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Press Release

February 1, 2006 at 12:00 AM EST

Owens & Minor Reports Strong Revenue Growth and Exceptional Operating Cash Flow of $135.4 Million for 2005

RICHMOND, Va., Feb. 1 /PRNewswire-FirstCall/ -- Owens & Minor (NYSE: OMI) reported revenue of $4.82 billion for the year ended December 31, 2005, up 6.6% compared to revenue of $4.53 billion in 2004. Earnings per diluted common share (EPS) for the year were $1.61, an increase of 5.2% compared to EPS of $1.53 for 2004. Net income for 2005 was $64.4 million, improved 6.5% from net income of $60.5 million last year. Earnings results include a fourth quarter $3.5 million pre-tax, software asset write-off, resulting from the company's plan to take advantage of new technology, enabling it to migrate, rather than replace, key operating systems. The write-off reduced 2005 earnings by approximately $0.05 per diluted common share. By migrating these operating systems to a modern, web-based platform from a mainframe environment, Owens & Minor will avoid a costly enterprise resource planning (ERP) system replacement project and have a more flexible, cost effective platform designed to improve service to customers.

 

"Our financial performance in 2005 demonstrates that we are operating at a very efficient level," said Craig R. Smith, president and chief executive officer of Owens & Minor. "We continue to report growing revenue, strong expense control, and exceptional cash flow, while maintaining our focus on customers. A deeper review of our performance demonstrates that we are successfully working our long-term strategy by developing new markets in healthcare, improving operational efficiency, and helping hospital customers improve the supply chain, while at the same time, supporting our teammates as they strive to be the best in the business."

Other 2005 Results

Operating earnings for 2005 were 2.4% of revenue, unchanged from 2004, despite the impact of the software asset write-off in the fourth quarter and the effect of Gulf Coast hurricanes in the second half of the year. Gross margin for the year was 10.7% of revenue, improved from 10.2% in 2004. The improvement was driven by contributions from direct-to-consumer sales, MediChoice® private label products, and OMSolutions(SM), partially offset by lower contributions from alternate source purchasing. SG&A for the full year was 7.9%, compared to 7.5% last year. This increase was driven by expenses associated with the company's direct-to-consumer effort, partially offset by improved productivity in the company's core distribution business.

Fourth Quarter 2005 Results

Revenue for the fourth quarter ended December 31, 2005, was $1.22 billion, up 4.3% from $1.17 billion in the same period last year. The pace of revenue growth in the fourth quarter was affected by comparisons to a strong 2004 fourth quarter, the ongoing impact of hurricanes on Gulf Coast region customers, as well as slower than expected conversions of certain new customer accounts. EPS for the quarter was $0.39, unchanged from the fourth quarter of last year. Net income for the fourth quarter 2005 was $15.7 million, improved from net income of $15.4 million in the same period of 2004.

For the quarter, gross margin was 10.8% of revenue, improved from 10.3% in the same period last year. SG&A for the quarter was 7.8% of revenue, compared to 7.5% in the same period last year. Fourth quarter gross margin and SG&A results were driven by the same trends that affected total year results.

For the fourth quarter, operating earnings, which were negatively affected by the $3.5 million software asset write-off, were 2.3% of revenue, down slightly from last year's 2.4% of revenue.

Asset Management

Cash flow from operations for the year was very strong at $135.4 million, as a result of continued strength in asset management in 2005. Days sales outstanding (DSO) as of December 31, 2005, were 26.3, compared to 26.5 days at December 31, 2004. Inventory turns were 10.0 for the fourth quarter of 2005, compared to turns of 9.6 for the fourth quarter of 2004.

2006 Outlook

For 2006, the company anticipates it will report revenue growth in the 6 to 8% range, and diluted EPS in a range of $1.75 to $1.80, with stronger comparative earnings after the first quarter. The company's 2006 EPS guidance includes an estimated $0.05 impact resulting from the expensing of equity- based compensation associated with implementation of a new accounting standard. Owens & Minor's 2006 EPS expectations also include the impact of an estimated $1.2 million of one-time, pre-tax expenses in the first quarter associated with the company's relocation to its new headquarters.

