UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~September 30, 2006~~March 31, 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~~1-9860~~

BARR PHARMACEUTICALS, INC.

(Exact name of Registrant as specified in its charter)


Delaware		42-1612474

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

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 Noo

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 filero Non-accelerated filero

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

As of ~~October 25, 2006~~April 27, 2007 the registrant had ~~106,388,167~~109,748,616 shares of $0.01 par value common stock outstanding.

Part 1.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)


		September 30,			June 30,			March 31,			December 31,
		2006			2006			2007			2006
Assets	Assets
Current assets:
Cash and cash equivalents		$	273,254		$	24,422		$	194,662		$	231,975
Marketable securities			480,151			577,482			647,489			673,746
Accounts receivable, net of reserves of $135,627 and $137,297, at September 30, 2006 and June 30, 2006, respectively			184,671			226,026
Other receivables			28,233			50,235
Inventories, net			150,725			134,266
Accounts receivable, net of reserves of $251,379 and $238,311, respectively									452,793			515,303
Other receivables, net									59,338			76,491
Inventories									428,537			429,592
Deferred income taxes			45,569			25,680			82,064			82,597
Prepaid expenses and other current assets			35,975			70,871			40,783			35,936
Current assets held for sale									47,038			42,359

Total current assets			1,198,578			1,108,982			1,952,704			2,087,999

Property, plant and equipment, net of accumulated depreciation of $172,240 and $163,662, at September 30, 2006 and June 30, 2006, respectively			277,492			275,960
Property, plant and equipment, net of accumulated depreciation of $216,810 and $196,709, respectively									1,034,229			1,004,618
Deferred income taxes			29,348			30,204			13,831			37,872
Marketable securities			13,999			18,132			11,800			8,946
Other intangible assets, net			472,364			417,258			1,458,721			1,472,418
Goodwill			47,920			47,920			255,553			276,449
Long-term assets held for sale									9,808			9,820
Other assets			28,716			22,963			62,743			63,740

Total assets		$	2,068,417		$	1,921,419		$	4,799,389		$	4,961,862


Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	82,601		$	69,954		$	138,719		$	144,807
Accrued liabilities			104,211			99,213			262,909			280,636
Current portion of long-term debt and capital lease obligations			8,486			8,816			650,921			742,192
Income taxes payable			40,822			9,336			4,088			21,359
Deferred tax liabilities									22			8,266
Current liabilities held for sale									13,243			14,633

Total current liabilities			236,120			187,319			1,069,902			1,211,893


Long-term debt and capital lease obligations			7,381			7,431			1,879,882			1,935,477
Deferred tax liabilities									211,287			221,471
Long-term liabilities held for sale									2,203			2,201
Other liabilities			60,917			35,713			98,244			84,494

Commitments & Contingencies (Note 15)
Commitments & Contingencies (Note 13)

Minority interest									39,038			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 109,348,336 and 109,179,208, at September 30, 2006 and June 30, 2006, respectively			1,093			1,092
Common stock, $.01 par value per share; authorized 200,000,000; issued 109,743,073 and 109,536,481, respectively									1,097			1,095
Additional paid-in capital			594,860			574,785			624,873			610,232
Retained earnings			1,268,907			1,216,146			889,563			877,991
Accumulated other comprehensive loss			(171	)		(377	)
Treasury stock at cost: 2,972,997 shares, at September 30, 2006 and June 30, 2006			(100,690	)		(100,690	)
Accumulated other comprehensive income									83,990			76,600
Treasury stock at cost: 2,972,997 shares									(100,690	)		(100,690	)

Total shareholders’ equity			1,763,999			1,690,956			1,498,833			1,465,228

Total liabilities and shareholders’ equity		$	2,068,417		$	1,921,419		$	4,799,389		$	4,961,862

Barr Pharmaceuticals, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended						Three Months Ended
	September 30,						March 31,
	2006			2005			2007			2006
Revenues:
Product sales	$	300,510		$	266,793		$	563,818		$	293,521
Alliance, development and other revenue		31,860			43,646
Alliance and development revenue								25,121			33,320
Other revenue								10,439			—

Total revenues		332,370			310,439			599,378			326,841

Costs and expenses:
Cost of sales		81,684			80,062			302,535			98,507
Selling, general and administrative		97,523			68,572			182,359			78,214
Research and development		39,969			35,066			61,224			37,705
Write-off of in-process research and development								1,549			—


Earnings from operations		113,194			126,739			51,711			112,415

Interest income		6,782			4,475			10,622			4,213
Interest expense		156			79			40,275			110
Other income (expense), net		(42,865	)		(455	)
Other income, net								1,096			1,071


Earnings before income taxes		76,955			130,680
Earnings before income taxes and minority interest								23,154			117,589

Income tax expense		24,194			47,437			9,725			41,493
Minority interest								(1,535	)		—


Net earnings from continuing operations								11,894			76,096

Loss from discontinued operations, net of taxes								(322	)		—

Net earnings	$	52,761		$	83,243		$	11,572		$	76,096


Earnings per common share — basic	$	0.50		$	0.80
Basic:
Earnings per common share — continuing operations							$	0.11		$	0.72
Earnings per common share — discontinued operations								—			—

Net earnings per common share — basic							$	0.11		$	0.72


Earnings per common share — diluted	$	0.49		$	0.78
Diluted:
Earnings per common share — continuing operations							$	0.11		$	0.70
Earnings per common share — discontinued operations								—			—

Net earnings per common share — diluted							$	0.11		$	0.70


Weighted average shares — basic		106,311			103,620			106,715			105,924


Weighted average shares — diluted		108,061			106,290			108,044			108,547

Barr Pharmaceuticals, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in ~~thousands of dollars)~~thousands)
(unaudited)


	Three Months Ended						Three Months Ended
	September 30,						March 31,
	2006			2005			2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	52,761		$	83,243		$	11,572		$	76,096
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		18,055			11,456			72,308			18,014
Minority interest								1,526			—
Stock-based compensation expense		7,124			6,770			7,299			6,933
Deferred income tax (benefit) expense		(19,151	)		3,421
Deferred income tax expense (benefit)								2,004			(886	)
Loss on derivative instruments, net		42,389			—			1,514			—
Write-off of acquired in-process research and development								1,549			—
Other		(2,838	)		184			(5,053	)		(268	)

Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable and other receivables, net		63,357			(49,961	)		73,979			24,649
Inventories		(16,459	)		9,071			2,692			4,686
Prepaid expenses		(9,010	)		841			(4,097	)		1,483
Other assets		(5,760	)		(74	)		(1,176	)		17
Increase (decrease) in:
Accounts payable, accrued liabilities and other liabilities		43,489			307			(14,399	)		11,282
Income taxes payable		31,486			19,131			(17,460	)		13,039

Net cash provided by operating activities		205,443			84,389			132,258			155,045


CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(11,342	)		(15,949	)		(23,154	)		(13,639	)
Acquisition of intangible assets		(63,000	)		—
Proceeds from sale of property, plant and equipment and intangible assets								594			—
Purchases of marketable securities		(1,321,528	)		(507,837	)		(600,107	)		(641,103	)
Sales of marketable securities		1,425,061			316,230			625,864			462,430
Other		1,626			(3,000	)
Settlement of derivative instruments								1,636			—
Acquisitions, net of cash acquired								(33,500	)		(312	)
Investment in debt securities								(2,025	)		—
Investment in venture funds and other								206			(79	)

Net cash provided by (used in) investing activities		30,817			(210,556	)

Net cash used in investing activities								(30,486	)		(192,703	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and capital leases		(380	)		(362	)		(150,439	)		(365	)
Tax benefit of stock incentives		8,344			14,324			2,733			2,361
Proceeds from exercise of stock options and employee stock purchases		4,608			22,464			4,713			20,378

Net cash provided by financing activities		12,572			36,426
Net cash (used in) provided by financing activities								(142,993	)		22,374

Effect of exchange-rate changes on cash and cash equivalents								3,908			—

Increase (decrease) in cash and cash equivalents		248,832			(89,741	)
Decrease in cash and cash equivalents								(37,313	)		(15,284	)
Cash and cash equivalents at beginning of period		24,422			115,793			231,975			30,010

Cash and cash equivalents at end of period	$	273,254		$	26,052		$	194,662		$	14,726


SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the period:
Interest, net of portion capitalized	$	107		$	243

Income taxes	$	3,510		$	10,561

BARR PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(~~dollars~~ 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 ~~(the “Company”)~~ and the accompanying notes that are included in the Company’s ~~Annual~~Transition Report on Form ~~10-K~~10-K/T for the ~~fiscal year~~six-month period ended ~~June 30, 2006.~~December 31, 2006 (the “Transition Period”).

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 generally accepted accounting principles (“GAAP”) in the United States. 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 months ended March 31, 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 months ended March 31, 2007. These include the Company’s reclassification of amortization expense from selling, general and administrative expense to cost of sales. See Note 7 below.

2. Recent Accounting Pronouncements

In ~~July~~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 a tax position is required to meet before being recognized in the financial statements. Upon adoption on January 1, 2007, the Company analyzed filing positions in all of the foreign, federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. See Note 10.

In September 2006, the Financial Accounting Standards Board (the “FASB”) issued ~~Interpretation No. 48,~~~~Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109~~(“FIN 48”). FIN 48 clarifies the accounting for the uncertainty in recognizing income taxes in an organization in accordance with FASB Statement No. 109 by providing detailed guidance for financial statement recognition, measurement and disclosure involving uncertain tax positions. FIN 48 requires an uncertain tax position to meet a more-likely-than-not recognition threshold at the effective date to be recognized both upon the adoption of FIN 48 and in subsequent periods. FIN 48 is effective for fiscal years beginning after December 15, 2006. As the provisions of FIN 48 will be applied to all tax positions upon initial adoption, the cumulative effect of applying the provisions of FIN 48 will be reported as an adjustment to the opening balance of retained earnings for that fiscal year. The Company is currently evaluating FIN 48 and the effect on its consolidated financial statements.

In September 2006, the FASB issued Financial Accounting Standard (“FAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R), which requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. FAS No. 158 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. This statement is effective for fiscal years ending after December 15, 2006. The Company is currently evaluating FAS No. 158 and the effect on its consolidated financial statements.

~~In September 2006, the FASB issued FAS~~SFAS No. 157,Fair Value Measurements,which defines fair value, establishes a framework for measuring fair value inunder 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 ~~and the effect~~will have on its consolidated financial statements.

In ~~September 2006,~~February 2007, the ~~Securities~~FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 159 (“SFAS 159”),The Fair Value Option for Financial Assets and ~~Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin (“SAB”) 108,~~~~Considering~~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 ~~Effects~~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 ~~Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements(SAB 108). SAB 108~~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 ~~public companies utilize a “dual-approach” to assessing the quantitative effects~~will help investors and other users of financial ~~misstatements. This dual approach includes both an income statement focused assessment~~statements to more easily understand the effect of the 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 focused assessment. The guidance in SAB 108 must be applied to annual financial statements~~sheet. SFAS 159 is effective for fiscal years ~~ending~~beginning after November 15, ~~2006.~~2007. The Company ~~does not expect that~~is currently evaluating the impact of the adoption of ~~SAB 108~~this statement will have ~~a material effect~~ on its consolidated financial statements.

3. ~~Agreements with Shire PLC~~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
	March 31,
(table in thousands, except per share data)	2007			2006
Numerator for basic and diluted earnings (loss) per share
Net earnings from continuing operations	$	11,894		$	76,096
Net loss from discontinued operations		(322	)		—

Net earnings	$	11,572		$	76,096


Earnings per common share — basic:
Denominator: Weighted average shares		106,715			105,924

Earnings per common share — continuing operations	$	0.11		$	0.72
Earnings per common share — discontinued operations		—			—

Earnings per common share — basic	$	0.11		$	0.72


Earnings per common share — diluted:
Denominator: Weighted average shares — diluted		108,044			108,547

Earnings per common share — continuing operations	$	0.11		$	0.70
Earnings per common share — discontinued operations		—			—

Earnings per common share — diluted	$	0.11		$	0.70


Calculation of weighted average common shares — diluted

Weighted average shares		106,715			105,924
Effect of dilutive options and warrants		1,329			2,623

Weighted average shares — diluted		108,044			108,547


Not included in the calculation of diluted earnings per-share because their impact is antidilutive:
Stock options outstanding		151			22

4. Acquisitions and Business Combinations

PLIVA d.d.

