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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended April 24, 2004

OR

For the transition period from              to             

Commission File No. 0-20572

PATTERSON COMPANIES, INC.

(Exact name of registrant as specified in its charter)

1031 Mendota Heights Road

St. Paul, Minnesota 55120

(Address of principal executive offices including Zip Code)

Registrant’s telephone number, including area code: (651) 686-1600

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

The aggregate market value of voting stock held by nonaffiliates of the registrant as of October 25, 2003, was approximately $2,899,600,000.

As of June 30, 2004, there were 68,551,744 shares of Common Stock of the registrant issued and outstanding.

Documents Incorporated By Reference

Certain portions of the document listed below have been incorporated by reference into the indicated part of this Form 10-K.

Table of Contents

FORM 10-K INDEX

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PART I

1. BUSINESS

Certain information of a non-historical nature contained in Items 1, 2, 3 and 7 of this Form 10-K includes forward-looking statements. Reference is made to Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Factors that May Affect Future Operating Results, for a discussion of certain factors that could cause the Company’s actual operating results to differ materially from those expressed in any forward-looking statements.

General

In June 2004, the Company changed its corporate name to Patterson Companies, Inc. (“Patterson” or the “Company”). Patterson will retain its existing Nasdaq stock symbol. The new corporate name was adopted to reflect Patterson’s expanding base of business, which now encompasses the veterinary and rehabilitative supply markets, as well as its traditional base of operations in the dental supply market. Patterson’s operating units will continue as Patterson Dental Supply, Inc., Webster Veterinary Supply, Inc. and AbilityOne Products Corp.

Patterson Companies, Inc. is a value-added distributor serving three major markets:

Unless otherwise indicated, all references to Patterson or the Company include its subsidiaries: Direct Dental Supply Co., Patterson Dental Canada, Inc., Patterson Dental Supply, Inc., Webster Veterinary Supply, Inc., PDC Funding Company, LLC, Patterson Technology Center, Inc., Colwell Systems, Inc, Webster Management LP, AbilityOne Products Corp., AbilityOne Corporation, Sammons Preston Canada, Inc., AMFAB, Inc., Tumble Forms, Inc., Midland Manufacturing Company, Inc., J.A. Preston Corporation, AbilityOne Homecraft Limited, AbilityOne Limited, AbilityOne Kinetec S. A. and AOC Vertriebs GmbH.

Patterson began distributing dental supplies in 1877. The modern history of the business dates to May 1985, when the Company’s management and certain investors purchased the Company from a subsidiary of The Beatrice Companies, Inc. Patterson became a publicly traded company in October 1992.

The Company historically reported under one operating segment, dental supply. In July 2001, the Company purchased the veterinary supply assets of J. A. Webster, Inc., which became a reportable business segment. Then in September 2003, the Company acquired AbilityOne Products Corp., creating a third business segment for the Company which serves the rehabilitative supply market. The Company’s three reportable segments dental supply, veterinary supply and rehabilitative supply are strategic business units that offer similar products and services to different customer bases.

Dental Supply

Overview

As Patterson’s largest business, Patterson Dental Supply, or “Dental Supply,” is one of the two largest distributors of dental products in North America. The business currently has operations in the United States and Canada. Dental Supply, a full-service, value-added supplier to dentists, dental laboratories, institutions, and other healthcare professionals, provides: consumable products (including x-ray film, restorative materials, hand instruments and sterilization products); advanced technology dental equipment; practice management and clinical software; patient education systems; and office forms and stationery. Patterson Dental Supply offers its customers a broad selection of dental products including more than 85,000 stock keeping units (“SKU’s”) of which approximately 4,000 are private-label products sold under the Patterson name. Dental Supply also offers customers a full range of related services including dental equipment installation, maintenance and repair, dental office design and equipment financing. The Company markets its dental products and services through over 1,350 direct sales representatives, 316 of whom are equipment specialists.

Founded in 1877, Patterson Dental Supply has over 125 years of experience providing quality service to dental professionals. Net sales of this segment have increased from $165.8 million in fiscal 1986 to $1,616.3 million in fiscal 2004, operating margins have increased every year since fiscal 1985 and profitability has increased from an operating loss in fiscal 1986 to operating income of $197.4 million in fiscal 2004.

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Patterson estimates the dental supply market it serves to be approximately $5.2 billion annually. Patterson also believes that its share of this market is approximately 30%. The underlying structure of the dental supply market consists of a sizeable geographically dispersed number of fragmented dental practices that is attractive for the Company’s role as a value-added, full-service distributor. According to the American Dental Association, there are over 156,000 dentists practicing in the United States in approximately 120,000 dental practices, representing a fragmented, geographically diverse market. There are approximately 17,000 licensed dentists in Canada according to the Canadian Dental Association. The average general practitioner generated approximately $500,000 in annual revenue in 2000, while the average specialty practitioner produced about $680,000. The Company believes that a dentist uses between 5% and 7% of annual revenue to purchase consumable supplies used in the daily operations of the practice. This translates into between $25,000 and $35,000 of supplies being purchased by the average practice each year. The Company believes the average dental practitioner purchases about 40% of their supplies from their top supplier.

Total expenditures for dental services in the United States increased from $31 billion in 1990 to $74 billion in 2003. Domestic dental care expenditures are projected by the Centers for Medicare & Medicaid Services to grow 6% annually, reaching $110 billion by the year 2010. The Company believes that the demand for dental services, equipment and supplies will continue to be influenced by the following factors:

Strategy

Patterson’s objective is to remain a leading national distributor of supplies, equipment and related services in the market while continuing to improve its profitability and enhance its value to customers. To achieve this objective, Patterson has adopted a strategy of emphasizing its value-added, full-service capabilities, using technology to enhance customer service, continuing to improve operating efficiencies, and growing through internal expansion and acquisitions.

Emphasizing Value-Added, Full-Service Capabilities. The Company believes that its customers value full service and responsive delivery of quality supplies and equipment, in addition to competitive prices. Customers also increasingly expect suppliers to be knowledgeable about products and services, and generally a superior sales representative can create a special relationship with the practitioner by providing an education link to the overall industry. The Company’s knowledgeable sales representatives assist customers in the selection and purchase of supplies. In addition, the high quality sales force allows Patterson to offer broader product lines. Most dentists are independent, sole practitioners who are unable to store and manage large volumes of supplies in their offices. Patterson meets its customer’s requirements by delivering frequent, small quantity orders rapidly and reliably from its strategically located distribution centers. Equipment specialists, technology representatives, and service technicians also support the Company’s value-added strategy in the

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dental supply market. Equipment specialists offer consultation on office design, equipment requirements and financing. Technology representatives provide guidance on integrating technology solutions including practice management and clinical software, digital radiography, custom hardware and networking into the dental practice. The Company’s trained service technicians perform equipment installation, maintenance and repair services including product not purchased through Patterson.

Using Technology to Enhance Customer Service. As part of its commitment to providing superior customer service, the Company offers its customers easy order placement. The Company has offered electronic ordering capability to its dental supply segment since 1987 when it first introduced Remote Order Entry (REMO^SM). The Company believes that its computerized order entry systems help to establish relationships with new customers and increase loyalty among existing customers. The remote order entry systems permit customers to place orders from their offices directly to Patterson 24 hours a day, seven days a week. Over the years, the Company has continued to introduce new order entry systems designed to meet the varying needs of its customers. Today the Company offers four systems to the dental supply segment, eMAGINE^®, REMO^SM, PDXpress^® and pattersondental.com. Customers as well as the Company’s sales force use these systems. Over the years, the number of orders transmitted electronically has grown steadily to approximately 55% of Patterson’s consumable dental product volume or $483.7 million in fiscal year 2004.

In fiscal 2002, the Company introduced its newest order entry system, eMAGINE^®. eMAGINE^® has become the standard platform for the sales representative and includes many new features and upgrades including: up to three years of order history for the customer’s reference, faster searches for products and reports, order tracking, instant information on monthly product specials, descriptions and photographs of popular products and an electronic custom catalog, including a printable version with scanable bar codes.

For those dental customers not using eMAGINE^®, the Company offers two alternative order entry products. REMO^SM gives customers direct and immediate ordering access through a personal computer to a database containing Patterson’s complete inventory. PDXpress^® is a handheld order entry system that eliminates handwritten order forms by permitting a user to scan a product bar code from an inventory tag system or from Patterson’s bar-coded catalog. These systems, including eMAGINE^®, are provided at no additional charge to customers who maintain certain minimum purchase requirements.

The goal of the Company’s Internet strategy is to distribute information and service related products over the Internet to enhance customers’ practices and to increase sales force productivity. The Company’s Internet environment includes order entry, access to “Patterson Today” articles and manufacturers’ product information. Additionally, Patterson utilizes a tool, InfoSource, to provide real time customer and Company information to the Company’s sales force, managers and vendors via the Internet.

In addition to enhancing customer service, by offering its electronic order entry systems to customers, the Company enables its sales representatives to spend more time with existing customers and to call on additional customers.

The Company’s propriety practice management and clinical software, EagleSoft^®, is developed and maintained by the Patterson Technology Center, which the Company believes is unique among dental distribution companies. Software and digital radiography customers also have access to the support capabilities of the Patterson Technology Center. In addition to troubleshooting problems through its customer call center, the Patterson Technology Center designs and configures local area networks and assembles custom hardware. The Patterson Technology Center also develops and supports the Company’s order entry systems.

Continuing to Improve Operating Efficiencies. Patterson continues to implement programs designed to improve operating efficiencies and allow for continued sales growth over time. These programs include a wide variety of initiatives from investing in management information systems to consolidating distribution centers. Recent initiatives include deploying InfoSource, upgrading the Company’s communications architecture, and implementing a new technical service system. In fiscal 2001, the Company launched its new InfoSource program, a web-based system that disseminates key sales information, customer purchasing trends and other administrative reports to the Company’s dental sales force and branch managers. InfoSource allows dental sales representatives to more effectively and efficiently market the Company’s broad product line while enabling branch managers to increase their productivity. The Company has also improved operating efficiencies by converting its communications architecture to faster, higher capacity data lines that combine voice and data transmissions while reducing overall communication costs. During fiscal 2003, the Company began implementing a new field service management tool for its technical service operations. This new tool will allow the Company to fundamentally change its technical service business processes, improving the Company’s ability to coordinate the actions of its service technicians and enhancing customer service while reducing the overall cost of operations. The Company is also in the process of developing a new equipment proposal system for its sales representatives. The system has the look and feel of the Company’s eMAGINE^® product and will automate the equipment proposal and ordering process. Consequently, the Company expects to continue to improve its operating leverage and efficiencies going forward.

