2022 Annual Report
WE STRENGTHEN
THE PEOPLE
WHO KEEP US
AND OUR ANIMALS
HEALTHY
LETTER TO SHAREHOLDERS
Fiscal 2022 was another year of strong
financial performance and business
success for Patterson Companies.
While navigating the continuing impact
of the COVID-19 pandemic and ongoing
supply chain challenges, we achieved
both top and bottom-line growth,
drove operating margin expansion,
and continued to return cash to our
shareholders. This success was the
result of our team’s disciplined focus,
the attractive end markets we serve,
and the comprehensive value we
provide to our customers.
• Our consistent execution across the entire company,
aided by ongoing investments to drive productivity and
better serve our customers, delivered total company
internal sales1 growth for the year of 9 percent.
• Through expense discipline and improved product mix,
we achieved adjusted operating margin expansion in
each of our two business segments, which resulted in
full year consolidated adjusted operating margin of
4.4 percent, an improvement of 20 basis points over the
prior year.
• Patterson delivered fiscal 2022 GAAP earnings of $2.06
per diluted share and adjusted earnings2 of $2.27 per
diluted share, exceeding fiscal 2021 adjusted EPS by
19 percent.
Dental
In fiscal 2022, Patterson Dental achieved internal sales
growth of nearly 6 percent, a testament to our clear
focus to support our customers and deliver value to
dental practices across all sizes and practice models.
• Our consumables growth of 6 percent in fiscal 2022
reflects the ongoing investments Patterson has made
to strengthen our field sales and support teams and to
expand our product portfolio.
• We also drove momentum in equipment sales as we
grew nearly 8 percent in fiscal 2022 over the prior year.
While supply chain constraints presented challenges,
our team continued to live up to their reputation as
an indispensable partner for dentists investing in their
practices.
19% Adjusted EPS growth in
fiscal 20222
We believe the long-term prospects of the dental market
remain attractive. In addition to the demographics of
an aging population seeking greater dental care, the
ongoing modernization of dental practices is expected
to drive investments by dentists in new technology and
practice management software. Also, we believe the direct
link between a patient's oral health and overall health will
continue to drive patient engagement with their dentist.
Looking ahead, we remain confident in the depth and
experience of our team, our competitive position, and the
• As part of our balanced capital allocation strategy, we
passion we have to serve our customers.
returned approximately $136 million to shareholders
through cash dividends and share repurchases.
Animal Health
9% Internal sales growth
in fiscal 20221
Patterson’s Animal Health business delivered internal
sales growth of 12 percent in fiscal 2022 over the prior
year. This strong financial performance reflects the
breadth of our presence across the entire animal health
market, which drives loyalty with our customers as well
as our manufacturer partners.
1 The term “internal sales” represents net sales adjusted for the effects of currency translation, changes in product selling relationships,
contributions from recent acquisitions and the extra week of selling results in the first quarter of fiscal 2022.
2See page 4 of this document for Reconciliation of GAAP to non-GAAP Measures.
3Total Shareholder Return for Fiscal 2020 – 2022 calculated using fiscal year end dates of April 27, 2019, to April 30, 2022.
2
• Our Companion Animal business achieved internal
sales growth of 15 percent in fiscal 2022 as our
team capitalized on the strong fundamentals driving
increased pet spending.
• We drove internal sales growth in our Production
Animal business of nearly 9 percent in fiscal 2022
as our strategic approach has strengthened our
61% Three-year
total shareholder return
from fiscal 2020 – 20223
promoting diversity to further strengthen our inclusive
culture and providing advancement opportunities for
competitive position across all channels and species.
all employees.
We believe the long-term trends of the companion animal
market also remain attractive, with increased pet ownership
and spending expected to drive continued growth. In the
production animal market, the global demand for protein
remains healthy, and we expect producers will continue to
prioritize the health of their animals and work closely with
Patterson as their trusted partner to ensure herd health and
improve operational efficiency.
Living our values
I am incredibly proud of the talented Patterson team
for the way we served our customers and shareholders
during fiscal 2022. Our strong culture is centered on
living our values of being Passionate, Focused, People-
The year ahead
As we look to fiscal 2023, we expect the challenging
macroeconomic environment will have an impact on our
customers and our business. However, we are confident
in our durable business model, our resilient end markets,
and our strong track record of successfully navigating
external challenges while continuing to drive value for
our customers, our shareholders and all key stakeholders.
Thank you for your support and interest in Patterson
Companies.
First and committed to Always Advancing. This enables
Mark Walchirk
our team members to deliver results in the right way
President and Chief Executive Officer
July 15, 2022
and to serve all stakeholders that are vital to our
continued success. We support our communities through
the Patterson Foundation, which donates to various
charitable organizations throughout the U.S. and Canada,
and we offer our Volunteer Time Off program to support
our employees who volunteer in their communities.
We strive to be an exceptional employer dedicated to
our Environmental, Social and Governance efforts. For
example, we recently joined the Science Based Target
Initiative, and we are implementing green initiatives and
environmentally friendly practices to reduce waste and
the use of precious resources. We are also committed to
17% Three-year compounded
adjusted EPS growth
from fiscal 2020 – 20222
3
FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
Net sales
Gross profit
Operating income (loss)
Net income (loss) attributable to Patterson Companies, Inc.
Diluted earnings (loss) per share attributable to Patterson Companies, Inc.
Cash and cash equivalents
Working capital
Total assets
Total long-term debt
Stockholders’ equity
Fiscal year ended
$5,912,066 $5,490,011
April 30, 2022 April 24, 2021 April 25, 2020
$6,499,405
1,289,087
157,002
203,210
1,203,130
155,981
210,607
1,197,410
(588,446)
(572,119)
$ 2.06 $ 1.61
$ 142,014
$ 143,244
663,353
2,741,630
488,554
1,042,635
2,751,511
526,263
964,671
487,545
$
(6.25)
$ 77,944
467,867
2,715,350
587,766
836,444
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
The following reconciliation of GAAP to non-GAAP measures table is provided to adjust reported GAAP measures, namely net income
(loss) attributable to Patterson Companies, Inc., and diluted earnings (loss) per share, for the impact of deal amortization, integration and
business restructuring expenses, legal reserves, inventory donation charges, accelerated debt-related costs, gains on investments and
goodwill impairment, along with the related tax effects of these items.
Management believes that these non-GAAP measures may provide a helpful representation of the Company’s performance, and enable
comparison of financial results between periods where certain items may vary independent of business performance. These non-GAAP
financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for
corresponding, similarly captioned, GAAP measures.
Fiscal year ended
(Dollars in thousands, except per share amounts)
April 30, 2022 April 24, 2021 April 25, 2020
Net income (loss) attributable to Patterson Companies, Inc. – GAAP
Deal amortization
Integration and business restructuring expenses
Legal reserves
Inventory donation charges
Accelerated debt-related costs
Gains on investments
Goodwill impairment
Net income attributable to Patterson Companies, Inc. – non-GAAP
$203,210
28,822
3,184
27,540
36,886
–
(75,913)
–
$223,729
Legal reserves
Deal amortization
Inventory donation charges
Integration and business restructuring expenses
Diluted earnings (loss) per share attributable to Patterson Companies, Inc. – GAAP
$ 2.06
0.29
0.03
0.28
0.37
–
(0.77)
–
Diluted earnings per share attributable to Patterson Companies, Inc. – non-GAAP* $ 2.27
Accelerated debt-related costs
Gains on investments
Goodwill impairment
$155,981
$(588,446)
28,210
28,208
817
–
–
–
–
–
11,591
74,141
–
7,457
(25,983)
640,627
$185,008
$ 147,595
$ 1.61
$
(6.25)
0.29
0.01
0.30
0.12
–
–
–
–
–
0.78
–
0.08
(0.27)
6.74
$ 1.91
$ 1.55
Operating income (loss) as a % of sales – GAAP
Operating income as a % of sales – non-GAAP
2.4%
4.4%
3.6%
(10.4%)
4.2%
4.3%
*May not sum due to rounding and difference in weighted average shares used to calculate diluted earnings (loss) per share.
Forward-looking statements made in this report are subject to the cautionary statements in the Company’s Form 10-K, filed with the Securities and
Exchange Commission on June 29, 2022, under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”
4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended April 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File No. 0-20572
PATTERSON COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of
incorporation or organization)
41-0886515
(I.R.S. Employer
Identification No.)
1031 Mendota Heights Road
St. Paul, Minnesota 55120
(Address of principal executive offices including Zip Code)
Registrant’s telephone number, including area code: (651) 686-1600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of exchange on which registered
Common Stock, par value $.01
PDCO
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Smaller reporting company
x Accelerated filer
☐ Emerging growth company
☐
☐
Non-accelerated filer
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The aggregate market value of voting common equity held by non-affiliates, computed by reference to the price at which the common equity was
last sold as of the last business day of the registrant's most recently completed second fiscal quarter (October 30, 2021) was approximately
$3,016,000,000 (For purposes of this calculation all of the registrant’s executive officers and directors are deemed affiliates.)
As of June 21, 2022, there were 96,740,000 shares of Common Stock of the registrant issued and outstanding.
Portions of the registrant’s definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the registrant’s fiscal year-end
of April 30, 2022 are incorporated by reference into Part III.
Documents Incorporated By Reference
FORM 10-K INDEX
PART I
Item 1.
BUSINESS
Item 1A.
RISK FACTORS
Item 1B.
UNRESOLVED STAFF COMMENTS
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
[RESERVED]
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8.
Item 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Item 9A.
CONTROLS AND PROCEDURES
Item 9B.
OTHER INFORMATION
Item 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 11.
EXECUTIVE COMPENSATION
Item 12.
Item 13.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Item 16.
FORM 10-K SUMMARY
SCHEDULE II
SIGNATURES
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Item 1. BUSINESS
Forward-Looking Statements
PART I
The U.S. Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements to
encourage companies to provide prospective information, so long as those statements are identified as forward-
looking and are accompanied by meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those disclosed in the statement. Certain information of a non-historical nature
contained in Items 1, 2, 3 and 7 of this Form 10-K includes “forward-looking statements” within the meaning of the
safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including statements regarding
future financial performance, and the objectives and expectations of management. Forward-looking statements
often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks” or words of
similar meaning, or future or conditional verbs, such as “will,” “should,” “could” or “may.” Forward-looking statements
are neither historical facts nor assurances of future performance. Instead, such statements, including, but not limited
to, our statements regarding business strategy, growth strategy, competitive strengths, productivity and profitability
enhancement, competition, new product and service introductions and liquidity and capital resources, are based
only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and
strategies, projections, anticipated events and trends, the economy and other future conditions, as well as on
assumptions made by and information currently available to management, and involve various risks and
uncertainties, some of which are beyond our control.
Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and
changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results
and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you
should not place undue reliance on any of these forward-looking statements. Any number of factors could affect our
actual results and cause such results to differ materially from those contemplated by any forward-looking
statements. Reference is made to “Risk Factors” in Item 1A and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in Item 7 of this Form 10-K, for a discussion of certain factors that
could cause actual operating results to differ materially from those expressed in any forward-looking statements. In
light of these risks and uncertainties, there can be no assurance that the forward-looking information will in fact
prove to be accurate. The order in which these factors appear should not be construed to indicate their relative
importance or priority. We caution that these factors may not be exhaustive, accordingly, any forward-looking
statements contained herein should not be relied upon as a prediction of actual results.
You should carefully consider these and other relevant factors and information which may be contained in this Form
10-K and in our other filings with the U.S. Securities and Exchange Commission, or SEC, when reviewing any
forward-looking statement. Investors should understand it is impossible to predict or identify all such factors or risks.
As such, you should not consider the risks identified in our SEC filings, to be a complete discussion of all potential
risks or uncertainties.
Any forward-looking statement made in this Form 10-K is based only on information currently available to us and
speaks only as of the date on which it is made. We do not undertake any obligation to release publicly any revisions
to any forward-looking statements whether written or oral, that may be made from time to time, whether as a result
of new information, future developments or otherwise.
General
Patterson Companies, Inc. is a value-added specialty distributor serving the U.S. and Canadian dental supply
markets and the U.S., Canadian and U.K. animal health supply markets. Patterson operates through its two
strategic business units, Patterson Dental and Patterson Animal Health, offering similar products and services to
different customer bases. Each business has a strong competitive position, serves a highly fragmented market that
offers consolidation opportunities and offers relatively low-cost consumable supplies, which makes our value-added
business proposition highly attractive to our customers. We believe that we have a strong brand identity as a value-
added, full-service distributor with broad product and service offerings, having begun distributing dental supplies in
1877.
3
Impacts of COVID-19
The COVID-19 pandemic, including closures and other steps taken by governmental authorities in response to the
virus, has had a significant impact on our businesses. In March 2020, based upon the recommendations of the
American Dental Association, the American Veterinary Medical Association and such organizations’ state-level
counterparts, various dental and veterinary offices announced that they were performing only emergency or limited
procedures, and rescheduled wellness exams and other elective procedures. In addition, many states and countries
imposed restrictions on business operations to protect public health. Finally, the pandemic disrupted meat packing
operations, which impacted our Animal Health segment.
In response, management adapted our business practices with respect to employee travel, employee work
locations, and cancellation of physical participation in meetings, events and conferences. Management also took
proactive steps with respect to our liquidity position and near-term cost structure, including through incremental
borrowings on our revolving credit facility to increase cash, reduction of non-critical capital expenditures, executive,
board, and other senior-level employee compensation reductions, employee furloughs, discretionary spending
deferrals and the deferral of payroll taxes under the CARES Act.
In our markets of the U.S., Canada, and the UK, restrictive measures have now been lifted or are expected to be
lifted soon, sometimes subject to social distancing and capacity restrictions, due to the rapid pace of vaccination
and improving local case rates. However, other areas around the world continue to suffer. Concerns remain that our
markets could see a resurgence of cases triggering another shutdown, for example due to the emergence of a
variant not effected by existing vaccines. In addition, COVID-19 continues to have a material effect on the
macroeconomic environment, and there is continued uncertainty around its duration and ultimate impact.
Refer to Part I, Item 1A, “Risk Factors,” and Part II, Item 7, “Management's Discussion and Analysis of Financial
Condition and Results of Operations,” within this Annual Report for further information on the impacts to our
business and results of operations, our dividends, liquidity and debt arrangements, and associated risks and
uncertainties.
Business Overview
The following table sets forth consolidated net sales (in millions) by segment.
Dental
Animal Health
Corporate
Consolidated net sales
Fiscal Year Ended
April 30, 2022
April 24, 2021
April 25, 2020
$
$
2,516 $
2,327 $
3,983
—
3,560
25
6,499 $
5,912 $
2,102
3,336
52
5,490
Our strategically located fulfillment centers enable us to better serve our customers and increase our operating
efficiency. This infrastructure, together with broad product and service offerings at competitive prices, and a strong
commitment to customer service, enables us to be a single source of supply for our customers’ needs. Our
infrastructure also allows us to provide convenient ordering and rapid, accurate and complete order fulfillment.
Electronic commerce solutions have become an integral part of dental and animal health supply and distribution
relationships. Our distribution business is characterized by rapid technological developments and intense
competition. The continuing advancement of online commerce requires us to cost-effectively adapt to changing
technologies, to enhance existing services and to develop and introduce a variety of new services to address the
changing demands of consumers and our customers on a timely basis, particularly in response to competitive
offerings. We believe that our tradition of reliable service, our name recognition and large customer base built on
solid customer relationships, position us well to participate in this significant aspect of the distribution business. We
continue to explore methods to improve and expand our Internet presence and capabilities, including our online
commerce offerings and our use of various social media outlets.
Patterson became publicly traded in 1992 and is a corporation organized under the laws of the state of Minnesota.
We are headquartered in St. Paul, Minnesota. Our principal executive offices are located at 1031 Mendota Heights
Road, St. Paul, Minnesota 55120, and our telephone number is (651) 686-1600. Unless the context specifically
requires otherwise, the terms the “Company,” “Patterson,” “we,” “us” and “our” mean Patterson Companies, Inc., a
Minnesota corporation, and its consolidated subsidiaries.
4
The Specialty Distribution Markets We Serve
We provide manufacturers with cost effective logistics and high-caliber sales professionals to access a
geographically diverse customer base, which is critical to the supply chain for the markets we serve. We provide our
customers with an array of value-added services, a dedicated and highly skilled sales team, and a broad selection
of products through a single channel, thereby helping them efficiently manage their ordering process. Due in part to
the inability of our customers to store and manage large quantities of supplies at their locations, the distribution of
supplies and small equipment has been characterized by frequent, small-quantity orders, and a need for rapid,
reliable and substantially-complete order fulfillment. Supplies and small equipment are generally purchased from
more than one distributor, with one generally serving as the primary supplier.
We believe that consolidation within the industry will continue as distributors, particularly those with limited financial,
operating and marketing resources, seek to combine with larger companies that can provide growth opportunities.
This consolidation also may continue to result in distributors seeking to acquire companies that can enhance their
current product and service offerings or provide opportunities to serve a broader customer base.
Dental Supply Market
The dental supply market we serve consists of geographically dispersed and highly fragmented dental practices.
Customers range in size from sole practitioners to large group practices, often called Dental Service Organizations
("DSO's"). According to the American Dental Association and the Canadian Dental Association, there are
approximately 202,000 dentists practicing in the U.S. and 21,000 dentists practicing in Canada. We believe the
average dental practitioner purchases supplies from more than one supplier.
We believe the North American dental supply market continues to experience growth due to an increasing
population, an aging population, advances in dentistry, demand for general, preventive and specialty services,
increasing demand for new technologies that allow dentists to increase productivity, demand for infection control
products, and insurance coverage by dental plans.
We support dental professionals through the many stock keeping units (“SKUs”) that we offer, as well as through
important value-added services, including equipment and technology installation and service, practice management
software, electronic claims processing, financial services, and continuing education, all designed to help make a
dental practice more efficient.
Animal Health Supply Market
The animal health supply market is a mix of production animal supply, which primarily serves food producing
animals, consisting of beef and dairy cattle, swine and poultry and other species such as sheep and goats, and
companion animal supply, which serves pets, primarily dogs, cats and horses. Similar to the dental supply market,
the animal health supply market is highly fragmented and diverse. Our production animal customers include large
animal veterinarians, beef producers (cow/calf, stocker and feedlots), dairy producers, poultry producers, swine
producers and retail customers. Our companion animal customers are primarily small animal and equine veterinary
clinics, including independently owned, corporates and groups. According to the American Veterinary Medical
Association, there are more than 70,000 veterinarians in private practice in the U.S. and Canada. Furthermore,
there are approximately 20,000 veterinarians in the U.K. practicing in veterinary outlets; however, we believe there
has been a shift in the U.K. market toward consolidation of veterinary practices. National Veterinary Services
Limited, is the market leader in the U.K. veterinary market, with the highest percentage of buying groups and
corporations as customers compared to its competitors, and the highest share position in that country overall.
The global animal health supply market continues to experience growth, and we believe that trend will continue for
the foreseeable future. We support our animal health customers through the distribution of biologicals,
pharmaceuticals, parasiticides, supplies, including our own private label brands, and equipment. We also supply a
full portfolio of technologies, software, services and solutions to all segments and channels of our broad customer
base. We actively engage in the development, sale and distribution of inventory, accounting and health
management systems to enhance customer operating efficiencies and assist our customers in managing risk.
Within the companion animal supply market, we anticipate increasing demand for veterinary services due to the
following factors: the increasing number of households with companion animals, increased pet adoption rates and
increased expenditures on animal health and preventative care, an aging pet population, advancements in animal
health products and diagnostic testing, and extensive marketing programs sponsored by companion animal nutrition
and pharmaceutical companies.
5
We anticipate the macroeconomic trend of global population growth and corresponding demand for protein will be
favorable to the production animal segment in the future. Likewise, the rise in disposable income, especially in
developing countries will be a key driver of future growth. However; product sales in the production animal supply
market are more likely to be impacted by volatility in the market such as commodity prices, changes in weather
patterns, and trends in the general economy. Many factors can influence how long cattle will graze and
consequently the number of days an animal is on feed during a finishing phase. Supply and demand dynamics and
economic trends can shift the number of animals treated, the timing of when animals are treated, to what extent
they are treated and with which products they are treated. Historically, sales in this market have been largely driven
by spending on animal health products to improve productivity, weight gain and disease prevention, as well as a
growing focus on health and wellness of the animals, safety, and efficiency in livestock production.
Competition
The distribution industry is highly competitive. It consists principally of national, regional and local full-service
distributors. Substantially all of the products we sell are available to customers from a number of suppliers. In
addition, our competitors could obtain exclusive rights from manufacturers to market particular products. Some
manufacturers also sell directly to end-users, thereby eliminating or reducing our role and that of other distributors.
We compete with other distributors, as well as several manufacturers, of dental and animal health products, on the
basis of price, breadth of product line, customer service and value-added products and services. To differentiate
ourselves from our competition we deploy a strategy of premium customer service with multiple value-added
components, a highly qualified and motivated sales force, highly-trained and experienced service technicians, an
extensive breadth and mix of products and services, technology solutions allowing customers to easily access our
inventory, accurate and timely delivery of product, strategic location of sales offices and fulfillment centers, and
competitive pricing.
In the U.S. and Canadian dental supply market, we compete against Henry Schein, Inc., Benco Dental Supply
Company, Burkhart Dental Supply and hundreds of distributors that operate on a regional or local level, or online.
Also, as noted above, some manufacturers sell directly to end users. With regard to our dental practice
management software, we compete against numerous offerings, including those from Henry Schein, Inc. and
Carestream Dental.
In the U.S. and Canadian animal health supply market, our primary competitors are AmerisourceBergen/MWI
Animal Health and Covetrus, Inc. We also compete against a number of regional and local animal health
distributors, some manufacturers that sell direct to end users and several alternative channel market providers that
sell through digital platforms to production animal operators, animal health product retailers and veterinarians.
Additionally, major U.S. online e-commerce retailers such as Amazon and Chewy.com are becoming licensed as
veterinary mail order pharmacies to offer pharmacy products directly to consumers in all 50 U.S. states. In the
animal health practice management market, our primary competitors are IDEXX Laboratories, Inc. and Covetrus,
Inc. We face significant competition in the animal health supply market in the U.K., where we compete on the basis
of price and customer service with several large competitors, including Covetrus, Inc. and AmerisourceBergen. We
also compete directly with pharmaceutical companies who sell certain products or services directly to the customer.
Successful distributors are increasingly providing value-added services in addition to the products they have
traditionally provided. We believe that to remain competitive we must continue to add value to the distribution
channel, while removing unnecessary costs associated with product movement. Significant price reductions by our
competitors could result in competitive harm. Any of these competitive pressures may materially adversely affect our
operating results.
Competitive Strengths
We have more than 140 years of experience in distributing products resulting in strong awareness of the Patterson
brand. Although further information regarding these competitive strengths is set forth below in the discussion of our
two strategic business units, our competitive strengths include:
•
Broad product and service offerings at competitive prices. We sell approximately 200,000 SKUs to our
customers, including many proprietary branded products. We believe that our proprietary branded products
and our competitive pricing strategy have generated a loyal customer base that is confident in our brands.
Our product offerings include consumables, equipment, software and various technologies. Our value-
added services include practice management software, office design, equipment installation and
maintenance, and financing.
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•
•
Focus on customer relationships and exceptional customer service. Our sales and marketing efforts are
designed to establish and solidify customer relationships through personal visits by field sales
representatives, interaction via phone with sales representatives, web-based activities including e-
commerce and frequent direct marketing, emphasizing our broad product lines, competitive prices and ease
of order placement. We focus on providing our customers with exceptional order fulfillment and a
streamlined ordering process.
Cost-effective purchasing and efficient distribution. We believe that cost-effective purchasing is a key
element to maintaining and enhancing our position as a competitive-pricing provider of dental and animal
health products. We strive to maintain optimal inventory levels to satisfy customer demand for prompt and
complete order fulfillment through our distribution of products from strategically located fulfillment centers.
Business Strategy
Our objective is to continue to expand as a leading value-added distributor of dental and animal health products and
services. To accomplish this, we will apply our competitive strengths in executing the following strategies:
•
•
•
Emphasizing our differentiated, value-added, full-service capabilities. We are positioned to meet virtually all
of the needs of dental practitioners, veterinarians, production animal operators and animal health product
retailers by providing a broad range of consumable supplies, technology, equipment and software and
value-added services. We believe our knowledgeable sales representatives can create customer intimacy
and loyalty by providing an informational, consultative approach to our customers, linking them to the
industries we serve. Our value-added strategy is further supported by our equipment specialists who offer
consultation on design, equipment requirements and financing, our service technicians who perform
equipment installation, maintenance and repair services, our business development professionals who
provide business tools and educational programs to our customers, and our technology advisors who
provide guidance on integrating technology solutions.
for
platforms
predominant
Using technology to enhance customer service. As part of our commitment to providing superior customer
service, we offer our customers easy order placement. Although we offer computerized order entry systems
that we believe help establish relationships with new customers and increase loyalty among existing
customers,
include www.pattersondental.com,
ordering
www.pattersonvet.com and www.animalhealthinternational.com. The use of these methods of ordering
enables our sales representatives to spend more time with existing and prospective customers. Our Internet
environment includes order entry, customer support for digital and our proprietary products, customer-
loyalty program reports and services, and access to articles and manufacturers’ product information. We
also provide real-time customer and sales information to our sales force, managers and vendors via the
Internet. In addition, the Patterson Technology Center (“PTC”) differentiates Patterson from our competition
by providing deep and thorough expertise in practice management software and other advanced equipment
and technology clinical solutions. In addition to trouble-shooting through the PTC’s support center,
customers can access various service capabilities offered by the PTC, including electronic claims and
statement processing and system back-up capabilities.
today
Continuing to improve operating efficiencies. We continue to implement programs designed to improve our
operating efficiencies and allow for continued sales growth. This strategy includes our continuing investment
in management information systems and consolidation and leveraging of fulfillment centers and sales
branches between our operating segments. In addition, we have established shared sales branch offices in
several locations.
• Growing through internal expansion and acquisitions. We intend to continue to grow by hiring established
sales representatives, hiring and training skilled sales professionals, opening additional locations as
needed, and acquiring other companies in order to enter new, or more deeply penetrate existing, markets,
gain access to additional product lines, and expand our customer base. We believe both of our operating
segments are well positioned to take advantage of expected continued consolidation in our markets.
Dental Segment - Products, Services and Sources of Supply
Patterson Dental, one of the two largest distributors of dental products in North America, has operations in the U.S.
and Canada. As a full-service, value-added supplier to over 100,000 dental practices, dental laboratories,
educational institutions, and community health centers, Patterson Dental provides consumable products (including
infection control, restorative materials, and instruments); basic and advanced technology and dental equipment; and
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innovative practice optimization solutions, including practice management software, e-commerce, revenue cycle
management, patient engagement solutions, and clinical and patient education. Patterson Dental sells
approximately 100,000 SKUs, of which approximately 3,500 are private-label products sold under the Patterson
brand. Patterson Dental also offers customers a range of related services including software and design services,
maintenance and repair, and equipment financing. Net sales and operating income were $2.5 billion and $180
million in fiscal 2022, respectively.
The following table sets forth the percentage of total sales by the principal categories of products and services
offered to our dental segment customers:
Consumable
Equipment and software
Value-added services and other
Fiscal Year Ended
April 30, 2022
April 24, 2021
April 25, 2020
57 %
32
11
100 %
56 %
31
13
100 %
54 %
32
14
100 %
Patterson Dental obtains products from hundreds of vendors, most of which are non-exclusive. While there is
generally more than one source of supply for most of the categories of products we sell, the concentration of
business with key suppliers is considerable, as consolidation has increased among manufacturers. In fiscal 2022,
2021 and 2020, Patterson Dental's top ten supply vendors accounted for approximately 56%, 57% and 63% of the
total cost of sales, respectively. The top vendor accounted for 24%, 25% and 22% of the total cost of sales in fiscal
2022, 2021 and 2020, respectively.
Animal Health Segment - Products, Services and Sources of Supply
Patterson Animal Health is a leading distributor of animal health products in the U.S., Canada and the U.K. We sell
approximately 100,000 SKUs sourced from over 2,000 manufacturers to over 50,000 customers in the highly
fragmented animal health supply market. Products we distribute include pharmaceuticals, vaccines, parasiticides,
diagnostics, prescription and non-prescription diets, nutritionals, consumable supplies, equipment and software. We
offer a private label portfolio of products to veterinarians, producers, and retailers through our Aspen, First
Companion and Patterson Veterinary brands. We also provide a range of value-added services to our customers.
Within our companion animal supply market, our principal customers are companion-pet and equine veterinarians,
veterinary clinics, public and private institutions, and shelters. In our production animal supply market, our principal
customers are large animal veterinarians, production animal operators and animal health product retailers.
Consumer demand for alternative means of sourcing product through digital platforms is an evolving dynamic in our
industry. We provide digital home delivery solutions to allow us to evolve with the market. Net sales and operating
income were $4.0 billion and $114 million in fiscal 2022, respectively.
The following table sets forth the percentage of total sales by the principal categories of products and services
offered to our animal health segment customers:
Consumable
Equipment and software
Value-added services and other
Fiscal Year Ended
April 30, 2022
April 24, 2021
April 25, 2020
96 %
3
1
100 %
96 %
3
1
100 %
97 %
2
1
100 %
Patterson Animal Health obtains products from over 2,000 vendors globally. While Patterson Animal Health makes
purchases from many vendors and there is generally more than one source of supply for most of the categories of
products, the concentration of business with key vendors is considerable, as consolidation has increased among
manufacturers. In fiscal 2022, 2021 and 2020, Patterson Animal Health’s top 10 manufacturers comprised
approximately 66%, 70% and 70% of the total cost of sales, respectively, and the single largest supplier comprised
approximately 23% in 2022 and 20% of the total cost of sales in 2021 and 2020.
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Sales, Marketing and Distribution
During fiscal 2022, we sold products or services to over 100,000 customers who made one or more purchases
during the year. Our customers include dentists, laboratories, institutions, other healthcare professionals,
veterinarians, other animal health professionals, production animal operators and animal health product retailers.
