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1.0.0.3 false Significant Accounting Policies false 1 $ false false Shares Standard http://www.xbrl.org/2003/instance shares xbrli 0 USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 USDperShare Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 2 Significant Accounting Policies [Abstract] 0 pfe_SignificantAccountingPoliciesAbstract pfe false na duration string No definition available. false false false false false true false false false 1 false false 0 0 false false No definition available. false 3 Significant Accounting Policies [Text Block] 1 us-gaap_SignificantAccountingPoliciesTextBlock us-gaap true na duration string No definition available. false false false false false false false false false 1 false false 0 0 1. Significant Accounting Policies A. Consolidation and Basis of Presentation The consolidated financial statements include our parent company and all subsidiaries, including those operating outside the United States (U.S.) 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 and we do not have significant interests in non-consolidated entities. For subsidiaries operating outside the 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 eliminat ed. We made certain reclassifications to prior-period amounts to conform to the December 31, 2009 presentations related to the presentation of noncontrolling interests as a result of adopting a new accounting standard. Subsequent events have been evaluated through the time of our filing on February 26, 2010. On October 15, 2009, we completed our acquisition of Wyeth in a cash-and-stock transaction valued at approximately $68 billion. Commencing from the acquisition date, our financial statements reflect the assets, liabilities and operating results of Wyeth. In accordance with our domestic and international fiscal year-ends, approximately two-and-a-half months of the fourth calendar quarter of 2009 in the case of Wyeth’s U.S. operations and approximately one-and-a-half months of the fourth calendar quarter of 2009 in the case of Wyeth’s international operations are included in our consolidated financial statements for the year ended December 31, 2009. For additional information, see Note 2. Acquisition of Wyeth. B. New Accounting Standards As of January 1, 2009, we adopted a new accounting standard that retains the purchase method of accounting for acquisitions but requires a number of changes to that method, including changes in the way assets and liabilities are recognized in purchase accounting. Specifically, they require the capitalization of in-process research and development costs at fair value and require the expensing of transaction costs as incurred. The adoption of these provisions did not have a significant impact on our consolidated financial statements upon adoption, but they did significantly impact our accounting for the acquisition of Wyeth in 2009. For additional information, see Note 2. Acquisition of Wyeth. As of January 1, 2009, we adopted a new accounting standard that provides guidance for the accounting, reporting and disclosure of noncontrolling interests, previously referred to as minority interests. A noncontrolling interest represents the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. The adoption of these provisions resulted in a number of changes to the presentation of our consolidated financial statements, but the amounts associated with noncontrolling interests are not significant. In addition, throughout 2009, we adopted several other new accounting standards, none of which had a significant impact on our consolidated financial statements upon adoption. Among other things, these standards:   <table cellpadding="0" style="BORDER-COLLAPSE: collapse" cellspacing="0" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Require us to deconsolidate a subsidiary when we cease to have a controlling financial interest in the subsidiary and to recognize a gain or loss on the transaction and measure any retained investment in the subsidiary at fair value (as of September 28, 2009). </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Provide qualifying criteria and guidance on using the net asset value per share provided by the investee to measure the fair value of alternative investments (as of September 28, 2009). </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Provide additional guidance on measuring the fair value of liabilities in the absence of observable market information, transfer restrictions and non-performance risk assessment (as of July 1, 2009). </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Amend the guidance for evaluating and measuring “other-than-temporary” impairments for available-for-sale or held-to-maturity debt securities (as of March 30, 2009). </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Provide additional guidance for estimating fair value in inactive markets and the identification of disorderly transactions (as of March 30, 2009). </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Expand the use of fair value and related disclosure requirements and specify a hierarchy of valuation techniques used to develop the fair value measures (as of January 1, 2009). We applied these provisions in our accounting for the acquisition of Wyeth in 2009. </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Provide guidance on the accounting for collaborative arrangements, as defined, such as: how costs incurred and revenues generated on sales to third parties should be reported in the income statement; how an entity should characterize payments on the income statement; and what participants should disclose in the notes to the financial statements about a collaborative arrangement (as of January 1, 2009). We provided additional disclosures in Note 5. Collaborative Arrangements. </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Clarify how to account for certain transactions involving equity method investments in areas such as: how to determine the initial carrying value of the investment; how to allocate the difference between the investor’s