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, 2008

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 Incorporation or Organization)		(I.R.S. - Employer Identification No.)

225 Summit Ave, Montvale, New Jersey 07645-1523
(Address of principal executive offices)

201-930-3300

(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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company 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 31, 2008, the registrant had 109,445,530 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 as of September 30, 2008 and December 31, 2007 (unaudited)			3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2008 and 2007(unaudited)			4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007 (unaudited)			5
Notes to Condensed Consolidated Financial Statements (unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			46
Item 4. Controls and Procedures			47
Part II Other Information
Item 1. Legal Proceedings			48
Item 1A. Risk Factors			48
Item 6. Exhibits			48
Signatures			49
EX-10.1: AMENDED AND UPDATED LEASE AGREEMENT
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.0: CERTIFICATION

Part I. CONDENSED FINANCIAL INFORMATION

BARR PHARMACEUTICALS, INC. AND SUBSIDIARIES

		September 30,				December 31,
		2008				2007
Assets
Current assets:
Cash and cash equivalents		$	587			$	246
Marketable securities			15				288
Accounts receivable, net			594				497
Other receivables			91				86
Inventories			431				454
Deferred income taxes			62				74
Prepaid expenses and other current assets			88				58
Total current assets			1,868				1,703
Property, plant and equipment, net			1,088				1,112
Deferred income taxes			29				40
Marketable securities			19				17
Other intangible assets, net			1,360				1,483
Goodwill			286				286
Other assets			118				117
Long-term assets held for sale			1				4
Total assets		$	4,769			$	4,762
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	156			$	152
Accrued liabilities			304				291
Current portion of long-term debt and capital lease obligations			231				298
Income taxes payable			15				37
Deferred tax liabilities			2				2
Total current liabilities			708				780
Long-term debt and capital lease obligations			1,715				1,782
Deferred tax liabilities			161				193
Other liabilities			88				103
Commitments & contingencies (Note 17)
Minority interest			28				38
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 112,405,582 and 110,783,167 at September 30, 2008 and December 31, 2007			1				1
Additional paid-in capital			772				682
Retained earnings			1,117				1,006
Accumulated other comprehensive income			280				278
Treasury stock at cost: 2,972,997 shares at September 30, 2008 and December 31, 2007			(101	)			(101	)
Total shareholders’ equity			2,069				1,866
Total liabilities, minority interest and shareholders’ equity		$	4,769			$	4,762

SEE ACCOMPANYING NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BARR PHARMACEUTICALS, INC. AND SUBSIDIARIES

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Revenues:
Product sales		$	695			$	559			$	1,935			$	1,706
Alliance and development revenue			33				33				158				94
Other revenue			9				10				31				32
Total revenues			737				602				2,124				1,832
Costs and expenses:
Cost of sales			342				267				970				841
Selling, general and administrative			234				190				649				557
Research and development			69				62				214				191
Write-off of acquired in-process research and development			—				1				—				5
Earnings from operations			92				82				291				238
Interest income			3				8				15				27
Interest expense			24				38				83				122
Other (expense) income, net			(11	)			8				(19	)			13
Earnings before income taxes and minority interest			60				60				204				156
Income tax expense			26				15				91				50
Minority interest income (loss), net of taxes			—				—				1				(2	)
Net earnings from continuing operations			34				45				114				104
Net loss from discontinued operations, net of taxes			(3	)			(6	)			(3	)			(8	)
Net earnings		$	31			$	39			$	111			$	96
Basic:
Earnings per common share — continuing operations		$	0.31			$	0.42			$	1.05			$	0.97
Loss per common share — discontinued operations			(0.03	)			(0.05	)			(0.03	)			(0.07	)
Net earnings per common share — basic		$	0.28			$	0.37			$	1.02			$	0.90
Diluted:
Earnings per common share — continuing operations		$	0.31			$	0.41			$	1.04			$	0.95
Loss per common share — discontinued operations			(0.03	)			(0.05	)			(0.03	)			(0.07	)
Net earnings per common share — diluted		$	0.28			$	0.36			$	1.01			$	0.88
Weighted average shares — basic			109				107				109				107
Weighted average shares — diluted			111				109				110				109

SEE ACCOMPANYING NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BARR PHARMACEUTICALS, INC. AND SUBSIDIARIES

		Nine Months Ended
		September 30,
		2008				2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings		$	111			$	96
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			243				221
Deferred revenue			(5	)			(5	)
Minority interest (income) loss			(1	)			2
Stock-based compensation expense			25				23
Excess tax benefits from stock-based compensation			(13	)			8
Deferred income tax benefit			(38	)			(49	)
Loss on derivative instruments, net			14				9
Loss on sale of discontinued operations			3				—
Other			(3	)			(1	)
Write-off of in-process research and development associated with acquisitions			—				5
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable and other receivables, net			(117	)			66
Inventories			16				(42	)
Prepaid expenses			14				9
Other assets			4				(2	)
Increase (decrease) in:
Accounts payable, accrued liabilities and other liabilities			15				(67	)
Income taxes payable			(19	)			(16	)
Net cash provided by operating activities			249				257
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment			(88	)			(80	)
Proceeds from sales of property, plant and equipment			8				1
Proceeds from sale of discontinued operations			3				—
Acquisitions, net of cash acquired			(14	)			(87	)
Settlement of derivative instruments			(11	)			(3	)
Purchases of marketable securities			(149	)			(1,635	)
Sales of marketable securities			419				2,032
Investment in debt securities			—				(2	)
Other			6				—
Net cash provided by investing activities			174				226
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and capital leases			(729	)			(617	)
Proceeds from long-term debt			585				71
Excess tax benefits from stock based compensation			13				8
Dividends paid to minority interest shareholders			(6	)			—
Proceeds from exercise of stock options, employee stock purchases and warrants			53				27
Other			—				1
Net cash used in financing activities			(84	)			(510	)
Effect of exchange-rate changes on cash and cash equivalents			2				7
Increase (decrease) in cash and cash equivalents			341				(20	)
Cash and cash equivalents at beginning of period			246				232
Cash and cash equivalents at end of period		$	587			$	212

SEE ACCOMPANYING NOTES TO THE UNAUDITED 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 condensed consolidated 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 Annual Report on Form 10-K for the year ended December 31, 2007. 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 condensed consolidated financial statements reflect all adjustments (consisting of 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 condensed consolidated financial statements include all companies that Barr directly or indirectly controls (meaning it has more than 50% of voting rights in those companies). Investments in companies where Barr owns 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 net income or loss for such investments in its results for that period. The condensed 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 the condensed consolidated 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.

     Certain amounts in the Company’s prior-period condensed consolidated financial statements have been reclassified to conform to the presentation for the three and nine months ended September 30, 2008. Such amounts include the Company’s reclassification of assets held for sale and discontinued operations. See Note 6.

2. Recent Accounting Pronouncements

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157 (“SFAS 157”), Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosure about fair value measurements. However, in February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2 (“FSP 157-2”) which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. FSP 157-2 defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for items within the scope of FSP 157-2. Effective for 2008, the Company has adopted SFAS 157 in accordance with FSP 157-2. The partial adoption of SFAS 157 did not have a material impact on its condensed consolidated financial statements but additional disclosures were required. See Note 8.

