Company: PATTERSON COMPANIES, INC.
CIK: 891024
SIC: 5047
Filing Date: 2011-06-29 00:00:00

ITEM 1 - BUSINESS
Item 1. BUSINESS
Certain information of a non-historical nature contained in Items 1, 2, 3 and 7 of this Form 10-K includes forward-looking statements. Reference is made to

ITEM 1A - RISK FACTORS
Item 1A. RISK FACTORS
The following list describes several risk factors that are unique to our company. The risk factors described below should be carefully considered, together with the information included elsewhere in this Annual Report on Form 10-K and other documents filed with the SEC. These risks factors are being disclosed based on instructions set forth in Item 503(c) of Regulation S-K.
Economic conditions and volatility in the financial markets could adversely affect our operating results and financial condition.
Continued recessionary trends in the U.S. or global economy, or an uncertain economic outlook, could materially adversely affect our operating results and financial condition in the future. Economic conditions may continue to cause customers to reduce or delay purchases from us and may cause vendors to reduce their production or change their terms of sale to us. Volatility and other disruptions in the financial markets could adversely affect the cost and availability of credit to us, as well as the cost of, and ability to, sell finance contracts we receive from customers to outside financial institutions.
We compete in distribution industries that are highly competitive and we may not be able to compete successfully.
Our competitors include numerous manufacturers and distributors. Some of our competitors may have different resources than we do, which could allow them to compete more successfully. Many of our products are available from several sources and our customers tend to have relationships with several different distributors. Competitors could obtain exclusive rights to market particular products, which we would then be unable to market. Our failure to compete effectively may limit and/or reduce our revenues, profitability and cash flow.
Acquisitions of businesses could negatively impact our profitability and return on invested capital.
As a part of our business strategy, we have acquired businesses in the ordinary course and expect to continue acquiring businesses in the future. These acquisitions can involve a number of risks and challenges, any of which could cause significant operating inefficiencies and adversely affect our growth and profitability. Such risks and challenges include underperformance relative to our expectations and the price paid for the acquisition; unanticipated demands on our management and operational resources; difficulty in integrating personnel, operations and systems; retention of customers of the combined businesses; assumption of contingent liabilities; and acquisition-related earnings charges.
Our international operations are subject to risks that could adversely affect our operating results.
There are a number of risks inherent in foreign operations, which include regulatory, economic and political requirements and changes. Additionally, foreign operations expose us to foreign currency fluctuations that could impact our results of operations and financial condition based on the movements of the applicable foreign currency exchange rates in relation to the U.S. Dollar.
Our future operating results can be affected by our relationships with our sales representatives and vendors and manufacturers of products that we distribute.
The inability to attract or retain qualified sales personnel or build or maintain relationships with vendors and manufacturers of products that we distribute may have an adverse effect on our business.
Interruptions with our vendors could adversely affect our operating results.
We are dependent on our vendors to supply products. If a vendor is unable to deliver product in a timely and efficient manner, whether due to financial difficulties or other reasons, we could experience lost sales. In addition, a portion of our products are sourced, directly or indirectly, from outside the United States. Political or financial instability, increased tariffs, restrictions on trade, currency exchange rates, labor unrest, outbreak of pandemics or other events could slow distribution activities and affect foreign trade beyond our control and adversely affect our results of operations.
We sell products that could be subject to market and technological obsolescence.
We carry over 100,000 different product stock keeping units. Some of these products are subject to technological obsolescence that may not be within the control of the Company since we do not manufacture the products. If we were no longer able to sell these products due to customers making decisions not to buy them, we may have to record expense related to the diminution in value of inventories we have in stock that would adversely impact our operating results.
Audits by tax authorities could result in additional tax payments for prior periods.
The amount of income taxes we pay is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If these audits result in assessments different from our reserves, our future results may include unfavorable adjustments to our tax liabilities.
We are subject to a variety of litigation that could adversely affect our results of operations and financial condition.
We are subject to a variety of litigation incidental to our business, including claims for damages arising out of the use of products we distribute, claims relating to intellectual property matters, and claims involving employment matters. We also may be subject to securities litigation.
The defense of these lawsuits may divert our management’s attention, we may incur significant expenses in defending these lawsuits, and we may be required to pay damage awards or settlements or become subject to equitable remedies that could adversely affect our financial condition and results of operations. Any insurance or indemnification rights that we may have may be insufficient or unavailable to protect us against potential loss exposures.
Leadership development and succession planning.
Our business could suffer if it loses key personnel unexpectedly or fails to provide for an orderly management succession. Our success depends, in large part, on our ability to recruit skilled personnel for the business, and then identify and train our personnel for their transition into key roles to support the long-term growth of the business. While our board of directors and management actively monitor our succession plans and processes, any sudden change at the senior management level may adversely affect our business.
We may be required to record a significant charge to earnings if our goodwill or other intangible assets become impaired.
Our balance sheet includes goodwill and other identifiable intangible assets. Under U.S. generally accepted accounting principles, if impairment of our goodwill or other identifiable intangible assets is determined we may be required to record a significant charge to earnings in the period of such determination.
Certain U.S. and foreign laws could subject us to claims or otherwise harm our business.
We are subject to a variety of laws in the U.S. and abroad that may subject us to claims or other remedies. Our failure to comply with applicable laws may subject us to additional liabilities, which could adversely affect our business, financial condition and results of operations. In addition, the effects of healthcare related legislation and regulation may affect expenditures or reimbursements for rehabilitation and assistive products.
We are exposed to the risk of changes in interest rates.
Our balance sheet includes some variable rate long-term debt and certain non-current assets that are sensitive to movements in short-term interest rates. The variable rates are comprised of LIBOR plus a spread and reset on certain dates, as prescribed by the respective agreements. In addition, our balance sheet includes fixed rate long-term debt, whose fair value could be adversely affected by movements in interest rates. We finance purchases by our customers using finance contracts that are issued at fixed interest rates, and sell these contracts under various funding arrangements that are priced using variable interest rates. Our results of operations could be adversely affected if there are sudden and dramatic changes in the interest rates within the markets.

ITEM 1B - UNRESOLVED STAFF COMMENTS
Item 1B. UNRESOLVED STAFF COMMENTS
The Company has received no written comments regarding our periodic or current reports from the staff of the SEC that were issued 180 days or more preceding the end of our 2011 fiscal year that remain unresolved.

ITEM 2 - PROPERTIES
Item 2. PROPERTIES
The Company owns its principal executive offices located in St. Paul, Minnesota, and the majority of its distribution and manufacturing facilities. Leases of other distribution, manufacturing and administrative facilities generally are on a long-term basis, expiring at various times, with options to renew for additional periods. Most
sales offices are leased for varying and usually shorter periods, with or without renewal options. The Company believes its properties are in good operating condition and are suitable for the purposes for which they are being used.
Patterson Logistics Services
Effective at the beginning of fiscal 2007, the majority of the assets used to distribute product that were previously owned and operated by individual business units were transferred to a wholly owned subsidiary of Patterson Companies, Inc. The new entity, Patterson Logistics Services, Inc. (“PLSI”) operates the distribution function for the benefit of all three of the sales and marketing business units.
As of April 30, 2011, PLSI operates 17 distribution centers totaling approximately 1,300,000 square feet of distribution space as follows:
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2 dental distribution centers located in Indiana and Hawaii.
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6 veterinary distribution centers. Sales and administrative personnel for the veterinary segment generally share space with PLSI in these distribution facilities, which are located in Alabama, Colorado, Indiana and Texas.
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1 rehabilitation distribution center in New York State.
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1 distribution center located in Texas, which stocks and distributes both dental and rehabilitation products.
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4 distribution centers which stock and distribute dental and veterinary products, located in Iowa, Illinois, South Carolina and Washington state; and,
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3 distribution centers located in California, Florida and Pennsylvania which distribute product for all three of the business units. These locations replaced nearby distribution centers which distributed product of just one of the business units.
Approximately 90% of the PLSI distribution center space is owned.
Patterson Technology Center
The Patterson Technology Center leases a 45,000 square foot building in Illinois. The Company is currently building a state-of-the-art 100,000 square foot facility near the current location. The construction of this owned facility will be completed in fiscal 2012 and will replace the leased facility that is currently occupied.
Dental Supply
In addition to the locations operated by PLSI, Patterson Dental utilizes an owned location in Illinois to manufacture and ship printed office products. The dental sales operations in Canada are supported by distribution centers located in the provinces of Quebec and Alberta, Canada.
The dental supply segment is headquartered in the Company’s principal executive offices, which is an owned facility. This segment also maintains sales and administrative offices inside the United States at approximately 90 locations in over 40 states and at 10 locations in Canada. The majority of these locations are leased.
Veterinary Supply
Headquartered in Devens, Massachusetts, Webster Veterinary has executive, sales and marketing, human resource, accounting, and procurement personnel in this location. It’s field sales and administrative personnel generally reside within the PLSI distribution center and branch locations shared with the dental supply segment.
Rehabilitation Supply
Patterson Medical is headquartered in Bolingbrook, Illinois. Distribution of product in North America is generally performed at PLSI-operated locations. Domestically, the rehabilitation supply segment maintains manufacturing facilities in Wisconsin, New York and South Carolina. Seventeen branch office locations include eight that are shared with the dental supply segment.
Internationally, this segment has facilities located in the U.K., France, Canada, Australia, New Zealand and Thailand.

ITEM 3 - LEGAL PROCEEDINGS
Item 3. LEGAL PROCEEDINGS
The Company is involved in various product related, employment related and other legal proceedings arising in the ordinary course of business. Some of these proceedings involve product liability claims arising out of the use of products the Company distributes. Product liability indemnification is generally obtained from our suppliers. However, in the event a supplier of a defective product is unable to pay a judgment for which the Company may be jointly liable, the Company would have liability for the entire judgment.
The Company maintains product liability insurance coverage for any potential liability for claims arising out of products sold by the Company. While the Company believes its insurance coverage is adequate, there can be no assurance that the insurance coverage maintained is sufficient or will be available to us in adequate amounts or at reasonable costs in the future. Also, there can be no assurance that the indemnification agreements we have with our suppliers will provide us with adequate protection. In addition, future claims brought against the Company could involve claims not covered by insurance or indemnification agreements, and could have a material adverse effect on the Company’s business or financial condition.
As of April 30, 2011, the Company had accrued our best estimate of potential losses relating to product liability and other claims that were probable to result in a liability and for which it was possible to reasonably estimate a loss. This accrued amount, as well as related expenses, was not material to the Company’s financial position, results of operations or cash flows. Our method for determining estimated losses considers currently available facts, presently enacted laws and regulations and other external factors, including probable recoveries from third parties.

ITEM 4 - RESERVED
Item 4. REMOVED AND RESERVED
PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock trades on the NASDAQ Global Select Market® under the symbol “PDCO.”
The following table sets forth the range of high and low sale prices for the Company’s common stock for each full quarterly period within the two most recent fiscal years. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
On June 24, 2011, the number of holders of record of common stock was 2,546. The transfer agent for the Company’s common stock is Wells Fargo Bank, N.A., 161 North Concord Exchange, South St. Paul, Minnesota, 55075-0738, telephone: (651) 450-4064.
The Company had not paid any cash dividends on its common stock since its initial public offering in 1992 until the fourth quarter of fiscal 2010, at which time a $0.10 per share cash dividend was paid. The Company paid a $0.10 quarterly cash dividend for the first-three quarters of fiscal 2011 and increased the per share dividend to $0.12 in the fourth quarter. The Company expects to continue to pay a quarterly cash dividend for the foreseeable future; however, the payment of dividends is within the discretion of the Company’s Board of Directors and will depend upon the earnings, capital requirements and operating and financial condition of the Company, among other factors.
For information relating to securities authorized for issuance under equity compensation plans, see Part III, Item 12.
In December 2007, the Company’s Board of Directors expanded a share repurchase program to allow for the purchase of up to twenty-five million shares of common stock in open market transactions. As of March 2011, approximately 20.5 million shares had been repurchased under this authorization. In March 2011, the Board of Directors cancelled the existing share repurchase program and replaced it with a new authorization to repurchase an additional twenty-five million shares of common stock. As of April 30, 2011, 23,090,999 shares remain available under the repurchase authorization, which expires on March 15, 2016.
The following table presents activity under the stock repurchase program during the fourth quarter of fiscal 2011 ended April 30, 2011.
The graph below compares the cumulative total shareholder return on $100 invested at the market close on April 28, 2006, the last trading day before the beginning of our 2007 fiscal year, through the end of fiscal 2011 with the cumulative return of the same time period on the same amount invested in the S&P 500 Index and a Peer Group Index, consisting of 32 companies (including our company) based on the same Standard Industrial Classification Code.* The chart below the graph sets forth the actual numbers depicted on the graph.
* The current composition of SIC Code 5047-Medical, Dental & Hospital Equipment & Supplies-is as follows:
ActiveCare, Inc., Alpha Pro Tech, Ltd., ALR Technologies, Inc., American Medical Alert, Animal Health International, Inc., China Yibai United Guarantee International Holding, Inc., Chindex International, Inc., CompuMed, Inc., Five Star Quality Care, Inc., Henry Schein, Inc., Hybrid Energy Holdings, Inc, McKesson, Inc., Merit Medical Systems, Modern Mobility Aids, Inc., Molecular Imaging Corporation, MWI Veterinary Supply, Inc., Nano Mask Inc, NetMed, Inc., NOVT Corporation, Otter Tail Corporation, Owens & Minor, Inc., Patterson Companies, Inc., PSS World Medical, Inc., Pure Bioscience Inc., Scantek Medical, Inc., Shandong Zhouyuan Seed and Nursery Co., Ltd., THC Homecare, Inc., Trinity3 Corporation, Valesc Holdings, Inc., Varian Medical Systems, Inc., Vertical Health Solutions, Inc., Vision-Sciences, Inc.

