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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the year ended December 31, 2003

For the transition period from            to            

Commission File Number 1-9810

OWENS & MINOR, INC.

(Exact name of registrant as specified in its charter)

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

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

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  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

The aggregate market value of Common Stock held by non-affiliates (based upon the closing sales price) was approximately $986,277,295 as of February 17, 2004.

The number of shares of the Company’s Common Stock outstanding as of February 17, 2004 was 39,153,525 shares.

Documents Incorporated by Reference

The proxy statement for the annual meeting of security holders on April 29, 2004 is incorporated by reference for Part III.

Table of Contents

Form 10-K Table of Contents

“Information for Investors,” located on page 16 of the company’s printed Annual Report, and “Corporate Officers,” located on page 15 of the company’s printed Annual Report, can be found at the end of this electronic document.

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Part I

Item 1. Business

The Company

Owens & Minor Inc. and subsidiaries (Owens & Minor, O&M or the company) is the leading distributor of national name brand medical and surgical supplies in the United States and a healthcare supply chain management company, distributing approximately 120,000 finished medical and surgical products produced by over 1,000 suppliers to approximately 4,000 customers from 41 distribution centers nationwide. The company’s customers are primarily acute care hospitals and integrated healthcare networks (IHNs), which account for more than 90% of O&M’s net sales. Many of these hospital customers are represented by national healthcare networks (Networks) or group purchasing organizations (GPOs) that negotiate discounted pricing with suppliers and contract distribution services with the company. Other customers include alternate care providers such as clinics, home healthcare organizations, nursing homes, physicians’ offices, rehabilitation facilities and surgery centers. The company typically provides its distribution services under contractual arrangements over periods ranging from three to five years. Most of O&M’s sales consist of consumable goods such as disposable gloves, dressings, endoscopic products, intravenous products, needles and syringes, sterile procedure trays, surgical products and gowns, urological products and wound closure products.

Founded in 1882 and incorporated in 1926 in Richmond, Virginia as a wholesale drug company, the company redefined its mission in 1992, selling the wholesale drug division to concentrate on medical and surgical distribution. Since then, O&M has significantly expanded and strengthened its national presence through internal growth and acquisitions, generating over $4 billion of net sales in 2003.

The Industry

Distributors of medical and surgical supplies provide a wide variety of products and services to healthcare providers, including hospitals and hospital-based systems, IHNs and alternate care providers. The company contracts with these providers directly and through Networks and GPOs. The medical/surgical supply distribution industry continues to grow due to the aging population and emerging medical technology, which results in new healthcare procedures and products. Over the years, healthcare providers have continued to change and model their health systems to meet the needs of the markets they serve. They have forged strategic relationships with national medical and surgical supply distributors to meet the challenges of managing the supply procurement and distribution needs of their entire network. The traditional role of distributors in warehousing and delivering medical and surgical supplies to customers continues to evolve into the role of assisting customers to better manage the entire supply chain.

In recent years, the overall healthcare market has been characterized by the consolidation of healthcare providers into larger and more sophisticated entities seeking to lower their total costs. These providers have sought to lower total product costs through incremental value-added services they receive from their medical and surgical supply distributors. These trends have driven significant consolidation within the medical/surgical supply distribution industry due to the competitive advantages enjoyed by larger distributors, which include, among other things, the ability to serve nationwide customers, buy inventory in large volume and develop technology platforms and decision support systems.

The Business

Through its core distribution business, the company purchases a high volume of medical and surgical products from suppliers, inventories these items at its distribution centers and provides delivery services to its customers. O&M’s 41 distribution centers are located throughout the United States and are situated close to major customer facilities. These distribution centers generally serve hospitals and other customers within a 200-mile radius, delivering most medical and surgical supplies with a fleet of leased trucks. Almost all of O&M’s delivery personnel are employees of the company, providing more effective control of customer service. Contract carriers and parcel services are also used in situations where it is more cost-effective. The company

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customizes its product pallets and truckloads according to the customers’ needs, thus enabling them to reduce costs on the receiving end. Furthermore, delivery times are adjusted to customers’ needs, allowing them to streamline receiving activities.

