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Financial Instruments
 6 Months Ended
Jun. 29, 2014
Financial Instruments [Abstract]  
Financial Instruments
Financial Instruments

A. Selected Financial Assets and Liabilities
The following table provides additional information about certain of our financial assets and liabilities:
(MILLIONS OF DOLLARS)
 
June 29,
2014

 
December 31,
2013

Selected financial assets measured at fair value on a recurring basis(a)
 
 
 
 
Trading securities(b)
 
$
105

 
$
126

Available-for-sale debt securities(c)
 
36,189

 
34,899

Available-for-sale money market funds
 
1,474

 
945

Available-for-sale equity securities, excluding money market funds(c)
 
306

 
356

Derivative financial instruments in receivable positions(d):
 
 

 
 

Interest rate swaps
 
555

 
468

Foreign currency swaps
 
637

 
871

Foreign currency forward-exchange contracts
 
122

 
172

 
 
39,388

 
37,837

Other selected financial assets
 
 

 
 

Held-to-maturity debt securities, carried at amortized cost(c), (e)
 
9,001

 
9,139

Private equity securities, carried at equity-method or at cost(e), (f)
 
2,171

 
2,270

 
 
11,172

 
11,409

Total selected financial assets
 
$
50,560

 
$
49,246

Selected financial liabilities measured at fair value on a recurring basis(a)
 
 

 
 

Derivative financial instruments in a liability position(g):
 
 

 
 

Interest rate swaps
 
$
90

 
$
301

Foreign currency swaps
 
182

 
110

Foreign currency forward-exchange contracts
 
119

 
219

 
 
391

 
630

Other selected financial liabilities(h)
 
 

 
 

Short-term borrowings, carried at historical proceeds, as adjusted(e)
 
5,561

 
6,027

Long-term debt, carried at historical proceeds, as adjusted(i), (j)
 
32,267

 
30,462

 
 
37,828

 
36,489

Total selected financial liabilities
 
$
38,219

 
$
37,119

(a) 
We use a market approach in valuing financial instruments on a recurring basis. For additional information, see Note 1C. Basis of Presentation and Significant Accounting Policies: Fair Value. All of our financial assets and liabilities measured at fair value on a recurring basis use Level 2 inputs in the calculation of fair value, except less than 1% that use Level 1 inputs.
(b) 
Trading securities are held in trust for benefits attributable to the former Pharmacia Savings Plus Plan.
(c) 
Gross unrealized gains and losses are not significant.
(d) 
Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency swaps with fair values of $14 million and foreign currency forward-exchange contracts with fair values of $61 million as of June 29, 2014; and interest rate swaps with fair values of $38 million, foreign currency swaps with fair values of $30 million and foreign currency forward-exchange contracts with fair values of $66 million as of December 31, 2013.
(e) 
The differences between the estimated fair values and carrying values of held-to-maturity debt securities, private equity securities at cost and short-term borrowings not measured at fair value on a recurring basis were not significant as of June 29, 2014 or December 31, 2013. The fair value measurements of our held-to-maturity debt securities and our short-term borrowings are based on Level 2 inputs, using a market approach. The fair value measurements of our private equity securities at cost are based on Level 3 inputs.
(f) 
Our private equity securities represent investments in the life sciences sector.
(g) 
Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency swaps with fair values of $90 million and foreign currency forward-exchange contracts with fair values of $57 million as of June 29, 2014; and foreign currency swaps with fair values of $76 million and foreign currency forward-exchange contracts with fair values of $77 million as of December 31, 2013.
(h) 
Some carrying amounts may include adjustments for discount or premium amortization or for the effect of hedging the interest rate fair value risk associated with certain financial liabilities by interest rate swaps.
(i) 
Includes foreign currency debt with fair values of $669 million as of June 29, 2014 and $651 million as of December 31, 2013, which are used as hedging instruments.
(j) 
The fair value of our long-term debt (not including the current portion of long-term debt) is $37.0 billion as of June 29, 2014 and $35.1 billion as of December 31, 2013. The fair value measurements for our long-term debt are based on Level 2 inputs, using a market approach. Generally, the difference between the fair value of our long-term debt and the amount reported on the condensed consolidated balance sheet is due to a decline in relative market interest rates since the debt issuance.
The following table provides the classification of these selected financial assets and liabilities in the condensed consolidated balance sheets:
(MILLIONS OF DOLLARS)
 
June 29,
2014

 
December 31,
2013

Assets
 
 
 
 
Cash and cash equivalents
 
$
1,430

 
$
1,104

Short-term investments
 
30,648

 
30,225

Long-term investments
 
17,168

 
16,406

Other current assets(a)
 
203

 
286

Other noncurrent assets(b)
 
1,111

 
1,225

 
 
$
50,560

 
$
49,246

Liabilities
 
 

 
 

Short-term borrowings, including current portion of long-term debt
 
$
5,561

 
$
6,027

Other current liabilities(c)
 
215

 
303

Long-term debt
 
32,267

 
30,462

Other noncurrent liabilities(d)
 
