Pfizer 2005 Annual Report Download - page 42

2005 Financial Report 41
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
intangible assets that are associated with a single function and
depreciation of property, plant and equipment are included in Cost
of sales, Selling, informational and administrative expenses and
Research and development expenses, as appropriate.
We review all of our long-lived assets, including goodwill and
other intangible assets, for impairment at least annually and
whenever events or circumstances present an indication of
impairment. When necessary, we record charges for impairments
of long-lived assets for the amount by which the present value of
future cash flows, or some other fair value measure, is less than
the carrying value of these assets.
L. Merger-Related In-Process Research and
Development Charges and Restructuring Charges and
Merger-Related Costs
When recording acquisitions (see Note 1E, Significant Accounting
Polices: Acquisitions), we immediately expense amounts related
to acquired IPR&D in Merger-related in-process research and
development charges.
Also, in connection with an acquisition of a business enterprise,
we may review the associated operations and implement plans to
restructure and integrate. For restructuring charges associated
with a business acquisition that are identified in the first year after
the acquisition date, the related costs are recorded as additional
goodwill as they are considered to be liabilities assumed in the
acquisition. All other restructuring charges, all integration costs
and any charges related to our pre-existing businesses impacted
by the acquisition are included in Restructuring charges and
merger-related costs.
M. Cash Equivalents
Cash equivalents include items almost as liquid as cash, such as
certificates of deposit and time deposits with maturity periods of
three months or less when purchased. If items meeting this
definition are part of a larger investment pool, we classify them
as Short-term investments.
N. Investments
Realized gains or losses on sales of investments are determined
by using the specific identification cost method.
O. Income Tax Contingencies
We account for income tax contingencies using an asset
recognition model. In our initial evaluation of tax positions taken
related to tax law, we assess the likelihood of prevailing on the
interpretation of that tax law. When we consider that a tax
position is probable of being sustained on audit based solely on
the technical merits of the position, we record the benefit. These
assessments can be complex and we often obtain assistance from
external advisors.
Under the asset recognition model, if our initial assessment fails
to result in the recognition of a tax benefit, we regularly monitor
our position and subsequently recognize the tax benefit if there
are changes in tax law or analogous case law that sufficiently raise
the likelihood of prevailing on the technical merits of the position
to probable; if the statute of limitations expires; or if there is a
completion of an audit resulting in a settlement of that tax year
with the appropriate agency.
P. Share-Based Payments
Our compensation programs can include share-based payments.
Stock options, which entitle the holder to purchase shares of
Pfizer stock at a pre-determined price at the end of a vesting term,
are accounted for under Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, an elective
accounting policy permitted by SFAS No. 123, Accounting for
Stock-Based Compensation. Under this policy, since the exercise
price of stock options granted is set equal to the market price on
the date of the grant, we do not record any expense to the
income statement related to the grants of stock options, unless
certain original grant-date terms are subsequently modified.