Pfizer 2011 Annual Report Download - page 62

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Impairment reviews can involve a complex series of judgments about future events and uncertainties and can rely heavily on
estimates and assumptions. For information about the risks associated with estimates and assumptions, see Note 1C. Significant
Accounting Policies: Estimates and Assumptions.
L. Restructuring Charges and Certain Acquisition-Related Costs
We may incur restructuring charges in connection with acquisitions when we implement plans to restructure and integrate the
acquired operations or in connection with our cost-reduction and productivity initiatives. Included in Restructuring charges and
certain acquisition-related costs are all restructuring charges and certain costs associated with acquiring and integrating an acquired
business. (If the restructuring action results in a change in the estimated useful life of an asset, that incremental impact is classified
in Cost of sales, Selling, informational and administrative expenses and Research and development expenses, as appropriate).
Termination costs are a significant component of our restructuring charges and are generally recorded when the actions are
probable and estimable. Transaction costs, such as banking, legal, accounting and other costs incurred in connection with an
acquisition are expensed as incurred.
Amounts recorded for restructuring charges and other associated costs can result from a complex series of judgments about future
events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with
estimates and assumptions, see Note 1C. Significant Accounting Policies: Estimates and Assumptions.
M. Cash Equivalents and Statement of Cash Flows
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.
Cash flows associated with financial instruments designated as fair value or cash flow hedges may be included in operating,
investing or financing activities, depending on the classification of the items being hedged. Cash flows associated with financial
instruments designated as net investment hedges are classified according to the nature of the hedge instrument. Cash flows
associated with financial instruments that do not qualify for hedge accounting treatment are classified according to their purpose and
accounting nature.
N. Investments, Loans and Derivative Financial Instruments
Many, but not all, of our financial instruments are carried at fair value. For example, substantially all of our cash equivalents, short-
term investments and long-term investments are classified as available-for-sale securities and are carried at fair value, with changes
in unrealized gains and losses, net of tax, reported in Other comprehensive/(loss) (see Note 6. Other Comprehensive Income/
(Loss)). Derivative financial instruments are carried at fair value in various balance sheet categories (see Note 7A. Financial
Instruments: Selected Financial Assets and Liabilities), with changes in fair value reported in current earnings or deferred for
qualifying hedging relationships. Virtually all of our valuation measurements for investments, loans and derivative financial
instruments are based on the use of quoted prices for similar instruments in active markets or quoted prices for identical or similar
instruments in markets that are not active or are directly or indirectly observable.
Realized gains or losses on sales of investments are determined by using the specific identification cost method.
Investments where we have significant influence over the financial and operating policies of the investee are accounted for under
the equity method. Under the equity method, we record our share of the investee’s income and expenses in our income statements.
The excess of the cost of the investment over our share in the equity of the investee on acquisition date is allocated to the
identifiable assets of the investee, with any remainder allocated to goodwill. Such investments are initially recorded at cost, which
typically does not include amounts of contingent consideration.
We regularly evaluate all of our financial assets for impairment. For investments in debt and equity securities, when a decline in fair
value, if any, is determined to be other-than-temporary, an impairment charge is recorded, and a new cost basis in the investment is
established. For loans, an impairment charge is recorded if it is probable that we will not be able to collect all amounts due according
to the loan agreement.
Impairment reviews can involve a complex series of judgments about future events and uncertainties and can rely heavily on
estimates and assumptions. For information about the risks associated with estimates and assumptions, see Note 1C. Significant
Accounting Policies: Estimates and Assumptions.
O. Deferred Tax Assets and Liabilities and Income Tax Contingencies
Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the financial
reporting and tax bases of assets and liabilities using enacted tax rates and laws. We provide a valuation allowance when we
believe that our deferred tax assets are not recoverable based on an assessment of estimated future taxable income that
incorporates ongoing, prudent and feasible tax-planning strategies.
We account for income tax contingencies using a benefit recognition model. If we consider that a tax position is more likely than not
to be sustained upon audit, based solely on the technical merits of the position, we recognize the benefit. We measure the benefit by
determining the amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is
examined by the appropriate taxing authority that has full knowledge of all relevant information. Under the benefit recognition model,
if our initial assessment fails to result in the recognition of a tax benefit, we regularly monitor our position and subsequently
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