176

 
327

 
 
$
38,219

 
37,119


(a) 
As of June 29, 2014, derivative instruments at fair value include interest rate swaps ($73 million), foreign currency swaps ($8 million) and foreign currency forward-exchange contracts ($122 million) and, as of December 31, 2013, include interest rate swaps ($90 million), foreign currency swaps ($24 million) and foreign currency forward-exchange contracts ($172 million).
(b) 
As of June 29, 2014, derivative instruments at fair value include interest rate swaps ($482 million) and foreign currency swaps ($629 million) and, as of December 31, 2013, include interest rate swaps ($378 million) and foreign currency swaps ($847 million).
(c) 
As of June 29, 2014, derivative instruments at fair value include interest rate swaps ($2 million), foreign currency swaps ($94 million) and foreign currency forward-exchange contracts ($119 million) and, as of December 31, 2013, include foreign currency swaps ($84 million) and foreign currency forward-exchange contracts ($219 million).
(d) 
As of June 29, 2014, derivative instruments at fair value include interest rate swaps ($88 million) and foreign currency swaps ($88 million) and, as of December 31, 2013, include interest rate swaps ($301 million) and foreign currency swaps ($26 million).

There were no significant impairments of financial assets recognized in any period presented.

B. Investments in Debt Securities
The following table provides the contractual maturities of the available-for-sale and held-to-maturity debt securities:
 
 
Years
 
June 29, 2014

(MILLIONS OF DOLLARS)
 
Within 1

 
Over 1
to 5

 
Over 5
to 10

 
Over 10

 
Total

Available-for-sale debt securities
 
 
 
 
 
 
 
 
 
 
Western European, Japanese and other government debt(a)
 
$
12,844

 
$
2,406

 
$
—

 
$
1

 
$
15,251

Corporate debt(b)
 
2,306

 
5,018

 
1,581

 
265

 
9,170

U.S. government debt
 
2,151

 
782

 
10

 
—

 
2,943

Western European, Scandinavian, Australian and other government agency debt(a)
 
1,965

 
367

 
—

 
—

 
2,332

Federal Home Loan Mortgage Corporation and Federal National Mortgage Association asset-backed securities
 
—

 
1,924

 
—

 
—

 
1,924

Reverse repurchase agreements(c)
 
1,767

 
—

 
—

 
—

 
1,767

Supranational debt(a)
 
638

 
1,040

 
—

 
—

 
1,678

Government National Mortgage Association and other U.S. government guaranteed asset-backed securities
 
18

 
775

 
—

 
331

 
1,124

Held-to-maturity debt securities
 
 
 
 
 
 

 
 
 
 

Western European, Scandinavian and other government debt(a)
 
5,547

 
—

 
—

 
—

 
5,547

Western European, Scandinavian and other government agency debt,(a) time deposits and other
 
3,368

 
63

 
23

 
—

 
3,454

Total debt securities
 
$
30,604

 
$
12,375

 
$
1,614

 
$
597

 
$
45,190

(a) 
Issued by governments, government agencies or supranational entities, as applicable, all of which are investment-grade.
(b) 
Issued by a diverse group of corporations, largely consisting of financial institutions, virtually all of which are investment-grade.
(c) 
Involving U.S. securities.

C. Short-Term Borrowings

Short-term borrowings include amounts for commercial paper of $3.0 billion as of December 31, 2013. There were no commercial paper borrowings as of June 29, 2014.

D. Long-Term Debt

On May 15, 2014, we completed a public offering of $4.5 billion aggregate principal amount of senior unsecured notes.
The following table provides the components of the senior unsecured long-term debt issued in the second quarter of 2014:

(MILLIONS OF DOLLARS)
 
Maturity Date
 
As of
June 29,
2014

 
 
 
 
 
1.1% Notes(a), (b)
 
May 2017
 
$
1,000

2.1% Notes(a), (b)
 
May 2019
 
1,500

3.4% Notes(a), (b)
 
May 2024
 
1,000

4.4% Notes(a), (b)
 
May 2044
 
500

Three-month U.S. dollar London Interbank Offering Rate (LIBOR) plus 0.15% Notes(c)
 
May 2017
 
500

Total long-term debt issued in the second quarter of 2014
 
 
 
$
4,500

(a) 
Interest is payable semi-annually beginning November 15, 2014.
(b) 
The notes are redeemable, in whole or in part, at any time at Pfizer's option, at a redemption price equal to the greater of 100% of the principal amount of the notes being redeemed on the redemption date, or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus an incremental percentage, depending on the issuance; plus, in each case, accrued and unpaid interest.
(c) 
Interest is payable quarterly beginning August 15, 2014.
The following table provides the maturity schedule of our Long-term debt outstanding as of June 29, 2014:
(MILLIONS OF DOLLARS)
 
2015

 
2016

 
2017

 
2018

 
After 2018

 
TOTAL

Maturities
 
$
—

 
$
4,394

 
$
4,136

 
$
2,412

 
$
21,325

 
$
32,267



E. Derivative Financial Instruments and Hedging Activities

Foreign Exchange Risk

As of June 29, 2014, the aggregate notional amount of foreign exchange derivative financial instruments hedging or offsetting foreign currency exposures is $40.0 billion. The derivative financial instruments primarily hedge or offset exposures in the euro, Japanese yen, U.K. pound and Swiss franc. The maximum length of time over which we are hedging future foreign exchange cash flow relates to our $2.6 billion U.K. pound debt maturing in 2038.

