Cephalon (CEPH) 8-K Cephalon Reports Record Earnings and Raises 2010 Guidance

Exhibit 99.1

For immediate release DRAFT

Cephalon Reports Record Earnings and Raises 2010 Guidance

Quarterly Sales and Earnings Exceed Top End of Guidance

Quarterly Sales of $707 Million Increased 32 Percent

Quarterly Basic Adjusted EPS of $2.27 Increased 34 Percent

Quarterly Cash from Operations Totaled $272 Million

Frazer, Pa. — October 28, 2010 — Cephalon, Inc. (Nasdaq: CEPH) today reported third quarter 2010 sales of $707.1 million, a 32 percent increase compared to sales of $535.2 million for the third quarter 2009.  Basic income per common share for the quarter was $1.76.  Excluding amortization expense and certain other items, basic adjusted income per common share for the quarter was $2.27, a 34 percent increase over the $1.70 for the third quarter of 2009.   Adjusted net income for the third quarter of 2010 was $170.7 million, a 35 percent increase over the $126.7 million for the third quarter of 2009.

Central nervous system (CNS) franchise sales were $354.3 million during the quarter, a 19 percent increase compared to the same period last year.  Pain franchise sales were $131.2 million, a 10 percent increase versus third quarter 2009.  Oncology franchise sales were $132.9 million, a 60 percent increase over the same period last year due to strong sales of TREANDA® (bendamustine HCL) for Injection.  Other product sales were $88.8 million, an increase of 153 percent versus third quarter of 2009 primarily due to the acquisition of Mepha in the second quarter of 2010.

“We achieved record earnings and cash flow from operations in the quarter while continuing to expand our global product offerings,” said Kevin Buchi, Chief Operating Officer. “Our robust cash flow generation gives us the flexibility to invest in our rich pipeline while continuing our active business development efforts, positioning us very well for the future.”

The company is updating its guidance for full year 2010.  Total sales guidance is $2.69-$2.73 billion. This includes expected CNS franchise sales of $1.34-$1.37 billion, pain franchise sales of $510-$530 million, oncology franchise sales of $500-$520 million, and other product sales of $325-$345 million.  Full year R&D and SG&A guidance is $430-$450 million and $910-$930 million, respectively.  Adjusted net income guidance is increased to $617-$632 million and basic adjusted income per common share guidance is increased to $8.20-$8.40, assuming 75.2 million basic shares outstanding.

Cephalon is introducing full year 2011 sales guidance of $2.96-$3.04 billion.  This includes CNS franchise sales of $1.39-$1.43 billion, pain franchise sales of $540-$570 million, oncology franchise sales of $570-$600 million, and other product sales of $420-$450 million.

SOURCE:  Cephalon, Inc. · 41 Moores Road · Frazer, PA  19355 · (610) 344-0200 · Fax (610) 344-0065

R&D and SG&A guidance for 2011 are $505-$525 million and $970 million-$1 billion, respectively.

The company also is introducing adjusted net income guidance for full year 2011 of $652-$668 million.  Cephalon is introducing 2011 adjusted net income per common share guidance of $8.45-$8.65, assuming 77.2 million basic shares outstanding.

Basic adjusted income per common share guidance for both the full-year 2010 and full-year 2011 is reconciled below and is subject to the assumptions set forth therein. References in this press release to basic income per common share, basic adjusted income per common share, basic adjusted income per common share guidance, adjusted net income, adjusted net income guidance, adjusted net income per common share, adjusted net income per common share guidance refer to those metrics on an “attributable to Cephalon” basis and do not include any income or losses attributable to noncontrolling interests.

The Cephalon management will discuss the company’s third quarter 2010 performance in a conference call with investors beginning at 5:00 p.m. U.S. EDT today.  To participate in the conference call, dial +913-312-0678 and refer to conference code 4886405. Investors can listen to the call live by logging on to the company’s website at www.cephalon.com and clicking on “Investor Information,” then “Webcast.”  The conference call will be archived and available to investors for one week after the call.