ITEM 6 - SELECTED FINANCIAL DATA
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)
Note: See the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K.

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company’s fiscal 2011 financial information is summarized in this Management’s Discussion and Analysis, the Consolidated Financial Statements, and the related Notes. The following background is essential to more fully understand the Company’s financial information.
Patterson operates a distribution business in three complementary markets: dental supply, veterinary supply and rehabilitation supply. Historically the Company’s strategy for growth focused on internal growth and the acquisition of smaller distributors and businesses offering related products and services to the dental market. In fiscal 2002, the Company expanded its strategy to take advantage of a parallel growth opportunity in the veterinary supply market by acquiring the assets of J. A. Webster, Inc. on July 9, 2001. The Company added a third component to its business platform in fiscal 2004 when it entered the rehabilitation supply market with the acquisition of AbilityOne Products Corp. (“AbilityOne”) on September 12, 2003. AbilityOne is now known as Patterson Medical.
Operating margins of the veterinary business are considerably lower than the dental and rehabilitation supply businesses. While operating expenses run at a lower rate in the veterinary business, its gross margin is substantially lower. A major contributor to this margin differential results from the high concentration of pharmaceutical products distributed by the veterinary business, which are sold at margins well below the average for other consumable products.
There are several important aspects of the Company’s business that are useful in analyzing the Company, including: (1) market growth in the various markets it operates; (2) internal growth; (3) growth through acquisition; and (4) continued focus on controlling costs and enhancing efficiency. Management defines “internal growth” as the increase in net sales from period to period, excluding the impact of changes in currency exchange rates, and excluding the net sales, for a period of twelve months following the transaction date, of businesses that it has acquired.
The Company operates with a 52-53 week accounting convention with its fiscal year ending on the last Saturday in April. Fiscal year 2011 included 53 weeks, while fiscal years ending in 2010 and 2009 were both comprised of 52 weeks. Fiscal 2012 will be comprised of 52 weeks.
In the fourth quarter of fiscal 2010, the Company initiated a quarterly cash dividend of $0.10 per share. A quarterly cash dividend of $0.10 per share was paid throughout fiscal 2011, except in the fourth quarter when the dividend was increased to $0.12 per share. Total dividends declared in fiscal years 2011 and 2010 were $50 million and $12 million, respectively. The Company expects to continue paying a quarterly cash dividend into the foreseeable future.
During fiscal 2011, the Company repurchased approximately 3.3 million shares of its common stock at a cost of approximately $99 million. Through these repurchases and the cash dividends, the Company returned nearly $149 million of cash to its shareholders.
With respect to the Company’s Employee Stock Ownership Plan (“ESOP”), allocations to employees have been made almost entirely from shares of Company stock acquired in 1990. Although the accounting standards in effect in 1990 were subsequently revised, the accounting for the shares acquired in 1990 was grandfathered under the revised standards. The accounting for the 1990 shares called for the expensing of shares released for allocation to employees to be based on the original cost of the shares acquired. The revised standards require the expensing of shares released based on fair market value at the time the shares are committed to be released.
Since the revision of the accounting standards, the ESOP has acquired additional shares, nearly all of which are still held for future allocation employees. As the final allocation of the shares acquired in 1990 was made at the end of fiscal 2011, the ESOP shares that will be contributed to employees in fiscal 2012 and beyond will result in a non-cash expense equal to the fair market value of the shares when released.
Based on the Company’s best estimate of a competitive ESOP contribution to employees in fiscal 2012, we estimate the non-cash ESOP expense will increase our operating expenses by approximately $23 million and $0.12 per share in fiscal 2012 as compared to fiscal 2011. While this expense does create a comparability discrepancy between the Company’s past and foreseeable future, it does not change the Company’s underlying cash generation ability or the fundamentals of the business.
Results of Operations
The following table summarizes the consolidated results of operations over the past three fiscal years as a percent of sales:
Fiscal 2011 Compared to Fiscal 2010
Net Sales. Consolidated net sales in fiscal 2011 were $3,415.7 million, an increase of 5.5% from $3,237.4 million in fiscal 2010. The growth in sales includes a 2.1% contribution from acquisitions and a 0.4% favorable impact of changes in foreign currency translation rates. Each of the business units continued to be impacted by the weakness in the general economy during fiscal 2011. Fiscal 2011 also included an additional or fifty-third week due to the Company’s fiscal year convention of ending on the last Saturday in April. It is difficult to quantify the exact impact of this additional week, but estimates have been provided in those areas where it is possible to make reasonable approximations. We estimate that the impact of the extra week on consolidated sales was approximately one and a half percent.
Dental segment sales in fiscal 2011 rose 3.2% to $2,236.1 million from $2,167.5 million in fiscal 2010. Acquisitions added 0.1% to sales and the impact of currency translation rates was a favorable 0.7%. Consumable sales increased 3.2%, although they were affected by uneven patient demand for dental services as a result of the weak economy. While the economic recovery has been slow, we believe the fundamentals of the North American dental market continued to strengthen as fiscal 2011 progressed.
Dental equipment and software sales increased 3.6% in fiscal 2011 to $734.7 million. Sales of basic dental equipment and software grew 5.4%, led by sales of digital sensors and cone beam and panoramic imaging systems. Sales of CEREC® dental restorative systems declined 2.4%.
As market fundamentals have started to improve, we believe dentists have gradually become more confident about investing in their practices. In addition, we implemented additional marketing programs at the beginning of the fourth quarter of fiscal 2011. These two factors helped in reaching equipment sales growth of 11.2% in the fourth quarter. We believe we are rebuilding sales momentum and are forcasting stronger equipment sales growth for fiscal 2012 as compared to fiscal 2011, however, our equipment sales may experience quarterly fluctuations as they have historically, given the sales cycles related to these capital expenditures and the potential impact of prevailing economic conditions.
Other dental sales, consisting primarily of technical service parts and labor, software support services and artificial teeth, increased 2.0% in fiscal 2011.
Webster Veterinary sales grew 4.9% to $674.9 million. Sales of consumables were 4.0% higher in fiscal 2011 and equipment and software sales of $34.3 million represented an increase of 16.8% compared to fiscal 2010. The Veterinary equipment business has been growing at solid rates in recent quarters, and we intend to continue investing in this relatively new portion of Webster’s operation that has expanded the unit’s full-service platform. Due to a change in distribution by a major pharmaceutical company at the beginning of calendar 2010, Webster’s consumable sales growth was negatively impacted during the first two-thirds of the fiscal year. A higher percentage of doses sold during this period were under agency agreements as compared to the prior year where more doses were sold under buy-sell agreements. Under agency agreements, Webster reports a small commission for each dose sold, while under a buy-sell agreement, the full transaction value of the dose is recorded as revenue. This impact was estimated to be approximately three percentage points during the period.
Patterson Medical sales of $504.7 million were 18.4% higher than fiscal 2010. Acquisitions, primarily those from the health care business of DCC plc (“DCC”), contributed 15.3% of sales growth. Internally generated sales growth, which excludes the contribution of acquisitions and a 0.4% negative impact from foreign currency translation rates, was 3.5% in fiscal 2011.
Gross Margin. Consolidated gross margin was 33.5% in fiscal 2011 and 33.7% in fiscal 2010.
The Dental segment’s gross margin decreased 30 basis points to 36.5% in fiscal 2011. Lower vendor rebates and a higher level of promotional activities as compared to fiscal 2010 contributed to the decline.
Gross margin of the Veterinary unit was 19.3%, a decrease of 20 basis points from 19.5% in fiscal 2010. Price increases on a line of pharmaceutical products by a manufacturer and lower vendor rebates were primary factors of the decline in gross margin.
Patterson Medical’s gross margin of its historical operations expanded during fiscal 2011; however, these improvements were offset by lower gross margins of the operations acquired from DCC, which carried lower gross margins than Patterson Medical’s historical business. For the year, gross margin declined 10 basis points to 39.1%.
Operating Expenses. The consolidated operating expense ratio in fiscal 2011 was 22.5%, or 20 basis points lower than fiscal 2010.
The Dental unit’s operating expense ratio decreased 30 basis points, reflecting expense controls and leverage gained from higher sales on fixed costs.
The ratio of the Veterinary unit’s operating expenses as a percent of sales decreased 80 basis points, due to leverage on higher sales and cost savings from the further integration of the October, 2008 Columbus Serum acquisition. Those integration activities were completed in fiscal 2011.
Patterson Medical’s operating expense ratio temporarily increased 80 basis points in fiscal 2011 due to the direct costs of the transaction and the cost structure of the assets acquired from DCC. Integration activities throughout the year were largely complete at the end of fiscal 2011 and are expected to result in a lower cost of operations for the acquired businesses in fiscal 2012.
Operating Income. Operating income was $376.0 million in fiscal 2011, or 5.8% higher compared to $355.3 million in fiscal 2010. Operating margin was 11.0% in fiscal years 2011 and 2010, respectively.
Interest Expense. Interest expense was $25.8 million in fiscal 2011 compared to $25.7 million in fiscal 2010.
Other Income, net. Other income, net of other expenses, was $5.7 million in fiscal 2011 compared to $9.4 million in fiscal 2010. The decrease was due to losses related to the Veterinary unit’s equity interest in VetSource. Interest income totaled $8.2 million in fiscal 2011, compared to $8.6 million in fiscal 2010.
Income Taxes. The effective income tax rate was 36.7% in fiscal 2011 as compared to 37.4% in fiscal 2010. A portion of the dividends paid on shares held by our Employee Stock Ownership Plan are deductible on the Company’s income tax return. As there were more dividends paid in fiscal 2011 than in fiscal 2010, the deductible amount was larger, resulting in a lower effective income tax rate in fiscal 2011.
Net Income and Earnings Per Share. Net income increased 6.2% to $225.4 million in fiscal 2011 due primarily to the increase in operating income as discussed above. Earnings per diluted share and dilutive shares outstanding were $1.89 and 119.1 million, respectively, in fiscal 2011 and $1.78 and 119.2 million, respectively, in fiscal 2010.
Fiscal 2010 Compared to Fiscal 2009
Net Sales. Fiscal 2010 consolidated sales were $3,237.4 million, an increase of 4.6% compared to $3,094.2 million in fiscal 2009. Acquisitions contributed 4.1% to sales growth, resulting mostly from acquisitions by the veterinary and rehabilitation units. Fluctuations in foreign currency translation rates contributed 0.4% to sales growth. During both fiscal 2010 and 2009, sales at each of our business units were adversely affected by the recession and slow economic recovery.
Sales of our consolidated dental supply unit were $2,167.5 million, a decrease of 0.3% from $2,174.4 million in fiscal 2009. Fluctuations in foreign currency rates related to our dental operations in Canada and the contribution from acquisitions had a favorable impact on fiscal 2010 sales of 0.6% and 0.7%, respectively. Sales of dental consumable supplies decreased 0.2% to $1,214.8 million. Beginning late in the first half of fiscal 2009 and continuing throughout fiscal 2010, the sales of consumables were affected by reduced discretionary spending and high levels of unemployment resulting from the general economic conditions, particularly in the United States.
Dental equipment sales declined 3.0% in fiscal 2010 to $709.5 million. We believe the weak economy caused many dental practitioners to focus their investment dollars on equipment with rapid and high rates of return. Sales of basic equipment were 7.5% lower in fiscal 2010, while sales of CEREC® 3D dental restorative systems rose 15.7%. Within the basic equipment category, certain technology products with rapid rates of return such as digital imaging systems (sensors, panoramic and cone beam units) outperformed core equipment such as chairs, power units and cabinetry.
Other dental sales, consisting primarily of technical service parts and labor, software support services and artificial teeth, grew 7.7% in fiscal 2010.
Sales of Webster Veterinary grew 16.9% to $643.6 million. Acquisitions, primarily the Columbus Serum Company (“Columbus”) acquired in October 2008, contributed 11.5% of the sales growth. Internally generated sales rose 5.4%.
Patterson Medical sales of $426.3 million were 15.5% higher than fiscal 2009. Acquisitions, primarily those of Mobilis Healthcare Group (“Mobilis”) late in fiscal 2009 and Empi Therapy Solutions (“Empi”) in June 2009, contributed 13.4% of the sales growth. Internally generated sales growth, which excludes the contribution of acquisitions and a 0.3% negative impact related to foreign currency translation rates, was 2.4% in fiscal 2010.
Gross Margin. Consolidated gross margin was 33.7% in both fiscal 2010 and fiscal 2009.
The Dental segment’s gross margin improved 40 basis points to 36.8% in fiscal 2010, largely due to product mix. Core equipment such as chairs, units and lights, generally have a lower gross margin than newer, technology related equipment.
Gross margin of the Veterinary unit was unchanged at 19.5%.
Patterson Medical’s gross margin declined 30 basis points due primarily to the Mobilis and Empi acquisitions which carry lower gross margins than Patterson Medical’s historical business.
Operating Expenses. The consolidated operating expense ratio in fiscal 2010 was 22.7%, or 20 basis points higher than fiscal 2009. In the second half of fiscal 2009 and continuing throughout fiscal 2010, the Company took steps involving a range of cost control initiatives including a hiring freeze except in the area of sales representatives, a wage freeze and restrictions on travel and other more discretionary expenses. In the first quarter of fiscal 2010, the Company enacted company-wide salary reductions. While these measures have slowed expense growth, their impact was lessened by acquisition-related expenses, including amortization expense, and higher levels of incentive compensation based on achievement of operating targets for the current year.
The Dental unit’s operating expense ratio increased 40 basis points, reflecting increased fixed costs on lower sales volume and acquisition-related expense.
The ratio of the Veterinary unit’s operating expenses as a percent of sales improved 10 basis points, primarily due to leverage on higher sales.
Patterson Medical’s operating expense ratio increased 70 basis points in fiscal 2010 due primarily to the cost structure of recent acquisitions.
Operating Income. Operating income was $355.3 million in fiscal 2010, or 2.6% higher compared to $346.2 million in fiscal 2009. Operating margin was 11.0% and 11.2% in fiscal years 2010 and 2009, respectively, as increases in semi-variable and fixed costs outpaced revenue growth causing the de-leveraging of the expense structure.
Interest Expense. Interest expense was $25.7 million in fiscal 2010 compared to $30.1 million in fiscal 2009. The $4.4 million decrease in interest expense is due primarily to $130 million of scheduled debt payments made in November 2008.
Other Income, net. Other income, net of other expenses, was $9.4 million in fiscal 2010 compared to $3.6 million in fiscal 2009. Interest income increased $3.1 million due primarily to higher levels of finance contracts held during fiscal 2010. Besides higher interest income, other income was $0.9 million, a change of $2.7 million from the loss of $1.8 million in fiscal 2009, due primarily to fluctuations in foreign currency rates.
Income Taxes. The effective income tax rate was 37.4% in fiscal 2010 as compared to 37.5% in fiscal 2009.
Net Income and Earnings Per Share. Net income increased 6.3% to $212.3 million in fiscal 2010 due to increases in operating income and other income, net as discussed above. Earnings per diluted share and dilutive shares outstanding were $1.78 and 119.2 million, respectively, in fiscal 2010 and $1.69 and 118.4 million, respectively, in fiscal 2009.
Liquidity and Capital Resources
Patterson’s operating cash flow has been the Company’s principal source of liquidity in the last three fiscal years. During fiscal 2009 and in early fiscal 2010, the Company used its revolving credit facility periodically as a source of liquidity in addition to operating cash flow.
Operating activities generated cash of $262.6 million in fiscal 2011, compared to $265.5 million in fiscal 2010 and $124.0 million in fiscal 2009. In the second half of fiscal 2009, the Company invested in a financing program to support marketing efforts directed at the CEREC® product line. This promotion, which ended at the close of fiscal 2009, had generated approximately $98 million of finance contracts that the Company could not immediately sell to its funding sources due to certain requirements in those funding arrangements. In fiscal 2011 and 2010, the Company invested in similar financing programs, but to a lesser degree.
Capital expenditures were $36.9, $29.8 and $32.3 million in fiscal years 2011, 2010 and 2009, respectively. Significant expenditures in these years included the purchase and expansion of distribution facilities to accommodate multiple business units, the construction of a new facility for the Patterson Technology Center, the expansion of our general office building and continuing investments in information systems. In fiscal 2011, a project to build-out a purchased distribution center in Indiana has progressed and is operational for one business unit. In fiscal 2012, the remainder of the build-out will be completed and the building will serve as a distribution facility used by all three business units. This facility is replacing several smaller distribution facilities that have been or will be closed. In addition, the majority of the construction of a new building for the Patterson Technology facility in Illinois took place in fiscal 2011. This 100,000 square foot state-of-the-art facility will replace a nearby leased location and is expected to open in the second quarter of fiscal 2012. Capital expenditures in fiscal 2012 will include the interior furnishings for this facility.
