Financial Instruments (Tables)

6 Months Ended

Jun. 28, 2020

Financial Instruments [Abstract]

Schedule of 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 our 2019 Financial Report:
	June 28, 2020						December 31, 2019
(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 with readily determinable fair values:
Money market funds(a)	$	13,033	$	—	$	13,033	$	705	$	—	$	705
Classified as available-for-sale debt securities:
Government and agency—non-U.S.	6,218		—		6,218		4,863		—		4,863
Government and agency—U.S.	14		—		14		811		—		811
Corporate and other	1,440		—		1,440		1,013		—		1,013
	7,672		—		7,672		6,687		—		6,687
Total short-term investments	20,705		—		20,705		7,392		—		7,392
Other current assets
Derivative assets:
Interest rate contracts	17		—		17		53		—		53
Foreign exchange contracts	413		—		413		413		—		413
Total other current assets	431		—		431		465		—		465
Long-term investments
Classified as equity securities with readily determinable fair values(b)	2,072		2,046		26		1,902		1,863		39
Classified as available-for-sale debt securities:
Government and agency—U.S.	243		—		243		303		—		303
Corporate and other	11		—		11		11		—		11
	254		—		254		315		—		315
Total long-term investments	2,326		2,046		280		2,216		1,863		354
Other noncurrent assets
Derivative assets:
Interest rate contracts	140		—		140		266		—		266
Foreign exchange contracts	221		—		221		261		—		261
Total derivative assets	362		—		362		526		—		526
Insurance contracts(c)	578		—		578		575		—		575
Total other noncurrent assets	940		—		940		1,102		—		1,102
Total assets	$	24,402	$	2,046	$	22,355	$	11,176	$	1,863	$	9,313
Financial liabilities measured at fair value on a recurring basis:
Other current liabilities
Derivative liabilities:
Foreign exchange contracts	$	127	$	—	$	127	$	114	$	—	$	114
Total other current liabilities	127		—		127		114		—		114
Other noncurrent liabilities
Derivative liabilities:
Foreign exchange contracts	866		—		866		604		—		604
Total other noncurrent liabilities	866		—		866		604		—		604
Total liabilities	$	993	$	—	$	993	$	718	$	—	$	718

^(a)  As of June 28, 2020, $11.4 billion of proceeds from the Upjohn debt transactions (see Note 7D) are invested in money market funds and included in Restricted short-term investments in the condensed consolidated balance sheet.

^(b)  As of June 28, 2020, long-term equity securities of $163 million and as of December 31, 2019, long-term equity securities of $176 million were held in restricted trusts for benefits attributable to various U.S. non-qualified employee benefit plans.

^(c) 

Other noncurrent assets include life insurance policies held in restricted trusts attributable to the funding of various U.S. non-qualified employee benefit plans. The underlying invested assets in these insurance contracts are marketable securities, which are carried at fair value, with changes in fair value recognized in Other (income)/deductions––net in the condensed consolidated statements of income (see Note 4).

Schedule of Financial 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 28, 2020						December 31, 2019
	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(a)	$	50,529	$	59,121	$	59,121	$	35,955	$	40,842	$	40,842

^(a) 

As of June 28, 2020, $11.4 billion of proceeds from the Upjohn debt transactions (see Note 7D) are invested in money market funds and included in Restricted short-term investments in the condensed consolidated balance sheet.

Investments by Classification Type

The following table represents our investments by classification type:
(MILLIONS OF DOLLARS)	June 28, 2020		December 31, 2019
Short-term investments
Equity securities with readily determinable fair values(a)	$	13,033	$	705
Available-for-sale debt securities	7,672		6,687
Held-to-maturity debt securities	288		1,133
Total Short-term investments	$	20,993	$	8,525
Long-term investments
Equity securities with readily determinable fair values	$	2,072	$	1,902
Available-for-sale debt securities	254		315
Held-to-maturity debt securities	43		42
Private equity securities at cost	772		756
Total Long-term investments	$	3,142	$	3,014
Equity-method investments	15,578		17,133
Total long-term investments and equity-method investments	$	18,720	$	20,147
Held-to-maturity cash equivalents	$	119	$	163

^(a)  As of June 28, 2020 and December 31, 2019, equity securities with readily determinable fair values included money market funds primarily invested in U.S. Treasury and government debt. As of June 28, 2020, $11.4 billion of proceeds from the Upjohn debt transactions (see Note 7D) are invested in money market funds and included in Restricted short-term investments in the condensed consolidated balance sheet.