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Growing Through Internal Expansion and Acquisitions. The Company intends to continue to grow by opening additional sales offices, hiring established sales representatives, hiring and training college graduates as territory sales representatives, and acquiring other distributors in order to enter new markets and expand its customer base. The Company believes that it is well positioned to take advantage of expected continued consolidation in the dental distribution market. Over the past 16 years the Company has made the following acquisitions:

Dental distribution acquisitions in the United States

Dental distribution acquisitions in Canada

Printed office products acquisitions

Software acquisitions

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Products and Services

The following table sets forth the sales by principal categories of products and services offered to dental supply customers:

Consumable and Printed Products

Dental Supplies. Patterson offers a broad product line of consumable dental supplies such as x-ray film and solutions; impression materials; restorative materials (composites and alloys); hand instruments; sterilization products; anesthetics; infection control products such as protective clothing, gloves and facemasks; paper, cotton and other disposable products; toothbrushes and a full line of dental accessories including instruments, burs, and diamonds. Patterson markets its own private label line of dental supplies including anesthetics, instruments, preventive and restorative products, and cotton and paper products. Compared to most name brand supplies, the private label line provides lower prices for the Company’s customers and higher margins for the Company.

Printed Products. Patterson Dental Supply provides a variety of printed products, office filing supplies, and practice management systems to office-based healthcare providers including dental and medical offices. Products include custom printed products, insurance and billing forms, stationery, envelopes and business cards, labels, file folders, appointment books and other stock office supply products. Products are sold through two channels:

Both channels are supported by a staff of telemarketing personnel located in Champaign, Illinois. Orders are received by telephone, through the mail or electronically from the dental distribution order processing system.

Equipment and Software

Dental Equipment. Patterson Dental Supply is the largest supplier of dental equipment in the U.S. and Canada by a factor of more than two times when compared to its next largest competitor. It offers a wide range of dental equipment products including x-ray machines, high-and low-speed handpieces, dental chairs, dental handpiece control units, diagnostic equipment, sterilizers, dental lights and compressors. The Company also distributes newer technology equipment that provides customers with the tools to improve productivity and patient satisfaction. Examples of such innovative and high-productivity products include the CEREC^® product family, a chair-side restoration system; air abrasion systems; digital x-rays; and inter-oral cameras.

Software. Patterson develops and markets practice management and clinical software for dental professionals. Products include software for scheduling, billing, charting and storage/retrieval of digital images. The Company also sells software products developed by third parties including Sidexis by Sirona, Dimax2 by Planmeca and VixWin by Gendex. These value-added products are designed to help achieve office productivity improvements, which translates into higher profitability for the customer.

Hardware. In fiscal 2003, Patterson Dental Supply began to offer custom hardware and networking solutions required for integrating the entire dental office. By January 2003, this new product offering was available to all of the Company’s dental customers. This initiative marks another step in Patterson’s overall strategy of providing customers with the convenience and cost-effectiveness of a virtually complete range of products and value-added services and is the newest component of Patterson’s single-source solution for dental offices.

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Patient Education Services. With the acquisition of CAESY Education Systems, Inc., Patterson Dental Supply expanded it’s offering of value-added services to include patient education services. These communications tools are designed to influence patient decisions about services in an efficient, cost-effective manner.

Other

Software Services. The Company offers a variety of services to complement its software products such as service agreements, electronic claims processing and billing statement processing. These services provide value to customers by allowing them to keep products current state, or receive payments more rapidly while obtaining greater productivity.

Equipment Installation, Repair and Maintenance. To keep their practices running efficiently, dentists require reliable performance from their equipment. All major equipment sold by Patterson includes installation and Patterson’s 90-day labor warranty at no additional charge. Patterson also provides complete repair and maintenance services for all dental equipment, whether or not purchased from Patterson, including 24-hour handpiece repair service. In addition to service technicians who provide installation and repair services on basic dental equipment, the Company also invested in personnel who specialize in installing and troubleshooting issues with technology solutions such as practice management software, digital imaging products, hardware and networking. The goal of this group, which is comprised of both local service technicians and the Patterson Technology Center, is to help customers integrate newer technology into their dental practice. The Patterson Technology Center helps the customer minimize costly downtime by offering a single point of contact for post-sale technology related issues.

Dental Office Design. Patterson provides dental office layout and design services through the use of a computer-aided design (CAD) program. Equipment specialists can create original or revised dental office designs in a fraction of the time required to produce conventional drawings. Customers purchasing major equipment items receive dental office design services at no additional charge.

Equipment Financing. Patterson Dental Supply provides a variety of options to fulfill its customers’ financing needs. For qualified purchasers of equipment, the Company will arrange financing for the customer through Patterson or a third party. For non-equipment related needs, customers are referred to one of the third party organizations. These alternatives allow the Company to offer its customers convenience while still meeting their diverse financing needs. In fiscal 2004, the Company originated over $239.2 million of equipment finance contracts. The Company, or one of its vendor partners, financed approximately 40% of the equipment purchased by customers during fiscal 2004.

Since November 1998, Patterson has also maintained one or more finance referral agreements with an outside finance company to provide a more extensive selection of finance opportunities to its customers. This might include financing for practice transitions, working capital, leasing, real estate and long-term capital. Currently this service is provided by HPSC Inc. There are no recourse provisions under this agreement. Patterson receives referral fees under this agreement and HPSC Inc. extends credit and services the accounts.

To meet the needs of its customers, Patterson also initiates installment sale contracts that can be sold to either a commercial paper conduit managed by BankOne, N.A., or a group of banks led by U.S. Bank National Association.

Patterson created a special purpose entity (“SPE”), PDC Funding Company, LLC, a wholly-owned and fully consolidated subsidiary, and entered into a Receivables Purchase Agreement in order to participate in the commercial paper conduit. The Company transfers installment sale contracts to the SPE. In turn, the SPE sells the contracts to the commercial paper conduit. This agreement was renewed in April 2004, with a current limit of $250 million of contract purchases. There is no recourse to the Company for contracts purchased by the commercial paper conduit but there is a holdback equal to 10% of the contracts.

The group of banks, led by U.S. Bank, can also purchase the Company’s installment sale contracts that are secured by dental equipment, on a limited recourse basis. The contract purchase agreement with the banks allowed for a maximum capacity of $70 million. In May 2004, the Company extended its agreement with the banks, which now provides for sales of installment contracts up to $90 million.

Patterson services the customer contracts under both of the preceding arrangements for which it receives a fee.

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Sales and Marketing

During fiscal 2004, Patterson Dental Supply sold products or services to over 116,000 customers in the U.S. and Canada who made one or more purchases during the year. Patterson Dental Supply’s customers include dentists, laboratories, institutions and other healthcare professionals. No single customer accounted for more than 1% of sales during fiscal 2004, and Patterson is not dependent on any single customer or geographic group of customers. The Company’s sales and marketing efforts are designed to establish and improve customer relationships through personal interaction with its sales representatives and frequent direct marketing contact, which underscores the Company’s value-added approach.

A primary component of Patterson’s value-added approach is its sales force. Due to the fragmented nature of the dental supply market, Patterson believes that a large sales force is necessary to reach potential customers and to provide full service. Sales representatives provide an education link to the overall industry; assist practitioners in selecting and purchasing products and help customers efficiently manage their supply inventories. Each representative works within an assigned sales territory under the supervision of a location (branch) manager. Sales representatives are all Patterson employees and are generally compensated on a commission basis, with some, less experienced, representatives receiving a base salary and commission.

To assist its sales representatives, Patterson Dental Supply publishes a variety of catalogs and fliers containing product and service information. Dental customers receive a full-line product catalog containing over 24,000 inventoried items. The catalog includes pictures of products, detailed descriptions and specifications of products and is utilized by practitioners as a reference source. Selected consumable supplies, new products, specially priced items and high-demand items such as infection control products are promoted through merchandise fliers printed and distributed bimonthly to the dental supply market. In addition, dental equipment sold by Patterson is featured in the Patterson’s tri-yearly publication, Patterson Today, which also includes articles on dental office design, trends in dental practice, products and services offered by Patterson and information on equipment maintenance.

To enhance the total value it brings to its customers, Patterson Dental Supply created a value-added benefit program for its preferred customers. The Patterson Plus^SM program entitles its best dental customers to priority technical services, automated supply management systems at no charge, a variety of product discounts and reduced rates on financial products, practice management software and technical services.

Distribution

Patterson Dental Supply believes that responsive delivery of quality supplies and equipment is a key element to providing complete customer satisfaction.

Patterson ships dental consumable supplies from 10 strategically located distribution centers in the U.S. and Canada. Orders for consumable dental supplies can be placed by telephone or electronically 24 hours a day, seven days a week. Printed office products are shipped from the Company’s two manufacturing facilities in Illinois.

All orders are routed through Patterson’s centralized computer ordering, shipping and inventory management systems, which are linked to each of the Company’s strategically located distribution centers. If an item is not available in the distribution center nearest to the customer, the computer system automatically directs shipment of the item from another center. Rapid and accurate order fulfillment is another principal component of the Company’s value-added approach. Patterson Dental Supply estimates that 99% of its consumable goods orders are shipped to the customer on time, which is generally within 24 hours.

In order to assure the availability of Patterson Dental Supply’s broad product lines for prompt delivery to customers, Patterson must maintain sufficient inventories at its distribution centers. Purchasing of consumables and standard equipment is centralized and the purchasing department uses a real-time perpetual inventory system to manage inventory levels. The Company’s inventory consists mostly of consumable supply items. By utilizing its computerized inventory management and ordering systems, the Company is able to accurately predict inventory turns in order to minimize inventory levels for each item.

Patterson Dental Supply’s 96 dental sales offices are generally configured with display areas where the latest dental equipment can be demonstrated. Dental equipment inventory is generally custom ordered and is staged at the Company’s sales offices before delivery to dental offices for installation.

