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	Notes to Consolidated Financial Statements (Section 1 of 7)
	On This Page: | 1. Significant Accounting Policies | 2. International Operations | 3. Financial Subsidiaries | 4. Business Alliances |
	1. Significant Accounting Policies A — Consolidation and Basis of Presentation The consolidated financial statements include the parent company and all significant subsidiaries, including those operating outside the U.S. Balance sheet amounts for the foreign operations are as of November 30 of each year and income statement amounts are for the full year periods ending on the same date. All significant transactions among our businesses have been eliminated. In preparing the financial statements, management must use some estimates and assumptions that may affect reported amounts and disclosures. Estimates are used when accounting for long-term contracts, depreciation, amortization, employee benefits and asset valuation allowances. We are also subject to risks and uncertainties that may cause actual results to differ from estimated results, such as changes in the health care environment, competition, foreign exchange and legislation. “Forward-Looking Information and Factors That May Affect Future Results,” in the Financial Review, discusses these and other uncertainties. B — Cash Equivalents Cash equivalents include items almost as liquid as cash, such as demand deposits, certificates of deposit and time deposits with maturity periods of three months or less when purchased. If items meeting this definition are part of a larger investment pool, we classify them as “Short-term investments.” C — Inventories We value inventories at cost or fair value, if lower. Cost is determined as follows: finished goods and work-in-process at average actual cost raw materials and supplies at average or latest actual cost “Last-in, first-out” (LIFO) usage applies to U.S. sourced pharmaceuticals and part of Animal Health inventories (approximately 11% of total inventories) and “first-in, first-out” usage applies to the rest. The replacement cost of LIFO inventories is not materially different from the LIFO value reported. D — Long-Lived Assets Long-lived assets include: property, plant and equipment — These assets are recorded at original cost and the cost of any significant improvements after purchase is added. We depreciate the cost evenly over the assets’ useful lives. For tax purposes, accelerated depreciation methods are used as allowed by tax laws. goodwill — Goodwill represents the difference between the purchase price of acquired businesses and the fair value of their net assets when accounted for by the purchase method of accounting. We amortize goodwill evenly over periods not exceeding 40 years. other intangible assets — Other intangible assets are included in “Other assets, deferred taxes and deferred charges” in the Balance Sheet. We amortize these assets evenly over their estimated useful lives. We review long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recovered. We consider assets to be impaired and write them down to fair value if expected associated cash flows are less than the carrying amounts. Fair value is the present value of the expected associated cash flows. E — Foreign Currency Translation For most foreign operations, local currencies are considered their functional currencies. We translate assets and liabilities to their U.S. dollar equivalents at rates in effect at the balance sheet date and record translation adjustments in Shareholders’ Equity in the Balance Sheet. We translate Statement of Income accounts at average rates for the period. Transaction adjustments are recorded in “Other deductions — net” in the Statement of Income. For operations in highly inflationary economies, we translate the balance sheet items as follows: monetary items (that is, assets and liabilities that will be settled for cash) at rates in effect at the balance sheet date, with translation adjustments recorded in “Other deductions — net” in the Statement of Income non-monetary items at historical rates (that is, those in effect when the items were first recorded) F — Stock Options The exercise price of stock options granted equals the market price on the grant date. In general, there is no expense related to stock options. G — Advertising Expense We record advertising expense as follows: production costs as incurred costs of radio time, television time and space in publications deferred until the advertising first occurs Advertising expense totaled $948 million in 1997, $778 million in 1996 and $688 million in 1995. H — Earnings Per Common Share Statement of Financial Accounting Standards No. 128, “Earnings per Share”, which became effective in 1997, requires presentation of two calculations of earnings per common share. “Basic” earnings per common share equals net income divided by weighted average common shares outstanding during the period. “Diluted” earnings per common share equals net income divided by the sum of weighted average common shares outstanding during the period plus common stock equivalents. Common stock equivalents are shares assumed to be issued if outstanding stock options were exercised. We have restated all prior period amounts to reflect these calculations. All prior period amounts have also been restated for the 1997 stock split (see note 12, “Common Stock”). 2. International Operations Substantially all unremitted earnings of international subsidiaries are free of legal and contractual restrictions. The net currency translation adjustment included in “Currency translation adjustment and other” in the Balance Sheet was $(79) million in 1997, $174 million in 1996 and $206 million in 1995. 3. Financial Subsidiaries Our financial subsidiaries include Pfizer International Bank Europe (PIBE) and a small captive insurance company. PIBE periodically adjusts its loan portfolio to meet its business needs. Information about these subsidiaries follows: Condensed Balance Sheet (millions of dollars) 1997 1996 1995  Cash and interest-bearing deposits $ 115   $ 78 $ 13  Eurosecurities and securities purchased   under resale agreements — 45 34  Loans — net 408 381 433  Other assets 8 8 8    Total assets $531 $512 $488  Certificates of deposit and   other liabilities $ 73 $ 87 $ 85  Shareholders’ equity 458 425 403    Total liabilities and     shareholders’ equity $531 $512 $488  Condensed Statement of Income (millions of dollars) 1997 1996 1995  Interest income $29 $28 $ 44  Interest expense (2) (3) (3)  Other income/(expense) — net 13 2 (6)  Net income $40 $27 $ 35  4. Business Alliances We have entered into agreements related to two new pharmaceutical products developed by other companies: Lipitor, a cholesterol-lowering medication, developed by the Parke-Davis Research Division of Warner-Lambert Company Aricept, a medication to treat symptoms of Alzheimer’s disease, developed by Eisai Co., Ltd. Under copromotion agreements, these products are marketed and copromoted with alliance partners. We provide funds, staff and other resources to sell, market, promote and further develop these medications. In the Statement of Income, “Alliance revenue” represents revenues earned under the copromotion agreements (a percentage of net sales adjusted, in some cases, for certain specific costs). “Selling, informational and administrative expenses” in the Statement of Income include other expenses for selling, marketing and further developing these products. We also have licenses to sell Lipitor and Aricept in certain foreign countries. For those licensed sales, we record “Net sales” instead of “Alliance revenue” and record related costs and expenses in the appropriate caption in the Statement of Income.

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