##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 For the quarterly period ended 
September 30, 2008
    
    Commission file number 1-8593
 Alpharma Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    22-2095212(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
  (Address of principal executive offices) (Zip Code)
  (Registrants Telephone Number, Including Area Code)
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



Page No.PART I FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Consolidated Balance Sheets as of September 30,
2008 and December 31, 2007
    
    
    3Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 2008 and 2007
    
    
    4Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2008 and 2007
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-23Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    24-32Item 3. Quantitative and Qualitative Disclosures about
Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    33PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    34Item 1A. Risk Factors
    
    
    34-35Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 6. Exhibits
    
    
    36Signatures
    
    
    37EX-10.1.G: LETTER AMENDMENT AMENDING THE AMENDED AND RESTATED LOAN AND SECURITY AGREEMENTEX-10.98: EXECUTIVE CHANGE IN CONTROL PLAN, AMENDED AND RESTATEDEX-10.99: DEVELOPMENT AND LICENSE AGREEMENTEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32: CERTIFICATION
  2




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##### Table of Contents



Item 1.
Financial Statements
 ALPHARMA
INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 (In thousands of dollars, except share data)
 September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    571,024
    
    
    $
    309,690Accounts receivable, net
    
    
    98,618
    
    
    
    93,225Inventories
    
    
    122,339
    
    
    
    93,135Prepaid expenses and other current assets
    
    
    30,831
    
    
    
    20,807Current assets held for sale
    
    
    
    
    
    
    67,030Total current assets
    
    
    822,812
    
    
    
    583,887Property, plant & equipment, net
    
    
    140,649
    
    
    
    139,968Intangible assets, net
    
    
    219,048
    
    
    
    235,154Goodwill
    
    
    115,565
    
    
    
    115,107Other assets and deferred charges
    
    
    55,613
    
    
    
    60,248Non-current assets held for sale
    
    
    
    
    
    
    161,986Total assets
    
    $
    1,353,687
    
    
    $
    1,296,350LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term debt
    
    $
    5,142
    
    
    $
    5,778Accounts payable
    
    
    62,468
    
    
    
    46,211Accrued expenses
    
    
    103,177
    
    
    
    101,103Accrued and deferred income taxes
    
    
    12,485
    
    
    
    12,182Current liabilities held for sale
    
    
    
    
    
    
    41,286Total current liabilities
    
    
    183,272
    
    
    
    206,560Long-term debt
    
    
    300,000
    
    
    
    300,000Deferred income taxes
    
    
    55,443
    
    
    
    19,353Other non-current liabilities
    
    
    30,422
    
    
    
    22,699Non-current liabilities held for sale
    
    
    
    
    
    
    16,611Total non-current liabilities
    
    
    385,865
    
    
    
    358,663Commitments and contingencies (see Note 12)Stockholders equity:Class A common stock, $0.20 par value (authorized 75,000,000;
issued 44,792,095 and 41,839,601 outstanding)
    
    
    8,958
    
    
    
    8,824Class B common stock, $0.20 par value (authorized 15,000,000;
issued 11,872,897)
    
    
    2,375
    
    
    
    2,375Preferred stock, $1 par value (authorized 500,000)
    
    
    
    
    
    
    Additional paid in capital
    
    
    1,150,745
    
    
    
    1,130,918Retained earnings (accumulated deficit)
    
    
    1,580
    
    
    
    (166,270
    )Accumulated other comprehensive income
    
    
    (2,151
    )
    
    
    70,321Treasury stock, at cost
    
    
    (376,957
    )
    
    
    (315,041
    )Total stockholders equity
    
    
    784,550
    
    
    
    731,127Total liabilities and stockholders equity
    
    $
    1,353,687
    
    
    $
    1,296,350
 The
accompanying notes are an integral part of the unaudited consolidated
financial statements.
 3




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##### Table of Contents



ALPHARMA INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (In thousands of dollars, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Total revenues
    
    $
    175,698
    
    
    $
    133,182
    
    
    $
    500,101
    
    
    $
    384,599Cost of sales

(*Excludes certain product amortization
classified in SG&A expenses)
    