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Sources of Supply

Effective purchasing is a key strategy the Company has adopted in order to achieve its objective of continuing to improve profitability. The Company has a program to effectuate electronic data interchange (EDI) with its major vendor partners. In fiscal 2004, the Company processed 68% of its dental vendor invoices using EDI capabilities. In addition, 51% of Patterson’s dental purchase order volume was conducted employing EDI, which represented 71% of dental purchase order dollars placed during the fiscal year. Utilizing EDI allows the Company to improve efficiencies and reduce administrative costs.

Patterson Dental Supply obtains products from approximately 1,100 vendors in the dental segment. Patterson has exclusive distribution agreements with several quality dental equipment manufacturers including Sirona Dental Systems GmbH for the CEREC^®, and Schick Technologies, Inc. for digital x-rays. The Company is the only national dealer for A-dec equipment, including chairs, units and cabinetry. A-dec is the largest manufacturer of dental equipment in the U.S.

While the Company makes purchases from many suppliers and there is generally more than one source of supply for most of the categories of products sold by the Company, the concentration of business with key suppliers is considerable. In fiscal 2004, the Company’s top 10 dental supply vendors and single largest vendor accounted for approximately 51% and 11%, respectively, of the cost of dental products sold.

Competition

The highly competitive U.S. dental products distribution industry consists principally of national, regional and local full-service distributors and mail-order distributors. The dental supply market is extremely fragmented. In addition to Patterson and one other national, full-service firm, Sullivan-Schein Dental, a unit of Henry Schein, Inc., there are at least 19 full-service distributors that operate on a regional level, and hundreds of small local distributors. Also, some manufacturers sell directly to end-users.

The Company approaches its markets by emphasizing and delivering a value-added model to the practitioner. To differentiate itself from its competition it deploys a strategy of premium customer service, a highly qualified and motivated sales force, experienced service technicians, an extensive breadth and mix of products and services, accurate and timely delivery of product, strategic location of sales offices and distribution centers, and competitive pricing.

The Company also experiences competition in Canada in the dental supply market. Principal competitors include two national, full-service dental distributors, Ash Temple Limited and Arcona, a unit of Henry Schein, Inc. The Company believes it competes in Canada on essentially the same basis as in the United States.

Veterinary Supply

Overview

Webster Veterinary Supply, Inc., or “Webster,” is the leading distributor of veterinary supplies to companion-pet (dogs, cats and other common household pets) veterinary clinics in the eastern United States and the second largest nationally. Webster provides products used for the treatment and/or prevention of diseases in companion pets and, to a lesser extent, equine animals. Founded in 1946 and headquartered in Sterling, Massachusetts, Webster has developed a strong regional brand identity as a value-added, full-service distributor of a virtually complete range of consumable supplies, equipment, diagnostic supplies, biologicals (vaccines) and pharmaceuticals. Webster does not distribute pet foods. Webster’s product offering, totaling more than 10,000 items, is sold by nearly 135 field sales representatives. In addition to its core business of distributing veterinary products, Webster has a significant agency commission business with a few large pharmaceutical manufacturers. Under the agency relationships, Webster typically earns a commission for soliciting orders through its sales force. In the agency relationship, Webster processes the order to the manufacturer but handles none of the product nor does Webster bill and collect from the customer. The agency commissions that Webster earns range from 4% to 10%, a portion of which is shared with the direct sales personnel. Webster’s agency commissions accounted for approximately 2% of net sales in fiscal 2004. Net sales by this segment in fiscal 2004 were $210.7 million. Operating income totaled $15.6 million.

The Company estimates the market for pharmaceuticals and supplies sold to companion pet veterinarians through distribution is approximately $2.5 billion on an annual basis. Based upon the estimated $2.5 billion market, the Company believes its share of this market is approximately 12% after annualizing the impact of a recent acquisition. Similar to the dental supply market, the veterinary supply market is fragmented and geographically diverse. There are approximately 61,000 veterinarians practicing at 21,000 animal health clinics. The vast majority, approximately 65% of veterinarians, work in private animal health clinics specializing in small animals, predominately companion pets. The average private veterinary practice generates approximately $677,000 of annual revenue. These practices purchase between $80,000 and $120,000 of supplies each year but similar to the dental practitioner veterinarians do

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not maintain a large supply of inventory on hand. The typical veterinary practice purchases approximately 80% of its supplies from its top two suppliers. The average purchase of consumables by the veterinary practice is noticeably higher than that of the dental practitioner due predominately to pharmaceutical products which are administered and dispensed by veterinarians.

According to a market study prepared by KPMG LLP for three veterinary professional organizations in 1999, the demand for veterinary services has grown significantly faster than growth in the overall economy. Total expenditures for veterinary services in the United States grew at an inflation adjusted real annual rate of 7.2% from 1980 through 1997, and are projected to grow 5% on a real basis annually, through the year 2015. The companion pet segment is the fastest growing area of the overall U.S. veterinary supply market. The Company believes this growth is sustainable due to the following favorable factors:

Strategy

Webster’s objective is to build a leading national position in the companion pet veterinary market through internal expansion and acquisitions, while continuing to improve its profitability and enhance its value to customers. It’s key strategies and priorities for accomplishing this are to open new geographic markets, make acquisitions that expand market share, emphasize value-added capabilities, consistently improve operating efficiencies and broaden the product offering.

Growing Through Internal Expansion and Acquisitions. During the first quarter of fiscal year 2004, Webster expanded into two new geographic territories, Washington state and Ohio. This internal expansion was accomplished through the hiring of experienced sales representatives with established customer relationships and the stocking of veterinary supplies in a dedicated area of the Patterson Dental Supply warehouse located Kent, WA. Customers in the Ohio market were served by existing Webster distribution centers.

In April 2004, Webster acquired the assets of ProVet, which was the companion pet veterinary supply division of Lextron, Inc. ProVet was a leading value-added distributor with locations in Indianapolis, Kansas City, Houston, Denver and Seattle. With an estimated sales contribution of $50 to $60 million, management believes this acquisition made Webster the second largest distributor of companion-pet veterinary supplies in the U.S. This acquisition added 44 sales representative territories expanding Webster’s geographic coverage to include the states of Indiana, Illinois, Missouri, Kansas, Okalahoma, Colorado, Nevada, Idaho and Oregon. In addition, the acquisition increased market coverage in Washington state and Texas where Webster already had a presence.

Emphasizing Value-Added, Full-Service Capabilities. Webster believes that veterinary customers value full service and responsive delivery of product, in addition to competitive prices. Customers also increasingly expect suppliers to be knowledgeable about products and services, and generally a superior sales representative can create a special relationship with the practitioner by providing an education link to the overall industry. Webster’s knowledgeable sales representatives assist customers in the selection and purchasing of supplies. Most veterinarians are independent, sole practitioners who are unable to store and manage large volumes of supplies in their offices. Webster meets its customer’s requirements by delivering frequent, small quantity orders rapidly and reliably from its strategically located distribution centers.

Continuing to Improve Operating Efficiencies. Webster continuously pursues opportunities to lower costs and improve efficiencies. This is being done through the sharing of distribution capacity with all three business segments and the integration of new and proven systems that improve service levels and can be shared with multiple business segments. A new corporate level officer position has been created in order to identify, implement and manage shared services strategies across all business segments. This process started when the Company created a veterinary version of the eMAGINE^® electronic order entry system and began to distribute veterinary products from the Kent, WA dental distribution center. This strategy is being pursued further as distribution centers currently under construction, or being planned, will include capacity for distributing dental as well as veterinary or rehabilitative

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products. In addition, a new customer service system is being deployed that can be used by multiple business segments but will maintain the same look and feel of the eMAGINE^® system. The new system provides customer support staff with integrated customer information on one screen and is being initially utilized by the veterinary segment.

Broaden the product line. Webster continuously seeks to broaden its portfolio of product offerings to maximize the opportunities within its existing customer base. For example, in fiscal 2004, Webster acquired over 600 products such as the Oravet™ veterinary dental healthcare system, Verruca-Freeze cryosurgical system, injectible Metacam^® pain reliever and A-Cell wound care system. Webster also strives to consistently introduce innovative products. In fiscal 2004, Webster embarked on a private label initiative to supply veterinary customers with quality consumable goods (exam gloves, sutures, surgical blades, microscope slides and various white goods) at value prices. Management believes that product innovation allows Webster to maintain its competitive position and helps fuel internal growth. Management also believes that its emphasis on new product offerings enables its sales force to remain effective in creating demand among veterinarians.

Products and Services

The following table sets forth the sales by principal categories of products and services offered to veterinary supply customers:

Consumable and Printed Products

Webster offers its customers a broad selection of veterinary supply products including consumable supplies, pharmaceuticals, diagnostics, and biologicals. Consumable supplies distributed by Webster include lab supplies, various types and sizes of paper goods, needles and syringes, gauze and wound dressings, sutures, latex gloves, orthopedic and casting products. Webster’s pharmaceutical products include anesthetics, antibiotics, injectibles, ointments and neutraceuticals. The diagnostics product category includes on-site testing products for heartworm, FIV, FELV and Parvo virus. Biological products are comprised of vaccines and injectibles. The office supply products sold to the dental supply market are also offered to the veterinary supply market.

Equipment

Equipment sold by Webster generally consists of machines for hospital, laboratory and general surgical use within the veterinary practice. Equipment sales accounted for about 4% of veterinary segment sales in fiscal 2004. Webster offers innovative, quality equipment that differentiates Webster from the competition. New equipment offerings in fiscal 2004 included the AVID Microchip (a global leader in microchip identification for pets), Tonovet^® tonometer, iMarc engraving system and Accuvet™ CO₂ surgical laser. About 50% of veterinary equipment orders are drop shipped directly to the customer, of which 15% are custom ordered from the manufacturer. The balance of veterinary equipment is distributed in a fashion similar to consumable supplies.

Other

Other products and services include commissions on agency sales, finance charges on customer accounts and freight recovery on shipments to customers.

