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Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Information about gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk is as follows:
GAINS/(LOSSES)
YEARS ENDED DECEMBER 31,
(MILLIONS OF DOLLARS) 2010 2009
Derivative Financial Instruments in Fair Value Hedge Relationships
Interest rate swaps
Recognized in OID(a), (b) $–– $ (6)
Foreign currency swaps
Recognized in OID(a), (b) –– (3)
Derivative Financial Instruments in Cash Flow Hedge Relationships
U.S. Treasury interest rate locks
Recognized in OID(a) $–– $ (11)
Recognized in OCI(a), (c) –– (16)
Reclassified from OCI to OID(a), (c) –– —
Foreign currency swaps
Recognized in OID(a) –– —
Recognized in OCI(a), (c) (1,054) 305
Reclassified from OCI to OID(a), (c) (704) 281
Foreign currency forward exchange contracts
Recognized in OID(a) –– —
Recognized in OCI(a), (c) (6) 6
Reclassified from OCI to OID(a), (c) 218
Derivative Financial Instruments in Net Investment Hedge Relationships
Foreign currency swaps
Recognized in OID(a) $ (1) $ (1)
Recognized in OCI(a), (c) (97) 17
Derivative Financial Instruments Not Designated as Hedges
Foreign currency swaps
Recognized in OID(a) $20 $22
Foreign currency forward-exchange contracts
Recognized in OID(a) (454) (418)
Non-Derivative Financial Instruments in Net Investment Hedge Relationships
Foreign currency short-term borrowings
Recognized in OID(a) $–– $—
Recognized in OCI(a), (c) (241) 54
Foreign currency long-term debt
Recognized in OID(a) –– ––
Recognized in OCI(a), (c) (91) 52
(a) OID = Other (income)/deductions––net. OCI = Other comprehensive income/(loss), included in the balance sheet account Accumulated other
comprehensive (loss)/income.
(b) Also includes gains and losses attributable to the hedged risk.
(c) Amounts presented represent the effective portion of the gain or loss. For derivative financial instruments in cash flow hedge relationships, the
effective portion is included in Other comprehensive income/(loss)—Net unrealized gains/(losses) on derivative financial instruments. For derivative
financial instruments in net investment hedge relationships and for foreign currency debt designated as hedging instruments, the effective portionis
included in Other comprehensive income/(loss)––Currency translation adjustment and other.
For information about the fair value of our derivative financial instruments, and the impact on our consolidated balance sheet, see
Note 9A. Financial Instruments: Selected Financial Assets and Liabilities. Certain of our derivative instruments are covered by
associated credit-support agreements that have credit-risk-related contingent features designed to reduce our counterparties’
exposure to our risk of defaulting on amounts owed. The aggregate fair value of these derivative instruments that are in a liability
position is $628 million, for which we have posted collateral of $452 million in the normal course of business. These features include
the requirement to pay additional collateral in the event of a downgrade in our debt ratings. If there had been a downgrade to below
an A rating by S&P or the equivalent rating by Moody’s Investors Service, on December 31, 2010, we would have been required to
post an additional $194 million of collateral to our counterparties. The collateral advanced receivables are reported in Cash and cash
equivalents.
F. Credit Risk
On an ongoing basis, we review the creditworthiness of counterparties to our foreign exchange and interest rate agreements and do
not expect to incur a significant loss from failure of any counterparties to perform under the agreements. There are no significant
concentrations of credit risk related to our financial instruments with any individual counterparty. As of December 31, 2010, we had
$2.7 billion due from a well-diversified, highly rated group (S&P ratings of primarily A+ or better) of bank counterparties around the
world. See Note 9B. Financial Instruments: Investment in Debt and Equity Securities for a distribution of our investments.
In general, there is no requirement for collateral from customers. However, derivative financial instruments are executed under master
netting agreements with financial institutions. These agreements contain provisions that provide for the ability for collateral payments,
depending on levels of exposure, our credit rating and the credit rating of the counterparty. As of December 31, 2010, we received cash
collateral of $300 million against various counterparties. The collateral primarily supports the approximate fair value of our derivative
contracts. The collateral received obligations are reported in Short-term borrowings, including current portion of long-term debt.
80 2010 Financial Report