     In February 2007, the FASB issued SFAS No. 159 (“SFAS 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 did not elect to adopt the fair value option under SFAS 159.

     In June 2007, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 07-3 (“EITF 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 adoption of EITF 07-3 did not have a material effect on the Company’s condensed consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 141(R) (“SFAS 141(R)”), Business Combinations (revised), replacing SFAS No. 141 (“SFAS 141”), Business Combinations. This new statement requires additional assets and assumed liabilities to be measured at fair value when acquired in a business combination as compared to the original pronouncement. SFAS 141(R) also requires liabilities related to contingent consideration to be re-measured to fair value each reporting period, acquisition-related costs to be expensed and not capitalized and acquired in-process research and development to be capitalized as an indefinite lived intangible asset until completion or abandonment of project. SFAS 141(R) requires prospective application for business combinations consummated in fiscal years beginning on or after December 15, 2008. This statement does not allow for early adoption. The Company is currently evaluating the impact of the adoption of this statement on its consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51 (“ARB No. 51"). This amendment of ARB No. 51 requires a noncontrolling interest in subsidiaries initially to be measured at fair value and then to be classified as a separate component of equity. This statement is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2008. This statement does not allow for early adoption, however, application of SFAS 160 disclosure and presentation requirements is retroactive. The Company is currently evaluating the impact of the adoption of this statement on its consolidated financial statements.

     In December 2007, the EITF issued EITF Issue No. 07-1 (“EITF 07-1”), Accounting for Collaborative Arrangements. EITF 07-1 affects entities that participate in collaborative arrangements for the development and commercialization of intellectual property. The EITF affirmed the tentative conclusions reached on (1) what constitutes a collaborative arrangement, (2) how the parties should present costs and revenues in their respective income statements, (3) how the parties should present cost-sharing payments, profit-sharing payments, or both in their respective income statements, and (4) disclosure in the annual financial statements of the parties. EITF 07-1 should be applied as a change in accounting principle through retrospective application to all periods presented for collaborative arrangements existing as of the date of adoption. EITF 07-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact of the adoption of this statement on its consolidated financial statements.

     On March 19, 2008, the FASB issued SFAS No. 161 (“SFAS 161”), Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement 133. SFAS 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities; and (c) derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Specifically, SFAS 161 requires: disclosure of the objectives for using derivative instruments in terms of underlying risk and accounting designation; disclosure of the fair values of derivative instruments and their gains and losses in a tabular format; disclosure of information about credit-risk-related contingent features; and cross-references from the derivative footnote to other footnotes in which derivative-related information is disclosed. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Early application is encouraged. The Company is currently evaluating the impact of the application of SFAS 161 on its consolidated financial statements.

     On April 25, 2008, the FASB issued FASB Staff Position SFAS 142-3 (“FSP 142-3”). FSP 142-3 amends the list of factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under SFAS No. 142. The new guidance applies to (1) intangible assets

that are acquired individually or with a group of other assets and (2) intangible assets acquired in both business combinations and asset acquisitions. FSP 142-3 is effective for fiscal years ending after December 15, 2008. Early adoption of FSP 142-3 is prohibited. The Company is currently evaluating the impact of the adoption of this statement 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,
(table in millions, except per share data)		2008				2007				2008				2007
Numerator for basic and diluted earnings (loss) per share
Net earnings from continuing operations		$	34			$	45			$	114			$	104
Net loss from discontinued operations			(3	)			(6	)			(3	)			(8	)
Net earnings		$	31			$	39			$	111			$	96
Denominator: Weighted average shares — basic			109				107				109				107
Earnings per common share — continuing operations		$	0.31			$	0.42			$	1.05			$	0.97
Loss per common share — discontinued operations			(0.03	)			(0.05	)			(0.03	)			(0.07	)
Earnings per common share — basic		$	0.28			$	0.37			$	1.02			$	0.90
Denominator: Weighted average shares — diluted			111				109				110				109
Earnings per common share — continuing operations		$	0.31			$	0.41			$	1.04			$	0.95
Loss per common share — discontinued operations			(0.03	)			(0.05	)			(0.03	)			(0.07	)
Earnings per common share — diluted		$	0.28			$	0.36			$	1.01			$	0.88
Calculation of weighted average common shares — diluted
Weighted average shares — basic			109				107				109				107
Effect of dilutive options			2				2				1				2
Weighted average shares — diluted			111				109				110				109
Not included in the calculation of diluted earnings per-share because their impact is antidilutive:
Stock options outstanding (amounts in thousands)			72				928				2,076				1,912

4. Merger agreement with Teva Pharmaceutical Industries Ltd.

     On July 17, 2008, the Company entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Teva Pharmaceutical Industries Ltd. (“Teva”), pursuant to which, upon consummation of the merger, the Company will become a wholly owned subsidiary of Teva.

     Pursuant to the terms of the Merger Agreement and subject to the conditions thereof, stockholders of the Company will be entitled to receive $39.90 in cash and 0.6272 ordinary shares of Teva for each share of the Company’s common stock. The Teva shares will trade in the United States in the form of American Depositary Shares, evidenced by American Depositary Receipts. Also, each outstanding Company stock option and stock appreciation right (other than those stock options held by non-employee directors) will be converted into an amount in cash per share subject to such stock option or stock appreciation right equal to the excess, if any, of $66.50 over the exercise price per share.

     The Merger Agreement may be terminated under certain circumstances, including if the Company’s Board of Directors determines to accept an unsolicited superior proposal prior to approval of the merger by the Company’s

stockholders, provided that Teva has first been given three business days’ prior notice, and the opportunity to negotiate in good faith to make such adjustments to the terms and conditions of the Merger Agreement such that the new proposal would no longer constitute a superior proposal. If the Merger Agreement is terminated by the Company under certain circumstances, the Company will be required to pay Teva a termination fee of $200 million.

     Consummation of the merger is subject to various other conditions, including (i) approval of the merger by the Company’s stockholders, (ii) expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) receipt of all required approvals by the Canada Competition Bureau and the European Commission applicable to the merger, (iv) receipt of all required approvals under any antitrust laws applicable to the merger in certain other jurisdictions where failure to obtain such approvals would reasonably be expected to have a material adverse effect on the Company and its subsidiaries, taken as a whole, or an effect of similar magnitude (in terms of absolute effect and not proportional) on Teva and its subsidiaries and (v) other customary closing conditions.

