FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE - ----------------- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD END, January 26, 2002. 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 -------- --------- Patterson Dental Company has outstanding 67,758,667 shares of common stock as of March 5, 2002. Page 1 of 16
PATTERSON DENTAL COMPANY INDEX Page ---- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements 3-9 Consolidated Balance Sheets as of January 26, 2002 and April 28, 2001 3 Consolidated Statements of Income for the Three Months and Nine Months Ended January 26, 2002 and January 27, 2001 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended January 26, 2002 and January 27, 2001 5 Notes to Consolidated Financial Statements 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10-14 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 14 PART II - OTHER INFORMATION Item 2 - Changes in Securities and Use of Proceeds 14 Item 6 - Exhibits and Reports on Form 8-K 15 Signatures 16 Safe Harbor Statement Under The Private Securities Litigation Reform Act Of 1995: - --------------------------------------------------------------------------- This Form 10-Q for the period ended January 26, 2002, contains certain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which may be identified by the use of forward-looking terminology such as "may", "will", "expect", "anticipate", "estimate", "believe", "goal", or "continue", or comparable terminology that involves risks and uncertainties and that are qualified in their entirety by cautionary language set forth in the Company's Form 10-K report filed July 24, 2001, and other documents filed with the Securities and Exchange Commission. See also pages 13-14 of this Form 10-Q. 2
PART I FINANCIAL INFORMATION PATTERSON DENTAL COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in thousands) Jan. 26, 2002 Apr. 28, 2001 ------------- -------------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 107,611 $ 160,024 Short-term investments 22,748 24,484 Receivables, net 168,049 144,625 Inventory 151,950 103,700 Prepaid expenses and other current assets 8,708 9,928 --------- --------- Total current assets 459,066 442,761 Property and equipment, net 52,452 48,575 Intangibles, net 119,221 51,892 Other 6,817 5,952 --------- --------- Total assets $ 637,556 $ 549,180 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 98,769 $ 89,321 Accrued payroll expense 21,743 20,866 Income taxes payable 4,730 4,805 Other accrued expenses 24,885 17,723 --------- --------- Total current liabilities 150,127 132,715 Non-current liabilities 3,359 3,693 --------- --------- Total liabilities 153,486 136,408 Deferred credits 3,593 4,257 STOCKHOLDERS' EQUITY Preferred stock --- --- Common stock 678 675 Additional paid-in capital 73,933 68,049 Accumulated other comprehensive loss (3,962) (2,316) Retained earnings 422,092 354,371 Note receivable from ESOP (12,264) (12,264) --------- --------- Total stockholders' equity 480,477 408,515 --------- --------- Total liabilities and stockholders' equity $ 637,556 $ 549,180 ========= ========= See accompanying notes. 3
PATTERSON DENTAL COMPANY CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share amounts) (Unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended Jan. 26, 2002 Jan. 27, 2001 Jan. 26, 2002 Jan. 27, 2001 ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> Net sales $ 357,394 $ 290,579 $ 1,015,666 $ 851,336 Cost of sales 231,786 185,826 661,788 551,489 ----------- ----------- ----------- ----------- Gross margin 125,608 104,753 353,878 299,847 Operating expenses 87,027 74,150 249,902 216,264 ----------- ----------- ----------- ----------- Operating income 38,581 30,603 103,976 83,583 Other income and expense: Amortization of deferred credits 221 217 663 664 Finance income, net 949 1,796 3,755 4,541 Interest expense (12) (41) (83) (98) Profit (loss) on currency exchange (70) 7 (119) (109) ----------- ----------- ----------- ----------- Income before income taxes 39,669 32,582 108,192 88,581 Income taxes 14,837 12,196 40,465 33,132 ----------- ----------- ----------- ----------- Net income $ 24,832 $ 20,386 $ 67,727 $ 55,449 =========== =========== =========== =========== Earnings per share: Basic $ 0.37 $ 0.30 $ 1.00 $ 0.82 =========== =========== =========== =========== Diluted $ 0.36 $ 0.30 $ 0.99 $ 0.82 =========== =========== =========== =========== Weighted average shares outstanding: Basic 67,687 67,454 67,675 67,410 Diluted 68,225 67,863 68,163 67,728 </TABLE> 4
