UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

BARR PHARMACEUTICALS, INC.

(Exact name of Registrant as specified in its charter)

Delaware		42-1612474
(State or Other Jurisdiction of		(I.R.S. — Employer
Incorporation or Organization)		Identification No.)

(Address of principal executive offices)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ           Accelerated filer o           Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o      No þ

As of October 26, 2007 the registrant had 107,750,550 shares of $0.01 par value common stock outstanding.

 

 

BARR PHARMACEUTICALS, INC.

INDEX TO FORM 10-Q

				Page
				Number
Part I		Condensed Financial Information
Item 1.		Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2007 and December 31, 2006			3
		Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2007 and 2006			4
		Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2007 and 2006			5
		Notes to Condensed Consolidated Financial Statements (unaudited)			6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			35
Item 4.		Controls and Procedures			35
Part II		Other Information
Item 1.		Legal Proceedings			37
Item 1A.		Risk Factors			37
Item 6.		Exhibits			37
		Signatures			38
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.O: CERTIFICATIONS

Part I. CONDENSED FINANCIAL INFORMATION

Barr Pharmaceuticals, Inc. and Subsidiaries

		September 30,				December 31,
		2007				2006
Assets
Current assets:
Cash and cash equivalents		$	212,329			$	231,975
Marketable securities			269,659				673,746
Accounts receivable, net of reserves of $268,175 and $236,577, respectively			473,261				511,136
Other receivables, net			69,215				67,461
Inventories			501,045				426,272
Deferred income taxes			79,076				82,597
Prepaid expenses and other current assets			30,225				35,926
Current assets held for sale			46,407				58,886
Total current assets			1,681,217				2,087,999
Property, plant and equipment, net of accumulated depreciation of $360,699 and $196,709, respectively			1,078,026				1,004,418
Deferred income taxes			38,183				37,872
Marketable securities			20,905				8,946
Other intangible assets, net			1,487,151				1,471,493
Goodwill			276,301				276,449
Long-term assets held for sale			15,050				10,945
Other assets			73,149				63,740
Total assets		$	4,669,982			$	4,961,862
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	139,593			$	137,362
Accrued liabilities			258,753				271,407
Current portion of long-term debt and capital lease obligations			344,969				742,192
Income taxes payable			9,116				21,359
Deferred tax liabilities			855				8,266
Current liabilities held for sale			10,834				31,307
Total current liabilities			764,120				1,211,893
Long-term debt and capital lease obligations			1,804,795				1,935,477
Deferred tax liabilities			209,422				221,259
Long-term liabilities held for sale			2,288				2,580
Other liabilities			100,598				84,327
Commitments & Contingencies (Note 15)
Minority interest			36,283				41,098
Shareholders’ equity:
Preferred stock, $1 par value per share; authorized 2,000,000; none issued			—				—
Common stock, $.01 par value per share; authorized 200,000,000; issued 110,481,923 and 109,536,481, respectively			1,105				1,095
Additional paid-in capital			665,821				610,232
Retained earnings			973,833				877,991
Accumulated other comprehensive income			212,407				76,600
Treasury stock at cost: 2,972,997 shares			(100,690	)			(100,690	)
Total shareholders’ equity			1,752,476				1,465,228
Total liabilities and shareholders’ equity		$	4,669,982			$	4,961,862

SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Barr Pharmaceuticals, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Revenues:
Product sales		$	558,868			$	300,881			$	1,705,773			$	914,021
Alliance and development revenue			31,996				31,489				93,540				96,858
Other revenue			10,521				—				32,576				—
Total revenues			601,385				332,370				1,831,889				1,010,879
Costs and expenses:
Cost of sales			267,331				89,578				844,664				295,413
Selling, general and administrative			190,332				88,695				557,185				271,155
Research and development			60,361				39,969				186,804				114,121
Write-off of in-process research and development			243				—				4,601				—
Earnings from operations			83,118				114,128				238,635				330,190
Interest income			8,462				6,782				27,201				16,729
Interest expense			38,914				1,090				122,481				1,546
Other income (expense), net			6,487				(42,865	)			11,677				(25,104	)
Earnings before income taxes and minority interest			59,153				76,955				155,032				320,269
Income tax expense			14,451				24,194				49,696				109,158
Minority interest			249				—				(1,662	)			—
Net earnings from continuing operations			44,951				52,761				103,674				211,111
Discontinued operations
Loss from discontinued operations, net of taxes			(5,990	)			—				(7,796	)			—
Loss on disposal of discontinued operations, net of taxes			(36	)			—				(36	)			—
Net loss from discontinued operations, net of tax			(6,026	)			—				(7,832	)			—
Net earnings		$	38,925			$	52,761			$	95,842			$	211,111
Basic:
Earnings per common share — continuing operations		$	0.42			$	0.50			$	0.97			$	1.99
Loss per common share — discontinued operations			(0.05	)			—				(0.07	)			—
Net earnings per common share — basic		$	0.37			$	0.50			$	0.90			$	1.99
Diluted:
Earnings per common share — continuing operations		$	0.41			$	0.49			$	0.95			$	1.95
Loss per common share — discontinued operations			(0.05	)			—				(0.07	)			—
Net earnings per common share — diluted		$	0.36			$	0.49			$	0.88			$	1.95
Weighted average shares — basic			107,298				106,311				107,008				106,089
Weighted average shares — diluted			108,852				108,061				108,584				108,187

SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Barr Pharmaceuticals, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

		Nine Months Ended
		September 30,
		2007				2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings		$	95,842			$	211,111
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			221,404				53,531
Deferred revenue			(5,037	)			(2,223	)
Minority interest			1,510				—
Stock-based compensation expense			23,379				20,322
Deferred income tax benefit			(49,129	)			(12,723	)
Loss on derivative instruments, net			8,591				32,089
Write-off of acquired in-process research and development			4,601				—
Other			(641	)			(8,736	)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable and other receivables, net			65,644				43,729
Inventories			(41,927	)			(6,686	)
Prepaid expenses			8,990				(7,426	)
Other assets			(1,899	)			(7,173	)
Increase (decrease) in:
Accounts payable, accrued liabilities and other liabilities			(66,825	)			71,389
Income taxes payable			(7,238	)			40,822
Net cash provided by operating activities			257,265				428,026
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment			(80,235	)			(36,297	)
Proceeds from sale of property, plant and equipment			811				109
Purchases of marketable securities			(1,634,643	)			(2,481,570	)
Sales of marketable securities			2,032,365				2,409,399
Purchases of derivative instruments			—				(48,900	)
Settlement of derivative instruments			(2,586	)			1,517
Acquisitions, net of cash acquired			(86,822	)			(63,302	)
Investment in debt securities			(2,041	)			—
Investment in venture funds and other			(482	)			(3,627	)
Net cash provided by (used in) investing activities			226,367				(222,671	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and capital leases			(616,830	)			(1,115	)
Proceeds from long-term debt and capital leases			70,890				—
Tax benefit of stock incentives			8,245				12,748
Proceeds from exercise of stock options and employee stock purchases			26,581				26,256
Other			871				—
Net cash (used in) provided by financing activities			(510,243	)			37,889
Effect of exchange-rate changes on cash and cash equivalents			6,965				—
(Decrease) increase in cash and cash equivalents			(19,646	)			243,244
Cash and cash equivalents at beginning of period			231,975				30,010
Cash and cash equivalents at end of period		$	212,329			$	273,254

SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BARR PHARMACEUTICALS, INC. AND SUBSIDIARIES

1. Basis of Presentation

     Barr Pharmaceuticals, Inc. (“Barr” or the “Company”) is a Delaware holding company whose principal subsidiaries are Barr Laboratories, Inc., Duramed Pharmaceuticals, Inc. (“Duramed”) and PLIVA d.d. (“PLIVA”). The accompanying unaudited interim financial statements included in this Form 10-Q should be read in conjunction with the consolidated financial statements of Barr Pharmaceuticals, Inc. and its subsidiaries and the accompanying notes that are included in the Company’s Transition Report on Form 10-K/T (the “Transition Report”) for the six-month period ended December 31, 2006 (the “Transition Period”). The Company prepared these condensed consolidated financial statements following the requirements of the Securities and Exchange Commission and generally accepted accounting principles in the United States (“GAAP”) for interim reporting. In management’s opinion, the unaudited financial statements reflect all adjustments (including those that are normal and recurring) that are necessary in the judgment of management for a fair presentation of such statements in conformity with GAAP.

     The consolidated financial statements include all companies which Barr directly or indirectly controls (meaning it has more than 50% of the voting rights in those companies). Investments in companies where Barr holds between 20% and 50% of a company’s voting rights are accounted for by using the equity method, with Barr recording its proportionate share of that company’s net income and shareholders’ equity. The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries, after elimination of inter-company accounts and transactions.  Non-controlling interests in the Company’s subsidiaries are recorded, net of tax, as minority interest.

     In preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates. All information, data and figures provided in this report for the three and nine months ended September 30, 2006 relate solely to Barr’s financial results and do not include PLIVA’s results.

     Certain amounts in the Company’s prior-period financial statements have been reclassified to conform to the presentation for the three and nine months ended September 30, 2007. Such amounts include the Company’s reclassification of amortization expense from selling, general and administrative expense to cost of sales. See Note 9 below.

2. Recent Accounting Pronouncements

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosure about fair value measurements. The statement is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact that adopting this statement will have on its consolidated financial statements.

     In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, providing companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. GAAP has required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 requires companies to provide additional information that will help investors and other users of financial statements to more

easily understand the effect of a company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which a company has chosen to use fair value on the face of the balance sheet. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact that adopting this statement will have on its consolidated financial statements.

     In June 2007, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 07-3, Accounting for Advance Payments for Goods or Services to be Received for Use in Future Research and Development Activities. EITF 07-3 provides clarification surrounding the accounting for nonrefundable research and development advance payments, whereby such payments should be recorded as an asset when the advance payment is made and recognized as an expense when the research and development activities are performed. EITF 07-3 is effective for interim and annual reporting periods beginning after December 15, 2007. The Company is currently evaluating the impact that adopting this EITF will have on its consolidated financial statements.

3. Earnings Per Share

     The following is a reconciliation of the numerators and denominators used to calculate earnings per common share (“EPS”) as presented in the condensed consolidated statements of operations:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
(table in thousands, except per share data)
Numerator for basic and diluted earnings (loss) per share
Net earnings from continuing operations		$	44,951			$	52,761			$	103,674			$	211,111
Net loss from discontinued operations			(6,026	)			—				(7,832	)			—
Net earnings		$	38,925			$	52,761			$	95,842			$	211,111
Denominator: Weighted average shares — basic			107,298				106,311				107,008				106,089
Earnings per common share — continuing operations		$	0.42			$	0.50			$	0.97			$	1.99
Loss per common share — discontinued operations			(0.05	)			—				(0.07	)			—
Earnings per common share — basic		$	0.37			$	0.50			$	0.90			$	1.99
Denominator: Weighted average shares — diluted			108,852				108,061				108,584				108,187
Earnings per common share — continuing operations		$	0.41			$	0.49			$	0.95			$	1.95
Loss per common share — discontinued operations			(0.05	)			—				(0.07	)			—
Earnings per common share — diluted		$	0.36			$	0.49			$	0.88			$	1.95
Calculation of weighted average common shares — diluted
Weighted average shares — basic			107,298				106,311				107,008				106,089
Effect of dilutive options			1,554				1,750				1,576				2,098
Weighted average shares — diluted			108,852				108,061				108,584				108,187
Not included in the calculation of diluted earnings per-share because their impact is antidilutive:
Stock options outstanding			928				146				1,912				58

4. Acquisitions and Business Combinations

PLIVA d.d.

     On October 24, 2006, the Company’s wholly owned subsidiary, Barr Laboratories Europe B.V. (“Barr Europe”), completed the acquisition of PLIVA, headquartered in Zagreb, Croatia. Under the terms of the cash tender offer, Barr Europe made a payment of $2,377,773 based on an offer price of HRK 820 (Croatian Kuna (“HRK”)) per share for all shares tendered during the offer period. The transaction closed with 96.4% of PLIVA’s total outstanding share capital being tendered to Barr Europe (17,056,977 of 17,697,419 outstanding shares at the date of the acquisition). Subsequent to the close of the cash tender offer, Barr Europe purchased an additional 390,809 shares on the Croatian stock market for $58,309, including 53,128 shares totaling $8,432 purchased during the three months ended September 30, 2007 and 240,856 shares totaling $36,372 during the nine months ended September 30, 2007. As the acquisition was structured as a purchase of equity, the amortization of purchase price assigned to assets in excess of PLIVA’s historic tax basis will not be deductible for income tax purposes. With the addition of the treasury shares held by PLIVA, Barr Europe owned or controlled 98.12% of PLIVA’s voting share capital as of September 30, 2007 (17,447,786 of 17,781,524 outstanding shares).

