Cardinal Health 2008 Annual Report Download - page 96

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Net as an Agent.” This revenue is recorded on a gross basis since the Company incurs credit risk from the
customer, bears the risk of loss for incomplete shipments and does not receive a separate fee or commission for
the transaction and, as such, is the primary obligor.
Radiopharmaceutical revenue is recognized upon delivery of the product to the customer. Service-related
revenue, including fees received for analytical services or sales and marketing services, is recognized upon the
completion of such services.
Through its Medicine Shoppe International, Inc. and Medicap Pharmacies Incorporated franchise operations
(collectively, “Medicine Shoppe”), the Company has apothecary-style pharmacy franchisees in which it earns
franchise and origination fees. Franchise fees represent monthly fees based upon franchisees’ sales and are
recognized as revenue when they are earned. Origination fees from signing new franchise agreements are
recognized as revenue when the new franchise store is opened.
Healthcare Supply Chain Services—Medical. This segment recognizes distribution revenue when title
transfers to its customers and the business has no further obligation to provide services related to such
merchandise.
Clinical Technologies and Services. Leasing revenue is accounted for in accordance with SFAS No. 13,
“Accounting for Leases.” Revenue is recognized on sales-type leases when the lease becomes noncancellable.
The lease is determined to be noncancellable upon completion of the installation, when the equipment is
functioning according to material specifications of the user’s manual and the customer has accepted the
equipment. Interest income on sales-type leases is recognized in revenue using the interest method.
Consistent with sales-type leases, revenue is recognized on operating leases after installation is complete
and customer acceptance has occurred. Operating lease revenue is recognized over the lease term as such
amounts become receivable according to the provisions of the lease.
Revenue for safety systems which contain software essential to the functionality of the product are subject
to the provisions of the American Institute of Certified Public Accountants Statement of Position No. 97-2
“Software Revenue Recognition.” The elements of safety system sales arrangements may contain some or all of
the following: infusion devices, disposables, hardware, software, software maintenance programs and
professional services. As a multiple element arrangement, total fees are allocated to each element based on
vendor-specific objective evidence of fair value for each element or using the residual method, when applicable.
Vendor-specific objective evidence is generally based on the price charged when an element is sold separately.
Allocated fees are recognized separately for each element when it is delivered and there are no further
contractual obligations with relation to that element. Perpetual software license revenue is generally recognized
upon shipment to the customer. Software maintenance revenue is recognized ratably over the contract period.
Vendor-specific objective evidence for software maintenance is determined based on contract renewal price for
such maintenance. Rights to unspecified software upgrades (on a when-and-if available basis) are included in
software maintenance. Professional service revenue is recognized when services are rendered.
Pharmacy management and other service revenue is recognized as the services are rendered according to the
contracts established. A fee is charged under such contracts through a capitated fee, a dispensing fee, a monthly
management fee or an actual costs-incurred arrangement. Under certain contracts, fees for services are
guaranteed by the Company not to exceed stipulated amounts or have other risk-sharing provisions. Revenue is
adjusted to reflect the estimated effects of such contractual guarantees and risk-sharing provisions.
Medical Products and Technologies. This segment records self-manufactured medical product revenue when
title transfers to its customers which generally occurs upon delivery.
Multiple Segments or Business Units. Arrangements involving multiple segments or business units,
containing no software or software which is incidental to the functionality of the product or service, and those
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