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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.