     The purchase price of $36,372 for the 240,856 shares acquired during the nine months ended September 30, 2007 has been allocated to the estimated fair values using the same valuation methodology as employed with shares acquired on October 24, 2006. The fair values attributed to in-process research and development (“IPR&D”) that was expensed during the three months ended September 30, 2007 was $243, and such amount was $4,601 for the nine months ended September 30, 2007. The share purchases in the nine months ended September 30, 2007 resulted in an increase in goodwill of $6,880.

     By October 24, 2007, the Company had finalized the valuation and completed the purchase price allocation for the PLIVA acquisition.

     Refer to Note 9 below for the factors impacting the PLIVA goodwill adjustments.

O.R.C.A.pharm GmbH

     On September 5, 2007, the Company acquired 100% of the outstanding shares of O.R.C.A.pharm GmbH (“ORCA”), a privately owned specialty pharmaceutical company focused on the oncology market in Germany. In accordance with SFAS No. 141, “Business Combinations”, the Company used the purchase method to account for this transaction. Under the purchase method of accounting, the assets acquired and liabilities assumed from ORCA are recorded at the date of acquisition, at their respective fair values. The purchase price was $38,060 and includes cash paid of $28,568, accrued amounts of $2,993 for a working capital adjustment and minimum future payments of $6,176 due in 2008 and 2009, and $323 of transaction fees. The Company may also be required to pay up to an additional $11,509 based on the achievement of defined performance milestones for 2007 and 2008. The operating results of ORCA are included in the consolidated financial statements subsequent to the September 5, 2007 acquisition date. As part of the preliminary purchase price allocation the Company has assigned fair values as follows:

Inventory		$	3,442
Products acquired			29,327
Goodwill			3,514
Other assets			5,880
Liabilities			(4,103	)
Total		$	38,060

5. Discontinued Operations

     Since its acquisition of PLIVA on October 24, 2006, the Company has been evaluating PLIVA’s operations and has decided to divest or exit certain non-core operations including its operations in Spain and Italy, and its animal health and veterinary business operated by Veterina d.d. (“Veterina”). As a result, as of September 30, 2007, the assets and liabilities relating to Spain and Veterina met the “held for sale” criteria of FAS 144, Accounting for the Impairment or Disposal of Long Lived Assets.

     On September 28, 2007, the Company sold 100% of the outstanding shares in Pliva Pharma, S.p.A., its Italian subsidiary, for $4,001. This resulted in a loss on the sale of $36.

     In connection with the planned divestiture of Veterina, the Company announced on October 5, 2007 that its PLIVA subsidiary had sold 100% of the ordinary shares in Veterina through a public offering in Croatia. The Veterina business has been segregated from continuing operations and is included in assets held for sale and discontinued operations, net of taxes. See Note 17 below for further details.

     The Company’s operations in Spain and Italy are part of the generic pharmaceuticals segment. The Company’s Veterina business is a separate operating segment which does not meet the quantitative thresholds for separate disclosure and, as such, is included in “other” in Note 16 below.

     The following combined amounts of the Company’s operations in Spain and Italy and the Veterina business have been segregated from continuing operations and included in discontinued operations, net of taxes, and loss on sale of discontinued operations in the condensed consolidated statement of operations, as shown below:

		Three Months Ended																Nine Months Ended
		September 30, 2007																September 30, 2007
		Italy				Spain				Veterina				Total				Italy				Spain				Veterina				Total
Revenues
Generics		$	2,478			$	4,190			$	—			$	6,668			$	8,302			$	18,620			$	—			$	26,922
Other			—				—				7,386				7,386				—				—				23,826				23,826
Total net revenues of discontinued operations		$	2,478			$	4,190			$	7,386			$	14,054			$	8,302			$	18,620			$	23,826			$	50,748
Loss before income taxes and minority interest		$	(518	)		$	(2,777	)		$	(2,843	)		$	(6,138	)		$	(1,427	)		$	(4,001	)		$	(2,285	)		$	(7,713	)
Loss on sale of discontinued operations			(36	)			—								(36	)			(36	)			—				—				(36	)
Income tax benefit (expense)			—				—				148				148				—				—				(83	)			(83	)
Minority interest			—				—				—				—				—				—				—				—
Loss from discontinued operations-net of tax		$	(554	)		$	(2,777	)		$	(2,695	)		$	(6,026	)		$	(1,463	)		$	(4,001	)		$	(2,368	)		$	(7,832	)

     The following combined amounts of assets and liabilities related to the Spain and Veterina businesses have been segregated and included in assets held for sale and liabilities held for sale on the Company’s condensed consolidated balance sheet as of September 30, 2007 and December 31, 2006. Assets and liabilities relating to the Italian operations were divested prior to September 30, 2007, however such assets and liabilities are included in assets held for sale at December 31, 2006 in the combined table below:

		September 30,				December 31,
		2007				2006
Accounts receivable, net		$	24,743			$	21,929
Inventories			19,618				26,139
Prepaid expenses and other current assets			2,046				10,818
Current assets held for sale			46,407				58,886
Property, plant and equipment, net			11,368				5,781
Deferred income taxes			1,267				2,378
Other intangible assets, net			2,297				2,677
Other assets			118				109
Long-term assets held for sale			15,050				10,945
Assets held for sale		$	61,457			$	69,831
Accounts payable		$	7,065			$	18,761
Accrued liabilities			3,480				12,293
Current portion of long-term debt and capital lease obligations			289				253
Current liabilities held for sale			10,834				31,307
Long-term debt and capital lease obligations			1,711				1,738
Deferred tax liabilities			457				636
Other liabilities			120				206
Long-term liabilities held for sale			2,288				2,580
Liabilities held for sale		$	13,122			$	33,887

6. Investments in Marketable Securities

     Investments in Marketable Securities and Debt

     Trading Securities

     The fair value of marketable securities classified as trading at September 30, 2007 and December 31, 2006 was $3,581 and $3,718, respectively, which is included as a component of current marketable securities. Net gains (losses) for the nine-month period ended September 30, 2007 and for the six-month period ended December 31, 2006 were $999 and $(572), respectively. These amounts are included as a component of other income. Of such amount, losses in the amount of $16 are unrealized and relate to securities still held at September 30, 2007.

     Available-for-Sale Securities

     Available-for-sale equity securities include amounts invested in connection with the Company’s excess 401(k) and other deferred compensation plans of $11,259 and $10,293 at September 30, 2007 and December 31, 2006, respectively.

     Available-for-sale debt securities at September 30, 2007 include $243,442 in commercial paper and market auction debt securities and $30,370 in municipal and corporate bonds and federal agency issues. The commercial paper and market auction debt securities are readily convertible into cash at par value with interest rate reset or underlying maturity dates ranging from October 1, 2007 to December 11, 2008. The municipal and corporate bonds and federal agency issues have maturity dates ranging from October 15, 2007 to February 1, 2010.

