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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ____________________________________________________________ 
FORM 10-Q
 ____________________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED October 29, 2022.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-20572
 __________________________________________________________
PATTERSON COMPANIES, INC.

(Exact Name of Registrant as Specified in Its Charter)
 ____________________________________________________________
Minnesota41-0886515
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification Number)
1031 Mendota Heights Road
St. PaulMinnesota55120
(Address of Principal Executive Offices)(Zip Code)
(651) 686-1600
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, par value $.01PDCONASDAQ Global Select Market
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      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      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. (Check one):
Large accelerated filer   Accelerated filer Non-accelerated filer 
Smaller reporting company   Emerging growth company  
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of November 21, 2022, there were 97,068,000 shares of Common Stock of the registrant issued and outstanding.



PATTERSON COMPANIES, INC.

2

PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
October 29, 2022April 30, 2022
ASSETS
Current assets:
Cash and cash equivalents$140,280 $142,014 
Receivables, net of allowance for doubtful accounts of $4,314 and $5,913
454,649 447,162 
Inventory877,435 785,604 
Prepaid expenses and other current assets353,170 304,242 
Total current assets1,825,534 1,679,022 
Property and equipment, net208,120 213,140 
Operating lease right-of-use assets, net73,874 70,722 
Long-term receivables, net114,257 138,812 
Goodwill, net140,055 140,630 
Identifiable intangibles, net232,790 252,614 
Investments157,777 139,182 
Other non-current assets, net128,061 107,508 
Total assets$2,880,468 $2,741,630 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$714,713 $681,321 
Accrued payroll expense65,616 102,266 
Other accrued liabilities158,163 173,734 
Operating lease liabilities28,331 29,348 
Current maturities of long-term debt3,000  
Borrowings on revolving credit174,000 29,000 
Total current liabilities1,143,823 1,015,669 
Long-term debt485,522 488,554 
Non-current operating lease liabilities47,986 43,332 
Other non-current liabilities161,029 151,440 
Total liabilities1,838,360 1,698,995 
Stockholders’ equity:
Common stock, $0.01 par value: 600,000 shares authorized; 97,049 and 96,762 shares issued and outstanding
970 968 
Additional paid-in capital208,943 200,520 
Accumulated other comprehensive loss(103,577)(81,516)
Retained earnings934,567 921,704 
Total Patterson Companies, Inc. stockholders' equity1,040,903 1,041,676 
Noncontrolling interests1,205 959 
Total stockholders’ equity1,042,108 1,042,635 
Total liabilities and stockholders’ equity$2,880,468 $2,741,630 
See accompanying notes
3

PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 Three Months Ended Six Months Ended
October 29, 2022October 30, 2021October 29, 2022October 30, 2021
Net sales$1,626,204 $1,649,161 $3,149,469 $3,264,037 
Cost of sales1,298,115 1,322,726 2,509,247 2,659,800 
Gross profit328,089 326,435 640,222 604,237 
Operating expenses267,994 263,575 545,283 580,906 
Operating income60,095 62,860 94,939 23,331 
Other income (expense):
Gains on investments   87,827 
Other income, net18,203 6,804 19,983 8,227 
Interest expense(7,544)(5,521)(13,107)(10,716)
Income before taxes70,754 64,143 101,815 108,669 
Income tax expense17,105 16,205 23,906 26,929 
Net income53,649 47,938 77,909 81,740 
Net loss attributable to noncontrolling interests(424)(392)(754)(586)
Net income attributable to Patterson Companies, Inc.$54,073 $48,330 $78,663 $82,326 
Earnings per share attributable to Patterson Companies, Inc.:
Basic$0.56 $0.50 $0.81 $0.85 
Diluted$0.55 $0.49 $0.81 $0.84 
Weighted average shares:
Basic96,913 97,321 96,771 97,089 
Diluted97,552 98,363 97,708 98,363 
Dividends declared per common share$0.26 $0.26 $0.52 $0.52 
Comprehensive income:
Net income$53,649 $47,938 $77,909 $81,740 
Foreign currency translation (loss) gain(17,591)440 (22,582)764 
Cash flow hedges, net of tax260 260 521 521 
Comprehensive income$36,318 $48,638 $55,848 $83,025 
See accompanying notes
4

PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Non-controlling InterestsTotal
SharesAmount
Balance at April 24, 202196,813 $968 $169,099 $(62,592)$855,741 $1,455 $964,671 
Foreign currency translation— — — 324 — — 324 
Cash flow hedges— — — 261 — — 261 
Net income (loss)— — — — 33,996 (194)33,802 
Dividends declared— — — — (25,540)— (25,540)
Common stock issued and related tax benefits422 4 (756)— — — (752)
Stock-based compensation— — 7,839 — — — 7,839 
Balance at July 31, 202197,235 972 176,182 (62,007)864,197 1,261 980,605 
Foreign currency translation— — — 440 — — 440 
Cash flow hedges— — — 260 — — 260 
Net income (loss)— — — — 48,330 (392)47,938 
Dividends declared— — — — (25,630)— (25,630)
Common stock issued and related tax benefits257 3 2,708 — — — 2,711 
Stock-based compensation— — 5,658 — — — 5,658 
Balance at October 30, 202197,492 975 184,548 (61,307)886,897 869 1,011,982 
Foreign currency translation— — — (6,506)— — (6,506)
Cash flow hedges— — — 261 — — 261 
Net income (loss)— — — — 57,006 (431)56,575 
Dividends declared— — — — (25,592)— (25,592)
Common stock issued and related tax benefits95 1 2,070 — — — 2,071 
Stock-based compensation— — 4,887 — — — 4,887 
Contribution from noncontrolling interest— — — — — 500 500 
Balance at January 29, 202297,587 976 191,505 (67,552)918,311 938 1,044,178 
Foreign currency translation— — — (14,224)— — (14,224)
Cash flow hedges— — — 260 — — 260 
Net income (loss)— — — — 63,878 (479)63,399 
Dividends declared— — — — (25,495)— (25,495)
Common stock issued and related tax benefits207 2 3,594 — — — 3,596 
Repurchases of common stock(1,032)(10)— — (34,990)— (35,000)
Stock-based compensation— — 5,421 — — — 5,421 
Contribution from noncontrolling interest— — — — — 500 500 
Balance at April 30, 202296,762 $968 $200,520 $(81,516)$921,704 $959 $1,042,635 

See accompanying notes
5

PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Non-controlling InterestsTotal
SharesAmount
Balance at April 30, 202296,762 $968 $200,520 $(81,516)$921,704 $959 $1,042,635 
Foreign currency translation— — — (4,991)— — (4,991)
Cash flow hedges— — — 261 — — 261 
Net income (loss)— — — — 24,590 (330)24,260 
Dividends declared— — — — (25,667)— (25,667)
Common stock issued and related tax benefits653 6 (2,148)— — — (2,142)
Repurchases of common stock(516)(5)— — (14,995)— (15,000)
Stock-based compensation— — 7,159 — — — 7,159 
Contribution from noncontrolling interest— — — — — 500 500 
Balance at July 30, 202296,899 969 205,531 (86,246)905,632 1,129 1,027,015 
Foreign currency translation— — — (17,591)— — (17,591)
Cash flow hedges— — — 260 — — 260 
Net income (loss)— — — — 54,073 (424)53,649 
Dividends declared— — — — (25,138)— (25,138)
Common stock issued and related tax benefits150 1 2,178 — — — 2,179 
Stock-based compensation— — 1,234 — — — 1,234 
Contribution from noncontrolling interest— — — — — 500 500 
Balance at October 29, 202297,049 $970 $208,943 $(103,577)$934,567 $1,205 $1,042,108 
See accompanying notes

6


PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 Six Months Ended
October 29, 2022October 30, 2021
Operating activities:
Net income$77,909 $81,740 
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation22,412 21,825 
Amortization18,678 19,155 
Gains on investments (87,827)
Non-cash employee compensation8,393 13,497 
Non-cash losses (gains) and other, net5,085 3,974 
Change in assets and liabilities:
Receivables(508,811)(583,939)
Inventory(100,596)(90,728)
Accounts payable41,557 165,250 
Accrued liabilities(47,519)(56,029)
Other changes from operating activities, net(37,269)(25,932)
Net cash used in operating activities(520,161)(539,014)
Investing activities:
Additions to property and equipment(26,779)(15,503)
Collection of deferred purchase price receivables489,639 585,647 
Payments related to acquisitions, net of cash acquired (19,793)
Payments related to investments(15,000) 
Sale of investments 57,245 
Net cash provided by investing activities447,860 607,596 
Financing activities:
Dividends paid(50,732)(50,407)
Repurchases of common stock(15,000) 
Draw (payment) on revolving credit145,000 (10,000)
Other financing activities(1,766)1,959 
Net cash provided by (used in) financing activities77,502 (58,448)
Effect of exchange rate changes on cash(6,935)774 
Net change in cash and cash equivalents(1,734)10,908 
Cash and cash equivalents at beginning of period142,014 143,244 
Cash and cash equivalents at end of period$140,280 $154,152 
Supplemental disclosure of non-cash investing activity:
Retained interest in securitization transactions$479,797 $549,693 
See accompanying notes
7

