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, October 27, 2001. ___________ 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 67,655,844 shares of common stock as of December 4, 2001. Page 1 of 16
PATTERSON DENTAL COMPANY INDEX <TABLE> <CAPTION> Page ---- <S> <C> PART I - FINANCIAL INFORMATION Item 1 - Financial Statements 3-9 Consolidated Balance Sheets as of October 27, 2001 and April 28, 2001 3 Consolidated Statements of Income for the Three Months and Six Months Ended October 27, 2001 and October 28, 2000 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended October 27, 2001 and October 28, 2000 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 4 - Submission of Matters to a Vote of Security Holders 15 Item 6 - Exhibits and Reports on Form 8-K 15 Signatures 16 </TABLE> Safe Harbor Statement Under The Private Securities Litigation Reform Act Of - --------------------------------------------------------------------------- 1995: - ---- This Form 10-Q for the period ended October 27, 2001, 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) <TABLE> <CAPTION> Oct. 27, 2001 April 28, 2001 ------------- -------------- ASSETS (unaudited) <S> <C> <C> Current assets: Cash and cash equivalents $ 89,742 $ 160,024 Short-term investments 25,061 24,484 Receivables, net 167,209 144,625 Inventory 135,443 103,700 Prepaid expenses and other current assets 10,146 9,928 ------------- -------------- Total current assets 427,601 442,761 Property and equipment, net 52,502 48,575 Intangibles, net 119,915 51,892 Other 6,682 5,952 ------------- -------------- Total assets $ 606,700 $ 549,180 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 98,339 $ 89,321 Accrued payroll expense 19,009 20,866 Income taxes payable 2,819 4,805 Other accrued expenses 24,327 17,723 ------------- -------------- Total current liabilities 144,494 132,715 Non-current liabilities 3,461 3,693 ------------- -------------- Total liabilities 147,955 136,408 Deferred credits 3,815 4,257 STOCKHOLDERS' EQUITY Preferred stock --- --- Common stock 677 675 Additional paid-in capital 71,969 68,049 Accumulated other comprehensive loss (2,712) (2,316) Retained earnings 397,260 354,371 Note receivable from ESOP (12,264) (12,264) ------------- -------------- Total stockholders' equity 454,930 408,515 ------------- -------------- Total liabilities and stockholders' equity $ 606,700 $ 549,180 ============= ============== </TABLE> See accompanying notes. 3
PATTERSON DENTAL COMPANY CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share amounts) (Unaudited) <TABLE> <CAPTION> Three Months Ended Six Months Ended Oct. 27, 2001 Oct. 28, 2000 Oct. 27, 2001 Oct. 28, 2000 ------------------ ------------------ ---------------- ------------------ <S> <C> <C> <C> <C> Net sales $ 355,018 $ 290,717 $ 658,272 $ 560,757 Cost of sales 233,815 188,718 430,002 365,663 ------------------ ------------------ ---------------- ------------------ Gross margin 121,203 101,999 228,270 195,094 Operating expenses 85,248 73,217 162,875 142,114 ------------------ ------------------ ---------------- ------------------ Operating income 35,955 28,782 65,395 52,980 Other income and expense: Amortization of deferred credits 221 226 442 447 Finance income, net 1,131 1,398 2,806 2,745 Interest expense (34) (27) (71) (57) Profit (loss) on currency exchange (86) (90) (49) (116) ------------------ ------------------ ---------------- ------------------ Income before income taxes 37,187 30,289 68,523 55,999 Income taxes 13,905 11,320 25,628 20,936 ------------------ ------------------ ---------------- ------------------ Net income $ 23,282 $ 18,969 $ 42,895 $ 35,063 ================== ================== ================ ================== Earnings per share - basic and diluted $ 0.34 $ 0.28 $ 0.63 $ 0.52 ================== ================== ================ ================== Weighted average common and dilutive potential common shares 68,253 67,674 68,133 67,661 ================== ================== ================ ================== </TABLE> See accompanying notes. 4
PATTERSON DENTAL COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) <TABLE> <CAPTION> Six Months Ended Oct. 27, 2001 Oct. 28, 2000 ------------- ------------- <S> <C> <C> Operating activities: Net income $ 42,895 $ 35,063 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 4,462 3,932 Amortization of deferred credits (442) (447) Amortization of goodwill 2,473 1,639 Bad debt expense 1,071 456 Change in assets and liabilities, net of acquired (22,514) (21,279) --------------- -------------- Net cash provided by operating activities 27,945 19,364 Investing activities: Additions to property and equipment, net (6,105) (4,661) Acquisitions, net (84,182) (2,486) Purchase of short-term investments (577) (483) --------------- -------------- Net cash used in investing activities (90,864) (7,630) Financing activities: Payments and retirement of long-term debt and obligations under capital leases (217) (439) Common stock (repurchased) issued, net (6,791) 257 --------------- -------------- Net cash used in financing activities (7,008) (182) Effect of exchange rate changes on cash (355) (152) --------------- -------------- Net (decrease) increase in cash and cash equivalents (70,282) 11,400 Cash and cash equivalents at beginning of period 160,024 113,453 --------------- -------------- Cash and cash equivalents at end of period $ 89,742 $ 124,853 =============== ============== 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) October 27, 2001 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 October 27, 2001, and the results of operations and the cash flows for the periods ended October 27, 2001 and October 28, 2000. Such adjustments are of a normal recurring nature. The results of operations for the quarter ended October 27, 2001 and October 28, 2000, 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 second quarter of fiscal 2002 and 2001 represent the 13 weeks ended October 27, 2001 and October 28, 2000, respectively. 3. Total comprehensive income was $23,349 and $42,499 for the three and six months ended October 27, 2001, respectively, and $18,034 and $34,260 for the three and six months ended October 28, 2000, 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 Six Months Ended Oct. 27, 2001 Oct. 28, 2000 Oct. 27, 2001 Oct. 28, 2000 - ------------------------------------------------------------------------------ ------------------------------ <S> <C> <C> <C> <C> Net sales $355,018 $329,732 $691,900 $639,794 Net income/(1)/ 23,282 19,957 43,286 36,607 Earnings per share - basic and diluted/(1)/ $ 0.34 $ 0.29 $ 0.64 $ 0.54 </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: <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------ ---------------- Oct. 27, Oct. 28, Oct. 27, Oct. 28, 2001 2000 2001 2000 ------- ------- ------- ------- <S> <C> <C> <C> <C> Denominator: Denominator for basic earnings per share - weighted-average shares 67,772 67,396 67,669 67,389 Effect of dilutive securities: Stock Option Plans 378 153 376 173 Employee Stock Purchase Plan 8 11 9 11 Capital Accumulation Plan 95 114 79 88 ------ ------ ------ ------ Dilutive potential common shares 481 278 464 272 ------ ------ ------ ------ Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 68,253 67,674 68,133 67,661 ====== ====== ====== ====== </TABLE> 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 Six Months Ended Oct. 27, 2001 Oct. 28, 2000 Oct. 27, 2001 Oct. 28, 2000 ------------------ ------------- ----------------- ------------- <S> <C> <C> <C> <C> Net sales: Dental supply: Consumable dental and printed office products $ 194,989 $ 181,219 $ 382,648 $ 352,493 Equipment and software 89,387 84,283 168,957 159,754 Other 27,212 25,215 53,755 48,510 ------------ ----------- ------------ ------------ 311,588 290,717 605,360 560,757 Veterinary supply 43,430 - 52,912 - ------------ ----------- ------------ ------------ Consolidated net sales $ 355,018 $ 290,717 $ 658,272 $ 560,757 ============ =========== ============ ============ Operating income: Dental supply $ 33,314 $ 28,782 $ 62,190 $ 52,980 Veterinary supply 2,641 - 3,205 - ------------ ----------- ------------ ------------ Consolidated operating income $ 35,955 $ 28,782 $ 65,395 $ 52,980 ============ =========== ============ ============ Total assets: Dental supply $ 480,370 $ 490,464 Veterinary supply 126,330 - ------------ ------------ Consolidated total assets $ 606,700 $ 490,464 ============ ============ </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 $.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 $3.8 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 Six Months Ended Oct. 27, 2001 Oct. 28, 2000 Oct. 27, 2001 Oct. 28, 2000 -------------------- ------------------- ------------------- ------------------- <S> <C> <C> <C> <C> Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 65.9% 64.9% 65.3% 65.2% -------------------- ------------------- ------------------- ------------------- Gross profit 34.1% 35.1% 34.7% 34.8% Operating expenses 24.0% 25.2% 24.7% 25.3% -------------------- ------------------- ------------------- ------------------- Operating income 10.1% 9.9% 10.0% 9.5% Other income and expense, net 0.4% 0.5% 0.4% 0.5% -------------------- ------------------- ------------------- ------------------- Income before income tax 10.5% 10.4% 10.4% 10.0% Net income 6.6% 6.5% 6.5% 6.3% ==================== =================== =================== =================== </TABLE> QUARTER ENDED OCT. 27, 2001 COMPARED TO QUARTER ENDED OCT. 28, 2000. Net Sales. Net sales for the three months ended Oct. 27, 2001 ("Current Quarter") totaled $355.0 million up 22.1% from $290.7 million for the three months ended Oct. 28, 2000 ("Prior Quarter"). The Company's sales growth reflected strong sales of consumables and basic equipment to the dental supply market, combined with $43.4 million of incremental veterinary supply sales from the acquisition of the assets of J. A. Webster, Inc. on July 9, 