##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM
10-Q/A
 Amendment No. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: April 1, 2006
Commission file number: 1-10827
 PAR PHARMACEUTICAL COMPANIES, INC.
  Delaware
    
    22-3122182(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 300 Tice Boulevard, Woodcliff Lake, New Jersey 07677
  o þ
  þ o o
 o þ




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##### 



PAGEExplanatory Note
    
    
    3PART I FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of April 1, 2006 (Restated) and
December 31, 2005
    
    
    7Condensed Consolidated Statements of Operations for the three months
ended April 1, 2006 (Restated) and April 2, 2005 (Restated)
    
    
    8Condensed Consolidated Statements of Cash Flows for the three months
ended April 1, 2006 (Restated) and April 2, 2005 (Restated)
    
    
    9Notes to Condensed Consolidated Financial Statements
    
    
    11Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    40Item 4. Controls and Procedures
    
    
    48PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    49Item 1A. Risk Factors
    
    
    54Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    55Item 6. Exhibits
    
    
    55SIGNATURES
    
    
    56Certification by the President and Chief Executive OfficerCertification by the Chief Financial OfficerCertification by the President and Chief Executive Officer, pursuant to Section 906Certification by the Chief Financial Officer, pursuant to Section 906
  2




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Explanatory Note
    Accounting for Share-Based Compensation
     Royalty Income Related Errors
  Presentation Restatement Items  Condensed Consolidated Balance Sheets
  3




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Accounts Receivable Reserves and Revenues
     Inventory Valuation and Existence
  Investment in Joint Venture
  4




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Accounting for a Lease Acquired in a Business Combination
  Sales Cut-Off
  Other Errors
  Balance Sheet Adjustment for Accounts Payable Error
  Presentation Restatement Items  Condensed Consolidated Balance Sheets
  Presentation Restatement Items  Condensed Consolidated Statements of Operations
  Presentation Restatement Items  Condensed Consolidated Statements of Cash Flows
  5




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Presentation Restatement Items  Notes to Condensed Consolidated Financial Statements
  Correction of Quarterly Period End Date
  Impact of Restatements
   The information that has been previously filed or
otherwise reported for these periods is superseded by the information in the Companys previously
filed Form 10-K/A and this Form 10-Q/A . Accordingly, the consolidated financial statements and
related financial information contained in those previously filed reports should no longer be
relied upon
 6




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 PAR PHARMACEUTICAL COMPANIES, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
   April 1,
    
    
    December 31,2006
    
    
    2005(Restatedsee Note 2)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    45,702
    
    
    $
    93,477Available for sale debt and marketable equity securities
    
    
    103,092
    
    
    
    103,066Accounts receivable, net
    
    
    151,362
    
    
    
    62,362Inventories
    
    
    107,562
    
    
    
    96,393Prepaid expenses and other current assets
    
    
    14,393
    
    
    
    18,759Deferred income tax assets
    
    
    75,678
    
    
    
    69,256Income taxes receivable
    
    
    18,859
    
    
    
    18,859Assets held for sale
    
    
    
    
    
    
    1,944Total current assets
    
    
    516,648
    
    
    
    464,116Property, plant and equipment, at cost less
accumulated depreciation and amortization
    
    
    86,983
    
    
    
    87,570Available for sale debt and marketable equity securities
    
    
    4,143
    
    
    
    3,741Investment in joint venture
    
    
    4,161
    
    
    
    4,153Other investments
    
    
    23,651
    
    
    
    21,741Intangible assets, net
    
    
    45,509
    
    
    
    36,235Goodwill
    
    
    58,729
    
    
    
    58,729Deferred charges and other assets
    
    
    17,306
    
    
    
    8,828Non-current deferred income tax assets, net
    
    
    50,274
    
    
    
    50,917Total assets
    
    $
    807,404
    
    
    $
    736,030LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term and current portion of long-term debt
    
    $
    1,905
    
    
    $
    3,011Accounts payable
    
    
    50,736
    
    
    
    56,412Payables due to distribution agreement partners
    
    
    99,751
    
    
    
    46,937Accrued salaries and employee benefits
    
    
    7,729
    
    
    
    12,780Accrued expenses and other current liabilities
    
    
    28,372
    
    
    
    25,739Income taxes payable
    
    
    19,106
    
    
    
    9,683Liabilities held for sale
    
    
    
    
    
    
    1,944Total current liabilities
    
    
    207,599
    
    
    
    156,506Long-term debt, less current portion
    
    
    201,953
    
    
    
    202,001Other long-term liabilities
    
    
    345
    
    
    
    335Commitments and contingenciesStockholders equity:Preferred stock, par value $0.0001 per share; authorized 6,000,000 shares;
no shares issued and outstanding
    
    
    
    
    
    
    Common stock, par value $0.01 per share; authorized: 90,000,000 shares;
issued: 35,885,074 and 35,114,026 shares
    
    
    359
    
    
    
    351Additional paid-in capital
    
    
    232,371
    
    
    
    217,403Retained earnings
    
    
    198,028
    
    
    
    193,515Accumulated other comprehensive loss
    
    
    (506
    )
    
    
    (1,903
    )Treasury stock, at cost, 866,042 and 848,588 shares
    
    
    (32,745
    )
    
    
    (32,178
    )Total stockholders equity
    
    
    397,507
    
    
    
    377,188Total liabilities and stockholders equity
    
    $
    807,404
    
    
    $
    736,030
  7




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PAR PHARMACEUTICAL COMPANIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
   Three Months EndedApril 1,
    
    
    April 2,2006
    
    
    2005(Restated
    
    
    (Restatedsee Note 2)
    
    
    see Note 2)Revenues:Net product sales
    
    $
    169,037
    
    
    $
    93,330Other product related revenues
    
    
    3,281
    
    
    
    9,644Total revenues
    
    
    172,318
    
    
    
    102,974Cost of goods sold
    
    
    123,150
    
    
    
    65,679Gross margin
    
    
    49,168
    
    
    
    37,295Operating expenses:Research and development
    
    
    13,852
    
    
    
    15,384Selling, general and administrative
    
    
    28,342
    
    
    
    20,377Total operating expenses
    
    
    42,194
    
    
    
    35,761Operating income
    
    
    6,974
    
    
    
    1,534Other expense, net
    
    
    (39
    )
    
    
    (26
    )Equity loss from joint venture
    
    
    (253
    )
    
    
    (36
    )Net investment gain
    
    
    
    
    
    
    1,353Interest income
    
    
    1,983
    
    
    
    1,331Interest expense
    
    
    (1,694
    )
    
    
    (1,715
    )Income from continuing operations before
provision for income taxes
    
    
    6,971
    
    
    
    2,441Provision for income taxes
    
    
    2,457
    
    
    
    785Income from continuing operations
    
    
    4,514
    
    
    
    1,656Discontinued operations:Loss from discontinued operations
    
    
    
    
    
    
    (1,156
    )Benefit for income taxes
    
    
    
    
    
    
    (439
    )Loss from discontinued operations
    
    
    
    
    
    
    (717
    )Net income
    
    $
    4,514
    
    
    $
    939Basic income (loss) per share of common stock:Income from continuing operations
    
    $
    0.13
    
    
    $
    0.05Loss from discontinued operations
    
    
    
    
    
    
    (0.02
    )Net income
    
    $
    0.13
    
    
    $
    0.03Diluted income (loss) per share of common stock:Income from continuing operations
    
    $
    0.13
    
    
    $
    0.05Loss from discontinued operations
    
    
    
    
    
    
    (0.02
    )Net income
    
    $
    0.13
    
    
    $
    0.03Weighted average number of
common shares outstanding:Basic
    
    
    34,259
    
    
    
