Owens & Minor Annual Report 1999

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FY1999 Annual Report · Owens & Minor

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Owens&Minor
Solutions
Technology

O W E N S & M I N O R 1 9 9 9 A N N U A L R E P O R T & F O R M 1 0 - K

The nation’s largest

distributor of national name

brand medical/surgical

supplies uses the strength

of its people and the

power of technology to

serve its customers.

ABOUT THE COMPANY

1999 FINANCIAL OVERVIEW

LETTER TO SHAREHOLDERS

COMPANY AT A GLANCE

C O M P A N Y O V E R V I E W

M I S S I O N

Owens & Minor, Inc., a Fortune 500
company headquartered in Richmond,
Virginia, is the nation’s largest distributor
of national name brand medical/surgical
supplies. With distribution centers located
throughout the United States, the company
serves hospitals, integrated healthcare
systems and group purchasing organiza-
tions. In addition to a diverse product
offering, Owens & Minor offers innovative
services in supply chain management,
logistics and technology, helping customers
control healthcare costs and improve
inventory management.

Founded in 1882, Owens & Minor
began as a wholesale drug company, but
since 1992, the company has focused
solely on the distribution of medical/surgi-
cal supplies. With the advent of the digital
marketplace, Owens & Minor is now
leading the way among distributors in
exploring e-commerce and other methods
of sharing information using the Internet.

Owens & Minor’s common shares are
traded on the New York Stock Exchange
under the symbol OMI. As of December 31,
1999, there were approximately 15,000
common shareholders.

A B O U T T H E C O V E R

At Owens & Minor, we believe that solving
supply chain problems for our customers
is what we do best. By making the most
of technology’s tools, we are able to help
customers streamline inventory manage-
ment, purchasing, invoicing and contract
compliance. Through our innovative use
of technology, we provide our customers
with solutions that make a crucial differ-
ence in a demanding market.

To create consistent value for our customers and supply
chain partners that will maximize shareholder value
and long-term earnings growth; we will do this by
managing our business with integrity and the highest
ethical standards, while acting in a socially responsible
manner with particular emphasis on the well-being of
our teammates and the communities we serve.

V I S I O N

To be a world class provider of supply chain manage-
ment solutions to the selected segments of the healthcare
industry we serve.

V A L U E S

We believe in our teammates and their well-being.

We believe in providing superior customer service.

We believe in supporting the communities we serve.

We believe in delivering long-term value to
our shareholders.

We believe in high integrity as the guiding principle
of doing business.

C O N T E N T S

Corporate Profile

1999 Financial Overview

Letter to Shareholders

Company at a Glance

Solutions

Corporate Officers

Board of Directors

Distribution Network

Financials

Inside Front Cover

ABOUT THE COMPANY

1999 FINANCIAL OVERVIEW

LETTER TO SHAREHOLDERS

COMPANY AT A GLANCE

1 9 9 9 F I N A N C I A L O V E R V I E W

(in thousands, except ratios, per share data and employee statistics)

Year ended December 31,

1999

1998

1997

99/98

98/97

Percent Change

Net sales

Net income

Net income per common share – basic

Net income per common share – diluted

Net income excluding restructuring(1)

Net income per common share

excluding restructuring(1):

Basic
Diluted

Cash dividends per common share

Book value per common share

Stock price per common share at year-end

Number of common shareholders

Return on average common equity

excluding restructuring(1)

Return on total assets

excluding restructuring(1) (2)

Gross margin as a percent of net sales

Selling, general and administrative expenses

as a percent of net sales

Debt(2)

Capitalization ratio(2) (3)

Average receivable days sales outstanding(2)

Average inventory turnover

Employees at year-end

$3,186,373

$3,082,119

$3,116,798

$
$

27,979

0.86

0.82

27,420

0.84
0.80

0.23

5.58

8.94

15.0

$
$

20,145

0.56

26,753

0.77
0.75

0.20

4.94

15.75

15.5

32,618

$
$

24,320

0.60

24,320

0.60
0.60

0.18

4.48

14.50

16.1

32,213

3.4%

38.9%

53.6%

46.4%

2.5%

9.1%
6.7%

15.0%

13.0%

(43.2%)

(3.2%)

0.3%

(1.1%)

(17.2%)

(6.7%)

10.0%

28.3%
25.0%

11.1%

10.3%

8.6%

(3.7%)

1.3%

16.0%

15.9%

14.1%

0.6%

12.8%

3.1%

10.5%

3.3%

10.6%

3.0%

10.2%

(6.1%)

(0.9%)

10.0%

3.9%

7.6%

7.8%

7.5%

(2.6%)

4.0%

$ 280,790

$ 225,000

$ 292,550

24.8%

47.2%

43.4%

53.0%

35.6

9.2

2,774

34.7

9.8

2,661

33.4

9.9

3,010

Shares of common stock outstanding

32,711

(1) See Note 3 to Consolidated Financial Statements regarding the 1998 nonrecurring restructuring

expenses ($11.2 million before tax) and the 1999 reserve adjustment ($1.0 million before tax).

(2) Excludes impact of off balance sheet receivables securitization agreement. See Note 7 to Consolidated Financial Statements.
(3) Includes mandatorily redeemable preferred securities as equity.

(23.1%)

(18.1%)

3.9%

(1.0%)

8.8%

2.6%

(6.1%)

4.2%

(11.6%)

ABOUT THE COMPANY

1999 FINANCIAL OVERVIEW

LETTER TO SHAREHOLDERS

COMPANY AT A GLANCE

Dear Shareholders,

Teammates,Customers,

Suppliers and Friends,
W

in 1999. We fully restored our business,
fueling our momentum into 2000. The results
we achieved in 1999, especially in the third and fourth
quarters, bode well for a more robust future.

e had a remarkable and successful year

didn’t “buy” the new business to replace the lost
business. SG&A (Selling, General and Administrative
Expenses) as a percent to sales dipped to 7.6% in
1999, down from 7.8% for the previous year. In the
fourth quarter of 1999, SG&A was $62.5 million, up
only 6% from a year ago, despite the 20% sales
increase. Getting SG&A down even further as a per-
cent to sales is one of our highest priorities in 2000.

Earnings per diluted common share for the year were
$0.80, up 7% from last year, and $0.25, up 25%, for the
fourth quarter, compared to the fourth quarter of 1998.
These comparisons, and all other full-year compar-
isons included in this letter, exclude the effects of a
$6.6 million after-tax restructuring charge taken in
the second quarter of 1998, and a related $0.6 million
after-tax credit taken in the second quarter of 1999.
Cash flow was healthy and allowed us to pay down
debt by $26.9 million, net of the Medix acquisition.
We were able to reduce our overall financing costs for
the year through strong asset management. At year-
end, however, we employed more working capital to
fund our sales growth and experienced a modest
increase in days sales outstanding from 34.7 days to
35.6 days, and inventory turns decreased slightly from
9.8 times to 9.2 times.

Capital expenditures were $22 million for the year,
reflecting the emphasis on our strategic decision to
invest in technology. Productivity improved, as sales per
full time equivalent employee (FTE) increased 7%,
and gross margin per FTE increased 7%.

A R E V I E W O F O U R S U C C E S S F U L

S T R A T E G Y F O R 1 9 9 9

At the beginning of 1999, we knew we had to
rebuild our business and restore our profitability.
Strategically, we decided to focus on what we do best.

We said we were going to restore our sales volume,
and we did. We said we were going to maintain our
profitability on the new business, and we did. We
said we were going to maintain our industry-leading
service reputation, and we did. We said we were
going to invest heavily in solution-based technology
tools to help our customers, and we did. We said we
were going to improve productivity, and we did. We
accomplished all this as a team of committed souls,
all focused on serving our customers and working to
improve shareholder value.

Shareholder value is of paramount concern to all of
us at Owens & Minor. At this writing, our share price
is well below our expectations, and, we believe well
below the inherent value of Owens & Minor. Through
hard work and determination in 1999, we more than
restored our reputation and market presence, and grew
our profitability. We increased shareholder value on
our balance sheet, and we feel we are in position to
earn a higher valuation in the equities’ market in 2000.

T H E N U M B E R S

Our financial results for the year were impressive. The
following results include Medix, which we acquired
on July 30. As we expected, Medix had no material
impact on earnings in 1999.

Sales increased 3.4% for the year and 20.1% in the
fourth quarter. Without Medix, sales were up 0.8%
for the year and 13.4% in the fourth quarter. Virtually
all major group contract purchases were up. The
Tenet business conversion exceeded our expectations.
Gross margin dollars were up. In other words, we

CORPORATE OFFICERS

BOARD OF DIRECTORS

DISTRIBUTION NETWORK

FINANCIALS

Our core competency is that we are the most effi-
cient distributor in our industry, while adding value
by providing great service and technology-based
solutions to help our customers.

We turned up the pressure on ourselves. We knew
we had the best technology tools in the business
and the best service, so we packaged our offering
that way. Price is always a factor, but we were deter-
mined not to give our value away. We earned the
Tenet business, and then put into play the smoothest
and most comprehensive conversion this industry
has ever seen. Our annualized sales rate for Tenet at
the end of December 1999, was over $250 million.

By mid-year in 1999, we began to see new sales
earned in 1998 come on line as expected. In July, we
acquired Medix, a medical/surgical distributor based
in Wisconsin. This acquisition increased our market
share, particularly in the Midwest, and added signifi-
cant new customers, especially Consorta Catholic
Resource Partners.

To manage our costs more efficiently we downsized
some warehouses that had extra capacity and installed
our CSW (Client Server Warehousing) system in all of
our divisions. CSW has improved accuracy, information
flow and speed in our warehouses.

We also reorganized our field management to take
advantage of the ‘close to the customer’ strength
we have across the nation. We divided the country
into eleven management areas, increasing firepower
in the field for sales, operations, technology and
human resources.

We knew we had to manage our assets efficiently,
pay down debt and lower our interest costs. We
accomplished all three with hard work, planning
and execution.

G. Gilmer Minor, III
Chairman and Chief Executive Officer

Craig R. Smith
President and Chief Operating Officer

We also continued our work with suppliers, figuring
out ways to take real cost out of the supply chain.
This cross-functional team effort is very important
to Owens & Minor, as our commitment to national
brands increases our value to our customers.

Nothing we achieved in 1999 would have been
possible without the efforts and determination of
our teammates, who rose to the occasion time and
again until we accomplished our objectives.

E X P E C T A T I O N S F O R 2 0 0 0

Our strategy for 2000 is aimed at growing revenues at
8 to 10 percent, while maintaining our gross margin,
lowering SG&A, and improving earnings by 13 to 15
percent or more. If we can do all this, we expect our
stock price to increase, consistent with our perfor-
mance and the health of our market sector.

Our hard work in three strategic areas over the past
year had a significant impact on our 1999 results,
and we will continue to exploit these areas in 2000.
The first is maintaining operational excellence, which
means running our business so that we provide the
absolute best service in the industry. Second, we

ABOUT THE COMPANY

1999 FINANCIAL OVERVIEW

LETTER TO SHAREHOLDERS

COMPANY AT A GLANCE

We Believe That Our

Most Important Product

Is Our Word.

want to convert information into knowledge into
profits. We have done an outstanding job here with
CostTrack, PANDAC®, FOCUS and WISDOM in help-
ing our customers manage their businesses more
profitably. (These Owens & Minor tools are described
more fully later in this report.) Third, we want to
follow and support patient care. As patients migrate
to non-traditional settings for healthcare, we will be
there to supply their needs.

E - C O M M E R C E O P P O R T U N I T I E S

Owens & Minor is on the leading edge when it
comes to business-to-business, Internet-based com-
munications with our customers. In fact, we won
recognition for our innovative use of technology in
1999 when we were named to the “E-Business 100”
by InformationWeek Magazine, and when we won
the 1999 Leadership in Data Warehousing Award
from the Data Warehousing Institute.

We are working closely with our largest customers,
health alliances and group purchasing organizations,
to implement e-commerce solutions involving the
collection and organization of useful data, as well as
more efficient order processing. We have developed
our own e-commerce capability for order processing
called OM Direct. Over 200 customers have signed
up with OM Direct, and we are processing orders
at a rate of over $3 million per month.

Also, we are partnering with several healthcare Web
sites, such as Neoforma.com (NASDAQ: NEOF) and
medicalbuyer.com™, to explore the value of small
package distribution to new markets for Owens &
Minor, such as physicians’ offices. We call our small
package initiative “eMedExpress” (soon to be a
“dot-com” site).

We are developing an open business-to-business,
e-commerce digital platform with Perot Systems

(NYSE: PER) to process customer orders for multiple
vendors through one portal. This initiative will pro-
vide our customers with the ability to do business
with multiple best-of-class strategic partners, while
achieving back-office savings and efficiencies through
a more disciplined process.

We look at e-commerce as an opportunity to
grow our business. Even in the exciting world of
e-commerce, the function of distribution must be
performed. The question is who can do it best.
The answer is Owens & Minor.

P R O M O T I O N S A N D E L E C T I O N S

Owens & Minor proved again in 1999 that it has
both strength and depth on its management team.
We made a number of important promotions during
the year that made us even more effective.

Craig R. Smith was named President of the company
in April 1999, while retaining his position as Chief
Operating Officer. Craig has generated tremendous
energy and a sense of urgency to restoring our
market presence, and he has clearly been successful
in this important leadership post.

Timothy J. Callahan was recently promoted to
the position of Corporate Senior Vice President,
Distribution, with responsibility for our entire field
organization and distribution network.

Charles C. Colpo was named Corporate Senior Vice
President, Operations, after working his way through
our field organization and making his mark in many
areas of the company.

Erika T. Davis was promoted to Corporate Vice
President of Human Resources. Erika has done
a magnificent job helping our Human Resources
team be a most responsive and helpful advocate
for our teammates.

CORPORATE OFFICERS

BOARD OF DIRECTORS

DISTRIBUTION NETWORK

FINANCIALS

In 1999, two new Directors were elected to the
Board. Peter S. Redding, President and CEO of
Standard Register, joined the Board in April, and
John T. Crotty, Managing Partner of CroBern
Management Partnership, a healthcare investment,
consulting and advisory firm, joined us in July. Both
Pete and John bring supply chain management
experience and leadership to Owens & Minor.

A N D L O S S E S

In March 1999, Ann Greer Rector, Senior Vice
President and Chief Financial Officer, passed away
after a short illness. She was our friend, a gallant
lady and truly represented the best of Owens & Minor.
We miss her terribly, but her can-do spirit is a legacy
for us all.

In August 1999, we lost our beloved Director Emeritus,
Royal E. Cabell, Jr. Roy had just retired from the Board
in April after 37 years of service. He was a mentor,
proactive in helping steer the company to growth,
sometimes through perilous waters, and a dear, loyal
friend. His hearty laugh and broad smile will always
be missed.

A N E W Y E A R , A N E W C E N T U R Y ,

A N E W M I L L E N N I U M

Owens & Minor has provided service to the health-
care industry in three centuries. Our sterling roster
of customers proves we are leading the way in our
industry. Each year U.S. News & World Report com-
piles an “honor roll” of the nation’s best hospitals.
Of these top 13 institutions, Owens & Minor is the
primary supplier to eight of them. We see this as
evidence that we are doing things right.

The industry we serve is in the throes of change
as the government, third party payors, providers and
patients battle over the quality and cost of care.

Yet, healthcare is a growth industry any way you look
at it, with our population aging and medical require-
ments accelerating. We believe our strategy of providing
innovative supply chain answers, working with strategic
partners like Perot Systems, and providing the absolute
best-of-class service, not only works for us, but provides
dynamic solutions for our customers. If our strategy
weren’t correct, how else could we have come back
so strong, so fast? Owens & Minor keeps changing
and keeps growing by doing things right.

To our suppliers and customers, we are grateful for
your loyalty and support as we all work together
in a very tough industry; to our teammates, we are
grateful for your courage, your determination and
loyalty as we delivered on our promises in 1999. To
our shareholders, we are grateful for your continued
support. It’s hard to be patient in this market, but we
do feel patience will be rewarded.

