Pfizer 2013 Annual Report Download - page 50

Financial Review
Pfizer Inc. and Subsidiary Companies
2013 Financial Report 49
those related to our research and development organization, and of the internal separation of our commercial operations into
three new global businesses effective January 1, 2014.
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 and our
other filings with the SEC.
Certain risks, uncertainties and assumptions are discussed here and under the heading entitled “Risk Factors” in Part I, Item 1A. of our Annual
Report on Form 10-K for the year ended December 31, 2013. 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 includes 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. In addition, clinical trial data are subject to differing interpretations, and, even when we view data as
sufficient to support the safety and/or effectiveness of a product candidate or a new indication for an in-line product, regulatory authorities may
not share our views and may require additional data or may deny approval altogether.
Financial Risk Management
The objective of our financial risk management framework is to reduce the variability of our earnings and interest rates. We manage these
financial exposures through operational means and through the use of third party instruments. Our specific techniques and practices might
change in response to changing economic conditions.
Foreign Exchange Risk
We operate globally and, as such, we are subject to foreign exchange risk in our commercial operations, as well as in our financial assets
(investments) and liabilities (borrowings). Our net investments in foreign subsidiaries are also subject to currency risk.
On the commercial side, a significant portion of our revenues and earnings is exposed to changes in foreign exchange rates. See the "Our
Operating Environment—The Global Economic Environment" section of this Financial Review for the key currencies in which we operate. 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. Where foreign exchange risk cannot be mitigated via
operational means, we may use foreign currency forward-exchange contracts and/or foreign currency swaps to manage that risk.
With respect to our financial assets and liabilities, our primary foreign exchange exposure arises predominantly from short-term and long-term
intercompany receivables and payables, and, to a lesser extent, from short-term and long-term investments and debt, where the assets and/or
liabilities are denominated in currencies other than the functional currency of the business entity.
In addition, under certain market conditions, we may seek to protect against possible declines in the reported net investments of our foreign
business entities. In these cases, we may use foreign currency swaps and/or foreign currency debt.
For details about these and other financial instruments, including fair valuation methodologies, see Notes to Consolidated Financial
Statements—Note 7A. Financial Instruments: Selected Financial Assets and Liabilities.
The fair values of our financial instrument holdings are analyzed at year-end to determine their sensitivity to foreign exchange rate changes. In
this sensitivity analysis, holding all other assumptions constant and assuming that a change in one currency’s rate relative to the U.S. dollar
would not have any effect on another currency’s rates relative to the U.S. dollar, if the dollar were to appreciate against all other currencies by
10%, as of December 31, 2013, the expected impact on our financial statements would not be significant.
Interest Rate Risk
We are subject to interest rate risk on our investments and on our borrowings. We manage interest rate risk in the aggregate, while focusing
on Pfizer’s immediate and intermediate liquidity needs.
With respect to our investments, we strive to maintain a predominantly floating-rate basis position, but our strategy may change based on
prevailing market conditions. Our floating-rate assets are subject to the risk that short-term interest rates may fall and, as a result, the
investments would generate less interest income. Fixed-rate investments provide a known amount of interest income regardless of a change
in interest rates. We sometimes use interest rate swaps in our financial investment portfolio.
With respect to our long-term borrowings, we strive to maintain a predominantly floating-rate basis position, but here too, we may change our
strategy depending upon prevailing market conditions. We generally issue debt with a fixed rate, and then use interest rate swaps to convert it
into floating-rate debt as we deem appropriate in the circumstances. This effective floating rate debt serves to offset some of the interest rate
risks associated with our short-term and floating-rate investments.