Pfizer 2009 Annual Report Download - page 17

Financial Review
Pfizer Inc. and Subsidiary Companies
The discount rates used in the intangible asset valuations ranged from 9% to 17%, and the estimated cash flows were pro-
jected over periods extending up to 20 years or more. For IPR&D assets, the PTRS rates ranged from 4% to 90%. Within this
broad range, we recorded approximately $800 million of assets with a PTRS below 25%, $1.4 billion of assets with a PTRS of
25% to 50%, $130 million of assets with a PTRS of 51% to 75% and $12.6 billion of assets with a PTRS above 75% (which
includes Prevnar/Prevenar 13 for Infant and Adult). All of these judgments and estimates can materially impact our results of
operations.
For IPR&D assets, the risk of failure has been factored into the fair value measure and there can be no certainty that these assets
ultimately will yield a successful product. The nature of the biopharmaceutical business is high-risk and requires that we invest in a
large number of projects as a mechanism for achieving a successful portfolio of approved products. As such, it is likely that many of
the early-stage IPR&D assets will become impaired and be written off at some time in the future.
•Other Matters, including Contingencies—In the ordinary course of business, Wyeth incurs liabilities for environmental, legal and tax
matters as well as guarantees/indemnifications. These matters can include contingencies. Generally, contingencies are required to be
measured at fair value, if the acquisition-date fair value of the asset or liability arising from a contingency can be determined. If the
acquisition-date fair value of the asset or liability cannot be determined, the asset or liability would be recognized at the acquisition date
if both of the following criteria were met: (i) it is probable that an asset existed or that a liability had been incurred at the acquisition date
and (ii) the amount of the asset or liability can be reasonably estimated.
OEnvironmental Matters—In the ordinary course of business, Wyeth incurs liabilities for environmental matters such as remediation
work, asset retirement obligations, and environmental guarantees and indemnifications. Virtually all liabilities for environmental
matters, including contingencies, have been measured at fair value and approximate $550 million as of the acquisition date.
OLegal Matters—Wyeth is involved in various legal proceedings, including product liability, patent, commercial, environmental,
antitrust matters and government investigations of a nature considered normal to its business, (see Notes to Consolidated Financial
Statements—Note 19. Legal Proceedings and Contingencies). Due to the uncertainty of the variables and assumptions involved in
assessing the possible outcomes of events related to these items, an estimate of fair value is not determinable. As such, these
contingencies have been measured under the same “probable and estimable” standard previously used by Wyeth. Liabilities for
legal contingencies approximate $650 million as of the acquisition date, which includes the recording of additional adjustments of
approximately $150 million for legal matters that we intend to resolve in a manner different from what Wyeth had planned or
intended. See below for items pending finalization.
OTax Matters—In the ordinary course of business, Wyeth incurs liabilities for income taxes. Income taxes are exceptions to both the
recognition and fair value measurement principles associated with the accounting for business combinations. Liabilities for income
tax continue to be measured under the benefit recognition model as previously used by Wyeth (see Notes to Consolidated Financial
Statements—Note 1P. Significant Accounting Policies: Income Tax Contingencies). Net liabilities for income taxes approximate
$24.8 billion as of the acquisition date, which includes $1.8 billion for uncertain tax positions. The net tax liability includes the
recording of additional adjustments of approximately $15.0 billion for the tax impact of fair value adjustments and $10.6 billion for
income tax matters that we intend to resolve in a manner different from what Wyeth had planned or intended. For example, because
we plan to repatriate certain overseas funds, we provided deferred taxes on Wyeth’s unremitted earnings, as well as on certain book/
tax basis differentials related to investments in certain foreign subsidiaries for which no taxes previously have been provided by
Wyeth as it was Wyeth’s intention to permanently reinvest those earnings and investments. See below for items pending finalization.
The recorded amounts are provisional and subject to change. The following items are subject to change:
•Amounts for intangibles, inventory and PP&E, pending finalization of valuation efforts for acquired intangible assets as well as the
completion of certain physical inventory counts and the confirmation of the physical existence and condition of certain property, plant
and equipment assets.
•Amounts for legal contingencies, pending the finalization of our examination and valuation of the portfolio of filed cases.
•Amounts for income tax assets, receivables and liabilities, pending the filing of Wyeth pre-acquisition tax returns and the receipt of
information from taxing authorities which may change certain estimates and assumptions used.
•The allocation of goodwill among reporting units.
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