     The Company is aware of two lawsuits that have been filed seeking to challenge the merger: Laborers Local 235 Pension Fund v. Barr Pharmaceuticals Inc., et al., Docket No. C-260-08 (N.J. Chancery Division, Bergen County) (the “Laborers Local Action”), which was filed on July 18, 2008 in the New Jersey Superior Court, Chancery Division; and Carter v. Barr Pharmaceuticals, Inc., et al., Docket No. C-269-08 (N.J. Chancery Division, Bergen County) (the “Carter Action”), which was filed on July 21, 2008 in the New Jersey Superior Court, Chancery Division. Both actions seek to challenge the merger and the merger agreement on behalf of a putative class consisting of all holders of the Company’s stock who allegedly have been or will be harmed by the merger. Both complaints name the Company and the six members of its Board of Directors as defendants (the “Barr Defendants”). The Carter Action complaint also names Teva Pharmaceutical Industries Ltd. (“Teva”) as a defendant. The actions generally assert that the Barr Defendants breached fiduciary duties by allegedly agreeing to sell the Company without attempting to maximize shareholder value and by allegedly favoring Teva over other potential bidders. The Carter Action complaint also alleges that Teva aided and abetted the directors in breaching their respective fiduciary duties. Plaintiffs in both complaints seek to obtain class certification and enjoin the transaction, among other things. On July 31, 2008, an amended complaint was filed in the Laborers Local Action substituting Hollywood Police Pension Fund as plaintiff in that action. As of October 14, 2008, the Company, the individual defendants, and Teva reached an agreement in principle with the plaintiffs to settle the lawsuits. Pursuant to this agreement in principle, the defendants agreed to make various additional disclosures that are included in the Company’s proxy statement/prospectus, although neither Teva or Barr makes any admission that the additional disclosures are material. In addition, as part of the proposed settlement, the defendants deny all allegations of wrongdoing. The settlement would be subject to customary conditions, including court approval following notice to members of the proposed settlement class and consummation of the merger. If finally approved by the court, the settlement would be expected to resolve all of the claims that were or could have been brought on behalf of the proposed settlement class in the actions being settled, including all claims relating to the merger, the merger agreement and any disclosures made in connection therewith. Final judicial approval of such a settlement could occur after the completion of the merger.

     On October 16, 2008, the Company announced that a special meeting of shareholders to vote on the proposed acquisition of the Company by Teva has been set for November 21, 2008. In addition, the Company’s Board of Directors approved October 10, 2008 as the record date for the special meeting.

5. Acquisitions and Business Combinations

     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 (“SFAS 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 were recorded at the date of acquisition at their respective fair values. The purchase price at September 5, 2007 was approximately $43 million, including minimum future payments due in 2008 and 2009. The Company may also be required to pay up to an additional $9.7 million based on the achievement of defined performance milestones for 2008. The operating results of ORCA are included in the condensed consolidated financial statements subsequent to the September 5, 2007 acquisition date. The final fair value of the assets and liabilities acquired on September 5, 2007, including adjustments made during the purchase price allocation period, are as follows:

$ in millions
Inventory		$	3
Products acquired			29
Goodwill			10
Other assets			6
Liabilities			(4	)
Total		$	44

     The Company has finalized the valuation and completed the purchase price allocation for the ORCA acquisition. Under the guidance of SFAS 141, this acquisition was treated as an immaterial acquisition. As an immaterial acquisition, pro-forma financial statements are not required to be presented.

6. Assets Held for Sale and Discontinued Operations

     The Company has decided to divest or exit its operations in Goa, India. As a result, as of September 30, 2008, the assets and liabilities relating to the Goa operations met the “held for sale” criteria of SFAS No. 144 (“SFAS 144”), Accounting for the Impairment or Disposal of Long Lived Assets. The Company expects to sell these assets and the related liabilities held for sale within one year. This divestiture does not meet the definition of discontinued operations due to migration of cash flows. The Company’s operations in Goa are part of its generic pharmaceuticals segment. During the nine months ended September 30, 2008, the Company recorded impairment charges of approximately $2.7 million related to the Goa facility. These expenses were charged to the selling, general and administrative, and research and development expense lines in the condensed consolidated statement of operations.

     The following amounts of assets for Goa have been segregated and included in assets held for sale on the Company’s condensed consolidated balance sheet as of September 30, 2008 and December 31, 2007:

		September 30,				December 31,
$ in millions		2008				2007
Property, plant and equipment, net		$	1			$	4
Long-term assets held for sale		$	1			$	4

     During 2007, the Company sold its operations in Spain and Italy, and its Veterina business. For the three and nine months ended September 30, 2007, the Company has segregated from continuing operations and included in discontinued operations, net of taxes, in the condensed consolidated statement of operations, the following:

		Three Months Ended																Nine Months Ended
		September 30, 2007																September 30, 2007
$ in millions		Italy				Spain				Veterina				Total				Italy				Spain				Veterina				Total
Revenues
Generics		$	2			$	4			$	–			$	6			$	8			$	18			$	–			$	26
Other			–				–				8				8				–				–				24				24
Total net revenues of discontinued operations		$	2			$	4			$	8			$	14			$	8			$	18			$	24			$	50
Loss before income taxes and minority interest		$	(1	)		$	(3	)		$	(3	)		$	(7	)		$	(2	)		$	(4	)		$	(2	)		$	(8	)
Loss from discontinued operations- net of tax		$	(1	)		$	(3	)		$	(2	)		$	(6	)		$	(2	)		$	(4	)		$	(2	)		$	(8	)

     The agreement of sale for our operations in Spain includes an indemnification from the Company to the buyer for certain liabilities as well as a mechanism to adjust the purchase price based on the level of working capital at closing. The losses of $3 million from discontinued operations for the three and nine months ended September 30, 2008 include a charge reflecting costs the Company incurred under these provisions.

7. Investments in Marketable Securities

     Investments in Marketable Securities and Debt

     Trading Securities

     The fair value of marketable securities classified as trading at each of September 30, 2008 and December 31, 2007 was $4 million, which is included as a component of current marketable securities. Net gains on trading securities for the nine months ended September 30, 2007 were $1 million. This amount is included as a component of other (expense) income.

     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 $10 million and $12 million at September 30, 2008 and December 31, 2007, respectively.

     Available-for-sale debt securities at September 30, 2008 include $18.6 million in market-auction debt securities. The market auction debt securities have auction rate reset dates ranging from October 15, 2008 to October 27, 2008 with underlying maturity dates ranging from January 1, 2016 to November 15, 2027.

     The Company’s holdings of market auction debt securities are restricted to highly rated municipal securities. The Company’s typical practice has been to continue to own the respective securities or liquidate its holdings by selling those securities at par value at the next auction, which generally ranges from 7 to 35 days after purchase. The market auction debt securities held by the Company are investment grade municipal securities (A rated and above)

and are insured against loss of principal and interest by bond insurers whose ratings are AA and above (although such ratings remain under review).

     The recent uncertainties in the credit markets have prevented the Company and other investors from liquidating holdings of market auction debt securities in recent auctions because the amount of market auction debt securities submitted for sale has exceeded the amount of purchase orders. In 2008, the Company decided to liquidate its holdings and not reinvest in market auction debt securities in order to intentionally reduce exposure to these instruments. At September 30, 2008, the Company held $18.6 million in market auction debt securities as these securities have not been liquidated due to failed auctions. Of this amount, $0.8 million were redeemed at par value in October 2008. The remaining $17.8 million of securities are classified as long-term as of September 30, 2008 on the condensed consolidated balance sheet.

