##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 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: April 2, 2006
 Commission file number: 1-10827
 PAR PHARMACEUTICAL COMPANIES, INC.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    22-3122182
(I.R.S. Employer
Identification No.)300 Tice Boulevard, Woodcliff Lake, New Jersey
(Address of principal executive offices)
    
    07677
(Zip Code)
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
 o þ




---



##### 



PAGEPART
I   FINANCIAL INFORMATIONItem 1   Financial StatementsConsolidated balance sheets as of April 2, 2006 and December 31, 2005 (unaudited)
    
    
    3Consolidated statements of operations for the three months ended April 2, 2006 and April 3, 2005 (unaudited)
    
    
    4Consolidated statements of cash flows for the three months ended April 2, 2006 and April 3, 2005 (unaudited)
    
    
    5Notes to consolidated financial statements
    
    
    6-21Item 2   Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22-29Item 3   Quantitative and Qualitative Disclosures about Market Risk
    
    
    30-31Item 4   Controls and Procedures
    
    
    31PART II   OTHER INFORMATIONItem 1   Legal Proceedings
    
    
    31-34Item 1A   Risk Factors
    
    
    34Item 6   Exhibits
    
    
    34SIGNATURES
    
    
    35EMPLOYMENT AGREEMENT DATED FEBRUARY 10,2006RULE 13a-14(a) CERTIFICATION BY PRESIDENT AND CEORULE 13a-14(a) CERTIFICATION BY CFOSECTION 906 CERTIFICATION BY PRESIDENT AND CEOSECTION 906 CERTIFICATION BY CFO
  2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 PAR PHARMACEUTICAL COMPANIES, INC.
 
 CONSOLIDATED BALANCE SHEETS
   April 2,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    45,702
    
    
    $
    93,438Available for sale securities
    
    
    103,092
    
    
    
    103,066Accounts receivable, net
    
    
    234,401
    
    
    
    143,608Inventories
    
    
    117,568
    
    
    
    100,945Prepaid expenses and other current assets
    
    
    14,019
    
    
    
    19,556Deferred income tax assets
    
    
    43,264
    
    
    
    38,352Income taxes receivable
    
    
    9,642
    
    
    
    18,859Assets held for sale
    
    
    
    
    
    
    1,944Total current assets
    
    
    567,688
    
    
    
    519,768Property, plant and equipment, at cost less
accumulated depreciation and amortization
    
    
    87,834
    
    
    
    89,135Available
for sale securities
    
    
    4,143
    
    
    
    3,741Investments
    
    
    23,651
    
    
    
    21,741Intangible assets, net
    
    
    48,513
    
    
    
    39,356Goodwill
    
    
    55,659
    
    
    
    55,659Deferred charges and other assets
    
    
    16,414
    
    
    
    8,048Non-current deferred income tax assets, net
    
    
    48,492
    
    
    
    49,569Total assets
    
    $
    852,394
    
    
    $
    787,017LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term and current portion of long-term debt
    
    $
    1,791
    
    
    $
    2,897Accounts payable
    
    
    51,283
    
    
    
    55,611Payables due to distribution agreement partners
    
    
    97,437
    
    
    
    46,423Accrued salaries and employee benefits
    
    
    7,736
    
    
    
    12,920Accrued expenses and other current liabilities
    
    
    29,872
    
    
    
    25,739Income taxes payable
    
    
    11,909
    
    
    
    11,879Liabilities held for sale
    
    
    
    
    
    
    1,944Total current liabilities
    
    
    200,028
    
    
    
    157,413Long-term debt, less current portion
    
    
    200,044
    
    
    
    200,068Other long-term liabilities
    
    
    330
    
    
    
    561Commitments and contingenciesStockholders equity:Preferred stock, par value $.0001 per share; authorized 6,000,000 shares;
no shares issued and outstanding
    
    
    
    
    
    
    Common stock, par value $.01 per share; authorized: 90,000,000 shares;
issued 35,889,442 and 35,114,026 shares
    
    
    359
    
    
    
    351Additional paid-in capital
    
    
    230,741
    
    
    
    217,233Retained earnings
    
    
    253,877
    
    
    
    245,476Accumulated other comprehensive (loss)
    
    
    (240
    )
    
