PATTERSON COMPANIES, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)

Insight

Our financial information for fiscal 2022 is summarized in this Management's
Discussion and Analysis and the Consolidated Financial Statements and related
Notes. The following background is provided to readers to assist in the review
of our financial information.

We present three reportable segments: Dental, Animal Health and Corporate.
Dental and Animal Health are strategic business units that offer similar
products and services to different customer bases. Dental provides a virtually
complete range of consumable dental products, equipment and software, turnkey
digital solutions and value-added services to dentists and dental laboratories
throughout North America. Animal Health is a leading, full-line distributor in
North America and the U.K. of animal health products, services and technologies
to both the production-animal and companion-pet markets. Our Corporate segment
is comprised of general and administrative expenses, including home office
support costs in areas such as information technology, finance, legal, human
resources and facilities. In addition, customer financing and other
miscellaneous sales are reported within Corporate results.

The operating margins of the animal health activity are lower than those of the dental activity. While operating expenses are lower in the animal health sector compared to the dental sector, gross margins in the animal health sector are generally lower due to the low margins recorded on the sale of pharmaceutical products.

We operate with a 52-53 week accounting convention with our fiscal year ending
on the last Saturday in April. Fiscal 2022 ended on April 30, 2022 and consisted
of 53 weeks. Fiscal 2021 and 2020 ended on April 24, 2021 and April 25, 2020,
respectively, and both consisted of 52 weeks. Fiscal 2023 will end on April 29,
2023 and will consist of 52 weeks.

We believe there are several important aspects of our business that are useful
in analyzing it, including: (1) growth in the various markets in which we
operate; (2) internal growth; (3) growth through acquisition; and (4) continued
focus on controlling costs and enhancing efficiency. Management defines internal
growth as net sales adjusted to exclude the impact of foreign currency, changes
in product selling relationships and contributions from recent acquisitions.
Foreign currency impact represents the difference in results that is
attributable to fluctuations in currency exchange rates the company uses to
convert results for all foreign entities where the functional currency is not
the U.S. dollar. The company calculates the impact as the difference between the
current period results translated using the current period currency exchange
rates and using the comparable prior period's currency exchange rates. The
company believes the disclosure of net sales changes in constant currency
provides useful supplementary information to investors in light of significant
fluctuations in currency rates.

Factors affecting our results

COVID-19. The COVID-19 pandemic, including closures and other steps taken by
governmental authorities in response to the virus, has had a significant impact
on our businesses. As part of our broad-based effort to respond to the COVID-19
pandemic, we implemented cost reduction measures, including temporary salary
reductions, furloughs and reduced work hours across our workforce during the
period from May 1, 2020 through July 31, 2020. Within our Dental segment, supply
chain disruptions for PPE and an increased demand for these products initially
resulted in backorders of PPE and a potential scarcity in raw materials to make
PPE, causing substantial price increases. We had to prepay suppliers in order to
obtain PPE for resale to our customers, and as manufacturing caught up to
increased demand for PPE, prices dropped, impacting our margins and requiring us
to write down certain inventory. However, in the Dental Segment, the effect
became less significant during the first quarter of fiscal 2021, as dental
offices began opening for elective procedures. In addition, we recorded
increased sales of infection control products starting in the first quarter of
fiscal 2021 within the Dental segment. The disruptions we experienced in our
production animal business as a result of the pandemic became less significant
after the first quarter of fiscal 2021.

Gains on Vetsource Investment. In fiscal 2022, we sold a portion of our
investment in Vetsource, with a carrying value of $25.8 million, for $56.8
million. We recorded a pre-tax gain of $31.0 million in gains on investments in
our consolidated statements of operations and other comprehensive income (loss)
as a result of this sale. The cash received of $56.8 million is reported within
investing activities in our consolidated statements of cash flows. We also
recorded a pre-tax non-cash gain of $31.0 million to reflect the increase in the
carrying value of the remaining

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portion of our investment in Vetsource, which was based on the selling price of
the portion of the investment we sold for $56.8 million. This gain was recorded
in gains on investments in our consolidated statements of operations and other
comprehensive income (loss). Concurrent with the sale, we obtained rights that
will allow us, under certain circumstances, to require another shareholder of
Vetsource to purchase our remaining shares. We recorded a pre-tax non-cash gain
of $25.8 million in gains on investments in our consolidated statements of
operations and other comprehensive income (loss) as a result of this
transaction. The aggregate gains on investments of $87.8 million are reported
within operating activities in our consolidated statements of cash flows.
Concurrent with obtaining this put option, we also granted rights to the same
Vetsource shareholder that would allow such shareholder, under certain
circumstances, to require us to sell our remaining shares at fair value.