.

Schedule of Held-to-maturity Securities

At June 28, 2020, our investment securities portfolio consisted of debt securities that were virtually all investment-grade. Information on investments in debt securities at June 28, 2020 and December 31, 2019 is as follows, including, as of June 28, 2020, the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities:
	June 28, 2020																	December 31, 2019
			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.	$	6,209	$	12	$	(3	)	$	6,218	$	6,218	$	—	$	—	$	6,218	$	4,895	$	6	$	(38	)	$	4,863
Government and agency––U.S.	257		1		(1		)	257		14		243		—		257		1,120		—		(6		)	1,114
Corporate and other(a)	1,450		2		(1		)	1,451		1,440		11		—		1,451		1,027		—		(2		)	1,025
Held-to-maturity debt securities
Time deposits and other	228		—		—			228		189		9		30		228		535		—		—			535
Government and agency––non-U.S.	222		—		—			222		218		—		4		222		803		—		—			803
Total debt securities	$	8,366	$	16	$	(5	)	$	8,376	$	8,079	$	263	$	35	$	8,376	$	8,380	$	6	$	(47	)	$	8,340

^(a) 

Primarily issued by a diverse group of corporations.

Schedule of Available-for-sale Securities

At June 28, 2020, our investment securities portfolio consisted of debt securities that were virtually all investment-grade. Information on investments in debt securities at June 28, 2020 and December 31, 2019 is as follows, including, as of June 28, 2020, the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities:
	June 28, 2020																	December 31, 2019
			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.	$	6,209	$	12	$	(3	)	$	6,218	$	6,218	$	—	$	—	$	6,218	$	4,895	$	6	$	(38	)	$	4,863
Government and agency––U.S.	257		1		(1		)	257		14		243		—		257		1,120		—		(6		)	1,114
Corporate and other(a)	1,450		2		(1		)	1,451		1,440		11		—		1,451		1,027		—		(2		)	1,025
Held-to-maturity debt securities
Time deposits and other	228		—		—			228		189		9		30		228		535		—		—			535
Government and agency––non-U.S.	222		—		—			222		218		—		4		222		803		—		—			803
Total debt securities	$	8,366	$	16	$	(5	)	$	8,376	$	8,079	$	263	$	35	$	8,376	$	8,380	$	6	$	(47	)	$	8,340

^(a) 

Primarily issued by a diverse group of corporations.

Contractual Maturities of Available-for-sale and Held-to-maturity Debt Securities

At June 28, 2020, our investment securities portfolio consisted of debt securities that were virtually all investment-grade. Information on investments in debt securities at June 28, 2020 and December 31, 2019 is as follows, including, as of June 28, 2020, the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities:
	June 28, 2020																	December 31, 2019
			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.	$	6,209	$	12	$	(3	)	$	6,218	$	6,218	$	—	$	—	$	6,218	$	4,895	$	6	$	(38	)	$	4,863
Government and agency––U.S.	257		1		(1		)	257		14		243		—		257		1,120		—		(6		)	1,114
Corporate and other(a)	1,450		2		(1		)	1,451		1,440		11		—		1,451		1,027		—		(2		)	1,025
Held-to-maturity debt securities
Time deposits and other	228		—		—			228		189		9		30		228		535		—		—			535
Government and agency––non-U.S.	222		—		—			222		218		—		4		222		803		—		—			803
Total debt securities	$	8,366	$	16	$	(5	)	$	8,376	$	8,079	$	263	$	35	$	8,376	$	8,380	$	6	$	(47	)	$	8,340

^(a) 

Primarily issued by a diverse group of corporations.

