EX-99.1 3 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

FOR IMMEDIATE RELEASE

January 31, 2007

Owens & Minor Reports Outstanding Revenue Growth for

4th Quarter 2006, along with Rapid Progress in Converting

Recently Acquired Acute-Care Business

The company’s 2007 guidance reflects positive impact of acquisition of McKesson acute-care business

Richmond, VA….Owens & Minor (NYSE-OMI) reported revenue of $1.65 billion for the fourth quarter ended December 31, 2006, up 35.9% from $1.22 billion in the same period last year. Revenue growth in the fourth quarter included the contribution of approximately $282 million in revenue from a recent acquisition. Excluding the contribution from the acquired business, revenue grew at a very strong 12.7%.

Earnings per diluted common share (EPS) for the fourth quarter were $0.18, while net income was $7.3 million. Earnings include the following previously announced items:

 

  •   Pre-tax dilution of approximately $15 million, or $0.22 per diluted share, from the transition of the recently acquired McKesson acute-care business

 

  •   A fourth quarter, pre-tax $4.7 million charge resulting from increasing the allowance for doubtful accounts receivable for the direct-to-consumer business, as well as $0.5 million in other adjustments, for a total of $0.08 per diluted share.

“After a very busy year at Owens & Minor, we are looking forward to rapid integration of the acquired McKesson business, as well as opportunities for growing these new customer relationships in 2007,” said Craig R. Smith, president & chief executive officer of Owens & Minor. “We renewed our contracts with Novation and Broadlane and completed the customer signups in 2006, putting us in a strong position for the future. We owe our successes this past year to the contributions and dedication of our teammates and the willingness of our customers and supplier partners to work with us to optimize the efficiency of the supply chain.”

Other Fourth Quarter Results

For the quarter, gross margin was 10.6% of revenue, compared to 10.8% in the same period last year. The company attributed the slight decline in gross margin to the transition of a large volume of new and converted customer accounts. Selling, general and administrative expenses (SG&A) for the quarter, which reflected the fourth quarter charge in the direct-to-consumer business and additional costs associated with transitioning the McKesson acquisition, were 9.1% of revenue, compared to 7.8% in the same period last year.

 

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2006 Full Year Results

For the full year 2006, Owens & Minor reported revenue of $5.5 billion, up 14.8% compared to revenue of $4.8 billion in 2005. Reported revenue included approximately $282 million from the recent acquisition, as discussed above. Excluding revenue from the acquisition, revenue growth was 8.9% for the year. Diluted EPS for the year was $1.20, compared to EPS of $1.61 for 2005. Net income for 2006 was $48.8 million, compared to net income of $64.4 million last year.

Earnings for 2006 were negatively affected by the following:

 

  •   Pre-tax dilution of approximately $16 million, or $0.24 per share, from the transition of recently acquired business

 

  •   A second quarter pre-tax charge of $11.4 million, or $0.17 per diluted share, resulting from the company’s successful refinancing of $200 million in bonds

 

  •   Pre-tax charges and other adjustments of $9.8 million, or $0.15 per diluted share, resulting primarily from increasing the allowance for doubtful accounts receivable for the direct-to-consumer business

Other 2006 Results

Gross margin for the year was 10.8% of revenue, improved from 10.7% in 2005. SG&A for the full year was 8.5% of revenue, compared to 7.9% last year. This increase in SG&A was driven primarily by increases in the allowance for doubtful accounts receivable for the direct-to-consumer business and the costs associated with the transition of the acute-care business, discussed above. As a result, operating earnings for 2006 were 1.9% of revenue, down from 2.4% in 2005.

Asset Management

Days sales outstanding (DSO), as of December 31, 2006, were 30.5 days, compared to 26.3 days at December 31, 2005, while inventory turns were 9.2 for the fourth quarter of 2006, compared to turns of 10.0 for the fourth quarter of 2005. The increase in DSO is largely attributable to the addition of the McKesson customer portfolio. Inventory levels at the end of the year included a temporary build-up in inventory levels in order to facilitate the smooth conversion of customers from McKesson to Owens & Minor.

In addition to the increases in working capital related to the McKesson transition, Owens & Minor used cash in 2006 to fund strong organic revenue growth, resulting in negative operating cash flow of $73.6 million for the year. Uses of cash included increased inventory levels and higher receivables.

