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Patterson Companies Reports Fiscal 2014 First Quarter Operating Results

  Patterson Companies Reports Fiscal 2014 First Quarter Operating Results

  *Diluted EPS of $0.45 included the impact of approximately $0.01 per
    diluted share from the company’s planned information technology
    investments;
  *National Veterinary Services Limited (NVS) acquisition expected to add
    $0.03 to $0.04 to diluted EPS for fiscal 2014;
  *Company reaffirmed prior guidance and updated it for the NVS acquisition
    to $2.13 to $2.24 per diluted share for fiscal 2014; and
  *Restructuring charge of approximately $0.12 per diluted share to be taken
    in fiscal 2014 expected to reduce operating expenses in Patterson Medical
    starting in fiscal 2015

Business Wire

ST. PAUL, Minn. -- August 22, 2013

Patterson Companies, Inc. (Nasdaq: PDCO) today reported that consolidated
sales totaled $880.1 million in its fiscal first quarter,  ended July 27,
2013, a decrease of 1.0 percent from $889.2 million in the year-earlier
period. Net income was $45.9 million, or $0.45 per diluted share, compared to
net income of $47.5 million, or $0.45 per diluted share, in the year-ago
period. The company’s fiscal 2014 first quarter investment in information
technology lowered diluted earnings per share by approximately $0.01.

Commenting on the company’s fiscal 2014 first quarter, Patterson Companies
Chairman and Chief Executive Officer Scott P. Anderson said: “While we knew
the first quarter would be challenging, results were in line with our
expectations. We lapped exceptionally strong prior-year gains from a CEREC®
trade-up program in our dental segment. We are encouraged by the increased
consumable sales in the quarter in our dental and veterinary businesses, which
typically signal strengthening underlying market conditions. This, along with
the growth initiatives we have under way, gives us confidence in our full-year
outlook.”

The company also announced that it plans to divest several non-core product
lines in its medical segment. As a result, Patterson will incur a pre-tax
restructuring charge in the range of $15-$17 million, or approximately $0.12
per diluted share, the majority of which will be taken in the fiscal 2014
second quarter. Divesting these product lines is estimated to generate
operational savings of approximately $2 million, or $0.01 per diluted share,
beginning in fiscal 2015.

Patterson Dental

Improved consumable sales in the fiscal 2014 first quarter were not enough to
overcome the impact of a highly successful prior year CEREC trade-up program.
As a result, sales for the Patterson Dental business decreased 2.3 percent
from the year earlier period to $554.2 million. Patterson Dental comprised
approximately two-thirds of total company sales. By category versus the
year-ago quarter, sales of:

  *Consumable dental supplies rose 3.3 percent;
  *Dental equipment declined 11.7 percent; and
  *Other services and products, consisting primarily of technical service,
    parts and labor, software support services and artificial teeth, decreased
    1.4 percent.

Anderson stated: “We are the proven leader in the dental equipment market,
offering best-in-class technology and basic equipment that is wrapped with
Patterson’s industry-leading after-sales support platform. Since the economic
downturn, dentists have remained cautious about expanding and upgrading their
basic practice infrastructure and we believe there is considerable pent-up
demand for investments in their businesses. Additionally, sales of the new
CEREC Omnicam®, which was introduced in fiscal 2013, are strong and meeting
expectations. As a result, we are confident in the growth prospects for our
dental equipment sales this fiscal year.”

Patterson Veterinary

First quarter fiscal 2014 sales for the Patterson Veterinary unit increased by
4.5 percent to $199.7 million. Contributing to the gain was nearly a 4 percent
increase in consumable sales, as well as double-digit growth in the equipment
and software category. Patterson Veterinary constituted nearly one-quarter of
total company sales.

“We believe that the strong performance across our veterinary equipment lines
is an early indicator that our equipment and technology strategy, which
includes enhancing our infrastructure and becoming a national technical
service provider, is working,” said Anderson. “We will continue our focus on
building this business platform in North America and internationally.”

During Patterson’s fiscal 2014 first quarter, the company announced its intent
to acquire National Veterinary Services Limited (NVS) from Dechra
Pharmaceuticals PLC. NVS is the largest veterinary distributor in the United
Kingdom. With the NVS acquisition, which closed last week, pro forma
consolidated sales for Patterson Veterinary would have been more than $1
billion in fiscal 2013.

Anderson stated: “We are excited to expand our international footprint and
increase shareholder value through the NVS acquisition. We see significant
opportunities to grow Patterson Veterinary, as consumer spending on pets
continues to rise. NVS offers an exceptional platform to extend Patterson’s
strategies into additional geographic markets.”