carrying value and the investor’s share of the underlying equity of the investment; how to perform an impairment assessment of underlying intangibles held by the investee; how to account for the investee’s issuance of additional shares; and how to account for an investment on the cost method when it previously had been accounted for under the equity method (as of January 1, 2009). We applied these provisions in our accounting for our new equity method investment, ViiV Healthcare Limited (see Note 3A. Other Significant Transactions and Events: Formation of ViiV, an Equity-Method Investment). </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Clarify the accounting for certain separately identifiable assets, which an acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. These provisions require an acquirer to account for a defensive intangible asset as a separate unit of accounting, which should be amortized to expense over the period the asset diminishes in value (as of January 1, 2009). We applied these provisions in our accounting for the acquisition of Wyeth in 2009. </td></tr></table> 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 in connection with acquisitions, such as our acquisition of Wyeth on October 15, 2009. 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 cost of sales, 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, fixed assets and intangible assets (including ac quired in-process research & development (IPR&D) assets, beginning in 2009, and goodwill), and estimates are used in determining the reported amounts of liabilities, such as taxes payable, benefit obligations, the impact of contingencies, rebates, chargebacks, sales returns and sales allowances, and restructuring reserves, all of which also will impact the consolidated statements of income. We regularly evaluate our estimates and assumptions using historical experience and other factors, including the economic environment. Our estimates often are based on complex judgments, probabilities and assumptions that we believe to be reasonable but that are inherently uncertain and unpredictable. 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. Market conditions, such as illiquid credit markets, volatile equity markets, dramatic fluctuations in foreign currency rates and economic downturn, can increase the uncertainty already inherent in our estimates and assumptions. We adjust our estimates and assumptions when facts and circumstances indicate the need for change. Those changes generally will be reflected in our financial statements on a prospective basis unless they are required to be treated retrospectively under the relevant accounting standard. It is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alt ernative estimated amounts. We also are subject to other 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. These and other risks and uncertainties are discussed in the accompanying Financial Review, which is unaudited, under the headings “Our Operating Environment, Strategy and Response to Key Opportunities and Challenges” and “Forward-Looking Information and Factors That May Affect Future Results” and in our 2009 Annual Report on Form 10-K under the caption, Part 1 Item 1A. “Risk Factors.” D. Contingencies We and certain of our subsidiaries are involved in various patent, product liability, consumer, commercial, securities, environmental and tax litigations and claims; government investigations; and other legal proceedings that arise from time to time in the ordinary course of our business. Except for income tax contingencies, we record accruals for contingencies to the extent that we conclude their occurrence is probable and that the related liabilities are estimable, and we record anticipated recoveries under existing insurance contracts when assured of recovery. For tax matters, we record accruals for income tax contingencies to the extent that we conclude that a tax position is not sustainable under a “more-likely-than-not” standard, and we record our estimate of the potential tax benefits in one tax jurisdiction that could result from the payment of income taxes in another tax jurisdict ion when we conclude that the potential recovery is more likely than not (see Note 7D. Taxes on Income: Tax Contingencies). We consider many factors in making these assessments. Because litigation and other contingencies are inherently unpredictable and excessive verdicts do occur, these assessments can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions (see Note 1C. Significant Accounting Policies: Estimates and Assumptions). E. Acquisitions Our consolidated financial statements include the operations of an acquired business after the completion of the acquisition. We account for acquired businesses using the acquisition method of accounting. The acquisition method of accounting for acquired businesses requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of acquired IPR&D be recorded on the balance sheet. Also, transaction costs are expensed as incurred. Any excess of the purchase price over the assigned values of the net assets acquired is recorded as goodwill. For acquisitions consummated prior to January 1, 2009, amounts allocated to IPR&D were expensed at the date of acquisition. When we have acquired net assets that do not constitute a business under U.S. GAAP, no goodwill has been recognized. &l t;/font> F. Fair Value We often are required to measure certain assets and liabilities at fair value, either upon initial measurement or for subsequent accounting or reporting. For example, we use fair value extensively in the initial measurement of net assets acquired in a business combination and when accounting for and reporting on certain financial instruments. We estimate fair value using an exit price approach, which requires, among other things, that we determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market. The determination of an exit price is considered from the perspective of market participants, considering the highest and best use of assets and, for liabilities, assuming the risk of non-performance will be the same before and after the transfer. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and r elies heavily on estimates and assumptions. When estimating fair value, depending on the nature and complexity of the asset or liability, we may use one or all of the following approaches:   <table cellpadding="0" style="BORDER-COLLAPSE: collapse" cellspacing="0" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities. </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Cost approach, which is based on the cost to acquire or construct comparable assets less an allowance for functional and/or economic obsolescence. </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Income approach, which is based on the present value of a future stream of net cash flows. </td></tr></table> These fair value methodologies depend on the following types of inputs:   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Quoted prices for identical assets or liabilities in active markets (called Level 1 inputs). </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable (called Level 2 inputs). </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Unobservable inputs that reflect estimates and assumptions (called Level 3 inputs). </td></tr></table> G. Foreign Currency Translation For most of our international operations, local currencies have been determined to be the functional currencies. We translate functional currency assets and liabilities to their U.S. dollar equivalents at rates in effect at the balance sheet date and record these translation adjustments in Shareholders’ equity—Accumulated other comprehensive income/(expense). We translate functional currency statement of income amounts to their U.S. dollar equivalents at average rates for the period. The effects of converting non-functional currency assets and liabilities into the functional currency are recorded in Other (income)/deductions—net. For operations in highly inflationary economies, we translate monetary items at rates in effect at the balance sheet date, with translation adjustments recorded in Other (income)/deductions—net, and non-monetary items at historical rates. H. Revenues Revenue Recognition—We record revenues from product sales when the goods are shipped and title passes to the customer. At the time of sale, we also record estimates for a variety of sales deductions, such as sales rebates, discounts and incentives, and product returns. When we cannot reasonably estimate the amount of future product returns, we record revenues when the risk of product return has been substantially eliminated. We record sales of certain of our vaccines to the U.S. government as part of the Pediatric Vaccine Stockpile program; these rules require that for fixed commitments made by the U.S. government, we record revenues when risk of ownership for the completed product has been passed to the U.S. government. There are no specific performance obligations associated with products sold under this program. Deductions from Revenues—As is typical in the biopharmaceutical industry, our gross product sales are subject to a variety of deductions that generally are estimated and recorded in the same period that the revenues are recognized and primarily represent rebates and discounts to government agencies, wholesalers, distributors and managed care organizations with respect to our pharmaceutical products. These deductions represent estimates of the related obligation and, as such, judgment and knowledge of market conditions and practices are required when estimating the impact of these sales deductions on gross sales for a reporting period. Specifically:   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> In the U.S., we record provisions for pharmaceutical Medicaid, Medicare and contract rebates based upon our experience ratio of rebates paid and actual prescriptions written during prior quarters. We apply the experience ratio to the respective period’s sales to determine the rebate accrual and related expense. This experience ratio is evaluated regularly to ensure that the historical trends are as current as practicable. As appropriate, we will adjust the ratio to better match our current experience or our expected future experience. In assessing this ratio, we consider current contract terms, such as changes in formulary status and discount rates. </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Outside the U.S., the majority of our pharmaceutical rebates, discounts and price reductions are contractual or legislatively mandated, and our estimates are based on actual invoiced sales within each period; both of these elements help to reduce the risk of variations in the estimation process. Some European countries base their rebates on the government’s unbudgeted pharmaceutical spending, and we use an estimated allocation factor (based on historical payments) and total revenues by country against our actual invoiced sales to project the expected level of reimbursement. We obtain third-party information that helps us to monitor the adequacy of these accruals. </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Provisions for pharmaceutical chargebacks (primarily reimbursements to wholesalers for honoring contracted prices to third parties) closely approximate actual as we settle these deductions generally within two to five weeks of incurring the liability.