1. General

Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of Patterson Companies, Inc. (“Patterson” or “Company”) as of August 1, 2015, and our results of operations and cash flows for the periods ended August 1, 2015 and July 26, 2014. Such adjustments are of a normal recurring nature. The results of operations for the periods ended August 1, 2015 and July 26, 2014, are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements included in our 2015 Annual Report on Form 10-K filed on June 24, 2015.

The condensed consolidated financial statements of our Company include the assets and liabilities of PDC Funding Company, LLC (“PDC Funding”) and PDC Funding Company II, LLC (“PDC Funding II”), wholly owned subsidiaries and separate legal entities under Minnesota law. PDC Funding and PDC Funding II are fully consolidated special purpose entities of our Company established to sell customer installment sale contracts to outside financial institutions in the normal course of business. The assets of PDC Funding and PDC Funding II would be available first and foremost to satisfy the claims of its creditors. There are no known creditors of PDC Funding or PDC Funding II.

Through fiscal year 2015, Patterson was comprised of three reportable segments: dental supply, veterinary supply, and rehabilitation supply. In the first quarter of fiscal 2016, we re-evaluated our reportable segments as a result of entering into a definitive agreement to sell our rehabilitation supply business and completing the acquisition of Animal Health International, Inc. We are now comprised of three different reportable segments: Dental, Animal Health and Corporate. Prior period segment results have been restated to conform to this revised current period presentation.

Fiscal Year End

We operate with a 52-53 week accounting convention with our fiscal year ending on the last Saturday in April. The first quarter of fiscal years 2016 and 2015 represents the 14 weeks ended August 1, 2015 and the 13 weeks ended July 26, 2014, respectively. Fiscal year 2016 will include 53 weeks and fiscal 2015 included 52 weeks of operations.

Comprehensive Income

Comprehensive income is computed as net income including certain other items that are recorded directly to stockholders’ equity. Significant items included in comprehensive income 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 on earnings from foreign operations that are considered to be indefinitely reinvested outside the U.S. The income tax benefit/(loss) related to cash flow hedges was $(85) and $4,813 for the three months ended August 1, 2015 and July 26, 2014, respectively.

Earnings Per Share

The following table sets forth the computation of the weighted average shares outstanding used to calculate basic and diluted earnings per share:


	Three Months Ended
	August 1,		July 26,
	2015		2014
Denominator for basic earnings per share – weighted average shares		99,436		99,329
Effect of dilutive securities – stock options, restricted stock and stock purchase plans		726		853

Denominator for diluted earnings per share – weighted average shares		100,162		100,182

Potentially dilutive securities representing 939 and 2 shares for the three months ended August 1, 2015 and July 26, 2014, respectively, were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive.

Recently Issued Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30). This ASU requires an entity to present such costs on the balance sheet as a direct deduction from the related debt liability rather than as an asset. Under the current pronouncement, we are required to adopt the new pronouncement in the first quarter of fiscal 2017 and plan to do so at that time. At this time, we do not anticipate a material impact to the financial statements once implemented.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU No. 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB deferred the effective date of this pronouncement by one year to December 15, 2017 for interim and annual reporting periods beginning after that date. Early adoption is permitted, but not before the original effective date, which for annual periods was December 15, 2016. We are evaluating the new standard, but do not, at this time, anticipate a material impact to the financial statements once implemented.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.