PATTERSON DENTAL COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) <TABLE> <CAPTION> Nine Months Ended Jan. 26, 2002 Jan. 27, 2001 ------------- ------------- <S> <C> <C> Operating activities: Net income $ 67,727 $ 55,449 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 6,684 5,757 Amortization of deferred credits (664) (664) Amortization of goodwill 3,909 2,467 Bad debt expense 1,326 627 Change in assets and liabilities, net of acquired (32,742) (14,673) --------- --------- Net cash provided by operating activities 46,240 48,963 Investing activities: Additions to property and equipment, net (8,356) (7,276) Acquisitions, net (86,123) (2,627) Sale (purchase) of short-term investments 1,736 (11,546) --------- --------- Net cash used in investing activities (92,743) (21,449) Financing activities: Payments and retirement of long-term debt and obligations under capital leases (300) (546) Common stock (repurchased) issued, net (4,826) 1,013 --------- --------- Net cash used in financing activities (5,126) 467 Effect of exchange rate changes on cash (784) (55) --------- --------- Net (decrease) increase in cash and cash equivalents (52,413) 27,926 Cash and cash equivalents at beginning of period 160,024 113,453 --------- --------- Cash and cash equivalents at end of period $ 107,611 $ 141,379 ========= ========= Supplemental disclosure: Issuance of stock in acquisition $ 10,707 $ - ========= ========= </TABLE> See accompanying notes. 5
PATTERSON DENTAL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share data) (Unaudited) January 26, 2002 1. 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 26, 2002, and the results of operations and the cash flows for the periods ended January 26, 2002 and January 27, 2001. Such adjustments are of a normal recurring nature. The results of operations for the quarter ended January 26, 2002 and January 27, 2001, are not necessarily indicative of the results to be expected for the full year. The balance sheet at April 28, 2001, 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 2001 Annual Report on Form 10-K filed on July 24, 2001. 2. The fiscal year end of the Company is the last Saturday in April. The third quarter of fiscal 2002 and 2001 represent the 13 weeks ended January 26, 2002 and January 27, 2001, respectively. 3. Total comprehensive income was $23,582 and $66,081 for the three and nine months ended January 26, 2002, respectively, and $20,771 and $55,031 for the three and nine months ended January 27, 2001, respectively. 4. On July 9, 2001, the Company purchased substantially all of the assets of J. A. Webster, Inc. and assumed certain liabilities, for a purchase price of $95,662, consisting of $84,955 in cash and $10,707 in stock. The value of the 322,524 common shares issued was determined based on the average market price of Patterson's common shares on July 9, 2001. The acquisition agreement also includes an earnout provision tied to future product sales, which could result in additional cash payments over five years if certain minimum revenue milestones are achieved. J. A. Webster is the leading distributor of veterinary supplies to companion-pet veterinary clinics in the eastern United States and the third largest nationally. The acquisition was accounted for under the purchase method of accounting; accordingly, the results of J. A. Webster, Inc.'s operations are included in the accompanying financial statements since the date of acquisition. The purchase price plus direct acquisition costs have been allocated on the basis of estimated fair values at the date of acquisition, pending final determination of the fair value of certain acquired assets. The preliminary purchase price allocation is as follows: Purchase price $ 95,662 Less: Accounts receivable 25,367 Inventory 19,758 Fixed assets 2,383 Other assets 278 Accounts payable (18,839) Accrued expenses (2,621) -------- Excess of purchase price over fair value of tangible net assets $ 69,336 ======== 6
The following pro forma summary presents the results of operations, as if the acquisition had occurred at the beginning of the fiscal period. The pro forma results of operations are not necessarily indicative of the results that would have been achieved had the two companies been combined: <TABLE> <CAPTION> Three Months Ended Nine Months Ended Jan. 26, 2002 Jan. 27, 2001 Jan. 26, 2002 Jan. 27, 2001 ------------------------------ ----------------------------- <S> <C> <C> <C> <C> Net sales $357,394 $326,089 $1,049,294 $965,883 Net income(1) 24,832 21,306 68,118 57,913 Earnings per share - basic (1) $0.37 $0.31 $1.00 $0.86 Earnings per share - diluted (1) $0.36 $0.31 $0.99 $0.85 </TABLE> (1) Reflects the amortization of certain intangible assets. Because the transaction was consummated following the effective date specified in the recently issued Statement of the Financial Accounting Standards Board No. 142 "Goodwill and Other Intangible Assets," the Company will not amortize goodwill for this transaction in future financial statements, but the goodwill becomes subject to periodic evaluations of possible impairment in its value. 