Gain on Vets Plus Investment. In fiscal 2022, we sold a portion of our
investment in Vets Plus with a carrying value of $4.0 million for $17.1 million.
We recorded a pre-tax gain of $13.1 million in gains on investments in our
consolidated statements of operations and other comprehensive income (loss) as a
result of this sale. This $13.1 million pre-tax gain is reported within
operating activities in our consolidated statements of cash flows. The cash
received of $17.1 million is reported within investing activities in our
consolidated statements of cash flows.

Fiscal 2022 Legal Reserve. On August 27, 2021, we signed a memorandum of
understanding to settle the federal securities class action complaint described
in Note 17 to the Consolidated Financial Statements. Under the terms of the
settlement, Patterson agreed to pay $63.0 million to resolve the case. Although
we agreed to settle this matter, we expressly deny the allegations of the
complaint and all liability. Our insurers consented to the settlement and
contributed an aggregate of $35.0 million to fund the settlement and to
reimburse us for certain costs and expenses of the litigation. As a result of
the foregoing, we recorded a pre-tax reserve of $63.0 million in other accrued
liabilities in the consolidated balance sheets in our Corporate segment during
the first quarter of fiscal 2022 related to the probable settlement of this
litigation (the "Fiscal 2022 Legal Reserve"). During the first quarter of fiscal
2022, we also recorded a receivable of $27.0 million in prepaid expenses and
other current assets in the consolidated balance sheets in our Corporate segment
related to probable insurance recoveries, which amount was paid into the
litigation settlement escrow as required by the memorandum of understanding. The
net expense of $36.0 million was recorded in operating expenses in our
consolidated statements of operations and other comprehensive income (loss). We
recorded a gain of $8.0 million during the second quarter of fiscal 2022 in our
Corporate segment to account for our receipt of carrier reimbursement of
previously expended fees and costs. The parties filed a stipulation of
settlement during the second quarter of fiscal 2022. On February 3, 2022, the
District Court entered an order preliminarily approving the settlement and
directing the claims administrator to mail a notice of settlement and claim form
to all class members. On June 9, 2022, the District Court held a final
settlement hearing to determine whether the settlement should be approved. On
June 10, 2022, the District Court entered an order granting final approval to
the settlement.

Inventory Donation Charges. In fiscal 2022, we committed to donate certain
personal protective equipment to charitable organizations to assist with
COVID-19 recovery efforts. We recorded a charge of $49.2 million within cost of
sales in our consolidated statements of operations and other comprehensive
income (loss) as a result ("Inventory Donation Charges") in the first quarter of
fiscal 2022. These charges were driven by our intention to not sell these
products, but rather to donate them to charitable organizations. Of the $49.2
million expense recorded, $47.2 million and $2.0 million was recorded within our
Dental and Animal Health segments, respectively.

Goodwill Impairment. In fiscal 2020, we recorded non-cash pre-tax goodwill
impairment charges totaling $675.1 million in our Animal Health segment
("Goodwill Impairment"), which were not fully tax deductible. The decrease in
the fair value of the Animal Health reporting unit below its carrying value was
mainly the result of a reduction in management's estimates of future cash flows.
Future cash flows were affected by a reduction in future sales volume and
operating margins. The sales volume estimate reflected recent sales trends we
had experienced. Future operating margins were expected to be lower based on
then-current trends in our markets. These trends were driven by customer and
vendor consolidation. We experienced a further decrease in the fair value of the
Animal Health reporting unit subsequent to our annual goodwill impairment test,
which was caused by additional reductions in management's estimates of future
cash flows, driven by reduced sales volumes, as well as reduced EBITDA multiples
of comparable companies. These estimates and market multiples were negatively
affected by COVID-19. In fiscal 2020, the animal health industry experienced a
reduction in sales volume as a result of stay at home and shelter in place
orders, as well as a result of meat packing plant closures. Our future cash flow
estimates for this business unit in fiscal 2020 reflected the long-term impact
of COVID-19.

Gain on Investment. We recorded a pre-tax gain of $34.3 million related to one
of our investments ("Gain on Investment") in fiscal 2020. This gain was based on
the selling price of preferred stock in this investment that is similar to the
preferred stock we own, and was adjusted for differences in liquidation
preferences.

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Early Repayment of Debt. In fiscal 2020, we repaid certain indebtedness totaling
$373.8 million ("Early Repayment of Debt"). As a result, we recorded a pre-tax
non-cash charge of $9.0 million during fiscal 2020. This charge relates to the
January 2014 forward interest rate swap agreement and accelerated amortization
of debt issuance costs.

Fiscal 2020 U.S. Attorney's Office Legal Reserve. We incurred costs and expenses
of $58.3 million ("Fiscal 2020 U.S. Attorney's Office Legal Reserve") in fiscal
2020 related to the then-probable settlement of litigation with the U.S.
Attorney's Office for the Western District of Virginia, which were recorded
within operating expenses in the consolidated statements of operations and other
comprehensive income (loss) in our Corporate segment. The settlement amount was
fully paid in fiscal 2020.