    34,137Diluted
    
    
    34,766
    
    
    
    34,646
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PAR PHARMACEUTICAL COMPANIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   Three Months EndedApril 1, 2006
    
    
    April 2, 2005(Restated see Note 2)
    
    
    (Restated see Note 2)Cash flows from operating activities:Net income
    
    $
    4,514
    
    
    $
    939Deduct:(Loss) from discontinued operations, net of tax
    
    
    
    
    
    
    (717
    )Income from continuing operations
    
    
    4,514
    
    
    
    1,656Adjustments to reconcile net income to net cash provided by operating
activities:Deferred income taxes
    
    
    (6,720
    )
    
    
    3,669Depreciation and amortization
    
    
    5,279
    
    
    
    2,982Equity in net loss of joint venture
    
    
    253
    
    
    
    36Allowance against accounts receivable
    
    
    16,703
    
    
    
    (22,163
    )Share-based compensation expense
    
    
    5,543
    
    
    
    637Gain on sale of investments
    
    
    
    
    
    
    (1,353
    )Loss on disposal of fixed assets
    
    
    4
    
    
    
    2Tax benefit on exercise of nonqualified stock options
    
    
    655
    
    
    
    214Excess tax benefit on exercise of nonqualified stock options
    
    
    (640
    )
    
    
    Other
    
    
    21
    
    
    
    (2
    )Changes in assets and liabilities(Increase) decrease in accounts receivable
    
    
    (105,703
    )
    
    
    14,653Increase in inventories
    
    
    (11,169
    )
    
    
    (10,115
    )Decrease in prepaid expenses and other assets
    
    
    4,888
    
    
    
    3,920Decrease in accounts payable
    
    
    639
    
    
    
    (12,510
    )Increase in payables due to distribution agreement partners
    
    
    52,814
    
    
    
    4,141Increase in accrued expenses and other liabilities
    
    
    55
    
    
    
    4,747Increase (decrease) in income taxes payable/receivable
    
    
    9,422
    
    
    
    (2,478
    )Net cash used in operating activities
    
    
    (23,442
    )
    
    
    (11,964
    )Net cash used in operating activities from discontinued operations
    
    
    
    
    
    
    (3,492
    )Cash flows from investing activities:Capital expenditures
    
    
    (6,110
    )
    
    
    (5,988
    )Purchases of intangibles
    
    
    (14,137
    )
    
    
    Purchases of available for sale debt and marketable equity securities
    
    
    
    
    
    
    (15,000
    )Proceeds from sale of available for sale debt and marketable equity
securities
    
    
    
    
    
    
    43,829Proceeds from sale of long-term investments
    
    
    
    
    
    
    1,846Acquisition of subsidiaries, contingent payment
    
    
    (2,500
    )
    
    
    (2,500
    )Capital contributions to joint venture
    
    
    (261
    )
    
    
    (376
    )Other
    
    
    
    
    
    
    (27
    )Advance for product rights
    
    
    (9,000
    )
    
    
    Net cash (used in) provided by investing activities
    
    
    (32,008
    )
    
    
    21,784Cash flows from financing activities:Proceeds from issuances of common stock upon exercise of stock
options
    
    
    8,756
    
    
    
    1,033Excess tax benefits on exercise of nonqualified stock options
    
    
    640
    
    
    
    Purchase of treasury stock
    
    
    (567
    )
    
    
    Payments of short-term debt related to financed insurance premiums
    
    
    (1,059
    )
    
    
    (1,903
    )Principal payments under long-term and other borrowings
    
    
    (95
    )
    
    
    (76
    )Net cash provided by (used in) financing activities
    
    
    7,675
    
    
    
    (946
    )Net (decrease) increase in cash and cash equivalents
    
    
    (47,775
    )
    
    
    5,382Cash and cash equivalents at beginning of period
    
    
    93,477
    
    
    
    36,682Cash and cash equivalents at end of period
    
    $
    45,702
    
    
    $
    42,064
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Three Months EndedApril 1, 2006
    
    
    April 2, 2005(Restated see Note 2)
    
    
    (Restated see Note 2)Supplemental disclosure of cash flow information:Cash paid during the period for:Income taxes
    
    $
    139
    
    
    $
    1,379Interest
    
    $
    2,901
    
    
    $
    2,915Non-cash transactions:Increase in fair value of available for sale debt and marketable
equity securities
    
    $
    2,338
    
    
    $
    7,781Capital expenditures incurred but not yet paid
    
    $
    295
    
    
    $
    533
  10




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PAR PHARMACEUTICAL COMPANIES, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 April 1, 2006
     Note 1
 Basis of Presentation:
    Share-Based Payment
 Note 2
 Restatement of Previously Issued Financial Statements:
   11




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Accounting for Share-Based Compensation
     Royalty Income Related Errors
  Presentation Restatement Items  Condensed Consolidated Balance Sheets
   Accounts Receivable Reserves and Revenues
   12




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Inventory Valuation and Existence
  Investment in Joint Venture
  Accounting for a Lease Acquired in a Business Combination
  Sales Cut-Off
  Other Errors
  13




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Balance Sheet Adjustment for Accounts Payable Error
  Presentation Restatement Items  Condensed Consolidated Balance Sheets
  Presentation Restatement Items  Condensed Consolidated Statements of Operations
  Presentation Restatement Items  Condensed Consolidated Statements of Cash Flows
  Presentation Restatement Items  Notes to Condensed Consolidated Financial Statements
  Correction of Quarterly Period End Date
  14




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Impact of Restatements
  For the three months ended(Amounts in thousands)
    
    April 1, 2006
    
    
    April 2, 2005Net income  as previously reported
    
    $
    8,401
    
    
    $
    1,977Pre-tax restatement adjustments:Accounts Receivable ReservesIncrease in chargebacks
    
    
    (1,560
    )
    
    
    (905
    )Increase in rebates
    
    
    (4,026
    )
    
    
    (2,560
    )Decrease (increase) in product returns
    
    
    1,916
    
    
    
    (1,374
    )Decrease (increase) in cash discounts and other
    
    
    970
    
    
    
    (1,106
    )Total Accounts Receivable Reserves
    
    
    (2,700
    )
    
    
    (5,945
    )Inventory Valuation and Existence
    
    
    (4,322
    )
    
    
    (223
    )Investment in Joint Venture
    
    
    (72
    )
    
    
    4Accounting for a Lease Acquired in a Business Combination
    
    
    127
    
    
    
    125Accounting for Share-Based Compensation
    
    
    (1,289
    )
    
    
    Sales cut-off
    
    
    322
    
    
    
    1,380Royalty Income Related Errors
    
    
    830
    
    
    
    Other  Accounting for a curtailed defined benefit plan
    
    
    546
    
    
    
    Other
    
    
    458
    
    
    
    2,956Total pre-tax restatement adjustments
    
    
    (6,100
    )
    
    
    (1,703
    )Tax effect of restatement adjustments
    
    
    2,213
    
    
    
    665After tax effect of restatement adjustments
    
    
    (3,887
    )
    
    
    (1,038
    )Net income  as restated
    
    $
    4,514
    
    
    $
    939
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As previously
    
    Restatement
    
    As(Amounts in thousands)
    
    reported
    
    adjustments
    
    restatedAssetsCurrent assets:Accounts receivable, net
    
    $
    234,401
    
    
    $
    (83,039
    )
    
    $
    151,362Inventories
    
    
    117,568
    
    
    
    (10,006
    )
    
    
    107,562Prepaid expenses and other current assets
    
    
    14,019
    
    
    
    374
    
    
    
    14,393Deferred income tax assets
    
    
    43,264
    
    
    
    32,414
    
    
    
    75,678Income taxes receivable
    
    
    9,642
    
    
    
