Pfizer 2005 Annual Report Download - page 53

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52 2005 Financial Report
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
PRIMARY NOTIONAL AMOUNT
BALANCE SHEET HEDGE (MILLIONS OF DOLLARS) MATURITY______________________________
INSTRUMENT(a) CAPTION(b) TYPE(c) HEDGED OR OFFSET ITEM 2005 2004 DATE
Forward Prepaid CF Euro available-for-sale investments $7,371 $ — 2006
Forward OCL CF Euro available-for-sale investments —3,415 2005
Forward OCL — Short-term foreign currency assets and liabilities (d) 6,509 — 2006
Forward OCL — Short-term foreign currency assets and liabilities (d) —6,737 2005
ST yen borrowings STB NI Yen net investments 1,620 — 2006
ST yen borrowings STB NI Yen net investments —1,854 2005
Swaps OCL NI Euro net investments 1,233 — 2006
Forward Prepaid CF Danish krone available-for-sale investments 810 — 2006
Forward OCL CF Danish krone available-for-sale investments —551 2005
Swaps ONCL CF U.K. pound intercompany loan 717 793 2006
Swaps OCL NI Yen net investments 662 — 2006
Swaps ONCL NI Yen net investments —758 2006
LT yen debt LTD NI Yen net investments 512 585 2008
Forward OCL CF Swedish krona available-for-sale investments 486 — 2006
Forward OCL CF Swedish krona available-for-sale investments —194 2005
(a) Forward = Forward-exchange contracts; ST yen borrowings = Short-term yen borrowings; LT yen debt = Long-term yen debt
(b) The primary balance sheet caption indicates the financial statement classification of the fair value amount associated with the financial
instrument used to hedge or offset foreign exchange risk. The abbreviations used are defined as follows: Prepaid = Prepaid expenses and taxes;
STB = Short-term borrowings, including current portion of long-term debt; OCL = Other current liabilities; LTD = Long-term debt; and ONCL =
Other noncurrent liabilities.
(c) CF = Cash flow hedge; NI = Net investment hedge
(d) Forward-exchange contracts used to offset short-term foreign currency assets and liabilities were primarily for intercompany transactions in
euros, U.K. pounds, Australian dollars, Canadian dollars, Swedish krona, Japanese yen and Swiss franc for the year ended December 31, 2005
and, euros, U.K. pounds, Swedish krona, Japanese yen and Australian dollars for the year ended December 31, 2004.
We entered into financial instruments to hedge or offset by the
same currency an appropriate portion of the currency risk and the
timing of the hedged or offset item. At December 31, 2005 and
2004, the more significant financial instruments employed to
manage foreign exchange risk follow:
All derivative contracts used to manage foreign currency risk are
measured at fair value and reported as assets or liabilities on the
balance sheet. Changes in fair value are reported in earnings or
deferred, depending on the nature and effectiveness of the
offset or hedging relationship, as follows:
•We recognize the earnings impact of foreign currency swaps
and foreign currency forward-exchange contracts designated
as cash flow hedges in Other (income)/deductions—net upon
the recognition of the foreign exchange gain or loss on the
translation to U.S. dollars of the hedged items.
•We recognize the earnings impact of foreign currency forward-
exchange contracts that are used to offset foreign currency
assets or liabilities in Other (income)/deductions—net during the
terms of the contracts, along with the earnings impact of the
items they generally offset.
•We recognize the earnings impact of foreign currency swaps
designated as a hedge of our net investments in Other
(income)/deductions—net in three ways: over time—for the
periodic net swap payments; immediately—to the extent of any
change in the difference between the foreign exchange spot
rate and forward rate; and upon sale or substantial liquidation
of our net investments—to the extent of change in the foreign
exchange spot rates.
Any ineffectiveness in a hedging relationship is recognized
immediately into earnings. There was no significant ineffectiveness
in 2005, 2004 or 2003.
Interest Rate Risk—Our interest-bearing investments, loans and
borrowings are subject to interest rate risk. We invest, loan and
borrow primarily on a short-term or variable-rate basis. From
time to time, depending on market conditions, we will fix interest
rates either through entering into fixed-rate investments and
borrowings or through the use of derivative financial instruments.