O&M strives to make the supply chain more efficient through the use of advanced warehousing, delivery and purchasing techniques, enabling customers to order and receive products using just-in-time and stockless services. A key component of this strategy is a significant investment in advanced information technology, which includes automated warehousing technology as well as OMDirect^SM, an Internet-based product catalog and direct ordering system that supplements existing technologies to communicate with both customers and suppliers. O&M is also focused on using its technology and experience to provide supply chain management consulting, outsourcing, and logistics services.

Products & Services

In addition to its core medical and surgical supply distribution service, the company offers value-added services in supply chain management—from origin of product to patient bedside. O&M’s value portfolio includes inventory management, product mix management, information technology, logistics consulting and outsourcing to help hospitals and healthcare systems streamline their supply chain, control healthcare costs and increase profitability. Some of these services include:

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Customers

The company currently provides its distribution, consulting and outsourcing services to approximately 4,000 healthcare providers, including hospitals, IHNs and alternate care providers, contracting with them directly and through Networks and GPOs. In recent years, the company has also begun to provide logistics services to manufacturers of medical and surgical products.

Networks and GPOs

Networks and GPOs are entities that act on behalf of a group of healthcare providers to obtain better 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 relationships. However, networks and GPOs cannot ensure that members will purchase their supplies from a given distributor. O&M is a distributor for Novation, the supply company of VHA, Inc. and University HealthSystem Consortium, which represents the purchasing interests of more than 2,400 healthcare organizations. Sales to Novation members represented approximately 49% of the company’s net sales in 2003. The company is also a distributor for Broadlane, a GPO providing national contracting for more than 500 acute care hospitals and more than 1,700 sub-acute care facilities, including Tenet Healthcare Corporation, one of the largest for-profit hospital chains in the nation. Sales to Broadlane members represented approximately 15% of O&M’s net sales in 2003.

IHNs

Integrated Healthcare Networks (IHNs) are typically networks of different types of healthcare providers that seek 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 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 management and other value-added services.

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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.

Sales and Marketing

O&M’s sales and marketing function is organized to support its field sales teams of approximately 250 people. Based from the company’s distribution centers nationwide, the company’s local sales teams are positioned to respond to customer needs quickly and efficiently. National account directors work closely with Networks and GPOs to meet their needs and coordinate activities with their individual member facilities. In addition, O&M has a national field organization, OMSpecialties^SM, which is focused on assisting customers in the clinical environment, and an OMSolutions^SM team focused on supply chain consulting and outsourcing. The company’s integrated sales and marketing strategy offers customers value-added services in logistics, information management, 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.

Contracts and Pricing

Industry practice is for healthcare providers, their Networks, or their GPOs to negotiate product pricing directly with suppliers and then negotiate distribution pricing terms with distributors. When product pricing is not determined by contracts between the supplier and the healthcare provider, it is determined by the distribution agreement between the healthcare provider and the distributor.

The majority of O&M’s distribution arrangements compensate the company on a cost-plus percentage basis under which a negotiated fixed percentage distribution fee is added to the product cost agreed to by the customer and the supplier. The determination of this percentage distribution fee is typically based on customer size, as well as other factors, and usually remains constant for the life of the contract. In many cases, distribution contracts in the medical/surgical supply industry specify a minimum volume of product to be purchased and are terminable by the customer upon short notice.

In some cases the company may offer pricing that varies during the life of the contract, depending upon purchase volume and, as a result, the negotiated fixed percentage distribution fee may increase or decrease. Under these contracts, customers’ distribution fees may be re-set after a measurement period to either more or less favorable pricing based on significant changes in purchase volume. If a customer’s distribution fee percentage is adjusted, the modified percentage distribution fee applies only to a customer’s purchases made following the change. Because customer sales volumes typically change gradually, changes in distribution fee percentages for individual customers under this type of arrangement have an insignificant effect on total company results.

Pricing under O&M’s CostTrack^SM activity-based pricing model differs from pricing under a traditional cost-plus model. With CostTrack^SM, the pricing of services provided to customers is based on the type and level of services that they choose, as compared to a traditional cost-plus pricing model. As a result, this pricing model more accurately aligns the distribution fees charged to the customer with the costs of the individual services provided.