    9,217
    
    
    
    18,859Total current assets
    
    
    567,688
    
    
    
    (51,040
    )
    
    
    516,648Property, plant and equipment, at cost less accumulated
depreciation and amortization
    
    
    87,834
    
    
    
    (851
    )
    
    
    86,983Investment in joint venture
    
    
    
    
    
    
    4,161
    
    
    
    4,161Intangible assets, net
    
    
    48,513
    
    
    
    (3,004
    )
    
    
    45,509Goodwill
    
    
    55,659
    
    
    
    3,070
    
    
    
    58,729Deferred charges and other assets
    
    
    16,414
    
    
    
    892
    
    
    
    17,306Non-current deferred tax assets, net
    
    
    48,492
    
    
    
    1,782
    
    
    
    50,274Total assets
    
    
    852,394
    
    
    
    (44,990
    )
    
    
    807,404Liabilities and stockholders equityCurrent liabilities:Short-term and current portion of long-term debt
    
    
    1,791
    
    
    
    114
    
    
    
    1,905Accounts payable
    
    
    51,283
    
    
    
    (547
    )
    
    
    50,736Payables due to distribution agreement partners
    
    
    97,437
    
    
    
    2,314
    
    
    
    99,751Accrued salaries and employee benefits
    
    
    7,736
    
    
    
    (7
    )
    
    
    7,729Accrued expenses and other current liabilities
    
    
    29,872
    
    
    
    (1,500
    )
    
    
    28,372Income taxes payable
    
    
    11,909
    
    
    
    7,197
    
    
    
    19,106Total current liabilities
    
    
    200,028
    
    
    
    7,571
    
    
    
    207,599Long-term debt, less current portion
    
    
    200,044
    
    
    
    1,909
    
    
    
    201,953Other long-term liabilities
    
    
    330
    
    
    
    15
    
    
    
    345Additional paid-in-capital
    
    
    230,741
    
    
    
    1,630
    
    
    
    232,371Retained earnings
    
    
    253,877
    
    
    
    (55,849
    )
    
    
    198,028Accumulated other comprehensive loss
    
    
    (240
    )
    
    
    (266
    )
    
    
    (506
    )Total Stockholders equity
    
    
    451,992
    
    
    
    (54,485
    )
    
    
    397,507Total liabilities and stockholders equity
    
    $
    852,394
    
    
    $
    (44,990
    )
    
    $
    807,404
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As previously
    
    Restatement
    
    As(Amounts in thousands, except per share amounts)
    
    reported
    
    adjustments
    
    restatedNet product sales
    
    $
    173,608
    
    
    $
    (4,571
    )
    
    $
    169,037Other product related revenues
    
    
    224
    
    
    
    3,057
    
    
    
    3,281Total revenues
    
    
    173,832
    
    
    
    (1,514
    )
    
    
    172,318Cost of goods sold
    
    
    118,470
    
    
    
    4,680
    
    
    
    123,150Gross margin
    
    
    55,362
    
    
    
    (6,194
    )
    
    
    49,168Operating expenses (income):Research and development
    
    
    13,699
    
    
    
    153
    
    
    
    13,852Selling, general and administrative
    
    
    28,426
    
    
    
    (84
    )
    
    
    28,342Total operating expenses
    
    
    42,125
    
    
    
    69
    
    
    
    42,194Operating income (loss)
    
    
    13,237
    
    
    
    (6,263
    )
    
    
    6,974Other (expenses), net
    
    
    (685
    )
    
    
    646
    
    
    
    (39
    )Equity loss from joint venture
    
    
    
    
    
    
    (253
    )
    
    
    (253
    )Interest income (expense), net
    
    
    519
    
    
    
    (519
    )
    
    
    Interest income
    
    
    
    
    
    
    1,983
    
    
    
    1,983Interest expense
    
    
    
    
    
    
    (1,694
    )
    
    
    (1,694
    )Income from continuing operations before provision for income taxes
    
    
    13,071
    
    
    
    (6,100
    )
    
    
    6,971Provision for income taxes
    
    
    4,670
    
    
    
    (2,213
    )
    
    
    2,457Income from continuing operations
    
    
    8,401
    
    
    
    (3,887
    )
    
    
    4,514Net income
    
    $
    8,401
    
    
    $
    (3,887
    )
    
    $
    4,514Net income per share of common stock:Basic income per share of common stock:Income from continuing operations
    
    $
    0.25
    
    
    $
    (0.12
    )
    
    $
    0.13Net income
    
    $
    0.25
    
    
    $
    (0.12
    )
    
    $
    0.13Diluted income per share of common stock:Income from continuing operations
    
    $
    0.24
    
    
    $
    (0.11
    )
    
    $
    0.13Net income
    
    $
    0.24
    
    
    $
    (0.11
    )
    
    $
    0.13Weighted average number of common share outstanding:Diluted
    
    
    34,461
    
    
    
    305
    
    
    
    34,766
 17




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As previously
    
    Restatement(Amounts in thousands)
    
    reported
    
    adjustments
    
    As restatedCash flows from operating activities:Income from continuing operations
    
    $
    8,401
    
    
    $
    (8,401
    )
    
    $
    Net (loss) income
    
    
    
    
    
    
    4,514
    
    
    
    4,514Income from continuing operations
    
    
    
    
    
    
    4,514
    
    
    
    4,514Deferred income taxes
    
    
    (4,874
    )
    
    
    (1,846
    )
    
    
    (6,720
    )Depreciation and amortization
    
    
    5,467
    
    
    
    (188
    )
    
    
    5,279Equity in net loss of joint venture
    
    
    
    
    
    
    253
    
    
    
    253Allowances against accounts receivable
    
    
    14,003
    
    
    
    2,700
    
    
    
    16,703Share-based compensation expense
    
    
    4,357
    
    
    
    1,186
    
    
    
    5,543Loss on disposal of fixed assets
    
    
    955
    
    
    
    (951
    )
    
    
    4Tax benefit on exercise of nonqualified stock options
    
    
    
    
    
    
    655
    
    
    
    655Excess tax benefit on exercise of unqualified stock options
    
    
    
    
    
    
    (640
    )
    
    
    (640
    )Other
    
    
    627
    
    
    
    (606
    )
    
    
    21Increase (decrease) in accounts receivable
    
    
    (104,796
    )
    
    
    (907
    )
    
    
    (105,703
    )Increase in inventories
    
    
    (16,623
    )
    
    
    5,454
    
    
    
    (11,169
    )Decrease in prepaid expenses and other assets
    
    
    3,789
    
    
    
    1,099
    
    
    
    4,888Decrease in accounts payable
    
    
    4,401
    
    
    
    (3,762
    )
    
    
    639Increase in payables due to distribution agreement partners
    
    
    51,014
    
    
    
    1,800
    
    
    
    52,814Increase in accrued expense and other liabilities
    
    
    (1,051
    )
    
    
    1,106
    
    
    
    55Increase (decrease) in income taxes payable/receivable
    
    
    8,999
    
    
    
    423
    
    
    
    9,422Net cash used in operating activities
    
    
    (25,331
    )
    
    
    1,889
    
    
    
    (23,442
    )Cash flows from investing activities:Capital expenditures
    
    
    (6,371
    )
    
    
    261
    
    
    
    (6,110
    )Purchases of intangibles
    
    
    (12,088
    )
    
    
    (2,049
    )
    
    
    (14,137
    )Purchases of available for sale securities
    
    
    (67
    )
    
    
    67
    
    
    
    Capital contributions to joint venture
    
    
    
    
    
    
    (261
    )
    
    
    (261
    )Net cash (used in) provided by investing activities
    
    
    (30,026
    )
    