PATTERSON COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars, except per share amounts, and shares in thousands)
(Unaudited)

Note 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. (referred to herein as "Patterson" or in the first person notations "we," "our," and "us") as of October 29, 2022, and our results of operations and cash flows for the periods ended October 29, 2022 and October 30, 2021. Such adjustments are of a normal recurring nature. The results of operations for the three and six months ended October 29, 2022 are not necessarily indicative of the results to be expected for any other interim period or for the year ending April 29, 2023. These financial statements should be read in conjunction with the financial statements included in our 2022 Annual Report on Form 10-K filed on June 29, 2022.
The unaudited condensed 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 entities 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 unaudited condensed consolidated financial statements also include the assets and liabilities of Technology Partner Innovations, LLC, which is further described in Note 7.
Fiscal Year End
We operate with a 52-53 week accounting convention with our fiscal year ending on the last Saturday in April. The second quarter of fiscal 2023 and 2022 represents the 13 weeks ended October 29, 2022 and October 30, 2021, respectively. The six months ended October 29, 2022 and October 30, 2021 included 26 and 27 weeks, respectively. Fiscal 2023 will include 52 weeks and fiscal 2022 included 53 weeks.
Other Income, Net
Other income, net consisted of the following:
Three Months Ended Six Months Ended
October 29, 2022October 30, 2021October 29, 2022October 30, 2021
Gain on interest rate swap agreements$13,072 $3,304 $11,124 $2,117 
Investment income and other5,131 3,500 8,859 6,110 
Other income, net$18,203 $6,804 $19,983 $8,227 
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 because earnings from foreign operations are considered to be indefinitely reinvested outside the U.S. The income tax expense related to cash flow hedges was $81 and $81 for the three months ended October 29, 2022 and October 30, 2021, respectively and $161 and $161 for the six months ended October 29, 2022 and October 30, 2021, respectively.
Earnings Per Share ("EPS")
8

The following table sets forth the computation of the weighted average shares outstanding used to calculate basic and diluted EPS:
Three Months Ended Six Months Ended
October 29, 2022October 30, 2021October 29, 2022October 30, 2021
Denominator for basic EPS – weighted average shares96,913 97,321 96,771 97,089 
Effect of dilutive securities – stock options, restricted stock and stock purchase plans639 1,042 937 1,274 
Denominator for diluted EPS – weighted average shares97,552 98,363 97,708 98,363 

Potentially dilutive securities representing 1,572 shares and 1,166 shares for the three and six months ended October 29, 2022 and 807 shares and 724 shares for the three and six months ended October 30, 2021 were excluded from the calculation of diluted EPS because their effects were anti-dilutive using the treasury stock method.
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, current and forecasted 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.
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 condensed 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 October 29, 2022 and April 30, 2022 were $2,327 and $134, 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 October 29, 2022 and April 30, 2022, contract liabilities of $39,405 and $38,581 were reported in other accrued
9

liabilities, respectively. During the six months ended October 29, 2022, we recognized $22,490 of the amount previously deferred at April 30, 2022.
Recently Issued 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 and derivative instruments that currently utilize LIBOR as the reference rate.
Note 2. 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 October 29, 2022, of which $200,000 was utilized.

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 October 29, 2022 and April 30, 2022, the fair value of outstanding trade receivables transferred to the Purchasers under the facility and derecognized from the condensed consolidated balance sheets were $417,786 and $396,443, respectively. Sales of trade receivables under this facility were $1,826,156 and $1,877,460, and cash collections from customers on receivables sold were $1,804,576 and $1,855,260 during the six months ended October 29, 2022 and October 30, 2021, respectively.

