Barr Pharmaceuticals 10Q 2007 Q2 Quarterly report

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 June 30, 2007


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

For the transition period from to

Commission file number1-9860

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.)

400 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07677-7668
(Address of principal executive offices)

201-930-3300
(Registrant’s telephone number)

(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.

Yesþ No¨

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 filerþ Accelerated filer¨ Non-accelerated filer¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Noþ

As of July 27, 2007 the registrant had 107,211,697 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 June 30, 2007 and December 31, 2006		3

	Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2007 and 2006		4

	Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 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		22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		32

Item 4.	Controls and Procedures		32

Part II	Other Information

Item 1.	Legal Proceedings		34
Item 1A.	Risk Factors		34
Item 4.	Submissions of Matters to a Vote of Security Holders		34
Item 5.	Other Matters		35
Item 6.	Exhibits		35

	Signatures		36
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.0: CERTIFICATION

Part I. CONDENSED FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Barr Pharmaceuticals, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

(unaudited)


	June 30,			December 31,
	2007			2006
Assets
Current assets:
Cash and cash equivalents	$	203,956		$	231,975
Marketable securities		543,070			673,746
Accounts receivable, net of reserves of $273,592 and $238,311, respectively		477,080			515,303
Other receivables, net		68,099			76,491
Inventories		457,776			429,592
Deferred income taxes		81,497			82,597
Prepaid expenses and other current assets		36,275			35,936
Current assets held for sale		48,348			42,359

Total current assets		1,916,101			2,087,999

Property, plant and equipment, net of accumulated depreciation of $248,421 and $196,709, respectively		1,037,791			1,004,618
Deferred income taxes		37,838			37,872
Marketable securities		20,495			8,946
Other intangible assets, net		1,447,600			1,472,418
Goodwill		277,207			276,449
Long-term assets held for sale		10,288			9,820
Other assets		61,432			63,740

Total assets	$	4,808,752		$	4,961,862


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	140,541		$	144,807
Accrued liabilities		239,963			280,636
Current portion of long-term debt and capital lease obligations		634,524			742,192
Income taxes payable		7,939			21,359
Deferred tax liabilities		445			8,266
Current liabilities held for sale		13,350			14,633

Total current liabilities		1,036,762			1,211,893

Long-term debt and capital lease obligations		1,824,088			1,935,477
Deferred tax liabilities		210,984			221,471
Long-term liabilities held for sale		2,173			2,201
Other liabilities		94,881			84,494

Commitments & Contingencies (Note 15)

Minority interest		35,528			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 110,084,741 and 109,536,481, respectively		1,101			1,095
Additional paid-in capital		645,103			610,232
Retained earnings		934,908			877,991
Accumulated other comprehensive income		123,914			76,600
Treasury stock at cost: 2,972,997 shares		(100,690	)		(100,690	)

Total shareholders’ equity		1,604,336			1,465,228

Total liabilities and shareholders’ equity	$	4,808,752		$	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					Six Months Ended
	June 30,					June 30,
	2007			2006		2007			2006

Revenues:
Product sales	$	588,901		$	319,619	$	1,152,719		$	613,140
Alliance and development revenue		36,423			32,049		61,544			65,369
Other revenue		11,626			—		22,065			—


Total revenues		636,950			351,668		1,236,328			678,509

Costs and expenses:
Cost of sales		277,613			107,328		580,148			205,835
Selling, general and administrative		189,364			104,303		370,229			182,460
Research and development		65,413			36,447		126,637			74,152
Write-off of in-process research and development		2,809			—		4,358			—

Earnings from operations		101,751			103,590		154,956			216,062

Interest income		8,133			5,734		18,755			9,947
Interest expense		41,798			289		83,567			456
Other income, net		3,730			16,690		4,826			17,761

Earnings before income taxes and minority interest		71,816			125,725		94,970			243,314

Income tax expense		25,520			43,471		35,245			84,964
Minority interest		(376	)		—		(1,911	)		—

Net earnings from continuing operations		45,920			82,254		57,814			158,350

Loss from discontinued operations, net of taxes		(575	)		—		(897	)		—

Net earnings	$	45,345		$	82,254	$	56,917		$	158,350


Basic:
Earnings per common share — continuing operations	$	0.43		$	0.77	$	0.54		$	1.49
Loss per common share — discontinued operations		(0.01	)		—		(0.01	)		—

Net earnings per common share — basic	$	0.42		$	0.77	$	0.53		$	1.49


Diluted:
Earnings per common share — continuing operations	$	0.42		$	0.76	$	0.53		$	1.46
Loss per common share — discontinued operations		(0.01	)		—		(0.01	)		—

Net earnings per common share — diluted	$	0.41		$	0.76	$	0.52		$	1.46


Weighted average shares — basic		106,909			106,185		106,838			106,009


Weighted average shares — diluted		108,191			108,084		108,124			108,399

SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Barr Pharmaceuticals, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended
	June 30,
	2007			2006

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	56,917		$	158,350
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		143,482			36,410
Deferred revenue		(3,297	)		(2,223	)
Minority interest		1,891			—
Stock-based compensation expense		15,432			13,198
Deferred income tax expense (benefit)		(29,164	)		6,428
Loss (gain) on derivative instruments, net		1,465			(10,300	)
Write-off of acquired in-process research and development		4,358			—
Other		(1,814	)		(5,898	)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable and other receivables, net		45,736			(19,628	)
Inventories		(19,444	)		9,773
Prepaid expenses		(1,029	)		1,584
Other assets		4,055			(2,347	)
Increase (decrease) in:
Accounts payable, accrued liabilities and other liabilities		(55,424	)		27,900
Income taxes payable		(13,702	)		9,336

Net cash provided by operating activities		149,462			222,583

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(49,809	)		(24,955	)
Proceeds from sale of property, plant and equipment		1,470			—
Purchases of marketable securities		(1,146,516	)		(1,160,042	)
Sales of marketable securities		1,269,573			984,338
Settlement of derivative instruments		—			(48,900	)
Acquisitions, net of cash acquired		(49,135	)		(302	)
Investment in debt securities		(2,000	)		—
Other		(2	)		(3,627	)

Net cash provided by (used in) investing activities		23,581			(253,488	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and capital leases		(223,040	)		(735	)
Tax benefit of stock incentives		5,136			4,404
Proceeds from exercise of stock options and employee stock purchases		17,073			21,648
Other		363			—

Net cash (used in) provided by financing activities		(200,468	)		25,317

Effect of exchange-rate changes on cash and cash equivalents		(594	)		—

Decrease in cash and cash equivalents		(28,019	)		(5,588	)
Cash and cash equivalents at beginning of period		231,975			30,010

Cash and cash equivalents at end of period	$	203,956		$	24,422

SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BARR PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except for share and per share amounts) (unaudited)

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 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 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 that company’s net income and shareholder’s 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 six months ended June 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 six months ended June 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 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 (“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 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 American Institute for Certified Public Accountants (“AICPA”) issued a Statement of Position “SOP 07-1”,Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies. This SOP provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide. For those entities that are investment companies under this SOP, this SOP also addresses whether the specialized industry accounting principles of the Guide (referred to asinvestment company accounting) should be retained by a parent company in consolidation or by an investor that has the ability to exercise significant influence over the investment company and applies the equity method of accounting to its investment in the entity (referred to as anequity method investor). In addition, this SOP includes certain disclosure requirements for parent companies and equity method investors in investment companies that retain investment company accounting in the parent company’s consolidated financial statements or the financial statements of an equity method investor.

