OVERVIEW

Our third quarter, fiscal 2013 financial information is summarized in this Management's Discussion and Analysis, and the 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. 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.

One matter that has an overriding impact on our financial results for periods beginning after fiscal 2011 involves the level of expense associated with our Employee Stock Ownership Plan ("ESOP"). For the twenty years up to and including fiscal 2011, allocations of shares to employees participating in the ESOP have been made almost entirely from shares of Company stock acquired by the ESOP in 1990 ("the 1990 Shares"). Although the accounting standards in effect in 1990 were subsequently revised, the accounting for the 1990 shares was grandfathered under the revised standards and called for the expensing of the shares released for allocation to employees to be based on the original cost of the shares.

The revised standards require the expensing of shares released for allocation to be based on fair value of the shares at the time they are committed to be released. The shares acquired by the ESOP since the revision of the accounting standards, totaling approximately 3.6 million shares, will be released in annual amounts as determined by the Board of Directors. In fiscal 2012, we recognized incremental expense related to the ESOP of approximately $23 million over the fiscal 2011 amount. It is anticipated that in fiscal 2013 an amount of expense commensurate with the fiscal 2012 amount will be incurred subject to final approval by the Board of Directors in an action to be taken near the end of the fiscal year. This estimated expense will be recognized equally over the fiscal period. The ESOP expense will generally be a non-cash expense in the period since the shares were purchased in earlier periods.

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                              Nine Months Ended
                                    January 26,             January 28,             January 26,             January 28,
                                        2013                   2012                    2013                    2012
Net sales                                   100.0 %                100.0 %                  100.0 %                100.0 %
Cost of sales                                67.2 %                 67.7 %                   67.6 %                 67.3 %

Gross margin                                 32.8 %                 32.3 %                   32.4 %                 32.7 %
Operating expenses                           23.0 %                 22.3 %                   23.1 %                 22.9 %

Operating income                              9.8 %                 10.0 %                    9.3 %                  9.8 %
Other expense, net                           (0.9 %)                (0.9 %)                  (0.9 %)                (0.7 %)

Income before taxes                           8.9 %                  9.1 %                    8.4 %                  9.1 %

Net income                                    5.9 %                  5.9 %                    5.5 %                  5.8 %

QUARTER ENDED JANUARY 26, 2013 COMPARED TO QUARTER ENDED JANUARY 28, 2012.

Net Sales. Consolidated net sales for the three months ended January 26, 2013 ("Current Quarter") were $915.9 million, a 2.3% increase from $895.0 million for the three months ended January 28, 2012 ("Prior Quarter"). Acquisitions contributed 0.4% to Current Quarter sales growth, and foreign exchange rate changes on net sales had a favorable 0.3% impact in the period. All Patterson segments were affected by two fewer selling days in the current period, due to the fiscal calendar and the timing of holidays. We estimate the impact on the consumable growth was approximately 2% from the reduced number of selling days.

Sales of the Dental segment were $626.5 million, a 3.5% increase from $605.0 from the Prior Quarter. Sales of dental equipment and software rose 9.8% to $254.0, driven by strong performance in the technology categories, particularly digital imaging. Sales of other services and products in the Dental segment rose 2.3% in the Current Quarter. Sales of consumables and printed office products were down on a reported basis 0.9%, due to having two less selling days in the current quarter compared to the prior year. We believe demand for routine dental work is continuing on a consistent basis, although it appears certain discretionary procedures continued to be deferred.

Veterinary segment sales rose 0.4% to $175.4 million despite the change in a nutritional distribution arrangement that reduced sales by 6.6%. The segment previously sold a brand of nutrition under a regional buy-sell arrangement; however, this was changed to a national agency agreement late in the fourth quarter of the preceding fiscal year. This change will affect the comparability of the segment's sales growth for the remainder of the fiscal year. Equipment and software sales in the Veterinary segment declined 15.1% from the year-earlier period to $11.4 million, mainly due to softness in the equipment market. We believe we are strengthening our visibility and position in the United States companion-pet veterinary market.

Rehabilitation segment sales declined 1.2% to $114.0 million, due to a 5.1% decrease in equipment sales. The favorable foreign currency translation rates and the acquisition of Surgical Synergies Pty Ltd. increased segment sales by 2.5%. Sales of consumables increased slightly in the current quarter. We believe that continued uncertainty surrounding the U.S. health care system and the overall economy as well as continued austerity efforts in the United Kingdom are adversely affecting this segment.