     Despite these failed auctions, there have been no defaults on the underlying securities, and interest income on these holdings continues to be received on scheduled interest payment dates. As a result, the Company now earns premium interest rates on the failed auction investments (currently earning 3.3% to 4.3% on a tax-free basis). If the issuers of these securities are unable to successfully close future auctions and their credit ratings deteriorate, the Company may be required to adjust the carrying value of these investments to reflect other-than-temporary declines in their value.

     The Company has historically valued these securities at par because this is the value it receives when trading them in the established market. In assessing the fair value of these securities, the Company determined market input comparability based on an analysis of similar security current market data factors. As a result of such assessment, the Company believes that the fair value of these securities continues to be par. Therefore, the Company has not adjusted the recorded value of these securities. The Company continues to re-evaluate these securities each quarter for any possible temporary or permanent adjustments to their value.

     Based on the Company’s ability to access its cash and other short-term investments, its expected operating cash flows and its other sources of cash including availability under its $300 million revolving credit facility, the Company does not anticipate that the lack of liquidity in its remaining holdings of market auction debt securities will affect its ability to operate its business.

     The amortized cost, gross unrealized gains and losses recorded as a component of other comprehensive income, and estimated market values for available-for-sale securities at September 30, 2008 and December 31, 2007 are as follows:

		Available for Sale
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
$ in millions		Cost				Gains				(Losses)				Value
September 30, 2008
Debt securities		$	19			$	—			$	—			$	19
Equity securities			12				—				(1	)			11
		$	31			$	—			$	(1	)		$	30
December 31, 2007
Debt securities		$	288			$	—			$	—			$	288
Equity securities			12				1				—				13
		$	300			$	1			$	—			$	301

8. Fair Value Measures

     On January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements. SFAS 157 applies to all financial instruments that are measured and reported on a fair value basis. This includes items currently reported in “marketable securities” (current and long-term) on the condensed consolidated balance sheet as well as financial instruments reported in “other assets” and “other liabilities” that are reported at fair value.

     As defined in SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the

Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable firm inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

	•		Level 1 primarily consists of financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access (examples include active exchange-traded equity securities, exchange-traded derivatives, most U.S. Government and agency securities, and certain other sovereign government obligations).
	•		Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market, and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category include market auction debt securities and non-exchange-traded derivatives such as interest rate swaps.
	•		Level 3 is comprised of financial assets and liabilities, which include the Company’s equity interest in venture funds, whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

     In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to SFAS 157. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3.

     The following table presents the Company’s fair value hierarchy for those financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2008.

		Fair Value Measurements on a Recurring Basis
		as of September 30, 2008
		Level 1				Level 2				Level 3
		Quoted prices				Significant
		in Active				Other				Significant				Balance at
		Markets for				Observable				Unobservable				September 30,
$ in millions		Identical Items				Inputs				Inputs				2008
Assets:
U.S. T-Bills (1)		$	116			$	—			$	—			$	116
Marketable securities — trading (2)			4				—				—				4
Marketable securities — available for sale (3)			11				19				—				30
Venture fund investments (4)			—				—				17				17
Derivative instruments (5)			—				4				—				4
Total assets at fair value		$	131			$	23			$	17			$	171
Liabilities:
Derivative instruments (5)		$	—			$	(22	)		$	—			$	(22	)

The following table represents the Level 3 significant unobservable input components:

		Fair value Measurements
		Using Significant
		Unobservable Inputs
		(Level 3)
		Venture Fund
$ in millions		Investments
Beginning balance January 1, 2008		$	20
Total gains or losses (realized/unrealized)			(2	)
Purchase issuance or settlements			4
Distribution			(5	)
Ending balance September 30, 2008		$	17

     The Level 3 fair value disclosure above relates to the Company’s equity interest in venture funds, which are recorded at fair value. The venture funds value their underlying investments based on a combination of recent trading activity and discounted cash flow valuations.

9. 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 $625 million 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 (“SFAS 133”), Accounting for Derivative Instruments and Hedging Activities.

     Derivative financial instruments are measured at fair value, are recognized as assets or liabilities on the condensed consolidated 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 Company incurred gains (losses) on these derivative instruments of $2 million and $(5) million for the nine months ended September 30, 2008 and 2007, respectively.

     The Company estimates that approximately $6 million of the net losses at September 30, 2008 will be reclassified into interest expense over the next twelve months.

     The terms of the interest rate swap agreements that are still in effect as of September 30, 2008 are shown in the following table:

     $ in millions

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

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 forecast foreign currency transactions occurring at various dates through 2008. At September 30, 2008, none of the Company’s remaining foreign exchange derivatives were eligible for hedge accounting, resulting in their changes in fair value being included in the Company’s condensed consolidated statement of operations. For the nine months ended September 30, 2008, these changes in fair value resulted in a net change to other expense of $14 million as compared to $7 million in the prior year period. These charges have been partially offset by the change in the mark-to-market value of the underlying exposure that it is hedging.

     All foreign exchange derivative instruments described above are measured at fair value and are reported as assets or liabilities on the condensed consolidated balance sheet. Changes in fair value are reported in net income (loss). Economically, the gains or losses realized on these instruments at maturity are intended to offset the losses or gains of the transactions which they are hedging.

     The table below summarizes the respective fair values of the derivative instruments described above at September 30, 2008 and December 31, 2007:

		September 30, 2008								December 31, 2007
$ in millions		Assets				Liabilities				Assets				Liabilities
Interest rate swap		$	—			$	(15	)		$	—			$	(17	)
Foreign exchange forward contracts			4				(7	)			—				—
Total		$	4			$	(22	)		$	—			$	(17	)

10. Inventories

     Inventories consist of the following:

		September 30,				December 31,
$ in millions		2008				2007
Raw materials and supplies		$	141			$	166
Work-in-process			95				77
Finished goods			195				211
Total inventories		$	431			$	454

     At September 30, 2008 and December 31, 2007, $55 million and $47 million, respectively, of inventory, principally raw materials, is classified as “other assets” as such inventory is not expected to be sold within 12 months of the applicable period. Included in inventory is $13 million and $27 million at September 30, 2008 and December 31, 2007, respectively, of pre-launch inventory related to products that have not yet received the requisite regulatory approvals for commercial launch.