    
    (1,982
    )
    
    
    (32,008
    )Cash flows from financing activities:Excess tax benefits from stock-based compensation
    
    
    562
    
    
    
    78
    
    
    
    640Payments of short-term debt related to financed insurance premiums
    
    
    
    
    
    
    (1,059
    )
    
    
    (1,059
    )Principal payments under long-term and other borrowings
    
    
    (1,130
    )
    
    
    1,035
    
    
    
    (95
    )Net cash provided by (used in) financing activities
    
    
    7,621
    
    
    
    54
    
    
    
    7,675Net (decrease) increase in cash and cash equivalents
    
    
    (47,736
    )
    
    
    (39
    )
    
    
    (47,775
    )Cash and cash equivalents at beginning of period
    
    
    93,438
    
    
    
    39
    
    
    
    93,477Supplemental disclosure of cash flow information:Cash paid during the quarter for:Income taxes
    
    
    225
    
    
    
    (86
    )
    
    
    139Non-cash transactions:Increase in fair value of available for sale securities
    
    
    2,290
    
    
    
    48
    
    
    
    2,338Capital expenditures incurred but not yet paid
    
    
    
    
    
    
    295
    
    
    
    295Tax benefit on exercise of stock options/restricted stock
    
    
    314
    
    
    
    (314
    )
    
    
    
 18




---



##### Table of Contents



Aspreviously
    
    Restatement
    
    As(Amounts in thousands, except per share amounts)
    

reported
    
    adjustments
    
    restatedNet product sales
    
    $
    91,037
    
    
    $
    2,293
    
    
    $
    93,330Other product related revenues
    
    
    6,413
    
    
    
    3,231
    
    
    
    9,644Total revenues
    
    
    97,450
    
    
    
    5,524
    
    
    
    102,974Cost of goods sold
    
    
    57,856
    
    
    
    7,823
    
    
    
    65,679Gross margin
    
    
    39,594
    
    
    
    (2,299
    )
    
    
    37,295Research and development
    
    
    15,519
    
    
    
    (135
    )
    
    
    15,384Selling, general and administrative
    
    
    21,102
    
    
    
    (725
    )
    
    
    20,377Total operating expenses
    
    
    36,621
    
    
    
    (860
    )
    
    
    35,761Operating income
    
    
    2,973
    
    
    
    (1,439
    )
    
    
    1,534Other (expenses), net
    
    
    (30
    )
    
    
    4
    
    
    
    (26
    )Equity loss from joint venture
    
    
    
    
    
    
    (36
    )
    
    
    (36
    )Interest income (expense), net
    
    
    (152
    )
    
    
    152
    
    
    
    Interest income
    
    
    
    
    
    
    1,331
    
    
    
    1,331Interest expense
    
    
    
    
    
    
    (1,715
    )
    
    
    (1,715
    )Income from continuing operations before provision for income taxes
    
    
    4,144
    
    
    
    (1,703
    )
    
    
    2,441Provision for income taxes
    
    
    1,450
    
    
    
    (665
    )
    
    
    785Income from continuing operations
    
    
    2,694
    
    
    
    (1,038
    )
    
    
    1,656Net income
    
    $
    1,977
    
    
    $
    (1,038
    )
    
    $
    939Net income per share of common stock:Basic income per share of common stock:Income from continuing operations
    
    $
    0.08
    
    
    $
    (0.03
    )
    
    $
    0.05Net income
    
    $
    0.06
    
    
    $
    (0.03
    )
    
    $
    0.03Diluted income per share of common stock:Income from continuing operations
    
    $
    0.08
    
    
    $
    (0.03
    )
    
    $
    0.05Net income
    
    $
    0.06
    
    
    $
    (0.03
    )
    
    $
    0.03
 19




---



##### Table of Contents



As previously
    
    Restatement(Amounts in thousands)
    
    reported
    
    adjustments
    
    As restatedCash flows from operating activities:Income from continuing operations
    
    $
    2,694
    
    
    $
    (2,694
    )
    
    $
    Net (loss) income
    
    
    
    
    
    
    939
    
    
    
    939(Loss) from discontinued operations, net of tax
    
    
    
    
    
    
    (717
    )
    
    
    (717
    )Income (loss) from continuing operations
    
    
    
    
    
    
    1,656
    
    
    
    1,656Deferred income taxes
    
    
    6,797
    
    
    
    (3,128
    )
    
    
    3,669Depreciation and amortization
    
    
    3,160
    
    
    
    (178
    )
    
    
    2,982Equity in net loss of joint venture
    
    
    
    
    
    
    36
    
    
    
    36Allowances against accounts receivable
    
    
    (18,044
    )
    
    
    (4,119
    )
    
    
    (22,163
    )Share-based compensation expense
    
    
    893
    
    
    
    (256
    )
    
    
    637Gain on sale of investments
    
    
    (1,318
    )
    
    
    (35
    )
    
    
    (1,353
    )Loss on disposal of fixed assets
    
    
    
    
    
    
    2
    
    
    
    2Tax benefit on exercise of nonqualified stock options
    
    
    
    
    
    
    214
    
    
    
    214Decrease (increase) in accounts receivable
    
    
    15,147
    
    
    
    (494
    )
    
    
    14,653Increase in inventories
    
    
    (13,831
    )
    
    
    3,716
    
    
    
    (10,115
    )Increase in prepaid expenses and other assets
    
    
    3,802
    
    
    
    118
    
    
    
    3,920Decrease in accounts payable
    
    
    (6,390
    )
    
    
    (6,120
    )
    
    
    (12,510
    )Increase (decrease) in payables due to distribution agreement partners
    
    
    (944
    )
    
    
    5,085
    
    
    
    4,141Increase in accrued expense and other liabilities
    
    
    (8
    )
    
    
    4,755
    
    
    
    4,747Increase (decrease) in income taxes payable/receivable
    
    
    (7,167
    )
    
    
    4,689
    
    
    
    (2,478
    )Loss from discontinued operations
    
    
    (717
    )
    
    
    717
    
    
    
    Non-cash charges and changes in discontinued operating assets and
liabilities
    
    
    (459
    )
    
    
    459
    
    
    
    Net cash used in operating activities
    
    
    (16,387
    )
    
    
    4,423
    
    
    
    (11,964
    )Net cash used in operating activities from discontinued operations
    
    
    
    
    
    
    (3,492
    )
    
    
    (3,492
    )Cash flows from investing activities:Capital expenditures
    
    
    (5,146
    )
    
    
    (842
    )
    
    
    (5,988
    )Proceeds from sale of available for sale debt securities
    
    
    43,665
    
    
    
    164
    
    
    
    43,829Capital contributions to joint venture
    
    
    
    
    
    
    (376
    )
    
    
    (376
    )Other
    
    
    (25
    )
    
    
    (2
    )
    
    
    (27
    )Net cash (used in) provided by investing activities
    
    
    22,840
    
    
    
    (1,056
    )
    
    
    21,784Cash flows from financing activities:Payments of short-term debt related to financed insurance premiums
    
    
    
    
    
    
    (1,903
    )
    
    
    (1,903
    )Principal payments under long-term and other borrowings
    
    
    (1,956
    )
    
    
    1,880
    
    
    
    (76
    )Net cash provided by (used in) financing activities
    
    
    (923
    )
    
    
    (23
    )
    
    
    (946
    )Net (decrease) increase in cash and cash equivalents
    
    
    5,530
    
    
    
    (148
    )
    
    
    5,382Cash and cash equivalents at beginning of period
    
    
    36,534
    
    
    
    148
    
    
    
    36,682Supplemental disclosure of cash flow information:Increase in fair value of available for sale securities
    
    
    9,005
    
    
    
    (1,224
    )
    