Fiscal 2020 Legal Reserve. We incurred expenses of $17.7 million ("Fiscal 2020
SourceOne Dental Legal Reserve") in fiscal 2020 related to the settlement of
litigation with SourceOne Dental, Inc., which were recorded within operating
expenses in the consolidated statements of operations and other comprehensive
income (loss) in our Corporate segment. The settlement amount was fully paid in
fiscal 2020.

Receivables Securitization Program. We are a party to certain receivables
purchase agreements with MUFG Bank, Ltd. ("MUFG"), under which MUFG acts as an
agent to facilitate the sale of certain Patterson receivables (the
"Receivables") to certain unaffiliated financial institutions (the
"Purchasers"). The proceeds from the sale of these Receivables comprise a
combination of cash and a deferred purchase price ("DPP") receivable. The DPP
receivable is ultimately realized by Patterson following the collection of the
underlying Receivables sold to the Purchasers. The collection of the DPP
receivable is recognized as an increase to net cash provided by investing
activities within the consolidated statements of cash flows, with a
corresponding reduction to net cash used in operating activities within the
consolidated statements of cash flows.

Operating results

The following table summarizes our results as a percentage of net sales:

                                                                                     Fiscal Year Ended
                                                              April 30, 2022          April 24, 2021          April 25, 2020
Net sales                                                             100.0  %                100.0  %                100.0  %
Cost of sales                                                          80.2                    79.6                    78.2
Gross profit                                                           19.8                    20.4                    21.8
Operating expenses                                                     17.4                    16.8                    19.9
Goodwill impairment                                                       -                       -                    12.3
Operating income (loss)                                                 2.4                     3.6                   (10.4)
Other income (expense), net                                             1.7                    (0.2)                   (0.4)
Income (loss) before taxes                                              4.1                     3.4                   (10.8)
Income tax expense (benefit)                                            1.0                     0.8                    (0.1)

Net income (loss)                                                       3.1                     2.6                   (10.7)
Net loss attributable to noncontrolling interests                         -                       -                       -
Net income (loss) attributable to Patterson Companies, Inc.             3.1  %                  2.6  %                (10.7) %

Fiscal 2022 vs. Fiscal 2021

Net sales. Consolidated net sales in fiscal 2022 were $6,499.4 million, an
increase of 9.9% from $5,912.1 million in fiscal 2021. Sales were positively
impacted by an estimated 1.9% due to the extra week of results in the current
year. Foreign exchange rate changes had a favorable impact of 0.7% on fiscal
2022 sales. Sales of certain products previously recognized on a gross basis
were recognized on a net basis during fiscal 2022. This change in revenue
recognition was driven by changes in contractual terms with certain suppliers in
our Animal Health segment. The impact of this change in revenue recognition for
certain products was partially offset by the impact of the acquisition of
substantially all of the assets of Miller Vet on sales for fiscal 2022,
resulting in a net decrease in sales of approximately 1.8%.

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Dental segment sales increased 8.1% to $2,516.1 million in fiscal 2022 from
$2,327.0 million in fiscal 2021. Sales were positively impacted by an estimated
1.8% due to the extra week of results in the current year. Foreign exchange rate
changes had a favorable impact of 0.5% on fiscal 2022 sales. Sales of
consumables increased 8.4%, sales of equipment and software increased 9.5%, and
sales of value-added services and other increased 3.4% in fiscal 2022. Dental
segment sales growth in fiscal 2022 was driven by a recovery in the Dental end
markets, compared to sales in fiscal 2021, which were negatively affected by the
COVID-19 pandemic when dental offices were closed for elective procedures,
particularly during the first quarter of our fiscal 2021.

Animal Health segment sales increased 11.9% to $3,982.9 million in fiscal 2022
from $3,560.0 million in fiscal 2021. Sales were positively impacted by an
estimated 2.0% due to the extra week of results in the current year. Foreign
exchange rate changes had a favorable impact of 0.8% on fiscal 2022 sales. Sales
of certain products previously recognized on a gross basis were recognized on a
net basis during fiscal 2022. This change in revenue recognition was driven by
changes in contractual terms with certain suppliers. The impact of this change
in revenue recognition for certain products was partially offset by the impact
of the acquisition of substantially all of the assets of Miller Vet on sales for
fiscal 2022, resulting in a net decrease in Animal Health segment sales of
approximately 3.0%. Sales were higher in fiscal 2022 as compared to fiscal 2021,
driven by increased demand across all of our animal health businesses and
geographies.

