Peter L. Frechette, President and CEO:

Peter L. Frechette has been President and Chief Executive Officer of the Company since September 1982 and has been a director of Patterson since March 1983.  Prior to joining Patterson, Mr. Frechette was employed by American Hospital Supply Corporation for 18 years, the last seven of which he served as president of its Scientific Products Division.  Mr. Frechette holds an MBA degree from Northwestern University and a BS degree in economics from the University of Wisconsin.

About Patterson Dental Co. 

Patterson Dental Company is a value-added distributor of a virtually complete range of dental products, equipment and services to dentists, dental laboratories, institutions and other healthcare providers throughout North America.  The company provides consumable dental supplies, equipment and practice management software, as well as a full complement of value-added dental services equipment financing and office design.  Patterson Dental has the largest direct sales force in the industry, totaling more than 1,000 sales representatives and equipment/software specialists serving the United States and Canada.

CEOCFOinterviews: New things are happening at your company. Tell us a little bit about your company as it stands today.

Mr. Frechette: The Patterson Dental Company is in a very good position today.  We are a distributor of dental supplies and equipment to dentists in the US and Canada.  We sell a complete line of products that includes consumables and equipment.  We have front office products, filing systems etc. as well as dental software.  We are in a strong position in the market place, with a 27-28% market share. Over the last three or four years our sales have grown faster than the market, which means we gained 4-5 points in the market share during that time.  We are a cash generator and have approximately $115 million in cash on our balance sheet.  We’ve recently made a new acquisition, which puts us in a new market opportunity.

CEOCFOinterviews: Was that the Webster acquisition?

Mr. Frechette: Yes

CEOCFOinterviews: What has that done to your overall revenue?

Mr. Frechette: Webster is about a $150 million dollar company.  So, it’s about 10% of our revenues.

CEOCFOinterviews: This isn’t just equipment, software or products; you have vaccines, diagnostic products, and pharmaceuticals?

Mr. Frechette:  The veterinary market was of interest to us for a number of reasons. First it is a fragmented market, like dental. Second of all, veterinarians value relationships with sales reps that emphasize quality service. Finally, Webster had a management team in place that we felt could manage the company going forward.

They carry a complete line of veterinary consumable products and we feel that our front line office supply products would be a nice addition for the veterinary sales representative. Additionally, we believe additional equipment opportunities exist in the veterinary market.  There are an awful lot of nice opportunities for us in the veterinary market.

CEOCFOinterviews: Do you see maybe an acquisition if one were to present itself to make the veterinary supply larger for your company?

Mr. Frechette: Well, what we’ve said about the veterinary market to date is that first we have trained the sales representatives on our front office product line and trained them on the financing programs we make available to our customers.  We have also trained them on our credit card processing program, which we are now making available for our veterinary customers.  We’ve said it’s going to take us about six to twelve months to integrate the MIS systems and once we get that complete, then yes, we would look to other acquisitions to take the Webster company national.  It currently is operating in 26 states and our objective, obviously, is to make it a national company.

CEOCFOinterviews: You also handle office designing.

Mr. Frechette: We offer a number of services to our customers, one of which is we will do office design, planning, equipment installation and we work with our customers to design new offices as well as additions to existing offices, etc.

CEOCFOinterviews: You are supplying them with state of the art products and services?

Mr. Frechette: One of our most important strategies is that we want to be the company that brings the dentist new technology to either allow the dentist to increase revenues or increase productivity.  For example, we were the first company in the intraoral camera business. To date, probably 50 –55% of dentist are using these products in their offices.  There are two new product areas we continue to be positive about, digital x-ray and another called Cerec. Digital x-ray improves productivity and reduces operating costs for the dentist. CEREC product allows the dentist to do a permanent crown, inlay or onlay in a single office visit.  Currently those procedures take two office visits and most folks know that when you need a crown, you have the temporary put on and come back two weeks later to have the permanent put in.  The CEREC eliminates the need for a second appointment.

CEOCFOinterviews: Do you find that more people are ordering through the Internet?

Mr. Frechette: We’ve been on the Internet for about four or five years now with the capability to allow our customers to order over the Internet. To date that has not grown dramatically or become a significant part of our customer ordering process.  We do offer and were the first company to offer an automated, e-business system, which our customers can use to order supplies, we also offer a smart phone, bar code reader and obviously the Internet.  We are just now introducing our new eMAGINE System which is a new updated very functional order entry system and that has been adopted by customers at a very rapid rate.  Currently we have about 14,000 customers on an automated ordering entry system.  Customers actually do utilize it and we expect the Internet to grow over time, but currently it is not a significant part of our order entry systems.