    
    7,781Capital expenditures incurred but not yet paid
    
    
    
    
    
    
    533
    
    
    
    533Tax benefit on exercise of stock options/restricted stock
    
    
    214
    
    
    
    (214
    )
    
    
    
 20




---



##### Table of Contents



Note 3  Share-Based Compensation:
       Three MonthsEndedApril 2, 2005Net income (restated)
    
    $
    939Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects
    
    
    383Deduct: Stock-based employee compensation expense determined
under the fair value-based method, net of related tax
effects
    
    
    (20,734
    )Pro forma net loss
    
    $
    (19,412
    )Net income (loss) per share of common stock:As reported  Basic
    
    $
    0.03As reported  Diluted
    
    $
    0.03Pro forma  Basic
    
    $
    (0.57
    )Pro forma  Diluted
    
    $
    (0.57
    )
 21




---



##### Table of Contents



Stock Options
  Three Months EndedApril 1, 2006
    
    April 2, 2005(Restated)Expected life (years)
    
    
    6.23
    
    
    
    4.90Risk-free interest rate
    
    
    4.4
    %
    
    
    3.5
    %Expected volatility
    
    
    58.3
    %
    
    
    59.0
    %Dividend
    
    
    0.0
    %
    
    
    0.0
    %
  22




---



##### Table of Contents



Three MonthsEndedApril 1, 2006(Restated)Cost of sales
    
    $
    304Research and development
    
    
    759Selling, general and administrative
    
    
    2,883Total, pre-tax
    
    
    3,946Tax benefit of stock-based compensation
    
    
    (1,539
    )Total, net of tax
    
    $
    2,407
   Weighted
    
    
    Weighted
    
    
    AggregateAverage
    
    
    Average
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Remaining Life
    
    
    Value(Restated)
    
    
    (Restated)Balance at December 31, 2005
    
    
    5,134
    
    
    $
    37.86Granted
    
    
    919
    
    
    
    32.50Exercised
    
    
    (388
    )
    
    
    21.85Forfeited
    
    
    (217
    )
    
    
    50.10Balance at April 1, 2006
    
    
    5,448
    
    
    $
    37.61
    
    
    
    7.1
    
    
    $
    6,596Exercisable at April 1, 2006
    
    
    3,381
    
    
    $
    39.34
    
    
    
    6.0
    
    
    $
    6,077Vested and expected to vest at April 1, 2006
    
    
    5,176
    
    
    $
    37.85
    
    
    
    7.53
    
    
    $
    6,537
  Restricted Stock/Restricted Stock Units
   Three Months EndedApril 1, 2006
    
    
    April 2, 2005(Restated)Cost of sales
    
    $
    89
    
    
    $
    22Research and development
    
    
    528
    
    
    
    147Selling, general and administrative
    
    
    949
    
    
    
    485Total, pre-tax
    
    
    1,566
    
    
    
    654Tax benefit of stock-based compensation
    
    
    (610
    )
    
    
    (248
    )Total, net of tax
    
    $
    956
    
    
    $
    406
 23




---



##### Table of Contents



Weighted Average Grant
    
    
    AggregateShares
    
    
    Date Fair Value Per Share
    
    
    Intrinsic ValueNonvested balance at December 31, 2005
    
    
    256
    
    
    $
    40.03Granted
    
    
    385
    
    
    
    33.36Vested
    
    
    (60
    )
    
    
    42.14Forfeited
    
    
    (8
    )
    
    
    33.62Nonvested Balance at April 1, 2006
    
    
    573
    
    
    $
    35.42
    
    
    $
    16,138
  Weighted Average Grant
    
    
    AggregateShares
    
    
    Date Fair Value Per Share
    
    
    Intrinsic ValueNonvested balance at December 31, 2005
    
    
    17
    
    
    $
    42.08Granted
    
    
    16
    
    
    
    33.55Vested
    
    
    (5
    )
    
    
    40.28Forfeited
    
    
    
    
    
    
    Nonvested Balance at April 1, 2006
    
    
    28
    
    
    $
    37.56
    
    
    $
    793
  Employee Stock Purchase Program:
  Note 4
 Available for Sale Debt and Marketable Equity Securities:
  Unrealized
    
    
    EstimatedCost
    
    
    Gain
    
    
    Loss
    
    
    Fair ValueSecurities issued by U. S.
government and agencies
    
    $
    80,778
    
    
    $
    
    
    
    $
    (980
    )
    
    $
    79,798Debt securities issued by
various state and local
municipalities and agencies
    
    
    13,947
    
    
    
    
    
    
    
    (254
    )
    
    
    13,693Other marketable
debt securities
    
    
    14,440
    
    
    
    
    
    
    
    (696
    )
    
    
    13,744Available for sale debt
securities
    
    
    109,165
    
    
    
    
    
    
    
    (1,930
    )
    
    
    107,235Marketable equity securities
available for sale (see Note 5)
    
    
    1,720
    
    
    
    1,570
    
    
    
    
    
    
    
    3,290Total
    
    $
    110,885
    
    
    $
    1,570
    
    
    $
    (1,930
    )
    
    $
    110,525
 24




---



##### Table of Contents



Unrealized
    
    
    EstimatedCost
    
    
    Gain
    
    
    Loss
    
    
    Fair ValueSecurities issued by U. S.
government and agencies
    
    $
    80,778
    
    
    $
    
    
    
    $
    (892
    )
    
    $
    79,886Debt securities issued by
various state and local
municipalities and agencies
    
    
    13,947
    
    
    
    
    
    
    
    (226
    )
    
    
    13,721Other marketable debt securities
    
    
    14,440
    
    
    
    
    
    
    
    (1,240
    )
    
    
    13,200Available for sale
debt securities
    
    
    109,165
    
    
    
    
    
    
    
    (2,358
    )
    
    
    106,807Marketable equity securities
available for sale (see Note 5)
    
    
    1,720
    
    
    
    
    
    
    
    (340
    )
    
    
    1,380Total
    
    $
    110,885
    
    
    
    
    
    
    $
    (2,698
    )
    
    $
    108,187
   EstimatedFairCost
    
    
    ValueLess than one year
    
    $
    34,555
    
    
    $
    34,276Due between 1-2 years
    
    
    18,690
    
    
    
    18,527Due between 2-5 years
    
    
    36,345
    
    
    
    35,660Due after 5 years
    
    
    10,225
    
    
    
    9,170Other
    
    
    9,350
    
    
    
    9,602Total
    
    $
    109,165
    
    
    $
    107,235
  Note 5
  Other Investments:
   ®
 25




---



##### Table of Contents



Note 6
 Accounts Receivable:
 April 1,
    
    
    December 31,2006
    
    
    2005(Restated)Gross trade accounts receivable
    
    $
    371,385
    
    
    $
    265,682Chargebacks
    
    
    (99,830
    )
    
    
    (102,256
    )Rebates and incentive programs
    
    
    (66,949
    )
    
    
    (50,991
    )Product returns
    
    
    (35,856
    )
    
    
    (32,893
    )Cash discounts and other
    
    
    (15,866
    )
    
    
    (15,333
    )Doubtful accounts
    
    
    (1,522
    )
    
    
    (1,847
    )Accounts receivable, net
    
    $
    151,362
    
    
    $
    62,362
  Allowance for doubtful accounts
 For the three-month period endedApril 1, 2006
    
    
    April 2, 2005Balance at beginning of period
    
    $
    (1,847
    )
    
    $
    (1,847
    )Additions
 charge to expense
    
    
    
    
    
    
    Adjustments and/or deductions
    
    
    325
    
    
    
    Balance at end of period
    
    $
    (1,522
    )
    