Pricing for consulting and outsourcing is generally determined by the level of service provided. O&M also has arrangements that charge incremental fees for additional distribution and enhanced inventory management services, such as more frequent deliveries and distribution of products in small units of measure. Although the company’s sales personnel based in the distribution centers negotiate local arrangements and pricing levels with customers, corporate management has established minimum pricing levels and a contract review process.

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Suppliers

O&M believes that its size, strength and long-standing relationships enable it to obtain attractive terms from suppliers, including discounts for prompt payment and volume incentives. The company has well-established relationships with virtually all major suppliers of medical and surgical supplies, and works with its largest suppliers to create operating efficiencies in the supply chain.

Approximately 16% of O&M’s net sales in 2003 were sales of Johnson & Johnson Health Care Systems, Inc. products. Approximately 14% of O&M’s 2003 net sales were sales of products of the subsidiaries of Tyco International, which include the Kendall Company, United States Surgical and Mallinckrodt.

Information Technology

To support its strategic efforts, the company has developed information systems to manage all aspects of its operations, including warehouse and inventory management, asset management and electronic commerce. O&M believes that its investment in and use of technology in the management of its operations provides the company with a significant competitive advantage.

In 2002, O&M signed a seven-year agreement with Perot Systems Corporation to outsource its information technology (IT) operations, which include the management and operation of its mainframe computer and distributed services processing as well as application support, development and enhancement services. This agreement extends and expands a relationship that began in 1998. This relationship has allowed the company to provide resources to major IT initiatives, which support internal operations and enhance services to customers and suppliers.

The company has focused its technology expenditures on electronic commerce, data warehouse and decision support, supply chain management and warehousing systems, sales and marketing programs and services, as well as significant infrastructure enhancements. Owens & Minor is an industry leader in the use of electronic commerce to conduct business transactions with customers and suppliers, using OMDirect^SM to supplement existing EDI and XML technologies.

Asset Management

In the medical/surgical supply distribution industry, a significant investment in inventory and accounts receivable is required to meet the rapid delivery requirements of customers and provide high-quality service. As a result, efficient asset management is essential to the company’s profitability. O&M is highly focused on effective control of inventory and accounts receivable, and draws on technology to achieve this goal.

Inventory

The significant and ongoing emphasis on cost control in the healthcare industry puts pressure on suppliers, distributors and healthcare providers to create more efficient inventory management systems. O&M has responded to these ongoing challenges by developing inventory forecasting capabilities, a client/server warehouse management system, a product standardization and consolidation initiative, and a vendor-managed inventory process. This vendor-managed inventory process allows some of the company’s major suppliers to electronically monitor daily sales, inventory levels and product forecasts so they can automatically and accurately replenish O&M’s inventory.

Accounts Receivable

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

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Competition

The medical/surgical supply distribution industry in the United States is highly competitive and consists of three major nationwide distributors: O&M, Cardinal Health, and McKesson Medical-Surgical, a subsidiary of McKesson HBOC, Inc. The industry also includes 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 management, information technology, electronic commerce capabilities and the ability to meet special customer requirements. O&M believes its emphasis on technology, combined with its customer-focused approach to distribution and value-added services, enables it to compete effectively with both larger and smaller distributors by being located near the customer and offering a high level of customer service.

Other Matters

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 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.

Employees

At the end of 2003, the company had 3,245 full-time and part-time employees. O&M believes that ongoing employee training is critical to performance, using Owens & Minor University, an in-house training program including classes in leadership, management development, finance, operations and sales. Management believes that relations with employees are good.

Item 2. Properties

O&M’s corporate headquarters are located in western Henrico County, in a suburb of Richmond, Virginia, in facilities leased from unaffiliated third parties. The company owns two undeveloped parcels of land adjacent to its corporate headquarters. The company also owns an undeveloped parcel of land in nearby Hanover County to be used for its future corporate headquarters, which is expected to be completed in late 2005. The company leases offices and warehouses for 40 of its distribution centers across the United States from unaffiliated third parties. In addition, the company has a warehousing arrangement in Honolulu, Hawaii with an unaffiliated third party. 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. 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 material adverse effect on its business.

