Good morning, ladies and gentlemen, and welcome to the Owens & Minor fourth quarter and yearend 2007 conference call. My name is Lisa, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Craig Smith, President and Chief Executive Officer of Owens & Minor. Please proceed, sir.

Good morning, everyone. Welcome to the Owens & Minor fourth quarter 2007 conference call. We'll review our results and take your questions in a moment. First, let me introduce my colleagues on the call today: Jim Bierman, our Chief Financial Officer; Charlie Colpo, our Senior Vice President of Operations; Dick Bozard, Vice President and Treasurer; and Grace den Hartog, our Senior Vice President and General Counsel. Now, before we begin, Trudi Allcott, our Director of Investor and Media Relations, will read a Safe Harbor Statement. Trudi?

Thank you, Craig. Our comments today will be focused on the company's results for the 2007 fourth quarter and year-to-date. These results are included in our press release. The press release as well as a few supporting slides can be found on our website under the Investor Relation section. In the course of our call today, we will make forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Please see our press release in our SEC filings for a full discussion of these risk factors. And finally, this conference call will be available on our website for the next three weeks. Thank you. Craig?

Thank you, Trudi. Let me call on Jim to brief us on financial results. Jim?

Thank you, Craig, and good morning, everyone. We are pleased with the progress we made in the fourth quarter as we continue our efforts to position the company to achieve profitable, sustainable growth. I will begin my remarks with an overview of the fourth quarter results. Fourth quarter 2007 revenues were $62 million greater than revenues reported in third quarter 2007. In the fourth quarter, we began realizing the financial impact of the significant new business wins, net of losses which occurred in the second half of 2007. While we clearly anticipated these additional revenues in providing our 2008 guidance, we did not anticipate the increase occurring at the pace that it did in the fourth quarter. Fourth quarter 2007 gross margin was $6.9 million greater than the gross margin in the third quarter 2007 and better than we had expected. As a percent of revenues, gross margin improved 2 basis points from 10.57% as of the third quarter to 10.59% as of the fourth quarter 2007. Gross margin dollars improved as a result of the combined effect of the increasing revenues and an increase in volume purchase allowances. Seasonal fluctuations in volume purchase incentives are not unusual as suppliers typically measure growth in quality, financial incentive programs at the calendar yearend. Fourth quarter 2007 SG&A expense increased $6.3 million from third quarter 2007 and was generally in line with the levels we anticipated for the quarter. As a percent of revenues, the fourth quarter SG&A expense increased to 8 basis points from the third quarter to 7.87%. As we discussed in greater detail during our Investor Day presentation, our portion of the increasing dollars is due to the variable costs related to our increasing revenues. Increases due to distribution center relocation expenses and additions to bad debt expense explain…

Thank you, Jim. Before I add my comments to Jim's I would like to recognize the passing of a member of the Owens & Minor family and those of you, who have followed us for a while will remember these gentlemen. Philip Minor, the uncle of our Chairman Gil Minor recently passed away. He began his Owens & Minor career like many of us in the stock room and served in many roles in the company and ultimately served as Acting Chairman for a decade. Now, Philip was very instrumental in the growth of our company. And I echo what Gil has said about his uncle, he personified everything that is good about Owens & Minor and we will greatly miss him as the company moves forward. Now, turning to the subject in hand, since Jim has given you a good look at the quarter and the progress we've made in 2007, I would like to give you a view from about 10,000 feet. In 2007, we had strong revenue growth and 9.5% of that was organic growth. We reported operating cash flow of 2020 millions and we reduced long-term debt by approximately $150 million and we continued to bring on new accounts that are larger and more complex. During the fourth quarter, we did exactly what we said we would do. We completed the accelerated moves and consolidation of facilities. We finished brining on new customers signed in the second half of 2006, and we continued making necessary changes to our cost structure. Since late last year, I've been on the road meeting with several customers and what I hear from them validates our strategy in the marketplace. We continue to win customers with our value analysis approach, offering them strategies and techniques to produce supply chain savings. For…

(Operator Instructions) Our first question comes from Joel Ray from Davenport. Please proceed. Joel Ray - Davenport & Company: Good morning and congratulation on a very good quarter.

Thank you, Joel. Good morning

Thank you, Joe. Joel Ray - Davenport & Company: I was wondering Jim, if you could a little bit on the balance sheet, specifically I note that your interest expense came down on a net basis in the quarter, yet our debt was up roughly $45 million, $50 million in the quarter. I am sure this is timing of when monies were borrowed that was paid down etcetera. I was hoping you might be able to elaborate a little bit on that? And give us some of your thoughts about sustainability of the current levels?

Yeah. We're extremely pleased and to be candid a little surprised that we weren’t as successful as we were in our asset, liability management for the quarter and you are absolutely right. During the course of the quarter our average debt outstanding was less than certainly in the third quarter and what we anticipated consequently the interest expense was less. If you look at the actual balance sheet accounts impacted by this what caused a bit of the phenomena at the end of the quarter of increasing the debt. It was the timing of payables that we had and you see a significant reduction in the accounts payable accrued expenses that exist over the period. So, at year end, we had borrowed, as I said in my remarks just over about $50 million additional debt. As we go into the first quarter we are feeling good about the cash flow opportunities that exists for the company, but I would point out that some of the levels we achieved in the fourth quarter, both in inventory turn and day sales outstanding were at near record lows for the company and we would expect there to be some move towards normalized results as we move forward to the first half of next year. Joel Ray - Davenport & Company: Okay. So the point is we probably shouldn't be looking for these types of lower net interest expense to be sustained, quite this sharply? Of course you will be generating some strong cash flow during the overall year. So, I know one of the uses will be to potential de-lever your balance sheet as well as look at the acquisitions?

Exactly, so as we move forward during the course of the year and with the excess cash that we anticipate generating, we would anticipate de-lever the short-term debt that we have. Again, as it makes sense relative to other capital expenditures or merger and acquisition opportunities. Joel Ray - Davenport & Company: Very good. Thanks very much for your time and congratulation again on a very good quarter and year.

Thank you, Joel.

Our next question comes from Eric Coldwell from Robert W. Baird. Please proceed.

Thanks. Good morning. Good Job. Jim just following on Joel's, can you just give us a quick sense or update on how the debt is allocated currently, what portion is fixed versus floating and the average effective interest rate?

I may have to call upon my good friend Dick Bozard for the average effective interest rate, fundamentally…

I think you'd be able to pull Dick into conference.

Fundamentally, the notes payable, half are fixed and half are floating. Is that not the case?

That's right. So we have $100 million that is floating currently.

Yeah.

And when you look at our credit agreement the charge is based on some of the ratios that we hit. And when you look at our effective rate today, we're paying probably around 5.5 to 6 is probably what we'll see in the first quarter.

Okay. Great. Thanks, Dick. Second question is on the acute versus direct-to-consumer business. Based on the detail provided on the call, it looks like acute did a little better, hospital distribution did a little better, direct-to-consumer maybe a little bit below my model. If I did the math right, it looks like 4Q DTC sales were down about 11% to 12% year-over-year and EBIT was maybe down about a $1 million or a loss of a $1 million, is that accurate, did I do the math right?

Yeah. I think you're pretty close. I think just to give some color to it, as we've done in each of the quarters -- last three quarters, at the very least, we continue to look at the accounting policies the methodology and estimates that we use at that business and fine-tune them as we get more historical perspective. There were some adjustments to the bad debt reserve within lines with what we would anticipate for the year. But there were some adjustments that were reflected in the fourth quarter. In addition, we look to the amortization of the capitalized advertising asset and made some adjustments there in speeding up some of the amortization. So the end result was that in the range that you were speaking of.

Okay. And so when we look at directionality in 2008, I realize this is a fairly small and relatively immaterial segment to the total mix but what's the direction in '08? Are you looking for revenue growth in '08, is it more of a focus on getting the operating margin up for the full year? And could you add any color on trends and either gross margin or SG&A expense, again, normalizing for the fine-tuning on the accounting adjustments?

Why don't you take any of the accounting fine-tuning and then I'll talk a little bit more directional on where we're going.

Yeah. I think we're pleased with where we are coming at the end of this year in terms of the positioning in the company. SG&A expenses were up a bit in the fourth quarter in part due to the beginning of putting together some direct sales force that Craig is going to come on to in a minute. So SG&A was a bit higher without the corresponding revenues. I mean quite candidly over the course of the year, the emphasis has been on getting the business right. And we are pleased that if you look at the DTC customers that we have at the end of the year, it's about a 187,000, it's about the same as what existed in the third quarter and we are up year-over-year, but we did not buy any companies in the space during the course of the year nor did we did we buy any patient list or anything. So, I think we are feeling good that things have stabilized and we're ready to move forward in this next year. Craig?

Eric, I would just say we did bring on a new sales leader late last year, who has a lot of experience in this space and what I would call the sales model is changing for us in that specific market. We had little more clean-up really to do in the fourth quarter in terms of directionally how we were going to move forward from a sales standpoint. But I am feeling comfortable with this new sales leader and the reports that I am getting on the changes she is making down there in the direction. She is taking and also, we just were about ready to ramp-up and finalize our five-year plan. So its how direct-to-consumer fits in our five years strategy and we haven't completely finished that yet, but obviously the non acute-care market, is a market that's growing. Hospitals are looking to move into that market. And so, what I would say is directionally the company is looking at non acute-care services and -- but I think more importantly the sales model has changed down there and I feel very comfortable with the sales leader down there.

Great. And then final question and I'll let others jump in. At the Investor Day in December, there was some talk about, OMI really focusing more on balanced growth margin expansion opportunities and really enhancing your currently book of business as opposed to aggressively going after share in 2008. Part of that conversation related to how you look at pricing and supplier mix et cetera.

Right.

I am curious what update can you give us on pricing? Have you been able to affect any price increases in your portfolio, and if so, what kind of responses are you seeing from suppliers and customers?

Well, we're really actually doing that. I think what I had talked about at Investor Day was product category management. So, really what we're doing is looking at particular product categories that the company is involved with to decide whether those particular product categories are profitable or not profitable. And I can tell you right off the top of my head, specifically, we did take price in three areas and I think we were fairly successful overall in taking the price up. And I think that's gets back to the 5% to 7% you hit there; right on the head is we're really looking at the whole supply chain. We're not just looking at the customer base margin. We're also looking at the profitability of some of these lines that we carried. So, to your point, we are looking at profitability -- we're always looking at profitability, but we've had really phenomenal sales growth for the last five years. 5% to 7% really is still above what we consider to be the industry average. We do a lot of validation on the numbers on that. But to your point, we are actually looking at suppliers and the customer base and there has been some loss of sales. But I think, overall, from a profitability standpoint, warehouse space, shipping -- we look at all of that before we take a pricing increase and the business we've lost, I would say, was business that overall will make us more profitable.

Good. Thanks, guys.

Our next question comes from Glen Santangelo from Credit Suisse. Please proceed.

Yeah. Thanks, Craig. I just wanted to talk to you about sort of your progress on a couple of different fronts. In the last 18 months, you obviously renegotiated some big GPO contracts in Novation and Broadlane. And we talked in the fall about selling some value-added services through to those customers and improving the margin and continuing to improve your private label business. Could you just give us an update on both those fronts so that will help us think about how the margins may progress in 2008?

Sure. Thank you, Glen. I think we've made good progress in 2007 and if you remember we had stated that we really had three challenges, which was bringing on McKesson business at a margin we thought was higher than what it came in at. And I'm pleased to say, we do have the margins almost to the percent or the hundredth percent exactly to where we felt that business was going to be. So it took us somewhere roughly four to six months to get that back up. The other challenge was Broadlane, which is a sole-source agreement, which I'm pleased to say they have worked very closely with us to get our margins back to where they need to be. We have actually had some, to your other point, we've actually introduced MediChoice at Broadlane and we're going to continue to focus on that. So, they've worked very closely with us to get that margin back to where it should be. And again back to the other question, we're also working on supplier profitability. So we're attacking this from several different angles. The challenge is, is that margin does not come back as quickly as, say, reduction in SG&A. So I am pleased with the progress. I'd like to see us doing better than where we are. It's still a very high focus, especially, when you have 5% to 7% sales growth. The area that we're really working on this year is margin and SG&A reduction. So, we're making nice progress. We're not where we need to be on the Novation accounts yet, but that's a very high focus for the company.