On ~~August 14,~~October 24, 2006, the ~~Company entered into an arrangement with Shire PLC~~Company’s wholly owned subsidiary, Barr Laboratories Europe B.V. (“~~Shire”~~Barr Europe”) ~~consisting~~, completed the acquisition of a product acquisition and supply agreement for Adderall IR® tablets, a product development and supply agreement for six proprietary products and a settlement and licensing agreement relating to the resolution of two pending patent cases involving Shire’s Adderall XR®.

PLIVA, headquartered in Zagreb, Croatia. Under the terms of the ~~product~~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 217,531 shares on the Croatian stock market for $31,715, including 67,578 shares totaling $9,778 purchased during the three months ended March 31, 2007. As the acquisition ~~agreement,~~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 97.4% of PLIVA’s voting share capital as of March 31, 2007 (17,274,508 of 17,740,016 outstanding shares).

The purchase price of $9,778 for the 67,578 shares acquired during the three months ended March 31, 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 March 31, 2007, was $1,549. The additional share purchases resulted in incremental goodwill of $219.

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.

Refer to Note 7 below for the factors impacting the PLIVA goodwill adjustments.

Products Acquired from Hospira, Inc.

On February 6, 2007, the Company acquired four generic injectible products from Hospira, Inc., which are Morphine, Hydromorphone, Nalbuphine and Deferoxamine. The Company entered into a supply agreement with Hospira covering all four products, and a product development agreement for Deferoxamine. The product acquisitions resulted from an FTC-ordered divestiture of these products in connection with Hospira’s acquisition of Mayne Pharma Ltd.

The Company recorded an intangible ~~asset~~assets in the amount of ~~$63,000~~$12,000 related to the acquisition of ~~Adderall IR.~~the four products. The defined territory for these products includes all markets in the United States and its territories. These product rights are recorded as other intangible assets on the condensed consolidated balance sheets and will be amortized based on estimated product sales over an estimated useful life of 10 years.

5. Discontinued Operations

~~In addition, under the terms~~Following its acquisition of ~~the product development agreement,~~PLIVA on October 24, 2006, the Company ~~received an upfront non-refundable payment~~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 ~~$25,000~~March 31, 2007, the assets and ~~could receive, based on future incurred research and development costs and milestones, an additional $140,000 over~~liabilities relating to these businesses met the ~~next eight years subject to annual caps~~“held for sale” criteria of ~~$30,000. In exchange~~FAS 144,Accounting for ~~its funding commitment, Shire obtained a royalty free license to~~ the products identified in the product development agreement in its defined territory (which is generally defined to include all markets other than North America, Central Europe, Eastern Europe and Russia)Impairment or Disposal of Long Lived Assets. The Company ~~recognizes revenue under the product development arrangement described above, including the $25,000 upfront payment, as it performs~~expects to sell these assets and the related ~~research~~liabilities held for sale within one year. Following the divestiture, the cash flows and ~~development. These amounts~~operations of the divested operations will be ~~reflected~~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 14.

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 ~~“alliance, development and other revenue” line item in the Company’s~~condensed consolidated statement of operations, as costs are incurred over the life of the agreement. Included in other liabilities at September 30, 2006 is $24,876 of deferred revenue related to the above mentioned payments under the product development agreement. The Company also entered into purchase and supply agreements with Shire in conjunction with the product acquisition and product development agreements.shown below:


	March 31,
	2007
Revenues — Spain
Generics	$	7,460
Other		813

Net revenues — Spain	$	8,273


Revenues — Animal health
Generics	$	—
Other		7,305

Net revenues — Animal health	$	7,305

Total net revenues of discontinued operations	$	15,578


Loss before income taxes and minority interest		(234	)
Income tax expense		(97	)
Minority interest		9

Loss from discontinued operations - net of tax	$	(322	)

The ~~settlement~~following combined amounts of assets and ~~licensing agreement relating to Adderall XR grants the Company certain rights to launch a generic version~~liabilities of ~~Adderall XR. The license is royalty-bearing~~those businesses have been segregated and ~~exclusive during~~included in assets held for sale and liabilities held for sale on the Company’s ~~FDA granted six-month period~~condensed consolidated balance sheet as of ~~exclusivity and is non-exclusive and royalty-free thereafter.~~

~~4. Marketable Securities~~

~~The amortized cost and estimated market values of marketable securities at September 30, 2006 and June 30, 2006 are as follows:~~

Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
September 30, 2006

Debt securities $ 485,350 $ — $ (273 ) $ 485,077
Equity securities 9,073 — — 9,073

$ 494,423 $ — $ (273 ) $ 494,150

June 30, 2006

Debt securities $ 588,421 $ — $ (592 ) $ 587,829
Equity securities 7,785 — — 7,785

$ 596,206 $ — $ (592 ) $ 595,614

~~The cost of investments sold is determined by the specific identification method.~~

Debt securities at September 30, 2006 with a market value of $485,077 include $426,475 in commercial paper and market auction debt securities, which are readily convertible into cash at par value with interest rate reset or underlying maturity dates ranging from October 2, 2006 to June 15,March 31, 2007 and ~~$58,602 in municipal and corporate bonds and federal agency issues with maturity dates ranging from March 15, 2007 to February 1, 2009.~~December 31, 2006, as shown below:

~~Equity securities include amounts invested in connection with the Company’s excess 401(k) and other deferred compensation plans.~~


	March 31,		December 31,
	2007		2006
Accounts receivable, net	$	22,371	$	17,762
Inventories		21,839		22,819
Prepaid expenses and other current assets		2,828		1,778

Current assets held for sale		47,038		42,359


Property, plant and equipment, net		5,597		5,581
Deferred income taxes		2,332		2,378
Other intangible assets, net		1,772		1,752
Other assets		107		109

Long-term assets held for sale		9,808		9,820


Assets held for sale	$	56,846	$	52,179


Accounts payable	$	9,415	$	11,316
Accrued liabilities		3,560		3,065
Current portion of long-term debt and capital lease obligations		268		252

Current liabilities held for sale		13,243		14,633


Long-term debt and capital lease obligations		1,712		1,738
Deferred tax liabilities		429		424
Other liabilities		62		39

Long-term liabilities held for sale		2,203		2,201


Liabilities held for sale	$	15,446	$	16,834

~~Inventories are presented net of reserves of $25,525 at September 30, 2006 and $24,721 at June 30, 2006.~~

~~6. Derivative instruments~~

~~During the quarter ended June 30, 2006, the Company entered into a currency option agreement with a bank~~The annual estimated amortization expense for the ~~notional amount equal to~~ €1.8 billion at a cost of $48,900 to hedge its foreign exchange risk related to the acquisition of PLIVA d.d. (“PLIVA”). During the quarter ended September 30, 2006 the Company sold a portion of the option, reducing the notional amount to €~~1.7 billion, for $1,517 in cash resulting in a loss~~next five years on ~~the sale of $3,227. At September 30, 2006, the fair value of the remaining portion of the option was $14,846 and~~finite-lived intangible assets is ~~classified on the balance sheet in prepaid expenses~~as follows:


Years Ending December 31,
2008	$	144,569
2009	$	126,979
2010	$	127,334
2011	$	118,900
2012	$	111,811

The Company’s product licenses, product rights, land use rights and other ~~current assets. To reflect the decrease in value~~finite lived intangible assets have weighted average useful lives of ~~the option from that recorded on the Company’s books at June 30, 2006 (which~~approximately 10, 17, 99 and 10 years, respectively. Amortization expense associated with these acquired intangibles was ~~$59,200, reflecting an increase in value of $10,300 at that time), a charge of $42,837 was recorded as other expense~~$40,726 and $8,865 for the three months ended ~~September 30, 2006.~~March 31, 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 months ended March 31, 2006 was reclassified to conform to that of the three months ended March 31, 2007.

8.		Debt

		A summary of debt is as follows:


	March 31,		December 31,
	2007		2006
Credit Facilities (a)	$	2,265,700	$	2,415,703
Note due to WCC shareholders (b)		6,500		6,500
Obligation under capital leases (c)		2,565		2,819
Fixed rate bonds (d)		102,721		101,780
Dual-currency syndicated credit facility (e)		86,592		86,287
Euro commercial paper program (f)		26,638		26,334
Dual-currency term loan facility (g)		25,000		25,000
Multi-currency revolving credit facility (h)		13,319		13,167
Other		1,768		79

		2,530,803		2,677,669

Less: current installments of debt and capital lease obligations		650,921		742,192

Total long-term debt	$	1,879,882	$	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 (6.10% at March 31, 2007). The Company is obligated to repay the outstanding principal amount of the five-year term facility in 18 consecutive quarterly installments of $50,000, with the first payment having been made on March 30, 2007, with the balance of $1,100,000 due at maturity in October 2011. The 364-day term facility is due in full upon maturity in October 2007, but the Company elected to prepay $100,003 of the outstanding amount on March 30, 2007, leaving a balance of $315,700 outstanding. 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. These obligations were established using interest rates available to the Company at the inception of each lease.


The Company’s long-term debt includes the following liabilities incurred by PLIVA prior to the acquisition (Euro to U.S. dollar equivalents are based on the exchange rate in effect at March 30, 2007):


(d)		In May 2004, PLIVA issued Euro denominated fixed rate bonds with a face value of EUR 75,000 ($99,893). The bonds mature in 2011 and bear annual interest at 5.75% payable semiannually. The Company recorded the bonds at fair value based on their prevailing market price on the PLIVA acquisition date, pursuant to the provisions of SFAS No. 141. At that time, the aggregate fair value of the bonds was EUR 77,401 ($103,091). The premium over face value of EUR 2,401 ($3,198) will be amortized over the remaining life of the bonds. Amortization for the three months ended March 31, 2007 was EUR 66 ($88).

(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 March 31, 2007, there was $59,873 outstanding with an effective interest rate of 6.13% and EUR 20,061 outstanding ($26,719) with an effective interest rate of 4.398%. 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 ($332,978) and bears interest at a variable interest rate. Currently, there is EUR 20,000 outstanding ($26,638) yielding 4.507% that is due on July 4, 2007.

(g)		On September 9, 2006, PLIVA entered into a dual currency term loan facility pursuant to which the lenders 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 March 31, 2007, there was $25,000 outstanding with an effective interest rate of 5.33% 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 ($39,957). 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 March 31, 2007, there was EUR 10,000 outstanding ($13,319) with an effective interest rate of 3.857% 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 March 31,
2009	$	213,383
2010	$	212,677
2011	$	200,474
2012	$	1,250,216
2013	$	146
Thereafter	$	124

Total principal maturities and amounts due on capital leases	$	1,877,020
Premium on fixed rate bond (e)	$	2,862

Total debt and capital lease obligations	$	1,879,882

9. Accumulated Other Comprehensive Income

~~In addition,~~Comprehensive income is defined as the total change in shareholders’ equity during the ~~quarter ended September 30, 2006~~period other than from transactions with shareholders. For the Company, ~~entered into forward exchange contracts in order to secure the necessary currency needed to finalize the PLIVA transaction. These contracts, which were in the notional amount~~comprehensive income is comprised of ~~$300,000, are~~net income, unrealized gains (losses) on securities classified for SFAS No. 115 purposes as “available for sale”, unrealized gains (losses) on ~~the balance sheet in prepaid expenses~~pension and other ~~current assets. From the date they were entered into until September 30, 2006, these forward-exchange contracts increased in value by $448 which is recorded as other~~post employment benefits and foreign currency translation adjustments. Comprehensive income for the three months ended ~~September 30, 2006.~~March 31, 2007 and March 31, 2006 is $18,962 and $76,293, respectively.

~~The instruments described above do not meet~~Accumulated other comprehensive income consists of the ~~criteria required to qualify~~following:


	March 31,			December 31,
	2007			2006
Beginning balance	$	76,600		$	(377	)
Net unrealized gain on marketable securities, net of tax expense $69 and $21, respectively		985			105
Net unrealized gain on currency translation adjustments, net of tax expense $109 and $12,329, respectively		8,618			76,850
Net (loss) gain on cash flow hedge, net of tax (benefit) expense of ($1,345) and $11, respectively		(2,213	)		22

Net unrecognized gain		7,390			76,977

Ending balance	$	83,990		$	76,600

10. Income Taxes

On January 1, 2007 the Company adopted FIN 48, and as a ~~foreign currency cash flow hedge as FASB No. 133~~~~Accounting for Financial Instruments and Hedging Activities~~~~specifically prohibits hedge accounting for~~result, recorded a derivative acquired in connection with a forecasted or firmly committed business combination. Accordingly, the Company adjusts its carrying cost to the fair market value at the end of each period, with the corresponding gain or loss recorded through other income (expense) in the consolidated statement of operations.

