Cardinal Health Inc. has agreed to a $35 million settlement with the Securities and Exchange Commission that would end the commission’s probe of the company’s accounting practices.
In September 2004, Cardinal, which supplies products and services to health-care providers and manufacturers, announced a restatement of its results for 2001, 2002, and 2003, as well as the first three quarters of fiscal 2004. The revisions involved bulk deliveries to customers; cash discounts earned from suppliers in exchange for prompt payment; and balance-sheet reserve and accrual adjustments.
In October 2003, the SEC first started looking into how the company accounted for expected settlements of lawsuits against vitamin manufacturers, according to The Columbus Dispatch. The probe widened the following June to include the way Cardinal classified revenue in its drug-distribution business, the paper noted. The U.S. Attorney for the Southern District of New York is also investigating the company’s accounting practices, according to several reports.
In an 8-K filing issued on January 26, the Dublin, Ohio-based company called the current pact “an agreement-in-principle” that the SEC staff is ready to recommend to the commission, which must accept and authorize it. Cardinal must also supply “definitive documentation” for the deal to go through.
In connection with the proposed settlement, Cardinal stated, the company recorded a reserve of $10 million in the December quarter and has already recorded a $25 million reserve for the fiscal year ended June 30, 2005. The company also warned “there can be no assurance” that its efforts to resolve the SEC’s investigation will be successful, or that the amount reserved will be sufficient.
Cardinal CFO Jeff Henderson recently said the company has worked to improve its internal controls in order to improve the company’s financial performance, according to the Associated Press.