    $
    (1,847
    )
 26




---



##### Table of Contents



For the three months ended April 1, 2006 (Restated)Provision
    
    
    (Provision)recorded
    
    
    reversalfor current
    
    
    recordedBeginning
    
    
    period
    
    
    for prior
    
    
    Credits
    
    
    Endingbalance
    
    
    sales
    
    
    period sales
    
    
    processed
    
    
    balanceAccounts receivable reservesChargebacks
    
    $
    (102,256
    )
    
    $
    (110,309
    )
    
    $
    
    (1)
    
    $
    112,735
    
    
    $
    (99,830
    )Rebates and incentive
programs
    
    
    (50,991
    )
    
    
    (55,165
    )
    
    
    
    
    
    
    39,207
    
    
    
    (66,949
    )Product returns
    
    
    (32,893
    )
    
    
    (8,013
    )
    
    
    (1,473
    )
    
    
    6,523
    
    
    
    (35,856
    )Cash discounts and other
    
    
    (15,333
    )
    
    
    (11,863
    )
    
    
    
    
    
    
    11,330
    
    
    
    (15,866
    )Total
    
    $
    (201,473
    )
    
    $
    (185,350
    )
    
    $
    (1,473
    )
    
    $
    169,795
    
    
    $
    (218,501
    )Accrued liabilitiesMedicaid rebates
    
    $
    (9,040
    )
    
    $
    (10,353
    )
    
    $
    
    
    
    $
    4,391
    
    
    $
    (15,002
    )
 For the three months ended April 2, 2005 (Restated)Provision
    
    
    (Provision)recorded
    
    
    reversalfor current
    
    
    recordedBeginning
    
    
    period
    
    
    for prior
    
    
    Credits
    
    
    Endingbalance
    
    
    sales
    
    
    period sales
    
    
    processed
    
    
    balanceAccounts
receivable reservesChargebacks
    
    $
    (91,986
    )
    
    $
    (126,621
    )
    
    $
    
    (1)
    
    $
    134,158
    
    
    $
    (84,449
    )Rebates and incentive
programs
    
    
    (49,718
    )
    
    
    (36,172
    )
    
    
    
    
    
    
    41,873
    
    
    
    (44,017
    )Product returns
    
    
    (61,986
    )
    
    
    (7,179
    )
    
    
    (3,877
    )
    
    
    11,288
    
    
    
    (61,754
    )Cash discounts and other
    
    
    (13,287
    )
    
    
    (16,902
    )
    
    
    
    
    
    
    15,529
    
    
    
    (14,660
    )Total
    
    $
    (216,977
    )
    
    $
    (186,874
    )
    
    $
    (3,877
    )
    
    $
    202,848
    
    
    $
    (204,880
    )Accrued liabilitiesMedicaid rebates
    
    $
    (8,755
    )
    
    $
    (5,901
    )
    
    $
    
    
    
    $
    4,173
    
    
    $
    (10,483
    )
 
 (1)
    
    The amount of provision or reversal of reserves related to prior periods for chargebacks is not
determinable on a product or customer specific basis: however, based upon analysis of activity in
subsequent periods, the Company has determined that its chargeback estimates remain reasonable.   27




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##### Table of Contents



Ò
  Use of Estimates in Reserves
  Major Customers
  28




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##### Table of Contents



Note 7  Inventories:
 April 1,
    
    
    December 31,2006
    
    
    2005(Restated)Raw materials and supplies
    
    $
    36,337
    
    
    $
    35,190Work-in-process
    
    
    10,064
    
    
    
    8,830Finished goods
    
    
    61,161
    
    
    
    52,373$
    107,562
    
    
    $
    96,393
 Note 8
 Property, Plant and Equipment, net:
 April 1,
    
    
    December 31,2006
    
    
    2005(Restated)Land
    
    $
    2,434
    
    
    $
    2,434Buildings
    
    
    34,375
    
    
    
    33,938Machinery and equipment
    
    
    50,907
    
    
    
    50,318Office equipment, furniture and fixtures
    
    
    6,454
    
    
    
    7,027Computer software and hardware
    
    
    25,681
    
    
    
    24,690Leasehold improvements
    
    
    7,514
    
    
    
    7,486127,365
    
    
    
    125,893Less accumulated depreciation and amortization
    
    
    40,382
    
    
    
    38,323$
    86,983
    
    
    $
    87,570
  Note 9
 Intangible Assets, net:
 April 1,
    
    
    December 31,2006
    
    
    2005(Restated)Teva Pharmaceutical Industries, Inc. Asset Purchase Agreement, and
Ivax Pharmaceuticals, Inc. Asset Purchase Agreement
net of accumulated amortization of $108 and $0
    
    $
    8,379
    
    
    $
    Ivax License Agreement, net of accumulated amortization
of $1,104 and $132
    
    
    6,896
    
    
    
    7,868FSC Laboratories Agreement, net of accumulated amortization
of $2,296 and $2,143
    
    
    3,526
    
    
    
    3,679Trademark licensed from Bristol-Myers Squibb Company,
net of accumulated amortization of $192 and $115
    
    
    9,808
    
    
    
    9,885Bristol-Myers Squibb Company Asset Purchase Agreement,
net of accumulated amortization of $6,825 and $6,407
    
    
    4,875
    
    
    
    5,293Product license fees, net of accumulated amortization
of $4,339 and $4,172
    
    
    1,667
    
    
    
    1,834Genpharm, Inc. Distribution Agreement, net of accumulated amortization
of $5,597 and $5,416
    
    
    5,236
    
    
    
    5,417Intellectual property, net of accumulated amortization of $500 and $431
    
    
    2,226
    
    
    
    2,259Other intangible assets, net of accumulated amortization of $719 and $0
    
    
    2,896
    
    
    
    $
    45,509
    
    
    $
    36,235
  29




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##### Table of Contents



Note 10  Income Taxes:
  Note 11  Changes in Stockholders Equity:
  AccumulatedAdditional
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    ComprehensiveShares
    
    
    Amount
    
    

Capital
    
    

Income (Loss)(Restated)
    
    
    (Restated)Balance, December 31, 2005
    
    
    35,114
    
    
    $
    351
    
    
    $
    217,403
    
    
    $
    (1,903
    )Unrealized gains on marketable
securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,397Exercises of stock options
    
    
    388
    
    
    
    4
    
    
    
    8,468
    
    
    
    Tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    655
    
    
    
    Issuances of restricted stock
    
    
    385
    
    
    
    4
    
    
    
    
    
    
    
    Forfeitures of restricted stock
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    Employee stock purchase program
    
    
    7
    
    
    
    
    
    
    
    284
    
    
    
    Compensatory arrangements
    
    
    
    
    
    
    
    
    
    
    5,540
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    Balance, April 1, 2006
    
    
    35,885
    
    
    $
    359
    
    
    $
    232,371
    
    
    $
    (506
    )
 Three Months EndedApril 1,
    
    
    April 2,2006
    
    
    2005(Restated)
    
    
    (Restated)Comprehensive income:Net income
    
    $
    4,514
    
    
    $
    939Other comprehensive income:Unrealized gains on marketable securities, net of tax
    
    
    1,397
    
    
    
    4,750Comprehensive income
    
    $
    5,911
    
    
    $
    5,689
  30




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##### Table of Contents



Note
12  Earnings Per Share:
  Three Months EndedApril 1,
    
    
    April 2,2006
    
    
    2005(Restated)
    
    
    (Restated)Income from continuing operations
    
    $
    4,514
    
    
    $
    1,656Loss from discontinued operations
    
    
    
    
    
    
    (717
    )Net income
    
    $
    4,514
    
    
    $
    939Basic:Weighted average number of common
shares outstanding
    
    
    34,259
    
    
    