CEOCFOinterviews: With the dental supplies, right now you are only in the United States and Canada?  Do you plan on expanding into other counties?

Mr. Frechette:  We are dealing with dental customers in the United States and Canada with a sales force of over 1,100 sales reps. We’ve now entered the veterinary market in the US and plan to expand that.  Currently we have no plans to go to Europe or Asia in terms of expanding our dental market.  We feel that we have existing opportunities we can take advantage of right here.

CEOCFOinterviews: How are you educating your customers on the newest technology?

Mr. Frechette: We do a number of things in terms of getting information to our customers.  Obviously we have a sales rep that calls on the customer regularly from the point of view of new programs, new technology, new products and presenting those items to our customers.  As I indicated to you, we have equipment specialists who do office planning and design and keep the customer up to speed as it relates to the basic equipment.  We have Patterson Technology Representatives who are involved in areas like digital x-ray and software.  We also do a regular publication which we send out to our customers called Patterson Today which is sent out three times a year. It contains updates on products as well as office designs and the like.  Finally, we hold seminars for our customers to attend to get a hands-on perspective with new technology and, of course, we already discussed the Internet opportunity where our customers can get information as well.

CEOCFOinterviews:  Now that you are into the veterinary end of it, do you see the additional need for more personnel in that area?

Mr. Frechette: Well, when we acquired Webster they had 73 sales representatives and infrastructure as well, that will remain in place.  The same management team is managing the company.  We don’t see the need for additional personnel at this point but that will be something that we will continue to assess as additional acquisitions are made and our systems continue to grow.

CEOCFOinterviews: As far as your supplies. How do you control inventory?

Mr. Frechette: We have, I believe, a very sophisticated inventory system.  All of our consumable supplies for our 9 warehouses, seven in the US and two in Canada are purchased right here in St. Paul so we have purchasers who watch inventory levels throughout the system.  Obviously our first objective is customer service levels.  We deliver 97- 98% of our orders complete within 24 hours. The second objective is that we are buying properly at the right price and achieving the right gross margin that makes sense for us.  Finally, our third objective is inventory turn and management of the inventory investment. Our system allows us to manage all three of those objectives very efficiently. We set an inventory objective that our turns should go up a half a point a year and we are currently achieving that objective.

CEOCFOinterviews: You did very well last quarter; I was looking at your numbers.  Do you see that increasing with the additional acquisition or haven’t you felt the full effect of that yet?

Mr. Frechette: What we said, as it relates to the Webster acquisition, is in the first year we expect it to add three to four cents per share and then four to five cents in fiscal 2003.

CEOCFOinterviews:  Is this company situated well enough to keep up financially as you make additional acquisitions?

Mr. Frechette: Well, the answer to that question is yes.  We have a strong balance sheet.  And reported $115 million dollars in cash on the balance sheet at the end of October.  We have essentially no debt, so yes; we have a very substantial debt capacity and strong balance sheet, which allows us to make additional acquisitions going forward.  We are in a very strong position financially.

CEOCFOinterviews: Has any of the current events affected this company?

Mr. Frechette: At this time we really don’t have a firm answer.  We’ve looked at our consumable sales and can’t attribute anything directly to the events of September 11th. Our customers may or may not continue with Projects as a result of what is going on.  Currently, we do not have any input that will tell us if there is any negative impact, but this may be a longer-term issue that we will continue to watch. 

CEOCFOinterviews: What would you say to a potential investor to get him excited and interested in this company?

Mr. Frechette: I think the company represents a good investment for a number of reasons. We are in a growing market.  We estimate our market to grow at a rate of 7 – 9% primarily driven by the aging population, cosmetic dentistry and new technologies.  There has also been an increase in third party dental plans, which will help fund the growing dental products market.  In addition we are in a very favorable competitive position and continue to gain market share.  Our internal objective is to grow four percent faster than the market. We generate free cash at approximately 80 – 90% of net earnings and our earnings have compounded at better than 20% over the past five years.  Finally, we have a number of value-added programs that we think will have a real impact on our customers and generate growth in the future. I also want to emphasize our financial position that affords us a capacity to continue to do acquisitions.

I think the veterinary market is going to be an interesting market place for us and offers us a new growth opportunity. It provides us with the opportunity to use the same strategy we utilized in the dental market place to grow in a new market.


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