No single customer accounted for more than 10% of sales during fiscal 2022, and we are not dependent on any
single customer or geographic group of customers.
We have offices throughout the U.S. and Canada so that we can provide a presence in the market and decision-
making near the customer. Patterson Animal Health also has a central office in the U.K. Our offices, or sales
branches, are staffed with a complete complement of our capabilities, including sales, customer service and
technical service personnel, as well as a local manager who has decision-making authority with regard to customer-
related transactions and issues.
A primary component of our value-added approach is our professional sales and support organization. Due to the
highly-fragmented nature of the markets we serve, we believe that our unique combination of field-based and call-
center sales and support teams is critical to reaching potential customers and providing a differentiated customer
experience. Our sales representatives play an indispensable and critical role in managing a practice’s supply chain
and in introducing new products and technologies.
In the U.S. and Canada, customer service representatives in call centers work in tandem with our sales
representatives, providing a dual coverage approach for individual customers. In addition to processing orders,
customer service representatives are responsible for assisting customers with ordering, informing customers of
monthly promotions, and responding to general inquiries. In the U.K., our customer service team is primarily
responsible for handling customer inquiries and resolving issues.
To assist our customers with their purchasing decisions, we provide a multi-touchpoint shopping experience. From
print to digital, this seamless experience is inclusive of products and services information. Patterson offers online
and in-print showcases of our expansive merchandise and equipment offerings, including digital imaging and
computer-aided design and computer-aided manufacturing ("CAD/CAM") technologies, hand-held and similar
instruments, sundries, office design, e-services, repair and support assistance, as well as financial services. We
also promote select products and services through publications, including On Target and Advantage in the U.S. and
Patterson Post in Canada in our Dental segment, and Insight in the U.S. and The Cube in the U.K. in our Animal
Health segment. Additional direct marketing tools that we utilize include customer loyalty programs, social media,
and participation in trade shows.
We believe that responsive delivery of quality supplies and equipment is key to customer satisfaction. We ship
consumable supplies from our strategically located fulfillment centers in the U.S. and Canada. In the U.K., orders
are accepted in a centralized fulfillment center and shipped nationwide to one of our depots located throughout the
country at which pre-packed orders are sorted by route for delivery to customers. Orders for consumable supplies
can be placed through our sales representatives, customer service representatives or electronically 24 hours a day,
seven days a week. Rapid and accurate order fulfillment is another principal component of our value-added
approach.
In order to assure the availability of our broad product lines for prompt delivery to customers, we must maintain
sufficient inventories at our fulfillment centers. Purchasing of consumables and standard equipment is centralized,
and our purchasing department uses a real-time perpetual inventory system to manage inventory levels. Our
inventory consists mostly of consumable supply items and pharmaceutical products.
Geographic Information
For information on revenues and long-lived assets of our segments by geographic area, see Note 14 to the
Consolidated Financial Statements.
Seasonality and Other Factors Affecting Our Business and Quarterly Results
Our business in general is not seasonal; however, there are some products that typically sell more often during the
winter or summer season. In any given month, unusual weather patterns (e.g., unusually hot or cold weather) could
impact the sales volumes of these products, either positively or negatively. In addition, we experience fluctuations in
quarterly earnings. As a result, we may fail to meet or exceed the expectations of securities analysts and investors,
9
which could cause our stock price to decline. Quarterly results may be materially adversely affected by a variety of
factors, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
timing and amount of sales and marketing expenditures;
timing of pricing changes offered by our suppliers;
timing of the introduction of new products and services by our suppliers;
changes in or availability of supplier contracts or rebate programs;
supplier rebates based upon attaining certain growth goals;
changes in the way suppliers introduce or deliver products to market;
costs of developing new applications and services;
our ability to correctly identify customer needs and preferences and predict future needs and preferences;
uncertainties regarding potential significant breaches of data security or disruptions of our information
technology systems;
regulatory actions, or government regulation generally;
loss of sales representatives;
costs related to acquisitions and/or integrations of technologies or businesses;
costs associated with our self-insured insurance programs;
general market and economic conditions, as discussed in Item 1A: Risk Factors, including pandemic,
macro-economic conditions, increased fuel and energy costs, consumer confidence, as well as conditions
specific to the supply and distribution industry and related industries;
our success in establishing or maintaining business relationships;
difficulties of manufacturers in developing and manufacturing products;
product demand and availability, or product recalls by manufacturers;
exposure to product liability and other claims in the event that the use of the products we sell results in
injury;
increases in shipping costs or service issues with our third-party shippers;
fluctuations in the value of foreign currencies;
goodwill impairment;
changes in interest rates;
restructuring costs;
the adoption or repeal of legislation;
changes in accounting principles; and
litigation or regulatory judgments, fines, forfeitures, penalties, equitable remedies, expenses or settlements.
Governmental Regulation
We strive to be compliant with the applicable laws, regulations and guidance described below, and believe we have
effective compliance programs and other controls in place to ensure substantial compliance. However, compliance
is not guaranteed either now or in the future, as certain laws, regulations and guidance may be subject to varying
and evolving interpretations that could affect our ability to comply, as well as future changes, additions and
enforcement approaches, including political changes. President Biden’s administration (the “Biden Administration”)
has indicated that it will be more aggressive in its pursuit of alleged violations of law, and it has revoked certain
guidance that would have limited governmental use of informal agency guidance to pursue potential violations, as
well as that it was more prepared to pursue individuals for corporate law violations, including an aggressive
approach to anti-corruption activities. Changes to applicable laws, regulations and guidance described below, as
well as related administrative or judicial interpretations, may require us to update or revise our operations, services,
marketing practices, and compliance programs and controls, and may impose additional and unforeseen costs on
us, pose new or previously immaterial risks to us, or may otherwise have a material adverse effect on our business.
Operating, Security and Licensure Standards
Our dental and animal health supply businesses involve the distribution, importation, exportation, marketing and
sale of, and third party payment for, pharmaceuticals and medical devices, and in this regard, we are subject to
extensive local, state, federal and foreign governmental laws and regulations applicable to the distribution of
10
pharmaceuticals and medical devices. Among the U.S. federal laws applicable to us are the Controlled Substances
Act, the Federal Food, Drug, and Cosmetic Act, as amended (the “FDC Act”), and Section 361 of the Public Health
Service Act, as well as laws regulating the billing of and reimbursement from government programs, such as
Medicare and Medicaid, and from commercial payers. We are also subject to comparable foreign regulations.
The FDC Act, the Controlled Substances Act, their implementing regulations, and similar foreign laws generally
regulate the introduction, manufacture, advertising, marketing and promotion, sampling, pricing and reimbursement,
labeling, packaging, storage, handling, returning or recalling, reporting, and distribution of, and record keeping for,
pharmaceuticals and medical devices shipped in interstate commerce, and states may similarly regulate such
activities within the state. Furthermore, Section 361 of the Public Health Service Act, which provides authority to
prevent the introduction, transmission, or spread of communicable diseases, serves as the legal basis for the U.S.
Food and Drug Administration’s (“FDA”) regulation of human cells, tissues and cellular and tissue-based products,
also known as “HCT/P products.”
The federal Drug Quality and Security Act of 2013 brought about significant changes with respect to pharmaceutical
supply chain requirements. Title II of this measure, known as the Drug Supply Chain Security Act (“DSCSA”), is
being phased in over a period of 10 years, and is intended to build a national electronic, interoperable system by
November 27, 2023, that will identify and trace certain prescription drugs as they are distributed in the U.S. The
law’s track and trace requirements applicable to manufacturers, wholesalers, repackagers and dispensers (e.g.,
pharmacies) of prescription drugs took effect in January 2015, and continues to be implemented. The DSCSA
product tracing requirements replace the former FDA drug pedigree requirements and pre-empt certain state
requirements that are inconsistent with, more stringent than, or in addition to, the DSCSA requirements.
The DSCSA also establishes certain requirements for the licensing and operation of prescription drug wholesalers
and third party logistics providers (“3PLs”), and includes the eventual creation of national wholesaler and 3PL
licenses in cases where states do not license such entities. The DSCSA requires that wholesalers and 3PLs
distribute drugs in accordance with certain standards regarding the recordkeeping, storage and handling of
prescription drugs. The DSCSA requires wholesalers and 3PLs to submit annual reports to the FDA, which include
information regarding each state where the wholesaler or 3PL is licensed, the name and address of each facility and
contact information. According to FDA guidance, states are pre-empted from imposing any licensing requirements
that are inconsistent with, less stringent than, directly related to, or covered by the standards established by federal
law in this area. Current state licensing requirements concerning wholesalers will remain in effect until the FDA
issues new regulations as directed by the DSCSA.
The Food and Drug Administration Amendments Act of 2007 and the Food and Drug Administration Safety and
Innovation Act of 2012 amended the FDC Act to require the FDA to promulgate regulations to implement a unique
device identification (“UDI”) system. The UDI rule phased in the implementation of the UDI regulations, generally
beginning with the highest-risk devices (i.e., Class III medical devices) and ending with the lowest-risk devices. Most
compliance dates were reached as of September 24, 2018, with a final set of requirements for low-risk devices
being reached on September 24, 2022, which will complete the phase in. However, in May 2021, the FDA issued an
enforcement policy stating that it does not intend to object to the use of legacy identification numbers on device
labels and packages for finished devices manufactured and labeled prior to September 24, 2023. The UDI
regulations require “labelers” to include unique device identifiers (“UDIs”), with a content and format prescribed by
the FDA and issued under a system operated by an FDA-accredited issuing agency, on the labels and packages of
medical devices (including, but not limited to, certain software that qualifies as a medical device under FDA rules),
and to directly mark certain devices with UDIs. The UDI regulations also require labelers to submit certain
information concerning UDI-labeled devices to the FDA, much of which information is publicly available on an FDA
database, the Global Unique Device Identification Database. The UDI regulations and subsequent FDA guidance
regarding the UDI requirements provide for certain exceptions, alternatives and time extensions. For example, the
UDI regulations include a general exception for Class I devices exempt from the Quality System Regulation (other
than record-keeping and complaint files). Regulated labelers include entities such as device manufacturers,
repackagers, reprocessors and relabelers that cause a device’s label to be applied or modified, with the intent that
the device will be commercially distributed without any subsequent replacement or modification of the label, and
include certain of our businesses.
Under the Controlled Substances Act, as a distributor of controlled substances, we are required to obtain and renew
annually registrations for our facilities from the U.S. Drug Enforcement Administration (“DEA”) permitting us to
handle controlled substances. We are also subject to other statutory and regulatory requirements relating to the
storage, sale, marketing, handling and distribution of such drugs, in accordance with the Controlled Substances Act
and its implementing regulations, and these requirements have been subject to heightened enforcement activity in
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recent times. We are subject to inspection by the DEA. There have also been increasing efforts by various levels of
government globally to regulate the pharmaceutical distribution system in order to prevent the introduction of
counterfeit, adulterated or misbranded pharmaceuticals into the distribution system.
Certain of our businesses are also required to register for permits and/or licenses with, and comply with operating
and security standards of, the DEA, the FDA, the U.S. Department of Health and Human Services, and various
state boards of pharmacy, state health departments and/or comparable state agencies as well as comparable
foreign agencies, and certain accrediting bodies depending on the type of operations and location of product
distribution, manufacturing or sale. These businesses include those that distribute, manufacture and/or repackage
prescription pharmaceuticals and/or medical devices and/or HCT/P products, or own pharmacy operations, or
install, maintain or repair equipment. In addition, Section 301 of the National Organ Transplant Act, and a number of
comparable state laws, impose civil and/or criminal penalties for the transfer of certain human tissue (for example,
human bone products) for valuable consideration, while generally permitting payments for the reasonable costs
incurred in procuring, processing, storing and distributing that tissue. We are also subject to foreign government
regulation of such products. The DEA, the FDA and state regulatory authorities have broad inspection and
enforcement powers, including the ability to suspend or limit the distribution of products by our fulfillment centers,
seize or order the recall of products and impose significant criminal, civil and administrative sanctions for violations
of these laws and regulations. Foreign regulations subject us to similar foreign enforcement powers. Furthermore,
compliance with legal requirements has required and may in the future require us to delay product release, sale or
distribution, or institute voluntary recalls of, or other corrective action with respect to, products we sell, each of which
could result in regulatory and enforcement actions, financial losses and potential reputational harm. Our customers
are also subject to significant federal, state, local and foreign governmental regulation, which may affect our
interactions with customers, including the design and functionality of the products we distribute.
Certain of our businesses are subject to various additional federal, state, local and foreign laws and regulations,
including with respect to the sale, transportation, storage, handling and disposal of hazardous or potentially
hazardous substances, and safe working conditions. In addition, certain of our businesses must operate in
compliance with a variety of burdensome and complex billing and record keeping requirements in order to
substantiate claims for payment under federal, state and commercial healthcare reimbursement programs.
Certain of our businesses also maintain contracts with governmental agencies and are subject to certain regulatory
requirements specific to government contractors.
As disclosed in our prior periodic reports, our subsidiary Animal Health International was the subject of an
investigation by the U.S. Attorney’s Office for the Western District of Virginia, which resulted in Animal Health
International pleading guilty to a strict-liability misdemeanor offense in connection with its failure to comply with
federal law relating to the sales of prescription animal health products, and a total criminal fine and forfeiture of
$52.8 million. In addition, Animal Health International and Patterson entered into a non-prosecution agreement for
other non-compliant licensing, dispensing, distribution and related sales processes disclosed during the
investigation and committed to undertake additional compliance program enhancements and provide compliance
certifications through fiscal 2023. This matter may continue to divert management's attention and cause us to suffer
reputational harm. We also may be subject to other fines or penalties, equitable remedies (including but not limited
to the suspension, revocation or non-renewal of licenses) and litigation. The occurrence of any of these events
could adversely affect our business, financial condition and results of operations.
Antitrust and Consumer Protection
The U.S. federal government, most U.S. states and many foreign countries have antitrust laws that prohibit certain
types of conduct deemed to be anti-competitive, as well as consumer protection laws that seek to protect
consumers from improper business practices. At the U.S. federal level, the Federal Trade Commission oversees
enforcement of these types of laws, and states have similar government agencies. Violations of antitrust or
consumer protection laws may result in various sanctions, including criminal and civil penalties. Private plaintiffs
also may bring, and have brought, civil lawsuits against us in the U.S. for alleged antitrust violations, including
claims for treble damages. The Biden Administration has indicated increased antitrust enforcement and has been
more aggressive in enforcement actions.
Health Care Fraud
Certain of our businesses are subject to federal and state (and similar foreign) health care fraud and abuse, referral
and reimbursement laws and regulations with respect to their operations. Some of these laws, referred to as “false
claims laws,” prohibit the submission or causing the submission of false or fraudulent claims for reimbursement to
12
federal, state and other health care payers and programs. Other laws, referred to as “anti-kickback laws,” prohibit
soliciting, offering, receiving or paying remuneration in order to induce the referral of a patient or ordering,
purchasing, leasing or arranging for or recommending ordering, purchasing or leasing, of items or services that are
paid for by federal, state and other health care payers and programs. Several states apply their false claims and
anti-kickback laws to all payers, including goods and services paid for directly by consumers. Certain additional
state and federal laws, such as the federal Physician Self-Referral Law, commonly known as the “Stark Law,”
prohibit physicians and other health professionals from referring a patient to an entity with which the physician (or
family member) has a financial relationship, for the furnishing of certain designated health services (for example,
durable medical equipment and medical supplies), unless an exception applies. Violations of anti-kickback laws or
the Stark Law may be enforced as violations of the federal False Claims Act.
The fraud and abuse laws and regulations have been subject to heightened enforcement activity over the past few
years, and significant enforcement activity has been the result of “relators,” who serve as whistleblowers by filing
complaints in the name of the U.S. (and, if applicable, particular states) under applicable false claim laws. Under the
federal False Claims Act, relators can be entitled to receive up to 30% of the total recoveries. Penalties under fraud
and abuse laws may be severe, including treble damages and substantial civil penalties under the federal False
Claims Act, as well as potential loss of licenses and the ability to participate in federal and state health care
programs, criminal penalties, or imposition of a corporate compliance monitor which could have a material adverse
effect on our business. Also, these measures may be interpreted or applied by a prosecutorial, regulatory or judicial
authority in a manner that could require us to make changes in our operations or incur substantial defense and
settlement expenses. Even unsuccessful challenges by regulatory authorities or private relators could result in
reputational harm and the incurring of substantial costs. Most states have adopted similar state false claims laws,
and these state laws have their own penalties which may be in addition to federal False Claims Act penalties, as
well as other fraud and abuse laws. With respect to measures of this type, the U.S. government (among others) has
expressed concerns about financial relationships between suppliers on the one hand and dentists on the other. As a
result, we regularly review and revise our marketing practices as necessary to facilitate compliance. We are also
subject to certain U.S. and foreign laws and regulations concerning the conduct of our foreign operations, including
the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other anti-bribery laws and laws pertaining to the
accuracy of our internal books and records, which have been the focus of increasing enforcement activity globally in
recent years. While we believe that we are substantially compliant with applicable fraud and abuse laws and
regulations, and have adequate compliance programs and controls in place to ensure substantial compliance, we
cannot predict whether changes in applicable law, or interpretation of laws, or changes in our services or marketing
practices in response to changes in applicable law or interpretation of laws, or failure to comply with applicable law,
could have a material adverse effect on our business.
Affordable Care Act and Other Insurance Reform
The U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation
Act (as amended, the “ACA”) increased federal oversight of private health insurance plans and included a number
of provisions designed to reduce Medicare expenditures and the cost of health care generally, to reduce fraud and
abuse, and to provide access to increased health coverage. The ACA also materially expanded the number of
individuals in the U.S. with health insurance. The ACA has faced frequent legal challenges, including litigation
seeking to invalidate and Congressional action seeking to repeal some of or all of the law or the manner in which it
has been implemented. In 2012, the U.S. Supreme Court, in upholding the constitutionality of the ACA and its
individual mandate provision requiring that people buy health insurance or else face a penalty, simultaneously
limited ACA provisions requiring Medicaid expansion, making such expansion a state-by-state decision. In addition,
one of the major political parties in the U.S. remains committed to seeking the ACA's legislative repeal, but
legislative efforts to do so have previously failed to pass both chambers of Congress. Under President Trump's
administration, a number of administrative actions were taken to materially weaken the ACA, including, without
limitation, by permitting the use of less robust plans with lower coverage and eliminating "premium support" for
insurers providing policies under the ACA. The Tax Cuts and Jobs Act enacted in 2017 (the "Tax Act"), which
contains a broad range of tax reform provisions that impact the individual and corporate tax rates, international tax
provisions, income tax add back provisions and deductions, also effectively repealed the ACA's individual mandate
by zeroing out the penalty for non-compliance. In the most recent ACA litigation, the federal Fifth Circuit Court of
Appeals found the individual mandate to be unconstitutional, and returned the case to the District Court for the
Northern District of Texas for consideration of whether the remainder of the ACA could survive the excision of the
individual mandate. The Fifth Circuit's decision was appealed to the U.S. Supreme Court. The Supreme Court
issued a decision on June 17, 2021. Without reaching the merits of the case, the Supreme Court held that the
plaintiffs in the case did not have standing to challenge the ACA. Any outcomes of future cases that change the
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ACA, in addition to future legislation, regulation, guidance and/or executive orders that do the same, could have a
significant impact on the U.S. healthcare industry. For instance, the American Rescue Plan Act of 2021 enhanced
premium tax credits, which has resulted in an expansion of the number of people covered under the ACA. These
changes are time-limited, with some enhancements in place for 2021 only and others available through the end of
2022. The continued uncertain status of the ACA affects our ability to plan.
An ACA provision, generally referred to as the Physician Payment Sunshine Act or Open Payments Program (the
“Sunshine Act”), has imposed reporting and disclosure requirements for drug and device manufacturers and
distributors with regard to payments or other transfers of value made to certain practitioners (including physicians,
dentists and teaching hospitals), and for such manufacturers and distributors and for group purchasing
organizations, with regard to certain ownership interests held by covered recipients in the reporting entity. The
Centers for Medicare and Medicaid Services (“CMS”) publishes information from these reports on a publicly
available website, including amounts transferred and physician, dentist, teaching hospital and non-practitioner
identities.
The Sunshine Act pre-empts similar state reporting laws, although we or our subsidiaries may also be required to
report under certain state transparency laws that address circumstances not covered by the Sunshine Act, and
some of these state laws, as well as the federal law, can be unclear. We are also subject to foreign regulations
requiring transparency of certain interactions between suppliers and their customers. In the U.S., government
actions to seek to increase health-related price transparency may also affect our business. Our compliance with
these rules imposes additional costs on us.
In addition, recently there has been increased scrutiny on drug pricing and concurrent efforts to control or reduce
drug costs by Congress, the President, executive branch agencies and various states, including that several related
bills have been introduced at the federal level. Such legislation, if enacted, could have the potential to impose
additional costs on our business.
As a result of political, economic and regulatory influences, the health care distribution industry in the U.S. is under
intense scrutiny and subject to fundamental changes. We cannot predict what further reform proposals, if any, will
be adopted, when they may be adopted, or what impact they may have on us.
Regulated Software; Electronic Health Records
The FDA has become increasingly active in addressing the regulation of computer software and digital health
products intended for use in health care settings. The 21st Century Cures Act (the “Cures Act”), signed into law in
December 2016, among other things, amended the medical device definition to exclude certain software from FDA
regulation, including clinical decision support software that meets certain criteria. In September 2019, the FDA
issued a suite of guidance documents on digital health products, which incorporated applicable Cures Act
standards, including regarding the types of clinical decision support tools and other software that are exempt from
regulation by the FDA as medical devices, and continues to issue new guidance in this area. Certain of our software
and related products support practice management, and it is possible that the FDA or foreign government
authorities could determine that one or more of our products is a medical device, which could subject us or one or
more of our businesses to substantial additional requirements with respect to these products.
In addition, certain of our practice management products include electronic information technology systems that
store and process personal health, clinical, financial and other sensitive information of individuals. These
information technology systems may be vulnerable to breakdown, wrongful intrusions, data breaches and malicious
attack, which could require us to expend significant resources to eliminate these problems and address related
security concerns, and could involve claims against us by private parties and/or governmental agencies. For
example, we are directly or indirectly subject to numerous and evolving federal, state, local and foreign laws and
regulations that protect the privacy and security of such information, such as the privacy and security provisions of
the federal Health Insurance Portability and Accountability Act of 1996, as amended, and implementing regulations
(“HIPAA”), the Controlling the Assault of Non-Solicited Pornography and Marketing Act, the Telephone Consumer
Protection Act of 1991, Section 5 of the Federal Trade Commission Act, the California Privacy Act (“CCPA”), and the
California Privacy Rights Act (“CPRA”) that becomes effective on January 1, 2023. Laws and regulations relating to
privacy and data protections are continually evolving and subject to potentially differing interpretations. These
requirements may not be harmonized, may be interpreted and applied in a manner that is inconsistent from one
jurisdiction to another or may conflict with other rules or our practices. Our businesses’ failure to comply with these
laws and regulations could expose us to breach of control claims, substantial fines, penalties and other liabilities
and expenses, costs for remediation and harm to our reputation. Also, evolving laws and regulations in this area
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could restrict the ability of our customers to obtain, use or disseminate patient information, or could require us to
incur significant additional costs to re-design our products to reflect these legal requirements, which could have a
material adverse effect on our operations.
Other health information standards, such as regulations under HIPAA, establish standards regarding electronic
health data transmissions and transaction code set rules for specific electronic transactions, such as transactions
involving claims submissions to third party payers. Certain of our electronic practice management products must
meet these requirements. Failure to abide by these and other electronic health data transmission standards could
expose us to breach of contract claims, substantial fines, penalties and other liabilities and expenses, costs for
remediation and harm to our reputation.
Also, the European Parliament and the Council of the European Union adopted the pan-European General Data
Protection Regulation (“GDPR”), effective from May 2018, which increased privacy rights for individuals in Europe,
including individuals who are our customers, suppliers, and employees. The GDPR extended the scope of
responsibilities for data controllers and data processors, and generally imposes increased requirements and
potential penalties on companies that offer goods or services to individuals who are located in Europe (“Data
Subjects”) or monitor their behavior (including by companies based outside of Europe). Noncompliance can result in
penalties of up to the greater of EUR 20 million, or 4% of global company revenues, and Data Subjects may seek
damages. Individual member states may impose additional requirements and penalties regarding certain matters
such as employee personal data. With respect to the personal data it protects, the GDPR requires, among other
things, company accountability, consents from Data Subjects or other acceptable legal basis to process the
personal data, breach notifications within 72 hours, data integrity and security, and fairness and transparency
regarding the storage, use or other processing of the personal data. The GDPR also provides rights to Data
Subjects relating notably to information, access, modification, erasure and transporting of the personal data.
In the U.S., the CCPA, which increases the privacy protections afforded California residents, became effective in
January 2020. The CCPA generally requires companies, such as us, to institute additional protections regarding the
collection, use and disclosure of certain personal information of California residents. Compliance with the new
obligations imposed by the CCPA depends in part on how particular regulators interpret and apply them.
Regulations were released in August 2020, there remains some uncertainty about how the CCPA will be interpreted
by the courts and enforced by the regulators. If we fail to comply with the CCPA or if regulators assert that we have
failed to comply with the CCPA, we may be subject to certain fines or other penalties and litigation, any of which
may negatively impact our reputation, require us to expend significant resources, and harm our business.
Furthermore, California voters approved the CPRA in November 2020, which will amend and expand the CCPA,
including by providing consumers with additional rights with respect to their personal information, and creating a
new state agency to enforce the CCPA and the CPRA. The CPRA will come into effect on January 1, 2023, applying
to information collected by business on or after January 1, 2022.
Other states, as well as the federal government, have increasingly considered the adoption of similarly expansive
personal privacy laws, backed by significant civil penalties for non-compliance. Virginia and Colorado were both
successful in passing privacy legislation in 2021, becoming effective on January 1, 2023 and July 1, 2023,
respectively. While we believe we have substantially compliant programs and controls in place to comply with the
GDPR, CCPA and CPRA requirements, our compliance with data privacy and cybersecurity laws is likely to impose
additional costs on us, and we cannot predict whether the interpretations of the requirements, or changes in our
practices in response to new requirements or interpretations of the requirements, could have a material adverse
effect on our business.
We also sell products and services that health care providers, such as dentists, use to store and manage patient
dental records. These customers, and we, are subject to laws, regulations and industry standards, such as HIPAA
and the Payment Card Industry Data Security Standards, which require the protection of the privacy and security of
those records, and our products may also be used as part of these customers’ comprehensive data security
programs, including in connection with their efforts to comply with applicable privacy and security laws. Perceived or
actual security vulnerabilities in our products or services, or the perceived or actual failure by us or our customers
who use our products or services to comply with applicable legal or contractual data privacy or security
requirements, may not only cause us significant reputational harm, but may also lead to claims against us by our
customers and/or governmental agencies and involve substantial fines, penalties and other liabilities and expenses
and costs for remediation.
Various federal initiatives involve the adoption and use by health care providers of certain electronic health care
records systems and processes. Moreover, in order to satisfy our customers, and comply with evolving legal
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requirements, our products may need to incorporate increasingly complex functionality, such as with respect to
reporting and information blocking. Although we believe we are positioned to accomplish this, the effort may involve
increased costs, and our failure to implement product modifications, or otherwise satisfy applicable standards, could
have a material adverse effect on our business.
E-Commerce
Electronic commerce solutions have become an integral part of traditional health care supply and distribution
relationships. Our distribution business is characterized by rapid technological developments and intense
competition. The continuing advancement of online commerce requires us to cost-effectively adapt to changing
technologies, to enhance existing services and to develop and introduce a variety of new services to address the
changing demands of consumers and our customers on a timely basis, particularly in response to competitive
offerings.
Through our proprietary, technologically based suite of products, we offer customers a variety of competitive
alternatives. We believe that our tradition of reliable service, our name recognition and large customer base built on
solid customer relationships, position us well to participate in this significant aspect of the distribution business. We
continue to explore ways and means to improve and expand our Internet presence and capabilities, including our
online commerce offerings and our use of various social media outlets.
International Transactions
U.S. and foreign import and export laws and regulations require us to abide by certain standards relating to the
importation and exportation of products. We also are subject to certain laws and regulations concerning the conduct
of our foreign operations, including the Foreign Corrupt Practices Act, the U.K. Bribery Act and other anti-bribery
laws and laws pertaining to the accuracy of our internal books and records, as well as other types of foreign
requirements similar to those imposed in the U.S.
There can be no assurance that laws and regulations that impact our business or laws and regulations as they
apply to our customers’ practices will not have a material adverse effect on our business. As a result of political,
economic and regulatory influences, the health care distribution industry in the U.S. is under intense scrutiny and
subject to fundamental changes. We cannot predict what further reform proposals, if any, will be adopted, when they
may be adopted, or what impact they may have on us.
See “Item 1A. Risk Factors” for a discussion of additional burdens, risks and regulatory developments that may
affect our results of operations and financial condition.
Proprietary Rights
We hold trademarks relating to the “Patterson®” name and logo, as well as certain other trademarks. Our U.S.
trademark registrations have 10-year terms, and may be renewed for additional 10-year terms. We intend to protect
our trademarks to the fullest extent practicable.
Human Capital
People are the most important part of Patterson. Our employees are the reason we can confidently say we offer
Trusted Expertise, Unrivaled Support to our customers every day.
As of April 30, 2022, we had approximately 7,700 full-time employees, of which approximately 6,300 were employed
in the U.S.
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Our culture is driven by our purpose, vision, and values:
As a people-first organization, the overall well-being of our team is important to us. Patterson’s total reward
philosophy is to provide market competitive pay and a range of benefit choices designed to meet our employees’
needs, reward for individual and business performance, and drive shareholder value. We support our employees’
health with medical, dental and vision plans, wellness programs to encourage healthy lifestyles and parental leave
for new mothers, fathers and domestic partners. Patterson supports employees’ financial well-being with matching
401K contributions, company-paid short-term disability insurance, and educational offerings throughout the year.