2001. Dental supply sales for the Current Quarter amounted to $311.6 million, a 7.2% increase over the year earlier period led by solid performance from the Company's consumable and basic equipment product lines. Total dental supply sales growth was diluted by below-plan sales of the CEREC 3 dental restorative system, the Company's most technologically advanced product line. While dental acquisitions had no effect on Current Quarter net sales growth, acquisitions had a 3% positive impact on Prior Quarter net sales growth. Sales of consumable dental supplies, including printed office products, increased 7.6% paced by an 8.6% increase in the U.S. dental market. Level printed office product sales and unfavorable currency rates on Canadian operations tempered consumable dental supply sales growth in the Current Quarter. Dental equipment and software sales improved 6.1% in the Current Quarter. In addition, demand for new generation digital equipment was strong resulting in clinical software sales exceeding Prior Quarter by 29.9%. Sales of other dental products and services, consisting of parts, technical service, software support and insurance e-claims, grew 7.9% in this year's second quarter. Sales in Canada for the quarter increased 4.3% versus the year earlier quarter reflecting improved performance in the Company's consumable dental product lines. Sales were adversely affected by the 10
strengthening of the U.S. dollar. On a currency-adjusted basis, Canada's net sales would have increased by 8.7%. This represents a $1,000,000 revenue impact. Gross Margins. Gross margins increased $19.2 million or 18.8% over the second quarter of fiscal 2001 primarily as a result of product mix improvement in the dental business. The dental gross margin rate was favorable to the Prior Quarter by 40 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 16.4% over the Prior Quarter to $85.2 million and amounted to 24.0% of sales up from $73.2 million, or 25.2% of sales reported a year earlier. The dental operating expense rate improved 30 basis points over prior year. The dental supply business continued to improve its operating leverage and reduce costs, despite higher insurance costs. Second quarter 2002 consolidated expenses as a percent of sales also reflects Webster Veterinary Supply, providing a favorable year-over-year impact of approximately 30 basis points after the amortization of certain intangible assets. The Webster operation has a lower operating expense rate than the historical dental operation due primarily to not having the infrastructure of a technical service business. Operating Income. Operating income increased 24.9% to $36.0 million for the Current Quarter from $28.8 million for the Prior Quarter. Operating income increased as a percent of net sales from 9.9% to 10.1%. Dental supply operating income increased 15.7% due to improved gross margin performance and cost containment. Veterinary supply operating income was $2.6 million in the Current Quarter. Other Income. Other income, net of expenses, was $1.2 million for the Current Quarter compared to $1.5 million for the Prior Quarter. Lower interest rates on investment income 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 $23.3 million, or 22.7% over prior year due to the factors discussed above. Earnings Per Share. Diluted earnings per share increased to $0.34 versus $0.28 reported a year ago, a 6 cent or 21.4% increase over the same quarter a year ago. SIX MONTHS ENDED OCT. 27, 2001 COMPARED TO SIX MONTHS ENDED OCT. 28, 2000. Net Sales. Net sales increased 17.4% to $658.3 million for the six months ended October 27, 2001 ("Current Period") from $560.8 million for the six months ended October 28, 2000 ("Prior Period"). Six month trends parallel second quarter results where increases reflect strong sales in consumables, basic equipment and software to the dental supply market combined with $52.9 million of incremental veterinary supply sales. Veterinary sales are primarily in the consumable product category with a small portion attributed to equipment. 11
Dental sales increased 8.0% to $605.4 million. Sales of consumable dental supplies rose 8.6% despite level sales in printed office products. Excluding the impact of lower CEREC 3 sales, dental equipment sales were up 13.0%. Software unit sales, spurred by digital equipment sales, and related software services provided a 46.6% increase for the Current Period. Other sales, excluding software services, gained 8.1% primarily due to increases in technical services. Canadian sales increased 8.3% in local currency but were diminished on a consolidated basis to a 4.3% increase as exchange rates imparted a negative $1.7 million impact. Gross Margins. Gross margins increased $33.2 million or 17.0% over the Prior Period. The dental segment reported an 80 basis point expansion benefiting from an improved product mix and higher consumable point of sale rates. Combined dental and veterinary margins resulted in a 10 basis point