Cardinal Health 2011 Annual Report Download - page 75

R
evenue for deliveries that are directly shipped to customer warehouses from the manufacturer whereby we
a
ct as an
i
nterme
di
ary
i
nt
h
eor
d
er
i
ng an
dd
e
li
very o
f
pro
d
ucts
i
s recor
d
e
d
gross
i
n accor
d
ance w
i
t
h
account
i
n
g
standards addressin
g
reportin
g
revenue on a
g
ross basis as a principal versus on a net basis as an a
g
ent. Thi
s
revenue is recorded on a gross basis since we incur credit risk from the customer, bear the risk of loss for
i
ncomp
l
ete s
hi
pments an
dd
o not rece
i
ve a separate
f
ee or comm
i
ss
i
on
f
or t
h
e transact
i
on an
d
, as suc
h
, are t
he
primar
y
obli
g
or. Revenue from these sales is reco
g
nized when title transfers to the customer and we have n
o
f
urther obligation to provide services related to such merchandise
.
R
adiopharmaceutical revenue is recognized upon delivery of the product to the customer. Service-relate
d
revenue,
i
nc
l
u
di
ng
f
ees rece
i
ve
df
or ana
l
yt
i
ca
l
serv
i
ces or sa
l
es an
d
mar
k
et
i
ng serv
i
ces,
i
s recogn
i
ze
d
upon t
he
com
p
letion of such services.
P
harmac
y
mana
g
ement, third-part
y
lo
g
istics and other service revenue is reco
g
nized as the services are
rendered according to the contracts established. A fee is charged under such contracts through a capitation fee, a
di
spens
i
ng
f
ee, a mont
hl
y management
f
ee, or an actua
l
costs-
i
ncurre
d
arrangement. Un
d
er certa
i
n contracts,
f
ee
s
f
or services are
g
uaranteed b
y
us not to exceed stipulated amounts or have other risk-sharin
g
provisions. Revenu
e
is adjusted to reflect the estimated effects of such contractual guarantees and risk-sharing provisions.
Medicine Sho
pp
e International, Inc. and Medica
p
Pharmacies Incor
p
orated earn franchise fees. Franchis
e
f
ees represent mont
hl
y
f
ees t
h
at are e
i
t
h
er
fi
xe
d
or
b
ase
d
upon
f
ranc
hi
sees’ sa
l
es an
d
are recogn
i
ze
d
as revenu
e
when the
y
are earned.
Medical. This se
g
ment reco
g
nizes distribution revenue when title transfers to its customers and the busines
s
h
as no further obligation to provide services related to such merchandise. Revenue from the sale of medical
pro
d
ucts an
d
supp
li
es
i
s recogn
i
ze
d
w
h
en t
i
t
l
ean
d
r
i
s
k
o
fl
oss trans
f
ers to
i
ts customers, w
hi
c
hi
s typ
i
ca
ll
y upo
n
d
eliver
y
.
S
ales Returns and Allowances. Revenue is recorded net of sales returns and allowances. We reco
g
nize sale
s
returns as a reduction of revenue and cost of products sold for the sales price and cost, respectively, whe
n
pro
d
ucts are returne
d
. Our customer return po
li
c
i
es genera
ll
y requ
i
re t
h
at t
h
e pro
d
uct
b
ep
h
ys
i
ca
ll
y returne
d
,
sub
j
ect to restockin
g
fees, in a condition suitable to be added back to inventor
y
and resold at full value, or
returned to vendors for credit (“merchantable product”). Product returns are generally consistent throughout the
year an
d
typ
i
ca
ll
y are not spec
ifi
c to any part
i
cu
l
ar pro
d
uct or customer. Amounts recor
d
e
di
n revenue an
d
cost
o
f products sold under this accountin
g
polic
y
closel
y
approximate what would have been recorded had we
a
ccrued for sales returns and allowances at the time of the sale transaction
.
T
he following table summarizes sales returns and allowances for the fiscal years ended June 30, 2011, 2010
a
n
d
200
9
:
Fiscal Year Ended June 30
,
(
in millions
)
2
0
1
1
2
0
1
0
2
009
Sales returns and allowance
s
.........................................
$
1
,
651.4
$
1
,
516.2
$
1
,
391.
4
Third-part
y
Returns
.
Since we generally do not accept non-merchantable product returns from our
customers, many o
f
our customers return non-merc
h
anta
bl
ep
h
armaceut
i
ca
l
pro
d
ucts to our ven
d
ors t
h
roug
h
t
hi
r
d
parties. Generall
y
, our customers do not have a direct relationship with our vendors; as such, our vendors pass th
e
v
alue of the returns to us (usually in the form of an accounts payable deduction). We in turn pass the value
rece
i
ve
d
,
l
ess an a
d
m
i
n
i
strat
i
ve
f
ee, to our customer. In certa
i
n
i
nstances, we pass t
h
e est
i
mate
d
va
l
ue o
f
t
h
e
return to our customer prior to processin
g
the deduction with our vendors. Althou
g
h, in
g
eneral, we believe we
h
ave satisfactory contractual protections, we could be subject to claims from customers or vendors if ou
r
ad
m
i
n
i
strat
i
on o
f
t
hi
s overa
ll
process was
d
e
fi
c
i
ent
i
n some respect or our contractua
l
terms w
i
t
h
ven
d
ors are
i
n
conflict with our contractual terms with our customers. We have maintained reserves for some of these situations
based on their nature and our historical ex
p
erience with their resolution.
49