PDCO Patterson Companies Inc

• Sales from continuing operations totaled a record $1.4 billion, up 44 percent on a constant currency basis, including the impact of recently acquired Animal Health International, Inc.
• Dental segment sales rose 3.1 percent on a constant currency basis.
• Animal Health segment sales up 109 percent on a constant currency basis, with $414.0 million in sales, attributed to the company’s recent acquisition of Animal Health International, Inc.
• Adjusted EPS from continuing operations1 totaled $0.56, a 27 percent increase over prior year, which reflects an increase in health insurance claims of $3.2 million after-tax, or $0.03 per diluted share.
• Company reaffirms adjusted earnings guidance for fiscal 2016 of $2.40 to $2.50 per share.

Patterson Companies, Inc. (Nasdaq: PDCO) today reported consolidated sales from continuing operations of $1.4 billion (see attached Sales Summary for further details) in its fiscal second quarter ended October 31, 2015, up 42 percent over the same period last year. Sales in this fiscal 2016 period include a full quarter of results from the recent Animal Health International, Inc. acquisition.

Adjusted net income from continuing operations1, which reflects adjustments to exclude certain non-recurring and deal amortization costs, was $55.3 million for the second quarter of fiscal 2016, representing a 26 percent gain over $43.8 million in the same quarter last year. Adjusted diluted earnings per share from continuing operations1 was $0.56 in the 2016 second quarter, representing a 27 percent year-over-year increase. The second quarter was affected by higher-than-anticipated healthcare claims and the impact of foreign currency. Reported net income from continuing operations was $42.6 million, or $0.43 per diluted share, compared to $41.9 million, or $0.42 per share, in last year’s fiscal second quarter.

“We are in the middle of a significant year for Patterson and continue to build momentum,” said Scott Anderson, chairman and chief executive officer. “We have transformed and repositioned our company in the markets we serve. Our Dental and Animal Health businesses have broadened product offerings and our employees are focused on exceptional customer service and support. We have positioned our company to capitalize on the compelling long-term demographic, technology and productivity trends in our markets.”

Patterson Dental

Sales for Patterson Dental, which represent approximately 43 percent of total sales, rose to $601.3 million, up 3.1 percent on a constant currency basis from the same quarter last year. On that same basis, year-over-year sales by category were as follows:

• Consumable dental supplies improved 3.3 percent
• Equipment sales, led by technology, rose 2.2 percent
• Other services and products, primarily composed of technical service, parts and labor, software support services and office supplies, climbed 4.2 percent

Commented Anderson, “Again this quarter, we saw an encouraging rise in CEREC sales, especially among new users, and steady growth in the consumables category. Results from these two areas confirm our confidence in what we see as stable-to-steadily improving dynamics in the North American dental market.”

Patterson Animal Health

Sales for Patterson Animal Health, which comprises approximately 56 percent of the company’s total sales, more than doubled to $774.5 million. Sales from Animal Health International, Inc. added $414.0 million to the Animal Health segment during the quarter. Without the contribution from Animal Health International, and accounting for normalized changes in veterinary diagnostic manufacturer relationships, segment sales improved 3.2 percent on a constant currency basis, with U.S. consumables rising 4.8 percent organically.

Anderson continued, “In our Animal Health business, we continued to integrate the Animal Health International, Inc. acquisition and we are pleased with the business integration process and synergies we are gaining. Moreover, our established U.S. companion animal business performed well, growing sales over 5 percent on a constant currency basis. We are confident in the strengthened scale and market position of our new animal health platform.”

Discontinued Operations

On August 28, 2015, Patterson Companies completed the sale of Patterson Medical to Madison Dearborn Partners for approximately $715 million. As a result of the sale, results of Patterson Medical are classified and reported as discontinued operations in all periods beginning with the fiscal 2016 first quarter.

Share Repurchases and Dividends

Fiscal year to date, Patterson repurchased approximately 3.9 million shares of its outstanding common stock, with a value of $175.8 million, leaving approximately 17 million shares for repurchase under the current authorization. The company also paid $22.2 million in cash dividends to shareholders in the second quarter and $45.4 million in the first half of fiscal 2016.

Year-to-Date Results1

Consolidated sales from continuing operations for the first six months of fiscal 2016 totaled $2.5 billion, representing a 32 percent year-over-year increase. Adjusted net income from continuing operations was $102.2 million, or $1.03 per diluted share, compared to adjusted net income from continuing operations of $84.0 million, or $0.84 per diluted share, in the year-ago period, as outlined in the Second Quarter and Six-Month Reconciliation table1. Fiscal 2016 also includes the impact of an extra week.

