of the associated costs, expected to range from $2.0 billion to $4.0 billion during 2011 and 2012, see the “Costs and Expenses—Cost- Reduction and Productivity Initiatives and Related Costs” section of this Financial Review.

In addition, we expect to generate significant reductions in our annual research and development expenses by the end of 2012. Specifically, we expect adjusted R&D expenses to be approximately $8.0 billion to $8.5 billion in 2011 and approximately $6.5 billion to $7.0 billion in 2012 (for an understanding of Adjusted income, see the “Adjusted Income” section of this Financial Review). For a description of the associated costs, expected to range from $2.2 billion to $2.9 billion during 2011 and 2012, see the “Costs and Expenses—Cost-Reduction and Productivity Initiatives and Related Costs” section of this Financial Review.

For further information on our research and development strategy, see also the “Our Strategy” section this Financial Review.

Our 2012 financial targets are subject to a number of factors and uncertainties—as described in the “Forward-Looking Information and Factors That May Affect Future Results”, “Our Operating Environment” and “Our Strategy” sections of this Financial Review and in Part I, Item 1A, “Risk Factors”, of our 2010 Annual Report on Form 10-K.

Accounting Policies

We consider the following accounting policies important in understanding our operating results and financial condition. For additional accounting policies, see Notes to Consolidated Financial Statements––Note 1. Significant Accounting Policies.

Estimates and Assumptions

In preparing the consolidated financial statements, we use certain estimates and assumptions that affect reported amounts and disclosures, including amounts recorded in connection with acquisitions, such as our acquisition of Wyeth on October 15, 2009. These estimates and underlying assumptions can impact all elements of our financial statements. For example, in the consolidated statements of income, estimates are used when accounting for deductions from revenues (such as rebates, chargebacks, sales returns and sales allowances), determining cost of sales, allocating cost in the form of depreciation and amortization, and estimating restructuring charges and the impact of contingencies. On the consolidated balance sheets, estimates are used in determining the valuation and recoverability of assets, such as accounts receivable, investments, inventories, fixed assets and intangible assets (including goodwill), and estimates are used in determining the reported amounts of liabilities, such as taxes payable, benefit obligations, the impact of contingencies, rebates, chargebacks, sales returns and sales allowances, and restructuring reserves, all of which also will impact the consolidated statements of income.

We regularly evaluate our estimates and assumptions, using historical experience and other factors, including the economic environment. Our estimates often are based on complex judgments, probabilities and assumptions that we believe to be reasonable but that are inherently uncertain and, in some cases, unpredictable.

As future events and their effects cannot