Pfizer 2015 Annual Report Download - page 124

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
2015 Financial Report
123
B. Guarantees and Indemnifications
In the ordinary course of business and in connection with the sale of assets and businesses, we often indemnify our counterparties against
certain liabilities that may arise in connection with the transaction or related to activities prior to the transaction. These indemnifications
typically pertain to environmental, tax, employee and/or product-related matters and patent-infringement claims. If the indemnified party were
to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications
are generally subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not paid
significant amounts under these provisions and, as of December 31, 2015, recorded amounts for the estimated fair value of these
indemnifications were not significant.
Pfizer Inc. has also guaranteed the long-term debt of certain companies that it acquired and that now are subsidiaries of Pfizer.
C. Purchase Commitments
As of December 31, 2015, we had agreements totaling $3.7 billion to purchase goods and services that are enforceable and legally binding
and include amounts relating to advertising, information technology services, employee benefit administration services, and potential
milestone payments deemed reasonably likely to occur.
Note 18. Segment, Geographic and Other Revenue Information
A. Segment Information
We manage our commercial operations through two distinct businesses: an Innovative Products business and an Established Products
business. The Innovative Products business is composed of two operating segments, each of which has been led by a single manager in 2015
and 2014––the Global Innovative Pharmaceutical segment (GIP) and the Global Vaccines, Oncology and Consumer Healthcare segment
(VOC). Effective February 8, 2016, the Innovative Products business is led by a single manager. The Established Products business consists
of the Global Established Pharmaceutical segment (GEP), which is also led by a single manager. Each operating segment has responsibility
for its commercial activities and for certain IPR&D projects for new investigational products and additional indications for in-line products that
generally have achieved proof of concept. Each business has a geographic footprint across developed and emerging markets. As our
operations were not managed under the new structure until the beginning of fiscal 2014, certain costs and expenses could not be directly
attributed to one of the new operating segments. As a result, our operating segment results for 2013 include allocations. The amounts subject
to allocation methods in 2013 were approximately $2.1 billion of selling, informational and administrative expenses and approximately $800
million of research and development expenses:
• The selling, informational and administrative expenses were allocated using proportional allocation methods based on associated selling
costs, revenues or product-specific costs, as applicable.
• The research and development expenses were allocated based on product-specific R&D costs or revenue metrics, as applicable.
Management believes that the allocations are reasonable.
We regularly review our segments and the approach used by management to evaluate performance and allocate resources.
Operating Segments
Some additional information about each business and operating segment follows:
Innovative Products Business Established Products Business
Global Innovative Pharmaceutical
segment:
GIP focuses on developing and
commercializing novel, value-creating
medicines that significantly improve
patients’ lives. Key therapeutic areas
include inflammation/immunology,
cardiovascular/metabolic, neuroscience/
pain and rare diseases and include
leading brands, such as Xeljanz, Eliquis,
Lyrica (U.S. and Japan), Enbrel (outside
the U.S. and Canada) and Viagra (U.S.
and Canada).
Global Vaccines, Oncology and Consumer
Healthcare segment:
VOC focuses on the development and
commercialization of vaccines and products for
oncology and consumer healthcare. Consumer
Healthcare manufactures and markets several
well known, over-the-counter (OTC) products.
Each of the three businesses in VOC operates
as a separate, global business, with distinct
specialization in terms of the science and
market approach necessary to deliver value to
consumers and patients.
Global Established Pharmaceutical
segment:
GEP includes legacy brands that have
lost or will soon lose market exclusivity in
both developed and emerging markets,
branded generics, generic sterile
injectable products, biosimilars and
infusion systems.
Additionally, GEP has the knowledge and resources within R&D to develop small molecules, including injectables, and biosimilars. On
September 3, 2015, we acquired Hospira, and its commercial operations are now included within GEP. Commencing from the acquisition date,
and in accordance with our domestic and international reporting periods, our consolidated statement of income, primarily GEP’s operating
results, for the year ended December 31, 2015 reflect four months of legacy Hospira U.S. operations and three months of legacy Hospira
international operations. See Note 2A for additional information.
Our chief operating decision maker uses the revenues and earnings of the three operating segments, among other factors, for performance
evaluation and resource allocation.