This SOP also provides guidance for determining whether investment company accounting applied by a subsidiary or equity method investee should be retained in the financial statements of the parent company or an equity method investor. This SOP is effective for fiscal years beginning on or after December 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					Six Months Ended
	June 30,					June 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	$	45,920		$	82,254	$	57,814		$	158,350
Net loss from discontinued operations		(575	)		—		(897	)		—

Net earnings	$	45,345		$	82,254	$	56,917		$	158,350


Denominator: Weighted average shares — basic		106,909			106,185		106,838			106,009

Earnings per common share — continuing operations	$	0.43		$	0.77	$	0.54		$	1.49
Loss per common share — discontinued operations		(0.01	)		—		(0.01	)		—

Earnings per common share — basic	$	0.42		$	0.77	$	0.53		$	1.49


Denominator: Weighted average shares — diluted		108,191			108,084		108,124			108,399

Earnings per common share — continuing operations	$	0.42		$	0.76	$	0.53		$	1.46
Loss per common share — discontinued operations		(0.01	)		—		(0.01	)		—

Earnings per common share — diluted	$	0.41		$	0.76	$	0.52		$	1.46


Calculation of weighted average common shares — diluted

Weighted average shares — basic		106,909			106,185		106,838			106,009
Effect of dilutive options and warrants		1,282			1,899		1,286			2,390

Weighted average shares — diluted		108,191			108,084		108,124			108,399


Not included in the calculation of diluted earnings per-share because their impact is antidilutive:
Stock options outstanding		270			149		212			45

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 337,681 shares on the Croatian stock market for $49,877, including 120,150 shares totaling $18,162 purchased during the three months ended June 30, 2007 and 187,728 shares totaling $27,940 during the six months ended June 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 98.05% of PLIVA’s voting share capital as of June 30, 2007 (17,394,658 of 17,740,016 outstanding shares).

The purchase price of $27,940 for the 187,728 shares acquired during the six months ended June 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”), which was expensed during the three months ended June 30, 2007, was $2,809, and was $4,358 for the six months ended June 30, 2007. The share purchases in the six months ended June 30, 2007 resulted in an increase in goodwill of $1,043.

The Company continues to refine its estimates and expects to finalize the valuation and complete the purchase price allocation for the PLIVA acquisition as soon as possible, but no later than October 24, 2007, which is the first anniversary of the closing date.

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

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. The Company has decided to divest or exit its operations in Spain and its animal health business. As a result, as of June 30, 2007, the assets and liabilities relating to these businesses met the “held for sale” criteria of FAS 144,Accounting for the Impairment or Disposal of Long Lived Assets. The Company expects to divest these assets and the related liabilities held for sale by early 2008. Following the divestiture, the cash flows and operations of the divested operations will be eliminated from the Company’s ongoing operations, and the Company will cease to have continuing involvement with these operations. The Company’s operations in Spain are part of the generic pharmaceuticals segment. The Company’s animal health 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 our operations in Spain and the Company’s animal health business have been segregated from continuing operations and included in discontinued operations, net of taxes, in the condensed consolidated statement of operations, as shown below:


	Three			Six
	Months Ended			Months Ended
	June 30,			June 30,
	2007			2007
Revenues — Spain
Generics	$	6,157		$	13,617
Other		—			813

Net revenues — Spain	$	6,157		$	14,430


Revenues — Animal health
Other	$	9,131		$	16,436

Net revenues — Animal health	$	9,131		$	16,436


Total net revenues of discontinued operations	$	15,288		$	30,866


Loss before income taxes and minority interest		(453	)		(687	)
Income tax expense		(133	)		(230	)
Minority interest		11			20

Loss from discontinued operations- net of tax	$	(575	)	$	(897	)

The following combined amounts of assets and liabilities of those 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 June 30, 2007 and December 31, 2006, as shown below:


	June 30,		December 31,
	2007		2006
Accounts receivable, net	$	25,173	$	17,762
Inventories		19,747		22,819
Prepaid expenses and other current assets		3,428		1,778

Current assets held for sale		48,348		42,359


Property, plant and equipment, net		6,181		5,581
Deferred income taxes		2,179		2,378
Other intangible assets, net		1,819		1,752
Other assets		109		109

Long-term assets held for sale		10,288		9,820


Assets held for sale	$	58,636	$	52,179


Accounts payable	$	9,033	$	11,316
Accrued liabilities		4,030		3,065
Current portion of long-term debt and capital lease obligations		287		252

Current liabilities held for sale		13,350		14,633


Long-term debt and capital lease obligations		1,686		1,738
Deferred tax liabilities		434		424
Other liabilities		53		39

Long-term liabilities held for sale		2,173		2,201


Liabilities held for sale	$	15,523	$	16,834

6. Investments in Marketable Securities

Investments in Marketable Securities and Debt

Trading Securities

The fair value of marketable securities classified as trading at June 30, 2007 and December 31, 2006 was $3,368 and $3,718, respectively, which is included as a component of current marketable securities. Net gains for the six-month periods ended June 30, 2007 and December 31, 2006 were $971 and $572, respectively. These amounts are included as a component of other income. Of such amount, losses in the amount of $44 are unrealized and relate to securities still held at June 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 $10,719 and $10,293 at June 30, 2007 and December 31, 2006, respectively.

Available-for-sale debt securities at June 30, 2007 include $512,487 in commercial paper and market auction debt securities and $35,145 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 July 2, 2007 to December 11, 2008. The municipal and corporate bonds and federal agency issues have maturity dates ranging from July 1, 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 realized gains and (losses) from the sale of available-for-sale investments for the six-month periods ended June 30, 2007 and December 31, 2006 were $2 and $(17), respectively. The unrealized gains and (losses) on available-for-sale investments at June 30, 2007 and December 31, 2006 were $276 and $(466), respectively.

7. Derivative Instruments

During the three-month period ended June 30, 2007, the Company unwound its 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. During the period ended June 30, 2007, there was no ineffectiveness recognized in earnings relating to this hedging relationship.

8. Inventories

Inventories consist of the following:


	June 30,		December 31,
	2007		2006
Raw materials and supplies	$	162,192	$	160,345
Work-in-process		99,743		67,798
Finished goods		195,841		201,449

Total inventories	$	457,776	$	429,592

9. Goodwill and Other Intangible Assets

Goodwill at December 31, 2006 and June 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		1,043			—		1,043
PLIVA goodwill adjustments		(6,469	)		—		(6,469	)
Currency translation effect		6,184			—		6,184

Goodwill balance at June 30, 2007	$	229,287		$	47,920	$	277,207

PLIVA goodwill adjustments for the six months ended June 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. The Company expects to make additional valuation revisions in the next calendar quarter for items where complete information has not been obtained.


Current assets (excluding cash)	$	206
Property, plant & equipment		(32,474	)
Other non-current assets		291
Current liabilities		13,607
Deferred tax liabilities		6,320
Other liabilities		5,581

Total PLIVA goodwill adjustments	$	(6,469	)

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


	June 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	$	17,795	$	27,555	$	45,350	$	15,624	$	29,726
Product rights		1,357,134		139,482		1,217,652		1,302,116		64,788		1,237,328
Land use rights		92,812		770		92,042		88,053		166		87,887
Other		33,491		4,869		28,622		38,899		188		38,711


Total amortized finite-lived intangible assets		1,528,787		162,916		1,365,871		1,474,418		80,766		1,393,652


Indefinite-lived intangible assets — tradenames:		81,729		—		81,729		78,766		—		78,766

Total identifiable intangible assets	$	1,610,516	$	162,916	$	1,447,600	$	1,553,184	$	80,766	$	1,472,418

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 $40,252 and $8,647 for the three months ended June 30, 2007 and 2006, respectively, and $80,978 and $17,512 for the six months ended June 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 six months ended June 30, 2006 was reclassified to conform to that of the three and six months ended June 30, 2007.

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


Years Ending December 31,
2008	$	142,648
2009	$	128,082
2010	$	121,437
2011	$	113,107
2012	$	105,749

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 June 30, 2007:


	June 30, 2007
							Weighted
	Gross				Net		Average
	Carrying		Accumulated		Carrying		Amortization
Product Rights by Therapeutic Category	Amount		Amortization		Amount		period

Contraception	$	383,339	$	48,920	$	334,419		18
Antibiotics, antiviral & anti-infectives		213,024		21,264		191,760		10
Cardiovascular		202,938		20,511		182,427		10
Psychotherapeutics		155,776		12,856		142,920		12
Other (1)		402,057		35,931		366,126		10

Total product rights	$	1,357,134	$	139,482	$	1,217,652


(1)		Other includes numerous therapeutic categories, none of which exceeds 10% of the aggregate net book value of product rights.