    34,137Income from continuing operations
    
    $
    0.13
    
    
    $
    0.05Loss from discontinued operations
    
    
    
    
    
    
    (0.02
    )Net income per share of common stock
    
    $
    0.13
    
    
    $
    0.03Assuming dilution:Weighted average number of common
shares outstanding
    
    
    34,259
    
    
    
    34,137Effect of dilutive securities
    
    
    507
    
    
    
    509Weighted average number of common
shares outstanding
    
    
    34,766
    
    
    
    34,646Income from continuing operations
    
    $
    0.13
    
    
    $
    0.05Loss from discontinued operations
    
    
    
    
    
    
    (0.02
    )Net income per share of common stock
    
    $
    0.13
    
    
    $
    0.03
  Note 13  Commitments, Contingencies and Other Matters:
 Pension Plan:
   31




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Legal Proceedings:
      32




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##### Table of Contents



Contractual Matters
 Ò
  Patent Related Matters
  Roxane Roxane Roxane Roxane. Roxane
  33




---



##### Table of Contents



® ® ®
 Roxane Roxane
 CIMA Labs, Inc. et al. v. Par Pharmaceutical Companies, Inc. et al.
 34




---



##### Table of Contents



CIMA Labs, Inc. et
al. v. Actavis Group hf et al.
    Reliant Pharmaceuticals,
Inc. v. Par Pharmaceutical Inc.
  35




---



##### Table of Contents



Industry Related Matters
                  36




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##### Table of Contents



Note
14  Discontinued Operations  Related Party Transaction:
   April 2, 2005Revenues
    
    $
    51Pre-tax loss from operations
    
    
    (1,156
    )
  December 31,2005Inventory
    
    $
    838Other current assets
    
    
    134Property, plant and equipment, net
    
    
    972Total assets held for sale
    
    
    1,944Accounts payable
    
    
    1,381Accrued expenses
    
    
    563Total liabilities
    
    
    1,944Net assets held for sale
    
    $
    
 Note
15  Investment in Joint Venture:
  37




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##### Table of Contents



Note
16  Segment Information:
    For the three months endedApril 1,
    
    
    April 2,2006
    
    
    2005(Restated)
    
    
    (Restated)Revenues:Generic
    
    $
    164,116
    
    
    $
    102,974Branded
    
    
    8,202
    
    
    
    Total revenues
    
    
    172,318
    
    
    
    102,974Gross margin:Generic
    
    
    43,123
    
    
    
    37,295Branded
    
    
    6,045
    
    
    
    Total gross margin
    
    
    49,168
    
    
    
    37,295Operating income (loss):Generic
    
    
    16,212
    
    
    
    10,944Branded
    
    
    (9,238
    )
    
    
    (9,410
    )Total operating income
    
    
    6,974
    
    
    
    1,534Other (expense) income, net
    
    
    (39
    )
    
    
    (26
    )Equity loss from joint venture
    
    
    (253
    )
    
    
    (36
    )Net investment gain
    
    
    
    
    
    
    1,353Interest income
    
    
    1,983
    
    
    
    1,331Interest expense
    
    
    (1,694
    )
    
    
    (1,715
    )Provision for income taxes
    
    
    2,457
    
    
    
    785Income from continuing operations
    
    $
    4,514
    
    
    $
    1,656
  38




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##### Table of Contents



For the three months
    
    
    For the three monthsended April 1,
    
    
    ended April 2,Product
    
    2006
    
    
    2005GenericFluticasone (Flonase® )
    
    $
    56,265
    
    
    $
    Various amoxicillin products (Amoxil®)
    
    
    17,646
    
    
    
    Tramadol HCl and acetaminophen tablets (Ultracet®)
    
    
    8,951
    
    
    
    Paroxetine (Paxil®)
    
    
    5,853
    
    
    
    11,014Quinapril (Accupril®)
    
    
    5,150
    
    
    
    4,473Cefprozil (Cefzil®)
    
    
    5,090
    
    
    
    Fluoxetine (Prozac®)
    
    
    4,118
    
    
    
    6,425Ibuprofen Rx (Advil®, Nuprin®, Motrin®)
    
    
    3,867
    
    
    
    3,919Lovastatin (Mevacor®)
    
    
    3,795
    
    
    
    2,818Megestrol acetate oral suspension (Megace®)
    
    
    3,104
    
    
    
    8,129Cabergoline (Dostinex®)
    
    
    2,551
    
    
    
    Mercaptopurine (Purinethol®)
    
    
    2,141
    
    
    
    3,963Minocycline (Minocin®)
    
    
    1,961
    
    
    
    6,067Other product related revenues (2)
    
    
    3,281
    
    
    
    9,644Other (1)
    
    
    40,343
    
    
    
    46,522Total generic revenues
    
    $
    164,116
    
    
    $
    102,974BrandedMegace® ES
    
    $
    7,781
    
    
    $
    Other
    
    
    421
    
    
    
    Total branded revenues
    
    $
    8,202
    
    
    $
    
 
 (1)
    
    The further detailing of quarterly revenues of the Companys other
approximately 100 generic products is impracticable due to the low volume of
revenues associated with each of these generic products. No single product in
the other category is in excess of 3% of total generic revenues for the
three-month periods ended April 1, 2006 or April 2, 2005.(2)
    
    Other product related revenues represents licensing and royalty related
revenues from profit sharing agreements related to products such as doxycycline
monohydrate, the generic version of Adoxa® and omeprazole, the generic version
of PrilosecÒ. For 2005, other product related revenues also included a
$6,000 payment from a business partner to compensate the Company for lost
revenue on a terminated product manufacturing and supply agreement. 39




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  The financial data contained in this section is in thousands or as otherwise noted.
  OVERVIEW
   40




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® ® ® ®
     41




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##### Table of Contents



April 1,
    
    
    April 2,2006
    
    
    2005(Restated)
    
    
    (Restated)Revenues:Generic
    
    $
    164,116
    
    
    $
    102,974Branded
    
    
    8,202
    
    
    
    Total revenues
    
    
    172,318
    
    
    
    102,974Gross margin:Generic
    
    
    43,123
    
    
    
    37,295Branded
    
    
    6,045
    
    
    
    Total gross margin
    
    
    49,168
    
    
    
    37,295Operating income (loss):Generic
    
    
    16,212
    
    
    
    10,944Branded
    
    
    (9,238
    )
    
    
    (9,410
    )Total operating income
    
    $
    6,974
    
    
    $
    1,534
 ®
  ®
 RESULTS OF OPERATIONS
 Revenues
  42




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##### Table of Contents



®
 Ò
    ® ® ® ® ®
 Ò
  43




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##### Table of Contents



For the three months ended April 1, 2006 (Restated)Provision
    
    
    (Provision)recorded
    
    
    reversalfor current
    
    
    recordedBeginning
    
    
    period
    
    
    for prior
    
    
    Credits
    
    
    Endingbalance
    
    
    sales
    
    
    period sales
    
    
    processed
    
    
    balanceAccounts receivable reservesChargebacks
    
    $
    (102,256
    )
    
    $
    (110,309
    )
    
    $
    
    (1)
    
    $
    112,735
    
    
    $
    (99,830
    )Rebates and incentive
programs
    
    
    (50,991
    )
    
    
    (55,165
    )
    
    
    
    
    
    
    39,207
    
    
    
    (66,949
    )Product returns
    
    
    (32,893
    )
    
    
    (8,013
    )
    
    
    (1,473
    )
    
    
    6,523
    
    
    
    (35,856
    )Cash discounts and other
    
    
    (15,333
    )
    
    
    (11,863
    )
    
    
    
    
    
    
    11,330
    
    
    
