|
100,000
|
|
Senior notes due fiscal 2025
(3)
|
3.48
|
%
|
|
250,000
|
|
|
250,000
|
|
Term loan due fiscal 2022
(4)
|
2.24
|
%
|
|
291,387
|
|
|
317,625
|
|
Less: Deferred debt issuance costs
|
|
|
(3,361
|
)
|
|
(3,970
|
)
|
Total debt
|
|
|
1,013,026
|
|
|
1,038,655
|
|
Less: Current maturities of long-term debt
|
|
|
(14,754
|
)
|
|
(16,500
|
)
|
Long-term debt
|
|
|
$
|
998,272
|
|
|
$
|
1,022,155
|
|
|
|
(1)
|
Issued in March 2008.
|
|
|
(2)
|
Issued in December 2011.
|
|
|
(3)
|
Issued in March 2015.
|
|
|
(4)
|
Issued in June 2015, amended in January 2017. Interest rate is LIBOR plus
1.25%
as of
April 29, 2017
.
|
Future principal payments due, based on stated contractual maturities for our long-term debt, are as follows as of
April 29, 2017
:
|
|
|
|
|
Fiscal Year
|
|
2018
(1)
|
$
|
164,754
|
|
2019
|
76,598
|
|
2020
|
23,975
|
|
2021
|
29,508
|
|
2022
|
371,552
|
|
Thereafter
|
350,000
|
|
Total
|
$
|
1,016,387
|
|
(1) Includes
$150,000
classified as long-term debt on the consolidated balance sheet as we have both the intent and ability to refinance at the time the debt is set to mature in March 2018.
During fiscal 2016, we entered into a credit agreement (the "Credit Agreement"), under which the lenders provided us with senior unsecured lending facilities of up to
$1,500,000
, consisting of a
$1,000,000
unsecured term loan and a
$500,000
unsecured revolving line of credit. The Credit Agreement was due to expire in fiscal 2021.
In the third quarter of fiscal 2017, we entered into an amendment of the Credit Agreement (the “Amended Credit Agreement”), consisting of a
$295,075
term loan and a
$750,000
revolving line of credit. Interest on borrowings is variable and is determined as a base rate plus a spread. This spread, as well as a commitment fee on the unused portion of the facility, is based on our leverage ratio, as defined in the Amended Credit Agreement. The term loan and revolving credit facilities will mature no later than January 2022. As of
April 29, 2017
,
$291,387
of the Amended Credit Agreement unsecured term loan was outstanding at an interest rate of
2.24%
, and
$59,000
was outstanding under the Amended Credit Agreement revolving line of credit at an interest rate of
2.19%
. At April 30, 2016,
$317,625
was outstanding under the Credit Agreement unsecured term loan at an interest rate of
1.81%
, and
$20,000
was outstanding under the Credit Agreement revolving line of credit at an interest rate of
3.88%
.
We are subject to various financial covenants under our debt agreements including the maintenance of leverage and interest coverage ratios. In the event of our default, any outstanding obligations may become due and payable immediately. We were in material compliance with the covenants under our debt agreements as of
April 29, 2017
.
7. Customer Financing
As a convenience to our customers, we offer several different financing alternatives, including a third party program and a Patterson-sponsored program. For the third party program, we act as a facilitator between the customer and the third party financing entity with no on-going involvement in the financing transaction. Under our sponsored program, equipment purchased by customers with strong credit may be financed up to a maximum of
$1,000
. We generally sell our customers’ financing contracts to outside financial institutions in the normal course of our business. These financing arrangements are accounted for as a sale of assets under the provisions of ASC 860,
Transfers and Servicing
. We currently have
two
arrangements under which we sell these contracts.
First, we operate under an agreement to sell a portion of our equipment finance contracts to commercial paper conduits with The Bank of Tokyo-Mitsubishi UFJ, Ltd. ("BTMU") serving as the agent. We utilize PDC Funding to fulfill a requirement of participating in the commercial paper conduit. We receive the proceeds of the contracts upon sale to BTMU. At least
9%
of the proceeds are held by the conduit as security against eventual performance of the portfolio. This percentage can be greater and is based upon certain ratios defined in the agreement with BTMU. The capacity under the agreement with BTMU at
April 29, 2017
was
$575,000
.
Second, we maintain an agreement with Fifth Third Bank ("Fifth Third") whereby the bank purchases customers’ financing contracts. PDC Funding II sells financing contracts to Fifth Third. We receive the proceeds of the contracts upon sale to Fifth Third. At least
10%
of the proceeds are held by the conduit as security against eventual performance of the portfolio. This percentage can be greater and is based upon certain ratios defined in the agreement with Fifth Third. The capacity under the agreement with Fifth Third at
April 29, 2017
was
$100,000
.
We retain servicing responsibilities for the financing contracts under both arrangements, for which we are paid a servicing fee. The servicing fees we receive are considered adequate compensation for services rendered. Accordingly, no servicing asset or liability has been recorded.
The portion of the purchase price for the receivables held by the conduits is deemed a deferred purchase price receivable, which is paid to the applicable special purpose entity as payments on the customers’ financing contracts are collected from customers. The difference between the carrying amount of the receivables sold under these programs and the sum of the cash and the current fair value of the deferred purchase price receivables is recognized as a gain on sale of the related receivables and recorded in net sales in the consolidated statements of income and other comprehensive income. Expenses incurred related to customer financing activities were recorded in operating expenses in our consolidated statements of income and other comprehensive income.
During fiscal
2017
,
2016
and
2015
, we sold
$357,965
,
$359,646
and
$312,303
, respectively, of contracts under these arrangements. We recorded net sales in the consolidated statements of income and other comprehensive income of
$20,580
,
$30,123
and
$21,668
during fiscal
2017
,
2016
and
2015
, respectively, related to these contracts sold.
Included in cash and cash equivalents in the consolidated balance sheets are
$17,902
and
$27,186
as of
April 29, 2017
and
April 30, 2016
, respectively, which represent cash collected from previously sold customer financing arrangements that have not yet been settled. Included in current receivables in the consolidated balance sheets are
$124,098
, net of unearned income of
$940
, and
$87,406
, net of unearned income of
$1,768
, as of
April 29, 2017
and
April 30, 2016
, respectively, of finance contracts that had not yet been sold as of those dates. A total of
$613,586
of finance contracts receivable sold under the arrangements was outstanding at
April 29, 2017
. The deferred purchase price receivable under the arrangements was
$119,798
and
$108,837
as of
April 29, 2017
and
April 30, 2016
, respectively. Since the internal financing program began in 1994, bad debt write-offs have amounted to less than
1%
of the loans originated.