Our diverse talent acquisition programming includes a focus and commitment to hiring military personnel (both
current and inactive). We recognize that the skills developed in the military are highly valuable and beneficial to
Patterson, which is why we partner with more than 16 military organizations to find this top talent. We also partner
with Minnesota organizations that introduce high school students from underserved communities into the workplace
with internships in IT and other corporate functions, and we have a robust college internship program to establish a
pipeline of future talent and give students real-world experience.
To support the progression and career development of our employees, we offer multiple training and development
opportunities including on-demand courses, facilitator-led programs, mentoring relationships, tuition reimbursement
and leadership development programs. We have implemented targeted development programs for senior
leadership as well as emerging leaders in the organization. In addition, Patterson’s Environmental Health and
Safety (EHS) team promotes employee safety and environmental awareness through foundational systems and
activities, including safety training courses.
We are passionate about taking action to support the communities in which we serve. We provide opportunities for
and encourage employees to support local charitable organizations through volunteerism (including volunteer time
off), team building, and donation and matching programs. In addition, the Patterson Foundation has donated
millions of dollars to dental and animal health nonprofit organizations in order to increase access to oral health care
and increase the availability of assistance dogs to veterans, first responders and individuals with disabilities.
Quarterly grants are awarded with a preference to organizations where our employees volunteer and those our
employees value in their communities.
We believe that a diverse and inclusive workforce makes our company stronger, and we encourage our teams to
bring their authentic selves to Patterson every day. Our UNITES team is a volunteer-led initiative that has driven
various diversity and inclusion efforts, including the launch of employee-led affinity groups for our LGBTQA and
under-represented employee populations. Acting on the recommendation of the affinity groups, Patterson will add
Martin Luther King, Jr. Day as a company-paid holiday in 2023 in recognition of this important day to honor the
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sacrifices he made for racial equality. Patterson has several programs in place to support the advancement of
women in the workplace, both internally and in the industries we serve. Patterson has launched an enterprise-wide
Inclusive Leader program that all leaders will participate in by the end of 2023. As of April 30, 2022, 42.0% of our
U.S. workforce and 38.9% of our management was female. In addition, as of that date, 23.8% of our U.S. workforce
and 16.1% of our management was ethnically diverse.
To protect our employees and reduce the spread of COVID-19 in our communities during the pandemic, we
implemented numerous guidelines and safety protocols. Every team member who could work remotely did so, and
we implemented tools and resources to support our team members’ health and financial well-being by providing
paid time off for those who were quarantined or those who needed to support distance learning for school-age
children. During the pandemic, we expanded our medical plan to cover COVID-related health care and extended
paid time off to provide additional time for recovery and quarantine, as needed. We also continued to offer services
through our Employee Assistance Program and introduced an online tutoring program to assist parents with
students who were impacted by COVID.
Available Information
We make available free of charge through our website, www.pattersoncompanies.com, our Annual Report on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, statements of beneficial ownership of
securities on Forms 3, 4 and 5 and amendments to these reports and statements filed or furnished pursuant to
Section 13(a) and Section 16 of the Securities Exchange Act of 1934 as soon as reasonably practicable after such
materials are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission, or SEC. This
material may be accessed by visiting the Investor Relations section of our website.
In addition, the SEC maintains an Internet website at www.sec.gov, where the above information can be viewed.
Information relating to our corporate governance, including our Code of Conduct, and information concerning
executive officers, Board of Directors and Board committees, and transactions in Patterson securities by directors
and officers, is available on or through our website, www.pattersoncompanies.com in the Investor Relations section.
Information maintained on the website is not being included as part of this Annual Report on Form 10-K.
Item 1A. RISK FACTORS
We believe that the following risks could have a material adverse impact on our business, reputation, financial
results, financial condition and/or the trading price of our common stock. In addition, our business operations could
be affected by factors that are not presently known to us or that we currently consider not to be material to our
operations, so you should not consider the risks disclosed in this section to necessarily represent a complete
statement of all risks and uncertainties. The order in which these factors appear does not necessarily reflect their
relative importance or priority.
COMPANY RISKS
The COVID-19 pandemic and measures taken in response thereto had, and may continue to have, adverse
effects on our results of operations and our financial condition, and the full impact of the pandemic will
depend on future developments, which are uncertain and cannot be predicted.
Global health concerns relating to the COVID-19 pandemic have had, and may continue to have, an unprecedented
impact on the macroeconomic environment. Beginning in March 2020, across our markets authorities implemented
numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place
orders, and business shutdowns, and continued to implement such measures as new waves of infection developed.
These measures had negative impacts on consumer spending and business spending habits that adversely
impacted our financial results and the financial results of our customers, suppliers and business partners. Even after
the COVID-19 pandemic has begun to subside, we may again experience material adverse impacts to our business,
results of operations and cash flows as a result of, among other things, its global economic impact, including any
recession that may occur in the future, or a prolonged period of economic slowdown or reluctance of dental patients
and veterinary customers to return for elective care.
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Actual and potential impacts on us from the COVID-19 pandemic include, but are not limited to:
•
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Interruptions in the operations of industries in which the products we distribute are used. Our fiscal 2021
results were adversely affected by mandated and voluntary restrictions on the operations of dental and
veterinary offices across the U.S., Canada and the UK to limit the spread of COVID-19 beginning in March
2020, along with consumers delaying elective visits even when offices were open. These restrictions have
eased across our markets, but continuing economic uncertainty remains. In addition, the interruptions in
meatpacking operations that occurred due to the pandemic factored into the full goodwill impairment of the
animal health business in fiscal 2020. We have also been affected by, and may continue to be affected by,
disruptions in the swine market.
Limited supply of the personal protective equipment (PPE) necessary for dental practice and veterinary care
of companion animals followed by related inventory write down. Supply chain disruptions for PPE and an
increased demand for these products initially resulted in backorders of PPE and a potential scarcity in raw
materials to make PPE, causing substantial price increases. We had to prepay suppliers in order to obtain
PPE for resale to our customers, and as manufacturing caught up to increased demand for PPE, prices
dropped, impacting our margins and requiring us to write down certain inventory.
Reduction in peoples’ ability and willingness to be in public. Consumer behavior was materially changed by
mandates and recommendations designed to slow and limit the transmission of COVID-19 (including
business closures and restrictions, stay-at-home and similar measures), beginning in March 2020. While
such restrictions have largely lifted, consumer behavior remains uncertain and will depend on the actual
and potential for additional resurgences of COVID-19.
Risks of remote work. Most of our corporate employees shifted abruptly to working remotely under stay-at-
home orders imposed in March 2020, and many of our corporate employees continue to work remotely for
at least a portion of their work hours. Our utilization of remote work arrangements for corporate employees
could expose us to continuing cybersecurity risk.
Refocusing management resources. Mitigating the effects of COVID-19 has required, and will likely
continue to require, the investment of time and resources across our company, and may delay certain
strategic and other plans which could materially adversely affect our business.
Reputational risk associated with response to COVID-19. If we do not respond appropriately to additional
resurgences of COVID-19, or if customers do not perceive our response to be adequate, we could suffer
damage to our reputation and our brands, which could materially adversely affect our business.
Interruptions in manufacturing or distribution of products we distribute. Outbreaks in the communities in
which we operate could affect our ability to operate our distribution activities, and our suppliers could
experience similar manufacturing interruptions.
The impact of COVID-19 may also exacerbate other risks discussed below, any of which could have a material
adverse impact on us.
Uncertain macro-economic conditions, including inflationary pressure, could materially adversely affect
demand for dental and animal health products and services, thereby materially adversely affecting our
results of operations.
Uncertain macro-economic conditions that affect the economy and the economic outlook of the United States and
other parts of the world in which we operate could materially adversely affect our business, results of operations and
financial condition. In particular, recessionary or inflationary conditions and depressed levels of consumer and
commercial spending may also cause dental and animal health customers to reduce, modify, delay or cancel plans
to purchase the products and services we distribute and may cause suppliers to reduce their output or change their
terms of sale. Increased fuel and energy costs (for example, the price of gasoline) may adversely affect consumer
confidence and, thereby, reduce dental office visits. In addition, the average interest rate in our contract portfolio
may not increase at the same rate as interest rate markets, resulting in a reduction of gain on the contract 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.
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Customer retention and business development depend heavily on our relationships with our sales
representatives and service technicians, who interact directly with our customers, and the technological
products and services we offer.
The inability to attract or retain qualified employees, particularly sales representatives and service technicians who
relate directly with our customers, or our inability to build or maintain relationships with customers in the dental and
animal health markets, may have an adverse effect on our business. Due to the specialized nature of many of the
products and services we distribute, generally only highly qualified and trained personnel have the necessary skills
to market such products and provide such services. These individuals develop relationships with our customers that
could be damaged if these employees are not retained. We face intense competition for the hiring of these
professionals, we have experienced and are likely to continue to experience challenges in recruiting those with
technical expertise, and many professionals in the field that may otherwise be attractive candidates for us to hire
may be bound by non-competition agreements or other restrictive covenants with our competitors. Any failure on our
part to hire, train and retain a sufficient number of qualified professionals would damage our business.
Due to generational and other trends in the dental and animal health industries, our customer base is increasingly
interested in having the latest technologies to manage their business. In order to effectively offer solutions that keep
pace with rapidly changing technologies and customer expectations, we must acquire, develop or offer new
technology products and solutions. If we fail to accurately anticipate and meet our customers’ needs through the
acquisition, development or distribution of new products, technologies and service offerings, if we fail to adequately
protect our intellectual property rights, if the products we distribute and services we provide are not widely accepted
or if current or future offerings fail to meet applicable regulatory requirements, we could lose customers to our
competitors, which could materially and adversely affect our business, results of operations and financial condition.
In addition, if technology investments do not achieve the intended results, we may write-off the investments, and we
face the risk of claims from system users that the systems failed to produce the intended result or negatively
affected the operation of our customers’ businesses. Any such claims could be expensive and time-consuming to
defend, cause us to lose customers and associated revenue, divert management’s attention and resources, or
require us to pay damages.
Disruption to our distribution capabilities, including service issues with our third-party shippers, could
materially adversely affect our results.
Weather, natural disaster, fire, terrorism, pandemic, strikes, civil unrest, geopolitical events or other reasons could
impair our ability to distribute products and conduct our business. If we are unable to manage effectively such
events if they occur, there could be a material adverse effect on our business, results of operations and financial
condition. Similarly, increases in service costs or service issues with our third-party shippers, including strikes or
other service interruptions, could cause our operating expenses to rise and materially adversely affect our ability to
deliver products on a timely basis. We ship almost all of our orders through third-party delivery services, and often
times bear the cost of shipment. Our ability to provide same-day shipping and next-day delivery is an integral
component of our business strategy and any significant increase in shipping rates or service interruptions could
adversely impact our business, results of operations and financial condition.
We are dependent on our suppliers and exposed to the risks of their businesses, because we generally do
not manufacture the products we sell.
We obtain substantially all of the products we distribute from third parties. If a supplier is unable to deliver product in
a timely and efficient manner, whether due to financial difficulty, natural disaster, pandemic, the failure to comply
with applicable government requirements or other reasons, we could experience lost sales. We have experienced,
and may continue to experience, disruptions in the supply chains for third-party manufacturing of certain products
we distribute, including delays in obtaining or inability to obtain raw materials, the inflated price of product inputs,
disruptions in operations of logistics service providers and the resulting delays in shipments. This may have a
material adverse impact on our financial results if our customers are unwilling to accept such delays.
Our cost of goods also may be adversely impacted by unanticipated price increases due to factors such as inflation,
including wage inflation, or to supply restrictions beyond our control or the control of our suppliers. If current
suppliers fail to supply sufficient goods or materials to us on a timely basis, or at all, we could experience inventory
shortages and disruptions in our distribution of products.
In addition, there is considerable concentration within our animal health and dental businesses with a few key
suppliers. A portion of the products we distribute is sourced, directly or indirectly, from countries outside the U.S.
including China. Political or financial instability, increased tariffs, restrictions on trade, currency exchange rates,
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labor unrest, pandemic or other events could slow distribution activities, affect foreign trade beyond our control and
adversely affect our results of operations.
We generally do not have long-term contracts with our suppliers, so they may be discontinued or changed abruptly.
Changes in the structure of purchasing relationships might include changing from a “buy/sell” to an agency
relationship (or the reverse), or changing the method in which products are taken to market, including the possibility
of creating or expanding a direct sales force or otherwise reducing their reliance on third-party distribution channels.
Certain manufacturers of the products we distribute also engage in direct sales to customers. An extended
interruption in the supply of products would have an adverse effect on our results of operations, and a reduction in
our role as a value-added service provider would result in reduced margins on product sales.
The products we sell are subject to market and technological obsolescence; our software products may
contain undetected errors or bugs when released.
Some of the products we distribute are subject to technological obsolescence outside of our control, since we do not
manufacture the majority of the products we sell. If our customers discontinue purchasing a given product, we might
have to record expense related to the diminution in value of inventories we have in stock, and depending on the
magnitude, that expense could adversely impact our operating results.
Our software and applicable e-services products, like software products generally, may contain undetected errors or
bugs when introduced, or as new versions are released. Any such defective software may result in increased
expenses related to the software and could adversely affect our relationships with the customers using such
software, as well as our reputation. We do not have any patents on our software or e-services, and rely upon
copyright, trademark and trade secret laws, as well as contractual and common-law protections. We cannot provide
assurance that such legal protections will be available, adequate or enforceable in a timely manner to protect our
software or e-services products. The failure of our software and applicable e-services products to remain
competitive could materially adversely affect our business, results of operations and financial condition. In addition,
the cost to replace any such defective products may not generate a commensurate benefit.
Adverse changes in supplier rebates or other purchasing incentives could negatively affect our business.
The terms on which we purchase or sell products from many suppliers of animal health products may entitle us to
receive a rebate or other purchasing incentive based on the attainment of certain growth goals. Suppliers may
reduce or eliminate rebates or incentives offered under their programs, or increase the growth goals or other
conditions we must meet to earn rebates or incentives to levels that we cannot achieve. Increased competition
either from generic or equivalent branded products could result in us failing to earn rebates or incentives that are
conditioned upon achievement of growth goals. Additionally, factors outside of our control, such as customer
preferences, consolidation of suppliers or supply issues, can have a material impact on our ability to achieve the
growth goals established by our suppliers, which may reduce the amount of rebates or incentives we receive. The
occurrence of any of these events could have an adverse impact on our results of operations.
Sales of private label products entail additional risks, including the risk that such sales could adversely
affect our relationships with suppliers.
We offer certain private label products that are available exclusively from us. The sale of such products subjects us
to the risks generally encountered by entities that source, market and sell private label products, including but not
limited to potential product liability risks, mandatory or voluntary product recalls, potential supply chain and
distribution chain disruptions, and potential intellectual property infringement risks. Any failure to adequately address
some or all of these risks could have an adverse effect on our business, results of operations and financial
condition.
In addition, an increase in the sales of our private label products may negatively affect our sales of products owned
by our suppliers which, consequently, could adversely impact certain of our supplier relationships. Our ability to
locate qualified, economically stable suppliers who satisfy our requirements, and to acquire sufficient products in a
timely and effective manner, is critical to ensuring, among other things, that customer confidence is not diminished.
As a distribution company, any failure to develop sourcing relationships with a broad and deep supplier base could
adversely affect our financial performance and erode customer loyalty.
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Patterson’s continued success is substantially dependent on positive perceptions of Patterson’s
reputation.
One of the reasons why customers choose to do business with Patterson and why employees choose Patterson as
a place of employment is the reputation that Patterson has built over many years. To be successful in the future,
Patterson must continue to preserve, grow and leverage the value of Patterson’s brand. Reputational value is based
in large part on perceptions of subjective qualities. Even an isolated incident, or the aggregate effect of individually
insignificant incidents, can erode trust and confidence, particularly if they result in adverse publicity, governmental
investigations or litigation, and as a result, could tarnish Patterson’s brand and lead to adverse effects on our
business, results of operations and financial condition.
Maintaining consistent product quality, competitive pricing, and availability of our private label products is essential
to developing and maintaining customer loyalty and brand awareness. These products often have higher margins
than national brand products. If one or more of these brands experience a loss of consumer acceptance or
confidence, our sales and gross margin could be adversely affected.
Risks inherent in asset or business acquisitions and dispositions could offset the anticipated benefits of
such transactions, and we may face difficulty in efficiently and effectively integrating acquired businesses.
As a part of our business strategy, we acquire and dispose of assets and businesses in the ordinary course and
may continue acquiring and disposing of assets and businesses in the future. These transactions can involve a
number of risks and challenges, any of which could cause significant operating inefficiencies and adversely affect
our growth and profitability, and may not result in the benefits and revenue growth we expect.
Acquisition 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; acquisition-related earnings charges; and acquisition-related cybersecurity risks. Additionally, when we
decide to sell assets or a business, we may encounter difficulty in finding buyers or executing alternative exit
strategies on acceptable terms in a timely manner, which could delay the accomplishment of our strategic
objectives. Alternatively, we may dispose of assets or a business at a price or on terms that are less than we had
anticipated. Dispositions may also involve continued financial involvement in a divested business, such as through
continuing equity ownership, transition service agreements, guarantees, indemnities or other current or contingent
financial obligations. Under these arrangements, performance by the acquired or divested business, or other
conditions outside our control, could affect our future financial results.
As we operate through two strategic business units, we consolidate the distribution, information technology, human
resources, financial and other administrative functions of those business units jointly to meet their needs while
addressing distinctions in the individual markets of those segments. We may not be able to do so effectively and
efficiently.
Our ability to continue to make acquisitions will depend upon our success in identifying suitable targets, which
requires substantial judgment in assessing their values, strengths, weaknesses, liabilities and potential profitability,
as well as the availability of suitable candidates at acceptable prices, whether restrictions are imposed by anti-trust
or other regulations, and compliance with the terms and conditions of our credit agreement.
In addition, to the extent we acquire technology, manufacturing or other businesses ancillary to our core distribution
operations, any such newly acquired business may require the investment of additional capital and significant
involvement of our senior management to integrate such business with our operations, which could place a strain on
our management, other personnel, resources and systems.
Our credit agreements contain restrictive covenants and additional limits and our other debt instruments
contain cross-default provisions, which limit our business and financing activities.
The covenants under our credit agreements impose restrictions on our business and financing activities, subject to
certain exceptions or the consent of our lenders, including, among other things, limits on our ability to incur
additional debt, create liens, enter into certain merger, acquisition and divestiture transactions, pay dividends and
engage in transactions with affiliates. The credit agreements contain certain customary affirmative covenants,
including requirements that we maintain a maximum consolidated leverage ratio and a minimum consolidated
interest coverage ratio, pursuant to which we may be affected by changes in interest rates, and customary events of
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default. The terms of agreements governing debt that we may incur in the future may also contain similar
covenants.
Our ability to comply with these covenants may be adversely affected by events beyond our control, including
economic, financial and industry conditions. A breach of the credit agreement covenants may result in an event of
default, which could allow our lenders to terminate the commitments under the credit agreement, declare all
amounts outstanding under the credit agreement, together with accrued interest, to be immediately due and
payable, and exercise other rights and remedies, and, through cross-default provisions, would entitle our other
lenders to accelerate their loans. If this occurs, we may not be able to refinance the accelerated indebtedness on
acceptable terms, or at all, or otherwise repay the accelerated indebtedness.
In addition, borrowings under certain of our debt instruments are made at variable rates of interest and expose us to
interest rate volatility. Interest rates increased during the fourth quarter of fiscal 2022. If interest rates continue to
increase, our debt service obligations on certain of our variable rate indebtedness will increase even though the
amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our
indebtedness, will correspondingly decrease.
Turnover or loss of key personnel or highly skilled employees, including executive officers, could disrupt
our operations and any inability to attract and retain qualified personnel could harm our business.
Our future success depends partly on the continued service of our highly qualified and well-trained key personnel,
including executive officers. Any unplanned turnover or our failure to develop an adequate succession plan for key
positions could reduce our institutional knowledge base and erode our competitive advantage. While our Board of
Directors and management actively monitor our succession plans and processes for our executive leadership team,
our business could be adversely impacted if we lose key personnel unexpectedly. Competition for senior
management is intense and we may not be successful in attracting and retaining key personnel.
In addition, factors including reduced employment pools have contributed to increased labor shortages and
employee turnover within our organization. These trends have led to, and could in the future lead to, increased
costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees. A
prolonged labor shortage, lack of skilled labor, increased turnover or labor inflation could materially adversely affect
our business, results of operations and financial condition.
Our governing documents, other documents to which we are a party, and Minnesota law may discourage
takeovers and business combinations that our shareholders might consider to be in their best interests.
Anti-takeover provisions of our articles of incorporation, bylaws, and Minnesota law could diminish the opportunity
for shareholders to participate in acquisition proposals at a price above the then-current market price of our
common stock. For example, while we have no present plans to issue any preferred stock, our Board of Directors,
without further shareholder approval, may issue up to approximately 30 million shares of undesignated preferred
stock and fix the powers, preferences, rights and limitations of such class or series, which could adversely affect the
voting power of our common stock. Further, as a Minnesota corporation, we are subject to provisions of the
Minnesota Business Corporation Act regarding “control share acquisitions” and “business combinations.” We may
also, in the future, consider adopting additional anti-takeover measures. In addition, certain equity plans predating
our 2015 Omnibus Incentive Plan provide for acceleration of awards thereunder upon a change in control or other
events of acceleration, as defined in those plans. The foregoing, and any future anti-takeover measures adopted by
us, may, in certain circumstances, delay, deter or prevent takeover attempts and other changes in control of our
company not approved by our Board of Directors.
Our business and operations are subject to risks related to climate change.
The long-term effects of global climate change present both physical risks (such as extreme weather conditions or
rising sea levels) and transition risks (such as regulatory or technology changes), which are expected to be
widespread and unpredictable. These changes could over time affect, for example, the availability and cost of
products, commodities and energy (including utilities), which in turn may impact our ability to procure goods or
services required for the operation of our business at the quantities and levels we require. In addition, certain of our
operations and facilities are in locations that may be impacted by the physical risks of climate change, and we face
the risk of losses incurred as a result of physical damage to distribution or fulfillment centers of our third-party
suppliers, loss or spoilage of inventory and business interruption caused by such events. Insurance may not be
available or cost effective for the coverage limits needed.
23
INDUSTRY RISKS
The dental and animal health supply markets are highly competitive and consolidating, and we may not be
able to compete successfully.
Our competitors include national, regional and local full-service distributors, mail-order distributors and Internet-
based businesses. Some of our competitors have greater resources than we do, or operate through different sales
and distribution models that could allow them to compete more successfully.
Most of the products we distribute are available from multiple sources, and our customers tend to have relationships
with several different distributors who can fulfill their orders. If any of our competitors are more successful with
respect to any key competitive factor such as technological advances or low-cost business models with the ability to
operate at high gross margins, our sales and profitability could be adversely affected. Increased competition from
any supplier of dental or animal health products could adversely impact our financial results. Additional competitive
pressure could arise from, among other things, limited demand growth or a significant number of additional
competitive products or services being introduced into a particular market, the emergence of new competitors, the
unavailability of products, price reductions by competitors, and the ability of competitors to capitalize on their
economies of scale. Manufacturers also could increase their efforts to sell directly to end-users and thereby
eliminate or reduce the role of distributors. These suppliers could sell their products at lower prices and maintain a
higher gross margin on product sales than we can. In addition, our ability to deliver market growth is challenged by
an animal health product mix that is weighted toward lower growth, lower margin parts of the value chain.
Consolidation has increased among manufacturers as well as distributors, which could cause the industry to
become more competitive as greater economies of scale are achieved by competitors, or as competitors with lower
cost business models are able to offer lower prices but retain high gross margin. In addition, in recent years there
has also been a trend towards consolidation in the industries that buy the products and services we distribute,
including the consolidation of dental practices into larger clinics and dental service organizations, the consolidation
of veterinary practices as well as producers, and the formation of group purchasing organizations, provider networks
and buying groups designed to leverage volume discounts. We also face pricing pressure from branded
pharmaceutical manufacturers which could adversely affect our sales and profitability. We may be unable to
anticipate and effectively respond to competitive change, and our failure to compete effectively may limit and/or
reduce our revenue, profitability and cash flow.
Our animal health segment is exposed to the risks of the production animal business, including changes in
consumer demand for food animal products, the cyclical livestock market, weather conditions and the
availability of natural resources, and other factors outside our control, as well as risks of the companion
animal business, including the possibility of disease adversely affecting the pet population.
Demand for our production animal health products can be negatively influenced by factors including: weather
conditions (including those that may be related to climate change), varying weather patterns and weather-related
pressures from pests; changes in consumer preferences away from food animal products, including increased
promotions and publicity for food products containing plant-based protein; supply chain disruptions including due to
cyberattack, or actions by animal rights activists; and outbreaks of diseases affecting animals, any of which could
reduce herd sizes or affect consumer preferences. Reductions in herd size would ultimately decrease the demand
for the products we distribute, including micro feed ingredients, animal health products, and dairy sanitation
solutions, as well as the development and implementation of systems for feed, health, information and production
animal management.
In addition, there has been consumer concern and consumer activism with respect to additives (including, without
limitation, antibiotics and growth promotants) used in the production of animal products, including growing consumer
sentiment for proteins and dairy products produced without the use of antibiotics or other products intended to
increase animal production. These concerns have resulted in increased regulation and changing market demand. If
there is an increased public perception that consumption of food derived from animals that utilize additives we
distribute poses a risk to human health, there may be a further decline in the production of those food products and,
in turn, our sales of those products. Furthermore, regulatory restrictions and bans could result in the removal from
market of products in these categories, which would adversely affect the sales and could materially affect the results
of operations from our animal health segment.
Farm animal producers depend on the availability of natural resources, including large supplies of fresh water. Their
animals’ health and their ability to operate could be adversely affected if they experience a shortage of fresh water
due to human population growth or floods, droughts or other weather conditions. In the event of adverse weather
24
conditions or a shortage of fresh water, veterinarians or farm animal producers may purchase less of our products.
Further, heat waves may cause stress in animals and lead to increased vulnerability to disease, reduced fertility
rates and reduced milk production. Droughts may threaten pasture and feed supplies by reducing the quality and
amount of forage available to grazing livestock, while climate change may increase the prevalence of parasites and
diseases that affect farm animals.
Veterinary hospitals and practitioners depend on visits from the animals under their care. Veterinarians’ patient
volume and ability to operate could be adversely affected if there is a reduction in the companion animal population,
such as due to disease outbreak.
The formation or expansion of group purchasing organizations (“GPOs”), provider networks and buying
groups may place us at a competitive disadvantage.
The formation or expansion of GPOs, provider networks and buying groups may shift purchasing decisions to
entities or persons with whom we do not have a historical relationship and may threaten our ability to compete
effectively, which could in turn negatively impact our financial results. As a full-service distributor with business
service capabilities, we cannot guarantee that we will be able to successfully compete with price-oriented
distribution models that more readily enable the pricing typically demanded by those with significant purchasing
power.
Increases in over-the-counter sales of and e-commerce options for companion animal products, or sales of
companion animal products from non-veterinarian sources, could adversely affect our business.
Companion animal health products are becoming increasingly available to consumers at competitive prices from
sources other than veterinarians, including human health product pharmacies, Internet pharmacies and big-box
retailers, and consumers are increasingly seeking such alternatives sources of supply for their companion animal
health products. Additionally, major U.S. online e-commerce retailers such as Amazon and Chewy.com are
becoming licensed as veterinary mail order pharmacies to offer pharmacy products directly to consumers in all 50
U.S. states. Even where prescriptions must be written by a veterinarian, companion animal owners may shift to
these services for home delivery. In addition, companion animal owners may substitute human health products for
animal-health products if they deem human health products to be acceptable, lower-cost alternatives.
Decreased emphasis on veterinary visits, and increased consumer choice through familiar e-commerce retailers
could reduce demand for veterinarian-based services and have a material adverse impact on our business. The
continued advancement of online commerce by third parties will require us to cost-effectively adapt to changing
technologies, to enhance existing services and to differentiate our business (including with additional value-added
services) to address changing demands of consumers and our customers on a timely basis. The emergence of such
competition and our inability to anticipate and effectively respond to shifts in consumer traffic patterns and direct-to-
consumer buying trends on a timely basis could have a material adverse effect on our business.
REGULATORY AND LITIGATION RISKS
Change and uncertainty in the health care industry could materially adversely affect our business.
Laws and regulations affecting the health care industry in the U.S., including the ACA, have changed and may
continue to change the landscape in which our industry operates. Foreign government authorities may also adopt
reforms of their health systems. We cannot predict what further reform proposals, if any, will be adopted, when they
may be adopted, or what impact they may have on us. The Biden Administration has indicated that it will be more
aggressive in its pursuing alleged violations of law, and it has revoked certain guidance that would have limited
governmental use of informal agency guidance to pursue such violations.
In recent years, there has been increasing scrutiny on drug pricing and concurrent efforts to control or reduce drug
costs by Congress, the President, and various states, including several bills that have been introduced on a federal
level. Such legislation, if enacted, could have the potential to impose additional costs on our business.
One provision of the ACA, the Sunshine Act, requires us to collect and report detailed information regarding certain
financial relationships we have with covered recipients, including physicians, dentists, teaching hospitals and certain
other non-physician practitioners. We may also be required to report under certain state transparency laws that
address circumstances not covered by the Sunshine Act, and some of these state laws, as well as the federal law,
can be unclear. We are also subject to foreign regulations requiring transparency of certain interactions between
25
suppliers and their customers. Our compliance with these rules imposes additional costs on us. In the U.S.,
government actions to seek to increase health-related price transparency may also affect our business.
Failure to comply with existing and future U.S. and foreign laws and regulatory requirements, including
those governing the distribution of pharmaceuticals and controlled substances, could subject us to claims
or otherwise harm our business.
Our business is subject to requirements under various local, state, federal and international laws and regulations
applicable to the sale and distribution of, and third-party payment for, pharmaceuticals and medical devices, and
human cells, tissue and cellular and tissue-based products (“HCT/P products”) and animal feed and supplements.