~~7. Goodwill and other intangible assets~~

~~Goodwill and other intangible assets consist of the following at September 30, 2006 and June 30, 2006:~~

September 30, June 30,
2006 2006
Goodwill $ 47,920 $ 47,920

Product licenses $ 45,350 $ 45,350
Product rights and related intangibles 478,745 415,745

524,095 461,095
Less: accumulated amortization 51,731 43,837

Other intangible assets, net $ 472,364 $ 417,258

~~Amortization expense for the three months ended September 30, 2006 and 2005 was $7,894 and $3,108, respectively. These amounts were recorded as selling, general and administrative expenses. The~~$4,500 increase in the ~~value~~net liability for unrecognized tax positions, which was entirely recorded as a $4,500 adjustment to the opening balance of ~~product rights above reflects~~goodwill relating to the ~~acquisition~~PLIVA acquisition. The total amount of ~~Adderall IR from Shire,~~gross unrecognized tax benefits as ~~discussed~~of January 1, 2007 was $25,000, and did not change materially as of March 31, 2007. Included in ~~Note 3 above.~~the balance at March 31, 2007 was $13,200 of tax positions that, if recognized, would lower the Company’s effective tax rate. The Company is nearing completion of several tax audits and the expiration of the statute of limitations in several jurisdictions and it is possible that the amount of the liability for unrecognized tax benefits could change during the next 52-week period. An estimate of the range of the possible change cannot be made at this time.

~~Estimated amortization expense on product licenses and product rights~~Upon adoption of FIN 48, the Company has elected an accounting policy to classify accrued interest and related ~~intangibles~~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 March 31, 2007.

The Company is currently being audited by the ~~years ending~~IRS for its June 30, ~~2007 through 2011~~2005 and 2006 tax years and also for its December 31, 2006 tax year-end. 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 2002 to 2005. The foreign jurisdictions with significant operations currently being audited are Croatia for 2004 and 2005 (tax years that remain subject to examination are 2003-2006), and Poland for 2003 (tax years that remain subject to examination are 2001-2006). Additionally, although Germany is ~~as follows:~~not currently being audited, the tax years that remain subject to examination are 2004-2006.

813

2007 $ 38,267
2008 $ 41,945
2009 $ 33,627
2010 $ 28,162
2011 $ 26,470

~~The Company’s product licenses and product rights and related intangibles have weighted-average useful lives of approximately 10 and 17 years, respectively.~~

~~8. Accrued liabilities~~

~~Accrued liabilities consist of the following at September 30, 2006 and June 30, 2006:~~

September 30, June 30,
2006 2006
Profit splits due to third parties $ 23,313 $ 22,007
Payroll, taxes & benefits 18,248 21,283
Managed care rebates 12,864 10,370
Medicaid obligations 11,314 12,167
Payable to raw material supplier arising out of the settlement of a patent challenge 6,000 —
Other 32,472 33,386

Total accrued liabilities $ 104,211 $ 99,213

~~9. Long-term Debt~~

~~Senior Credit Facility~~

On July 21, 2006, the Company entered into an unsecured senior credit facility (the “Credit Facility”) pursuant to which the lenders will provide the borrowers thereunder with credit facilities in an aggregate amount not to exceed $2,800,000. Of such amount, $2,000,000 is in the form of a five-year term facility, $500,000 is in the form of a 364-day term facility (collectively the “term facilities”), and $300,000 is in the form of a five-year revolving credit facility. The $2,500,000 of term facilities, which bear interest at LIBOR plus 75 basis points, may be drawn only in connection with the Company’s acquisition of PLIVA and for the refinancing of certain indebtedness. The Credit Facility includes customary covenants for agreements of this kind, including financial covenants limiting the total indebtedness of the Company on a consolidated basis.

In conjunction with the close of the PLIVA acquisition, on October 24, 2006, the Company drew down $2,000,000 of the five-year term facility and $416,000 of the 364-day term facility. The remaining $84,000 of the term facilities is expected to be used to acquire PLIVA shares that remain outstanding, as described in Note 16 below.

~~10. Segment Reporting~~

The Company operates in two reportable business segments: Generic Pharmaceuticals and Proprietary Pharmaceuticals. Product sales and gross profit information for the Company’s operating segments consist of the following:

Three Months Ended September 30,
2006 2005
% of % of
$’s sales $’s sales
Product sales:
Generic $ 197,594 66 % $ 207,169 78 %
Proprietary 102,916 34 % 59,624 22 %

Total product sales $ 300,510 100 % $ 266,793 100 %

Margin Margin
$’s % $’s %
Gross profit:
Generic $ 132,070 67 % $ 137,520 66 %
Proprietary 86,756 84 % 49,211 83 %

Total gross profit $ 218,826 73 % $ 186,731 70 %

11. ~~Stock-Based~~Stock-based Compensation

The Company adopted SFAS No. 123 (revised 2004),Share-Based Payment(SFAS ~~123R)~~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 ~~stock appreciation rights~~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 ~~stock appreciation rights~~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 ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~ in the amount of ~~$7,124~~$7,299 and ~~$6,770,~~$6,933, respectively. The Company also recorded related tax benefits for the three months ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~ in the amount of ~~$2,125~~$2,412 and ~~$1,557,~~$2,254, respectively. The effect on net income from recognizing stock-based compensation for the three-month periods ended ~~September 30,~~March 31, 2007 and 2006 was $4,887 and ~~2005 was $4,999 and $5,213,~~$4,679, or $0.05 and $0.04 per basic and diluted share, respectively.

The total number of shares of common stock issuable upon the exercise of stock options and ~~stock-settled appreciation rights (“SAR’s”)~~SSARs granted during the ~~quarters~~three months ended ~~September 30,~~March 31, 2007 and 2006 was 928,950 and ~~2005 was 1,599,400 and 1,516,200,~~76,800, respectively, with weighted-average exercise prices of ~~$48.91~~$49.46 and ~~$46.99,~~$66.54, 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:

~~14. Other Income (Expense), net~~12. Restructuring

~~A summary~~Management’s plans for the restructuring of the Company’s operations as a result of its acquisition of PLIVA are in the introductory stages. As of March 31, 2007, certain elements of the plan that have been finalized have been recorded as a cost of the acquisition. Plans for other ~~income (expense), net is~~restructuring activities are expected to be completed by October 24, 2007.

Through March 31, 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 ~~follows:~~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:

Three Months Ended
September 30,
2006 2005
Loss on venture funds $ (573 ) $ (141 )
Loss from decline in fair value of foreign currency contracts (42,389 ) —
Other income (expense) 97 (314 )

Total other income (expense), net $ (42,865 ) $ (455 )


	Balance				Balance
	as of				as of
	December 31,				March 31,
	2006		Payments		2007

Involuntary termination of PLIVA employees	$	8,277	$	611	$	7,666
Lease termination costs		10,201		—		10,201

	$	18,478	$	611	$	17,867

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 $3,004 of severance and retention bonus expense in the three months ended March 31, 2007.

~~15.~~13. Commitments and Contingencies

~~Product Liability Insurance~~

The Company’s insurance coverage at any given time reflects market conditions, including cost and availability, existing at the time it is written, and the decision to obtain insurance coverage or to self-insure varies accordingly. If the Company were to incur substantial liabilities that are not covered by insurance or that substantially exceed coverage levels or accruals for probable losses, there could be a material adverse effect on its financial statements in a particular period.

The Company maintains third-party insurance that provides coverage, subject to specified co-insurance requirements, for the cost of product liability claims arising during the current policy period, which began on October 1, 2006 and ends on September 30, 2007, between an aggregate amount of $25,000 and $75,000. The Company is self-insured for up to the first $25,000 of costs incurred relating to product liability claims arising during the current policy period. In addition, the Company has obtained extended reporting periods under previous policies for claims arising prior to the current policy period. The current period and extended reporting period policies exclude certain products; the Company would be responsible for all product liability costs arising from these excluded products.

The Company has been incurring significant legal costs associated with its hormone therapy litigation, as described below. To date, these costs have been covered under extended reporting period policies that provide up to $25,000 of coverage. As of September 30, 2006, there was approximately $7,200 of coverage remaining under these policies. The Company has recorded a receivable of $3,772 for legal costs incurred and expected to be recovered under these policies as of September 30, 2006. Once the coverage from these extended reporting period policies has been exhausted, future legal and settlement costs will first be covered by the Company’s cash balances, until applicable deductibles and other relevant thresholds are met, and then by a combination of cash balances and other third-party layers.

~~Indemnity Provisions~~

From time-to-time, in the normal course of business, the Company agrees to indemnify its suppliers, customers and employees concerning product liability and other matters. For certain product liability matters, the Company has incurred legal defense costs on behalf of certain of its customers under these agreements. No amounts have been recorded in the financial statements for losses with respect to the Company’s obligations under such agreements.

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

~~they might incur, so that the parties will share any such damage liability in proportion to their respective share of Teva’s operating profit of generic Allegra.~~

On September 1, 2005, Teva launched its generic version of Allegra. The Company, in accordance with FASB Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others,” recorded a liability of $4,057 to reflect the fair value of the indemnification obligation it has undertaken.

~~Litigation Settlement~~

On October 22, 1999, the Company entered into a settlement agreement with Schein Pharmaceutical, Inc. (now part of Watson Pharmaceuticals, Inc.) relating to a 1992 agreement regarding the pursuit of a generic conjugated estrogens product. Under the terms of the settlement, Schein relinquished any claim to rights in Cenestin^® in exchange for a payment of $15,000 made to Schein in 1999. An additional $15,000 payment is required under the terms of the settlement if Cenestin achieves total profits, as defined, of greater than $100,000 over any rolling five-year period prior to October 22, 2014. As of September 30, 2006, no liability has been accrued related to this settlement.

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. ~~Additionally,~~The Company also records accruals for litigation settlement offers made by the Company, ~~records insurance receivable amounts from third party insurers when appropriate.~~whether or not the settlement offers have been accepted.

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

~~Summarized below are the more significant matters pending to which the Company is a party. As of September 30, 2006, the Company’s reserve~~Form 10-K/T for the ~~liability associated with claims or related defense costs for these matters is not material.~~

~~Patent Matters~~

~~Desmopressin Acetate Suit~~

In July 2002, the Company filed an ANDA seeking approval from the FDA to market Desmopressin acetate tablets, the generic equivalent of Sanofi-Aventis’ DDAVP product. The Company notified Ferring AB, the patent holder, and Sanofi-Aventis pursuant to the provisions of the Hatch-Waxman Act in October 2002. Ferring AB and Sanofi-Aventis filed a suit in the U.S. District Courtsix month period ended December 31, 2006. Except for the Southern District of New York in December 2002 for infringement of one of the four patents listed in the Orange Book for Desmopressin acetate tablets, seeking to prevent the Company from marketing Desmopressin acetate tablets until the patent expires in 2008. In January 2003, the Company filed an answer and counterclaim asserting non-infringement and invalidity of all four listed patents. In January 2004, Ferring AB amended their complaint to add a claim of willful infringement.

~~On February 7, 2005, the court granted summary judgment~~Ovcon Antitrust Proceedings litigation settlement proposals summarized below, no material changes have occurred in the Company’s favor, which Ferring AB and Sanofi-Aventis have appealed. On July 5, 2005, the Company launched its generic product. On February 15, 2006, the Court of Appeals for the Federal Circuit denied their appeal. Ferring AB and Sanofi-Aventis subsequently filed a petition for rehearing and rehearing~~en banc~~, which was denied on April 10, 2006. Ferring AB and Sanofi-Aventis filed a petition for certiorari at the United States Supreme Court on September 11, 2006. On October 30, 2006, the United States Supreme Court denied the petition for certiorari.

~~Fexofenadine Hydrochloride Suit~~

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

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

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

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

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

On September 21, 2005, Sanofi-Aventis filed a motion for a preliminary injunction or expedited trial. The motion asked the court to enjoin the Company and Teva from marketing their generic versions of Allegra tablets, 30 mg, 60 mg and 180 mg, or to expedite the trial in the case. The motion also asked the court to enjoin Ranbaxy Laboratories, Ltd. and Amino Chemicals, Ltd. from the commercial production of generic fexofenadine raw material. The preliminary injunction hearing concluded on November 3, 2005. On January 30, 2006, the Court denied the motion by Sanofi-Aventis for a preliminary injunction or expedited trial. Sanofi-Aventis has appealed the court’s denial of its motion to the U.S. Court of Appeals for the Federal Circuit. Briefing in the appeal has been completed and oral argument is scheduled for November 7, 2006.