Interest Rate Risk

As of June 29, 2014, the aggregate notional amount of interest rate derivative financial instruments is $16.6 billion. The derivative financial instruments primarily hedge U.S. dollar and euro fixed-rate debt.

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 OCI
(Effective Portion)(a), (d)
 
Amount of
Gains/(Losses)
Reclassified from
OCI into OID
(Effective Portion)(a), (d)
(MILLIONS OF DOLLARS)
 
June 29,
2014

 
June 30,
2013

 
June 29,
2014

 
June 30,
2013

 
June 29,
2014

 
June 30,
2013

Three Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Financial Instruments in Cash Flow Hedge Relationships:
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency swaps
 
$
—

 
$
—

 
$
(3
)
 
$
268

 
$
2

 
$
131

Foreign currency forward-exchange contracts
 
—

 
—

 
4

 
261

 
(76
)
 
93

 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Financial Instruments in Net Investment Hedge Relationships:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency swaps
 
—

 
—

 
(3
)
 
16

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Financial Instruments Not Designated as Hedges:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency forward-exchange contracts
 
32

 
(21
)
 
—

 
—

 
—

 
—

Foreign currency swaps
 
3

 
5

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency long-term debt
 
—

 
—

 
(8
)
 
34

 
—

 
—

 
 
$
35

 
$
(16
)
 
$
(10
)
 
$
579

 
$
(74
)
 
$
224

Six Months Ended
 
 

 
 

 
 

 
 

 
 

 
 

Derivative Financial Instruments in Cash Flow Hedge Relationships:
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency swaps
 
$
—

 
$
—

 
$
(18
)
 
$
(181
)
 
$
11

 
$
(251
)
Foreign currency forward-exchange contracts
 
—

 
—

 
(39
)
 
314

 
(97
)
 
(51
)
Derivative Financial Instruments in Net Investment Hedge Relationships:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency swaps
 
—

 
(3
)
 
(11
)
 
139

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Financial Instruments Not Designated as Hedges:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency forward-exchange contracts
 
20

 
128

 
—

 
—

 
—

 
—

Foreign currency swaps
 
—

 
1

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency long-term debt
 
—

 
—

 
(22
)
 
97

 
—

 
—

All other net
 
(3
)
 
—

 
—

 
—

 
—

 
—

 
 
$
17

 
$
126

 
$
(90
)
 
$
369

 
$
(86
)
 
$
(302
)
(a) 
OID = Other (income)/deductions—net, included in Other (income)/deductions—net in the condensed consolidated statements of income. OCI = Other comprehensive income/(loss), included in the condensed consolidated statements of comprehensive income.
(b) 
Also, includes gains and losses attributable to derivative instruments designated and qualifying as fair value hedges, as well as the offsetting gains and losses attributable to the hedged items in such hedging relationships.
(c) 
There was no significant ineffectiveness for any period presented.
(d) 
For derivative financial instruments in cash flow hedge relationships, the effective portion is included in Other comprehensive income/(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 income/(loss)––Foreign currency translation adjustments.

For information about the fair value of our derivative financial instruments, and the impact on our condensed 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 June 29, 2014, the aggregate fair value of these derivative instruments that are in a net liability position is $76 million, for which we have posted collateral of $78 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. At June 29, 2014, if there had been a downgrade to below an A rating by Standard & Poor's (S&P) or the equivalent rating by Moody’s Investors Service, on June 29, 2014, we would have been required to post an additional $3 million of collateral to our counterparties. The collateral advanced receivables are reported in Short-term investments.

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 June 29, 2014, we had $2.3 billion due from a well-diversified, highly rated group (S&P ratings of mostly A or better) of bank counterparties around the world. For details about our investments, see Note 7B. Financial Instruments: Investments in Debt Securities above.

In general, there is no requirement for collateral from customers. However, derivative financial instruments are executed under master netting agreements with financial institutions and these agreements contain provisions that provide for collateral payments, depending on levels of exposure, our credit rating and the credit rating of the counterparty. For information about our financial instruments (excluding the impact of collateral), see Note 7A. Financial Instruments: Selected Financial Assets and Liabilities and Note 7B. Financial Instruments: Investments in Debt Securities above. For information about the collateral posted on our derivative instruments, see Note 7E. Financial Instruments: Derivative Financial Instruments and Hedging Activities above. As of June 29, 2014, we received cash collateral of $1.3 billion from various counterparties. The collateral primarily supports the approximate fair value of our derivative contracts in a receivable position. 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.