The agreements require us to maintain a minimum current ratio and maximum leverage ratio. We were in material compliance with those covenants at
April 29, 2017
.
8. Derivative Financial Instruments
We are a party to certain offsetting and identical interest rate cap agreements entered into to fulfill certain covenants of the equipment finance contract sale agreements. The interest rate cap agreements also provide a credit enhancement feature for the financing contracts sold by PDC Funding and PDC Funding II to the commercial paper conduit.
The interest rate cap agreements are canceled and new agreements are entered into periodically to maintain consistency with the dollar maximum of the sale agreements and the maturity of the underlying financing contracts. As of
April 29, 2017
, PDC Funding had purchased an interest rate cap from a bank with a notional amount of
$575,000
and a maturity date of November 2023. We sold an identical interest rate cap to the same bank. As of
April 29, 2017
, PDC Funding II had purchased an interest rate cap from a bank with a notional amount of
$100,000
and a maturity date of July 2024. We sold an identical interest rate cap to the same bank.
These interest rate cap agreements do not qualify for hedge accounting treatment and, accordingly, we record the fair value of the agreements as an asset or liability and the change as income or expense during the period in which the change occurs.
In March 2008 we entered into
two
forward starting interest rate swap agreements, each with notional amounts of
$100,000
and accounted for as cash flow hedges, to hedge interest rate fluctuations in anticipation of the issuance of the senior notes due fiscal
2015
and fiscal
2018
. Upon issuance of the hedged debt, we settled the forward starting interest rate swap agreements and recorded a
$1,000
increase, net of income taxes, to other comprehensive income (loss), which is being amortized as a reduction to interest expense over the life of the related debt.
In January 2014 we entered into a forward interest rate swap agreement with a notional amount of
$250,000
and accounted for as a cash flow hedge, to hedge interest rate fluctuations in anticipation of refinancing the
5.17%
senior notes due
March 25, 2015
. These notes were repaid on
March 25, 2015
and replaced with new
$250,000
3.48%
senior notes due
March 24, 2025
. A cash payment of
$29,003
was made in March 2015 to settle the interest rate swap. This amount is recorded in other comprehensive income (loss), net of tax, and will be recognized as interest expense over the life of the related debt.
The following presents the fair value of derivative instruments included in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
Derivative type
|
Classification
|
|
April 29, 2017
|
|
April 30, 2016
|
Assets:
|
|
|
|
|
|
Interest rate cap agreements
|
Other noncurrent assets
|
|
$
|
1,188
|
|
|
$
|
816
|
|
Liabilities:
|
|
|
|
|
|
Interest rate cap agreements
|
Other noncurrent liabilities
|
|
$
|
1,188
|
|
|
$
|
816
|
|
The following tables present the pre-tax effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income and other comprehensive income ("OCI"):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion)
|
|
Fiscal Year Ended
|
Derivatives in cash flow hedging relationships
|
April 29, 2017
|
|
April 30, 2016
|
|
April 25, 2015
|
Interest rate swap
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(23,343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)
|
|
|
|
Fiscal Year Ended
|
Derivatives in cash flow hedging relationships
|
Income statement location
|
|
April 29, 2017
|
|
April 30, 2016
|
|
April 25, 2015
|
Interest rate swap
|
Interest expense
|
|
$
|
(2,802
|
)
|
|
$
|
(2,817
|
)
|
|
$
|
(56
|
)
|
We recorded
no
ineffectiveness during fiscal
2017
,
2016
or
2015
. As of
April 29, 2017
, the estimated pre-tax portion of accumulated other comprehensive loss that is expected to be reclassified into earnings over the next twelve months is
$2,817
, which will be recorded as an increase to interest expense.
9. Fair Value Measurements
Fair value is the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. The fair value hierarchy of measurements is categorized into one of three levels based on the lowest level of significant input used:
|
|
|
|
|
|
|
Level 1 –
|
|
Quoted prices in active markets for identical assets and liabilities at the measurement date.
|
|
|
Level 2 –
|
|
Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
|
|
|
Level 3 –
|
|
Unobservable inputs for which there is little or no market data available. These inputs reflect
management’s assumptions of what market participants would use in pricing the asset or liability.
|
Our hierarchy for assets and liabilities measured at fair value on a recurring basis is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 29, 2017
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
6,798
|
|
|
$
|
6,798
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred purchase price receivable
|
119,798
|
|
|
—
|
|
|
—
|
|
|
119,798
|
|
Derivative instruments
|
1,188
|
|
|
—
|
|
|
1,188
|
|
|
—
|
|
Total assets
|
$
|
127,784
|
|
|
$
|
6,798
|
|
|
$
|
1,188
|
|
|
$
|
119,798
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative instruments
|
$
|
1,188
|
|
|
$
|
—
|
|
|
$
|
1,188
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2016
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
14,609
|
|
|
$
|
14,609
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred purchase price receivable
|
108,837
|
|
|
—
|
|
|
—
|
|
|
108,837
|
|
Derivative instruments
|
816
|
|
|
—
|
|
|
816
|
|
|
—
|
|
Total assets
|
$
|
124,262
|
|
|
$
|
14,609
|
|
|
$
|
816
|
|
|
$
|
108,837
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative instruments
|
$
|
816
|
|
|
$
|
—
|
|
|
$
|
816
|
|
|
$
|
—
|
|
Cash equivalents
– We value cash equivalents at their current market rates. The carrying value of cash equivalents approximates fair value and maturities are less than three months.
Deferred purchase price receivable
– We value the deferred purchase price receivable based on a discounted cash flow analysis using unobservable inputs, which include a forward yield curve, the estimated timing of payments and the credit quality of the underlying creditor. Significant changes in any of the significant unobservable inputs in isolation would not result in a materially different fair value estimate. The interrelationship between these inputs is insignificant.
Derivative instruments
– Patterson’s derivative instruments consist of interest rate cap agreements and interest rate swaps. These instruments are valued using inputs such as interest rates and credit spreads.
Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments under certain circumstances, such as when there is evidence of impairment. In fiscal 2017, we recorded a non-cash impairment charge of
$36,312
related to a distribution agreement intangible asset. Refer to Note 3 for more information. There were
no
fair value adjustments to such assets in fiscal years
2016
or
2015
.