10. Debt

A summary of outstanding debt is as follows:


	June 30,		December 31,
	2007		2006
Credit facilities (a)	$	2,215,700	$	2,415,703
Note due to WCC shareholders (b)		6,500		6,500
Obligation under capital leases (c)		1,404		2,819
Fixed rate bonds (d)		103,784		101,780
Dual-currency syndicated credit facility (e)		64,057		86,287
Euro commercial paper program (f)		26,936		26,334
Dual-currency term loan facility (g)		25,000		25,000
Multi-currency revolving credit facility (h)		13,468		13,167
Other		1,763		79

		2,458,612		2,677,669

Less: current installments of debt and capital lease obligations		634,524		742,192

Total long-term debt	$	1,824,088	$	1,935,477


(a)		In connection with the close 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 June 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, and had a balance of $1,900,000 outstanding as of June 30, 2007. The 364-day term facility is due in full upon maturity in October 2007, and had a balance of $315,700 outstanding as of June 30, 2007. 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. In connection with that acquisition, the Company issued a four-year $6,500 promissory note to Women’s Capital Corporation shareholders. The note bears a fixed interest rate of 2%. The entire principal amount and all accrued interest is payable 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 prior to the acquisition and recorded at fair value based on their prevailing market prices on the PLIVA 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 June 30, 2007):


(d)		In May 2004, PLIVA issued Euro denominated fixed rate bonds with a face value of EUR 75,000 ($101,010). The bonds mature in 2011 and bear annual interest at 5.75% payable semiannually. At the time of the PLIVA acquisition, the aggregate fair value of the bonds was EUR 77,401 ($104,244). The premium over face value of EUR 2,401 ($3,234) is being amortized over the remaining life of the bonds. Amortization for the six months ended June 30, 2007 was EUR 132 ($178). 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 provided the borrowers with an aggregate amount not to exceed $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. As of June 30, 2007, there was $44,855 outstanding with an effective interest rate of 6.0469% and EUR 14,258 outstanding ($19,202) with an effective interest rate of 4.817%. The facility includes customary covenants.

(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 ($336,700) and bears interest at a variable interest rate. As of June 30, 2007, there was EUR 20,000 outstanding ($26,936) yielding 4.507%. Amounts outstanding under this program were subsequently repaid on July 4, 2007, the maturity date.

(g)		On September 9, 2006, PLIVA entered into a dual currency term loan facility pursuant to which the lender provided the borrowers an aggregate amount not to exceed $25,000, available to be drawn in either US dollars or Euros. The facility has a one-year term and bears interest at a variable rate based on LIBOR or Euribor plus a margin which is negotiated at the time the facility is drawn. As of June 30, 2007, there was $25,000 outstanding with an effective interest rate of 5.36% 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 ($40,404). 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 margin which is negotiated at the time the facility is drawn. As of June 30, 2007, there was EUR 10,000 outstanding ($13,468) with an effective interest rate of 4.001% plus a negotiated margin. The facility includes customary covenants.

Principal maturities of existing long-term debt and amounts due on capital leases for the next five years and thereafter are as follows:


Twelve Months Ending June 30,	Total
2009	$	212,456
2010	$	206,308
2011	$	301,316
2012	$	1,100,326
2013	$	349
Thereafter	$	559

Total principal maturities and amounts due on capital leases	$	1,821,314
Premium on fixed rate bond (see (e) above)	$	2,774

Total debt and capital lease obligations	$	1,824,088

11. Accumulated Other Comprehensive Income


	Three Months Ended					Six Months Ended
	June 30,			June 30,		June 30,			June 30,
	2007			2006		2007			2006

Net income	$	45,345		$	82,254	$	56,917		$	158,350
Net unrealized gain (losses) on marketable securities, net of tax		(202	)		81		783			278
Net gain (loss) on derivative financial instruments designated as cash flow hedges, net of tax		1,778			—		(435	)		—
Net unrealized gain on pension and other post employment benefits, net of tax		—			—		—			—
Net unrealized gain on currency translation adjustments		38,348			—		46,966			—

Total comprehensive income	$	85,269		$	82,335	$	104,231		$	158,628

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


	June 30,			December 31,
	2007			2006
Cumulative unrealized gains (losses) on marketable securities, net of tax	$	511		$	(272	)
Cumulative net (loss) gain on derivative financial instruments designated as cash flow hedges, net of tax		(435	)		—
Cumulative net unrealized gain on pension and other post employment benefits, net of tax		22			22
Cumulative net unrealized gain on currency translation adjustments		123,816			76,850

Accumulated other comprehensive income	$	123,914		$	76,600

12. Income Taxes

In June 2006, the Financial Accounting Standards Board (“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 June 30, 2007. Included in the balance at June 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 change during the next 52-week period.

Upon adoption of FIN 48, the Company has 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 January 1, 2007 which has not changed materially as of June 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 jurisdiction with significant operations currently being audited is Croatia for 2004 and 2005 (tax years that remain subject to examination are 2003 and 2006). 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.

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, are recognized in net earnings in the periods after the date of adoption.

The Company recognized stock-based compensation expense for the three months ended June 30, 2007 and 2006 in the amount of $8,133 and $6,265, respectively, and for the six months ended June 30, 2007 and 2006 in the amount of $15,432 and $13,198, respectively. The Company also recorded related tax benefits for the three months ended June 30, 2007 and 2006 in the amount of $2,691 and $1,683, respectively, and for the six months ended June 30, 2007 and 2006 in the amount of $5,103 and $3,936, respectively. The effect on net income from recognizing stock-based compensation for the three months ended June 30, 2007 and 2006 was $5,442 and $4,582, or $0.05 and $0.04 per basic and $0.05 and $0.04 per diluted share, respectively, and for the six months ended June 30, 2007 and 2006 was $10,329 and $9,263, or $0.10 and $0.09 per basic and $0.10 and $0.09 per diluted share, respectively.

The total number of shares of common stock issuable upon the exercise of stock options and SSARs granted during the six months ended June 30, 2007 and 2006 was 1,177,150 and 92,700, respectively, with weighted-average exercise prices of $50.27 and $64.14, 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						Six
	Months Ended						Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Average expected term (years)		4			5			4			5
Weighted average risk-free interest rate		5.00	%		4.35	%		4.55	%		4.35	%
Dividend yield		0	%		0	%		0	%		0	%
Volatility		29.20	%		36.85	%		29.96	%		36.85	%
Weighted average grant date fair value	$	16.48		$	20.70		$	15.43		$	25.27

As of June 30, 2007, the aggregate intrinsic value of awards outstanding and exercisable was $100,707 and $88,773, respectively. In addition, the aggregate intrinsic value of awards exercised during the six months ended June 30, 2007 and 2006 were $15,797 and $32,088, respectively. The total remaining unrecognized compensation cost related to unvested awards amounted to $49,262 at June 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 25 months.

14. Restructuring

Management’s plans for the restructuring of the Company’s operations as a result of its acquisition of PLIVA are ongoing. As of June 30, 2007, certain elements of the plan that have been finalized have been recorded as a cost of the acquisition. Plans for other restructuring activities are expected to be completed by October 24, 2007.

Through June 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. Additionally, further restructuring costs incurred as part of the Company’s restructuring plan in connection with the acquisition will be considered part of the purchase price of PLIVA and will be recorded as an increase in goodwill. 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,						June 30,
	2006		Payments		Additions		2007

Involuntary termination of PLIVA employees	$	8,277	$	1,292	$	328	$	7,313
Lease termination costs		10,201		—		—		10,201

	$	18,478	$	1,292	$	328	$	17,514

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 $5,974 of severance and retention bonus expense in the six months ended June 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-Q for the quarter ended March 31, 2007. Except for the matters summarized below, no material changes have occurred in the Company’s litigation matters since the filing of the Form 10-Q for the first quarter of 2007.

