Cardinal Health 2009 Annual Report Download - page 94

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Revenue from the sale of medical products and supplies is recognized when title and risk of loss transfers to
the customer, which is typically upon shipment.
All Other. 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.
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.
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, are
accounted for in accordance with EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” If
the deliverable meets the criteria of a separate unit of accounting, the arrangement revenue is allocated to each
element based upon its relative fair value and recognized in accordance with the applicable revenue recognition
criteria for each element.
Sales Returns and Allowances. Revenue is recorded net of sales returns and allowances. The Company
recognizes sales returns as a reduction of revenue and cost of products sold for the sales price and cost,
respectively, when products are returned. The customer return policies generally require that the product be
physically returned, subject to restocking fees, and only allow customers to return products that can be added
back to inventory and resold at full value, or that can be returned to vendors for credit. Product returns are
generally consistent throughout the year, and typically are not specific to any particular product or customer.
Amounts recorded in revenue and cost of products sold under this accounting policy closely approximate what
would have been recorded under SFAS No. 48, “Revenue Recognition When Right of Return Exists.” Applying
the provisions of SFAS No. 48 would not materially change the Company’s financial position and results of
operations. Sales returns and allowances were approximately $1.4 billion, $1.2 billion and $1.2 billion in fiscal
2009, 2008 and 2007, respectively.
Distribution Service Agreement and Other Vendor Fees. The Company’s pharmaceutical supply chain
business within the Healthcare Supply Chain Services segment recognizes fees received from its distribution
service agreements and other fees received from vendors related to the purchase or distribution of the vendor’s
inventory when those fees have been earned and the Company is entitled to payment. The Company recognizes
the fees as a reduction in the carrying value of the inventory that generated the fees and, as such, the fees are
recognized as a reduction of cost of products sold in its statements of earnings when that inventory is sold.
Shipping and Handling. Shipping and handling costs are included in SG&A expenses in the consolidated
statements of earnings. Shipping and handling costs include all delivery expenses as well as all costs to prepare
the product for shipment to the end customer. Shipping and handling costs totaled $324.5 million, $291.2 million
and $305.8 million for fiscal 2009, 2008 and 2007, respectively. Shipping and handling revenue received was
immaterial for all periods presented.
Research and Development Costs. Costs incurred in connection with development of new products and
manufacturing methods are charged to expense as incurred. Research and development expenses were
$167.1 million, $152.9 million and $102.8 million for fiscal 2009, 2008 and 2007, respectively.
Translation of Foreign Currencies. Financial statements of the Company’s subsidiaries outside the
U.S. generally are measured using the local currency as the functional currency. Adjustments to translate the
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