     Available-for-sale debt securities at December 31, 2006 included $617,286 in commercial paper and market auction debt securities and $50,419 in municipal and corporate bonds and federal agency issues. The commercial paper and market auction debt securities were readily convertible into cash at par value with interest rate reset or

underlying maturity dates that ranged from January 1, 2007 to February 11, 2008. The municipal and corporate bonds and federal agency issues had maturity dates that ranged from January 1, 2007 to April 1, 2009.

     The unrealized gains (losses) on available-for-sale investments at September 30, 2007 and December 31, 2006 were $875 and $(466), respectively.

7. Derivative Instruments

     Interest Rate Risk

     The Company’s interest-bearing investments, loans and borrowings are subject to interest rate risk. The Company invests and borrows primarily on a variable-rate basis. Depending upon market conditions, the Company may fix the interest rate it either pays or receives by entering into fixed-rate investments and borrowings or through the use of derivative financial instruments.

     During 2007, as reflected in the table below, the Company entered into pay-fixed, receive-floating interest rate swap agreements effectively converting $800,000 of variable-rate debt under unsecured senior credit facilities to fixed-rate debt. The objective of the hedge is to manage the variability of cash flows in the interest payments related to the portion of the variable-rate debt designated as being hedged. With the hedge in place, the sole source of variability to the Company is the interest payments it receives based on changes in LIBOR. The swaps are accounted for in accordance with SFAS No. 133, as amended.

     Derivative financial instruments are measured at fair value and are recognized as assets or liabilities on the balance sheet, with changes in the fair value of the derivatives recognized in either net income (loss) or other comprehensive income (loss), depending on the timing and designated purpose of the derivative. When the Company pays interest on the portion of the debt designated as hedged, the gain or loss on the swap designated as hedging the interest payment will be reclassified from accumulated other comprehensive income into interest expense.

     These derivative instruments are designated as cash flow hedges with the related gains or losses recorded in other comprehensive income (net of tax) with an offsetting amount included in other non-current liabilities. The losses are $4,540 and $0 for the three months ended September 30, 2007 and 2006, respectively, and $4,975 and $0 for the nine months ended September 30, 2007 and 2006, respectively.

     The terms of the interest rate swap agreements that are still in effect as of September 30, 2007 are shown in the following table:

Notional
Principal Amount						Start Date				Maturity Date				Receive Variable Rate				Pay Fixed Rate
$	175,000					March-30-07				Jun-30-08				90 day LIBOR					5.253	%
$	125,000					Jun-30-07				Jun-30-10				90 day LIBOR					5.4735	%
$	100,000					Jun-30-07				Jun-30-10				90 day LIBOR					5.3225	%
$	100,000					Sept-30-07				Sept-30-10				90 day LIBOR					4.985	%
$	100,000					Sept-30-07				Sept-30-09				90 day LIBOR					4.92875	%
$	100,000					Sept-30-07				Mar-31-09				90 day LIBOR					4.755	%
$	100,000					Sept-30-07				Sept-30-09				90 day LIBOR					4.83	%

     During the nine-month period ended September 30, 2007, the Company unwound a treasury lock on a ten-year U.S. Treasury security used to lock-in the current benchmark interest rate. The treasury lock was previously designated as a cash flow hedge of the Company’s forecasted floating rate interest payments on an anticipated transaction. As of June 30, 2007, this hedging relationship no longer qualified for hedge accounting. Consequently, the unwinding of this treasury lock resulted in a $3,515 net gain reclassified from accumulated other comprehensive income and recorded in other income in the three months ended June 30, 2007.

     Foreign Exchange Risk

     The Company seeks to manage potential foreign exchange risk from foreign subsidiaries by matching each such subsidiary’s revenues and costs in its functional currency. Similarly, the Company seeks to manage the foreign exchange risk relating to assets and liabilities of its foreign subsidiaries by matching the assets and liabilities in the subsidiary’s functional currency. When this is not practical, the Company uses foreign exchange forward contracts or options to manage its foreign exchange risk, as described below.

     The Company entered into foreign exchange forward contracts that serve as economic hedges of certain forecasted foreign currency transactions occurring at various dates through 2007. At September 30, 2007, none of the Company’s remaining foreign exchange derivatives were eligible for hedge accounting, resulting in their changes in fair value being reported in other (expense) income. The gains or losses realized on these instruments at maturity are intended to offset the losses or gains of the transactions they are hedging.

     The table below summarizes the respective fair values of the derivative instruments described above at September 30, 2007 and December 31, 2006:

		September 30, 2007								December 31, 2006
		Balance Sheet								Balance Sheet
		Assets				Liabilities				Assets				Liabilities
Interest rate swap		$	20			$	(7,997	)		$	1,267			$	(443	)
Forward rate agreements			245				(85	)			997				(163	)
Foreign exchange forward contracts			820				(4,932	)			383				(106	)
Total		$	1,085			$	(13,014	)		$	2,647			$	(712	)

8. Inventories

     Inventories consist of the following:

		September 30,				December 31,
		2007				2006
Raw materials and supplies		$	177,749			$	160,345
Work-in-process			99,895				67,798
Finished goods			223,401				198,129
Total inventories		$	501,045			$	426,272

9. Goodwill and Other Intangible Assets

     Goodwill at December 31, 2006 and September 30, 2007 was as follows:

		Generic				Proprietary
		Pharmaceuticals				Pharmaceuticals				Total
Goodwill balance at December 31, 2006		$	228,529			$	47,920			$	276,449
Additional acquisition of PLIVA shares			6,880				—				6,880
PLIVA goodwill adjustments			(27,648	)			—				(27,648	)
Currency translation effect			16,959				—				16,959
Goodwill on acquisition of ORCA			3,661				—				3,661
Goodwill balance at September 30, 2007		$	228,381			$	47,920			$	276,301

     PLIVA goodwill adjustments for the nine months ended September 30, 2007 include the following purchase price allocation and valuation revisions made based on additional information available to modify the Company’s initial estimates for certain assets and liabilities.

Current assets (excluding cash)		$	(6,686	)
Property, plant & equipment			(40,122	)
Other non-current assets			291
Current liabilities(1)			4,812
Deferred tax liabilities			6,320
Other liabilities			7,737
Total PLIVA goodwill adjustments		$	(27,648	)

(1) The initial PLIVA opening balance sheet reflected an accrued liability of $1,500 relating to a potential obligation owing by PLIVA to certain former employees in connection with their allegations of invention rights relating to the process for manufacturing Azithromycin. Upon a Croatian court’s entry of a judgment in favor of the former employees in June 2007, the Company allocated an additional $12,500 as an accrued liability relating to this matter. PLIVA is appealing the decision, and believes it has strong grounds for full or partial reversal on appeal. PLIVA’s obligation to pay any amount to the former employees will not arise unless and until the decision in favor of the former employees is affirmed on appeal.