About Cephalon, Inc.

Cephalon is a global biopharmaceutical company dedicated to discovering, developing and bringing to market medications to improve the quality of life of individuals around the world.  Since its inception in 1987, Cephalon has brought first-in-class and best-in-class medicines to patients in several therapeutic areas.  Cephalon has the distinction of being one of the world’s fastest-growing biopharmaceutical companies, now among the Fortune 1000 and a member of the S&P 500 Index, employing approximately 4,000 people worldwide.  The company sells numerous branded and generic products around the world. In total, Cephalon sells more than 150 products in nearly 100 countries.  More information on Cephalon and its products is available at http://www.cephalon.com

# # #

In addition to historical facts or statements of current condition, this press release may contain forward-looking statements. Forward-looking statements provide Cephalon’s current expectations or forecasts of future events. These may include statements regarding anticipated scientific progress on its research programs; development of potential pharmaceutical products; interpretation of clinical results; prospects for regulatory approval; manufacturing development and capabilities; market prospects for its products; sales, adjusted net income and basic adjusted income per common share guidance for full-year 2010 and full-year 2011 and SG&A and R&D guidance for the full-year 2010 and full-year 2011; and other statements regarding matters that are not historical facts. You may identify some of these forward-looking statements by the use of words in the statements such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” or other words and terms of similar meaning. Cephalon’s

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performance and financial results could differ materially from those reflected in these forward-looking statements due to general financial, economic, regulatory and political conditions affecting the biotechnology and pharmaceutical industries as well as more specific risks and uncertainties facing Cephalon such as those set forth in its reports on Form 8-K, 10-Q and 10-K filed with the U.S. Securities and Exchange Commission. Given these risks and uncertainties, any or all of these forward-looking statements may prove to be incorrect. Therefore, you should not rely on any such factors or forward-looking statements. Furthermore, Cephalon does not intend to update publicly any forward-looking statement, except as required by law. The Private Securities Litigation Reform Act of 1995 permits this discussion.

This press release and/or the financial results attached to this press release include “Adjusted Net Income,” “Basic Adjusted Income per Common Share,” “Adjusted Net Income Guidance,” “Basic Adjusted Income per Common Share Guidance,” and “Diluted Adjusted Income Per Common Share,” amounts that are considered “non-GAAP financial measures” under SEC rules. As required, we have provided reconciliations of these measures. Additional required information is located in the Form 8-K furnished to the SEC in connection with this press release.

Source: Cephalon, Inc.

Contacts:
Media:	Investors:
Candace Steele Flippin	Robert (Chip) Merritt
610-727-6231	610-738-6376
csteele@cephalon.com	cmerritt@cephalon.com
	Joseph Marczely
	610-883-5894
	jmarczely@cephalon.com

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CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
REVENUES:
Net sales	$	707,077		$	535,223		$	1,996,193		$	1,588,610
Other revenues	9,916			14,189			44,295			28,583
	716,993			549,412			2,040,488			1,617,193
COSTS AND EXPENSES:
Cost of sales	151,939			90,456			427,721			293,633
Research and development	110,966			99,157			317,604			304,266
Selling, general and administrative	226,791			194,068			689,900			618,314
Change in fair value of contingent consideration	5,247			—			6,314			—
Restructuring charges	2,313			1,062			7,638			3,944
Acquired in-process research and development	—			6,000			—			46,118
	497,256			390,743			1,449,177			1,266,275
INCOME FROM OPERATIONS	219,737			158,669			591,311			350,918
OTHER INCOME (EXPENSE):
Interest income	908			1,821			4,138			3,455
Interest expense	(24,989		)	(26,495		)	(78,895		)	(63,213		)
Other income (expense), net	(2,846		)	3,775			(19,449		)	42,418
	(26,927		)	(20,899		)	(94,206		)	(17,340		)
INCOME BEFORE INCOME TAXES	192,810			137,770			497,105			333,578
INCOME TAX EXPENSE	61,262			42,673			172,827			122,659
NET INCOME	131,548			95,097			324,278			210,919
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST	952			7,625			7,851			35,150
NET INCOME ATTRIBUTABLE TO CEPHALON, INC.	$	132,500		$	102,722		$	332,129		$	246,069
BASIC INCOME PER COMMON SHARE ATTRIBUTABLE TO CEPHALON, INC.	$	1.76		$	1.38		$	4.42		$	3.44
DILUTED INCOME PER COMMON SHARE ATTRIBUTABLE TO CEPHALON, INC.	$	1.66		$	1.31		$	4.11		$	3.17
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ATTRIBUTABLE TO CEPHALON, INC.	75,201			74,647			75,128			71,541
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION ATTRIBUTABLE TO CEPHALON, INC.	79,773			78,431			80,761			77,552

