Pfizer 2008 Annual Report Download - page 70

Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
E. Fair Value
Information about certain of our financial assets and liabilities follows:
FAIR VALUE(a)
AS OF
DECEMBER 31,
2008(MILLIONS OF DOLLARS) LEVEL 1 LEVEL 2 LEVEL 3
Financial assets carried at fair value:
Trading securities(b) $ 190 $— $ 190 $—
Available-for-sale debt securities(c) 30,061 — 30,061 —
Available-for-sale money market funds(d) 398 — 398 —
Available-for-sale equity securities, excluding money market
funds(d) 319 87 232 —
Derivative financial instruments(e) 1,259 — 1,259 —
Total $32,227 $87 $32,140 $—
Other financial assets:
Held-to-maturity debt securities carried at amortized cost(f) $ 2,349
Short-term loans carried at cost 824
Long-term loans carried at cost(b) 1,568
Non-traded equity securities carried at cost(b) 182
Total $ 4,923
Financial liabilities carried at fair value:
Derivative financial instruments(g) $ 1,243 $— $ 1,243 $—
Total $ 1,243 $— $ 1,243 $—
Financial liabilities carried at historical proceeds:
Short-term borrowings $ 9,320
Long-term debt, including adjustments for fair value hedges of
interest rate risk 7,963
Total $17,283
(a) Fair values are determined based on valuation techniques categorized as follows: Level 1 means the use of quoted prices for identical instruments
in active markets; Level 2 means the use of quoted prices for similar instruments in active markets or quoted prices for identical or similar
instruments in markets that are not active or are directly or indirectly observable; Level 3 means the use of unobservable inputs.
(b) Included in Long-term investments and loans.
(c) Included in Short-term investments ($20.9 billion) and Long-term investments and loans ($9.2 billion).
(d) Included in Short-term investments. Virtually all of these money market funds participate in the U.S. Treasury Department’s Temporary Guarantee
Program for Money Market Funds.
(e) Included in Taxes and other current assets ($404 million) and Other assets, deferred taxes and deferred charges ($855 million).
(f) Included in Cash and cash equivalents ($2.0 billion), Short-term investments ($355 million) and Long-term investments and loans ($14 million).
(g) Included in Other current liabilities ($1.1 billion) and Other noncurrent liabilities ($124 million).
The differences between the estimated fair values and carrying values of our financial assets and liabilities not carried at fair value
on a recurring basis were not significant as of December 31, 2008. See also Note 9A. Financial Instruments: Investments in Debt
and Equity Securities.
As of December 31, 2008, the following methods and assumptions were used to estimate the fair value of our financial assets and
liabilities:
•Trading securities—we use quoted market prices.
•Available-for-sale debt securities—we use a matrix-pricing model using observable market quotes and credit ratings.
•Available-for-sale money market funds—we use observable prices.
•Available-for-sale equity securities, excluding money market funds—we use pricing services that principally use a composite of
observable prices.
•Derivative financial instruments (assets and liabilities)—we use a matrix-pricing model using observable market quotes and credit
ratings.
•Held-to-maturity debt securities—we use a matrix-pricing model using observable market quotes and credit ratings.
•Short-term and long-term loans—we use discounted future cash flows using current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
•Non-traded equity securities—we apply the implied volatility associated with an observable biotech index to the carrying amount of our
portfolio.
•Short-term borrowings and long-term debt—we use a matrix-pricing model using observable market quotes and our own credit rating.
In addition, we have long-term receivables where fair value uses discounted future cash flows, using current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
68 2008 Financial Report