Fair Value Measurements

9 Months Ended

Jan. 25, 2025

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:


	January 25, 2025
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	2,648	$	2,648	$	—	$	—
DPP receivable - receivables securitization program	161,665		—		—		161,665
DPP receivable - customer financing	110,500		—		—		110,500
Derivative instruments	7,496		—		7,496		—
Total assets	$	282,309	$	2,648	$	7,496	$	272,165
Liabilities:
Derivative instruments	$	4,142	$	—	$	4,142	$	—


	April 27, 2024
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	4,685	$	4,685	$	—	$	—
DPP receivable - receivables securitization program	198,827		—		—		198,827
DPP receivable - customer financing	114,259		—		—		114,259
Derivative instruments	26,974		—		26,974		—
Total assets	$	344,745	$	4,685	$	26,974	$	313,086
Liabilities:
Derivative instruments	$	13,457	$	—	$	13,457	$	—

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.

We had an investment in Vetsource, a commercial partner and leading home delivery provider for veterinarians. The investment was valued based on the selling price of the portion of the investment we sold in the first quarter of fiscal 2022. The carrying value of the investment was $56,849 as of April 27, 2024. Concurrent with the sale completed in the first quarter of fiscal 2022, we obtained rights that would allow us, under certain circumstances, to require another shareholder of Vetsource to purchase our remaining shares. The carrying value of this put option, which was subject to a floor, as of April 27, 2024 was $25,757, and was reported within investments in our Condensed Consolidated Balance Sheets. Concurrent with obtaining this put option, we also granted rights to the same Vetsource shareholder allowed such shareholder, under certain circumstances, to require us to sell our remaining shares at fair value. In the second quarter of fiscal 2025, the VetSource shareholder exercised the option and purchased Patterson's investment in VetSource. We recorded a pre-tax gain of $3,803 in other income, net in our Condensed Consolidated Statements of Operations and Other Comprehensive Income as a result of this sale. The cash received of $86,408 is reported within investing activities in our Condensed Consolidated Statements of Cash Flows.

Our debt is not measured at fair value in the Condensed Consolidated Balance Sheets. The estimated fair value of our debt as of January 25, 2025 and April 27, 2024 was $447,918 and $448,287, respectively, as compared to a carrying value, net of deferred debt issuance costs, of $448,638 and $451,661 at January 25, 2025 and April 27, 2024, 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 January 25, 2025 and April 27, 2024.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

PATTERSON COMPANIES, INC. 10-Q