CEPHALON, INC. AND SUBSIDIARIES

Reconciliation of GAAP Net Income to Adjusted Net Income Attributable to Cephalon, Inc.

(Unaudited)

	Three Months Ended
	September 30,
	2010			2009
GAAP NET INCOME ATTRIBUTABLE TO CEPHALON, INC.	$	132,500		$	102,722
Cost of sales adjustments	41,050		(1)	21,968		(1)
Research and development adjustments	2,014		(2)	1,318		(2)
Selling, general and administrative adjustments	(1,921		)(3)	635		(3)
Change in fair value of contingent consideration adjustment	5,247		(4)	—
Restructuring charges	2,313		(5)	1,062		(5)
In-process research and development adjustments	—			6,000		(6)
Interest expense adjustment	15,084		(7)	16,959		(7)
Other income adjustment	—			(484		)(8)
Income tax adjustment	(25,603		)(9)	(23,475		)(9)
*Noncontrolling Interest adjustments:
Other revenues	—			(3		)
Research and development	283			6,295
Selling, general and administrative	240			827
Other expense	—			128
Interest income	—			(37		)
Interest expense	—			299
Income taxes	—			23
Less amount attributable to noncontrolling interest	(523		)	(7,532		)
	38,184			23,983
ADJUSTED NET INCOME ATTRIBUTABLE TO CEPHALON, INC.	$	170,684		$	126,705
BASIC ADJUSTED INCOME PER COMMON SHARE	$	2.27		$	1.70
DILUTED ADJUSTED INCOME PER COMMON SHARE	$	2.14		$	1.62
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING	75,201			74,647
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION	79,773			78,431

* Amounts recorded by our Variable Interest Entities that have been excluded from net income attributable to Cephalon, Inc.

Notes to Reconciliation of GAAP Net Income to Adjusted Net Income

(1)	To exclude the on-going amortization of acquired intangible assets ($31.4M in 2010; $26.4M in 2009), accelerated depreciation related to restructuring ($4.2M in 2010; $5.0M in 2009), amortization of inventory revaluation related to Mepha ($5.2M in 2010), offset by the gain recognized in connection with an agreement to reduce our excess modafinil purchase commitments ($9.5M in 2009).
(2)	In 2010, to exclude the impairment of an investment ($2.0M). In 2009, to exclude accelerated depreciation related to restructuring ($0.3M) and charges related to payment for research and development collaboration ($1.0M).
(3)	In 2010, to exclude proceeds related to the settlement of litigation in Europe ($2.1M), offset by charges related to the acquisition of Mepha ($0.2M). In 2009, to exclude charges related to the acquisition of Arana Therapeutics Limited ($0.6M).
(4)	To exclude the change in fair value of the Ception contingent consideration.
(5)	To exclude costs related to restructurings.
(6)	To exclude charges incurred in exchange for license rights to certain of XOMA Ltd.’s proprietary antibody library materials.
(7)	To exclude imputed interest expense associated with convertible debt ($15.1M in 2010; $17.0M in 2009).
(8)	In 2009, to exclude $0.4M gain on foreign exchange of Australian Dollar acquisition funds.
(9)	To reflect the tax effect of pre-tax adjustments at applicable tax rates and certain other tax adjustments primarily related to changes in valuation allowances and other changes in tax assets and liabilities.