11. Goodwill and Other Intangible Assets

     Goodwill at September 30, 2008 and December 31, 2007 was as follows:

		Generic				Proprietary
$ in millions		Pharmaceuticals				Pharmaceuticals				Total
Goodwill balance at December 31, 2007		$	238			$	48			$	286
PLIVA d.d. goodwill adjustments			2				(3	)			(1	)
Currency translation effect			—				—				—
Additional purchase price of ORCA			1				—				1
Goodwill balance at September 30, 2008		$	241			$	45			$	286

     Intangible assets at September 30, 2008 and December 31, 2007 consist of the following:

		September 30,												December 31,
		2008												2007
		Gross								Net				Gross								Net
		Carrying				Accumulated				Carrying				Carrying				Accumulated				Carrying
$ in millions		Amount				Amortization				Amount				Amount				Amortization				Amount
Finite-lived intangible assets:
Product licenses		$	45			$	24			$	21			$	45			$	21			$	24
Product rights			1,460				338				1,122				1,456				218				1,238
Land use rights			109				3				106				106				1				105
Other			40				19				21				43				16				27
Total amortized finite-lived intangible assets			1,654				384				1,270				1,650				256				1,394
Indefinite-lived intangible assets - tradenames:			90				—				90				89				—				89
Total identifiable intangible assets		$	1,744			$	384			$	1,360			$	1,739			$	256			$	1,483

     The Company’s product licenses, product rights, land use rights and other finite lived intangible assets have weighted average useful lives of approximately 10, 12, 99 and 10 years, respectively. Amortization expense associated with these acquired intangibles was $41 million and $40 million for the three months ended September 30, 2008 and 2007, respectively, and $136 million and $121 million for the nine months ended September 30, 2008 and 2007, respectively.

     The Company reviews the carrying value of its goodwill and indefinite lived intangible assets for impairment annually and whenever events or 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 last 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:

$ in millions
Years Ending December 31,
2009		$	146
2010		$	147
2011		$	137
2012		$	126
2013		$	118

     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, 2008:

		September 30, 2008
														Weighted
		Gross								Net				Average
		Carrying				Accumulated				Carrying				Amortization
$ in millions		Amount				Amortization				Amount				Period
Therapeutic Category
Contraception		$	383			$	98			$	285				18
Antibiotics, antiviral & anti-infectives			236				56				180				10
Cardiovascular			228				54				174				10
Psychotherapeutics			187				42				145				12
Other (1)			426				88				338				10
Total product rights		$	1,460			$	338			$	1,122

12.

Debt

     A summary of outstanding debt is as follows:

		September 30,				December 31,
$ in millions		2008				2007
Credit facilities (a)		$	1,943			$	1,800
Note due to WCC shareholders (b)			—				7
Obligation under capital leases (c)			2				2
Fixed rate bonds (d)			—				113
Dual-currency syndicated credit facility (d)			—				24
Euro commercial paper program (d)			—				78
Dual-currency term loan facility (d)			—				25
Multi-currency revolving credit facility (d)			—				29
Other			1				2
			1,946				2,080
Less: current installments of debt and capital lease obligations			231				298
Total long-term debt		$	1,715			$	1,782

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

$ in millions
Twelve Months Ending September 30,		Total
2010		$	231
2011			230
2012			1,081
2013			173
2014			—
Thereafter			—
Total principal maturities and amounts due on long term debt and capital obligations		$	1,715

13. Accumulated Other Comprehensive Income

     Comprehensive income is defined as, for an applicable period, the total change in shareholders’ equity other than from transactions with shareholders. For the Company, comprehensive income is comprised of the line items set forth in the table below.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
$ in millions		2008				2007				2008				2007
Net income		$	31			$	39			$	111			$	96
Net unrealized gain on marketable securities, net of tax			—				—				—				1
Net gain on derivative financial instruments designated as cash flow hedges, net of tax			2				(5	)			2				(5	)
Net unrealized gain on currency translation adjustments			(177	)			93				—				140
Total comprehensive income		$	(144	)		$	127			$	113			$	232

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

		September 30,				December 31,
$ in millions		2008				2007
Cumulative unrealized gain (loss) on marketable securities, net of tax		$	—			$	—
Cumulative net (loss) on derivative financial instruments designated as cash flow hedges, net of tax			(9	)			(11	)
Cumulative net unrealized gain on pension and other post employment benefits, net of tax			1				1
Cumulative net unrealized gain on currency translation adjustments			288				288
Accumulated other comprehensive income		$	280			$	278

14. Income Taxes

     The Company’s effective tax rate increased in the current quarter to 43.6% from 24.4% in the third quarter of 2007 and increased to 44.6% for the nine months ended September 30, 2008 from 32.1% compared to the prior year period. The rate for both the three and nine months ended September 30, 2008 was higher in the current year period, as compared to the prior year, for several reasons including, a change in the mix of income between certain U.S. and foreign taxing jurisdictions, a shift in the Company’s investment portfolio from tax-exempt to taxable securities, the inability to utilize an expired U.S. research and development tax credit which was not re-enacted until after the close of the current quarter and a benefit recorded in 2007 related to a change in the German statutory tax rate as discussed below. Adjustments to our balance of unrecognized tax benefits for examinations that were either settled or in progress positively impacted the tax rate for the three and nine months ended September 30, 2008.

     Our effective tax rate for the three and nine months ended September 30, 2007 benefited from a $9.6 million reduction in our German deferred tax liability and income tax provisions due to legislation reducing the statutory corporate tax rate from 39% to 30% effective January 1, 2008.

     The total amount of gross unrecognized tax benefits as of September 30, 2008 was $21 million. During the quarter, the Company adjusted the balance for examinations that were either settled or in progress. Included in the balance at September 30, 2008 was $13 million of tax positions that, if recognized, would positively affect the Company’s effective tax rate. It is also possible that tax authorities could raise new issues requiring increases to the balance of unrecognized tax benefits. However, such potential increases cannot reasonably be estimated at this time. The Company had $4 million accrued for interest and penalties as of September 30, 2008.

     The Company is currently being examined by the IRS for years ending subsequent to December 31, 2006. Prior periods for significant entities have either been examined or are no longer subject to IRS examination. The Company is subject to examinations by various U.S. state jurisdictions for the period ended June 30, 2004 and thereafter. The Company’s significant foreign operations remain subject to examination for tax years 2002 through 2007, with examinations currently in progress in certain jurisdictions for tax years 2003 through 2007.

15. Stock-based Compensation

     The Company recognized stock-based compensation expense, related tax benefits and the effect on net income from recognizing stock-based compensation for the three and nine months ended September 30, 2008 and 2007 in the following amounts:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
$ in million except per share data		2008				2007				2008				2007
Stock-based compensation expense		$	9			$	8			$	25			$	23
Related tax benefits		$	4			$	3			$	9			$	8
Effect on net income		$	5			$	5			$	16			$	15
Per share — basic		$	0.04			$	0.05			$	0.14			$	0.14
Per share — diluted		$	0.04			$	0.05			$	0.14			$	0.14

     The total number of shares of common stock issuable upon the exercise of stock options and stock-settled appreciation rights granted during the nine months ended September 30, 2008 and 2007 was 2,669,950 and 1,439,950, respectively, with weighted-average exercise prices of $49.15 and $51.10, 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 Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Average expected term (years)			4.0				4.0				4.0				4.0
Weighted average risk-free interest rate			2.73	%			5.00	%			1.89	%			4.64	%
Dividend yield			0	%			0	%			0	%			0	%
Volatility			27.07	%			26.55	%			23.18	%			26.80	%
Weighted average grant date fair value		$	17.19			$	16.12			$	10.55			$	14.74

     As of September 30, 2008, the aggregate intrinsic value of awards outstanding was $188 million, and of this amount, $128 million was exercisable. In addition, the aggregate intrinsic value of awards exercised during the nine months ended September 30, 2008 and 2007 was $46 million and $27 million, respectively. The total remaining unrecognized compensation cost related to unvested awards amounted to $45 million at September 30, 2008 and is expected to be recognized over the next three years unless accelerated due to a change in control, as would occur upon the approval by the Company’s stockholders of the Company’s acquisition by Teva. The weighted average remaining requisite service period of the unvested awards was 23 months.

