Accounting & Tax

Cardinal Reserves $600M for Class Action

The drug distribution company's founder and chairman, and four unnamed former officers, each received a Wells notice from the SEC earlier this year.
Stephen TaubApril 24, 2007

Cardinal Health has set aside a $600 million reserve to cover a pending class-action securities lawsuit regarding its financial reporting and disclosures between 2000 and 2004. The reserve will result in an after-tax charge to third-quarter earnings of approximately $384 million.

The drug distribution company warned, however, that it can make no assurance that the class action will be resolved through mediation.

In June 2004, Cardinal disclosed that its audit committee, as well as the Securities and Exchange Commission and the U.S. Attorney’s Office for the Southern District of New York, were investigating how the company classified revenue from its pharmaceutical distribution business.

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Chief financial officer Richard Miller resigned a month later.

That September, the company restated its results for the three prior years and for the first three quarters of fiscal 2004. The revisions related primarily to bulk deliveries to customers, cash discounts earned from suppliers in exchange for prompt payment, and balance-sheet reserve and accrual adjustments.

In January 2006, the company reached an agreement in principle with the SEC staff on the basic terms of a proposed settlement, which, according to Cardinal, would require the company to pay a $35 million penalty.

In January of this year, Cardinal disclosed that founder and chairman Robert D. Walter and four unnamed former officers had each received a Wells notice from the SEC, which suggests they may face charges. The company added that its own settlement discussions with the SEC are continuing.