Cardinal Health 2010 Annual Report Download - page 75

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Revenue Recogn
i
t
i
on.
W
e recognize revenue when persuasive evidence of an arrangement exists, produc
t
delivery has occurred or the services have been rendered, the price is fixed or determinable and collectability is
r
easonably assured. Revenue is recognized net of sales returns and allowances.
Pharmaceutical. This segment recognizes distribution revenue when title transfers to its customers and th
e
business has no further obligation to provide services related to such merchandise
.
Revenue within this segment includes revenue from bulk customers. Substantially all deliveries to bulk
customers consist of
p
roduct shi
pp
ed in the same form that we received from the manufacturer. Bulk customer
s
have the ability to process large quantities of products in central locations and distribute these products to thei
r
individual retail stores or facilities. Revenue from bulk customers is recognized when title transfers to the
customer and we have no further obligation to provide services related to such merchandise.
Revenue for deliveries that are directly shipped to customer warehouses from the manufacturer whereby we
act as an intermediary in the ordering and delivery of products is recorded gross in accordance with accountin
g
standards addressing reporting revenue on a gross basis as a principal versus on a net basis as an agent. Thi
s
r
evenue is recorded on a gross basis since we incur credit risk from the customer, bear the risk of loss for
incom
p
lete shi
p
ments and do not receive a se
p
arate fee or commission for the transaction and, as such, are th
e
p
rimary obligor.
Radiopharmaceutical revenue is recognized upon delivery of the product to the customer. Service-related
r
evenue, including fees received for analytical services or sales and marketing services, is recognized upon th
e
com
p
letion of such services.
Pharmacy management, third-party logistics and other service revenue is recognized as the services are
r
endered according to the contracts established. A fee is charged under such contracts through a capitation fee, a
dispensing fee, a monthly management fee or an actual costs-incurred arrangement. Under certain contracts, fees
f
or services are guaranteed by us 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.
M
edicine Shoppe International, Inc. and Medicap Pharmacies Incorporated earn franchise and origination
f
ees. Franchise fees represent monthly fees that are either fixed or based upon franchisees’ sales and are
r
ecognized as revenue when they are earned.
M
edical. This segment recognizes distribution revenue when title transfers to its customers and the busines
s
has no further obligation to provide services related to such merchandise. Revenue from the sale of medical
p
roducts and supplies is recognized when title and risk of loss transfers to its customers, which is typically upon
delivery.
M
ultiple Segments or Business Units. Arrangements involving multiple segments or business units
containing no software or software that is incidental to the functionality of the product or service are accounted
f
or as revenue arrangements with multiple deliverables. If the deliverable meets the criterion of a separate unit o
f
accounting, 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
.
S
ales Returns and Allo
w
ances
.
R
evenue is recorded net of sales returns and allowances. We recognize sale
s
r
eturns as a reduction of revenue and cost of products sold for the sales price and cost, respectively, when
p
roducts are returned. Our 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
r
esold at full value, or that can be returned to vendors for credit (“merchantable
p
roduct”). 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 had we accrued for sales returns and allowances at the time of the sale transaction
.
49