    
    63,119
    
    
    
    51,506
    
    
    
    180,375
    
    
    
    147,680Gross profit
    
    
    112,579
    
    
    
    81,676
    
    
    
    319,726
    
    
    
    236,919Selling, general and administrative (SG&A)
expenses
    
    
    89,341
    
    
    
    54,903
    
    
    
    275,691
    
    
    
    170,656Research and development
    
    
    13,494
    
    
    
    14,581
    
    
    
    81,782
    
    
    
    45,873Asset impairments and other (income) expense
    
    
    
    
    
    
    (309
    )
    
    
    
    
    
    
    (3,399
    )Operating income (loss)
    
    
    9,744
    
    
    
    12,501
    
    
    
    (37,747
    )
    
    
    23,789Interest income (expense), net
    
    
    2,714
    
    
    
    2,978
    
    
    
    5,752
    
    
    
    7,586Other income (expense), net
    
    
    (1,150
    )
    
    
    221
    
    
    
    (833
    )
    
    
    1,016Income (loss) from continuing operations, before
income taxes
    
    
    11,308
    
    
    
    15,700
    
    
    
    (32,828
    )
    
    
    32,391Provision for income taxes
    
    
    7,188
    
    
    
    10,430
    
    
    
    3,011
    
    
    
    17,997Income (loss) from continuing operations
    
    
    4,120
    
    
    
    5,270
    
    
    
    (35,839
    )
    
    
    14,394Income from discontinued operations, net of
taxes
    
    
    
    
    
    
    9,783
    
    
    
    203,689
    
    
    
    25,653Net income
    
    $
    4,120
    
    
    $
    15,053
    
    
    $
    167,850
    
    
    $
    40,047Basic earnings per common share:Income (loss) from continuing operations
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    (0.84
    )
    
    $
    0.34Income from discontinued operations
    
    
    
    
    
    $
    0.23
    
    
    $
    4.79
    
    
    $
    0.60Net income
    
    $
    0.10
    
    
    $
    0.35
    
    
    $
    3.95
    
    
    $
    0.94Diluted earnings per common share:Income (loss) from continuing operations
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    (0.84
    )
    
    $
    0.33Income from discontinued operations
    
    
    
    
    
    $
    0.22
    
    
    $
    4.79
    
    
    $
    0.59Net income
    
    $
    0.10
    
    
    $
    0.34
    
    
    $
    3.95
    
    
    $
    0.92
 
  The accompanying notes are an integral part of the unaudited consolidated financial statements.
 4




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ALPHARMA INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (In thousands of dollars)
 Nine Months EndedSeptember 30,2008
    
    
    2007Operating Activities:Net income
    
    $
    167,850
    
    
    $
    40,047Adjustments to reconcile net income to net cash used in
operating activities:Gain from sale of discontinued operations
    
    
    (202,979
    )
    
    
    Depreciation and amortization
    
    
    30,426
    
    
    
    37,746Amortization of loan costs
    
    
    932
    
    
    
    700Amortization of stock-based compensation
    
    
    7,962
    
    
    
    4,126Other non-cash items
    
    
    645
    
    
    
    2,069Changes in assets and liabilities:(Increase) in accounts receivable
    
    
    (2,250
    )
    
    
    (11,338
    )(Increase) in inventories
    
    
    (31,614
    )
    
    
    (16,905
    )Decrease (increase) in prepaid expenses
    
    
    632
    
    
    
    (1,384
    )(Decrease) in accounts payable and accrued expenses
    
    
    (2,409
    )
    
    
    (5,050
    )Increase in taxes payable
    
    
    3,515
    
    
    
    6,126Other, net
    
    
    (8,978
    )
    
    
    9,887Net cash provided by (used in) operating activities
    
    
    (36,267
    )
    
    
    66,024Investing Activities:Capital expenditures
    
    
    (18,583
    )
    
    
    (41,793
    )Purchased intangible assets
    
    
    
    
    
    
    (969
    )Proceeds from sale of business
    
    
    384,500
    
    
    