2007 Outlook

For 2007, the company anticipates that it will report revenue growth in the 15% to 20% range and diluted EPS in a range of $1.85 to $1.95, including the impact of the acquired McKesson business. Due to the timing of the McKesson acquisition, revenue growth will be stronger in the first three quarters of 2007, while earnings growth will accelerate in the second half of the year. The dilutive effect of the McKesson transition in the first quarter of 2007 is expected to be between $9 million and $12 million.

 

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“We expect to complete the conversion of the McKesson business in the first quarter and complete any needed cleanup in the second quarter, and then we see a solid opportunity for 2007,” said Smith. “We intend to serve these new customers just as we serve our existing customers, with advanced supply chain management techniques and the best distribution services available in the marketplace. Consequently, we expect to see steadily improving productivity metrics from the acquired business, as we move through the year.”

Acquisition Transition Update

Effective September 30, 2006, Owens & Minor acquired certain assets of the acute-care distribution business of McKesson Medical-Surgical for approximately $168 million, including approximately $122 million in net inventory. Owens & Minor anticipates that the acquisition will add in excess of $900 million in annual revenues to Owens & Minor.

Owens & Minor and McKesson are now at the mid-point of a comprehensive, six-month coordinated plan to transition the acute-care customers, facilities and inventory to Owens & Minor. Transition activities include complex tasks such as developing inventory demand forecasts, cross-referencing product data files, converting customers and their contracts to Owens & Minor systems, expanding selected facilities, conducting training for teammates, moving inventory to Owens & Minor facilities, and upgrading mainframe computer capacity. To date, more than 50% of the customer base has been converted and three of the acquired distribution facilities have been closed. The conversion effort has progressed smoothly and remains on schedule to be completed in March 2007, as originally planned.

2006 Highlights

Strategic Acquisitions in 2006

 

  •   Owens & Minor completed the acquisition of the acute-care distribution business of McKesson Medical-Surgical Inc.

 

  •   The company completed five small asset acquisitions in 2006, adding to its direct-to-consumer business customer base

Significant Agreements

 

  •   Owens & Minor and Broadlane signed new five-year agreement, effective Feb. 1, 2007

 

  •   Owens & Minor and Novation signed new five-year agreement, effective Sept. 1, 2006

 

  •   Owens & Minor extended IT outsourcing contract with Perot Systems to 2014

 

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Other Highlights

 

  •   Owens & Minor completed an offering of $200 million of 6.35% Senior Notes (due 2016), successfully lowering the interest rate from 8.5% and extending the term

 

  •   Owens & Minor received an investment grade rating of “BBB-” from Fitch Ratings for the bond offering and was also assigned an investment grade of “BBB-” from Standard & Poor’s, consistent with its existing corporate credit rating

 

  •   Owens & Minor ranked #1 in DSO performance among medical suppliers (at 26.7 days for 2005, compared to the sector median of 56.0 days); The 2006 CFO Magazine Working Capital Survey, which ranked 1,000 publicly traded companies on working capital performance, was published in September 2006

Investors Conference Call Information & Supplemental Material

Conference Call: Owens & Minor will conduct a conference call for investors on Thursday, February 1, 2007 at 8:30 a.m. eastern time. Participants may access the call at 800-901-5241 with passcode “Owens & Minor.” A replay of the conference call will be available for five days at 888-286-8010 with passcode #29735579. Webcast: An audio-only version of the conference call will be available as a Webcast on www.owens-minor.com under the Investor Relations section. Supporting material for 2006 results will also be provided on the Website.

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

Safe Harbor Statement

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

Contact: Jeff Kaczka, Senior Vice President & CFO, 804-723-7500; Richard F. Bozard, Vice President, Treasurer, 804-723-7502; Chuck Graves, Director, Finance, 804-723-7556; or Trudi Allcott, Director, Investor Communications & Media Relations, 804-723-7555.

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Page Five

Owens & Minor, Inc.