     Intangible assets at September 30, 2007 and December 31, 2006 consist of the following:

						September 30,												December 31,
		2007												2006
		Gross								Net				Gross								Net
		Carrying				Accumulated				Carrying				Carrying				Accumulated				Carrying
		Amount				Amortization				Amount				Amount				Amortization				Amount
Finite-lived intangible assets:
Product licenses		$	45,350			$	18,876			$	26,474			$	45,350			$	15,624			$	29,726
Product rights			1,429,606				179,163				1,250,443				1,301,939				64,788				1,237,151
Land use rights			97,341				1,105				96,236				88,053				166				87,887
Other			28,829				470				28,359				38,626				94				38,532
Total amortized finite-lived intangible assets			1,601,126				199,614				1,401,512				1,473,968				80,672				1,393,296
Indefinite-lived intangible assets — tradenames:			85,639				—				85,639				78,197				—				78,197
Total identifiable intangible assets		$	1,686,765			$	199,614			$	1,487,151			$	1,552,165			$	80,672			$	1,471,493

     The Company’s product licenses, product rights, land use rights and other finite lived intangible assets have weighted average useful lives of approximately 10, 17, 99 and 10 years, respectively. Amortization expense associated with these acquired intangibles was $40,213 and $7,894 for the three months ended September 30, 2007 and 2006, respectively, and $120,262 and $25,406 for the nine months ended September 30, 2007 and 2006, respectively. During the Transition Period (six months ended December 31, 2006), the Company revised the presentation of amortization expense to include this item within cost of sales instead of selling, general and administrative expense. The presentation for the three and nine months ended September 30, 2006 was reclassified to conform to that of the three and nine months ended September 30, 2007.

     The Company reviews the carrying value of its long-lived assets for impairment annually and whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. Fair value is defined as the market price. If the market price is not available, fair value is estimated based on the present value of future cash flows. Such evaluation took place as of July 1, 2007 with no impairment deemed required.

     The annual estimated amortization expense for the next five calendar years on finite-lived intangible assets is as follows:

Years Ending December 31,
2008			$	168,084
2009			$	154,639
2010			$	146,238
2011			$	136,047
2012			$	126,892

     Included in the finite-lived intangible assets table above are product rights to over 200 intangible assets acquired by the Company over the past five years. The following table disaggregates the values of these product rights into therapeutic categories as of September 30, 2007:

		September 30, 2007
														Weighted
		Gross								Net				Average
		Carrying				Accumulated				Carrying				Amortization
Product Rights by Therapeutic Category		Amount				Amortization				Amount				Period
Contraception		$	383,412			$	56,098			$	327,314				18
Antibiotics, antiviral & anti-infectives			227,375				30,864				196,511				10
Cardiovascular			211,704				26,950				184,754				10
Psychotherapeutics			159,818				17,398				142,420				12
Other (1)			447,297				47,853				399,444				10
Total product rights		$	1,429,606			$	179,163			$	1,250,443

10. Debt

          A summary of outstanding debt is as follows:

		September 30,				December 31,
		2007				2006
Credit facilities (a)		$	1,850,000			$	2,415,703
Note due to WCC shareholders (b)			6,500				6,500
Obligation under capital leases (c)			2,176				2,819
Fixed rate bonds (d)			109,130				101,780
Dual-currency syndicated credit facility (e)			65,065				86,287
Euro commercial paper program (f)			47,856				26,334
Dual-currency term loan facility (g)			25,000				25,000
Multi-currency revolving credit facility (h)			42,176				13,167
Other			1,861				79
			2,149,764				2,677,669
Less: current installments of debt and capital lease obligations			344,969				742,192
Total long-term debt		$	1,804,795			$	1,935,477

(a)

In connection with the closing of the PLIVA acquisition, on October 24, 2006, the Company entered into unsecured senior credit facilities (the “Credit Facilities”) and drew $2,000,000 under a five-year term facility and $415,703 under a 364-day term facility, both of which bear interest at variable rates of LIBOR plus 75 basis points (6.11% at September 30, 2007). The Company is obligated to repay the outstanding principal amount of the five-year term facility in 18 consecutive quarterly installments of $50,000, with the first payment having been made

 

on March 30, 2007, with the balance of $1,100,000 due at maturity in October 2011. The five-year term facility had an outstanding principal balance of $1,850,000 at September 30, 2007. The 364-day term facility was due to mature in October 2007, however the Company repaid it in full on September 28, 2007, using cash on hand. The Credit Facilities include customary covenants, including financial covenants limiting the total indebtedness of the Company on a consolidated basis.

(b)		In February 2004, the Company acquired all of the outstanding shares of Women’s Capital Corporation (“WCC”). In connection with that acquisition, the Company issued a four-year, $6,500 promissory note to WCC’s former shareholders. The note bears a fixed interest rate of 2%. The entire principal amount and all accrued interest is due on February 25, 2008.
(c)		The Company has certain capital lease obligations for machinery, equipment and buildings in the United States and the Czech Republic.

The Company’s debt includes the following liabilities incurred by PLIVA. Debt incurred prior to the acquisition on October 24, 2006 was recorded at fair value based on the prevailing market prices on the acquisition date, pursuant to the provisions of SFAS No. 141 (Euro to U.S. dollar equivalents are based on the exchange rate in effect at September 30, 2007):

