Financial Instruments (Tables)

3 Months Ended

Apr. 01, 2012

Information about Certain Financial Assets and Liabilities

Information about certain of our financial assets and liabilities follows:

(millions of dollars)	April 1, 2012		Dec. 31, 2011
Selected financial assets measured at fair value on a recurring basis(a) :
Trading securities(b)	$	138	$	154
Available-for-sale debt securities(c)		27,855		29,179
Available-for-sale money market funds(d)		1,639		1,727
Available-for-sale equity securities, excluding money market funds(c)		371		317
Derivative financial instruments in receivable positions(e):
Interest rate swaps		825		1,033
Foreign currency forward-exchange contracts		240		349
Foreign currency swaps		93		17
Total		31,161		32,776
Other selected financial assets(f):
Held-to-maturity debt securities, carried at amortized cost(c)		1,591		1,587
Private equity securities, carried at equity method or at cost(g)		1,010		1,020
Total		2,601		2,607
Total selected financial assets	$	33,762	$	35,383
Financial liabilities measured at fair value on a recurring basis(a):
Derivative financial instruments in a liability position(h):
Foreign currency swaps	$	539	$	1,396
Foreign currency forward-exchange contracts		278		355
Interest rate swaps		26		14
Total		843		1,765
Other financial liabilities(i):
Short-term borrowings, carried at historical proceeds, as adjusted(f)		5,526		4,018
Long-term debt, carried at historical proceeds, as adjusted(j), (k)		33,543		34,931
Total		39,069		38,949
Total selected financial liabilities	$	39,912	$	40,714

(a) We use a market approach in valuing financial instruments on a recurring basis. See also 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 that included in available-for-sale equity securities, excluding money market funds, are $131 million as of April 1, 2012 and $85 million as of December 31, 2011 of investments that use Level 1 inputs in the calculation of fair value, and $16 million as of April 1, 2012 and $25 million as of December 31, 2011 that use Level 3 inputs.

(b)	Trading securities are held in trust for legacy business acquisition severance benefits.
(c)	Gross unrealized gains and losses are not significant.
(d)	Includes approximately $625 million as of April 1, 2012 and December 31, 2011 of money market funds held in escrow to secure certain of Wyeth’s payment obligations under its 1999 Nationwide Class Action Settlement Agreement, which relates to litigation against Wyeth concerning its former weight-loss products, Redux and Pondimin. The amount also includes $372 million as of April 1, 2012 and $357 million as of December 31, 2011 of money market funds held in trust in connection with the asbestos litigation involving Quigley Company, Inc., a wholly owned subsidiary.
(e)	Designated as hedging instruments, except for certain foreign currency contracts used as offsets; namely, foreign currency forward-exchange contracts with fair values of $123 million and foreign currency swaps with fair values of $16 million at April 1, 2012; and foreign currency forward-exchange contracts with fair values of $169 million and interest rate swaps with fair values of $8 million at December 31, 2011.
(f)	The differences between the estimated fair values and carrying values of these financial assets and liabilities not measured at fair value on a recurring basis were not significant as of April 1, 2012 or December 31, 2011. Held-to-maturity debt securities and our short-term and long-term debt fair value are based on Level 2 valuations using a market approach. Fair value measurements for private equity securities are based on Level 3 valuations using a market approach.
(g)	Our private equity securities represent investments in the life sciences sector.
(h)	Designated as hedging instruments, except for certain foreign currency contracts used as offsets; namely, foreign currency forward-exchange contracts with fair values of $190 million and foreign currency swaps with fair values of $99 million at April 1, 2012; and foreign currency forward-exchange contracts with fair values of $141 million and foreign currency swaps with fair values of $123 million at December 31, 2011.
(i)	Some carrying amounts may include adjustments for discount or premium amortization or for the effect of interest rate swaps designated as hedges.
(j)	Includes foreign currency debt with fair values of $855 million at April 1, 2012 and $919 million at December 31, 2011, which are used as hedging instruments.
(k)	The fair value of our long-term debt is $38.6 billion at April 1, 2012 and $40.1 billion at December 31, 2011.

Selected Financial Assets and Liabilities Presented in the Condensed Consolidated Balance Sheets

These selected financial assets and liabilities are presented in the Condensed Consolidated Balance Sheets as follows:

(millions of dollars)	April 1, 2012		Dec. 31, 2011
Assets:
Cash and cash equivalents	$	934	$	900
Short-term investments		21,038		23,270
Long-term investments		10,632		9,814
Taxes and other current assets(a)		294		357
Taxes and other noncurrent assets(b)		864		1,042
Total	$	33,762	$	35,383
Liabilities:
Short-term borrowings, including current portion of long-term debt	$	5,526	$	4,018
Other current liabilities(c)		283		459
Long-term debt		33,543		34,931
Other noncurrent liabilities(d)		560		1,306
Total	$	39,912	$	40,714

(a)	As of April 1, 2012, derivative instruments at fair value include foreign currency forward-exchange contracts ($240 million), foreign currency swaps ($33 million) and interest rate swaps ($21 million) and, at December 31, 2011, include foreign currency forward-exchange contracts ($349 million) and interest rate swaps ($8 million).
(b)	As of April 1, 2012, derivative instruments at fair value include interest rate swaps ($804 million) and foreign currency swaps ($60 million) and, at December 31, 2011, include interest rate swaps ($1.0 billion) and foreign currency swaps ($17 million).
(c)	At April 1, 2012, derivative instruments at fair value include foreign currency forward-exchange contracts ($278 million) and foreign currency swaps ($5 million) and, at December 31, 2011, include foreign currency forward-exchange contracts ($355 million) and foreign currency swaps ($104 million).
(d)	At April 1, 2012, derivative instruments at fair value include foreign currency swaps ($534 million) and interest rate swaps ($26 million) and, at December 31, 2011, include foreign currency swaps ($1.3 billion) and interest rate swaps ($14 million).

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

The contractual maturities of the available-for-sale and held-to-maturity debt securities follow:

	Years
(millions of dollars)	Within 1		Over 1 to 5		Over 5 to 10		Total as of April 1, 2012
Available-for-sale debt securities:
WesternEuropean, Scandinavian and other government debt	$	9,744	$	1,567	$	––	$	11,311
Corporate debt(a)		2,606		2,546		382		5,534
U.S. Government debt		4,395		––		257		4,652
WesternEuropean, Scandinavian and other government agency debt		2,195		305		––		2,500
Federal Home Loan Mortgage Corporation and Federal National Mortgage Association asset-backed securities		––		2,270		1		2,271
Supranational debt		1,149		438		––		1,587
Held-to-maturity debt securities:
Certificates of deposit and other		1,202		381		8		1,591
Total debt securities	$	21,291	$	7,507	$	648	$	29,446

(a) Largely issued by above-investment-grade institutions in the financial services sector.

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

Information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk follows:

	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)	April 1, 2012			April 3, 2011			April 1, 2012		April 3, 2011		April 1, 2012		April 3, 2011
Three Months Ended
Derivative Financial Instruments in Cash Flow Hedge Relationships
Foreign currency swaps	$	––		$	––		$	428	$	305	$	300	$	506
Derivative Financial Instruments in Net Investment Hedge Relationships
Foreign currency swaps		(1	)		2			125		33		––		––
Derivative Financial Instruments Not Designated as Hedges
Foreign currency forward-exchange contracts		(127	)		(197	)		––		––		––		––
Foreign currency swaps		(23	)		30			––		––		––		––
Non-Derivative Financial Instruments in Net Investment Hedge Relationships
Foreign currency short-term borrowings		––			––			––		43		––		––
Foreign currency long-term debt		––			––			50		28		––		––
All other net		(1	)		(1	)		9		2		––		4
Total	$	(152	)	$	(166	)	$	612	$	411	$	300	$	510

(a)	OID = Other (income)/deductions—net,included in the income statement account, Other deductions—net. OCI = Other comprehensive income/(loss), included in thebalance sheet account Accumulated other comprehensive loss.
(b)	Also includes gains and losses attributable to the hedged risk in fair value hedge relationships.
(c)	There was no significant ineffectiveness in the first quarters of 2012 or 2011.
(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 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.