16. 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, 2008, certain elements of the restructuring plan have been recorded as a cost of the acquisition.

     Through September 30, 2008, the Company 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, which are included in the generic pharmaceuticals segment, are as follows:

		December 31,												September 30,
$ in millions		2007				Payments				Additions				2008
Involuntary termination of PLIVA employees		$	1			$	1			$	—			$	—
Lease termination costs			10				—				—				10
		$	11			$	1			$	—			$	10

     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 $1 million of severance and retention bonus expense during the nine months ended September 30, 2008 that was charged primarily to cost of sales. As of September 30, 2008, the Company has recorded an accrued liability of $5 million related to this severance and retention bonus.

17. Commitments and Contingencies

   Indemnity Provisions

     From time-to-time, in the normal course of business, the Company agrees to indemnify its suppliers, customers, and employees concerning product liability and other matters. For certain product liability matters, the Company has incurred legal defense costs on behalf of certain of its customers under these agreements.

     In September 2001, Barr filed an ANDA for the generic version of Sanofi-Aventis’ Allegra^® tablets. Sanofi-Aventis has filed a lawsuit against Barr claiming patent infringement. A trial date for the patent litigation has not been scheduled. In June 2005, the Company entered into an agreement with Teva Pharmaceuticals USA, Inc., which allowed Teva to manufacture and launch Teva’s generic version of Allegra during the Company’s 180-day exclusivity period, in exchange for Teva’s obligation to pay the Company a specified percentage of Teva’s operating profit, as defined, earned on sales of the product. The agreement between Barr and Teva also provides that each company will indemnify the other for a portion of any patent infringement damages they might incur, so that the parties will share any such damage liability in proportion to their respective share of Teva’s operating profit on generic Allegra.

Litigation Settlement

     On October 22, 1999, the Company entered into a settlement agreement with Schein Pharmaceutical, Inc. (now part of Watson Pharmaceuticals, Inc.) relating to a 1992 agreement regarding the pursuit of a generic conjugated estrogens product. Under the terms of the settlement, Schein relinquished any claim to rights in Cenestin in exchange for a payment of $15 million made to Schein in 1999. An additional $15 million payment was required under the terms of the settlement if Cenestin achieved total profits, as defined, of greater than $100 million over any rolling five-year period prior to October 22, 2014. This payment was earned during the three months ending June 30, 2008, and as a result, the Company recorded the $15 million liability as of September 30, 2008. The Company made the $15 million payment in October 2008.

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.

     Many claims involve highly complex issues relating to patent rights, causation, label warnings, scientific evidence, and other matters. Often these issues are subject to substantial uncertainties and therefore, the probability of loss and an estimate of the amount of the loss are difficult to determine. The Company’s assessments are based on estimates that it, in consultation with outside advisors, believes are reasonable. Although the Company believes it has substantial defenses in these matters, litigation is inherently unpredictable. Consequently, the Company could in the future incur judgments or enter into settlements that could have a material adverse effect on its results of operations, cash flows, or financial condition in a particular period.

     Fexofenadine Hydrochloride Suit

     In June 2001, the Company filed an ANDA seeking approval from the FDA to market fexofenadine hydrochloride tablets in 30 mg, 60 mg and 180 mg strengths, the generic equivalent of Sanofi-Aventis’ Allegra tablet products for allergy relief. The Company notified Sanofi-Aventis pursuant to the provisions of the Hatch-Waxman Act and, in September 2001, Sanofi-Aventis filed a patent infringement action in the U.S. District Court for the District of New Jersey – Newark Division, seeking to prevent the Company from marketing this product until after the expiration of various U.S. patents, the last of which is alleged to expire in 2017.

     After the filing of the Company’s ANDA, Sanofi-Aventis listed an additional patent on Allegra in the Orange Book. The Company filed appropriate amendments to its ANDAs to address the newly listed patent and, in November 2002, notified Merrell Pharmaceuticals, Inc., the patent holder, and Sanofi-Aventis pursuant to the provisions of the Hatch-Waxman Act. Sanofi-Aventis filed an amended complaint in November 2002 claiming that the Company’s ANDA infringes the newly listed patent.

     On March 5, 2004, Sanofi-Aventis and AMR Technology, Inc., the holder of certain patents licensed to Sanofi-Aventis, filed an additional patent infringement action in the U.S. District Court for the District of New Jersey – Newark Division, based on two patents that are not listed in the Orange Book.

     In June 2004, the court granted the Company summary judgment of non-infringement as to two patents. On March 31, 2005, the court granted the Company summary judgment of invalidity as to a third patent. Discovery is proceeding on the five remaining patents at issue in the case. No trial date has been scheduled.

     On August 31, 2005, the Company received final FDA approval for its fexofenadine tablet products. As referenced above, pursuant to the agreement between the Company and Teva, the Company selectively waived its 180 days of generic exclusivity in favor of Teva, and Teva launched its generic product on September 1, 2005.

     On September 21, 2005, Sanofi-Aventis filed a motion for a preliminary injunction or expedited trial. The motion asked the court to enjoin the Company and Teva from marketing their generic versions of Allegra tablets, 30 mg, 60 mg and 180 mg, or to expedite the trial in the case. The motion also asked the court to enjoin Ranbaxy Laboratories, Ltd. and Amino Chemicals, Ltd. from the commercial production of generic fexofenadine raw material. The preliminary injunction hearing concluded on November 3, 2005. On January 30, 2006, the court denied the motion by Sanofi-Aventis for a preliminary injunction or expedited trial. Sanofi-Aventis appealed the court’s denial of its motion to the United States Court of Appeals for the Federal Circuit. On November 8, 2006, the Federal Circuit affirmed the District Court’s denial of the motion for preliminary injunction.

     On May 8, 2006, Sanofi-Aventis and AMR Technology, Inc. served a Second Amended and Supplemental Complaint based on U.S. Patent Nos. 5,581,011 and 5,750,703 (collectively, “the API patents”), asserting claims against the Company for infringement of the API (active pharmaceutical ingredient) patents based on the sale of the Company’s fexofenadine product and for inducement of infringement of the API patents based on the sale of Teva’s fexofenadine product. On June 22, 2006, the Company answered the complaint, denied the allegations, and asserted counterclaims for declaratory judgment that the asserted patents are invalid and/or not infringed and for damages for violations of the Sherman Act, 15 U.S.C. §§ 1.2.

     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 for New Jersey and denied Barr Pharmaceutical, Inc.’s motion to dismiss as moot.

