SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JANUARY 24, 2004. |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
Commission File No. 0-20572
PATTERSON DENTAL COMPANY
(Exact Name of Registrant as Specified in its Charter)
| Minnesota | 41-0886515 | |
| (State of Incorporation) | (IRS Employer Identification No.) |
1031 Mendota Heights Road, St. Paul, Minnesota 55120
(Address of Principal Executive Offices)
(Zip Code)
(651) 686-1600
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.
x Yes ¨ No
Indicate by check mark whether the Registrant is an accelerated filer (as defined in rule 12b-2 of the Act.)
x Yes ¨ No
Patterson Dental Company has outstanding 68,391,000 shares of common stock as of March 2, 2004.
Page 1 of 19
PATTERSON DENTAL COMPANY
| Page | ||||
| PART I - FINANCIAL INFORMATION |
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| Item 1 - Financial Statements |
3-10 | |||
| Consolidated Balance Sheets as of January 24, 2004 and April 26, 2003 | 3 | |||
| Consolidated Statements of Income for the Three Months and Nine Months Ended January 24, 2004 and January 25, 2003 | 4 | |||
| Consolidated Statements of Cash Flows for the Nine Months Ended January 24, 2004 and January 25, 2003 | 5 | |||
| Notes to Consolidated Financial Statements | 6 | |||
| Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations |
11-17 | |||
| Item 3 - Quantitative and Qualitative Disclosures About Market Risk |
17 | |||
| 17 | ||||
| PART II - OTHER INFORMATION | ||||
| 18 | ||||
| 18 | ||||
| 19 | ||||
Safe Harbor Statement Under The Private Securities Litigation Reform Act Of 1995:
This Form 10-Q for the period ended January 24, 2004, contains certain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which may be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, “estimate”, “believe”, “goal”, or “continue”, or comparable terminology that involves risks and uncertainties that are qualified in their entirety by cautionary language set forth in the Company’s Form 10-K report filed July 24, 2003, and the Company’s Form 8-K report filed September 15, 2003, and other documents filed with the Securities and Exchange Commission. See also page 15 of this Form 10-Q.
2
PATTERSON DENTAL COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| January 24, 2004 |
April 26, 2003 |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 215,017 | $ | 195,182 | ||||
| Short-term investments |
7,535 | 22,266 | ||||||
| Receivables, net |
288,594 | 248,585 | ||||||
| Inventory |
164,614 | 125,340 | ||||||
| Prepaid expenses and other current assets |
33,541 | 14,744 | ||||||
| Total current assets |
709,301 | 606,117 | ||||||
| Property and equipment, net |
71,830 | 57,254 | ||||||
| Long-term receivables, net |
19,324 | 19,588 | ||||||
| Goodwill |
594,696 | 125,400 | ||||||
| Identifiable intangibles, net |
99,751 | 9,670 | ||||||
| Other |
9,107 | 5,949 | ||||||
| Total assets |
$ | 1,504,009 | $ | 823,978 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 114,088 | $ | 111,543 | ||||
| Accrued payroll expense |
28,748 | 33,693 | ||||||
| Other accrued expenses |
49,901 | 33,490 | ||||||
| Income taxes payable |
11,486 | 5,153 | ||||||
| Current maturities of long-term debt |
20,035 | 145 | ||||||
| Total current liabilities |
224,258 | 184,024 | ||||||
| Long-term debt |
484,564 | 129 | ||||||
| Deferred taxes |
44,262 | 6,139 | ||||||
| Total liabilities |
753,084 | 190,292 | ||||||
| STOCKHOLDERS’ EQUITY |
||||||||
| Common stock |
684 | 681 | ||||||
| Additional paid-in capital |
94,569 | 86,703 | ||||||
| Accumulated other comprehensive income (loss) |
4,511 | (519 | ) | |||||
| Retained earnings |
673,693 | 569,353 | ||||||
| Notes receivable from ESOP |
(22,532 | ) | (22,532 | ) | ||||
| Total stockholders’ equity |
750,925 | 633,686 | ||||||
| Total liabilities and stockholders’ equity |
$ | 1,504,009 | $ | 823,978 | ||||
See accompanying notes.