Schedule of Gains and Losses on Investment Securities

The following table presents the calculation of the portion of unrealized gains for the period that relates to equity securities, excluding equity method investments, still held at the reporting date:
	Three Months Ended						Six Months Ended
(MILLIONS OF DOLLARS)	June 28, 2020			June 30, 2019			June 28, 2020			June 30, 2019
Net gains recognized during the period on equity securities(a)	$	(732	)	$	(36	)	$	(478	)	$	(147	)
Less: Net (gains)/losses recognized during the period on equity securities sold during the period	1			(6		)	(18		)	(10		)
Net unrealized gains during the reporting period on equity securities still held at the reporting date(b)	$	(733	)	$	(31	)	$	(459	)	$	(137	)

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

^(b)  

Included in net unrealized gains are observable price changes on equity securities without readily determinable fair values. Since January 1, 2018, there were cumulative impairments and downward adjustments of $67 million and upward adjustments of $66 million. Impairments, downward and upward adjustments were not significant in the second quarter and the first six months of 2020 and 2019.

Schedule of Short-term Borrowings

Short-term borrowings include:
(MILLIONS OF DOLLARS)	June 28, 2020			December 31, 2019
Commercial paper	$	10,660		$	13,915
Current portion of long-term debt, principal amount	1,481			1,458
Other short-term borrowings, principal amount(a)	956			860
Total short-term borrowings, principal amount	13,097			16,233
Net fair value adjustments related to hedging and purchase accounting	1			5
Net unamortized discounts, premiums and debt issuance costs	(14		)	(43		)
Total Short-term borrowings, including current portion of long-term debt, carried at historical proceeds, as adjusted	$	13,084		$	16,195

^(a) 

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

Schedule of Principal Amounts of Senior Unsecured Long-Term Debt and Adjustments

In the second quarter of 2020, we issued the following senior unsecured notes:
(MILLIONS OF DOLLARS)
		Principal
Interest Rate	Maturity Date	As of June 28, 2020
Pfizer Inc.(a)
0.800%	May 28, 2025	$	750
1.700%	May 28, 2030	1,000
2.550%	May 28, 2040	1,000
2.700%	May 28, 2050	1,250
		$	4,000
Upjohn Inc., a wholly-owned subsidiary of Pfizer Inc.(b)
1.125%	June 22, 2022	$	1,000
1.650%	June 22, 2025	750
2.300%	June 22, 2027	750
2.700%	June 22, 2030	1,450
3.850%	June 22, 2040	1,500
4.000%	June 22, 2050	2,000
		$	7,450
Upjohn Finance B.V., a wholly-owned subsidiary of Upjohn Inc.(b)
0.816%	June 23, 2022	€	750
1.023%	June 23, 2024	750
1.362%	June 23, 2027	850
1.908%	June 23, 2032	1,250
		€	3,600

^(a)  The notes may be redeemed by us at any time, in whole, or in part, at varying redemption prices plus accrued and unpaid interest. The weighted-average effective interest rate for the notes at issuance was 2.11%.

^(b)  In June 2020, Upjohn Inc. and Upjohn Finance B.V. completed privately placed debt offerings in connection with the previously announced proposed Reverse Morris Trust transaction that will ultimately combine Upjohn and Mylan to form a new company, Viatris. The notes may be redeemed by Upjohn Inc. and Upjohn Finance B.V., as applicable, at any time, in whole, or in part, at varying redemption prices plus accrued and unpaid interest. The weighted-average effective interest rates at issuance were 2.95% for the $7.45 billion notes and 1.37% for the €3.60 billion notes. If the proposed transaction with Mylan does not close on or prior to February 1, 2021, or if, prior to such date, Upjohn Inc. and Mylan notify the trustee that the business combination agreement for the proposed transaction with Mylan is terminated, or the transaction will not otherwise be pursued, the notes must be redeemed at redemption prices equal to 101% of their respective principal amounts, plus accrued and unpaid interest. Pfizer has guaranteed these notes, and such guarantees will automatically and unconditionally terminate without the consent of holders of the notes upon the proposed distribution to Pfizer’s stockholders of all of the issued and outstanding shares of Upjohn Inc.’s common stock held by Pfizer (the Distribution). Upjohn Inc. has guaranteed the notes issued by Upjohn Finance B.V., and Upjohn Inc. will remain a guarantor of such notes post Distribution. Following the separation, Upjohn Inc. and Upjohn Finance B.V., as applicable, will remain the obligor. The proceeds from the financings will be used in part to fund a cash distribution from Upjohn Inc. to Pfizer immediately prior to the Distribution. In the interim, the $11.4 billion of proceeds are classified as Restricted short-term investments in the condensed consolidated balance sheet as of June 28, 2020 pursuant to the terms of the transaction agreements.

