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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K/A
 (Amendment No. 1)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the year ended December 31, 2007.
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission file number 0-18443
 MEDICIS PHARMACEUTICAL CORPORATION
  Delaware
    
    52-1574808(State of other jurisdiction
    
    (I.R.S. Employer Identification No.)of incorporation or organization)7720 N. Dobson Road, Scottsdale, Arizona
    
    85256-2740(Address of principal executive office)
    
    (Zip Code)Registrants telephone number, including area code:
    
    (602) 808-8800Securities registered pursuant to Section 12(b) of the Act: Class A common stock, $0.014 par valueNew York Stock Exchange
    
    Preference Share Purchase Rights(Name of each exchange on which
    
    (Title of each Class)registered)
  þ o
 o þ
 þ o
 o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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EXPLANATORY NOTE
   Revenue Recognition When Right of Return Exists Materiality Considering Effects of Prior Misstatements When Quantifying Misstatements in
Current Year Financial Statements
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Fiscal
    
    
    Fiscal
    
    
    Transition
    
    
    Fiscal
    
    
    Fiscal
    
    
    FiscalYear
    
    
    Year
    
    
    Period
    
    
    Year
    
    
    Year
    
    
    YearNet revenues(in
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Endedmillions)
    
    12/31/07
    
    
    12/31/06
    
    
    12/31/05
    
    
    6/30/05
    
    
    6/30/04
    
    
    6/30/03As Reported
    
    $
    464.7
    
    
    $
    349.2
    
    
    $
    164.0
    
    
    $
    376.9
    
    
    $
    303.7
    
    
    $
    247.5Adjustment
    
    
    (7.3
    )
    
    
    44.0
    
    
    
    1.3
    
    
    
    (11.2
    )
    
    
    11.5
    
    
    
    (37.2
    )As Restated
    
    $
    457.4
    
    
    $
    393.2
    
    
    $
    165.3
    
    
    $
    365.7
    
    
    $
    315.2
    
    
    $
    210.3
 Fiscal
    
    
    Fiscal
    
    
    Transition
    
    
    Fiscal
    
    
    Fiscal
    
    
    FiscalDiluted net
    
    Year
    
    
    Year
    
    
    Period
    
    
    Year
    
    
    Year
    
    
    Yearincome (loss) per
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Endedshare(in dollars)
    
    12/31/07
    
    
    12/31/06
    
    
    12/31/05
    
    
    6/30/05
    
    
    6/30/04
    
    
    6/30/03As Reported
    
    $
    1.14
    
    
    $
    (1.39
    )
    
    $
    0.76
    
    
    $
    1.01
    
    
    $
    0.52
    
    
    $
    0.84Adjustment
    
    
    (0.06
    )
    
    
    0.51
    
    
    
    0.03
    
    
    
    (0.09
    )
    
    
    0.06
    
    
    
    (0.34
    )As Restated
    
    $
    1.08
    
    
    $
    (0.88
    )
    
    $
    0.79
    
    
    $
    0.92
    
    
    $
    0.58
    
    
    $
    0.50
 Fiscal
    
    
    Fiscal
    
    
    Transition
    
    
    Fiscal
    
    
    Fiscal
    
    
    FiscalYear
    
    
    Year
    
    
    Period
    
    
    Year
    
    
    Year
    
    
    YearWorking capital
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended(in millions)
    
    12/31/07
    
    
    12/31/06
    
    
    12/31/05
    
    
    6/30/05
    
    
    6/30/04
    
    
    6/30/03As Reported
    
    $
    460.1
    
    
    $
    356.9
    
    
    $
    692.5
    
    
    $
    600.1
    
    
    $
    666.7
    
    
    $
    576.8Adjustment
    
    
    (37.1
    )
    
    
    (33.8
    )
    
    
    (61.5
    )
    
    
    (69.2
    )
    
    
    (62.1
    )
    
    
    (62.0
    )As Restated
    
    $
    423.0
    
    
    $
    323.1
    
    
    $
    631.0
    
    
    $
    530.9
    
    
    $
    604.6
    
    
    $
    514.8
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
    
    Part I  Item 1. Business and Item 1A. Risk Factors
    
    Part II  Item 6. Selected Financial Data
    
    Part II  Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    Part II  Item 8. Financial Statements and Supplementary Data
    
    Part II  Item 9A. Controls and Procedures
    
    Part IV  Item 15. Exhibits and Financial Statement Schedules
 .
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##### 



TABLE OF CONTENTS
 PART IItem 1. Business
    
    
    7Item 1A. Risk Factors
    
    
    20Item 1B. Unresolved Staff Comments
    
    
    41Item 2. Properties
    
    
    41Item 3. Legal Proceedings
    
    
    42PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    44Item 6. Selected Financial Data
    
    
    46Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    51Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    86Item 8. Financial Statements and Supplementary Data
    
    
    87Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    87Item 9A. Controls and Procedures
    
    
    87Item 9B. Other Information
    
    
    91PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    91Item 11. Executive Compensation
    
    
    91Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    
    91Item 13. Certain Relationships and Related Transactions
    
    
    91Item 14. Principal Accountant Fees and Services
    
    
    91PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    92EX-12EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
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PART I
 
  Change in Fiscal Year
  Restatement
  The Company
   ® ® ® ® ® ®
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Our Products
  Brand
    
    Treatment
    
    U.S. Market ImpactPERLANE®
    
    Injectable gel for implantation into the
deep dermis to superficial subcutis for
the correction of moderate to severe
facial folds and wrinkles, such as
nasolabial folds
    
    Launched in May 2007 following U.S. Food and
Drug Administration (FDA) approval on
May 2, 2007RESTYLANE®
    
    Injectable gel for treatment of moderate
to severe facial wrinkles and folds,
such as nasolabial folds
    
    The leading worldwide injectable dermal filler,
launched in January 2004 following FDA approval
on December 12, 2003SOLODYN®
    
    Once daily dosage in the treatment of
inflammatory lesions of non-nodular
moderate to severe acne vulgaris in
patients 12 and older
    
    Launched in July 2006 following FDA approval
on May 8, 2006TRIAZ®
    
    Topical patented gel and cleanser and
patent-pending pad treatments for acne
    
    A leading branded prescription benzoyl
peroxide product, launched during fiscal 1996VANOS®
    
    Super-high potency topical corticosteroid
indicated for the relief of the inflammatory
and pruritic manifestations of corticosteroid
responsive dermatoses in patients 12 years
of age or older
    
    Launched in April 2005 following FDA
approval on February 11, 2005ZIANA®
    
    Once daily topical gel treatment for acne
vulgaris in patients 12 and older
    
    Approved by the FDA on November 7, 2006. First
commercial sales to wholesalers in December 2006
and launched in January 2007
 Dermal Restorative Products
  RESTYLANE ® , PERLANE ® , RESTYLANE FINE LINES TM SubQ TM ® ® TM TM
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Prescription Pharmaceuticals
  SOLODYN ® ® ® ® ® ® ® ®
 TRIAZ ® ® ® ® ®
 VANOS ® ® ® ® ® ®
 ZIANA ® ® ® ® ® ® ®
 Research and Development
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® TM TM
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® ® ®
 ®
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TM TM TM TM TM TM TM ® ® TM
 ® ® ® ®
 Sales and Marketing
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Warehousing and Distribution
  Customers
  ComparableSix-MonthTransition
    
    Period2007
    
    2006
    
    Period
    
    in 2004
    
    Fiscal 2005McKesson
    
    
    52.2
    %
    
    
    56.8
    %
    
    
    54.9
    %
    
    
    50.8
    %
    
    
    51.2
    %Cardinal
    
    
    16.9
    %
    
    
    19.3
    %
    
    
    18.9
    %
    
    
    19.7
    %
    
    
    21.8
    %
 ® ®
 Third-Party Reimbursement
    Seasonality
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Manufacturing
    ® ® ®
 ® ®
 ® ®
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Raw Materials
  License and Royalty Agreements
  Trademarks, Patents and Proprietary Rights
 ®
 ® ® ® ® ® ® ®
   ® ®
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Competition
    TM ® ® ® TM ® ® ® ®
 Government Regulation
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® ® ® ® ® ® ® ®
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® ® ® ® ® ® ®
 ® ®
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Our History
  Employees
  Available Information
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Risks Related To Our Business
 The restatement of our consolidated financial statements has subjected us to a number of additional
risks and uncertainties, including increased costs for accounting and legal fees and the increased
possibility of legal proceedings.
  