5. The following table sets forth the denominator for the computation of basic and diluted earnings per share: Three Months Ended Nine Months Ended ------------------ ------------------ Jan. 26, Jan. 27, Jan. 26, Jan. 27, 2002 2001 2002 2001 ------------------ ------------------ Denominator: Denominator for basic earnings per share - weighted-average shares 67,687 67,454 67,675 67,410 Effect of dilutive securities: Stock Option Plans 449 310 401 219 Employee Stock Purchase Plan 9 10 8 11 Capital Accumulation Plan 80 89 79 88 ---------------- ---------------- Dilutive potential common shares 538 409 488 318 ---------------- ---------------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 68,225 67,863 68,163 67,728 ================ ================ 7
6. Historically, the Company operated in one reportable segment, dental supply. In July 2001, the Company purchased J. A. Webster, Inc. The acquisition became a reportable business segment of the Company, and now Patterson Dental Company is comprised of two reportable segments, dental supply and veterinary supply. The Company's reportable segments are strategic business units that offer similar products and services to different customer bases. The dental supply segment provides a virtually complete range of consumable dental products, clinical and laboratory equipment and value-added services to dentists, dental laboratories, institutions and other healthcare providers throughout North America. The veterinary supply segment provides consumable supplies, equipment, diagnostic products, biologicals (vaccines) and pharmaceuticals to companion-pet veterinary clinics primarily in the Eastern, Mid-Atlantic and Southeastern regions of the United States. The accounting policies of the segments are the same as those described in the summary of significant accounting policies included in the Notes to the Consolidated Financial Statements in the Annual Report on Form 10-K filed July 24, 2001. The Company evaluates segment performance based on operating income. Certain financial information relating to the Company's reportable segments is as follows: <TABLE> <CAPTION> Three Months Ended Nine Months Ended Jan. 26, 2002 Jan. 27, 2001 Jan. 26, 2002 Jan. 27, 2001 ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> Net sales: Dental supply: Consumable dental and printed office products $ 189,807 $ 175,821 $ 507,224 $ 528,314 Equipment and software 103,059 90,588 272,016 250,342 Other 27,126 24,170 80,881 72,680 ---------- ---------- ---------- ---------- 319,992 290,579 925,352 851,336 Veterinary supply 37,402 - 90,314 - ---------- ---------- ---------- ---------- Consolidated net sales $ 357,394 $ 290,579 $1,015,666 $ 851,336 ========== ========== ========== ========== Operating income: Dental supply $ 36,781 $ 30,603 $ 98,971 $ 83,583 Veterinary supply 1,800 - 5,005 - ---------- ---------- ---------- ---------- Consolidated operating income $ 38,581 $ 30,603 $ 103,976 $ 83,583 ========== ========== ========== ========== Total assets: Dental supply $ 507,224 $ 515,884 Veterinary supply 130,332 - ---------- ---------- Consolidated total assets $ 637,556 $ 515,884 ========== ========== </TABLE> 8
7. In July 2001, The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 addresses financial accounting and reporting for business combinations. Specifically, effective for business combinations occurring after June 30, 2001, it eliminates the use of the pooling method of accounting and requires all business combinations to be accounted for under the purchase method. SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. The primary change related to this new standard is that the amortization of goodwill and intangible assets with indefinite useful lives will be discontinued and instead an annual impairment approach will be applied. As provided in the standards, the Company is not amortizing the goodwill related to the acquisition of the assets of J. A. Webster, Inc. The Company will discontinue amortization on the remainder of its indefinite lived intangible assets, including goodwill effective April 28, 2002. With the adoption of the remaining provisions of these standards, Patterson's reported net earnings per share are projected to increase by approximately $.03 on a going forward basis. In fiscal 2003, there also will be an additional one-time benefit of $.03 to $.04 per share as Patterson is required to write-off the remaining balance of its deferred credit. The deferred credit is negative goodwill that arose from acquisitions in the 1980's and currently amounts to approximately $3.6 million. 