Our debt is not measured at fair value in the consolidated balance sheets. The estimated fair value of our debt as of
April 29, 2017
and
April 30, 2016
was
$1,025,761
and
$1,064,752
, respectively, as compared to a carrying value of
$1,013,026
and
$1,038,655
at
April 29, 2017
and
April 30, 2016
, respectively. The fair value of debt was measured using a discounted cash flow analysis based on expected market based yields (i.e. level 2 inputs).
The carrying amounts of receivables, net of allowances, accounts payable, and certain accrued and other current liabilities approximated fair value at
April 29, 2017
and
April 30, 2016
.
10. Lease Commitments
Patterson leases facilities for its branch office locations, a few small distribution facilities, and certain equipment. These leases are accounted for as operating leases. Future minimum rental payments under noncancelable operating leases are as follows at
April 29, 2017
:
|
|
|
|
|
2018
|
$
|
22,690
|
|
2019
|
15,166
|
|
2020
|
12,516
|
|
2021
|
9,207
|
|
2022
|
5,634
|
|
Thereafter
|
5,815
|
|
Total
|
$
|
71,028
|
|
Rent expense was
$24,502
,
$23,315
and
$16,909
for fiscal years
2017
,
2016
and
2015
, respectively.
11. Income Taxes
The components of income from continuing operations before taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
April 29,
2017
|
|
April 30,
2016
|
|
April 25,
2015
|
Income from continuing operations before taxes
|
|
|
|
|
|
United States
|
$
|
217,529
|
|
|
$
|
270,501
|
|
|
$
|
235,421
|
|
International
|
33,352
|
|
|
31,192
|
|
|
38,897
|
|
Total
|
$
|
250,881
|
|
|
$
|
301,693
|
|
|
$
|
274,318
|
|
Significant components of income tax expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
April 29,
2017
|
|
April 30,
2016
|
|
April 25,
2015
|
Current:
|
|
|
|
|
|
Federal
|
$
|
72,339
|
|
|
$
|
105,104
|
|
|
$
|
73,004
|
|
Foreign
|
9,100
|
|
|
11,690
|
|
|
11,764
|
|
State
|
9,367
|
|
|
15,249
|
|
|
9,007
|
|
Total current
|
90,806
|
|
|
132,043
|
|
|
93,775
|
|
Deferred:
|
|
|
|
|
|
Federal
|
(11,802
|
)
|
|
(14,308
|
)
|
|
497
|
|
Foreign
|
(28
|
)
|
|
323
|
|
|
44
|
|
State
|
(1,883
|
)
|
|
(2,049
|
)
|
|
(81
|
)
|
Total deferred
|
(13,713
|
)
|
|
(16,034
|
)
|
|
460
|
|
Income tax expense
|
$
|
77,093
|
|
|
$
|
116,009
|
|
|
$
|
94,235
|
|
Deferred tax assets and liabilities are included in other non-current assets and deferred income taxes on the consolidated balance sheets. Significant components of Patterson’s deferred tax assets (liabilities) as of
April 29, 2017
and
April 30, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
April 29,
2017
|
|
April 30,
2016
|
Deferred tax assets:
|
|
|
|
Capital accumulation plan
|
$
|
7,676
|
|
|
$
|
5,898
|
|
Inventory related items
|
6,236
|
|
|
6,776
|
|
Bad debt allowance
|
2,317
|
|
|
2,649
|
|
Stock based compensation expense
|
8,663
|
|
|
9,985
|
|
Interest rate swap
|
8,656
|
|
|
9,749
|
|
Foreign tax credit
|
8,917
|
|
|
9,300
|
|
Net operating loss carryforwards
|
—
|
|
|
363
|
|
Other
|
14,269
|
|
|
11,979
|
|
Gross deferred tax assets
|
56,734
|
|
|
56,699
|
|
Less: Valuation allowance
|
(14,053
|
)
|
|
(14,007
|
)
|
Total net deferred tax assets
|
42,681
|
|
|
42,692
|
|
Deferred tax liabilities
|
|
|
|
LIFO reserve
|
(25,833
|
)
|
|
(21,294
|
)
|
Amortizable intangibles
|
(133,037
|
)
|
|
(156,782
|
)
|
Goodwill
|
(61,108
|
)
|
|
(57,405
|
)
|
Property, plant, equipment
|
(14,389
|
)
|
|
(11,748
|
)
|
Total deferred tax liabilities
|
(234,367
|
)
|
|
(247,229
|
)
|
Deferred net long-term income tax liability
|
$
|
(191,686
|
)
|
|
$
|
(204,537
|
)
|
At
April 29, 2017
, we had a U.S. foreign tax credit asset that will expire in
9
years. In addition, we have deferred tax assets which would give rise to tax capital losses if triggered in the future. These losses have a
5
year carryforward period and can only be used against capital gain income. At this time, we believe that it is more likely than not that the foreign tax credit and capital loss carryforward attributes totaling
$14,053
will not be fully utilized prior to expiration. As a result, a full valuation allowance has been established against these assets.
No provision has been made for U.S. federal income taxes on certain undistributed earnings of foreign subsidiaries that we intend to permanently invest or that may be remitted substantially tax-free. The total undistributed earnings that would be subject to federal income tax if remitted under existing law are approximately
$121,347
as of
April 29, 2017
. Determination of the unrecognized deferred tax liability related to these earnings is not practicable because of the complexities with its hypothetical calculation. If a future distribution of these earnings is made, we will be subject to U.S. taxes and withholding taxes payable to various foreign governments. A credit for foreign taxes already paid may be available to reduce the U.S. tax liability.
In fiscal 2016, we approved a one-time repatriation of approximately
$200,000
of foreign earnings. This one-time repatriation reduced the overall cost of funding the acquisition of Animal Health International, Inc. In addition, certain foreign cash at Patterson Medical was required to be repatriated as part of the sale transaction. The continuing operations tax impact of
$12,300
from the repatriation was recorded in fiscal 2016. During fiscal 2017, we recorded a
$2,406
benefit related to a change in estimate of the tax impact of the cash repatriation. We have previously asserted that our foreign earnings are permanently reinvested. Except for the repatriations described above, there is no change in our on-going assertion.