Item 3. Legal Proceedings

See Note 19 to the Consolidated Financial Statements under Item 15.

Item 4. Submission of Matters to a Vote of Security Holders

During the fourth quarter of 2003, no matters were submitted to a vote of security holders.

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Part II

Item 5. Market for 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, 2003, there were approximately 13,500 common shareholders. See “Quarterly Financial Information” under Item 15 for high and low closing sales prices of the company’s common stock.

Item 6. Selected Financial Data

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

2003 Financial Results

Overview. In 2003, O&M earned net income of $53.6 million, or $1.42 per diluted common share, compared with $47.3 million, or $1.27 per diluted common share in 2002, and $23.0 million, or $0.68 per diluted common share in 2001. The increase from 2002 to 2003, which was 13% for net income and 12% for net income per diluted common share, resulted from increased sales, reduced financing costs, improved productivity in field operations and a lower effective tax rate, partially offset by increased spending on strategic initiatives and gross margin pressure. The increase from 2001 to 2002 was the result of increased sales, reduced financing costs, success in controlling operating expenses and improving productivity, the elimination of goodwill amortization, and several significant items described in more detail below.

Significant items that affect comparability of results. In 2002, the company incurred a $3.0 million charge, or $1.8 million net of tax, due to the cancellation of a mainframe computer services contract that was replaced by a new information technology agreement. In 2001, the company incurred the following expenses that affect year-to-year comparability:

Net income in 2002 and 2001 also included reductions in a restructuring reserve, originally established in 1998, of $0.3 million and $0.8 million, net of tax.

Results of Operations

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

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Net sales. Net sales increased 7% to $4.24 billion for 2003, from $3.96 billion in 2002. Increased sales volume to existing customers accounted for the vast majority of the increase in sales, with the remainder of the increase contributed by new business.

Net sales increased by 4% to $3.96 billion for 2002, from $3.81 billion for 2001. During 2002, the company’s sales were affected by losses of certain customers in late 2001 and early 2002, including those who chose other distributors in 2001 in connection with the Novation contract renewal. In April 2001, the company signed a new distribution agreement with Novation, the supply company of VHA, Inc. and University HealthSystem Consortium, continuing its long-standing relationship with these organizations. Other new business awarded in early 2002 transitioned more slowly than expected; however, the new business, combined with penetration of existing accounts, more than offset the losses.

Gross margin. Gross margin as a percentage of net sales for 2003 decreased to 10.5% from 10.6% in 2002 and 10.7% in 2001. This decrease is primarily the result of competitive pricing pressure as well as increases in sales volume with larger customers.

Competitive pricing pressure has been a significant factor in recent years, and management expects this trend to continue. The company also has access to fewer inventory buying opportunities, as suppliers seek more restrictive agreements with distributors. The company is working to counteract the effects of these trends by offering customers a wide range of value-added services, such as OMSolutions^SM, PANDAC^® and other programs, as well as expanding the MediChoice^® private label product line. The company will also continue to work with suppliers on programs to enhance gross margin.

Selling, general and administrative expenses. Selling, general and administrative (SG&A) expenses were 7.8% of sales in 2003, 2002 and 2001.

In late 2002, the company launched new strategic initiatives, which include the OMSolutions^SM and third-party logistics services, and Owens & Minor University, the company’s new in-house training program. In 2003, the company continued the implementation of these initiatives by hiring staff and marketing new services to customers. Spending on these initiatives increased gradually throughout 2003, with most of the expense being incurred during the second half of the year. Productivity improvements achieved in the core distribution business partially offset costs associated with the implementation of these initiatives. The company expects to continue to invest in these initiatives in 2004. The company will also continue to focus on operational standardization which management expects to result in productivity improvements.

In July 2002, the company entered into a seven-year information technology agreement with Perot Systems Corporation, expanding an existing outsourcing relationship. As a result of the agreement, O&M recorded a liability for termination costs of $3.0 million in connection with the cancellation of its then existing contract for mainframe computer services. This charge is included in SG&A expenses for 2002.