    2005 Highlights
    Leadership Transitions
    * G. Gilmer Minor, III, continues to serve as chairman of the board of
      Owens & Minor, after retiring as chief executive officer
    * Craig R. Smith was appointed president and chief executive officer,
      effective July 1, 2005; elected to Owens & Minor board of directors in
      2005
    * Eddie N. Moore, Jr., president of Virginia State University, elected to
      Owens & Minor board of directors in 2005
    * Richard W. Mears named senior vice president, chief information officer,
      for Owens & Minor, effective June 6, 2005, after serving more than 15
      years with Perot Systems Corp.
    Strategic Acquisitions in 2005
    * Owens & Minor successfully entered the direct-to-consumer, diabetes
      supply market in 2005 with acquisition of Access Diabetic Supply, LLC
    * Owens & Minor subsequently acquired the assets of Direct Diabetic
      Supplies, Inc., and certain assets of iCare Medical Supply, Inc., two
      additional, small companies in the diabetes supply market
    * Owens & Minor acquired the assets of Perigon, LLC, a small, healthcare
      supply-chain-solutions company, and incorporated Perigon's innovative
      technology solutions into its WISDOM Gold(SM) technology and
      OMSolutions(SM) offerings
    * Owens & Minor acquired Cyrus Medical Systems, Inc., a software company
      that successfully created and marketed a tissue implant tracking system,
      expanding the technology offerings of OMSolutions(SM)
    Significant Customer Agreements
    * In July 2005, Owens & Minor signed a three-year distribution agreement
      with Premier, Inc., a strategic alliance owned by more than 200 of the
      nation's leading hospital and healthcare systems, representing more than
      1,500 hospitals
    * Owens & Minor signed a five-year distribution agreement with Catholic
      Health Initiatives, effective July 1, 2005
    * Owens & Minor signed a MediChoice(R) agreement with MedAssets effective
      April 1, 2005, under which O&M began offering the MediChoice(R) private
      label line to MedAssets members
    * Owens & Minor was named a Prime Vendor for Medical & Surgical Supply
      Distribution Services for U.S. Defense Department Organizations
      Worldwide, effective October 2005
    Significant Recognition
    * Owens & Minor won the prestigious 2005 Better Business Bureaus'
      International Torch Award for Marketplace Ethics
    * Owens & Minor earned investment grade status from S&P during the third
      quarter of 2005, with a new corporate credit rating of 'BBB-'
    * Owens & Minor received Premier's "Annual Diversity Recognition Award" in
      honor of its efforts to support minority and women-owned businesses

Owens & Minor, Inc., (NYSE: OMI) a FORTUNE 500 company headquartered in Richmond, Virginia, is the leading distributor of national name-brand medical and surgical supplies and a healthcare supply chain management company. With a diverse product and service offering and distribution centers throughout the United States, the company serves hospitals, integrated healthcare systems, alternate care locations, group purchasing organizations, the federal government and consumers. Owens & Minor provides technology and consulting programs that enable healthcare providers to maximize efficiency and cost- effectiveness in materials purchasing, improve inventory management and streamline logistics across the entire medical supply chain -- from origin of product to patient bedside. The company also has established itself as a leader in the development and use of technology. For news releases, or for more information about Owens & Minor, visit the company Web site at http://www.owens-minor.com.

Safe Harbor Statement

Except for the historical information contained herein, the matters discussed in this press release may constitute forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These include the ability to assimilate the operations of an acquired business into the company, the potential loss of key personnel, intense competitive pressures, such as pricing, within the healthcare industry, the success of direct marketing programs in attracting new customers, the ability to retain existing customers, changes in customer order patterns, changes in healthcare laws and regulations, changes in government, including Medicare, reimbursement guidelines and private insurer reimbursement amounts, the ability to maintain product suppliers, product price increases by suppliers and other factors discussed from time to time in the reports filed by the company with the Securities and Exchange Commission. The company assumes no obligation to update information contained in this release.

Conference Call Details

Owens & Minor will conduct a conference call on Thursday, February 2, 2006 at 8:30am (Eastern Time) to discuss fourth quarter and year-end 2005 results. The telephone number for the Owens & Minor conference call is 800-901-5241, with a passcode of "Owens & Minor." The call will also be available by replay for five days by calling 888-286-8010, with access code: #29735579. The call will also be available as a webcast for 21 days through http://www.owens-minor.com.