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. As previously disclosed, these lawsuits include one pending in Wisconsin. 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 reaching the underlying merits of plaintiffs’ case. The matter will now return to the trial court for further proceedings; no schedule or trial date has been set.

Tamoxifen Antitrust Class Actions

To date approximately 33 consumer or third-party payor class action complaints have been filed in state and federal courts against Zeneca, Inc., AstraZeneca Pharmaceuticals L.P. and the Company alleging, among other things, that the 1993 settlement of patent litigation between Zeneca and the Company violated the antitrust laws, insulated Zeneca and the Company from generic competition and enabled Zeneca and the Company to charge artificially inflated prices for tamoxifen citrate. A prior investigation of this agreement by the U.S. Department of Justice was closed without further action. On May 19, 2003, the U.S. District Court dismissed the complaints for failure to state a viable antitrust claim. On November 2, 2005, the U.S. Court of Appeals for the Second Circuit affirmed the District Court’s order dismissing the cases for failure to state a viable antitrust claim. On November 30, 2005, plaintiffs petitioned the U.S. Court of Appeals for the Second Circuit for a rehearingen banc. On September 14, 2006, the Court of Appeals denied plaintiffs’ petition for rehearingen banc. On December 13, 2006, plaintiffs filed a petition for writ of certiorari with the U.S. Supreme Court. On June 25, 2007, the Supreme Court denied plaintiffs’ petition for writ of certiorari, definitively ending the litigation.

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, various state Attorneys General and certain private class action plaintiffs claiming to be direct and indirect purchasers of Ovcon-35^®. These actions, the first of which was filed by the FTC on or about December 2, 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.

In the actions brought on behalf of the indirect purchasers, the Company has reached an agreement in principle with the class representatives to settle plaintiffs’ claims. On June 27, 2007 and 28, 2007, the court entered an order conditionally certifying a settlement class and preliminarily approving the parties’ settlement. 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 six months ended June 30, 2007, the Company established a reserve (and corresponding charge in selling, general and administrative expenses) of $8,000 related to these and other settlement offers in the Ovcon litigation.

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
June 30, 2007	Pharmaceuticals		%			Pharmaceuticals		%			Other		%			Consolidated		revenue

Revenues:
Product sales	$	486,601		76	%	$	102,300		16	%	$	—		—	%	$	588,901		92	%
Alliance and development revenue		—		—	%		—		—	%		36,423		6	%		36,423		6	%
Other revenue		—		—	%		—		—	%		11,626		2	%		11,626		2	%

Total revenues	$	486,601		76	%	$	102,300		16	%	$	48,049		8	%	$	636,950		100	%


			Margin					Margin					Margin					Margin
Gross Profit:			%					%					%					%
Product sales	$	235,826		48	%	$	80,435		79	%	$	—		—	%	$	316,261		54	%
Alliance and development revenue		—		—	%		—		—	%		36,423		100	%		36,423		100	%
Other revenue		—		—	%		—		—	%		6,653		57	%		6,653		57	%

Total gross profit	$	235,826		48	%	$	80,435		79	%	$	43,076		90	%	$	359,337		56	%


Three months ended	Generic					Proprietary												% of
June 30, 2006	Pharmaceuticals		%			Pharmaceuticals		%			Other		%			Consolidated		revenue

Revenues:
Product sales	$	222,188		63	%	$	97,431		28	%	$	—		—	%	$	319,619		91	%
Alliance and development revenue		—		—	%		—		—	%		32,049		9	%		32,049		9	%
Other revenue		—		—	%		—		—	%		—		—	%		—		—	%

Total revenues	$	222,188		63	%	$	97,431		28	%	$	32,049		9	%	$	351,668		100	%


			Margin					Margin					Margin					Margin
Gross Profit: (1)			%					%					%					%
Product sales	$	145,408		65	%	$	66,884		69	%	$	—		—	%	$	212,292		66	%
Alliance and development revenue		—		—	%		—		—	%		32,049		100	%		32,049		100	%
Other revenue		—		—	%		—		—	%		—		—	%		—		—	%

Total gross profit	$	145,408		65	%	$	66,884		69	%	$	32,049		100	%	$	244,341		69	%


Six months ended	Generic					Proprietary												% of
June 30, 2007	Pharmaceuticals		%			Pharmaceuticals		%			Other		%			Consolidated		revenue

Revenues:
Product sales	$	961,405		78	%	$	191,314		15	%	$	—		—	%	$	1,152,719		93	%
Alliance and development revenue		—		—	%		—		—	%		61,544		5	%		61,544		5	%
Other revenue		—		—	%		—		—	%		22,065		2	%		22,065		2	%

Total revenues	$	961,405		78	%	$	191,314		15	%	$	83,609		7	%	$	1,236,328		100	%


			Margin					Margin					Margin					Margin
Gross Profit:			%					%					%					%
Product sales	$	444,753		46	%	$	139,567		73	%	$	—		—	%	$	584,320		51	%
Alliance and development revenue		—		—	%		—		—	%		61,544		100	%		61,544		100	%
Other revenue		—		—	%		—		—	%		10,316		47	%		10,316		47	%

Total gross profit	$	444,753		46	%	$	139,567		73	%	$	71,860		86	%	$	656,180		53	%


Six months ended	Generic					Proprietary												% of
June 30, 2006	Pharmaceuticals		%			Pharmaceuticals		%			Other		%			Consolidated		revenue

Revenues:
Product sales	$	422,558		62	%	$	190,582		28	%	$	—		—	%	$	613,140		90	%
Alliance and development revenue		—		—	%		—		—	%		65,369		10	%		65,369		10	%
Other revenue		—		—	%		—		—	%		—		—	%		—		—	%

Total revenues	$	422,558		62	%	$	190,582		28	%	$	65,369		10	%	$	678,509		100	%


			Margin					Margin					Margin					Margin
Gross Profit: (1)			%					%					%					%
Product sales	$	274,826		65	%	$	132,479		70	%	$	—		—	%	$	407,305		66	%
Alliance and development revenue		—		—	%		—		—	%		65,369		100	%		65,369		100	%
Other revenue		—		—	%		—		—	%		—		—	%		—		—	%

Total gross profit	$	274,826		65	%		132,479		70	%	$	65,369		100	%		472,674		70	%


(1)		Prior period amounts have been reclassified to include the effect of intangible amortization and conform to the presentation for the three and six months ended June 30, 2007.

Geographic Information

The Company’s principal operations are in the United States and Europe. Sales in the United States and the rest of the world (“ROW”) are classified based on the geographic location of the customers. The table below presents net product sales by geographic area based upon geographic location of the customer.

Product sales by geographic area


	Three				Six
	Months Ended				Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
United States	$	396,930	$	318,470	$	789,550	$	610,230
ROW		191,971		1,149		363,169		2,910

Total product sales	$	588,901	$	319,619	$	1,152,719	$	613,140

The Company operates in more than 30 countries outside the United States. No single foreign country contributes more than 10% to consolidated product sales.

Product sales by therapeutic category

The Company’s generic and proprietary pharmaceutical segment net product sales are represented in the following therapeutic categories for the following periods:


	Three				Six
	Months Ended				Months Ended
	June 30,				June 30,
	2007		2006		2007		2006

Contraception	$	177,455	$	167,263	$	342,476	$	333,367
Psychotherapeutics		71,513		22,937		138,951		39,230
Cardiovascular		74,688		29,544		141,151		55,208
Antibiotics, antiviral & anti-infectives		50,906		17,040		117,831		30,956
Other (1)		214,339		82,835		412,310		154,379

Total	$	588,901	$	319,619	$	1,152,719	$	613,140


(1)		Other includes numerous therapeutic categories, none of which individually exceeds 10% of consolidated product sales.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis addresses material changes in the results of operations and financial condition of Barr Pharmaceuticals, Inc. and subsidiaries for the periods presented. This discussion and analysis should be read in conjunction with the consolidated financial statements, the related notes to consolidated financial statements and Management’s Discussion and Analysis of Results of Operations and Financial Condition included in the Company’s Transition Report on Form 10-K/T for the six-month period ended December 31, 2006 (the “Transition Report”), and the unaudited interim condensed consolidated financial statements and related notes included in Item 1 of this report on Form 10-Q.