SG&A expense in 2002 was comparable as a percent of sales to 2001, despite the $3.0 million charge, partly as a result of a decrease in warehouse personnel costs made possible by the completion of significant customer and business transitions that occurred in 2001. Additionally, SG&A continued to improve as a result of ongoing company-wide efforts to increase productivity and reduce expenses.

Restructuring credits. As a result of the cancellation of a significant customer contract in 1998, the company recorded a restructuring charge of $6.6 million, after taxes, to downsize operations. The company periodically re-evaluates its restructuring reserve, and since the actions under this plan have resulted in lower projected total costs than originally anticipated, the company recorded reductions in the reserve in 2002 and 2001 of $0.5 million and $1.5 million, which have increased net income by $0.3 million and $0.8 million. These adjustments resulted primarily from the reutilization of warehouse space that had previously been vacated under the restructuring plan and the resolution of uncertainties related to potential asset write-offs. In 2003, 2002 and 2001, amounts of $0.4 million, $0.4 million and $0.3 million were charged against the restructuring liability. The remaining accrual consists of losses on a lease commitment for vacated office space.

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Financing costs. The following table presents a summary of the company’s financing costs for 2003, 2002 and 2001:

The decrease in financing costs from 2002 to 2003 resulted primarily from reductions in outstanding financing, most significantly the repurchase of $20.8 million and conversion of $104.4 million of mandatorily redeemable preferred securities. In addition, 2002 financing costs included a write-off of $0.2 million of deferred financing costs related to the replacement of the company’s revolving credit facility, and $0.7 million in fees related to the origination of a new off-balance sheet receivables financing facility (Receivables Financing Facility).

The decrease in financing costs from 2001 to 2002 was primarily driven by lower outstanding financing and lower effective interest rates. Effective interest rates improved as a result of both the refinancing of the company’s long-term debt in mid-2001 and from decreases in short-term interest rates.

The company expects to continue to manage its financing costs by managing working capital levels. The repurchases and conversion of mandatorily redeemable preferred securities that took place in late 2002 and 2003 will reduce future financing costs by an annual rate of $7.1 million, compared to periods prior to the repurchase and conversion activity. In addition, future financing costs will be affected primarily by changes in short-term interest rates and working capital requirements.

Loss (gain) on early retirement of debt. In 2001, the company retired $150 million of 10.875% Senior Subordinated 10-year Notes due in 2006, replacing them with $200 million of 8.50% Senior Subordinated 10-year Notes. The early retirement resulted in a loss of $11.8 million, consisting of $8.4 million of retirement premiums, a $3.2 million write-off of debt issuance costs and $0.2 million of fees.

Losses and gains on early retirement of debt in 2002 and 2003 resulted from repurchases of the company’s mandatorily redeemable preferred securities.

Loss (gain) on investment. The company owned equity securities of a provider of business-to-business e-commerce services in the healthcare industry. The market value of these securities fell significantly below the company’s original cost basis and, as management believed that recovery in the near term was unlikely, the company recorded an impairment charge of $1.1 million in 2001. The company sold this investment in 2003 for a gain of $68 thousand over the adjusted cost basis.

Income taxes. The provision for income taxes was $34.2 million, compared with $31.0 million in 2002 and $29.8 million in 2001. Income tax expense for 2001 included a $7.2 million provision for estimated tax liabilities related principally to interest deductions for corporate-owned life insurance claimed on the company’s tax returns for the years 1995 through 1998. The company’s effective tax rate was 38.9% in 2003, compared with 39.6% in 2002 and 56.4% in 2001. The reduction in rate from 2002 to 2003 resulted primarily from lower effective state income tax rates. The effective tax rate in 2002 was lower than 2001 because of the $7.2 million provision mentioned above, nondeductible goodwill amortization expense in 2001, and lower effective state income tax rates.