Business Outlook

Anderson concluded, “We are confident in the opportunities before us and our ability to capitalize on them. The Animal Health integration is on track and we remain focused on our customers’ success. In Dental, we have substantial momentum in our technology sales, stability in consumables and new, expanded opportunities from a broader equipment portfolio. We continue to create value for shareholders as we invest in our business, pay dividends and repurchase shares. We reaffirm our fiscal 2016 adjusted earnings guidance range on a continuing operations basis of $2.40 to $2.50 per diluted share.”

The fiscal 2016 annual financial outlook and adjusted earnings guidance:

• Assumes stable North American and international markets – conditions similar to fiscal 2015
• Includes the impact of an extra week in fiscal 2016 compared to the previous year
• Excludes the impact of additional share repurchases for the remainder of the fiscal year
• Excludes transaction-related costs, integration expense, deal amortization, accelerated debt issuance costs, non-recurring IT initiative training costs and tax costs related to cash repatriation (See Second Quarter and Six-Month Reconciliation table below)
• Excludes the discontinued operations for Medical

1 Second Quarter and Six-Month Reconciliation

The following non-GAAP table is provided to adjust reported net income and earnings per share for the impact of tax affected one-time costs, current and prior deal-amortization costs and tax costs related to cash repatriation. Management believes that the adjusted net income and EPS amounts may provide a helpful representation of the company’s current quarter performance.

                        (Dollars in thousands, except EPS) Three Months Ended Six Months Ended October 31, 2015       October 25, 2014 October 31, 2015       October 25, 2014 Net Income from Continuing Operations - Reported $ 42,563 $ 41,865 $ 62,874 $ 80,190 Transaction-Related Costs 677 - 9,979 - Deal Amortization 6,974 1,917 11,586 3,837 Integration Expense 1,328 - 2,054 - Accelerated Debt Issuance Costs 3,205 - 3,205 - Non-Recurring IT Training Costs 30 - 175 - Tax Impact of Repatriation of Cash   500   -   12,300   - Net Income from Continuing Operations - Adjusted $ 55,277 $ 43,782 $ 102,173 $ 84,027   Diluted Earnings Per Share from Continuing Operations - Reported $ 0.43 $ 0.42 $ 0.63 $ 0.80 Transaction-Related Costs 0.01 - 0.10 - Deal Amortization 0.07 0.02 0.12 0.04 Integration Expense 0.01 - 0.02 - Accelerated Debt Issuance Costs 0.03 - 0.03 - Non-Recurring IT Training Costs 0.00 - 0.00 - Tax Impact of Repatriation of Cash   0.01   -   0.12   - Diluted Earnings Per Share from Continuing Operations - Adjusted* $ 0.56 $ 0.44 $ 1.03 $ 0.84   *Fiscal 2016 year-to-date EPS does not foot due to rounding  

Second Quarter Conference Call and Replay

Patterson’s second quarter earnings conference call will start at 10 a.m. Eastern today. Investors can listen to a live webcast of the conference call at www.pattersoncompanies.com. The conference call will be archived on Patterson’s website. A replay of the second quarter conference call can be heard for one week at 888-203-1112 and by providing the Conference ID 404442, when prompted.

About Patterson Companies, Inc.

Patterson Companies, Inc. is a value-added distributor serving the dental and animal health markets.

Dental Market

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.

Animal Health Market

Patterson Animal Health, formerly Patterson Veterinary, 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.

This press release contains certain 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 Patterson's ability to control. Forward-looking statements generally can be identified by words such as "believes," "expects," "anticipates," "foresees," "forecasts," "estimates" or other words or phrases of similar import. It is uncertain whether any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact they will have on the results of operations and financial condition of Patterson or the price of Patterson stock. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements, including but not limited to the other risks and important factors contained and identified in Patterson's filings with the Securities and Exchange Commission, such as its Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K, any of which could cause actual results to differ materially from the forward-looking statements. Any forward-looking statement in this press release speaks only as of the date on which it is made. Except to the extent required under the federal securities laws, Patterson does not intend to update or revise the forward-looking statements.