Gross profit. Consolidated gross profit margin decreased 60 basis points from
the prior year to 19.8%, driven primarily by the impact of the Inventory
Donation Charges, unfavorable mix in sales among our segments due to faster
growth in our Animal Health segment, and lower net sales in our Corporate
segment due to the effect of rising interest rates on our customer financing
portfolio. This interest rate impact was partially offset by a gain on
associated interest rates swap agreements, which is reflected in other income,
net in our consolidated statements of operations and other comprehensive income
(loss).

Operating expenses. Consolidated operating expenses for fiscal 2022 were
$1,132.1 million, a 14.1% increase from the prior year of $992.5 million. We
incurred higher operating expenses during fiscal 2022 primarily as a result of
higher personnel costs, the impact of the Fiscal 2022 Legal Reserve and higher
travel expenses. The higher personnel costs were primarily due to the salary
reductions, reduced work hours, and furloughs we implemented as a response to
the COVID-19 pandemic during the three months ended July 25, 2020. Travel
expenses were higher in fiscal 2022 than in fiscal 2021 primarily due to
COVID-19-related restrictions having a more significant impact in fiscal 2021.
The consolidated operating expense ratio of 17.4% increased 60 basis points from
the prior year period, which was also driven by these same factors.

Operating income (loss). Fiscal 2022 operating income was $157.0 million, or
2.4% of net sales, as compared to $210.6 million, or 3.6% of net sales, in
fiscal 2021. The decrease in operating income was primarily due to the impact of
the Inventory Donation Charges, the Fiscal 2022 Legal Reserve and higher
personnel costs. These impacts were partially offset by the growth in sales
experienced in fiscal 2022.

Dental segment operating profit was $180.2 million for the 2022 financial year, a decrease of $21.0 million compared to fiscal 2021. The decrease is mainly explained by expenses associated with inventory donation costs and higher personnel costs, partially offset by an increase in net sales in fiscal 2022.

Animal Health segment operating income was $114.4 million for fiscal 2022, an
increase of $26.3 million from fiscal 2021. The increase was primarily driven by
higher net sales during fiscal 2022, partially offset by higher personnel costs
incurred during fiscal 2022.

Corporate segment operating loss was $137.6 million for fiscal 2022, as compared
to a loss of $78.8 million for fiscal 2021. The change was primarily driven by
the impact of the Fiscal 2022 Legal Reserve, lower customer financing net sales
recorded during fiscal 2022, and higher personnel costs incurred during fiscal
2022. The lower customer financing net sales were related to the effect of
rising interest rates on our customer financing portfolio.

Other income (expense). Net other income was $109.3 million in fiscal 2022,
compared to net other expense of $10.7 million in fiscal 2021. The change was
primarily driven by the Gains on Vetsource Investment of $87.8 million, the Gain
on Vets Plus Investment of $13.1 million and a larger gain on our interest rate
swap agreements recorded during fiscal 2022.

Income tax expense (benefit). The effective income tax rate for fiscal 2022 was
24.2%, compared to 22.4% for fiscal 2021. The increase was primarily due to
provision to return adjustments in the prior year and a geographical shift in
earnings, which was partially offset by excess tax benefits associated with
stock-based compensation awards.

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Net income (loss) attributable to Patterson Companies, Inc. and earnings (loss)
per share. Net income attributable to Patterson Companies Inc. was $203.2
million in fiscal 2022, compared to $156.0 million in fiscal 2021. Earnings per
diluted share were $2.06 in fiscal 2022, compared to $1.61 in fiscal 2021.
Weighted average diluted shares in fiscal 2022 were 98.5 million, compared to
96.7 million in fiscal 2021. The fiscal 2022 and fiscal 2021 cash dividend
declared was $1.04 per common share.

Fiscal 2021 vs. Fiscal 2020

See Item 7 of our 2021 Annual Report on Form 10-K filed June 23, 2021.

Cash and capital resources

Net cash used in operating activities was $981.0 million in fiscal 2022,
compared to $730.5 million in fiscal 2021 and $243.5 million in fiscal 2020. Net
cash used in operating activities in fiscal 2022 was primarily due to the impact
of our Receivables Securitization Program and a net increase in inventory,
inclusive of the impact of the $49.2 million Inventory Donation Charges,
partially offset by an increase in accounts payable. Net cash used in operating
activities in fiscal 2021 was primarily due to the impact of our Receivables
Securitization Program, as well as an increase in accounts payable. Net cash
used in operating activities in fiscal 2020 was primarily due to the impact of
our Receivables Securitization Program, partially offset by a reduction in
working capital, which was driven mainly by an increase in accounts payable.

