Ended December 31,

        • savings generated from a reduction in the field force and a decrease in promotional spending, both partly in response to product losses of exclusivity;

• more streamlined corporate support functions; and

• the favorable impact of foreign exchange of 2%, partially offset by:

• costs associated with the separation of Zoetis employees, net assets and operations from Pfizer.

2011 v. 2010

SI&A expenses were largely unchanged in 2011, compared to 2010, primarily due to:

• the fee provided for under the U.S. Healthcare Legislation beginning in 2011;

• the addition of legacy King operating costs; and

• the unfavorable impact of foreign exchange of 2%,

offset by:

• savings associated with our cost-reduction and productivity initiatives.

Research and Development (R&D) Expenses

Year Ended December 31,

(MILLIONS OF DOLLARS) 2012 2011 2010

Research and development expenses

2012 v. 2011

        • savings generated by the discontinuation of certain therapeutic areas and R&D programs in connection with our previously announced cost-reduction and productivity initiatives; and

• lower charges related to implementing our cost-reduction and productivity initiatives, partially offset by:

• a $250 million payment to AstraZeneca to obtain the exclusive global over-the-counter rights to Nexium.

2011 v. 2010

R&D expenses decreased 4% in 2011, compared to 2010, primarily due to: • savings associated with our cost-reduction and productivity initiatives, partially offset by:

• higher charges related to implementing our cost-reduction and productivity initiatives;

• the addition of legacy King expenses; and

• the unfavorable impact of foreign exchange of 1%.

R&D expenses also include payments for intellectual property rights of $371 million in 2012, $306 million in 2011 and $393 million in 2010 (for further discussion, see the “Our Business Development Initiatives” section of this Financial Review).

Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/ Productivity Initiatives

    We incur significant costs in connection with acquiring, integrating and restructuring businesses and in connection with our global cost- reduction and productivity initiatives. For example:

• In connection with acquisition activity, we typically incur costs associated with executing the transactions, integrating the acquired operations (which may include expenditures for consulting and the integration of systems and processes), and restructuring the combined company (which may include charges related to employees, assets and activities that will not continue in the combined company); and

• In connection with our cost-reduction and productivity initiatives, we typically incur costs and charges associated with site closings and other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global systems.

All of our businesses and functions may be impacted by these actions, including sales and marketing, manufacturing and research and development, as well as groups such as information technology, shared services and corporate operations.