Income tax expense varies from the amount computed using the U.S. statutory rate. The reasons for this difference and the related tax effects are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
April 29,
2017
|
|
April 30,
2016
|
|
April 25,
2015
|
Tax at U.S. statutory rate
|
$
|
87,807
|
|
|
$
|
105,593
|
|
|
$
|
96,012
|
|
State tax provision, net of federal benefit
|
5,217
|
|
|
7,364
|
|
|
6,479
|
|
Effect of foreign taxes
|
(2,602
|
)
|
|
(1,195
|
)
|
|
(1,806
|
)
|
Permanent differences
|
(6,861
|
)
|
|
(3,693
|
)
|
|
(5,363
|
)
|
Tax on dividends, net of foreign tax credit
|
(2,406
|
)
|
|
12,300
|
|
|
—
|
|
Other
|
(4,062
|
)
|
|
(4,360
|
)
|
|
(1,087
|
)
|
Income tax expense
|
$
|
77,093
|
|
|
$
|
116,009
|
|
|
$
|
94,235
|
|
We have accounted for the uncertainty in income taxes recognized in the financial statements in accordance with ASC Topic 740, “Income Taxes”. This standard clarifies the separate identification and reporting of estimated amounts that could be assessed upon audit. The potential assessments are considered unrecognized tax benefits, because, if it is ultimately determined they are unnecessary, the reversal of these previously recorded amounts will result in a beneficial impact to our financial statements.
As of
April 29, 2017
and
April 30, 2016
, Patterson’s gross unrecognized tax benefits were
$14,211
and
$13,560
, respectively. If determined to be unnecessary, these amounts (net of deferred tax assets of
$3,883
and
$3,800
, respectively, related to the tax deductibility of the gross liabilities) would decrease our effective tax rate. The gross unrecognized tax benefits are included in other long-term liabilities on the consolidated balance sheet.
A summary of the changes in the gross amounts of unrecognized tax benefits for the years ended
April 29, 2017
and
April 30, 2016
is shown below:
|
|
|
|
|
|
|
|
|
|
April 29,
2017
|
|
April 30,
2016
|
Balance at beginning of period
|
$
|
13,560
|
|
|
$
|
16,661
|
|
Additions for tax positions related to the current year
|
1,900
|
|
|
1,794
|
|
Additions for tax positions of prior years
|
418
|
|
|
560
|
|
Reductions for tax positions of prior years
|
(194
|
)
|
|
(1,599
|
)
|
Statute expirations
|
(1,145
|
)
|
|
(3,486
|
)
|
Settlements
|
(328
|
)
|
|
(370
|
)
|
Balance at end of period
|
$
|
14,211
|
|
|
$
|
13,560
|
|
We also recognize both interest and penalties with respect to unrecognized tax benefits as a component of income tax expense. As of
April 29, 2017
and
April 30, 2016
, we had recorded
$1,568
and
$1,438
, respectively, for interest and penalties. These amounts are also included in other long-term liabilities on the consolidated balance sheet. These amounts, net of related deferred tax assets, if determined to be unnecessary, would decrease our effective tax rate. During the year ended
April 29, 2017
, we recorded as part of tax expense
$350
related to an increase in our estimated liability for interest and penalties.
Patterson files income tax returns, including returns for our subsidiaries, with federal, state, local and foreign jurisdictions. During fiscal year 2017, the Internal Revenue Service (“IRS”) began an audit of fiscal years ended April 25, 2015 and April 30, 2016. During fiscal 2016, the IRS completed an audit of our fiscal years ended April 27, 2013 and April 27, 2014. The outcome of this audit did not have a material adverse impact on our financial statements. The IRS has either examined or waived examination for all periods up to and including our fiscal year ended April 27, 2013, resulting in these periods being closed. In addition to the IRS, periodically, state, local and foreign income tax returns are examined by various taxing authorities. We do not believe that the outcome of these various examinations will have a material adverse impact on our financial statements.
12. Segment and Geographic Data
We present
three
reportable segments: Dental, Animal Health and Corporate. Dental and Animal Health are strategic business units that offer similar products and services to different customer bases. Dental provides a virtually complete range of consumable dental products, equipment and software, turnkey digital solutions and value-added services to dentists, dental laboratories, institutions, and other healthcare professionals throughout North America. Animal Health is a leading, full-line distributor in North America and the U.K. of animal health products, services and
technologies to both the production-animal and companion-pet markets. Our Corporate segment is comprised of general and administrative expenses, including home office support costs in areas such as information technology, finance, legal, human resources and facilities. In addition, customer financing and other miscellaneous sales are reported within Corporate results. Corporate assets consist primarily of cash and cash equivalents, accounts receivable, property and equipment and long-term receivables. We evaluate segment performance based on operating income. The costs to operate the fulfillment centers are allocated to the operating units based on the through-put of the unit.