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

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

~~Product Liability Matters~~

~~Hormone Therapy Litigation~~

The Company has been named as a defendant in approximately 5,000 personal injury product liability cases brought against the Company and other manufacturers by plaintiffs claiming that they suffered injuries resulting from the use of certain estrogen and progestin medications prescribed to treat the symptoms of menopause. The cases against the Company involve the Company’s Cenestin products and/or the use of the Company’s medroxyprogesterone acetate product, which typically has been prescribed for use in conjunction with Premarin or other hormone therapy products. All of these products remain approved by the FDA and continue to be marketed

and sold to customers. While the Company has been named as a defendant in these cases, fewer than a third of the complaints actually allege the plaintiffs took a product manufactured by the Company, and the Company’s experience to date suggests that, even in these cases, a high percentage of the plaintiffs will be unable to demonstrate actual use of a Company product. For that reason, approximately 3,350 of such cases have been dismissed (leaving approximately 1,650 pending) and, based on discussions with the Company’s outside counsel, several hundred more are expected to be dismissed in the near future.

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

~~Antitrust Matters~~

~~Ciprofloxacin (Cipro®) Antitrust Class Actions~~

The Company has been named as a co-defendant with Bayer Corporation, The Rugby Group, Inc. and others in approximately 38 class action complaints filed in state and federal courts by direct and indirect purchasers of Ciprofloxacin (Cipro) from 1997 to the present. The complaints allege that the 1997 Bayer-Barr patent litigation settlement agreement was anti-competitive and violated federal antitrust laws and/or state antitrust and consumer protection laws. A prior investigation of this agreement by the Texas Attorney General’s Office on behalf of a group of state Attorneys General was closed without further action in December 2001.

The lawsuits include nine consolidated in California state court, one in Kansas state court, one in Wisconsin state court, one in Florida state court, and two consolidated in New York state court, with the remainder of the actions pending in the U.S. District Court for the Eastern District of New York for coordinated or consolidated pre-trial proceedings (the “MDL Case”). On March 31, 2005, the Court in the MDL Case granted summary judgment in the Company’s favor and dismissed all of the federal actions before it. On June 7, 2005, plaintiffs filed notices of appeal to the U.S. Court of Appeals for the Second Circuit. The Court of Appeals has stayed consideration of the merits pending consideration of the Company’s motion to transfer the appeal to the U.S. Court of Appeals for the Federal Circuit as well as plaintiffs’ request for the appeal to be considered~~en banc. Merits briefing has not yet been completed because the proceedings are stayed pending~~~~en banc~~~~consideration of a similar case.~~

On September 19, 2003, the Circuit Court for the County of Milwaukee dismissed the Wisconsin state class action for failure to state a claim for relief under Wisconsin law. On May 9, 2006, the Court of Appeals reinstated the complaint on state law grounds for further proceedings in the trial court, but on July 25, 2006, the Wisconsin Supreme Court granted the defendants’ petition for further review and thus the case remains on appeal, with oral argument currently scheduled for December 12, 2006. On October 17, 2003, the Supreme Court of the State of New York for New York County dismissed the consolidated New York state class action for failure to state a claim upon which relief could be granted and denied the plaintiffs’ motion for class certification. An intermediate appellate court affirmed that decision, and plaintiffs have sought leave to appeal to the New York Court of Appeals. On April 13, 2005, the Superior Court of San Diego, California ordered a stay of the California state class actions until after the resolution of any appeal in the MDL Case. On April 22, 2005, the District Court of Johnson County, Kansas similarly stayed the action before it, until after any appeal in the MDL Case. The Florida state class action remains at a very early stage, with no status hearings, dispositive motions, pre-trial schedules, or a trial date set as of yet.

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

~~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 rehearing~~en banc. On September 14, 2006, the Court of Appeals denied Plaintiffs’ petition for rehearing~~~~en banc~~.

The Company believes that its agreement with Zeneca reflects a valid settlement to a patent suit and cannot form the basis of an antitrust claim. Based on this belief, the Company is vigorously defending itself in these matters.Form 10-K/T.

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, ~~(“FTC”),~~ various state Attorneys General and ~~eight~~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. ~~These cases,~~

In the ~~first~~actions brought on behalf of ~~which was filed~~the indirect purchasers, the Company has reached an agreement in principle with the class representatives to settle plaintiffs’ claims. This settlement is subject to judicial approval and conditioned on the number of plaintiffs who exercise their right to opt-out of the settlement class not exceeding the threshold established by the ~~FTC on or about December 2, 2005, remain at~~terms of the settlement agreement.

During the quarter ended March 31, 2007, the Company established a ~~very early stage, with discovery cut-off dates~~reserve (and corresponding charge in selling, general and administrative expenses) of ~~December 22, 2006 for~~$6,500 related to these and other settlement offers in the ~~FTC and state cases and March 2, 2007 for the private cases. No trial dates have been set.~~Ovcon Litigation.

14. Segment Reporting

The Company ~~believes that it has~~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 ~~engaged in any improper conduct~~report depreciation expense, total assets and capital expenditures by segment as such information is ~~vigorously defending itself in these matters.~~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
March 31, 2007	Pharmaceuticals		%			Pharmaceuticals		%			Other		%			Consolidated		revenue

Revenues:
Product sales	$	474,804		79	%	$	89,014		15	%	$	—		0	%	$	563,818		94	%
Alliance and development revenue		—		—	%		—		—	%		25,121		4	%		25,121		4	%
Other revenue		—		—	%		—		—	%		10,439		2	%		10,439		2	%

Total revenues	$	474,804		79	%	$	89,014		15	%	$	35,560		6	%	$	599,378		100	%


			Margin					Margin					Margin					Margin
Gross Profit:			%					%					%					%
Product sales	$	208,927		44	%	$	59,132		66	%	$	—		—	%	$	268,059		48	%
Alliance and development revenue		—		—	%		—		—	%		25,121		100	%		25,121		100	%
Other revenue		—		—	%		—		—	%		3,663		35	%		3,663		35	%

Total gross profit	$	208,927		44	%	$	59,132		66	%	$	28,784		81	%	$	296,843		50	%


Three months ended	Generic					Proprietary												% of
March 31, 2006	Pharmaceuticals		%			Pharmaceuticals		%			Other		%			Consolidated		revenue

Revenues:
Product sales	$	200,370		61	%	$	93,151		29	%	$	—		—	%	$	293,521		90	%
Alliance and development revenue		—		—	%		—		—	%		33,320		10	%		33,320		10	%
Other revenue		—		—	%		—		—	%		—		—	%		—		0	%

Total revenues	$	200,370		61	%	$	93,151		29	%	$	33,320		10	%	$	326,841		100	%


			Margin					Margin					Margin					Margin
Gross Profit: (1)			%					%					%					%
Product sales	$	129,419		65	%	$	65,595		70	%	$	—		—	%	$	195,014		66	%
Alliance and development revenue		—		—	%		—		—	%		33,320		100	%		33,320		100	%
Other revenue		—		—	%		—		—	%		—		—	%		—		—	%

Total gross profit	$	129,419		65	%	$	65,595		70	%	$	33,320		100	%	$	228,334		70	%


(1)		Prior period amounts have been reclassified to include the effect of intangible amortization and conform to the presentation for the three months ended March 31, 2007.

Geographic Information

~~Provigil Antitrust Proceedings~~

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

customers. The ~~Company was also named as a co-defendant with the Provigil Defendants in an action filed in the U.S. District Court for the Eastern District of Pennsylvania~~table below presents revenues by ~~Apotex, Inc. The lawsuit alleges, among other things, that Apotex sought to market its own generic version of Provigil~~and that the settlement agreements entered into between Cephalon and the other individual Provigil Defendants constituted an unfair method of competition, are anticompetitive and restrain trade in the market for Provigil and its generic equivalents in violationgeographic area based upon geographic location of the ~~antitrust laws. The Provigil Defendants have filed motions to dismiss and briefing on those motions is currently underway.~~customer:

~~The Company believes that it has not engaged in any improper conduct and is vigorously defending itself in these matters.~~Product sales by geographic area

~~Medicaid Reimbursement Cases~~

The Company, along with numerous other pharmaceutical companies, have been named as a defendant in separate actions brought by the states of Alabama, Alaska, Hawaii, Illinois, Kentucky and Mississippi, the Commonwealth of Massachusetts, the City of New York, and numerous counties in New York. In each of these matters, the plaintiffs seek to recover damages and other relief for alleged overcharges for prescription medications paid for or reimbursed by their respective Medicaid programs.

The Commonwealth of Massachusetts case and the New York cases, with the exception of the action filed by Erie, Oswego, and Schenectady Counties in New York, are currently pending in the U.S. District Court for the District of Massachusetts. Discovery is underway in the Massachusetts cases, but no trial dates have been set. In the consolidated New York cases, motions to dismiss are under advisement, with no trial dates set. The Erie, Oswego, and Schenectady County cases are pending in state courts in New York, again with no trial dates set.


	Three Months Ended
	March 31,
	2007		2006
United States	$	392,620	$	291,760
ROW		171,198		1,761

Total product sales	$	563,818	$	293,521

The ~~State of Mississippi case was filed~~Company operates in ~~state court. Discovery is underway, but no trial date has been set. The Alabama, Illinois and Kentucky cases were filed in Alabama, Illinois and Kentucky State courts, removed~~more than 30 countries outside the United States. No single foreign country contributes more than 10% to federal court, and then remanded back to their respective state courts. Discovery is underway, but no trial dates have been set. The Alabama, Illinois, and Mississippi cases, as well as the actions brought by Erie, Oswego, and Schenectady Counties in New York, were recently removed back to federal court on the motion of a co-defendant, Dey, Inc., although remand motions are on file or anticipated.consolidated product sales.

The ~~State of Hawaii case was filed~~Company’s generic and proprietary pharmaceutical segment net product sales are represented in ~~state court in Hawaii and removed to~~ the ~~U.S. District Court~~following therapeutic categories for the ~~District of Hawaii. Hawaii’s motion to remand the case to state court is currently pending. No trial date has been set.~~following periods:

~~The State of Alaska case was filed in state court in Alaska on October 6, 2006. This matter is at a very early stage with no trial date set.~~


	Three Months
	March 31,
	2007		2006
Contraception	$	165,021	$	166,104
Psychotherapeutics		67,438		16,293
Cardiovascular		66,463		25,664
Antibiotics, antiviral & anti-infectives		66,925		13,916
Other (1)		197,971		71,544

Total	$	563,818	$	293,521

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

~~Breach of Contract Action~~

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 ~~Annual~~Transition Report on Form ~~10-K~~10-K/T for the ~~fiscal year~~six-month period ended ~~June 30,~~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

~~Agreements with Shire~~

On August 14, 2006, we entered into an arrangement with Shire consisting of a product acquisition and supply agreement for Adderall IR® tablets, a product development and supply agreement for six proprietary products and a settlement and licensing agreement relating to the resolution of two pending patent cases involving Shire’s Adderall XR®.

~~Under the terms of the product acquisition agreement, we acquired all rights to Adderall IR® tablets from Shire for $63.0 million.~~

Under the terms of the product development agreement, we received an upfront non-refundable payment of $25.0 million and could receive, based on future incurred research and development costs and milestones, an additional $140.0 million over the next eight years subject to annual caps of $30.0 million. In exchange for its funding commitment, Shire obtained a royalty-free license to the products identified in the product development agreement in its defined territory (which is generally defined to include all markets other than North America, Central Europe, Eastern Europe and Russia). Revenue under the product development arrangement described above, including the $25.0 million upfront payment, will be recorded in the “alliance, development and other revenue” line item in our consolidated statement of operations and recognized as we incur the related research and developments costs over the life of the agreement. We also entered into purchase and supply agreements with Shire in conjunction with the product acquisition and product development arrangements.

The settlement and licensing agreement relating to Adderall XR, grants us certain rights to launch a generic version of Adderall XR. The license is exclusive and royalty-bearing during our FDA granted six-month period of exclusivity and is non-exclusive and royalty-free thereafter.

~~Acquisition of~~ PLIVA ~~d.d.~~Acquisition

On October 24, 2006, the Company’s wholly owned subsidiary, Barr Laboratories Europe B.V. (“Barr Europe”), completed the acquisition of PLIVA, ~~d.d,~~ headquartered in Zagreb, Croatia. Under the terms of ~~our~~the cash tender offer, weBarr 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 ~~has~~ closed with ~~17,056,977 shares being tendered as part of the process, representing 92%~~96.4% of PLIVA’s total outstanding share capital being tendered to ~~us.~~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 217,531 shares on the Croatian stock market for $31.7 million, including 67,578 shares purchased for $9.8 million during the three months ended March 31, 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, ~~we now own~~Barr Europe owned or ~~control in excess of 95%~~controlled 97.4% of PLIVA’s voting share ~~capital.~~capital as of March 31, 2007 (17,274,508 of 17,740,016 outstanding shares).