Thank you all for being part of the Owens & Minor team.

Warmest regards,

G. Gilmer Minor, III
Chairman and Chief Executive Officer

Craig R. Smith
President and Chief Operating Officer

ABOUT THE COMPANY

1999 FINANCIAL OVERVIEW

LETTER TO SHAREHOLDERS

COMPANY AT A GLANCE

W E P U R C H A S E G O O D S

W E H O L D T H E

W E W A R E H O U S E

W E R E D U C E

F O R O U R C U S T O M E R S

I N V E N T O R Y

We help our customers lower
their purchasing costs by
doing the work for them.
By purchasing goods in large
volume, we are able to buy
at lower cost, streamline
delivery, and collect important
sales and usage information
for our customers.

We buy and hold inventory
for our customers. With sophis-
ticated delivery processes, we
deliver and invoice goods only
when our customers are ready.
Rather than tying up capital in
stock sitting in a warehouse,
our customers save money
by using our “just-in-time” and
stockless services, receiving
supplies at the time they
are needed.

I N V E N T O R Y C O S T S

Because we have refined the
art of warehousing, we are
able to reduce costs for our
customers. In many cases,
we do the warehousing for
them. Or, we employ a
just-in-time delivery system
that eliminates the cost
of storage.

With warehouse facilities
around the nation, Owens &
Minor stores medical and
surgical supplies close to our
customers. Because it costs
money every time an item is
handled, we’ve researched
and developed ways to sim-
plify handling. Using tools
such as CSW (Client Server
Warehousing), we are able
to streamline receipt and
storage of materials. In some
instances, we bypass the
warehouse altogether, taking
supplies directly to where
they are needed.

CORPORATE OFFICERS

BOARD OF DIRECTORS

DISTRIBUTION NETWORK

FINANCIALS

W E C U S T O M I Z E O U R

W E A D D V A L U E

W E D E L I V E R

Once our customers are
ready to receive shipments,
we customize how we load
our pallets and trucks, reduc-
ing labor on the receiving
end. Receiving documents are
customized to conform with
our customers’ information
systems. Also, we deliver only
when our customers are ready,
allowing them to streamline
their receiving activity.

Our warehouse facilities
are located throughout the
United States close to our
customers. To deliver supplies
on time, Owens & Minor
uses its own drivers, who are
important ambassadors for
our company. They are com-
mitted to customer service.

I N F O R M A T I O N S E R V I C E S

One of the most important
by-products of what we do at
Owens & Minor is informa-
tion. Because we collect and
store data, we are able to help
customers with purchasing
and supply-chain analysis.
We support them in product
standardization and contract
compliance, and help cus-
tomers pinpoint ways to
streamline and save money.
WISDOM, a new product
launched in 1999, gives our
subscribers Internet access
to their own purchasing and
invoice information.

W E I N V O I C E

A N D C O L L E C T

Once products are delivered,
we invoice and collect. By
using electronic billing and
funds transfer, we reduce
costs for ourselves and for
our customers. A variety of
terms are offered to suit
the needs of our individual
customers. Many of our cus-
tomers are members of group
purchasing organizations or
large hospital systems and
they are able to take advan-
tage of favorable pricing.

OWENS & MINOR, INC.

Solutions In Supply Chain

Management Through CSW

At Owens & Minor, we focus

on providing the ultimate in

service for our customers—

solutions. By blending 118

years of experience serving

the healthcare industry with

the latest in technological

innovations, we are providing

supply chain management

solutions for our customers—

hospitals, integrated health-

care systems and group

purchasing organizations.

As an industry leader,

we strive to anticipate

challenges emerging for

our healthcare partners.

O W E N S & M I N O R P R O V I D E S S O L U T I O N S

I N S U P P L Y C H A I N M A N A G E M E N T

In 1999, Owens & Minor fully implemented CSW, or
Client Server Warehousing, in its warehouses through-
out the country. This computer-based warehouse
management system has standardized warehouse
processes throughout the company. Prior to the
implementation of CSW, Owens & Minor used three
different systems to run its warehouses.

With CSW, each item is tracked from the moment it
enters the warehouse until it reaches its destination,
improving inventory control. Efficiency in the picking
and putaway of products has increased, improving
our service to customers.

The hand-held RF (radio frequency) units used by
teammates to track every item in the warehouse also
provide Owens & Minor information on the efficiency
of each teammate. Because Owens & Minor has
used this information to improve efficiency, the com-
pany is benefiting from a reduction in overtime.

In a business as complex as Owens & Minor’s,
efficiency has a great impact on the bottom line.
By using this computer-based technology to track the
movement of every item, Owens & Minor has found
a way to cut costs, and improve teammate efficiency,
invoice accuracy and customer satisfaction.

We Constantly

Find Ways To Stay Close

To Our Customers.

Solutions In Cost Management

Through CostTrack

Activity-Based-Management

OWENS & MINOR, INC.

Merging Our Skills With

Our Customers’Needs

Makes Us Different.

O W E N S & M I N O R P R O V I D E S

S O L U T I O N S I N C O S T M A N A G E M E N T

With more than a century’s experience in supply chain
management, Owens & Minor is constantly finding better
ways to manage and reduce costs for itself and its cus-
tomers. With the goal of delivering efficient, high quality
service to customers, Owens & Minor offers CostTrack
activity-based-management.

This industry-leading program separates the cost
of the product from the process of delivering it, thus
identifying the true cost of distribution. CostTrack
recognizes and rewards efficiencies such as electronic
commerce and standardization of commodity products.

An independent study determined that while hospitals
spend about 15 percent of their budgets on supplies,
they spend another 10 to 20 percent on managing
those supplies. These costly internal processes provide
Owens & Minor opportunities to help customers save
by implementing CostTrack.

With CostTrack, Owens & Minor customers pay for
exactly the services they choose. For example, a
customer might ask that we deliver supplies to the
loading dock—a relatively low cost activity. However,
another customer might ask that Owens & Minor
take supplies all the way into the emergency room
or operating room. This is a higher cost activity, but
one that Owens & Minor provides as an outsourcing
solution for many customers.

Rather than using a cost-plus model, Owens & Minor
charges according to the complexity of the activity.
Customers can choose from a range of services, from
basic distribution to a full outsourcing arrangement.

These hand-held RF (radio
frequency) units improve
efficiency in Owens & Minor’s
warehouses.

Every Assignment From

Our Customers Gives Us

The OpportunityToExcel.

By using the best technology

available in partnership with

our customers, we believe

we have developed the right

formula for our industry. We

believe that Owens & Minor

leads the industry by provid-

ing in-depth knowledge and

experience in supply chain

management to customers

and by using technology

to create solutions for our

partners. We believe that

when we deliver solutions,

we deliver satisfaction.

O W E N S & M I N O R P R O V I D E S

S O L U T I O N S I N D A T A M A N A G E M E N T

In 1999, Owens & Minor launched a major Internet-
based initiative, opening its vast data warehouse to
customers and suppliers. This award-winning product,
called WISDOM, rapidly gained subscribers.

Using a simple Internet connection, subscribers
to WISDOM can mine their own sales and other
data. Information once difficult for customers and
suppliers to compile is now readily available through
this Owens & Minor service. Subscribers can easily
retrieve detailed reports on purchasing, inventory
and usage, and contract compliance. Suppliers can
access reports on product inventory, drop shipments,
credits, customer contract utilization and service
levels with Owens & Minor.

The first e-business intelligence application of its
kind within the medical/surgical distribution industry,
WISDOM has won acclaim for Owens & Minor. The
Data Warehousing Institute, the premier educational
association in the data warehousing industry, named
Owens & Minor the winner of its 1999 Leadership
Award for WISDOM.

Also, InformationWeek Magazine included Owens & Minor
among its “E-Business 100,” a survey of more than 400
nominated businesses that have achieved overall excel-
lence in e-business initiatives. Owens & Minor was cited
for the development and use of WISDOM.

Using customized information from WISDOM, customers
can save money through product consolidation, and
improve inventory management. Now a recognized
brand name in the healthcare industry, WISDOM is help-
ing Owens & Minor attract new customers and expand
existing relationships. WISDOM gives Owens & Minor
a competitive advantage by helping it forge tighter links
with customers.

Solutions In Data Management

Through WISDOM

OWENS & MINOR, INC.

CORPORATE OFFICERS

BOARD OF DIRECTORS

DISTRIBUTION NETWORK

FINANCIALS

C O R P O R A T E O F F I C E R S

Minor

Smith

Gouldthorpe Callahan Davis

Bozard

Cape

Berling

Grigg

Colpo

Thomas

Luck

MacAllister

Marston

Carneal

Clark

G. Gilmer Minor, III (59)
Chairman & Chief Executive Officer

Jack M. Clark, Jr. (49)
Senior Vice President, Sales & Marketing

Olwen B. Cape (49)
Vice President, Controller

Craig R. Smith (48)
President & Chief Operating Officer

Charles C. Colpo (42)
Senior Vice President, Operations

Erika T. Davis (35)
Vice President, Human Resources

James L. Grigg (52)
Senior Vice President,
Supply Chain Management

F. Lee Marston (46)
Senior Vice President,
Chief Information Officer

Richard F. Bozard (52)
Vice President, Treasurer
Acting Chief Financial Officer

Hugh F. Gouldthorpe, Jr. (60)
Vice President, Quality & Communications

Wayne B. Luck (43)
Vice President, Business Technology Group

Hue Thomas, III (60)
Vice President, Corporate Relations

Bruce J. MacAllister (48)
Regional Vice President, East

Henry A. Berling (57)
Executive Vice President,
Partnership Development

Timothy J. Callahan (48)
Senior Vice President, Distribution

Drew St. J. Carneal (61)
Senior Vice President,
General Counsel & Secretary

Numbers inside parentheses indicate age.

CORPORATE OFFICERS

BOARD OF DIRECTORS

DISTRIBUTION NETWORK

FINANCIALS

B O A R D O F D I R E C T O R S

Crotty

Minor

Bunting

Farinholt

Whittemore

Redding

Massey

Henley

Berling

Ukrop

Rogers

Henry A. Berling (57) 1, 4
Executive Vice President, Partnership
Development, Owens & Minor, Inc.

Vernard W. Henley (70) 2, 3, 5
Chairman & CEO, Consolidated Bank
and Trust Company

Josiah Bunting, III (59) 2, 4
Superintendent, Virginia Military Institute

John T. Crotty (62) 2, 4
Managing Partner,
CroBern Management Partnership
President, CroBern, Inc.

James B. Farinholt, Jr. (65) 1, 2*, 4
Special Assistant to the President
for Economic Development,
Virginia Commonwealth University

E. Morgan Massey (73) 1, 2, 4*, 5
Chairman, Asian-American Coal, Inc.
Chairman Emeritus,
A.T. Massey Coal Company, Inc.
Chairman, Evan Energy Company

G. Gilmer Minor, III (59) 1*, 4
Chairman & CEO, Owens & Minor, Inc.

Peter S. Redding (61) 3, 4
President & CEO, Standard Register

James E. Rogers (54) 1, 3*, 4
President, SCI Investors Inc.

James E. Ukrop (62) 2, 3, 5
Chairman, Ukrop’s Super Market, Inc.
Chairman, First Market Bank

Anne Marie Whittemore (54) 1, 3, 5*
Partner,
McGuire, Woods, Battle & Boothe LLP

Board Committees: 1 Executive Committee, 2 Audit Committee, 3 Compensation & Benefits Committee, 4 Strategic Planning Committee,
5 Governance & Nominating Committee, * Denotes Chairperson

CORPORATE OFFICERS

BOARD OF DIRECTORS

DISTRIBUTION NETWORK

FINANCIALS

O W E N S & M I N O R D I S T R I B U T I O N N E T W O R K

Seattle

Portland

San Francisco

Los Angeles

Minneapolis

Rochester

Green Bay

Waunakee

Boston

Des Moines

Chicago

Detroit

Greensburg

Allentown

Salt Lake City

Denver

Omaha

Springfield

Indianapolis

Savage

Bridgeton

Cincinnati

Richmond, Home Office

Richmond

Wichita

Kansas City

Tulsa

St. Louis

Oklahoma City

Memphis

LaFollette

Knoxville

San Diego

Phoenix

Dallas

Jackson

Atlanta

Birmingham

Montgomery

Houston

New Orleans

Harlingen

Raleigh

Charlotte

Augusta

Jacksonville

Orlando

Ft. Lauderdale

O&M Medical/Surgical Division

O&M Custom Distribution Center

O&M Home Office

O&M Specialty Distribution

✪
✪
S E L E C T E D

F I N A N C I A L

D A T A (1)

(in thousands, except ratios and per share data)

Owens & Minor, Inc. and Subsidiaries

Summary of Operations:
Net sales
Nonrecurring restructuring expense

(credit)(2)

Net income (loss)(2)

Per Common Share:
Net income (loss) – basic
Net income (loss) – diluted
Average number of shares
outstanding – basic
Average number of shares
outstanding – diluted

Cash dividends
Stock price at year end
Book value

Summary of Financial Position:
Working capital
Total assets
Debt
Mandatorily redeemable preferred

securities

Shareholders’ equity

Selected Ratios:
Gross margin as a percent of net sales
Selling, general and administrative

expenses as a percent of net sales

Average receivable days sales

outstanding(3)

Average inventory turnover
Return on average total equity(4)
Return on average total equity(5)
Current ratio
Capitalization ratio(3)(4)
Capitalization ratio(3)(5)

1999

1998

1997

1996

1995

$3,186,373

$3,082,119

$3,116,798

$3,019,003

$2,976,486

(1,000)

27,979

0.86

0.82

32,574

39,098

0.23

8.94

5.58

$ 219,448

$ 865,000

$ 175,178

$ 132,000

$ 182,381

10.5%

7.6%

35.6

9.2

10.5%

16.3%

1.6

47.2%

69.4%

11,200

20,145

0.56

–

24,320

0.60

–

16,734

12,965

$ (11,308)

0.25

(0.53)

32,488

32,048

31,707

30,820

32,591

32,129

31,809

30,820

0.20

15.75

4.94

0.18

14.50

4.48

0.18

10.25

3.99

0.18

12.75

3.90

$ 235,247

$ 233,789

$ 192,990

$ 331,663

$ 717,768

$ 712,563

$ 679,501

$ 857,803

$ 150,000

$ 182,550

$ 167,549

$ 323,308

$ 132,000

–

$ 161,126

$ 259,301

$ 242,400

$ 235,271

10.6%

10.2%

7.8%

7.5%

34.7

9.8

8.2%

9.6%

1.9

43.4%

68.9%

33.4

9.9

9.7%

1.9

53.0%

9.9%

7.7%

36.1

8.9

5.4%

1.7

54.8%

9.0%

7.6%

37.7

8.3

(4.6%)

2.1

61.9%

(1) On July 30, 1999, the company acquired certain net assets of Medix, Inc. which was accounted for as a purchase.
(2) In 1998, the company incurred $11.2 million, or $6.6 million after taxes, of nonrecurring restructuring expenses related to the

cancellation of its medical/surgical distribution contract with Columbia/HCA Healthcare Corporation. In 1999, the company reduced the
restructuring accrual by $1.0 million, or $0.6 million after taxes. The company incurred $16.7 million, or $10.3 million after taxes, in
1995 of nonrecurring restructuring expenses related to its restructuring plans developed in conjunction with its combination with Stuart
Medical, Inc. in 1994.

(3) Excludes impact of off balance sheet receivables securitization agreement. See Note 7 to Consolidated Financial Statements.
(4) Includes mandatorily redeemable preferred securities as equity.
(5) Includes mandatorily redeemable preferred securities as debt.

B U S I N E S S D E S C R I P T I O N

Company History

Owens & Minor, Inc. and subsidiaries (O&M or the com-
pany) is the largest distributor of national name brand
medical and surgical supplies in the United States. The
company was incorporated in Virginia on December 7, 1926,
as a successor to a partnership founded in Richmond,
Virginia in 1882.