Sales and Marketing

A primary component of Webster’s value-added approach is its sales force. Due to the fragmented nature of the veterinary supply market, Webster believes that a large sales force is necessary to reach potential customers and to provide full service. Sales representatives provide an education link to the overall industry; assist practitioners in selecting and purchasing products, and help customers efficiently manage their supply inventories. Each representative works within an assigned sales territory under the supervision of a location (branch) manager. Sales representatives are employees and are generally compensated on a commission basis, with some, less experienced, representatives receiving a base salary and commission.

To assist its sales representatives, Webster publishes a catalog, which contains approximately 10,000 SKU’s. This catalog includes detailed descriptions and specifications of products and is utilized by practitioners as a reference source. Selected consumable supplies, new products, specially priced items and high-demand items are promoted through merchandise fliers printed and distributed monthly.

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To enhance the total value it brings to its customers, Webster created a value-added benefit program for its preferred customers. The Webstar Plus program entitles its best customers to an assortment of benefits such as reduced finance rates and deferred billing terms for equipment purchases, in-depth business reports and product discounts.

Distribution

At April 24, 2004, the decentralized distribution network in the veterinary supply segment consisted of 12 distribution centers. The distribution network is complemented by telesales representatives who are responsible for processing approximately 70% of customer orders in this segment. In order to meet the rapid delivery requirements of customers, most consumable products are delivered within 24 hours. Webster estimates that approximately 98% of its consumable orders are delivered to the customer on time. During fiscal year 2004, Webster was successful in leveraging the existing national distribution network in dental supply to implement its growth strategy in the veterinary supply market. Webster internally expanded into two new geographic markets without significant investments in physical infrastructure. In the future, Management expects additional distribution facilities to be shared by multiple business segments.

Sources of Supply

Webster obtains products from approximately 429 vendors.

While Webster makes purchases from many suppliers and there is generally more than one source of supply for most of the categories of products, the concentration of business with key suppliers is considerable. In fiscal 2004, Webster’s top 10 veterinary supply manufacturers and single largest supplier comprised 76% and 22%, respectively, of the cost of veterinary supply sales.

Competition

Within the “companion pet” market segment, competitors range from small local distributors to large national and regional full-service companies, and to a lesser extent, mail order distributors or buying groups. Webster also competes directly with pharmaceutical companies who sell certain products directly to the customer.

The Company approaches its markets by emphasizing and delivering a value-added model to the practitioner. To differentiate itself from its competition it deploys a strategy of premium customer service, a highly qualified and motivated sales force, an extensive breadth and mix of products and services, accurate and timely delivery of product, strategic location of sales offices and competitive pricing.

Rehabilitative Supply

Overview

AbilityOne Products Corp. (“AbilityOne”), headquartered in Bolingbrook, Illinois, is the world’s leading distributor of rehabilitative medical supplies and non-wheelchair assistive products. AbilityOne believes it offers the most comprehensive range of distributed and self-manufactured rehabilitative products to health care professionals globally. Its mission is to provide health care professionals and their patients with access to products that improve peoples’ lives by helping them to attain their highest achievable level of independence, safety and comfort.

AbilityOne serves as the gateway through which over 15,000 rehabilitation products originating from more than 1,500 suppliers and manufacturers are sold to a diverse customer base with an emphasis on physical therapists (“PTs”) and occupational therapists (“OTs”). It offers its customers a “one-stop shop” through what it believes to be the most comprehensive catalog in the industry; the largest direct sales force and the category’s most efficient customer service and distribution operations. Major channels of distribution are acute care hospitals, long-term care facilities, rehabilitation clinics, dealers and schools. In addition, Patterson believes AbilityOne’s reputation, global market presence and highly transferable business model will facilitate entry into new markets.

AbilityOne offers a wide range of differentiated, non-invasive products and expertise to users and their health care providers, while focusing on niches, worldwide, where its capabilities, reputation and customer partnerships can result in a competitive advantage. Its goal is to become its customers’ first choice for rehabilitative medical supplies and assistive products in each of its chosen markets.

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AbilityOne is highly diversified with no single product, customer or purchasing group representing a significant percentage of total revenue. In addition, given the relatively small average and median order size (approximately $225 and $70, respectively), AbilityOne’s products often do not represent a major expense category for its customers.

In March 2002, AbilityOne completed the acquisition of the Smith & Nephew Rehabilitation (“SNR”) division of Smith & Nephew plc, and in doing so, acquired the Rolyan, Homecraft and Kinetec brand names. The SNR acquisition added 3,500 additional products, as well as a broad array of other brand names and proprietary products. The acquisition of SNR combined the two leading distributors of rehabilitative medical supplies to create what Patterson believes is the only “one-stop shop” in the industry. AbilityOne manufactures or has exclusively manufactured for it products representing approximately 30% of its total revenue and purchases products representing the remaining 70%. Approximately 80% of its revenue is in North America.

AbilityOne believes the rehabilitative medical supplies and assistive products industry is approximately $3.6 billion in the U.S. and $5.0 billion worldwide and is expected to grow 6% to 8% over the next several years. Industry growth is driven by strong growth in the physical and occupational therapy markets and favorable demographic trends associated with the aging of the baby-boom generation. AbilityOne does not compete in wheelchairs, a market estimated to be approximately $900 million in the U.S. ($1.3 billion worldwide). Therefore, AbilityOne’s addressable market (defined as the collective market for products sold by AbilityOne) is approximately $2.7 billion in the U.S. and $3.7 billion worldwide. AbilityOne believes that it has an industry leading market share of approximately 5% in a highly fragmented rehabilitation and assistive products market.

AbilityOne believes that the demand for rehabilitative products will continue to be influenced by the following factors:

According to the U.S. Census Bureau, the 65 or older population will double in the U.S. by 2030 to approximately 70 million, or one in every five Americans. Beginning in 2010, when the first of the baby boomers turns 65, through 2030, the number of people in the 65 and over age group should grow at nearly four times the rate of the overall population. During 1990 through 2010, the compounded annual growth rate of the elderly population should grow at 2.5 times the rate of the general population. Current trends indicate that this age group represents the majority of home and community-based health care patients. Similarly, the U.S. Census data predicts a doubling in the over 85 year-old population from 2000 to 2030.

The aging of the population is a revenue growth driver because approximately 10% of people over the age of 65 and approximately 50% of people over the age of 85 need assistance with everyday activities. AbilityOne believes it is well positioned to benefit from this trend by providing aids to daily living, namely dressing devices; toileting, dining, bathing aids; and grooming devices, all of which promote greater patient independence, improved patient responsibility and improved responsiveness to treatment.

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International Operations

AbilityOne’s international operations are based in the U.K. and made up of two divisions: Homecraft in the U.K. and Kinetec in France. The international operations broadly reflect the same business model as used in the North American market. In the United Kingdom, Homecraft operations include sales and marketing, customer service, distribution, purchasing and administration. In France, Kinetec is a self-contained manufacturing unit with limited sales and marketing, distribution, administration and purchasing.

Homecraft is a leading supplier of Aids to Daily Living (“ADL”) and rehabilitative products in the United Kingdom, and a significant player in the international markets. Having developed and designed many proprietary products, Homecraft is the prime source for numerous established and market leading ADL brands, including products sold under the Sammons Preston Rolyan brand. The Homecraft catalog offers a broad line of ADL, therapy, rehabilitative and pediatric products containing over 8,000 items. Their catalog is circulated to PT’s, OT’s, loan equipment stores and private clinics, trade outlets and the general public.

Homecraft’s central sales and marketing strategy is to provide a “one-stop shop” proposition to hospitals, local government and trade customers throughout the United Kingdom. Customers are reached through a combination of mail order, a 12 person sales force, telemarketing and in-market promotional and exhibition activity.

Kinetec consists of two operations, the manufacture and distribution of CPM’s on a worldwide basis and the sale and distribution of Sammons Preston Rolyan and Homecraft products in France. Products are marketed to customers through product brochures, mailings, tele-marketing and a 6 person sales force that covers the French rehabilitative market.

Strategy

AbilityOne’s objective is to be the customers’ first choice for rehabilitative medical supplies and non-wheelchair assistive products in each of its chosen markets. It intends to grow through internal expansion and acquisitions in both rehabilitative and related products.

Emphasizing Value-Added, Full-Service Capabilities. AbilityOne currently offers its customers a “one-stop shop” for products through its industry-leading catalog with over 15,000 items, focused primarily on physical and occupational therapy products. AbilityOne adds new products each year to its ever-expanding catalog and is committed to doing so long-term. Consistent with AbilityOne’s current product offering, some of these new products are branded, exclusive or self-manufactured.

AbilityOne recognizes that different customer groups have very different economic, product, distribution channel requirements and treatment goals. AbilityOne proactively attempts to anticipate and flexibly respond to the diverse needs of its customers, while focusing on niches, worldwide, where its capabilities, reputation and customer partnerships can result in a competitive advantage. As such, AbilityOne foresees an on-going evolution of its product offerings to meet the ever-increasing demands of its diverse customer segments.

Continuing to Improve Operating Efficiencies. AbilityOne’s existing infrastructure is scaleable without significant investment requirements for the next few years. This allows AbilityOne to enjoy bottom-line growth in excess of top-line metrics. Additionally, AbilityOne’s proprietary products, which consist of self-manufactured products, products manufactured for AbilityOne and products sold through exclusive distribution arrangements, represent approximately 30% of total revenues. These items help to provide AbilityOne with a comprehensive range of rehabilitative medical supplies. AbilityOne believes that its performance culture, oriented toward continuous improvement and “best practices”, will contribute to the achievement of greater productivity and operating income gains.

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Growing Through Internal Expansion and Acquisitions. AbilityOne believes it is well positioned to continue to expand in its core markets. AbilityOne’s market presence, clinical understanding and close customer relationships allow AbilityOne to anticipate and flexibly respond to the diverse needs of its customers. AbilityOne believes its market knowledge, strong vendor relationships and manufacturing capabilities will continue to drive the delivery of value-added solutions through the continual enrichment of its product mix. Additionally, AbilityOne believes its broad portfolio of national accounts and commitment to expand its sales force will enhance AbilityOne’s growth and penetration within its current and new customer base.

