Pfizer 2009 Annual Report Download - page 15

Financial Review
Pfizer Inc. and Subsidiary Companies
The amounts recorded for the major components of acquired inventory are as follows:
(MILLIONS OF DOLLARS)
AMOUNTS
RECOGNIZED AS OF
ACQUISITION DATE
Finished goods $2,692
Work in process(a) 5,286
Raw materials 410
Total Inventory $8,388
(a) As of the acquisition date, includes pre-launch inventory associated with Prevnar/Prevenar 13 Infant which did not launch until 2010. Prevnar/
Prevenar 13 Infant was approved by the EU member states in December 2009 and in the U.S. in February 2010.
The fair value of inventory will be recognized in our results of operations as the inventory is sold. Based on internal forecasts and
estimates of months of inventory on hand (and excluding inventories associated with Prevnar/Prevenar 13 Infant), we expect that
the acquisition date inventory will be substantially sold and recognized in cost of sales over a weighted average estimated period
of approximately 14 months after the acquisition date.
Some of the more significant estimates and assumptions inherent in the estimate of the fair value of inventory include stage of
completion, costs to complete, costs to dispose and selling price. All of these judgments and estimates can materially impact our
results of operations.
•Property, Plant and Equipment—The fair value of acquired property, plant and equipment is determined using a variety of valuation
approaches, depending on the nature of the asset and the quality of available information. If multiple approaches are used for a single
asset or a group of assets, those approaches are compared and reconciled to arrive at a single estimate of fair value. The fair value of
acquired property, plant and equipment was primarily determined as follows:
OLand––Market, a sales comparison approach that measures value of an asset through an analysis of sales and offerings of
comparable property.
OBuildings—Replacement cost, an approach that measures the value of an asset by estimating the cost to acquire or construct
comparable assets. For buildings that are not highly specialized or that could be income producing if leased to a third party, we also
considered market and income factors.
OMachinery and Equipment—Replacement cost.
OFurniture and Fixtures—Replacement cost.
OConstruction in Progress—Replacement cost, generally assumed to equal historical book value.
The amounts recorded for the major components of acquired property, plant and equipment are as follows:
(MILLIONS OF DOLLARS)
USEFUL LIFE
(YEARS)
AMOUNTS
RECOGNIZED AS OF
ACQUISITION DATE
Land — $ 303
Buildings 33
1
⁄ 3 -50 5,215
Machinery and equipment 8-20 3,156
Furnitu
re and fixtures 3-12
1
⁄ 2 501
Construction in progress — 879
Total Property, plant and equipment $10,054
The fair value of property, plant and equipment will be recognized in our results of operations over the expected useful life of the
individual depreciable assets.
Some of the more significant inputs, estimates and assumptions inherent in the estimate of the fair value of property, plant and
equipment include the nature, age, condition or location of the land, buildings, machinery and equipment, furniture and fixtures,
and construction in progress, as applicable, as well as the estimate of market and replacement cost and the determination of the
appropriate valuation premise, in-use or in-exchange. The in-use valuation premise assesses the value of an asset when used in
combination with other assets (for example, on an installed basis), while the in-exchange valuation assesses the value of an asset
on a stand alone basis. Assets to be disposed of were valued on an in-exchange basis. All of these judgments and estimates can
materially impact our results of operations.
•Identifiable Intangible Assets—The fair value of acquired identifiable intangible assets generally is determined using an income
approach. This method starts with a forecast of all of the expected future net cash flows associated with the asset and then involves
adjusting the forecast to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash
flow streams.
2009 Financial Report 13