Pfizer 2012 Annual Report Download - page 64

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
2012 Financial Report 63
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 statute 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.
Amounts recorded for valuation allowances and income tax contingencies 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. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions.
P. Pension and Postretirement Benefit Plans
The majority of our employees worldwide are covered by defined benefit pension plans, defined contribution plans or both. 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. Beginning on January 1, 2011, for employees hired in the U.S. and Puerto Rico after
December 31, 2010, we no longer offer a defined benefit plan and, instead, offer an enhanced benefit under our defined contribution plan. On
May 8, 2012, we announced to employees that as of January 1, 2018, Pfizer will transition its U.S. and Puerto Rico employees from its defined
benefit plans to an enhanced defined contribution savings plan. 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 are generally 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 benefit
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.
Amounts recorded for pension and postretirement benefit plans 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. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions.
Q. Legal and Environmental Contingencies
We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business, such as patent litigation,
product liability and other product-related litigation, commercial litigation, environmental claims and proceedings, government investigations
and guarantees and indemnifications. We record accruals for these contingencies to the extent that we conclude that a loss is both probable
and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, we
accrue that amount. Alternatively, when no amount within a range of loss appears to be a better estimate than any other amount, we accrue
the lowest amount in the range. We record anticipated recoveries under existing insurance contracts when recovery is assured.
Amounts recorded for contingencies 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. Basis of
Presentation and Significant Accounting Policies: Estimates and Assumptions.
R. Share-Based Payments
Our compensation programs can include share-based payments. Generally, grants under share-based payment programs are accounted for
at fair value and these fair values are generally amortized on a straight-line basis over the vesting terms into Cost of sales, Selling,
informational and administrative expenses and Research and development expenses, as appropriate.
Amounts recorded for share-based compensation 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.
Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions.
Note 2. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments
A. Acquisitions
NextWave Pharmaceuticals, Inc.
On November 27, 2012, we completed our acquisition of NextWave Pharmaceuticals Incorporated (NextWave), a privately held, specialty
pharmaceutical company. As a result of this acquisition, Pfizer now holds exclusive North American rights to Quillivant XR™ (methylphenidate
hydrochloride), the first once-daily liquid medication approved in the U.S. for the treatment of attention deficit hyperactivity disorder. Quillivant