In connection with the SNR transaction, AbilityOne acquired the principal aids to daily living distributor in the UK, Homecraft. AbilityOne is leveraging this platform to accelerate international expansion, in terms of both product lines and geographic regions. Since the SNR transaction, AbilityOne has added over 300 pages of new products to the Homecraft catalog. Homecraft and Kinetec brought with them a proven capability to re-source products at very favorable costs and at high levels of quality from China, which has resulted in meaningful cost savings. AbilityOne’s management team believes AbilityOne’s business model is transferable to other countries, and is using Homecraft to cultivate new relationships through an enhanced product array, sales effort, distribution capabilities and catalog expertise.

In May 2004, AbilityOne acquired the assets of Medco Supply Company, Inc., or “Medco,” from NCH Corporation. With sales of approximately $40 million, Medco is one of the nation’s leading sports medicine distributors and is based in Buffalo, New York. It sells first aid, safety and medical consumable products, as well as consumable supplies and equipment to podiatrists. The complete product offering includes approximately 9,700 SKU’s that are sold through direct mail catalogs and 11 territory sales people. Medco markets to athletic trainers, schools and school nurses, daycare providers and healthcare professionals including podiatrists, chiropractors and physical therapists.

AbilityOne operates in the highly fragmented rehabilitative medical supplies and non-wheelchair assistive products industry. AbilityOne’s competition is generally regionally focused. AbilityOne intends to opportunistically pursue expansion opportunities in order to add products, customers and capabilities, which will further differentiate AbilityOne from its competition.

AbilityOne plans to penetrate several new markets. Target markets with significant core business product overlap include chiropractic, podiatry, sports medicine and institutional activities and crafts. These markets are similar to AbilityOne’s core business in that they are characterized by large patient volumes and heavy reliance on the course of treatment advice of the respective professional.

Products and Services

The following table sets forth the sales by principal categories offered to rehabilitative supply customers:

Consumable and Printed Products

AbilityOne offers a large selection of supply products that can be categorized as follows:

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Equipment

Rehabilitative equipment consists of exercise, examination, treatment and therapy equipment and furniture. These products include parallel bars, treatment tables, mat platforms, treadmills, stationary bicycles and Continuous Passive Motion machines or (“CPM’s”).

Sales and Marketing

Its customers generally know AbilityOne as Sammons Preston Rolyan, in the U.S. and Canada and Homecraft, in the remainder of the world. The Sammons Preston Rolyan and Homecraft business models, which AbilityOne employs in the U.S., Canada and the U.K., have successfully driven revenue growth and profitability.

A core element of Sammons Preston Rolyan’s strategy is to maintain the most comprehensive single catalog of rehabilitation products and supplies. AbilityOne’s catalogs, published for over 50 years, are considered the gold standard of the industry and feature the most comprehensive product offering with longstanding leadership positions and recognized brand names.

AbilityOne has a large experienced sales force, national account contracts with major customer groups, unmatched customer service within the industry and proven ability to introduce new products each year, allowing AbilityOne to compete across the entire spectrum of the rehabilitative medical supplies and non-wheelchair assistive products industry.

Sammons Preston Rolyan’s national accounts group works closely with AbilityOne’s sales force to meet the changing needs of its expanding account base. The product management group works closely with customers, suppliers and the sales force to evaluate new products for inclusion in Sammons Preston Rolyan’s product offering. Sammons Preston Rolyan adds approximately 2,000 new products to the catalog each year. Sammons Preston Rolyan’s U.S. national accounts program is staffed by seasoned professionals who have developed a comprehensive portfolio of contracts. Furthermore, the integrated Sammons Preston Rolyan organization has national contracts with major purchasing groups within each market segment, including hospitals, nursing homes and dealers.

For many years, Sammons Preston and SNR had the only national sales forces in the U.S. dedicated to the clinical education and sale of products to institutionally based PTs and OTs. With the recent integration of SNR, AbilityOne’s clinical presence and sales capability have been enhanced with a broader product offering and a more complete range of proprietary brands. The AbilityOne sales professionals, many whom are therapists, are located throughout the U.S. and Canada. These sales professionals have utilized the extensive product line and the comprehensive national contracts portfolio to establish direct sales to U.S. hospitals, nursing homes and rehab clinics. AbilityOne also distributes to national distributors and local dealers.

The rehabilitative medical supplies and non-wheelchair assistive products that AbilityOne offers are generally not subject to reimbursement pressures from Medicare and Medicaid. AbilityOne does not engage in third-party billing and collection activities, but sells to customers, including dealers, who provide this service.

The rehabilitative medical supplies and non-wheelchair assistive products industry is highly fragmented. No one manufacturer, distributor or customer represents a significant portion of AbilityOne’s revenue.

Distribution

AbilityOne’s distribution process centers on its ability to fill small unit size and small dollar amount orders. In the U.S., over 4,000 packages ship daily from four locations. The primary distribution center is located in Bolingbrook, IL, with certain high volume product also fulfilled by a third-party logistic company for west coast customers. Approximately 95% of the packages in the U.S. ship via UPS.

AbilityOne’s call center operates from 7am – 7pm Monday through Friday, processing in excess of 5,000 calls per day. Order entry capability from 7pm – 7am from Monday through Friday and weekends exists through an offsite, third-party contractor with limited systems access. The combination of in-house staff, supplemented with contracted, third party services, provide customers with 24 hours a day / 7 days a week ordering capabilities. In addition, fax orders and EDI capabilities support the larger, more technologically advanced customers, including dealers, hospital and long-term care facilities. While Internet ordering capabilities currently exist, customer reception to ordering products via the Internet is currently minimal, but growing.

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Sources of Supply

Among AbilityOne’s core strengths is its ability to obtain premier products from vendors. AbilityOne purchases its products from over 1,500 suppliers and manufacturers. Although no single supplier accounted for more than 4% of AbilityOne’s total purchases in 2004, AbilityOne frequently is the largest single customer of these manufacturers. Suppliers view the ability to distribute their products through Sammons Preston Rolyan and Homecraft very positively due to reputation, longstanding industry-leading position, comprehensive catalogs, national account contracts, sales force presence and distribution capabilities. AbilityOne continually works at strengthening its supplier relationships through the introduction of supplier programs.

Competition

AbilityOne believes it is the only national player to offer, “one-stop shopping” to its customers. AbilityOne’s competition is generally highly fragmented, regionally focused and without the product offering necessary to be a “one-stop shop.” AbilityOne’s national (and recently acquired international) scale and purchasing power provide AbilityOne with a favorable cost position and strong pricing trends relative to its competition.

For further information on each of the Company’s three operating segments, and operations by geographic area, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this document and Note 11 to the Consolidated Financial Statements.

Trademarks

Patterson has registered with the United States Patent and Trademark Office the marks “Patterson^®,” “PDXpress^®,” “EagleSoft^®” and “eMAGINE^®.” With the addition of AbilityOne, the Company acquired the marks Sammons, Preston, Roylan, Homecraft and numerous other tradenames and trademarks. The Company believes that the Patterson mark is well recognized in the dental products industry and by dental professionals, and is therefore a valuable asset of the Company.

Employees

As of April 24, 2004, the Company had approximately 5,750 employees. Patterson has not experienced a shortage of qualified personnel in the past, and believes that it will be able to attract such employees in the future. None of Patterson’s employees is subject to collective bargaining agreements or represented by a union. The Company considers its relations with its employees to be good.

Website

The Company makes available, free of charge, on its website, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after this material is electronically filed with or furnished to the Securities and Exchange Commissions. This material may be accessed by visiting the Investor Relations section of the Company’s website at www.pattersoncompanies.com.

Information relating to corporate governance at Patterson, including our Code of Ethics and information concerning our executive officers, directors and Board committees, and transactions in Patterson securities by directors and officers, is available on or through our website www.pattersoncompanies.com under the “Corporate Info” and “Investor Relations” captions.

We are not including the information maintained on our website as a part of, or incorporating it by reference into, our Form 10-K.

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Governmental Regulation

The marketing, distribution and sale of certain products sold by the Company are subject to the requirements of various state, local and federal laws and regulations. The Company is subject to regulation by the Food and Drug Administration, U.S. Department of Agriculture, OSHA and the Drug Enforcement Administration. Among the federal laws which impact the Company are the Federal Food, Drug and Cosmetic Act, which regulates the advertising, record keeping, labeling, handling, storage and distribution of drugs and medical devices, and which requires the Company to be registered with the Federal Food and Drug Administration, and the Safe Medical Devices Act of 1990, which imposes certain reporting requirements on distributors in the event of an incident involving serious illness, injury or death caused by a medical device. In addition, the Company is required to be licensed as a distributor of drugs and medical devices by each state in which it conducts business. Several State Boards of Pharmacy require the Company to be licensed in their state for the sale of animal health products within their jurisdiction. The Company believes that it is in substantial compliance with all of the foregoing laws and that it possesses all licenses required in the conduct of its business.

Executive Officers of the Registrant

Set forth below are the names, ages and positions of the executive officers of the Company as of June 30, 2004.

The officers of the Company are elected annually and serve at the discretion of the Board of Directors. Mr. Schwartz has a written employment contract arising from the acquisition of AbilityOne in September 2003. This contract will expire three years after the acquisition date.

Background of Executive Officers

Peter L. Frechette has been Chief Executive Officer of the Company since September 1982. Mr. Frechette has been a director of Patterson since March 1983 and was named Chairman of the Board in 1985. Mr. Frechette served as President of the Company from September 1982 to April 2003. 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 is also a director of FinishMaster, Inc.

James W. Wiltz was named the Company’s President and Chief Operating Officer in April 2003. Mr. Wiltz served as a Vice President of the Company from 1986 to 2003 and as President of Patterson Dental Supply, Inc., from 1996 to 2003. He has been employed by Patterson since September 1969, initially as a territory sales representative. Mr. Wiltz was appointed to the Board of Directors in March 2001.

R. Stephen Armstrong was elected Executive Vice President, Chief Financial Officer and Treasurer of the Company effective July 1999. Prior to joining Patterson, Mr. Armstrong had been an Assurance Partner with Ernst & Young LLP. Ernst & Young LLP is currently the Company’s independent registered public accounting firm.

Gary D. Johnson was elected Vice President, Operations-Patterson Companies, Inc. in June 2004. Mr. Johnson held the position of Vice President, Sales, of Patterson Dental Supply, Inc. from October 1996 to May 2004. Mr. Johnson has served in various sales and management positions since he joined the Company in August 1981.