Consolidated Statements of Income (unaudited)

(in thousands, except ratios and per share data)

 

     Three Months Ended December 31,  
     2006     % of revenue     2005     % of revenue     % Fav(Unfav)  

Revenue

    $ 1,652,243     100.0 %   $ 1,215,949     100.0 %   35.9 %

Cost of revenue

      1,477,346     89.4       1,085,168     89.2     (36.1 )
                              

Gross margin

      174,897     10.6       130,781     10.8     33.7  

Selling, general and administrative expenses

      151,024     9.1       95,086     7.8     (58.8 )

Depreciation and amortization

      9,349     0.6       5,428     0.4     (72.2 )

Other operating income and expense, net

      (1,038 )   (0.1 )     1,962     0.2     (152.9 )
                              

Operating earnings

      15,562     0.9       28,305     2.3     (45.0 )

Interest expense, net

      5,437     0.3       2,661     0.2     (104.3 )
                              

Income before income taxes

      10,125     0.6       25,644     2.1     (60.5 )

Income tax provision

      2,819     0.2       9,906     0.8     71.5  
                              

Net income

    $ 7,306     0.4 %   $ 15,738     1.3 %   (53.6 )%
                              

Net income per common share - basic

    $ 0.18       $ 0.40      

Net income per common share - diluted

    $ 0.18       $ 0.39      

Weighted average shares - basic

      39,937         39,654      

Weighted average shares - diluted

      40,436         40,117      
     Year Ended December 31,  
     2006     % of revenue     2005     % of revenue     % Fav(Unfav)  

Revenue

    $ 5,533,736     100.0 %   $ 4,822,414     100.0 %   14.8 %

Cost of revenue

      4,936,940     89.2       4,306,302     89.3     (14.6 )
                              

Gross margin

      596,796     10.8       516,112     10.7     15.6  

Selling, general and administrative expenses

      468,789     8.5       380,506     7.9     (23.2 )

Depreciation and amortization

      28,933     0.5       19,252     0.4     (50.3 )

Other operating income and expense, net

      (3,690 )   (0.1 )     (1,078 )   (0.0 )   242.3  
                              

Operating earnings

      102,764     1.9       117,432     2.4     (12.5 )

Interest expense, net

      13,273     0.2       11,858     0.2     (11.9 )

Loss on early extinguishment of debt

      11,411     0.2       —       —       n/ m
                              

Income before income taxes

      78,080     1.4       105,574     2.2     (26.0 )

Income tax provision

      29,328     0.5       41,154     0.9     28.7  
                              

Net income

    $ 48,752     0.9 %   $ 64,420     1.3 %   (24.3 )%
                              

Net income per common share - basic

    $ 1.22       $ 1.63      

Net income per common share - diluted

    $ 1.20       $ 1.61      

Weighted average shares - basic

      39,860         39,520      

Weighted average shares - diluted

      40,467         40,056      

Page Six

Owens & Minor, Inc.

Consolidated Balance Sheets (unaudited)

(in thousands)

 

     December 31,
2006		     December 31,
2005		  

Assets

     

Current assets

     

Cash and cash equivalents

    $ 5,090     $ 71,897  

Accounts and notes receivable, net

      539,178       353,102  

Merchandise inventories

      666,527       439,887  

Deferred income taxes

      10,065       —    

Other current assets

      45,910       29,666  
                

Total current assets

      1,266,770       894,552  

Property and equipment, net

      70,853       51,942  

Goodwill, net

      259,670       242,620  

Intangible assets, net

      52,763       18,383  

Deferred income taxes

      —         170  

Other assets, net

      35,694       32,183  
                

Total assets

    $ 1,685,750     $ 1,239,850  
                

Current liabilities

     

Accounts payable

    $ 542,552     $ 387,833  

Accrued payroll and related liabilities

      13,472       12,701  

Deferred income taxes

      47,606       30,441  

Other accrued liabilities

      66,873       57,893  
                

Total current liabilities

      670,503       488,868  

Long-term debt

      433,133       204,418  

Deferred income taxes

      2,472       —    

Other liabilities

      32,188       34,566  
                

Total liabilities

      1,138,296       727,852  
                

Shareholders’ equity

     

Common stock

      80,515       79,781  

Paid-in capital

      143,557       133,653  

Retained earnings

      332,013       307,353  

Accumulated other comprehensive loss

      (8,631 )     (8,789 )
                

Total shareholders’ equity

      547,454       511,998  
                

Total liabilities and shareholders’ equity

    $ 1,685,750     $ 1,239,850  
                

Page Seven

Owens & Minor, Inc.

