OVERVIEW

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the MD&A included in our 2009 Annual Report on Form 10-K filed June 24, 2009, for important background information regarding, among other things, an overview of the markets in which we operate and our business strategies.

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 25,       July 26,
                                              2009           2008
              Net sales                        100.0 %        100.0 %
              Cost of sales                     67.2 %         66.2 %


              Gross margin                      32.8 %         33.8 %
              Operating expenses                23.0 %         23.1 %


              Operating income                   9.7 %         10.7 %
              Other (expense) income, net       (0.6 )%        (0.8 )%

              Income before taxes                9.2 %          9.9 %

              Net income                         5.7 %          6.2 %

QUARTER ENDED JULY 25, 2009 COMPARED TO QUARTER ENDED JULY 26, 2008.

Net Sales. Consolidated net sales for the three months ended July 25, 2009 ("Current Quarter") were $789.6 million, an increase of 6.1% compared to $743.9 million for the three months ended July 26, 2008 ("Prior Quarter"). The contribution from acquisitions added 7.2% to sales growth, while changes in foreign currency translation rates reduced sales by 1.4%. Current Quarter sales of all three of the Company's business units were negatively affected by the general economic environment.

Dental segment sales declined 1.7% in the Current Quarter to $511.0. The 1.3% negative impact of foreign currency translation was partly offset by a positive contribution from acquisitions of 0.8%. Consumable sales were down 2.2%, including a 1.3% negative impact of foreign currency translations and a contribution from acquisitions of 0.4%. Consumable sales were affected by the deferral of high-level and discretionary services by patients for economic related reasons.

Dental equipment and software sales decreased 1.8% compared to the Prior Quarter. Sales of basic dental equipment such as chairs, units and lights were impacted by the economic recession and declined 16% in the Current Quarter. However, dental practitioners continued to invest in new technology equipment including CEREC dental restorative systems and digital x-ray systems, which had

sales growth of 84% and 16%, respectively. The Company believes the recession is causing many dentists to limit their investments to equipment with rapid rates of return, which is characteristic of these technology investments.

Sales of other services and products in the Dental segment rose 1.4% in the Current Quarter.

Veterinary segment sales of $169.2 million were 37.2% higher than $123.3 million in the Prior Quarter due primarily to the October 2008 acquisition of the Columbus Serum Company. Excluding acquisitions, sales grew 7.8%, reflecting higher volumes of veterinary care for companion pets following several quarters of reduced patient activity.

Current Quarter Rehabilitation segment sales rose 8.6%, from $100.7 million to $109.4 million. Acquisitions contributed 12.6% to sales growth and unfavorable changes in foreign currency translation rates reduced Current Quarter sales by 3.4%. The majority of the acquisition contribution came from the April 2009 acquisition of Mobilis Health Care Group in the United Kingdom.

Gross Margins. Consolidated gross margin of 32.8% declined 100 basis points from the Prior Quarter as a result of the relative growth of the Veterinary segment, which generates a lower gross margin than the other two segments. The gross margins of the Dental and Rehabilitation segments were essentially unchanged in the Current Quarter.

Gross margin of the Veterinary segment decreased 120 basis points in the Current Quarter due primarily to the effect of the Columbus Serum acquisition. A portion of the Columbus Serum sales was generated from distributed nutritional products and production animal business, both of which carry a lower gross margin than the Veterinary segment's core companion animal business.

Operating Expenses. The consolidated operating expense ratio improved 10 basis points to 23.0% from 23.1% in the Prior Quarter. The Company did gain operating leverage in the Current Quarter due to expense control measures, and the relative growth of the Veterinary segment, which carries a lower level of operating expenses as compared to the other two business units, however, the improvement was offset by expenses related to the integration of several acquisitions. Such integration activities are underway and the impact of the acquisitions on operating expenses is expected to dissipate as we progress through fiscal 2010.

The operating expense ratio of the Dental segment was 50 basis points higher than in the Prior Quarter, reflecting increased fixed costs on a relative basis against lower sales volume and acquisition-related costs. The Veterinary segment's operating expense ratio decreased 80 basis points from the Prior Quarter as a result of leverage on higher revenues. Operating expenses as a percent of sales at the Rehabilitation segment were 170 basis points higher than in the Current Quarter due to the cost structure of acquisitions.