Net cash provided by investing activities was $1,239.0 million in fiscal 2022,
compared to $810.7 million in fiscal 2021 and $499.1 million in fiscal 2020.
Collections of deferred purchase price receivables were $1,213.5 million, $834.0
million and $540.9 million in fiscal 2022, 2021 and 2020, respectively. In
fiscal 2022, we recorded cash receipts of $75.9 million from the sale of
investments and used $19.8 million to acquire Miller Vet. Capital expenditures
were $38.3 million, $25.8 million and $41.8 million in fiscal 2022, 2021 and
2020, respectively. We expect to use a total of approximately $60 million for
capital expenditures in fiscal 2023.

Net cash used in financing activities in fiscal 2022 was $253.2 million, driven
by $101.1 million for dividend payments, $100.8 million for payments on
long-term debt, $35.0 million in share repurchases and $24.0 million attributed
to payments on our revolving line of credit. Net cash used in financing
activities in fiscal 2021 was $22.6 million, driven by $75.2 million for
dividend payments, partially offset by $53.0 million attributed to draws on our
revolving line of credit. Net cash used in financing activities in fiscal 2020
was $271.2 million. Uses of cash consisted primarily of $460.8 million for the
retirement of long-term debt and $100.4 million for dividend payments. In
December 2019, we entered into a $300.0 million senior unsecured term loan
facility, as described further below.

In fiscal 2022 and fiscal 2021, a quarterly cash dividend of $0.26 per share was
declared each quarter, with payment occurring in the subsequent quarter. We
currently expect to declare and pay quarterly cash dividends in the future, but
any future dividends will be subject to approval by our Board of Directors,
which will depend on our earnings, capital requirements, operating results and
financial condition, as well as applicable law, regulatory constraints, industry
practice and other business considerations that our Board considers relevant. We
are also subject to various financial covenants under our debt agreements
including the maintenance of leverage and interest coverage ratios. The terms of
agreements governing debt that we may incur in the future may also contain
similar covenants. Accordingly, there can be no assurance that we will declare
and pay dividends in the future at the same rate or at all.

In fiscal 2021, we entered into an amendment, restatement and consolidation of
certain credit agreements with various lenders, including MUFG Bank, Ltd, as
administrative agent. This amended and restated credit agreement (the "Credit
Agreement"), dated February 16, 2021, consists of a $700.0 million revolving
credit facility and a $300.0 million term loan facility, and will mature no
later than February 2024. We used the facilities to refinance and consolidate
certain credit agreements in existence prior to the Credit Agreement being
executed, pay the fees and expenses incurred therewith, and finance our ongoing
working capital and other general corporate purposes.

As of April 30, 2022, $300.0 million was outstanding under the Credit Agreement
term loan at an interest rate of 1.89%, and $29.0 million was outstanding under
the Credit Agreement revolving credit facility at an interest rate of 1.54%. As
of April 24, 2021, $300.0 million was outstanding under the Credit Agreement
term loan at an interest rate of 1.36%, and $53.0 million was outstanding under
the Credit Agreement revolving credit facility at an interest rate of 1.34%.

On March 16, 2021our Board of Directors approved a new authorization to buy back shares within the limit $500 million ordinary shares of our company by March 16, 2024replacing the March 2018 authorization to buy back shares

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until $500 million of common shares that have expired and under which no redemption has been made. From April 30, 2022, $465 million remains available under the current buyback authorisation.

We have $142.0 million in cash and cash equivalents as of April 30, 2022, of
which $85.8 million is in foreign bank accounts. See Note 12 to the Consolidated
Financial Statements for further information regarding our intention to
permanently reinvest these funds. Included in cash and cash equivalents as of
April 30, 2022 is $39.1 million of cash collected from previously sold customer
financing arrangements that have not yet been settled with the third party. See
Note 5 to the Consolidated Financial Statements for further information.

We expect the collection of deferred purchase price receivables, existing cash
balances and credit availability under existing debt facilities, less our funds
used in operations, will be sufficient to meet our working capital needs and to
finance our business over the next fiscal year.

We expect to continue to obtain liquidity from the sale of equipment finance
contracts. Patterson sells a significant portion of our finance contracts (see
below) 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
Patterson. Patterson is allowed to participate in the conduit due to the quality
of our finance contracts and our financial strength. Cash flows could be
impaired if our financial strength diminishes to a level that precluded us from
taking part in this facility or other similar facilities. Also, market
conditions outside of our control could adversely affect the ability for us to
sell the contracts.

Customer Financing Terms

As a convenience to our customers, we offer several different financing
alternatives, including a third party program and a Patterson-sponsored program.
For the third party program, we act as a facilitator between the customer and
the third party financing entity with no on-going involvement in the financing
transaction. Under the Patterson-sponsored program, equipment purchased by
creditworthy customers may be financed up to a maximum of $1 million. We
generally sell our customers' financing contracts to outside financial
institutions in the normal course of our business. We currently have two
arrangements under which we sell these contracts.