(d)		In May 2004, PLIVA issued Euro denominated fixed rate bonds with a face value of EUR 75,000 ($106,308). The bonds mature in 2011 and bear interest at 5.75%, payable semiannually. At the time of the PLIVA acquisition, the aggregate fair value of the bonds was EUR 77,475 ($109,816). The premium over face value of EUR 2,475 ($3,509) is being amortized over the remaining life of the bonds. The amortization for the nine month period ended September 30, 2007 was EUR 484 ($687). The facility includes customary covenants.
(e)		On October 28, 2004, PLIVA entered into a dual-currency syndicated term loan facility pursuant to which the lenders agreed to provide the borrowers up to $250,000, available to be drawn in either US dollars or Euros. The facility has a five-year term and bears interest at a variable rate based on LIBOR or Euribor plus 70 basis points. At September 30, 2007, there was $44,855 outstanding with an effective interest rate of 6.0469% and EUR 14,258 ($20,210) outstanding with an effective interest rate of 4.817%. The facility includes customary covenants. On October 29, 2007, PLIVA repaid $25,095 and EUR 11,348 ($16,085) on this loan facility.
(f)		In December 1998, PLIVA initiated, and in June 2003 updated, a commercial paper program that provides for an aggregate amount of Euro denominated financing not to exceed EUR 250,000 ($354,375) and bears interest at a variable interest rate. As of September 30, 2007, there was EUR 33,823 ($47,856) outstanding at an effective interest rate of 5.51%. Subsequently on October 5, 2007, EUR 20,000 ($28,350) has been drawn under this program, with such amount due to be repaid on December 19, 2007.
(g)		On September 9, 2006, PLIVA entered into a dual currency term loan facility pursuant to which the lender agreed to provide the borrowers up to $25,000, available to be drawn in either US dollars or Euros at a variable rate based on LIBOR or Euribor plus a negotiated margin. On September 7, 2007, the facility was amended and extended for an additional two-year term. At September 30, 2007, there was $25,000 outstanding with an effective interest rate of 5.72% plus a negotiated margin. The facility includes customary covenants.
(h)		In June 2005, PLIVA entered into a EUR 30,000 multi-currency revolving credit facility ($42,176). The facility matures on December 31, 2007 and bears interest at a variable rate based on LIBOR, Euribor or another relevant reference rate plus a negotiated margin. At September 30, 2007, there was EUR 30,000 ($42,176) outstanding with an effective interest rate of 4.36% plus a negotiated margin. The facility includes customary covenants.

             Principal maturities of existing long-term debt and amounts due on capital leases for the periods set forth in the table below are as follows:

Twelve Months Ending September 30,		Total
2009		$	237,847
2010		$	206,269
2011		$	256,634
2012		$	1,100,343
2013		$	367
Thereafter		$	513
Total principal maturities and amounts due on long-term debt and capital obligations		$	1,801,973
Premium on fixed rate bond (see (d) above)		$	2,822
Total long-term debt and capital lease obligations		$	1,804,795

11. Accumulated Other Comprehensive Income

		Three months ended								Nine months ended
		September 30,				September 30,				September 30,				September 30,
		2007				2006				2007				2006
Net income		$	38,925			$	52,761			$	95,842			$	211,111
Net unrealized gain on marketable securities, net of tax			404				206				1,187				484
Net (loss) on derivative financial instruments designated as cash flow hedges, net of tax			(4,540	)			—				(4,975	)			—
Net unrealized gain on currency translation adjustments			92,629				—				139,595				—
Total comprehensive income		$	127,418			$	52,967			$	231,649			$	211,595

     Accumulated other comprehensive income, as reflected on the balance sheet, is comprised of the following:

		September 30,				December 31,
		2007				2006
Cumulative unrealized gain (loss) on marketable securities, net of tax		$	915			$	(272	)
Cumulative net (loss) on derivative financial instruments designated as cash flow hedges, net of tax			(4,975	)			—
Cumulative net unrealized gain on pension and other post employment benefits, net of tax			22				22
Cumulative net unrealized gain on currency translation adjustments			216,445				76,850
Accumulated other comprehensive income		$	212,407			$	76,600

12. Income Taxes

     In June 2006, the FASB issued FIN No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes— an interpretation of FASB Statement 109. FIN 48 establishes a single model to address accounting for uncertain tax positions. On January 1, 2007, the Company adopted FIN 48, and as a result, recorded a $4,500 increase in the net liability for unrecognized tax positions, which was entirely recorded as a $4,500 adjustment to the opening balance of goodwill relating to the PLIVA acquisition. The total amount of gross unrecognized tax benefits as of January 1, 2007 was $25,000, and did not change materially as of September 30,

2007. Included in the balance at September 30, 2007 was $13,200 of tax positions that, if recognized, would affect the Company’s effective tax rate. The Company does not believe that the amount of the liability for unrecognized tax benefits will materially change during the next 52-week period.

     Upon adoption of FIN 48, the Company elected an accounting policy to classify accrued interest and related penalties relating to unrecognized tax benefits in interest expense. Previously, the Company’s policy was to classify interest and penalties in its income tax provision. The Company had $2,600 accrued for interest and penalties at September 30, 2007.

     The Company is currently being audited by the IRS for its June 30 and December 31, 2006 tax years. Prior periods have either been audited or are no longer subject to an IRS audit. Audits in several state jurisdictions are currently underway for tax years 2004 to 2006. The foreign jurisdictions with significant operations currently being audited are Croatia for 2004 and 2005 (tax years that remain subject to examination are 2003 and 2006), Czech Republic for 2003 to 2005 (tax year that remains subject to examination is 2006) and Hungary for 2005 and 2006 (tax years that remain subject to examination are 2002-2005). Additionally, although Germany and Poland are not currently being audited, the tax years that remain subject to examination in Germany are 2004-2006 and in Poland 2001-2002 and 2004-2006.

     During the three months ended September 30, 2007, the German government enacted new tax legislation reducing the statutory corporate tax rate from 39% to 30%, effective January 1, 2008. The change reduced the Company’s deferred tax liability and income tax provision by approximately $9,600 during the quarter.

13. Stock-based Compensation

     The Company adopted SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)), effective July 1, 2005. SFAS 123(R) requires the recognition of the fair value of stock-based compensation in net earnings. The Company has three stock-based employee compensation plans, two stock-based non-employee director compensation plans and an employee stock purchase plan. Stock-based compensation consists of stock options and stock-settled stock appreciation rights (“SSARs”) granted under the employee equity compensation plans, and shares purchased under the employee stock purchase plan. Stock options and SSARs are granted to employees at exercise prices equal to the fair market value of the Company’s stock at the dates of grant. Generally, stock options and SSARs granted to employees fully vest three years from the grant date and have a term of 10 years. Stock options granted to directors are generally exercisable on the date of the first annual shareholders’ meeting immediately following the date of grant. The Company recognizes stock-based compensation expense over the requisite service period of the individual grants, which generally equals the vesting period.

     The Company utilized the modified prospective transition method for adopting SFAS 123(R). Under this method, the provisions of SFAS 123(R) apply to all awards granted or modified after the date of adoption. In addition, the unrecognized expense of awards not yet vested at the date of adoption, determined under the original provisions of SFAS No. 123, is recognized in net earnings in the periods after the date of adoption.

     The Company recognized stock-based compensation expense for the three months ended September 30, 2007 and 2006 of $7,947 and $7,124, respectively, and for the nine months ended September 30, 2007 and 2006 of $23,379 and $20,322, respectively. The Company also recorded related tax benefits for the three months ended September 30, 2007 and 2006 of $2,771 and $2,125, respectively, and for the nine months ended September 30, 2007 and 2006 of $7,874 and $6,061, respectively. The effect on net income from recognizing stock-based compensation for the three months ended September 30, 2007 and 2006 was $5,176 and $4,999, or $0.05 per basic and $0.05 per diluted share, respectively, and for the nine months ended September 30, 2007 and 2006 was $15,505 and $14,261, or $0.14 and $0.13 per basic and $0.14 and $0.13 per diluted share, respectively.