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Cree Z. Hanna joined Patterson Companies Inc. in June 2002 as Vice President, Human Resources. Prior to joining Patterson, Ms. Hanna provided human resource consulting support to various organizations and served as Senior Vice President, Human Resources at U.S. BANCORP for approximately 9 years.

Lynn E. Askew became Vice President, Management Information Systems, in September 1999. Mr. Askew joined Patterson in 1994 as Manager, Distributed Systems, and was promoted to Director, Systems and Development in 1996. Prior to joining Patterson, Mr. Askew provided advanced technology consulting and project management services to various organizations, including Patterson.

Scott R. Kabbes was named President of the Company’s subsidiary Patterson Dental Supply, Inc., in April 2003 and is also President of Patterson Technology Center, Inc. and Colwell Systems, Inc. Mr. Kabbes was President of Patterson Technology Center, Inc. and the EagleSoft division for the five years prior to 2003. Mr. Kabbes was an owner and President of EagleSoft Inc. prior to its acquisition by the Company in July 1996.

Jeffrey H. Webster has been President of Webster Veterinary Supply, Inc., since its acquisition by Patterson in July 2001. Mr. Webster held various management positions with J. A. Webster, Inc. since 1984. At the time the acquisition, Mr. Webster was President of J. A. Webster, Inc.

Howard A. Schwartz has been Chief Executive Officer and President of AbilityOne Products Corp., since its acquisition by the Company in September 2003, and was President of AbilityOne Products Corp. since its creation as an independent company in August 2000. From January 1995 to August 2000 Mr. Schwartz was President of AbilityOne Corporation, formerly Bissell Healthcare, before its acquisition by AbilityOne Products Corp. From 1987 to 1995 Mr. Schwartz held various positions with Hillenbrand Industries, Inc., most recently as Vice President and General Manager of the long-term care division. Mr. Schwarz is currently on a medical leave of absence from the Company.

2. PROPERTIES

The Company owns its principal executive offices in St. Paul, Minnesota, and certain of its distribution and manufacturing facilities. Leases of other distribution, manufacturing and administrative facilities generally are on a long-term basis, expiring at various times, with options to renew for additional periods. Most sales offices are leased for varying and usually shorter periods, with or without renewal options. The Company believes its properties are in good operating condition and are suitable for the purposes for which they are being used.

Dental Supply

Patterson Dental Supply has 10 dental distribution centers as well as two locations used to ship printed office products. Distribution facilities are located in California, Florida, Illinois, Indiana, Iowa, South Carolina, Pennsylvania, Texas, Washington and Quebec and Alberta, Canada. Dental Supply owns approximately 70%, or 346,000 square feet, of the total distribution space and the balance is leased. The dental supply segment is headquartered in the Company’s principal executive offices. This segment also maintains sales and administrative offices inside the United States at 87 locations in 45 states and at 11 locations in Canada. Substantially all of these locations are leased. Dental Supply has two owned and one leased manufacturing facilities used to produce the printed products.

Veterinary Supply

Headquartered in Sterling, Massachusetts, the veterinary supply segment has 12 veterinary distribution centers totaling over 260,000 square feet. Sales and administrative personnel for the veterinary segment reside with the distribution facilities. Facilities are located in Massachusetts, Pennsylvania, Florida, Texas, North Carolina, Alabama, Missouri, Colorado, Washington and Indiana. With the acquisition of ProVet in April 2004, Webster currently has duplicate facilities in the state of Texas. Webster anticipates consolidating this facility in 2005. Longer-term management expects to consolidate additional properties with other business segments. All of the space in the veterinary segment is leased.

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Rehabilitative Supply

AbilityOne is headquartered in Bolingbrook, Illinois, and owns or leases approximately 360,000 square feet, or 11 facilities, worldwide. Approximately 45% of the total facility space is dedicated to distribution, 40% is allocated to manufacturing and the balance is for sales and administrative offices. About 40% of the total space utilized is owned by the Company. The rehabilitative supply segment maintains facilities in Illinois, Wisconsin, South Carolina, New York, California and Michigan. Internationally, this segment has four facilities located in Britain, France and Canada.

3. LEGAL PROCEEDINGS

The Company has been involved in various product-related and employment-related legal proceedings arising in the ordinary course of business. Some of these proceedings involve product liability claims arising out of the use of dental products manufactured by third parties and distributed by the Company. The Company believes that if any such product liability cases are determined in favor of the claimants, the manufacturers of such products would have primary responsibility for any damages because Patterson is a distributor of finished goods manufactured by third parties. In the event a manufacturer of a defective product is unable to pay a judgment for which the Company may be jointly liable, the Company could have liability for the entire judgment.

Among the product liability cases in which the Company is currently a defendant, six involve claims by healthcare workers alleging damages from allergic reactions caused by exposure to latex gloves distributed by the Company. In each of these cases the Company acted as a distributor of “Patterson” private label gloves manufactured by third parties, as well as gloves bearing the brand names of other suppliers. In each of these cases the Company intends to seek indemnification from or assert claims against the glove manufacturers pending completion of product identification.

Since May 1985, the Company has maintained product liability insurance coverage for any potential liability for claims arising out of products sold by the Company. The Company believes that any liabilities which might result from pending cases and claims relating to events occurring after May 1985, would be adequately covered by such insurance and that any unfavorable results in such cases would not have a material adverse effect on the Company’s business or financial condition. With respect to claims relating to events occurring prior to May 1985, the agreement providing for the acquisition of Patterson from The Beatrice Companies, Inc. provides that Beatrice and its successors are obligated to indemnify the Company for losses exceeding a litigation reserve established at the time of the acquisition plus $200,000. The successor to Beatrice has not been asked to indemnify the Company regarding any pending cases and has not contested its obligation to indemnify the Company. Although the Company has insurance coverage for product liability claims relating to events occurring after May 1985 and may be entitled to indemnification from third parties under certain circumstances, any additional litigation could have a material adverse effect on the Company’s business or financial condition in the future.

4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of the Company’s shareholders during the three-month period ended April 24, 2004.

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PART II

5. MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The Company’s common stock trades on the Nasdaq Stock Market^® under the symbol “PDCO.”

The following table sets forth the range of high and low sale prices for the Company’s common stock for each full quarterly period within the two most recent fiscal years. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

On June 30, 2004, the number of holders of record of common stock was 3,979. The transfer agent for the Company’s common stock is Wells Fargo Bank Minnesota, N.A., 161 North Concord Exchange, South St. Paul, Minnesota, 55075-0738, telephone: (651) 450-4064.

The Company has not paid any cash dividends on its common stock since its initial public offering in 1992 and expects that for the foreseeable future it will follow a policy of retaining earnings in order to finance the continued development of its business. Payment of dividends is within the discretion of the Company’s Board of Directors and will depend upon the earnings, capital requirements and operating and financial condition of the Company, among other factors.

For information relating to securities authorized for issuance under equity compensation plans, see Part III, Item 12.

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6. SELECTED CONSOLIDATED FINANCIAL DATA

(In thousands, except per share amounts)

7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company’s fiscal 2004 financial information is summarized in this Management’s Discussion and Analysis, the Consolidated Financial Statements, and the related Notes. The following background is essential to more fully understanding the Company’s financial information.

Patterson Companies, Inc. (formerly “Patterson Dental Company”) operates a distribution business in three complementary markets: dental supply, veterinary supply and rehabilitative supply. Historically the Company’s effective 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, the Company expanded its strategy to take advantage of a parallel growth opportunity in the veterinary supply market by acquiring the assets of J. A. Webster, Inc. The Company added a third component to its business platform in fiscal 2004 when it entered the rehabilitative supply market with the acquisition of AbilityOne Products Corp. (“AbilityOne”) on September 12, 2003. See Note 4 to the consolidated financial statements for more on this transaction.

The historical operating performance of the veterinary supply and rehabilitative supply businesses are somewhat different than the dental supply business. Gross margins in the veterinary business are typically in the mid 20’s compared to the mid 30’s for dental. The operating expense rate is also lower in the veterinary business than in the dental business. Gross margins in the rehabilitative business are in the mid 40’s while operating expense in relation to sales, including the amortization of intangibles, is higher than dental. These disparities had a notable impact on the Company’s operating ratios as is highlighted in the discussion that follows.

There are several important aspects of its business, which the Company has commented on in the past. These include: (1) market growth in the various markets it operates; (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,

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excluding the impact of changes in currency exchange rates, and the net sales, for a period of twelve months following the transaction date, of businesses that it has acquired. With these factors in mind, management has established certain operating objectives, which include increasing net sales four percentage points faster than the average market growth rate and improving operating margins by 50 basis points annually.

The Company made significant progress toward its objective of driving long-term, sustainable improvements in sales, profitability and cash flow in fiscal 2004. Net sales in 2004 increased by 18.9% from the corresponding prior year period. Included in the 18.9% increase in net sales for the year ended April 24, 2004 is internal growth just over 9.0%, a favorable foreign currency translation of 1.0%, with the remaining sales increase predominately attributed to acquisitions. The Company also achieved a 1.5 percentage point increase in its operating margin, increasing income before the cumulative effect of an accounting change by more than 28%. The Company’s free cash flow for the year was well above its target of 80% to 85% of earnings.

Results for fiscal year 2003 include the impact of the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets” resulting in the cessation of goodwill amortization. Additional information regarding the adoption of SFAS No. 142 is included in Notes 1 and 3 to the Consolidated Financial Statements in Item 8 of this Form 10-K. That information is incorporated by reference into this section of this report.

Results of Operations

The following table summarizes the consolidated results of operations over the past three fiscal years as a percent of sales:

Fiscal 2004 Compared to Fiscal 2003

Net Sales. Net sales for the year ended April 24, 2004 totaled $1,969.3 million, an 18.9% increase from $1,657.0 million reported last year.

Sales in the dental supply market increased 9.9%. Sales of dental equipment continued to be a principal sales growth driver for the dental supply segment, increasing 17.9% paced by robust demand for such new-technology products as the CEREC^® 3D dental restorative system and digital radiography. Consumable supplies grew 5.3% due primarily to contributions from an expanded sales force and an increased focus on marketing efforts in this area. Sales of other services and products, consisting primarily of parts, technical service, software support and insurance e-claims, grew 10.8%.