    
    (1,907
    )Treasury stock, at cost, 866,042 and 848,588 shares
    
    
    (32,745
    )
    
    
    (32,178
    )Total stockholders equity
    
    
    451,992
    
    
    
    428,975Total liabilities and stockholders equity
    
    $
    852,394
    
    
    $
    787,017
  3




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
   Three Months EndedApril 2,
    
    
    April 3,2006
    
    
    2005Revenues:Net product sales
    
    $
    173,608
    
    
    $
    91,037Other product related revenues
    
    
    224
    
    
    
    6,413Total revenues
    
    
    173,832
    
    
    
    97,450Cost of goods sold
    
    
    118,470
    
    
    
    57,856Gross margin
    
    
    55,362
    
    
    
    39,594Operating expenses:Research and development
    
    
    13,699
    
    
    
    15,519Selling, general and administrative
    
    
    28,426
    
    
    
    21,102Total operating expenses
    
    
    42,125
    
    
    
    36,621Operating income
    
    
    13,237
    
    
    
    2,973Other expense, net
    
    
    (685
    )
    
    
    (30
    )Net investment gain
    
    
    
    
    
    
    1,353Interest income (expense), net
    
    
    519
    
    
    
    (152
    )Income from continuing operations before
provision for income taxes
    
    
    13,071
    
    
    
    4,144Provision for income taxes
    
    
    4,670
    
    
    
    1,450Income from continuing operations
    
    
    8,401
    
    
    
    2,694Discontinued operations:Loss from discontinued operations
    
    
    
    
    
    
    (1,156
    )Benefit for income taxes
    
    
    
    
    
    
    (439
    )Loss from discontinued operations
    
    
    
    
    
    
    (717
    )Net income
    
    $
    8,401
    
    
    $
    1,977Basic income (loss) per share of common stock:Income from continuing operations
    
    $
    0.25
    
    
    $
    0.08Loss from discontinued operations
    
    
    
    
    
    
    (0.02
    )Net income
    
    $
    0.25
    
    
    $
    0.06Diluted income (loss) per share of common stock:Income from continuing operations
    
    $
    0.24
    
    
    $
    0.08Loss from discontinued operations
    
    
    
    
    
    
    (0.02
    )Net income
    
    $
    0.24
    
    
    $
    0.06Weighted average number of
common shares outstanding:Basic
    
    
    34,259
    
    
    
    34,137Diluted
    
    
    34,461
    
    
    
    34,646
  4




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Three Months EndedApril 2,
    
    
    April 3,2006
    
    
    2005Cash flows from operating activities:Income from continuing operations
    
    $
    8,401
    
    
    $
    2,694Adjustments to reconcile net income
to net cash used in operating activities:Deferred income taxes
    
    
    (4,874
    )
    
    
    6,797Depreciation and amortization
    
    
    5,467
    
    
    
    3,160Allowances against accounts receivable
    
    
    14,003
    
    
    
    (18,044
    )Loss on disposal of fixed assets
    
    
    955
    
    
    
    Gain on investments
    
    
    
    
    
    
    (1,318
    )Stock compensation expense
    
    
    4,357
    
    
    
    893Other
    
    
    627
    
    
    
    (2
    )Changes in assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (104,796
    )
    
    
    15,147Increase in inventories
    
    
    (16,623
    )
    
    
    (13,831
    )Decrease in prepaid expenses and other assets
    
    
    3,789
    
    
    
    3,802Increase (decrease) in accounts payable
    
    
    4,401
    
    
    
    (6,390
    )Increase (decrease) in payables due to distribution agreement partners
    
    
    51,014
    
    
    
    (944
    )Decrease in accrued expenses and other liabilities
    
    
    (1,051
    )
    
    
    (8
    )Increase (decrease) in income taxes payable/receivable
    
    
    8,999
    
    
    
    (7,167
    )Loss from discontinued operations
    
    
    
    
    
    
    (717
    )Non-cash charges and changes in discontinued operating
assets and liabilities
    
    
    
    
    
    
    (459
    )Net cash used in operating activities
    
    
    (25,331
    )
    
    
    (16,387
    )Cash flows from investing activities:Capital expenditures
    
    
    (6,371
    )
    
    
    (5,146
    )Purchases of intangibles
    
    
    (12,088
    )
    
