Pfizer 2011 Annual Report Download - page 49

Financial Review
Pfizer Inc. and Subsidiary Companies
Our financial instrument holdings at year-end were analyzed to determine their sensitivity to interest rate changes. The fair values of
these instruments were determined using various methodologies. For additional details, see Notes to Consolidated Financial
Statements—Note 7A. Financial Instruments: Selected Financial Assets and Liabilities. In this sensitivity analysis, we used a one
hundred basis point parallel shift in the interest rate curve for all maturities and for all instruments; all other factors were held
constant. If there were a one hundred basis point decrease in interest rates, the expected adverse impact on net income related to
our financial instruments would be immaterial.
Contingencies
Legal Matters
We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business, such as patent
litigation, product liability and other product-related litigation, commercial litigation, environmental claims and proceedings,
government investigations and guarantees and indemnifications (see Notes to Consolidated Financial Statements—Note 17.
Commitments and Contingencies).
Certain of these contingencies could result in losses, including damages, fines and/or civil penalties, and/or criminal charges, which
could be substantial.
We believe that our claims and defenses in these matters are substantial, but litigation is inherently unpredictable and excessive
verdicts do occur. We do not believe that any of these matters will have a material adverse effect on our financial position. However,
we could incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such
developments could have a material adverse effect on our results of operations or cash flows in the period in which the amounts are
paid and/or accrued.
We have accrued for losses that are both probable and reasonably estimable. Substantially all of these contingencies are subject to
significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex.
Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. Our assessments are
based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies
heavily on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances
may occur that might cause us to change those estimates and assumptions.
Tax Matters
We account for income tax contingencies using a benefit 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: (i) if there are changes in tax law,
analogous case law or there is new information that sufficiently raise the likelihood of prevailing on the technical merits of the
position to more likely than not; (ii) if the statute of limitations expires; or (iii) if there is a completion of an audit resulting in a
favorable settlement of that tax year with the appropriate agency. We regularly re-evaluate our tax positions based on the results of
audits of federal, state and foreign income tax filings, statute of limitations expirations, changes in tax law or receipt of new
information that would either increase or decrease the technical merits of a position relative to the “more-likely-than-not” standard.
Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates
of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such
estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we
treat these events as discrete items in the period of resolution. Finalizing audits with the relevant taxing authorities can include
formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible changes
related to our uncertain tax positions, and such changes could be significant.
48 2011 Financial Report