    Licensing activities
    
    
    
    
    
    
    (100,305
    )Acquisition activities
    
    
    
    
    
    
    (6,883
    )Net cash provided by (used in) investing activities
    
    
    365,917
    
    
    
    (149,950
    )Financing Activities:Proceeds from issuance of convertible senior notes
    
    
    
    
    
    
    292,772Repayments of short-term debt
    
    
    (1,483
    )
    
    
    Payment of debt assigned in sale of business
    
    
    (4,990
    )
    
    
    Proceeds from issuance of short-term debt
    
    
    
    
    
    
    6,389Proceeds from issuance of common stock
    
    
    11,999
    
    
    
    4,887Payments for purchases of treasury shares
    
    
    (61,917
    )
    
    
    (Decrease) increase in book overdraft
    
    
    (2,721
    )
    
    
    1,037Net cash provided by (used in) financing activities
    
    
    (59,112
    )
    
    
    305,085Net cash flows from exchange rate changes
    
    
    (2,337
    )
    
    
    (1,569
    )Increase in cash
    
    
    268,201
    
    
    
    219,590Cash and cash equivalents at beginning of year
    
    
    302,823
    
    
    
    113,163Cash and cash equivalents at end of period
    
    $
    571,024
    
    
    $
    332,753Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    6,859
    
    
    $
    4,578Cash paid (refunded) for taxes
    
    $
    4,710
    
    
    $
    (2,669
    )
 The accompanying notes are an integral part of the unaudited consolidated financial statements.
 5




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ALPHARMA INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands of dollars, except per share data)
 (Unaudited)
 General
   Recent Accounting Pronouncements
   6




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7




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Discontinued Operations
  8




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Nine Months EndedSeptember 30,2008
    
    
    2007Total revenues
    
    $
    42,902
    
    
    $
    138,701Operating income
    
    $
    2,430
    
    
    $
    29,920Income from discontinued operations, before
income taxes
    
    $
    1,186
    
    
    $
    29,232Provision for income taxes
    
    
    476
    
    
    
    3,579Income from discontinued operations, net of
income taxes
    
    
    710
    
    
    
    25,653Gain on sales of discontinued operations, net of taxes
    
    
    202,979
    
    
    
    Income from discontinued operations, net of taxes
    
    $
    203,689
    
    
    $
    25,653
  Cash and cash equivalents
    
    $
    (6,867
    )Accounts receivable, net
    
    
    39,406Inventories
    
    
    32,828Prepaid expenses and other current assets
    
    
    1,663Total current assets held for sale
    
    
    67,030Property, plant & equipment, net
    
    
    143,636Goodwill and intangibles, net
    
    
    17,604Other non-current assets
    
    
    746Total non-current assets
    
    
    161,986Total assets held for sale
    
    $
    229,016Short-term debt
    
    $
    5,255Accounts payable
    
    
    11,692Accrued expenses and other current liabilities
    
    
    24,339Total current liabilities held for sale
    
    
    41,286Non-current liabilities
    
    
    16,611Total liabilities held for sale
    
    $
    57,897
  9




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License and Collaboration Agreements
 IDEA AG (IDEA)
     10




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Institut Biochimique SA (IBSA)
    11




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Earnings Per Share
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(Shares in thousands)
    
    2008
    
    2007
    
    2008
    
    2007Average shares outstanding  basic
    
    
    41,127
    
    
    
    43,103
    
    
    
    42,531
    
    
    
    42,772Dilutive effect of stock options and
restricted stock
    
    
    1,048
    
    
    
    574
    
    
    
    
    
    
    
    559Average shares outstanding  diluted
    
    
    42,175
    
    
    
    43,677
    
    
    
    42,531
    
    
    
    43,331
    12




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Share Repurchase Program
  Income Taxes
    13




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Inventories
  September 30,
    
    
    December 31,2008
    
    
    2007Finished product
    
    $
    86,905
    
    
    $
    60,867Work-in-process
    
    
    22,082
    
    
    
    21,348Raw materials
    
    
    13,352
    
    
    