Business Development Activities

PLIVA Acquisition

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 approximately $2.4 billion 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 337,681 shares on the Croatian stock market for $49.9 million, including 120,150 shares purchased for $18.2 million during the three months ended June 30, 2007 and 187,728 shares totaling $27.9 million during the six months ended June 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 98.05% of PLIVA’s voting share capital as of June 30, 2007 (17,394,658 of 17,740,016 outstanding shares).

The fluctuations in our operating results for the three and six months ended June 30, 2007, as compared to the same period ended June 30, 2006, are primarily due to the acquisition of PLIVA. All information, data and figures provided in this report for the three and six months ended June 30, 2006 relate solely to Barr’s financial results and do not include PLIVA.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2007 and June 30, 2006

The following table sets forth revenue data for the three and six months ended June 30, 2007 and 2006 (dollars in millions):


	Three Months Ended June 30,									Six Months Ended June 30,
					Change									Change
	2007		2006		$		%			2007		2006		$			%
Generic products:
Oral contraceptives	$	115.9	$	107.0	$	8.9		8	%	$	229.1	$	208.2	$	20.9			10	%
Other generics		370.7		115.2		255.5		222	%		732.3		214.3		518.0			242	%

Total generic products		486.6		222.2		264.4		119	%		961.4		422.5		538.9			128	%
Proprietary products		102.3		97.3		5.0		5	%		191.3		190.5		0.8			0	%

Total product sales		588.9		319.5		269.4		84	%		1,152.7		613.0		539.7			88	%
Alliance and development revenue		36.4		32.1		4.3		13	%		61.5		65.4		(3.9	)		-6	%
Other revenue		11.6		—		11.6		0	%		22.1		—		22.1			0	%

Total revenues	$	636.9	$	351.6	$	285.3		81	%	$	1,236.3	$	678.4	$	557.9			82	%

Product Sales

Generic Oral Contraceptives

During the three months ended June 30, 2007, sales of our generic oral contraceptives (“generic OCs”) were $115.9 million. This represents an 8% increase over the prior year period. The increase is primarily due to the launches of Balziva and Jolessa subsequent to June 30, 2006, which accounted for approximately $6.5 million of this increase. The remaining increase is attributable to higher sales of Kariva of $2.5 million, primarily attributable to higher prices, and smaller sales increases in certain other generic OCs. These increases were partially offset by lower sales of Tri Sprintec, which decreased $4.8 million due to lower prices for the three months ended June 30, 2007 as compared to the same period in the prior year.

During the six months ended June 30, 2007, sales of our generic OCs were $229.1 million, representing a 10% increase over the prior year period, in large part due to full period contributions from the launches of Balziva and Jolessa, as discussed above, which accounted for approximately $12.5 million of the increase. These product launches, combined with higher sales of Kariva of $8.8 million more than offset lower sales of Tri Sprintec, which decreased $9.2 million for the six months ended June 30, 2007.

Other Generic Products

During the three months ended June 30, 2007, sales of our other generic products (“Other Generics”) were $370.7 million, up from $115.2 million when compared to the three months ended June 30, 2006, an increase of $255.5 million. This increase was mainly due to $244.4 million of sales attributable to PLIVA products, including sales of Azithromycin of $22.1 million. In addition to higher sales from acquired products, the total sales increase included $34.0 of million in sales of Fentanyl Citrate, our generic version of Cephalon’s ACTIQ which we launched in September 2006. Partially offsetting these increases were lower sales of certain Other Generics, principally a $7.6 million decline in sales of Desmopressin. We launched Desmopressin in July 2005 with 180 days of exclusivity as a result of a successful paragraph IV patent challenge, and this exclusivity continued through February 2006. Since March 2006, competing generic products have reduced our sales of Desmopressin.

During the six months ended June 30, 2007, sales of our Other Generics products were $732.3 million, up from $214.3 million as compared to the six months ended June 30, 2006, an increase of $518.0 million. This increase was mainly due to $497.3 million of sales attributable to PLIVA products, including sales of Azithromycin of $58.2 million. In addition, we recorded $50.7 million in sales of Fentanyl Citrate during the six months ended June 30,

2007. Partially offsetting these increases were lower sales of certain Other Generics, principally a $13.7 million decline in sales of Desmopressin, for reasons described above.

Proprietary Products

During the three months ended June 30, 2007, sales of our proprietary products were $102.3 million, an increase of $5.0 million as compared to the three months ended June 30, 2006. This increase was primarily due to the launches of SEASONIQUE, which contributed $6.5 million, and Adderall IR, which we acquired from Shire and launched in October 2006 and contributed $10.0 million during the period. These increases, combined with $11.7 million of higher sales of Plan B, in part resulting from our over-the-counter (“OTC”) launch in November 2006, more than offset lower sales of SEASONALE of $13.3 million due to the impact of generic competition as well as lower sales of certain other non-promoted proprietary products.

During the six months ended June 30, 2007, sales of our proprietary products were $191.3 as compared to $190.5 for the six months ended June 30, 2006. New product launches of SEASONIQUE and Antabuse, combined with the acquisition and launch of Adderall IR contributed $36.4 million of total sales during this current period. In addition, we recorded higher sales of Plan B of $17.4 million compared to the same period in the prior year, including contributions from our OTC launch. These increases more than offset $31.4 million of lower sales of SEASONALE, lower sales of Mircette of $7.4 million representing a shift to Kariva our generic version of the product and lower sales of certain other non-promoted proprietary products during the period.

Alliance and Development Revenue

During the three months ended June 30, 2007, we recorded $36.4 million of alliance and development revenue, an increase of $4.3 million over the three months ended June 30, 2006. The increase was primarily due to $4.0 million in development revenues earned under our license and development agreement with Shire entered into subsequent to June 30, 2006.

Alliance and development revenue for the six months ended June 30, 2007 was $61.5 million as compared to $65.4 million in the six months ended June 30, 2006. This decrease of $3.9 was caused principally by a $13.5 million decline in revenues from our profit-sharing arrangement with Teva on generic Allegra. As competition for generic Allegra continues to increase, revenues may decline even more in future periods. In addition, we recorded lower revenues relating to our agreements with Kos Pharmaceuticals relating to Niaspan and Advicor, as described above. These declines were partially offset by an increase of $5.1 million in fees we receive for the development of the Adenovirus vaccine for the U.S. Department of Defense and an increase of $7.0 million in development revenues earned under our license and development agreement with Shire.

Other Revenue

We recorded $11.6 million and $22.1 million of other revenue during the three and six months ended June 30, 2007, respectively. This revenue is primarily attributable to non-core operations which include our diagnostics, disinfectants, dialysis and infusions (“DDD&I”) business. This business was acquired through the PLIVA acquisition, and as such, there are no comparable operations for the three and six months ended June 30, 2006.