The following table presents information about our reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
April 29,
2017
|
|
April 30,
2016
|
|
April 25,
2015
|
Net sales
|
|
|
|
|
|
Dental
|
$
|
2,390,219
|
|
|
$
|
2,476,234
|
|
|
$
|
2,415,003
|
|
Animal Health
|
3,159,826
|
|
|
2,862,249
|
|
|
1,456,570
|
|
Corporate
|
43,082
|
|
|
48,220
|
|
|
39,292
|
|
Consolidated net sales
|
$
|
5,593,127
|
|
|
$
|
5,386,703
|
|
|
$
|
3,910,865
|
|
Operating income (loss)
|
|
|
|
|
|
Dental
|
$
|
263,671
|
|
|
$
|
312,176
|
|
|
$
|
300,357
|
|
Animal Health
|
88,132
|
|
|
94,318
|
|
|
56,670
|
|
Corporate
|
(63,875
|
)
|
|
(58,781
|
)
|
|
(52,441
|
)
|
Consolidated operating income
|
$
|
287,928
|
|
|
$
|
347,713
|
|
|
$
|
304,586
|
|
Depreciation and amortization
|
|
|
|
|
|
Dental
|
$
|
11,840
|
|
|
$
|
18,903
|
|
|
$
|
18,568
|
|
Animal Health
|
50,144
|
|
|
44,243
|
|
|
8,861
|
|
Corporate
|
21,834
|
|
|
19,237
|
|
|
17,094
|
|
Consolidated depreciation and amortization
|
$
|
83,818
|
|
|
$
|
82,383
|
|
|
$
|
44,523
|
|
|
|
|
|
|
|
|
April 29,
2017
|
|
April 30,
2016
|
|
|
Total assets
|
|
|
|
|
|
Dental
|
$
|
863,970
|
|
|
$
|
994,113
|
|
|
|
Animal Health
|
2,119,512
|
|
|
2,064,302
|
|
|
|
Corporate
|
524,431
|
|
|
462,389
|
|
|
|
Total assets
|
$
|
3,507,913
|
|
|
$
|
3,520,804
|
|
|
|
The following table presents sales information by product for all of our reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
April 29,
2017
|
|
April 30,
2016
|
|
April 25,
2015
|
Consolidated
|
|
|
|
|
|
Consumable
|
$
|
4,400,888
|
|
|
$
|
4,153,921
|
|
|
$
|
2,697,581
|
|
Equipment and software
|
834,526
|
|
|
857,001
|
|
|
865,013
|
|
Other
|
357,713
|
|
|
375,781
|
|
|
348,271
|
|
Total
|
$
|
5,593,127
|
|
|
$
|
5,386,703
|
|
|
$
|
3,910,865
|
|
Dental
|
|
|
|
|
|
Consumable
|
$
|
1,321,764
|
|
|
$
|
1,378,886
|
|
|
$
|
1,319,407
|
|
Equipment and software
|
780,868
|
|
|
806,993
|
|
|
818,342
|
|
Other
|
287,587
|
|
|
290,355
|
|
|
277,254
|
|
Total
|
$
|
2,390,219
|
|
|
$
|
2,476,234
|
|
|
$
|
2,415,003
|
|
Animal Health
|
|
|
|
|
|
Consumable
|
$
|
3,079,124
|
|
|
$
|
2,775,035
|
|
|
$
|
1,378,174
|
|
Equipment and software
|
53,658
|
|
|
50,008
|
|
|
46,671
|
|
Other
|
27,044
|
|
|
37,206
|
|
|
31,725
|
|
Total
|
$
|
3,159,826
|
|
|
$
|
2,862,249
|
|
|
$
|
1,456,570
|
|
Corporate
|
|
|
|
|
|
Other
|
43,082
|
|
|
48,220
|
|
|
39,292
|
|
Total
|
$
|
43,082
|
|
|
$
|
48,220
|
|
|
$
|
39,292
|
|
The following table presents information by geographic area. There were no material sales between geographic areas.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
April 29,
2017
|
|
April 30,
2016
|
|
April 25,
2015
|
Net sales
|
|
|
|
|
|
United States
|
$
|
4,725,322
|
|
|
$
|
4,457,254
|
|
|
$
|
3,029,541
|
|
United Kingdom
|
547,968
|
|
|
626,603
|
|
|
649,541
|
|
Canada
|
319,837
|
|
|
302,846
|
|
|
231,783
|
|
Total
|
$
|
5,593,127
|
|
|
$
|
5,386,703
|
|
|
$
|
3,910,865
|
|
|
|
|
|
|
|
|
April 29,
2017
|
|
April 30,
2016
|
|
|
Property and equipment, net
|
|
|
|
|
|
United States
|
$
|
286,178
|
|
|
$
|
278,667
|
|
|
|
United Kingdom
|
1,947
|
|
|
2,459
|
|
|
|
Canada
|
10,327
|
|
|
12,189
|
|
|
|
Total
|
$
|
298,452
|
|
|
$
|
293,315
|
|
|
|
13. Stockholders’ Equity
Dividends
The following table presents our declared and paid cash dividends per share on our common stock for the past three years. Dividends were declared and paid in the same period. We expect to continue paying a quarterly cash dividend into the foreseeable future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
Fiscal year
|
1
|
|
2
|
|
3
|
|
4
|
2017
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
0.26
|
|
2016
|
0.22
|
|
|
0.22
|
|
|
0.22
|
|
|
0.24
|
|
2015
|
0.20
|
|
|
0.20
|
|
|
0.20
|
|
|
0.22
|
|
Share Repurchases
During fiscal
2017
, we repurchased and retired
2,855
shares of our common stock for
$125,384
, or an average of
$43.91
per share. During fiscal
2016
, we repurchased and retired
4,379
shares of our common stock for
$200,000
, or an average of
$45.68
per share. During fiscal
2015
, we repurchased and retired
1,194
shares of our common stock for
$47,539
, or an average of
$39.81
per share.
In March 2013, Patterson’s Board of Directors approved a share repurchase plan. Under the plan, up to
25,000
shares may be repurchased in open market transactions through March 19, 2018. As of
April 29, 2017
,
13,642
shares remain available under the current repurchase authorization.
Employee Stock Ownership Plan ("ESOP")
During 1990, Patterson’s Board of Directors adopted a leveraged ESOP. In fiscal 1991, under the provisions of the plan and related financing arrangements, Patterson loaned the ESOP
$22,000
(the “1990 note”) for the purpose of acquiring its then outstanding preferred stock, which was subsequently converted to common stock. The Board of Directors determines the contribution from the Company to the ESOP annually. The contribution is used to retire a portion of the debt, which triggers a release of shares that are then allocated to the employee participants. Shares of stock acquired by the plan are allocated to each participant who has completed
1000 hours
of service during the plan year. In fiscal 2011, the final payment on the 1990 note was made and all remaining shares were released for allocation to participants.
In fiscal 2002, Patterson’s ESOP and an ESOP sponsored by the Thompson Dental Company (“Thompson”) were used to facilitate the acquisition and merger of Thompson into Patterson. The net result of this transaction was an additional loan of
$12,612
being made to the ESOP and the ESOP acquiring
666
shares of common stock. The loan bears interest at current rates but principal did not begin to amortize until fiscal 2012. Beginning in fiscal 2012 and through fiscal 2020, an annual payment of
$200
plus interest is due and in fiscal 2020, a final payment of any outstanding principal and interest balance is due. Prepayments of principal can be made at any time without penalty. Of the
666
shares issued in the transaction,
98
were previously allocated to Thompson employees. The remaining
568
shares began to be allocated in fiscal 2004 as interest was paid on the loan.
In September 2006, we entered into a third loan agreement with the ESOP and loaned
$105,000
(the “2006 note”) for the sole purpose of enabling the ESOP to purchase shares of our common stock. The ESOP purchased
3,160
shares with the proceeds from the 2006 note. Interest on the unpaid principal balance accrues at a rate equal to six-month LIBOR, with the rate resetting semi-annually. Interest payments were not required during the period from and including September 11, 2006 through April 30, 2010. On April 30, 2010, accrued and unpaid interest was added to the outstanding principal balance under the note, with interest thereafter accruing on the increased principal amount. Unpaid interest accruing after April 30, 2010 is due and payable on each successive April 30 occurring through September 10, 2026. Principal payments aren't due until September 10, 2026; however, prepayments can be made without penalty. In fiscal 2012, Patterson contributed
$20,214
to the ESOP, which then purchased
844
shares for allocation to the participants. No shares secured by the 2006 note were released prior to fiscal 2011.