</td></tr></table> <table cellpadding="0" style="BORDER-COLLAPSE: collapse" cellspacing="0" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Provisions for pharmaceutical returns are based on a calculation at each market that incorporates the following, as appropriate: local returns policies and practices; returns as a percentage of sales; an understanding of the reasons for past returns; estimated shelf life by product; an estimate of the amount of time between shipment and return or lag time; and any other factors that could impact the estimate of future returns, such as loss of exclusivity, product recalls or a changing competitive environment. Generally, returned products are destroyed, and customers are refunded the sales price in the form of a credit. </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> We record sales incentives as a reduction of revenues at the time the related revenues are recorded or when the incentive is offered, whichever is later. We estimate the cost of our sales incentives based on our historical experience with similar incentives programs. </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Our accruals for Medicaid rebates, Medicare rebates, performance-based contract rebates and chargebacks were $2.1 billion as of December 31, 2009, and $1.5 billion as of December 31, 2008, and substantially all are included in Current deferred tax liabilities and other current liabilities. </td></tr></table> Taxes collected from customers relating to product sales and remitted to governmental authorities are presented on a net basis; that is, they are excluded from Revenues. Collaborative Arrangements––Payments to and from our collaboration partners are presented in the statement of income based on the nature of the arrangement (including its contractual terms), the nature of the payments and applicable accounting guidance. Under co-promotion agreements, we record the amounts received from our partners as alliance revenues, a component of Revenues, when our co-promotion partners are the principal in the transaction and we receive a share of their net sales or profits. Alliance revenues are recorded when our co-promotion partners ship the product and title passes to their customers. The related expenses for selling and marketing these products are included in Selling, informational and administrative expenses. In collaborative arrangements where we manufacture a product for our partner, we record revenue s when our partner sells the product and title passes to its customer. All royalty payments to collaboration partners are recorded as part of Cost of sales. I. Cost of Sales and Inventories We value inventories at lower of cost or market. The cost of finished goods, work in process and raw materials is determined using average actual cost. J. Selling, Informational and Administrative Expenses Selling, informational and administrative costs are expensed as incurred. Among other things, these expenses include the costs of marketing, advertising, shipping and handling, information technology and the associated employee compensation. Advertising expenses relating to production costs are expensed as incurred, and the costs of radio time, television time and space in publications are expensed when the related advertising occurs. Advertising expenses totaled approximately $2.9 billion in 2009, $2.6 billion in 2008 and $2.7 billion in 2007. K. Research and Development Expenses and Acquisition-Related In-Process Research and Development Charges Prior to January 1, 2009, when recording acquisitions, we expensed amounts related to acquired IPR&D in Acquisition-related in-process research and development charges. IPR&D acquired after January 1, 2009, as part of a business combination, is capitalized as Identifiable intangible assets. IPR&D acquired as part of an asset acquisition is expensed as incurred. Research and development (R&D) costs are expensed as incurred. These expenses include the costs of our proprietary R&D efforts, as well as costs incurred in connection with certain licensing arrangements. Before a compound receives regulatory approval, we record upfront and milestone payments made by us to third parties under licensing arrangements as expense. Upfront payments are recorded when incurred, and milestone payments are recorded when the specific milestone has been achieved. Once a compound receives regulatory approval, we record any milestone payments in Identifiable intangible assets, less accumulated amortization and, unless the assets are determined to have an indefinite life, we amortize them evenly over the remaining agreement term or the expected product life cycle, whichever is shorter. L. Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets Long-lived assets include:   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Goodwill—Goodwill represents the excess of the consideration transferred for an acquired business over the assigned values of its net assets. Goodwill is not amortized. </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Identifiable intangible assets, less accumulated amortization—These acquired assets are recorded at our cost. Intangible assets with finite lives are amortized evenly over their estimated useful lives. Intangible assets with indefinite lives that are associated with marketed products are not amortized until a useful life can be determined. Intangible assets associated with IPR&D projects are not amortized until approval is obtained in a major market, typically either the U.S. or the European Union (EU), or in a series of other countries, subject to certain specified conditions and management judgment. The useful life of an amortizing asset generally is determined by identifying the period in which substantially all of the cash flows are expected to be generated.</td></tr></table>   <table cellpadding="0" style="BORDER-COLLAPSE: collapse" cellspacing="0" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> Property, plant and equipment, less accumulated depreciation—These assets are recorded at our original cost and are increased by the cost of any significant improvements after purchase. Property, plant and equipment assets, other than land and construction in progress, are depreciated evenly over the estimated useful life of the individual assets. Depreciation begins when the asset is ready for its intended use. For tax purposes, accelerated depreciation methods are used as allowed by tax laws. </td></tr></table> Amortization expense related to finite-lived acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property are included in Amortization of intangible assets as they benefit multiple business functions. Amortization expense related to intangible assets that are associated with a single function and depreciation of property, plant and equipment are included