Cost of Sales

The following table sets forth cost of sales data, in dollars, as well as the resulting gross margins expressed as a percentage of product sales (except ‘‘other’’, which is expressed as a percentage of our other revenue line item), for three and six months ended June 30, 2007 and 2006 (dollars in millions):


	Three Months Ended June 30,												Six Months Ended June 30,
							Change												Change
	2007			2006			$			%			2007			2006			$			%
Generic products	$	250.9		$	76.8		$	174.1			227	%	$	516.7		$	147.7		$	369.0			250	%

Gross margin		48.4	%		65.5	%								46.3	%		65.0	%

Proprietary products	$	21.8		$	30.5		$	(8.7	)		-29	%	$	51.7		$	58.1		$	(6.4	)		-11	%

Gross margin		78.7	%		68.7	%								73.0	%		69.5	%

Other revenue	$	4.9		$	—		$	4.9			100	%	$	11.7		$	—		$	11.7			100	%

Gross margin		58.0	%		N/A									47.1	%		N/A

Total cost of sales	$	277.6		$	107.3		$	170.3			159	%	$	580.1		$	205.8		$	374.3			182	%

Gross margin		53.8	%		66.4	%								50.6	%		66.4	%

Cost of sales includes the following:

	•		our manufacturing and packaging costs for products we manufacture;

	•		amortization expense (as discussed further below);

	•		the write-off of the step-up in inventory arising from acquisitions, including PLIVA;

	•		profit-sharing or royalty payments we make to third parties, including raw material suppliers;

	•		the cost of products we purchase from third parties;

	•		lower of cost or market adjustments to our inventories; and

	•		stock-based compensation expense relating to employees within certain departments that we allocate to cost of sales.

Prior to December 31, 2006, we included amortization expenses related to acquired product intangibles in selling, general and administrative expenses (“SG&A”) rather than cost of sales. As discussed in our Transition Report, we revised our presentation of amortization expense to include it within cost of sales rather than SG&A. We have adjusted our discussion regarding the quarter ended June 30, 2006 presented below to reflect this change.

Overall: As a result of our increases in product sales of $269.4 million for the three months ended June 30, 2007 and $539.7 million for the six months then ended, cost of sales on an overall basis more than doubled over the prior year periods. In addition to greater costs associated with increased product sales, cost of sales increased due to higher amortization charges of $29.1 million and $58.2 million for the three and six months ended June 30, 2007, respectively. Also included in cost of sales was a charge of $32.3 million for the six months ended June 30, 2007 relating to the stepped-up value of inventory acquired from PLIVA that we sold during the first quarter. As a result of these expenses combined with generally lower margins on sales of PLIVA products, overall gross margins decreased from 66.4% for each of the three and six months ended June 30, 2006 to 53.8% and 50.6% for the three months and six months ended June 30, 2007, respectively.

Generics: During the three months ended June 30, 2007 our generics segment cost of sales increased by $174.1 million as compared to the three months ended June 30, 2006 in large part due to the $255.5 million increase in Other Generics sales, as described above, and $22.1 million of higher amortization expense arising primarily from product intangibles created as a result of the PLIVA acquisition. Our generics margins declined from 65.5% to 48.4%. Partially offsetting this decrease in gross margins were higher sales of our Generic OCs and a full quarter of sales of Fentanyl Citrate, both of which positively impacted gross margins in our generics segment.

During the six months ended June 30, 2007 our generics segment cost of sales increased by $369.0 million as compared to the six months ended June 30, 2006 in large part due to the $518.0 million increase in Other Generics sales, for reasons described above, and $51.1 million of higher amortization expense. When combined with the charge related to the $32.3 million step-up in inventory described above, our generics margins declined from 65.0%

to 46.3%. Partially offsetting this decrease in gross margins were higher sales of our Generic OCs and two full quarters of sales of Fentanyl Citrate, both of which positively impacted gross margins in our generics segment.

Proprietary: During the three months ended June 30, 2007 our proprietary segment cost of sales decreased by $8.7 million over the three months ended June 30, 2006, resulting in a higher margin of 78.7% compared to 68.7% for the prior year period. The increase is primarily attributable to the launch of SEASONIQUE and a stronger mix of high margin product sales during the current period as compared to the prior year period.

During the six months ended June 30, 2007 our proprietary segment cost of sales decrease by $6.4 million over the six months ended June 30, 2006, resulting in a higher margin of 73.0% compared to 69.5% for the prior year period for the reasons discussed above.

Selling, General and Administrative Expense

The following table sets forth selling, general and administrative expense for the three and six months ended June 30, 2007 and 2006 (dollars in millions):


	Three Months Ended June 30,								Six Months Ended June 30,
					Change								Change
	2007		2006		$		%		2007		2006		$		%
Selling, general and administrative	$	189.4	$	104.3	$	85.1		82%	$	370.2	$	182.5	$	187.7		103%


Charge included in general and administrative	$	—	$	22.5	$	0		—%	$	—	$	22.5	$	0		—%

Selling, general and administrative expenses increased by $85.1 million in the three months ended June 30, 2007 as compared to the prior year period. Of this increase, approximately $84.3 million is directly attributable to our PLIVA operating subsidiary, including operating selling and general and administrative expenses. In addition to the expenses attributable to PLIVA, there were increases in general and administrative expenses relating to (1) integration costs of $8.0 million from the PLIVA acquisition and (2) legal, accounting and other consulting fees of $3.7 million.

Selling, general and administrative expenses increased by $187.7 million in the six months ended June 30, 2007 as compared to the six months ended June 30, 2006. Of this increase, approximately $161.5 million is directly attributable to PLIVA, including operating selling and general and administrative expenses. There were also increases in general and administrative expenses relating to (1) integration costs of $20.0 million from the PLIVA acquisition, (2) a litigation reserve of $8.0 million and (3) legal, accounting and other consulting fees of $9.4 million.

Selling, general and administrative expense in the prior year periods include a one-time charge of $22.5 million in settlement of antitrust litigation.

Research and Development

The following table sets forth research and development expenses and the write-off of acquired in-process research and development (“IPR&D”) for the three and six months ended June 30, 2007 and 2006 (dollars in millions):


	Three Months Ended June 30,									Six Months Ended June 30,
					Change									Change
	2007		2006		$		%			2007		2006		$		%
Research and development	$	65.4	$	36.4	$	29.0		80	%	$	126.7	$	74.2	$	52.5		71	%

Write-off of acquired in-process research and development	$	2.8	$	—	$	2.8		N/A		$	4.4	$	—	$	4.4		N/A

Research and development increased by $29.0 million in the three months ended June 30, 2007 as compared to the three months ended June 30, 2006. Of this 80% increase, approximately $21.9 million is directly attributable to our PLIVA subsidiary including salaries, third party research and development, and depreciation costs. The remaining increase is primarily due to a $4.7 million increase in costs associated with bio-studies and clinical trials supporting our generic and proprietary development activities.

Research and development increased by $52.5 million in the six months ended June 30, 2007 as compared to the six months ended June 30, 2006. Of this 71% increase, approximately $39.2 million is directly attributable to our PLIVA subsidiary including salaries, third party research and development, and depreciation costs. The remaining increase is primarily due to a $9.4 million increase in costs associated with bio-studies and clinical trials supporting our generic and proprietary development activities.

During the three and six months ended June 30, 2007, we wrote-off acquired IPR&D of $2.8 million and $4.4 million, respectively.

Interest Income

The following table sets forth interest income for the three and six months ended June 30, 2007 and 2006 (dollars in millions):


	Three Months Ended June 30,									Six Months Ended June 30,
					Change									Change
	2007		2006		$		%			2007		2006		$		%
Interest income	$	8.1	$	5.7	$	2.4		42	%	$	18.7	$	9.9	$	8.8		89	%

The increase in interest income for the three and six months ended June 30, 2007 is due to higher interest rates and cash and marketable securities balances during this period as compared to the three and six months ended June 30, 2006.

Interest Expense

The following table sets forth interest expense for the three and six months ended June 30, 2007 and 2006 (dollars in millions):


	Three Months Ended June 30,								Six Months Ended June 30,
					Change								Change
	2007		2006		$		%		2007		2006		$		%
Interest expense	$	41.8	$	0.3	$	41.5		N/M	$	83.6	$	0.5	$	83.1		N/M

The increase in interest expense for the three and six months ended June 30, 2007 as compared to the three and six months ended June 30, 2006 is due to the $2.6 billion of debt the Company incurred in connection with the PLIVA acquisition (both to finance the acquisition and debt assumed from PLIVA). As a result of the incurrence of such debt, the Company estimates that interest expense will be approximately $155 million in 2007.