The DPP receivable is recorded at fair value within the condensed 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 condensed consolidated statements of operations and other comprehensive income, we recorded losses of $3,211 and $894 during the three months ended October 29, 2022 and October 30, 2021, respectively, and $4,646 and $1,615 during the six months ended October 29, 2022 and October 30, 2021, respectively, related to the Receivables.

The following rollforward summarizes the activity related to the DPP receivable:
Six Months Ended
October 29, 2022October 30, 2021
Beginning DPP receivable balance$195,764 $183,999 
Non-cash additions to DPP receivable467,761 516,740 
Collection of DPP receivable(447,241)(494,586)
Ending DPP receivable balance$216,284 $206,153 

Note 3. Customer Financing
10

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 October 29, 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 October 29, 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 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 29, 2022 and October 30, 2021, we sold $111,612 and $113,418 of contracts under these arrangements, respectively. In net sales in the condensed consolidated statements of operations and other comprehensive income, we recorded a loss of $8,456 and $3,363 during the three months ended October 29, 2022 and October 30, 2021, respectively, related to these contracts sold. In net sales in the condensed consolidated statements of operations and other comprehensive income, we recorded a loss of $7,468 and $3,290 during the six months ended October 29, 2022 and October 30, 2021, respectively, related to these contracts sold. Cash collections on financed receivables sold were $163,088 and $218,077 during the six months ended October 29, 2022 and October 30, 2021, respectively.
Included in cash and cash equivalents in the condensed consolidated balance sheets are $33,342 and $39,106 as of October 29, 2022 and April 30, 2022, 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 $56,562 and $58,190 as of October 29, 2022 and April 30, 2022, respectively, of finance contracts we have not yet sold. A total of $534,777 of finance contracts receivable sold under the arrangements was outstanding at October 29, 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 rollforward summarizes the activity related to the DPP receivable:
11

Six Months Ended
October 29, 2022October 30, 2021
Beginning DPP receivable balance$125,332 $227,967 
Non-cash additions to DPP receivable12,036 32,953 
Collection of DPP receivable(42,398)(91,061)
Ending DPP receivable balance$94,970 $169,859 
The arrangements require us to maintain a minimum current ratio and maximum leverage ratio. We were in compliance with those covenants at October 29, 2022.
Note 4. 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 October 29, 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 2030. We sold an identical interest rate cap to the same bank. As of October 29, 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 2029. 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.
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 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 30, 2022, the remaining notional amount for interest rate swap agreements was $574,144, with the latest maturity date in fiscal 2029. During the six months ended October 29, 2022, we entered into forward interest rate swap agreements with a notional amount of $79,010. As of October 29, 2022, the remaining notional amount for interest rate swap agreements was $538,519, with the latest maturity date in fiscal 2030.
Net cash receipts of $782 were received and net cash payments of $3,992 were made during the six months ended October 29, 2022 and October 30, 2021, respectively, to settle a portion of our liabilities related to interest rate swap agreements. These payments and receipts are reflected as cash flows in the condensed consolidated statements of cash flows within net cash used in operating activities.
The following presents the fair value of derivative instruments included in the condensed consolidated balance sheets:
12

Derivative typeClassificationOctober 29, 2022April 30, 2022
Assets:
Interest rate contractsPrepaid expenses and other current assets$7,863 $3,875 
Interest rate contractsOther non-current assets, net33,512 19,871 
Total asset derivatives$41,375 $23,746 
Liabilities:
Interest rate contractsOther accrued liabilities$199 $250 
Interest rate contractsOther non-current liabilities17,351 10,013 
Total liability derivatives$17,550 $10,263 
The following tables present the pre-tax effect of derivative instruments on the condensed consolidated statements of operations and other comprehensive income:
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)
Three Months Ended Six Months Ended
Derivatives in cash flow hedging relationshipsStatements of operations locationOctober 29, 2022October 30, 2021October 29, 2022October 30, 2021
Interest rate contractsInterest expense$(341)$(341)$(682)$(682)
Amount of Gain (Loss) Recognized in Income on Derivatives
Three Months Ended Six Months Ended
Derivatives not designated as hedging instrumentsStatements of operations locationOctober 29, 2022October 30, 2021October 29, 2022October 30, 2021
Interest rate contractsOther income, net$13,072 $3,304 $11,124 $2,117 
There were no gains or losses recognized in other comprehensive income (loss) on cash flow hedging derivatives during the three and six months ended October 29, 2022 or October 30, 2021.
We recorded no ineffectiveness during the three and six month periods ended October 29, 2022 and October 30, 2021. As of October 29, 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.
Note 5. 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:
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:
13