in Cost of sales, Selling, informational and administrative expenses and Research and development expenses, as appropriate. We review all of our long-lived assets for impairment indicators throughout the year and we perform detailed testing whenever impairment indicators are present. In addition, we perform detailed impairment testing for goodwill and indefinite-lived assets at least annually. When necessary, we record charges for impairments. Specifically:   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> For finite-lived intangible assets, such as developed technology rights, and for other long-lived assets, such as property, plant and equipment, whenever impairment indicators are present, we perform a review for impairment. We calculate the undiscounted value of the projected cash flows associated with the asset, or asset group, and compare this estimated amount to the carrying amount. If the carrying amount is found to be greater, we record an impairment loss for the excess of book value over fair value. In addition, in all cases of an impairment review, we re-evaluate the remaining useful lives of the assets and modify them, as appropriate. </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> For indefinite-lived intangible assets, such as brands and IPR&D assets, each year and whenever impairment indicators are present, we determine the fair value of the asset and record an impairment loss for the excess of book value over fair value, if any. In addition, in all cases of an impairment review other than for IPR&D assets, we reevaluate whether continuing to characterize the asset as indefinite-lived is appropriate. </td></tr></table>   <table cellpadding="0" cellspacing="0" style="BORDER-COLLAPSE: collapse" border="0" width="100%"> <tr> <td valign="top" align="left" width="1%">•</td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> For goodwill, annually and whenever impairment indicators are present, we calculate the fair value of each reporting unit and compare the fair value to its book value. If the carrying amount is found to be greater, we then determine the implied fair value of goodwill by subtracting the fair value of all the identifiable net assets other than goodwill from the fair value of the reporting unit and record an impairment loss for the excess, if any, of book value of goodwill over the implied fair value. </td></tr></table> M. 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 cost-reduction initiatives that are initiated from time to time. Included in Restructuring charges and certain acquisition-related costs are all restructuring charges and certain costs associated with 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. Also, beginning in 2009, transaction costs, such as banking, leg al, accounting and other costs incurred in connection with an acquisition are expensed as incurred and included in Restructuring charges and certain acquisition-related costs. N. 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. O. 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 income/(expense). Derivative financial instruments are carried at fair value in various balance sheet categories (see Note 9A. 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 instrument s 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. P. Income Tax Contingencies 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 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 statu te 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. Liabilities associated with uncertain tax positions are classified as current only when we expect to pay cash within the next 12 months. Interest and penalties, if any, are recorded in Provision for taxes on income and are classified on our consolidated balance sheet with the related tax liability. We are subject to income tax in many jurisdictions and a certain degree of estimation is required in recording the assets and liabilities related to income taxes. All of our tax positions are subject to audit by the local taxing authorities in each tax jurisdiction. Tax audits can involve complex issues and the resolution of issues may span multiple years, particularly if subject to negotiation or litigation. Q. Pension and Postretirement Benefit Plans We provide defined benefit pension plans for the majority of employees worldwide. In the U.S., we have both qualified and supplemental (non-qualified) defined benefit plans, as well as other postretirement benefit plans, consisting primarily of healthcare and life insurance for retirees. We recognize the overfunded or underfunded status of each of our defined benefit plans as an asset or liability on our consolidated balance sheet. The obligations generally are measured at the actuarial present value of all benefits attributable to employee service rendered, as provided by the applicable benefit formula. Our pension and other postretirement obligations may include assumptions such as long-term rate of return on plan assets, expected employee turnover and participant mortality. For our pension plans, the obligation may also include assumptions as to future compensation levels. For our other postretirement bene fit plans, the obligation may include assumptions as to the expected cost of providing the healthcare and life insurance benefits, as well as the extent to which those costs are shared with the employee or others (such as governmental programs). Plan assets are measured at fair value. Net periodic benefit costs are recognized, as required, into Cost of sales, Selling, informational and administrative expenses and Research and development expenses, as appropriate. R. Share-Based Payments Our compensation programs can include share-based payments. All grants under share-based payment programs are accounted for at fair value and these fair values generally are amortized on an even basis over the vesting terms into Cost of sales, Selling, informational and administrative expenses, and Research and development expenses, as appropriate. 1. Significant Accounting Policies A. 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