At
April 29, 2017
, a total of
10,552
shares of common stock that have been allocated to participants remained in the ESOP and had a fair market value of
$469,465
. Related to the shares from the Thompson transaction, committed-to-be-released shares were
11
and suspense shares were
436
. Finally, with respect to the 2006 note, committed-to-be-released shares were
18
and suspense shares were
1,783
.
Unearned ESOP shares are not considered outstanding for the computation of earnings per share until the shares are committed for release to the participants. During fiscal
2017
,
2016
and
2015
, the compensation expense recognized related to the ESOP was
$1,315
,
$11,953
and
$9,939
, respectively.
We anticipate the allocation of the remaining suspense, or unearned, shares to occur over a period of approximately
5
to
10 years
. As of
April 29, 2017
, the fair value of all unearned shares held by the ESOP was
$98,696
. We will recognize an income tax deduction as the unearned ESOP shares are released. Such deductions will be limited to the ESOP’s original cost to acquire the shares.
Dividends on allocated shares are passed through to the ESOP participants. Dividends on unallocated shares are used by the ESOP to make debt service payments on the notes due to Patterson.
14. Stock-based Compensation
The consolidated statements of income and other comprehensive income for fiscal years
2017
,
2016
and
2015
include pre-tax (after-tax) stock-based compensation expense of
$17,710
(
$11,910
),
$16,898
(
$11,120
) and
$13,958
(
$9,171
). Pre-tax expense is included in operating expenses within the consolidated statements of income and other comprehensive income.
As of
April 29, 2017
, the total unrecognized compensation cost related to non-vested awards was
$33,154
, and it is expected to be recognized over a weighted average period of approximately
2.0
years.
2015 Omnibus Incentive Plan
In September 2015, our shareholders approved the 2015 Omnibus Incentive Plan ("Incentive Plan"). The aggregate number of shares of common stock that may be issued is
4,000
. The Incentive Plan authorizes various award types to be issued under the plan, including stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards, non-employee director awards, cash-based awards and other stock-based awards. We issue new shares for stock option exercises, restricted stock award grants and also for vesting of restricted stock units and performance stock units. Awards that expire or are canceled without delivery of shares generally become available for reissuance under the plan.
At
April 29, 2017
, there were
2,900
shares available for awards under the Incentive Plan.
As a result of the approval of the Incentive Plan, awards are no longer granted under any prior equity incentive plan, but all outstanding awards previously granted under such prior plans will remain outstanding and subject to the terms of such prior plans. At
April 29, 2017
, there were
1,576
shares outstanding under prior plans.
Stock Option Awards
Stock options granted to employees expire no later than
ten years
after the date of grant. Awards typically vest over
three
or
five years
.
The fair value of stock options granted was estimated as of the grant date using a Black-Scholes option-pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
April 29,
2017
|
|
April 30,
2016
|
|
April 25,
2015
|
Expected dividend yield
|
2.0
|
%
|
|
1.8
|
%
|
|
2.0
|
%
|
Expected stock price volatility
|
21.2
|
%
|
|
25.6
|
%
|
|
26.3
|
%
|
Risk-free interest rate
|
1.2
|
%
|
|
2.1
|
%
|
|
2.1
|
%
|
Expected life (years)
|
6.6
|
|
|
6.7
|
|
|
7.0
|
|
Weighted average grant date fair value per share
|
$
|
8.32
|
|
|
$
|
9.66
|
|
|
$
|
9.78
|
|
The following is a summary of stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Aggregate Intrinsic
Value
|
Balance as of April 30, 2016
|
1,110
|
|
|
$
|
52.09
|
|
|
|
Granted
|
189
|
|
|
48.46
|
|
|
|
Exercised
|
(27
|
)
|
|
35.75
|
|
|
|
Canceled
|
(80
|
)
|
|
48.47
|
|
|
|
Balance as of April 29, 2017
|
1,192
|
|
|
$
|
52.12
|
|
|
$
|
1,155
|
|
Vested or expected to vest as of April 29, 2017
|
1,145
|
|
|
$
|
52.14
|
|
|
$
|
1,091
|
|
Exercisable as of April 29, 2017
|
44
|
|
|
$
|
36.78
|
|
|
$
|
350
|
|
The weighted average remaining contractual lives of options outstanding and options exercisable as of
April 29, 2017
were
8.0
and
5.2
years, respectively.
Related to stock options exercised, the intrinsic value, cash received and tax benefits realized were
$266
,
$958
and
$36
, respectively, in fiscal
2017
;
$901
,
$3,173
and
$854
, respectively, in fiscal
2016
; and
$290
,
$1,710
and
$286
, respectively, in fiscal
2015
.
Restricted Stock
Restricted stock awards and restricted stock units granted to employees generally vest over a
five
,
seven
or
nine
year period. Certain restricted stock awards, which are held by branch managers, are subject to accelerated vesting provisions beginning
three
years after the grant date, based on certain operating goals. Restricted stock awards are also granted to non-employee directors annually and vest over
one
or
three years
. The grant date fair value of restricted stock awards and restricted stock units is based on the closing stock price on the day of the grant. The total fair value of restricted stock awards and restricted stock units that vested in fiscal
2017
,
2016
and
2015
was
$8,528
,
$19,805
and
$8,474
, respectively.
The following is a summary of restricted stock award activity:
|
|
|
|
|
|
|
|
|
Restricted Stock Awards
|
|
Shares
|
|
Weighted-
Average
Grant Date
Fair Value
|
Outstanding at April 30, 2016
|
760
|
|
|
$
|
38.18
|
|
Granted
|
18
|
|
|
45.78
|
|
Vested
|
(170
|
)
|
|
39.10
|
|
Forfeitures
|
(129
|
)
|
|
37.15
|
|
Outstanding at April 29, 2017
|
479
|
|
|
$
|
38.41
|
|
The following is a summary of restricted stock unit activity:
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
|
Shares
|
|
Weighted-
Average
Grant Date
Fair Value
|
Outstanding at April 30, 2016
|
71
|
|
|
44.26
|
|
Granted
|
265
|
|
|
48.19
|
|
Vested
|
(16
|
)
|
|
43.60
|
|
Forfeitures
|
(16
|
)
|
|
48.41
|
|
Outstanding at April 29, 2017
|
304
|
|
|
$
|
47.50
|
|
Performance Unit Awards
In fiscal 2017 and 2016, we granted performance unit awards with a market-based condition to certain executives. The number of shares to be received at vesting will range from
0%
-
200%
of the target number of stock units based on Patterson's total shareholder return ("TSR") relative to the performance of companies in the S&P Midcap 400 Index measured over a
three
year period. We estimate the grant date fair value of the TSR awards using the Monte Carlo valuation model. In fiscal 2015, we granted performance unit awards, primarily to executive management, which are earned at the end of a
three
year period if certain operating goals are met. Accordingly, we recognize expense over the requisite service period based on the outcome that is probable for these awards.
