primarily reflecting the fair value adjustments to acquired inventory from Wyeth and King that was subsequently sold;

• lower costs related to our cost-reduction and productivity initiatives and acquisition-related costs, as well as the benefits generated from the ongoing productivity initiatives to streamline the manufacturing network;

• reduced manufacturing volumes related to products that lost exclusivity in various markets; and

• the favorable impact of foreign exchange of 3%, partially offset by:

• an unfavorable shift in geographic, product and business mix due to products that lost exclusivity in various markets.

    Selling, Informational and Administrative (SI&A) Expenses

Year Ended December 31,

(MILLIONS OF DOLLARS) 2013 2012 2011

Selling, informational and administrative expenses As a percentage of Revenues

2013 v. 2012

        • savings generated from a reduction in marketing functions, partly in response to product losses of exclusivity and more streamlined corporate support functions; and

• the favorable impact of foreign exchange of 1%, partially offset by:

• increased spending in support of several new product launches.

2012 v. 2011

SI&A expenses decreased 14% in 2012, compared to 2011, primarily due to:

 • 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.

Research and Development (R&D) Expenses

(MILLIONS OF DOLLARS)

Research and development expenses As a percentage of Revenues

2013 v. 2012

Year Ended December 31,

     R&D expenses decreased 11% in 2013, compared to 2012, primarily due to:

• the non-recurrence of a $250 million payment to AstraZeneca in 2012 to obtain the exclusive, global, OTC rights to Nexium; and

• lower charges related to implementing our cost-reduction and productivity initiatives.

2012 v. 2011

R&D expenses decreased 14% in 2012, compared to 2011, primarily due to:

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, OTC rights to Nexium.

R&D expenses also include payments for intellectual property rights of $203 million in 2013, $371 million in 2012 (which includes the $250 million payment to AstraZeneca to obtain the exclusive, global OTC rights to Nexium referred to above) and $306 million in 2011 (for further discussion, see the “Our Business Development Initiatives” section of this Financial Review).

Research and Development Operations

Innovation is critical to the success of our company and drug discovery and development is time-consuming, expensive and unpredictable.

The following table provides information by operating segment about our