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of net sales represented by certain operational data. <TABLE> <CAPTION> Three Months Ended Nine Months Ended Jan. 26, 2002 Jan. 27, 2001 Jan. 26, 2002 Jan. 27, 2001 ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 64.9% 64.0% 65.2% 64.8% ----- ----- ----- ----- Gross profit 35.1% 36.0% 34.8% 35.2% Operating expenses 24.3% 25.5% 24.6% 25.4% ----- ----- ----- ----- Operating income 10.8% 10.5% 10.2% 9.8% Other income and expense, net 0.3% 0.7% 0.4% 0.6% ----- ----- ----- ----- Income before income tax 11.1% 11.2% 10.6% 10.4% Net income 6.9% 7.0% 6.6% 6.5% ===== ===== ======= ===== </TABLE> Quarter Ended Jan. 26, 2002 Compared to Quarter Ended Jan. 27, 2001. Net Sales. Net sales for the three months ended Jan. 26, 2002 ("Current Quarter") totaled $357.4 million a 23.0% increase from $290.6 million reported for the three months ended Jan. 27, 2001 ("Prior Quarter"). All areas of the business contributed to the Company's sales growth in the third quarter. Reported sales growth further benefited from the acquisition of Webster Veterinary Supply which added $37.4 million of incremental sales to the Current Quarter. Dental supply sales rose 10.1% in the Current Quarter to $320.0 million reflecting strong performance across all major product categories. Sales of the CEREC 3 dental restorative system rebounded in the quarter increasing 43% from the second quarter of the current fiscal year and 13% ahead of last year's third quarter. Sales in the quarter were also helped by a 78% increase in software. Dental acquisitions added approximately 2% to sales growth in the Prior Quarter but had no impact in the Current Quarter. Sales of consumable dental supplies, including printed office products, increased 8.0% in the Current Quarter led by a 9.2% increase in the U.S. market. The U.S. market had one less billing day than in last year's third quarter which reduced reported sales growth in that market by approximately 2%. The Colwell product group reported another quarter of improved performance growing sales by approximately 3% on a comparable basis. Dental equipment and software sales came in 13.8% ahead of the Prior Quarter reflecting strong basic dental equipment sales in addition to robust software sales and improved sales of the CEREC 3. Sales of other services and products, consisting primarily of parts, technical service, software support and insurance e-claims, grew 12.2% in the Current Quarter due predominantly to higher software service revenues. 10
Canadian sales in local currencies were up 5.0% over last year due principally to growth in our consumable dental product lines. Currency exchange rates continued to affect results in the quarter, reducing reported sales by approximately $1 million. On a proforma basis, veterinary sales grew 5.3% from the Prior Quarter. However, sales on a comparable basis, giving effect to the conversion of a product group from distribution status to an agency arrangement at the beginning of calendar year 2001, increased approximately 11%. Gross Margins. Gross margins increased 19.9% over Prior Quarter primarily as a result of higher sales volumes. Consolidated gross margins declined 90 basis points due solely to the addition of the veterinary supply business which carries lower margins, in the mid 20's for the Current Quarter. The dental gross margin rate improved 30 basis points benefiting from a stronger product mix. Operating Expenses. Operating expenses increased 17.4% and amounted to 24.3% of sales. The Company achieved a 70 basis point reduction in its dental supply operating expense ratio despite continuing higher insurance and advertising costs. This improvement results from better operating leverage and several cost reduction initiatives. Current quarter consolidated expenses as a percent of sales also benefited from the acquisition of Webster Veterinary Supply. The veterinary operation has a lower expense ratio than the dental supply business favorably impacting the year-over-year consolidated expense rate by roughly 50 basis points. Operating Income. Operating income increased 26.1% to $38.6 million for the Current Quarter