The fluctuations in our operating results for the three months ended March 31, 2007, as compared to the same period ending March 31, 2006, are primarily due to the acquisition of PLIVA. All information, data and figures provided in this report for the three months ended March 31, 2006 relate solely to Barr’s financial results and do not include PLIVA.

Products Acquired from Hospira, Inc.

On February 6, 2007, we acquired four generic injectible products from Hospira, Inc., which are Morphine, Hydromorphone, Nalbuphine and Deferoxamine. We also entered into a supply agreement with Hospira covering all four products, and a product development agreement for Deferoxamine. We recorded intangible assets in the amount of $12.0 million related to the acquisition of the four products. The defined territory for these products includes all markets in the United States and its territories. These product rights are recorded as other intangible assets on the condensed consolidated balance sheets and will be amortized based on estimated product sales over an estimated useful life of 10 years. The product acquisitions resulted from an FTC-ordered divestiture of these products in connection with Hospira’s acquisition of Mayne Pharma Ltd.

Results of Operations

Comparison of the Three Months Ended March 31, 2007 and March 31, 2006

The following table sets forth revenue data for the three months ended March 31, 2007 and 2006 (dollars in millions):


	Three Months Ended March 31,
					Change
	2007		2006		$			%
Generic products:
Oral contraceptives	$	113.2	$	101.2	$	12.0			12	%
Other generics		361.6		99.1		262.5			265	%

Total generic products		474.8		200.3		274.5			137	%
Proprietary products		89.0		93.2		(4.2	)		-4	%

Total product sales		563.8		293.5		270.3			92	%
Alliance and development revenue		25.1		33.3		(8.2	)		-25	%
Other revenue		10.5		—		10.5			0	%

Total revenues	$	599.4	$	326.8	$	272.6			83	%

Product Sales

Generic Oral Contraceptives

During the three months ended March 31, 2007, sales of our generic oral contraceptives (“Generic OCs”) were $113.2 million, an increase of $12.0 million over the three months ended March 31, 2006. This increase was primarily due to the launch of Jolessa subsequent to March 31, 2006, which accounted for approximately $5.2 million of the increase, and an increase of $6.2 million in sales of our Kariva product due to an increase in both volume and price.

Other Generic Products

During the three months ended March 31, 2007, sales of our other generic products (“Other Generics”) were $361.6 million, up from $99.1 million as compared to the three months ended March 31, 2006, an increase of $262.5 million. This increase was mainly due to $252.8 million of sales attributable to PLIVA products, including sales of Azithromycin of $36.1 million. In addition to higher sales from acquired products, we recorded $16.7 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 $6.1 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.

Proprietary Products

During the three months ended March 31, 2007, sales of our proprietary products were $89.0 million, down from $93.2 million as compared to the three months ended March 31, 2006. This decline of $4.2 million was driven primarily by $18.1 million of lower sales of SEASONALE due to the impact of generic competition, and partially offset by $11.3 million of sales of Adderall IR, which we acquired from Shire and launched in October 2006, as well as a $5.7 million increase in sales of Plan B.

Alliance and Development Revenue

During the three months ended March 31, 2007, we recorded $25.1 million of alliance and development revenue, down from $33.3 million in the prior year period. The decrease was caused principally by a $14.0 million decline in revenues from our profit-sharing arrangement with Teva on generic Allegra. As competition for generic Allegra has and may continue to cause Teva’s Allegra product sales to decrease, our royalties have declined, and may decline further in future periods. This decline was partially offset by $3.0 million in development revenues earned under our license and development agreement with Shire and an increase of $3.0 million in fees we receive for the development of the Adenovirus vaccine for the U.S.

Department of Defense. We expect revenues from Shire and fees from the development of the Adenovirus vaccine will increase significantly during 2007 as we increase spending on the related development projects.

Other Revenue

We recorded $10.5 million of other revenue during the three months ended March 31, 2007. 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 months ended March 31, 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 months ended March 31, 2007 and 2006 (dollars in millions):


	Three Months Ended March 31,
							Change
	2007			2006			$		%
Generic products	$	265.8		$	70.9		$	194.9		275	%

Gross margin		44.0	%		64.6	%

Proprietary products	$	29.9		$	27.6		$	2.3		8	%

Gross margin		66.4	%		70.4	%

Other revenue	$	6.8		$	—		$	6.8		100	%

Gross margin		34.9	%		N/A

Total cost of sales	$	302.5		$	98.5		$	204.0		207	%

Gross margin		47.3	%		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.

In prior periods, we included amortization expenses related to acquired product intangibles in selling, general and administrative (“SG&A”) expenses 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 March 31, 2006 presented below to reflect this change.

Overall: Primarily as a result of our PLIVA acquisition and an increase of $270.3 million in product sales, cost of sales on an overall basis more than tripled quarter-over-quarter. In addition, amortization charges of $28.6 million related to intangible assets acquired from PLIVA and a charge of $32.3 million for the stepped-up value of inventory acquired from PLIVA that we sold during the quarter also contributed to the year-over-year increase. As part of the purchase price allocation for the PLIVA acquisition, we stepped-up the book value of inventory acquired to fair value by $89.6 million as of October 24, 2006. Primarily as a result of these expenses and amortization

charges, overall gross margins decreased from 66.4% for the three months ended March 31, 2006 to 47.3% for the three months ended March 31, 2007.

Generics: In our generics segment, cost of sales increased by $194.9 million in large part due to the $262.5 million increase in Other Generics sales, as described above, and $26.0 million of higher amortization expense arising primarily from product intangibles created as a result of the PLIVA acquisition. When combined with the charge related to the $32.3 million step-up in inventory described above, our generics margins declined from 64.6% to 44.0%. 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.

Proprietary: In our proprietary segment, cost of sales increased by $2.3 million and margins were negatively impacted primarily due to a $3.2 million increase in product amortization expense.

Selling, General and Administrative Expense

The following table sets forth selling, general and administrative expense for the three months ended March 31, 2007 and 2006 (dollars in millions):


	Three Months Ended March 31,
					Change
	2007		2006		$		%
Selling, general and administrative	$	182.4	$	78.2	$	104.2		133	%

Selling, general and administrative expenses increased by $104.2 million in the three months ended March 31, 2007 as compared to the three months ended March 31, 2006. Of this increase, approximately $77.2 million is directly attributable to our PLIVA operating subsidiary, including operating selling and general administrative expenses.

In addition to the expenses attributable to PLIVA, there were increases in general and administrative expenses relating to (1) integration costs of $11.0 million from the PLIVA acquisition, (2) a litigation reserve of $6.5 million and (3) legal, accounting and other consulting fees of $5.7 million.

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 months ended March 31, 2007 and 2006 (dollars in millions):


	Three Months Ended March 31,
					Change
	2007		2006		$		%
Research and development	$	61.2	$	37.7	$	23.5		62	%

Write-off of acquired IPR&D	$	1.5	$	—	$	1.5		N/A

Research and development increased by $23.5 million in the three months ended March 31, 2007 as compared to the three months ended March 31, 2006. Of this 62% increase, approximately $17.3 million is directly attributable to our PLIVA subsidiary including salaries, third party research and development, and depreciation costs aggregating approximately $13.4 million. The remaining increase is primarily due to a $4.7 million increase in costs associated with bio-studies and clinical trials.

The $1.5 million write-off of IPR&D represents the allocated amount of the $9.8 million price to acquire additional shares of PLIVA during the three months ended March 31, 2007.

Interest Income

The following table sets forth interest income for the three months ended March 31, 2007 and 2006 (dollars in millions):


	Three Months Ended March 31,
					Change
	2007		2006		$		%
Interest income	$	10.6	$	4.2	$	6.4		152 %

The increase in interest income for the three months ended March 31, 2007 is due to higher interest rates and cash and marketable securities balances during this period as compared to the three months ended March 31, 2006.

Interest Expense

The following table sets forth interest expense for the three months ended March 31, 2007 and 2006 (dollars in millions):


	Three Months Ended March 31,
					Change
	2007		2006		$		%
Interest expense	$	40.3	$	0.1	$	40.2		N/M

The increase in interest expense for the three months ended March 31, 2007 as compared to the three months ended March 31, 2006 is due to the $2.6 billion of debt the Company has 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.

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 months ended March 31, 2007 and 2006 (dollars in millions):


	Three Months Ended March 31,
							Change
	2007			2006			$			%
Income tax expense	$	9.7		$	41.5		$	(31.8	)		-77 %

Effective tax rate		42.0	%		35.3	%

The Company’s effective tax rate increased in the current quarter to 42.0% from 35.3% 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.

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 quarter ended March 31, 2007 were $132.3 million compared to $155.0 million in the prior year period. The decrease in cash flows reflects the timing of certain items including (1) a decrease of accounts receivable and other receivables by $74.0 million and (2) a decrease in accounts payable, accrued expenses and other liabilities of $14.4 million.

Investing Activities

Our net cash used in investing activities was $30.5 million for the quarter ended March 31, 2007 compared to net cash used in investing activities of $192.7 million for the prior year period. The decrease in net cash used for investing activities was related to higher net purchases of marketable securities in the prior year period of $178.7 million as compared to net sales of marketable securities of $25.8 million during the current quarter. Offsetting this decrease in net cash used for investing activities was an increase in capital spending of $9.5 million, the $9.8 million cost of acquiring additional PLIVA shares, and the $12.0 million cost of product acquisitions from Hospira.

Financing Activities

Net cash used in financing activities during the quarter ended March 31, 2007 was $143.0 million compared to net cash provided by financing activities of $22.4 million in the prior year period. The increase in net cash used in financing activities in the current quarter primarily reflects the $50.0 million principal payment on our $2.0 billion five-year term facility that we made on March 30, 2007 and our prepayment of $100.0 million of the $415.7 million 364-day term facility.

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. ~~For shareholders who did not tender their shares during the formal tender~~We initiated this process we expect to utilize the provisions provided for under Croatian law to acquire the remaining outstanding shares from minority shareholder interests. We are undertaking the necessary steps to initiate the purchase of all remaining shares at ~~an expected~~a price of HRK 820 per share, the same per share price offered to shareholders during the formal tender period. ~~The duration of this~~This process and the subsequent pay out to remaining shareholders is expected to be completed ~~during the quarter ending March 31,~~by June 30, 2007. We ~~will include~~intend to fund the ~~of operations of PLIVA in our consolidated financial statements beginning October 25, 2006.~~

~~Results of Operations~~

~~Comparison of~~payout from cash balances on hand and anticipate that the ~~Three Months Ended September 30, 2006 and September 30, 2005~~

~~The following table sets forth revenue data for the three months ended September 30, 2006 and 2005 ($’s in millions):~~

Three Months Ended September 30,
Change
2006 2005 $ %
Generic products:
Oral contraceptives $ 121.4 $ 95.3 $ 26.1 27 %
Other generic 76.2 111.9 (35.7 ) -32 %

Total generic products 197.6 207.2 (9.6 ) -5 %
Proprietary products 102.9 59.6 43.3 73 %

Total product sales 300.5 266.8 33.7 13 %
Alliance, development and other revenue 31.9 43.6 (11.7 ) -27 %

Total revenues $ 332.4 $ 310.4 $ 22.0 7 %

~~Revenues — Product Sales~~

~~Generic Products~~

Total generic product sales for the three months ended September 30, 2006 decreased due to lower sales of our other generic products, which were partially offset by higher sales of our generic oral contraceptives.

~~Oral Contraceptives~~

For the three months ended September 30, 2006, sales of generic oral contraceptives increased 27% to $121.4 million from $95.3 million in the prior year period. This increase was primarily attributable to the launch of Jolessa, our generic version of SEASONALE®, and strong performance by Kariva® due to higher pricing and an increase in market share. Sales of our other generic oral contraceptives were 8% higher in the quarter ended September 30, 2006 than the prior year period.