    
    We incurred substantial unanticipated costs for accounting and legal fees in
connection with the restatement. Although the restatement is complete, we expect to
continue to incur accounting and legal costs as noted below.
    
    As a result of the restatement, we have been named in a number of lawsuits as
discussed in Item 3 of Part I of this amended report, Legal Proceedings and Note 16,
Commitments and Contingencies. The plaintiffs in these lawsuits may make additional
claims, expand existing claims and/or expand the time periods covered by the
complaints. Other plaintiffs may bring additional actions with other claims, based on
the restatement. If such events occur, we may incur substantial defense costs
regardless of the outcome of these actions and insurance and indemnification may not be
sufficient to cover the losses we may incur. Likewise, such events might cause a
diversion of our managements time and attention. If we do not prevail in one or more
of these actions, we could be required to pay substantial damages or settlement costs,
which could adversely affect our business, financial condition, results of operations
and liquidity.
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Management recently identified a material weakness in our internal control over financial reporting
with respect to our interpretation and application of SFAS 48 as it applies to the calculation of
sales return reserves. Additionally, management may identify material weaknesses in the future
that could adversely affect investor confidence, impair the value of our common stock and increase
our cost of raising capital.
    Certain of our primary products could lose patent protection in the near future and become subject
to competition from generic forms of such products. If that were to occur, sales of those products
would decline significantly and such decline could have a material adverse effect on our results of
operations.
 ® ® ® ® ® ® ® ® ®
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® ® ® ®
 If we are unable to secure and protect our intellectual property and proprietary rights, or if our
intellectual property rights are found to infringe upon the intellectual property rights of other
parties, our business could suffer.
   ® ®
 ® ®
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We depend on licenses from others, and any loss of such licenses could harm our business, market
share and profitability.
    Obtaining FDA and other regulatory approvals is time consuming, expensive and uncertain.
  
    
    testing and surveillance to monitor the product and its continued compliance with
regulatory requirements;
    
    submitting products for inspection and, if any inspection reveals that the product
is not in compliance, prohibiting the sale of all products from the same lot;
    
    suspending manufacturing;
    
    switching status from prescription to over-the-counter drug;
    
    recalling products; and
    
    withdrawing marketing clearance.
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
    
    incurring substantial expenses, including fines, penalties, legal fees and costs to
comply with the FDAs requirements;
    
    changes in the methods of marketing and selling products;
    
    taking FDA-mandated corrective action, which may include placing advertisements or
sending letters to physicians rescinding previous advertisements or promotion; and
    
    disruption in the distribution of products and loss of sales until compliance with
the FDAs position is obtained.
  If we market products in a manner that violates health care fraud and abuse laws, we may be subject
to civil or criminal penalties.
   ® ®
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® ®
 Our corporate compliance program cannot guarantee that we are in compliance with all potentially
applicable U.S. federal and state regulations and all potentially applicable foreign regulations.
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We depend on a limited number of customers, and if we lose any of them, our business could be
harmed.
 ® ®
 We derive a majority of our sales from our primary products, and any factor adversely affecting
sales of these products would harm our business, financial condition and results of operations.
 ® ® ® ® TM ® ® ® TM ® ® ® ® ® ® ®
 ® ® ® ®
 
    
    manufacturing or supply interruptions;
    
    the development of new competitive pharmaceuticals and technological advances to
treat the conditions addressed by our primary products, including the introduction of
new products into the marketplace;
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
    
    generic competition;
    
    marketing or pricing actions by one or more of our competitors;
    
    regulatory action by the FDA and other government regulatory agencies;
    
    importation of other dermal fillers;
    
    changes in the prescribing or procedural practices of dermatologists, plastic
surgeons and/or podiatrists;
    
    changes in the reimbursement or substitution policies of third-party payors or
retail pharmacies;
    
    product liability claims;
    
    the outcome of disputes relating to trademarks, patents, license agreements and
other rights;
    
    changes in state and federal law that adversely affect our ability to market our
products to dermatologists, plastic surgeons and/or podiatrists; and
    
    restrictions on travel affecting the ability of our sales force to market to
prescribing physicians and plastic surgeons in person.
 Our continued growth depends upon our ability to develop new products.
 ®
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Our operating results and financial condition may fluctuate.
  
    
    development of new competitive products or generics by others;
    
    the timing and receipt of FDA approvals or lack of approvals;
    
    changes in the amount we spend to develop, acquire or license new products,
technologies or businesses;
    
    costs related to business development transactions;
    
    untimely contingent research and development payments under our third-party product
development agreements;
    
    changes in the amount we spend to promote our products;
    
    delays between our expenditures to acquire new products, technologies or businesses
and the generation of revenues from those acquired products, technologies or
businesses;
    
    changes in treatment practices of physicians that currently prescribe our products;
    
    changes in reimbursement policies of health plans and other similar health insurers,
including changes that affect newly developed or newly acquired products;
    
    increases in the cost of raw materials used to manufacture our products;
    
    manufacturing and supply interruptions, including failure to comply with
manufacturing specifications;
    
    changes in prescription levels and the effect of economic changes in hurricane and
other natural disaster-affected areas;
    
    the impact on our employees, customers, patients, manufacturers, suppliers, vendors,
and other companies we do business with and the resulting impact on the results of
operations associated with the possible mutation of the avian form of influenza from
birds or other animal species to humans, current human morbidity, and mortality levels
persist following such potential mutation;
    
    the mix of products that we sell during any time period;
    
    lower than expected demand for our products;
    
    our responses to price competition;
    
    expenditures as a result of legal actions, including the defense of our patents and
other intellectual property;
    
    market acceptance of our products;
    
    the impairment and write-down of goodwill or other intangible assets;
    
    implementation of new or revised accounting or tax rules or policies;
    
    disposition of primary products, technologies and other rights;
    
    termination or expiration of, or the outcome of disputes relating to, trademarks,
patents, license agreements and other rights;
    
    increases in insurance rates for existing products and the cost of insurance for new
products;
    
    general economic and industry conditions, including changes in interest rates
affecting returns on cash balances and investments that affect customer demand;
    
    seasonality of demand for our products;
    
    our level of research and development activities;
    
    new accounting standards and/or changes to existing accounting standards that would
have a material effect on our consolidated financial position, results of operations or
cash flows;
    
    costs and outcomes of any tax audits or any litigation involving intellectual
property, customers or other issues; and
    
    timing of revenue recognition related to licensing agreements and/or strategic
collaborations.
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Our investments in other companies and our collaborations with companies could adversely affect our
results of operations and financial condition.
  Our profitability is impacted by our continued participation in governmental pharmaceutical pricing
programs.
    29




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Our profitability may be impacted by our ongoing review of our prior reports under certain Federal
pharmaceutical pricing programs.
  We will be unable to meet our anticipated development and commercialization timelines if clinical
trials for our products are unsuccessful, delayed, or additional information is required by the
FDA.
   
    
    lack of efficacy during the clinical trials;
    
    unforeseen safety issues;
    
    slower than expected patient recruitment;
    
    failure of Medicis, investigators, or other contractors to strictly adhere to
federal regulations governing the conduct and data collection procedures involved in
clinical trials;
    
    development of issues that might delay or impede performance by a contractor;
    
    errors in clinical documentation or at the clinical locations;
    
    non-acceptance by the FDA of our NDAs, ANDAs or BLAs. For example, on January 30,
2008, we received a letter from the FDA stating that, upon a preliminary review of our
BLA for the botulinum toxin type A, RELOXIN®, in aesthetics, the FDA has
determined not to accept the BLA for filing because it is not sufficiently complete to
permit a substantive review. While we are uncertain of the impact at this time, the
FDAs determination not to accept the BLA may result in delays in the FDAs substantive
response to the BLA;
    
    government or regulatory delays; and
    
    unanticipated requests from the FDA for new or additional information.
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Downturns in general economic conditions may adversely affect our financial condition, results of
operations and cash flows.
  The current condition of the credit markets may not allow us to secure financing for potential
future activities on satisfactory terms, or at all.
  Negative conditions in the credit markets may impair the liquidity of a portion of our short-term
and long-term investments.
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If Q-Med is unable to protect its intellectual property and proprietary rights with respect to our
dermal filler products, our business could suffer.
 ® ® TM TM
 We may not be able to collect all scheduled license payments from BioMarin.
  We depend upon our key personnel and our ability to attract, train, and retain employees.
  We may acquire (whether by acquisition, license or otherwise) technologies, products and companies
in the future and these acquisitions could disrupt our business and harm our financial condition
and results of operations. In addition, we may not obtain the benefits that the acquisitions were
intended to create.
  We may not be able to identify and acquire products, technologies and businesses on acceptable
terms, if at all, which may constrain our growth.
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Our success depends on our ability to manage our growth.
  Implementation of our new enterprise resource planning system could cause business interruptions
and negatively affect our profitability and cash flows.
  The consolidation of drug wholesalers could increase competition and pricing pressures throughout
the pharmaceutical industry.
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We rely on others to manufacture our products.
     We and our third-party manufacturers rely on a limited number of suppliers of the raw materials of
our products. A disruption in supply of raw material would be disruptive to our inventory supply.
  We could experience difficulties in obtaining supplies of RESTYLANE ® ,PERLANE ® , RESTYLANE FINE LINES TM and SubQ TM .
 ® ® TM TM ® ® TM TM
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® ® TM TM ® ® ® TM TM
 Supply interruptions may disrupt our inventory levels and the availability of our products.
  
    
    timing, scheduling and prioritization of production by our contract manufacturers;
    
    labor interruptions;
    
    changes in our sources for manufacturing;
    
    the timing and delivery of domestic and international shipments;
    
    our failure to locate and obtain replacement manufacturers as needed on a timely
basis;
    
    conditions affecting the cost and availability of raw materials; and
    
    hurricanes and other natural disasters.
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Fluctuations in demand for our products create inventory maintenance uncertainties.
  We selectively outsource certain non-sales and non-marketing services, and cannot assure you that
we will be able to obtain adequate supplies of such services on acceptable terms.
  Importation of products from Canada and other countries into the United States may lower the prices
we receive for our products.
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If we become subject to product liability claims, our earnings and financial condition could
suffer.
   If we suffer negative publicity concerning the safety of our products, our sales may be harmed and
we may be forced to withdraw products.
  Rising insurance costs could negatively impact profitability.
  RESTYLANE ® and PERLANE ® are consumer products and as such, are susceptible to
changes in popular trends and applicable laws, which could adversely affect sales or product
margins of RESTYLANE ® and PERLANE ® .
 ® ® ® ® ® ®
 ® ® ® ®
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We may not be able to repurchase the Old Notes and New Notes when required.
    Our publicly-filed reports are reviewed by the SEC from time to time and any significant changes
required as a result of any such review may result in material liability to us, and have a material
adverse impact on the trading price of our common stock.
  Unanticipated changes in our tax rates or exposure to additional income tax liabilities could
affect our profitability.
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Risks Related to Our Industry
 The growth of managed care organizations, other third-party reimbursement policies, state
regulatory agencies and retailer fulfillment policies may harm our pricing, which may reduce our
market share and margins.
      We are subject to extensive governmental regulation.
  
    
    fines;
    
    changes to advertising;
    
    suspensions of regulatory approvals of products;
    
    product recalls;
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
    
    delays in product distribution, marketing and sale; and
    
    civil or criminal sanctions.
  ®
  We face significant competition within our industry.
  
    
    developing and bringing new products to market before others;
    
    developing new technologies to improve existing products;
    
    developing new products to provide the same benefits as existing products at less
cost; and
    
    developing new products to provide benefits superior to those of existing products.
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PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 Description of Registrants Securities, Price Range of Common Stock and Dividends Declared
  DIVIDENDSHIGH
    
    LOW
    
    DECLAREDFISCAL YEAR ENDED DECEMBER 31, 2007First Quarter
    
    $
    39.94
    
    
    $
    30.11
    
    
    $
    0.03Second Quarter
    
    
    34.35
    
    
    
    29.70
    
    
    
    0.03Third Quarter
    
    
    31.48
    
    
    
    26.65
    
    
    
    0.03Fourth Quarter
    
    
    32.18
    
    
    
    25.37
    
    
    
    0.03FISCAL YEAR ENDED DECEMBER 31, 2006First Quarter
    
    $
    34.40
    
    
    $
    28.20
    
    
    $
    0.03Second Quarter
    
    
    34.90
    
    
    
    23.54
    
    
    
    0.03Third Quarter
    
    
    32.46
    
    
    
    22.57
    
    
    
    0.03Fourth Quarter
    
    
    40.31
    
    
    
    32.08
    
    
    
    0.03
  Dividend Policy
   Recent Sales of Unregistered Securities
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Equity Compensation Plan Information
  Number of securitiesremaining available forNumber of Securities
    
    
    
    
    
    future issuance underto be issued upon
    
    Weighted-average exercise
    
    equity compensationexercise of
    
    price of outstanding
    
    plans (excludingoutstanding options,
    
    options, warrants and
    
    securities reflected inwarrants and rights
    
    rights
    
    column a)Plan Category
    
    Date
    
    (a)
    
    (b)
    
    (c)Plans approved by
stockholders(1)
    
    
    12/31/2007
    
    
    
    7,446,432
    
    
    $
    27.30
    
    
    
    3,391,796Plans not approved by
stockholders(2)
    
    
    12/31/2007
    
    
    
    4,220,523
    
    
    $
    29.21
    
    
    
    0Total
    
    
    
    
    
    
    11,666,955
    
    
    $
    27.99
    
    
    
    3,391,796
 
 (1)
    
    Represents options outstanding and shares available for future issuance under the
2006 Incentive Plan. Also includes options outstanding under the 2004, 1998, 1996, 1995 and
1992 Stock Option Plans, which have been terminated as to future grants.(2)
    
    Represents the 2002 Stock Option Plan, which was implemented by our board in
November 2002. The 2002 Plan was terminated on May 23, 2006 as part of the stockholders
approval of the 2006 Incentive Plan, and no options can be granted from the 2002 Plan after
May 23, 2006. Options previously granted from this plan remain outstanding and continue to be
governed by the rules of the plan. The 2002 Plan was a non-stockholder approved plan under
which non-qualified incentive options have been granted to our employees and key consultants
who are neither our executive officers nor our directors at the time of grant. The board
authorized 6,000,000 shares of common stock for issuance under the 2002 Plan. The option
price of the options is the fair market value, defined as the closing quoted selling price of
the common stock on the date of the grant. No option granted under the 2002 Plan has a term
in excess of ten years, and each will be subject to earlier termination within a specified
period following the optionees cessation of service with us. As of December 31, 2007, the
weighted average term to expiration of these options is 5.7 years. Each granted option vests
in one or more installments over a period of five years. However, the options will vest on an
accelerated basis in the event we experience a change of control (as defined in the 2002
Plan).  45




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##### Table of Contents



Repurchases of Common Stock
  
    Year
    
    
    Year
    
    
    Year
    
    
    Transition
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Period Ended
    
    
    EndedDec. 31, 2007
    
    
    Dec. 31, 2006
    
    
    Dec. 31, 2005
    
    
    Dec. 31, 2005
    
    
    Dec. 31, 2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(unaudited)
    
    
    
    
    
    
    (unaudited)(in thousands, except per share amounts)Statements of Operations Data:Net product revenues
    
    $
    441,868
    
    
    $
    377,548
    
    
    $
    306,735
    
    
    $
    156,963
    
    
    $
    144,116Net contract revenues
    
    
    15,526
    
    
    
    15,617
    
    
    
    46,002
    
    
    
    8,385
    
    
    
    34,168Net revenues
    
    
    457,394
    
    
    
    393,165
    
    
    
    352,737
    
    
    
    165,348
    
    
    
    178,284Gross profit (a)
    
    
    401,284
    
    
    
    347,059
    
    
    
    297,000
    
    
    
    139,583
    
    
    
    148,859Operating expenses:Selling, general and administrative
    
    
    242,633
    (b)
    
    
    202,457
    (d)
    
    
    146,158
    (f)
    
    
    78,535
    (i)
    
    
    63,305
    (k)Impairment of intangible assets
    
    
    4,067
    
    
    
    52,586
    
    
    
    9,171
    
    
    
    9,171
    
    
    
    Research and development
    
    
    39,428
    (c)
    
    
    161,837
    (e)
    
    
    42,903
    (g)
    
    
    22,367
    (j)
    
    
    45,140
    (l)Depreciation and amortization
    
    
    24,548
    
    
    
    23,048
    
    
    
    24,548
    
    
    
    12,420
    
    
    
    10,222Total operating expenses
    
    
    310,676
    
    
    
    439,928
    
    
    
    222,780
    
    
    
    122,493
    
    
    
    118,667Operating income (loss)
    
    
    90,608
    
    
    
    (92,869
    )
    
    
    74,220
    
    
    
    17,090
    
    
    
    30,192Other:Other income, net
    
    
    
    
    
    
    
    
    
    
    59,801
    (h)
    
    
    59,801
    (h)
    
    
    Interest and investment income
(expense), net
    
    
    28,372
    
    
    
    20,147
    
    
    
    5,804
    
    
    
    4,726
    
    
    
    (248
    )Income tax (expense) benefit
    
    
    (48,544
    )
    
    
    24,570
    
    
    
    (49,551
    )
    
    
    (29,811
    )
    
    
    (10,377
    )Net income (loss)
    
    $
    70,436
    
    
    $
    (48,152
    )
    
    $
    90,274
    
    
    $
    51,806
    
    
    $
    19,567Basic net income (loss) per share
    
    $
    1.26
    
    
    $
    (0.88
    )
    
    $
    1.66
    
    
    $
    0.95
    
    
    $
    0.35Diluted net income (loss) per share
    
    $
    1.08
    
    
    $
    (0.88
    )
    
    $
    1.39
    (m)
    
    $
    0.79
    
    
    $
    0.32Cash dividend declared per common share
    
    $
    0.12
    
    
    $
    0.12
    
    
    $
    0.12
    
    
    $
    0.06
    
    
    $
    0.06Basic common shares outstanding
    
    
    55,988
    
    
    
    54,688
    
    
    
    54,290
    
    
    
    54,323
    
    
    
    55,972Diluted common shares outstanding
    
    
    71,246
    
    
    
    54,688
    
    
    
    69,558
    (m)
    
    
    69,772
    
    
    
    72,160
 46




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##### Table of Contents



(a)
    
    Amounts exclude $21.6 million, $20.0 million, $21.6 million, $10.9 million and $8.9 million
of amortization expense related to acquired intangible assets for the year ended December 31,
2007, 2006 and 2005, the Transition Period, and the six months ended December 31, 2004,
respectively.(b)
    
    Includes approximately $21.0 million of compensation expense related to stock options and
restricted stock, $2.2 million of professional fees related to a strategic collaboration with
Hyperion Therapeutics, Inc. and $1.3 million of professional fees related to a strategic
collaboration agreement with Revance.(c)
    
    Includes approximately $8.0 million related to our option to acquire Revance or to license
Revances product currently under development and approximately $0.1 million of compensation
expense related to stock options and restricted stock.(d)
    
    Includes approximately $24.5 million of compensation expense related to stock options and
restricted stock, $10.2 million related to a loss contingency for a legal matter and $1.8
million related to a settlement of a dispute related to our merger with Ascent.(e)
    
    Includes approximately $125.2 million paid to Ipsen related to the RELOXIN®
development and distribution agreement and approximately $1.6 million of compensation expense
related to stock options and restricted stock.(f)
    
    Includes approximately $13.9 million of compensation expense related to stock options and
restricted stock recognized during the Transition Period and approximately $6.0 million of
integration planning costs incurred related to the proposed Inamed transaction during the
three months ended June 30, 2005 and three months ended September 30, 2005.(g)
    
    Includes approximately $8.3 million paid to AAIPharma related to a research and development
collaboration, $11.9 million related to a research and development collaboration with Dow and
approximately $1.0 million of compensation expense related to stock options and restricted
stock.(h)
    
    Represents a termination fee of $90.5 million received from Inamed upon the termination of
the proposed merger with Inamed, net of a termination fee paid to an investment banker and the
expensing of accumulated transactions costs of $27.0 million, and integration costs incurred
during the three months ended December 31, 2005 of $3.7 million.(i)
    
    Includes approximately $13.9 million of compensation expense related to stock options and
restricted stock recognized during the Transition Period and approximately $0.7 million of
integration planning costs incurred related to the proposed Inamed transaction during the
three months ended September 30, 2005.(j)
    
    Includes approximately $11.9 million related to a research and development collaboration with
Dow and approximately $1.0 million of compensation expense related to stock options and
restricted stock.(k)
    
    Includes approximately $1.3 million of professional fees related to research and development
collaborations with Ansata and Q-Med.(l)
    
    Includes $5.0 million paid to Ansata related to an exclusive development and license
agreement and $30.0 million paid to Q-Med related to an exclusive license agreement for the
development of SubQTM.(m)
    
    Diluted net income per common share for the unaudited year ended December 31, 2005 was
calculated by using the average of the periodic diluted common shares outstanding during the
year. For the period from January 1, 2005 to June 30, 2005, diluted common shares outstanding
was calculated using APB Opinion No. 25, while for the period from July 1, 2005 to December
31, 2005, diluted common shares outstanding was calculated using SFAS 123R. The Company
adopted SFAS No. 123R effective July 1, 2005. 47




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##### Table of Contents



December 31,2007
    
    2006
    
    2005(in thousands)Balance Sheet Data:Cash, cash equivalents and short-term
investments
    
    $
    794,680
    
    
    $
    554,261
    (a)
    
    $
    742,532Working capital (restated)
    
    
    422,971
    
    
    
    323,070
    
    
    
    630,951Long-term investments
    
    
    17,072
    
    
    
    130,290
    
    
    
    Total assets (restated)
    
    
    1,213,411
    
    
    
    1,122,720
    
    
    
    1,196,354Current portion of long-term debt
    
    
    283,910
    
    
    
    169,155
    
    
    
    Long-term debt
    
    
    169,145
    
    
    
    283,910
    
    
    
    453,065Stockholders equity (restated)
    
    
    583,301
    
    
    
    475,520
    
    
    
    481,751
  Six MonthsYear Ended
    
    Transition
    
    EndedDec. 31, 2007
    
    Dec. 31, 2006
    
    Dec. 31, 2005
    
    Period
    
    Dec. 31, 2004(unaudited)
    
    
    
    
    
    (unaudited)(in thousands)Cash Flow Data:Net cash provided by (used in)
operating activities
    
    $
    158,944
    (b)
    
    $
    (40,963
    )(c)
    
    $
    232,506
    (d)
    
    $
    147,990
    (d)
    
    $
    45,465Net cash (used in) provided by
investing activities
    
    
    (269,486
    )(e)
    
    
    (216,915
    )
    
    
    187,994
    
    
    
    123,665
    
    
    
    76,158Net cash provided by (used
in) by
financing activities
    
    
    14,470
    
    
    
    14,278
    
    
    
    (5,137
    )
    
    
    (2,792
    )
    
    
    (137,447
    )
 
 (a)
    
    Decrease in cash, cash equivalents and short-term investments from December 31, 2005 to
December 31, 2006 primarily due to payments totaling $125.2 million made to Ipsen related
to a development and distribution agreement for the development of RELOXIN®,
payment of the $27.4 million contingent payment related to the merger with Ascent, and
payments totaling $35.7 million for income taxes during 2006. In addition, approximately
$130.3 million of our available-for-sale investments have been treated as long-term assets
as of December 31, 2006, based on their expected maturities.(b)
    
    Net cash provided by operating activities for the year ended December 31, 2007 included
$8.0 million of the $20.0 million payment to Revance, representing the residual value of
the option to acquire Revance or to license Revances product currently under development,
and is included in research and development expense.(c)
    
    Net cash used in operating activities for the year ended December 31, 2006 included
payments totaling $125.2 million made to Ipsen related to a development and distribution
agreement for the development of RELOXIN®.(d)
    
    Net cash provided by operating activities for the year ended December 31, 2005 and the
Transition Period included a $90.5 million termination received from Inamed related to the
termination of a proposed merger.(e)
    
    Net cash used in investing activities for the year ended December 31, 2007 includes a
$12.0 million investment in Revance, representing the fair value of the investment in
Revance at the time of the investment. 48




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Fiscal Year Ended June 30,2005
    
    
    2004 (f)
    
    
    2003 (f)(Restated)
    
    
    (Restated)
    
    
    (Restated)(in thousands, except per share amounts)Statements of Operations Data:Net product revenues
    
    $
    293,888
    
    
    $
    303,056
    
    
    $
    204,706Net contract revenues
    
    
    71,785
    
    
    
    12,115
    
    
    
    5,630Net revenues
    
    
    365,673
    
    
    
    315,171
    
    
    
    210,336Gross profit (a)
    
    
    307,548
    
    
    
    263,994
    
    
    
    169,993Operating expenses:Selling, general and administrative
    
    
    130,927
    (b)
    
    
    114,231
    
    
    
    90,103Research and development
    
    
    65,676
    (c)
    
    
    16,494
    (d)
    
    
    29,568
    (e)Depreciation and amortization
    
    
    22,350
    
    
    
    16,794
    
    
    
    10,125Total operating expenses
    
    
    218,953
    
    
    
    147,519
    
    
    
    129,796Operating income
    
    
    88,595
    
    
    
    116,475
    
    
    
    40,197Other:Interest and investment income (expense), net
    
    
    830
    
    
    
    (758
    )
    
    
    (278
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    (58,660
    )
    
    
    Income tax expense
    
    
    (30,996
    )
    
    
    (21,877
    )
    
    
    (12,440
    )Net income
    
    $
    58,429
    
    
    $
    35,180
    
    
    $
    27,479Basic net income per share
    
    $
    1.06
    
    
    $
    0.63
    
    
    $
    0.51Diluted net income per share
    
    $
    0.92
    
    
    $
    0.58
    
    
    $
    0.50Cash dividend declared per common share
    
    $
    0.12
    
    
    $
    0.10
    
    
    $
    0.025Basic common shares outstanding
    
    
    55,196
    
    
    
    55,618
    
    
    
    54,376Diluted common shares outstanding
    
    
    70,909
    
    
    
    72,481
    
    
    
    70,191
 
 (a)
    
    Amounts exclude $19.6 million, $14.9 million and $9.2 million for amortization expense
related to acquired intangible assets in fiscal 2005, 2004 and 2003, respectively.(b)
    
    Includes approximately $5.3 million of business integration planning costs related to the
proposed merger with Inamed, and approximately $1.3 million of professional fees related to
research and development collaborations with AAIPharma, Ansata and Q-Med.(c)
    
    Includes approximately $8.3 million paid to AAIPharma related to a research and development
collaboration, $5.0 million paid to Ansata related to an exclusive development and license
agreement and $30.0 million paid to Q-Med related to an exclusive license agreement for the
development of SubQTM.(d)
    
    Includes approximately $2.4 million paid to Dow for a research and development collaboration.(e)
    
    Includes $14.2 million paid to Dow for a research and development collaboration and
approximately $6.0 million paid to AAIPharma for a research and development collaboration. 49




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(f)
    
    The restatement adjustments affected the fiscal years ended June 30, 2004 and June 30, 2003
as follows: Fiscal Year Ended June 30, 2004
    
    Fiscal Year Ended June 30, 2003As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    Restated(in thousands, except per share data)Net product revenues
    
    $
    291,607
    
    
    $
    303,056
    
    
    $
    241,909
    
    
    $
    204,706Net revenues
    
    
    303,722
    
    
    
    315,171
    
    
    
    247,539
    
    
    
    210,336Gross profit
    
    
    257,116
    
    
    
    263,994
    
    
    
    209,279
    
    
    
    169,993Selling, general and
administrative expense
    
    
    118,253
    
    
    
    114,231
    
    
    
    91,648
    
    
    
    90,103Income tax expense
    
    
    (15,317
    )
    
    
    (21,877
    )
    
    
    (26,404
    )
    
    
    (12,440
    )Net income
    
    $
    30,840
    
    
    $
    35,180
    
    
    $
    51,256
    
    
    $
    27,479Basic net income per share
    
    $
    0.55
    
    
    $
    0.63
    
    
    $
    0.94
    
    
    $
    0.51Diluted net income per share
    
    $
    0.52
    
    
    $
    0.58
    
    
    $
    0.84
    
    
    $
    0.50
 June 30,2005
    
    2004 (a)
    
    2003 (a)(in thousands)Balance Sheet Data:Cash, cash equivalents, restricted cash
and short-term investments
    
    $
    603,568
    
    
    $
    634,040
    
    
    $
    552,663Working capital (restated)
    
    
    530,850
    
    
    
    604,564
    
    
    
    514,785Total assets (restated)
    
    
    1,095,087
    
    
    
    1,116,396
    
    
    
    980,756Long-term debt
    
    
    453,065
    
    
    
    453,067
    
    
    
    400,000Stockholders equity (restated)
    
    
    416,891
    
    
    
    492,892
    
    
    
    398,893
 
 (a)
    
    The restatement adjustments affected June 30, 2004 and June 30, 2003 as follows: June 30, 2004
    
    June 30, 2003As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    Restated(in thousands)Working capital
    
    $
    666,743
    
    
    $
    604,564
    
    
    $
    576,781
    
    
    $
    514,785Total assets
    
    
    1,078,384
    
    
    
    1,116,396
    
    
    
    932,841
    
    
    
    980,756Stockholders equity
    
    
    555,303
    
    
    
    492,892
    
    
    $
    461,121
    
    
    
    398,893
  Fiscal Year Ended June 30,2005
    
    2004
    
    2003(in thousands)Cash Flow Data:Net cash provided by operating activities
    
    $
    129,981
    
    
    $
    127,964
    
    
    $
    84,667Net cash provided by (used in) investing
activities
    
    
    140,487
    
    
    
    (166,341
    )
    
    
    (113,709
    )Net cash (used in) provided by financing
activities
    
    
    (139,793
    )
    
    
    40,621
    
    
    
    (23,343
    )
 50




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Fiscal
    
    
    Fiscal
    
    
    Transition
    
    
    Fiscal
    
    
    Fiscal
    
    
    FiscalYear
    
    
    Year
    
    
    Period
    
    
    Year
    
    
    Year
    
    
    YearEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedNet revenues (in millions)
    
    12/31/07
    
    
    12/31/06
    
    
    12/31/05
    
    
    6/30/05
    
    
    6/30/04
    
    
    6/30/03As Reported
    
    $
    464.7
    
    
    $
    349.2
    
    
    $
    164.0
    
    
    $
    376.9
    
    
    $
    303.7
    
    
    $
    247.5Adjustment
    
    
    (7.3
    )
    
    
    44.0
    
    
    
    1.3
    
    
    
    (11.2
    )
    
    
    11.5
    
    
    
    (37.2
    )As Restated
    
    $
    457.4
    
    
    $
    393.2
    
    
    $
    165.3
    
    
    $
    365.7
    
    
    $
    315.2
    
    
    $
    210.3
 Fiscal
    
    
    Fiscal
    
    
    Transition
    
    
    Fiscal
    
    
    Fiscal
    
    
    FiscalDiluted net
    
    Year
    
    
    Year
    
    
    Period
    
    
    Year
    
    
    Year
    
    
    Yearincome (loss) per
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Endedshare (in dollars)
    
    12/31/07
    
    
    12/31/06
    
    
    12/31/05
    
    
    6/30/05
    
    
    6/30/04
    
    
    6/30/03As Reported
    
    $
    1.14
    
    
    $
    (1.39
    )
    
    $
    0.76
    
    
    $
    1.01
    
    
    $
    0.52
    
    
    $
    0.84Adjustment
    
    
    (0.06
    )
    
    
    0.51
    
    
    
    0.03
    
    
    
    (0.09
    )
    
    
    0.06
    
    
    
    (0.34
    )As Restated
    
    $
    1.08
    
    
    $
    (0.88
    )
    
    $
    0.79
    
    
    $
    0.92
    
    
    $
    0.58
    
    
    $
    0.50
 Fiscal
    
    
    Fiscal
    
    
    Transition
    
    
    Fiscal
    
    
    Fiscal
    
    
    FiscalYear
    
    
    Year
    
    
    Period
    
    
    Year
    
    
    Year
    
    
    YearEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedWorking capital (in millions)
    
    12/31/07
    
    
    12/31/06
    
    
    12/31/05
    
    
    6/30/05
    
    
    6/30/04
    
    
    6/30/03As Reported
    
    $
    460.1
    
    
    $
    356.9
    
    
    $
    692.5
    
    
    $
    600.1
    
    
    $
    666.7
    
    
    $
    576.8Adjustment
    
    
    (37.1
    )
    
    
    (33.8
    )
    
    
    (61.5
    )
    
    
    (69.2
    )
    
    
    (62.1
    )
    
    
    (62.0
    )As Restated
    
    $
    423.0
    
    
    $
    323.1
    
    
    $
    631.0
    
    
    $
    530.9
    
    
    $
    604.6
    
    
    $
    514.8
   53




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YEAR ENDED DECEMBER 31, 2007(FOR THE QUARTERS ENDED)(In Thousands, except per share data)March 31, 2007
    
    June 30, 2007
    
    September 30, 2007
    
    December 31, 2007As
    
    
    
    
    
    As
    
    
    
    
    
    As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    As
    
    Previously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    RestatedNet revenues
    
    $
    95,114
    
    
    $
    98,665
    
    
    $
    108,864
    
    
    $
    113,606
    
    
    $
    120,422
    
    
    $
    110,983
    
    
    $
    140,251
    
    
    $
    134,140Net income
    
    $
    9,288
    
    
    $
    11,681
    
    
    $
    15,523
    
    
    $
    18,540
    
    
    $
    22,761
    
    
    $
    16,993
    
    
    $
    27,479
    
    
    $
    23,221Diluted net income per
common share
    
    $
    0.15
    
    
    $
    0.19
    
    
    $
    0.24
    
    
    $
    0.28
    
    
    $
    0.34
    
    
    $
    0.26
    
    
    $
    0.41
    
    
    $
    0.35Working capital at
end of quarter
    
    $
    639,157
    
    
    $
    609,055
    
    
    $
    570,713
    
    
    $
    543,628
    
    
    $
    734,824
    
    
    $
    701,972
    
    
    $
    460,079
    
    
    $
    422,971
 YEAR ENDED DECEMBER 31, 2006(FOR THE QUARTERS ENDED)(In Thousands, except per share data)March 31, 2006
    
    June 30, 2006
    
    September 30, 2006
    
    December 31, 2006As
    
    
    
    
    
    As
    
    
    
    
    
    As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    As
    
    Previously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    RestatedNet revenues
    
    $
    75,158
    
    
    $
    80,692
    
    
    $
    85,032
    
    
    $
    96,427
    
    
    $
    89,987
    
    
    $
    101,645
    
    
    $
    99,067
    
    
    $
    114,403Net (loss) income
    
    $
    (88,543
    )
    
    $
    (85,661
    )
    
    $
    15,519
    
    
    $
    24,838
    
    
    $
    (20,677
    )
    
    $
    (16,594
    )
    
    $
    17,852
    
    
    $
    29,265Diluted net (loss) income
per common share
    
    $
    (1.63
    )
    
    $
    (1.58
    )
    
    $
    0.25
    
    
    $
    0.38
    
    
    $
    (0.38
    )
    
    $
    (0.30
    )
    
    $
    0.27
    
    
    $
    0.43Working capital
end of quarter
    
    $
    615,225
    
    
    $
    556,606
    
    
    $
    608,759
    
    
    $
    559,459
    
    
    $
    575,430
    
    
    $
    530,213
    
    
    $
    356,874
    
    
    $
    323,070
 2007
 ® ®
 ® ® ®
 55




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® ® ®
 ® ® ® ®
 2006
    56




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##### Table of Contents



® ® ® ® ® ® ® ® ® ® ® ®
 Financial Information About Segments
  Key Aspects of Our Business
 ® ® ® ® ® ®
  57




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##### Table of Contents



58




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##### Table of Contents




    
    FDA approval of PERLANE®;
    
    Write-down of intangible asset related to OMNICEF® due to impairment;
    
    Strategic collaboration with Hyperion; and
    
    Strategic collaboration with Revance.
 FDA approval of PERLANE ®
 ® ®
 Write-down of intangible asset related to OMNICEF ® due to impairment
 ® ® ® ®
 Strategic Collaboration with Hyperion
 ® Accounting for Revenue Arrangements with Multiple Deliverables, Revenue Recognition in Financial Statements, ® ®
  59




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##### Table of Contents



Strategic Collaboration with Revance
      60




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##### Table of Contents



(Unaudited)Year
    
    Year
    
    YearEnded
    
    Ended
    
    EndedDec. 31,
    
    Dec. 31,
    
    Dec. 31,2007(a)
    
    2006(b)
    
    2005(c)(Restated)
    
    (Restated)
    
    (Restated)Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit (d)
    
    
    87.7
    
    
    
    88.3
    
    
    
    84.2Operating expenses
    
    
    67.9
    
    
    
    111.9
    
    
    
    63.2Operating income (loss)
    
    
    19.8
    
    
    
    (23.6
    )
    
    
    21.0Other income, net
    
    
    
    
    
    
    
    
    
    
    17.0Interest and investment income (expense), net
    
    
    6.2
    
    
    
    5.1
    
    
    
    1.6Income (loss) before income tax (expense)
benefit
    
    
    26.0
    
    
    
    (18.5
    )
    
    
    39.6Income tax (expense) benefit
    
    
    (10.6
    )
    
    
    6.3
    
    
    
    (14.0
    )Net income (loss)
    
    
    15.4
    %
    
    
    (12.2
    )%
    
    
    25.6
    %
 
 (a)
    
    Included in operating expense is $21.1 million (4.6% of net revenues) of share-based
compensation expense, $9.3 million (2.0% of net revenues) related to our option to acquire
Revance or to license Revances product currently under development (including $1.3 million of
professional fees incurred related to the agreement), $4.1 million (0.9% of net revenues) for
the write-down of an intangible asset related to OMNICEF® and $2.2 million (0.5% of
net revenues) of professional fees related to a strategic collaboration with Hyperion.(b)
    
    Included in operating expenses is $125.2 million (31.8% of net revenues) related to our
development and distribution agreement with Ipsen for the development of RELOXIN®,
$52.6 million (13.4% of net revenues) for the write-down of intangible assets, $26.1 million
(6.6% of net revenues) of share-based compensation expense, $10.2 million (2.6% of net
revenues) related to a loss contingency for a legal matter and $1.8 million (0.5% of net
revenues) related to a settlement of a dispute related to our merger with Ascent.(c)
    
    Included in operating expenses is $11.9 million (3.4% of net revenues) related to a research
and development collaboration with Dow, $8.3 million (2.3% of net revenues) related to a
research and development collaboration with AAIPharma, $15.2 million (4.3% of net revenues) of
share-based compensation expense, $9.2 million (2.6% of net revenues) for the write-down of an
intangible asset and $6.0 million (1.7% of net revenues) of business integration planning
costs related to the proposed (and subsequently terminated) merger with Inamed incurred during
the three months ended June 30, 2005 and three months ended September 30, 2005. Included in
other income, net, is $59.8 million (17.0% of net revenue) related to a termination fee of
$90.5 million received from Inamed upon the termination of the proposed merger with Inamed,
net of a fee paid to an investment banker and the expensing of accumulated transaction costs
of $27.0 million, and integration planning costs incurred during the three months ended
December 31, 2005 of $3.7 million.(d)
    
    Gross profit does not include amortization of the related intangibles as such expense is
included in operating expenses. 61




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Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
 Net Revenues
  2007
    
    
    2006
    
    
    $ Change
    
    
    % Change(Restated)
    
    
    (Restated)Net product revenues
    
    $
    441.9
    
    
    $
    377.6
    
    
    $
    64.3
    
    
    
    17.0
    %Net contract revenues
    
    
    15.5
    
    
    
    15.6
    
    
    
    (0.1
    )
    
    
    (0.6
    )%Total net revenues
    
    $
    457.4
    
    
    $
    393.2
    
    
    $
    64.2
    
    
    
    16.3
    %
 2007
    
    
    2006
    
    
    $ Change
    
    
    % Change(Restated)
    
    
    (Restated)Acne and acne-related
dermatological products
    
    $
    243.4
    
    
    $
    159.8
    
    
    $
    83.6
    
    
    
    52.3
    %Non-acne dermatological
products
    
    
    172.9
    
    
    
    199.6
    
    
    
    (26.7
    )
    
    
    (13.4
    )%Non-dermatological products
(including contract revenues)
    
    
    41.1
    
    
    
    33.8
    
    
    
    7.3
    
    
    
    21.6
    %Total net revenues
    
    $
    457.4
    
    
    $
    393.2
    
    
    $
    64.2
    
    
    
    16.3
    %
 PercentagePoint2007
    
    2006
    
    Change(Restated)
    
    (Restated)Acne and acne-related
dermatological products
    
    
    53.2
    %
    
    
    40.6
    %
    
    
    12.6Non-acne dermatological
products
    
    
    37.8
    %
    
    
    50.8
    %
    
    
    (13.0
    )Non-dermatological products
(including contract revenues)
    
    
    9.0
    %
    
    
    8.6
    %
    
    
    0.4Total net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    
 ® ® ® ® ® ® ® ® ® ®
 62




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##### Table of Contents



2007
    
    
    2006(in millions)Net revenues, as previously reported
    
    $
    464.7
    
    
    $
    349.2Restatement adjustments:Sales return reserve adjustment
    
    
    (8.8
    )
    
    
    42.6Other miscellaneous adjustments
    
    
    1.5
    
    
    
    1.4Net revenues, as restated
    
    $
    457.4
    
    
    $
    393.2
 Gross Profit
   2007
    
    2006
    
    $ Change
    
    % Change(Restated)
    
    (Restated)Gross profit
    
    $
    401.3
    
    
    $
    347.1
    
    
    $
    54.2
    
    
    
    15.6
    %% of net revenues
    
    
    87.7
    %
    
    
    88.3
    %
 ®
  2007
    
    
    2006(in millions)Gross profit, as previously reported
    
    $
    413.7
    
    
    $
    307.5Restatement adjustments:Net revenue restatement adjustments
    
    
    (7.3
    )
    
    
    44.0Reclassification of donated product from
selling, general and administrative expense
to cost of product revenues
    
    
    (5.3
    )
    
    
    (4.4
    )Other
    
    
    0.2
    
    
    
    Gross profit, as restated
    
    $
    401.3
    
    
    $
    347.1
 63




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##### Table of Contents



Selling, General and Administrative Expenses
  2007
    
    2006
    
    $ Change
    
    % Change(Restated)
    
    (Restated)Selling, general and administrative
    
    $
    242.6
    
    
    $
    202.5
    
    
    $
    40.1
    
    
    
    19.8
    %% of net revenues
    
    
    53.0
    %
    
    
    51.5
    %Share-based compensation expense
included in selling, general and
administrative
    
    $
    21.0
    
    
    $
    24.5
    
    
    $
    (3.5
    )
    
    
    (14.0
    )%
 ® ® ® ® ® ® ®
  2007
    
    
    2006(in millions)Selling, general and administrative expense,
as previously reported
    
    $
    247.9
    
    
    $
    206.8Restatement adjustment:Reclassification of donated product from
selling, general and administrative expense
to cost of product revenues
    
    
    (5.3
    )
    
    
    (4.3
    )Selling, general and administrative expense,
as restated
    
    $
    242.6
    
    
    $
    202.5
 64




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##### Table of Contents



Impairment of Intangible Assets
 ®
 ®
  Intangible asset related to LOPROX® products
    
    $
    49,163Intangible asset related to ESOTERICA® products
    
    
    3,267Other intangible asset
    
    
    156$
    52,586
 ® ® ® ® ®
 Research and Development Expenses
  2007
    
    2006
    
    $ Change
    
    % ChangeResearch and development
    
    $
    39.4
    
    
    $
    161.8
    
    
    $
    (122.4
    )
    
    
    (75.6
    )%Charges included in research
and development
    
    $
    8.0
    
    
    $
    125.2
    
    
    $
    (117.2
    )
    
    
    (93.6
    )%Share-based compensation
expense included in
research and development
    
    $
    0.1
    
    
    $
    1.6
    
    
    $
    (1.5
    )
    
    
    (93.1
    )%
 ® ® ®
 65




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##### Table of Contents



Depreciation and Amortization Expenses
 ®
 Interest and Investment Income
  Interest Expense
  Income Tax Expense
  2007
    
    2006
    
    $ Change
    
    % Change(Restated)
    
    (Restated)Income tax (benefit) expense
    
    $
    48.5
    
    
    $
    (24.6
    )
    
    $
    73.1
    
    
    
    297.2
    %Effective tax rate
    
    
    40.8
    %
    
    
    (33.8
    )%
   66




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##### Table of Contents



Year Ended December 31, 2006 Compared to the Unaudited Year Ended December 31, 2005
 Net Revenues
  2006
    
    
    2005
    
    
    $ Change
    
    
    % Change(Restated)
    
    
    (Restated)Net product revenues
    
    $
    377.6
    
    
    $
    306.7
    
    
    $
    70.9
    
    
    
    23.1
    %Net contract revenues
    
    
    15.6
    
    
    
    46.0
    
    
    
    (30.4
    )
    
    
    (66.1
    )%Net revenues
    
    $
    393.2
    
    
    $
    352.7
    
    
    $
    40.5
    
    
    
    11.5
    %
 2006
    
    
    2005
    
    
    $ Change
    
    
    % Change(Restated)
    
    
    (Restated)Acne and acne-related
dermatological products
    
    $
    159.8
    
    
    $
    114.3
    
    
    $
    45.5
    
    
    
    39.8
    %Non-acne dermatological
products
    
    
    199.6
    
    
    
    172.1
    
    
    
    27.5
    
    
    
    16.0
    %Non-dermatological products
(including contract revenues)
    
    
    33.8
    
    
    
    66.3
    
    
    
    (32.5
    )
    
    
    (49.0
    )%Total net revenues
    
    $
    393.2
    
    
    $
    352.7
    
    
    $
    40.5
    
    
    
    11.5
    %
 PercentagePoint2006
    
    2005
    
    Change(Restated)
    
    (Restated)Acne and acne-related
dermatological products
    
    
    40.6
    %
    
    
    32.4
    %
    
    
    8.2Non-acne dermatological
products
    
    
    50.8
    
    
    
    48.8
    
    
    
    2.0Non-dermatological products
    
    
    8.6
    
    
    
    18.8
    
    
    
    (10.2
    )Total net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    
 ® ® ®
 67




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##### Table of Contents



® ® ® ® ® ® ® ® ®
  2006
    
    
    2005(in millions)Net revenues, as previously reported
    
    $
    349.2
    
    
    $
    359.7Restatement adjustments:Sales return reserve adjustment
    
    
    42.6
    
    
    
    (6.8
    )Other miscellaneous adjustments
    
    
    1.4
    
    
    
    (0.2
    )Net revenues, as restated
    
    $
    393.2
    
    
    $
    352.7
 Gross Profit
   2006
    
    2005
    
    $ Change
    
    % Change(Restated)
    
    (Restated)Gross profit
    
    $
    347.1
    
    
    $
    297.0
    
    
    $
    50.1
    
    
    
    16.9
    %% of net revenues
    
    
    88.3
    %
    
    
    84.2
    %
 ®
  2006
    
    
    2005(in millions)Gross profit, as previously reported
    
    $
    307.5
    
    
    $
    307.4Restatement adjustments:Net revenue restatement adjustments
    
    
    44.0
    
    
    
    (7.0
    )Reclassification of donated product from
selling, general and administrative expense to cost of product revenues
    
    
    (4.4
    )
    
    
    (3.4
    )Gross profit, as restated
    
    $
    347.1
    
    
    $
    297.0
 68




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##### Table of Contents



Selling, General and Administrative Expenses
  2006
    
    2005
    
    $ Change
    
    % Change(Restated)
    
    (Restated)Selling, general and administrative
    
    $
    202.5
    
    
    $
    146.2
    
    
    $
    56.3
    
    
    