Other Income (Expense)

The following table sets forth other income (expense) for the three and six months ended June 30, 2007 and 2006 (dollars in millions):


	Three Months Ended June 30,										Six Months Ended June 30,
					Change										Change
	2007		2006		$			%			2007		2006		$			%
Other income (expense)	$	3.7	$	16.7	$	(13.0	)		-78	%	$	4.8	$	17.8	$	(13.0	)		-73	%

Other income and expense decreased by $13.0 million for both the three and six months ended June 30, 2007 as compared to the three and six months ended June 30, 2006. The overall decrease in other income is primarily a result of a $10.3 million gain in the value of a foreign currency option that related to the PLIVA acquisition during the three months ended June 30, 2006. This gain was the result of fluctuations and volatility in the exchange rate between the Dollar and the Euro.

During the three-month period ended June 30, 2007, the Company unwound a treasury lock on a ten-year U.S. Treasury security that was used to hedge forecast interest payments. The unwinding of this treasury lock resulted in reclassifying a $3.5 million net gain from accumulated other comprehensive income to other income (expense).

Income Taxes

The following table sets forth income tax expense and the resulting effective tax rate stated as a percentage of pre-tax income for the three and six months ended June 30, 2007 and 2006 (dollars in millions):


	Three Months Ended June 30,												Six Months Ended June 30,
							Change												Change
	2007			2006			$			%			2007			2006			$			%
Income tax expense	$	25.5		$	43.5		$	(18.0	)		-41	%	$	35.2		$	85.0		$	(49.8	)		-59	%


Effective tax rate		35.5	%		34.6	%								37.1	%		34.9	%

The Company’s effective tax rate increased in the current quarter to 35.5% from 34.6% in the same period of the prior year. The increase is primarily attributed to effects from the PLIVA acquisition, including: the change in geographic mix of pre-tax income; the negative impact of purchase accounting creating pre-tax losses in lower tax jurisdictions; the negative impact resulting from certain entities with pre-tax losses for which the Company could not recognize a tax benefit; and the change in the current corporate structure creating certain tax inefficiencies, which are expected to diminish over time. The increase was somewhat offset by benefits realized from the enactment of the research and development incentive in Croatia, retroactive to the beginning of the tax year, as well as the release of certain FIN 48 tax liabilities related to audit settlements in various tax jurisdictions.

Liquidity and Capital Resources

Overview

Our primary source of liquidity has been cash from operations, which entails the collection of accounts and other receivables related to product sales, and royalty and other payments we receive from third parties in various ventures, such as Teva with respect to generic Allegra and Kos Pharmaceuticals, Inc., a subsidiary of Abbott Laboratories, with respect to Niaspan and Advicor. Our primary uses of cash include repayment of our senior credit facilities, financing inventory, research and development programs, marketing and selling, capital projects and investing in business development activities.

Operating Activities

Our operating cash flows for the first half of 2007 were $149.5 million compared to $222.6 million in the prior year period. The decrease in cash flows reflects the timing of certain items including (1) an increase in inventories by $19.4 million and (2) a decrease in accounts payable, accrued expenses and other liabilities of $55.4 million.

Investing Activities

Our net cash provided by investing activities was $23.6 million for the first half of 2007 compared to net cash used in investing activities of $253.5 million for the prior year period. The decrease in net cash used for investing activities was related to higher net sales of marketable securities in the current period of $123.1 million as compared to net purchases of marketable securities of $175.7 million during the prior year period. Offsetting this decrease in net cash used for investing activities over the prior year was an increase in capital spending of $24.9 million, the $27.9 million cost of acquiring additional PLIVA shares, and the $21.2 million cost of product acquisitions.

Financing Activities

Net cash used in financing activities during the first half of 2007 was $200.5 million compared to net cash provided by financing activities of $25.3 million in the prior year period. The increase in net cash used in financing activities in the current period primarily reflects the $100.0 million principal payment on our $2.0 billion five-year term facility and our prepayment of $100.0 million of our $415.7 million 364-day term facility.

As of June 30, 2007 the remaining balance on the 364-day term facility was $315.7 million. We expect to pay down the remaining balance on our 364-day term facility, which is due by October 24, 2007, by using existing available liquidity.

Under Croatian law, our ownership of more than 95% of the voting shares in PLIVA permits us to undertake the necessary actions to acquire the remainder of PLIVA’s outstanding share capital. We plan to initiate this process at a price of HRK 820 per share, the same per share price offered to shareholders during the formal tender period. This process and the subsequent pay out to remaining shareholders is expected to be completed by the end of 2007. We intend to fund the payout from cash balances on hand and anticipate that the remaining investment will be approximately $60 million.

Sufficiency of Cash Resources

We believe our current cash and cash equivalents, marketable securities, investment balances, cash flows from operations and undrawn amounts under our $300.0 million revolving credit facility are adequate to fund our operations, service our debt requirements, make planned capital expenditures and to capitalize on strategic opportunities as they arise.

Off-Balance Sheet Arrangements

The Company does not have any material off-balance sheet arrangements that have had, or are expected to have, an effect on our financial statements.

Critical Accounting Policies

The methods, estimates and judgments we use in applying the accounting policies most critical to our financial statements have a significant impact on our reported results. The Securities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of our financial condition and results, and/or require us to make our most difficult and subjective judgments. Based on this definition, our most critical policies are the following: (1) revenue recognition and provisions for estimated reductions to gross product sales; (2) revenue recognition and provisions of alliance and development revenue; (3) inventories; (4) income taxes; (5) contingencies; (6) acquisitions and amortization of intangible assets; (7) derivative instruments; and (8) foreign currency translation and transactions. Although we believe that our estimates and assumptions are reasonable, they

are based upon information available at the time the estimates and assumptions were made. We review the factors that influence our estimates and, if necessary, adjust them. Actual results may differ significantly from our estimates.

There are no updates to our Critical Accounting Policies from those described in our Transition Report on Form 10-K/T for six months ended December 31, 2006. Please see the “Critical Accounting Policies” sections of that report for a comprehensive discussion of our critical accounting policies.

Recent Accounting Pronouncements

In September 2006, the FASB issued FAS No. 157,Fair Value Measurements,which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosure about fair value measurements. The statement is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact that the adoption of this statement will have on our consolidated financial statements.

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 Standard’s objective 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 Barr’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 companies have chosen to use fair value on the face of the balance sheet. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact that the adoption of this statement will have on our consolidated financial statements.

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. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. Upon adoption on January 1, 2007, we analyzed filing positions in all of the foreign, federal and state jurisdictions where the Company is required to file income tax returns, as well as all open tax years in these jurisdictions.

As a result of the implementation of FIN 48, we recorded a $4.5 million increase in the net liability for unrecognized tax positions, which was entirely recorded as a $4.5 million 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 $25.0 million, and did not change materially as of June 30, 2007. Included in the balance at June 30, 2007 was $13.2 million of tax positions that, if recognized, would lower the effective tax rate.

Upon adoption of FIN 48, we have elected an accounting policy to classify accrued interest and related penalties relating to unrecognized tax benefits in interest expense. Previously, our policy was to classify interest and penalties in its income tax provision. We had $2.6 million accrued for interest and penalties at January 1, 2007 which has not changed materially as of June 30, 2007.

equity method investors in investment companies that retain investment company accounting in the parent company’s consolidated financial statements or the financial statements of an equity method investor.

This SOP also provides guidance for determining whether investment company accounting applied by a subsidiary or equity method investee should be retained in the financial statements of the parent company or an equity method investor. This SOP is effective for fiscal years beginning on or after December 15, 2007. We are currently evaluating the impact that the adoption of this statement will have on our 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. We are currently evaluating the impact that adopting this EITF will have on our consolidated financial statements.