Operating Income. Operating income was $76.8 million, or 9.7% of net sales in the Current Quarter. In the Prior Quarter, operating income was $79.6 million, or 10.7% of net sales. As discussed above, the lower operating margin was due mostly to the consolidated gross margin decline of 100 basis points in the Current Quarter.

Other (Expense) Income, Net. Net other expense was $4.4 million in the Current Quarter compared to net other expense of $5.9 million in the Prior Quarter. Interest expense was $1.4 million less in the Current Quarter due to the scheduled payment of $130 million of debt in November 2008.

Income Taxes. The effective income tax rate for the Current Quarter was 37.8%. In the Prior Quarter, the rate was 37.6%. This change is predominately due to the change in the mix of income in the jurisdictions where the Company operates.

Earnings Per Share.Earnings per share was $0.38 in the Current Quarter compared to $0.39 in the Prior Quarter.

LIQUIDITY AND CAPITAL RESOURCES

During the Current Quarter, the Company generated $46.8 million of cash flow from operating activities, compared to $32.6 million in the Prior Quarter. The increase in operating cash flows in the Current Quarter is due mostly to an increase in accounts payable, resulting from routine timing of purchases and payments. In the second half of fiscal 2009, the Company invested in a financing program to support marketing efforts directed at the CEREC product line. This promotion, which ended at the close of fiscal 2009, generated approximately $98 million of finance contracts that the Company could not immediately sell to our funding sources due to certain requirements in those funding arrangements. The Company expects to fully liquidate these contracts in fiscal 2010, resulting in an incremental $98 million of cash flow in the year. The majority of these contracts are expected to be liquidated in the second half of fiscal 2010.

Net cash used in investing activities in the Current Period was $36.1 million compared to $12.0 million in the Prior Period. Current Period activity is primarily related to acquisitions for which cash used was $28.1 million, including Empi Therapy Solutions, a rehabilitation equipment and supply distributor, and Global Medical and Dental, a dental equipment and supply distributor. Current Period capital expenditures of $8.0 million include a project to expand an existing distribution facility in Florida. The Company expects fiscal 2010 capital expenditures to approximate $25 million.

Net cash used in financing activities was $4.8 million in the Current Period compared to $2.4 million of net cash provided by financing activities in the Prior Period. The difference between periods is mostly due to the repayment of $8 million on a revolving credit facility in the Current Period. Funds provided by financing activities are generally from the proceeds on the sale shares of Company stock under various employee based programs. With respect to the $300 million revolving credit facility, which is available until November 2012, the Company has an outstanding balance of $14 million and an additional $286 million of available funding as of July 25, 2009.

During the Current Period, foreign currencies of the Company's Canadian and overseas operations strengthened against the U.S. Dollar. The effect of these exchange rate changes on cash was to increase cash balances by $11.4 million in the Current Period.

The Company expects funds generated by operations, existing cash balances and availability under existing debt facilities will be sufficient to meet the Company's working capital needs and finance anticipated expansion plans and strategic initiatives over the next twelve months.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes in the Company's Critical Accounting Policies and Estimates, as disclosed in its 2009 Annual Report on Form 10-K filed June 24, 2009.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurement" ("SFAS No. 157"). In February 2008, the FASB issued Staff Position FAS 157-2, which deferred the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities. The Company adopted SFAS No. 157 for its financial assets and liabilities at the beginning of fiscal year 2009. Effective at the beginning of fiscal year 2010, the Company adopted SFAS No. 157 for its nonfinancial assets and liabilities. The adoption had no impact on the Company's financial condition, results of operations or cash flows.

In December 2007, the FASB issued Statement No. 141(revised 2007), "Business Combinations" ("SFAS No. 141(R)"). SFAS No. 141(R) significantly changes the accounting for business combinations in a number of areas including the treatment of contingent consideration, preacquisition contingencies, transaction costs, in-process research and development and restructuring costs. In addition, under SFAS No. 141(R), changes in an acquired entity's deferred tax assets and uncertain tax positions after the measurement period will impact income tax expense. The Company adopted SFAS No. 141(R) effective at the beginning of fiscal 2010. The adoption will have an impact on our consolidated financial statements, but the nature and magnitude of the specific effects are dependent upon the nature, terms and size of the acquisitions consummated after the effective date. In addition, changes that may occur in the income tax liabilities for income tax uncertainty of acquisitions completed prior to the effective date of SFAS No. 141(R) would be recorded as adjustments to income tax expense.