    
    Advance for product rights
    
    
    (9,000
    )
    
    
    Acquisition of subsidiary, contingent payment
    
    
    (2,500
    )
    
    
    (2,500
    )Proceeds from sale of investment
    
    
    
    
    
    
    1,846Proceeds from sales of available for sale securities
    
    
    
    
    
    
    43,665Purchases of available for sale securities
    
    
    (67
    )
    
    
    (15,000
    )Other
    
    
    
    
    
    
    (25
    )Net cash (used in) provided by investing activities
    
    
    (30,026
    )
    
    
    22,840Cash flows from financing activities:Proceeds from issuances of common stock
    
    
    8,756
    
    
    
    1,033Purchases of treasury stock
    
    
    (567
    )
    
    
    Principal payments under long-term debt and other borrowings
    
    
    (1,130
    )
    
    
    (1,956
    )Excess tax benefit
    
    
    562
    
    
    
    Net cash provided by (used in) financing activities
    
    
    7,621
    
    
    
    (923
    )Net (decrease) increase in cash and cash equivalents
    
    
    (47,736
    )
    
    
    5,530Cash and cash equivalents at beginning of period
    
    
    93,438
    
    
    
    36,534Cash and cash equivalents at end of period
    
    $
    45,702
    
    
    $
    42,064Supplemental disclosure of cash flow information:Cash paid during the year for:Taxes, net
    
    $
    225
    
    
    $
    1,379Interest
    
    $
    2,901
    
    
    $
    2,915Non-cash transactions:Tax benefit from exercise of stock options/restricted stock
    
    $
    314
    
    
    $
    214Increase in fair value of available for sale securities and investments
    
    $
    2,290
    
    
    $
    9,005
  5




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For the fiscal quarters ended April 2, 2006 and April 3, 2005
 (In Thousands, Except Per Share Amounts)
 (Unaudited)
   Note 1 - Basis of Preparation:
    Note 2  New Accounting Pronouncements:
  6




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal quarters ended April 2, 2006 and April 3, 2005
(In Thousands, Except Per Share Amounts)
(Unaudited)
 Note 3 - Stock-Based Compensation:
     Three MonthsEndedApril 3,2005Net income, as reported
    
    $
    1,977Add: 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
    
    $
    (18,374
    )Net income (loss) per share of common stock:As reported -Basic
    
    $
    0.06As reported -Diluted
    
    $
    0.06Pro forma -Basic
    
    $
    (0.54
    )Pro forma -Diluted
    
    $
    (0.54
    )
  7




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal quarters ended April 2, 2006 and April 3, 2005
(In Thousands, Except Per Share Amounts)
(Unaudited)
   Stock Options
  Three Months EndedApril 2,
    
    April 3,2006
    
    2005Risk-free interest rate
    
    
    4.4
    %
    
    
    3.5
    %Expected life (years)
    
    
    3.0
    
    
    
    4.9Expected volatility
    
    
    43.0
    %
    
    
    59.0
    %
   Three MonthsEndedApril 2,2006Cost of sales
    
    $
    212Research and development
    
    
    531Selling, general and administrative
    
    
    1,911Total
    
    
    2,654Tax benefit of stock-based compensation
    
    
    (1,008
    )$
    1,646
  8




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal quarters ended April 2, 2006 and April 3, 2005
(In Thousands, Except Per Share Amounts)
(Unaudited)
  Weighted
    
    
    Weighted
    
    
    AggregateAverage
    
    
    Average
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    

Remaining Life
    
    
    ValueBalance at January 1, 2006
    
    
    5,134
    
    
    $
    37.86Granted
    
    
    826
    
    
    
    32.96Exercised
    
    
    (388
    )
    
    
    21.84
    
    
    
    
    
    
    $
    3,885Forfeited
    
    
    (191
    )
    
    
    52.08Balance at April 2, 2006
    
    
    5,381
    
    
    $
    37.76
    
    
    
    7.59
    
    
    $
    6,567Exercisable at April 2, 2006
    
    
    2,978
    
    
    $
    39.97
    
    
    
    6.57
    
    
    $
    4,721Vested and expected to vest
    
    
    5,176
    
    
    $
    37.85
    
    
    