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Financial Condition, Liquidity and Capital Resources

Liquidity. In 2003, the company generated $94.9 million of cash flow from operations, compared with $14.3 million used for operations in 2002 and $1.6 million provided by operations in 2001. In both 2002 and 2001, the company reduced its sales of accounts receivable under its Receivables Financing Facility, resulting in $70 million and $10 million decreases in operating cash flow. The company uses the facility as a source of short-term financing, selling receivables as needed to provide cash for operations. Cash flows in 2003 were positively affected by improved collections of accounts receivable as well as timing of payments for inventory purchases. Accounts receivable days sales outstanding at December 31, 2003 were 27.8 days, compared with 32.0 days at December 31, 2002. Inventory turnover improved from 9.6 times in 2002 to 10.3 times in 2003.

Excluding the effect of sales of accounts receivable, operating cash flows in 2002 were favorable to 2001, as a result of inventory reductions made possible by the completion of customer transitions that began in 2001.

On July 2, 2001, the company issued $200 million of 8.50% Senior Subordinated Notes which mature in July 2011. The proceeds from these notes were used to retire the company’s $150 million of 10.875% Senior Subordinated Notes and to reduce the amount of outstanding financing under the Receivables Financing Facility. In conjunction with the new notes, the company entered into interest rate swap agreements through 2011 under which the company pays counterparties a variable rate based on London Interbank Offered Rate (LIBOR) and the counterparties pay the company a fixed interest rate of 8.50% on a notional amount of $100 million.

Effective April 30, 2002, the company replaced its revolving credit facility with an agreement expiring in April 2005. The credit limit of the facility is $150 million, of which $6.5 million is reserved for certain letters of credit. The interest rate is based on, at the company’s discretion, LIBOR, the Federal Funds Rate or the Prime Rate. Under the facility, the company is charged a commitment fee of between 0.30% and 0.40% on the unused portion of the facility, and a utilization fee of 0.25% if borrowings exceed $75 million. The terms of the agreement limit the amount of indebtedness that the company may incur, require the company to maintain certain levels of net worth, current ratio, leverage ratio and fixed charge coverage ratio, 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, 2003, the company was in compliance with these covenants.

Effective April 30, 2002, the company replaced its Receivables Financing Facility with an agreement expiring in April 2005. Under the terms of the facility, O&M Funding is entitled to sell, without recourse, up to $225 million of its trade receivables to a group of unrelated third party purchasers at a cost of funds based on either commercial paper rates, the Prime Rate, or LIBOR. The terms of the agreement require the company to maintain certain levels of net worth, current ratio, leverage ratio and fixed charge coverage ratio, and restrict the company’s ability to materially alter the character of the business through consolidation, merger, or purchase or sale of assets. At December 31, 2003, the company was in compliance with these covenants.

In November 2002, the company announced a repurchase plan representing a combination of its common stock and its $2.6875 Term Convertible Securities, Series A issued by the company’s wholly owned subsidiary Owens & Minor Trust I (Securities). Under this plan, up to $50 million of Securities and common stock, with a maximum of $35 million in common stock, could be purchased by the company. The shares of common stock and Securities could be acquired from time to time at management’s discretion through December 31, 2003 in the open market, in block trades, in private transactions or otherwise. In December 2002, the company repurchased 137,000 Securities for $6.6 million. In the first quarter of 2003, the company repurchased an additional 415,449 Securities for $20.4 million, and 661,500 shares of common stock for $10.9 million. The repurchase of Securities resulted in a gain of $84 thousand in 2002 and a loss of $157 thousand in 2003.

In the third quarter of 2003, the company initiated and completed the redemption of its outstanding Securities, resulting in the conversion of $104.4 million of Securities into 5.1 million shares of common stock. The remaining Securities, representing a liquidation value of $27 thousand, were redeemed by the company.

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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, 2003, O&M had $143.5 million of unused credit under its revolving credit facility and $225.0 million of unused financing under its Receivables Financing Facility.

The following is a summary of the company’s significant contractual obligations as of December 31, 2003:

Capital Expenditures. Capital expenditures were approximately $17.7 million in 2003, compared to $9.8 million in 2002 and $16.8 million in 2001. The increase from 2002 to 2003 included $6.1 million of additional spending on computer software, as the company focused on upgrading its information systems. In 2004, the company expects to incur expenditures for design and construction of a new corporate headquarters building, while reducing capital spending on upgrading its information systems.