Among other things, such laws, and the regulations promulgated thereunder:
•
•
•
•
•
•
•
•
•
•
•
•
regulate the introduction, manufacture, advertising, marketing and promotion, sampling, pricing and
reimbursement, labeling, packaging, storage, handling, returning or recalling, reporting, and distribution of,
and record keeping for drugs, HCT/P products and medical devices, including requirements with respect to
unique medical device identifiers;
subject us to inspection by the U.S. Food and Drug Administration (“FDA”) and the U.S. Drug Enforcement
Administration (the “DEA”) and similar state authorities;
regulate the storage, transportation and disposal of certain products that are considered hazardous
materials;
regulate the distribution and storage of pharmaceuticals and controlled substances;
require us to advertise and promote our drugs and devices in accordance with applicable FDA
requirements;
require registration with the FDA and the DEA and various state agencies;
require record keeping and documentation of transactions involving drug products;
require us to design and operate a system to identify and report suspicious orders of controlled substances
to the DEA;
require us to manage returns of products that have been recalled and subject us to inspection of our recall
procedures and activities;
impose on us reporting requirements if a pharmaceutical, HCT/P product or medical device causes serious
illness, injury or death;
require manufacturers, wholesalers, repackagers and dispensers of prescription drugs to identify and trace
certain prescription drugs as they are distributed;
require the licensing of prescription drug wholesalers and third-party logistics providers; and
• mandate compliance with standards for the recordkeeping, storage and handling of prescription drugs, and
associated reporting requirements.
There also have been increasing efforts by Congress and state and federal agencies, including state boards of
pharmacy, departments of health, and the FDA, to regulate the pharmaceutical distribution system. The failure to
comply with any of these laws and regulations, or new interpretations of existing laws and regulations, or the
enactment of any new or additional laws and regulations, could materially adversely affect our business. If it is
determined that we have not complied with these laws, we are potentially subject to penalties including warning
letters, substantial civil and criminal fines and penalties, mandatory recall of product, seizure of product and
injunction, consent decrees, and suspension or limitation of product sale and distribution, all of which could have a
material adverse effect on our business. If we enter into settlement agreements to resolve allegations of non-
compliance, we could be required to make settlement payments or be subject to civil and criminal penalties,
including fines and the loss of licenses. Non-compliance with government requirements could also adversely affect
our ability to participate in federal and state government health care programs, such as Medicare and Medicaid, and
damage our reputation.
We remain subject to compliance certification obligations through fiscal 2023 as required by the non-prosecution
agreement that was entered into in connection with the investigation of our subsidiary Animal Health International by
the U.S. Attorney’s Office for the Western District of Virginia. This investigation resulted in Animal Health
International pleading guilty to a strict liability misdemeanor offense in connection with its failure to comply with
federal law relating to the sales of prescription animal health products, and a total criminal fine and forfeiture of
$52.8 million. In the course of our business, we also may be subject to other fines or penalties, equitable remedies
(including but not limited to the suspension, revocation or non-renewal of licenses) and litigation. The occurrence of
26
any of these events may divert management's attention, cause us to suffer reputational harm and adversely affect
our business, financial condition and results of operations.
If we fail to comply with laws and regulations relating to health care fraud or other laws and regulations, we
could suffer penalties or be required to make significant changes to our operations, which could materially
adversely affect our business.
We are subject to federal and state (and similar foreign) health care fraud and abuse, referral and reimbursement
laws and regulations, including those referred to as “false claims laws” and “anti-kickback” laws. Health care fraud
measures may implicate, for example, our relationships with pharmaceutical manufacturers, our pricing and
incentive programs for physician and dental practices, and our practice management products that offer billing-
related functionality.
Failure to comply with fraud and abuse laws and regulations could result in significant civil and criminal penalties
and costs, including treble damages and substantial civil penalties under the federal False Claims Act as well as
potential loss of licenses and the ability to participate in federal and state health care programs, criminal penalties,
or imposition of a corporate compliance monitor, which could have a material adverse effect on our business. Also,
these measures may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that
could require us to make changes in our operations or incur substantial defense and settlement expenses. Even
unsuccessful challenges by regulatory authorities or private regulators could result in reputational harm and the
incurring of substantial costs. Most states have adopted similar state false claims laws, and these state laws have
their own penalties which may be in addition to federal False Claims Act penalties, as well as other fraud and abuse
laws. In addition, many of these laws are vague or indefinite and have not been interpreted by the courts, and have
been subject to frequent modification and varied interpretation by prosecutorial and regulatory authorities,
increasing the risk of noncompliance.
We are subject to a variety of litigation that could adversely affect our business, results of operations and
financial condition.
We are subject to a variety of litigation incidental to our business, including product liability claims, intellectual
property claims, employment claims, commercial disputes, governmental inquiries and investigations, and other
matters arising out of the ordinary course of our business, including securities litigation. From time to time we are
named as a defendant in cases as a result of our distribution of products. Additionally, purchasers of private-label
products may seek recourse directly from us, rather than the ultimate product manufacturer, for product-related
claims. Another potential risk we face in the distribution of products is liability resulting from counterfeit or tainted
products infiltrating the supply chain. In addition, some of the products that we transport and sell are considered
hazardous materials. The improper handling of such materials or accidents involving the transportation of such
materials could subject us to liability or legal action that could harm our reputation.
Defending against such claims may divert our resources and management’s attention over lengthy periods of time,
may be expensive, and may require that we pay substantial monetary awards or settlements, pay fines or penalties,
or become subject to equitable remedies (including but not limited to the revocation of or non-renewal of licenses)
that could materially and adversely affect our business, results of operations and financial condition. A successful
claim brought against us in excess of available insurance or not covered by insurance or indemnification
agreements, or any claim that results in significant adverse publicity against us, could have a material adverse
effect on our business and our reputation. Furthermore, the outcome of litigation is inherently uncertain.
If we fail to comply with the evolving laws and regulations relating to the confidentiality of sensitive
personal information or standards in electronic health records or transmissions, we could be required to
make significant changes to our products, or incur substantial fines, penalties or other liabilities.
Our practice management products and services include electronic information technology systems that store and
process personal health, clinical, financial and other sensitive information of individuals. Both we and our customers
are subject to numerous and evolving laws, regulations and industry standards, such as HIPAA and the Payment
Card Industry Data Security Standards, which require the protection of the privacy and security of those records.
Furthermore, our products may be used as part of our customers’ comprehensive data security programs, including
in connection with their efforts to comply with applicable privacy and security laws. We are also subject to non-
healthcare-specific requirements of the countries and states in which we operate which govern the handling,
storage, use and protection of personal information, such as the California Consumer Privacy Act, or CCPA, which
is a state statute intended to enhance privacy rights and consumer protection for residents of California, the
27
California Privacy Rights Act, or CPRA, that will become effective on January 1, 2023, and the pan-European
General Data Protection Regulation, or GDPR.
In addition, the FDA has become increasingly active in addressing the regulation of computer software intended for
use in health care settings, and has developed and continues to develop policies on regulating clinical decision
support tools and other types of software as medical devices. Certain of our software and related products support
practice management, and it is possible that the FDA or foreign government authorities could determine that one or
more of our products is a medical device, which could subject us or one or more of our businesses to substantial
additional requirements, costs and potential enforcement actions or liabilities for noncompliance with respect to
these products.
Both in the U.S. and abroad, these laws and regulations continue to evolve and remain subject to significant
change. In addition, the application and interpretation of these laws and regulations are often uncertain. If we fail to
comply with such laws and regulations, we could be required to make significant changes to our products or
services, or incur substantial fines, penalties, or other liabilities. The costs of compliance with, and the other
burdens imposed by, new or existing laws or regulatory actions may prevent us from selling the products or services
we distribute, or increase the costs of doing so, and may affect our decision to distribute such products or services.
Also, evolving laws and regulations in this area could restrict the ability of our customers to obtain, use or
disseminate patient information, or could require us to incur significant additional costs to conform to these legal
requirements, either of which could have a material adverse effect on our operations.
In addition, the products and services we distribute may be vulnerable to breakdown, wrongful intrusions, data
breaches and malicious attack. Perceived or actual security vulnerabilities in these products or services, or the
perceived or actual failure by us or our customers who use these products or services to comply with applicable
legal or contractual data privacy or security requirements, may not only cause reputational harm and loss of
business, but may also lead to claims against us by our customers and/or governmental agencies and involve
substantial damages, fines, penalties and other liabilities and expenses and costs for remediation.
Tax legislation could materially adversely affect our financial results and tax liabilities.
We are subject to the tax laws and regulations of the United States federal, state and local governments, as well as
foreign jurisdictions which are extremely complex and subject to varying interpretations. From time to time, various
legislative initiatives may be proposed that could materially adversely affect our tax positions. There can be no
assurance that our effective tax rate will not be materially adversely affected by legislation resulting from these
initiatives. In addition, although we believe that our historical tax positions are sound and consistent with applicable
laws, regulations and existing precedent, there can be no assurance that our tax positions will not be challenged by
relevant tax authorities or that we would be successful in any such challenge.
Our international operations are subject to inherent risks that could adversely affect our operating results.
There are a number of risks inherent in foreign operations, including the U.S. Foreign Corrupt Practices Act and the
U.K. Bribery Act, complex regulatory requirements, staffing and management complexities, import and export costs,
other economic factors and political considerations, all of which are subject to unanticipated changes.
Our foreign operations also expose us to foreign currency fluctuations. Because our financial statements are
denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies will
have an impact on our income. Currency exchange rate fluctuations may adversely affect our results of operations
and financial condition. Furthermore, we generally do not hedge translation exposure with respect to foreign
operations.
GENERAL RISKS
Risks generally associated with information systems, software products and cybersecurity attacks could
adversely affect our results of operations.
We rely on information systems (“IS”) in our business to obtain, rapidly process, analyze and store customer,
product, supplier, and employee data to conduct our business. We also work to update our IS, such as our
enterprise resource planning software. However, our IS are vulnerable to natural disasters, power losses, computer
viruses, telecommunication failures, cybersecurity threats, and other problems. We increasingly rely upon server-
and Internet-based technologies to run our business and to store our data and our customers’ data, which depend
28
on continuous Internet access and may carry additional cybersecurity risks relative to those posed by legacy
technologies.
From time to time, we have had to address non-material security incidents. There can be no assurance that we will
not experience security incidents in the future. Despite our efforts to ensure the integrity of our systems, as cyber
threats evolve and become more difficult to detect and successfully defend against, one or more cyber threats might
defeat the measures that we or our vendors take to anticipate, detect, avoid or mitigate such threats. Data breaches
and any unauthorized access or disclosure of our information could compromise our intellectual property and
expose sensitive business information. Cyber-attacks could also cause us to incur significant remediation costs,
disrupt key business operations, and divert attention of management.
Further, our suppliers, our customers, including purchasers of our software products, and other market participants
are similarly subject to information system and cybersecurity risk, and a material disruption in their business could
result in reduced revenue for us. For example, in June 2021 a ransomware attack on Brazil-based JBS SA, the
world’s largest meat company by sales, took a significant portion of U.S. beef and pork processing offline, disrupting
markets. In addition, compliance with evolving privacy and information security laws and standards may result in
significant additional expense due to increased investment in technology and the development of new operational
processes. We could be subject to liability if we fail to comply with these laws and standards, fail to protect
information, or fail to respond appropriately to an incident or misuse of information, including use of information for
unauthorized marketing purposes.
Our business, results of operations and cash flows could be adversely affected if our IS or the software products we
sell are interrupted, damaged by an unforeseen event, experience cybersecurity attack, or fail for any extended
period of time. Disaster recovery plans, where in place, might not adequately protect us in the event of an IS failure.
Despite any precautions we take, damage from fire, floods, hurricanes, power loss, telecommunications failures,
computer viruses, break-ins and similar events at our various computer facilities could result in interruptions in the
flow of data to our servers. We may need to expend additional resources in the future to continue to protect against,
or to address problems caused by, any business interruptions or data security breaches.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
We own our principal executive offices in St. Paul, Minnesota, and the majority of our distribution facilities. Leases of
other distribution 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. We believe our properties are in good operating condition and are suitable for the purposes
for which they are being used.
Patterson Logistics Services
The majority of assets we use to distribute product are owned and operated by Patterson Logistics Services, Inc.
(“PLSI”), a wholly-owned subsidiary, which operates the distribution function for the benefit of our dental and animal
health segments in the U.S. PLSI also advises on the operations of our fulfillment centers outside of the U.S., but
these properties are not owned by PLSI.
As of April 30, 2022, PLSI operated the following 13 fulfillment centers (seven primary centers) totaling 1.0 million
square feet:
•
•
•
two dental fulfillment centers (Hawaii and Texas);
four animal health fulfillment centers (Alabama, Colorado and Texas (two)); and
seven fulfillment centers that distribute dental and animal health products (California, Florida, Indiana, Iowa,
Pennsylvania, South Carolina and Washington).
Approximately 90% of the PLSI fulfillment center space is owned.
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Dental
The Dental segment is headquartered in our principal executive offices, and maintains sales and administrative
offices at approximately 55 locations across 39 states in the U.S. and 10 locations in Canada, the majority of which
are leased. Operations in Canada are supported by fulfillment centers located in Quebec and Alberta. In addition,
this segment operates the Patterson Technology Center, a 100,000 square-foot facility in Illinois.
Animal Health
In addition to the locations operated by PLSI, Patterson Animal Health has approximately 100 properties located in
the U.S., Canada and the U.K., the majority of which are leased. In the U.S., these properties are in 82 locations
across 28 states, and comprise fulfillment centers, storage locations, sales and administrative offices, retail stores
and call centers. In Canada, operations are supported by two fulfillment centers located in Alberta and Ontario. The
segment’s operations in the U.K. are supported by a primary distribution facility in Stoke-on-Trent and an additional
10 depots used as secondary distribution points and 3 laboratory sites throughout the U.K. The headquarters for
this segment are located in a leased office in Colorado.
Item 3. LEGAL PROCEEDINGS
For a discussion of Legal Proceedings, see Note 17 - Litigation of the Notes to the Consolidated Financial
Statements included under Item 8.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Patterson’s common stock trades on the NASDAQ Global Select Market® under the symbol “PDCO.”
Holders
On June 21, 2022, the number of holders on record of common stock was 1,675. The transfer agent for Patterson’s
common stock is EQ Shareowner Services, 1110 Centre Pointe Curve, Suite 101, Mendota Heights, Minnesota
55120, telephone: (800) 468-9716.
Dividends
In fiscal 2022, a quarterly cash dividend of $0.26 per share was declared throughout the year. In fiscal 2022,
dividends were declared each quarter, with payment occurring in the subsequent quarter. We currently expect to
declare and pay quarterly cash dividends in the future, but any future dividends will be subject to approval by our
Board of Directors, which will depend on our earnings, capital requirements, operating results and financial
condition, as well as applicable law, regulatory constraints, industry practice and other business considerations that
our Board considers relevant. We are also subject to various financial covenants under our debt agreements
including the maintenance of leverage and interest coverage ratios. The terms of agreements governing debt that
we may incur in the future may also contain similar covenants. Accordingly, there can be no assurance that we will
declare and pay dividends in the future at the same rate or at all.
Purchases of Equity Securities by the Issuer
On March 16, 2021, the Board of Directors authorized a $500 million share repurchase program through March 16,
2024.
The following table presents activity under the stock repurchase plan during the fourth quarter of fiscal 2022.
Total Number of
Shares Purchased
Average Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Dollar
Value of Shares
That May Yet Be
Purchased Under
the Plan
January 30, 2022 to February 26, 2022
February 27, 2022 to March 26, 2022
March 27, 2022 to April 30, 2022
— $
—
1,032,416
1,032,416 $
—
—
33.90
33.90
— $ 500,000,000
—
500,000,000
1,032,416
465,000,000
1,032,416 $ 465,000,000
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Performance Graph
The graph below compares the cumulative total shareholder return on $100 invested at the market close on April
29, 2017, through April 30, 2022, with the cumulative return over the same time period on the same amount
invested in the S&P 500, the S&P Mid-Cap 400 and the S&P 500 Healthcare Index. We are transitioning to the S&P
Mid-Cap 400 as our broad market index because it is the index against which our performance is compared to
determine cumulative rTSR modifiers for our performance units.
Fiscal Year Ending
4/29/2017
4/28/2018
4/27/2019
4/25/2020
4/24/2021
4/30/2022
100.00
100.00
100.00
100.00
55.11
114.20
110.92
112.68
53.21
128.28
117.60
122.19
39.35
126.28
94.04
141.16
89.19
189.21
168.97
177.03
84.82
189.68
155.94
189.57
Patterson Companies, Inc.
S&P 500
S&P Mid-Cap 400
S&P 500 Healthcare Index
Item 6. [RESERVED]
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DOLLARSCOMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURNPatterson Companies, Inc.S&P 500S&P Mid-Cap 400S&P 500 Healthcare Index4/29/20174/28/20184/27/20194/25/20204/24/20214/30/2022050100150200250
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Our financial information for fiscal 2022 is summarized in this Management’s Discussion and Analysis and the
Consolidated Financial Statements and related Notes. The following background is provided to readers to assist in
the review of our financial information.
We present three reportable segments: Dental, Animal Health and Corporate. Dental and Animal Health are
strategic business units that offer similar products and services to different customer bases. Dental provides a
virtually complete range of consumable dental products, equipment and software, turnkey digital solutions and
value-added services to dentists and dental laboratories throughout North America. Animal Health is a leading, full-
line distributor in North America and the U.K. of animal health products, services and technologies to both the
production-animal and companion-pet markets. Our Corporate segment is comprised of general and administrative
expenses, including home office support costs in areas such as information technology, finance, legal, human
resources and facilities. In addition, customer financing and other miscellaneous sales are reported within Corporate
results.
Operating margins of the animal health business are lower than the dental business. While operating expenses run
at a lower rate in the animal health business when compared to the dental business, gross margins in the animal
health business are lower due generally to the low margins experienced on the sale of pharmaceutical products.
We operate with a 52-53 week accounting convention with our fiscal year ending on the last Saturday in April. Fiscal
2022 ended on April 30, 2022 and consisted of 53 weeks. Fiscal 2021 and 2020 ended on April 24, 2021 and April
25, 2020, respectively, and both consisted of 52 weeks. Fiscal 2023 will end on April 29, 2023 and will consist of 52
weeks.
We believe there are several important aspects of our business that are useful in analyzing it, including: (1) growth
in the various markets in which we operate; (2) internal growth; (3) growth through acquisition; and (4) continued
focus on controlling costs and enhancing efficiency. Management defines internal growth as net sales adjusted to
exclude the impact of foreign currency, changes in product selling relationships and contributions from recent
acquisitions. Foreign currency impact represents the difference in results that is attributable to fluctuations in
currency exchange rates the company uses to convert results for all foreign entities where the functional currency is
not the U.S. dollar. The company calculates the impact as the difference between the current period results
translated using the current period currency exchange rates and using the comparable prior period’s currency
exchange rates. The company believes the disclosure of net sales changes in constant currency provides useful
supplementary information to investors in light of significant fluctuations in currency rates.
Factors Affecting Our Results
COVID-19. The COVID-19 pandemic, including closures and other steps taken by governmental authorities in
response to the virus, has had a significant impact on our businesses. As part of our broad-based effort to respond
to the COVID-19 pandemic, we implemented cost reduction measures, including temporary salary reductions,
furloughs and reduced work hours across our workforce during the period from May 1, 2020 through July 31, 2020.
Within our Dental segment, supply chain disruptions for PPE and an increased demand for these products initially
resulted in backorders of PPE and a potential scarcity in raw materials to make PPE, causing substantial price
increases. We had to prepay suppliers in order to obtain PPE for resale to our customers, and as manufacturing
caught up to increased demand for PPE, prices dropped, impacting our margins and requiring us to write down
certain inventory. However, in the Dental Segment, the effect became less significant during the first quarter of fiscal
2021, as dental offices began opening for elective procedures. In addition, we recorded increased sales of infection
control products starting in the first quarter of fiscal 2021 within the Dental segment. The disruptions we
experienced in our production animal business as a result of the pandemic became less significant after the first
quarter of fiscal 2021.
Gains on Vetsource Investment. In fiscal 2022, we sold a portion of our investment in Vetsource, with a carrying
value of $25.8 million, for $56.8 million. We recorded a pre-tax gain of $31.0 million in gains on investments in our
consolidated statements of operations and other comprehensive income (loss) as a result of this sale. The cash
received of $56.8 million is reported within investing activities in our consolidated statements of cash flows. We also
recorded a pre-tax non-cash gain of $31.0 million to reflect the increase in the carrying value of the remaining
33
portion of our investment in Vetsource, which was based on the selling price of the portion of the investment we sold
for $56.8 million. This gain was recorded in gains on investments in our consolidated statements of operations and
other comprehensive income (loss). Concurrent with the sale, we obtained rights that will allow us, under certain
circumstances, to require another shareholder of Vetsource to purchase our remaining shares. We recorded a pre-
tax non-cash gain of $25.8 million in gains on investments in our consolidated statements of operations and other
comprehensive income (loss) as a result of this transaction. The aggregate gains on investments of $87.8 million
are reported within operating activities in our consolidated statements of cash flows. Concurrent with obtaining this
put option, we also granted rights to the same Vetsource shareholder that would allow such shareholder, under
certain circumstances, to require us to sell our remaining shares at fair value.
Gain on Vets Plus Investment. In fiscal 2022, we sold a portion of our investment in Vets Plus with a carrying
value of $4.0 million for $17.1 million. We recorded a pre-tax gain of $13.1 million in gains on investments in our
consolidated statements of operations and other comprehensive income (loss) as a result of this sale. This $13.1
million pre-tax gain is reported within operating activities in our consolidated statements of cash flows. The cash
received of $17.1 million is reported within investing activities in our consolidated statements of cash flows.
Fiscal 2022 Legal Reserve. On August 27, 2021, we signed a memorandum of understanding to settle the federal
securities class action complaint described in Note 17 to the Consolidated Financial Statements. Under the terms of
the settlement, Patterson agreed to pay $63.0 million to resolve the case. Although we agreed to settle this matter,
we expressly deny the allegations of the complaint and all liability. Our insurers consented to the settlement and
contributed an aggregate of $35.0 million to fund the settlement and to reimburse us for certain costs and expenses
of the litigation. As a result of the foregoing, we recorded a pre-tax reserve of $63.0 million in other accrued liabilities
in the consolidated balance sheets in our Corporate segment during the first quarter of fiscal 2022 related to the
probable settlement of this litigation (the "Fiscal 2022 Legal Reserve"). During the first quarter of fiscal 2022, we
also recorded a receivable of $27.0 million in prepaid expenses and other current assets in the consolidated
balance sheets in our Corporate segment related to probable insurance recoveries, which amount was paid into the
litigation settlement escrow as required by the memorandum of understanding. The net expense of $36.0 million
was recorded in operating expenses in our consolidated statements of operations and other comprehensive income
(loss). We recorded a gain of $8.0 million during the second quarter of fiscal 2022 in our Corporate segment to
account for our receipt of carrier reimbursement of previously expended fees and costs. The parties filed a
stipulation of settlement during the second quarter of fiscal 2022. On February 3, 2022, the District Court entered an
order preliminarily approving the settlement and directing the claims administrator to mail a notice of settlement and
claim form to all class members. On June 9, 2022, the District Court held a final settlement hearing to determine
whether the settlement should be approved. On June 10, 2022, the District Court entered an order granting final
approval to the settlement.
Inventory Donation Charges. In fiscal 2022, we committed to donate certain personal protective equipment to
charitable organizations to assist with COVID-19 recovery efforts. We recorded a charge of $49.2 million within cost
of sales in our consolidated statements of operations and other comprehensive income (loss) as a result ("Inventory
Donation Charges") in the first quarter of fiscal 2022. These charges were driven by our intention to not sell these
products, but rather to donate them to charitable organizations. Of the $49.2 million expense recorded, $47.2 million
and $2.0 million was recorded within our Dental and Animal Health segments, respectively.
Goodwill Impairment. In fiscal 2020, we recorded non-cash pre-tax goodwill impairment charges totaling $675.1
million in our Animal Health segment ("Goodwill Impairment"), which were not fully tax deductible. The decrease in
the fair value of the Animal Health reporting unit below its carrying value was mainly the result of a reduction in
management’s estimates of future cash flows. Future cash flows were affected by a reduction in future sales volume
and operating margins. The sales volume estimate reflected recent sales trends we had experienced. Future
operating margins were expected to be lower based on then-current trends in our markets. These trends were
driven by customer and vendor consolidation. We experienced a further decrease in the fair value of the Animal
Health reporting unit subsequent to our annual goodwill impairment test, which was caused by additional reductions
in management’s estimates of future cash flows, driven by reduced sales volumes, as well as reduced EBITDA
multiples of comparable companies. These estimates and market multiples were negatively affected by COVID-19.
In fiscal 2020, the animal health industry experienced a reduction in sales volume as a result of stay at home and
shelter in place orders, as well as a result of meat packing plant closures. Our future cash flow estimates for this
business unit in fiscal 2020 reflected the long-term impact of COVID-19.
Gain on Investment. We recorded a pre-tax gain of $34.3 million related to one of our investments ("Gain on
Investment") in fiscal 2020. This gain was based on the selling price of preferred stock in this investment that is
similar to the preferred stock we own, and was adjusted for differences in liquidation preferences.
34
Early Repayment of Debt. In fiscal 2020, we repaid certain indebtedness totaling $373.8 million ("Early Repayment
of Debt"). As a result, we recorded a pre-tax non-cash charge of $9.0 million during fiscal 2020. This charge relates
to the January 2014 forward interest rate swap agreement and accelerated amortization of debt issuance costs.
Fiscal 2020 U.S. Attorney's Office Legal Reserve. We incurred costs and expenses of $58.3 million ("Fiscal 2020
U.S. Attorney's Office Legal Reserve") in fiscal 2020 related to the then-probable settlement of litigation with the
U.S. Attorney's Office for the Western District of Virginia, which were recorded within operating expenses in the
consolidated statements of operations and other comprehensive income (loss) in our Corporate segment. The
settlement amount was fully paid in fiscal 2020.
Fiscal 2020 Legal Reserve. We incurred expenses of $17.7 million ("Fiscal 2020 SourceOne Dental Legal
Reserve") in fiscal 2020 related to the settlement of litigation with SourceOne Dental, Inc., which were recorded
within operating expenses in the consolidated statements of operations and other comprehensive income (loss) in
our Corporate segment. The settlement amount was fully paid in fiscal 2020.
Receivables Securitization Program. We are a party to certain receivables purchase agreements with MUFG
Bank, Ltd. ("MUFG"), under which MUFG acts as an agent to facilitate the sale of certain Patterson receivables (the
“Receivables”) to certain unaffiliated financial institutions (the “Purchasers”). The proceeds from the sale of these
Receivables comprise a combination of cash and a deferred purchase price (“DPP”) receivable. The DPP receivable
is ultimately realized by Patterson following the collection of the underlying Receivables sold to the Purchasers. The
collection of the DPP receivable is recognized as an increase to net cash provided by investing activities within the
consolidated statements of cash flows, with a corresponding reduction to net cash used in operating activities within
the consolidated statements of cash flows.
Results of Operations
The following table summarizes our results as a percent of net sales:
Net sales
Cost of sales
Gross profit
Operating expenses
Goodwill impairment
Operating income (loss)
Other income (expense), net
Income (loss) before taxes
Income tax expense (benefit)
Net income (loss)
Net loss attributable to noncontrolling interests
Net income (loss) attributable to Patterson Companies, Inc.
Fiscal 2022 Compared to Fiscal 2021
Fiscal Year Ended
April 30, 2022
April 24, 2021
April 25, 2020
100.0 %
80.2
19.8
17.4
—
2.4
1.7
4.1
1.0
3.1
—
3.1 %
100.0 %
79.6
20.4
16.8
—
3.6
(0.2)
3.4
0.8
2.6
—
2.6 %
100.0 %
78.2
21.8
19.9
12.3
(10.4)
(0.4)
(10.8)
(0.1)
(10.7)
—
(10.7) %
Net sales. Consolidated net sales in fiscal 2022 were $6,499.4 million, an increase of 9.9% from $5,912.1 million in
fiscal 2021. Sales were positively impacted by an estimated 1.9% due to the extra week of results in the current
year. Foreign exchange rate changes had a favorable impact of 0.7% on fiscal 2022 sales. Sales of certain products
previously recognized on a gross basis were recognized on a net basis during fiscal 2022. This change in revenue
recognition was driven by changes in contractual terms with certain suppliers in our Animal Health segment. The
impact of this change in revenue recognition for certain products was partially offset by the impact of the acquisition
of substantially all of the assets of Miller Vet on sales for fiscal 2022, resulting in a net decrease in sales of
approximately 1.8%.
35
Dental segment sales increased 8.1% to $2,516.1 million in fiscal 2022 from $2,327.0 million in fiscal 2021. Sales
were positively impacted by an estimated 1.8% due to the extra week of results in the current year. Foreign
exchange rate changes had a favorable impact of 0.5% on fiscal 2022 sales. Sales of consumables increased 8.4%,
sales of equipment and software increased 9.5%, and sales of value-added services and other increased 3.4% in
fiscal 2022. Dental segment sales growth in fiscal 2022 was driven by a recovery in the Dental end markets,
compared to sales in fiscal 2021, which were negatively affected by the COVID-19 pandemic when dental offices
were closed for elective procedures, particularly during the first quarter of our fiscal 2021.
Animal Health segment sales increased 11.9% to $3,982.9 million in fiscal 2022 from $3,560.0 million in fiscal 2021.
Sales were positively impacted by an estimated 2.0% due to the extra week of results in the current year. Foreign
exchange rate changes had a favorable impact of 0.8% on fiscal 2022 sales. Sales of certain products previously
recognized on a gross basis were recognized on a net basis during fiscal 2022. This change in revenue recognition
was driven by changes in contractual terms with certain suppliers. The impact of this change in revenue recognition
for certain products was partially offset by the impact of the acquisition of substantially all of the assets of Miller Vet
on sales for fiscal 2022, resulting in a net decrease in Animal Health segment sales of approximately 3.0%. Sales
were higher in fiscal 2022 as compared to fiscal 2021, driven by increased demand across all of our animal health
businesses and geographies.