     The total number of shares of common stock issuable upon the exercise of stock options and SSARs granted during the nine months ended September 30, 2007 and 2006 was 1,439,950 and 1,691,100 respectively, with weighted-average exercise prices of $51.10 and $49.65, respectively.

     For all of the Company’s stock-based compensation plans, the fair value of each grant was estimated at the date of grant using the Black-Scholes option-pricing model. Black-Scholes utilizes assumptions related to volatility, the risk-free interest rate, the dividend yield (which is assumed to be zero, as the Company has not paid any cash dividends) and option holder exercise behavior. Expected volatilities utilized in the model are based mainly on the historical volatility of the Company’s stock price and other factors. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect in the period of grant. The model incorporates exercise and post-vesting

forfeiture assumptions based on an analysis of historical data. The average expected term is derived from historical and other factors. The stock-based compensation for the awards issued in the respective periods was determined using the following assumptions and calculated average fair values:

		Three								Nine
		Months Ended								Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Average expected term (years)			4				5				4				5
Weighted average risk-free interest rate			5.00	%			5.10	%			4.64	%			5.06	%
Dividend yield			0	%			0	%			0	%			0	%
Volatility			29.20	%			32.18	%			29.81	%			32.41	%
Weighted average grant date fair value		$	17.03			$	18.27			$	15.71			$	18.65

     As of September 30, 2007, the aggregate intrinsic value of awards outstanding and exercisable was $142,873 and $123,195, respectively. In addition, the aggregate intrinsic value of awards exercised during the nine months ended September 30, 2007 and 2006 was $26,723 and $35,978, respectively. The total remaining unrecognized compensation cost related to unvested awards amounted to $45,759 at September 30, 2007 and is expected to be recognized over the next three years. The weighted average remaining requisite service period of the unvested awards was 24 months.

14. Restructuring

     Management’s plans for the restructuring of the Company’s operations as a result of its acquisition of PLIVA are completed. As of September 30, 2007, certain elements of the plan have been recorded as a cost of the acquisition.

     Through September 30, 2007, the Company has recorded restructuring costs primarily associated with severance costs and the costs of vacating certain duplicative PLIVA facilities in the U.S. Certain of these costs were recognized as liabilities assumed in the acquisition. The components of the restructuring costs capitalized as a cost of the acquisition are as follows and are included in the generic pharmaceuticals segment:

		Balance												Balance
		as of												as of
		December 31,												September 30,
		2006				Payments				Additions				2007
Involuntary termination of PLIVA employees		$	8,277			$	7,005			$	328			$	1,600
Lease termination costs			10,201				177				—				10,024
		$	18,478			$	7,182			$	328			$	11,624

     Lease termination costs represent costs incurred to exit duplicative activities of PLIVA. Severance includes accrued severance benefits and costs associated with change-in-control provisions of certain PLIVA employment contracts.

     In addition, in connection with its restructuring of PLIVA’s U.S. operations, the Company incurred $7,044 of severance and retention bonus expense in the nine months ended September 30, 2007.

15. Commitments and Contingencies

Litigation Matters

     The Company is involved in various legal proceedings incidental to its business, including product liability, intellectual property and other commercial litigation and antitrust actions. The Company records accruals for such contingencies to the extent that it concludes a loss is probable and the amount can be reasonably estimated. The

Company also records accruals for litigation settlement offers made by the Company, whether or not the settlement offers have been accepted.

     The Company’s material litigation matters are summarized in its Transition Report on Form 10-K/T for the six month period ended December 31, 2006 and its Form 10-Qs for the quarters ended March 31, 2007 and June 30, 2007. Except for the matters summarized below, no material changes have occurred in the Company’s litigation matters since June 30, 2007.

     Fexofenadine Hydrochloride Suit

     On November 14, 2006, Sanofi-Aventis sued the Company and Teva in the U.S. District Court for the Eastern District of Texas, alleging that Teva’s fexofenadine hydrochloride tablets infringe a patent directed to a certain crystal form of fexofenadine hydrochloride, and that the Company induced Teva’s allegedly infringing sales. On November 21, 2006, Sanofi-Aventis filed an amended complaint in the same court, asserting that the Company’s fexofenadine hydrochloride tablets infringe a different patent directed to a different crystal form of fexofenadine hydrochloride. On January 12, 2007, the Company moved to dismiss the suit against Barr Pharmaceuticals, answered the complaint on behalf of Barr Laboratories, denied the allegations against it, and moved to transfer the action to the U.S. District Court for New Jersey. On September 27, 2007, the U.S. District Court for the Eastern District of Texas granted the Company’s motion to transfer the case to the U.S. District Court for New Jersey and denied Barr Pharmaceutical, Inc.’s motion to dismiss as moot.

     Antitrust Matters

     Ciprofloxacin (Cipro®) Antitrust Class Actions

     The Company has been named as a co-defendant with Bayer Corporation, The Rugby Group, Inc. and others in approximately 38 class action complaints filed in state and federal courts by direct and indirect purchasers of Ciprofloxacin (Cipro) from 1997 to the present. The complaints allege that the 1997 Bayer-Barr patent litigation settlement agreement was anti-competitive and violated federal antitrust laws and/or state antitrust and consumer protection laws.

     On November 2, 2007, the Company and the other defendants in the federal litigation filed a motion with the United States Court of Appeals for the Second Circuit, asking the court to immediately transfer the case to the United States Court of Appeals for the Federal Circuit or, in the alternative, to summarily affirm the district court’s judgment in favor of all defendants, based on the Second Circuit’s ruling in the Tamoxifen antitrust case.

     On September 19, 2003, the Circuit Court for the County of Milwaukee dismissed the Wisconsin state class action for failure to state a claim for relief under Wisconsin state law. The Court of Appeals reinstated the complaint on May 9, 2006 and the Wisconsin Supreme Court affirmed that decision on July 13, 2007, while not addressing the underlying merits of plaintiffs’ case. The matter has now returned to the trial court for further proceedings; no schedule or trial date has been set.

     On April 13, 2005, the Superior Court of San Diego, California ordered a stay of the California state class actions until after the resolution of any appeal in the MDL case. Plaintiffs have requested that the court lift the stay. A hearing on the matter is currently scheduled for November 8, 2007.

