News Column

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

September 4, 2014

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Our first quarter fiscal 2015 financial information is summarized in this Management's Discussion and Analysis, and the Condensed Consolidated Financial Statements and related Notes. The following background is essential to fully understanding our Company's financial information.

Patterson operates a distribution business in three complementary markets: dental supply, veterinary supply and rehabilitation supply. Historically, our strategy for growth focused on internal growth and the acquisition of smaller distributors and businesses offering related products and services to the dental market. In fiscal 2002, we expanded our strategy to take advantage of a parallel growth opportunity in the veterinary supply market by acquiring the assets of J. A. Webster, Inc. on July 9, 2001. Effective January 1, 2013, Webster Veterinary Supply, Inc. changed its name to Patterson Veterinary Supply, Inc. Patterson added a third component to our business platform in fiscal 2004 when it entered the rehabilitation supply market with the acquisition of AbilityOne Products Corp. ("AbilityOne") on September 12, 2003. AbilityOne is now known as Patterson Medical Holdings, Inc.

Operating margins of the veterinary business are considerably lower than the dental and rehabilitation supply businesses. While operating expenses run at a lower rate in the veterinary business, their gross margin is substantially lower due generally to pharmaceutical products sales, which have margins well below the average sundry product.

There are several important aspects of Patterson's business that are useful in analyzing it, including: (1) market growth in the various markets in which we operate; (2) internal growth; (3) growth through acquisition; and (4) continued focus on controlling costs and enhancing efficiency. Management defines "internal growth" as the increase in net sales from period to period, excluding the impact of changes in currency exchange rates, and excluding the net sales, for a period of twelve months following the transaction date, of businesses we have acquired.

NVS Acquisition. On August 16, 2013Patterson Companies, Inc. completed the acquisition of all the outstanding stock of National Veterinary Services Limited ("NVS") from Dechra Pharmaceuticals, PLC ("NVS Acquisition"). NVS is the largest veterinary products distributor in the United Kingdom. Total cash consideration paid for NVS was 88.7 million (approximately $138.7 million). The acquisition is expected to be accretive to earnings by $0.02 to $0.03 per diluted share for the fiscal year ended April 25, 2015. The NVS business has lower gross margins and operating expenses than our historical businesses.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage of net sales represented by certain operational data.

Three Months Ended July 26, July 27, 2014 2013 Net sales 100.0 % 100.0 % Cost of sales 72.0 % 68.0 % Gross margin 28.0 % 32.0 % Operating expenses 20.0 % 22.8 % Operating income 8.0 % 9.2 % Other expense, net (0.7 %) (1.0 %) Income before taxes 7.3 % 8.2 % Net income 4.7 % 5.2 % 13



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QUARTER ENDED JULY 26, 2014 COMPARED TO QUARTER ENDED JULY 27, 2013.

Net Sales. Consolidated net sales for the three months ended July 26, 2014 ("Current Quarter") were $1,059.6 million, a 20.4% increase from $880.1 million for the three months ended July 27, 2013 ("Prior Quarter"). Acquisitions contributed 19.8% to Current Quarter sales growth, and foreign exchange rate changes had an unfavorable impact to Current Quarter sales growth of 0.2%.

Sales of the Dental segment were $552.7 million, a 0.3% decrease from $554.2 million from the Prior Quarter. Current Period sales of consumables and printed office products increased 1.9%. Sales of dental equipment and software decreased 8.1% to $148.8 million due a strong comparable with prior year CEREC trade up programs. Sales of other services and products in the Dental segment increased 8.0% in the Current Quarter, from an increase in financing contracts and our Mercer acquisition in fiscal 2014.

Veterinary segment sales rose 93.5% to $386.3 million. Acquisitions contributed 86.9% to the current quarter sales growth. Excluding the NVS acquisition, consumables increased 7.1% due to new products in the parasiticide and heartworm categories as well as a shift in sales from our fourth quarter due to the late spring. Equipment and software sales decreased 8.5% as some projects were delayed into our second quarter. Sales of other services and products increased 11.9%.

Rehabilitation segment sales decreased 4.5% to $120.6 million, due to reduced sales from the non-core product lines that were divested in the second and fourth quarters of fiscal year 2014 which accounted for a decrease of 5.9%, offset by a favorable impact of 1.4% from changes in foreign exchange rates.