Canadian dental sales increased 15.8% in fiscal 2004, 1.1% excluding currency gains.

Sales of the Webster Veterinary Supply unit increased 13.4% for the year to $210.7 million. Webster sales include the impact of a temporary pharmaceutical distribution agreement that was in place last year but was converted back into an agency arrangement in the third quarter of fiscal 2004, as well as the April 16, 2004 acquisition of ProVet, (“ProVet”), a companion pet veterinary distributor. On a comparable basis, excluding the revenues from the change in the distribution agreement and the ProVet acquisition, sales in this segment increased 9.1% in fiscal 2004.

Rehabilitative sales stemming from the AbilityOne acquisition amounted to $142.3 million. On a pro forma basis, sales increased about 6.0%.

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Gross Margins. Gross margins increased a full percentage point in fiscal 2004 to 35.7% due primarily to the impact of the AbilityOne acquisition, which has margins in the mid 40’s. Dental supply gross margins increased 50 basis points reflecting favorable product mix along with some pricing improvement. Product mix benefited from sales of the higher margin CEREC 3D dental restorative system as well as digital radiography and related software. Offsetting these higher margins was a decline in veterinary supply margins due to sales under the temporary pharmaceutical distribution agreement, which carried a much lower margin than historical levels for most of the fiscal year.

Operating Expenses. Results for fiscal 2004 include seven and one-half month results of AbilityOne. Excluding the impact of this acquisition, operating expenses increased 7.3% from prior year levels but declined to 23.2% as a percent of sales, or 70 basis points. This resulted from improved operating leverage in both the dental and veterinary supply segments. The dental segment gained leverage on the operating expense line despite substantial investments in the sales organization, the new technical service system and other corporate objectives. As a percent of sales, the veterinary segment showed a 1.3 percentage point improvement in expenses year over year. Operating expenses as a percent of sales for AbilityOne were approximately two percentage points higher than the remainder of the business due to the amortization of certain intangible assets resulting from the accounting for the acquisition.

Operating Income. Operating income increased 35.5% and improved 150 basis points as a percent of sales. The acquisition of AbilityOne, increased sales of higher margin dental equipment and improved operating leverage accounted for most of the increase.

Interest expense. Interest expense increased to $9.6 million as a result of debt put in place to finance the acquisition of AbilityOne, including the write-off of $1.3 million of origination fees on the bridge loan used to close the acquisition, which was retired during the period.

Other Income, net. Other income, net of expenses, was $6.6 million for fiscal 2004 compared to $7.5 million for fiscal 2003. This reduction occurred in finance income and was caused by a decrease in invested funds, due to the use of cash on hand to partially fund the acquisition of AbilityOne, and lower interest rates on investments.

Income Taxes. The effective income tax rate in fiscal 2004 was 37.6%, unchanged from the prior year. While the Company has more foreign income, the tax rate in the foreign jurisdictions has not had a substantial impact on the overall tax rate.

Earnings Per Share. Earnings per share increased to $2.17, up $0.47 or 27.6% from the $1.70 reported last year. AbilityOne contributed approximately $0.16 per share in fiscal 2004.

Fiscal 2003 Compared to Fiscal 2002

Net Sales. Net sales for the year ended April 26, 2003 totaled $1,657.0 million, a 17.1% increase from $1,415.5 million reported last year.

Sales in the dental supply market increased 14.9%. Sales of dental equipment continued to be a principal sales growth driver for the dental supply segment, increasing 22.2%. Equipment was paced by robust demand for such new-technology products as the CEREC^® 3 dental restorative system and digital radiography. Consumable supplies grew 11.1% due primarily to contributions from an expanded sales force, an increase in the number of customers and acquisitions. Sales of other services and products, consisting primarily of parts, technical service, software support and insurance e-claims, grew 15.6%. During the year, the Company successfully integrated two acquisitions into its dental operation: Thompson Dental Company (“Thompson”) acquired in early April 2002 and Distribution Quebec Dentaire (“DQD”), Inc. acquired in July 2002. The acquisitions accounted for approximately five percentage points of annual sales growth.

Canadian dental sales increased 21.4% in fiscal 2003, 19.0% excluding currency gains. The acquisition of DQD contributed about 6 percentage points to the overall sales increase in Canada.

Sales of the Webster Veterinary Supply unit increased 37.8% for the year to $185.8 million. Webster was acquired in the first quarter of fiscal 2002. Assuming this unit had been acquired at the beginning of fiscal 2002, Webster’s sales increased 10% in fiscal 2003.

Gross Margins. Gross margins increased 16.3% in fiscal 2003 due solely to higher sales volumes. The consolidated gross margin rate declined 20 basis points due to the addition of the veterinary supply business in July 2001. That business has historically experienced margins in the mid 20’s. Dental supply gross margins were the same as the prior year.

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Operating Expenses. Results for fiscal 2003 include the impact of the adoption of Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” resulting in the cessation of goodwill amortization. Additional information regarding the adoption of SFAS No. 142 is included in Note 3 to the Consolidated Financial Statements. That information is incorporated by reference into this section of this report. After adjusting fiscal 2002 to exclude goodwill amortization, fiscal 2003 operating expenses increased 15.2% but declined 40 basis points as a percent of sales.

Fiscal 2003 operating expenses as a percent of sales reflects twelve months of operating results for Webster Veterinary Supply compared to ten months in fiscal 2002. Since the operating expense rate in the veterinary business is lower than in the dental business, this disparity provides a favorable year-over-year impact of approximately 40 basis points after the amortization of certain identifiable intangible assets arising from the Webster acquisition.

Excluding the impact of the adoption of SFAS No. 142, the 2003 operating expense rate for the dental business was unchanged from 2002. In fiscal 2003, the Company made substantial investments in people and training to support its single-source technology solution aimed at automating and networking the dental office. While the Company realized sales and modest profits from this program in 2003, it had a dampening effect on the Company’s operating expense rate. The implementation of new systems for managing and strengthening the Company’s technical service operation also effected the expense ratio in fiscal 2003. In addition, the current year expense rate reflects the impact of the acquisition of Thompson, which contributed to operating earnings but to a lesser degree than the Company’s historical dental business. By the end of fiscal 2003 the single-source technology solution and the Thompson acquisition were contributing to earnings at a rate similar to the historic dental business. While the Company expects the technical service initiative to improve operating efficiencies and contribute sales growth over time, the Company expects this initiative to be neutral to earnings through fiscal 2004 as the Company continues to invest in training and communication costs to roll-out the program nationwide.

Operating Income. Operating income increased 21.6% and improved 40 basis points as a percent of sales. Higher sales volumes accounted for most of the increase. The improvement in operating income as a percent of sales is primarily the result of the veterinary supply business, which saw a favorable improvement in its operating income due to operating leverage. The discontinuation of goodwill amortization in fiscal 2003 due to adoption of SFAS No. 142 also helped improve operating income.

Other Income, net. Other income, net of expenses, was $7.5 million for fiscal 2003 compared to $5.0 million for fiscal 2002. The benefit of higher financing income on equipment contracts was mitigated by the elimination of the amortization of deferred credits associated with the adoption of SFAS No. 142.

Income Taxes. The effective income tax rate in fiscal 2003 was 37.6%, an increase from the 37.4% rate used in fiscal 2002 reflecting the impact of the elimination of the amortization of the deferred credits discussed above which were non-taxable.

Earnings Per Share, Before Cumulative Effect of Accounting Change. Earnings per share increased to $1.70 versus $1.40 a year ago. Had amortization of goodwill and the deferred credits ceased in fiscal 2002, prior year net earnings would have increased by $1.6 million or approximately $0.02 per diluted share.

Liquidity and Capital Resources

Patterson’s operating cash flow, which generally parallels net earnings, has been the Company’s principal source of liquidity in fiscal 2004, 2003 and 2002, supplemented in fiscal 2004 by the issuance of $500 million of debt. Cash generated from operating activities was invested in working capital, capital expenditures and acquisitions.

Operating activities generated cash of $197.7 million in fiscal 2004 compared with $86.7 million in fiscal 2003 and $89.4 million in fiscal 2002. Cash flow from operations was diminished in both fiscal 2003 and 2002 by an increase in the level of equipment finance contracts the Company carried. At the end of fiscal 2002, the Company was unable to sell a portion of its equipment finance contracts due to capacity constraints with the bank arrangement in place at that time. This was the result of stronger than anticipated fourth quarter equipment sales. The capacity constraints were eliminated in fiscal 2003 by a new financing arrangement with a commercial paper conduit. However, the Company is now required to receive one payment from the customer before a contract is eligible for sale to the commercial paper conduit. This requirement in conjunction with increased equipment sales resulted in an increase in the level of accounts receivable in fiscal 2003. The level of investment in working capital made in fiscal 2003 to support the financing portion of the business did not repeat in fiscal 2004.

Capital expenditures net of dispositions were $19.6, $11.4 and $11.1 million in fiscal years 2004, 2003 and 2002, respectively. The increase in 2004 reflects spending for a new distribution center that is expected to come on line in August 2004. The Company expects to invest approximately $35 to $40 million in capital expenditures in fiscal 2005 to replace and upgrade distribution capacity in the U.S. and the U.K. and expand information systems.

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In fiscal 2004, the Company used $606.4 million of cash for acquisitions, namely AbilityOne and ProVet. The acquisition of AbilityOne was initially debt financed through a $500 million bridge loan. In November 2003, the bridge loan was converted into two permanent debt-financing arrangements as more fully described in Note 7 to the Consolidated Financial Statements and in Contractual Obligations below. Investments in acquisitions also reflect contingent earn-out payments from acquisitions made in prior years. In comparison, the Company invested cash of $6.5 million in fiscal 2003 to acquire DQD and $109.3 million to acquire the assets of J. A. Webster Inc., Thompson and Modern Practice Technologies in fiscal 2002.

The Company did not repurchase any of its common stock in fiscal 2004. It repurchased 321,299 and 247,000 shares of its common stock for $13.1 million and $8.3 million during fiscal 2003 and 2002, respectively. The shares repurchased minimized the dilutive effect of shares issued in conjunction with the Company’s employee stock plans and in acquisitions.