The Company expects to invest approximately $30 million in capital expenditures during fiscal 2012, including investments in information systems and the completion of the Indiana distribution facility build-out and Patterson Technology facility projects discussed above.
Cash used for acquisitions and equity investments totaled $52.2 million in fiscal 2011, $53.7 million in fiscal 2010 and $124.8 million in fiscal 2009. The majority of the cash used for acquisitions in fiscal 2011 was related to the acquisition of the entities of DCC plc. The acquisition of the rehabilitation products business of Empi, Inc. and the investment in VetSource accounted for the majority of the cash used in fiscal 2010 and the acquisitions of Columbus, Dolphin, and Mobilis accounted for the majority of the cash used in fiscal 2009.
There were neither issuances of, nor principal payments on, debt during fiscal 2011. In fiscal 2010, the Company fully paid the $22 million that was outstanding under a revolving credit facility at the end of fiscal 2009. A maximum of $300 million is available under this facility which expires in fiscal 2013. Payments on long-term debt in fiscal 2009 were $130 million and related to a scheduled retirement of debt that had been issued in fiscal 2004.
In the fourth quarter of fiscal 2010, the Company declared and paid an initial quarterly cash dividend of $0.10 per share. In fiscal 2011, the Company continued to pay a quarterly cash dividend of $0.10 per share for the first three quarters, which was increased to $0.12 per share in the fourth quarter. Total dividends paid in fiscal 2011 and fiscal 2010 were $50.0 million and $11.9 million, respectively. In addition, during fiscal 2011 the Company repurchased approximately 3.3 million shares of its common stock for approximately $99 million. Under a share repurchase plan authorized by the board of directors, as of April 30, 2011, the Company may repurchase up to an additional 23.1 million shares of its common stock. This authorization remains in effect through March 15, 2016.
The Company expects to continue to pay a quarterly cash dividend and to return a portion of its excess cash to shareholders through additional repurchases of its common stock under the current authorization discussed above. While there are no assurances as to the level of repurchases in the future, the Company expects to use approximately $100 million to repurchase its common stock during fiscal 2012.
Management expects funds generated from operations and existing cash to be sufficient to meet the Company’s working capital needs for the next fiscal year. The Company expects to continue to obtain liquidity from the sale of its equipment finance contracts. In addition, as of April 30, 2011, $300 million is available under a revolving credit facility. The Company’s existing debt facilities are believed to be adequate as a supplement to internally generated cash flows to fund anticipated expansion plans and strategic initiatives, including acquisitions.
The Company sells a significant portion of its finance contracts to a commercial paper funded conduit managed by a third party bank, and as a result, commercial paper is indirectly an important source of liquidity for the Company. The Company is allowed to participate in the conduit due to the quality of its finance contracts and
its financial strength. Cash flow could be impaired if the Company’s financial strength diminished to a level that precluded the Company from taking part in this facility or other similar facilities. Also, market conditions outside of the Company’s control could adversely affect the ability of the Company to sell the contracts.
Customer Financing Arrangements
The Company is a party to two arrangements under which it has sold finance contracts it receives from its customers to outside financial institutions. These arrangements have provided sources of liquidity for the Company that would have to be replaced should each of the current financial institutions be unable or unwilling to continue in the arrangements. In the fourth quarter of fiscal 2010, one agreement with a group of banks led by U.S. Bank National Association with capacity of $110 million was amended such that no additional contracts will be sold under the arrangement. At the same time, the Company’s other agreement with JPMorgan Chase Bank, N.A was amended to increase capacity from $367 million to $550 million.
In December 2010, the agreement with JPMorgan Chase Bank, N.A. was amended and restated and The Bank of Tokyo-Mitsubishi UFJ, Ltd. became the managing agent under the amended agreement. As of April 30, 2011, the capacity under this agreement is $500 million. The Company’s financing business is described in further detail in Note 6 of the Notes to the Consolidated Financial Statements in Item 8 of this Form 10-K. Note 6, “Customer Financing”, discusses the nature and business purpose of the arrangements and the activity under each arrangement during fiscal 2011, including the amount of finance contracts sold and the holdback receivable owed to the Company.
Contractual Obligations
A summary of the Company’s contractual obligations as of April 30, 2011 follows (in thousands):
As discussed in Note 11 of the Notes to Consolidated Financial Statements, the Company adopted the provisions of ASC Topic 740, “Income Taxes” related to uncertainty in income taxes at the beginning of fiscal 2008. The Company is unable to determine its contractual obligations by year related to this pronouncement, as the ultimate amount or timing of settlement of its reserves for income taxes cannot be reasonably estimated. The total liability for unrecognized tax benefits including interest and penalties at April 30, 2011, is $21.9 million.
For a more complete description of our contractual obligations, see Notes 7 and 10 to the Consolidated Financial Statements in Item 8 of this Form 10-K.
Outlook
Over the last ten years, the Company has been able to grow revenue and earnings through its strategy of emphasizing its value-added, full-service capabilities, using technology to enhance customer service, continuing to improve operating efficiencies, and growing through internal expansion as well as from acquisitions. While we believe that the weakness in the general economy that has existed during much of fiscal 2011 and 2010 will continue to affect our performance for at least the near term, the Company’s strategy will continue to focus on these key elements. With strong operating cash flow and available credit capacity, the Company is confident that it will be able to financially support its future growth. The Company believes that the strategic initiatives that it has implemented in the past several years, as well as those that will be implemented in fiscal 2012 and beyond,
will strengthen the Company’s operational platform and contribute to future growth. Given these factors, the Company considers itself well positioned to capitalize upon the growth opportunities in the dental supply, companion-pet veterinary supply and the worldwide rehabilitation supply markets.
Asset Management
The following table summarizes the Company’s days sales outstanding (DSO) and inventory turnover the past three fiscal years:
(1) Receivables as of April 30, 2011 and April 24, 2010 include approximately $19 and $63 million, respectively, of finance contracts received from customers related to certain financing promotions in fiscal 2011 and 2010. The Company has sold contracts in fiscal 2011 and expects to sell the contracts held as of April 30, 2011 to outside institutions under an existing agreement during fiscal 2012. If these finance contracts are excluded from the calculation of DSO, the pro forma DSO would be 46 and 44 as of April 30, 2011 and April 24, 2010.
(2) The inventory values used in this calculation are the LIFO inventory values for all inventories except for manufactured inventories and foreign inventories, which are valued using FIFO inventory methods.
Foreign Operations
Foreign sales are derived primarily from Patterson Dental and Patterson Medical operations in Canada and from Patterson Medical’s operations in the U.K., France and Australia. Fluctuations in currency exchange rates have not significantly impacted earnings. However, changes in exchange rates enhanced net sales in fiscal 2011 and 2010, and adversely affected net sales in fiscal 2009. Without foreign currency effects, net sales would have been $12.4 million lower, $11.5 million lower, and $33.4 million higher in fiscal years 2011, 2010 and 2009, respectively. Changes in currency exchange rates are a risk accompanying foreign operations, but this risk is not considered material with respect to the consolidated operations of the Company.
Critical Accounting Policies and Estimates
The Company has adopted various accounting policies to prepare its consolidated financial statements in accordance with accounting principles generally accepted in the United States. Management believes that the Company’s policies are conservative and its philosophy is to adopt accounting policies that minimize the risk of adverse events having a material impact on recorded assets and liabilities. However, the preparation of financial statements requires the use of estimates and judgments regarding the realization of assets and the settlement of liabilities based on the information available to management at the time. Changes subsequent to the preparation of the financial statements in economic, technological and competitive conditions may materially impact the recorded values of the Company’s assets and liabilities. Therefore, the users of the financial statements should read all the notes to the Consolidated Financial Statements and be aware that conditions currently unknown to management may develop in the future. This may require a material adjustment to a recorded asset or liability to consistently apply the Company’s significant accounting principles and policies that are discussed in Note 1 to the Consolidated Financial Statements. The financial performance and condition of the Company may also be materially impacted by transactions and events that the Company has not previously experienced and for which the Company has not been required to establish an accounting policy or adopt a generally accepted accounting principle.
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 and final, 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.
Consumable product sales are recorded upon delivery, except in those circumstances where terms of the sale are FOB shipping point.
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.
Revenue for arrangements with multiple deliverables meeting the criteria for a separate unit of accounting use the relative fair value method and revenue is recognized for each deliverable in accordance with applicable revenue recognition criteria.
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.
Patterson Advantage® Loyalty Program-Patterson Dental 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 30, 2011, the Company does not have sufficient experience with the program to reasonably estimate the amount of Patterson Advantage® dollars that will not be redeemed and thus has recorded a liability for the maximum potential amount that could be redeemed. Actual redemptions could differ from our estimates, resulting in an adjustment to revenues.
Inventory and Reserves-Inventory consists primarily 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 and manufactured inventories, which are valued using the first-in, first-out (FIFO) method. The Company continually assesses the valuation of our inventories and reduces the carrying value of those inventories that are obsolete or in excess of our forecasted usage to estimated realizable value. Estimates are made of the net realizable value of such inventories based on analyses and assumptions including, but not limited to, historical usage, future demand and market requirements.
Goodwill and Other Indefinite-Lived Intangible Assets-Goodwill represents the excess of cost over the fair value of identifiable net assets of businesses acquired. Other indefinite-lived intangible assets include copyrights, trade names and trademarks.
Goodwill for each reporting unit is evaluated using a two-step impairment test at the reporting unit level. The Company has three reporting units at April 30, 2011, which are the same as our operating units. The first step of the goodwill impairment test compares the book value of a reporting unit, including goodwill, with its fair value, as determined 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. The Company conducts impairment testing based on our current business strategy in light of
present industry and economic conditions, as well as future expectations. Additionally, in assessing goodwill for impairment, we consider the reasonableness of the implied control premium based on market capitalizations and recent market transactions.
We assess other indefinite-lived intangible assets 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 2011, management completed its annual goodwill and other indefinite-lived intangible asset impairment tests and determined there was no impairment. Although the Company believes our estimates and assumptions used in estimating cash flows and determining fair value are reasonable, making material changes to such estimates and assumptions could materially affect such impairment analyses and our financial results, including an impairment charge that could be material.
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. The Company’s definite-lived intangible assets primarily consist of an exclusive distribution agreement and customer lists. When impairment exists, the related assets are written down to fair value.
Income Taxes-The Company is subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgments are required in determining the consolidated provision for income taxes.
During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. As a result, the Company recognizes tax liabilities based on estimates of whether additional taxes and interest will be due. These tax liabilities are recognized when, despite the Company’s belief that its tax return positions are supportable, the Company believes that certain positions may not be fully sustained upon review by tax authorities. The Company believes that its accruals for tax liabilities are adequate for all open audit years based on its assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact income tax expense in the period in which such determination is made and could materially affect our financial results.
To the extent that the provision for income taxes would have increased/decreased by 1 percent of income before taxes, consolidated net income would have decreased/increased $3.6 million in fiscal 2011.
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. The valuation allowance reflected in the footnote disclosure relates to net operating loss carryforwards of Mobilis Healthcare Group, acquired during fiscal 2009 and principally based in the United Kingdom.
Self-insurance-The Company is self-insured for certain losses related to general liability, product liability, automobile, workers’ compensation and medical claims. The Company estimates a liability based upon an analysis of historical data and actuarial estimates. While we believe our current estimates are reasonable based on information currently available, actual results could differ and affect our 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-The Company recognizes stock-based compensation based on certain assumptions including inputs within the Black-Scholes Model and estimated forfeitures. These assumptions require subjective judgment and changes in the assumptions can materially affect fair value estimates.
Management assesses the assumptions and methodologies used to estimate forfeitures and to calculate estimated fair value of stock-based compensation on a regular basis. Circumstances may change, and additional data may become available over time, which could result in changes to these assumptions and methodologies and thereby materially impact our fair value determination or estimates of forfeitures. If factors change and the Company employs different assumptions, the amount of compensation expense associated with stock-based compensation may differ significantly from what was recorded in the current period.
Recent Accounting Pronouncements
In June 2009, the FASB issued guidance codified into ASC Topic No. 860, “Transfers and Servicing” (ASC 860) which amends the derecognition guidance in former FASB Statement No. 140 and eliminates the exemption from consolidation for qualifying special-purpose entities. Also in June 2009, the FASB issued guidance codified into ASC Topic No. 810, “Consolidation” (ASC 810) which amends the consolidation guidance applicable to variable interest entities. The amendments significantly affected the overall consolidation analysis under former FASB Interpretation No. 46(R). Both ASC 860 and ASC 810 were effective for fiscal years beginning after November 15, 2009. See Note 6 to the financial statements for information regarding the Company’s accounting under this guidance.
In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13, “Multiple-Deliverable Revenue Arrangements” (ASU 2009-13). This update amends ASC Topic 605-25, “Revenue Recognition-Multiple-Deliverable Revenue Arrangements” to remove the criterion that entities must use objective and reliable evidence of fair value in separately accounting for deliverables and provides entities with a hierarchy of evidence that must be considered when allocating arrangement consideration. The update also requires entities to allocate arrangement consideration to the separate units of accounting based on the deliverables’ relative selling price. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, unless the election is made to adopt ASU 2009-13 retrospectively. ASU 2009-13 is not expected to have a material impact on the Company’s financial condition, results of operations and cash flows.
In October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements that Include Software Elements” (ASU 2009-14). This update modifies the scope of the software revenue recognition guidance to exclude (a) non-software components of tangible products and (b) software components of tangible products that are sold, licensed, or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the product’s functionality. ASU 2009-14 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, unless the election is made to adopt ASU 2009-14 retrospectively. ASU 2009-14 is not expected to have a material impact on the Company’s financial condition, results of operations and cash flows.
Factors That May Affect Future Operating Results
Certain information of a non-historical nature contained in Items 1, 2, 3 and 7 of this Form 10-K include forward-looking statements. Words such as “believes,” “expects,” “plans,” “estimates,” “intends” and variations of such words are intended to identify such forward-looking statements. The statements are not guarantees of future performance and are subject to certain risks, uncertainties or assumptions that are difficult to predict; therefore, the Company cautions shareholders and prospective investors that the following important factors, among others, could cause the Company’s actual operating results to differ materially from those expressed in any forward-looking statements. The factors listed 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.