Gross Margins. Consolidated gross margin decreased 400 basis points from the Prior Quarter to 28.0%. The NVS Acquisition accounts for 430 basis points of the decrease, resulting in a comparable increase of 30 basis points from the Prior Quarter of 32.0%. The 30 basis point improvement is predominantly the result of the mix between product lines within the segments.

Operating Expenses. The consolidated operating expense ratio of 20.0% decreased 280 basis points from the Prior Quarter at 22.8%. The NVS Acquisition accounts for 320 basis points of the decrease. This results in a comparable operating expense rate of 23.2% versus 22.8% in the Prior Quarter. The deterioration in the operating expense rate resulted from the timing of the recognition of certain performance based compensation expense as well as the loss of leverage in the Dental segment due to the slight decline in total sales.

Operating Income. Current Quarter operating income was $84.8 million, or 8.0% of net sales. In the Prior Quarter, operating income was $81.3 million, or 9.2% of net sales. The decrease in the operating margin is due to the impacts from the NVS Acquisition which reduced operating margin by 110 basis points. The comparable operating margin rate is 9.1%.

Other (Expense) Income, Net. Net other expense was $7.3 million in the Current Quarter compared to $9.1 million in the Prior Quarter. Net other expense is comprised primarily of interest expense, partly offset by interest income. Foreign currency losses had a negative impact of $0.1 million compared to a $1.7 million negative impact in the Prior Quarter. Interest income of $1.6 million was up from $1.2 million in the Prior Quarter.

Income Tax Expense. The effective income tax rate for the Current Quarter was 35.1% compared to 36.4% in the Prior Quarter. The decrease in the current year rate is due primarily to the geographical shift in profits between domestic and international for the year. For the fiscal year, the income tax rate is expected to be in a range from 34.5% to 35.0%.

Net Income and Earnings Per Share. Net income was $50.3 million, compared to $45.9 million in the Prior Quarter. Earnings per diluted share was $0.50 in the Current Quarter compared to $0.45 in the Prior Quarter. Diluted shares outstanding in the Current Quarter were 100,182,000 compared to 101,919,000 in the Prior Quarter. The decrease in the share count is due to share repurchase activity over the past year. The Current Quarter's cash dividend was $0.20 per common share compared to $0.16 in the Prior Quarter.

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LIQUIDITY AND CAPITAL RESOURCES

Our cash flows from operations in the three-months ended July 26, 2014 were $68.8 million compared to $21.1 million in the Prior Period. The increase is primarily a result of timing and magnitude of income tax and accounts payable disbursements in the Prior Period that reduced cash flow from operations.

Net cash used in investing activities was $11.4 million in the Current Period compared to $5.6 million in the Prior Period primarily due to the investment in information systems. We expect to use a total of $45 million for capital expenditures in fiscal 2015, with our main investment is in information systems.

Cash used in financing activities during the Current Period was $63.8 million, including cash used for dividend payments of $20.1 million and common stock repurchases of $42.9 million. In the Prior Period, cash provided by financing activities was $84.8 million including a $135 million for a draw on our revolver for the purchase of NVS, offset by cash used for dividend payments of $29.8 million and stock repurchases of $22.2 million. The cash dividend outflow in the Prior Period included two quarterly dividend declarations due to the timing of the payment authorization for the previous fourth quarter dividend.

In fiscal 2014, we invested in three time deposits with total principal of $110,000 Canadian dollars. Our time deposit securities are classified as "held-to-maturity" securities and are carried at cost, adjusted for accrued interest and amortization. We have a $250 million note due in the fourth quarter of fiscal year 2015. We have both the intent and ability to refinance at that time, therefore we have classified this balance as long term debt on the balance sheet as of July 26, 2014 and April 26, 2014, respectively.

We expect funds generated from operations, existing cash balances and credit availability under existing debt facilities will be sufficient to meet our working capital needs and to finance anticipated expansion plans and strategic initiatives over the remainder of fiscal 2015.

As of July 26, 2014, $300 million was available under our $300 million revolving credit facility. Our current credit agreement expires in fiscal 2017.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. We are evaluating the new standard, but do not, at this time, anticipate a material impact to the financial statements once implemented.

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

In our Form 10-K for the year ended April 26, 2014, we described material risk factors facing our business. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. As of the date of this report, there have been no material changes to the risk factors described in our Form 10-K.

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