    7.53
    
    
    $
    6,537
  Restricted Stock/Restricted Stock Units
   Three Months EndedApril 2,
    
    
    April 3,2006
    
    
    2005Cost of sales
    
    $
    96
    
    
    $
    22Research and development
    
    
    566
    
    
    
    147Selling, general and administrative
    
    
    1,014
    
    
    
    485Total
    
    
    1,676
    
    
    
    654Tax benefit of stock-based compensation
    
    
    (637
    )
    
    
    (248
    )$
    1,039
    
    
    $
    406
 9




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal quarters ended April 2, 2006 and April 3, 2005
(In Thousands, Except Per Share Amounts)
(Unaudited)
  Weighted
    
    
    AggregateAverage
    
    
    IntrinsicShares
    
    
    Grant Price
    
    
    ValueUnvested balance at December 31, 2005
    
    
    277
    
    
    $
    40.05Granted
    
    
    400
    
    
    
    33.35Vested
    
    
    (68
    )
    
    
    41.40
    
    
    $
    1,922Forfeited
    
    
    (8
    )
    
    
    33.62Unvested balance at April 2, 2006
    
    
    601
    
    
    $
    35.52
    
    
    $
    16,931
  Employee Stock Purchase Program:
  Note 4 - Available for Sale Securities:
  Unrealized
    
    
    FairCost
    
    
    Gain
    
    
    Loss
    
    
    ValueSecurities issued by United States
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
    )
    
    
    13,744Total
    
    $
    109,165
    
    
    $
    
    
    
    $
    (1,930
    )
    
    $
    107,235
  Unrealized
    
    
    FairCost
    
    
    Gain
    
    
    Loss
    
    
    ValueSecurities issued by United States
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
    )
    
    
    13,200Total
    
    $
    109,165
    
    
    $
    
    
    
    $
    (2,358
    )
    
    $
    106,807
  10




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal quarters ended April 2, 2006 and April 3, 2005
(In Thousands, Except Per Share Amounts)
(Unaudited)
  April 2, 2006
    
    

December
31, 2005Fair
    
    
    
    
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueLess than one year
    
    $
    34,555
    
    
    $
    34,276
    
    
    $
    14,555
    
    
    $
    14,389Due between 1-2 years
    
    
    18,690
    
    
    
    18,527
    
    
    
    38,690
    
    
    
    38,425Due between 2-5 years
    
    
    36,345
    
    
    
    35,660
    
    
    
    36,345
    
    
    
    35,745Due after 5 years
    
    
    10,225
    
    
    
    9,170
    
    
    
    10,225
    
    
    
    8,790Other
    
    
    9,350
    
    
    
    9,602
    
    
    
    9,350
    
    
    
    9,458Total
    
    $
    109,165
    
    
    $
    107,235
    
    
    $
    109,165
    
    
    $
    106,807
   Note 5 - Investments:
     11




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal quarters ended April 2, 2006 and April 3, 2005
(In Thousands, Except Per Share Amounts)
(Unaudited)
  Note 6 - Accounts Receivable:
 April 2,
    
    
    December 31,2006
    
    
    2005Gross trade accounts receivable
    
    $
    370,876
    
    
    $
    266,080Reserves for chargebacks
    
    
    (76,677
    )
    
    
    (77,443
    )Reserves for rebates and incentive programs
    
    
    (32,298
    )
    
    
    (23,576
    )Returns
    
    
    (13,862
    )
    
    
    (9,291
    )Cash discounts and price adjustments
    
    
    (12,116
    )
    
    
    (10,315
    )Doubtful accounts
    
    
    (1,522
    )
    
    
    (1,847
    )Accounts receivable, net
    
    $
    234,401
    
    
    $
    143,608
  For the three months ended April 2, 2006Provision
    
    
    Provisionrecorded
    
    
    recordedBeginning
    
    
    for current
    
    
    for prior
    
    
    Credits
    
    
    EndingAccounts receivable reserves and allowances
    
    balance
    
    
    period sales
    
    
    period sales
    
    
    processed
    
    
    balanceChargebacks
    
    $
    (77,443
    )
    
    $
    (122,057
    )
    
    $
    
    
    
    $
    122,823
    
    
    $
    (76,677
    )Rebates and incentive programs
    
    
    (23,576
    )
    