Gross Margins. Consolidated gross margin increased 50 basis points from the Prior Quarter to 32.8%. Our Dental and Veterinary segment gross margins increased by 20 and 160 basis points, respectively, while the rehabilitation segment gross margin declined 30 basis points.

The improved gross margin of the Dental segment is mainly due to mix in the CEREC category, requiring less promotional expense to support the products. The improvement in the Veterinary segment is due to the nutrition arrangement changing from buy-sell to an agency commission, which significantly decreased delivery expenses, and an increase in vendor rebates. International channel pressures and sales mix, caused the decline in the Rehabilitation segment gross margin.

Operating Expenses. The consolidated operating expense ratio increased 70 basis points from the Prior Quarter to 23.0%. The softness in sales growth is the primary cause for the increase in the operating expense ratio as the rate of growth of the fixed and semi-variable costs out-paced the sales growth in the period as we continue to invest in people and systems we believe are necessary for the long-term success of the company.

Operating Income. Current Quarter operating income was $89.5 million, or 9.8% of net sales. In the Prior Quarter, operating income was $89.9 million, or 10.0% of net sales. The decrease is due primarily to the loss of operating leverage.

Other (Expense) Income, Net. Net other expense was $7.7 million in the Current Quarter compared to $8.0 million in the Prior Quarter. Net other expense is comprised primarily of interest expense, partly offset by interest income. Interest income of $1.2 million was slightly up from the Prior Quarter. The incremental interest expense on debt issued in the third quarter of the prior year approximated $0.8 million in the Current Quarter.

Income Tax Expense. The effective income tax rate for the Current Quarter was 34.4% as the benefit of the deductibility of the dividends paid to the ESOP increases as the dividend rate increases. The Current Quarter's cash dividend was $0.14 per common share compared to $0.12 in the Prior Quarter. In the Prior Quarter, the tax rate was 35.1%. For the fiscal year, the income tax rate is expected to be in a range from 34.5% to 35.0% as the Company realizes the benefit of dividends on the ESOP shares and tax only additional deductions for its domestic manufacturing operations.

Net Income and Earnings Per Share. Net income increased to $53.6 million, compared to $53.1 in the Prior Quarter. Earnings per diluted share were $0.52 in the Current Quarter compared to $0.50 in the Prior Quarter. Diluted shares outstanding in the Current Quarter were 102,896,000 compared to 107,206,000 in the Prior Quarter. The decrease in the share count is due to share repurchase activity over the past year.

NINE MONTHS ENDED JANUARY 26, 2013 COMPARED TO NINE MONTHS ENDED JANUARY 28,
2012.

Net Sales. Consolidated net sales increased 2.8% for the nine months ended January 26, 2013 ("Current Period") and totaled $2,672.3 million compared to $2,599.3 million for the nine months ended January 28, 2012 ("Prior Period"). Sales included a contribution from acquisitions of 0.6% and a negative impact from foreign currency translation rates of 0.1%.

Dental segment sales of $1,743.0 million were 3.2% higher than the $1,689.0 million in the Prior Period. Currency translation rates and acquisitions had a minimal effect on Current Period sales. Consumable sales increased 0.2% and continue to be affected by a sluggish economy. Dental equipment and software sales grew 8.5% compared to the Prior Period mainly due to strong CEREC sales and the trade-up programs around this product, as well as an increase in sales of digital radiography products. Sales of other services and products in the Dental segment rose 2.3% in the Current Period.

Sales of the Veterinary segment rose 4.5% to $550.9 million in the Current Period despite the change in a nutritional distribution arrangement that reduced sales by 6.5%. The sales growth in the period also includes a 1.1% contribution related to the AVSC acquisition in August of 2012.

In the Current Period, Rehabilitation segment sales of $378.4 million were 1.3% lower than the $383.4 million of sales in the Prior Period. Currency translation rates negatively impacted sales in the Current Period sales by 0.6% and acquisitions added 1.8% to the sales growth.

Gross Margins. Consolidated gross margin decreased 30 basis points from the Prior Period to 32.4% in the Current Period. Dental gross margin decreased 40 basis points due mostly to product mix. Gross margin for the Veterinary segment increased 60 basis points due primarily to the change in the nutritional distribution arrangement. Rehabilitation segment gross margin decreased 20 basis points as a result of product mix.

Operating Expenses. The consolidated operating expense ratio increased 20 basis points from the Prior Period to 23.1%. The Dental segment's operating expense ratio increased 20 basis points. The Rehabilitation operating expenses as a percent of sales were 50 basis points higher in the Current Period, mainly due to the integration and rationalization expense in the Australian operations of the Surgical Synergies acquisition. The Veterinary segment's operating expense ratio increased 40 basis points, mainly due to the reduced revenue from the nutritional agreement change.