                  PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited)   Three Months Ended Six Months Ended October 31, October 25, October 31, October 25, 2015 2014 2015 2014   Net sales $ 1,389,210 $ 978,220 $ 2,532,080 $ 1,917,176   Gross profit 330,899 259,287 619,143 509,904   Operating expenses   247,436     187,147     473,503     371,768     Operating income from continuing operations 83,463 72,140 145,640 138,136   Other expense, net   (16,200 )   (7,767 )   (27,673 )   (15,165 )   Income from continuing operations before taxes 67,263 64,373 117,967 122,971   Income taxes   24,700     22,508     55,093     42,781     Net income from continuing operations 42,563 41,865 62,874 80,190 Net income from discontinued operations   (7,142 )   11,913     2,250     23,877   Net income $ 35,421   $ 53,778   $ 65,124   $ 104,067     Basic earnings per share: Continuing operations $ 0.43 $ 0.42 $ 0.64 $ 0.81 Discontinued operations   (0.07 )   0.12     0.02     0.24   Net basic earnings per share $ 0.36   $ 0.54   $ 0.66   $ 1.05     Diluted earnings per share: Continuing operations $ 0.43 $ 0.42 $ 0.63 $ 0.80 Discontinued operations   (0.07 )   0.12     0.02     0.24   Net diluted earnings per share $ 0.36   $ 0.54   $ 0.65   $ 1.04     Shares: Basic 98,525 98,802 98,981 99,066 Diluted 99,185 99,376 99,674 99,779   Dividends declared per common share $ 0.22 $ 0.20 $ 0.44 $ 0.40   Gross margin - reported 23.8 % 26.5 % 24.5 % 26.6 %   Operating expenses as a % of net sales - adjusted 16.8 % 18.9 % 17.3 % 19.1 % Adjustments1   1.0     0.2     1.4     0.3   Operating expenses as a % of net sales - reported 17.8 % 19.1 % 18.7 % 19.4 %   Operating income as a % of net sales - adjusted 7.0 % 7.7 % 7.1 % 7.5 % Adjustments1   (1.0 )   (0.3 )   (1.3 )   (0.3 ) Operating income as a % of net sales - reported 6.0 % 7.4 % 5.8 % 7.2 %   Effective tax rate - adjusted 35.9 % 34.8 % 35.2 % 34.6 % Adjustments1   0.8     0.2     11.5     0.2   Effective tax rate - reported 36.7 % 35.0 % 46.7 % 34.8 %  

1

   

Refer to the press release for the definition of adjustments to reported results

                        PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)   October 31, April 25, 2015 2015 (Unaudited) ASSETS Current assets: Cash and short-term investments $ 95,451 $ 400,632 Receivables 734,461 586,263 Inventory 752,849 408,422 Prepaid expenses and other current assets 83,169 59,561 Current assets held for sale   -   118,347 Total current assets 1,665,930 1,573,225 Property and equipment, net 272,190 204,133 Goodwill and other intangible assets 1,354,674 424,949 Investments and other 159,044 109,605 Long-term assets held for sale   -   635,794 Total assets $ 3,451,838 $ 2,947,706   LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 492,469 $ 323,294 Other accrued liabilities 209,896 215,075 Current maturities of long-term debt 15,991 - Borrowings on revolving credit 80,000 - Current liabilities held for sale   -   39,316 Total current liabilities 798,356 577,685 Long-term debt 1,034,884 725,000 Other non-current liabilities 255,341 81,484 Long-term liabilities held for sale   -   49,414 Total liabilities 2,088,581 1,433,583 Stockholders' equity   1,363,257   1,514,123 Total liabilities and stockholders' equity $ 3,451,838 $ 2,947,706                       PATTERSON COMPANIES, INC. SALES SUMMARY (Dollars in thousands) (Unaudited)   Total Foreign Animal Health October 31, October 25, Sales Exchange International Internal 2015 2014 Growth Impact Impact Growth

Three Months Ended

  Consolidated net sales Consumable1 $ 1,087,489 $ 686,165 58.5 % (2.2 ) % 60.7 % - % Equipment and software 207,809 204,409 1.7 (1.7 ) 0.3 3.1 Other1   93,912   87,646 7.1   (1.4 ) (1.0 ) 9.5   Total $ 1,389,210 $ 978,220 42.0   % (2.0 ) % 42.6   % 1.4   %   Dental Consumable1 $ 332,436 $ 326,562 1.8 % (1.5 ) % - % 3.3 % Equipment and software 196,767 195,962 0.4 (1.8 ) - 2.2 Other1   72,119   70,112 2.9   (1.3 ) -   4.2   Total $ 601,322 $ 592,636 1.5   % (1.6 ) % -   % 3.1   %   Animal Health Consumable1 $ 755,053 $ 359,603 110.0 % (2.8 ) % 115.4 % (2.6 ) % Equipment and software 11,042 8,447 30.7 (0.2 ) - 30.9 Other1   8,358   8,424 (0.8 ) (3.8 ) (11.6 ) 14.6   Total $ 774,453 $ 376,474 105.7   % (2.8 ) % 110.0   % (1.5 ) %   Corporate Other1 $ 13,435 $ 9,110 47.5   % -   % -   % 47.5   % Total $ 13,435 $ 9,110 47.5   % -   % -   % 47.5   %    