    10,920$
    122,339
    
    
    $
    93,135
 Intangible Assets and Goodwill
  Balance of 2008
    
    $
    5,1002009
    
    
    20,5002010
    
    
    18,9002011
    
    
    21,7002012
    
    
    21,300Thereafter
    
    
    131,548$
    219,048
  Net balance, December 31, 2007
    
    $
    235,154Additions (reductions), net
    
    
    (961
    )Amortization
    
    
    (15,278
    )Translation adjustment
    
    
    133Net balance, September 30, 2008
    
    $
    219,048Accumulated amortization, September 30, 2008
    
    $
    189,859
  Pharmaceuticals
    
    
    AH
    
    
    TotalBalance, December 31, 2007
    
    $
    113,973
    
    
    $
    1,134
    
    
    $
    115,107Additions
    
    
    
    
    
    
    396
    
    
    
    396Translation adjustment
    
    
    
    
    
    
    62
    
    
    
    62Balance, September 30, 2008
    
    $
    113,973
    
    
    $
    1,592
    
    
    $
    115,565
 14




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Debt
 Short-Term Debt
    Long-Term Debt
    15




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Pension Plans and Postretirement Benefits
 U.S.
   PostretirementPension Benefits
    
    
    BenefitsFor the Three Months
    
    
    For the Three MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    
    
    
    $
    
    
    
    $
    26
    
    
    $
    32Interest cost
    
    
    753
    
    
    
    713
    
    
    
    103
    
    
    
    104Expected return on plan assets
    
    
    (853
    )
    
    
    (856
    )
    
    
    
    
    
    
    Amortization of prior service cost (income)
    
    
    4
    
    
    
    2
    
    
    
    
    
    
    
    (34
    )Recognized net actuarial loss
    
    
    (4
    )
    
    
    3
    
    
    
    
    
    
    
    79Net periodic benefit cost (income)
    
    $
    (100
    )
    
    $
    (138
    )
    
    $
    129
    
    
    $
    181
 16




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PostretirementPension Benefits
    
    
    BenefitsFor the Nine Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    
    
    
    $
    
    
    
    $
    77
    
    
    $
    96Interest cost
    
    
    2,259
    
    
    
    2,139
    
    
    
    311
    
    
    
    312Expected return on plan assets
    
    
    (2,559
    )
    
    
    (2,568
    )
    
    
    
    
    
    
    Amortization of prior service cost (income)
    
    
    5
    
    
    
    6
    
    
    
    (68
    )
    
    
    (102
    )Recognized net actuarial loss
    
    
    1
    
    
    
    9
    
    
    
    135
    
    
    
    237Net periodic benefit cost (income)
    
    $
    (294
    )
    
    $
    (414
    )
    
    $
    455
    
    
    $
    543
  Stock-Based Compensation
  Stock Options
   Balance at December 31, 2007
    
    
    1,388,893Grants
    
    
    901,894Exercises
    
    
    (282,808
    )Forfeitures
    
    
    (128,816
    )Balance at September 30, 2008
    
    
    1,879,163
  Restricted Stock and Restricted Stock Units
  17




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Contingent Liabilities, Litigation and Legal Proceedings
   Chicken Litter Litigation
   Brazilian Tax Claims
  18




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##### Table of Contents



FLSA Class Action
  Average Wholesale Price Litigation
  Shareholder Litigations
 New Jersey Actions
  Delaware Actions
  19




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DOJ Information Request / Investigation
  Other Commercial Disputes and Litigation
   Guarantees
  Shareholder Rights Agreement
  20




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Comprehensive Income
  21




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Other Comprehensive Income:Net Income
    
    $
    4,120
    
    
    $
    15,053
    
    
    $
    167,850
    
    
    $
    40,047Change in Foreign Currency Translation
    
    
    (7,443
    )
    
    
    5,201
    
    
    
    (72,545
    )
    
    
    7,345Change in unrealized gain on pension, net
    
    
    36
    
    
    
    68
    
    
    
    73
    
    
    
    204$
    (3,287
    )
    