O&M has significantly expanded and strengthened its
national presence in recent years through internal growth
and acquisitions. In July 1999, the company acquired
certain net assets of Medix, Inc. (Medix), a distributor
of medical and surgical supplies whose customers are
primarily located in the Midwest. This acquisition strength-
ens the company’s presence and is expected to provide
opportunities for growth in this geographic area. For its
1998 fiscal year, Medix had net sales of approximately
$184 million. In May 1994, the company acquired Stuart
Medical, Inc., then the third largest distributor of medical
and surgical supplies in the United States with 1993 net
sales of approximately $891 million.

Industry Overview

Distributors of medical and surgical supplies provide
a wide variety of products and services to healthcare
providers, including hospitals and hospital-based systems,
integrated healthcare networks (IHNs) and alternate care
providers. The medical/surgical supply distribution industry
has experienced growth in recent years due to the aging
population and emerging medical technology resulting in
new healthcare procedures and products. Healthcare
providers have consolidated to form larger and more
sophisticated entities that are increasingly seeking lower
procurement costs and sophisticated inventory manage-
ment from their preferred suppliers and distributors. Over
the years, major acute care hospitals have aligned with or
acquired outpatient and long-term care facilities to form
IHNs, and forged partnerships with national medical and
surgical supply distributors to manage the supply procure-
ment and distribution needs of their entire network. The
traditional role of distributors in warehousing and delivering
medical and surgical supplies to a customer has evolved
into the role of assisting their customers to manage the
entire supply chain. O&M expects that further consolidation

Owens & Minor, Inc. and Subsidiaries

in the medical/surgical supply distribution industry will
continue due to the competitive advantages enjoyed by
larger distributors.

Customers

O&M distributes over 150,000 finished medical and surgical
products produced by approximately 1,200 suppliers to
approximately 4,000 customers nationwide. The company’s
customers are primarily acute care hospitals and hospital-
based systems, which account for more than 90% of
O&M’s net sales. Other customers include alternate care
facilities such as nursing homes, clinics, surgery centers,
rehabilitation facilities, physicians’ offices and home health-
care organizations. The company provides distribution
services under contractual agreements with a number of
large healthcare networks as well as major buying groups
that represent independently owned member hospitals.
Most of O&M’s sales consist of disposable gloves, dress-
ings, endoscopic products, intravenous products, needles
and syringes, sterile procedure trays, surgical products and
gowns, urological products and wound closure products.

National Healthcare Networks (Networks) and
Group Purchasing Organizations (GPOs). Networks
and GPOs are entities that act on behalf of a group of
healthcare providers to obtain pricing and other benefits
that may be unavailable to individual members. Hospitals,
physicians and other types of healthcare providers have
joined Networks and GPOs to take advantage of improved
economies of scale and to obtain services from medical
and surgical supply distributors ranging from discounted
product pricing to logistical and clinical support. Networks
and GPOs negotiate directly with medical and surgical
product suppliers and distributors on behalf of their
members, establishing exclusive or multi-supplier relation-
ships. Networks and GPOs cannot ensure that members
will purchase their supplies from a given distributor.
Since 1985, O&M has been a distributor for VHA, Inc.
(VHA), a nationwide network that comprises over 1,900
community-owned healthcare systems and their physicians.
On January 1, 1998, VHA and University HealthSystem
Consortium Services Corp. (UHCSC), an alliance of
academic medical centers, created Novation, a supply

company that serves VHA and UHCSC member organiza-
tions. Sales to Novation members represented approximately
53% of O&M’s net sales in 1999.

Integrated Healthcare Networks. An IHN is typically
a network of different types of healthcare providers that
seeks to offer a broad spectrum of healthcare services
and comprehensive geographic coverage to a particular
local market. IHNs have become increasingly important
because of their expanding role in healthcare delivery and
cost containment and their reliance upon the hospital,
O&M’s traditional customer, as a key component of their
organizations. Individual healthcare providers within a
multiple-entity IHN may be able to contract individually
for distribution services; however, the providers’ shared
economic interests create strong incentives for participation
in distribution contracts established at the system level.
Because IHNs frequently rely on cost containment as a
competitive advantage, IHNs have become an important
source of demand for O&M’s enhanced inventory manage-
ment and other value-added services.

In October 1998, O&M entered into an exclusive, eight-

year medical/surgical supply distribution agreement with
Tenet Healthcare Corporation (Tenet), the second largest
for-profit hospital chain in the nation. In addition to being
a sole supplier to Tenet’s 113 acute care hospitals, O&M
provides distribution services to Tenet’s BuyPower
purchasing program. One of the nation’s leading GPOs,
BuyPower provides national contracting for its approxi-
mately 330 acute care hospitals, 530 associated facilities
and 2,500 affiliated members. During 1999, O&M also
entered into contracts with a number of other new cus-
tomers and has renewed contracts with existing customers.
Until mid-1998, O&M was the primary distributor for
Columbia/HCA Healthcare Corporation (Columbia/HCA).
In 1997, approximately 11% of O&M’s net sales were to
Columbia/HCA facilities.

Individual Providers. In addition to contracting with
healthcare providers at the IHN level and through
Networks and GPOs, O&M contracts directly with
individual healthcare providers. In 1999, not-for-profit
hospitals represented a majority of these facilities.

Suppliers

O&M believes its size and longstanding relationships
enable it to obtain attractive terms and incentives from
suppliers and contribute to its gross margin. The company
has well-established relationships with virtually all of the
major suppliers of medical and surgical supplies.

Approximately 17%, 18%, and 20% of O&M’s net sales
in 1999, 1998, and 1997, respectively, were sales of Johnson &
Johnson Hospital Services, Inc. products. Approximately 12%
of the company’s net sales in 1999, 1998, and 1997 were
sales of products of the subsidiaries of Tyco International.

Distribution

O&M employs a decentralized approach to sales and
customer service through its 46 distribution centers,
strategically located to serve customers in 50 states and
the District of Columbia. These distribution centers generally
serve hospitals and other customers within, on average,
a 100- to 150-mile radius. O&M delivers most medical and
surgical supplies with a fleet of leased trucks. Contract
carriers and parcel services are used to transport all other
medical and surgical supplies.

Competition

The medical/surgical supply distribution industry in the
United States is highly competitive and consists of three
major nationwide distributors: O&M; Allegiance Corp.,
which merged with Cardinal Health, Inc. in early 1999;
and McKesson General Medical Corp., a subsidiary of
McKesson HBOC, Inc. The industry also includes Bergen
Brunswig Medical Corp., a wholly owned subsidiary of
Bergen Brunswig Corp.; smaller national distributors of
medical and surgical supplies; and a number of regional
and local distributors.

Competitive factors within the medical/surgical supply
distribution industry include total delivered product cost,
product availability, the ability to fill and invoice orders
accurately, delivery time, services provided, inventory man-
agement, information technology, and the ability to meet
special customer requirements. O&M believes its decen-
tralized and customer-focused approach to distribution of
medical/surgical supplies enables it to compete effectively
with both larger and smaller distributors by being located

B U S I N E S S D E S C R I P T I O N ( c o n t i n u e d )

Owens & Minor, Inc. and Subsidiaries

near the customer and offering a high level of customer
service. Further consolidation of medical/surgical supply
distributors is expected to continue through the purchase
of smaller distributors by larger companies as a result of
competitive pressures in the marketplace.

Asset Management

O&M aims to provide the highest quality of service in the
medical/surgical supply distribution industry by focusing
on providing suppliers and customers with local sales and
service support and the most responsive, efficient and
cost-effective distribution of medical and surgical products.
The company draws on technology to provide a broad
range of value-added services to control inventory and
accounts receivable.

Inventory. Due to O&M’s significant investment in
inventory to meet the rapid delivery requirements of its
customers, efficient asset management is essential to the
company’s profitability. The significant and ongoing emphasis
on cost control in the healthcare industry puts pressure on
distributors and healthcare providers to create more effi-
cient inventory management systems. O&M has responded
to these ongoing changes by developing its inventory
forecasting capabilities, its client server warehousing
management system, its product standardization and
consolidation initiative, and its continuous inventory
replenishment process (CRP). CRP allows the company’s
suppliers to monitor daily sales and inventory levels
electronically so they can automatically and accurately
replenish O&M’s inventory. These and other initiatives
have enabled the company to control inventory levels
while growing sales.

Accounts Receivable. The company’s credit practices are
consistent with those of other medical/surgical supply
distributors. O&M actively manages its accounts receivable
to minimize credit risk and does not believe that credit
risk associated with accounts receivable poses a significant
risk to its results of operations.

Information Technology

In 1998, O&M signed a 10-year agreement to outsource
its information technology (IT) operations and procure
strategic application development services. This partner-

ship has allowed the company to provide additional
resources to major investments in information technology
to support internal operations and to enhance services to
the company’s customers and suppliers. In 1999, O&M’s
capital expenditures included approximately $19 million
for computer hardware and software. O&M has focused
its technology expenditures on electronic commerce and
sales and marketing programs and services.

Electronic Commerce. O&M is an industry leader in
the use of electronic commerce to exchange business
transactions with trading partners. In 1999, the company
introduced OM Direct, an Internet-based product catalog
and direct ordering system, to supplement existing elec-
tronic data interchange (EDI) technologies. The company
also has entered into a number of contractual arrange-
ments to provide distribution services for Internet-based
medical/surgical supply companies. O&M is committed
to ongoing investments in an open, Internet-based
e-commerce platform to support the company’s supply-
chain management initiatives and to enable expansion
into new market segments for healthcare products.

Sales and Marketing

O&M’s sales and marketing force is organized to support
its decentralized field sales teams of approximately 220
people. Based from the company’s divisions nationwide,
the company’s local sales teams are positioned to respond
to customer needs quickly and efficiently. The company’s
integrated sales and marketing strategy offers customers
value-added services in logistics, information manage-
ment, asset management and product mix management.
O&M provides special training and support tools to its
sales team to help promote these programs and services.
O&M’s value-added programs and services for its

trading partners include the following:

• CostTrack Activity-Based-Management (CostTrack):

This industry-leading activity-based-management
program helps customers identify and track the cost-
drivers in their distribution activities, giving them the
information they need to drive workflow efficiencies,
raise employee productivity and cut costs. With
CostTrack, customers no longer use a cost-plus
model but pay according to the complexity of the
Owens & Minor services that they choose.

• WISDOM: This new Internet-accessed decision

Other Matters

support tool connects customers and suppliers to O&M’s
award-winning data warehouse. Password-protected,
WISDOM offers customers online access to more than 90
reports about their purchase history, contract compli-
ance, product usage and other related data. This timely
information helps customers make well-informed pur-
chasing decisions and realize hard-dollar savings and
operating efficiencies by:

• standardizing their product lines and

consolidating suppliers

• increasing contract compliance and

GPO-related revenues

• consolidating purchasing data among the various

computer systems in a healthcare network

For subscribing supplier partners, WISDOM provides
reports on their O&M product inventory, drop ship-
ments, credits, customer contract utilization and O&M
service levels by product and by customer. This infor-
mation helps suppliers target growth opportunities
within specific customer accounts.

• PANDAC® Wound Closure Management Program:
This information-based program provides customers an
evaluation of their current and historical wound closure
inventories and usage levels, helping them reduce their
investment in suture and endomechanical equipment
and control their costs per operative case. O&M works
closely with customers to target savings in excess of 5%
in the first year.

• Focus On Consolidation, Utilization &

Standardization (FOCUS): This partnership program
drives product standardization and consolidation, increas-
ing the volume of purchases from O&M’s leading
suppliers, and in turn, providing operational benefits
and cost savings to healthcare customers. FOCUS centers
around both commodity and preference product stan-
dardization. O&M requires its FOCUS partners to be
market share leaders and to meet strict certification
standards, such as exceeding minimum fill rates, offer-
ing a flexible returned goods policy and using EDI.

Regulation. The medical/surgical supply distribution
industry is subject to regulation by federal, state and local
government agencies. Each of O&M’s distribution centers
is licensed to distribute medical and surgical supplies as
well as certain pharmaceutical and related products. The
company must comply with regulations, including operating
and security standards for each of its distribution centers,
of the Food and Drug Administration, the Drug Enforcement
Agency, the Occupational Safety and Health Administration,
state boards of pharmacy and, in certain areas, state boards
of health. O&M believes it is in material compliance with
all statutes and regulations applicable to distributors of
medical and surgical supply products and pharmaceutical
and related products, as well as other general employee
health and safety laws and regulations.

Properties. O&M’s corporate headquarters are located in
western Henrico County, in a suburb of Richmond, Virginia,
in leased facilities. The company owns two undeveloped
parcels of land adjacent to its corporate headquarters. The
company leases offices and warehouses for its 46 distribu-
tion centers across the United States. In the normal course
of business, the company regularly assesses its business
needs and makes changes to the capacity and location
of its distribution centers. The company believes that its
facilities are adequate to carry on its business as currently
conducted. All of O&M’s distribution centers are leased
from unaffiliated third parties. A number of leases are
scheduled to terminate within the next several years. The
company believes that, if necessary, it could find facilities
to replace these leased premises without suffering a mate-
rial adverse effect on its business.

A N A L Y S I S O F O P E R A T I O N S
A N A L Y S I S O F O P E R A T I O N S

1999 Financial Results

In 1999, O&M earned net income of $28.0 million, or $0.82
per diluted common share, compared with $20.1 million, or
$0.56 per diluted common share, in 1998. Net income in
1999 was increased by a $0.6 million after-tax reduction of
a restructuring accrual originally established in 1998. The
1998 restructuring charge of $11.2 million reflected the com-
pany’s plan to downsize warehouse operations as a result
of the cancellation of its contract with Columbia/HCA
Healthcare Corporation (Columbia/HCA). Excluding the
restructuring charge and the subsequent adjustment, net
income attributable to common stock for 1999 increased
10.3% to $27.4 million or $0.80 per diluted common
share from $24.9 million or $0.75 per diluted common
share for 1998.

Results of Operations

The following table presents the company’s consolidated
statements of income on a percentage of net sales basis:

Year ended December 31,
Net sales
Cost of goods sold
Gross margin
Selling, general and

1999

1998

1997

100.0% 100.0% 100.0%

89.5

10.5

89.4

10.6

89.8

10.2

administrative expenses

7.6

Depreciation and amortization 0.6
0.4
Interest expense, net
Discount on accounts

7.8

0.6

0.5

7.5

0.6

0.5

receivable securitization
Distributions on mandatorily
redeemable preferred
securities

Nonrecurring restructuring

expenses

Total expenses

Income before income taxes
Income tax provision

0.1

0.2

0.1

–

8.9

1.6

0.7

0.4

9.5

1.1

0.4

–

8.8

1.4

0.6

Net income

0.9%

0.7%

0.8%

Owens & Minor, Inc. and Subsidiaries
Owens & Minor, Inc. and Subsidiaries

General. On July 30, 1999, the company acquired certain
net assets of Medix, Inc. (Medix), a distributor of med-
ical/surgical supplies, for approximately $83 million. The
company paid cash of approximately $68 million and
assumed debt of approximately $15 million, which was
paid off as part of the closing transaction. The excess of
the purchase price over the fair value of the identifiable
net assets acquired of approximately $58 million has
been recorded as goodwill and is being amortized on a
straight-line basis over 40 years. This acquisition strengthens
the company’s presence in the Midwest and is expected
to provide opportunities for increased sales in this geo-
graphic area. Medix’ net sales were approximately $184
million for its fiscal year ended October 2, 1998. The
success of the acquisition will depend in part on the
company’s ability to integrate and capture synergies in
the combined businesses.