Forward-Looking Statements

The preceding sections contain a number of forward-looking statements. To the extent that any statements made in this report contain information that is not historical, these statements are essentially forward-looking. Forward-looking statements can be identified by their use of words such as “expects,” “plans,” “will,” “may,” “anticipates,” “believes,” “should,” “intends,” “estimates” and other words of similar meaning. These statements are subject to risks and uncertainties that cannot be predicted or quantified and, consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, in no particular order:

	•		the difficulty in predicting the timing and outcome of legal proceedings, including patent-related matters such as patent challenge settlements and patent infringement cases;

	•		the difficulty of predicting the timing of FDA approvals;

	•		court and FDA decisions on exclusivity periods;

	•		the ability of competitors to extend exclusivity periods for their products;

	•		our ability to complete product development activities in the timeframes and for the costs we expect;

	•		market and customer acceptance and demand for our pharmaceutical products;

	•		our dependence on revenues from significant customers;

	•		reimbursement policies of third party payors;

	•		our dependence on revenues from significant products;

	•		the use of estimates in the preparation of our financial statements;

	•		the impact of competitive products and pricing on products, including the launch of authorized generics;

	•		the ability to launch new products in the timeframes we expect;

	•		the availability of raw materials;

	•		the availability of any product we purchase and sell as a distributor;

	•		the regulatory environment in the markets where we operate;

	•		our exposure to product liability and other lawsuits and contingencies;

	•		the increasing cost of insurance and the availability of product liability insurance coverage;

	•		our timely and successful completion of strategic initiatives, including integrating companies (such as PLIVA) and products we acquire and implementing our new SAP enterprise resource planning system;

	•		fluctuations in operating results, including the effects on such results from spending for research and development, sales and marketing activities and patent challenge activities;

	•		the inherent uncertainty associated with financial projections;

	•		our expansion into international markets through our PLIVA acquisition, and the resulting currency, governmental, regulatory and other risks involved with international operations;

	•		our ability to service our significantly increased debt obligations as a result of the PLIVA acquisition;

	•		changes in generally accepted accounting principles; and

	•		other risks detailed in our SEC filings from time to time, including in our Transition Report on Form 10-K/T for the six months ended December 31, 2006.

We wish to caution each reader of this report to consider carefully these factors as well as specific factors that may be discussed with each forward-looking statement in this report or disclosed in our filings with the SEC, as such factors, in some cases, could affect our ability to implement our business strategies and may cause actual results to differ materially from those contemplated by the statements expressed herein. Readers are urged to carefully review and consider these factors. We undertake no duty to update the forward-looking statements even though our situation may change in the future.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk for changes in interest rates and foreign currency exchange rates. We manage these exposures through operational means and, when appropriate, through the use of derivative financial instruments.

Interest Rate Risk

Our exposure to interest rate risk relates primarily to our investment portfolio of approximately $736.3 million, borrowings under our credit facilities of approximately $2,215.7 million and approximately $131.2 million of other debt acquired from PLIVA. Our investment portfolio consists principally of cash and cash equivalents and market auction debt securities primarily classified as “available for sale.” The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we maintain our portfolio in a variety of high credit quality debt securities, including U.S., state and local government and corporate obligations, commercial paper and money market funds. Over 97% of our portfolio matures in less than three months, or is subject to an interest-rate reset date that occurs within that time period. The carrying value of the investment portfolio approximates the market value at June 30, 2007 and the value at maturity.

We manage the interest rate risk of our net portfolio of investments and debt with the use of financial risk management instruments or derivatives, including interest rate swaps and forward rate agreements.

As of June 30, 2007, a 10% increase in interest rates would have increased the net interest expense of our combined investment, debt and financial risk management portfolios by $9.8 million per year.

Foreign Exchange Rate Risk

A significant portion of our revenues and earnings are generated internationally in various currencies. We also have a number of investments in foreign subsidiaries whose net assets are exposed to currency translation risk. We seek to manage these exposures through operational means, to the extent possible, by matching functional currency revenues and costs and functional currency assets and liabilities. Exposures that cannot be managed operationally are hedged using foreign exchange forwards, swaps and option contracts.

As of June 30, 2007, a 10% depreciation in the value of the U.S. dollar would have resulted in a decrease of $12.2 million in the fair value of the Company’s foreign exchange risk management instruments. These movements would have been offset by movements in the fair value in the opposite direction of the underlying transactions and balance sheet items being hedged.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”)) and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chairman and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

At the conclusion of the three-month period ended June 30, 2007, we carried out an evaluation, under the supervision and with the participation of our management, including the Chairman and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chairman and Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting.

There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The disclosure under Note 15 — Commitments and Contingencies — Litigation Matters included in Part I of this report is incorporated in this Part II, Item 1 by reference.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in the “Risk Factors” section in our Transition Report on Form 10-K/T for the six-month period ended December 31, 2006, which could materially affect our business, results of operations, financial condition or liquidity. The risks described in our Transition Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may materially adversely affect our business, results of operations, financial condition or liquidity. The risks described in our Transition Report have not materially changed.

Item 4. Submissions of Matters to a Vote of Security Holders

The Annual Meeting of the Shareholders of Barr Pharmaceuticals, Inc. was held on May 17, 2007. Of the 109,743,616 shares entitled to vote, 93,960,456 shares were represented at the meeting, either in person or by proxy. The meeting was held for the following purposes:

To elect seven directors. All seven nominees were elected based on the following votes cast:


Director	For:		Withheld:
Paul M. Bisaro		84,516,430		9,444,026
Harold Chefitz		87,787,914		6,172,542
Bruce L. Downey		84,494,024		9,466,432
Richard Frankovic		87,803,774		6,156,682
James Gilmore		48,494,423		45,466,033
Peter Seaver		80,704,107		13,256,349
George P. Stephan		84,276,551		9,683,905

To ratify the Audit Committee’s selection of Deloitte & Touche LLP, an independent registered public accounting firm, as independent auditors for the fiscal year ending December 31, 2007, and the result of such vote was as follows:


For:	Against:	Abstained:	Broker Non-votes
90,006,524	3,880,415	73,515	—

To approve the Barr Pharmaceuticals, Inc. 2007 Stock and Incentive Award Plan, and the result of such vote was as follows:


For:	Against:	Abstained:	Broker Non-votes
62,054,327	15,853,137	133,763	15,919,229

To approve the Barr Pharmaceuticals, Inc. 2007 Executive Officer Incentive Plan, and the result of such vote was as follows:


For:	Against:	Abstained:	Broker Non-votes
88,058,025	5,687,803	214,627	—

Item 5. Other Matters

As disclosed in Item 4 above, at the Annual Meeting of Shareholders held on May 17, 2007, our shareholders approved (i) the Barr Pharmaceuticals, Inc. 2007 Stock and Incentive Award Plan and (ii) the Barr Pharmaceuticals, Inc. Executive Officer Incentive Plan. Summaries of the material terms of each of these plans are contained in our definitive proxy statement filed with the Securities and Exchange Commission on April 4, 2007 and are incorporated herein by reference. The plan summaries are qualified in their entirety by, as applicable, the Barr Pharmaceuticals, Inc. 2007 Stock and Incentive Award Plan (filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q) and the Barr Pharmaceuticals, Inc. 2007 Executive Officer Incentive Plan (filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q).

Item 6. Exhibits


Exhibit No.		Description

	10.1	2007 Stock and Incentive Award Plan (1)

	10.2	2007 Executive Officer Incentive Plan (1)

	31.1	Certification of Bruce L. Downey pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification of William T. McKee pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.0	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(1)		Previously filed with the Securities and Exchange Commission as an exhibit to the Company’s Registration Statement on Form S-8 on June 29, 2007 and incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	BARR PHARMACEUTICALS, INC.
Dated: August 9, 2007	/s/ Bruce L. Downey
	Bruce L. Downey
	Chairman of the Board and Chief Executive Officer


	/s/ William T. McKee
	William T. McKee
	Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial Officer and Principal Accounting Officer)

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Barr Pharmaceuticals (BRL) Inactive 10-Q2007 Q2 Quarterly report

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