Pfizer 2008 Annual Report Download - page 43

Financial Review
Pfizer Inc and Subsidiary Companies
•Growth in costs and expenses;
•Changes in our product, segment and geographic mix;
•Our ability and Wyeth’s ability to satisfy the conditions to closing our merger agreement; and
•Impact of acquisitions, divestitures, restructurings, product withdrawals and other unusual items, including our ability to realize the
projected benefits of our proposed acquisition of Wyeth and of our cost-reduction initiatives.
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans
and assumptions. Achievement of anticipated results is subject to substantial risks, uncertainties and inaccurate assumptions.
Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could
vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider
forward-looking statements.
We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or
otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and
10-K reports to the Securities and Exchange Commission.
Certain risks, uncertainties and assumptions are discussed here and under the heading entitled “Risk Factors” in Item 1A of our
Annual Report on Form 10-K for the year ended December 31, 2008, which will be filed in February 2009. We note these factors for
investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to
predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or
uncertainties.
This report may include discussion of certain clinical studies relating to various in-line products and/or product candidates. These
studies typically are part of a larger body of clinical data relating to such products or product candidates, and the discussion herein
should be considered in the context of the larger body of data.
Financial Risk Management
The overall objective of our financial risk management program is to seek to minimize the impact of foreign exchange rate
movements and interest rate movements on our earnings. We manage these financial exposures through operational means and by
using various financial instruments. These practices may change as economic conditions change.
Foreign Exchange Risk—A significant portion of our revenues and earnings is exposed to changes in foreign exchange rates. We
seek to manage our foreign exchange risk in part through operational means, including managing same currency revenues in
relation to same currency costs, and same currency assets in relation to same currency liabilities.
Foreign exchange risk is also managed through the use of foreign currency forward-exchange contracts. These contracts are used
to offset the potential earnings effects from mostly intercompany short-term foreign currency assets and liabilities that arise from
operations. Foreign currency swaps are used to offset the potential earnings effects from foreign currency debt. We also use foreign
currency forward-exchange contracts and foreign currency swaps to hedge the potential earnings effects from short and long-term
foreign currency investments, third-party loans and intercompany loans.
In addition, under certain market conditions, we protect against possible declines in the reported net investments of our Japanese
yen, Swedish krona and certain euro functional-currency subsidiaries. In these cases, we use currency swaps or foreign currency
debt.
Our financial instrument holdings at year-end were analyzed to determine their sensitivity to foreign exchange rate changes. The fair
values of these instruments were determined using various methodologies. For additional details, see Notes to Consolidated
Financial Statements—Note 9E. Financial Instruments: Fair Value. In this sensitivity analysis, we assumed that the change in one
currency’s rate relative to the U.S. dollar would not have an effect on other currencies’ rates relative to the U.S. dollar; all other
factors were held constant.
If the dollar were to devalue against all other currencies by 10%, the expected adverse impact on net income related to our financial
instruments would be immaterial. For additional details, see Notes to Consolidated Financial Statements—Note 9D. Financial
Instruments: Derivative Financial Instruments and Hedging Activities.
Interest Rate Risk—Our U.S. dollar interest-bearing investments, loans and borrowings are subject to interest rate risk. We are also
subject to interest rate risk on euro debt, investments and currency swaps, Swedish krona currency swaps, and Japanese yen short
and long-term borrowings and currency swaps. 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 such as interest rate swaps.
Our financial instrument holdings at year-end were analyzed to determine their sensitivity to interest rate changes. The fair values of
these instruments were determined using various methodologies. For additional details, see Notes to Consolidated Financial
Statements—Note 9E. Financial Instruments: Fair Value. In this sensitivity analysis, we used a one hundred basis point parallel shift
in the interest rate curve for all maturities and for all instruments; all other factors were held constant.
If there were a one hundred basis point increase in interest rates, the expected adverse impact on net income related to our financial
instruments would be immaterial.
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