Net sales. Net sales increased by 3.4% to $3.19 billion for
the year ended December 31, 1999, from $3.08 billion in
1998 and increased 20.1% to $861 million for the fourth
quarter of 1999 from $717 million for the fourth quarter of
1998. Excluding the sales generated by the Medix acquisi-
tion, net sales increased 0.8% for the year and 13.4% for
the fourth quarter. The increase in sales was due to new
customer contracts and increased penetration of existing
accounts. The Columbia/HCA contract, representing
approximately 11% of net sales in 1997, was cancelled in
mid-1998. Sales to this customer declined significantly dur-
ing the second half of 1998. In February 1999, the company
began shipments to Tenet Healthcare Corporation (Tenet)
hospitals and members of the affiliated BuyPower purchas-
ing group. Partly as a result of these changes, sales for the
first half of 1999 were 5.2% lower than in 1998, and sales
for the second half of 1999, excluding Medix, were 7.2%
higher than in 1998.

Net sales declined slightly by 1.1% to $3.08 billion for
the year ended December 31, 1998, from $3.12 billion in
1997, and decreased 10.9% to $717 million for the fourth
quarter of 1998 from $805 million for the fourth quarter of
1997. The reduction in net sales was due to the cancellation
of Columbia/HCA’s distribution contract, which mostly
affected fourth-quarter results.

Gross margin. Gross margin as a percentage of net sales
decreased slightly to 10.5% in 1999 compared with 10.6%
in 1998 and decreased to 10.5% for the fourth quarter of
1999 from 11.3% in the fourth quarter of 1998. The decrease
for the year and the fourth quarter was a result of the
benefits of certain supply chain initiatives being recog-
nized over a lower sales base in 1998.

Gross margin as a percentage of net sales increased

to 10.6% in 1998 from 10.2% in 1997 as a result of the
company’s emphasis on supply chain initiatives with
key suppliers. Gross margin as a percentage of net sales
increased to 11.3% for the fourth quarter of 1998 from
10.5% in the fourth quarter of 1997. As discussed above,
this increase was the result of a lower sales base in 1998.

Selling, general and administrative expenses. Selling,
general and administrative (SG&A) expenses as a per-
centage of net sales were 7.6% in 1999 compared with 7.8%
in 1998 and 7.5% in 1997 and decreased to 7.3% in the
fourth quarter of 1999 from 8.2% in the fourth quarter of
1998 and 7.7% in the fourth quarter of 1997. The decreases
for the year and the fourth quarter of 1999 were primarily
a result of the higher sales base as well as management of

operating expenses. Spending on Year 2000 initiatives
decreased from $3.6 million to $2.6 million for the year
and from $1.2 million to $0.2 million for the fourth quarter.
The increase in SG&A expenses as a percentage of net

sales to 8.2% in the fourth quarter of 1998 from 7.7% in
the fourth quarter of 1997 was driven by the reduction of
sales to Columbia/HCA.

Depreciation and amortization. Depreciation and
amortization increased by 6.0% in 1999 to $19.4 million,
compared with $18.3 million in 1998 and $17.7 million in
1997. The increase in 1999 compared to 1998 was due to
goodwill amortization of approximately $0.6 million resulting
from the Medix acquisition. In addition, depreciation
expense increased as a result of higher capital spending
associated with development of electronic commerce
applications. O&M anticipates similar increases in depreci-
ation in 2000 associated with additional capital spending
on information technology initiatives.

Net interest expense and discount on accounts
receivable securitization (financing costs). Net
financing costs totaled $17.1 million in 1999, compared
with $18.7 million in 1998 and $22.3 million in 1997. Net
financing costs included collections of customer finance
charges of $4.6 million in 1999, up from $3.0 million in
1998 and $3.1 million in 1997. Excluding the customer
finance charges, financing costs remained consistent
at $21.7 million in 1999 and 1998, a decrease from
$25.4 million in 1997. The increase in cash flow from
operations enabled the company to reduce debt in both
1999 and 1998, excluding cash outflows associated with
the Medix acquisition. In this analysis of operations, the
term “debt” includes both the debt reported in the consoli-
dated financial statements, and amounts financed under
the company’s off balance sheet accounts receivable securiti-
zation facility. The Medix acquisition was funded by cash
flow from operations and an increase in outstanding debt.
In 1998, the decrease in financing costs was due to
lower effective interest rates and lower average outstanding
debt. Cash flow from operations in 1998 included a
$15.9 million refund of federal income taxes resulting from

A N A L Y S I S O F O P E R A T I O N S ( c o n t i n u e d )

Owens & Minor, Inc. and Subsidiaries

a tax method change. Beginning with the tax year ended
December 31, 1997, the company received permission from
the Internal Revenue Service to change its method of
accounting for last-in, first-out inventory. This refund result-
ed in an increase in the current deferred tax liability and
had no effect on the total income tax provision for 1998.

O&M expects to continue to manage its financing costs

by continuing its working capital reduction initiatives and
management of interest rates, although the future results
of these initiatives cannot be assured.

Distributions on mandatorily redeemable preferred
securities and dividends on preferred stock. In May
1998, Owens & Minor Trust I (Trust), a wholly owned busi-
ness trust, issued $132 million of Mandatorily Redeemable
Preferred Securities (Securities). The company applied
substantially all of the net proceeds from this transaction
to repurchase all of its outstanding Series B Cumulative
Preferred Stock. The effect of this transaction was to
reduce the overall cost of capital of the company. The
after-tax combined cost was $4.0 million for the Securities
in 1999 and $4.5 million for the Securities and the dividend
on preferred stock in 1998, compared to $5.2 million for
the total dividends on preferred stock in 1997. As of
December 31, 1999 and 1998, the company had accrued
$1.2 million of distributions related to the Securities.

Nonrecurring restructuring expenses (credit). As a
result of the Columbia/HCA contract cancellation in the
second quarter of 1998, the company recorded a nonrecur-
ring restructuring charge of $11.2 million, or $6.6 million
after taxes, to downsize operations. In the second quarter
of 1999, the company re-evaluated its restructuring accrual.
Since the actions under this plan had resulted in lower
projected total costs than originally anticipated, the company
recorded a reduction in the accrual of $1.0 million, or
approximately $0.6 million after taxes. As of December 31,
1999, $4.1 million had been charged against this liability.

$450

$300

$150

$30

$20

$10

Income taxes. The income tax provision was $22.1 million
in 1999, $14.6 million in 1998 and $17.6 million in 1997.
O&M’s effective tax rate was 44.1% in 1999, compared with
42.0% in 1998 and 1997. The increase in the effective tax
rate for 1999 results primarily from a decrease in nontax-
able income, which was partially offset by the increase in
income before income taxes, which decreased the impact
of nondeductible goodwill amortization. The 1998 effective
tax rate remained consistent with the 1997 effective tax
rate as the decrease in income before taxes, which
increased the impact of nondeductible goodwill, was off-
set by the increase in the impact of nontaxable income.

Net income. Excluding the effects of the restructuring
expense (credit), 1999 net income increased to $27.4 mil-
lion from $26.8 million in 1998 and $24.3 million in 1997
and net income per diluted common share increased to
$0.80 compared to $0.75 in 1998 and $0.60 in 1997. This
increase resulted from increased sales and productivity,
partly offset by higher depreciation and amortization and
distributions on mandatorily redeemable preferred secu-
rities. Excluding the effect of the restructuring expense
(credit), 1999 net income attributable to common stock
increased to $27.4 million compared to $24.9 million
in 1998 and $19.1 million in 1997, due to the positive effect
of the retirement of the company’s outstanding Series B
Cumulative Preferred Stock in May 1998 which was funded
through the issuance of $132 million of Securities issued
by the Trust. The after-tax distribution rate of the

Securities is lower than the preferred dividend rate. Net
income for the fourth quarter increased $2.2 million or
33.9% in 1999 compared to 1998 and decreased $0.5 mil-
lion or 6.4% in 1998 compared to 1997. The increase in
net income in the fourth quarter of 1999 compared to
the fourth quarter of 1998 was a result of the higher
sales in 1999. The decrease in net income in the fourth
quarter of 1998 compared to the fourth quarter of 1997
was a result of the reduction in sales from the cancelled
Columbia/HCA contract discussed above. Although the
net income trend has been favorable and the company
continues to pursue initiatives to improve profitability, the
future impact on net income cannot be assured.

Financial Condition, Liquidity and Capital Resources

Liquidity. The company acquired certain net assets of
Medix on July 30, 1999, for approximately $83 million.
This acquisition was funded by cash flow from opera-
tions and an increase in outstanding debt. As a result
of the acquisition, debt increased by approximately
$55.8 million, from $225.0 million at December 31, 1998,
to $280.8 million at December 31, 1999. Excluding the
impact of the acquisition, outstanding debt was reduced
by $26.9 million. This reduction was due to the positive
impact of cash flow from operations.

In May 1998, O&M repurchased all of its outstanding
Series B Cumulative Preferred Stock, financing the repur-
chase with substantially all the net proceeds from the
issuance of $132 million of the Securities by the Trust.
These transactions reduced the company’s overall cost
of capital from 1998.

The company expects that its available financing will
be sufficient to fund its working capital needs and long-
term strategic growth, although this cannot be assured.
At December 31, 1999, O&M had approximately $202.4
million of unused credit under its revolving credit facility
and $43.5 million under its receivables financing facility.

Working Capital Management. The company’s working
capital decreased by $15.8 million from December 31, 1998
to $219.4 million at December 31, 1999. This decrease is
due, in part, to the Medix acquisition, as well as timing

of payments on higher levels of inventory needed to sup-
port sales growth. The company continues to focus on
the management of inventory levels. Inventory turnover
increased to 9.2 times for the fourth quarter of 1999 from
8.4 times in the fourth quarter of 1998 due to the higher
level of sales in the fourth quarter of 1999. Inventory
turnover decreased to 9.2 times for the year ended
December 31, 1999, from 9.8 times in 1998, due to higher
levels of inventory to support continuing sales growth,
and anticipated increased demand arising from concerns
about Year 2000.

Capital Expenditures. Capital expenditures were
approximately $22.1 million in 1999, of which approximately
$19.0 million was for computer hardware and software,
including $3.0 million for system upgrades to complete the
preparation for Year 2000. The company expects to continue
to invest in technology, including system upgrades, to sup-
port strategic initiatives, and improve operational efficiency.
These capital expenditures are expected to be funded
through cash flow from operations.

Year 2000

The company has experienced virtually no disruptions in
its business activities as a result of the calendar rollover
to the Year 2000. There can be no assurance, however,
that all potential Year 2000 issues have been discovered.
The total cost of the company’s Year 2000 remediation
efforts included $8.3 million of operating expenses and
$6.8 million of capital expenditures of which $2.6 million
and $3.0 million were incurred during 1999.

Employees

As of December 31, 1999, O&M employed 2,774 people.

Recent Accounting Pronouncements

In May 1999, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS)
No. 137, Deferral of the Effective Date of SFAS 133, Accounting
for Derivative Instruments and Hedging Activities. SFAS
No. 137 delayed the effective date of SFAS No. 133 by
one year. The company will be required to adopt the

A N A L Y S I S O F O P E R A T I O N S ( c o n t i n u e d )

Owens & Minor, Inc. and Subsidiaries

provisions of this standard beginning on January 1, 2001.
Management believes the effect of the adoption of this
standard will be limited to financial statement presenta-
tion and disclosure and will not have a material effect on
the company’s financial condition or results of operations.

Risks

The company is subject to risks associated with changes
in the medical industry, including continued efforts to
control costs, which place pressure on operating margin,
and changes in the way medical and surgical services are
delivered to patients. The loss of one of the company’s
larger customers could have a significant effect on its
business. However, management believes that the compa-
ny’s competitive position in the marketplace and its ability
to control costs would enable it to continue profitable
operations and attract new customers in the event of
such a loss.

Market Risk

O&M provides credit, in the normal course of business,
to its customers. The company performs ongoing credit
evaluations of its customers and maintains allowances for
credit losses.

The company is exposed to market risk relating to
changes in interest rates. O&M’s net exposure to interest
rate risk consists of floating rate instruments that are
benchmarked to London Interbank Offered Rate (LIBOR).
To manage this risk, O&M uses interest rate swaps to
modify the company’s exposure to interest rate move-
ments and reduce borrowing costs. The company enters
into these derivative transactions pursuant to its policies
in areas such as counterparty exposure and hedging
practices. The company is exposed to certain losses in
the event of nonperformance by the counterparties to
these swap agreements. However, O&M’s exposure is not
significant and, since the counterparties are investment grade
financial institutions, nonperformance is not anticipated.

The company is exposed to market risk from changes
in interest rates related to its interest rate swaps. Interest
expense is subject to change as a result of movements in
interest rates. As of December 31, 1999, O&M had $100
million of interest rate swaps on which the company pays
a variable rate based on LIBOR and receives a fixed rate,
and has $65 million of interest rate swaps on which the
company pays a fixed rate and receives a variable rate
based on LIBOR. A hypothetical increase in interest rates
of 10%, or 60 basis points, would result in a potential
reduction in future pre-tax earnings of approximately
$0.6 million per year in connection with the $100 million
swaps and an increase in future pre-tax earnings of
approximately $0.4 million per year in connection with the
$65 million swaps.

Forward-Looking Statements

Certain statements in this discussion constitute “forward-
looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-
looking statements involve known and unknown risks,
including, but not limited to, general economic and
business conditions, competition, changing trends in
customer profiles, outcome of outstanding litigation,
and changes in government regulations. Although O&M
believes its expectations with respect to the forward-
looking statements are based upon reasonable assump-
tions within the bounds of its knowledge of its business
and operations, there can be no assurance that actual
results, performance or achievements of the company
will not differ materially from any future results, perform-
ance or achievements expressed or implied by such
forward-looking statements.

C O N S O L I D A T E D

S T A T E M E N T S O F

I N C O M E

Owens & Minor, Inc. and Subsidiaries

(in thousands, except per share data)

Year ended December 31,

Net sales
Cost of goods sold

Gross margin

Selling, general and administrative expenses
Depreciation and amortization
Interest expense, net
Discount on accounts receivable securitization
Distributions on mandatorily redeemable preferred securities
Nonrecurring restructuring expense (credit)

Total expenses

Income before income taxes
Income tax provision

Net income
Dividends on preferred stock

Net income attributable to common stock

Net income per common share – basic

Net income per common share – diluted

Cash dividends per common share

See accompanying notes to consolidated financial statements.

1999

1998

1997

$3,186,373

$3,082,119

$3,116,798

2,851,556

2,755,158

2,800,044

334,817

326,961

316,754

242,199

239,543

234,872

19,365

11,860

5,240

7,095

(1,000)

18,270

14,066

4,655

4,494

11,200

17,664

15,703

6,584

–

284,759

292,228

274,823

50,058

22,079

27,979

–

27,979

0.86

0.82

0.23

34,733

14,588

20,145

1,898

18,247

0.56

0.20

41,931

17,611

24,320

5,175

19,145

0.60

0.18

C O N S O L I D A T E D

B A L A N C E

S H E E T S

(in thousands, except per share data)

December 31,

Assets
Current assets

Cash and cash equivalents
Accounts and notes receivable, net
Merchandise inventories
Other current assets

Total current assets
Property and equipment, net
Goodwill, net
Other assets, net

Total assets

Liabilities and shareholders’ equity
Current liabilities

Accounts payable
Accrued payroll and related liabilities
Other accrued liabilities

Total current liabilities

Long-term debt
Accrued pension and retirement plans

Total liabilities

Company-obligated mandatorily redeemable preferred securities
of subsidiary trust, holding solely convertible debentures of
Owens & Minor, Inc.