Gross profit. Consolidated gross profit margin decreased 60 basis points from the prior year to 19.8%, driven
primarily by the impact of the Inventory Donation Charges, unfavorable mix in sales among our segments due to
faster growth in our Animal Health segment, and lower net sales in our Corporate segment due to the effect of rising
interest rates on our customer financing portfolio. This interest rate impact was partially offset by a gain on
associated interest rates swap agreements, which is reflected in other income, net in our consolidated statements of
operations and other comprehensive income (loss).
Operating expenses. Consolidated operating expenses for fiscal 2022 were $1,132.1 million, a 14.1% increase
from the prior year of $992.5 million. We incurred higher operating expenses during fiscal 2022 primarily as a result
of higher personnel costs, the impact of the Fiscal 2022 Legal Reserve and higher travel expenses. The higher
personnel costs were primarily due to the salary reductions, reduced work hours, and furloughs we implemented as
a response to the COVID-19 pandemic during the three months ended July 25, 2020. Travel expenses were higher
in fiscal 2022 than in fiscal 2021 primarily due to COVID-19-related restrictions having a more significant impact in
fiscal 2021. The consolidated operating expense ratio of 17.4% increased 60 basis points from the prior year period,
which was also driven by these same factors.
Operating income (loss). Fiscal 2022 operating income was $157.0 million, or 2.4% of net sales, as compared to
$210.6 million, or 3.6% of net sales, in fiscal 2021. The decrease in operating income was primarily due to the
impact of the Inventory Donation Charges, the Fiscal 2022 Legal Reserve and higher personnel costs. These
impacts were partially offset by the growth in sales experienced in fiscal 2022.
Dental segment operating income was $180.2 million for fiscal 2022, a decrease of $21.0 million from fiscal 2021.
The decrease was primarily driven by the expense associated with the Inventory Donation Charges and higher
personnel costs, partially offset by an increase in net sales in fiscal 2022.
Animal Health segment operating income was $114.4 million for fiscal 2022, an increase of $26.3 million from fiscal
2021. The increase was primarily driven by higher net sales during fiscal 2022, partially offset by higher personnel
costs incurred during fiscal 2022.
Corporate segment operating loss was $137.6 million for fiscal 2022, as compared to a loss of $78.8 million for
fiscal 2021. The change was primarily driven by the impact of the Fiscal 2022 Legal Reserve, lower customer
financing net sales recorded during fiscal 2022, and higher personnel costs incurred during fiscal 2022. The lower
customer financing net sales were related to the effect of rising interest rates on our customer financing portfolio.
Other income (expense). Net other income was $109.3 million in fiscal 2022, compared to net other expense of
$10.7 million in fiscal 2021. The change was primarily driven by the Gains on Vetsource Investment of $87.8 million,
the Gain on Vets Plus Investment of $13.1 million and a larger gain on our interest rate swap agreements recorded
during fiscal 2022.
Income tax expense (benefit). The effective income tax rate for fiscal 2022 was 24.2%, compared to 22.4% for
fiscal 2021. The increase was primarily due to provision to return adjustments in the prior year and a geographical
shift in earnings, which was partially offset by excess tax benefits associated with stock-based compensation
awards.
36
Net income (loss) attributable to Patterson Companies, Inc. and earnings (loss) per share. Net income
attributable to Patterson Companies Inc. was $203.2 million in fiscal 2022, compared to $156.0 million in fiscal
2021. Earnings per diluted share were $2.06 in fiscal 2022, compared to $1.61 in fiscal 2021. Weighted average
diluted shares in fiscal 2022 were 98.5 million, compared to 96.7 million in fiscal 2021. The fiscal 2022 and fiscal
2021 cash dividend declared was $1.04 per common share.
Fiscal 2021 Compared to Fiscal 2020
See Item 7 in our 2021 Annual Report on Form 10-K filed June 23, 2021.
Liquidity and Capital Resources
Net cash used in operating activities was $981.0 million in fiscal 2022, compared to $730.5 million in fiscal 2021 and
$243.5 million in fiscal 2020. Net cash used in operating activities in fiscal 2022 was primarily due to the impact of
our Receivables Securitization Program and a net increase in inventory, inclusive of the impact of the $49.2 million
Inventory Donation Charges, partially offset by an increase in accounts payable. Net cash used in operating
activities in fiscal 2021 was primarily due to the impact of our Receivables Securitization Program, as well as an
increase in accounts payable. Net cash used in operating activities in fiscal 2020 was primarily due to the impact of
our Receivables Securitization Program, partially offset by a reduction in working capital, which was driven mainly
by an increase in accounts payable.
Net cash provided by investing activities was $1,239.0 million in fiscal 2022, compared to $810.7 million in fiscal
2021 and $499.1 million in fiscal 2020. Collections of deferred purchase price receivables were $1,213.5 million,
$834.0 million and $540.9 million in fiscal 2022, 2021 and 2020, respectively. In fiscal 2022, we recorded cash
receipts of $75.9 million from the sale of investments and used $19.8 million to acquire Miller Vet. Capital
expenditures were $38.3 million, $25.8 million and $41.8 million in fiscal 2022, 2021 and 2020, respectively. We
expect to use a total of approximately $60 million for capital expenditures in fiscal 2023.
Net cash used in financing activities in fiscal 2022 was $253.2 million, driven by $101.1 million for dividend
payments, $100.8 million for payments on long-term debt, $35.0 million in share repurchases and $24.0 million
attributed to payments on our revolving line of credit. Net cash used in financing activities in fiscal 2021 was $22.6
million, driven by $75.2 million for dividend payments, partially offset by $53.0 million attributed to draws on our
revolving line of credit. Net cash used in financing activities in fiscal 2020 was $271.2 million. Uses of cash
consisted primarily of $460.8 million for the retirement of long-term debt and $100.4 million for dividend payments.
In December 2019, we entered into a $300.0 million senior unsecured term loan facility, as described further below.
In fiscal 2022 and fiscal 2021, a quarterly cash dividend of $0.26 per share was declared each quarter, with
payment occurring in the subsequent quarter. We currently expect to declare and pay quarterly cash dividends in
the future, but any future dividends will be subject to approval by our Board of Directors, which will depend on our
earnings, capital requirements, operating results and financial condition, as well as applicable law, regulatory
constraints, industry practice and other business considerations that our Board considers relevant. We are also
subject to various financial covenants under our debt agreements including the maintenance of leverage and
interest coverage ratios. The terms of agreements governing debt that we may incur in the future may also contain
similar covenants. Accordingly, there can be no assurance that we will declare and pay dividends in the future at the
same rate or at all.
In fiscal 2021, we entered into an amendment, restatement and consolidation of certain credit agreements with
various lenders, including MUFG Bank, Ltd, as administrative agent. This amended and restated credit agreement
(the “Credit Agreement”), dated February 16, 2021, consists of a $700.0 million revolving credit facility and a $300.0
million term loan facility, and will mature no later than February 2024. We used the facilities to refinance and
consolidate certain credit agreements in existence prior to the Credit Agreement being executed, pay the fees and
expenses incurred therewith, and finance our ongoing working capital and other general corporate purposes.
As of April 30, 2022, $300.0 million was outstanding under the Credit Agreement term loan at an interest rate of
1.89%, and $29.0 million was outstanding under the Credit Agreement revolving credit facility at an interest rate of
1.54%. As of April 24, 2021, $300.0 million was outstanding under the Credit Agreement term loan at an interest rate
of 1.36%, and $53.0 million was outstanding under the Credit Agreement revolving credit facility at an interest rate
of 1.34%.
On March 16, 2021, our Board of Directors approved a new share repurchase authorization for up to $500 million of
our company's common stock through March 16, 2024, replacing the March 2018 share repurchase authorization
37
for up to $500 million of common stock which had expired and under which no repurchases had been made. As of
April 30, 2022, $465 million remains available under the current repurchase authorization.
We have $142.0 million in cash and cash equivalents as of April 30, 2022, of which $85.8 million is in foreign bank
accounts. See Note 12 to the Consolidated Financial Statements for further information regarding our intention to
permanently reinvest these funds. Included in cash and cash equivalents as of April 30, 2022 is $39.1 million of
cash collected from previously sold customer financing arrangements that have not yet been settled with the third
party. See Note 5 to the Consolidated Financial Statements for further information.
We expect the collection of deferred purchase price receivables, existing cash balances and credit availability under
existing debt facilities, less our funds used in operations, will be sufficient to meet our working capital needs and to
finance our business over the next fiscal year.
We expect to continue to obtain liquidity from the sale of equipment finance contracts. Patterson sells a significant
portion of our finance contracts (see below) 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 Patterson. Patterson is allowed to
participate in the conduit due to the quality of our finance contracts and our financial strength. Cash flows could be
impaired if our financial strength diminishes to a level that precluded us from taking part in this facility or other
similar facilities. Also, market conditions outside of our control could adversely affect the ability for us to sell the
contracts.
Customer Financing Arrangements
As a convenience to our customers, we offer several different financing alternatives, including a third party program
and a Patterson-sponsored program. For the third party program, we act as a facilitator between the customer and
the third party financing entity with no on-going involvement in the financing transaction. Under the Patterson-
sponsored program, equipment purchased by creditworthy customers may be financed up to a maximum of $1
million. We generally sell our customers’ financing contracts to outside financial institutions in the normal course of
our business. We currently have two arrangements under which we sell these contracts.
First, we operate under an agreement to sell a portion of our equipment finance contracts to commercial paper
conduits with MUFG Bank, Ltd. ("MUFG") serving as the agent. We utilize PDC Funding, a consolidated, wholly
owned subsidiary, to fulfill a requirement of participating in the commercial paper conduit. We receive the proceeds
of the contracts upon sale to MUFG. The capacity under the agreement with MUFG at April 30, 2022 was $525
million.
Second, we maintain an agreement with Fifth Third Bank ("Fifth Third") whereby Fifth Third purchases customers’
financing contracts. PDC Funding II, a consolidated, wholly owned subsidiary, sells financing contracts to Fifth Third.
We receive the proceeds of the contracts upon sale to Fifth Third. The capacity under the agreement with Fifth Third
at April 30, 2022 was $100 million.
Our financing business is described in further detail in Note 5 to the Consolidated Financial Statements.
Contractual Obligations
A summary of our contractual obligations as of April 30, 2022 was as follows (in thousands):
Long-term debt principal
Long-term debt interest
Operating leases
Total
Total
$ 490,500 $
33,220
75,939
$ 599,659 $
Payments due by year
Less than
1 year
1-3 years
— $ 450,500 $
12,541
31,165
43,706 $ 501,074 $
16,131
34,443
3-5 years
More than
5 years
— $
3,032
9,109
12,141 $
40,000
1,516
1,222
42,738
As of April 30, 2022 our gross liability for uncertain tax positions, including interest and penalties, was $11.5 million.
We are not able to reasonably estimate the amount by which the liability will increase or decrease over an extended
period of time or whether a cash settlement of the liability will be required. Therefore, these amounts have been
excluded from the schedule of contractual obligations.
38
For a more complete description of our contractual obligations, see Notes 10 and 11 to the Consolidated Financial
Statements.
Working Capital Management
The following table summarizes our average accounts receivable days sales outstanding and average annual
inventory turnover for the past three fiscal years:
Days sales outstanding
Inventory turnover
Foreign Operations
Fiscal Year Ended
April 30, 2022
April 24, 2021
April 25, 2020
25.2
6.6
25.9
6.1
29.1
5.4
We derive foreign sales from Dental operations in Canada, and Animal Health operations in Canada and the U.K.
Fluctuations in currency exchange rates have not significantly impacted earnings, as these fluctuations impact
sales, cost of sales and operating expenses. Changes in exchange rates positively impacted net sales by $41.0
million and $28.4 million in fiscal 2022 and 2021, respectively, while they adversely affected net sales by $21.9
million in fiscal 2020. Changes in currency exchange rates are a risk accompanying foreign operations, but this risk
is not considered material with respect to our consolidated operations.
Critical Accounting Policies and Estimates
Patterson has adopted various accounting policies to prepare our consolidated financial statements in accordance
with accounting principles generally accepted in the U.S. Management believes that our policies are conservative
and our 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 Patterson’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 to our significant accounting
principles and policies that are discussed in Note 1 to the Consolidated Financial Statements. The financial
performance and condition of Patterson may also be materially impacted by transactions and events that we have
not previously experienced and for which we have 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 and support,
software and support, technical service parts and labor, and other sources. Revenues are recognized when or as
performance obligations are satisfied. Performance obligations are satisfied when the customer obtains control of
the goods or services.
Consumable, equipment, software and parts sales are recorded upon delivery, except in those circumstances where
terms of the sale are FOB shipping point, in which case sales are recorded upon shipment. Technical service labor
is recognized as it is provided. Revenue derived from equipment and software support is recognized ratably over
the period in which the support is provided.
In addition to revenues generated from the distribution of consumable products under arrangements (buy/sell
agreements) where the full market value of the product is recorded as revenue, we earn commissions for services
provided under agency agreements. The agency agreement contrasts to a buy/sell agreement in that we do not
have control over the transaction, as we do not have the primary responsibility of fulfilling the promise of the good or
service and we do not bill or collect from the customer in an agency relationship. Commissions under agency
agreements are recorded when the services are provided.
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. The receivables that result from
the recognition of revenue are reported net of related allowances. We maintain a valuation allowance based upon
39
the expected collectability of receivables held. Estimates are used to determine the valuation allowance and are
based on several factors, including historical collection data, economic trends and credit worthiness of customers.
Receivables are written off when we determine the amounts to be uncollectible, typically upon customer bankruptcy
or non-response to continuous collection efforts. The portions of receivable amounts that are not expected to be
collected during the next twelve months are classified as long-term.
Patterson has a relatively large, dispersed customer base and no single customer accounts for more than 10% of
consolidated net sales. In addition, the equipment sold to customers under finance contracts generally serves as
collateral for the contract and the customer provides a personal guarantee as well.
Net sales do not include sales tax as we are considered a pass-through conduit for collecting and remitting sales
tax.
Patterson Advantage Loyalty Program – 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. 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. As of April 30, 2022, we believe we have sufficient experience with the program to reasonably estimate the
amount of Patterson Advantage dollars that will not be redeemed and thus have recorded a liability for 88.0% of the
maximum potential amount that could be redeemed. We recognize the expected breakage amount as revenue in
proportion to the pattern of rights exercised by the customer, and we recognize the estimated value of unused
Patterson Advantage dollars as redemptions occur. Breakage recognized was immaterial to all periods presented.
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. We
continually assess the valuation of inventories and reduce the carrying value of those inventories that are obsolete
or in excess of 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. Impairment testing for goodwill is done at the reporting unit level, with
all goodwill assigned to a reporting unit. We have two reporting units as of April 30, 2022; Dental and Animal Health.
Our Corporate reportable segment's assets and liabilities, and net sales and expenses, are allocated to the two
reporting units. We assess goodwill for impairment annually and whenever an event occurs or circumstances
change that would indicate that the carrying amount may be impaired. Any goodwill impairment is measured as the
amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill.
The determination of fair value involves uncertainties because it requires management to make assumptions and to
apply judgment to estimate industry and economic factors and the profitability of future business strategies.
Patterson conducts impairment testing based on current business strategy in light of present industry and economic
conditions, as well as future expectations. Additionally, in assessing goodwill for impairment, the reasonableness of
the implied control premium is considered based on market capitalizations and recent market transactions.
Our indefinite-lived intangible asset is a trade name, which is assessed for impairment by comparing the carrying
value of the 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 connection with the preparation of these financial statements in the fourth quarter of fiscal 2022, management
completed its annual goodwill and other indefinite-lived intangible asset impairment tests using the beginning of our
fiscal 2022 fourth quarter as the valuation date. We determined that there was no impairment of either goodwill or
our indefinite-lived intangible asset.
In connection with the preparation of these financial statements in the fourth quarter of fiscal 2021, management
completed its annual goodwill and other indefinite-lived intangible asset impairment tests using the beginning of our
fiscal 2021 fourth quarter as the valuation date. We determined that there was no impairment of either goodwill or
our indefinite-lived intangible asset.
40
In connection with the preparation of our fiscal 2020 Form 10-K in the fourth quarter of fiscal 2020, management
completed its annual goodwill and other indefinite-lived intangible asset impairment tests using the beginning of our
fiscal 2020 fourth quarter as the valuation date. We determined that there was no impairment of our indefinite-lived
intangible asset. Our annual goodwill impairment test resulted in no impairment to the Dental reporting unit’s
goodwill, and a $269.0 million non-cash pre-tax impairment charge of our Animal Health reporting unit’s goodwill.
The decrease in the fair value of the Animal Health reporting unit below its carrying value was mainly the result of a
reduction in management’s estimates of future cash flows. Future cash flows were affected by a reduction in future
sales volume and operating margins. The sales volume estimate reflected recent sales trends we had experienced.
Future operating margins were expected to be lower based on then-current trends in our markets. These trends
were driven by customer and vendor consolidation.
Subsequent to the annual test being completed and in connection with the preparation of our fiscal 2020 Form 10-K
in the fourth quarter of fiscal 2020, we experienced events and circumstances that indicated that the carrying
amount of goodwill may have been further impaired. These events and circumstances included a decline in our
projected future earnings and a sustained decrease in our share price. As such, we tested our goodwill for
impairment as of the beginning of our fiscal April 2020. This test resulted in no impairment to the Dental reporting
unit’s goodwill, and a $406.1 million non-cash pre-tax impairment charge of our Animal Health reporting unit’s
goodwill.
The decrease in the fair value of the Animal Health reporting unit subsequent to the annual goodwill impairment test
was caused by additional reductions in management’s estimates of future cash flows, driven by reduced sales
volumes, as well as reduced EBITDA multiples of comparable companies. These estimates and market multiples
were negatively affected by COVID-19. In fiscal 2020, the animal health industry experienced a reduction in sales
volume as a result of stay at home and shelter in place orders, as well as a result of meat packing plant closures.
Our future cash flow estimates for this business unit in fiscal 2020 reflected the long-term impact of COVID-19.
As of April 25, 2020, our Animal Health reporting unit had no remaining goodwill as a result of the total goodwill
impairment charges recorded in fiscal 2020 of $675.1 million.
Long-Lived Assets – Long-lived assets, including definite-lived intangible assets, are evaluated for impairment
whenever events or changes in circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows derived from such assets. Our definite-lived
intangible assets primarily consist of customer relationships, trade names and trademarks. When impairment exists,
the related assets are written down to fair value using level 3 inputs, as discussed further in Note 7 to the
Consolidated Financial Statements.
Development Costs of Software to be Sold - At the end of each fiscal quarter, we compare the unamortized
capitalized costs of software to be sold to its net realizable value. If the unamortized amount exceeds the net
realizable value, an impairment is recorded for this amount of that asset shall be written off. If the unamortized
capitalized costs are less than the net realizable value of that asset, then there is no impairment.
Related Party Transactions – We have interests in a number of entities that are accounted for using the equity
method. During fiscal 2022, 2021 and 2020 we made purchases of $128.5 million, $110.2 million and $94.2 million
from these entities, respectively. During fiscal 2022, 2021 and 2020, we recorded net sales of $117.3 million, $93.6
million and $110.3 million to these entities, respectively.
Income Taxes – We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant
judgments are required in determining the consolidated provision for income taxes. Changes in tax policy or
interpretation of current tax law create potential added uncertainties.
During the ordinary course of business, there are many transactions and calculations for which the ultimate tax
determination is uncertain. As a result, we recognize tax liabilities based on estimates of whether additional taxes
and interest will be due. These tax liabilities are recognized when, despite our belief that our tax return position is
supportable, we believe that certain positions may not be fully sustained upon review by tax authorities. We believe
that our accruals for tax liabilities are adequate for all open audit years based on our 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.
41
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.
Self-insurance – Patterson is self-insured for certain losses related to general liability, product liability, automobile,
workers’ compensation and medical claims. We estimate our liabilities based upon an analysis of historical data and
actuarial estimates. While current estimates are believed reasonable based on information currently available,
actual results could differ and affect financial results due to changes in the amount or frequency of claims, medical
cost inflation or other factors. Historically, actual results related to these types of claims have not varied significantly
from estimated amounts.
Stock-based Compensation – We recognize stock-based compensation based on certain assumptions including
inputs within valuation models, estimated forfeitures and estimated performance outcomes. 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 the fair value determination or estimates of forfeitures. If factors change and we employ different
assumptions, the amount of compensation expense associated with stock-based compensation may differ
significantly from what was recorded in the current period.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
We are exposed to market risk consisting of foreign currency rate fluctuations and changes in interest rates.
We are exposed to foreign currency exchange rate fluctuations in our operating statement due to transactions
denominated primarily in Canadian Dollars and British Pounds. Although we do not currently have foreign currency
hedge contracts, we continually evaluate our 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 our most
significant foreign currency exposures would have changed net sales by approximately $103.7 million for the fiscal
year ended April 30, 2022. 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. We estimate that if
foreign currency exchange rates changed by 10%, the impact would have been approximately $3.8 million to
income (loss) before taxes for the fiscal year ended April 30, 2022.
The Credit Agreement consists of a $300.0 million term loan facility and a $700.0 million revolving credit facility,
which will mature no later than February 2024. Interest on borrowings is variable and is determined as a base rate
plus a spread. This spread, as well as a commitment fee on the unused portion of the facility, is based on our
leverage ratio, as defined in the Credit Agreement. Due to the interest rate being variable, fluctuations in interest
rates may impact our earnings. Based on our current level of debt, we estimate that a 100 basis point change in
interest rates would have a $3.3 million annual impact on our income (loss) before taxes.
Our earnings are also affected by fluctuations in short-term interest rates through the investment of cash balances
and the practice of selling fixed rate equipment finance contracts under agreements with both a commercial paper
conduit and a bank that provide for pricing based on variable interest rates.
When considering the exposure under the agreements whereby we sell equipment finance contracts to both a
commercial paper conduit and bank, we have 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 we can adjust the rate we charge 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, we use 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 contract 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. In fiscal 2019, we
entered into forward interest rate swap agreements in order to hedge against interest rate fluctuations that impact
the amount of net sales we record related to these contracts. These interest rate swap agreements do not qualify for
42
hedge accounting treatment and, accordingly, we record the fair value of the agreements as an asset or liability and
the change as income or expense during the period in which the change occurs. As a result of entering into these
interest rate swap agreements, we estimate that a 10% change in interest rates would have less than a $1.0 million
annual impact on our income (loss) before taxes.
43
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Patterson Companies, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Patterson Companies, Inc. internal control over financial reporting as of April 30, 2022, based on
criteria established
the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Patterson
Companies, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting
as of April 30, 2022, based on the COSO criteria.
Internal Control—Integrated Framework
issued by
in
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the accompanying consolidated balance sheets of Patterson Companies, Inc. (the Company) as
of April 30, 2022 and April 24, 2021, the related consolidated statements of operations and other comprehensive
income (loss), changes in stockholders' equity and cash flows for each of the three years in the period ended April
30, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) (collectively
referred to as the “consolidated financial statements”) and our report dated June 29, 2022 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’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 the accompanying
Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
June 29, 2022
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Patterson Companies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Patterson Companies, Inc. (the Company) as of
April 30, 2022 and April 24, 2021, the related consolidated statements of operations and other comprehensive
income (loss), changes in stockholders' equity and cash flows for each of the three years in the period ended April
30, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company at April 30, 2022 and April 24, 2021, and the
results of its operations and its cash flows for each of the three years in the period ended April 30, 2022, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of April 30, 2022, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework), and our report dated June 29, 2022 expressed an unqualified opinion
thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1)
relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective or complex judgments. The communication of the critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
account or disclosure to which it relates.
45
Development costs of software to be sold impairment
Description of the
Matter
At April 30, 2022, the Company’s capitalized development costs of software to be sold was
$64.5 million. As discussed in Note 1 of the consolidated financial statements, at the end of
each fiscal quarter these unamortized capitalized costs of software to be sold are
compared to its net realizable value. If the unamortized capitalized costs are less than the
net realizable value of that asset, then there is no impairment.
Auditing management’s comparison of unamortized capitalized development costs of
software to be sold to its net realizable value was complex and highly judgmental due to
the significant estimation required in determining the net realizable value of the asset. For
software to be sold, the estimate of the net realizable value was sensitive to significant
assumptions, such as forecasted revenue and related revenue growth rates, gross margin
and operating expenses as a percentage of revenue assumptions, which are affected by
expected future market or economic conditions.
How We Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated
the operating
effectiveness of controls over the Company’s process to compare unamortized capitalized
costs of software to be sold to its net realizable value, including controls over
management’s budgeting and forecasting process used to develop the projected future
revenue, gross margins and operating expenses used in the fair value estimates, as well
as controls over management’s review of the significant data and assumptions described
above.
the design and
tested
To test the estimated fair value of the unamortized capitalized development costs of
software to be sold, we performed audit procedures that included, among others,
assessing the valuation methodologies used by management and testing the significant
assumptions discussed above. We compared the significant assumptions used by
management to current industry, market and economic trends, as well as other relevant
factors. We assessed the reasonableness of forecasted future revenue by comparing the
forecasts to historical software sales results. We also performed sensitivity analyses of
significant assumptions to evaluate the significance of changes in the recoverability that
would result from changes in assumptions.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1985.
Minneapolis, Minnesota
June 29, 2022
46
PATTERSON COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net of allowance for doubtful accounts of $5,913 and $6,138
Inventory
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets, net
Long-term receivables, net
Goodwill, net
Identifiable intangibles, net
Investments
Other non-current assets, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued payroll expense
Other accrued liabilities
Operating lease liabilities
Current maturities of long-term debt
Borrowings on revolving credit
Total current liabilities
Long-term debt
Non-current operating lease liabilities
Deferred income taxes
Other non-current liabilities
Total liabilities
Stockholders’ equity:
Common stock, $0.01 par value: 600,000 shares authorized; 96,762 and 96,813
shares issued and outstanding
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total Patterson Companies, Inc. stockholders' equity
Noncontrolling interests
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes
47
April 30, 2022
April 24, 2021
$
142,014 $
143,244
447,162
785,604
304,242
449,235
736,778
286,672
1,679,022
1,615,929
213,140
70,722
138,812
140,630
252,614
139,182
107,508
219,438
77,217
223,970
139,932
279,644
105,522
89,859
$ 2,741,630 $ 2,751,511
$
681,321 $
609,264
102,266
173,734
29,348
—
29,000
118,425
175,975
32,252
100,750
53,000
1,015,669
1,089,666
488,554
43,332
120,414
31,026
487,545
48,318
124,491
36,820
1,698,995
1,786,840
968
968
200,520
169,099
(81,516)
(62,592)
921,704
1,041,676
959
855,741
963,216
1,455
1,042,635
964,671
$ 2,741,630 $ 2,751,511
PATTERSON COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Operating expenses
Goodwill impairment
Operating income (loss)
Other income (expense):
Gains on investments
Other income (expense), net
Interest expense
Income (loss) before taxes
Income tax expense (benefit)
Net income (loss)
Net loss attributable to noncontrolling interests
Fiscal Year Ended
April 30, 2022
April 24, 2021
April 25, 2020
$ 6,499,405 $ 5,912,066 $ 5,490,011
5,210,318
4,708,936
4,292,601
1,289,087
1,203,130
1,197,410
1,132,085
992,523
1,094,474
—
—
675,055
157,002
210,607
(572,119)
101,809
27,731
—
13,608
(20,288)
(24,284)
266,254
64,540
201,714
199,931
44,822
155,109
34,334
(10,835)
(41,787)
(590,407)
(1,040)
(589,367)
(1,496)
(872)
(921)
Net income (loss) attributable to Patterson Companies, Inc.
$
203,210 $
155,981 $
(588,446)
Earnings (loss) per share attributable to Patterson Companies, Inc.:
Basic
Diluted
Weighted average shares:
Basic
Diluted
Dividends declared per common share
Comprehensive income (loss)
Net income (loss)
Foreign currency translation gain (loss)
Cash flow hedges, net of tax
Comprehensive income (loss)
$
$
2.09 $
2.06 $
1.63 $
1.61 $
(6.25)
(6.25)
97,277
98,514
95,599
96,664
$
1.04 $
1.04 $
94,154
94,154
1.04
$
201,714 $
155,109 $
(589,367)
(19,966)
1,042
33,405
1,042
(14,062)
7,999
$
182,790 $
189,556 $
(595,430)
See accompanying notes
48
PATTERSON COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
Common Stock
Number
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Unearned
ESOP
Shares
Non-
controlling
interests
Total
Balance at April 27, 2019
95,272 $
953 $ 131,460 $
(88,269) $ 1,483,496 $
(50,381) $
3,248 $ 1,480,507
Foreign currency translation
Cash flow hedges
Net loss
Dividends declared
Common stock issued and
related tax benefits
Stock based compensation
ESOP activity
Adoption of ASU 2016-02
Adoption of ASU 2018-02
Balance at April 25, 2020
—
—
—
—
675
—
—
—
—
—
—
—
—
6
—
—
—
—
—
—
—
—
(7,790)
22,936
—
—
—
(14,062)
7,999
—
—
—
—
—
—
(2,707)
—
—
(588,446)
(99,552)
—
—
—
1,447
2,707
—
—
—
—
—
—
34,320
—
—
—
—
(14,062)
7,999
(921)
(589,367)
—
—
—
—
—
—
(99,552)
(7,784)
22,936
34,320
1,447
—
95,947
959
146,606
(97,039)
799,652
(16,061)
2,327
836,444
Foreign currency translation
Cash flow hedges
Net income (loss)
Dividends declared
Common stock issued and
related tax benefits
Stock based compensation
ESOP activity
—
—
—
—
866
—
—
—
—
—
—
9
—
—
—
—
—
—
1,270
21,223
—
33,405
1,042
—
—
—
—
—
—
—
155,981
(99,892)
—
—
—
—
—
—
—
—
—
16,061
Balance at April 24, 2021
96,813
968
169,099
(62,592)
855,741
Foreign currency translation
Cash flow hedges
Net income (loss)
Dividends declared
Common stock issued and
related tax benefits
Repurchases of common
stock
Stock based compensation
Contribution from
noncontrolling interest
Balance at April 30, 2022
—
—
—
—
—
—
—
—
—
—
—
—
981
10
7,616
(1,032)
(10)
—
—
—
—
—
23,805
—
(19,966)
1,042
—
—
—
—
—
—
—
—
203,210
(102,257)
—
(34,990)
—
—
—
—
33,405
1,042
(872)
155,109
—
—
—
—
(99,892)
1,279
21,223
16,061
1,455
964,671
—
—
(19,966)
1,042
(1,496)
201,714
—
—
(102,257)
7,626
(35,000)
—
23,805
1,000
1,000
—
—
—
—
—
—
—
—
—
96,762 $
968 $ 200,520 $
(81,516) $
921,704 $
— $
959 $ 1,042,635
See accompanying notes
49
PATTERSON COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation
Amortization
Gains on investments
Goodwill impairment
Bad debt expense
Non-cash employee compensation
Accelerated amortization of debt issuance costs on early retirement of debt
Deferred income taxes
Non-cash (gains) losses and other, net
Change in assets and liabilities:
Receivables
Inventory
Accounts payable
Accrued liabilities
Other changes from operating activities, net
Net cash used in operating activities
Investing activities:
Additions to property and equipment
Acquisitions, net of cash acquired
Collection of deferred purchase price receivables
Sale of investments
Other investing activities
Net cash provided by investing activities
Financing activities:
Dividends paid
Repurchases of common stock
Proceeds from issuance of long-term debt
Debt issuance costs
Payments on long-term debt
(Payment) draw on revolving credit
Other financing activities
Net cash used in financing activities
Effect of exchange rate changes on cash
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures:
Income taxes paid
Interest paid
Supplemental disclosure of non-cash investing activity:
Retained interest in securitization transactions
Fiscal Year Ended
April 30, 2022
April 24, 2021
April 25, 2020
$
201,714 $
155,109 $
(589,367)
44,180
37,812
(101,809)
—
2,769
23,805
—
(4,718)
(1,431)
41,669
37,227
—
—
2,559
30,488
—
(10,760)
1,318
44,981
37,201
(34,334)
675,055
2,008
37,354
8,984
(31,800)
—
(1,144,833)
(916,694)
(540,065)
(53,871)
80,904
(27,630)
(37,886)
91,193
(268,338)
85,849
19,861
(59,258)
219,613
25,474
(39,390)
(980,994)
(730,519)
(243,544)
(38,308)
(19,793)
(25,788)
(41,809)
—
—
1,213,497
833,958
540,944
75,942
7,690
396
2,097
—
—
1,239,028
810,663
499,135
(101,111)
(35,000)
—
—
(100,750)
(24,000)
7,627
(75,183)
(100,442)
—
—
—
—
53,000
(462)
—
300,000
(3,300)
(460,840)
—
(6,647)
(253,234)
(22,645)
(271,229)
(6,030)
(1,230)
143,244
7,801
65,300
77,944
142,014 $
143,244 $
83,549 $
48,924 $
14,633
15,234
(2,064)
(17,702)
95,646
77,944
12,021
25,742
$
$
$
1,122,627 $
900,578 $
707,395
See accompanying notes
50
PATTERSON COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022
(Dollars, except per share amounts, and shares in thousands)
1. Summary of Significant Accounting Policies
Description of Business
Patterson Companies, Inc. (referred to herein as “Patterson” or in the first person notations “we,” “our,” and “us”) is a
value-added specialty distributor serving the U.S. and Canadian dental supply and the U.S., Canadian and U.K.
animal health supply markets. Patterson has three reportable segments: Dental, Animal Health and Corporate.
Basis of Presentation
The consolidated financial statements include the assets and liabilities of PDC Funding Company, LLC ("PDC
Funding"), PDC Funding Company II, LLC ("PDC Funding II"), PDC Funding Company III, LLC ("PDC Funding III")
and PDC Funding Company IV, LLC ("PDC Funding IV"), which are our wholly owned subsidiaries and separate
legal entities formed under Minnesota law. PDC Funding and PDC Funding II are fully consolidated special purpose
entities established to sell customer installment sale contracts to outside financial institutions in the normal course of
their business. PDC Funding III and PDC Funding IV are fully consolidated special purpose entity established to sell
certain receivables to unaffiliated financial institutions. The assets of PDC Funding, PDC Funding II, PDC Funding
III and PDC Funding IV would be available first and foremost to satisfy the claims of its creditors. There are no
known creditors of PDC Funding, PDC Funding II, PDC Funding III or PDC Funding IV. The consolidated financial
statements also include the assets and liabilities of Technology Partner Innovations, LLC, which is further described
in Note 13.
Fiscal Year End
We operate with a 52-53 week accounting convention with our fiscal year ending on the last Saturday in April. Fiscal
2022 ended on April 30, 2022 and consisted of 53 weeks. Fiscal 2021 and 2020 ended on April 24, 2021 and April
25, 2020, respectively, and both consisted of 52 weeks. Fiscal 2023 will end on April 29, 2023 and will consist of 52
weeks.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist primarily of investments in money market funds and government securities. The maturity
of these securities at the time of purchase is 90 days or less. All cash and cash equivalents are classified as
available-for-sale and carried at fair value, which approximates cost.
Inventory
Inventory consists of merchandise held for sale and is stated at the lower of cost or market. The cost of our
inventory includes the amount we pay to our suppliers to acquire inventory and freight costs incurred in connection
with the delivery of product to our distribution centers and our other locations. Cost is determined using the last-in,
first-out ("LIFO") method for all inventories, except for foreign inventories, which are valued using the first-in, first-
out ("FIFO") method. Inventories valued at LIFO represented 85% and 83% of total inventories at April 30, 2022 and
April 24, 2021, respectively.
The accumulated LIFO reserve was $130,959 at April 30, 2022 and $120,775 at April 24, 2021. We believe that
inventory replacement cost exceeds the inventory balance by an amount approximating the LIFO reserve.
51
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on the straight-line method over estimated
useful lives of up to 39 years for buildings or the expected remaining life of purchased buildings, the term of the
lease for leasehold improvements, 3 to 10 years for computer hardware and software, and 5 to 10 years for furniture
and equipment.
Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill represents the excess of cost over the fair value of identifiable net assets of businesses acquired.
Impairment testing for goodwill is done at the reporting unit level, with all goodwill assigned to a reporting unit. We
have two reporting units as of April 30, 2022; Dental and Animal Health. Our Corporate reportable segment's assets
and liabilities, and net sales and expenses, are allocated to the two reporting units. We assess goodwill for
impairment annually and whenever an event occurs or circumstances change that would indicate that the carrying
amount may be impaired. Any goodwill impairment is measured as the amount by which a reporting unit’s carrying
value exceeds its fair value, not to exceed the carrying value of goodwill.
The determination of fair value involves uncertainties because it requires management to make assumptions and to
apply judgment to estimate industry and economic factors and the profitability of future business strategies.
Patterson conducts impairment testing based on current business strategy in light of present industry and economic
conditions, as well as future expectations. Additionally, in assessing goodwill for impairment, the reasonableness of
the implied control premium is considered based on market capitalizations and recent market transactions.
Our indefinite-lived intangible asset is a trade name, which is assessed for impairment by comparing the carrying
value of the 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 connection with the preparation of these financial statements in the fourth quarter of fiscal 2022, management
completed its annual goodwill and other indefinite-lived intangible asset impairment tests using the beginning of our
fiscal 2022 fourth quarter as the valuation date. We determined that there was no impairment of either goodwill or
our indefinite-lived intangible asset.
In connection with the preparation of our fiscal 2021 Form 10-K in the fourth quarter of fiscal 2021, management
completed its annual goodwill and other indefinite-lived intangible asset impairment tests using the beginning of our
fiscal 2021 fourth quarter as the valuation date. We determined that there was no impairment of either goodwill or
our indefinite-lived intangible asset.
In connection with the preparation of our fiscal 2020 Form 10-K in the fourth quarter of fiscal 2020, management
completed its annual goodwill and other indefinite-lived intangible asset impairment tests using the beginning of our
fiscal 2020 fourth quarter as the valuation date. We determined that there was no impairment of our indefinite-lived
intangible asset. Our annual goodwill impairment test resulted in no impairment to the Dental reporting unit’s
goodwill, and a $269,000 non-cash pre-tax impairment charge of our Animal Health reporting unit’s goodwill.
The decrease in the fair value of the Animal Health reporting unit below its carrying value was mainly the result of a
reduction in management’s estimates of future cash flows. Future cash flows were affected by a reduction in future
sales volume and operating margins. The sales volume estimate reflected recent sales trends we had experienced.
Future operating margins are expected to be lower based on then-current trends in our markets. These trends were
driven by customer and vendor consolidation.
Subsequent to the annual test being completed and in connection with the preparation of our fiscal 2020 Form 10-K
in the fourth quarter of fiscal 2020, we experienced events and circumstances that indicated that the carrying
amount of goodwill may have been further impaired. These events and circumstances included a decline in our
projected future earnings and a sustained decrease in our share price. As such, we tested our goodwill for
impairment as of the beginning of our fiscal April 2020. This test resulted in no impairment to the Dental reporting
unit’s goodwill, and a $406,055 non-cash pre-tax impairment charge of our Animal Health reporting unit’s goodwill.
The decrease in the fair value of the Animal Health reporting unit subsequent to the annual goodwill impairment test
was caused by additional reductions in management’s estimates of future cash flows, driven by reduced sales
volumes, as well as reduced EBITDA multiples of comparable companies. These estimates and market multiples
were negatively affected by COVID-19. In fiscal 2020, the animal health industry experienced a reduction in sales
52
volume as a result of stay at home and shelter in place orders, as well as a result of meat packing plant closures.
Our future cash flow estimates for this business unit in fiscal 2020 reflected the long-term impact of COVID-19.
As of April 25, 2020, our Animal Health reporting unit had no remaining goodwill as a result of the total goodwill
impairment charges recorded in fiscal 2020 of $675,055.
Long-Lived Assets
Long-lived assets, including definite-lived intangible assets, are evaluated for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the
estimated undiscounted future cash flows derived from such assets. Our definite-lived intangible assets primarily
consist of customer relationships, trade names and trademarks. When impairment exists, the related assets are
written down to fair value using level 3 inputs, as discussed further in Note 7.
Other Non-current Assets, Net
Development costs of software to be sold, net
Other
Other non-current assets, net
April 30, 2022
April 24, 2021
$
$
64,513 $
42,995
107,508 $
68,156
21,703
89,859
During fiscal 2022, 2021 and 2020, we recorded $7,267, $2,346 and $0, respectively, of amortization expense
related to the development costs of software to be sold in cost of sales within the consolidated statements of
operations and other comprehensive income (loss).
Development Costs of Software to be Sold
At the end of each fiscal quarter, we compare the unamortized capitalized costs of software to be sold to its net
realizable value. If the unamortized amount exceeds the net realizable value, an impairment is recorded for this
amount of that asset shall be written off. If the unamortized capitalized costs are less than the net realizable value of
that asset, then there is no impairment.
Financial Instruments
We account for derivative financial instruments under the provisions of Accounting Standards Codification ("ASC")
Topic 815, “Derivatives and Hedging.” Our use of derivative financial instruments is generally limited to managing
well-defined interest rate risks. We do not use financial instruments or derivatives for any trading purposes.
Revenue Recognition
Revenues are generated from the sale of consumable products, equipment and support, software and support,
technical service parts and labor, and other sources. Revenues are recognized when or as performance obligations
are satisfied. Performance obligations are satisfied when the customer obtains control of the goods or services.
Consumable, equipment, software and parts sales are recorded upon delivery, except in those circumstances where
terms of the sale are FOB shipping point, in which case sales are recorded upon shipment. Technical service labor
is recognized as it is provided. Revenue derived from equipment and software support is recognized ratably over
the period in which the support is provided.
In addition to revenues generated from the distribution of consumable products under arrangements (buy/sell
agreements) where the full market value of the product is recorded as revenue, we earn commissions for services
provided under agency agreements. The agency agreement contrasts to a buy/sell agreement in that we do not
have control over the transaction, as we do not have the primary responsibility of fulfilling the promise of the good or
service and we do not bill or collect from the customer in an agency relationship. Commissions under agency
agreements are recorded when the services are provided.
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. The receivables that result from
the recognition of revenue are reported net of related allowances. We maintain 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.
53
Receivables are written off when we determine the amounts to be uncollectible, typically upon customer bankruptcy
or non-response to continuous collection efforts. The portions of receivable amounts that are not expected to be
collected during the next twelve months are classified as long-term.
Patterson has a relatively large, dispersed customer base and no single customer accounts for more than 10% of
consolidated net sales. In addition, the equipment sold to customers under finance contracts generally serves as
collateral for the contract and the customer provides a personal guarantee as well.
Net sales do not include sales tax as we are considered a pass-through conduit for collecting and remitting sales
tax.
Contract Balances
Contract balances represent amounts presented in our consolidated balance sheets when either we have
transferred goods or services to the customer or the customer has paid consideration to us under the contract.
These contract balances include accounts receivable, contract assets and contract liabilities.
Contract asset balances as of April 30, 2022 and April 24, 2021 were $134 and $2,491, respectively. Our contract
liabilities primarily relate to advance payments from customers, upfront payments for software and support provided
over time, and options that provide a material right to customers, such as our customer loyalty programs. At April 30,
2022 and April 24, 2021, contract liabilities of $38,581 and $23,526 were reported in other accrued liabilities,
respectively. During the fiscal year ended April 30, 2022, we recognized $20,658 of the amount previously deferred
at April 24, 2021.
Patterson Advantage Loyalty Program
The Dental segment provides a point-based awards program to qualifying customers involving the issuance of
“Patterson Advantage dollars” which can be used toward equipment and technology purchases. 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. As of April 30, 2022, we
believe we have sufficient experience with the program to reasonably estimate the amount of Patterson Advantage
dollars that will not be redeemed and thus have recorded a liability for 88.0% of the maximum potential amount that
could be redeemed. We recognize the expected breakage amount as revenue in proportion to the pattern of rights
exercised by the customer, and we recognize the estimated value of unused Patterson Advantage dollars as
redemptions occur. Breakage recognized was immaterial to all periods presented.
Freight and Delivery Charges
Freight and delivery charges are included in cost of sales in the consolidated statements of operations and other
comprehensive income (loss).
Advertising
We expense all advertising and promotional costs as incurred, except for direct marketing expenses, which are
expensed over the shorter of the life of the asset or one year. Total net advertising and promotional expenses were
$1,532, $134 and $5,793 for fiscal 2022, 2021 and 2020, respectively. There were no deferred direct-marketing
expenses included in the consolidated balance sheets as of April 30, 2022 and April 24, 2021.
Related Party Transactions
We have interests in a number of entities that are accounted for using the equity method. During fiscal 2022, 2021
and 2020, we made purchases of $128,452, $110,210 and $94,238 from these entities, respectively. During fiscal
2022, 2021 and 2020, we recorded net sales of $117,347, $93,577 and $110,262 to these entities, respectively.
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 basis 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.
54
Self-insurance
Patterson is self-insured for certain losses related to general liability, product liability, automobile, workers’
compensation and medical claims. We estimate our liabilities based upon an analysis of historical data and actuarial
estimates. While current estimates are believed reasonable based on information currently available, actual results
could differ and affect financial results due to changes in the amount or frequency of claims, medical cost inflation or
other factors. Historically, actual results related to these types of claims have not varied significantly from estimated
amounts.
Stock-based Compensation
We recognize stock-based compensation expense based on estimated grant date fair values. The grant date fair
value of stock options and stock purchases made through our Employee Stock Purchase Plan are estimated using
the Black-Scholes option pricing valuation model. The grant date fair value of performance stock units that vest
upon meeting certain market conditions is estimated using the Monte Carlo valuation model. These valuations
require estimates to be made including expected stock price volatility which considers historical volatility trends,
implied future volatility based on certain traded options and other factors. We estimate the expected life of awards
based on several factors, including types of participants, vesting schedules, contractual terms and various factors
surrounding exercise behavior of different groups.
The grant date fair value of time-based restricted stock awards and restricted stock units is calculated based on the
closing price of our common stock on the date of grant.
Compensation expense for all share-based payment awards is recognized over the requisite service period (or to
the date a participant becomes eligible for retirement, if earlier) for awards that are expected to vest.
Other Income (Expense), Net
Gain (loss) on interest rate swap agreements
Investment income and other
Other income (expense), net
Comprehensive Income (Loss)
Fiscal Year Ended
April 30, 2022
April 24, 2021
April 25, 2020
$
$
15,835 $
11,896
1,151 $
(18,712)
12,457
7,877
27,731 $
13,608 $
(10,835)
Comprehensive income (loss) is computed as net income (loss) plus certain other items that are recorded directly to
stockholders’ equity. Significant items included in comprehensive income (loss) are foreign currency translation
adjustments and the effective portion of cash flow hedges, net of tax. Foreign currency translation adjustments do
not include a provision for income tax because earnings from foreign operations are considered to be indefinitely
reinvested outside the U.S. The income tax expense related to cash flow hedge losses was $321, $321 and $2,460
for fiscal 2022, 2021 and 2020, respectively.
Earnings (Loss) Per Share ("EPS")
The amount of basic EPS is computed by dividing net income (loss) attributable to Patterson Companies, Inc. by the
weighted average number of outstanding common shares during the period. The amount of diluted EPS is
computed by dividing net income (loss) 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 EPS. There were no material
adjustments to the numerator.
Denominator for basic EPS – weighted average shares
97,277
95,599
94,154
Effect of dilutive securities – stock options, restricted stock and stock
purchase plans
Denominator for diluted EPS – weighted average shares
1,237
98,514
1,065
96,664
—
94,154
Fiscal Year Ended
April 30, 2022
April 24, 2021
April 25, 2020
55
Potentially dilutive securities representing 772, 1,014 and 2,517 shares for fiscal 2022, 2021 and 2020, respectively,
were excluded from the calculation of diluted EPS because their effects were anti-dilutive using the treasury stock
method.
For the fiscal year ended April 25, 2020, 905 incremental shares related to dilutive securities were not included in
the diluted EPS calculation because we reported a loss for this period. Shares related to dilutive securities have an
anti-dilutive impact on EPS when a net loss is reported and therefore are not included in the calculation.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-04,
“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” in
March 2020 and ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope” in January 2021. These ASUs
provide temporary optional expedients and exceptions to existing guidance on contract modifications and hedge
accounting to facilitate the market transition from existing reference rates, such as LIBOR which began to be
phased out at the end of 2021, to alternate reference rates. These standards were effective upon issuance. We are
evaluating the optional relief guidance provided within these ASUs, and are reviewing our debt securities, derivative
instruments and customer financing contracts that currently utilize LIBOR as the reference rate.
2. Acquisitions
During the first quarter of fiscal 2022, we acquired substantially all of the assets of Miller Vet Holdings, LLC, a
multiregional veterinary distributor, for total cash consideration of $19,793 and liabilities assumed of $6,799. We
have included its results of operations in our financial statements since the date of acquisition within our Animal
Health segment. This acquisition is expected to grow our presence in the companion animal market and drive
increased operating leverage and synergies. As of the acquisition date, we recorded $14,000 of identifiable
intangibles, $1,063 of goodwill and net tangible assets of $4,796 in our consolidated balance sheets related to this
acquisition. Goodwill, which is deductible for income tax purposes, was reduced by $66 subsequent to the
acquisition date as a result of working capital adjustments. The accounting for the acquisition was complete as of
April 30, 2022. The acquisition did not materially impact our financial statements, and therefore pro forma results
are not provided.
3. Cash and Cash Equivalents
Cash and cash equivalents consisted of the following:
Cash on hand
Money market funds
Total
April 30, 2022
April 24, 2021
$
138,828 $
141,546
3,186
1,698
$
142,014 $
143,244
Cash on hand is generally in interest earning accounts. Included in cash and cash equivalents in the consolidated
balance sheets are $39,106 and $36,771 as of April 30, 2022 and April 24, 2021, respectively, which represent cash
collected from previously sold customer financing contracts that have not yet been settled. See Note 5 for additional
information.
4. Receivables Securitization Program
We are party to certain receivables purchase agreements (the “Receivables Purchase Agreements”) with MUFG
Bank, Ltd. ("MUFG") (f.k.a. The Bank of Tokyo-Mitsubishi UFJ, Ltd.), under which MUFG acts as an agent to
facilitate the sale of certain Patterson receivables (the “Receivables”) to certain unaffiliated financial institutions (the
“Purchasers”). The sale of these receivables is accounted for as a sale of assets under the provisions of ASC 860,
Transfers and Servicing. We utilize PDC Funding III and PDC Funding IV to facilitate the sale to fulfill requirements
within the agreement. We use a daily unit of account for these Receivables.
The proceeds from the sale of these Receivables comprise a combination of cash and a deferred purchase price
(“DPP”) receivable. The DPP receivable is ultimately realized by Patterson following the collection of the underlying
Receivables sold to the Purchasers. The amount available under the Receivables Purchase Agreements fluctuates
over time based on the total amount of eligible Receivables generated during the normal course of business, with
maximum availability of $200,000 as of April 30, 2022, of which $200,000 was utilized.
56
We have no retained interests in the transferred Receivables, other than our right to the DPP receivable and
collection and administrative service fees. We consider the fees received adequate compensation for services
rendered, and accordingly have recorded no servicing asset or liability. As of April 30, 2022 and April 24, 2021, the
fair value of outstanding trade receivables transferred to the Purchasers under the facility and derecognized from
the consolidated balance sheets were $396,443 and $384,950, respectively. Sales of trade receivables under this
facility were $3,643,700, $3,171,456, and $2,068,409, and cash collections from customers on receivables sold
were $3,632,145, $3,094,060 and $2,128,394 during the fiscal years ended 2022, 2021 and 2020, respectively.
The DPP receivable is recorded at fair value within the consolidated balance sheets within prepaid expenses and
other current assets. The difference between the carrying amount of the Receivables and the sum of the cash and
fair value of the DPP receivable received at time of transfer is recognized as a gain or loss on sale of the related
Receivables inclusive of bank fees and allowance for credit losses. In operating expenses in the consolidated
statements of operations and other comprehensive income (loss), we recorded a loss of $3,247, $3,338 and $7,242
during fiscal 2022, 2021 and 2020, respectively, related to the Receivables.
The following summarizes the activity related to the DPP receivable:
Beginning DPP receivable balance
Non-cash additions to DPP receivable
Cash collections on DPP receivable
Ending DPP receivable balance
5. Customer Financing
Fiscal Year Ended
April 30, 2022
April 24, 2021
April 25, 2020
$
$
183,999 $
1,052,938
(1,041,173)
195,764 $
117,327 $
768,619
(701,947)
183,999 $
57,238
552,751
(492,662)
117,327
As a convenience to our customers, we offer several different financing alternatives, including a third party program
and a Patterson-sponsored program. For the third party program, we act as a facilitator between the customer and
the third party financing entity with no on-going involvement in the financing transaction. Under the Patterson-
sponsored program, equipment purchased by creditworthy customers may be financed up to a maximum of $1,000.
We generally sell our customers’ financing contracts to outside financial institutions in the normal course of our
business. These financing arrangements are accounted for as a sale of assets under the provisions of ASC 860,
Transfers and Servicing. We currently have two arrangements under which we sell these contracts. We use a
monthly unit of account for these financing contracts.
First, we operate under an agreement to sell a portion of our equipment finance contracts to commercial paper
conduits with MUFG serving as the agent. We utilize PDC Funding to fulfill a requirement of participating in the
commercial paper conduit. We receive the proceeds of the contracts upon sale to MUFG. At least 15.0% of the
proceeds are held by the conduit as security against eventual performance of the portfolio. This percentage can be
greater and is based upon certain ratios defined in the agreement with MUFG. The capacity under the agreement
with MUFG at April 30, 2022 was $525,000.
Second, we maintain an agreement with Fifth Third Bank ("Fifth Third") whereby Fifth Third purchases customers’
financing contracts. PDC Funding II sells its financing contracts to Fifth Third. We receive the proceeds of the
contracts upon sale to Fifth Third. At least 15.0% of the proceeds are held by the conduit as security against
eventual performance of the portfolio. This percentage can be greater and is based upon certain ratios defined in
the agreement with Fifth Third. The capacity under the agreement with Fifth Third at April 30, 2022 was $100,000.
We service the financing contracts under both arrangements, for which we are paid a servicing fee. The servicing
fees we receive are considered adequate compensation for services rendered. Accordingly, no servicing asset or
liability has been recorded.
The portion of the purchase price for the receivables held by the conduits is deemed a DPP receivable, which is
paid to the applicable special purpose entity as payments on the customers’ financing contracts are collected by
Patterson from customers. The difference between the carrying amount of the receivables sold under these
programs and the sum of the cash and fair value of the DPP receivable received at time of transfer is recognized as
a gain on sale of the related receivables and recorded in net sales in the consolidated statements of operations and
57
other comprehensive income (loss). Expenses incurred related to customer financing activities are recorded in
operating expenses in our consolidated statements of operations and other comprehensive income (loss).
During fiscal 2022, 2021 and 2020, we sold $314,732, $369,497 and $357,616 of contracts under these
arrangements, respectively. In net sales in the consolidated statements of operations and other comprehensive
income (loss), we recorded a loss of $18,379 and $2,048 during fiscal 2022 and 2021, respectively, and a gain of
$43,919 during fiscal 2020, related to these contracts sold. Cash collections on financed receivables sold were
$426,188, $401,535 and $346,077 during the fiscal years ended 2022, 2021 and 2020, respectively.
Included in cash and cash equivalents in the consolidated balance sheets are $39,106 and $36,771 as of April 30,
2022 and April 24, 2021, respectively, which represent cash collected from previously sold customer financing
contracts that have not yet been settled. Included in current receivables in the consolidated balance sheets are
$58,190 and $50,638 as of April 30, 2022 and April 24, 2021, respectively, of finance contracts we have not yet sold.
A total of $575,231 of finance contracts receivable sold under the arrangements was outstanding at April 30, 2022.
Since the internal financing program began in 1994, bad debt write-offs have amounted to less than 1% of the loans
originated.
The following summarizes the activity related to the DPP receivable:
Beginning DPP receivable balance
Non-cash additions to DPP receivable
Cash collections on DPP receivable
Ending DPP receivable balance
Fiscal Year Ended
April 30, 2022
April 24, 2021
April 25, 2020
$
227,967 $
228,019 $
121,657
69,689
131,959
(172,324)
(132,011)
154,644
(48,282)
$
125,332 $
227,967 $
228,019
The arrangements require us to maintain a minimum current ratio and maximum leverage ratio. We were in
compliance with those covenants at April 30, 2022.
6. Derivative Financial Instruments
We are a party to certain offsetting and identical interest rate cap agreements entered into to fulfill certain covenants
of the equipment finance contract sale agreements. The interest rate cap agreements also provide a credit
enhancement feature for the financing contracts sold by PDC Funding and PDC Funding II to the commercial paper
conduit.
The interest rate cap agreements are canceled and new agreements are entered into periodically to maintain
consistency with the dollar maximum of the sale agreements and the maturity of the underlying financing contracts.
As of April 30, 2022, PDC Funding had purchased an interest rate cap from a bank with a notional amount of
$525,000 and a maturity date of August 2029. We sold an identical interest rate cap to the same bank. As of April
30, 2022, PDC Funding II had purchased an interest rate cap from a bank with a notional amount of $100,000 and a
maturity date of September 2028. We sold an identical interest rate cap to the same bank.
These interest rate cap agreements do not qualify for hedge accounting treatment and, accordingly, we record the
fair value of the agreements as an asset or liability and the change in fair value as income or expense during the
period in which the change occurs.
In January 2014, we entered into a forward interest rate swap agreement with a notional amount of $250,000 and
accounted for it as a cash flow hedge, in order to hedge interest rate fluctuations in anticipation of refinancing the
5.17% senior notes due March 25, 2015. These notes were repaid on March 25, 2015 and replaced with new
$250,000 3.48% senior notes due March 24, 2025. A cash payment of $29,003 was made in March 2015 to settle
the interest rate swap. This amount is recorded in other comprehensive income (loss), net of tax, and is recognized
as interest expense over the life of the related debt. In fiscal 2020, we repaid certain indebtedness, resulting in
accelerating a portion of this interest expense and recording a pre-tax non-cash charge of $8,134. See Note 11 for
additional information.
We utilize forward interest rate swap agreements to hedge against interest rate fluctuations that impact the amount
of net sales we record related to our customer financing contracts. These interest rate swap agreements do not
58
qualify for hedge accounting treatment and, accordingly, we record the fair value of the agreements as an asset or
liability and the change in fair value as income or expense during the period in which the change occurs.
As of April 24, 2021, the remaining notional amount for interest rate swap agreements was $653,122, with the latest
maturity date in fiscal 2028. During fiscal 2022, we entered into forward interest rate swap agreements with a
notional amount of $179,818. As of April 30, 2022, the remaining notional amount for interest rate swap agreements
was $574,144, with the latest maturity date in fiscal 2029.
Net cash payments of $6,770 and $9,373 were made in fiscal 2022 and 2021, respectively, to settle a portion of our
liabilities related to these interest rate swap agreements. These payments are reflected as cash outflows in the
consolidated statements of cash flows within net cash used in operating activities.
The following presents the fair value of derivative instruments included in the consolidated balance sheets:
Derivative type
Assets:
Interest rate contracts
Interest rate contracts
Total asset derivatives
Liabilities:
Interest rate contracts
Interest rate contracts
Total liability derivatives
Classification
April 30, 2022
April 24, 2021
Prepaid expenses and other
current assets
Other non-current assets
Other accrued liabilities
Other non-current liabilities
$
$
$
$
3,875 $
19,871
23,746 $
—
2,120
2,120
250 $
10,013
10,263 $
3,776
7,795
11,571
The following tables present the pre-tax effect of derivative instruments on the consolidated statements of
operations and other comprehensive income (loss):
Derivatives in cash flow hedging relationships
Interest rate contracts
Statements of operations
Interest expense
April 30, 2022
April 24, 2021
April 25, 2020
$
(1,363) $
(1,363) $
(10,458)
Amount of Gain (Loss) Reclassified from Accumulated
Other Comprehensive Loss into Income (Effective Portion)
Fiscal Year Ended
Amount of Gain (Loss) Recognized in Income on
Derivatives
Fiscal Year Ended
Derivatives not designated as hedging instruments Statements of operations
Interest rate contracts
Other income, net
April 30, 2022
April 24, 2021
April 25, 2020
$
15,835 $
1,151 $
(18,712)
There were no gains or losses recognized in other comprehensive income (loss) on cash flow hedging derivatives in
fiscal 2022, 2021 or 2020.
We recorded no ineffectiveness during fiscal 2022, 2021 or 2020. As of April 30, 2022, the estimated pre-tax portion
of accumulated other comprehensive loss that is expected to be reclassified into earnings over the next twelve
months is $1,363, which will be recorded as an increase to interest expense.
7. 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:
59
Level 1 –
Quoted prices in active markets for identical assets and liabilities at the measurement date.
Level 2 –
Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar
assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in
markets that are not active; or other inputs that are observable or can be corroborated by
observable market data.
Level 3 –
Unobservable inputs for which there is little or no market data available. These inputs reflect
management’s assumptions of what market participants would use in pricing the asset or liability.
Our hierarchy for assets and liabilities measured at fair value on a recurring basis is as follows:
Assets:
Cash equivalents
DPP receivable - receivables securitization
program
DPP receivable - customer financing
Derivative instruments
Total assets
Liabilities:
April 30, 2022
Total
Level 1
Level 2
Level 3
$
3,186 $
3,186 $
— $
—
195,764
125,332
23,746
—
—
—
—
—
23,746
195,764
125,332
—
$
348,028 $
3,186 $
23,746 $
321,096
Derivative instruments
$
10,263 $
— $
10,263 $
—
Assets:
Cash equivalents
DPP receivable - receivables securitization
program
DPP receivable - customer financing
Derivative instruments
Total assets
Liabilities:
April 24, 2021
Total
Level 1
Level 2
Level 3
$
1,698 $
1,698 $
— $
—
183,999
227,967
2,120
—
—
—
—
—
2,120
183,999
227,967
—
$
415,784 $
1,698 $
2,120 $
411,966
Derivative instruments
$
11,571 $
— $
11,571 $
—
Cash equivalents – We value cash equivalents at their current market rates. The carrying value of cash equivalents
approximates fair value and maturities are less than three months.
DPP receivable - receivables securitization program – We value this DPP receivable based on a discounted cash
flow analysis using unobservable inputs, which include the estimated timing of payments and the credit quality of
the underlying creditor. Significant changes in any of the significant unobservable inputs in isolation would not result
in a materially different fair value estimate. The interrelationship between these inputs is insignificant.
DPP receivable - customer financing – We value this DPP receivable based on a discounted cash flow analysis
using unobservable inputs, which include a forward yield curve, the estimated timing of payments and the credit
quality of the underlying creditor. Significant changes in any of the significant unobservable inputs in isolation would
not result in a materially different fair value estimate. The interrelationship between these inputs is insignificant.
Derivative instruments –Our derivative instruments consist of interest rate cap agreements and interest rate swaps.
These instruments are valued using inputs such as interest rates and credit spreads.
Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on
an ongoing basis, but are subject to fair value adjustments under certain circumstances. We adjust the carrying
60
value of our non-marketable equity securities to fair value when observable transactions of identical or similar
securities occur, or due to an impairment.
In fiscal 2022, we sold a portion of our investment in Vetsource, with a carrying value of $25,814, for $56,849. We
recorded a pre-tax gain of $31,035 in gains on investments in our consolidated statements of operations and other
comprehensive income (loss) as a result of this sale. The cash received of $56,849 is reported within investing
activities in our consolidated statements of cash flows. In fiscal 2022, we also recorded a pre-tax non-cash gain of
$31,035 to reflect the increase in the carrying value of the remaining portion of our investment in Vetsource, which
was based on the selling price of the portion of the investment we sold for $56,849. This gain was recorded in gains
on investments in our consolidated statements of operations and other comprehensive income (loss). The carrying
value of the investment we owned following this sale was $56,849 and $25,814 as of April 30, 2022 and April 24,
2021, respectively. Concurrent with the sale completed in fiscal 2022, we obtained rights that will allow us, under
certain circumstances, to require another shareholder of Vetsource to purchase our remaining shares. We recorded
a pre-tax non-cash gain of $25,757 in gains on investments in our consolidated statements of operations and other
comprehensive income (loss) as a result of this transaction. The carrying value of this put option as of April 30, 2022
is $25,757, and is reported within investments in our consolidated balance sheets. The aggregate gains on
investments of $87,827 are reported within operating activities in our consolidated statements of cash flows.
Concurrent with obtaining this put option, we also granted rights to the same Vetsource shareholder that would
allow such shareholder, under certain circumstances, to require us to sell our remaining shares at fair value.
In fiscal 2022, we sold a portion of our investment in Vets Plus with a carrying value of $4,009 for $17,101. We
recorded a pre-tax gain of $13,092 in gains on investments in our consolidated statements of operations and other
comprehensive income (loss) as a result of this sale. This $13,092 pre-tax gain is reported within operating activities
in our consolidated statements of cash flows. The cash received of $17,101 is reported within investing activities in
our consolidated statements of cash flows. The carrying value of the investment we owned following this sale was
$2,355 and $2,355 as of April 30, 2022 and April 24, 2021, respectively.
In fiscal 2020, we recorded a pre-tax gain of $34,334 related to one of our investments in other income, net in our
consolidated statements of operations and other comprehensive income (loss). This gain was based on the selling
price of preferred stock in this investment that is similar to the preferred stock we own, and was adjusted for
differences in liquidation preferences. As of April 25, 2020, this investment had a carrying value of $51,628. There
were no fair value adjustments to such assets in fiscal 2021.
Our debt is not measured at fair value in the consolidated balance sheets. The estimated fair value of our debt as of
April 30, 2022 and April 24, 2021 was $489,777 and $610,811, respectively, as compared to a carrying value of
$488,554 and $588,295 at April 30, 2022 and April 24, 2021, respectively. The fair value of debt was measured
using a discounted cash flow analysis based on expected market based yields (i.e., level 2 inputs).
The carrying amounts of receivables, net of allowances, accounts payable, and certain accrued and other current
liabilities approximated fair value at April 30, 2022 and April 24, 2021.
8. Goodwill and Other Intangible Assets
The changes in the carrying value of goodwill for each of our reportable segments for the fiscal year ended April 30,
2022 were as follows:
Dental
Animal Health
Corporate
Total
Balance at
April 24, 2021
$ 139,932 $
Acquisition
Activity
Foreign
Currency
Translation
Balance at
April 30, 2022
(299) $ 139,633
—
—
997
—
(299) $ 140,630
— $
997
—
997 $
—
—
$ 139,932 $
61
Balances of other intangible assets, excluding goodwill, were as follows:
April 30, 2022
Accumulated
Amortization
Gross
Net
Gross
April 24, 2021
Accumulated
Amortization
Net
Unamortized - indefinite lived:
Trade name
$ 12,300 $
— $ 12,300 $ 12,300 $
— $ 12,300
Amortized - definite lived:
181,280
95,903
185,689
37,093
355,685
133,834
159,376
85,221
196,309
48,613
366,969
Customer relationships
Trade names and trademarks 132,996
Developed technology and
other
22,422
267,344
Total amortized intangible assets
Total identifiable intangible assets $ 578,022 $ 325,408 $ 252,614 $ 574,217 $ 294,573 $ 279,644
17,532
240,314
48,225
325,408
49,976
294,573
72,398
561,917
65,757
565,722
With respect to the amortized intangible assets, future amortization expense is expected to approximate $37,357,
$36,699, $36,694, $26,884 and $25,491 for fiscal 2023, 2024, 2025, 2026 and 2027, respectively. Actual amounts
of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, changes
in foreign currency exchange rates, impairment of intangible assets, accelerated amortization of intangible assets
and other events.
9. Property and Equipment
Property and equipment consisted of the following:
Land
Buildings
Leasehold improvements
Furniture and equipment
Computer hardware and software
Construction-in-progress (1)
Property and equipment, gross
Accumulated depreciation
Property and equipment, net
April 30, 2022
April 24, 2021
$
11,341 $
106,957
31,395
187,093
254,205
30,502
621,493
(408,353)
213,140 $
$
12,014
118,582
31,125
188,594
244,537
17,665
612,517
(393,079)
219,438
(1)
Includes $8,585 and $6,326 of unamortized development costs of software to be sold as of April 30, 2022
and April 24, 2021, respectively.
10. Leases
We lease certain warehouses, office space, vehicles and equipment. Leases with an initial term of 12 months or
less are not recorded on the consolidated balance sheets. We recognize lease expense for these leases on a
straight-line basis over the lease term. We do not separate lease and non-lease components, and instead account
for each lease and non-lease component associated with that lease as a single lease component. Some leases
include one or more options to renew. The exercise of renewal options is at our sole discretion. Our lease
agreements do not contain significant residual value guarantees, restrictions or covenants.
Total lease costs for the fiscal year ended April 30, 2022 and April 24, 2021 were $35,646 and $34,712, respectively,
which include variable lease costs and short-term lease costs, which were immaterial.
62
The following table presents future maturities of lease liabilities:
2023
2024
2025
2026
2027
After 2027
Total lease payments
Less: imputed interest
Present value of lease liabilities
The following tables present other supplemental information related to leases:
Cash paid for amounts included in the measurement of operating lease
liabilities
Lease assets obtained in exchange for new operating lease liabilities
Weighted-average remaining lease term - operating leases
Weighted-average discount rate - operating leases
11. Debt
Our long-term debt consisted of the following:
$
$
31,165
21,793
12,650
6,168
2,941
1,222
75,939
(3,259)
72,680
Fiscal Year Ended
April 30, 2022
April 24, 2021
$
$
38,192 $
31,132 $
37,054
50,114
April 30, 2022
April 24, 2021
2.98 years
3.06 years
3.10 %
3.31 %
Senior notes due fiscal 2022 (1)
Senior notes due fiscal 2024 (1)
Senior notes due fiscal 2025 (2)
Senior notes due fiscal 2028 (3)
Term loan due fiscal 2024 (4)
Less: Deferred debt issuance costs
Total debt
Less: Current maturities of long-term debt
Long-term debt
Interest Rate
April 30, 2022
April 24, 2021
Carrying Value
3.59 % $
3.74 %
3.48 %
3.79 %
1.89 %
— $
33,000
117,500
40,000
300,000
(1,946)
488,554
—
$
488,554 $
100,750
33,000
117,500
40,000
300,000
(2,955)
588,295
(100,750)
487,545
(1)
(2)
(3)
(4)
Issued in December 2011.
Issued in March 2015.
Issued in March 2018.
Issued in December 2019, amended in February 2021. Interest rate is 1-month LIBOR plus 1.13% as of
April 30, 2022.
63
Future principal payments due, based on stated contractual maturities for our long-term debt, were as follows as of
April 30, 2022:
Fiscal Year
2023
2024
2025
2026
2027
Thereafter
Total
$
—
333,000
117,500
—
—
40,000
$
490,500
In fiscal 2021, we entered into an amendment, restatement and consolidation of certain credit agreements with
various lenders, including MUFG Bank, Ltd, as administrative agent. This amended and restated credit agreement
(the “Credit Agreement”), dated February 16, 2021, consists of a $700,000 revolving credit facility and a $300,000
term loan facility, and will mature no later than February 2024. We used the facilities to refinance and consolidate
certain credit agreements in existence prior to the Credit Agreement being executed, pay the fees and expenses
incurred therewith, and finance our ongoing working capital and other general corporate purposes.
As of April 30, 2022, $300,000 was outstanding under the Credit Agreement term loan at an interest rate of 1.89%
and $29,000 was outstanding under the Credit Agreement revolving credit facility at an interest rate of 1.54%.
In fiscal 2020, we repaid certain indebtedness totaling $373,750, and as a result, we recorded a pre-tax non-cash
charge of $8,984 in fiscal 2020. This charge relates to the January 2014 forward interest rate swap agreement and
accelerated amortization of debt issuance costs.
We are subject to various financial covenants under our debt agreements including the maintenance of leverage
and interest coverage ratios. In the event of our default, any outstanding obligations may become due and payable
immediately. We were in compliance with the covenants under our debt agreements as of April 30, 2022.
12. Income Taxes
The components of income (loss) before taxes were as follows:
Income (loss) before taxes
United States
International
Total
April 30,
2022
Fiscal Year Ended
April 24,
2021
April 25,
2020
$
$
225,195 $
166,251 $
(594,431)
41,059
33,680
4,024
266,254 $
199,931 $
(590,407)
64
Significant components of income tax expense (benefit) were as follows:
Current:
Federal
Foreign
State
Total current expense
Deferred:
Federal
Foreign
State
Total deferred benefit
Income tax expense (benefit)
Fiscal Year Ended
April 30,
2022
April 24,
2021
April 25,
2020
$
$
46,964 $
11,968
10,326
69,258
(3,918)
(217)
(583)
(4,718)
64,540 $
36,836 $
9,975
8,771
55,582
18,300
7,501
4,959
30,760
(7,529)
(362)
(2,869)
(10,760)
44,822 $
(25,918)
164
(6,046)
(31,800)
(1,040)
On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” was signed into law. The
CARES Act, among other things, includes provisions relating to refundable employment tax credits, deferment of
employer side social security payments, net operating loss carryback periods, alternative minimum tax credit
refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods
for qualified improvement property. These benefits did not materially impact the Company’s effective tax rate for the
fiscal years ended April 30, 2022, April 24, 2021 or April 25, 2020.
Deferred tax assets and liabilities are included in other non-current assets and deferred income taxes on the
consolidated balance sheets. Significant components of our deferred tax assets (liabilities) were as follows:
Deferred tax assets:
Employee compensation and benefits
Inventory related items
Foreign deferred assets, net
Foreign tax credit
Lease liability
Accrued charitable contributions
Other accrued liabilities
Other
Gross deferred tax assets
Less: Valuation allowance
Total net deferred tax assets
Deferred tax liabilities
LIFO reserve
Amortizable intangibles
Goodwill
Property, plant, equipment
Lease right-of-use assets
Investments
Other
Total deferred tax liabilities
Deferred net long-term income tax liability
April 30,
2022
April 24,
2021 1
$
9,352 $
9,985
11,812
7,037
14,416
6,559
6,642
5,190
70,993
(18,615)
52,378
12,223
12,250
9,510
7,112
16,153
—
7,331
5,372
69,951
(15,960)
53,991
(20,965)
(52,952)
(15,727)
(38,175)
(14,103)
(26,449)
(3,401)
(171,772)
(119,394) $
(25,913)
(61,023)
(13,902)
(39,454)
(15,547)
(16,353)
(5,590)
(177,782)
(123,791)
$
1 Certain amounts were reclassified between categories to conform to the current period presentation.
65
At April 30, 2022, we had a U.S. foreign tax credit asset that will expire in four years. In addition, we have foreign
deferred tax assets which would give rise to tax capital losses if triggered in the future. These losses can only be
used against capital gain income. At this time, we believe that it is more likely than not that the foreign tax credit and
potential capital loss carryforward attributes totaling $18,615 will not be fully utilized prior to expiration. As a result, a
full valuation allowance has been established against these assets.
With regard to unremitted earnings of foreign subsidiaries generated after December 31, 2017, we do not currently
provide for U.S. taxes since we intend to reinvest such undistributed earnings indefinitely outside of the United
States.
Income tax expense (benefit) varies from the amount computed using the U.S. statutory rate. The reasons for this
difference and the related tax effects are shown below.
Tax at U.S. statutory rate
State tax provision, net of federal benefit
Effect of foreign taxes
Goodwill impairment
Legal settlement
ESOP
Other permanent differences
Other
Income tax expense (benefit)
Fiscal Year Ended
April 30,
2022
April 24,
2021
$
55,912 $
41,984 $
9,176
3,199
—
—
(2,121)
944
(2,570)
64,540 $
5,400
2,594
—
—
(2,286)
808
(3,678)
44,822 $
$
April 25,
2020
(123,987)
(466)
7,277
107,999
11,088
(2,393)
1,533
(2,091)
(1,040)
We have accounted for the uncertainty in income taxes recognized in the financial statements in accordance with
ASC Topic 740. This standard clarifies the separate identification and reporting of estimated amounts that could be
assessed upon audit. The potential assessments are considered unrecognized tax benefits, because, if it is
ultimately determined they are unnecessary, the reversal of these previously recorded amounts will result in a
beneficial impact to our financial statements.
As of April 30, 2022 and April 24, 2021, Patterson’s gross unrecognized tax benefits were $9,898 and $10,866,
respectively. If determined to be unnecessary, these amounts (net of deferred tax assets of $1,786 and $2,055,
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 non-current liabilities on the consolidated balance sheets.
A summary of the changes in the gross amounts of unrecognized tax benefits is shown below.
Balance at beginning of period
Additions for tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Statute expirations
Settlements
Balance at end of period
April 30,
2022
April 24,
2021
$
10,866 $
1,001
42
(77)
(1,527)
(407)
9,898 $
$
11,740
1,264
20
(220)
(1,938)
—
10,866
We also recognize both interest and penalties with respect to unrecognized tax benefits as a component of income
tax expense. As of April 30, 2022 and April 24, 2021, we had recorded $1,583 and $2,026, respectively, for interest
and penalties. These amounts are also included in other non-current liabilities on the consolidated balance sheets.
These amounts, net of related deferred tax assets, if determined to be unnecessary, would decrease our effective
tax rate. During the year ended April 30, 2022, we recorded as part of tax expense $229 related to an increase in
our estimated liability for interest and penalties.
Patterson files income tax returns, including returns for our subsidiaries, with federal, state, local and foreign
jurisdictions. During fiscal 2021, the Internal Revenue Service (“IRS”) concluded an audit of the fiscal year ended
66
April 28, 2018. The IRS has either examined or waived examination for all periods up to and including our fiscal
year ended April 28, 2018. In addition to the IRS, periodically, state, local and foreign income tax returns are
examined by various taxing authorities. We do not believe that the outcome of these various examinations will have
a material adverse impact on our financial statements.
13. Technology Partner Innovations, LLC ("TPI")
In fiscal 2019, we entered into an agreement with Cure Partners to form TPI, which offers a cloud-based practice
management software, NaVetor, to its customers. Patterson and Cure Partners each contributed net assets of
$4,000 to form TPI. We determined that TPI is a variable interest entity, and we consolidate the results of operations
of TPI as we have concluded that we are the primary beneficiary of TPI. Patterson and Cure Partners each
contributed additional net assets of $1,000 during fiscal 2022 to TPI. During fiscal 2022, 2021 and 2020, net loss
attributable to the noncontrolling interest was $1,496, $872 and $921, respectively. Since TPI was formed, there
have been no changes in ownership interests. As of April 30, 2022, we had noncontrolling interests of $959 on our
consolidated balance sheets.
14. Segment and Geographic Data
We present three reportable segments: Dental, Animal Health and Corporate. Dental and Animal Health are
strategic business units that offer similar products and services to different customer bases. Dental provides a
virtually complete range of consumable dental products, equipment and software, turnkey digital solutions and
value-added services to dentists, dental laboratories, institutions, and other healthcare professionals throughout
North America. Animal Health is a leading, full-line distributor in North America and the U.K. of animal health
products, services and technologies to both the production-animal and companion-pet markets. Our Corporate
segment is comprised of general and administrative expenses, including home office support costs in areas such as
information technology, finance, legal, human resources and facilities. In addition, customer financing and other
miscellaneous sales are reported within Corporate results. Corporate assets consist primarily of cash and cash
equivalents, accounts receivable, property and equipment and long-term receivables. We evaluate segment
performance based on operating income (loss). The costs to operate the fulfillment centers are allocated to the
business units based on the through-put of the unit.
The following tables present information about our reportable segments and the geographic areas in which we
operate:
Consolidated net sales
United States
United Kingdom
Canada
Total
Dental net sales
United States
Canada
Total
Animal Health net sales
United States
United Kingdom
Canada
Total
Corporate net sales
United States
Total
April 30,
2022
Fiscal Year Ended
April 24,
2021
April 25,
2020
$
5,358,489 $
4,877,070 $
4,554,345
717,481
423,435
677,910
357,086
608,320
327,346
6,499,405 $
5,912,066 $
5,490,011
2,259,579 $
2,107,521 $
1,900,539
256,553
219,500
201,383
2,516,132 $
2,327,021 $
2,101,922
3,098,511 $
2,744,498 $
2,601,970
717,481
166,882
677,910
137,586
608,320
125,963
3,982,874 $
3,559,994 $
3,336,253
399 $
399 $
25,051 $
25,051 $
51,836
51,836
$
$
$
$
$
$
$
67
Consolidated net sales
Consumable
Equipment and software
Value-added services and other
Total
Dental net sales
Consumable
Equipment and software
Value-added services and other
Total
Animal Health net sales
Consumable
Equipment and software
Value-added services and other
Total
Corporate net sales
Value-added services and other
Total
April 30,
2022
Fiscal Year Ended
April 24,
2021 1
April 25,
2020
$
5,248,040 $
4,748,416 $
4,374,829
920,424
330,941
822,063
341,587
749,390
365,792
6,499,405 $
5,912,066 $
5,490,011
1,424,677 $
1,314,236 $
1,141,189
800,144
291,311
730,928
281,857
677,677
283,056
2,516,132 $
2,327,021 $
2,101,922
3,823,363 $
3,434,180 $
3,233,640
120,280
39,231
91,135
34,679
71,713
30,900
3,982,874 $
3,559,994 $
3,336,253
399 $
399 $
25,051 $
25,051 $
51,836
51,836
$
$
$
$
$
$
$
1 Certain sales were reclassified between categories to conform to the current period presentation.
Operating income (loss)
Dental
Animal Health
Corporate
Consolidated operating income (loss)
Depreciation and amortization
Dental
Animal Health
Corporate
$
$
$
April 30,
2022
Fiscal Year Ended
April 24,
2021
April 25,
2020
180,212 $
201,244 $
114,403
(137,613)
88,123
(78,760)
157,002 $
210,607 $
168,304
(594,743)
(145,680)
(572,119)
13,495 $
7,774 $
44,561
23,936
45,771
23,004
8,434
49,958
23,790
82,182
Consolidated depreciation and amortization
$
81,992 $
76,549 $
68
Property and equipment, net
United States
United Kingdom
Canada
Total property and equipment, net
Total assets
Dental
Animal Health
Corporate
Total assets
15. Stockholders’ Equity
Dividends
April 30,
2022
April 24,
2021
$
200,839 $
209,361
6,045
6,256
2,471
7,606
$
213,140 $
219,438
April 30,
2022
April 24,
2021
$
851,746 $
863,718
1,459,450
430,434
1,391,892
495,901
$
2,741,630 $
2,751,511
The following table presents our declared cash dividends per share on our common stock for the past three years.
In fiscal 2022 and 2021, dividends were declared in the period presented and paid in the following quarter.
Dividends were declared and paid in the same period during fiscal 2020.
Fiscal year
2022
2021
2020
Share Repurchases
Quarter
1
2
3
4
$
0.26 $
0.26 $
0.26 $
0.26
0.26
0.26
0.26
0.26
0.26
0.26
0.26
0.26
During fiscal 2022, we repurchased 1,032 shares of our common stock for $35,000, or an average of $33.90 per
share. During fiscal 2021 and 2020, we had no repurchases of shares of our common stock.
On March 16, 2021, the Board of Directors authorized a $500,000 share repurchase program through March 16,
2024. As of April 30, 2022, $465,000 remains available under the current repurchase authorization.
ESOP
In 1990, Patterson’s Board of Directors adopted a leveraged ESOP. In fiscal 1991, under the provisions of the plan
and related financing arrangements, Patterson loaned the ESOP $22,000 (the “1990 note”) for the purpose of
acquiring its then outstanding preferred stock, which was subsequently converted to common stock. The Board of
Directors determines the contribution from the Company to the ESOP annually. The contribution is used to retire a
portion of the debt, which triggers a release of shares that are then allocated to the employee participants. Shares
of stock acquired by the plan are allocated to each participant who has completed 1000 hours of service during the
plan year. In fiscal 2011, the final payment on the 1990 note was made and all remaining shares were released for
allocation to participants.
In fiscal 2002, Patterson’s ESOP and an ESOP sponsored by the Thompson Dental Company (“Thompson”) were
used to facilitate the acquisition and merger of Thompson into Patterson. The net result of this transaction was an
additional loan of $12,612 being made to the ESOP and the ESOP acquiring 666 shares of common stock. The loan
bore interest at then-current rates, but principal did not begin to amortize until fiscal 2012. Beginning in fiscal 2012
and through fiscal 2020, an annual payment of $200 plus interest was due. In fiscal 2021, a final payment of the
outstanding principal and interest balance was due and was made. Of the 666 shares issued in the transaction, 98
were previously allocated to Thompson employees. The remaining 568 shares began to be allocated in fiscal 2004
as interest was paid on the loan.
69
In September 2006, we entered into a third loan agreement with the ESOP and loaned $105,000 (the “2006 note”)
for the sole purpose of enabling the ESOP to purchase shares of our common stock. The ESOP purchased 3,160
shares with the proceeds from the 2006 note. Interest on the unpaid principal balance accrued 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 was due and payable on each successive April 30. In fiscal
2021, a final payment of the outstanding principal and interest balance was made. In fiscal 2012, Patterson
contributed $20,214 to the ESOP, which then purchased 844 shares for allocation to the participants. No shares
secured by the 2006 note were released prior to fiscal 2011.
At April 30, 2022, a total of 9,551 shares of common stock that have been allocated to participants remained in the
ESOP and had a fair market value of $293,879. As of April 30, 2022, there were no committed-to-be-released
shares and no suspense shares remaining related to the ESOP.
Unearned ESOP shares are not considered outstanding for the computation of earnings per share until the shares
are committed for release to the participants. During fiscal 2022, 2021 and 2020, the compensation expense
recognized related to the ESOP was $0, $9,265 and $14,419, respectively. This compensation expense was
computed based on the shares allocated method.
In fiscal 2021, we allocated the remaining suspense shares to eligible ESOP participants. We will recognize an
income tax deduction on the unearned ESOP shares released. Such deductions will be limited to the ESOP’s
original cost to acquire the shares. We will no longer be contributing to the ESOP after fiscal 2021, and instead we
have and will be making cash-based 401(k) contributions.
Dividends on allocated shares are passed through to the ESOP participants.
16. Stock-based Compensation
The consolidated statements of operations and other comprehensive income (loss) for fiscal 2022, 2021 and 2020
include pre-tax (after-tax) stock-based compensation expense of $23,805 ($18,686), $21,223 ($16,387) and
$22,935 ($17,789), respectively. Pre-tax expense is included in operating expenses within the consolidated
statements of operations and other comprehensive income (loss).
As of April 30, 2022, the total unrecognized compensation cost related to non-vested awards was $22,718, and it is
expected to be recognized over a weighted average period of approximately 1.3 years.
2015 Omnibus Incentive Plan
In September 2015, our shareholders approved the 2015 Omnibus Incentive Plan ("Incentive Plan"), which was
most recently amended and restated in September 2021. The aggregate number of shares of common stock that
may be issued is 19,500. The Incentive Plan authorizes various award types to be issued under the plan, including
stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards, non-
employee director awards, cash-based awards and other stock-based awards. We issue new shares for stock
option exercises, restricted stock award grants and also for vesting of restricted stock units and performance stock
units. Awards that expire or are canceled without delivery of shares generally become available for reissuance
under the plan.
At April 30, 2022, there were 10,515 shares available for awards under the Incentive Plan.
As a result of the approval of the Incentive Plan, awards are no longer granted under any prior equity incentive plan,
but all outstanding awards previously granted under such prior plans will remain outstanding and subject to the
terms of such prior plans. At April 30, 2022, there were 307 shares outstanding under prior plans.
Inducement Awards
On June 29, 2018, we issued a combination of non-statutory stock options and restricted stock units outside our
Incentive Plan to our Chief Financial Officer. The stock option covers 99 shares of our common stock, has an
exercise price of $22.67 per share, and has a 10-year term. Such award vested to the extent of one-third of the
award on the first anniversary of the date of grant, one-third of the award on the second anniversary of the date of
grant, and the remaining one-third of the award on the third anniversary of the date of grant. The restricted stock
70
unit award covers 31 shares of our common stock. Such award vested to the extent of 50% of the award on the first
anniversary of the date of grant and the remaining 50% of the award on the second anniversary of the date of grant.
Stock Option Awards
Stock options granted to employees expire no later than ten years after the date of grant. Awards typically vest over
three or five years.
The fair value of stock options granted was estimated as of the grant date using a Black-Scholes option-pricing
model with the following assumptions:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life (years)
Weighted average grant date fair value per share
The following is a summary of stock option activity:
Balance as of April 24, 2021
Granted
Exercised
Canceled
Balance as of April 30, 2022
Vested or expected to vest as of April 30, 2022
Exercisable as of April 30, 2022
Fiscal Year Ended
April 30,
2022
April 24,
2021
April 25,
2020
3.4 %
38.1 %
1.1 %
6.0
7.97 $
4.4 %
34.6 %
0.4 %
6.0
4.60 $
4.7 %
26.8 %
1.8 %
6.0
3.37
$
Number
of
Options
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value
2,697 $
290
(175)
(75)
2,737 $
2,727 $
1,707 $
28.31
30.74
22.76
43.01
28.52 $
28.53 $
30.39 $
15,615
15,557
9,858
The weighted average remaining contractual lives of options outstanding and options exercisable as of April 30,
2022 were 6.8 and 6.0 years, respectively.
Related to stock options exercised, the intrinsic value, cash received and tax benefits realized were $1,552, $3,975
and $238, respectively, in fiscal 2022; and $953, $3,399 and $129, respectively, in fiscal 2021. No stock options
were exercised in fiscal 2020.