In May 2009, the FASB issued Statement No. 165, "Subsequent Events" ("SFAS No. 165"). SFAS No. 165 provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. The Company adopted SFAS No. 165 in the first quarter of fiscal 2010. The adoption of this standard did not have any impact on the Company's financial condition, results of operations or cash flows. Subsequent events have been evaluated through the time of filing of this Form 10-Q on September 3, 2009.

In June 2009, the FASB issued Statement No. 166, "Accounting for Transfers of Financial Assets-an Amendment of FASB Statement No. 140" ("SFAS No. 166") and Statement No. 167, "Amendments to FASB Interpretation No. 46(R)" ("SFAS No. 167"). SFAS No. 166 will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to risks related to transferred financial assets. It eliminates the concept of a "qualifying special-purpose entity," changes the requirements for derecognizing financial assets, and requires additional disclosures. SFAS No. 167 changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. Both SFAS No. 166 and SFAS No. 167 are effective for fiscal years beginning after November 15, 2009. The Company is evaluating the impact SFAS No. 166 and SFAS No. 167 will have on its financial condition, results of operations and cash flows.

In June 2009, the FASB issued Statement No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles", which replaces SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles", and establishes only two levels of U.S. generally accepted accounting principles ("GAAP"), authoritative and nonauthoritative. The FASB Accounting Standards Codification (the "Codification") will become the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the Securities and Exchange Commission ("SEC"), which are sources of authoritative GAAP for SEC registrants. SFAS No. 168 is effective for annual or interim periods ending after September 15, 2009. As SFAS No. 168 is not intended to change or alter existing GAAP, it is not expected to impact our financial condition, results of operations or cash flows. The Company will adjust historical GAAP references in our Quarterly Report on Form 10-Q for the second quarter of fiscal 2010 to reflect accounting guidance references included in the Codification.

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

Certain information of a non-historical nature contains forward-looking statements. Words such as "believes," "expects," "plans," "estimates," "intends" and variations of such words are intended to identify such forward-looking statements. These statements are not guaranties of future performance and are subject to certain risks, uncertainties or assumptions that are difficult to predict; therefore, the Company cautions shareholders and prospective investors that the following important factors, among others, could cause the Company's actual operating results to differ materially from those expressed in any forward-looking statements. The statements under this caption are intended to serve as cautionary statements within the meaning of the Private Securities Litigation Reform Act of 1995. The following information is not intended to limit in any way the characterization of other statements or information under other captions as cautionary statements for such purpose. The order in which such factors appear below should not be construed to indicate their relative importance or priority. The Company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

• Economic conditions and volatility in the financial markets could adversely affect our operating results and financial condition.

• The Company's ability to meet increased competition from national, regional and local full-service distributors and mail-order distributors of dental, veterinary and rehabilitation and assistive living products, while maintaining current or improved profit margins.

• The ability of the Company to effectuate modifications to the business models of its three operating units to address changes in the individual markets of those business units.

• The ability of the Company to consolidate the distribution, information systems, human resources, financial and other administrative functions of its three business units into jointly shared services which meet the needs of the individual business units.

• The ability of the Company to manage rapidly changing energy and commodity prices.

• The ability of the Company to retain its base of customers and to increase its market share.

• The ability of the Company to maintain satisfactory relationships with qualified and motivated sales personnel.

• The continued ability of the Company to maintain satisfactory relationships with key vendors and the ability of the Company to create relationships with additional manufacturers of quality, innovative products.

• Changes in the economics of dentistry affecting dental practice growth and the demand for dental products, including the ability and willingness of dentists to invest in high-technology diagnostic and therapeutic products.

• Reduced growth in expenditures for dental services by private dental insurance plans.

• The accuracy of the Company's assumptions concerning future per capita expenditures for dental services, including assumptions as to population growth and the demand for preventive dental services such as periodontic, endodontic and orthodontic procedures.

• The rate of growth in demand for infection control products currently used for prevention of the spread of communicable diseases such as AIDS, hepatitis and herpes.

• Changes in the economics of the veterinary supply market, including reduced growth in per capita expenditures for veterinary services and reduced growth in the number of households owning pets.

• The effects of healthcare related legislation and regulation, which may affect expenditures or reimbursements for rehabilitation and assistive products.