from $30.6 million for the Prior Quarter. Operating income increased as a percent of net sales from 10.5% to 10.8%. Dental supply operating income increased 20.2% due to improved gross margin performance and cost containment. Veterinary supply operating income was $1.8 million in the Current Quarter. Other Income. Other income, net of expenses, was $1.1 million for the Current Quarter compared to $2.0 million for the Prior Quarter. Lower yields on investment balances and reduced cash due to the purchase of Webster resulted in the decrease. Income Taxes. The effective income tax rate at 37.4% remained the same as last year. Net Income. Net income increased to $24.8 million, or 21.8% over prior year due to the factors discussed above. Earnings Per Share. Diluted earnings per share increased to $0.36 versus $0.30 reported a year ago, a 6 cent or 20.0% increase over the same quarter a year ago. NINE MONTHS ENDED JAN. 26, 2002 COMPARED TO NINE MONTHS ENDED JAN. 27, 2001. Net Sales. Net sales increased 19.3% to $1,015.7 million for the nine months ended January 26, 2002 ("Current Period") from $851.3 million for the nine months ended Jan. 27, 2001 ("Prior Period"). Results for the nine-month period benefited from an 8.7% increase in the dental supply market and $90.3 million of incremental veterinary supply sales. Veterinary sales are primarily in the consumable product category with a small portion attributed to equipment. Nine-month trends were similar to third quarter results with a few notable exceptions. Sales of the CEREC 3 dental restorative 11
system, which accelerated during the third quarter, lagged prior year in the nine-month period by 21.1%. Similarly, although sales of printed office products continued to improve in the quarter, sales of this product line were flat for the nine-month period. Dental sales totaled $925.4 million. Sales of consumable dental supplies increased 8.4% paced by a 9.6% increase in the U.S. dental market. Excluding the impact of lower CEREC 3 sales, dental equipment sales were up 13.0% reflecting strong sales of basic dental equipment and software. Other sales grew 11.3% in the Current Period aided by a 54.1% increase in software related services. Canadian sales increased approximately 7% in local currencies but only 3.1% in U.S. dollars. Foreign currency exchange reduced reported sales for the period by almost $3.0 million. Veterinary supply sales came in approximately 8% ahead of last year on a proforma basis. Gross Margins. Gross margins increased $54.0 million or 18.0% over the Prior Period and amounted to 34.8% of total sales. The dental gross margin rate was favorable to the Prior Period by 70 basis points, benefiting from improved consumables point-of-sale margins, the mix impact of growth in software and related services, and improvement in printed office products gross margins as this product group begins to see results from some of its realignment efforts. Veterinary gross margins were in the mid 20's, as expected. Operating Expenses. Operating expenses increased 15.6% to $249.9 million but declined 80 basis points as a percent of sales from 25.4% in the Prior Period to 24.6% in the Current Period. Improved operating leverage in the dental supply segment and the veterinary supply segment's historically lower operating expense rate, 18.8% in the Current Period, were the principal factors driving the improvement. The absence of infrastructure associated with a technical service business allows the veterinary supply segment to maintain a lower expense rate than the historical dental supply segment. Operating Income. Operating income increased $20.4 million or 24.4% over Prior Period. Operating income increased as a percent of sales to 10.2% from 9.8% due to improved gross margins and a lower operating expense rate in the dental segment. Other Income. Other income declined 15.6% from $5.0 million in the Prior Period to $4.2 million in the Current Period. Lower interest rates and reduced cash balances following the acquisition of Webster brought about the decrease. Income Tax. The effective income tax rate of 37.4% remains the same as the Prior Period. Net Income. Net income increased 22.1% to $67.7 million due to the reasons outlined aboved. Earnings Per Share. Diluted earnings per share increased to $0.99 versus $0.82 reported a year ago, a 17 cent or 20.7% increase over the Prior Period. 12