    $
    20,322
    
    
    $
    95,378
    
    
    $
    47,596
 September 30,2008Accumulated Other Comprehensive Income:Cumulative translation adjustment
    
    $
    1,077Prior service not yet recognized in cost
    
    
    (22
    )Actuarial loss not yet recognized in cost, net
    
    
    (3,206
    )$
    (2,151
    )
 Supplemental Data
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest income (expense), net:Interest income
    
    $
    4,699
    
    
    $
    4,927
    
    
    $
    11,801
    
    
    $
    11,375Interest expense
    
    
    (1,675
    )
    
    
    (1,639
    )
    
    
    (5,118
    )
    
    
    (3,087
    )Amortization of debt issuance costs
    
    
    (310
    )
    
    
    (310
    )
    
    
    (931
    )
    
    
    (701
    )$
    2,714
    
    
    $
    2,978
    
    
    $
    5,752
    
    
    $
    7,587Other income (expense), net:Foreign exchange gains (losses), net
    
    $
    (941
    )
    
    $
    299
    
    
    $
    (626
    )
    
    $
    1,359Other, net
    
    
    (209
    )
    
    
    (78
    )
    
    
    (207
    )
    
    
    (343
    )$
    (1,150
    )
    
    $
    221
    
    
    $
    (833
    )
    
    $
    1,016
 Business Segment Information
  
    
    Pharmaceuticals
    
    Animal Health
  22




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##### Table of Contents



Three Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    
    Operating Income (loss)Pharmaceuticals
    
    $
    82,057
    
    
    $
    42,435
    
    
    $
    9,106
    
    
    $
    4,549Animal Health
    
    
    93,641
    
    
    
    90,747
    
    
    
    16,604
    
    
    
    18,327Unallocated and eliminations
    
    
    
    
    
    
    
    
    
    
    (15,966
    )
    
    
    (10,375
    )$
    175,698
    
    
    $
    133,182
    
    
    $
    9,744
    
    
    $
    12,501
 Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    
    Operating Income (loss)Pharmaceuticals (a)
    
    $
    229,343
    
    
    $
    119,499
    
    
    $
    (45,109
    )
    
    $
    5,496Animal Health
    
    
    270,758
    
    
    
    265,100
    
    
    
    44,568
    
    
    
    52,681Unallocated and eliminations
    
    
    
    
    
    
    
    
    
    
    (37,206
    )
    
    
    (34,388
    )$
    500,101
    
    
    $
    384,599
    
    
    $
    (37,747
    )
    
    $
    23,789
 
 (a)
    
    Operating income (loss) for the nine months ended September 30, 2008 includes $37,000 in
research and development expenses related to the achievement of the first and second progress
milestones related to the clinical advancement of ketoprofen in TRANSFERSOME gel. Subsequent Event
  23




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Overview
 
     24




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##### Table of Contents



Discontinued Operations
  Nine Months EndedSeptember 30,2008
    
    2007Total revenues
    
    $
    42.9
    
    
    $
    138.7Operating income
    
    $
    2.4
    
    
    $
    29.9Income from discontinued operations, net of
income taxes
    
    $
    0.7
    
    
    $
    25.7
   Results of Continuing Operations  Three months ended September 30, 2008
   Operating IncomeRevenues
    
    
    
    
    
    (Loss)Three Months Ended September 30,
    
    2008
    
    
    2007
    
    
    %
    
    2008
    
    
    2007
    
    
    %Pharmaceuticals
    
    $
    82.1
    
    
    $
    42.4
    
    
    93.6
    %
    
    $
    9.1
    
    
    $
    4.6
    
    
    97.8
    %Animal Health
    
    
    93.6
    
    
    
    90.8
    
    
    3.1
    %
    
    
    16.6
    
    
    
    18.3
    
    
    (9.3
    )%Unallocated and Eliminations
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16.0
    )
    
    
    (10.4
    )
    