In 2001, the company spent $3.3 million to purchase land for its future corporate headquarters. The remaining decrease in spending from 2001 to 2002 was a result of lower spending on software development and fewer warehouse relocations.

Off Balance Sheet Arrangements

The company uses an off balance sheet accounts receivable financing facility that expires in April 2005. Under the terms of the facility, O&M Funding, a wholly-owned, consolidated subsidiary, is entitled to sell, without recourse, up to $225 million of its trade receivables to a group of unrelated third party purchasers at a cost of funds based on either commercial paper rates, the Prime Rate, or LIBOR. The terms of the agreement require the company to maintain certain levels of net worth, current ratio, leverage ratio and fixed charge coverage ratio, and restrict the company’s ability to materially alter the character of the business through consolidation, merger, or purchase or sale of assets.

The company uses this facility as an economical means of financing, as the cost of selling accounts receivable is typically lower than the cost of interest for an equivalent amount of debt. However, due to the company’s favorable cash flow, it used the facility much less in 2003 than in 2002. As of December 31, 2003 and 2002, there were no receivables sold under the Receivables Financing Facility.

Critical Accounting Policies

The company’s consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of

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revenues and expenses during the reporting periods. The company continually evaluates the accounting policies and estimates it uses to prepare its financial statements. Management’s estimates are generally based on historical experience and various other assumptions that are judged to be reasonable in light of the relevant facts and circumstances. Because of the uncertainty inherent in such estimates, actual results may differ.

Critical accounting policies are defined as those policies that relate to estimates that require a company to make assumptions about matters that are highly uncertain at the time the estimate is made and could have a material impact on the company’s results due to changes in the estimate or the use of different estimates that could reasonably have been used. The company believes its critical accounting policies and estimates include its allowances for losses on accounts and notes receivable, inventory valuation and accounting for goodwill.

Allowances for losses on accounts and notes receivable. The company maintains valuation allowances based upon the expected collectibility of accounts and notes receivable. The allowances include specific amounts for accounts that are likely to be uncollectible, such as customer bankruptcies and disputed amounts, and general allowances for accounts that may become uncollectible. These allowances are estimated based on many factors such as industry trends, current economic conditions, creditworthiness of customers, age of the receivables and changes in customer payment patterns. At December 31, 2003, the company had accounts and notes receivable of $353.4 million, net of allowances of $8.3 million. An unexpected bankruptcy or other adverse change in financial condition of a customer could result in increases in these allowances, which could have a material effect on net income. The company actively manages its accounts receivable to minimize credit risk.

Inventory valuation. In order to state inventories at the lower of LIFO cost or market, the company maintains an allowance for obsolete and excess inventory based upon the expectation that some inventory will become obsolete and be sold for less than cost or become unsaleable altogether. The allowance is estimated based on factors such as age of the inventory and historical trends. At December 31, 2003, the company had inventory of $384.3 million, net of an allowance of $1.9 million. Changes in product specifications, customer product preferences or the loss of a customer could result in unanticipated impairment in net realizable value that may have a material impact on cost of goods sold, gross margin, and net income. The company actively manages its inventory levels to minimize the risk of loss and has consistently achieved a high level of inventory turnover.

Goodwill. On January 1, 2002, the company adopted the provisions of SFAS 142, Goodwill and Other Intangible Assets. The provisions of SFAS 142 state that goodwill should not be amortized but should be tested for impairment upon adoption of the standard and, at least annually, at the reporting unit level. As a result, the company no longer records goodwill amortization expense.

The company performs an impairment test of its goodwill based on its reporting units as defined in SFAS 142 on an annual basis. In performing the impairment test, the company determines the fair value of its reporting units using valuation techniques which can include multiples of the units’ earnings before interest, taxes, depreciation and amortization (EBITDA), present value of expected cash flows and quoted market prices. The EBITDA multiples are based on an analysis of current market capitalizations and recent acquisition prices of similar companies. The fair value of each reporting unit is then compared to its carrying value to determine potential impairment. The company’s goodwill totaled $198.1 million at December 31, 2003.