And Craig, as you think about 2008 kind of the low-end to your guidance versus the high-end to your guidance, is kind of gross margin going to be that swing factor that puts you up one end to the other?

Well, I think, Glen, really probably SG&A will be the opportunity for us in how we execute with the slower sales growth, we should be able to actually impact our SG&A. That was really, if you look at 2007 with eight physical moves, the 600 people we had to bring on at one point and we're working on that down. I think really the opportunity continues to be SG&A. I think margin, we're going to continue to work on that. We're going to continue to hold as best as possibly we can. But as I said last year and as I will say again this year, although our costs are becoming more fixed I still think that that's our opportunity now. I know Jim had made some comments about first quarter with incentives and benefits, but clearly, SG&A is very high on the radar screen for us.

And maybe I can just follow-up with Jim and just kind of maybe get a little bit more detailed thoughts on what he's talking about Q1, and could you give us a rough sense of the magnitude of the uptick we should see, how big are the benefits?

Yeah. I am not sure, we're comfortable going much further than what we've said, Glen. I guess, let me see if I can try to make it a little clearer. I think the fourth quarter had some discreet items associated with it, such as the distribution centre relocation expenses that we foreshadowed in the third quarter conference call. I think our thinking behind our comments for the first quarter were relative to the fact that there is some seasonality in SG&A. And we wanted to illustrate the fact that the first quarter does get hit with a couple of items that are somewhat unique to the first quarter.

So, to put it in another way, you're just sort of suggesting first quarter we should see a little bit of a tick-up and then we should make progress from there.

That's exactly what we're anticipating. We remain comfortable with the guidance that we've given that over the course of the year, SG&A as a percentage of revenue should continue to improve mid-single digit basis point improvement when compared to the second half of 2007.

Okay. That's perfect. Thank you so much for the comments.

Thank you, Glen.

Our next question comes from Steven Postal from Lehman Brothers. Please proceed.

Thanks a lot and good morning.

Good morning.

Craig, I think at the Investor Day, you all were talking about two GPO relationships that were also going to renew this year. Can you update us on that?

Yeah. Actually, we would see probably those being finalized sometime late in 2008. I think we did name both of those groups at Investor Day, which is HPG and Premier. We are moving along normal course of business. I think ordinarily, we don't signal to the market, but we thought -- and from a duo diligence standpoint, we should let people know that both of those are for bid. I think we feel fairly comfortable about both. Again, it gets down to profitability and price and we're comfortable in those negotiations to do, but those are still on track to be finalized probably sometime late in 2008.

Okay. So from a financial impact, those were new rolls. It sounds to me, you wouldn't expect that to impact '08 financials?

Well, I think at this point, there is no change in their status that would impact a change in our thinking towards 2008 that we've talked about.

Okay. And then, typically, you all have use of cash because of the seasonal inventory build. You didn't have that this quarter and last quarter you indicated that you continue to expect that. I am just wondering in the context and how we should about operating cash flow in the first half of the year in Q1 and inventory -- how should we think about that? I know, Jim, you said that inventory turns hit a peak in Q4, should we expect that that could reverse in Q1?

I think what we'll see -- we made surprising accomplishment in the fourth quarter. I think the [even] flow of the balance sheet management, it would not be surprising to see inventory turns not as successful -- in the first quarter not as successful as in the fourth quarter and potentially day sales outstanding a little less than what we was in the fourth quarter. I mean those were pretty amazing results and so I think those numbers should, could and may change a bit in the first quarter. It doesn't mean that we're not focused on that and aren't looking for every opportunity to continue to improve the cash flow from operations. But I think it is the reality that to make a couple of steps forward you take little half step back, you make a couple forward steps forward.

Okay. And then, just a final question. It looks like bad debt expense increased significantly, sequentially, was that in the DTC business or there was something else going on there?