    
    (37,841
    )
    
    
    
    
    
    
    29,119
    
    
    
    (32,298
    )Returns
    
    
    (9,291
    )
    
    
    (10,403
    )
    
    
    (691
    )
    
    
    6,523
    
    
    
    (13,862
    )Cash discounts and price adjustments
    
    
    (10,315
    )
    
    
    (13,131
    )
    
    
    
    
    
    
    11,330
    
    
    
    (12,116
    )Total
    
    $
    (120,625
    )
    
    $
    (183,432
    )
    
    $
    (691
    )
    
    $
    169,795
    
    
    $
    (134,953
    )Allowance for doubtful accounts
    
    $
    (1,847
    )
    
    $
    
    
    
    $
    
    
    
    $
    325
    
    
    $
    (1,522
    )
 For the three months ended April 3, 2005Provision
    
    
    Provisionrecorded
    
    
    recordedBeginning
    
    
    for current
    
    
    for prior
    
    
    Credits
    
    
    EndingAccounts receivable reserves and allowances
    
    balance
    
    
    period sales
    
    
    period sales
    
    
    processed
    
    
    balanceChargebacks
    
    $
    (93,489
    )
    
    $
    (136,971
    )
    
    $
    
    
    
    $
    145,690
    
    
    $
    (84,770
    )Rebates and incentive programs
    
    
    (23,747
    )
    
    
    (22,357
    )
    
    
    
    
    
    
    30,341
    
    
    
    (15,763
    )Returns
    
    
    (23,392
    )
    
    
    (9,549
    )
    
    
    (133
    )
    
    
    11,288
    
    
    
    (21,786
    )Cash discounts and price adjustments
    
    
    (7,168
    )
    
    
    (13,857
    )
    
    
    (1,937
    )
    
    
    15,529
    
    
    
    (7,433
    )Total
    
    $
    (147,796
    )
    
    $
    (182,734
    )
    
    $
    (2,070
    )
    
    $
    202,848
    
    
    $
    (129,752
    )Allowance for doubtful accounts
    
    $
    (1,847
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (1,847
    )
  12




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal quarters ended April 2, 2006 and April 3, 2005
(In Thousands, Except Per Share Amounts)
(Unaudited)
      13




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal quarters ended April 2, 2006 and April 3, 2005
(In Thousands, Except Per Share Amounts)
(Unaudited)
 Ò
  Note 7 - Inventories:
 April 2,
    
    
    December 31,2006
    
    
    2005Raw materials and supplies
    
    $
    39,127
    
    
    $
    37,703Work-in-process
    
    
    14,193
    
    
    
    12,069Finished goods
    
    
    64,248
    
    
    
    51,173$
    117,568
    
    
    $
    100,945
 Note 8 - Intangible Assets, net:
 April 2,
    
    
    December 31,2006
    
    
    2005Teva Pharmaceutical Industries, Inc. Asset Purchase Agreement,
net of accumulated amortization of $108 and $0
    
    $
    8,379
    
    
    $
    Ivax Corporation License Agreement, net of accumulated amortization
of $1,104 and $132
    
    
    6,896
    
    
    
    7,868FSC Laboratories, Inc. 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
    
    
    
    2,294Other intangible assets, net of accumulated amortization of $1,568 and $734
    
    
    5,900
    
    
    
    3,086$
    48,513
    
    
    $
    39,356
  14




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal quarters ended April 2, 2006 and April 3, 2005
(In Thousands, Except Per Share Amounts)
(Unaudited)
 Note 9 - Income Taxes:
  Note 10 - Changes in Stockholders Equity:
  AccumulatedAdditional
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Income (Loss)Balance, January 1, 2006
    
    
    35,114
    
    
    $
    351
    
    
    $
    217,233
    
    
    $
    (1,907
    )Comprehensive income:Unrealized gains on marketable
securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,397Defined benefit pension plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    270Exercises of stock options
    
    
    388
    
    
    
    4
    
    
    
    8,468
    
    
    
    Tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    314
    
    
    
    Issuances of restricted stock
    
    
    385
    
    
    
    4
    
    
    
    
    
    
    
    Forfeitures of restricted stock
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    Employee stock purchase program
    
    
    10
    
    
    
