Pfizer 2011 Annual Report Download - page 81

Download and view the complete annual report

Please find page 81 of the 2011 Pfizer annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 117

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
(b) Instrument is callable by us at any time at the greater of 100% of the principal amount or the sum of the present values of the remaining scheduled
payments of principal and interest discounted at a comparable government bond rate plus 0.20% plus, in each case, accrued and unpaid interest.
(c) At December 31, 2011, the note was called.
(d) Contains debt issuances with a weighted-average maturity of approximately 5 years.
(e) Contains debt issuances with a weighted-average maturity of approximately 18 years.
(f) Contains debt issuances with a weighted-average maturity of approximately 4 years.
Long-term debt outstanding as of December 31, 2011 matures in the following years:
(MILLIONS OF DOLLARS) 2013 2014 2015 2016
AFTER
2016 TOTAL
Maturities $3,964 $3,987 $3,074 $4,500 $19,406 $34,931
In March 2007, we filed a securities registration statement with the SEC. The registration statement was filed under the automatic
shelf registration process available to “well–known seasoned issuers” and expired in March 2010. On March 24, 2009, in order to
partially finance our acquisition of Wyeth, we issued $13.5 billion of senior unsecured notes under this registration statement. On
June 3, 2009, also in order to partially finance our acquisition of Wyeth, we issued approximately $10.5 billion of senior unsecured
notes in a private placement pursuant to Regulation S under the Securities Act of 1933, as amended (Securities Act of 1933). The
notes issued on June 3, 2009 have not been and will not be registered under the Securities Act of 1933 and, subject to certain
exceptions, may not be sold, offered or delivered within the U.S. to, or for the account or benefit of, U.S. persons.
E. Derivative Financial Instruments and Hedging Activities
Foreign Exchange Risk
A significant portion of our revenues, earnings and net investments in foreign affiliates is exposed to changes in foreign exchange
rates. We seek to manage our foreign exchange risk, in part, through operational means, including managing expected same-
currency revenues in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending
on market conditions, foreign exchange risk also is managed through the use of derivative financial instruments and foreign currency
debt. These financial instruments serve to protect net income and net investments against the impact of the translation into U.S.
dollars of certain foreign exchange-denominated transactions. The aggregate notional amount of foreign exchange derivative
financial instruments hedging or offsetting foreign currency exposures is $48.1 billion. The derivative financial instruments primarily
hedge or offset exposures in the euro, Japanese yen and U.K. pound. The maximum length of time over which we are hedging
future foreign exchange cash flows relates to our $2.3 billion U.K. pound debt maturing in 2038.
All derivative contracts used to manage foreign currency risk are measured at fair value and are reported as assets or liabilities on
the consolidated balance sheet. Changes in fair value are reported in earnings or in Other comprehensive income/(loss), depending
on the nature and purpose of the financial instrument (offset or hedge relationship) and the effectiveness of the hedge relationships,
as follows:
We record in Other comprehensive income/(loss) the effective portion of the gains or losses on foreign currency forward-exchange
contracts and foreign currency swaps that are designated as cash flow hedges and reclassify those amounts, as appropriate, into
earnings in the same period or periods during which the hedged transaction affects earnings.
We recognize the gains and losses on forward-exchange contracts and foreign currency swaps that are used to offset the same foreign
currency assets or liabilities immediately into earnings along with the earnings impact of the items they generally offset. These contracts
essentially take the opposite currency position of that reflected in the month-end balance sheet to counterbalance the effect of any
currency movement.
We recognize the gain and loss impact on foreign currency swaps designated as hedges of our net investments in earnings 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.
We record in Other comprehensive income/(loss) the foreign exchange gains and losses related to foreign exchange-denominated debt
designated as a hedge of our net investments in foreign subsidiaries and reclassify those amounts into earnings upon the sale or
substantial liquidation of our net investments.
Any ineffectiveness is recognized immediately into earnings. There was no significant ineffectiveness for any period presented.
Interest Rate Risk
Our interest-bearing investments, loans and borrowings are subject to interest rate risk. We seek to invest and loan primarily on a
short-term or variable-rate basis; however, in light of current market conditions, we currently borrow primarily on a long-term, fixed-
rate basis. From time to time, depending on market conditions, we will change the profile of our outstanding debt by entering into
derivative financial instruments like interest rate swaps.
We entered into derivative financial instruments to hedge or offset the fixed interest rates on the hedged item, matching the amount
and timing of the hedged item. The aggregate notional amount of interest rate derivative financial instruments is $10.6 billion. The
derivative financial instruments primarily hedge U.S. dollar and euro fixed-rate debt.
80 2011 Financial Report