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

     Year Ended December 31,  
     2006     2005  

Operating activities

     

Net income

    $ 48,752     $ 64,420  

Adjustments to reconcile net income to cash provided by operating activities:

     

Depreciation and amortization

      28,933       19,252  

Loss on early extinguishment of debt

      11,411       —    

Deferred income taxes

      9,458       (3,930 )

Provision for LIFO reserve

      3,944       6,574  

Stock-based compensation expense

      5,263       2,186  

Provision for losses on accounts and notes receivable

      23,452       6,960  

Deferred direct response advertising costs

      (9,285 )     (4,594 )

Changes in operating assets and liabilities:

     

Accounts and notes receivable

      (209,011 )     (6,316 )

Merchandise inventories

      (107,965 )     (9,896 )

Accounts payable

      137,843       45,200  

Net change in other current assets and current liabilities

      (15,944 )     7,641  

Other assets

      106       1,229  

Other liabilities

      (170 )     2,037  

Other, net

      (367 )     4,611  
                

Cash provided by (used for) operating activities

      (73,580 )     135,374  
                

Investing activities

     

Additions to property and equipment

      (21,948 )     (30,166 )

Additions to computer software

      (6,050 )     (3,641 )

Acquisition of intangible assets

      (10,735 )     (6,201 )

Net cash paid for acquisitions of businesses

      (170,680 )     (65,448 )

Other, net

      (144 )     65  
                

Cash used for investing activities

      (209,557 )     (105,391 )
                

Financing activities

     

Net proceeds of issuance of long-term debt

      198,054       —    

Repayment of long-term debt

      (210,459 )     —    

Cash dividends paid

      (24,092 )     (20,713 )

Net proceeds from revolving credit facility

      229,100       —    

Proceeds from exercise of stock options

      4,316       4,315  

Excess tax benefits related to stock-based compensation

      1,632       —    

Increase in drafts payable

      16,500       2,823  

Other, net

      1,279       (307 )
                

Cash provided by (used for) financing activities

      216,330       (13,882 )
                

Net increase (decrease) in cash and cash equivalents

      (66,807 )     16,101  

Cash and cash equivalents at beginning of period

      71,897       55,796  
                

Cash and cash equivalents at end of period

    $ 5,090     $ 71,897  
                

Page Eight

Owens & Minor, Inc.

Financial Statistics (unaudited)

 

     Quarter Ended  

(in thousands, except ratios and per share data)

    12/31/2006     9/30/2006     6/30/2006     3/31/2006     12/31/2005  

Operating results:

           

Revenue

    $ 1,652,243     $ 1,319,179     $ 1,300,315     $ 1,261,999     $ 1,215,949  
                                        

Gross margin

    $ 174,897     $ 144,480     $ 141,229     $ 136,190     $ 130,781  

Gross margin as a percent of revenue

     10.6 %     11.0 %     10.9 %     10.8 %     10.8 %
                                        

SG&A expense

    $ 151,024     $ 111,945     $ 104,764     $ 101,056     $ 95,086  

SG&A expense as a percent of revenue

      9.1 %     8.5 %     8.1 %     8.0 %     7.8 %
                                        

Operating earnings

    $ 15,562     $ 25,550     $ 31,226     $ 30,426     $ 28,305  

Operating earnings as a percent of revenue

      0.9 %     1.9 %     2.4 %     2.4 %     2.3 %
                                        

Net income

    $ 7,306     $ 14,454     $ 10,489     $ 16,503     $ 15,738  
                                        

Net income per common share - basic

    $ 0.18     $ 0.36     $ 0.26     $ 0.42     $ 0.40  
                                        

Net income per common share - diluted

    $ 0.18     $ 0.36     $ 0.26     $ 0.41     $ 0.39  
                                        

Accounts receivable:

           

Accounts and notes receivable, net

   $ 539,178     $ 391,408     $ 377,283     $ 378,066     $ 353,102  
                                        

Days sales outstanding

      30.5       27.0       24.9       25.5       26.3  
                                        

Inventory:

           

Merchandise inventories

    $ 666,527     $ 607,754     $ 470,230     $ 444,722     $ 439,887  
                                        

Average inventory turnover

      9.2       9.7 *     10.1       10.3       10.0  
                                        

Financing:

           

Long-term debt

    $ 433,133     $ 326,928     $ 197,698     $ 203,009     $ 204,418  
                                        

Stock information:

           

Cash dividends per common share

    $ 0.15     $ 0.15     $ 0.15     $ 0.15     $ 0.13  
                                        

Stock price at quarter-end

    $ 31.27     $ 32.89     $ 28.60     $ 32.77     $ 27.53  
                                        
* Excludes the impact of the McKesson acquisition