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Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
2012 Financial Report
83
The following table provides information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk:
Amount of
Gains/(Losses)
Recognized in OID(a), (b), (c)
Amount of
Gains/(Losses)
Recognized in OCL
(Effective Portion)(a), (d)
Amount of
Gains/(Losses)
Reclassified from
OCL into OID
(Effective Portion)(a), (d)
(MILLIONS OF DOLLARS)
Dec 31,
2012
Dec 31,
2011
Dec 31,
2012
Dec 31,
2011
Dec 31,
2012
Dec 31,
2011
Derivative Financial Instruments in Cash
Flow Hedge Relationships:
Foreign currency swaps $—$—$676 $(496)$257 $(243)
Derivative Financial Instruments in Net
Investment Hedge Relationships:
Foreign currency swaps (4)7200 (1,059) ——
Derivative Financial Instruments Not
Designated as Hedges:
Foreign currency forward-exchange
contracts (61) (260)————
Foreign currency swaps (7)106 ————
Non-Derivative Financial Instruments in Net
Investment Hedge Relationships:
Foreign currency short-term borrowings ———940 ——
Foreign currency long-term debt ——88 (41)——
All other net 715 5(4) 64
$(65)$(132)$969 $(660)$263 $(239)
(a) OID = Other (income)/deductions—net, included in Other deductions—net in the consolidated statements of income. OCL = Other comprehensive loss,
included in the consolidated statements of comprehensive income.
(b) Also includes gains and losses attributable to the hedged risk in fair value hedge relationships.
(c) There was no significant ineffectiveness for any period presented.
(d) 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 loss––Unrealized holding 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 portion is included in Other comprehensive
loss––foreign currency translation adjustments.
For information about the fair value of our derivative financial instruments, and the impact on our consolidated balance sheets, see Note 7A.
Financial Instruments: Selected Financial Assets and Liabilities above. 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. As of December 31, 2012, the aggregate fair value of these derivative instruments that are in a net liability position is $451
million, for which we have posted collateral of $424 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, 2012, we would have been required to post an additional $58 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, 2012, we had $2.9 billion due from a well-
diversified, highly rated group (S&P ratings of mostly A+ or better) of bank counterparties around the world. See Note 7B. Financial
Instruments: Investments in Debt Securities above for details about 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, 2012, we received cash collateral of $660
million against various counterparties. The collateral primarily supports the approximate fair value of our derivative contracts. With respect to
the collateral received, which is included in Cash and cash equivalents, the obligations are reported in Short-term borrowings, including
current portion of long-term debt.