In the first quarter of 2020, we issued the following senior unsecured notes:
(MILLIONS OF DOLLARS)		Principal
Interest Rate	Maturity Date	As of June 28, 2020
2.625%(a)	April 1, 2030	$	1,250
Total long-term debt issued in the first quarter of 2020(b)		$	1,250

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

^(b) 

The effective interest rate for the notes at issuance was 2.67%.

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 28, 2020			December 31, 2019
Total long-term debt, principal amount(a)	$	49,187		$	34,820
Net fair value adjustments related to hedging and purchase accounting	1,654			1,305
Net unamortized discounts, premiums and debt issuance costs	(317		)	(176		)
Other long-term debt	5			5
Total long-term debt, carried at historical proceeds, as adjusted	$	50,529		$	35,955
Current portion of long-term debt, carried at historical proceeds, as adjusted (not included above)	$	1,481		$	1,462

^(a) 

As of June 28, 2020, $11.4 billion of proceeds from the Upjohn debt transactions are invested in money market funds and included in Restricted short-term investments in the condensed consolidated balance sheet.

Schedule of Derivative Instruments

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 28, 2020						December 31, 2019
			Fair Value						Fair Value
	Notional		Asset		Liability		Notional		Asset		Liability
Derivatives designated as hedging instruments:
Foreign exchange contracts(a)	$	22,543	$	551	$	914	$	25,193	$	591	$	662
Interest rate contracts	1,995		158		—		6,645		318		—
			708		914				909		662
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	14,433	84		79		$	19,623	82		55
Total			$	792	$	993			$	992	$	718

^(a) 

The notional amount of outstanding foreign currency forward-exchange contracts hedging our intercompany forecasted inventory sales was $5.2 billion as of June 28, 2020 and $5.9 billion as of December 31, 2019.

Schedule of Derivative Assets

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 28, 2020						December 31, 2019
			Fair Value						Fair Value
	Notional		Asset		Liability		Notional		Asset		Liability
Derivatives designated as hedging instruments:
Foreign exchange contracts(a)	$	22,543	$	551	$	914	$	25,193	$	591	$	662
Interest rate contracts	1,995		158		—		6,645		318		—
			708		914				909		662
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	14,433	84		79		$	19,623	82		55
Total			$	792	$	993			$	992	$	718

^(a) 

The notional amount of outstanding foreign currency forward-exchange contracts hedging our intercompany forecasted inventory sales was $5.2 billion as of June 28, 2020 and $5.9 billion as of December 31, 2019.

Schedule of Derivative Liabilities

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 28, 2020						December 31, 2019
			Fair Value						Fair Value
	Notional		Asset		Liability		Notional		Asset		Liability
Derivatives designated as hedging instruments:
Foreign exchange contracts(a)	$	22,543	$	551	$	914	$	25,193	$	591	$	662
Interest rate contracts	1,995		158		—		6,645		318		—
			708		914				909		662
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	14,433	84		79		$	19,623	82		55
Total			$	792	$	993			$	992	$	718

^(a) 

The notional amount of outstanding foreign currency forward-exchange contracts hedging our intercompany forecasted inventory sales was $5.2 billion as of June 28, 2020 and $5.9 billion as of December 31, 2019.