First, we operate under an agreement to sell a portion of our equipment finance
contracts to commercial paper conduits with MUFG Bank, Ltd. ("MUFG") serving as
the agent. We utilize PDC Funding, a consolidated, wholly owned subsidiary, to
fulfill a requirement of participating in the commercial paper conduit. We
receive the proceeds of the contracts upon sale to MUFG. The capacity under the
agreement with MUFG at April 30, 2022 was $525 million.

Second, we maintain an agreement with Fifth Third Bank ("Fifth Third") whereby
Fifth Third purchases customers' financing contracts. PDC Funding II, a
consolidated, wholly owned subsidiary, sells financing contracts to Fifth Third.
We receive the proceeds of the contracts upon sale to Fifth Third. The capacity
under the agreement with Fifth Third at April 30, 2022 was $100 million.

Our financing activities are further described in Note 5 to the consolidated financial statements.

Contractual obligations

A summary of our contractual obligations as of April 30, 2022 was as follows (in
thousands):
                                                    Payments due by year
                                           Less than                                    More than
                              Total         1 year        1-3 years      3-5 years       5 years
Long-term debt principal   $ 490,500      $       -      $ 450,500      $       -      $  40,000
Long-term debt interest       33,220         12,541         16,131          3,032          1,516
Operating leases              75,939         31,165         34,443          9,109          1,222
Total                      $ 599,659      $  43,706      $ 501,074      $  12,141      $  42,738


As of April 30, 2022 our gross liability for uncertain tax positions, including
interest and penalties, was $11.5 million. We are not able to reasonably
estimate the amount by which the liability will increase or decrease over an
extended period of time or whether a cash settlement of the liability will be
required. Therefore, these amounts have been excluded from the schedule of
contractual obligations.

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For a more complete description of our contractual obligations, see notes 10 and 11 to the consolidated financial statements.

Working capital management

The following table summarizes our average accounts receivable days sales
outstanding and average annual inventory turnover for the past three fiscal
years:


                                                   Fiscal Year Ended
                            April 30, 2022             April 24, 2021       April 25, 2020
Days sales outstanding           25.2                       25.9                 29.1
Inventory turnover                6.6                        6.1                  5.4


Foreign Operations

We derive foreign sales from Dental operations in Canada, and Animal Health
operations in Canada and the U.K. Fluctuations in currency exchange rates have
not significantly impacted earnings, as these fluctuations impact sales, cost of
sales and operating expenses. Changes in exchange rates positively impacted net
sales by $41.0 million and $28.4 million in fiscal 2022 and 2021, respectively,
while they adversely affected net sales by $21.9 million in fiscal 2020. Changes
in currency exchange rates are a risk accompanying foreign operations, but this
risk is not considered material with respect to our consolidated operations.

Significant Accounting Policies and Estimates

Patterson has adopted various accounting policies to prepare our consolidated
financial statements in accordance with accounting principles generally accepted
in the U.S. Management believes that our policies are conservative and our
philosophy is to adopt accounting policies that 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 judgments
regarding the realization of assets and the settlement 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 Patterson'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 to our significant accounting principles and policies that are discussed
in Note 1 to the Consolidated Financial Statements. The financial performance
and condition of Patterson may also be materially impacted by transactions and
events that we have not previously experienced and for which we have not been
required to establish an accounting policy or adopt a generally accepted
accounting principle.

Revenue Recognition - Revenues are generated from the sale of consumable
products, equipment and support, software and support, technical service parts
and labor, and other sources. Revenues are recognized when or as performance
obligations are satisfied. Performance obligations are satisfied when the
customer obtains control of the goods or services.

Sales of consumables, equipment, software and parts are recorded upon delivery, except where the terms of sale are FOB shipping point, in which case sales are recorded upon shipment. Technical services labor is accounted for as provided. Hardware and software support revenue is recognized on a pro rata basis over the period in which the support is provided.

In addition to revenues generated from the distribution of consumable products
under arrangements (buy/sell agreements) where the full market value of the
product is recorded as revenue, we earn commissions for services provided under
agency agreements. The agency agreement contrasts to a buy/sell agreement in
that we do not have control over the transaction, as we do not have the primary
responsibility of fulfilling the promise of the good or service and we do not
bill or collect from the customer in an agency relationship. Commissions under
agency agreements are recorded when the services are provided.

Estimates for returns, damaged goods, rebates, loyalty programs and other
revenue allowances are made at the time the revenue is recognized based on the
historical experience for such items. The receivables that result from the
recognition of revenue are reported net of related allowances. We maintain a
valuation allowance based upon

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the expected collectability of receivables held. Estimates are used to determine
the valuation allowance and are based on several factors, including historical
collection data, economic trends and credit worthiness of customers. Receivables
are written off when we determine the amounts to be uncollectible, typically
upon customer bankruptcy or non-response to continuous collection efforts. The
portions of receivable amounts that are not expected to be collected during the
next twelve months are classified as long-term.