CEPHALON, INC. AND SUBSIDIARIES

Reconciliation of GAAP Net Income to Adjusted Net Income Attributable to Cephalon, Inc.

(Unaudited)

	Nine Months Ended
	September 30,
	2010			2009
GAAP NET INCOME ATTRIBUTABLE TO CEPHALON, INC.	$	332,129		$	246,069
Cost of sales adjustments	124,225		(1)	78,146		(1)
Research and development adjustments	2,690		(2)	4,404		(2)
Selling, general and administrative adjustments	9,581		(3)	14,379		(3)
Change in fair value of contingent consideration adjustment	6,314		(4)	—
Restructuring charges	7,638		(5)	3,944		(5)
In-process research and development adjustments	—			46,118		(6)
Interest expense adjustment	50,072		(7)	40,459		(7)
Other (income) expense adjustment	11,567		(8)	(40,011		)(8)
Arana noncontrolling interest adjustments	—			(819		)(9)
Income tax adjustment	(64,293		)(10)	(54,192		)(10)
*Noncontrolling Interest adjustments:
Other revenues	(31		)	30
Research and development	6,377			25,519
Selling, general and administrative	3,462			7,373
Interest income	(7		)	(182		)
Interest expense	154			1,299
Other expense	166			33
Income taxes	(3,848		)	47
Less amount attributable to noncontrolling interest	(6,273		)	(34,119		)
	147,794			92,428
ADJUSTED NET INCOME ATTRIBUTABLE TO CEPHALON, INC.	$	479,923		$	338,497
BASIC ADJUSTED INCOME PER COMMON SHARE	$	6.39		$	4.73
DILUTED ADJUSTED INCOME PER COMMON SHARE	$	5.94		$	4.36
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING	75,128			71,541
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION	80,761			77,552

* Amounts recorded by our Variable Interest Entities that have been excluded from net income attributable to Cephalon, Inc.              

Notes to Reconciliation of GAAP Net Income to Adjusted Net Income

(1)	To exclude the on-going amortization of acquired intangible assets ($89.4M in 2010; $70.6M in 2009), accelerated depreciation related to restructuring ($14.9M in 2010; $14.0M in 2009), amortization of inventory revaluation related to Mepha ($10.5M in 2010) and the write-off of modafinil purchase commitments in excess of estimated requirements ($9.4M in 2010; $3.0M in 2009), offset by the gain recognized in connection with an agreement to reduce our excess modafinil purchase commitments ($9.5M in 2009).
(2)	To exclude accelerated depreciation related to restructuring ($0.7M in 2010; $0.9M in 2009), the impairment of an investment ($2.0M in 2010), charges related to payments for several research and development collaborations ($2.0M in 2009) and charges related to our transaction with Arana Therapeutics Limited ($1.5M in 2009).
(3)	In 2010, to exclude charges related to the acquisition of Mepha ($10.3M), the acquisition of Ception noncontrolling interest ($1.4M), offset by proceeds related to the settlement of litigation in Europe ($2.1M). In 2009, to exclude charges related to the acquisition of Arana Therapeutics Limited ($7.8M) and charges related to our settlement with Takeda ($6.5M) to resolve our remaining contractual arrangements.
(4)	To exclude the change in fair value of the Ception contingent consideration.
(5)	To exclude costs related to restructurings.
(6)	In 2009, to exclude charges related to the deconsolidation of Acusphere ($9.3M), the acquisition of worldwide license rights related to LUPUZOR from ImmuPharma ($30.0M), license rights for bendamustine hydrochloride in China and Hong Kong ($0.8M) and license rights to certain of XOMA Ltd.’s proprietary antibody library materials ($6.0M).
(7)	To exclude imputed interest expense associated with convertible debt ($50.1M in 2010; $40.5M in 2009).
(8)	In 2010, to exclude the following losses related to the acquisition of Mepha AG:
	· $9.1M loss on foreign exchange derivative instruments; and
	· $2.5M loss on foreign exchange of Swiss Franc acquisition funds.
	In 2009, to exclude the following gains and losses related to the acquisition of Arana Therapeutics Limited:
	· $6.6M gain on pre-bid Arana holding;
	· $2.8M loss on contingent consideration (90% ownership incentive payment);
	· $10.0M gain on excess of net assets over consideration;
	· $19.0M gain on foreign exchange derivative instruments;
	· $5.6M gain on foreign exchange of Australian Dollar acquisition funds; and
	· $1.6M gain on dividend income related to our initial purchase of Arana shares.
(9)	To exclude the portion of non-cash charges related to our acquisition of Arana Therapeutics Limited that are reflected in (8) above but do not affect net income because they are attributed to noncontrolling interests.
(10)	To reflect the tax effect of pre-tax adjustments at applicable tax rates and certain other tax adjustments primarily related to; changes in valuation allowances and other changes in tax assets and liabilities.