decline for the Current Period. This was expected as the Webster business has historically produced gross margins approximately 10 percentage points below those in the dental market. We believe that over time we can improve the veterinary gross margins as more value added products and services are added to the Webster business. Operating Expenses. Operating expenses increased 14.6% to $162.9 million but declined 60 basis points as a percent of sales from 25.3% in the Prior Period to 24.7% in the Current Period. Improved operating leverage in the second quarter of the dental segment and the veterinary segment's historically lower operating expense rate, 17.8% in the Current Period, were the primary contributors. Operating Income. Operating income increased $12.4 million or 23.4% over Prior Period. Operating income increased as a percent of sales from 9.5% to 10.0% due to improved gross margins and a lower operating expense rate in the dental segment. Other Income. Other income increased 3.6% from $3.0 million in the Prior Period to $3.1 million in the Current Period. This increase is the net result of an increase in financing income offset by reduced investment earnings as cash balances were reduced following the acquisition of Webster. Income Tax. The effective income tax rate of 37.4% remains the same as the Prior Period. Net Income. Net income increased 22.3% to $42.9 million due to the factors discussed above. Earnings Per Share. Diluted earnings per share increased to $0.63 versus $0.52 reported a year ago, an 11 cent or 21.2% increase over the Prior Period. LIQUIDITY AND CAPITAL RESOURCES The Company's financial condition remains strong. Cash generated from operating activities was our principal source of funds during the six months ended October 27, 2001. 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. Operating activities generated cash of $27.9 million in the first six months, compared to the prior six months where operating activities provided cash of $19.4 million. The increase of $8.5 million was due primarily to a 22.3% increase in net income and a reduction in accounts receivable, net of acquisitions. 12
In July 2001, the Company invested $85.0 million of cash to acquire the assets of J. A. Webster, Inc. The Company invested $2.5 million of cash to acquire a dental distribution business and an Internet service in the prior year six months. Available liquid resources at October 27, 2001 consisted of $114.8 million of cash and short-term investments and $9.6 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. . 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. . The ability of the Company to retain its base of customers and to increase its market share. . The ability of the Company to maintain satisfactory relationships with qualified and motivated sales personnel. . 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. . 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. . Reduced growth in expenditures for dental services by private dental insurance plans. 13
. 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. . 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. . 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 six months ended October 27, 2001. 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 4. Submission of Matters to a Vote of Security Holders (a) The Company's Annual Meeting of Shareholders was held on September 10, 2001. (c)(1) The shareholders voted for one director nominee, James W. Wiltz, for a two year term, and two director nominees, Peter L. Frechette and David K. Beecken, for three year terms. 57,022,056 shares were voted for Mr. Wiltz and 7,192,847 withheld authority. 56,848,398 shares were voted for Mr. Frechette and 7,366,505 shares withheld authority. 63,807,234 shares were voted for Mr. Beecken and 407,689 shares withheld authority. There were no abstentions and no broker non-votes. (2) The shareholders voted to approve an amendment to the Company's Restated Articles of Incorporation to increase the number of shares which the Company has authority to issue from 130,000,000 to 630,000,000 consisting of 600,000,000 shares of common stock and 30,000,000 shares of preferred stock. The vote was 41,626,765 shares for, 22,473,786 shares against and 120,351 abstentions. There were no broker non-votes. (3) The shareholders voted to approve the Company's 2001 Non-Employee Directors' Stock Option Plan. The vote was 58,602,966 shares for, 5,391,829 shares against and 220,108 abstentions. There were no broker non-votes. (4) The shareholders voted to ratify the appointment of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending April 27, 2002. The vote was 63,975,068 shares for, 144,857 shares against and 94,978 abstentions. There were no broker non- votes. 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: December 10, 2001 By: /s/ R. Stephen Armstrong ------------------------- R. Stephen Armstrong Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 16