Management expects funds generated from the expected results of operations and existing cash and short-term investments of $295.2 million to be sufficient to meet the Company’s working capital needs for the next fiscal year. The Company will continue to obtain liquidity from the sale of its equipment finance contracts. Long-term financing will be maintained through availability under the new committed debt facilities. The Company’s short-term and long-term financing facilities are believed to be adequate as a supplement to internally generated cash flows to fund anticipated expansion plans and strategic initiatives. Debt prepayments will depend on management’s views with respect to the relative attractiveness of interest rates together with the investment needs of the business at the time.

The Company sells a significant portion of its installment sale contracts to a commercial paper funded conduit managed by a third party bank, and as a result, commercial paper is indirectly an important source of liquidity for the Company. The Company is allowed to participate in the conduit due to its financial strength. Cash flow could be impaired if the Company’s financial strength diminished to a level that precluded the Company from taking part in this facility or other similar facilities. The Company’s financing business is described in further detail in Note 6 of the Notes to Consolidated Financial Statements. That description is incorporated by reference into this section.

Contractual Obligations

During fiscal 2004, the Company entered into two new debt financing arrangements, including both bank and private debt with a total capacity of $650 million. The bank portion of the package totals $300 million and is comprised of a $100 million five year, amortizing term loan and a $200 million five year, revolving credit facility. The private debt is a total of $350 million of fixed and floating rate notes with maturities ranging from 3 to 7 years with one year, no-call provisions.

The Company had two primary objectives in placing this debt: one, to lower its overall cost of capital, and two, to provide significant flexibility in financing the growth of the business. Proceeds from these issuances were used to repay the $500 million bridge financing obtained in connection with the AbilityOne acquisition. After refinancing the bridge loan, approximately $150 million of capacity under the bank arrangement remains for future use.

A summary of the Company’s contractual obligations as of April 24, 2004 follows (in thousands):

For a more complete description of our contractual obligations, please see Notes 7 and 9 to the Consolidated Financial Statements in Item 8 of this Form 10-K.

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Outlook

Over the last ten years, the Company has been able to average double-digit revenue and earnings growth through its strategy of emphasizing its value-added, full-service capabilities, using technology to enhance customer service, continuing to improve operating efficiencies, and growing through internal expansion and acquisitions. The Company’s growth strategy will continue to focus on these key elements. Maintaining financial flexibility is also a key component of the Company’s future growth. With strong operating cash flow and available credit capacity, the Company is confident that it will be able to financially support its future growth. The strategic initiatives that the Company implemented during fiscal 2004, which have significantly strengthened the Company’s operational platform, are also a key ingredient to continuing future growth. Given these factors, the Company considers itself well positioned to continue capitalizing upon the growth opportunities in the dental supply, companion-pet veterinary supply and the worldwide rehabilitative supply markets. The Company continues to believe that the sustainable, long-term growth rate of its North American dental operation is four percentage points in excess of the market’s 7% to 9% estimated rate of growth. The Company also believes its Webster and AbilityOne units can continue to grow faster than the estimated 6% to 7% growth rate of the U.S. companion-pet veterinary supply market and the estimated 6% to 8% growth rate of the rehabilitative market.

Asset Management

The following table summarizes the Company’s days sales outstanding (DSO) and inventory turnover over the past three fiscal years:

Foreign Operations

Foreign sales are derived primarily from operations in Canada and from AbilityOne’s operations in the U.K. and France. Fluctuations in currency exchange rates have not significantly impacted earnings. However, net sales in fiscal 2004 and 2003 were enhanced by changes in the exchange rate while sales in fiscal 2002 were adversely affected by the strengthening of the U.S. dollar. Without foreign currency effects, net sales would have been $19.4 million lower in fiscal 2004 and $2.3 million lower in fiscal 2003, but would have been $3.5 million higher in fiscal 2002. Changes in currency exchange rates is a risk accompanying foreign operations, but this risk is not considered material with respect to the net operations of the Company’s business.

Critical Accounting Policies

The Company has adopted various accounting policies to prepare its consolidated financial statements in accordance with accounting principles generally accepted in the United States. Management believes that the Company’s policies are conservative and its philosophy is to adopt accounting policies, which minimize the risk of adverse events having a material impact on recorded assets and liabilities. However, the preparation of financial statements requires the use of estimates and judgements regarding the realization of assets and the settlements of liabilities based on the information available to management at the time. Changes subsequent to the preparation of the financial statements in economic, technological and competitive conditions may materially impact the recorded values of the Company’s assets and liabilities. Therefore, the users of the financial statements should read all the notes to the Consolidated Financial Statements and be aware that conditions currently unknown to management may develop in the future. This may require a material adjustment to a recorded asset or liability to consistently apply the Company’s significant accounting principles and policies that are discussed in Note 1 to the Consolidated Financial Statements. The financial performance and condition of the

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Company may also be materially impacted by transactions and events that the Company has not previously experienced and for which the Company has not been required to establish an accounting policy or adopt a generally accepted accounting principle. Because we are primarily a distributor, we face inventory risk due to obsolescence and customer preference. We assess our inventories continually and value them at the lower of cost or market, and in addition, we relieve inventory cost using a last-in, first-out convention which results in an inventory carrying value that is well below the replacement cost of the inventory. Our revenue recognition processes involve establishing estimates for bad debts, returns, damaged goods and other allowances. These estimates are based on historical experience and the facts known at the date of preparing the financial statements but future events could cause actual results to vary from our estimates. We have acquired other businesses in the past and this has resulted in goodwill being recorded on our financial statements. While goodwill is no longer amortized systematically over time due to changes in generally accepted accounting principles in the U.S., goodwill is subject to a periodic assessment of its continuing value to the Company. Currently, we believe the recorded value is well below the realizable value of this asset.

New Accounting Pronouncements

A discussion of recently issued accounting pronouncements is described in Note 1 of the Notes to Consolidated Financial Statements. That discussion is incorporated by reference into this section.

Factors That May Affect Future Operating Results

Certain information of a non-historical nature contained in Items 1, 2, 3 and 7 of this Form 10-K include forward-looking statements. Words such as “believes,” “expects,” “plans,” “estimates,” “intends” and variations of such words are intended to identify such forward-looking statements. The 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.

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7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

The Company is exposed to market pricing risk consisting of foreign currency rate fluctuations and changes in interest rates.

The Company is exposed to foreign currency exchange rate fluctuations in its operating statement due to transactions denominated primarily in Canadian Dollars, British Pounds and Euros. Although historically the Company has elected not to enter into any hedging contracts, it continually evaluates its foreign currency exchange rate risk and the different mechanisms for use in managing such risk. A hypothetical 10% change in the value of the U.S. dollar in relation to the Company’s most significant foreign currency exposures would have had an impact of approximately $16.5 million on fiscal 2004 net sales. This amount is not indicative of the hypothetical net earnings impact due to the partially offsetting impact of the currency exchange movements on cost of sales and operating expenses.

The Company’s operation in the United Kingdom purchases product sourced in the United States and certain Far Eastern countries that require payment denominated in the U.S. dollar. To assist in controlling the potential volatility on its cost of products sold resulting from changes in currency exchange rates, this operation enters into foreign currency options that fix the maximum rate the operation pays for U.S. dollars. At April 24, 2004, the operation had options to purchase up to $3.5 million at a rate of 1.8 to 1, or better.

The Company’s earnings are also affected by fluctuations in short-term interest rates through the investment of its cash balances, borrowings under LIBOR based debt instruments and the practice of selling fixed rate equipment finance contracts under agreements with both a commercial paper conduit and a group of banks that provide for pricing based on variable interest rates.

During fiscal 2004, the Company entered into $650 million of new debt financing agreements that included both fixed and variable interest rate debt instruments. As of April 24, 2004, the Company had approximately $495 million of debt outstanding under these agreements of which $350 million was variable interest rate based debt. The Company views its variable interest rate debt position on a net basis that gives effect to the Company’s cash and short term investments balances. The Company believes that at April 24, 2004, approximately $200 million of cash and short-term investments could have been used to reduce the variable interest rate debt. To further reduce its exposure to fluctuations in interest rates, the Company entered into an interest rate swap agreement that fixed an additional $100 million of the variable interest rate debt exposure through November 2005. While hedging activities provide only limited protection against interest rate risk, the interest rate swap agreement was entered into for the sole purpose of hedging an existing interest rate exposure, not for speculation.

When considering the exposure under the agreements whereby the Company sells equipment finance contracts to both a commercial paper conduit and a group of banks, the Company has the ability to select pricing based on interest rates ranging from 30 day LIBOR up to twelve month LIBOR. In addition, the portfolio of installment contracts generally turns over in less than 48 months and the Company can adjust the rate it charges on new customer contracts at any time. This provides that the average interest rate in the portfolio generally moves with the interest rate markets and thus would parallel the underlying interest rate movement of the pricing built into the sale agreements. In calculating the gain on the contract sales, the Company uses an interest rate curve that approximates the maturity period of the then outstanding contracts.

The Company estimates that if a) interest rates had been 10% higher during the year, b) the debt that was issued during the year had been outstanding for the entire year, c) the hedge instrument had been purchased at the beginning of the year, and d) the end-of-year portfolio of installment contracts had been outstanding for the entire year, the annual impact would have been to reduce earnings before income tax by approximately $1.6 million. If the Company gave effect to the use of $200 million of its cash and short-term investments to reduce the level of variable interest rate debt, and considered the impact of items a) through d) above, the impact on earnings before income taxes would have been a reduction of approximately $1.4 million for the twelve months ended April 24, 2004. An expanded discussion of the interest rate swap is included in Note 8 to the Consolidated Financial Statements that are included elsewhere in this document.

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8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Patterson Companies, Inc.

We have audited the accompanying consolidated balance sheets of Patterson Companies, Inc. (formerly Patterson Dental Company) as of April 24, 2004 and April 26, 2003, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended April 24, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Patterson Companies, Inc. at April 24, 2004 and April 26, 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended April 24, 2004, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 3 to the Consolidated Financial Statements, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, in fiscal 2003.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

May 20, 2004

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PATTERSON COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

See accompanying notes

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PATTERSON COMPANIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

See accompanying notes

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PATTERSON COMPANIES, INC.

CONSOLIDATED STATEMENT OF

CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands)