areas. (See further discussion in the “Analysis of the Consolidated Statement of Income” section of this Financial Review.)

• Income from continuing operations before cumulative effect of a change in accounting principles was $11.0 billion compared with $7.6 billion in 2005. The increase was primarily due to event-driven expenses, such as:

 lower Acquisition-related in-process research and development charges (IPR&D). In 2006, we incurred IPR&D expenses of $835 million, primarily related to our acquisitions of PowderMed Ltd., and Rinat Neuroscience Corp. (Rinat), as compared with IPR&D of $1.7 billion in 2005, primarily related to our acquisitions of Vicuron Pharmaceuticals, Inc. (Vicuron) and Idun Pharmaceuticals, Inc. (Idun).

 lowerassetimpairmentcharges.In2006,weexpensed$320 million related to the impairment of our Depo-Provera intangible asset while, in 2005, we expensed $1.2 billion related to the impairment of our Bextra intangible asset.

 alowereffectiveincometaxrate.In2006,oureffectivetax rate on continuing operations of 15.3% was lower than the 29.4% rate in 2005, which largely reflected the impact of our decision to repatriate approximately $37 billion of foreign earnings to the United States in 2005.

(See further discussion in the “Analysis of the Consolidated Statement of Income” section of this Financial Review.)

• Discontinued operations—net of tax were $8.3 billion in 2006, compared with $498 million in 2005. The results in both years relate primarily to our Consumer Healthcare business, which was sold on December 20, 2006. The 2006 amount includes the gain on the sale of this business of approximately $7.9 billion, after tax. (See further discussion in the “Our Strategic Initiatives— Strategy and Recent Transactions: Dispositions” and “Analysis of the Consolidated Statement of Income” sections of this Financial Review.)

• We completed a number of strategic acquisitions that we believe will strengthen and broaden our existing pharmaceutical capabilities. We acquired the worldwide rights to manufacture and sell Exubera, an inhaled form of insulin, for about $1.4 billion. We also acquired two companies, PowderMed Ltd., a U.K. company specializing in the emerging science of DNA- based vaccines for the treatment of influenza and chronic viral diseases, and Rinat, a biologics company with several new central nervous system product candidates. (See further discussion in the “Strategic Initiatives—Strategy and Recent Transactions: Acquisitions, Licensing and Collaborations” section of this Financial Review.)

• We made significant progress with our Adapting to Scale (AtS) productivity initiative, which is a broad-based, company-wide effort to leverage our scale and strength more robustly and increase our productivity. We realized approximately $2.6 billion in savings in 2006, exceeding our original savings goal of about $2 billion for this period, while incurring related costs of $2.1 billion in 2006 and $763 million in 2005. Building on what had already been accomplished, we significantly expanded the goals of this initiative in October 2006 and are now targeting an absolute net reduction in the pre-tax expense component of