Restricted Stock
Restricted stock awards and restricted stock units granted to employees generally vest over a three or five year
period. Restricted stock awards are also granted to non-employee directors annually and vest over one year. The
grant date fair value of restricted stock awards and restricted stock units is based on the closing stock price on the
day of the grant. The total fair value of restricted stock awards and restricted stock units that vested in fiscal 2022,
2021 and 2020 was $19,970, $11,672 and $8,788, respectively.
71
The following is a summary of restricted stock award activity:
Outstanding at April 24, 2021
Granted
Vested
Forfeitures
Outstanding at April 30, 2022
The following is a summary of restricted stock unit activity:
Outstanding at April 24, 2021
Granted
Vested
Forfeitures
Outstanding at April 30, 2022
Performance Unit Awards
Restricted Stock Awards
Weighted-
Average
Grant Date
Fair Value
Shares
54 $
32
(53)
(6)
27 $
30.63
31.86
30.45
33.29
31.86
Restricted Stock Units
Weighted-
Average
Grant Date
Fair Value
25.65
30.79
26.42
26.92
27.24
Shares
1,241 $
417
(586)
(70)
1,002 $
In fiscal 2022, 2021 and 2020, we granted performance unit awards to certain executives which are earned at the
end of a three-year period if certain operating goals are met. The number of shares to be received at vesting related
to the fiscal 2022 and 2021 awards will be determined by performance measured over three fiscal year periods and
ultimately modified by Patterson's total shareholder return ("TSR") relative to the performance of companies in the
S&P Midcap 400 Index measured over a three-year period. We estimate the grant date fair value of the TSR awards
using the Monte Carlo valuation model. We recognize expense over the requisite service period based on the
outcome that is probable for these awards. The total fair value of performance unit awards that vested in fiscal 2021
was $4,227. No performance unit awards vested in fiscal 2022 and 2020.
The following is a summary of performance unit award activity at target:
Outstanding at April 24, 2021
Granted
Vested
Forfeitures and cancellations
Outstanding at April 30, 2022
Employee Stock Purchase Plan ("ESPP")
Performance Unit Awards
Weighted-
Average
Grant Date
Fair Value
Shares
288 $
150
—
—
438 $
22.94
29.67
—
—
26.14
We sponsor an ESPP under which a total of 9,000 shares have been reserved for purchase by employees. Eligible
employees may purchase shares at 85% of the lower of the fair market value of our common stock on the beginning
of the annual offering period, or on the end of each quarterly purchase period, which occur on March 31, June 30,
September 30 and December 31. The offering periods begin on January 1 of each calendar year and end on
December 31 of each calendar year. At April 30, 2022, there were 1,387 shares available for purchase under the
ESPP.
72
We estimate the grant date fair value of shares purchased under our ESPP using the Black-Scholes option pricing
valuation model with the following assumptions:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life (years)
Weighted average grant date fair value per share
17. Litigation
Fiscal Year Ended
April 30,
2022
April 24,
2021
April 25,
2020
3.6 %
28.6 %
0.3 %
0.6
6.79 $
3.6 %
51.7 %
0.1 %
0.6
8.77 $
5.1 %
34.3 %
1.6 %
0.6
4.98
$
From time to time, we become involved in lawsuits, administrative proceedings, government subpoenas, and
government investigations (which may, in some cases, involve our entering into settlement agreements or consent
decrees), relating to antitrust, commercial, environmental, product liability, intellectual property, regulatory,
employment discrimination, securities, and other matters, including matters arising out of the ordinary course of
business. The results of any such proceedings cannot be predicted with certainty because such matters are
inherently uncertain. Significant damages or penalties may be sought in some matters, and some matters may
require years to resolve. We also may be subject to fines or penalties, and equitable remedies (including but not
limited to the suspension, revocation or non-renewal of licenses).
We accrue for these matters when it is both probable that a liability has been incurred and the amount of the loss
can be reasonably estimated. Unless otherwise noted, with respect to the specific legal proceedings and claims
described below, the amount or range or possible losses is not reasonably estimable. Adverse outcomes in some or
all of these matters may result in significant monetary damages or injunctive relief against us that could adversely
affect our ability to conduct our business. There also exists the possibility of a material adverse effect on our
financial statements for the period in which the effect of an unfavorable outcome becomes probable and reasonably
estimable.
On March 28, 2018, Plymouth County Retirement System (“Plymouth”) filed a federal securities class action
complaint against Patterson Companies, Inc. and its former CEO Scott P. Anderson and former CFO Ann B. Gugino
in the U.S. District Court for the District of Minnesota in a case captioned Plymouth County Retirement System v.
Patterson Companies, Inc., Scott P. Anderson and Ann B. Gugino, Case No. 0:18-cv-00871 MJD/SER. On
November 9, 2018, the complaint was amended to add former CEO James W. Wiltz and former CFO R. Stephen
Armstrong as individual defendants. Under the amended complaint, on behalf of all persons or entities that
purchased or otherwise acquired Patterson’s common stock between June 26, 2013 and February 28, 2018,
Plymouth alleges that Patterson violated federal securities laws by failing to disclose that Patterson’s revenue and
earnings were “artificially inflated by Defendants’ illicit, anti-competitive scheme with its purported competitors,
Benco and Schein, to prevent the formation of buying groups that would allow its customers who were office-based
practitioners to take advantage of pricing arrangements identical or comparable to those enjoyed by large-group
customers.” In its class action complaint, Plymouth asserts one count against Patterson for violating Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and a second, related count
against the individual defendants for violating Section 20(a) of the Exchange Act. Plymouth seeks compensatory
damages, pre- and post-judgment interest and reasonable attorneys’ fees and experts’ witness fees and costs. On
August 30, 2018, Gwinnett County Public Employees Retirement System and Plymouth County Retirement System,
Pembroke Pines Pension Fund for Firefighters and Police Officers, Central Laborers Pension Fund were appointed
lead plaintiffs. On January 18, 2019, Patterson and the individual defendants filed a motion to dismiss the amended
complaint. On July 25, 2019, the U.S. Magistrate Judge issued a report and recommendation that the motion to
dismiss be granted in part and denied in part. The report and recommendation, among other things, recommends
the dismissal of all claims against individual defendants Ann B. Gugino, R. Stephen Armstrong and James W. Wiltz.
On September 10, 2019, the District Court adopted the Magistrate Judge’s report and recommendation. On
September 28, 2020, the District Court granted plaintiffs’ motion to certify the class, appoint class representatives
and appoint class counsel. On October 12, 2020, Patterson and the remaining individual defendant, Mr. Anderson,
filed a Rule 23(f) petition for interlocutory appeal of the class certification order with the Eighth Circuit Court of
Appeals in which the defendants sought clarification of the standard for rebutting the Basic presumption of class-
wide reliance in securities class actions. On October 13, 2020, Patterson and Mr. Anderson filed a motion to stay
73
the underlying proceeding with the District Court pending the possibility of interlocutory appeal. On November 9,
2020, the District Court denied defendants’ motion to stay and on November 12, 2020, the Eighth Circuit Court of
Appeals denied defendants’ Rule 23(f) petition. On May 17, 2021, Patterson and Mr. Anderson filed a motion for
summary judgment and a motion to exclude plaintiff's expert. On August 27, 2021, we signed a memorandum of
understanding to settle this case. Under the terms of the settlement, Patterson agreed to pay $63,000 to resolve the
case. Although we agreed to settle this matter, we expressly deny the allegations of the complaint and all liability.
Our insurers consented to the settlement and contributed an aggregate of $35,000 to fund the settlement and to
reimburse us for certain costs and expenses of the litigation. As a result of the foregoing, we recorded a pre-tax
reserve of $63,000 in other accrued liabilities in the condensed consolidated balance sheets in our Corporate
segment during the first quarter of fiscal 2022 related to the probable settlement of this litigation. During the first
quarter of fiscal 2022, we also recorded a receivable of $27,000 in prepaid expenses and other current assets in the
condensed consolidated balance sheets in our Corporate segment related to probable insurance recoveries, which
amount was paid into the litigation settlement escrow as required by the memorandum of understanding. The net
expense of $36,000 was recorded in operating expenses in our condensed consolidated statements of operations
and other comprehensive income. We recorded a gain of $8,000 during the second quarter of fiscal 2022 in our
Corporate segment to account for our receipt of carrier reimbursement of previously expended fees and costs. The
parties filed a stipulation of settlement during the second quarter of fiscal 2022. On February 3, 2022, the District
Court entered an order preliminarily approving the settlement and directing the claims administrator to mail a notice
of settlement and claim form to all class members. On June 9, 2022, the District Court held a final settlement
hearing to determine whether the settlement should be approved. On June 10, 2022, the District Court entered an
order granting final approval to the settlement.
18. Accumulated Other Comprehensive Loss ("AOCL")
The following table summarizes the changes in AOCL as of April 30, 2022:
AOCL at April 24, 2021
Other comprehensive income before reclassifications
Amounts reclassified from AOCL
AOCL at April 30, 2022
Cash Flow
Hedges
Currency
Translation
Adjustment
$
$
(4,496) $
—
1,042
(3,454) $
(58,096) $
(19,966)
—
(78,062) $
Total
(62,592)
(19,966)
1,042
(81,516)
The amounts reclassified from AOCL during fiscal 2022 represent gains and losses on cash flow hedges, net of
taxes of $321. The impact to the consolidated statements of operations and other comprehensive income (loss) was
an increase to interest expense of $1,363 for fiscal 2022.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
74
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our
Chief Financial Officer, we evaluated the effectiveness of the design and operation of our 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 our disclosure
controls and procedures were effective as of April 30, 2022. 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 Patterson 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 in reports filed under the Exchange Act is accumulated and communicated to
our management, including our principal executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of Patterson Companies, Inc. 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 Exchange Act. Our 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.
Under the supervision and with the participation of our management, including our principal executive officer and
principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of April 30,
2022, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control - Integrated Framework (2013). Based on this assessment, management has concluded
that our internal control over financial reporting was effective as of April 30, 2022. 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 as of April 30, 2022.
/s/ Mark S. Walchirk
President and Chief Executive Officer
/s/ Donald J. Zurbay
Chief Financial Officer
The report of our independent registered public accounting firm on internal control over financial reporting is
included in Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)
under the Exchange Act) that occurred during the quarter ended April 30, 2022 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
75
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding the directors of Patterson is incorporated herein by reference to the descriptions set forth
under the caption “Proposal No. 1 Election of Directors” in Patterson’s Proxy Statement for its Annual Meeting of
Shareholders to be held on September 12, 2022 (the “2022 Proxy Statement”). Information regarding executive
officers of Patterson is incorporated herein by reference to the information set forth under the caption “Executive
Officers” in the 2022 Proxy Statement. 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 “Delinquent
Section 16(a) Reports” in the 2022 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 2022 Proxy Statement and such information is
incorporated by reference herein.
Code of Ethics
We have adopted and published a Code of Conduct, which provides an overview of the laws, regulations, and
company policies that apply to our employees and our directors and is intended to comply with applicable NASDAQ
Marketplace Rules. Our Code of Conduct is available on our website (www.pattersoncompanies.com) under the
section “Investor Relations – Corporate Governance.” We intend to satisfy the disclosure requirement of Form 8-K
regarding an amendment to, or waiver from, a provision of our Code of Conduct that applies to our principal
executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar
functions and that relates to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-
K by posting such information on our website at the address and location specified above.
Item 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by reference to the information set forth under
the caption “Executive Compensation” in the 2022 Proxy Statement. Information regarding director compensation is
incorporated herein by reference to the information set forth under the caption “Non-Employee Director
Compensation” in the 2022 Proxy Statement. Information regarding the compensation committee and its report is
incorporated herein by reference to the information set forth under the caption “Our Board of Directors and
Committees" and "Executive Compensation - Compensation and Human Capital Committee Report” in the 2022
Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information regarding securities authorized for issuance under equity compensation plans is incorporated herein by
reference to the information set forth under the caption “Equity Compensation Plan Information” in the 2022 Proxy
Statement. Information regarding the security ownership of certain beneficial owners and management is
incorporated herein by reference to the information set forth under the caption “Security Ownership of Certain
Beneficial Owners and Management” in the 2022 Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information regarding transactions with related persons is incorporated herein by reference to the information set
forth under the caption “Certain Relationships and Related Transactions” in the 2022 Proxy Statement. Information
regarding director independence is incorporated herein by reference to the information set forth under the caption
“Our Board of Directors and Committees” in the 2022 Proxy Statement.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information relating to principal accounting fees and services and pre-approval policies and procedures is
incorporated herein by reference to the information set forth under the caption “Proposal No. 3 Ratification of
Selection of Independent Registered Public Accounting Firm – Principal Accountant Fees and Services” in the 2022
Proxy Statement.
76
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
1. Financial Statements.
The following Consolidated Financial Statements and supplementary data of Patterson and its
subsidiaries are included in Part II, Item 8:
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Balance Sheets
Consolidated Statements of Operations and Other Comprehensive Income (Loss)
Consolidated Statement of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
The following financial statement schedule is filed herewith: Schedule II – Valuation and Qualifying
Accounts
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
Document Description
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
Restated Articles of Incorporation (incorporated by reference to our Quarterly Report
on Form 10-Q, filed September 9, 2004 (File No. 000-20572)).
Amended and Restated Bylaws (incorporated by reference to our Current Report on
Form 8-K, filed December 13, 2013 (File No. 000-20572)).
Specimen form of Common Stock Certificate (incorporated by reference to our
Quarterly Report on Form 10-Q, filed September 9, 2004 (File No. 000-20572)).
Description of Securities (incorporated by reference to our Annual Report on Form 10-
K, filed June 24, 2020 (File No. 000-20572).
Patterson Companies, Inc. Summary of Material Terms of Management Incentive
Compensation Plan for Fiscal 2022 (filed herewith).**
Patterson Companies, Inc. Amended and Restated Employee Stock Purchase Plan
(incorporated by reference to Annex A to our Definitive Schedule 14A (Proxy
Statement), filed August 2, 2019 (File No. 000-20572)).**
Patterson Dental Company Amended and Restated Employee Stock Ownership Plan,
effective May 1, 2001 (incorporated by reference to our Annual Report on Form 10-K,
filed July 25, 2002 (File No. 000-20572)).**
Deferred Profit Sharing Plan for the Employees of Patterson Dental Canada Inc.
(incorporated by reference to our Definitive Proxy Statement, filed July 28, 2008 (File
No. 000-20572)).**
Patterson Companies, Inc. Amended and Restated Equity Incentive Plan (incorporated
by reference to our Definitive Proxy Statement, filed August 7, 2012 (File No.
000-20572)).**
77
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
Patterson Companies, Inc. 2014 Sharesave Plan (incorporated by reference to our
Definitive Proxy Statement, filed August 5, 2014 (File No. 000-20572)).**
Patterson Companies, Inc. Amended and Restated 2015 Omnibus Incentive Plan
(incorporated by reference to Annex B to our Definitive Schedule 14A (Proxy
Statement), filed July 30, 2021 (File No. 000-20572)).**
The Executive Nonqualified Excess Plan (incorporated by reference to our Annual
Report on Form 10-K, filed June 24, 2020 (File No. 000-20572)).**
Form of Non-Statutory Stock Option Agreement under the Amended and Restated
2015 Omnibus Incentive Plan (incorporated by reference to our Annual Report on
Form 10-K, filed June 23, 2021 (File No. 000-20572).**
Form of Restricted Stock Unit Agreement for Directors under the Amended and
Restated 2015 Omnibus Incentive Plan (incorporated by reference to our Annual
Report on Form 10-K, filed June 23, 2021 (File No. 000-20572).**
Form of Restricted Stock Unit Agreement for Executive Officers under the Amended
and Restated 2015 Omnibus Incentive Plan (incorporated by reference to our Annual
Report on Form 10-K, filed June 23, 2021 (File No. 000-20572).**
Form of Performance Share Unit Award Agreement under the Amended and Restated
2015 Omnibus Incentive Plan (incorporated by reference to our Annual Report on
Form 10-K, filed June 23, 2021 (File No. 000-20572).**
Employment Agreement by and between Patterson Companies, Inc. and Mark S.
Walchirk, dated October 23, 2017 (incorporated by reference to our Current Report on
Form 8-K, filed October 24, 2017 (File No. 000-20572)).**
Inducement RSU Award Agreement by and between Patterson Companies, Inc. and
Mark S. Walchirk, dated December 1, 2017 (incorporated by reference to our Annual
Report on Form 10-K, filed June 27, 2018 (File No. 000-20572)).**
Amendment No. 1 to Employment Agreement by and between Patterson Companies,
Inc. and Mark S. Walchirk, dated April 17, 2020 (incorporated by reference to our
Current Report on Form 8-K, filed April 20, 2020 (File No. 000-20572)).**
Offer Letter by and between Patterson Companies, Inc. and Donald J. Zurbay, effective
May 17, 2018 (incorporated by reference to our Current Report on Form 8-K, filed May
23, 2018 (File No. 000-20572)).**
Form of Inducement, Severance & Change in Control Agreement by and between
Patterson Companies, Inc. and Donald J. Zurbay (incorporated by reference to our
Current Report on Form 8-K, filed May 23, 2018 (File No. 000-20572)).**
Form of Inducement Non Statutory Stock Option Agreement by and between Patterson
Companies, Inc. and Donald J. Zurbay (incorporated by reference to our Current
Report on Form 8-K, filed May 23, 2018 (File No. 000-20572)).**
Form of Inducement RSU Agreement by and between Patterson Companies, Inc. and
Donald J. Zurbay (incorporated by reference to our Current Report on Form 8-K, filed
May 23, 2018 (File No. 000-20572)).**
Inducement, Severance and Change-in-Control Agreement by and between Patterson
Companies, Inc. and Eric Shirley, dated February 4, 2019 (incorporated by reference
to our Annual Report on Form 10-K, filed June 26, 2019 (File No. 000-20572).**
Restrictive Covenants, Severance and Change-in-Control Agreement by and between
Patterson Companies, Inc. and Kevin M. Pohlman, dated June 11, 2018 (incorporated
by reference to our Current Report on Form 8-K, filed June 12, 2018 (File No.
000-20572)).**
78
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
Restrictive Covenants, Severance and Change-in-Control Agreement by and between
Patterson Companies, Inc. and Les B. Korsh, dated June 11, 2018 (incorporated by
reference to our Current Report on Form 8-K, filed June 12, 2018 (File No.
000-20572)).**
Inducement, Severance and Change-in-Control Agreement by and between Patterson
Companies, Inc. and Andrea Frohning, dated May 21, 2018 (incorporated by reference
to our Annual Report on Form 10-K, filed June 26, 2019 (File No. 000-20572).**
Inducement, Severance and Change-in-Control Agreement by and between Patterson
Companies, Inc. and Tim E. Rogan, dated July 19, 2021 (filed herewith).**
Receivables Sale Agreement, dated as May 10, 2002, by and among Patterson Dental
Supply, Inc., Webster Veterinary Supply, Inc., and PDC Funding Company, LLC,
conformed through Amendment No. 4, dated as of October 9, 2018 (incorporated by
reference to our Quarterly Report on Form 10-Q, filed March 6, 2019 (File No.
000-20572)).
Amended and Restated Receivables Sales Agreement dated August 12, 2011 by and
among Patterson Dental Supply, Inc., Webster Veterinary Supply, Inc. and PDC
Funding Company II, LLC (incorporated by reference to our Annual Report on Form
10-K, filed June 24, 2015 (File No. 000-20572)).
Note Purchase Agreement, dated December 8, 2011, by and among Patterson
Companies, Inc., Patterson Medical Holdings, Inc., Patterson Medical Supply, Inc.,
Patterson Dental Holdings, Inc., Patterson Dental Supply, Inc., Webster Veterinary
Supply, Inc., Webster Management, LP, conformed through Third Amendment, dated
April 24, 2020 (incorporated by reference to our Annual Report on Form 10-K, filed
June 24, 2020 (File No. 000-20572)).
Note Purchase Agreement, dated March 23, 2015, by and among Patterson
Companies, Inc., Patterson Medical Holdings, Inc., Patterson Medical Supply, Inc.,
Patterson Dental Holdings, Inc., Patterson Dental Supply, Inc., Patterson Veterinary
Supply, Inc., and Patterson Management, LP, conformed through Second Amendment,
dated April 24, 2020 (incorporated by reference to our Annual Report on Form 10-K,
filed June 24, 2020 (File No. 000-20572)).
Second Amended and Restated Credit Agreement dated as of February 16, 2021, by
and among Patterson Companies,
Inc., as borrower, MUFG Bank, Ltd., as
administrative agent, and certain lenders party thereto (incorporated by reference to
our Current Report on Form 8-K, filed February 16, 2021 (File No. 000-20572)).
Note Purchase Agreement, dated as of March 29, 2018, among Patterson Companies,
Inc., and certain of its named subsidiaries as borrowers, and various private lenders,
conformed through Second Amendment, dated April 24, 2020 (incorporated by
reference to our Annual Report on Form 10-K, filed June 24, 2020 (File No.
000-20572)).
Receivables Sale Agreement, dated as of July 24, 2018, by and between Patterson
Dental Supply, Inc., as seller, and PDC Funding Company III, LLC, as buyer
(incorporated by reference to our Current Report on Form 8-K, filed July 25, 2018 (File
No. 000-20572)).
Loan Agreement, dated December 20, 2019, among Patterson Companies, Inc., the
lenders from time to time parties thereto, and MUFG Bank Ltd., as administrative agent
(incorporated by reference to our Current Report on Form 8-K, filed December 23,
2019 (File No. 000-20572).
Receivables Sale Agreement, dated as of January 15, 2020, by and between
Patterson Veterinary Supply, Inc., as seller, and PDC Funding Company IV, LLC, as
buyer (incorporated by reference to our Current Report on Form 8-K, filed January 17,
2020 (File No. 000-20572).
79
10.34
10.35
10.36
10.37
21
23
31.1
31.2
32.1
32.2
101
Third Amended and Restated Receivables Purchase Agreement dated as of December
3, 2010, among PDC Funding Company, LLC, as seller, Patterson Companies, Inc., as
servicer, the conduits party thereto, the financial institutions party thereto, the
purchaser agents party thereto, and MUFG Bank, Ltd. (f.k.a. The Bank of Tokyo-
Mitsubishi UFJ, Ltd.), as agent, conformed through Twenty-First Amendment dated
August 5, 2021 (incorporated by reference to our Quarterly Report on Form 10-Q, filed
September 9, 2021 (File No. 000-20572)).
Second Amended and Restated Contract Purchase Agreement dated as of July 20,
2020, among PDC Funding Company II, LLC, as seller, Patterson Companies, Inc., as
servicer, the purchasers party thereto, and Fifth Third Bank, as agent, conformed
through First Amendment, dated July 19, 2021 (incorporated by reference to our
Quarterly Report on Form 10-Q, filed September 9, 2021 (File No. 000-20572)).
Receivables Purchase Agreement, dated as of July 24, 2018, by and among Patterson
Dental Supply, Inc., as servicer, PDC Funding Company III, LLC, as seller, purchasers
from time to time party thereto, and MUFG Bank, Ltd., as agent, conformed through
Eighth Amendment, dated August 20, 2021 (incorporated by reference to our Quarterly
Report on Form 10-Q, filed September 9, 2021 (File No. 000-20572)).
Receivables Purchase Agreement, dated as of January 15, 2020, by and among
Patterson Veterinary Supply, Inc., as servicer, PDC Funding Company IV, LLC, as
seller, purchasers from time to time party thereto, and MUFG Bank, Ltd., as agent,
conformed through Sixth Amendment, dated August 20, 2021 (incorporated by
reference to our Quarterly Report on Form 10-Q, filed September 9, 2021 (File No.
000-20572)).
Subsidiaries (filed herewith).
Consent of Independent Registered Public Accounting Firm (filed herewith).
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 (filed herewith).
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 (filed herewith).
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 herewith).
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 (filed herewith).
(Filed Electronically) The following financial information from our Annual Report on
Form 10-K for fiscal 2022, formatted in Inline eXtensible Business Reporting Language
(iXBRL): (i) the consolidated balance sheets, (ii) the consolidated statements of
operations and other comprehensive income (loss), (iii) the consolidated statements of
changes in stockholders’ equity, (iv) the consolidated statements of cash flows and (v)
the notes to the consolidated financial statements.(*)
(*)
The iXBRL 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.
**
Indicates management contract or compensatory plan or agreement.
(b) See Index to Exhibits.
(c) See Schedule II.
Item 16. Form 10-K Summary.
None.
80
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
PATTERSON COMPANIES, INC.
(In thousands)
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Charged
to Other
Accounts
Deductions
Balance at
End of
Period
Year ended April 30, 2022
Deducted from asset accounts:
Allowance for doubtful accounts
LIFO inventory adjustment
Inventory obsolescence reserve
Total inventory reserve
6,138 $
$
$ 120,775 $
29,629
$ 150,404 $
2,769 $
10,184 $
61,647
71,831 $
— $
— $
—
— $
2,994 $
— $
69,733
69,733 $
5,913
130,959
21,543
152,502
Year ended April 24, 2021
Deducted from asset accounts:
Allowance for doubtful accounts
LIFO inventory adjustment
Inventory obsolescence reserve
Total inventory reserve
$
$
5,123 $
99,726 $
25,526
$ 125,252 $
2,559 $
21,049 $
45,761
66,810 $
— $
— $
—
— $
1,544 $
— $
41,658
41,658 $
6,138
120,775
29,629
150,404
Year ended April 25, 2020
Deducted from asset accounts:
Allowance for doubtful accounts
LIFO inventory adjustment
Inventory obsolescence reserve
Total inventory reserve
$
$
6,772 $
91,342 $
10,099
$ 101,441 $
2,008 $
8,384 $
27,405
35,789 $
— $
— $
—
— $
3,657 $
— $
11,978
11,978 $
5,123
99,726
25,526
125,252
81
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.
SIGNATURES
Dated: June 29, 2022
PATTERSON COMPANIES, INC.
By /s/ Mark S. Walchirk
Mark S. Walchirk
President and Chief Executive
Officer, Director
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.
/s/ Mark S. Walchirk
Mark S. Walchirk
/s/ Donald J. Zurbay
Donald J. Zurbay
/s/ John D. Buck
John D. Buck
/s/ Alex N. Blanco
Alex N. Blanco
/s/ Jody H. Feragen
Jody H. Feragen
/s/ Robert C. Frenzel
Robert C. Frenzel
/s/ Philip G. McKoy
Philip G. McKoy
/s/ Ellen A. Rudnick
Ellen A. Rudnick
/s/ Neil A. Schrimsher
Neil A. Schrimsher
President and Chief Executive Officer,
Director
(Principal Executive Officer)
Date
June 29, 2022
Chief Financial Officer
(Principal Financial and Accounting
Officer)
June 29, 2022
Chairman of the Board
June 29, 2022
June 29, 2022
June 29, 2022
June 29, 2022
June 29, 2022
June 29, 2022
June 29, 2022
Director
Director
Director
Director
Director
Director
82
CORPORATE INFORMATION
Corporate Headquarters
1031 Mendota Heights Road
St. Paul, MN 55120-1419
651.686.1600
www.pattersoncompanies.com
Independent Auditors
Ernst & Young LLP
Minneapolis, MN
Legal Counsel
Taft Stettinius & Hollister LLP
Minneapolis, MN
Stock Transfer Agent
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
1-800-401-1957
Investor Relations Contact
John M. Wright
Vice President, Investor Relations
Annual Meeting
The annual meeting of shareholders of
Patterson Companies, Inc. will be held
virtually at 4:30 p.m., Central Daylight
Saving Time, on Monday, September 12,
2022. To attend the annual meeting
online, listen to the meeting live,
submit questions and vote, please visit
www.virtualshareholdermeeting.com/
PDCO2022.
Form 10-K
A copy of our annual report on
Form 10-K is available to shareholders
without charge in the investor relations
section of the Patterson website
(www.pattersoncompanies.com)
or by writing to: John M. Wright,
Vice President, Investor Relations at
the corporate headquarters.
Directors
John D. Buck ( C, D)
Chairman of the Board,
Chief Executive Officer
Whitefish Ventures, LLC
Mark S. Walchirk
President and
Chief Executive Officer
Patterson Companies, Inc.
Executive Officers
Mark S. Walchirk
President and
Chief Executive Officer
Donald J. Zurbay
Chief Financial Officer
Andrea L. Frohning
Chief Human Resources Officer
Alex N. Blanco ( B, C)
Former Executive Vice President
and Chief Supply Chain Officer
Ecolab Inc.
Jody H. Feragen ( A, B)
Former Executive Vice President
and Chief Financial Officer
Hormel Foods Corporation
Les B. Korsh
Chief Legal Officer and
Corporate Secretary
Kevin M. Pohlman
President, Animal Health
Tim E. Rogan
President, Dental
Robert C. Frenzel ( A, D)
Chairman, President and
Chief Executive Officer
Xcel Energy Inc.
Philip G. McKoy ( A, C)
Chief Information Officer
Optum
Ellen A. Rudnick ( B, D)
Senior Advisor on Entrepreneurship
University of Chicago
Booth School of Business
Neil A. Schrimsher ( B, C, D)
President and
Chief Executive Officer
Applied Industrial Technologies, Inc.
(A) Member of Audit and Finance Committee
(B) Member of Compensation and Human
Capital Committee
(C) Member of Compliance Committee
(D) Member of Governance and
Nominating Committee
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We are
PASSIONATE.
We are excited about our
business and authentic in
our motivation.
We are
FOCUSED.
We deliver results
the right way. We are
clear on our priorities,
set high expectations
and are accountable
for our commitments
to our customers and
each other.
We are
PEOPLE-FIRST.
We build lasting relationships
and invest in our team
members, customers and
partners.
We are
ALWAYS ADVANCING.
We continually seek fresh ideas and
innovative solutions for our business and
our customers. We challenge ourselves
and strive to become better every day.
Patterson Companies, Inc. | 1031 Mendota Heights Road | St. Paul, MN 55120-1419 | 651.686.1600 | pattersoncompanies.com
WE ARE PATTERSON