Shareholders’ equity

Preferred stock, par value $100 per share; authorized – 10,000 shares
Series A; Participating Cumulative Preferred Stock; none issued
Common stock, par value $2 per share; authorized – 200,000 shares;

issued and outstanding – 32,711 shares and 32,618 shares

Paid-in capital
Retained earnings

Total shareholders’ equity

Commitments and contingencies

Owens & Minor, Inc. and Subsidiaries

1999

1998

669

226,927

342,478

19,172

589,246

25,877

210,837

39,040

546

213,765

275,094

14,816

504,221

25,608

158,276

29,663

$865,000

$717,768

$303,490

$206,251

6,883

59,425

369,798

174,553

6,268

550,619

8,974

53,749

268,974

150,000

5,668

424,642

132,000

–

65,422

12,890

104,069

182,381

65,236

12,280

83,610

161,126

Total liabilities and shareholders’ equity

$865,000

$717,768

See accompanying notes to consolidated financial statements.

C O N S O L I D A T E D

S T A T E M E N T S O F

C A S H

F L O W S

(in thousands)

Year ended December 31,

Operating activities
Net income
Adjustments to reconcile net income to cash provided by operating

activities
Depreciation and amortization
Nonrecurring restructuring provision (credit)
Deferred income taxes
Provision for LIFO reserve
Provision for losses on accounts and notes receivable
Changes in operating assets and liabilities:

Accounts and notes receivable
Merchandise inventories
Accounts payable
Net change in other current assets and current liabilities

Other, net

Owens & Minor, Inc. and Subsidiaries

1999

1998

1997

$ 27,979

$ 20,145

$ 24,320

19,365

(1,000)

8,236

1,741

559

18,270

11,200

22,737

1,536

496

17,664

–

(3)

2,414

268

481

(26,383)

(40,903)

(42,397)

86,871

(11,232)

1,686

8,899

(6,104)

(23,375)

(651)

(389)

4,714

4,614

1,038

Cash provided by operating activities

92,289

32,485

8,022

Investing activities
Net cash paid for acquisition of business
Additions to property and equipment
Additions to computer software
Other, net

(82,699)

(8,933)

(13,172)

(2,359)

–

(8,053)

(4,556)

160

–

(7,495)

(4,472)

1,851

Cash used for investing activities

(107,163)

(12,449)

(10,116)

Financing activities
Net proceeds from issuance of mandatorily redeemable

preferred securities

Repurchase of preferred stock
Additions to debt
Reductions of debt
Other financing, net
Cash dividends paid
Proceeds from exercise of stock options

–

127,268

(115,000)

–

25,178

–

26,026

–

(32,550)

(11,049)

(2,741)

(7,520)

5,554

(4,679)

(9,268)

(10,950)

3,923

2,586

Cash provided by (used for) financing activities

14,997

(20,073)

1,934

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year

123

546

(37)

583

(160)

743

Cash and cash equivalents at end of year

669

546

583

See accompanying notes to consolidated financial statements.

C O N S O L I D A T E D S T A T E M E N T S O F C H A N G E S

I N S H A R E H O L D E R S ’

E Q U I T Y

Owens & Minor, Inc. and Subsidiaries

(in thousands, except per share data)

Balance December 31, 1996
Net income
Common stock cash dividends(1)
Preferred stock cash dividends(1)
Exercise of stock options
Other

Balance December 31, 1997
Net income
Issuance of restricted stock
Unearned compensation
Common stock cash dividends(1)
Preferred stock cash dividends(1)
Exercise of stock options
Repurchase of preferred stock
Other

Balance December 31, 1998
Net income
Issuance of restricted stock
Unearned compensation
Common stock cash dividends(1)
Exercise of stock options
Other

Balance December 31, 1999

Preferred
Shares
Outstanding

Preferred
Stock

Common
Shares
Outstanding

Common
Stock

Paid-in
Capital

Retained
Earnings

1,150

$ 115,000

31,907

$63,814

$ 5,086

$ 58,500

–

303

–

606

–

2,902

1,150

115,000

32,213

64,426

8,005

–

(1,150)

(115,000)

–

333

–

128

–

666

–

832

(657)

–

3,978

–

122

32,618

65,236

12,280

–

148

–

893

(454)

–

100

24,320

(5,775)

(5,175)

–

71,870

20,145

–

(6,507)

(1,898)

–

83,610

27,979

–

(7,520)

–

32,711

$65,422

$12,890

$104,069

(1) Cash dividends were $0.23, $0.20 and $0.18 per common share in 1999, 1998 and 1997. Cash dividends were $1.65

and $4.50 per preferred share in 1998 and 1997.

See accompanying notes to consolidated financial statements.

N O T E S

T O C O N S O L I D A T E D

F I N A N C I A L

S T A T E M E N T S

Owens & Minor, Inc. and Subsidiaries

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation Owens & Minor, Inc. is the
largest distributor of national name brand medical and
surgical supplies in the United States. The consolidated
financial statements include the accounts of Owens &
Minor, Inc. and its wholly owned subsidiaries (the
company). All significant intercompany accounts and
transactions have been eliminated. The preparation of
the consolidated financial statements in accordance with
generally accepted accounting principles requires
management assumptions and estimates that affect
amounts reported. Actual results may differ from
these estimates.

Cash and Cash Equivalents Cash and cash
equivalents include cash and marketable securities with
an original maturity or maturity at acquisition of three
months or less. Cash and cash equivalents are stated at
cost, which approximates market value.

Accounts Receivable The company maintains an
allowance for doubtful accounts based upon the
expected collectibility of accounts receivable.
Allowances for doubtful accounts of $6.5 million and
$6.3 million, have been applied as reductions of
accounts receivable at December 31, 1999 and 1998.

Merchandise Inventories The company’s merchandise
inventories are valued on a last-in, first-out (LIFO) basis.

Property and Equipment Property and equipment
are stated at cost or, if acquired under capital leases, at
the lower of the present value of minimum lease
payments or fair market value at the inception of the
lease. Normal maintenance and repairs are expensed as
incurred, and renovations and betterments are
capitalized. Depreciation and amortization are provided
for financial reporting purposes using the straight-line
method over the estimated useful lives of the assets or,
for capital leases and leasehold improvements, over the
terms of the lease, if shorter. In general, the estimated
useful lives for computing depreciation and amortization
are four to eight years for warehouse equipment and
three to eight years for computer, office and other
equipment. Straight-line and accelerated methods of
depreciation are used for income tax purposes.

Goodwill Goodwill is amortized on a straight-line
basis over 40 years from the dates of acquisition. As
of December 31, 1999 and 1998, goodwill was $238.8
million and $181.1 million and the related accumulated
amortization was $28.0 million and $22.8 million. Based
upon management’s assessment of undiscounted future
cash flows, the carrying value of goodwill at
December 31, 1999 has not been impaired. The carrying
value of goodwill could be impacted if estimated future
cash flows are not achieved.

Computer Software The company develops and
purchases software for internal use. Effective January 1,
1998, the company adopted the provisions of Statement
of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use.
Software development costs incurred during the
application development stage are capitalized. Once the
software has been installed and tested and is ready for
use, additional costs incurred in connection with the
software are expensed as incurred. Adoption of the
provisions of this statement did not have a material effect
on the consolidated financial statements of the company.
Capitalized computer software costs are amortized over
the estimated useful life of the software, usually between
3 and 5 years. Computer software costs are included in
other assets, net in the Consolidated Balance Sheets.
Unamortized software at December 31, 1999 and 1998
was $18.2 million and $10.2 million. Depreciation and
amortization expense includes $4.9 million, $5.1 million
and $4.6 million of software amortization for the years
ended December 31, 1999, 1998 and 1997.

Revenue Recognition Revenue from product sales is
generally recognized at the time the product is shipped.
Service revenue is recognized over the contractual
period as the services are performed.

Stock-Based Compensation The company uses
the intrinsic value method of Accounting Principles
Board Opinion No. 25 to account for stock-based
compensation. This method requires compensation
expense to be recognized for the excess of the quoted
market price of the stock at the grant date or the
measurement date over the amount an employee must
pay to acquire the stock. The disclosure requirements
of Statement of Financial Accounting Standards

(SFAS) No. 123 are included in Note 9 to Consolidated
Financial Statements.

Derivative Financial Instruments The company
enters into interest rate swaps and caps as part of its
interest rate risk management strategy. These instruments
are designated as hedges of interest-bearing liabilities
and anticipated cash flows associated with off balance
sheet financing. Net payments or receipts are accrued as
interest payable or receivable and as interest expense or
income. Fees related to these instruments are amortized
over the life of the instrument. If the outstanding balance
of the underlying liability were to drop below the
notional amount of the swap or cap, the excess portion
of the swap or cap would be marked to market, and the
resulting gain or loss included in net income.

Operating Segments The company adopted the
provisions of SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information, effective
January 1, 1998. As defined in SFAS No. 131, the
company operates in 34 operating segments. As each of
these segments is substantially identical to the others in
each of the five aggregation characteristics identified in
the statement, these segments have been aggregated for
purposes of financial statement disclosure.

Note 2 – Acquisition

On July 30, 1999, the company acquired certain net
assets of Medix, Inc. (Medix), a distributor of medical
and surgical supplies, for approximately $83 million.
Headquartered in Waunakee, Wisconsin, Medix’
customers are primarily in the Midwest and include
acute care hospitals, long-term care facilities and clinics.
Medix’ net sales were approximately $184 million for its
fiscal year ended October 2, 1998. The acquisition has
been accounted for by the purchase method and,
accordingly, the operating results of Medix have been
included in the company’s consolidated financial
statements since the date of acquisition. Assuming the
acquisition had been made at the beginning of the
periods, consolidated net sales, on a pro forma basis
would have been approximately $3.30 billion and
$3.27 billion for the years ended December 31, 1999 and
1998, respectively. Consolidated net income and net
income per share on a pro forma basis would not have
been materially different from the results reported.

The company paid cash of approximately $68
million and assumed debt of approximately $15 million,
which was paid off as part of the closing transaction.
The excess of the purchase price over the fair value of
the identifiable net assets acquired of approximately $58
million has been recorded as goodwill and is being
amortized on a straight-line basis over 40 years.

In connection with the acquisition, management

adopted a plan for integration of the businesses which
includes closure of some Medix facilities and
consolidation of certain administrative functions. An
accrual was established to provide for certain costs of
this plan. The following table sets forth the major
components of the accrual and activity through
December 31, 1999:
(In thousands)

Exit Plan
Provision Charges

Balance at
December 31,
1999

Losses under lease
commitments

Employee separations
Other

$1,643
395
685

$34
56
–

$1,609
339
685

Total

$2,723

$90

$2,633

The employee separations relate to severance costs
for employees in operations and activities being exited.
As of December 31, 1999, 12 employees had been
terminated. The integration of the Medix business is
expected to be substantially complete by mid-2000.

Note 3 – Restructuring

In the second quarter of 1998, the company recorded a
nonrecurring restructuring charge of $11.2 million
related to the impact of the cancellation of its medical/
surgical distribution contract with Columbia/HCA
Healthcare Corporation (Columbia/HCA). The
restructuring plan includes reductions in warehouse
space and in the number of employees in those
divisions which had the highest volume of business with
Columbia/HCA facilities. In the second quarter of 1999,
the company re-evaluated its estimate of the remaining
costs to be incurred and reduced the accrual by $1.0
million. The following table sets forth the activity in the
restructuring accrual through December 31, 1999:

(In thousands)

Losses under lease
commitments
Asset write-offs
Employee separations
Other

Total

Restructuring
Provision

$ 4,194
3,968
2,497
541

$11,200

Charges

Adjustments

$2,093
652
1,281
64

$4,090

203
–
(1,203)
–

$(1,000)

Balance at
December 31,
1999

$2,304
3,316
13
477

$6,110

Approximately 130 employees were terminated in

connection with the restructuring plan.

Depreciation and amortization expense for property
and equipment in 1999, 1998 and 1997 was $9.3 million,
$8.6 million and $8.5 million.

Note 6 – Accounts Payable

Accounts payable balances were $303.5 million and
$206.3 million as of December 31, 1999 and 1998, of
which $264.4 million and $164.5 million were trade
accounts payable and $39.1 million and $41.8 million,
were drafts payable. Drafts payable are checks written in
excess of bank balances to be funded upon clearing the
bank.

Note 4 – Merchandise Inventories

The company’s merchandise inventories are valued on a
LIFO basis. If LIFO inventories had been valued on a
current cost or first-in, first-out (FIFO) basis, they would
have been greater by $28.6 million and $26.8 million as
of December 31, 1999 and 1998.

Note 5 – Property and Equipment

The company’s investment in property and equipment
consists of the following:
(In thousands)

December 31,

1999

1998

Warehouse equipment
Computer equipment
Office and other equipment
Leasehold improvements
Land and improvements

Accumulated depreciation

and amortization

$ 23,337

$ 23,138

30,606

12,804

9,903

1,743

25,888

11,368

9,288

1,738

78,393

71,420

(52,516)

(45,812)

Property and equipment, net

$ 25,877

$ 25,608

Note 7 – Financial Instruments

The company’s long-term debt consists of the following:
(In thousands)

December 31,

1999

1998

10.875% Senior Subordinated Notes, mature

June 2006

Revolving Credit Facility with interest based on

London Interbank Offered Rate (LIBOR) or Prime
Rate, expires May 2001, credit limit of $225,000

Obligation under financing agreement

Total debt
Less current maturities

Long-term debt

In May 1996, the company issued $150.0 million of

10.875% Senior Subordinated 10-year notes (Notes),
which mature on June 1, 2006. Interest on the Notes is
payable semi-annually on June 1 and December 1. The
Notes are redeemable, after June 1, 2001, at the
company’s option, subject to certain restrictions. The
Notes are unconditionally guaranteed on a joint and
several basis by all significant subsidiaries of the
company, other than O&M Funding Corp. (OMF) and
Owens & Minor Trust I.

The Revolving Credit Facility expires in May 2001

with interest based on, at the company’s discretion,
LIBOR or the Prime Rate. The company is charged a
commitment fee of between 0.15% and 0.25% on the
unused portion of the Revolving Credit Facility. The
terms of the Revolving Credit Facility limit the amount of
indebtedness that the company may incur, require the
company to maintain certain levels of tangible net
worth, current ratio, leverage ratio and fixed charge
coverage, and restrict the ability of the company to
materially alter the character of the business through
consolidation, merger or purchase or sale of assets. At
December 31, 1999, the company was in compliance
with these covenants.

The company entered into a financing agreement
for computer software licenses. This agreement requires
periodic payments through January 2002, and interest is
imputed at a rate of 7.0%.

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

$150,000

$155,250

$150,000

$162,000

22,600

2,578

22,600

2,578

–

175,178

180,428

150,000

162,000

(625)

–

$174,553

$179,803

$150,000

$162,000

Net interest expense includes finance charge
income of $4.6 million, $3.0 million and $3.1 million in
1999, 1998 and 1997. Finance charge income represents
payments from customers for past due balances on their
accounts. Cash payments for interest during 1999, 1998
and 1997 were $16.0 million, $16.4 million and $18.3
million.

The estimated fair value of long-term debt is based

on the borrowing rates currently available to the
company for loans with similar terms and average
maturities. The annual maturities of long-term debt for
the five years subsequent to December 31, 1999 are:
$0.6 in 2000, $23.9 million in 2001, $0.7 million in 2002
and $0 in 2003 and 2004.

Off Balance Sheet Financing Under the terms of the
Receivable Financing Facility, OMF is entitled to transfer,
without recourse, certain of the company’s trade
receivables and to receive up to $150.0 million from an
unrelated third party purchaser at a cost of funds at
commercial paper rates plus a charge for administrative
and credit support services. In October 1999, the
Receivables Financing Facility was modified primarily to
extend the facility termination date to October 2, 2000.
At December 31, 1999 and 1998, the company had
received $105.6 million and $75.0 million, respectively,
under the agreement. To continue use of the
Receivables Financing Facility, the company is required

to be in compliance with the covenants of the
Revolving Credit Facility.