•
Economic conditions and volatility in the financial markets could adversely affect our operating results and financial condition.
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The Company’s ability to meet increased competition from national, regional and local full-service distributors and mail-order distributors of dental, veterinary and rehabilitation products, while maintaining current or improved profit margins.
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The ability of the Company to effectuate modifications to the business models of its three operating units to address changes in the individual markets of those business units.
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The ability of the Company to consolidate the distribution, information services, human resources, financial and other administrative functions of its three business units jointly shared services which meet the needs of the individual business units.
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The ability of the Company to manage rapidly changing energy and commodity prices.
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The ability of the Company to retain its base of customers and to increase its market share.
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The ability of the Company to maintain satisfactory relationships with qualified and motivated sales personnel.
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The ability of the Company to provide for an orderly management succession, including the ability to recruit skilled personnel for the business, and then identify and train our personnel for their transition into key roles to support the long-term growth of the business.
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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.
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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.
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Reduced growth in expenditures for dental services by private dental insurance plans.
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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 and specialty dental services such as periodontic, endodontic and orthodontic procedures.
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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.
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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.
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The effects of healthcare related legislation and regulation, which may affect expenditures or reimbursements for rehabilitation and assistive products.
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Acquisitions of businesses could negatively impact our profitability and return on invested capital.
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Our international operations are subject to risks that could adversely affect our operating results.
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We sell products that could be subject to market and technological obsolescence.
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Audits by tax authorities could result in additional tax payments for prior periods.
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We are subject to a variety of litigation that could adversely affect our results of operations and financial condition.
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We may be required to record a significant charge to earnings if our goodwill or other intangible assets become impaired.
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We are exposed to the risk of changes in interest rates.
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Certain U.S. and foreign laws could subject us to claims or otherwise harm our business.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
The Company is exposed to market risk consisting of foreign currency rate fluctuations and changes in interest rates.
The Company is exposed to foreign currency exchange rate fluctuations in its operating statement due to transactions denominated primarily in Canadian Dollars, British Pounds, Euros, Australian Dollars and New Zealand Dollars. Although the Company is not currently involved with foreign currency hedge contracts, it continually evaluates its foreign currency exchange rate risk and the different mechanisms for use in managing such risk. A hypothetical 10% change in the value of the U.S. dollar in relation to the Company’s most significant foreign currency exposures would have reduced fiscal 2011 net sales by approximately $41 million. This amount is not indicative of the hypothetical net earnings impact due to the partially offsetting impact of the currency exchange movements on cost of sales and operating expenses.
The Company’s earnings are also affected by fluctuations in short-term interest rates through the investment of its cash balances, borrowings under LIBOR-based debt instruments and the practice of selling fixed rate equipment finance contracts under agreements with both a commercial paper conduit and a group of banks that provide for pricing based on variable interest rates.
As of April 30, 2011, the Company had a $75 million variable-rate term note outstanding. The Company views its variable interest rate debt position on a net basis that gives effect to the Company’s cash and short term investment balances.
When considering the exposure under the agreements whereby the Company sells equipment finance contracts to both a commercial paper conduit and a group of banks, the Company has the ability to select pricing based on interest rates ranging from 30 day LIBOR up to twelve month LIBOR. In addition, the majority of the portfolio of installment contracts generally turns over in less than 48 months and the Company can adjust the rate it charges on new customer contracts at any time. Therefore, in times where the interest rate markets are not rapidly increasing or decreasing, the average interest rate in the portfolio generally moves with the interest rate markets and thus would parallel the underlying interest rate movement of the pricing built into the sale agreements. In calculating the gain on the contract sales, the Company uses an interest rate curve that approximates the maturity period of the then-outstanding contracts. If increases in the interest rate markets occur, the average interest rate in our contract portfolio may not increase at the same rate, resulting in a reduction of gain on the contracts sales as compared to the gain that would be realized if the average interest rate in our portfolio were to increase at a more similar rate to the interest rate markets.
The Company estimates that if interest rates had been 10% higher during the year, the annual impact would have been to reduce earnings before income tax by less than $1 million.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Patterson Companies, Inc.
We have audited Patterson Companies, Inc.’s internal control over financial reporting as of April 30, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Patterson Companies, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management’s Annual Report on Internal Control Over Financial Reporting appearing in Item 9A, Controls and Procedures, of this Annual Report on Form 10-K. Our responsibility is to express an opinion on Patterson Companies, Inc.’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Patterson Companies, Inc. maintained, in all material respects, effective internal control over financial reporting as of April 30, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Patterson Companies, Inc. as of April 30, 2011, and April 24, 2010, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three fiscal years in the period ended April 30, 2011, and our report dated June 29, 2011, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
June 29, 2011
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Patterson Companies, Inc.
We have audited the accompanying consolidated balance sheets of Patterson Companies, Inc. and subsidiaries as of April 30, 2011, and April 24, 2010, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three fiscal years in the period ended April 30, 2011. Our audits also included the financial statement schedule listed in Item 15(a)(2). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Patterson Companies, Inc. and subsidiaries at April 30, 2011, and April 24, 2010, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended April 30, 2011, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Patterson Companies, Inc.’s internal control over financial reporting as of April 30, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated June 29, 2011, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
June 29, 2011
PATTERSON COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
See accompanying notes
PATTERSON COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
See accompanying notes
PATTERSON COMPANIES, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands)
See accompanying notes
PATTERSON COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
See accompanying notes
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2011
(Dollars in thousands, except share and per share amounts)
1. Summary of Significant Accounting Policies
Description of Business
Patterson Companies, Inc., “Patterson” or “the Company”, is a value-added distributor serving the dental, companion-pet veterinarian and rehabilitation supply markets. The Company has three reportable segments: dental supply, veterinary supply and rehabilitation supply.
Basis of Presentation
The consolidated financial statements include the accounts of the Company’s wholly owned subsidiaries. Significant inter-company 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
The Company utilizes a fifty-two, fifty-three week fiscal year ending on the last Saturday in April. Accordingly, fiscal year 2011 included fifty-three weeks and fiscal years 2010 and 2009 included fifty-two 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.
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 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 and manufactured inventories, which are valued using the first-in, first-out (FIFO) method. Inventories valued at LIFO represent 82% and 86% of total inventories at April 30, 2011 and April 24, 2010, respectively.
The accumulated LIFO reserve was $61,385 at April 30, 2011 and $56,961 at April 24, 2010. The Company believes that inventory replacement cost exceeds the inventory balance by an amount approximating the LIFO reserve.
Property and Equipment
Property and equipment are stated at cost. The Company provides depreciation on the straight-line method over estimated useful lives of up to 40 years for buildings or the expected remaining life of purchased buildings, 3 to 20 years for leasehold improvements or the term of the lease, if less, 5 years for data processing equipment, and 5 to 10 years for office furniture and equipment.
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill represents the excess of cost over the fair value of identifiable net assets of businesses acquired. Other indefinite-lived intangible assets include copyrights, trade names and trademarks.
Goodwill for each reporting unit is evaluated using a two-step impairment test at the reporting unit level. The Company has three reporting units at April 30, 2011, which are the same as our operating units. The first step of the goodwill impairment test compares the book value of a reporting unit, including goodwill, with its fair value, as determined 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. The Company conducts impairment testing based on our current business strategy in light of present industry and economic conditions, as well as future expectations. Additionally, in assessing goodwill for impairment, we consider the reasonableness of the implied control premium based on market capitalizations and recent market transactions.
We assess other indefinite-lived intangible assets 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 2011, management completed its annual goodwill and other indefinite-lived intangible asset impairment tests and determined there was no impairment. Although the Company believes our estimates and assumptions used in estimating cash flows and determining fair value are reasonable, making material changes to such estimates and assumptions could materially affect such impairment analyses and our financial results, including an impairment charge that could be material.
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. The Company’s definite-lived intangible assets primarily consist of an exclusive distribution agreement and customer lists. When impairment exists, the related assets are written down to fair value.
Financial Instruments
The Company accounts for derivative financial instruments under the provisions of ASC Topic 815, “Derivatives and Hedging.” The Company’s use of derivative financial instruments is generally limited to managing well-defined interest rate risks. The Company does 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 and final, 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.
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Consumable product sales are recorded upon delivery, except in those circumstances where terms of the sale are FOB shipping point.
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.
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 by the Company are reported net of the related allowances discussed above. The Company also 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 the Company determines the amounts to be uncollectible, typically upon customer bankruptcy or non-response to continuous collection efforts. See also Note 6, “Customer Financing”. The portion of receivable amounts that are not expected to be collected during the next twelve months are classified as long-term.
The Company has a relatively large disperse customer base and no single customer accounts for more than 1% 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.
Patterson Advantage® Loyalty Program
Patterson Dental 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 is recognized as contra-revenue in accordance with ASC Topic 605-50, “Revenue Recognition-Customer Payments and Incentives.” As of April 30, 2011, the Company does not have sufficient experience with the program to reasonably estimate the amount of Patterson Advantage® dollars that will not be redeemed and thus has recorded a liability for the maximum potential amount that could be redeemed. Actual redemptions could differ from our estimates, resulting in an adjustment to revenues.
Freight and Delivery Charges
Freight and delivery charges incurred by the Company are included in cost of sales.
Advertising
The Company expenses 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 $20,630, $21,368 and $22,105 for fiscal years 2011, 2010 and 2009, respectively. Deferred direct-marketing expenses included in prepaid and other current assets on the consolidated balance sheet as of April 30, 2011, and April 24, 2010 were $3,045 and $2,858, respectively.
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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 the Company’s defined contribution ESOP is computed based on the shares allocated method.
Stock-based Compensation
The Company recognizes stock-based compensation expense based on the grant-date fair value of awards estimated in accordance with ASC Topic 718, “Stock Compensation”.
Comprehensive Income
Comprehensive income is computed as net income plus certain other items that are recorded directly to stockholders’ equity. The only significant item included in comprehensive income in addition to net income is foreign currency translation adjustments. 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.
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.
Options to purchase 559, 932 and 1,143 shares of common stock during fiscal years 2011, 2010 and 2009, respectively, were excluded from the calculation of diluted earnings per share because the effect would have been anti-dilutive. Unvested restricted stock awards outstanding which were excluded from the calculation of diluted earnings per share during fiscal years 2011, 2010 and 2009 were 173, 60, and 270, respectively, because the effect would have been anti-dilutive.
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Recent Accounting Pronouncements
In June 2009, the FASB issued guidance codified into ASC Topic No. 860, “Transfers and Servicing” (ASC 860) which amends the derecognition guidance in former FASB Statement No. 140 and eliminates the exemption from consolidation for qualifying special-purpose entities. Also in June 2009, the FASB issued guidance codified into ASC Topic No. 810, “Consolidation” (ASC 810) which amends the consolidation guidance applicable to variable interest entities. The amendments significantly affected the overall consolidation analysis under former FASB Interpretation No. 46(R). Both ASC 860 and ASC 810 were effective for fiscal years beginning after November 15, 2009. See Note 6 to the financial statements for information regarding the Company’s accounting under this guidance.
In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13, “Multiple-Deliverable Revenue Arrangements” (ASU 2009-13). This update amends ASC Topic 605-25, “Revenue Recognition-Multiple-Deliverable Revenue Arrangements” to remove the criterion that entities must use objective and reliable evidence of fair value in separately accounting for deliverables and provides entities with a hierarchy of evidence that must be considered when allocating arrangement consideration. The update also requires entities to allocate arrangement consideration to the separate units of accounting based on the deliverables’ relative selling price. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, unless the election is made to adopt ASU 2009-13 retrospectively. ASU 2009-13 is not expected to have a material impact on the Company’s financial condition, results of operations and cash flows.
In October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements that Include Software Elements” (ASU 2009-14). This update modifies the scope of the software revenue recognition guidance to exclude (a) non-software components of tangible products and (b) software components of tangible products that are sold, licensed, or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the product’s functionality. ASU 2009-14 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, unless the election is made to adopt ASU 2009-14 retrospectively. ASU 2009-14 is not expected to have a material impact on the Company’s financial condition, results of operations and cash flows.
2. Cash Equivalents
At April 30, 2011 and April 24, 2010, cash and cash equivalents consisted of the following:
Cash on hand is generally in interest earning accounts.
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3. Goodwill and Other Intangible Assets
The changes in the carrying value of goodwill for each of the Company’s reportable segments for the fiscal year ended April 30, 2011 are as follows:
The increase in the acquisition activity column during the nine month period ended April 30, 2011 primarily reflects the purchase price allocations of the rehabilitation businesses of DCC Healthcare, which were acquired in June 2010. The other activity column is comprised primarily of earn-out payments made related to acquisitions completed prior to fiscal year 2010 and foreign currency translation.
Other intangibles acquired in the acquisitions from DCC Healthcare had a fair value of approximately $17.3 million and a weighted average useful life of 9.9 years.
Balances of other intangible assets excluding goodwill are as follows:
In 2006, the Company extended its exclusive North American distribution agreement with Sirona Dental Systems GmbH (“Sirona”) for Sirona’s CEREC® 3D dental restorative system. The Company paid a $100 million distribution fee to extend the agreement for a 10-year period that began in October 2007. The distribution fee is included in identifiable intangibles, net in the consolidated balance sheet. The amortization of the distribution agreement fee is recorded over the 10-year period based on estimates of the pattern in which the economic benefits of the fee are expected to be realized, consisting primarily of revenues generated from the sale of CEREC® 3D dental restorative systems. Amortization expense in any year may differ significantly from other years.
With respect to the amortized intangible assets, future amortization expense is expected to approximate $18,500, $19,600, $21,100, $22,400 and $24,400 for fiscal years 2012, 2013, 2014, 2015 and 2016, respectively. The preceding expected amortization expense is an estimate. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, actual revenues generated from the sale of CEREC® 3D dental restorative systems, changes in foreign currency exchange rates, impairment of intangible assets, accelerated amortization of intangible assets and other events.
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
4. Acquisitions and Equity Investments
We completed several acquisitions during fiscal years 2011, 2010 and 2009. The operating results of each of these acquisitions are included in the Company’s consolidated statements of income from the date of each acquisition. Pro forma results of operations and details of the purchase price allocations have not been presented for these acquisitions since the effects of these business acquisitions were not material to the Company either individually or in the aggregate. A listing of acquisitions completed during the periods covered by these financial statements is presented below:
Entity
Segment
Fiscal 2011:
DCC Healthcare
Rehabilitation supply
ePet Records LLC
Veterinary supply
Fiscal 2010:
Therapeutic Technologies
Rehabilitation supply
Global Medical & Dental
Dental supply
Empi Therapy Solutions
Rehabilitation supply
Summit Sports Medical
Rehabilitation supply
Fiscal 2009:
Mobilis Healthcare Group
Rehabilitation supply
Dolphin Imaging Systems, LLC and Dolphin Practice Management, LLC
Dental supply
Columbus Serum Company
Veterinary supply
Odyssey Veterinary Software LLC
Veterinary supply
Denesca
Dental supply
In April 2010, the Company made a minority equity investment of 33.3% in VetSource, a leading North American provider of integrated specialty pharmacy distribution, including home delivery capabilities. The investment in VetSource is being accounted for under the equity method of accounting and is included in other long-term assets in the consolidated balance sheet.
5. Property and Equipment
Construction in progress includes a new Patterson Technology Center facility in Illinois and improvements to an existing distribution facility in Indiana.
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. Customer Financing
As a convenience to its customers, the Company offers several different financing alternatives including both a Company sponsored program and a third party program. For the third party program, the Company acts as a facilitator between the customer and the third party financing entity with no on-going involvement in the financing transaction. Under the Company sponsored program, equipment purchases by customers with strong credit are financed to a maximum of $0.4 million for any one customer. The Company generally sells the customers’ financing contracts to outside financial institutions in the normal course of its business. The Company currently has two arrangements under which it has sold these contracts.
In fiscal 2003, the Company initiated an agreement to sell its equipment finance contracts to a commercial paper conduit managed by JPMorgan Chase Bank N.A. To participate in the commercial paper conduit, the Company was required to establish a special purpose entity (“SPE”), PDC Funding Company, LLC, a consolidated, wholly owned subsidiary. In December 2010, this agreement was amended and restated and The Bank of Tokyo-Mitsubishi UFJ, Ltd. became the managing agent under the amended agreement.
The Company transfers financing contracts to the SPE and in turn, the SPE sells the contracts to the commercial paper conduits. The SPE does not issue any debt. While there is no recourse to the Company by the commercial paper conduits on the sale of contracts, the Company receives only approximately 84% of the principal amount of the contracts upon the sale. The remaining 16% of the proceeds is held by the conduit as security against the eventual performance of the portfolio. The deferred purchase price receivable from the conduit is recorded as a non-current asset, which is carried at its estimated fair market value. As of April 30, 2011, the maximum outstanding capacity of this arrangement with the conduits at any one time is $500 million.
The Company also maintains an agreement with U.S. Bank National Association, as agent, whereby the U.S. Bank group purchased customers’ financing contracts. The Company has established another SPE, PDC Funding LLC II (“PDC II”), as a consolidated, wholly owned subsidiary, which sold financing contracts to the U.S. Bank group. The Company received a portion of the principal amounts of the contracts upon sale with the remaining portion of the proceeds held by the banks as security against the eventual performance of the portfolio. The holdback receivable from the banks is recorded as a non-current asset, which is carried at its estimated fair market value. The capacity under the agreement was $110 million. In the fourth quarter of fiscal 2010, this agreement was amended such that no additional contracts will be sold, but the remaining contracts previously sold and outstanding under the agreement will continue under the agreement. Approximately $44 million of such contracts were outstanding as of April 30, 2011.
These financing arrangements are accounted for as a sale of assets under the provisions of ASC Topic No. 860, “Transfers and Servicing.” During fiscal 2011, 2010 and 2009, the Company sold approximately $296.4, $300.8 and $189.5 million, respectively, of its contracts under these arrangements. The Company retains servicing responsibilities under both agreements, for which it is paid a servicing fee. The servicing fees received by the Company are considered adequate compensation for services rendered. Accordingly, no servicing asset or liability has been recorded. The agreements require the Company to maintain a minimum current ratio and maximum leverage ratio. The Company was in compliance with the covenants at April 30, 2011.
Included in current receivables in the consolidated balance sheets are approximately $78.5 million, net of unearned income of $3.6 million, and $116.7 million, net of unearned income of $4.2 million, as of April 30, 2011 and April 24, 2010, respectively, of finance contracts not yet sold by the Company. A total of $457.1 million of finance contracts receivable sold under the agreements were outstanding at April 30, 2011. The residual receivable under the arrangements was approximately $78.0 and $65.2 million as of April 30, 2011 and April 24, 2010, respectively. Since the internal financing program began in 1994, bad debt write-offs have amounted to less than one-percent of the loans originated.
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
7. Long-Term Debt
In March 2008, the Company issued fixed-rate senior notes with an aggregate principal amount of $450 million, consisting of (i) $50 million 4.63% senior notes, due fiscal 2013; (ii) $250 million 5.17% senior notes, due fiscal 2015; and (iii) $150 million 5.75% senior notes, due fiscal 2018.
Also in March 2008, the Company entered into a term loan agreement with a principal amount of $75 million, which matures in fiscal 2013. The term loan bears interest at a floating rate based on LIBOR plus a spread which can range from 0.50% to 1.25% based on our leverage ratio, as defined in the agreement. During the years ended April 30, 2011 and April 24, 2010, the weighted average interest rate of this term loan was 1.11% and 1.30%, respectively.
The proceeds from the issuance of debt in March 2008 were used to repurchase shares of the Company’s common stock and to repay borrowings under the Company’s revolving line of credit. The remaining proceeds were used for general corporate purposes. Debt issuance costs associated with the issuance of debt in March 2008 of $1.8 million are being amortized to interest expense over the life of the related debt.
In addition, in March 2008 the Company entered into two forward starting interest rate swap agreements, each with notional amounts of $100 million and accounted for as cash flow hedges, to hedge interest rate fluctuations in anticipation of the issuance of the 5.17% senior notes due fiscal 2015 and the 5.75% senior notes due fiscal 2018, respectively. Upon issuance of the hedged debt, the Company settled the forward starting interest rate swap agreements and recorded a $1.0 million increase, net of income taxes, to other comprehensive income, which is being amortized against interest expense over the life of the related debt. The pre-tax amount reclassified into earnings during fiscal years 2011, 2010 and 2009 was $0.2 million. The amount expected to be reclassified into earnings during fiscal 2012 is also expected to be $0.2 million.
The Company has available a $300 million revolving credit facility through November 2012. Interest on borrowings is based on LIBOR plus a spread which can range from 0.40% to 1.00%. This spread as well as a commitment fee on the unused portion of the facility are based on our leverage ratio, as defined in the agreement. There were no outstanding borrowings under the facility at April 30, 2011 or April 24, 2010.
Long-term debt consisted of the following:
Maturities of long-term debt by fiscal year are as follows:
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The debt agreements contain various financial covenants including certain leverage and interest coverage ratios as defined in the agreements. The Company met the financial covenants under the debt agreements as of April 30, 2011.
8. Derivative Financial Instruments
The Company is a party to certain offsetting and identical interest rate cap agreements. The cap agreements are not designated for hedge accounting treatment and were entered into to fulfill certain covenants of a sale agreement between a commercial paper conduit managed by The Bank of Tokyo-Mitsubishi UFJ, Ltd. and PDC Funding. Prior to the Third Amended and Restated Receivables Purchase Agreement entered into on December 3, 2010, the commercial paper conduit was managed by JPMorgan Chase Bank, N.A.
The cap agreements are cancelled and new agreements 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 30, 2011, PDC Funding had purchased two interest rate caps from banks with combined notional amounts of $500 million and maturity dates of September 2018. Patterson Companies, Inc. sold two identical interest rate caps to the same banks. Similar to the above agreements, PDC Funding II and Patterson Companies, Inc. entered into offsetting and identical interest rate swap agreements. These agreements have a notional amount of $110 million and a maturity date of July 2015.
In addition to the identical purchased and sold interest rate contracts described above, the Company has entered into two interest rate swap agreements with banks to economically hedge the interest rate risk associated with our finance contracts. As of April 30, 2011, the agreements have notional amounts of approximately $7 million and $4 million, respectively, and maturity dates of November 2011 and February 2012, respectively.
In fiscal 2011, the Company entered into a foreign currency forward contract that was settled within the same quarter it was entered into. This contract served as an economic hedge and was not designated as a hedge for accounting purposes. The gain on the contract was $0.1 million.
Also in fiscal 2011, the Company entered into a foreign currency forward contract that was settled during the year. The forward contract served as an economic hedge and was not designated as a hedge for accounting purposes. The resulting loss on this contract was $2.0 million.
None of the Company’s outstanding interest rate contracts qualify for hedge accounting treatment and, accordingly, the Company records the fair value of the agreements as an asset or liability and the change in any period as income or expense of the period in which the change occurs.
The following presents the fair value of interest rate contracts included in the consolidated balance sheets (in millions):
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following presents the effect of interest rate and foreign currency contracts on the consolidated statements of income (in millions):
See also Note 7 for information on two forward starting interest rate swaps which were entered into and settled during the fourth quarter of fiscal 2008.
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.
The Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of April 30, 2011 is as follows:
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of April 24, 2010 is as follows:
Cash equivalents-The Company values cash equivalents at current market rates. The carrying value of cash equivalents, including government securities and money market funds, approximates fair value. Maturities of cash equivalents are less than three months.
Derivative instruments-The Company’s derivative instruments consist of interest rate contracts. These instruments are valued using inputs such as interest rates and credit spreads.
Certain assets are measured at fair value on a nonrecurring 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. There were no fair value adjustments to such assets in fiscal years 2011, 2010 and 2009.
The Company’s long-term debt is not measured at fair value in the consolidated balance sheets. The estimated fair value of our debt as of April 30, 2011 and April 24, 2010 was $527.0 million and $513.5 million, respectively. The fair value of debt was measured using a discounted cash flow analysis based on expected market based yields.
The carrying amounts of receivables, net of allowances, accounts payable, and certain accrued and other current liabilities approximated fair value at April 30, 2011 and April 24, 2010.
10. Lease Commitments
The Company 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 non-cancelable operating leases are as follows at April 30, 2011:
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Rent expense was $20,459, $19,238 and $18,200 for the years ended April 30, 2011, April 24, 2010 and April 25, 2009, respectively.
11. Income Taxes
Significant components of the provision for income taxes are as follows:
Deferred tax assets and liabilities are included in prepaid expenses and other current assets and in non-current liabilities on the balance sheet. Significant components of the Company’s deferred tax assets (liabilities) as of April 30, 2011 and April 24, 2010 are as follows:
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
At April 30, 2011, the Company had foreign net operating loss carryforwards (“NOLs”) of $33.7 million attributable to the fiscal 2009 acquisition of Mobilis Healthcare Group. A valuation allowance of $6.3 million has been recorded since the Company believes it is more likely than not that the deferred tax asset of $9.4 million arising from the NOLS will not be fully utilized due to uncertainties relating to future taxable income from the acquired operations.
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 of undistributed earnings that would be subject to federal income tax if remitted under existing law is approximately $199.4 million as of April 30, 2011. Determination of the unrecognized deferred tax liability related to these earnings is not practicable because of the complexities with its hypothetical calculation. Upon distribution of these earnings, we will be subject to U.S. taxes and withholding taxes payable to various foreign governments. A credit for foreign taxes already paid would be available to reduce the U.S. tax liability.
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:
The “Other” line in the table above includes tax deductions of $2.6 million in fiscal 2011 and $0.5 million in fiscal 2010, related to dividends paid on shares held by the ESOP.
As of April 30, 2011 and April 24, 2010, the Company’s gross unrecognized tax benefits were $19.0 million and $18.7 million, respectively. If determined to be unnecessary, these amounts (net of deferred tax assets of $4.9 million and $5.0 million, 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 30, 2011 and April 24, 2010 are shown below:
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The Company also recognizes both interest and penalties with respect to unrecognized tax benefits as a component of income tax expense. As of April 30, 2011 and April 24, 2010, the Company had recorded $2.9 million and $2.8 million, 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 the Company’s effective tax rate. During the years ended April 30, 2011 and April 24, 2010, the Company recorded as part of tax expense $0.8 million and $0.4 million, respectively, related to an increase in its estimated liability for interest and penalties.
The Company files income tax returns, including returns for our subsidiaries, with federal, state, local and foreign jurisdictions. The Company is not currently under audit by the Internal Revenue Service (“IRS”). The IRS has either examined or waived examination of all periods up to and including our fiscal year ended April 28, 2007. Periodically, state, local and foreign income tax returns are examined by various taxing authorities. We do not believe the outcome of these various examinations would have a material adverse impact on our financial statements.
12. Segment and Geographic Data
Patterson Companies, Inc. is comprised of three reportable segments: dental, veterinary, and rehabilitation supply. The Company’s reportable business 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 dental healthcare providers throughout North America. The veterinary supply segment provides consumable supplies, equipment, diagnostic products, biologicals (vaccines) and pharmaceuticals to companion-pet veterinary clinics in the majority of regions throughout the United States. The rehabilitation supply segment provides a comprehensive range of distributed and self-manufactured rehabilitation medical supplies and assistive products to acute care hospitals, long-term care facilities, rehabilitation clinics, dealers and schools.