    
    
    
    
    284
    
    
    
    Compensatory arrangements
    
    
    
    
    
    
    
    
    
    
    4,357
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    85
    
    
    
    Balance, April 2, 2006
    
    
    35,889
    
    
    $
    359
    
    
    $
    230,741
    
    
    $
    (240
    )
 Three Months EndedApril 2,
    
    
    April 3,2006
    
    
    2005Comprehensive income:Net income
    
    $
    8,401
    
    
    $
    1,977Other comprehensive income:Unrealized gains on marketable securities, net of tax
    
    
    1,397
    
    
    
    4,750Defined benefit pension plan
    
    
    270
    
    
    
    Comprehensive income
    
    $
    10,068
    
    
    $
    6,727
  15




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal quarters ended April 2, 2006 and April 3, 2005
(In Thousands, Except Per Share Amounts)
(Unaudited)
  Note 11 - Earnings Per Share:
  Three Months EndedApril 2,
    
    
    April 32006
    
    
    2005Income from continuing operations
    
    $
    8,401
    
    
    $
    2,694Loss from discontinued operations
    
    
    
    
    
    
    (717
    )Net income
    
    $
    8,401
    
    
    $
    1,977Basic:Weighted average number of common
shares outstanding
    
    
    34,259
    
    
    
    34,137Income from continuing operations
    
    $
    0.25
    
    
    $
    0.08Loss from discontinued operations
    
    
    
    
    
    
    (0.02
    )Net income per share of common stock
    
    $
    0.25
    
    
    $
    0.06Assuming dilution:Weighted average number of common
shares outstanding
    
    
    34,259
    
    
    
    34,137Effect of dilutive options
    
    
    202
    
    
    
    509Weighted average number of common
shares outstanding
    
    
    34,461
    
    
    
    34,646Income from continuing operations
    
    $
    0.24
    
    
    $
    0.08Loss from discontinued operations
    
    
    
    
    
    
    (0.02
    )Net income per share of common stock
    
    $
    0.24
    
    
    $
    0.06
  Note 12 - Commitments, Contingencies and Other Matters:
 Pension Plan:
   16




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal quarters ended April 2, 2006 and April 3, 2005
(In Thousands, Except Per Share Amounts)
(Unaudited)
  Legal Proceedings:
 Contractual Matters
 Ò
   Patent Related Matters
   17




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal quarters ended April 2, 2006 and April 3, 2005
(In Thousands, Except Per Share Amounts)
(Unaudited)
  Ò
  ®
 Industry Related Matters
  18




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal quarters ended April 2, 2006 and April 3, 2005
(In Thousands, Except Per Share Amounts)
(Unaudited)
     19




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal quarters ended April 2, 2006 and April 3, 2005
(In Thousands, Except Per Share Amounts)
(Unaudited)
 Other Matters
  Note 13- Discontinued Operations  Related Party Transaction:
   April 3, 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 14- Segment Information:
  20




---



##### Table of Contents



PAR PHARMACEUTICAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal quarters ended April 2, 2006 and April 3, 2005
(In Thousands, Except Per Share Amounts)
(Unaudited)
   April 2,
    
    
    April 3,2006
    
    
    2005Revenues:Generic
    
    $
    165,409
    
    
    $
    97,450Branded
    
    
    8,423
    
    
    
    Total revenues
    
    
    173,832
    
    
    
    97,450Gross Margin:Generic
    
    
    49,096
    
    
    
    39,594Branded
    
    
    6,266
    
    
    
    Total gross margin
    
    
    55,362
    
    
    
    39,594Operating income (loss):Generic
    
    
    22,183
    
    
    
    12,446Branded
    
    
    (8,946
    )
    
    
    (9,473
    )Total operating income
    
    
    13,237
    
    
    
    2,973Other (expense) income, net
    
    
    (685
    )
    
    
    1,323Interest income (expense), net
    
    
    519
    
    
    
    (152
    )Provision for income taxes
    
    
    4,670
    
    
    