Yeah. I think sequentially bad debt expense increased just over $8 million. I want to point out that if you look at bad debt on year-to-year basis, it was about $23 million last year and about the same this year 22.6 this year. But specifically, as it relates to the $8 million in the fourth quarter only a portion on it certainly had to do with some, the clean up that I mentioned earlier on the DTC business. And there was also adjustments made at the distribution business also. I think we're definitely in tune with the issues associated with the economy and exposures that exists and I think as it's normal and customary and very prudent. We evaluated exposure and made the corresponding adjustments to our reserves as we moved into the end of the year. So, we're comfortable with where we're positioned and we think the decisions were prudent.

Are you suggesting that with some of the changes in the macro environment that there has been a change at your customers from a credit perspective?

Well, I think you always have -- our customers aren't totally insulated from the realities of the economy and we have a national dispersion of customers. And there are geographic areas of the country, where public and private hospitals are facing more challenges than others. I think we're being prudent, we're being careful as we evaluate some of those exposures.

Okay. Thanks a lot.

Our next question comes from Lisa Gill of JP Morgan. Please proceed.

Hi, it's Atif Rahim in for Lisa. Most of the financial questions have been answered, but just a couple of housekeeping questions. I don't know if you've disclosed the number of DTC lives that that you have right now and also how MediChoice is trending in terms of the number of news skews that you've introduced lately and revenues if possible.

I'll take the DTC and if you would take -- Charlie is going to talk about the other question. I think I had mentioned earlier that we had about 187,000 patients or customers at the DTC business at the end of the fourth quarter which is totally in line with the amount that existed at the end of the third quarter. Charlie?

And for MediChoice, we are seeing some strong growth. We saw some strong growth in 2007 and that's continuing in the first month of 2008. We are up to about 1,500 stock keeping units today.

Okay. That's great. Thank you.

Thank you.

Our next question comes from Robert Willoughby from Banc of America Securities. Please proceed.

Hi, good morning. I'm not sure where the consensus for the first quarter is actually going to fall out. I guess there is a board range out there currently, but your annual guidance does allow. I know you mentioned higher SG&A from the fourth quarter, but are there other factors that would cause the near-term numbers to be materially lower than the fourth quarter or is it just the SG&A line item to pay attention to?

I did mention that there was -- that there tends to be and this is of a longer horizon than just this next quarter. But there does tend to be some seasonality in the supplier volume purchase and incentives that exists. And that's because many of them are predicated of a calendar year basis and whether or not, you achieve that performance becomes clear as you get to the end of the year or the last two quarters. So I think there is an element of seasonality in that particular number, otherwise I'm not really aware of any that I can think of.

Well, I guess there was a kind of a dime rate split between the low-end and the high-end of the consensus range, which seems a bit extreme for your business which I generally have some pretty good visibility. Is there not an effort to rein in that range a bit or?

You have me a bit of disadvantage and best I can do is share where we stand in our look and then, hopefully, the message is clear to the analyst to follow us. Craig?

I think actually, Robert, we've been fairly consistent in last two or three years to widen a range, primarily around adding the Direct-to-Consumer business, the OM solutions component. Years ago, we had what would be considered a very tight range -- over the last two or three years, we basically have widened that range and I think it's fairly consistent with where we've been over the last, at least since 2005 with the -- bringing on the axis business.

Okay. That makes sense. I also -- I don't know if I heard you actually provide cash flow guidance for the year. I wonder working capital benefits in '07 from the McKesson deal, such that cash flow might be down, even on higher EPS might be down year-over-year or is it still realistic to assume that should be up?

Yeah. We haven't given that guidance at this point. And I think it's -- right now we are not -- we're probably not comfortable doing that. Let us consider that and look to our 10-K filings to address liquidity and working capital needs going forward.

Okay. That's it from me. Thank you.

Thank you. Operator, we have time for one more question. Hi, we may have lost the operator. Operator?

(Operator Instructions) At this time there are no further questions. I would now like to turn the call back over to Mr. Smith, for closing remarks. Please proceed.

Thank you very much for joining us today, and we look forward to a very strong 2008. Thank you.

Thank you for participating in today's conference. This concludes the presentation. You may now disconnect. Have a great day. Thank you.