The Company evaluates segment performance based on operating income. The corporate office general and administrative expenses are included in the dental supply segment and consist of home office support costs in areas such as informational technology, finance, human resources and facilities. If these corporate expenses were allocated to the segments, the results would not be materially different as the dental segment would absorb a significant portion of these expenses. The cost to operate the distribution centers are allocated to the operating units based on the through-put of the unit.
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table presents information about the Company’s reportable segments:
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table presents sales information by product for the Company and its reportable segments:
The following table presents information about the Company by geographic area. No individual country, except for the United States, generated sales greater than 10% of consolidated net sales. There were no material sales between geographic areas.
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
13. Stockholders’ Equity
Dividends
In the fourth quarter of fiscal 2010, the Company initiated a quarterly cash dividend of $0.10 per share. A quarterly cash dividend of $0.10 per share was paid throughout fiscal 2011, except in the fourth quarter when the dividend was increased to $0.12 per share. Prior to March 2010, the Company had not declared or paid any cash dividends on its common stock since its initial public offering in 1992. The Company expects to continue paying a quarterly cash dividend into the foreseeable future.
Share Repurchases
During fiscal 2011, the Company repurchased and retired 3,257,374 shares of its common stock for $98,960, or an average of $30.38 per share. There were no share repurchases in fiscal years 2010 or 2009.
In December 2007, the Company’s Board of Directors expanded a share repurchase program to allow for the purchase of up to twenty-five million shares of common stock in open market transactions. As of March 2011, approximately 20.5 million shares had been repurchased under this authorization. In March 2011, the Board of Directors cancelled and replaced the existing share repurchase program with a new authorization to repurchase up to twenty-five million shares of common stock. As of April 30, 2011, 23,090,999 shares remain available under the repurchase authorization, which expires on March 15, 2016.
Employee Stock Ownership Plan (ESOP)
During 1990, the Company’s Board of Directors adopted a leveraged ESOP. In fiscal 1991, under the provisions of the plan and related financing arrangements, the Company 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 contribution from the ESOP to employees is determined annually by the Board of Directors. Shares of stock acquired by the plan are allocated to each participant who has completed 1,000 hours of service during the plan year. The shares under the 1990 note are grandfathered from the accounting provisions of ASC Topic 718-40, “Employer Stock Ownership Plans” (“ASC 718-40”) and therefore the provisions of the former SOP 76-3 apply. Accordingly, the expense recognized when these shares are released and allocated to participants is based on the original cost to acquire the shares. During fiscal 2011, 2010 and 2009, shares secured by the 1990 note with an aggregate cost of $1,635, $1,615 and $1,500, respectively, were committed for release and allocated to ESOP participants.
In fiscal 2002, the Company’s ESOP and an ESOP sponsored by the Thompson Dental Company (“Thompson”) were used to facilitate the acquisition and merger of Thompson into the Company. The net result of this transaction was an additional loan of $12,612 being made to the ESOP and the ESOP acquiring 665,978 shares of common stock of the Company. These shares are accounted for under ASC 718-40 and accordingly these shares are not considered outstanding for the computation of earnings per share until the shares are committed for release to the participants. When the shares are committed for release and allocated to the participants, the expense to the Company is determined based on current fair market value. The loan bears interest at current rates but principal does not begin to amortize until fiscal 2012. Beginning in fiscal 2012 and through fiscal 2020, an annual payment of $250 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. A total of 665,978 shares were issued in the transaction of which 97,810 were previously allocated to Thompson employees. The remaining 568,168 shares began to be allocated in fiscal 2004 but only to the extent of interest on the loan. During fiscal 2011, 2010 and 2009, shares secured by the Thompson note with an aggregate fair value of $81, $111 and $300, respectively, were committed for release and allocated to ESOP participants.
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
On September 11, 2006, the Company entered into a third loan agreement with the ESOP and loaned $105 million (the “2006 note”) for the sole purpose of enabling the ESOP to purchase shares of the Company’s common stock. The ESOP purchased 3,159,645 shares with the proceeds from the 2006 note. These shares are also accounted for under ASC 718-40. 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. No principal payments are due until September 10, 2026; however, prepayments can be made without penalty. During fiscal 2011, shares secured by the 2006 note with an aggregate fair value of $397 were committed for release and allocated to ESOP participants. No shares secured by the 2006 note were released prior to fiscal 2011.
At April 30, 2011, a total of 13,519,176 shares of common stock that have been allocated to participants remained in the ESOP and had a fair market value of $469,251. With respect to the 1990 note, committed-to-be-released shares were 1,719,911 and there were no remaining suspense shares. Related to the shares from the Thompson transaction, committed-to-be-released shares were 2,708 and suspense shares were 483,238. Finally, with respect to the 2006 note, committed-to-be-released shares were 13,221 and suspense shares were 3,146,424.
The Company anticipates the allocation of the remaining suspense, or unearned, shares to occur over a period of approximately 10 to 15 years. As of April 30, 2011, the fair value of all unearned shares held by the ESOP was approximately $126.0 million. The Company 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 down to the ESOP participants. Dividends on unallocated shares are being used by the ESOP to make debt service payments on the notes due to the Company.
14. Stock-based Compensation
The consolidated statements of income for fiscal years 2011, 2010 and 2009 include pre-tax stock-based compensation expense of $10.5 million ($7.2 million after-tax), $8.8 million ($6.2 million after-tax) and $7.7 million ($5.6 after-tax), respectively, recorded in accordance with the provisions of ASC Topic 718 “Stock Compensation”. All pre-tax expense is included in operating expenses within the consolidated statements of income. The consolidated statement of cash flows present the pre-tax stock-based compensation expense as an adjustment to reconcile net income to net cash provided by operating activities. In addition, benefits associated with tax deductions in excess of recognized compensation expense are presented as a cash inflow from financing activities. For fiscal years 2011, 2010 and 2009, these excess benefits totaled $1.3, $0.4 and $0.3 million, respectively.
As of April 30, 2011, the total compensation cost, before income taxes, related to non-vested awards yet to be recognized was $21.1 million, and it is expected to be recognized over a weighted average period of approximately 4.0 years.
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Description of General Methods and Assumptions Used to Estimate Fair Value
Described below are certain methods and assumptions used to estimate the fair value of stock-based compensation awards. Further information is presented below within this Note that may be unique to a particular award or group of awards.
Expected dividend yield - the Company had not historically paid dividends. Accordingly, the expected dividend yield used had been 0%. For awards issued since the Company’s initial quarterly dividend in the fourth quarter of fiscal 2010, the Company has included an expected dividend yield based on estimates as of the grant date of awards.
Expected stock price volatility - the Company considers historical volatility trends, implied future volatility based on certain traded options of the Company, and other factors.
Risk-free interest rate - the Company bases the risk-free interest rate on the U.S. Treasury yield curve in effect at the grant date with similar terms to the expected term of the award.
Expected term of stock options and restricted stock - The Company estimates the expected term, or life, of awards based on several factors, including grantee types, vesting schedules, contractual terms and various factors surrounding exercise behavior of different groups.
Director and Employee Stock Option Plans
In June 1992, the Company adopted a Director Stock Option Plan. Options were granted at the fair market value of the underlying stock on the date of grant, vest over one year, and are exercisable for a period of four years commencing one year after the date of grant. This plan terminated during fiscal 2002.
In September 2001, the Company adopted a new Director Stock Option Plan. A total of 800,000 shares of common stock have been reserved for issuance under this plan. Options are granted at fair market value of the underlying stock on the option grant date, vest over one year, and are exercisable for a period of nine years commencing one year after the grant date.
In June 1992, the Company adopted the Patterson Dental Company 1992 Stock Option Plan, a plan for employees. Due to the expiration of this plan in fiscal 2003, no options remain available for future issuance under this plan. In September 2002, the Company adopted a new employee equity award plan. A total of 6,000,000 shares of common stock were reserved for issuance under the plan. In September 2004, the Company’s shareholders voted to approve the Amended and Restated 2002 Stock Option Plan, a restatement of the 2002 plan. Upon approval, the plan was renamed the “Patterson Companies, Inc. Equity Incentive Plan” (“Equity Incentive Plan”).
The Equity Incentive Plan amendments did not change the number of shares reserved for awards under the plan. The Equity Incentive Plan authorizes various award types to be issued under the plan, including stock options, restricted stock and restricted stock units, stock bonuses, cash bonuses, stock appreciation rights, performance awards and dividend equivalents. Awards may have a term no longer than ten years and vesting terms are determined by the compensation committee of the Board of Directors. The minimum restriction period for restricted stock and restricted stock units is three years, or one year in the case of performance-based awards. Additionally, a plan amendment in September 2009 increased the maximum number of shares that may be issued pursuant to awards of restricted stock, restricted stock awards and stock bonuses from 2,000,000 shares to 6,000,000 shares. Prior to fiscal 2006, only stock option awards had been granted under the Equity Incentive Plan. During fiscal years 2011, 2010 and 2009, expense recognized related to stock options was $1.7 million, $2.0 million and $2.0 million, respectively.
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The fair value of stock options granted was estimated as of the grant date using a Black-Scholes option-pricing model with the following weighted average assumptions during fiscal years 2011, 2010 and 2009:
Following is a summary of stock option activity for all plans during fiscal years 2011, 2010 and 2009:
(a) Weighted-average exercise price
The weighted average fair values of options granted during fiscal years 2011, 2010 and 2009 were $14.07, $8.95, and $13.50, respectively. The weighted average remaining contractual lives of options outstanding and options exercisable as of April 30, 2011 were 3.6 and 2.9 years, respectively. The Company settles stock option exercises with newly issued common shares.
Related to stock options exercised, the intrinsic value, cash received and tax benefits realized were $4.4, $6.1 and $1.2 million, respectively, in fiscal 2011; $3.4, $3.5 and $1.3 million, respectively, in fiscal 2010; and $2.5, $1.6 and $0.8 million, respectively, in fiscal 2009.
Restricted Stock and Performance Unit Awards
In fiscal 2006, the Company began to issue restricted stock and performance unit awards under the Equity Incentive Plan. The grant date fair value is based on the closing stock price on the day of the grant. Restricted stock awards to employees generally vest over a seven or nine-year period and are subject to forfeiture provisions. Certain restricted stock awards, which are held by line management, are subject to accelerated vesting
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
provisions beginning three years after the grant date, based on certain operating goals. Restricted stock awards are also granted to non-employees directors on the date of each annual board meeting. These awards vest over three years. The performance unit awards, issued primarily to executive management, are earned at the end of a three-year period if certain operating goals are met, and are settled in an equivalent number of common shares or in cash as determined by the compensation committee of the Board of Directors. The satisfaction of operating goals is not finally determined until the end of a three-year period. Accordingly, the Company recognizes expense related to performance unit awards over the requisite service period using the straight-line method based on the outcome that is probable. During fiscal years 2011, 2010 and 2009, expense recognized related to restricted stock and performance unit awards was $5.5 million, $3.7 million, and $2.5 million, respectively. The total intrinsic value of restricted stock awards that vested in fiscal 2011, 2010 and 2009 was $3.5 million, $0.8 million and $0.5 million, respectively. No performance units have been granted since fiscal 2009 and none of the performance units that have been awarded were ultimately earned. As of April 30, 2011, no performance units were outstanding.
The following tables summarize information concerning non-vested restricted stock awards and performance unit awards for fiscal years 2011, 2010 and 2009:
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Employee Stock Purchase Plan
In June 1992, the Company adopted an Employee Stock Purchase Plan (the “Stock Purchase Plan”). A total of 4,750,000 shares of common stock are reserved for issuance under the Stock Purchase Plan. The Stock Purchase Plan, which is intended to qualify under Section 423 of the Internal Revenue Code, is administered by the Board of Directors of the Company or by a committee appointed by the Board of Directors and follows a calendar plan year. Employees are eligible to participate after nine months of employment with the Company if they are employed for at least 20 hours per week and more than five months per year. The Stock Purchase Plan permits eligible employees to purchase common stock through payroll deductions, which may not exceed 10 percent of an employee’s compensation, at 85 percent of the lower of the fair market value of the common stock on the offering date or at the end of each three-month period following the offering date during the applicable offering period. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically on termination of employment with the Company. At April 30, 2011, there were 568,439 shares available for purchase under the Stock Purchase Plan.
The Stock Purchase Plan includes a look-back option and accordingly there are several option elements for which the fair value is estimated on the grant date using the Black-Scholes option-pricing model. Total expense recognized related to the employee stock purchase plan was $1.8, $1.6 and $1.6 million during fiscal years 2011, 2010 and 2009, respectively. The following table summarizes the weighted-average assumptions relating to the Stock Purchase Plan for fiscal years 2011, 2010 and 2009:
Capital Accumulation Plan
In 1996, the Company adopted an employee Capital Accumulation Plan (the “CAP Plan”). A total of 6,000,000 shares of common stock are reserved for issuance under the CAP Plan. Key employees of the Company or its subsidiaries are eligible to participate by purchasing common stock through payroll deductions, which must be between 5% and 25% of an employee’ compensation, 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 the Company until the restrictions lapse. The restriction period is three years from the beginning of the plan year, but restricted shares are subject to forfeiture provisions. At April 30, 2011, 2,424,521 shares were available for purchase under the CAP Plan.
Based on the provisions of the CAP Plan, there are option elements for which the fair value is estimated on the grant date using the Black-Scholes option-pricing model. Total expense recognized related to the CAP Plan was $1.4, $1.6 and $1.6 million during fiscal years 2011, 2010 and 2009, respectively. The following table summarizes the weighted-average assumptions relating to the CAP Plan for fiscal years 2011, 2010 and 2009:
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
15. Litigation
The Company is involved in various product related, employment related and other legal proceedings arising in the ordinary course of business. Some of these proceedings involve product liability claims arising out of the use of products the Company distributes. Product liability indemnification is generally obtained from our suppliers. However, in the event a supplier of a defective product is unable to pay a judgment for which the Company may be jointly liable, the Company would have liability for the entire judgment.
The Company maintains product liability insurance coverage for any potential liability for claims arising out of products sold by the Company. While the Company believes its insurance coverage is adequate, there can be no assurance that our insurance coverage is sufficient or will be available to us in adequate amounts or at reasonable costs in the future. Also, there can be no assurance that the indemnification agreements with our suppliers will provide us with adequate protection. In addition, future claims brought against the Company could involve claims not covered by insurance or indemnification agreements, and could have a material adverse effect on the Company’s business or financial condition.
As of April 30, 2011 and April 24, 2010, the Company had accrued our best estimate of potential losses relating to product liability and other claims that were probable to result in a liability and for which it was possible to reasonably estimate a loss. These accrued amounts, as well as related expenses, have not been material to our financial position, results of operations or cash flows. Our method for determining estimated losses considers currently available facts, presently enacted laws and regulations and other external factors, including probable recoveries from third parties.
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 July 31, 2010, which included 14 weeks. The following table summarizes results for fiscal 2011 and 2010.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

ITEM 9A - CONTROLS AND PROCEDURES
Item 9A. CONTROLS AND PROCEDURES
Management’s Annual Report on Internal Control Over Financial Reporting
The management of Patterson Companies, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control system is designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those internal control systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we assessed the effectiveness of our internal control over financial reporting as of April 30, 2011, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its assessment, management has concluded that our internal control over financial reporting was effective as of April 30, 2011. During its assessment, management did not identify any material weaknesses in our internal control over financial reporting. Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, has issued an unqualified report on our internal control over financial reporting.
/s/ SCOTT P. ANDERSON
President and Chief Executive Officer
/s/ R. STEPHEN ARMSTRONG
Executive Vice President, Chief Financial
Officer and Treasurer
The report of the Company’s independent registered public accounting firm on internal control over financial reporting is included in Item 8. of this Annual Report on Form 10-K.
Evaluation of Disclosure Controls and Procedures
As of April 30, 2011, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities and Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed by the Company in reports filed with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the fourth quarter of fiscal year 2011, there were no significant changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

ITEM 9B - OTHER INFORMATION
Item 9B. OTHER INFORMATION
None.
PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding the directors of the Company is incorporated herein by reference to the descriptions set forth under the caption “Proposal No. 1 Election of Directors” in the Company’s Proxy Statement for its Annual Meeting of Shareholders to be held on September 12, 2011 (the “2011 Proxy Statement”). Information regarding executive officers of the Company is incorporated herein by reference to Item 1 of Part I of this Form 10-K under the caption “Executive Officers of the Registrant.” Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by reference to the information set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2011 Proxy Statement. The information called for by Item 10, as to the audit committee and the audit committee financial expert, is set forth under the captions “Proposal No. 1 Election of Directors” and “Our Board of Directors and Committees” in the 2011 Proxy Statement and such information is incorporated by reference herein.
Code of Ethics
The Company has adopted Principles of Business Conduct and Code of Ethics for its Chief Executive Officer, Chief Financial Officer, Directors and all employees. The Company has made its Code of Ethics available on its website (www.pattersoncompanies.com) under the section “Investor Relations-Governance.” The Company intends to satisfy the disclosure requirement of Form 8-K regarding an amendment to, or waiver from, a provision of its Code of Ethics by posting such information on its website at the address and location specified above.