The company manages its interest rate risk primarily

through the use of interest rate swap agreements. The
company’s interest rate swap agreements as of
December 31, 1999 and 1998 included $100.0 million
notional amounts that effectively converted a portion of
the company’s fixed rate financing instruments to
variable rates. Under these swap agreements, expiring in
May 2006, the company pays the counterparties a
variable rate based on LIBOR and the counterparties pay
the company a fixed interest rate ranging from 7.29% to
7.32%. At the option of the counterparties, these swaps
can be terminated in 2001. As of December 31, 1999 and
1998, the company also had $65.0 million and $75.0
million notional amounts, respectively, of interest rate
swap agreements that effectively converted the
company’s variable rate financing instruments to fixed
rate instruments. Under these swap agreements, which
expire in May 2001, the company pays the
counterparties a fixed rate ranging from 5.75% to 5.93%
and the counterparties pay the company a variable rate
based on LIBOR.

The payments received or disbursed related to the

interest rate swaps are included in interest expense, net.
Based on estimates of the prices obtained from a dealer,
the company had an unrealized loss of approximately
$1.0 million and an unrealized gain of approximately
$5.0 million at December 31, 1999 and 1998 for the
fixed to variable rate swaps, and an unrealized gain of
approximately $0.7 million and an unrealized loss of
approximately $1.2 million at December 31, 1999 and
1998 for the variable to fixed rate swaps.

The company is exposed to certain losses in the
event of nonperformance by the counterparties to these
swap agreements. However, the company’s exposure
is not material and, since the counterparties are
investment grade financial institutions, nonperformance
is not anticipated.

Note 8 – Mandatorily Redeemable Preferred Securities

In May 1998, Owens & Minor Trust I (Trust), a statutory
business trust sponsored and wholly owned by
Owens & Minor, Inc. (O&M), issued 2,640,000 shares of
$2.6875 Term Convertible Securities, Series A
(Securities), for aggregate proceeds of $132.0 million.

Each Security has a liquidation value of $50. The net
proceeds were invested by the Trust in 5.375% Junior
Subordinated Convertible Debentures of O&M
(Debentures). The Debentures are the sole assets of the
Trust. O&M applied substantially all of the net proceeds
of the Debentures to repurchase 1,150,000 shares of its
Series B Cumulative Preferred Stock at its par value.
The Securities accrue and pay quarterly cash

distributions at an annual rate of 5.375% of the
liquidation value. Each Security is convertible into
2.4242 shares of the common stock of O&M at the
holder’s option prior to May 1, 2013. The Securities are
mandatorily redeemable upon the maturity of the
Debentures on April 30, 2013, and may be redeemed by
the company in whole or in part after May 1, 2001.
The obligations of the Trust, as provided under the term
of the Securities, are fully and unconditionally
guaranteed by O&M.

The estimated fair value of the Securities was $79.5

million and $127.4 million at December 31, 1999 and
1998 based on quoted market prices. As of
December 31, 1999 and 1998, the company had accrued
$1.2 million of distributions related to the Securities.

Note 9 – Stock-Based Compensation

The company maintains stock based compensation plans
(Plans) that provide for the granting of stock options,
stock appreciation rights (SARs), restricted common stock
and common stock. The Plans are administered by the
Compensation and Benefits Committee of the Board of
Directors and allow the company to award or grant to
officers, directors and employees incentive, non-qualified
and deferred compensation stock options, SARs and
restricted and unrestricted stock. At December 31, 1999,
approximately 1.2 million common shares were available
for issuance under the Plans.

Stock options awarded under the Plans generally
vest over three years and expire ten years from the date
of grant. The options are granted at a price equal to
fair market value at the date of grant. Restricted stock
awarded under the Plans generally vests over three or
five years. At December 31, 1999, there were no
SARs outstanding.

The company has a Management Equity Ownership

Program (MEOP). This program requires each of the
company’s officers to own the company’s common stock

at specified levels, which gradually increase over five
years. Officers who meet specified ownership goals in a
given year are awarded restricted stock under the
provisions of the program. Upon issuance of restricted
shares, unearned compensation is charged to
shareholders’ equity for the market value of restricted

stock and recognized as compensation expense ratably
over the vesting period. Amortization of unearned
compensation for restricted stock awards was
approximately $534.1 thousand, $301.6 thousand and
$54.3 thousand for 1999, 1998 and 1997.

The following table summarizes the activity and terms of outstanding options at December 31, 1999, and for the

years in the three-year period then ended:

(In thousands, except per share data)

Options outstanding beginning of year
Granted
Exercised
Expired/cancelled

Outstanding at end of year
Exercisable options at end of year

1999

1998

1997

Average
Exercise
Price

Options

Average
Exercise
Price

Options

2,001

$13.78

1,940

$13.50

1,922

$13.06

600

(6)

(147)

2,448

1,560

13.70

12.68

13.66

$13.75

$13.83

550

(333)

(156)

13.79

12.12

13.89

523

(303)

(202)

12.73

13.41

14.58

2,001

1,137

$13.78

$14.16

1,940

1,123

$13.50

$13.87

At December 31, 1999, the following option groups were outstanding:

Range of
Exercise
Prices

Number of
Options
(000’s)

$ 9.40 – 13.25
$13.35 – 17.10

595

1,853

2,448

Outstanding

Exercisable

Weighted
Average
Exercise
Price

$12.00

$14.31

$13.75

Weighted
Average
Remaining
Contractual Life
(Years)

7.35

6.87

6.99

Number of
Options
(000’s)

421

1,139

1,560

Weighted
Average
Exercise
Price

$12.16

$14.45

$13.83

Weighted
Average
Remaining
Contractual Life
(Years)

7.01

5.70

6.06

Using the intrinsic value method, the company’s
1999, 1998 and 1997 net income includes stock-based
compensation expense (net of tax benefit) of
approximately $306 thousand, $201 thousand and
$67 thousand. Had the company included in stock-based
compensation expense the fair value at grant date of
stock option awards granted in 1999, 1998 and 1997, net
income would have been $26.6 million (or $0.82 per
basic common share and $0.78 per diluted common
share), $19.0 million (or $0.52 per basic and diluted
common share) and $23.2 million (or $0.56 per basic and
diluted common share) for the years ended

December 31, 1999, 1998 and 1997. The weighted
average fair value of options granted in 1999, 1998 and
1997 was $4.35, $4.06 and $3.77, per option. The fair
value of each option is estimated on the date of grant
using the Black-Scholes option pricing model with the
following assumptions used for grants: dividend yield of
1.6%-2.4% in 1999, 1.2%-1.5% in 1998, and 1.2%-1.7% in
1997; expected volatility of 32.4%-38.6% in 1999, 32.4%-
37.9% in 1998, and 24.6%-41.0% in 1997; risk-free interest
rate of 6.4% in 1999, 4.7% in 1998, and 5.6% in 1997; and
expected lives of 2.1-5.1 years in 1999, 1998 and 1997.

Note 10 – Retirement Plans

Savings and Protection Plan The company maintains
a voluntary Savings and Protection Plan covering
substantially all full-time employees who have
completed six months of service and have attained age
18. The company matches a certain percentage of each
employee’s contribution. The plan provides for a
minimum contribution by the company to the plan for
all eligible employees of 1% of their salary. This
contribution can be increased at the company’s
discretion. The company incurred approximately $2.5
million, $2.1 million and $2.6 million in 1999, 1998 and
1997, respectively, of expenses related to this plan.

Pension Plan The company has a noncontributory
pension plan covering substantially all employees who
had earned benefits as of December 31, 1996. On that
date, substantially all of the benefits of employees under
this plan were frozen, with all participants becoming

(In thousands)

fully vested. The company expects to continue to fund
the plan based on federal requirements, amounts
deductible for income tax purposes and as needed to
ensure that plan assets are sufficient to satisfy plan
liabilities. As of December 31, 1999, plan assets consist
primarily of equity securities, including 34 thousand
shares of the company’s common stock, and
U.S. Government securities.

Retirement Plan The company also has a
noncontributory, unfunded retirement plan for certain
officers and other key employees. Benefits are based
on a percentage of the employees’ compensation.
The company maintains life insurance policies on plan
participants to act as a financing source for the plan.
The following table sets forth the plans’ financial
status and the amounts recognized in the company’s
Consolidated Balance Sheets:

Change in benefit obligation
Benefit obligation, beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid

Pension Plan

Retirement Plan

1999

1998

1999

1998

$22,288

$20,671

$ 6,094

$ 5,078

225

1,470

(571)

(894)

243

1,415

831

(872)

542

406

(978)

(176)

354

350

452

(140)

Benefit obligation, end of year

$22,518

$22,288

$ 5,888

$ 6,094

Change in plan assets
Fair value of plan assets, beginning of year
Actual return on plan assets
Employer contribution
Benefits paid

$24,143

4,536

–

(894)

$22,121

2,827

(872)

–

176

(176)

–

140

(140)

Fair value of plan assets, end of year

$27,785

$24,143

–

Funded status
Funded status at December 31
Unrecognized net actuarial (gain) loss
Unrecognized prior service benefit
Unrecognized net obligation being recognized

through 2002

$ 5,267

(4,112)

–

$ 1,855

$(5,888)

$(6,094)

(816)

–

635

(188)

123

1,696

(204)

164

Prepaid (accrued) benefit cost

$ 1,155

$ 1,039

$(5,318)

$(4,438)

The components of net periodic pension cost for

Note 11 – Income Taxes

the pension and retirement plans are as follows:
(In thousands)

The income tax provision consists of the following:
(In thousands)

Year ended
December 31,

Service cost
Interest cost
Expected return on

plan assets

Amortization of prior
service benefit

Amortization of

transition obligation

Recognized net
actuarial loss

Net periodic pension

cost

1999

1998

1997

767

$ 597

$ 568

1,876

1,765

1,715

(1,811)

(1,682)

(1,430)

(16)

(17)

941

$ 761

$ 967

The weighted average discount rate used in

determining the actuarial present value of the projected
benefit obligations was assumed to be 7.0% for the
Pension Plan and 8.0% for the Retirement Plan in 1999
and 6.75% for both plans in 1998. The rate of increase in
future compensation levels used in determining the
projected benefit obligation was 5.5% in 1999 and 1998.
The expected long-term rate of return on plan assets
was assumed to be 8.5% in 1999 and 1998.

Year ended
December 31,

Current tax
provision
(benefit):
Federal
State

Total current
provision
(benefit)

Deferred tax
provision
(benefit):
Federal
State

Total deferred
provision
(benefit)

Total income tax
provision

1999

1998

1997

$11,724

$ (7,690)

$14,484

2,119

(459)

3,130

13,843

(8,149)

17,614

7,206

1,030

19,895

2,842

(2)

(1)

8,236

22,737

(3)

$22,079

$14,588

$17,611

A reconciliation of the federal statutory rate to the

company’s effective income tax rate is shown below:

Year ended
December 31,

Federal statutory rate
Increases (reductions) in

the rate resulting from:
State income taxes, net
of federal income
tax impact
Nondeductible
goodwill
amortization
Nontaxable income
Other, net

1999

1998

1997

35.0%

35.0% 35.0%

5.5

4.9

3.0

–

0.6

4.7

3.7

(4.0)

(2.6)

1.4

1.0

Effective rate

44.1%

42.0% 42.0%

At December 31, 1999 and 1998, the company had
a $0.04 million and $0.27 million valuation allowance,
respectively, for state net operating losses. Based on the
level of historical taxable income and projections of
future taxable income over the periods in which the
deferred tax assets are deductible, management believes
it is more likely than not that the company will realize
the benefits of these deductible differences, net of
existing valuation allowances.

Cash payments for income taxes for 1999,
1998 and 1997 were $17.9 million, $14.1 million and
$18.6 million, respectively.

The tax effects of temporary differences that give
rise to significant portions of the deferred tax assets and
deferred tax liabilities are presented below:
(In thousands)

Year ended December 31,

1999

1998

Deferred tax assets:

Allowance for doubtful

accounts

Accrued liabilities not

currently deductible
Employee benefit plans
Nonrecurring

restructuring expenses
Tax loss carryforward, net
Other

$ 2,592

$ 2,509

3,900

3,767

2,444

633

1,156

5,276

3,616

3,692

947

815

Total deferred tax assets

14,492

16,855

Deferred tax liabilities:

Merchandise inventories
Accounts receivable
Property and equipment
Computer software
Other

24,531

19,113

1,400

1,869

472

1,478

2,101

1,076

708

1,359

Total deferred tax liabilities

29,750

24,357

Net deferred tax liability

$(15,258)

$ (7,502)

Note 12 – Net Income per Common Share

The following sets forth the computation of basic and diluted net income per common share:
(In thousands, except per share data)

Numerator:

Net income
Preferred stock dividends

Numerator for basic net income per common share – net income

available to common shareholders
Distributions on convertible mandatorily redeemable preferred

securities, net of taxes

1999

1998

1997

$27,979

$20,145

$24,320

–

1,898

5,175

$27,979

$18,247

$19,145

3,966

–

Numerator for diluted net income per common share – net income
available to common shareholders after assumed conversions

$31,945

$18,247

$19,145

Denominator:

Denominator for basic net income per common share – weighted

average shares

Effect of dilutive securities:

32,574

32,488

32,048

Conversion of mandatorily redeemable preferred securities
Stock options and restricted stock
Other

6,400

124

–

Denominator for diluted net income per common share – adjusted

weighted average shares and assumed conversions

Net income per common share – basic
Net income per common share – diluted

39,098

32,591

32,129

$ 0.86

$ 0.82

$ 0.56

$ 0.60

During the years ended December 31, 1999, 1998

and 1997, outstanding options to purchase
approximately 2,263 thousand, 461 thousand and 1,192
thousand common shares were excluded from the
calculation of diluted net income per share because their
exercise price exceeded the average market price for the
year.

Note 13 – Shareholders’ Equity

In May 1998, the company repurchased all of the shares
of its Series B preferred stock at par value. Each share of
preferred stock had an annual dividend of $4.50,
payable quarterly, had voting rights on items submitted
to a vote of the holders of common stock and was
convertible into approximately 6.1 shares of common
stock at the shareholder’s option.

The company has a shareholder rights agreement

under which 8/27ths of a Right is attendant to each
outstanding share of common stock of the company.

Each full Right entitles the registered holder to purchase
from the company one one-hundredth of a share of
Series A Participating Cumulative Preferred Stock (the
Series A Preferred Stock), at an exercise price of $75
(the Purchase Price). The Rights will become
exercisable, if not earlier redeemed, only if a person or
group acquires 20% or more of the outstanding shares
of the company’s common stock or announces a tender
offer, the consummation of which would result in
ownership by a person or group of 20% or more of such
outstanding shares. Each holder of a Right, upon the
occurrence of certain events, will become entitled to
receive, upon exercise and payment of the Purchase
Price, Series A Preferred Stock (or in certain
circumstances, cash, property or other securities of the
company or a potential acquirer) having a value equal
to twice the amount of the Purchase Price. The Rights
will expire on April 30, 2004, if not earlier redeemed.

Note 14 – Commitments and Contingencies

The company has a commitment through November 2,
2008 to outsource its information technology operations,
including strategic application development services.
The commitment is cancellable after November 2, 2003
with 180 days prior notice and payment of a minimum
termination fee of between $3.0 million to $12.0 million
depending upon the date of termination.

The company has a commitment through December
2005 to outsource the management and operation of its
mainframe computer. This commitment is cancellable at
any time on 180 days prior notice and a minimum
termination fee of between $1.7 and $4.2 million,
depending upon the date of termination.

The company also has entered into noncancellable

agreements to lease certain office and warehouse
facilities with remaining terms ranging from one to eight
years. Certain leases include renewal options, generally
for five-year increments. At December 31, 1999, future
minimum annual payments under noncancellable
operating lease agreements with original terms in excess
of one year are as follows:

(In thousands)

2000
2001
2002
2003
2004
Later years

Total minimum payments

Total

$20,753

17,852

14,808

12,017

8,366

9,458

$83,254

Rent expense for all operating leases for the years

ended December 31, 1999, 1998 and 1997 was
$26.1 million, $26.1 million and $26.3 million, respectively.
The company has limited concentrations of credit
risk with respect to financial instruments. Temporary cash
investments are placed with high credit quality
institutions and concentrations within accounts and notes
receivable are limited due to their geographic dispersion.