No
performance unit awards vested in fiscal 2017 or 2015. The total fair value of performance unit awards that vested in fiscal 2016 was
$2,966
.
The following is a summary of performance unit award activity at target:
|
|
|
|
|
|
|
|
|
Performance Unit Awards
|
|
Shares
|
|
Weighted-
Average
Grant Date
Fair Value
|
Outstanding at April 30, 2016
|
157
|
|
|
$
|
47.56
|
|
Granted
|
86
|
|
|
56.60
|
|
Vested
|
—
|
|
|
—
|
|
Forfeitures and cancellations
|
(13
|
)
|
|
48.37
|
|
Outstanding at April 29, 2017
|
230
|
|
|
$
|
50.88
|
|
Employee Stock Purchase Plan ("ESPP")
We sponsor an ESPP under which a total of
6,750
shares have been reserved for purchase by employees. Eligible employees may purchase shares at
85%
of the lower of the fair market value of our common stock on the beginning of the annual offering period, or on the end of each quarterly purchase period, which occur on March 31, June 30, September 30 and December 31. The offering periods begin on January 1 of each calendar year and end on December 31 of each calendar year. At
April 29, 2017
, there were
993
shares available for purchase under the ESPP.
We estimate the grant date fair value of shares purchased under our ESPP using the Black-Scholes option pricing valuation model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
April 29,
2017
|
|
April 30,
2016
|
|
April 25,
2015
|
Expected dividend yield
|
2.3
|
%
|
|
2.0
|
%
|
|
1.6
|
%
|
Expected stock price volatility
|
32.9
|
%
|
|
21.1
|
%
|
|
31.0
|
%
|
Risk-free interest rate
|
0.7
|
%
|
|
0.5
|
%
|
|
0.1
|
%
|
Expected life (years)
|
0.6
|
|
|
0.6
|
|
|
0.5
|
|
Weighted average grant date fair value per share
|
$
|
10.33
|
|
|
$
|
9.16
|
|
|
$
|
10.74
|
|
Capital Accumulation Plan ("CAP")
We also sponsor an employee CAP. A total of
6,000
shares of common stock are reserved for issuance under the CAP. Key employees of Patterson are eligible to participate by purchasing common stock through payroll deductions at
75%
of the price of the common stock at the beginning of or the end of the calendar year, whichever is lower. The shares issued are restricted stock and are held in the custody of Patterson until the restrictions lapse. The restriction period is typically
three
years from the beginning of the plan year, and shares are subject to forfeiture provisions. At
April 29, 2017
,
1,926
shares were available for purchase under the CAP.
We estimate the grant date fair value of shares purchased under our CAP using the Black-Scholes option pricing valuation model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
April 29,
2017
|
|
April 30,
2016
|
|
April 25,
2015
|
Expected dividend yield
|
2.3
|
%
|
|
2.0
|
%
|
|
1.6
|
%
|
Expected stock price volatility
|
28.3
|
%
|
|
19.7
|
%
|
|
31.0
|
%
|
Risk-free interest rate
|
0.9
|
%
|
|
0.6
|
%
|
|
0.3
|
%
|
Expected life (years)
|
1.0
|
|
|
1.0
|
|
|
1.0
|
|
Weighted average grant date fair value per share
|
$
|
15.21
|
|
|
$
|
14.13
|
|
|
$
|
17.67
|
|
15. Litigation
In September 2015, we were served with a summons and complaint in an action commenced in the U.S. District Court for the Eastern District of New York, entitled SourceOne Dental, Inc. v. Patterson Companies, Inc., Henry Schein, Inc. and Benco Dental Supply Company, Civil Action No. 15-cv-05440-JMA-GRB. SourceOne, as plaintiff, alleges that, through its website, it markets and sells dental supplies and equipment to dentists. SourceOne alleges in the complaint, among other things, that we, along with the defendants Henry Schein and Benco, conspired to eliminate plaintiff as a competitor and to exclude them from the market for the marketing, distribution and sale of dental supplies and equipment in the U.S. and that defendants unlawfully agreed with one another to boycott dentists, manufacturers, and state dental associations that deal with, or considered dealing with, plaintiff. Plaintiff asserts the following claims: (i) unreasonable restraint of trade in violation of state and federal antitrust laws; (ii) tortious interference with prospective business relations; (iii) civil conspiracy; and (iv) aiding and abetting the other defendants’ ongoing tortious and anticompetitive conduct. Plaintiff seeks equitable relief, compensatory and treble damages, jointly and severally, punitive damages, interest, and reasonable costs and expenses, including attorneys’ fees and expert fees. We are vigorously defending ourselves in this litigation. We do not anticipate that this matter will have a material adverse effect on our financial condition.