Patterson has a relatively large, dispersed customer base and no single customer
accounts for more than 10% of consolidated net sales. In addition, the equipment
sold to customers under finance contracts generally serves as collateral for the
contract and the customer provides a personal guarantee as well.

Net sales do not include sales tax, as we are considered an intermediary for the collection and remittance of sales tax.

Patterson Advantage Loyalty Program - Patterson Dental provides a point-based
awards program to qualifying customers involving the issuance of "Patterson
Advantage dollars" which can be used toward equipment and technology purchases.
Patterson Advantage dollars earned during a program year expire one year after
the end of the program year. The cost and corresponding liability associated
with the program is recognized as contra-revenue. As of April 30, 2022, we
believe we have sufficient experience with the program to reasonably estimate
the amount of Patterson Advantage dollars that will not be redeemed and thus
have recorded a liability for 88.0% of the maximum potential amount that could
be redeemed. We recognize the expected breakage amount as revenue in proportion
to the pattern of rights exercised by the customer, and we recognize the
estimated value of unused Patterson Advantage dollars as redemptions occur.
Breakage recognized was immaterial to all periods presented.

Inventory and Reserves - Inventory consists primarily of merchandise held for
sale and is stated at the lower of cost or market. Cost is determined using the
last-in, first-out ("LIFO") method for all inventories, except for foreign
inventories and manufactured inventories, which are valued using the first-in,
first-out ("FIFO") method. We continually assess the valuation of inventories
and reduce the carrying value of those inventories that are obsolete or in
excess of forecasted usage to estimated realizable value. Estimates are made of
the net realizable value of such inventories based on analyses and assumptions
including, but not limited to, historical usage, future demand and market
requirements.

Goodwill and Other Indefinite-Lived Intangible Assets - Goodwill represents the
excess of cost over the fair value of identifiable net assets of businesses
acquired. Impairment testing for goodwill is done at the reporting unit level,
with all goodwill assigned to a reporting unit. We have two reporting units as
of April 30, 2022; Dental and Animal Health. Our Corporate reportable segment's
assets and liabilities, and net sales and expenses, are allocated to the two
reporting units. We assess goodwill for impairment annually and whenever an
event occurs or circumstances change that would indicate that the carrying
amount may be impaired. Any goodwill impairment is measured as the amount by
which a reporting unit's carrying value exceeds its fair value, not to exceed
the carrying value of goodwill.

The determination of fair value involves uncertainties because it requires
management to make assumptions and to apply judgment to estimate industry and
economic factors and the profitability of future business strategies. Patterson
conducts impairment testing based on current business strategy in light of
present industry and economic conditions, as well as future expectations.
Additionally, in assessing goodwill for impairment, the reasonableness of the
implied control premium is considered based on market capitalizations and recent
market transactions.

Our indefinite-lived intangible asset is a trade name, which is assessed for
impairment by comparing the carrying value of the asset with its fair value. If
the carrying value exceeds fair value, an impairment loss is recognized in an
amount equal to the excess. The determination of fair value involves
assumptions, including projected revenues and gross profit levels, as well as
consideration of any factors that may indicate potential impairment.

In connection with the preparation of these financial statements in the fourth
quarter of fiscal 2022, management completed its annual goodwill and other
indefinite-lived intangible asset impairment tests using the beginning of our
fiscal 2022 fourth quarter as the valuation date. We determined that there was
no impairment of either goodwill or our indefinite-lived intangible asset.

In connection with the preparation of these financial statements in the fourth
quarter of fiscal 2021, management completed its annual goodwill and other
indefinite-lived intangible asset impairment tests using the beginning of our
fiscal 2021 fourth quarter as the valuation date. We determined that there was
no impairment of either goodwill or our indefinite-lived intangible asset.

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In connection with the preparation of our fiscal 2020 Form 10-K in the fourth
quarter of fiscal 2020, management completed its annual goodwill and other
indefinite-lived intangible asset impairment tests using the beginning of our
fiscal 2020 fourth quarter as the valuation date. We determined that there was
no impairment of our indefinite-lived intangible asset. Our annual goodwill
impairment test resulted in no impairment to the Dental reporting unit's
goodwill, and a $269.0 million non-cash pre-tax impairment charge of our Animal
Health reporting unit's goodwill.

The decrease in the fair value of the Animal Health reporting unit below its
carrying value was mainly the result of a reduction in management's estimates of
future cash flows. Future cash flows were affected by a reduction in future
sales volume and operating margins. The sales volume estimate reflected recent
sales trends we had experienced. Future operating margins were expected to be
lower based on then-current trends in our markets. These trends were driven by
customer and vendor consolidation.