    (53.8
    )%Total
    
    $
    175.7
    
    
    $
    133.2
    
    
    31.9
    %
    
    $
    9.7
    
    
    $
    12.5
    
    
    (22.4
    )%
 25




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26




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##### Table of Contents



Corporate/Pharmaceuticals
    
    
    AH
    
    
    Unallocated
    
    
    Total2007 as reported
    
    $
    4.6
    
    
    $
    18.3
    
    
    $
    (10.4
    )
    
    $
    12.5Research and development
    
    
    0.8
    
    
    
    0.3
    
    
    
    
    
    
    
    1.1Facility exit cost adjustments and
asset sales in 2007
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.3
    )Favorable settlement of contract
dispute in 2007
    
    
    
    
    
    
    (2.7
    )
    
    
    
    
    
    
    (2.7
    )Expenses associated with King Offer
    
    
    
    
    
    
    
    
    
    
    (4.2
    )
    
    
    (4.2
    )(Increase)/decrease in other SG&A
    
    
    (26.8
    )
    
    
    (0.5
    )
    
    
    (1.4
    )
    
    
    (28.7
    )Net OI increase (decrease) due to
volume, price, new products, costs, 
and foreign exchange
    
    
    30.5
    
    
    
    1.5
    
    
    
    
    
    
    
    32.02008 as reported
    
    $
    9.1
    
    
    $
    16.6
    
    
    $
    (16.0
    )
    
    $
    9.7
   Three Months EndedSeptember 30,2008
    
    
    2007Interest income
    
    $
    4.7
    
    
    $
    5.0Interest expense
    
    
    (1.7
    )
    
    
    (1.7
    )Amortization of debt issuance costs
    
    
    (0.3
    )
    
    
    (0.3
    )$
    2.7
    
    
    $
    3.0
 Interest income:
  Interest expense:
  27




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##### Table of Contents



Three Months EndedSeptember 30,2008
    
    
    2007Foreign exchange gains (losses), net
    
    $
    (0.9
    )
    
    $
    0.3Other, net
    
    
    (0.2
    )
    
    
    (0.1
    )$
    (1.1
    )
    
    $
    0.2
     Results of Continuing Operations  Nine months ended September 30, 2008
   Revenues
    
    
    
    
    
    
    Operating Income (Loss)Nine Months Ended September 30,
    
    2008
    
    
    2007
    
    
    %
    
    2008
    
    
    2007
    
    
    %Pharmaceuticals
    
    $
    229.3
    
    
    $
    119.5
    
    
    
    91.9
    %
    
    $
    (45.1
    )
    
    $
    5.5
    
    
    
    N/MAnimal Health
    
    
    270.8
    
    
    
    265.1
    
    
    
    2.2
    %
    
    
    44.6
    
    
    
    52.7
    
    
    
    (15.4
    )%Unallocated and Eliminations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37.2
    )
    
    
    (34.4
    )
    
    
    (8.1
    )%Total
    
    $
    500.1
    
    
    $
    384.6
    
    
    
    30.0
    %
    
    $
    (37.7
    )
    
    $
    23.8
    
    
    
    N/M
 
  28




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29




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##### Table of Contents



Corporate/Pharmaceuticals
    
    
    AH
    
    
    Unallocated
    
    
    Total2007 as reported
    
    $
    5.5
    
    
    $
    52.7
    
    
    $
    (34.4
    )
    
    $
    23.8Research and development:- Progress milestones to IDEA AG
    
    
    (37.0
    )
    
    
    
    
    
    
    
    
    
    
    (37.0
    )- Other research and development
    
    
    2.5
    
    
    
    (1.4
    )
    
    
    
    
    
    
    1.1Facility exit cost adjustments and asset sales
in 2007
    
    
    
    
    
    
    (3.4
    )
    
    
    
    
    
    
    (3.4
    )Favorable settlement of contract dispute in 2007
    
    
    
    
    
    
    (2.7
    )
    
    
    
    
    
    
    (2.7
    )Expenses associated with King Offer
    
    
    
    
    
    
    
    
    
    
    (4.2
    )
    
    
    (4.2
    )(Increase)/decrease in other SG&A
    
    
    (98.6
    )
    
    
    (2.0
    )
    