    1,450Income from continuing operations
    
    $
    8,401
    
    
    $
    2,694
  Ò Ò Ò Ò Ò Ò Ò Ò
 21




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 Certain statements in this document may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, including those concerning
managements expectations with respect to future financial performance, trends and future events,
particularly relating to sales of current products and the introduction of new manufactured and
distributed products. Such statements involve known and unknown risks, uncertainties and
contingencies, many of which are beyond the control of the Company, which could cause actual
results and outcomes to differ materially from those expressed herein. These statements are often,
but not always, made typically by use of words or phrases such as estimate, plans, projects,
anticipates, continuing, ongoing, expects, intends, believes, or similar words and
phrases. Factors that might affect such forward-looking statements set forth in this document
include (i) increased competition from new and existing competitors, and pricing practices from
such competitors (particularly upon completion of exclusivity periods), (ii) pricing pressures
resulting from the continued consolidation by the Companys distribution channels, (iii) the amount
of funds available for internal research and development and research and development joint
ventures, (iv) research and development project delays or delays and unanticipated costs in
obtaining regulatory approvals, (v) continuation of distribution rights under significant
agreements, (vi) the continued ability of distributed product suppliers to meet future demand,
(vii) the costs, delays involved in and outcome of any threatened or pending litigations, including
patent and infringement claims, (viii) unanticipated costs, delays and liabilities in integrating
acquisitions, (ix) obtaining or losing 180-day marketing exclusivity on products and (x) general
industry and economic conditions. Any forward-looking statements included in this document are
made as of the date hereof only, based on information available to the Company as of the date
hereof, and, subject to applicable law to the contrary, the Company assumes no obligation to update
any forward-looking statements.
 The financial data contained in this section is in thousands.
 OVERVIEW
   ® ® ® ®
  22




---



##### Table of Contents



April 2,
    
    
    April 3,2006
    
    
    2005Revenues:Generic
    
    $
    165,409
    
    
    $
    97,450Branded
    
    
    8,423
    
    
    
    Total revenues
    
    $
    173,832
    
    
    $
    97,450Gross Margin:Generic
    
    $
    49,096
    
    
    $
    39,594Branded
    
    
    6,266
    
    
    
    Total gross margin
    
    $
    55,362
    
    
    $
    39,594Operating income (loss):Generic
    
    $
    22,183
    
    
    $
    12,446Branded
    
    
    (8,946
    )
    
    
    (9,473
    )Total operating income
    
    $
    13,237
    
    
    $
    2,973
  23




---



##### Table of Contents



®
  ®
 RESULTS OF OPERATIONS
 Revenues
 ®
 Ò
 24




---



##### Table of Contents



25




---



##### Table of Contents



For the three-months ended April 2, 2006Provision
    
    
    Provisionrecorded
    
    
    recordedBeginning
    
    
    for current
    
    
    for prior
    
    
    Credits
    
    
    EndingAccounts receivable reserves and allowances
    
    balance
    
    
    period sales
    
    
    period sales
    
    
    processed
    
    
    balanceChargebacks
    
    $
    (77,443
    )
    
    $
    (122,057
    )
    
    $
    
    
    
    $
    122,823
    
    
    $
    (76,677
    )Rebates and incentive programs
    
    
    (23,576
    )
    
    
    (37,841
    )
    
    
    
    
    
    
    29,119
    
    
    
    (32,298
    )Returns
    
    
    (9,291
    )
    
    
    (10, 403
    )
    
    
    (691
    )
    
    
    6,523
    
    
    
    (13,862
    )Cash discounts and price adjustments
    
    
    (10,315
    )
    
    
    (13,131
    )
    
    
    
    
    
    
    11,330
    
    
    
    (12,116
    )Total
    
    $
    (120,625
    )
    
    $
    (183,432
    )
    
    $
    (691
    )
    
    $
    169,795
    
    
    $
    (134,953
    )Accrued liabilitiesMedicaid rebates
    
    $
    (9,040
    )
    
    $
    (10,353
    )
    
    $
    
    
    
    $
    4,390
    
    
    $
    (15,003
    )
 For the three-months ended April 3, 2005Provision
    
    
    Provisionrecorded
    
    
    recordedBeginning
    
    
    for current
    
    
    for prior
    
    
    Credits
    
    
    EndingAccounts receivable reserves and allowances
    
    balance
    
    
    period sales
    
    
    period sales
    
    
    processed
    
    
    balanceChargebacks
    
    $
    (93,489
    )
    
    $
    (136,971
    )
    