     Sanofi-Aventis also has brought a patent infringement suit against Teva in Israel, seeking to have Teva enjoined from manufacturing generic versions of Allegra tablets and seeking damages.

     If the Company and/or Teva are unsuccessful in the Allegra litigation, the Company potentially could be liable for a portion of Sanofi-Aventis’ lost profits on the sale of Allegra, which could potentially exceed the Company’s profits earned from its arrangement with Teva on generic Allegra.

     During the three months ended September 30, 2008, the Company offered to pay approximately $31 million to settle the patent litigation concerning fexofenadine hydrochloride, the generic version of Allegra. Because this offer exceeds the previously recorded liability of $4.1 million, the Company recorded a charge of $26.4 million in selling, general and administrative expenses for the three and nine months ended September 30, 2008.

     Product Liability Matters

     Hormone Therapy Litigation

        The Company has been named as a defendant in approximately 6,400 personal injury product liability cases brought against the Company and other manufacturers by plaintiffs claiming that they suffered injuries resulting from the use of certain estrogen and progestin medications prescribed to treat the symptoms of menopause. The cases against the Company involve its Cenestin products and/or the use of the Company’s medroxyprogesterone acetate product, which typically has been prescribed for use in conjunction with Premarin or other hormone therapy products. All of these products remain approved by the FDA and continue to be marketed and sold to customers. While the Company has been named as a defendant in these cases, fewer than a third of the complaints actually allege the plaintiffs took a product manufactured by the Company, and the Company’s experience to date suggests that, even in these cases, a high percentage of the plaintiffs will be unable to demonstrate actual use of a Company product. For that reason, approximately 4,800 of such cases have been dismissed (leaving approximately 1,600 pending) and, based on discussions with the Company’s outside counsel, more are expected to be dismissed.

        The Company believes it has viable defenses to the allegations in the complaints and is defending the actions vigorously.

     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. A prior investigation of this agreement by the Texas Attorney General’s Office on behalf of a group of state Attorneys General was closed without further action in December 2001.

     The lawsuits include nine consolidated in California state court, one in Kansas state court, one in Wisconsin state court, one in Florida state court, and two consolidated in New York state court, with the remainder of the actions pending in the U.S. District Court for the Eastern District of New York for coordinated or consolidated pre-trial proceedings (the “MDL Case”). On March 31, 2005, the Court in the MDL Case granted summary judgment in the Company’s favor and dismissed all of the federal actions before it. On June 7, 2005, plaintiffs filed notices of appeal to the U.S. Court of Appeals for the Second Circuit. On November 7, 2007, the Second Circuit transferred the appeal involving the indirect purchaser plaintiffs to the United States Court of Appeals for the Federal Circuit,

while retaining jurisdiction over the appeals of the direct purchaser plaintiffs in the case. On October 15, 2008, the Federal Circuit affirmed the grant of summary judgment in the defendants’ favor on all claims by the indirect purchaser plaintiffs; plaintiffs’ petition for panel rehearing and rehearing en banc is now pending. Merits briefing in the direct purchaser plaintiffs’ appeal in the Second Circuit is complete, but oral argument has yet to be scheduled.

     On October 24, 2008, the plaintiffs in the Wisconsin state class action stipulated to dismiss their case with prejudice in light of the Federal Circuit’s decision.

     On October 17, 2003, the Supreme Court of the State of New York for New York County dismissed the consolidated New York state class action for failure to state a claim upon which relief could be granted and denied the plaintiffs’ motion for class certification. An intermediate appellate court affirmed that decision, and plaintiffs have sought leave to appeal to the New York Court of Appeals.

     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 moved to lift the stay. The court has kept the stay in place at this time, but with a further status hearing scheduled for December 12, 2008.

     On April 22, 2005, the District Court of Johnson County, Kansas similarly stayed the action before it, until after any appeal in the MDL Case, although a status hearing is currently scheduled for November 19, 2008.

     The Florida state class action remains at a very early stage, with no status hearings, dispositive motions, pre-trial schedules, or a trial date set as of yet.

     The Company believes that its agreement with Bayer Corporation reflects a valid settlement to a patent suit and cannot form the basis of an antitrust claim. Based on this belief, the Company is vigorously defending itself in these matters.

     Ovcon Antitrust Proceedings

     The Company has entered into settlements with the FTC, the State Attorneys General (as described below) and the class representatives of the indirect purchasers. Only the claims of the direct purchasers remain active in the litigation.

     Under the FTC settlement, the FTC agreed to dismiss its case against the Company, and the Company agreed 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. The settlement was entered and the FTC’s lawsuit against the Company was dismissed with prejudice on November 27, 2007.

     Under the State Attorneys General settlement, the states agreed to dismiss their claims against the Company in exchange for a cash payment of $6 million and commitments by the Company not to engage in certain future conduct similar to the commitments contained in the FTC settlement. The State Attorneys General settlement was finalized on February 25, 2008.

     In the actions brought on behalf of the indirect purchasers, the Company reached court-approved settlements with the class representatives of the certified class of indirect purchasers on behalf of the class. The settlements require the Company to pay $2 million to funds established by plaintiffs’ counsel and to donate branded drug products to, among others, charitable organizations and university health centers.

     In the actions brought on behalf of the direct purchasers, on October 22, 2007, the U.S. District Court for the District of Columbia 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. On August 11, 2008, the court denied plaintiffs’ motion for partial summary judgment seeking a finding of per se illegality under the antitrust laws. The court granted-in-part the Company’s motion for summary judgment agreeing that the rule of reason standard should govern. The Court has scheduled a pretrial conference for February 6, 2009, and has indicated that it intends to set a trial date during that hearing.

     Through September 30, 2008, the Company recorded charges in the amount of $5.4 million related to these settlements and other settlement offers in the Ovcon litigation, including $4.3 million during the three months ended September 30, 2008.

     Provigil Antitrust Proceedings

     To date, the Company has been named as a co-defendant with Cephalon, Inc., Mylan Laboratories, Inc., Teva Pharmaceutical Industries, Ltd., Teva Pharmaceuticals USA, Inc., Ranbaxy Laboratories, Ltd., and Ranbaxy Pharmaceuticals, Inc. (the “Provigil Defendants”) in ten separate complaints filed in the U.S. District Court for the Eastern District of Pennsylvania. These actions allege, among other things, that the agreements between Cephalon and the other individual Provigil Defendants to settle patent litigation relating to Provigil^® constitute an unfair method of competition, are anticompetitive, and restrain trade in the market for Provigil and its generic equivalents in violation of the antitrust laws. These cases remain at a very early stage and no trial dates have been set.

     The Company was also named as a co-defendant with the Provigil Defendants in an action filed in the U.S. District Court for the Eastern District of Pennsylvania by Apotex, Inc. The lawsuit alleges, among other things, that Apotex sought to market its own generic version of Provigil and that the settlement agreements entered into between Cephalon and the other individual Provigil Defendants constituted an unfair method of competition, are anticompetitive, and restrain trade in the market for Provigil and its generic equivalents in violation of the antitrust laws. The Provigil Defendants have filed motions to dismiss, and briefing has taken place with respect to these motions.

