Pfizer 2015 Annual Report Download - page 78

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
2015 Financial Report
77
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 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.
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 and defined contribution plans, as well as other postretirement benefit plans
consisting primarily of medical 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 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 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 medical 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/or 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.
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.
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/or 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.
Note 2. Acquisitions, Licensing Agreements, Collaborative Arrangements, Divestitures, Equity-
Method Investments and Cost-Method Investment
A. Acquisitions
Hospira, Inc. (Hospira)
On September 3, 2015 (the acquisition date), we acquired Hospira, a leading provider of sterile injectable drugs and infusion technologies as
well as a provider of biosimilars, for $90 per share in cash. The total fair value of consideration transferred for Hospira was approximately
$16.1 billion in cash ($15.7 billion, net of cash acquired). Hospira is now a subsidiary of Pfizer. The combination of local Pfizer and Hospira
entities may be pending in various jurisdictions and integration is subject to completion of various local legal and regulatory steps.