LIQUIDITY AND CAPITAL RESOURCES The Company's financial condition remains strong. Cash generated from operating activities was our principal source of funds during the nine months ended January 26, 2002. In combination with previously generated funds, we invested in working capital, made an acquisition, funded capital expenditures and repurchased 247,000 shares of our common stock. The Company generated $46.2 million of cash from operations through the first nine months of fiscal 2002, a $2.7 million decrease from last year. Cash from operations declined despite a 22.1% increase in net income. Higher inventory levels due to year end buying opportunities in both the dental and veterinary businesses was the primary factor leading to this year-over-year reduction. Consistent with previous years, the Company expects this inventory build to be substantially liquidated by the end of the fiscal year. In July 2001, the Company invested $85.0 million of cash to acquire the assets of J. A. Webster, Inc. The Company invested $2.6 million of cash to acquire a dental distribution business and an internet service in the prior year nine months. Available liquid resources at January 26, 2002 consisted of $130.4 million of cash and short-term investments and $2.6 million available under existing bank lines. The Company believes that cash and short-term investments and the remainder of its credit lines are sufficient to meet any existing and presently anticipated cash needs. In addition, because of its low debt to equity ratio, the Company believes it has sufficient debt capacity to replace its existing revolver and provide the necessary funds to achieve its corporate objectives. Factors That May Affect Future Operating Results Certain information of a non-historical nature contains forward-looking statements. Words such as "believes," "expects," "plans," "estimates" and variations of such words are intended to identify such forward-looking statements. The statements are not guaranties of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, the Company cautions 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. 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. o The Company's ability to meet increased competition from national, regional and local full-service distributors and mail-order distributors of dental and veterinary products, while maintaining current or improved profit margins. o The ability of the Company to retain its base of customers and to increase its market share. 13
o The ability of the Company to maintain satisfactory relationships with qualified and motivated sales personnel. o The continued ability of the Company to maintain satisfactory relationships with key vendors and the ability of the Company to create relationships with additional manufacturers of quality, innovative products. o Changes in the 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. o Reduced growth in expenditures for dental services by private dental insurance plans. o The 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. o 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. o Changes in the economics of the veterinary supply market, including reduced growth in per capita expenditures for veterinary services and reduced growth in the number of households owning pets. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in market risk during the nine months ended January 26, 2002. For additional information refer to Item 7A of the Company's 2001 Form 10K. PART II OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds. (a) None. (b) None. (c) On July 9, 2001, 322,524 unregistered shares of the Company's common stock were issued in reliance on Regulation D of the Securities Act of 1933. The shares were issued as part of the consideration paid by the Company for certain assets of J. A. Webster, Inc. The Asset Purchase Agreement by and among Patterson Dental Company and J. A. Webster, Inc., pursuant to which the shares were issued, was filed as Exhibit 10.12 to the Company's Form 10-K filed with the Securities and Exchange Commission on July 24, 2001. See also, Note 4 to Notes to Consolidated Financial Statements on pages 6-7 of this Form 10-Q. 14
Item 6. Exhibits and Reports on Form 8-K. (a) None. (b) No reports on Form 8-K were filed during the quarter for which this report is filed. All other items under Part II have been omitted because they are inapplicable or the answers are negative, or, in the case of legal proceedings, were previously reported in the Annual Report on Form 10-K filed July 24, 2001. 15
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PATTERSON DENTAL COMPANY (Registrant) Dated: March 11, 2002 By: /s/ R. Stephen Armstrong ------------------------------------ R. Stephen Armstrong Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 16