Pfizer 2015 Annual Report Download - page 17

Financial Review
Pfizer Inc. and Subsidiary Companies
16
2015 Financial Report
The following table illustrates the sensitivity of net periodic benefit costs and benefit obligations to a 10 basis point decline in our assumption
for the discount rate, holding all other assumptions constant (in millions, pre-tax):
Change
2016 Net Periodic
Benefit Costs
2015 Benefit
Obligations
Assumption Increase Increase
Discount rate 10 basis point decline $34 $411
The change in the discount rates used in measuring our plan obligations as of December 31, 2015 resulted in a decrease in the measurement
of our aggregate plan obligations by approximately $1.0 billion.
Contingencies
For a discussion about income tax contingencies, see Notes to Consolidated Financial Statements—Note 5D. Tax Matters: Tax Contingencies.
For a discussion about legal and environmental contingencies, guarantees and indemnifications, see Notes to Consolidated Financial
Statements—Note 17. Commitments and Contingencies.
Acquisition of Hospira
Description of Transaction
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 approximately $16.1 billion in cash ($15.7 billion, net of cash acquired).
Recording of Assets Acquired and Liabilities Assumed
Our acquisition of Hospira has been accounted for using the acquisition method of accounting, which generally requires that most assets
acquired and liabilities assumed be recorded at fair value as of the acquisition date. A single estimate of fair value results from a complex
series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. Our judgments used to determine
the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our
results of operations. For instance, the determination of asset lives can impact our results of operations as different types of assets will have
different useful lives and certain assets may even be considered to have indefinite useful lives.
For the provisional amounts recognized for the Hospira assets acquired and liabilities assumed as of the acquisition date, see Notes to
Consolidated Financial Statements––Note 2A. Acquisitions, Licensing Agreements, Collaborative Arrangements, Divestitures, Equity-Method
Investments and Cost-Method Investment: Acquisitions. The estimated values are not yet finalized and are subject to change, which could be
significant. We will finalize the amounts recognized as we obtain the information necessary to complete the analyses. We expect to finalize the
amounts of assets acquired and liabilities assumed as soon as possible but no later than one year from the acquisition date. The following
amounts are subject to change:
• Amounts for certain balances included in working capital (excluding inventories), certain investments and certain legal contingencies,
pending receipt of certain information that could affect provisional amounts recorded. We do not believe any adjustments for legal
contingencies will have a material impact on our consolidated financial statements.
• Amounts for intangibles, inventory and property, plant and equipment, 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 income tax assets, receivables and liabilities, pending the filing of Hospira pre-acquisition tax returns and the receipt of
information including but not limited to that from taxing authorities, which may change certain estimates and assumptions used.
Below is a summary of the methodologies and significant assumptions used in estimating the fair value of certain classes of assets and
liabilities of Hospira.
For financial instruments acquired from Hospira, our valuation approach was consistent with our valuation methodologies used for our legacy
Pfizer financial instruments. For additional information on the valuation of our financial instruments, see Notes to Consolidated Financial
Statements—Note 7. Financial Instruments.
Inventories—The fair value of acquired inventory ($1.9 billion) was determined as follows:
• Finished goods—Estimated selling price, less an estimate of costs to be incurred to sell the inventory, and an estimate of a reasonable
profit allowance for that selling effort.
• Work in process—Estimated selling price of an equivalent finished good, less an estimate of costs to be incurred to complete the work-in-
process inventory, an estimate of costs to be incurred to sell the inventory and an estimate of a reasonable profit allowance for those
manufacturing and selling efforts.
• Raw materials and supplies—Estimated cost to replace the raw materials and supplies.
The fair value of inventory will be recognized in our results of operations as the inventory is sold. Based on internal forecasts and estimates of
months of inventory on hand, we expect that the acquisition date inventory will be substantially sold and recognized in Cost of sales over a
weighted-average estimated period of approximately eight months after the acquisition date.