Customer Financing

6 Months Ended

Oct. 26, 2024

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 $2,000. We generally sell our customers’ financing contracts to unaffiliated 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 use a monthly unit of account for these financing contracts.

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 October 26, 2024 was $525,000.

We service the financing contracts 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 PDC Funding 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 or loss on sale of the related receivables and recorded in net sales in the Condensed Consolidated Statements of Operations and Other Comprehensive Income. Expenses incurred related to customer financing activities are recorded in operating expenses in our Condensed Consolidated Statements of Operations and Other Comprehensive Income.

During the six months ended October 26, 2024 and October 28, 2023, we sold $108,672 and $115,266 of contracts under these arrangements, respectively. In net sales in the Condensed Consolidated Statements of Operations and Other Comprehensive Income, we recorded a gain of $3,164 and a loss of $3,953 during the three months ended October 26, 2024 and October 28, 2023, respectively, related to these contracts sold. In net sales in the Condensed Consolidated Statements of Operations and Other Comprehensive Income, we recorded a gain of $9,845 and a loss of $12,880 during the six months ended October 26, 2024 and October 28, 2023, respectively, related to these contracts sold. Cash collections on financed receivables sold were $168,139 and $141,353 during the six months ended October 26, 2024 and October 28, 2023, respectively. Unamortized discounts of $3,011 and $3,097 were recorded as of October 26, 2024 and April 27, 2024, respectively, which represent subsidies on contracts with below-market interest rates.

Included in cash and cash equivalents in the Condensed Consolidated Balance Sheets are $31,149 and $33,813 as of October 26, 2024 and April 27, 2024, respectively, which represent cash collected from previously sold customer financing contracts that have not yet been settled. Included in current receivables in the Condensed Consolidated Balance Sheets are $56,297 and $74,430 as of October 26, 2024 and April 27, 2024, respectively, of finance contracts we have not yet sold. A total of $539,182 of finance contracts receivable sold under the arrangements was outstanding at October 26, 2024. Since the internal financing program began in 1994, bad debt write-offs have amounted to less than 1% of the loans originated.

The following rollforward summarizes the activity related to the DPP receivable:


	Six Months Ended
		October 26, 2024		October 28, 2023
Beginning DPP receivable balance		$	114,259	$	102,979
Non-cash additions to DPP receivable		31,436		19,491
Cash collections on DPP receivable		(36,135)		(17,941)
Ending DPP receivable balance		$	109,560	$	104,529

The arrangements require us to maintain a minimum current ratio and maximum leverage ratio. We were in compliance with those covenants at October 26, 2024.