Pfizer 2015 Annual Report Download - page 77

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
76
2015 Financial Report
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, as well as certain other 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/or Research and development expenses, as appropriate). Termination costs are generally
recorded when the actions are probable and estimable. Transaction costs, such as banking, legal, accounting and other costs incurred in
connection with a business 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.
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 and Derivative Financial Instruments
Our investments are comprised of the following: trading securities, available-for-sale securities, held-to-maturity securities (when we have both
the positive intent and ability to hold the investment to maturity) and private equity investments. The classification of an investment can depend
on the nature of the investment, our intent and ability to hold the investment, and the degree to which we may exercise influence.
• Trading securities are carried at fair value, with changes in fair value reported in Other (income)/deductions—net.
• Available-for-sale debt and equity securities are carried at fair value, with changes in fair value reported in Other comprehensive income/
(loss) until realized.
• Held-to-maturity debt securities are carried at amortized cost.
• Private equity securities are carried at equity-method or cost. For equity investments where we have significant influence over the financial
and operating policies of the investee, we use the equity-method of accounting. Under the equity method, we record our share of the
investee’s income and expenses in Other (income)/deductions—net. The excess of the cost of the investment over our share of the equity
of the investee as of the acquisition date is allocated to the identifiable assets of the investee, with any remaining excess amount allocated
to goodwill. Such investments are initially recorded at cost, which typically does not include amounts of contingent consideration.
Realized gains or losses on sales of investments are determined by using the specific identification cost method.
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.
Derivative financial instruments are carried at fair value in various balance sheet categories (see Note 7A), with changes in fair value reported
in Net income or, for derivative financial instruments in certain qualifying hedging relationships, in Other comprehensive income/(loss) (see Note
7E).
A single estimate of fair value and 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.
O. Tax Assets and Liabilities and Income Tax Contingencies
Current tax assets primarily includes (i) tax effects associated with intercompany transfers of assets within our consolidated group, which are
recognized in the consolidated statement of income when the asset transferred is sold to a third-party or recovered through amortization of the
asset's remaining economic life; and (ii) income tax receivables that are expected to be recovered either as refunds from taxing authorities or as
a reduction to future tax obligations.
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, that would be implemented, if necessary, to realize the deferred tax assets. All deferred tax assets and liabilities within the
same tax jurisdiction are presented as a net amount in the noncurrent section of our consolidated balance sheet.
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