Cardinal Health stumbled late last month when its CFO unexpectedly resigned under the cloud of several investigations into the distributor's accounting and financial reporting.
But the problems with Cardinal's bookkeeping did not seem to have an impact on the complicated and profit-thin business of moving drugs and medical supplies from manufacturers to hospital supply rooms.
"I don't know the details, but my sense is it won't have any direct impact on Amerinet or our members," says Bud Bowen, president of the St. Louis-based group purchasing organization. Cardinal is one of Amerinet's top 10 suppliers, Bowen said.
Some weeks after revealing the ongoing investigations, Cardinal officials announced that Richard Miller, its CFO since 1998, had resigned. He was immediately replaced by J. Michael Losh, who had a 36-year career with General Motors Corp. before retiring in 2000 as CFO and executive vice president. Losh also has been a member of Cardinal's board of directors for eight years and will continue in that role.
The Dublin, Ohio-based company also said it was delaying the release of its fiscal 2004 financial results to late August or early September from July 28.
The troubles, which briefly soured Cardinal stock on Wall Street and led Standard & Poor's to put the company on CreditWatch with negative implications, highlighted the tenuous nature of the distribution business, the bedrock of hospital purchasing.
"It's a very competitive market to be a wholesale distributor in this day and age," says Gary Johnson, vice president of marketing for MedAssets, an Alpharetta, Ga.-based GPO. "(Distributors) are operating on very thin margins and it's very capital-intensive. In that kind of environment most people have to be very smart and also innovative to squeak cost out of their operations to maintain margins."
Cardinal disclosed in May that the Securities and Exchange Commission had launched a formal probe related but not limited to the accounting of $22 million in litigation recovery from vitamin manufacturers. In June, Cardinal announced that the SEC and the U.S. attorney's office in New York were separately investigating the classification of revenues from bulk deliveries in its drug distribution business. Cardinal's audit committee and its independent counsel are also conducting an ongoing review, officials said.
Miller said in a news release that it was in the best interests of the company to step aside in light of some "financial reporting practices and judgments that occurred during my tenure as CFO" that are now under scrutiny. Officials said at their request Miller has agreed to advise the company during the transition, but he will not be involved in preparing the company's financial statements or SEC filings.