October 29, 2022
TotalLevel 1Level 2Level 3
Assets:
Cash equivalents$1,419 $1,419 $ $ 
DPP receivable - receivables securitization program216,284   216,284 
DPP receivable - customer financing94,970   94,970 
Derivative instruments41,375  41,375  
Total assets$354,048 $1,419 $41,375 $311,254 
Liabilities:
Derivative instruments$17,550 $ $17,550 $ 
April 30, 2022
TotalLevel 1Level 2Level 3
Assets:
Cash equivalents$3,186 $3,186 $ $ 
DPP receivable - receivables securitization program195,764   195,764 
DPP receivable - customer financing125,332   125,332 
Derivative instruments23,746  23,746  
Total assets$348,028 $3,186 $23,746 $321,096 
Liabilities:
Derivative instruments$10,263 $ $10,263 $ 
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 value of our non-marketable equity securities to fair value when observable transactions of identical or similar securities occur, or due to an impairment.
During the three months ended July 31, 2021, we sold a portion of our investment in Vetsource, a commercial partner and leading home delivery provider for veterinarians, 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 condensed consolidated statements of operations and other comprehensive income as a result of this sale in the first quarter of fiscal 2022. The cash received of $56,849 is reported within investing activities in our condensed consolidated statements of cash flows. During the three months ended July 31, 2021, 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 condensed consolidated statements of operations and other comprehensive income. The carrying value of the investment we owned following this sale was $56,849 and $56,849 as of October 29, 2022 and April 30, 2022, respectively. Concurrent with the sale completed in the first quarter of fiscal 2022, we obtained rights that will allow us, under
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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 condensed consolidated statements of operations and other comprehensive income as a result of this transaction. The carrying value of this put option as of October 29, 2022 is $25,757, and is reported within investments in our condensed consolidated balance sheets. The aggregate gains on investments of $87,827 are reported within operating activities in our condensed 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. There were no fair value adjustments to such assets during the six months ended October 29, 2022.
Our debt is not measured at fair value in the condensed consolidated balance sheets. The estimated fair value of our debt as of October 29, 2022 and April 30, 2022 was $480,533 and $489,777, respectively, as compared to a carrying value of $488,522 and $488,554 at October 29, 2022 and April 30, 2022, 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 October 29, 2022 and April 30, 2022.
Note 6. Income Taxes
The effective income tax rate for the three months ended October 29, 2022 was 24.2% compared to 25.3% for the three months ended October 30, 2021. The decrease in the rate for the three months ended October 29, 2022 was primarily due to a prior period income tax reserve adjustment, which was partially offset by excess tax benefits associated with stock-based compensation. The effective income tax rate for the six months ended October 29, 2022 was 23.5% compared to 24.8% for the six months ended October 30, 2021. The decrease in the rate for the six months ended October 29, 2022 was primarily due to a prior period income tax reserve adjustment.
Note 7. 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. Patterson and Cure Partners each contributed additional net assets of $1,000 during the fiscal year ended April 30, 2022. Cure Partners contributed net assets of $1,000 during the six months ended October 29, 2022. We contributed net assets of $500 during the six months ended October 29, 2022, and we expect to contribute net assets of $500 by the end of fiscal 2023. We have 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. Since TPI was formed, there have been no changes in ownership interests. As of October 29, 2022, we had noncontrolling interests of $1,205 on our condensed consolidated balance sheets.
Net loss attributable to the noncontrolling interest was $424 and $392 for the three months ended October 29, 2022 and October 30, 2021, respectively, and $754 and $586 for the six months ended October 29, 2022 and October 30, 2021, respectively.
Note 8. 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. The costs to operate the fulfillment centers are allocated to the operating units based on the through-put of the unit.
The following table provides a breakdown of sales by geographic region:
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Three Months Ended Six Months Ended
October 29, 2022October 30, 2021October 29, 2022October 30, 2021
Consolidated net sales
United States$1,375,622 $1,363,753 $2,636,020 $2,677,525 
United Kingdom157,125 184,006 319,346 376,753 
Canada93,457 101,402 194,103 209,759 
Total$1,626,204 $1,649,161 $3,149,469 $3,264,037 
Dental net sales
United States$575,520 $561,574 $1,075,355 $1,102,647 
Canada