ITEM 11 - EXECUTIVE COMPENSATION
Item 11. EXECUTIVE COMPENSATION
Information regarding executive compensation and director compensation is incorporated herein by reference to the information set forth under the captions “Non-Employee Director Compensation” and “Executive Compensation” in the 2011 Proxy Statement.

ITEM 12 - SECURITY OWNERSHIP
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table provides information as of April 30, 2011 about the common stock that may be issued under all of our existing equity compensation plans. All of these plans have been approved by our shareholders, except the Canadian Plan.
Effective June 2000, we adopted the Canadian Plan. The Canadian Plan permits eligible employees who are designated and awarded an option to purchase such option through salary deductions. The option purchase price is equal to 37.5% of the market price on the date of grant. Options may be exercised three years after the grant
date and terminate five years after the grant of the option. Options may be exercised to purchase shares at a price equal to the remaining 62.5% of the market price on the date of grant. A total of 2,000,000 shares of common stock have been reserved for issuance under the Canadian Plan.
The other information required by this item is incorporated herein by reference to the information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the 2011 Proxy Statement.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information called for by Item 13 is incorporated herein by reference to the information set forth under the captions “Certain Relationships and Related Transactions” and “Our Board of Directors and Committees” in the 2011 Proxy Statement.

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information relating to principal accounting fees and services and pre-approval policies and procedures is set forth under the captions “Proposal No. 4 Ratification of Selection of Independent Registered Public Accounting Firm-Principal Accountant Fees and Services” in the 2011 Proxy Statement and such information is incorporated by reference herein.
PART IV

ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements.
The following Consolidated Financial Statements and supplementary data of the Company and its subsidiaries are included in Part II, Item 8:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of April 30, 2011 and April 24, 2010
Consolidated Statements of Income for the Years Ended April 30, 2011, April 24, 2010 and April 25, 2009
Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended April 30, 2011, April 24, 2010 and April 25, 2009
Consolidated Statements of Cash Flows for the Years Ended April 30, 2011, April 24, 2010 and April 25, 2009
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
The following financial statement schedule is filed herewith: Schedule II-Valuation and Qualifying Accounts for the Years Ended April 30, 2011, April 24, 2010 and April 25, 2009.
Schedules other than that listed above have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto.
3. Exhibits.
Exhibit
2.1
Article of Merger and Plan of Merger dated June 23, 2004 10
3.1
The Company’s Restated Articles of Incorporation
3.2
The Company’s Bylaws, as amended 1
4.1
Specimen form of the Company’s Common Stock Certificate 10
4.2
Pursuant to Item 601 (b)(4)(iii)(A) of Regulation S-K, the registrant has omitted to file certain unregistered convertible debentures. The total amount of securities authorized thereunder does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant hereby agrees to furnish a copy of such convertible debentures to the Commission upon request. 8
4.3
Credit Agreement dated as of November 25, 2003 among Patterson Dental Company, as the Company, the Subsidiary Borrowers from time to time parties hereto, the Lenders from time to time parties hereto, Bank One, NA (main office Chicago), as Administrative Agent, Bank of America, N.A., as Syndication Agent and Suntrust Bank, the Northern Trust Company, and U.S. Bank National Association, as Documentation Agents 9
4.4
Note Purchase Agreement dated as of November 15, 2003 among Patterson Dental Company, AbilityOne Products Corp., AbilityOne Corporation, Patterson Dental Supply, Inc., Webster Veterinary Supply, Inc. and Webster Management, LP
Exhibit
10.1
Patterson Dental Company Employee Stock Ownership Plan, as amended 1
10.2
Patterson Dental Company 1992 Stock Option Plan
10.3
Patterson Dental Company 1992 Director Stock Option Plan 1
10.4
Patterson Dental Company Employee Stock Purchase Plan
10.5
Patterson Dental Company Capital Accumulation Plan
10.6
Patterson Companies, Inc. Fiscal 2012 Incentive Plan
10.7
ESOP Loan Agreement dated June 15, 1990 as amended July 13, 1992 1
10.8
Amended and Restated Term Promissory Note dated July 13, 1992 1
10.9
Second Amended and Restated Contract Purchase Agreement dated April 28, 2000 between Patterson Dental Company and U.S. Bank National Association 3
10.10
Amended and Restated Credit Agreement dated April 28, 2000 between Patterson Dental Company and U.S. Bank National Association 3
10.11
Asset Purchase Agreement by and among Patterson Dental Company and J. A. Webster, Inc. 4
10.12
Third Amended and Restated Contract Purchase Agreement dated June 19, 2002 between Patterson Dental Company and U. S. Bank National Association 5
10.13
Third Amended and Restated Receivables Purchase Agreement dated December 3, 2010 between PDC Funding Company, LLC, Patterson Companies, Inc., The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch (the “Bank”) and a commercial paper conduit managed by the Bank. 12
10.14
Receivables Sale Agreement dated May 10, 2002 among PDC Funding Company, LLC, Patterson Dental Supply, Inc., and Webster Veterinary Supply, Inc. 5
10.15
2001 Non-Employee Director Stock Option Plan
10.16
Amendments to Restated Employee Stock Purchase Plan
10.17
Amended and Restated Employee Stock Ownership Plan
10.18
Stock Option Plan for Canadian Employees
10.19
Patterson Companies, Inc. Equity Incentive Plan
10.20
ESOP Loan Agreement dated April 1, 2002 7
10.21
Promissory Note dated April 1, 2002 between GreatBanc Trust Company, an Illinois corporation, not in its individual or corporate capacity, but solely as trustee of the Thompson Dental Company Employee Stock Ownership Plan and Trust and Thompson Dental Company 7
10.22
Bridge Credit Facility dated as of September 12, 2003 among Patterson Dental Company as the borrower and Banc One Mezzanine Corporation, as Administrative Agent and Bank of America, N.A., as Syndication Agent. 8
10.23
ESOP Loan Agreement dated September 11, 2006
10.24
ESOP Note dated September 11, 2006 13
10.25
Receivables Sale Agreement dated April 27, 2007 among PDC Funding Company II, LLC, Patterson Dental Supply, Inc., and Webster Veterinary Supply, Inc. 14
10.26
Contract Purchase Agreement dated April 27, 2007 among PDC Funding Company II, LLC, Patterson Companies, Inc., U.S. Bank National Association and The Northern Trust Company 14
Exhibit
10.27
Amended and Restated Credit Agreement, dated as of November 28, 2007, among Patterson Companies, Inc., as the Company, the Subsidiary Borrowers from time to time parties hereto, the Lenders from time to time parties hereto, JPMorgan Chase Bank, National Association (Successor by merger to Bank One, NA (Main Office Chicago)), as Administrative Agent, Bank of America, N.A., as Syndication Agent, and SunTrust Bank, the Northern Trust Company, and U.S. Bank National Association, as Documentation Agents. 15
10.28
Note Purchase Agreement dated March 19, 2008 among Patterson Companies, Inc., Patterson Medical Holdings, Inc., Patterson Medical Supply, Inc., Patterson Dental Holdings, Inc., Patterson Dental Supply, Inc., Webster Veterinary Supply, Inc. and Webster Management, LP 16
10.29
Term Loan Credit Agreement dated March 20, 2008 among Patterson Companies, Inc., as the Borrower, the Lenders from time to time parties hereto and JPMorgan Chase Bank, National Association (Successor by merger to Bank One, NA (Main Office Chicago)), as Administrative Agent 16
10.30
Accelerated Share Repurchase Agreement, dated March 19, 2008, by and between Patterson Companies, Inc. and JPMorgan Chase Bank, National Association 16
Subsidiaries
Consent of Independent Registered Public Accounting Firm
31.1
Certification of the Chief Executive Officer pursuant to Rules 13a-4(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of the Chief Financial Officer pursuant to Rule 13a-4(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Filed Electronically) The following financial information from our Annual Report on Form 10-K for fiscal 2011, filed with the SEC on June 29, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) the consolidated balance sheets at April 30, 2011 and April 24, 2010, (ii) the consolidated statements of income for the year ended April 30, 2011, April 24, 2010 and April 25, 2009, (iii) the consolidated statements of cash flows for the years ended April 30, 2011, April 24, 2010 and April 25, 2009, (iv) the consolidated statements of changes in stockholders’ equity for the years ended April 30, 2011, April 24, 2010 and April 25, 2009 and (v) the notes to the consolidated financial statements. (a)
(a) The XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (No. 33-51304) filed with the Securities and Exchange Commission August 26, 1992.
Incorporated by reference to the Registrant’s Form 10-K for the fiscal year ended April 27, 1996.
Incorporated by reference to the Registrant’s Form 10-K for the fiscal year ended April 29, 2000.
Incorporated by reference to the Registrant’s Form 10-K for the fiscal year ended April 28, 2001.
Incorporated by reference to the Registrant’s Form 10-K for the fiscal year ended April 27, 2002.
Incorporated by reference to the Registrant’s Form 10-Q for the quarterly period ended January 25, 2003.
Incorporated by reference to the Registrant’s Form 10-K for the fiscal year ended April 26, 2003.
Incorporated by reference to the Registrant’s Form 10-Q for the quarterly period ended October 25, 2003.
Incorporated by reference to the Registrant’s Form 10-Q for the quarterly period ended January 24, 2004.
Incorporated by reference to the Registrant’s Form 10-Q for the quarterly period ended July 31, 2004.
Incorporated by reference to the Registrant’s Form 8-K/A dated September 14, 2004, filed on September 29, 2004.
Incorporated by reference to the Registrant’s Form 8-K dated December 3, 2010, filed on December 8, 2010.
Incorporated by reference to the Registrant’s Form 8-K dated September 11, 2006, filed on September 12, 2006.
Incorporated by reference to the Registrant’s Form 8-K dated April 27, 2007, filed on May 3, 2007.
Incorporated by reference to the Registrant’s Form 8-K dated November 28, 2007, filed on December 3, 2007.
Incorporated by reference to the Registrant’s Form 8-K dated March 19, 2008, filed on March 24, 2008.
(b) See Schedule II.
(c) See Index to Exhibits.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PATTERSON COMPANIES, INC.
Dated: June 29, 2011
By
/s/ SCOTT P. ANDERSON
Scott P. Anderson,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date
/s/ SCOTT P. ANDERSON
Scott P. Anderson
President and Chief Executive Officer
(Principal Executive Officer)
June 29, 2011
/s/ R. STEPHEN ARMSTRONG
R. Stephen Armstrong
Executive Vice President, Treasurer, and Chief Financial Officer
(Principal Financial and Accounting Officer)
June 29, 2011
/s/ PETER L. FRECHETTE
Peter L. Frechette
Director
(Chairman of the Board of Directors)
June 29, 2011
/s/ JOHN D. BUCK
John D. Buck
Director
June 29, 2011
/s/ RONALD E. EZERSKI
Ronald E. Ezerski
Director
June 29, 2011
/s/ ANDRE B. LACY
Andre B. Lacy
Director
June 29, 2011
/s/ CHARLES REICH
Charles Reich
Director
June 29, 2011
/s/ ELLEN A. RUDNICK
Ellen A. Rudnick
Director
June 29, 2011
/s/ HAROLD C. SLAVKIN
Harold C. Slavkin
Director
June 29, 2011
/s/ BRIAN S. TYLER
Brian S. Tyler
Director
June 29, 2011
/s/ LES C. VINNEY
Les C. Vinney
Director
June 29, 2011
/s/ JAMES W. WILTZ
James W. Wiltz
Director
June 29, 2011
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
PATTERSON COMPANIES, INC.
(Dollars in thousands)
INDEX TO EXHIBITS
Exhibit 10.6
Patterson Companies, Inc. Fiscal 2012 Incentive Compensation Plan
Exhibit 21
Subsidiaries
Exhibit 23
Consent of Independent Registered Public Accounting Firm
Exhibit 31.1
Certification of the Chief Executive Officer pursuant to Rules 13a-4(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
Certification of the Chief Financial Officer pursuant to Rules 13a-4(a) and 15d-14(a), under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101
(Filed Electronically) The following financial information from our Annual Report on Form 10-K for fiscal 2011, filed with the SEC on June 29, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) the consolidated balance sheets at April 30, 2011 and April 24, 2010, (ii) the consolidated statements of income for the year ended April 30, 2011, April 24, 2010 and April 25, 2009, (iii) the consolidated statements of cash flows for the years ended April 30, 2011, April 24, 2010 and April 25, 2009, (iv) the consolidated statements of changes in stockholders’ equity for the years ended April 30, 2011, April 24, 2010 and April 25, 2009 and (v) the notes to the consolidated financial statements. (a)
(a) The XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

Market Capitalization: 3905311.684715271
1-Year Return: 0.001230040448717773
252-Day Return: $252_day_return