Subsequent to the annual test being completed and in connection with the
preparation of our fiscal 2020 Form 10-K in the fourth quarter of fiscal 2020,
we experienced events and circumstances that indicated that the carrying amount
of goodwill may have been further impaired. These events and circumstances
included a decline in our projected future earnings and a sustained decrease in
our share price. As such, we tested our goodwill for impairment as of the
beginning of our fiscal April 2020. This test resulted in no impairment to the
Dental reporting unit's goodwill, and a $406.1 million non-cash pre-tax
impairment charge of our Animal Health reporting unit's goodwill.

The decrease in the fair value of the Animal Health reporting unit subsequent to
the annual goodwill impairment test was caused by additional reductions in
management's estimates of future cash flows, driven by reduced sales volumes, as
well as reduced EBITDA multiples of comparable companies. These estimates and
market multiples were negatively affected by COVID-19. In fiscal 2020, the
animal health industry experienced a reduction in sales volume as a result of
stay at home and shelter in place orders, as well as a result of meat packing
plant closures. Our future cash flow estimates for this business unit in fiscal
2020 reflected the long-term impact of COVID-19.

As of April 25, 2020, our Animal Health reporting unit had no remaining goodwill
as a result of the total goodwill impairment charges recorded in fiscal 2020 of
$675.1 million.

Long-Lived Assets - Long-lived assets, including definite-lived intangible
assets, are evaluated for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable through
the estimated undiscounted future cash flows derived from such assets. Our
definite-lived intangible assets primarily consist of customer relationships,
trade names and trademarks. When impairment exists, the related assets are
written down to fair value using level 3 inputs, as discussed further in Note 7
to the Consolidated Financial Statements.

Development Costs of Software to be Sold - At the end of each fiscal quarter, we
compare the unamortized capitalized costs of software to be sold to its net
realizable value. If the unamortized amount exceeds the net realizable value, an
impairment is recorded for this amount of that asset shall be written off. If
the unamortized capitalized costs are less than the net realizable value of that
asset, then there is no impairment.

Related Party Transactions - We have interests in a number of entities that are
accounted for using the equity method. During fiscal 2022, 2021 and 2020 we made
purchases of $128.5 million, $110.2 million and $94.2 million from these
entities, respectively. During fiscal 2022, 2021 and 2020, we recorded net sales
of $117.3 million, $93.6 million and $110.3 million to these entities,
respectively.

Income Taxes - We are subject to income taxes in the U.S. and numerous foreign
jurisdictions. Significant judgments are required in determining the
consolidated provision for income taxes. Changes in tax policy or interpretation
of current tax law create potential added uncertainties.

During the ordinary course of business, there are many transactions and
calculations for which the ultimate tax determination is uncertain. As a result,
we recognize tax liabilities based on estimates of whether additional taxes and
interest will be due. These tax liabilities are recognized when, despite our
belief that our tax return position is supportable, we believe that certain
positions may not be fully sustained upon review by tax authorities. We believe
that our accruals for tax liabilities are adequate for all open audit years
based on our assessment of many factors including past experience and
interpretations of tax law. This assessment relies on estimates and assumptions
and may involve a series of complex judgments about future events. To the extent
that the final tax outcome of these matters is different than the amounts
recorded, such differences will impact income tax expense in the period in which
such determination is made and could materially affect our financial results.

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Valuation allowances are made for deferred tax assets if, after evaluating the available positive and negative evidence, it is more likely than not that the deferred tax asset will not be fully realized.

Self-insurance - Patterson is self-insured for certain losses related to general
liability, product liability, automobile, workers' compensation and medical
claims. We estimate our liabilities based upon an analysis of historical data
and actuarial estimates. While current estimates are believed reasonable based
on information currently available, actual results could differ and affect
financial results due to changes in the amount or frequency of claims, medical
cost inflation or other factors. Historically, actual results related to these
types of claims have not varied significantly from estimated amounts.

Stock-based Compensation - We recognize stock-based compensation based on
certain assumptions including inputs within valuation models, estimated
forfeitures and estimated performance outcomes. These assumptions require
subjective judgment and changes in the assumptions can materially affect fair
value estimates. Management assesses the assumptions and methodologies used to
estimate forfeitures and to calculate estimated fair value of stock-based
compensation on a regular basis. Circumstances may change, and additional data
may become available over time, which could result in changes to these
assumptions and methodologies and thereby materially impact the fair value
determination or estimates of forfeitures. If factors change and we employ
different assumptions, the amount of compensation expense associated with
stock-based compensation may differ significantly from what was recorded in the
current period.

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