Six Months Ended

  Consolidated net sales Consumable1 $ 1,982,796 $ 1,381,804 43.5 % (2.4 ) % 42.7 % 3.2 % Equipment and software 361,292 360,803 0.1 (1.6 ) 0.3 1.4 Other1   187,992   174,569 7.7   (1.4 ) (0.1 ) 9.2  

Total

$ 2,532,080 $ 1,917,176 32.1   % (2.2 ) % 30.8   % 3.5   %   Dental Consumable1 $ 690,488 $ 651,852 5.9 % (1.5 ) % - % 7.4 % Equipment and software 340,437 344,745 (1.2 ) (1.7 ) - 0.5 Other1   145,514   138,913 4.8   (1.2 ) -   6.0   Total $ 1,176,439 $ 1,135,510 3.6   % (1.5 ) % -   % 5.1   %   Animal Health Consumable1 $ 1,292,308 $ 729,952 77.0 % (3.3 ) % 80.3 % - % Equipment and software 20,855 16,058 29.9 (0.2 ) - 30.1 Other1   18,587   16,764 10.9   (4.4 ) (3.0 ) 18.3   Total $ 1,331,750 $ 762,774 74.6   % (3.2 ) % 76.8   % 1.0   %   Corporate Other1 $ 23,891 $ 18,892 26.5   % -   % -   % 26.5   % Total $ 23,891 $ 18,892 26.5   % -   % -   % 26.5   %  

1

   

Certain sales were reclassified from consumable to other in current and prior periods.

                          PATTERSON COMPANIES, INC. SUPPLEMENTARY FINANCIAL DATA (In thousands, except per share data) (Unaudited)   Three Months Ended Six Months Ended October 31, October 25, October 31, October 25, 2015 2014 2015 2014 Operating income (loss) Dental $ 74,094 $ 73,427 $ 141,346 $ 135,976 Animal Health 25,177 14,336 38,149 28,323 Corporate   (15,808 )   (15,623 )   (33,855 )   (26,163 ) $ 83,463   $ 72,140   $ 145,640   $ 138,136     Other (expense) income, net Interest income $ 629 $ 749 $ 1,418 $ 1,999 Interest expense (17,154 ) (8,544 ) (29,297 ) (17,312 ) Other   325     28     206     148   $ (16,200 ) $ (7,767 ) $ (27,673 ) $ (15,165 )                           PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)   Six Months Ended October 31, October 25, 2015 2014 Operating activities: Net income $ 65,124 $ 104,067 Net income from discontinued operations   2,250     23,877   Net income from continuing operations 62,874 80,190 Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation & amortization 38,400 21,014 Non-cash employee compensation 13,541 11,940 Change in assets and liabilities, net of acquired   (128,782 )   (36,599 ) Net cash (used in) provided by operating activities - continuing operations (13,967 ) 76,545 Net cash (used in) provided by operating activities - discontinued operations   (38,985 )   21,850   Net cash (used in) provided by operating activities (52,952 ) 98,395   Investing activities: Additions to property and equipment, net of disposals (40,978 ) (29,190 ) Acquisitions and equity investments (1,105,229 ) - Proceeds from sale 48,744 40,775 Purchase of investments   -     (543 ) Net cash (used in) provided by investing activities - continuing operations (1,097,463 )

 

11,042 Net cash provided by investing activities - discontinued operations   715,430  

 

  4,598   Net cash (used in) provided by investing activities (382,033 )

 

15,640   Financing activities: Dividends paid (45,356 ) (40,174 ) Share repurchases (160,579 ) (47,539 ) Proceeds from issuance of long-term debt, net 988,400 - Draw on revolver 80,000 - Retirement of long-term debt (674,125 ) - Other financing activities   2,894     844   Net cash provided by (used in) financing activities 191,234 (86,869 )   Effect of exchange rate changes on cash   (8,058 )   (7,202 ) Net change in cash and cash equivalents $ (251,809 ) $ 19,964    

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Patterson Companies, Inc.Ann B. GuginoExecutive Vice President & CFO651-686-1600orJohn WrightVice President, Investor Relations651-686-1364