    $
    
    
    
    $
    145,690
    
    
    $
    (84,770
    )Rebates and incentive programs
    
    
    (23,747
    )
    
    
    (22,357
    )
    
    
    
    
    
    
    30,341
    
    
    
    (15,763
    )Returns
    
    
    (23,392
    )
    
    
    (9,549
    )
    
    
    (133
    )
    
    
    11,288
    
    
    
    (21,786
    )Cash discounts and price adjustments
    
    
    (7,168
    )
    
    
    (13,857
    )
    
    
    (1,937
    )
    
    
    15,529
    
    
    
    (7,433
    )Total
    
    $
    (147,796
    )
    
    $
    (182,734
    )
    
    $
    (2,070
    )
    
    $
    202,848
    
    
    $
    (129,752
    )Accrued liabilitiesMedicaid rebates
    
    $
    (8,755
    )
    
    $
    (5,901
    )
    
    $
    
    
    
    $
    4,173
    
    
    $
    (10,483
    )
 Gross Margin
 ®
  Operating Expenses
 Research and Development
  26




---



##### Table of Contents



Selling, General and Administrative Expenses
 ®
 Other Expense
  Net Investment Gain
  Interest Income/Expense
  Income Taxes
  Discontinued Operations
  27




---



##### Table of Contents



FINANCIAL CONDITION
 Liquidity and Capital Resources
       28




---



##### Table of Contents



Amounts Due by PeriodTotal Monetary
    
    
    Apr. 3-Dec. 31,
    
    
    2007 to
    
    
    2010 to
    
    
    2012 andObligation
    
    Obligation
    
    
    2006
    
    
    2009
    
    
    2011
    
    
    thereafterOperating leases
    
    $
    18,207
    
    
    $
    3,219
    
    
    $
    9,514
    
    
    $
    3,423
    
    
    $
    2,051Convertible notes*
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    Interest payments
    
    
    25,875
    
    
    
    2,875
    
    
    
    17,250
    
    
    
    5,750
    
    
    
    Insurance obligations
    
    
    1,614
    
    
    
    1,614
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligation
    
    
    2,950
    
    
    
    1,900
    
    
    
    1,050
    
    
    
    
    
    
    
    Other
    
    
    221
    
    
    
    158
    
    
    
    63
    
    
    
    
    
    
    
    Total obligations
    
    $
    248,867
    
    
    $
    9,766
    
    
    $
    27,877
    
    
    $
    209,173
    
    
    $
    2,051
 
 * The convertible notes mature on September 30, 2010, unless earlier converted or repurchased.    Financing
  Critical Accounting Policies and Use of Estimates
 
 29




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
   April 2,
    
    
    Dec. 31,2006
    
    
    2005Securities issued by United States government and agencies
    
    $
    79,798
    
    
    $
    79,886Debt securities issued by various state and local
municipalities and agencies
    
    
    13,693
    
    
    
    13,721Other marketable debt securities
    
    
    13,744
    
    
    
    13,200Total
    
    $
    107,235
    
    
    $
    106,807
 Available for Sale Securities:
      30




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES.
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings .
 Contractual Matters
    Patent Related Matters
  31




---



##### Table of Contents



Ò
   32




---



##### Table of Contents



Industry Related Matters
     33




---



##### Table of Contents



Other Matters:
  
 Item 1A. Risk Factors.
  
 Item 6 . Exhibits.
 10.67
    
    Employment Agreement, dated as of February 10, 2006, by and between Par Pharmaceutical
Companies, Inc. and Gerard Martino.31.1
    
    Certification of the Principal Executive Officer.31.2
    
    Certification of the Principal Financial Officer.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 2002.32.2
    
    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.
 34




---



##### Table of Contents



SIGNATURE
  PAR PHARMACEUTICAL COMPANIES, INC.
(Registrant)May 12, 2006
    /s/ Scott TarriffScott  TarriffPresident and Chief Executive OfficerMay 12, 2006
    /s/ Gerard A. MartinoGerard A. MartinoExecutive Vice President and Chief Financial
Officer 35




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Description10.67
    
    Employment Agreement, dated as of February 10, 2006, by and between Par
Pharmaceutical Companies, Inc. and Gerard Martino.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.
 36