Patterson Medical

Sales for Patterson Medical, the rehabilitation supply and equipment business,
declined 3.5 percent to $126.2 million, primarily reflecting ongoing weak
international sales in the quarter. As anticipated, sales in North America
continued to stabilize and showed modest growth. Patterson Medical represented
approximately 14 percent of total company sales.

Earlier this month, the company announced the hiring of Michael J. Orscheln as
president of Patterson Medical. He brings 32 years of leadership experience in
healthcare companies, including distribution, and a proven track record of
success in achieving growth.

Commented Anderson: “Mike is an ideal executive to lead Patterson Medical and
build its value-added platform. We remain confident in the long-term prospects
for this business, which has attractive operating margins, a talented team of
associates, compelling underlying demographics and our industry-leading
product and service offering.”

As noted above, Patterson Companies is taking a restructuring charge as it
exits several product lines in this segment. The decision to divest certain
products stems from a strategic review of the medical business’ European
operations and will allow Patterson to focus on core distribution lines in
that geography. Of the $15-$17 million pre-tax charge, approximately $14-$15
million will be non-cash losses on disposal of assets.

Anderson said, “By divesting these non-core product lines, we can lower the
operating expense levels of our European medical distribution operations and
enhance their strategic focus.”

Share Repurchases and Dividends

During the fiscal 2014 first quarter, Patterson repurchased approximately 0.5
million shares of its outstanding common stock, leaving approximately 23.9
million shares for repurchase under the current authorization. The company
also paid$29.8 millionin cash dividends to shareholders.

Business Outlook

Commented Anderson: “The first quarter results met our expectations and we
continue to anticipate stronger performance for the rest of the year. We are
encouraged by economic indicators in North America that generally bode well
for our business. We are focused on capitalizing on the growth opportunities
that lie ahead as we continue to expand our footprint into new geographies and
further enhance our product and service offering.”

Patterson has updated its fiscal 2014 earnings guidance to a range of $2.13 to
$2.24 per diluted share, which includes the anticipated $0.03 to $0.04 per
diluted share benefit from the NVS acquisition. The new guidance range
excludes the non-recurring restructuring charge for Patterson Medical of
approximately $0.12 per diluted share.

First Quarter Conference Call and Replay

Patterson’s fiscal first quarter earnings conference call will start at 10
a.m. Eastern today. A slide presentation reviewing the company’s operational
performance for the quarter and a link to the audio webcast will be posted at
www.pattersoncompanies.com. The conference call will be archived on
Patterson’s website. A replay of the first quarter conference call can be
heard for one week at 1-303-590-3030 and providing the conference ID: 4635202.

About Patterson Companies, Inc.

Patterson Companies, Inc. is a value-added distributor serving the dental,
companion-pet veterinarian and rehabilitation supply markets.

Dental Market

As Patterson’s largest business, Patterson 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.

Veterinary Market

Patterson Veterinary is a leading distributor of consumable veterinary
supplies, equipment and software, diagnostic products, vaccines and
pharmaceuticals to companion-pet veterinary clinics.

Rehabilitation Market

Patterson Medical is the world’s leading distributor of rehabilitation
supplies and non-wheelchair assistive patient products to the physical and
occupational therapy markets. The unit’s global customer base includes
hospitals, long-term care facilities, clinics and dealers.

This release contains forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are
information of a non-historical nature and

are subject to risks and uncertainties that are beyond the Company’s ability
to control. The Company cautions shareholders and prospective investors that
the following factors, among others, may cause actual results to differ
materially from those indicated by the forward-looking statements: competition
within the dental, veterinary, and rehabilitative and assistive living supply
industries; changes in the economics of dentistry, including reduced growth in
expenditures by private dental insurance plans, the effects of economic
conditions and the effects of healthcare reform, which may affect future per
capita expenditures for dental services and the ability and willingness of
dentists to invest in high-technology products; the effects of healthcare
related legislation and regulation which may affect expenditures or
reimbursements for rehabilitative and assistive products; changes in the
economics of the veterinary supply market, including reduced growth in per
capita expenditures for veterinary services and reduced growth in the number
of households owning pets; the ability of the Company to maintain satisfactory
relationships with its sales force; unexpected loss of key senior management
personnel; unforeseen operating risks; risks associated with the dependence on
manufacturers of the Company’s products; potential disruption to the Company’s
business and operations as it implements its information technology
initiatives; and the ability of the Company to successfully integrate recent
acquisitions into its existing business. Forward-looking statements are
qualified in their entirety by the cautionary language set forth in the
Company's filings with the Securities and Exchange Commission.


PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share amounts)
(Unaudited)

                                        Three Months Ended
                                         July 27,     July 28,
                                         2013          2012
                                                                 
Net sales                                $ 880,125     $ 889,225
                                                                 
Gross profit                               281,518       285,700
                                                                 
Operating expenses                        200,237     203,108 
                                                                 
Operating income                           81,281        82,592
                                                                 
Other expense, net                        (9,124  )    (8,891  )
                                                                 
Income before taxes                        72,157        73,701
                                                                 
Income taxes                              26,265      26,163  
                                                                 
Net income                               $ 45,892     $ 47,538  
                                                                 
Earnings per share:
Basic                                    $ 0.45        $ 0.45
Diluted                                  $ 0.45        $ 0.45
                                                                 
Shares:
Basic                                      101,027       105,035
Diluted                                    101,919       105,783
                                                                 
Dividends declared per common share      $ 0.16        $ 0.14
                                                                 
Gross margin                               32.0    %     32.1    %
                                                                 
Operating expenses as a % of net sales     22.8    %     22.8    %
                                                                 
Operating income as a % of net sales       9.2     %     9.3     %
                                                                 
Effective tax rate                         36.4    %     35.5    %



PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
                                                        
                                                             
                                             July 27,      April 27,
                                             2013          2013
                                             (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents                    $ 603,369     $ 505,228
Receivables, net                               400,540       448,158
Inventory                                      388,260       360,563
Prepaid expenses and other current assets     54,868       47,387
Total current assets                           1,447,037     1,361,336
                                                             
Property and equipment, net                    193,688       192,020
Goodwill and other intangible assets           1,013,951     1,020,396
Investments and other                         106,971      108,026
                                                             
Total Assets                                 $ 2,761,647   $ 2,681,778
                                                             
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                             $ 227,786     $ 249,795
Other accrued liabilities                      164,726       198,724
Borrowings on revolving credit                135,000      -
Total current liabilities                      527,512       448,519
                                                             
Long-term debt                                 725,000       725,000
Other non-current liabilities                 113,221      113,804
Total liabilities                              1,365,733     1,287,323
                                                             
Stockholders' equity                          1,395,914    1,394,455
                                                             
Total Liabilities and Stockholders' Equity   $ 2,761,647   $ 2,681,778



PATTERSON COMPANIES, INC.
SUPPLEMENTARY FINANCIAL DATA
(Dollars in thousands)
(Unaudited)

                                 Three Months Ended
                                  July 27,     July 28,
                                  2013          2012
                                                          
Consolidated Net Sales
Consumable and printed products   $ 602,210     $ 587,558
Equipment and software              203,882       227,042
Other                              74,033      74,625  
Total                             $ 880,125    $ 889,225 
                                                          
Dental Supply
Consumable and printed products   $ 320,269     $ 310,156
Equipment and software              169,564       191,939
Other                              64,400      65,297  
Total                             $ 554,233    $ 567,392 
                                                          
Veterinary Supply
Consumable and printed products   $ 188,201     $ 181,375
Equipment and software              8,063         7,214
Other                              3,419       2,501   
Total                             $ 199,683    $ 191,090 
                                                          
Rehabilitation Supply
Consumable and printed products   $ 93,740      $ 96,027
Equipment and software              26,255        27,889
Other                              6,214       6,827   
Total                             $ 126,209    $ 130,743 
                                                          
Other (Expense) Income, net
Interest income                   $ 1,161       $ 1,499
Interest expense                    (8,567  )     (9,568  )
Other                              (1,718  )    (822    )
                                  $ (9,124  )   $ (8,891  )


PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

                                                    Three Months Ended
                                                     July 27,     July 28,
                                                     2013          2012
                                                                             
Operating activities:
Net income                                           $ 45,892      $ 47,538
Depreciation & amortization                            10,976        11,485
Stock-based compensation                               (1,238  )     3,738
ESOP compensation                                      5,700         5,700
Change in assets and liabilities, net of acquired     (40,205 )    (8,703  )
Net cash provided by operating activities              21,125        59,758
                                                                             
Investing activities:
Additions to property and equipment, net of            (5,564  )     (3,206  )
disposals
                                                                             
Financing activities:
Dividends paid                                         (29,773 )     (14,817 )
Share repurchases                                      (22,199 )     (34,472 )
Draw on revolver                                       135,000       -
Other financing activities                            1,732       4,116   
Net cash provided by (used in) financing               84,760        (45,173 )
activities
                                                                             
Effect of exchange rate changes on cash               (2,180  )    (4,407  )
                                                                             
Net increase in cash and cash equivalents            $ 98,141     $ 6,972   
                                                                             

Contact:

Patterson Companies, Inc.
Ann Gugino, 651-686-1600
Vice President, Planning and Strategy
or
R. Stephen Armstrong, 651-686-1600
Executive Vice President & CFO
 
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