Pfizer 2013 Annual Report Download - page 62

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
2013 Financial Report 61
Note 1. Basis of Presentation and Significant Accounting Policies
A. Basis of Presentation
The consolidated financial statements include our parent company and all subsidiaries, and are prepared in accordance with accounting
principles generally accepted in the United States of America (U.S. GAAP). The decision whether or not to consolidate an entity requires
consideration of majority voting interests, as well as effective economic or other control over the entity. Typically, we do not seek control by
means other than voting interests. For subsidiaries operating outside the United States (U.S.), the financial information is included as of and
for the year ended November 30 for each year presented. Substantially all unremitted earnings of international subsidiaries are free of legal
and contractual restrictions. All significant transactions among our businesses have been eliminated. Taxes paid on intercompany sales
transactions are deferred until recognized upon sale of the asset to a third party.
In the consolidated statements of comprehensive income, we have revised the presentation of other comprehensive income/(loss) shown in
prior periods for derivative financial instruments and available-for-sale securities, as certain items had been reported net.
On June 24, 2013, we completed the full disposition of our Animal Health business (Zoetis), and recognized a gain of approximately $10.3
billion, net of tax, in Gain on disposal of discontinued operations––net of tax in the consolidated statement of income for the year ended
December 31, 2013. The operating results of this business are reported as Income from discontinued operations––net of tax in the
consolidated statements of income through June 24, 2013, the date of disposal. In addition, in the consolidated balance sheet as of December
31, 2012, the assets and liabilities associated with this business are classified as Assets of discontinued operations and other assets held for
sale and Liabilities of discontinued operations, as appropriate. Prior-period financial information has been restated, as appropriate. For
additional information, see Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures.
On November 30, 2012, we completed the sale of our Nutrition business to Nestlé and recognized a gain of approximately $4.8 billion, net of
tax, in Gain on disposal of discontinued operations––net of tax in the consolidated statement of income for the year ended December 31,
2012. The operating results of this business are reported as Income from discontinued operations––net of tax in the consolidated statements
of income through November 30, 2012, the date of disposal. For additional information, see Note 2B. Acquisitions, Divestitures, Collaborative
Arrangements and Equity-Method Investments: Divestitures.
On August 1, 2011, we completed the sale of our Capsugel business and recognized a gain of approximately $1.3 billion, net of tax, in Gain on
disposal of discontinued operations––net of tax in the consolidated statement of income for the year ended December 31, 2011. The operating
results of this business are reported as Income from discontinued operations––net of tax in the consolidated statements of income through
August 1, 2011, the date of disposal. For additional information, see Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and
Equity-Method Investments: Divestitures.
On January 31, 2011, we acquired King Pharmaceuticals, Inc. (King). Commencing from the acquisition date, our financial statements reflect
the assets, liabilities, operating results and cash flows of King, and, in accordance with our domestic and international reporting periods, our
consolidated financial statements for the year ended December 31, 2011 reflect approximately 11 months of King’s U.S. operations and
approximately 10 months of King’s international operations. For additional information, see Note 2A. Acquisitions, Divestitures, Collaborative
Arrangements and Equity-Method Investments: Acquisitions.
B. Adoption of New Accounting Standard
On December 31, 2013, we changed the presentation of certain of our unrecognized tax benefits. For additional information, see Note 5D. Tax
Matters: Tax Contingencies.
C. Estimates and Assumptions
In preparing the consolidated financial statements, we use certain estimates and assumptions that affect reported amounts and disclosures,
including amounts recorded and disclosed in connection with acquisitions. These estimates and underlying assumptions can impact all
elements of our financial statements. For example, in the consolidated statements of income, estimates are used when accounting for
deductions from revenues (such as rebates, chargebacks, sales returns and sales allowances), determining the cost of inventory that is sold,
allocating cost in the form of depreciation and amortization, and estimating restructuring charges and the impact of contingencies. On the
consolidated balance sheets, estimates are used in determining the valuation and recoverability of assets, such as accounts receivables,
investments, inventories, deferred tax assets, fixed assets and intangible assets (including acquired in-process research & development
(IPR&D) assets and goodwill), and estimates are used in determining the reported amounts of liabilities, such as taxes payable, benefit
obligations, accruals for contingencies, rebates, chargebacks, sales returns and sales allowances, and restructuring reserves, all of which also
impact the consolidated statements of income.
Our estimates are often based on complex judgments, probabilities and assumptions that we believe to be reasonable but that can be
inherently uncertain and unpredictable. If our estimates and assumptions are not representative of actual outcomes, our results could be
materially impacted.
As future events and their effects cannot be determined with precision, our estimates and assumptions may prove to be incomplete or
inaccurate, or unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. We are
subject to risks and uncertainties that may cause actual results to differ from estimated amounts, such as changes in the healthcare
environment, competition, litigation, legislation and regulations. We regularly evaluate our estimates and assumptions using historical