    
    1.4
    
    
    
    (99.2
    )Net OI increase (decrease) due to volume,
price, new products, costs, 
and foreign
exchange
    
    
    82.5
    
    
    
    1.4
    
    
    
    
    
    
    
    83.92008 as reported
    
    $
    (45.1
    )
    
    $
    44.6
    
    
    $
    (37.2
    )
    
    $
    (37.7
    )
   Nine Months EndedSeptember 30,2008
    
    
    2007Interest income
    
    $
    11.8
    
    
    $
    11.4Interest expense
    
    
    (5.1
    )
    
    
    (3.1
    )Amortization of debt issuance costs
    
    
    (0.9
    )
    
    
    (0.7
    )$
    5.8
    
    
    $
    7.6
 Interest income:
  Interest expense:
  30




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##### Table of Contents



Nine Months EndedSeptember 30,2008
    
    
    2007Foreign exchange gains (losses), net
    
    $
    (0.6
    )
    
    $
    1.4Other, net
    
    
    (0.2
    )
    
    
    (0.4
    )$
    (0.8
    )
    
    $
    1.0
     Liquidity and Capital Resources
  31




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32




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
        Important
Legal Information
  33




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##### Table of Contents



Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 The tender offer by King Pharmaceuticals may create a distraction for the Companys management and
uncertainty that may adversely affect the Companys business.
    The Companys stock price has been volatile and may continue to fluctuate significantly.
  34




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##### Table of Contents



Litigation directly or indirectly resulting from Kings unsolicited tender offer may negatively
impact the Companys business, results of operations and financial condition.
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Total Number
    
    
    Approximate Dollarof Shares
    
    
    Value of Shares thatTotal Number of
    
    
    Average Price
    
    
    Purchased as
    
    
    May Yet BeShares
    
    
    Paid per
    
    
    Part of Publicly
    
    
    PurchasedPeriod
    
    Purchased
    
    
    Share
    
    
    Announced Plan
    
    
    Under the Plan(b)July 1, 2008 through
July 31, 2008
    
    
    1,516,657
    
    
    $
    23.42
    
    
    
    1,516,657
    
    
    $
    August 1, 2008 through
August 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September 1, 2008
through
September 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,516,657
    
    
    $
    23.42
    
    
    
    1,516,657
    
    
    $
    88,083
 
 (a)
    
    On April 14, 2008, the Company announced that its Board of Directors
approved a stock repurchase program, authorizing the Company to buy
back up to $150 million of the Companys common stock. According to
the program, share repurchases take place on the open market from
time-to-time based on market conditions. The repurchase program began
in May 2008 and has a maximum duration of twenty-four months. Any
shares acquired will be available for general corporate purposes.(b)
    
    Net of commissions paid to the Companys agent. 35




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##### Table of Contents



Item 6. Exhibits
 10.1g
    
    Letter Amendment amending the Amended and Restated Loan and Security Agreement, dated March
10, 2006, as amended, among the Company, certain of its subsidiaries, various financial
institutions party thereto from time to time and Bank of America, N.A., in its capacity as a
lender and collateral and administrative agent, dated October 7, 2008.10.98
    
    Alpharma Inc. Executive Change in Control Plan, Amended and Restated effective September 1,
2008.10.99*
    
    Development and License Agreement between DURECT Corporation and Alpharma Ireland Limited,
dated as of September 19, 2008.31.1
    
    Certification by the Chief Executive Officer under Rule 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.31.2
    
    Certification by the Chief Financial Officer under Rule 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.32
    
    Certifications by the Chief Executive Officer and the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Portions of this Exhibit have been omitted pursuant to a request for confidential treatment. 36




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##### Table of Contents



SIGNATURES
  Alpharma Inc.(Registrant) Date: October 29, 2008
    /s/ Jeffrey S. CampbellJeffrey S. CampbellExecutive Vice President and Chief Financial
OfficerDate: October 29, 2008
    /s/ Donald I. BuzinkaiDonald I. BuzinkaiVice President, Controller and Principal
Accounting Officer 37