Information about Gains/(Losses) Incurred to Hedge or Offset Operational Foreign Exchange or Interest Rate Risk

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)						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 28, 2020			June 30, 2019			June 28, 2020			June 30, 2019			June 28, 2020		June 30, 2019
Three Months Ended
Derivative Financial Instruments in Cash Flow Hedge Relationships:
Foreign exchange contracts(c)	$	—		$	—		$	187		$	(204	)	$	172	$	48
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach(d)	—			—			13			28			14		32
Derivative Financial Instruments in Fair Value Hedge Relationships:
Interest rate contracts	6			483			—			—			—		—
Hedged item	(6		)	(483		)	—			—			—		—
Foreign exchange contracts	—			—			—			—			—		—
Hedged item	—			—			—			—			—		—
Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign exchange contracts	—			—			(144		)	(48		)	—		—
The portion on foreign exchange contracts excluded from the assessment of hedge effectiveness(d)	—			—			29			52			42		31
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign currency short-term borrowings(e)	—			—			—			(16		)	—		—
Foreign currency long-term debt(e)	—			—			(42		)	(27		)	—		—
Derivative Financial Instruments Not Designated as Hedges:
Foreign exchange contracts	8			(4		)	—			—			—		—
All other net(d)	—			—			12			—			—		—
	$	8		$	(4	)	$	56		$	(216	)	$	228	$	111

	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 28, 2020			June 30, 2019			June 28, 2020			June 30, 2019			June 28, 2020			June 30, 2019
Six Months Ended
Derivative Financial Instruments in Cash Flow Hedge Relationships:
Foreign exchange contracts(c)	$	—		$	—		$	(341	)	$	6		$	126		$	257
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach(d)	—			—			42			84			41			86
Derivative Financial Instruments in Fair Value Hedge Relationships:
Interest rate contracts	392			813			—			—			—			—
Hedged item	(392		)	(813		)	—			—			—			—
Foreign exchange contracts	—			—			—			—			—			—
Hedged item	—			—			—			—			—			—
Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign exchange contracts	—			—			240			(25		)	—			—
The portion of foreign exchange contracts excluded from the assessment of hedge effectiveness(d)	—			—			176			93			84			55
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign currency short-term borrowings(e)	—			—			8			19			—			—
Foreign currency long-term debt(e)	—			—			3			11			—			—
Derivative Financial Instruments Not Designated as Hedges:
Foreign exchange contracts	(51		)	(124		)	—			—			—			—
All other net(d)	—			—			12			1			(1		)	—
	$	(51	)	$	(124	)	$	139		$	188		$	251		$	398

^(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 loss––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 gains and losses are included in Other comprehensive loss––Foreign currency translation adjustments, net.

^(c)  The amounts reclassified from OCI into COS were:

• a net gain of $80 million in the second quarter of 2020;

• a net gain of $150 million in the first six months of 2020;

• a net gain of $59 million in the second quarter of 2019; and

• a net gain of $103 million in the first six months of 2019.

The remaining amounts were reclassified from OCI into OID. Based on quarter-end foreign exchange rates that are subject to change, we expect to reclassify a pre-tax gain of $102 million within the next 12 months into income. 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)  The amounts reclassified from OCI were reclassified into OID.

^(e) 

Long-term debt includes foreign currency long-term borrowings with carrying values of $2.0 billion as of June 28, 2020, which are used as hedging instruments in net investment hedges.

Schedule of Total Amount of Each Income and Expense Line in which Results of Fair Value Hedges are Recorded

The following table provides the amounts recorded in our condensed consolidated balance sheet related to cumulative basis adjustments for fair value hedges:
	June 28, 2020						December 31, 2019
			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 Hedged Assets/Liabilities(a)		Active Hedging Relationships		Discontinued Hedging Relationships		Carrying Amount of Hedged Assets/Liabilities(a)		Active Hedging Relationships		Discontinued Hedging Relationships
Short-term investments	$	45	$	—	$	—	$	—	$	—	$	—
Long-term investments	—		—		—		45		—		—
Long-term debt	2,023		140		1,181		7,092		266		690

^(a) 

Carrying amounts exclude the cumulative amount of fair value hedging adjustments.