     The Company believes that it has not engaged in any improper conduct and is vigorously defending these matters.

     Medicaid Reimbursement Cases

     The Company, along with numerous other pharmaceutical companies, has been named as a defendant in separate actions brought by the states of Alabama, Alaska, Hawaii, Idaho, Illinois, Iowa, Kentucky, Mississippi, South Carolina, Texas and Utah, the City of New York, numerous counties in New York, and Ven-A-Care of the Florida Keys, Inc. (suing as a qui tam relator on behalf of the federal Medicaid program). 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).

     The Iowa, Ven-A-Care and New York cases, with the exception of the actions filed by Erie, Oswego, and Schenectady Counties in New York, are currently pending in the U.S. District Court for the District of Massachusetts. In the Iowa case, motions to dismiss were granted in part and denied in part on August 19, 2008. The case remains at an early stage with no trial dates set. In the federal Ven-A-Care case, briefing on motions to dismiss is currently underway, with no discovery deadlines or trial dates at this stage. In the consolidated New York cases, discovery is underway, but no trial dates have been set. The Erie, Oswego, and Schenectady County cases were filed in state courts in New York, with discovery underway in the Erie County action but again with no trial dates set.

     The Alabama, Illinois, and Kentucky cases were filed in state courts, removed to federal court, and then remanded back to their respective state courts. Discovery is underway in each of these actions. The Alabama trial court has completed the trials of three different defendants and scheduled certain others, but the sequencing of the remaining defendants is not yet known. The Kentucky trial court has scheduled the trials of three other defendants to take place next year, with the first one starting on May 19, 2009. The State of Kentucky has identified Barr and five other defendants that the plaintiffs will seek to try in 2010.

     The State of Mississippi case was filed in Mississippi state court on October 25, 2005. Discovery was underway, but that case, along with the Illinois case and the actions brought by Erie, Oswego, and Schenectady Counties in New York, were removed to federal court on the motion of a co-defendant. Remand motions were granted on September 17, 2007, and thus the cases returned to their respective state courts of origin, with discovery underway but again with no trial dates set. The Mississippi court issued an order on September 2, 2008 granting the

defendants’ motion to transfer venue from Hinds County to Rankin County, Mississippi. It is not yet known what impact, if any, the transfer will have on the case schedule.

     The State of Hawaii case was filed in state court in Hawaii on April 27, 2007, removed to the United States District Court for the District of Hawaii, and remanded to state court. Discovery is underway. No trial date has been set.

     The State of Alaska case was filed in state court in Alaska on October 6, 2006. Discovery is underway. No trial date has been set.

     The State of South Carolina cases consist of two complaints, one brought on behalf of the South Carolina Medicaid Agency and the other brought on behalf of the South Carolina State Health Plan. Both cases were filed in state court in South Carolina on January 16, 2007. The defendants’ motions to dismiss are currently under advisement. No trial date has been set.

     The State of Idaho case was filed in state court in Idaho on January 26, 2007. Discovery is underway. No trial date has been set. The State of Utah case was filed in state court in Utah on September 21, 2007. The case was removed to federal court and then transferred to the U.S. District Court for the District of Massachusetts, but is being remanded to state court in Utah. No trial date has been set.

     The State of Texas case was served in late July 2008 following the unsealing of the proceedings and the filing of an amended petition on July 9, 2008. The case is at an early stage, with no trial date set.

     The Company believes that it has not engaged in any improper conduct and is vigorously defending these matters.

     Breach of Contract Action

     On October 6, 2005, plaintiffs Agvar Chemicals Inc., Ranbaxy Laboratories, Inc., and Ranbaxy Pharmaceuticals, Inc. filed suit against the Company and Teva Pharmaceuticals USA, Inc. in the Superior Court of New Jersey. In their complaint, plaintiffs seek to recover damages and other relief, based on an alleged breach of an alleged contract requiring the Company to purchase raw material for its generic Allegra product from Ranbaxy, prohibiting the Company from launching its generic Allegra product without Ranbaxy’s consent and prohibiting the Company from entering into an agreement authorizing Teva to launch Teva’s generic Allegra product. In an amended complaint, plaintiffs further asserted claims for fraud and negligent misrepresentation. The court has entered a scheduling order providing for the completion of discovery by December 8, 2008, but has not yet set a date for trial. The Company believes there was no such contract, fraud or negligent misrepresentation and is vigorously defending this matter.

     Other Litigation

     As of September 30, 2008, the Company was involved with other lawsuits incidental to its business, including patent infringement actions, product liability, and personal injury claims. Management, based on the advice of legal counsel, believes that the ultimate outcome of these other matters will not have a material adverse effect on the Company’s condensed consolidated financial statements.

     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 Barr 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 Company is complying with this Civil Investigative Demand and is cooperating with the agency in its investigation.

     Commitments

     On January 15, 2008, the Company made a commitment to invest up to $30 million in a new venture fund, NewSpring Health Capital II L.P. The Company accounts for investments in this fund under the equity method.

Payments related to this commitment are payable when capital calls are made. The Company made capital call payments of $1 million in January 2008 and $3 million in June 2008, leaving the potential commitments to this fund of $26 million.

18. 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
September 30, 2008																														% of
$ in millions		Generic				%				Proprietary				%				Other (1)				%				Consolidated				revenue
Revenues:
Product sales		$	562				76	%		$	133				18	%		$	–				—	%		$	695				94	%
Alliance and development revenue			—				—	%			—				—	%			33				4	%			33				4	%
Other revenue			—				—	%			—				—	%			9				1	%			9				1	%
Total revenues		$	562				76	%		$	133				18	%		$	42				6	%		$	737				100	%
						Margin								Margin								Margin								Margin
						%								%								%								%
Gross Profit:
Product sales		$	258				46	%		$	101				76	%		$	–				—	%		$	359				52	%
Alliance and development revenue			—				—	%			—				—	%			33				100	%			33				100	%
Other revenue			—				—	%			—				—	%			3				31	%			3				31	%
Total gross profit		$	258				46	%		$	101				76	%		$	36				85	%		$	395				54	%
Three Months Ended
September 30, 2007																														% of
$ in millions		Generic				%				Proprietary				%				Other (1)				%				Consolidated				revenue
Revenues: (2)
Product sales		$	434				72	%		$	125				21	%		$	–				—	%		$	559				93	%
Alliance and development revenue			—				—	%			—				—	%			33				5	%			33				5	%
Other revenue			—				—	%			—				—	%			10				2	%			10				2	%
Total revenues		$	434				72	%		$	125				21	%		$	43				7	%		$	602				100	%
						Margin								Margin								Margin								Margin
						%								%								%								%
Gross Profit: (2)
Product sales		$	203				47	%		$	95				76	%		$	–				—	%		$	298				53	%
Alliance and development revenue			—				—	%			—				—	%			33				100	%			33				100	%
Other revenue			—				—	%			—				—	%			4				41	%			4				41	%
Total gross profit		$	203				47	%		$	95				76	%		$	37				86	%		$	335				56	%