Operating Income. Current Period operating income totaled $250.0 million, or 9.3% of sales, compared to Prior Period operating income of $255.2 million, or 9.8% of net sales for the reasons discussed above.

Other (Expense) Income, Net. Net other expense was $25.0 million in the Current Period, $5.6 million higher than the Prior Period. The increase in the net expense is due primarily to $6.9 million of incremental interest expense on newly issued debt in the third quarter of the prior year.

Income Taxes. The effective income tax rate for the Current Period was 34.8% compared to 36.1% in the Prior Period. The tax rate was favorably affected by the portion of our cash dividends paid on allocated shares owned by the ESOP. The Current Period's cash dividend was $0.42 per common share compared to $0.36 in the Prior Quarter.

Net Income and Earnings Per Share. Net income decreased 2.7% to $146.7 million, compared to $150.7 in the Prior Period. Earnings per diluted share were $1.41 in the Current Period compared to $1.34 in the Prior Period. Diluted shares outstanding in the Current Period were 104,374,000 compared to 112,226,000 in the Prior Quarter. The decrease in the share count is due to share repurchase activity.

LIQUIDITY AND CAPITAL RESOURCES

Our cash flows from operations in the nine-months ended January 26, 2013 ("Current Period") were $179.3 million compared to $228.7 million in the nine-months ended January 28, 2012, ("Prior Period") as a result of changes in working capital due primarily to an increase build in inventory and the timing of tax payments.

Net cash used in investing activities of $28.9 million in the Current Period compared to $39.2 million in the prior period. We were completing two larger facility projects in the prior year period. In the current period we expended $14.7 million for acquisitions. We expect to use a total of approximately $25 million for capital expenditures in fiscal 2013.

Cash used in financing activities during the Current Period was $250.0 million, including stock repurchases of $140.5 million, $75 million for the repayment of our term loan and dividend payments of $43.7 million. In the Prior Period, cash used in financing activities was for stock repurchases of $323.5 million and dividends of $39.8 million, offset by the proceeds from the issuance of long-term debt of $325.0 million.

We expect funds generated by operations, existing cash balances and credit availability under existing debt facilities will be sufficient to meet our working capital needs and finance anticipated expansion plans and strategic initiatives over the remainder of fiscal 2013.

As of January 26, 2013, $300 million was available under our $300 million revolving credit facility. Our current credit agreement expires in December 2016.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Revenue Recognition

Revenues are generated from the sale of consumable products, equipment, software products and services, technical service parts and labor, freight and delivery charges, and other sources. Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and there is reasonable assurance of collection of the sale. 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. In addition to revenues generated from the distribution of consumable products under conventional arrangements (buy/sell agreements) where the full market value of the product is recorded as revenue, the veterinary segment may earn a small commission income for services provided under agency agreements with certain pharmaceutical manufacturers. The services generally consist of detailing the product and taking the customer's order. The agency agreement contrasts to a buy/sell agreement in that the veterinary segment does not purchase and handle the product or bill and collect from the customer in an agency relationship with a vendor.

Consumable product sales are recorded upon delivery, except in those circumstances where terms of the sale are FOB shipping point. Commissions under agency agreements are recorded when the services are provided.

Equipment and software product revenues are recognized upon delivery and, if necessary, installation. In those circumstances where terms of the sale are FOB shipping point, revenues are recognized when products are transferred to the shipping carrier. Revenue derived from post contract customer support for software is deferred and recognized ratably over the period in which the support is provided. Patterson provides financing for select equipment and software sales. Revenue is recorded at the present value of the finance contract, with discount, if any, and interest income recognized over the life of the finance contract as interest income. See also Note 5 to the Consolidated Financial Statements, "Customer Financing."

Other revenue, including freight and delivery charges and technical service parts and labor, is recognized when the related product revenue is recognized or when the product or services are provided to the customer.

The receivables that result from the recognition of revenue are reported net of the related allowances discussed above. Patterson maintains 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, 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 non-current.

Patterson has a relatively large disperse customer base and no single customer accounts for more than 1% of consolidated net sales. In addition, the equipment sold to customers under finance contracts generally serves as collateral for the contract and the customer provides a personal guarantee as well.

The Revenue Recognition policy note was updated with added clarifications since the filing of our Form 10-K, but there have been no material changes in our Critical Accounting Policies and Estimates, as disclosed in our 2012 Annual Report on Form 10-K filed June 27, 2012

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

In our Form 10-K for the year ended April 28, 2012, 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.