~~Other Generic Products~~

For the three months ended September 30, 2006, sales of other generic products decreased 32% to $76.2 million from $111.9 million in the prior year period. The most significant decrease was lower sales of Desmopressin, which we launched during the first quarter of 2005 with six months of FDA-granted exclusivity. Following the expiration of our exclusivity in January 2006 two additional competitors entered the market, the result of which was a 76% decline in sales and 71% decrease in units sold during the three months ended September 30, 2006 as compared to the prior year period. In addition to Desmopressin, lower unit sales of Methotrexate and Mirtazapine, as well as lower pricing for Warfarin Sodium, contributed to the overall sales decline. Partially offsetting these declines were sales of Fentanyl Citrate, our generic version of Cephalon’s Actiq®, which we launched at the end of the September 2006 quarter. Our launch activities carried over into early October and as a result, we expect that sales of Fentanyl Citrateremaining investment will be ~~significantly higher during our December 2006 quarter.~~

~~Proprietary Products~~

For the three months ended September 30, 2006, sales of proprietary products increased 73% over the prior year period, primarily due to: (1) sales of the ParaGard® IUD which we acquired in November 2005, (2) the launch of SEASONIQUE™, (3) sales of the Mircette® oral contraceptive product which we acquired in December 2005, (4) higher sales of Cenestin due largely to customer buying patterns and (5) higher unit sales of our Plan B® emergency contraceptive product.

SEASONALE sales totaled $22.4 million for the three-month period ended September 30, 2006, representing a 1% increase over the prior year period. During the quarter ended September 30, 2006 a competitor launched a generic version of SEASONALE. Shortly after this competitor’s launch, we launched Jolessa, which is our own generic SEASONALE, in order to defend our position as a leader in the extended cycle oral contraceptive marketplace. Due to the existence of two generic versions of SEASONALE in the marketplace, we expect sales of SEASONALE to be lower in the coming quarters, which will only partially be offset by sales of Jolessa, which carries a lower gross profit margin than SEASONALE.

~~On November 6, 2006, we initiated shipment of the dual-label Plan B~~^® (levonorgestrel) emergency contraceptive (over the counter “OTC”) OTC/Rx product to our customers. The product will be available in pharmacies across the United States by mid-November. Plan B OTC/Rx dual-label product, which was approved on August 24, 2006, is an OTC product for consumers 18 years of age and older and prescription-only for women 17 and younger, and replaces the Plan B prescription-only product that has been marketed in the United States since 1999.

~~Revenues – Alliance, Development and Other Revenue~~

Alliance, development and other revenue consists mainly of revenue from profit-sharing arrangements, co-promotion agreements, development agreements, standby manufacturing fees and reimbursements and fees we receive in conjunction with our agreement with the U.S. Department of Defense for the development of the Adenovirus vaccine.

During the three months ended September 30, 2006, alliance, development and other revenue totaled $31.9 million compared to $43.6 million in the prior year. The decrease was driven by lower revenues from our profit sharing arrangement with Teva, which began in September 2005 and represented 77% of such revenues in the three months ended September 30, 2005, and was negatively impacted by lower volume and pricing due to the launch of other competitors’ products. Partially offsetting this decline was an increase in royalties and other fees under our Co-Promotion Agreement and License and Manufacturing Agreement with Kos Pharmaceuticals relating to Niaspanâ ~~and Advicor~~â~~, under which we began earning royalties in the fourth quarter of fiscal 2005.~~

Teva’s 180-day exclusivity period on generic Allegra ended on February 28, 2006. By the end of September 2006, there were two additional competing generic Allegra products on the market. We are aware of other companies that have filed ANDAs with Paragraph IV certifications for generic Allegra. Competition for generic Allegra has and may continue to cause Teva’s Allegra revenues to decrease. Accordingly, our royalties may decline further in future periods.

Royalties we earn under our co-promotion agreement with Kos are based on the aggregate sales of Niaspan and Advicor in a given quarter and calendar year, up to quarterly and annual maximum amounts. While the annual cap increases each year during the term of our arrangement, which ends July 2012, unless extended by either party for an additional year, the royalty rate and the Company’s promotion-related requirements will decline in calendar 2007 compared to 2006, after which the rate remains fixed throughout the remaining term of the agreement. Due to sales achieved to date during 2006, we expect to reach our annual sales cap for 2006 early in the December quarter and, therefore, expect our royalties earned during the quarter ending December 31, 2006 to be significantly lower than those earned in the prior calendar 2006 quarters.

Development revenues earned during the quarter include research and development reimbursements from Shire, and the recognition of a portion of the deferred revenue related to the upfront payment we received from Shire. Development revenues earned during the current quarter under the agreements with Shire were not material, however we expect these revenues to increase substantially in future periods as we increase spending on the related development projects.

~~Cost of Sales~~

Cost of sales includes the cost of products we purchase from third parties, our manufacturing and packaging costs for products we manufacture, our profit-sharing or royalty payments to third parties, including raw material suppliers, changes to our inventory reserves, and stock-based compensation expense of certain departments. Amortization costs of $7.9 million for the three months ended September 30, 2006 and $3.1 million for the prior year period, arising from the acquisition of product rights, are included in selling, general and administrative expense.

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, for the three months ended September 30, 2006 and 2005 ($’s in millions):

Three Months Ended September 30,
Change
2006 2005 $ %
Generic products $ 65.5 $ 69.7 $ (4.2 ) -6 %

Gross margin
67 % 66 %
Proprietary products $ 16.2 $ 10.4 $ 5.8 56 %

Gross margin
84 % 83 %
Total cost of sales $ 81.7 $ 80.1 $ 1.6 2 %

Gross margin
73 % 70 %

Overall margins were higher compared to the prior year primarily due to the increasing contribution from our high-margin proprietary business, as proprietary sales constituted 34% of total sales in the three months ended September 30, 2006 versus 22% in the same period last year.

The increase in proprietary margins was in large part due to the contributions of ParaGard and Mircette, which were acquired in the second quarter last year, SEASONIQUE, which we launched during the three months ended September 30, 2006, and SEASONALE as these high margin products comprised over 50% of our proprietary sales in the quarter.

Generic margins were up slightly due to the continued strength of our generic oral contraceptives business and the launch of Fentanyl Citrate (generic Actiq) during the three months ended September 30, 2006. These factors more than offset margin declines in several of our other generics products.

~~Selling, General and Administrative Expense~~

~~The following table sets forth selling, general and administrative expense for the three months ended September 30, 2006 and 2005 ($’s in millions):~~

Three Months Ended September 30,
Change
2006 2005 $ %
Selling, general and administrative $ 97.5 $ 68.6 $ 28.9 42 %

Selling costs increased $8.8 million, or 29%, during the three months ended September 30, 2006 compared to the same period in the prior year due to higher advertising and promotion spending associated with our recently launched SEASONIQUE and ENJUVIA™ products as well as the inclusion of marketing expenses related to Mircette and ParaGard, which we acquired subsequent to September 30, 2005.

General and administrative costs for the three months ended September 30, 2006 included a $6.0 million payment to a raw material supplier arising out of the settlement of a patent challenge, while the same period in the prior year included a $4.1 million expense representing an estimate of the fair value of our indemnity obligation to Teva related to the launch of generic Allegra. Other general and administrative expenses were approximately $18.0 million higher as compared to the same period in the prior year. This increase represents approximately $8.0 million of higher IT costs, primarily related to depreciation and amortization of previously capitalized SAP implementation costs and consulting fees, and $5.0 million of higher amortization of acquired intangibles due to the ParaGard and Mircette acquisitions. We expect amortization of intangibles to increase significantly as we begin to amortize the intangibles associated with the acquisition of PLIVA, and, to a lesser extent, Adderall IR, which we acquired from Shire.

~~Research and Development~~

~~The following table sets forth research and development expenses for the three months ended September 30, 2006 and 2005 ($’s in millions):~~

Three Months Ended September 30,
Change
2006 2005 $ %
Research and development $ 40.0 $ 35.1 $ 4.9 14 %

Research and development expenses during the three months ended September 30, 2006 increased 14% to $40.0 million as compared to the same period in the prior year. This increase was driven by higher clinical trial costs in our generic and proprietary development programs of $5.9 million, which included higher costs associated with the development of the Adenovirus vaccine. Higher spending in theses areas was partially offset by a decline in third party development costs of $3.1$80 million.

~~Other Income (expense), net~~

~~The following table sets forth other income (expense) for three months ended September 30, 2006 and 2005 ($’s in millions):~~

Three Months Ended September 30,
Change
2006 2005 $ %
Other income (expense), net $ (42.9 ) $ (0.5 ) $ (42.4 ) -8480 %

Other expense increased by $42.4 million during the three month period ended September 30, 2006 when compared to the same period in the prior year primarily as a result of a $42.8 million reduction in the value of our foreign currency option related to the PLIVA acquisition. This reduction in fair value as compared to June 30, 2006 reflects several factors including the changes in the exchange rate between the Dollar and the Euro. The remaining portion of our foreign currency option, which had a value of $14.8 million as of September 30, 2006, was sold for $11.0 million during October in connection with the PLIVA acquisition. The difference of $3.8 million will be recorded as other expense in our consolidated results for the period ending December 31, 2006.

~~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 months ended September 30, 2006 and 2005 ($’s in millions):

Three Months Ended September 30,
Change
2006 2005 $ %
Income tax expense $ 24.2 $ 47.4 $ (23.2 ) -49 %

Our effective tax rate for the three months ended September 30, 2006 was 31.4%, as compared to 36.3% for the prior year period. The current quarter’s tax rate is lower primarily due to the positive impact by the expiration of the federal and various state and local statutes of limitations for the treatment of certain costs that were associated with a prior acquisition. We expect our effective tax rate for the remainder of the year to be approximately 35.5% excluding the impact of the PLIVA acquisition that was completed on October 24, 2006, since the impact is uncertain and not reasonably estimable.

~~Liquidity and Capital Resources~~

Our primary source of cash is the collection of accounts and other receivables primarily related to product sales and our alliance, development and other revenues. Our primary uses of cash include financing inventory, research and development, marketing, capital projects and business development activities such as our PLIVA acquisition.

Within the past 12 months, cash flows from operations have been more than sufficient to fund our cash needs. At September 30, 2006, our cash, cash equivalents and short-term marketable securities totaled $753.4 million, an increase of $151.5 million from our position at June 30, 2006.

~~Operating Activities~~

Our operating cash flows for the quarter ended September 30, 2006 were $205.4 million compared to $84.4 million in the prior year period. The increase in cash flows reflects the timing of certain items including (1) the decrease of accounts receivable and other receivables by $63.4 million and (2) an increase in accounts payable, accrued expenses and other liabilities of $43.5 million. The decrease in accounts receivable was attributable in large part to the receipt of outstanding royalties of $22.0 million relating to prior quarters. The increase in accounts payable, accrued expenses and other liabilities was primarily due to the upfront payment from Shire of $25.0 million, as described above.

~~Investing Activities~~

Our net cash provided by investing activities was $30.8 million for the quarter ended September 30, 2006 compared to net cash used in investing activities of $210.6 million for the prior year period. The cash provided by investing activities in the current period consisted mainly of net sales of marketable securities of $103.5 million reduced by capital expenditures of $11.3 million and the acquisition of product rights of Adderall IR Tablets for $63.0 million as described above. The prior year period included net purchases of marketable securities of $191.6 million and capital expenditures of $15.9 million.

~~Financing Activities~~

Net cash provided by financing activities during the quarter ended September 30, 2006 was $12.6 million compared to $36.4 million in the prior year period. The net cash provided by financing activities in the current quarter reflects the proceeds from the exercise of stock options and employee stock purchases of $4.6 million, and $8.3 million for the tax benefit of stock incentive plans. The net cash provided by financing activities in the prior year period primarily reflects proceeds from the exercise of stock options and employee stock purchases of $22.5 million and the tax benefit of stock incentive plans of $14.3 million. The cash generated by options exercised and employee stock purchases is heavily dependent on the Company’s stock price, which increased during the September quarter of the prior year. The level of proceeds from stock option exercises realized in the prior year quarter was not repeated in the current quarter.

Sufficiency of Cash Resources

We believe our current cash and cash equivalents, marketable securities, investment balances, cash flows from operations and ~~un-drawn~~undrawn amounts ~~of $300 million~~ under our revolving credit facility are adequate to fund our operations, ~~and~~service our debt requirements, make planned capital expenditures and to capitalize on strategic opportunities as they arise. We have and will continue to evaluate our capital structure as part of our goal to promote long-term shareholder value. To the extent that additional capital resources are required, we believe that such capital may be raised by additional bank borrowings, debt or equity offerings or other means.