The impairment review required by SFAS 142 requires the extensive use of accounting judgment and financial estimates. The application of alternative assumptions, such as a change in discount rates or EBITDA multiples, or the testing for impairment at a different level of organization or on a different organization structure, could produce materially different results.

Recent Accounting Pronouncements

In December 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. (FIN) 46R (revised December 2003), Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than

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voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. The Company will be required to apply FIN 46R to variable interests in variable interest entities (VIEs) as of March 31, 2004. Management does not expect application of this Interpretation to have a material effect on the company’s financial condition or results of operations.

Customer Risk

The company is subject to risks associated with changes in the healthcare industry, including competition and continued efforts to control costs, which place pressure on operating earnings, changes in the way medical and surgical services are delivered, and changes in manufacturer preferences between the sale of product directly to hospital customers and the use of wholesale distribution. The loss of one of the company’s larger customers could have a significant effect on its business.

Forward-Looking Statements

Certain statements in this discussion constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Although O&M believes its expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, all forward-looking statements involve risks and uncertainties and, as a result, actual results could differ materially from those projected, anticipated or implied by these statements. Such forward-looking statements involve known and unknown risks, including, but not limited to, general economic and business conditions; the ability of the company to implement its strategic initiatives; dependence on sales to certain customers; dependence on suppliers; changes in manufacturer terms and policies as well as preferences between direct sales and wholesale distribution; competition; changing trends in customer profiles; the ability of the company to meet customer demand for additional value added services; the ability to convert customers to CostTrack^SM; the availability of supplier incentives; the ability to capitalize on buying opportunities; the ability of business partners to perform their contractual responsibilities; the ability to manage operating expenses; the ability of the company to manage financing costs and interest rate risk; the risk that a decline in business volume or profitability could result in an impairment of goodwill; the ability to timely or adequately respond to technological advances in the medical supply industry; the ability to successfully identify, manage or integrate possible future acquisitions; the costs associated with and outcome of outstanding and any future litigation, including product and professional liability claims; and changes in government regulations. As a result of these and other factors, no assurance can be given as to the company’s future results. The company is under no obligation to update or revise any forward-looking statements, whether as a result of new information, future results, or otherwise.

Item 7A. Quantitative and Qualitative Disclosures About 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 reserves for credit losses.

The company is exposed to market risk relating to changes in interest rates. To manage this risk, O&M uses interest rate swaps to modify the company’s balance of fixed and variable rate financing. 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 both changes in interest rates related to its interest rate swaps and revolving credit facility, and changes in discount rates related to its Receivables Financing Facility. Interest expense and discount on accounts receivable securitization are subject to change as a result of movements in interest rates. As of December 31, 2003, 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. A hypothetical increase in interest rates of 100

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basis points would result in a potential reduction in future pre-tax earnings of approximately $1.0 million per year in connection with the swaps. The company had no outstanding financing under its Receivables Financing Facility at December 31, 2003. A hypothetical increase in interest rates of 100 basis points would result in a potential reduction in future pre-tax earnings of approximately $0.1 million per year for every $10 million of outstanding financing under the Receivables Financing Facility.

Item 8. Financial Statements and Supplementary Data

See Item 15, Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures.

The company carried out an evaluation, with the participation of the company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the company’s disclosure controls and procedures (pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the company required to be included in the company’s periodic SEC filings. There has been no change in the company’s internal controls over financial reporting during the quarter ended December 31, 2003, that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.

Part III

Items 10-14.

Information required by Items 10-14 can be found under “Corporate Officers” on page 15 of the Annual Report (or at the end of this electronic filing) and the registrant’s 2004 Proxy Statement pursuant to instructions (1) and G(3) of the General Instructions to Form 10-K.

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Part IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

a) The following documents are filed as part of this report:

b) Reports on Form 8-K:

The company filed a Current Report on Form 8-K dated October 15, 2003, under Items 7 and 9, announcing its earnings for the third quarter ended September 30, 2003.

c) Exhibits:

See Index to Exhibits on page 50.

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OWENS & MINOR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

See accompanying notes to consolidated financial statements.

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OWENS & MINOR, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

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OWENS & MINOR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements.

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OWENS & MINOR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY