Financial Instruments

6 Months Ended

Jun. 30, 2019

Financial Instruments [Abstract]

Financial Instruments

Financial Instruments

A. Fair Value Measurements

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the financial assets and liabilities measured at fair value using a market approach on a recurring basis by balance sheet categories and fair value hierarchy level as defined in Notes to Consolidated Financial Statements––Note 1E. Basis of Presentation and Significant Accounting Policies: Fair Value in Pfizer’s 2018 Financial Report:
	June 30, 2019						December 31, 2018
(MILLIONS OF DOLLARS)	Total		Level 1		Level 2		Total		Level 1		Level 2
Financial assets measured at fair value on a recurring basis:
Short-term investments
Classified as equity securities:
Money market funds	$	4,727	$	—	$	4,727	$	1,571	$	—	$	1,571
Equity(a)	26		15		12		29		17		11
	4,753		15		4,739		1,600		17		1,583
Classified as available-for-sale debt securities:
Government and agency—non-U.S.	3,014		—		3,014		9,609		—		9,609
Corporate and other	2,013		—		2,013		5,482		—		5,482
	5,027		—		5,027		15,091		—		15,091
Total short-term investments	9,780		15		9,766		16,691		17		16,674
Other current assets
Derivative assets:
Interest rate contracts	79		—		79		97		—		97
Foreign exchange contracts	334		—		334		477		—		477
Total other current assets	412		—		412		574		—		574
Long-term investments
Classified as equity securities:
Equity(a)	1,425		1,400		25		1,223		1,193		30
Classified as trading securities:
Equity funds	53		53		—		50		50		—
	1,477		1,452		25		1,273		1,243		30
Classified as available-for-sale debt securities:
Government and agency—non-U.S.	45		—		45		94		—		94
Corporate and other	385		—		385		397		—		397
	430		—		430		491		—		491
Total long-term investments	1,907		1,453		454		1,764		1,243		521
Other noncurrent assets
Derivative assets:
Interest rate contracts	453		—		453		335		—		335
Foreign exchange contracts	249		—		249		232		—		232
Total other noncurrent assets	702		—		702		566		—		566
Total assets	$	12,801	$	1,467	$	11,334	$	19,595	$	1,260	$	18,335
Financial liabilities measured at fair value on a recurring basis:
Other current liabilities
Derivative liabilities:
Interest rate contracts	$	1	$	—	$	1	$	5	$	—	$	5
Foreign exchange contracts	109		—		109		78		—		78
Total other current liabilities	110		—		110		82		—		82
Other noncurrent liabilities
Derivative liabilities:
Interest rate contracts	—		—		—		378		—		378
Foreign exchange contracts	467		—		467		564		—		564
Total other noncurrent liabilities	467		—		467		942		—		942
Total liabilities	$	577	$	—	$	577	$	1,024	$	—	$	1,024

^(a)  As of June 30, 2019, short-term equity securities of $11 million and long-term equity securities of $24 million are held in trust for benefits attributable to the former Pharmacia Savings Plus Plan. As of December 31, 2018, short-term equity securities of $11 million and long-term equity securities of $29 million are held in trust for benefits attributable to the former Pharmacia Savings Plus Plan.

Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis

The following table presents the financial liabilities not measured at fair value on a recurring basis, including the carrying values and estimated fair values using a market approach:
	June 30, 2019						December 31, 2018
	Carrying Value		Estimated Fair Value				Carrying Value		Estimated Fair Value
(MILLIONS OF DOLLARS)			Total		Level 2				Total		Level 2
Financial Liabilities
Long-term debt, excluding the current portion	$	36,168	$	40,301	$	40,301	$	32,909	$	35,260	$	35,260

The differences between the estimated fair values and carrying values of held-to-maturity debt securities, restricted stock and private equity securities, and short-term borrowings not measured at fair value on a recurring basis were not significant as of June 30, 2019 or December 31, 2018. The fair value measurements of our held-to-maturity debt securities and our short-term borrowings are based on Level 2 inputs. The fair value measurements of our private equity securities, which represent investments in the life sciences sector, are based on Level 3 inputs using a market approach.

In addition, as of June 30, 2019 and December 31, 2018, we had long-term receivables whose fair value is based on Level 3 inputs. As of June 30, 2019 and December 31, 2018, the differences between the estimated fair values and carrying values of these receivables were not significant.

Total Short-Term and Long-Term Investments

The following table represents our investments by classification type:
(MILLIONS OF DOLLARS)	June 30, 2019		December 31, 2018
Short-term investments
Equity securities	$	4,753	$	1,600
Available-for-sale debt securities	5,027		15,091
Held-to-maturity debt securities	1,347		1,003
Total Short-term investments	$	11,128	$	17,694
Long-term investments
Equity securities	$	1,425	$	1,223
Trading equity funds securities	53		50
Available-for-sale debt securities	430		491
Held-to-maturity debt securities	47		59
Private equity investments at cost, as adjusted, or equity method	951		944
Total Long-term investments	$	2,905	$	2,767
Held-to-maturity cash equivalents	$	163	$	199

B. Investments

At June 30, 2019, the investment securities portfolio consisted of debt securities that were virtually all investment-grade. Information on investments in debt and equity securities at June 30, 2019 and December 31, 2018 is as follows, including, as of June 30, 2019, the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities:
	June 30, 2019																	December 31, 2018
			Gross Unrealized							Maturities (in Years)										Gross Unrealized
(MILLIONS OF DOLLARS)	Amortized Cost		Gains		Losses			Fair Value		Within 1		Over 1 to 5		Over 5		Total		Amortized Cost		Gains		Losses			Fair Value
Available-for-sale debt securities
Government and agency––non-U.S.	$	3,056	$	9	$	(7	)	$	3,059	$	3,014	$	45	$	—	$	3,059	$	9,754	$	7	$	(58	)	$	9,703
Corporate and other(a)	2,409		1		(12		)	2,398		2,013		382		3		2,398		5,905		—		(27		)	5,878
Held-to-maturity debt securities
Time deposits and other	693		—		—			693		646		10		37		693		668		—		—			668
Government and agency––non-U.S.	865		—		—			865		864		—		—		865		592		—		—			592
Total debt securities	$	7,023	$	10	$	(19	)	$	7,014	$	6,537	$	437	$	40	$	7,014	$	16,920	$	8	$	(85	)	$	16,842

^(a)  Primarily issued by a diverse group of corporations.

The following table presents the net unrealized (gains) and losses for the period that relate to equity securities still held at the reporting date, calculated as follows:
	Three Months Ended						Six Months Ended
(MILLIONS OF DOLLARS)	June 30, 2019			July 1, 2018			June 30, 2019			July 1, 2018
Net gains recognized during the period on investments in equity securities(a)	$	(36	)	$	(257	)	$	(147	)	$	(375	)
Less: Net gains recognized during the period on equity securities sold during the period	(6		)	(27		)	(10		)	(46		)
Net unrealized gains during the reporting period on equity securities still held at the reporting date	$	(31	)	$	(230	)	$	(137	)	$	(328	)

^(a) 

The net gains on investments in equity securities are reported in Other (income)/deductions––net. For additional information, see Note 4.

C. Short-Term Borrowings

Short-term borrowings include:
(MILLIONS OF DOLLARS)	June 30, 2019			December 31, 2018
Commercial paper	$	6,705		$	3,100
Current portion of long-term debt, principal amount	2,139			4,781
Other short-term borrowings, principal amount(a)	1,691			966
Total short-term borrowings, principal amount	10,535			8,847
Net fair value adjustments related to hedging and purchase accounting	—			(5		)
Net unamortized discounts, premiums and debt issuance costs	(29		)	(11		)
Total Short-term borrowings, including current portion of long-term debt, carried at historical proceeds, as adjusted	$	10,507		$	8,831

^(a) 

Other short-term borrowings primarily include cash collateral. For additional information, see Note 7E.

D. Long-Term Debt

New Issuances

In the first quarter of 2019, we issued the following senior unsecured notes:
		Principal
(MILLIONS OF DOLLARS)	Maturity Date	As of June 30, 2019
2.800% notes(a)	March 11, 2022	$	500
2.950% notes(a)	March 15, 2024	750
3.450% notes(a)	March 15, 2029	1,750
3.900% notes(a)	March 15, 2039	750
4.000% notes(a)	March 15, 2049	1,250
Total long-term debt issued in the first quarter of 2019(b)		$	5,000

^(a)  Fixed rate notes may be redeemed by us at any time, in whole, or in part, at varying redemption prices plus accrued and unpaid interest.

^(b)  The weighted-average effective interest rate for the notes at issuance was 3.57%.

Retirements

In January 2019, we repurchased all €1.1 billion ($1.3 billion, at exchange rates on settlement) principal amount outstanding of the 5.75% euro-denominated debt that was due June 2021 before the maturity date at a redemption value of €1.3 billion ($1.5 billion, at exchange rates on settlement). As a result, in the first quarter of 2019, we recorded a net loss of approximately $138 million, which included the related termination of cross-currency swaps, and that was recorded in Other (income)/deductions––net in the condensed consolidated statement of income in the first quarter of 2019. For additional information, see Note 4.

The following table provides the aggregate principal amount of our senior unsecured long-term debt, and adjustments to report our aggregate long-term debt:
(MILLIONS OF DOLLARS)	June 30, 2019			December 31, 2018
Total long-term debt, principal amount	$	35,082		$	32,558
Net fair value adjustments related to hedging and purchase accounting	1,264			479
Net unamortized discounts, premiums and debt issuance costs	(185		)	(136		)
Other long-term debt	6			7
Total long-term debt, carried at historical proceeds, as adjusted	$	36,168		$	32,909
Current portion of long-term debt, carried at historical proceeds, as adjusted	$	2,139		$	4,776

E. Derivative Financial Instruments and Hedging Activities

Foreign Exchange Risk

A significant portion of our revenues, earnings and net investments in foreign affiliates is exposed to changes in foreign exchange rates. We 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. We also manage our foreign exchange risk, depending on market conditions, through fair value, cash flow, and net investment hedging programs through the use of derivative financial instruments and foreign currency debt. These financial instruments serve to protect net income against the impact of remeasurement into another currency, or against the impact of translation into U.S. dollars of certain foreign exchange-denominated transactions.

The derivative financial instruments primarily hedge or offset exposures in the euro, Japanese yen, U.K. pound, Chinese renminbi and Swedish krona.

As a part of our cash flow hedging program, we designate foreign exchange contracts to hedge a portion of our forecasted euro, Japanese yen, Chinese renminbi, Canadian dollar, U.K. pound and Australian dollar-denominated intercompany inventory sales expected to occur no more than two years from the date of each hedge.

Interest Rate Risk

Our interest-bearing investments and borrowings are subject to interest rate risk. 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. We currently borrow primarily on a long-term, fixed rate basis. From time to time, depending on market conditions, we will change the profile of our outstanding debt by entering into derivative financial instruments like interest rate swaps. We entered into derivative financial instruments to hedge or offset the fixed interest rates on the hedged item, matching the amount and timing of the hedged item. The derivative financial instruments primarily hedge U.S. dollar fixed-rate debt.

The following table provides the fair value of the derivative financial instruments and the related notional amounts presented between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments:
(MILLIONS OF DOLLARS)	June 30, 2019						December 31, 2018
			Fair Value						Fair Value
	Notional		Asset		Liability		Notional		Asset		Liability
Derivatives designated as hedging instruments:
Foreign exchange contracts(a)	$	18,012	$	483	$	519	$	22,984	$	654	$	586
Interest rate contracts	8,812		531		1		11,145		432		383
			1,015		520				1,085		968
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	16,615	99		58		$	15,154	55		55
Total			$	1,114	$	577			$	1,140	$	1,024

^(a)  The notional amount of outstanding foreign currency forward-exchange contracts hedging our intercompany forecasted inventory sales was $6.7 billion as of June 30, 2019 and $5.8 billion as of December 31, 2018.

The following tables provide 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)						Amount of Gains/(Losses) Recognized in OCI(a), (b)						Amount of Gains/(Losses) Reclassified from OCI into OID and COS(a), (b)
(MILLIONS OF DOLLARS)	June 30, 2019			July 1, 2018			June 30, 2019			July 1, 2018			June 30, 2019		July 1, 2018
Three Months Ended
Derivative Financial Instruments in Cash Flow Hedge Relationships:
Foreign exchange contracts(c)	$	—		$	—		$	(204	)	$	107		$	48	$	(330	)
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach	—			—			28			20			32		20
Derivative Financial Instruments in Fair Value Hedge Relationships:
Interest rate contracts	483			(121		)	—			—			—		—
Hedged item	(483		)	121			—			—			—		—
Foreign exchange contracts	—			12			—			—			—		—
Hedged item	—			(12		)	—			—			—		—
Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign exchange contracts	—			—			(48		)	153			—		—
The portion on foreign exchange contracts excluded from the assessment of hedge effectiveness	—			—			52			25			31		21
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign currency short-term borrowings(d)	—			—			(16		)	85			—		—
Foreign currency long-term debt(d)	—			—			(27		)	186			—		—
Derivative Financial Instruments Not Designated as Hedges:
Foreign exchange contracts	(4		)	61			—			—			—		—
All other net	—			—			—			1			—		1
	$	(4	)	$	62		$	(216	)	$	577		$	111	$	(289	)
	Amount of Gains/(Losses) Recognized in OID(a)						Amount of Gains/(Losses) Recognized in OCI(a), (b)						Amount of Gains/(Losses) Reclassified from OCI into OID and COS(a), (b)
(MILLIONS OF DOLLARS)	June 30, 2019			July 1, 2018			June 30, 2019			July 1, 2018			June 30, 2019		July 1, 2018
Six Months Ended
Derivative Financial Instruments in Cash Flow Hedge Relationships:
Foreign exchange contracts(c)	$	—		$	—		$	6		$	(36	)	$	257	$	(402	)
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach	—			—			84			48			86		48
Derivative Financial Instruments in Fair Value Hedge Relationships:
Interest rate contracts	813			(520		)	—			—			—		—
Hedged item	(813		)	520			—			—			—		—
Foreign exchange contracts	—			4			—			—			—		—
Hedged item	—			(4		)	—			—			—		—
Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign exchange contracts	—			—			(25		)	148			—		—
The portion of foreign exchange contracts excluded from the assessment of hedge effectiveness	—			—			93			27			55		26
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign currency short-term borrowings(d)	—			—			19			43			—		—
Foreign currency long-term debt(d)	—			—			11			94			—		—
Derivative Financial Instruments Not Designated as Hedges:
Foreign exchange contracts	(124		)	6			—			—			—		—
All other net	—			—			1			1			—		1
	$	(124	)	$	6		$	188		$	325		$	398	$	(328	)

^(a)  OID = Other (income)/deductions—net, included in Other (income)/deductions—net in the condensed consolidated statements of income. COS = Cost of Sales, included in Cost of sales in the condensed consolidated statements of income. OCI = Other comprehensive income/(loss), included in the condensed consolidated statements of comprehensive income.

^(b)  For derivative financial instruments in cash flow hedge relationships, the gains and losses are included in Other comprehensive income––Unrealized holding gains/(losses) on derivative financial instruments, net. 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––Foreign currency translation adjustments, net.

^(c)  Based on quarter-end foreign exchange rates that are subject to change, we expect to reclassify a pre-tax gain of $155 million within the next 12 months into Cost of sales. The maximum length of time over which we are hedging future foreign exchange cash flow relates to our $1.8 billion U.K. pound debt maturing in 2043.

^(d)  Short-term borrowings include foreign currency short-term borrowings with carrying values of $1.1 billion as of June 30, 2019, which are used as hedging instruments in net investment hedges. Long-term debt includes foreign currency long-term borrowings with carrying values of $2.0 billion as of June 30, 2019, which are used as hedging instruments in net investment hedges.

The following table provides the total amount of each income and expense line in which the results of fair value or cash flow hedges are recorded:
	Three Months Ended					Six Months Ended
(MILLIONS OF DOLLARS)	June 30, 2019		July 1, 2018			June 30 2019		July 1, 2018
Cost of sales	$	2,576	$	2,916		$	5,009	$	5,479
Other (income)/deductions—net	126		(551		)	218		(728		)

The following table provides the amounts recorded in our condensed consolidated balance sheet related to cumulative basis adjustments for fair value hedges:
	June 30, 2019							December 31, 2018
			Cumulative Amount of Fair Value Hedging Adjustment Increase/(Decrease) to Carrying Amount							Cumulative Amount of Fair Value Hedging Adjustment Increase/(Decrease) to Carrying Amount
(MILLIONS OF DOLLARS)	Carrying Amount of Actively Hedged Assets/Liabilities(a)		Active Hedging Relationships			Discontinued Hedging Relationships		Carrying Amount of Actively Hedged Assets/Liabilities(a)		Active Hedging Relationships			Discontinued Hedging Relationships
Long-term investments	$	45	$	(1	)	$	—	$	45	$	(1	)	$	—
Short-term borrowings, including current portion of long-term debt	—		—			—		1,499		(5		)	—
Long-term debt	9,321		452			435		9,952		(45		)	129

^(a)  Carrying amounts exclude the cumulative amount of fair value hedging adjustments.

Certain of our derivative instruments are covered by associated credit-support agreements that have credit-risk-related contingent features designed to reduce both counterparties’ exposure to risk of defaulting on amounts owed by the other party. As of June 30, 2019, the aggregate fair value of these derivative instruments that are in a net liability position was $279 million, for which we have posted collateral of $283 million in the normal course of business. If there had been a downgrade to below an A rating by S&P or the equivalent rating by Moody’s, we would not have been required to post any additional collateral to our counterparties.

As of June 30, 2019, we received cash collateral of $1.6 billion from various counterparties. The collateral primarily supports the approximate fair value of our derivative contracts that are in a net asset position. With respect to the collateral received, the obligations are reported in Short-term borrowings, including current portion of long-term debt.

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, except for certain significant customers. For additional information on significant customers, see Notes to Consolidated Financial Statements––Note 18C. Segment, Geographic and Other Revenue Information: Other Revenue Information in Pfizer’s 2018 Financial Report. As of June 30, 2019, we had amounts due from a well-diversified, high quality group of banks ($2.0 billion) from around the world. For details about our investments, see Note 7B above.

In general, there is no requirement for collateral from customers. However, derivative financial instruments are executed under credit-support agreements that provide for the ability to request to receive cash collateral, depending on levels of exposure, our credit rating and the credit rating of the counterparty, see Note 7E above.