On July 21, 2006, the Company entered into an unsecured senior credit facility (the “Credit Facility”) pursuant to which the lenders provided us with credit facilities in an aggregate amount of $2.8 billion. Of such amount, $2.0 billion is in the form of a five-year term facility, $500 million is in the form of a 364-day term facility (collectively the “term facilities”), and $300 million is in the form of a five-year revolving credit facility. The term facilities bear interest at LIBOR plus 75 basis points. The Credit Facility includes customary covenants for agreements of this kind, including financial covenants limiting our total indebtedness on a consolidated basis. Also in July 2006, a letter of credit totaling approximately €~~1.9 billion was issued on our behalf under the Credit Facility. The letter of credit, which has been cancelled, was being used to support our tender offer at a cost of 0.875% per annum.~~

In conjunction with the close of the PLIVA acquisition, on October 24, 2006, we drew down $2.0 billion of the five-year term facility and approximately $416 million of the 364-day term facility. The Company will acquire the remainder of PLIVA’s outstanding share capital and pay additional transaction related costs with existing cash balances and/or the remaining $84 million of the 364-day term facility. The combined cost of acquiring the share capital and the transaction costs are approximately $130 million.

Off-Balance Sheet Arrangements

~~We do~~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, other than the letter of credit totaling approximately €1.9 billion in support of our acquisition of PLIVA, which was cancelled in October upon our acquisition of PLIVA.~~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 ~~development~~ and ~~other~~development revenue; (3) ~~inventories and inventory reserves;~~inventories; (4) income taxes; (5) contingencies; ~~and~~ (6) acquisitions and amortization of intangible ~~assets.~~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 ~~Annual~~Transition Report on Form ~~10-K~~10-K/T for the ~~fiscal year~~six months ended ~~June 30,~~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 ~~July 2006, the FASB issued Interpretation No. 48,~~~~Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109~~(“FIN 48”). FIN 48 clarifies the accounting for the uncertainty in recognizing income taxes in an organization in accordance with FASB Statement No. 109 by providing detailed guidance for financial statement recognition, measurement and disclosure involving uncertain tax positions. FIN 48 requires an uncertain tax position to meet a more-likely-than-not recognition threshold at the effective date to be recognized both upon the adoption of FIN 48 and in subsequent periods. FIN 48 is effective for fiscal years beginning after December 15, 2006. As the provisions of FIN 48 will be applied to all tax positions upon initial adoption, the cumulative effect of applying the provisions of FIN 48 will be reported as an adjustment to the opening balance of retained earnings for that fiscal year. We are currently evaluating FIN 48 and the effect on our consolidated financial statements.

~~In September 2006, the FASB issued FAS No. 158,~~~~Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)~~, which requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. FAS No. 158 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. We are currently evaluating FAS No. 158 and the effect it may have on our consolidated financial statements.

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

In ~~September 2006,~~February 2007, the ~~SEC staff~~FASB issued ~~Staff Accounting Bulletin~~SFAS No. 159 (“~~SAB”~~SFAS 159”) ~~108~~~~Considering~~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 ~~Effects~~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 ~~Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements(SAB 108). SAB 108~~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 ~~public companies utilize a “dual-approach” to assessing the quantitative effects~~will help investors and other users of financial ~~misstatements. This dual approach includes both an income statement focused assessment~~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 aliabilities for which companies have chosen to use fair value on the face of the balance ~~sheet focused assessment. The guidance in SAB 108 must be applied to annual financial statements~~sheet. SFAS 159 is effective for fiscal years ~~ending~~beginning after November 15, ~~2006.~~2007. We ~~do not expect~~are currently evaluating the impact that the adoption of ~~SAB 108~~this statement will have ~~a material effect~~ 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 million, and did not change materially as of March 31, 2007. Included in the balance at March 31, 2007 was $13.2 million of tax positions that, if recognized, would lower the effective tax rate. We are nearing completion of several tax audits and the expiration of the statute of limitations in several jurisdictions and it is possible that the amount of the liability for unrecognized tax benefits could change during the next 52-week period. An estimate of the range of the possible change cannot be made at this time.

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 March 31, 2007.

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;~~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 ~~the completion of the~~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 ~~from time-to-time~~ in our SEC filings ~~with~~from time to time, including in our Transition Report on Form 10-K/T for the ~~Securities and Exchange Commission.~~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.

matures in less than three months, or is subject to an interest-rate reset date that occurs within ~~90 days.~~that time period. The carrying value of the investment portfolio approximates the market value at ~~September 30, 2006~~March 31, 2007 and the value at maturity. ~~Because~~

We manage the interest rate risk of our net portfolio of investments ~~consist~~and debt with the use of ~~cash equivalents~~financial risk management instruments or derivatives, including interest rate swaps and ~~market auction debt securities,~~forward rate agreements.

During the three months ended March 31, 2007, a ~~hypothetical 100 basis point change~~10% increase in interest rates ~~is not likely to~~would have increased the net interest expense of our combined investment, debt and financial risk management portfolios by $2.7 million.

Foreign Exchange Rate Risk

A significant portion of our revenues and earnings are generated internationally in various currencies. We also have a ~~material effect on our consolidated financial statements.~~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.

~~During~~As of March 31, 2007, a 10% depreciation in the ~~quarter ended June 30, 2006, we entered into~~value of the US dollar would have resulted in a ~~currency option agreement with a bank for~~decrease of $18.5 million in the ~~notional amount equal to~~ €~~1.8 billion at a cost~~fair value of ~~$48.9 million to hedge our~~the Company’s foreign exchange risk ~~related to~~management instruments. These movements would have been offset by movements in the ~~acquisition of PLIVA. During~~fair value in the ~~quarter ended September 30, 2006 we sold a portion~~opposite direction of the ~~option, reducing the notional amount to~~ €1.7 billion, for $1.5 million in cash resulting in a recorded loss on the sale of $3.2 million. The remaining portion of our foreign currency option, which had a value of $14.8 million as of September 30, 2006, was sold during October in connection with the acquisition of PLIVA for proceeds of $11.0 million. The difference of $3.8 million will be recorded in our consolidated results for the period ending December 31, 2006.

As of September 30, 2006, the Company had outstanding three foreign exchange contracts relating to the PLIVA acquisition that involved the purchase of HRK 1.7 billion, the Croatian currency, for $300 million. Each of theseunderlying transactions ~~was settled during October 2006,~~ and ~~the Company no longer has any risk associated with these contracts.~~

~~None of our outstanding debt at September 30, 2006 bears interest at a variable rate.~~balance sheet items being hedged.

Item 4. Controls and Procedures

~~Evaluation of~~Disclosure Controls and Procedures

We maintain disclosure controls ~~and procedures~~

~~The Company maintains 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 ~~the Company’s~~our Chairman and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required ~~disclosures.~~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 ~~September 30, 2006, the Company~~March 31, 2007, we carried out an evaluation, under the supervision and with the participation of ~~its~~our management, including the Chairman and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of ~~the Company’s~~our disclosure controls and procedures. Based upon that evaluation, the Chairman and Chief Executive Officer and Chief Financial Officer concluded that ~~the~~our disclosure controls and procedures were effective in alerting them in a timely manner to information relating to ~~the Company~~Barr and its consolidated subsidiaries required to be disclosed in this report.

Changes in Internal Control Over Financial Reporting.

There ~~have been~~were no ~~significant changes to any of the disclosure controls and procedures for the period ending September 30, 2006. Additionally, there have not been any material~~ changes in ~~our~~the Company’s internal control over financial reporting induring the ~~period ending September 30, 2006.~~quarter ended March 31, 2007 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

2726

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~Litigation Matters~~

The disclosure under Note 1513 — 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

~~The statements~~In addition to the other information set forth in this report, you should carefully consider the factors discussed in the “Risk Factors” section ~~describe~~in our Transition Report on Form 10-K/T for the ~~major risks to~~six-month period ended December 31, 2006, which could materially affect our business, ~~and should be considered carefully. We provide the following cautionary discussion~~results of risk, uncertainties and possibly inaccurate assumptions relevant to our business. These are factors that, individually or in aggregate, we think could cause our actual results to differ materially from expected and historical results. Our business,operations, financial condition or ~~results of operations could be materially adversely affected by any of these risks.~~

We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potentialliquidity. The risks ~~or uncertainties. See “Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward-Looking Statements.”~~

~~Competition from other manufacturers of generic drugs affecting our generic products~~

The success of our generic business is based in part on successfully developing and bringing to market a steady flow of generic products. We attempt to select our generic products based on the prospects for limited competition from competing generic companies. We do so because we believe that the more generic competitors that market the same generic product, the lower the revenue and profitability we will record for our product. Therefore, if any of our currently marketed products or any newly launched generic product are subject to additional generic competition from one or more competing products, our price and market share for the affected generic product could be dramatically reduced. As a consequence, unless we successfully replace generic products that are declining in profitability with new generic products with higher profitability, our business could be adversely affected.

~~Our largest single category of generic products is oral contraceptives, which accounted for approximately $121 million in revenues~~described in our ~~quarter ended September 30, 2006. In addition, we recorded revenues of $10 million or more during that period from each of two other generic products, Desmopressin, and royalties from~~Transition Report are not the sale of a generic version of Allegra by Teva Pharmaceuticals. Two generic manufacturers have already launched a competing generic version of Desmopressin, and there are two competing generic Allegra products in addition to Teva’s. We anticipate added competition to Desmopressin and Allegra over time. In addition, we anticipate increasing competition to our generic oral contraceptives over time. Unless we can replace the anticipated losses of revenues from these products with revenues from new products, our revenues and profitability will suffer.

~~Competition from other manufacturers of generic drugs affecting our proprietary products~~

Upon the expiration or loss of patent protection or regulatory exclusivity periods for one of our branded products, or upon the “at-risk” launch by a generic manufacturer of a generic version of one of our branded products, we can lose the major portion of sales of that product in a very short period, which can adversely affect our business. For example, SEASONALE was our largest selling proprietary product during the year ended June 30, 2006, generating $100 million in revenues. In May 2006, a competitor received tentative FDA approval for a generic version of SEASONALE and subsequently launched their product in September 2006. As the result of generic competition for SEASONALE, our revenues and gross profit contributions from SEASONALE will decline significantly.

~~Resolving Paragraph IV patent challenges~~

Our operating results have historically included significant contributions from products that arise from the success we have had from our patent challenge activities. However, the success we have had in the past from challenging branded companies’ patents, whether through court decisions that permit us to launch our generic versions of product or through settlements, may not be repeated in the future due to the following:

	•		~~an increase in the number of competitors who pursue patent challenges could make it more difficult for us to be first to file a Paragraph IV certification on a patent protected product;~~

	•		branded company’s decision to launch an “authorized” generic version of the product will reduce our market share and lower the revenues and gross profits we could have otherwise earned if an “authorized” generic were not launched;

	•		claims brought by third parties, including the FTC, various states’ Attorneys General and other third-party payers challenging the legality of our settlement agreements could affect the way in which we resolve our patent challenges with the brand pharmaceutical companies; and

	•		~~the efforts of brand companies to use legislative and regulatory tactics to delay the launch of generic products.~~

~~Impact of “At Risk” launches~~

There are situations where we have used our business and legal judgment and decided to market and sell products, subject to claims of alleged patent infringement, prior to final resolution by the courts, based upon our belief that such patents are invalid, unenforceable, or would not be infringed. This is referred to in the pharmaceutical industry as an “at risk” launch. The risk involved in doing so can be substantial because if a patent holder ultimately prevails, the remedies available to such holder include, among other things, damages measured by the profits lost by the holder which are often significantly higher than the profits we make from selling the generic version of the product. Should we elect to proceed in this manner we could face substantial damages if the final court decision is adverse toonly risks facing us. ~~In the case where a patent holder was able to prove that our infringement was “willful”, the definition of which is subjective, such damages may be trebled.~~

~~Government Regulation and Managed Care Trends~~

The trend toward managed healthcare in the U.S., the growth of organizations such as HMOs and MCOs and legislative proposals to reform healthcare and government insurance programs could significantly influence the purchase of pharmaceutical products, resulting in lower prices and a reduction in product demand. Such cost containment measures and healthcare reform could affect our ability to sell our products and may have a material adverse effect on us. Additionally, reimbursements to patients may not be maintained and third-party payers, which place limits on levels of reimbursement, may reduce the demand for, or negatively affect the price of, those products and could significantly harm our business. We may also be subject to lawsuits relating to reimbursement programs that could be costly to defend, divert management’s attention and could have a material adverse effect on our business.

~~Development and Regulatory Approval~~

~~Risks and uncertainties particularly apply to whether or when our products will be approved. The outcome of the lengthy and complex process of developing new products is inherently uncertain.~~

For our generic business, much of our product development efforts are focused on developing products that are difficult to formulate and/or products that require specialized manufacturing technology. The inability to successfully formulate and pass bioequivalence studies can adversely affect the timing of when we receive approval for our generic products.

For our proprietary business, regulatory delays, the inability to successfully complete clinical trials or claims and concerns about safety and efficacy are a few of the factors that could adversely affect the timing of new proprietary product launches. In addition, decisions by regulatory authorities regarding labeling and other matters could adversely affect the availability or commercial potential of our products.

~~There can be no assurance as to whether or when we will receive regulatory approval for new products.~~

~~Product Manufacturing and Marketing~~

Difficulties or delays in product manufacturing or marketing, including, but not limited to, the inability to increase production capacity commensurate with demand, or the failure to predict market demand for, or to gain market acceptance of approved products, including our recent launches of SEASONIQUE and ENJUVIA, could affect future results.

~~Dependence on third parties~~

We rely on third parties to supply us with raw materials, inactive ingredients and other components for our manufactured products and for certain of our finished goods. In many instances there is only a single supplier. In addition, we rely on third-party distributors and alliance partners to provide services for our business, including product development, manufacturing, warehousing, distribution, customer service support, medical affairs services, clinical studies, sales and other technical and financial services for certain of our products. Nearly all third-party suppliers and contractors are subject to FDA, and in some cases DEA, requirements. Our business on some products are dependent on the regulatory compliance of these third parties, and on the strength, validity and terms of our various contracts with these third-party manufacturers, distributors and collaboration partners. Any interruption or failure by these suppliers, distributors and collaboration partners to meet their obligations pursuant to various agreements or obligations with us could have a material adverse effect on our business.

In addition, our revenues include amounts we earn based on sales generated and recorded by Teva Pharmaceuticals for generic Allegra, and Kos Pharmaceuticals for Niaspan and Advicor. Any factors that negatively impact the sales of these products could adversely impact our revenues and profits.

~~Customer consolidation~~

Our principal customers are wholesale drug distributors and major retail drug store chains. These customers comprise a significant part of the distribution network for pharmaceutical products in the U.S. This distribution network is continuing to undergo significant consolidation marked by mergers and acquisitions among wholesale distributors and the growth of large retail drug store chains. This consolidation may result in these groups gaining additional purchasing leverage and consequently increasing the product pricing pressures facing our business. Additionally, the emergence of large buying groups representing independent retail pharmacies and the prevalence and influence of managed care organizations and similar institutions potentially enable those groups to attempt to extract price discounts on our products. Our net sales and quarterly growth comparisons may be affected by fluctuations in the buying patterns of major distributors, retail chains and other trade buyers. These fluctuations may result from seasonality, pricing, wholesaler buying decisions or other factors.

~~Cost and Expense Control/Unusual Events~~

Growth in costs and expenses, changes in product mix and the impact of acquisitions, divestitures, restructurings, product withdrawals and other unusual events that could result from evolving business strategies, evaluation of asset realization and organizational restructuring could create volatility in our results. SuchAdditional risks and uncertainties ~~include, in particular, the potentially significant charges~~not currently known to ~~our operating results for items like in-process research and development charges and transaction costs.~~

~~Legal Proceedings~~

As described in “Legal Proceedings” in Part II, Item 1 of this Form 10-Q, we and certain of our subsidiaries are involved in various patent, product liability, consumer and commercial litigations and claims; government investigations; and other legal proceedingsus or that arise from time to time in the ordinary course of our business. Litigation is inherently unpredictable, and unfavorable rulings do occur. An unfavorable ruling could include money damages or, in some rare cases, for which injunctive relief is sought, an injunction prohibiting Barr from manufacturing or selling one or more products. Although we believe we have substantial defenses in these matters, we could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations in any particular period.

~~Availability of product liability insurance~~

Our business inherently exposes us to claims relating to the use of our products. We sell, and will continue to sell, pharmaceutical products for which product liability insurance coverage may not be available, and, accordingly, if we are sued and if adverse judgments are rendered, we may be subject to claims that are not covered by insurance as well as claims that exceed our policy limits each of which could adversely impact our results of operations and our financial condition. Additional products for which we currently ~~have coverage~~believe are immaterial also may be excluded in the future. In addition, product liability coverage for pharmaceutical companies is becoming more expensive and increasingly difficult to obtain. As a result, we may not be able to obtain the type and amount of coverage we desire.

~~Acquisitions~~

We regularly review potential acquisitions of products and companies complementary to our business. Acquisitions typically entail many risks including, difficulties in integrating operations, personnel, technologies and products. If we are not able to successfully integrate our acquisitions, we may not obtain the advantages that the acquisitions were intended to create, which maymaterially adversely affect our business, results of operations, financial condition ~~and cash flows, and~~or liquidity. The risks described in our ~~ability to develop and introduce new products. See the discussion below regarding our acquisition of PLIVA.~~

~~Managing rapidly growing operations~~

WeTransition Report have grown significantly over the past several years, extending our processes, systems and people. Our acquisition of PLIVA, as discussed below, has significantly added to our operations. We have made significant investments in enterprise resource systems and our internal control processes to help manage this incremental activity. We must also attract, retain and motivate executives and other key employees, including those in managerial, technical, sales and marketing and support positions to support our growth. As a result, hiring and retaining qualified executives, scientists, technical staff, manufacturing personnel, qualified quality and regulatory professionals and sales representatives are critical to our business and competition for these people can be intense. If we are unable to hire and retain qualified employees and if we do not ~~continue to invest in systems and processes to manage our growth, our operations could be adversely impacted.~~

~~Use of estimates and judgments in applying accounting policies~~

The methods, estimates and judgments we use in applying accounting policies have a significant impact of our results of operations (see “Critical Accounting Policies” in Part II, Item 7 of our Form 10-K). Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that leads us to change them. Changes in those methods, estimates and judgments could significantly affect our results of operations.

~~Changes in Laws and Accounting Standards~~

Our future results could be adversely affected by changes in laws and regulations, including changes in accounting standards, taxation requirements (including tax-rate changes, new tax laws and revised tax law interpretations), competition laws and environmental laws in the U.S. and other countries.materially changed.

~~Terrorist Activity~~

Our future results could be adversely affected by changes in business, political and economic conditions, including the cost and availability of insurance, due to the threat of future terrorist activity in the U.S. and other parts of the world and related U.S. military action overseas.

~~Acquisition of PLIVA~~

On October 24, 2006, Barr Europe finalized the legal and regulatory requirements to acquire PLIVA, headquartered in Zagreb, Croatia. Under the terms of our cash tender offer, we paid approximately $2.4 billion, or HRK 820 per share for all shares tendered during the offer period. The transaction closed with 17,056,977 shares being tendered as part of the process, representing 92% of PLIVA’s total outstanding share capital being tendered to us. With the addition of the treasury shares held by PLIVA, we now own or control in excess of 95% of PLIVA’s voting share capital.

We have begun the integration of the two companies. There are a number of operational and financial risks associated with this acquisition. The operational risks include, but are not limited to, the following:

	•		~~the necessity of coordinating and consolidating geographically separated organizations, systems and facilities;~~

	•		~~the successful integration of our management and personnel with that of PLIVA and retaining key employees; and~~

	•		~~changes in intellectual property legal protections and remedies, trade regulations and procedures and actions affecting approval, production, pricing, reimbursement and marketing of products.~~

~~The financial risks related to this acquisition include, but are not limited to, the following:~~

	•		~~our ability to satisfy obligations with respect to the $2.4 billion of debt that we incurred to help finance this transaction, all of which is at a variable rate of interest based upon LIBOR;~~

	•		~~the ability of the combined company to meet certain revenue and cost synergy objectives;~~

	•		charges associated with this transaction, including the write-off of acquired in-process research and development costs, additional depreciation and amortization of acquired assets and interest expense and other financing costs related to the new Credit Facility will negatively impact our net income; and

	•		~~our international-based revenues and expenses will be subject to foreign currency exchange rate fluctuations.~~

If management is unable to successfully integrate the operations and manage the financial risks, the anticipated benefits of this acquisition may not be realized and it could result in a material adverse effect on our operations and cash flow.

3227


	Page
	Number
Part I Condensed Financial Information

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets (unaudited) as of ~~September 30, 2006~~March 31, 2007 and ~~June 30,~~December 31, 2006		3

Condensed Consolidated Statements of Operations (unaudited) for the three months ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~		4

Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~		5

Notes to Condensed Consolidated Financial Statements (unaudited)		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1918

Item 3. Quantitative and Qualitative Disclosures About Market Risk		2725

Item 4. Controls and Procedures		2726

Part II Other Information

Item 1. Legal Proceedings		2827

Item 1A. Risk Factors		2827

Item 6. Exhibits		3328

Signatures		3429
EX-10.1: ~~SETTLEMENT~~EMPLOYMENT AGREEMENT
EX-10.2: ~~PRODUCT DEVELOPMENT AND LICENSE AGREEMENT~~
~~EX-10.3: PRODUCT ACQUISITION AND LICENSE~~SETTLEMENT AGREEMENT
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.0: CERTIFICATION


	September 30,		June 30,		March 31,		December 31,
	2006		2006		2007		2006
Raw materials and supplies	$	88,478	$	86,239	$	165,243	$	160,345
Work-in-process		28,661		22,063		84,193		67,798
Finished goods		33,586		25,964		179,101		201,449

Total	$	150,725	$	134,266
Total inventories					$	428,537	$	429,592


	March 31,						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	$	16,808	$	28,542	$	45,350	$	15,624	$	29,726
Product rights		1,325,976		101,375		1,224,601		1,302,116		64,788		1,237,328
Land use rights		88,668		460		88,208		88,053		166		87,887
Other		38,705		792		37,913		38,899		188		38,711


Total amortized finite-lived intangible assets		1,498,699		119,435		1,379,264		1,474,418		80,766		1,393,652


Indefinite-lived intangible assets — tradenames:		79,457		—		79,457		78,766		—		78,766

Total identifiable intangible assets	$	1,578,156	$	119,435	$	1,458,721	$	1,553,184	$	80,766	$	1,472,418


	Three Months Ended						Three Months Ended
	September 30,						March 31,
	2006			2005			2007			2006
Average expected term (years)		5.0			5.0			4.0			5.0
Weighted average risk-free interest rate		5.10	%		3.72	%		4.43	%		4.35	%
Dividend yield		0	%		0	%		0	%		0	%
Volatility		32.18	%		36.85	%		30.17	%		36.85	%
Weighted average grant date fair value	$	18.27		$	18.01		$	15.16		$	26.21


			Gross		Gross
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		(Losses)			Value
September 30, 2006
Debt securities	$	485,350	$	—	$	(273	)	$	485,077
Equity securities		9,073		—		—			9,073

	$	494,423	$	—	$	(273	)	$	494,150

June 30, 2006
Debt securities	$	588,421	$	—	$	(592	)	$	587,829
Equity securities		7,785		—		—			7,785

	$	596,206	$	—	$	(592	)	$	595,614

7.		Goodwill and Other Intangible Assets

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


Current assets	$	206
Property, plant & equipment		(36,265	)
Other non-current assets		291
Current liabilities		2,000
Deferred tax liabilities		5,870
Other liabilities		4,314

Total PLIVA goodwill adjustments	$	(23,584	)


	Three Months Ended September 30,
	2006					2005
			% of					% of
	$’s		sales			$’s		sales
Product sales:
Generic	$	197,594		66	%	$	207,169		78	%
Proprietary		102,916		34	%		59,624		22	%

Total product sales	$	300,510		100	%	$	266,793		100	%


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


Exhibit No.		Description

10.1*10.1		~~Settlement~~Employment Agreement between Zeljko Covic and PLIVA d.d. dated ~~August 14, 2006 by and between Barr Laboratories, Inc. and Shire Laboratories Inc.~~March 21, 2007

10.2*10.2		~~Product Development~~Settlement Agreement between Zeljko Covic and ~~License Agreement,~~PLIVA d.d. dated ~~August 14, 2006 by and between Duramed Pharmaceuticals, Inc. and Shire LLC~~

10.3*		~~Product Acquisition and License Agreement, dated August 14, 2006 by and among Duramed Pharmaceuticals, Inc. and Shire LLC, Shire plc~~March 21, 2007

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.

		* Certain portions of this exhibit have been omitted intentionally, subject to a confidential treatment request. A complete version of this agreement has been filed separately with the Securities and Exchange Commission.


	BARR PHARMACEUTICALS, INC.
Dated: ~~November 9, 2006~~May 10, 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~~ (Principal Financial Officer and Principal Accounting Officer)