Net sales to member hospitals under contract with
Novation totaled $1.7 billion in 1999 and $1.5 billion in
1998, approximately 53% and 49%, of the company’s net
sales. As members of a group purchasing organization,
Novation hospitals have an incentive to purchase from

their primary selected distributor; however, they operate
independently and are free to negotiate directly with
distributors and manufacturers. Net sales to member
hospitals under contract with VHA, Inc. were 40% of the
company’s net sales in 1997.

In 1998 and 1997, net sales to Columbia/HCA
totaled $276 million and $356 million, or approximately
9% in 1998 and 11% in 1997 of the company’s net sales.

Note 15 – Legal Proceedings

Prior to December 1992, the company’s subsidiary Stuart
Medical, Inc. (Stuart) distributed spinal fixation devices
manufactured by Sofamor S.N.C. As of January 21, 2000,
Stuart was named as a defendant in 38 lawsuits, down
from 54 in January 1999, arising from personal injury
claims allegedly attributable to spinal fixation devices
distributed by Stuart (the Cases).

A majority of the lawsuits have been transferred to

and consolidated, for pretrial proceedings, in the Eastern
District of Pennsylvania in Philadelphia under the style
MDL Docket No. 1014: In re Orthopedic Bone Screw
Products Liability Litigation.

On August 9, 1999, Medtronic Sofamor Danek, Inc.,

Danek Medical, Inc. and Sofamor, S.N.C. (formerly
known as Sofamor, S.A.), successors to the manufacturer
of the spinal fixation devices distributed by Stuart,
assumed the defense of Stuart and indemnified Stuart
and others against all costs of defense, any settlements
and/or any adverse judgment(s) that may be entered
against Stuart in these Cases. Stuart also retains
insurance coverage for the defense of the Cases. In
addition, the company and Stuart are also contractually
entitled to indemnification by the former shareholders of
Stuart for any liabilities and related expenses incurred by
the company or Stuart in connection with the foregoing
litigation. Management believes that Stuart’s available
insurance coverage, together with the indemnification
rights discussed above, is adequate to cover any losses
should they occur and, accordingly, has accrued no
liability therefor. The company is not aware of any
uncertainty as to the availability and adequacy of such
insurance or indemnification, although there can be no
assurance that the Sofamor successor companies and the
former shareholders will have sufficient financial
resources in the future to meet such obligations.

As of December 31, 1999, approximately 134

Lawsuits (the Lawsuits), seeking compensatory and
punitive damages, in most cases of an unspecified
amount, have been filed in various federal and state
courts against the company, product manufacturers, and
other distributors and sellers of natural rubber latex
products. The company has obtained dismissal or
summary judgment in 18 cases. The Lawsuits allege
injuries arising from the use of latex products,
principally medical gloves. The Lawsuits also include
claims by approximately 52 spouses asserting loss of
consortium. The company may be named as a
defendant in additional, similar lawsuits in the future. In
the course of its medical supply business, the company
has distributed latex products, including medical gloves,
but it does not, nor has it ever manufactured any latex
products. The company has tendered the defense of the
Lawsuits to manufacturer defendants whose gloves were
distributed by the company. One manufacturer’s insurer
has agreed to indemnify and assume the defense of the
company in five Lawsuits. The company will continue to
vigorously pursue indemnification from latex product
manufacturers. The company’s insurers are paying all
costs of defense in the Lawsuits, and the company
believes, at this time, that future defense costs and any
potential liability should be adequately covered by the
insurance, subject to policy limits and insurer solvency.

Most of the Lawsuits are at the early stages of trial
preparation. Several Lawsuits that were scheduled for
trial have been dismissed on summary judgment. After
analyzing the above factors at this point in time, it
would appear that the likelihood of a material loss to
the company with respect to the Lawsuits is remote.

The company is party to various other legal actions

that are ordinary and incidental to its business. While
the outcome of legal actions cannot be predicted with
certainty, management believes the outcome of these
proceedings will not have a material adverse effect on
the company’s financial condition or results of
operations.

Note 16 – Condensed Consolidating Financial Information

The following tables present condensed consolidating
financial information for: Owens & Minor, Inc.; on a
combined basis, the guarantors of Owens & Minor, Inc.’s
Notes; and the non-guarantor subsidiaries of the Notes.
Separate financial statements of the guarantor
subsidiaries are not presented because the guarantors
are jointly, severally and unconditionally liable
under the guarantees and the company believes the
condensed consolidating financial information is
more meaningful in understanding the financial position,
results of operations and cash flows of the guarantor
subsidiaries.

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

Condensed Consolidating Financial Information
(In thousands)

Year ended
December 31, 1999

Statements of Operations
Net sales
Cost of goods sold

Gross margin

Selling, general and administrative expenses
Depreciation and amortization
Interest expense, net
Intercompany interest expense, net
Discount on accounts receivable securitization
Distributions on mandatorily redeemable

preferred securities

Nonrecurring restructuring credit

–
–

–

9
–
16,798
(6,976)
–

$3,186,373
2,851,556

–
–

–

334,817

241,629
19,365
(4,938)
25,326
32

561
–
–
(18,350)
5,208

–
–

–
(1,000)

7,095
–

Total expenses

9,831

280,414

(5,486)

Income (loss) before income taxes
Income tax provision (benefit)

(9,831)
(4,326)

54,403
23,865

5,486
2,540

Net income (loss)

$ (5,505)

30,538

$ 2,946

Year ended
December 31, 1998

Statements of Operations
Net sales
Cost of goods sold

Gross margin

preferred securities

Nonrecurring restructuring expenses

–
–

–

5
–
17,205
(10,854)
–

$3,082,119
2,755,158

–
–

–

326,961

239,295
18,270
(3,139)
24,469
67

243
–
–
(13,615)
4,588

–
–

–
11,200

4,494
–

Total expenses

6,356

290,162

(4,290)

Income (loss) before income taxes
Income tax provision (benefit)

Net income (loss)
Dividends on preferred stock

(6,356)
(2,574)

(3,782)
1,898

36,799
15,424

21,375
–

4,290
1,738

2,552
–

Net income (loss) attributable to common stock

$ (5,680)

21,375

$ 2,552

–
–

–

–
–
–
–
–

–
–

–

–
–

–

$3,186,373
2,851,556

334,817

242,199
19,365
11,860
–
5,240

7,095
(1,000)

284,759

50,058
22,079

27,979

–
–

–

–
–
–
–
–

–
–

–

–
–

–

$3,082,119
2,755,158

326,961

239,543
18,270
14,066
–
4,655

4,494
11,200

292,228

34,733
14,588

20,145
1,898

18,247

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

–

$3,116,798

2,800,044

316,754

234,872

17,664

15,703

–

6,584

274,823

41,931

17,611

24,320

5,175

19,145

Condensed Consolidating Financial Information
(In thousands)

Year ended
December 31, 1997

Statements of Operations
Net sales
Cost of goods sold

Gross margin

Selling, general and administrative expenses
Depreciation and amortization
Interest expense, net
Intercompany interest expense, net
Discount on accounts receivable securitization

–

18,422

(15,669)

–

$3,116,798

2,800,044

–

316,754

234,721

17,664

(2,707)

26,456

151

–

(12)

(10,787)

6,574

Total expenses

2,753

276,144

(4,074)

Income (loss) before income taxes
Income tax provision (benefit)

Net income (loss)
Dividends on preferred stock

(2,753)

(1,129)

(1,624)

5,175

40,610

16,685

23,925

–

4,074

2,055

2,019

–

Net income (loss) attributable to common stock

$ (6,799)

23,925

$ 2,019

Condensed Consolidating Financial Information
(In thousands)

December 31, 1999

Balance Sheets
Assets
Current assets

Cash and cash equivalents
Accounts and notes receivable, net
Merchandise inventories
Intercompany advances, net
Other current assets

Total current assets
Property and equipment, net
Goodwill, net
Intercompany investments
Other assets, net

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

507

158

–

157,711

–

112,088

342,478

88,347

19,172

114,839

–

1,183

(247,241)

–

19,172

–

669

226,927

342,478

158,218

562,243

116,026

(247,241)

589,246

–

305,441

9,894

25,877

210,837

15,001

27,933

–

25,877

210,837

136,083

(456,525)

–

1,213

–

39,040

Total assets

$473,553

$841,891

$253,322

$(703,766)

$865,000

Liabilities and shareholders’ equity
Current liabilities

Accounts payable
Accrued payroll and related liabilities
Intercompany advances, net
Other accrued liabilities

Total current liabilities

Long-term debt
Intercompany long-term debt
Accrued pension and retirement plans

–

$303,490

6,883

157,567

1,354

56,368

89,674

1,703

–

(247,241)

$303,490

6,883

–

59,425

1,354

524,308

91,377

(247,241)

369,798

172,600

136,083

1,953

–

6,268

–

174,553

(136,083)

–

6,268

Total liabilities

310,037

532,529

91,377

(383,324)

550,619

Company-obligated mandatorily redeemable
preferred securities of subsidiary trust,
holding solely convertible debentures of
Owens & Minor, Inc.

Shareholders’ equity
Common stock
Paid-in capital
Retained earnings

–

132,000

–

132,000

65,422

12,890

85,204

40,879

258,979

9,504

5,583

15,001

9,361

(46,462)

(273,980)

65,422

12,890

–

104,069

Total shareholders’ equity

163,516

309,362

29,945

(320,442)

182,381

Total liabilities and shareholders’ equity

$473,553

$841,891

$253,322

$(703,766)

$865,000

Condensed Consolidating Financial Information
(In thousands)

December 31, 1998

Balance Sheets
Assets
Current assets

Cash and cash equivalents
Accounts and notes receivable, net
Merchandise inventories
Intercompany advances, net
Other current assets

Total current assets
Property and equipment, net
Goodwill, net
Intercompany investments
Other assets, net

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

505

–

148,992

–

100,148

275,094

90,698

14,816

113,617

–

1,183

(240,873)

–

14,816

–

546

213,765

275,094

149,497

480,796

114,801

(240,873)

504,221

–

303,941

9,784

25,608

158,276

15,001

19,879

–

25,608

158,276

136,083

(455,025)

–

29,663

Total assets

$463,222

$699,560

$250,884

$(695,898)

$717,768

Liabilities and shareholders’ equity
Current liabilities

Accounts payable
Accrued payroll and related liabilities
Intercompany advances, net
Other accrued liabilities

Total current liabilities

Long-term debt
Intercompany long-term debt
Accrued pension and retirement plans

–

$206,251

8,974

148,992

1,394

50,994

91,881

1,361

–

(240,873)

$206,251

8,974

–

53,749

1,394

415,211

93,242

(240,873)

268,974

150,000

136,083

–

5,668

–

150,000

(136,083)

–

5,668

Total liabilities

287,477

420,879

93,242

(376,956)

424,642

Company-obligated mandatorily redeemable
preferred securities of subsidiary trust,
holding solely convertible debentures of
Owens & Minor, Inc.

Shareholders’ equity
Common stock
Paid-in capital
Retained earnings (accumulated deficit)

–

132,000

–

132,000

65,236

12,280

98,229

40,879

258,979

(21,177)

4,083

15,001

6,558

(44,962)

(273,980)

–

65,236

12,280

83,610

Total shareholders’ equity

175,745

278,681

25,642

(318,942)

161,126

Total liabilities and shareholders’ equity

$463,222

$699,560

$250,884

$(695,898)

$717,768

Condensed Consolidating Financial Information
(In thousands)

Year ended
December 31, 1999

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations Consolidated

$ (5,505) $ 30,538

$ 2,946

–

$ 27,979

Statements of Cash Flows
Operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to cash

provided by (used for) operating activities
Depreciation and amortization
Nonrecurring restructuring credit
Deferred income taxes
Provision for LIFO reserve
Provision for losses on accounts and

notes receivable

Changes in operating assets and liabilities:

Accounts and notes receivable
Merchandise inventories
Accounts payable
Net change in other current assets and

current liabilities

Other, net

–

19,365

(1,000)

8,236

1,741

–

292

267

1,970

(1,489)

(42,397)

86,871

–

343

(39)

(11,536)

3,049

(1,404)

Cash provided by (used for) operating activities

(2,495)

92,676

2,108

Investing activities
Net cash paid for acquisition of business
Additions to property and equipment
Additions to computer software
Other, net

–

(82,699)

(8,933)

(13,172)

–

(1,222)

(1,200)

Cash used for investing activities

(1,222)

(104,741)

(1,200)

Financing activities
Additions to debt
Change in intercompany advances
Other financing, net
Cash dividends paid
Proceeds from exercise of stock options

22,600

2,578

(11,441)

12,346

–

(2,741)

(7,520)

–

(905)

–

Cash provided by (used for) financing activities

3,719

12,183

(905)

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

505

118

Cash and cash equivalents at end of year

507

158

–

19,365

(1,000)

8,236

1,741

559

481

(42,397)

86,871

(11,232)

1,686

92,289

(82,699)

(8,933)

(13,172)

(2,359)

(107,163)

25,178

–

(2,741)

(7,520)

14,997

123

546

669

Condensed Consolidating Financial Information
(In thousands)

Year ended
December 31, 1998

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations Consolidated

Statements of Cash Flows
Operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to cash

provided by (used for) operating activities
Depreciation and amortization
Nonrecurring restructuring provision
Deferred income taxes
Provision for LIFO reserve
Provision for losses on accounts and

notes receivable

Changes in operating assets and liabilities:

Accounts and notes receivable
Merchandise inventories
Accounts payable
Net change in other current assets and

current liabilities

Other, net

$ (3,782) $ 21,375

2,552

–

18,270

11,200

22,737

1,536

–

262

234

(74)

(26,309)

8,899

(23,375)

–

841

–

460

1,506

(1,952)

(1,895)

Cash provided by (used for) operating activities

(1,816)

56,983

(22,682)

Investing activities
Additions to property and equipment
Additions to computer software
Other, net

Cash used for investing activities

Financing activities
Net proceeds from issuance of mandatorily

redeemable preferred securities

Repurchase of preferred stock
Reductions of debt
Change in intercompany advances
Other financing, net
Cash dividends paid
Proceeds from exercise of stock options

–

(8,053)

(4,556)

160

(12,449)

–

(4,732)

(115,000)

(32,550)

–

132,000

–

159,443

(50,126)

(109,317)

–

5,554

(9,268)

3,923

–

Cash provided by (used for) financing activities

1,816

(44,572)

22,683

Net increase (decrease) in cash and cash

equivalents

Cash and cash equivalents at beginning of year

–

505

(38)

Cash and cash equivalents at end of year

505

–

$ 20,145

18,270

11,200

22,737

1,536

496

(26,383)

8,899

(23,375)

(651)

(389)

32,485

(8,053)

(4,556)

160

(12,449)

127,268

(115,000)

(32,550)

–

5,554

(9,268)

3,923

(20,073)

(37)

583

546

Condensed Consolidating Financial Information
(In thousands)

Year ended
December 31, 1997

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations Consolidated

Statements of Cash Flows
Operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to cash

provided by (used for) operating activities
Depreciation and amortization
Deferred income taxes
Provision for LIFO reserve
Provision for losses on accounts and

notes receivable

Changes in operating assets and liabilities:

Accounts and notes receivable
Merchandise inventories
Accounts payable
Net change in other current assets and

current liabilities

Other, net

$ (1,624)

$ 23,925

$ 2,019

–

147

1,411

17,664

(3)

2,414

–

124

144

(12,591)

(28,312)

(6,104)

4,714

4,670

(757)

–

(203)

384

Cash provided by (used for) operating activities

(66)

34,056

(25,968)

Investing activities
Additions to property and equipment
Additions to computer software
Other, net

Cash used for investing activities

Financing activities
Addition to (reduction of) long-term debt
Change in intercompany advances
Other financing, net
Cash dividends paid
Proceeds from exercise of stock options

–

(7,495)

(4,472)

1,851

(10,116)

26,026

(11,049)

(17,596)

–

(10,950)

2,586

(8,372)

(4,679)

–

25,968

–

Cash provided by (used for) financing activities

(24,100)

25,968

Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year

–

505

(160)

238

Cash and cash equivalents at end of year

505

–

$ 24,320

17,664

(3)

2,414

268

(40,903)

(6,104)

4,714

4,614

1,038

8,022

(7,495)

(4,472)

1,851

(10,116)

14,977

–

(4,679)

(10,950)

2,586

1,934

(160)

743

583

I N D E P E N D E N T

A U D I T O R S ’

R E P O R T

Owens & Minor, Inc. and Subsidiaries

The Board of Directors and Shareholders
Owens & Minor, Inc.:

We have audited the accompanying consolidated balance sheets of Owens & Minor, Inc. and subsidiaries (the

company) as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in
shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that

we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Owens & Minor, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.

