Basis of Presentation and Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Organization Consolidation And Presentation Of Financial Statements And Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies

Basis of Presentation and Significant Accounting Policies

A. Basis of Presentation

We prepared the condensed consolidated financial statements following the requirements of the U.S. Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (U.S. GAAP) can be condensed or omitted.

Balance sheet amounts and operating results for subsidiaries operating outside the U.S. are as of and for the three and nine months ended August 26, 2012, and August 28, 2011. We have made certain reclassification adjustments to conform prior-period amounts to the current presentation, primarily related to certain inventories (see Note 8. Inventories) and the reclassification of certain investments (see Note 7. Financial Instruments).

On August 13, 2012, we filed a registration statement with the SEC for the potential initial public offering (IPO) of up to a 20% ownership stake in our Animal Health business, Zoetis Inc. (Zoetis).

On April 23, 2012, we announced that we entered into an agreement to sell our Nutrition business to Nestlé. As a result, beginning in the second quarter of 2012, we report the operating results of the Nutrition business as Discontinued operations––net of tax in the condensed consolidated statements of income for all periods presented. In addition, the assets and liabilities associated with this business are reported as Assets of discontinued operations and other assets held for sale and Liabilities of discontinued operations, as appropriate, in the condensed consolidated balance sheets (see Note 2B. Acquisitions and Divestitures: Divestitures).

On August 1, 2011, we completed the sale of our Capsugel business. The operating results and the gain on the sale of this business are reported as Discontinued operations––net of tax in the condensed consolidated statements of income for the three and nine months ended October 2, 2011 (see Note 2B. Acquisitions and Divestitures: Divestitures).

On January 31, 2011, we acquired King Pharmaceuticals, Inc. (King) and in accordance with our domestic and international reporting periods, our condensed consolidated financial statements for the nine months ended October 2, 2011 reflect approximately eight months of King’s U.S. operations and approximately seven months of King’s international operations (for additional information, see Note 2A. Acquisitions and Divestitures: Acquisitions).

Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be representative of those for the full year.

We are responsible for the unaudited financial statements included in this Quarterly Report on Form 10-Q. The financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and results of operations.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our 2011 Annual Report on Form 10-K.

B. Adoption of New Accounting Standards

The provisions of the following new accounting and disclosure standards were adopted as of January 1, 2012:

• Presentation of comprehensive income in financial statements. As a result of adopting this new standard, we have presented separate Condensed Consolidated Statements of Comprehensive Income.

• An amendment to the guidelines on the measurement and disclosure of fair value that is consistent between U.S. GAAP and International Financial Reporting Standards. The adoption of this new standard did not have a significant impact on our financial statements.

C. Fair Value

Our fair value methodologies depend on the following types of inputs:

• Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).

• 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 (Level 2 inputs).

• Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).

A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.