3
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share amounts)
(Unaudited)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| January 24, 2004 |
January 25, 2003 |
January 24, 2004 |
January 25, 2003 |
|||||||||||||
| Net sales |
$ | 521,218 | $ | 421,070 | $ | 1,431,990 | $ | 1,209,630 | ||||||||
| Cost of sales |
330,345 | 273,305 | 930,214 | 790,916 | ||||||||||||
| Gross margin |
190,873 | 147,765 | 501,776 | 418,714 | ||||||||||||
| Operating expenses |
123,882 | 101,288 | 333,498 | 290,916 | ||||||||||||
| Operating income |
66,991 | 46,477 | 168,278 | 127,798 | ||||||||||||
| Other income and (expense): |
||||||||||||||||
| Finance income, net |
1,500 | 1,681 | 4,763 | 4,772 | ||||||||||||
| Interest expense |
(4,317 | ) | (34 | ) | (6,238 | ) | (45 | ) | ||||||||
| Gain on currency exchange |
27 | 108 | 405 | 38 | ||||||||||||
| Income before income taxes and cumulative effect of accounting change |
64,201 | 48,232 | 167,208 | 132,563 | ||||||||||||
| Income taxes |
24,140 | 18,130 | 62,868 | 49,840 | ||||||||||||
| Income before cumulative effect of accounting change |
40,061 | 30,102 | 104,340 | 82,723 | ||||||||||||
| Cumulative effect of accounting change |
— | — | — | 3,372 | ||||||||||||
| Net income |
$ | 40,061 | $ | 30,102 | $ | 104,340 | $ | 86,095 | ||||||||
| Before cumulative effect of accounting change: |
||||||||||||||||
| Earnings per share - basic |
$ | 0.59 | $ | 0.44 | $ | 1.54 | $ | 1.22 | ||||||||
| Earnings per share - diluted |
$ | 0.58 | $ | 0.44 | $ | 1.52 | $ | 1.21 | ||||||||
| After cumulative effect of accounting change: |
||||||||||||||||
| Earnings per share - basic |
$ | 0.59 | $ | 0.44 | $ | 1.54 | $ | 1.27 | ||||||||
| Earnings per share - diluted |
$ | 0.58 | $ | 0.44 | $ | 1.52 | $ | 1.26 | ||||||||
| Weighted average common shares: |
||||||||||||||||
| Basic |
67,994 | 67,797 | 67,913 | 67,855 | ||||||||||||
| Diluted |
69,085 | 68,406 | 68,788 | 68,505 | ||||||||||||
See accompanying notes.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| Nine Months Ended |
||||||||
| January 24, 2004 |
January 25, 2003 |
|||||||
| Operating activities: |
||||||||
| Income before cumulative effect of accounting change |
$ | 104,340 | $ | 82,723 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation |
9,007 | 8,011 | ||||||
| Amortization of intangibles |
4,307 | 1,858 | ||||||
| Bad debt expense |
1,803 | 697 | ||||||
| Change in assets and liabilities, net of acquired |
(26,106 | ) | (59,074 | ) | ||||
| Net cash provided by operating activities |
93,351 | 34,215 | ||||||
| Investing activities: |
||||||||
| Additions to property and equipment, net |
(11,290 | ) | (8,658 | ) | ||||
| Acquisitions, net |
(581,782 | ) | (4,956 | ) | ||||
| Sale (purchase) of short-term investments |
14,731 | (3,041 | ) | |||||
| Net cash used in investing activities |
(578,341 | ) | (16,655 | ) | ||||
| Financing activities: |
||||||||
| Payments and retirement of long-term debt and obligations under capital leases |
(3,870 | ) | (275 | ) | ||||
| Proceeds from debt |
498,750 | — | ||||||
| Common stock issued (purchased), net |
7,879 | (8,117 | ) | |||||
| Net cash provided by (used in) financing activities |
502,759 | (8,392 | ) | |||||
| Effect of exchange rate changes on cash |
2,066 | 211 | ||||||
| Net increase in cash and cash equivalents |
19,835 | 9,379 | ||||||
| Cash and cash equivalents at beginning of period |
195,182 | 125,986 | ||||||
| Cash and cash equivalents at end of period |
$ | 215,017 | $ | 135,365 | ||||
See accompanying notes.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
January 24, 2004
NOTE 1 GENERAL
Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of January 24, 2004 and the results of operations and the cash flows for the periods ended January 24, 2004 and January 25, 2003. Such adjustments are of a normal recurring nature. The results of operations for the quarter ended January 24, 2004 and January 25, 2003, are not necessarily indicative of the results to be expected for the full year. The balance sheet at April 26, 2003, is derived from the audited balance sheet as of that date. These financial statements should be read in conjunction with the financial statements included in the 2003 Annual Report on Form 10-K filed on July 24, 2003.
The consolidated financial statements of Patterson Dental Company include the assets and liabilities of PDC Funding Company, LLC, a wholly owned subsidiary and a separate legal entity under Minnesota law. The assets of PDC Funding Company, LLC, would be available first and foremost to satisfy the claims of its creditors. There are no known creditors of PDC Funding Company, LLC.
Fiscal Year End
The fiscal year end of the Company is the last Saturday in April. The third quarter of fiscal 2004 and 2003 represent the 13 weeks ended January 24, 2004 and January 25, 2003, respectively.
Comprehensive Income
Total comprehensive income was $40,951 and $109,370 for the three and nine months ended January 24, 2004, respectively, and $31,182 and $87,020 for the three and nine months ended January 25, 2003, respectively.
Stock-Based Compensation
The Company has adopted the disclosure requirements of SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement 123.” The Company has chosen to continue with its current practice of applying the recognition and measurement principles of APB No. 25 “Accounting for Stock Issued to Employees.” This method defines the Company’s cost as the excess of the stock’s market value at the time of the grant over the amount that the employee is required to pay. In accordance with APB Opinion No. 25, no compensation expense was recognized for the stock based plans for the quarter ended January 24, 2004 and January 25, 2003, as the price paid was not less than 100 percent of fair market value.
6
The following table illustrates the effect on net earnings and net earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock Based Compensation” to stock-based employee compensation:
| Three Months Ended |
Nine Months Ended | |||||||||||
| January 24, 2004 |
January 25, 2003 |
January 24, 2004 |
January 25, 2003 | |||||||||
| Income before cumulative effect of accounting change, as reported |
$ | 40,061 | $ | 30,102 | $ | 104,340 | ||||||