Beginning in January 2016, purported class action complaints were filed against defendants Henry Schein, Inc., Benco Dental Supply Co. and Patterson Companies, Inc. Although there were factual and legal variations among these complaints, each alleged that defendants conspired to foreclose and exclude competitors by boycotting manufacturers, state dental associations, and others that deal with defendants’ competitors. On February 9, 2016, the U.S. District Court for the Eastern District of New York ordered all of these actions, and all other actions filed thereafter asserting substantially similar claims against defendants, consolidated for pre-trial purposes. On February 26, 2016, a consolidated class action complaint was filed by Arnell Prato, D.D.S., P.L.L.C., d/b/a Down to Earth Dental, Evolution Dental Sciences, LLC, Howard M. May, DDS, P.C., Casey Nelson, D.D.S., Jim Peck, D.D.S., Bernard W. Kurek, D.M.D., Larchmont Dental Associates, P.C., and Keith Schwartz, D.M.D., P.A. (collectively, the "putative class representatives") in the U.S. District Court for the Eastern District of New York, entitled In re Dental Supplies Antitrust Litigation, Civil Action No. 1:16-CV-00696-BMC-GRB. Burkhart Dental Supply Company, Inc. was added as a defendant on October 22, 2016. Subject to certain exclusions, the putative class representatives seek to represent all persons who purchased dental supplies or equipment in the U.S. directly from any of the defendants, since August 31, 2008. In the consolidated class action complaint, putative class representatives allege a nationwide agreement among Henry Schein, Benco, Patterson and Burkhart not to compete on price. The consolidated class action complaint asserts a single count under Section 1 of the Sherman Act, and seeks equitable relief, compensatory and treble damages, jointly and severally, interest, and reasonable costs and expenses, including attorneys’ fees and expert fees. Putative class representatives have not specified a damage amount in their complaint. While the outcome of litigation is inherently uncertain, we believe the consolidated class action complaint is without merit, and we are vigorously defending ourselves in this litigation.
16. 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 except for the quarter ended August 1, 2015, which included 14 weeks.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
April 29,
2017
|
|
January 28,
2017
(1)
|
|
October 29,
2016
|
|
July 30,
2016
|
Net sales
|
$
|
1,445,032
|
|
|
$
|
1,397,418
|
|
|
$
|
1,418,241
|
|
|
$
|
1,332,436
|
|
Gross profit
|
335,498
|
|
|
329,761
|
|
|
318,960
|
|
|
317,178
|
|
Operating income from continuing operations
|
96,155
|
|
|
46,554
|
|
|
79,803
|
|
|
65,416
|
|
Net income from continuing operations
|
61,357
|
|
|
27,769
|
|
|
45,756
|
|
|
38,906
|
|
Net income (loss) from discontinued operations
|
334
|
|
|
(3,229
|
)
|
|
—
|
|
|
—
|
|
Net income
|
61,691
|
|
|
24,540
|
|
|
45,756
|
|
|
38,906
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.65
|
|
|
$
|
0.29
|
|
|
$
|
0.48
|
|
|
$
|
0.41
|
|
Discontinued operations
|
0.01
|
|
|
(0.03
|
)
|
|
—
|
|
|
—
|
|
Net basic earnings per share
|
$
|
0.66
|
|
|
$
|
0.26
|
|
|
$
|
0.48
|
|
|
$
|
0.41
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.65
|
|
|
$
|
0.29
|
|
|
$
|
0.48
|
|
|
$
|
0.40
|
|
Discontinued operations
|
—
|
|
|
(0.03
|
)
|
|
—
|
|
|
—
|
|
Net diluted earnings per share
|
$
|
0.65
|
|
|
$
|
0.26
|
|
|
$
|
0.48
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
April 30,
2016
|
|
January 30,
2016
|
|
October 31,
2015
|
|
August 1,
2015
(2)
|
Net sales
|
$
|
1,453,770
|
|
|
$
|
1,400,853
|
|
|
$
|
1,389,210
|
|
|
$
|
1,142,870
|
|
Gross profit
|
363,741
|
|
|
339,864
|
|
|
330,899
|
|
|
288,244
|
|
Operating income from continuing operations
|
106,344
|
|
|
95,729
|
|
|
83,463
|
|
|
62,177
|
|
Net income from continuing operations
|
65,620
|
|
|
57,190
|
|
|
42,563
|
|
|
20,311
|
|
Net income (loss) from discontinued operations
|
—
|
|
|
(750
|
)
|
|
(7,142
|
)
|
|
9,392
|
|
Net income
|
65,620
|
|
|
56,440
|
|
|
35,421
|
|
|
29,703
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.69
|
|
|
$
|
0.60
|
|
|
$
|
0.43
|
|
|
$
|
0.20
|
|
Discontinued operations
|
—
|
|
|
(0.01
|
)
|
|
(0.07
|
)
|
|
0.10
|
|
Net basic earnings per share
|
$
|
0.69
|
|
|
$
|
0.59
|
|
|
$
|
0.36
|
|
|
$
|
0.30
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.68
|
|
|
$
|
0.60
|
|
|
$
|
0.43
|
|
|
$
|
0.20
|
|
Discontinued operations
|
—
|
|
|
(0.01
|
)
|
|
(0.07
|
)
|
|
0.10
|
|
Net diluted earnings per share
|
$
|
0.68
|
|
|
$
|
0.59
|
|
|
$
|
0.36
|
|
|
$
|
0.30
|
|
|
|
(1)
|
In the third quarter of fiscal 2017, we recorded a pre-tax non-cash impairment charge of
$36,312
within operating income from continuing operations. See Note 3 to the Consolidated Financial Statements for additional information.
|
|
|
(2)
|
During the first quarter of fiscal 2016, we acquired Animal Health International, Inc. Included in this quarter are approximately six weeks of results of operations from this acquisition. We incurred
$9,302
, or
$0.09
per diluted share from continuing operations on an after-tax basis, of transaction costs related to the acquisition of Animal Health International, Inc. during this quarter. Also during this quarter, we approved a one-time repatriation of approximately
$200,000
of foreign earnings. This one-time repatriation reduced the overall costs of funding the acquisition of Animal Health International, Inc. In addition, certain foreign cash at Patterson Medical was required to be repatriated as part of the sale transaction. The tax impact of the repatriation recorded during this quarter was
$11,800
, or
$0.12
per diluted per share from continuing operations on an after-tax basis.
|
17. Accumulated Other Comprehensive Loss ("AOCL")
The following table summarizes the changes in AOCL as of
April 29, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
Hedges
|
|
Currency
Translation
Adjustment
|
|
Total
|
AOCL at April 30, 2016
|
$
|
(16,734
|
)
|
|
$
|
(51,230
|
)
|
|
$
|
(67,964
|
)
|
Other comprehensive loss before reclassifications
|
—
|
|
|
(26,450
|
)
|
|
(26,450
|
)
|
Amounts reclassified from AOCL
|
1,745
|
|
|
—
|
|
|
1,745
|
|
AOCL at April 29, 2017
|
$
|
(14,989
|
)
|
|
$
|
(77,680
|
)
|
|
$
|
(92,669
|
)
|
The amounts reclassified from AOCL during fiscal
2017
represent gains and losses on cash flow hedges, net of taxes of
$1,057
. The impact to the consolidated statements of income was an increase to interest expense of
$2,802
.