Richmond, Virginia
February 2, 2000

R E P O R T O F M A N A G E M E N T

The management of Owens & Minor, Inc. is responsible for the preparation, integrity and objectivity of the
consolidated financial statements and related information presented in this annual report. The consolidated financial
statements were prepared in conformity with generally accepted accounting principles applied on a consistent basis
and include, when necessary, the best estimates and judgments of management.

The company maintains a system of internal controls that provides reasonable assurance that its assets are
safeguarded against loss or unauthorized use, that transactions are properly recorded and that financial records
provide a reliable basis for the preparation of the consolidated financial statements.

The Audit Committee of the Board of Directors, composed entirely of directors who are not current employees of
Owens & Minor, Inc., meets periodically and privately with the company’s independent auditors and internal auditors,
as well as with company management, to review accounting, auditing, internal control and financial reporting
matters. The independent auditors and internal auditors have direct access to the Audit Committee with and without
management present to discuss the results of their activities.

G. Gilmer Minor, III
Chairman & Chief Executive Officer

Richard F. Bozard
Vice President & Treasurer
Acting Chief Financial Officer

Q U A R T E R L Y

F I N A N C I A L

I N F O R M A T I O N

Owens & Minor, Inc. and Subsidiaries

(in thousands, except per share data)

Quarters

Net sales

Gross margin

Net income

Per common share:
Net income
Basic
Diluted
Dividends

Market price
High
Low

Quarters

Net sales

Gross margin

Net income

Per common share:
Net income
Basic
Diluted
Dividends

Market price
High
Low

1st

2nd

3rd

4th

$741,084

$772,360

$811,917

$861,012

1999

78,729

5,491

0.17

0.05

$ 17.00

9.56

80,347

6,480

0.20

0.19

0.06

$ 12.44

9.50

85,297

7,142

0.22

0.21

0.06

$ 13.00

9.63

90,444

8,866

0.27

0.25

0.06

$ 10.63

7.56

1st

2nd

3rd

4th

$797,950

$798,978

$768,416

$716,775

1998

82,087

6,759

0.17

0.05

$ 19.88

$ 13.13

82,533

145

(0.01)

0.05

$ 18.88

$ 10.00

81,004

6,618

0.20

0.05

$ 13.13

$ 10.00

81,337

6,623

0.20

0.05

$ 17.25

$ 10.63

F O R M 1 0 - K

A N N U A L

R E P O R T

Owens & Minor, Inc. and Subsidiaries

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the year ended December 31, 1999

[

] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from

Commission File Number 1-9810

OWENS & MINOR, INC.
(Exact name of registrant as specified in its charter)

Virginia
(State or other jurisdiction of
incorporation or organization)

54-01701843
(I.R.S. Employer Identification No.)

4800 Cox Road, Glen Allen, Virginia
(Address of principal executive offices)

23060
(Zip Code)

Registrant’s telephone number, including area code (804) 747-9794

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark if disclosure of delinquent

Title of each class

Common Stock,
$2 par value
Preferred Stock

Purchase Rights

107⁄8% Senior Subordinated

Notes due 2006

$2.6875 Term Convertible
Securities, Series A

Name of each exchange
on which registered

New York Stock
Exchange
New York Stock
Exchange
New York Stock
Exchange
Not Listed

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

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 (or for such shorter period that
the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the
past 90 days. Yes X No

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]

The aggregate market value of Common Stock held

by non-affiliates (based upon the closing sales price)
was $336,451,740 as of February 18, 2000.

The number of shares of the company’s Common

Stock outstanding as of February 18, 2000 was
32,824,560 shares.

DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the annual meeting of security
holders on April 25, 2000 is incorporated by reference
into Part III of this Form 10-K.

ITEM CAPTIONS AND INDEX –
FORM 10-K ANNUAL REPORT

Item No.

Part I

Page

instructions G(1) and G(3) of the General Instructions to
Form 10-K.

1. Business..........................................................18-21
2. Properties ............................................................21
Legal Proceedings ..........................................41-42
3.
Submission of Matters to a Vote of
4.
Security Holders ...............................................N/A

Part II

5. Market for Registrant’s

Common Equity and Related
Stockholder Matters ......................................51, 53
Selected Financial Data.......................................17

6.
7. Management’s Discussion and

Analysis of Financial Condition and
Results of Operations.....................................22-26

7A. Quantitative and Qualitative Disclosures

about Market Risk ....................................26, 34-35
Financial Statements and
Supplementary Data ............................See Item 14

9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure .........................................N/A

Part III

10. Directors and Executive Officers of

the Registrant................................................(a), 54
11. Executive Compensation ...................................(a)
12.

Security Ownership of Certain
Beneficial Owners and Management ................(a)

13. Certain Relationships and Related

Transactions........................................................(a)

Part IV

14. Exhibits, Financial Statement

Schedules and Reports on Form 8-K
a. Consolidated Statements of Income
for the Years Ended Dec. 31, 1999,
Dec. 31, 1998 and Dec. 31, 1997 .......................27
Consolidated Balance Sheets at
Dec. 31, 1999 and Dec. 31, 1998 .......................28
Consolidated Statements of Cash Flows
for the Years Ended Dec. 31, 1999,
Dec. 31, 1998 and Dec. 31, 1997 .......................29
Consolidated Statements of Changes
in Shareholders’ Equity for the Years
Ended Dec. 31, 1999, Dec. 31, 1998
and Dec. 31, 1997 ...............................................30
Notes to Consolidated Financial
Statements for the Years Ended
Dec. 31, 1999, Dec. 31, 1998 and
Dec. 31, 1997 .................................................31-49
Report of Independent Auditors ........................50
b. Reports on Form 8-K: ...................................None.
c. The index to exhibits has been filed as separate
pages of the 1999 Form 10-K and is available to
shareholders on request from the Secretary of
the company at the principal executive offices.
(a) Part III will be incorporated by reference from the
registrant’s 2000 Proxy Statement pursuant to

Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 7th day
of March, 2000.

OWENS & MINOR, INC.

/s/ G. Gilmer Minor, III
G. Gilmer Minor, III
Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the
registrant on the 7th day of March 2000 and in the
capacities indicated.

/s/ G. Gilmer Minor, III
G. Gilmer Minor, III

/s/ Richard F. Bozard
Richard F. Bozard

/s/ Olwen B. Cape
Olwen B. Cape
/s/ Henry A. Berling
Henry A. Berling
/s/ Josiah Bunting, III
Josiah Bunting, III

/s/ John T. Crotty
John T. Crotty

/s/ James B. Farinholt, Jr.
James B. Farinholt, Jr.

/s/ Vernard W. Henley
Vernard W. Henley
/s/ E. Morgan Massey
E. Morgan Massey

/s/ Peter S. Redding
Peter S. Redding
/s/ James E. Rogers
James E. Rogers
/s/ James E. Ukrop
James E. Ukrop

/s/ Anne Marie Whittemore
Anne Marie Whittemore

Chairman and Chief
Executive Officer
and Director (Principal
Executive Officer)
Vice President and Treasurer
Acting Chief Financial Officer
(Principal Financial Officer)
Vice President and Controller
(Principal Accounting Officer)
Director

Director

MARKET FOR THE REGISTRANT’S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Owens & Minor, Inc.’s common stock trades on the
New York Stock Exchange under the symbol OMI. As of
December 31, 1999, there were approximately 15,000
common shareholders.

C O R P O R A T E O F F I C E R S

Owens & Minor, Inc. and Subsidiaries

G. Gilmer Minor, III, 59, Chairman of the Board since
1994 and Chief Executive Officer since 1984. Mr. Minor was
President from 1981 to April 1999.
Craig R. Smith, 48, President since April 1999 and Chief
Operating Officer since 1995. Prior to 1995, Mr. Smith was
Executive Vice President, Distribution and Information
Systems from 1994 to 1995 and Senior Vice President,
Distribution and Information Systems from 1993 to 1994.
Henry A. Berling, 57, Executive Vice President,
Partnership Development since 1995. Mr. Berling was
Executive Vice President, Partnership Development and
Chief Sales Officer from 1996 to 1998. Prior to 1995,
Mr. Berling was Executive Vice President, Sales and
Customer Development from 1994 to 1995 and Senior Vice
President, Sales and Marketing from 1992 to 1994.
Timothy J. Callahan, 48, Senior Vice President,
Distribution, since November 1999. From 1997 to
November 1999, Mr. Callahan served as Regional Vice
President, West. Mr. Callahan was Executive Vice President
for NCI, a healthcare consulting company from 1996 to
1997. Prior to that, he was Vice President, Sales, for Sterile
Concepts, Inc. from 1990 to 1996.
Drew St. J. Carneal, 61, Senior Vice President, General
Counsel and Secretary since 1990.
Jack M. Clark, 49, Senior Vice President, Sales and
Marketing since 1997. Mr. Clark was employed by Campbell
Soup Company from 1996 to 1997, serving as Vice
President, U.S. Sales and Marketing. From 1987 to 1996, he
was employed by Coca-Cola USA where his last position
was Area Vice President.
Charles C. Colpo, 42, Senior Vice President, Operations since
November 1999. Prior to November 1999, Mr. Colpo was Vice
President, Operations from 1998 to November 1999. Prior to
1998, Mr. Colpo was Vice President, Supply Chain Process
from 1996 to 1998; Vice President, Inventory Management
from 1995 to 1996; and Director, Business Process Redesign
from 1994 to 1995.

James L. Grigg, 52, Senior Vice President, Supply Chain
Management since 1996. Mr. Grigg joined the company in
1996 as Senior Vice President, Product. Mr. Grigg was Vice
President, Trade Relations and Product Management for
FoxMeyer Health Corp. from 1992 to 1996.
F. Lee Marston, 46, Senior Vice President and Chief
Information Officer since 1997. Prior to joining the
company, Mr. Marston was President of The Logistics
Technology Group. From 1993 to 1996 he also directed the
logistics information systems practice of the Progress
Group, a logistics consulting firm.
Richard F. Bozard, 52, Acting Chief Financial Officer since
March 1999 and Vice President and Treasurer since 1991.
Olwen B. Cape, 49, Vice President and Controller since
1997. Ms. Cape was employed by Bausch & Lomb
Incorporated from 1990 to 1997 serving in various financial
positions, including Director, Business Analysis & Planning.

Erika T. Davis, 35, Vice President, Human Resources since
December 1999. Prior to December 1999, Ms. Davis served
as Director, Human Resources & Training from March 1999
to July 1999; Director, Compensation & HRIS from 1995 to
1999; and Manager, Compensation from 1993 to 1995.
Hugh F. Gouldthorpe, Jr., 60, Vice President, Quality and
Communications since 1993.
Wayne B. Luck, 43, Vice President, Business Technology
Group, since 1998. Prior to 1998, Mr. Luck was Vice
President, Information Technology from 1995 to 1998.
Mr. Luck served as Director, Application Services from 1993
to 1995.
Bruce J. MacAllister, 48, Regional Vice President, East since
1997. Prior to 1997, Mr. MacAllister was Group Vice President,
Southern and Western Regions from 1995 to 1997. From 1993
to 1995 Mr. MacAllister was Division Vice President.
Hue Thomas, III, 60, Vice President, Corporate Relations
since 1991.

B O A R D O F D I R E C T O R S

Owens & Minor, Inc. and Subsidiaries

Henry A. Berling (57) 1, 4
Executive Vice President,
Partnership Development,
Owens & Minor, Inc.

Josiah Bunting, III (59) 2, 4
Superintendent,
Virginia Military Institute

John T. Crotty (62) 2, 4
Managing Partner,
CroBern Management Partnership
President, CroBern, Inc.

James B. Farinholt, Jr. (65) 1, 2*, 4
Special Assistant to the President
for Economic Development,
Virginia Commonwealth University

Vernard W. Henley (70) 2, 3, 5
Chairman & CEO,
Consolidated Bank & Trust Company

E. Morgan Massey (73) 1, 2, 4*, 5
Chairman,
Asian-American Coal, Inc.
Chairman Emeritus,
A.T. Massey Coal Company, Inc.
Chairman, Evan Energy Company

G. Gilmer Minor, III (59) 1*, 4
Chairman & CEO,
Owens & Minor, Inc.

Peter S. Redding (61) 3, 4
President & CEO,
Standard Register

James E. Rogers (54) 1, 3*, 4
President,
SCI Investors Inc.

James E. Ukrop (62) 2, 3, 5
Chairman,
Ukrop’s Super Markets, Inc.
Chairman, First Market Bank

Anne Marie Whittemore (54) 1, 3, 5*
Partner,
McGuire, Woods, Battle & Boothe LLP

Board Committees: 1 Executive Committee, 2 Audit Committee, 3 Compensation & Benefits Committee, 4 Strategic Planning Committee,
5 Governance & Nominating Committee, * Denotes Chairperson

C O R P O R A T E I N F O R M A T I O N

Owens & Minor, Inc. and Subsidiaries

Annual Meeting
The annual meeting of Owens & Minor, Inc. shareholders will be held on Tuesday, April 25, 2000,
at the Crestar Bank Building, 919 East Main Street, Richmond, Virginia.

Transfer Agent, Registrar and Dividend Disbursing Agent
The Bank of New York
Shareholder Relations Department-11E
P.O. Box 11258
Church Street Station
New York, NY 10286
800.524.4458
shareowner-svcs@bankofny.com

Dividend Reinvestment and Stock Purchase Plan
The Dividend Reinvestment and Stock Purchase Plan offers holders of Owens & Minor, Inc. common
stock an opportunity to buy additional shares automatically with cash dividends and to buy additional
shares with voluntary cash payments. Under the plan, the company pays all brokerage commissions and
service charges for the acquisition of shares. Information regarding the plan may be obtained by writing
the transfer agent at the following address:

The Bank of New York
Dividend Reinvestment Department
P.O. Box 1958
Newark, NJ 07101-9774

Shareholder Records
Direct correspondence concerning Owens & Minor, Inc. stock holdings or change of address to The
Bank of New York’s Shareholder Services Department (listed above). Direct correspondence concerning
lost or missing dividend checks to:

Receive and Deliver Department-11W
P.O. Box 11002
Church Street Station
New York, NY 10286

Duplicate Mailings
When a shareholder owns shares in more than one account or when several shareholders live at the
same address, they may receive multiple copies of annual and quarterly reports. To eliminate multiple
mailings, please write to the transfer agent.

Counsel
Hunton & Williams
Richmond, Virginia

Independent Auditors
KPMG LLP
Richmond, Virginia

Stock Exchange Listing
The Company’s common shares are listed on the New York Stock Exchange. The trading symbol is OMI.

Press Releases
Owens & Minor, Inc.’s press releases are available through Company News On-Call by fax-on-demand at
800.758.5804, ext. 667125, or at www.prnewswire.com or at www.owens-minor.com.

OWENS & MINOR, INC.

Corporate Office

Street Address

4800 Cox Road

Glen Allen, Virginia 23060

Mailing Address

Post Office Box 27626

Richmond, Virginia 23261-7626

804-747-9794