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Executive Summary

CARDINAL DISTRIBUTION WILL TOP $1 BIL. IN WHOLESALE DRUG sales during the current fiscal year, Chairman/CEO Robert Walter predicts in the company's 1990 annual report. Following the June 18 completion of the Ohio Valley-Clarksburg acquisition, Cardinal claims to be the nation's sixth largest distributor of pharmaceuticals and health care products. Ohio Valley-Clarksburg is a Wheeling, W.Va.-based wholesaler with $190 million in annualized revenues. Cardinal purchased it for $27.1 mil. in cash. Cardinal's total sales in the fiscal year ended March 31, 1990 were $874 mil., a 25% increase from fiscal 1989 ($700 million). As recently as four years ago, Cardinal's total sales were under$200 mil. In fiscal 1986, the firm reported sales of $197 mil. Aftertax earnings in fiscal 1990 (from continuing operations) rose 50%, from $8.5 million to $12.8 million. Cardinal has been building its presence in drug wholesaling at a rapid pace. The firm entered the pharmaceutical distribution industry eleven years ago with the purchase of Bailey Drug Company, an Ohio-based distributor with annual sales of $20 mil. from a single distribution center. The company said it plans to continue its acquisition campaign in contiguous operating areas. The Ohio Valley-Clarksburg purchase is Cardinal's fifth major transaction in the past six years. It expands Cardinal's marketing presence to include Southern Pennsylvania, Maryland, Virginia and the District of Columbia. Cardinal currently serves customers in all of New England as well as New York, Pennsylvania, Ohio, West Virginia, and Michigan. The six operating divisions are Bailey Drug, Cardinal Syracuse, James W. Daly, Ellicott Drug, Marmac Distributors, and Ohio Valley-Clarksburg. Ohio Valley-Clarksburg was a profitable and fast-growing operation at the point of the Cardinal purchase. In the August 31, 1989 fiscal year, the wholesaler had sales of $145 mil. and operating earnings of $5.3 mil. (an earnings ratio of 3.7%). That earnings ratio compared to a 2.9% ratio for Cardinal. Ohio-Valley-Clarksburg had grown from $108 mil. in sales in the previous fiscal year. Cardinal's just-released 1990 annual report credits the Exley family, managers of Ohio Valley-Clarksburg, with overseeing 25% average sales growth during the last three years. Marmac, Cardinal's other recent wholesale acquisition was purchased for $11 mil. in January 1988 for $9 mil. cash and $2 mil. in 1993 nonnegotiable debentures. At the time of the purchase, East Windsor, Conn.-based Marmac generated $41.6 mil. and aftertax earnings of $257,000. Cardinal is apparently keeping its debt in control during the growth spurt. The firm had $78.3 mil. in short and long-term obligations as of mid-June and the firm has registered a $60 mil. debenture offering with the Securities and Exchange Commission to pay down debt. The $58 mil. net proceeds of the offering, handled by Smith Barney, Dean Witter, and A.G. Edwards, are being earmarked to pay for the Ohio Valley transaction and pay down short-term debt. Founded in 1971 as a food wholesaler, Cardinal has made the evolution to drug wholesaling in two decades. The company sold its food distribution operations in 1988 to Roundy's of Milwaukee for $26.8 mil. The firm has aggressively pursued the hospital drug distribution business: sales to that sector increased from approximately $37 mil. in 1986 to $279 mil. last year. An arrangement with VHA Supply accounted for over $50 mil. in increased sales in fiscal 1990, the company reports. The annual report highlights the wholesaler's value-added services. Cardinal offers large independent pharmacy customers its Leader program, which features store identification, private label merchandise and computerized prescription services. In addition, Cardinal repackages bulk prescription medicines in smaller unit sizes under its PharmPak and ProfitPak programs, which generate$30 mil.-$50 mil. in annual revenues.

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