    (15,866
    )Total
    
    $
    (201,473
    )
    
    $
    (185,350
    )
    
    $
    (1,473
    )
    
    $
    169,795
    
    
    $
    (218,501
    )Accrued liabilitiesMedicaid rebates
    
    $
    (9,040
    )
    
    $
    (10,353
    )
    
    $
    
    
    
    $
    4,391
    
    
    $
    (15,002
    )
 For the three months ended April 2, 2005 (Restated)Provision
    
    
    (Provision)recorded
    
    
    reversalfor current
    
    
    recordedBeginning
    
    
    period
    
    
    for prior
    
    
    Credits
    
    
    Endingbalance
    
    
    sales
    
    
    period sales
    
    
    processed
    
    
    balanceAccounts receivable reservesChargebacks
    
    $
    (91,986
    )
    
    $
    (126,621
    )
    
    $
    
    (1)
    
    $
    134,158
    
    
    $
    (84,449
    )Rebates and incentive
programs
    
    
    (49,718
    )
    
    
    (36,172
    )
    
    
    
    
    
    
    41,873
    
    
    
    (44,017
    )Product returns
    
    
    (61,986
    )
    
    
    (7,179
    )
    
    
    (3,877
    )
    
    
    11,288
    
    
    
    (61,754
    )Cash discounts and other
    
    
    (13,287
    )
    
    
    (16,902
    )
    
    
    
    
    
    
    15,529
    
    
    
    (14,660
    )Total
    
    $
    (216,977
    )
    
    $
    (186,874
    )
    
    $
    (3,877
    )
    
    $
    202,848
    
    
    $
    (204,880
    )Accrued liabilitiesMedicaid rebates
    
    $
    (8,755
    )
    
    $
    (5,901
    )
    
    $
    
    
    
    $
    4,173
    
    
    $
    (10,483
    )
 
 (1)
    
    The amount of provision or reversal of reserves related to prior periods for chargebacks is not
determinable on a product or customer specific basis: however, based upon analysis of activity in
subsequent periods, the Company has determined that its chargeback estimates remain reasonable. 44




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##### Table of Contents



Use of Estimates in Reserves
  Gross Margin
 ®
 Operating Expenses
 Research and Development
   Selling, General and Administrative Expenses
 ®
 Other Expense
  45




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##### Table of Contents



Net Investment Gain
  Equity Loss in Joint Venture
  Interest Income
  Interest Expense
  Income Taxes
  Discontinued Operations
  FINANCIAL CONDITION
 Liquidity and Capital Resources
    46




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##### Table of Contents



Financing
  Critical Accounting Policies and Use of Estimates
  47




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##### Table of Contents



Subsequent Events
  
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  Remediation of Material Weaknesses
  
    
    Increased the size, expertise and training of the finance and
accounting staff to include adequate resources for ensuring GAAP
compliance, particularly in the areas of accounts receivable
reserves, inventory valuation and existence and the accounting for
certain of the Companys non-routine transactions.
 
    
    Assigned individuals with significant industry experience and
increased the involvement of its senior finance team members in
the preparation and review of accounts receivable reserves and
inventory valuation and existence.
 
    
    Enhanced the accounting policies and procedures to provide
adequate, sufficient, and useful guidance to its staff in the area
of accounts receivable reserves and inventory valuation and
existence.
 
    
    Corrected its methodologies with respect to estimating accounts
receivable reserves for chargebacks, rebates, and product returns.
 
    
    Increased the level of interdepartmental communication in a way
that will foster information sharing between our finance staff and
operational personnel.
  48




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1 . Legal Proceedings .
      49




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##### Table of Contents



Contractual Matters
 Ò
  Patent Related Matters
  Roxane Roxane Roxane
 50




---



##### Table of Contents



Roxane. Roxane
   ® ® ®
  51




---



##### Table of Contents



Roxane Roxane
 CIMA Labs, Inc. et al. v. Par Pharmaceutical Companies, Inc. et al. CIMA Labs, Inc. et
al. v. Actavis Group hf et al.
    Reliant Pharmaceuticals,
Inc. v. Par Pharmaceutical Inc.
 52




---



##### Table of Contents



Industry Related Matters
     53




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##### Table of Contents



Item 1A. Risk Factors.
  54




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##### Table of Contents



Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity Securities(1)  Quarter Ending April 1, 2006
 Total Number ofShares ofAverage
    
    
    Common Stock
    
    
    Maximum Number ofTotal Number of
    
    
    Price Paid
    
    
    Purchased as Part
    
    
    Shares of CommonShares of
    
    
    per Share of
    
    
    of Publicly
    
    
    Stock that May Yet BeCommon Stock
    
    
    Common
    
    
    Announced Plans
    
    
    Purchased Under thePeriod
    
    Purchased(3)
    
    
    Stock
    
    
    or Programs
    
    
    Plans or Programs(2)January 1, 2006
through January 28,
2006
    
    
    15,229
    
    
    
    N/A
    
    
    
    
    
    
    
    632,434January 29, 2006
through February
25, 2006
    
    
    
    
    
    
    N/A
    
    
    
    
    
    
    
    632,434February 26, 2006
through April 1,
2006
    
    
    2,225
    
    
    
    N/A
    
    
    
    
    
    
    
    632,434Total
    
    
    17,454
    
    
    
    N/A
    
    
    
    
 
 (1)
    
    In April 2004, the Board authorized the repurchase of up to $50.0 million of the Companys
common stock. Repurchases are made, subject to compliance with applicable securities laws,
from time to time in the open market or in privately negotiated transactions, whenever it
appears prudent to do so. Shares of common stock acquired through the repurchase program are
available for reissuance for general corporate purposes. The authorized amount remaining for
stock repurchases under the repurchase program is $17.8 million. The repurchase program has no
expiration date.(2)
    
    Based on the closing price of the Companys common stock on The New York Stock Exchange
$28.18 at March 31, 2006.(3)
    
    The total number of shares purchased represents shares surrendered to the Company to satisfy
tax withholding obligations in connection with the vesting of restricted stock issued to
employees. 
 Item 6 . Exhibits.
 10.67
    
    Employment Agreement, dated as of February 10, 2006, by and between Par Pharmaceutical, Inc. and Gerard Martino.  Incorporated by reference to
Exhibit 10.67 of the Companys Quarterly Report of Form 10-Q, originally filed for the quarter ended April 2, 2006 on May 12, 2006.31.1
    
    Certification of the Principal Executive Officer (filed herewith.)31.2
    
    Certification of the Principal Financial Officer (filed herewith.)32.1
    
    Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (attached hereto.)32.2
    
    Certification by 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
(attached hereto.)
 55




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##### Table of Contents



SIGNATURES
  PAR PHARMACEUTICAL COMPANIES, INC.
(Registrant)July 10, 2007
    
    /s/ Patrick G. LePore

Patrick G. LePorePresident and Chief Executive OfficerJuly 10, 2007
    
    /s/ Gerard A. Martino

Gerard A. MartinoExecutive Vice President and Chief Operating OfficerJuly 10, 2007
    
    /s/ Veronica A. Lubatkin

Veronica A. LubatkinExecutive Vice President and Chief Financial Officer
 56




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##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Description10.67
    
    Employment Agreement, dated as of February 10, 2006, by and between Par Pharmaceutical, Inc. and Gerard Martino.  Incorporated by reference to
Exhibit 10.67 of the Companys Quarterly Report of Form 10-Q, originally filed for the quarter ended April 2, 2006 on May 12, 2006.31.1
    
    Certification by the President and Chief Executive Officer pursuant to Rule
13a-14(a) of the Exchange Act.31.2
    
    Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) of the
Exchange Act.32.1
    
    Certification by the President and Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification by 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.
 57