     Ovcon Antitrust Proceedings

     To date, the Company has been named as a co-defendant with Warner Chilcott Holdings, Co. III, Ltd. and others in complaints filed in federal courts by the Federal Trade Commission, 34 state Attorneys General and certain private class action plaintiffs claiming to be direct or indirect purchasers of Ovcon-35®. These actions, the first of which was filed by the FTC in December 2005, allege, among other things, that a March 24, 2004 agreement between the Company and Warner Chilcott (then known as Galen Holdings PLC) constitutes an unfair method of competition, is anticompetitive and restrains trade in the market for Ovcon-35® and its generic equivalents.

     During the quarter ended September 30, 2007, the Company and counsel for the FTC reached an agreement in principle, subject to FTC approval, to settle the FTC’s lawsuit against the Company. Under the proposed settlement, the FTC would dismiss its case against the Company, and the Company would agree to refrain from entering into

exclusive supply agreements in certain non-patent challenge situations where the Company is an ANDA holder and the party being supplied is the NDA holder. On September 28, 2007, the Company and the FTC filed a joint motion with the district court seeking to stay the FTC’s case, pending FTC approval of the proposed settlement. On November 1, 2007, the FTC unanimously approved the proposed settlement. The Company anticipates that the proposed settlement will be finalized shortly, resulting in the dismissal of the FTC’s lawsuit against the Company.

     The court has ordered dispositive motions in the States’ case to be filed by November 14, 2007. The court has not yet set a trial date.

     In the actions brought on behalf of the direct purchasers, on October 22, 2007, the Court granted plaintiffs’ motion to certify a class on behalf of all entities that purchased Ovcon 35^® directly from Warner Chilcott (or its affiliated companies) from April 22, 2004. Fact and expert discovery are now closed. The Court has ordered dispositive motions to be filed by November 14, 2007. No trial date has been set.

     In the actions brought on behalf of the indirect purchasers, the Company reached an agreement in principle with the class representatives to settle plaintiffs’ claims. On June 27 and 28, 2007, the court entered orders conditionally certifying a settlement class and preliminarily approving the parties’ settlement agreement. The court has scheduled a fairness hearing for November 6, 2007. This settlement is conditioned on the number of plaintiffs who exercise their right to opt-out of the settlement class not exceeding the threshold established by the terms of the settlement agreement.

     During the three and nine months ended September 30, 2007, the Company recorded charges in the amounts of $7,250 and $15,250 related to these and other settlement offers in the Ovcon litigation.

     Medicaid Reimbursement Cases

     The Company and numerous other pharmaceutical companies have been named as defendants in separate actions brought by the states of Alabama, Alaska, Hawaii, Idaho, Illinois, Iowa, Kentucky, Massachusetts, Mississippi, South Carolina and Utah, the City of New York, and numerous counties in New York. In each of these matters, the plaintiffs seek to recover damages and other relief for alleged overcharges for prescription medications paid for or reimbursed by their respective Medicaid programs, with some states also pursuing similar allegations based on the reimbursement of drugs under Medicare Part B or the purchase of drugs by a state health plan (for example, South Carolina).

     In the Massachusetts case, the parties have reached a settlement under which the Company has denied any wrongdoing, and a stipulation of dismissal has been filed with the court.

     The State of Iowa case was filed in federal court in Iowa on October 9, 2007. The matter is at an early stage. No trial date has been set.

     The State of Utah case was filed in state court in Utah on September 21, 2007. The matter is at an early stage. No trial date has been set.

     Government Inquiries

     On October 3, 2006, the FTC notified the Company it was investigating a patent litigation settlement reached in matters pending in the U.S. District Court for the Southern District of New York between the Company and Shire PLC concerning Shire’s Adderall XR product. On June 20, 2007, the Company received a Civil Investigative Demand seeking documents and data. The FTC is investigating whether the Company and the other parties to the litigation have engaged in unfair methods of competition in violation of the Federal Trade Commission Act by entering into agreements relating to Adderall XR and generic alternatives to Adderall XR, or other products for the treatment of attention deficit hyperactivity disorder. The Company believes that its settlement agreement is in compliance with all applicable laws and intends to cooperate with the FTC in its investigation.

16. Segment Reporting

     The Company operates in two reportable business segments: generic pharmaceuticals and proprietary pharmaceuticals. The Company evaluates the performance of its operating segments based on net revenues and gross profit. The Company does not report depreciation expense, total assets or capital expenditures by segment as such information is neither used by management nor accounted for at the segment level. Net product sales and gross profit information for the Company’s operating segments consisted of the following:

Three months ended		Generic								Proprietary																				% of
September 30, 2007		Pharmaceuticals				%				Pharmaceuticals				%				Other				%				Consolidated				revenue
Revenues:
Product sales		$	434,190				72	%		$	124,678				21	%		$	—				—	%		$	558,868				93	%
Alliance and development revenue			—				—	%			—				—	%			31,996				5	%			31,996				5	%
Other revenue			—				—	%			—				—	%			10,521				2	%			10,521				2	%
Total revenues		$	434,190				72	%		$	124,678				21	%		$	42,517				7	%		$	601,385				100	%
						Margin								Margin								Margin								Margin
Gross Profit:						%								%								%								%
Product sales		$	202,989				47	%		$	94,717				76	%		$	—				—	%		$	297,706				53	%
Alliance and development revenue			—				—	%			—				—	%			31,996				100	%			31,996				100	%
Other revenue			—				—	%			—				—	%			4,352				41	%			4,352				41	%
Total gross profit		$	202,989				47	%		$	94,717				76	%		$	36,348				85	%		$	334,054				56	%

Three months ended		Generic								Proprietary																				% of
September 30, 2006		Pharmaceuticals				%				Pharmaceuticals				%				Other				%				Consolidated				revenue
Revenues:
Product sales		$	197,595				60	%		$	103,286				31	%		$	—				—	%		$	300,881				91	%
Alliance and development revenue			—				—	%			—				—	%			31,489				9	%			31,489				9	%
Other revenue			—				—	%			—				—	%			—				—	%			—				—	%
Total revenues		$	197,595				60	%		$	103,286				31	%		$	31,489				9	%		$	332,370				100	%
						Margin								Margin								Margin								Margin
Gross Profit: (1)						%								%								%								%
Product sales		$	132,047				67	%		$	79,256				77	%		$	—				—	%		$	211,303				70	%
Alliance and development revenue			—				—	%			—				—	%			31,489				100	%			31,489				100	%
Other revenue			—				—	%			—				—	%			—				—	%			—				—	%
Total gross profit		$	132,047				67	%		$	79,256				77	%		$	31,489				100	%		$	242,792				73	%