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED SALES DETAIL

(In thousands)

(Unaudited)

	Three Months Ended												%
	September 30,												Increase
	2010						2009						(Decrease)
	United States		Europe		Total		United States		Europe		Total		United States		Europe		Total
Sales:
CNS
Proprietary CNS
PROVIGIL	$	267,751	$	13,279	$	281,030	$	241,301	$	16,693	$	257,994	11	%	(20	)%	9	%
NUVIGIL	51,437		—		51,437		20,991		—		20,991		145		—		145
GABITRIL	9,577		1,025		10,602		11,560		1,340		12,900		(17	)	(24	)	(18	)
Other Proprietary CNS	—		2,580		2,580		—		3,575		3,575		—		(28	)	(28	)
Generic CNS	—		8,609		8,609		—		2,642		2,642		—		226		226
CNS	328,765		25,493		354,258		273,852		24,250		298,102		20		5		19
Pain
Proprietary Pain
FENTORA	37,368		5,549		42,917		35,779		1,201		36,980		4		362		16
AMRIX	26,784		—		26,784		26,703		—		26,703		0		—		0
Other Proprietary Pain	—		91		91		—		89		89		—		2		2
Generic Pain
ACTIQ	16,170		17,855		34,025		16,521		16,721		33,242		(2	)	7		2
Generic OTFC	8,295		—		8,295		19,332		—		19,332		(57	)	0		(57	)
Other Generic Pain	—		19,040		19,040		—		2,360		2,360		0		707		707
Pain	88,617		42,535		131,152		98,335		20,371		118,706		(10	)	109		10
Oncology
Proprietary Oncology
TREANDA	103,911		—		103,911		54,532		—		54,532		91		—		91
Other Proprietary Oncology	5,123		18,330		23,453		4,010		19,732		23,742		28		(7	)	(1	)
Generic Oncology	—		5,552		5,552		—		5,021		5,021		—		11		11
Oncology	109,034		23,882		132,916		58,542		24,753		83,295		86		(4	)	60
Other
Other Proprietary	2,975		2,354		5,329		3,168		—		3,168		(6	)	—		68
Other Generic	3,526		79,896		83,422		3,464		28,488		31,952		2		180		161
Other	6,501		82,250		88,751		6,632		28,488		35,120		(2	)	189		153
	$	532,917	$	174,160	$	707,077	$	437,361	$	97,862	$	535,223	22	%	78	%	32	%

	Nine Months Ended												%
	September 30,												Increase
	2010						2009						(Decrease)
	United States		Europe		Total		United States		Europe		Total		United States		Europe		Total
Sales:
CNS
Proprietary CNS
PROVIGIL	$	780,902	$	47,409	$	828,311	$	726,313	$	47,111	$	773,424	8	%	1	%	7	%
NUVIGIL	127,327		—		127,327		37,777		—		37,777		237		—		237
GABITRIL	28,994		3,511		32,505		37,058		3,871		40,929		(22	)	(9	)	(21	)
Other Proprietary CNS	—		8,238		8,238		—		9,645		9,645		—		(15	)	(15	)
Generic CNS	—		19,494		19,494		—		8,078		8,078		—		141		141
CNS	937,223		78,652		1,015,875		801,148		68,705		869,853		17		14		17
Pain
Proprietary Pain
FENTORA	114,709		14,939		129,648		99,686		2,438		102,124		15		513		27
AMRIX	80,467		—		80,467		83,807		—		83,807		(4	)	—		(4	)
Other Proprietary Pain	—		199		199		—		216		216		—		(8	)	(8	)
Generic Pain
ACTIQ	45,581		50,413		95,994		56,692		52,579		109,271		(20	)	(4	)	(12	)
Generic OTFC	32,609		—		32,609		66,834		—		66,834		(51	)	0		(51	)
Other Generic Pain	—		42,738		42,738		—		6,259		6,259		0		583		583
Pain	273,366		108,289		381,655		307,019		61,492		368,511		(11	)	76		4
Oncology
Proprietary Oncology
TREANDA	284,900		—		284,900		160,549		—		160,549		77		—		77
Other Proprietary Oncology	15,931		57,290		73,221		13,530		53,733		67,263		18		7		9
Generic Oncology	—		15,410		15,410		—		14,685		14,685		—		5		5
Oncology	300,831		72,700		373,531		174,079		68,418		242,497		73		6		54
Other
Other Proprietary	11,222		4,108		15,330		13,277		—		13,277		(15	)	—		15
Other Generic	10,680		199,122		209,802		12,889		81,583		94,472		(17	)	144		122
Other	21,902		203,230		225,132		26,166		81,583		107,749		(16	)	149		109
	$	1,533,322	$	462,871	$	1,996,193	$	1,308,412	$	280,198	$	1,588,610	17	%	65	%	26	%

Europe- Primarily Europe, Middle East and Africa

Proprietary products are products which are sold under patent coverage.

Generic products are products sold without patent coverage in the primary sales territory. Patent coverage may exist in other territories.

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	September 30,			December 31,
	2010			2009
CURRENT ASSETS:
Cash and cash equivalents	$	1,208,990		$	1,647,635
Receivables, net	450,614			376,076
Inventory, net	295,880			240,576
Deferred tax assets, net	225,031			243,246
Other current assets	66,787			58,423
Total current assets	2,247,302			2,565,956
INVESTMENTS	12,594			12,427
PROPERTY AND EQUIPMENT, net	500,013			451,879
GOODWILL	833,358			590,284
INTANGIBLE ASSETS, net	1,234,181			981,857
DEBT ISSUANCE COSTS	15,362			18,862
OTHER ASSETS	43,582			36,830
	$	4,886,392		$	4,658,095
CURRENT LIABILITIES:
Current portion of long-term debt, net	$	644,097		$	818,925
Accounts payable	100,917			88,829
Accrued expenses	507,408			430,209
Total current liabilities	1,252,422			1,337,963
LONG-TERM DEBT	384,638			363,696
DEFERRED TAX LIABILITIES, net	219,091			159,328
OTHER LIABILITIES	279,049			111,728
Total liabilities	2,135,200			1,972,715
REDEEMABLE EQUITY	178,245			207,307
EQUITY:
Cephalon Stockholders’ Equity
Common stock, $0.01 par value	784			780
Additional paid-in capital	2,407,563			2,534,070
Treasury stock, at cost	(216,597		)	(208,427		)
Accumulated earnings (deficit)	153,470			(178,659		)
Accumulated other comprehensive income	164,888			114,194
Total Cephalon stockholders’ equity	2,510,108			2,261,958
Noncontrolling Interest	62,839			216,115
Total equity	2,572,947			2,478,073
	$	4,886,392		$	4,658,095

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	324,278		$	210,919
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax expense (benefit)	(27,976		)	(40,182		)
Depreciation and amortization	163,049			136,403
Stock-based compensation expense	31,740			36,710
Amortization of debt discount and debt issuance costs	51,318			41,273
Loss (gain) on foreign exchange contracts	9,499			(26,754		)
Gain on acquisition of Arana	—			(10,008		)
IPR&D from Acusphere deconsolidation	—			8,366
Other	1,749			(5,079		)
Changes in operating assets and liabilities:
Receivables	(1,006		)	94,204
Inventory	31,967			(7,060		)
Other assets	7,480			32,206
Accounts payable, accrued expenses and deferred revenues	53,395			89,192
Other liabilities	5,047			(43,059		)
Net cash provided by operating activities	650,540			517,131
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(34,989		)	(43,647		)
Proceeds from sale of property and equipment	4,748			—
Cash balance from consolidation of variable interest entity	—			52,563
Investment in Ception	—			(75,000		)
Acquistion of Arana, net of cash acquired	—			(232,527		)
Acquistion of Mepha, net of cash acquired	(549,463		)	—
Purchases of investments	(60		)	(9,292		)
(Cash settlements of) proceeds from foreign exchange contracts	(9,499		)	26,754
Sales and maturities of available-for-sale investments	—			5,074
Net cash used for investing activities	(589,263		)	(276,075		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock	—			288,000
Proceeds from exercises of common stock options	15,183			6,701
Windfall tax benefits from stock-based compensation	—			1,259
Acquisition of treasury stock	(33		)	(29		)
Acquisition of Ception NCI	(299,289		)	—
Payments on and retirements of long-term debt	(222,079		)	(11,246		)
Net proceeds from issuance of convertible subordinated notes	—			484,719
Proceeds from sale of warrants	—			37,640
Purchase of convertible note hedge	—			(121,040		)
Net cash (used for) provided by financing activities	(506,218		)	686,004
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	6,296			2,295
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(438,645		)	929,355
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	1,647,635			524,459
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,208,990		$	1,453,814

CEPHALON, INC. AND SUBSIDIARIES

Reconciliation of Projected GAAP Basic Income per Common Share

to Basic Adjusted Income Per Common Share Guidance

(Unaudited)

	Twelve Months Ended							Twelve Months Ended
	December 31, 2010							December 31, 2011
Projected GAAP basic income per common share	$	5.94		—	$	6.14		$	6.91		—	$	7.11
Amortization of current intangibles	1.57			—	1.57			1.41			—	1.41
Accelerated depreciation adjustment- CIMA	0.10			—	0.10			0.01			—	0.01
Accelerated depreciation adjustment- Mitry-Mory	0.10			—	0.10			—			—	—
Cost of sales adjustments	0.27			—	0.27			—			—	—
Research and development adjustments	0.03			—	0.03			—			—	—
Selling, general and administrative adjustments	0.13			—	0.13			—			—	—
Change in fair value of contingent consideration adjustments	0.08			—	0.08			—			—	—
Restructuring adjustments	0.11			—	0.11			0.04			—	0.04
Other income (expense) adjustments	0.15			—	0.15			—			—	—
Interest expense adjustments	0.87			—	0.87			0.84			—	0.84
Tax effect of pre-tax adjustments at the applicable tax rates	(1.15		)	—	(1.15		)	(0.76		)	—	(0.76		)
Basic adjusted income per common share guidance	$	8.20		—	$	8.40		$	8.45		—	$	8.65

The company’s guidance is being issued based on certain assumptions including:

· Adjusted effective tax rate of approximately 33.5% in 2010 and 33.0% in 2011;

· Weighted average number of common shares outstanding of 75.2 and 77.2 million shares for the years ended December 31, 2010  and 2011, respectively; and

· No generic competition for AMRIX and FENTORA in 2011.