    38.5
    %% of net revenues
    
    
    51.5
    %
    
    
    41.4
    %Inamed business integration planning
costs included in selling,
general and administrative
    
    $
    
    
    
    $
    6.0
    
    
    $
    (6.0
    )
    
    
    (100.0
    )%Share-based compensation expense
included in selling, general and
administrative
    
    $
    24.5
    
    
    $
    14.2
    
    
    $
    10.3
    
    
    
    72.1
    %
 ® ® ® ® ®
  2006
    
    
    2005(in millions)Selling, general and administrative expense,
as previously reported
    
    $
    206.8
    
    
    $
    149.6Restatement adjustment:Reclassification of donated product from
selling, general and administrative expense
to cost of product revenues
    
    
    (4.3
    )
    
    
    (3.4
    )Selling, general and administrative expense,
as restated
    
    $
    202.5
    
    
    $
    146.2
 69




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##### Table of Contents



Impairment of Intangible Assets
  Long-lived asset related to LOPROX® products
    
    $
    49,163Long-lived asset related to ESOTERICA® products
    
    
    3,267Other long-lived asset
    
    
    156$
    52,586
 ® ® ® ® ®
 ® ®
 Research and Development Expenses
  2006
    
    2005
    
    $ Change
    
    % ChangeResearch and development
    
    $
    161.8
    
    
    $
    42.9
    
    
    $
    118.9
    
    
    
    277.2
    %Charges included in research
and development
    
    $
    125.2
    
    
    $
    20.2
    
    
    $
    105.0
    
    
    
    518.8
    %Share-based compensation
expense included in
research and development
    
    $
    1.6
    
    
    $
    1.0
    
    
    $
    0.6
    
    
    
    62.7
    %
 ® ® ® ®
 Depreciation and Amortization Expenses
  70




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##### Table of Contents



Interest and Investment Income
  Interest Expense
 
 Income Tax Expense
  2006
    
    2005
    
    $ Change
    
    % Change(Restated)
    
    (Restated)Income tax (benefit) expense
    
    $
    (24.6
    )
    
    $
    49.6
    
    
    $
    (74.2
    )
    
    
    (149.6
    )%Effective tax rate
    
    
    (33.8
    )%
    
    
    35.4
    %
    71




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##### Table of Contents



Overview
  2007
    
    2006
    
    $ Change
    
    % ChangeCash provided by (used in):Operating activities
    
    $
    158.9
    
    
    $
    (41.0
    )
    
    $
    199.9
    
    
    
    488.0
    %Investing activities
    
    
    (269.5
    )
    
    
    (216.9
    )
    
    
    (52.6
    )
    
    
    (24.2
    )%Financing activities
    
    
    14.5
    
    
    
    14.3
    
    
    
    0.2
    
    
    
    1.3
    %
 Dec. 31, 2007
    
    Dec. 31, 2006
    
    $ Change
    
    % ChangeCash, cash equivalents and
short-term investments
    
    $
    794.7
    
    
    $
    554.3
    
    
    $
    240.4
    
    
    
    43.4
    %Working capital (restated)
    
    
    423.0
    
    
    
    323.1
    
    
    
    99.9
    
    
    
    30.9
    %Long-term investments
    
    
    17.1
    
    
    
    130.3
    
    
    
    (113.2
    )
    
    
    (86.9
    )%2.5% contingent convertible senior
notes due 2032
    
    
    169.2
    
    
    
    169.2
    
    
    
    
    
    
    
    1.5% contingent convertible senior
notes due 2033
    
    
    283.9
    
    
    
    283.9
    
    
    
    
    
    
    
    
 Working Capital
  Dec. 31, 2007
    
    
    Dec. 31, 2006
    
    
    $ Change
    
    
    % ChangeCash, cash equivalents and
short-term investments
    
    $
    794.7
    
    
    $
    554.3
    
    
    $
    240.4
    
    
    
    43.4.
    %Accounts receivable, net (restated)
    
    
    22.2
    
    
    
    71.7
    
    
    
    (49.5
    )
    
    
    (69.0
    )%Inventories, net
    
    
    30.0
    
    
    
    27.0
    
    
    
    3.0
    
    
    
    10.1
    %Deferred tax assets, net (restated)
    
    
    9.2
    
    
    
    17.4
    
    
    
    (8.2
    )
    
    
    (47.1
    )%Other current assets
    
    
    18.0
    
    
    
    16.0
    
    
    
    2.0
    
    
    
    12.5
    %Total current assets (restated)
    
    
    874.1
    
    
    
    686.4
    
    
    
    187.7
    
    
    
    27.3
    %Accounts payable
    
    
    34.9
    
    
    
    47.5
    
    
    
    (12.6
    )
    
    
    (26.6
    )%Reserve for sales returns (restated)
    
    
    68.8
    
    
    
    87.4
    
    
    
    (18.6
    )
    
    
    (21.3
    )%Current portion of long-term debt
    
    
    283.9
    
    
    
    169.2
    
    
    
    114.7
    
    
    
    67.8
    %Income taxes payable
    
    
    7.7
    
    
    
    12.6
    
    
    
    (4.9
    )
    
    
    (38.9
    )%Other current liabilities (restated)
    
    
    55.8
    
    
    
    46.6
    
    
    
    9.2
    
    
    
    19.7
    %Total current liabilities (restated)
    
    
    451.1
    
    
    
    363.3
    
    
    
    87.8
    
    
    
    24.2
    %Working capital (restated)
    
    $
    423.0
    
    
    $
    323.1
    
    
    $
    99.9
    
    
    
    30.9
    %
  ®
 72




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73




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##### Table of Contents



Operating Activities
  2007
    
    
    2006Payment made to Revance related to our option to acquire
Revance or to license Revances product currently
under development
    
    $
    (8.0
    )
    
    $
    Expenses related to our new ERP system
    
    
    (3.1
    )
    
    
    Payments made to Ipsen related to development of RELOXIN®
    
    
    (29.1
    )
    
    
    (125.2
    )Payment of professional fees related to termination of proposed
merger with Inamed
    
    
    
    
    
    
    (16.7
    )Income taxes paid
    
    
    (35.4
    )
    
    
    (35.7
    )Payment received from Hyperion related to strategic collaboration
    
    
    10.0
    
    
    
    Other cash provided by operating activities
    
    
    224.5
    
    
    
    136.6Cash (used in) provided by operating activities
    
    $
    158.9
    
    
    $
    (41.0
    )
 Investing Activities
 ®
 Financing Activities
  Contingent Convertible Senior Notes and Other Long-Term Commitments
  74




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Repurchases of Common Stock
  Dividends
  Off-Balance Sheet Arrangements
  75




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Contractual Obligations
  Payments Due By PeriodMore Than
    
    
    More Than1 Year and
    
    
    3 Years andLess Than
    
    
    Less Than
    
    
    Less Than
    
    
    More ThanTotal
    
    
    1 Year
    
    
    3 Years
    
    
    5 Years
    
    
    5 YearsLong-term debt
    
    $
    453,055
    
    
    $
    283,910
    
    
    $
    
    
    
    $
    169,145
    
    
    $
    Interest on long-term debt
    
    
    212,197
    
    
    
    8,487
    
    
    
    16,975
    
    
    
    16,975
    
    
    
    169,760Operating leases
    
    
    58,075
    
    
    
    2,624
    
    
    
    11,387
    
    
    
    8,676
    
    
    
    35,388Other purchase obligations
and commitments
    
    
    867
    
    
    
    173
    
    
    
    347
    
    
    
    347
    
    
    
    Total contractual obligations
    
    $
    724,194
    
    
    $
    295,194
    
    
    $
    28,709
    
    
    $
    195,143
    
    
    $
    205,148
      76




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Critical Accounting Policies and Estimates
  Revenue Recognition
 Revenue Recognition in Financial Statements
   77




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Items Deducted From Gross Revenue
    78




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##### Table of Contents



Managed
    
    ConsumerCare &
    
    RebateReserve
    
    
    
    
    
    Sales
    
    
    
    
    
    Medicaid
    
    andfor Sales
    
    Deferred
    
    Discounts
    
    Chargebacks
    
    Rebates
    
    LoyaltyReturns
    
    Revenue
    
    Reserve
    
    Reserve
    
    Reserve
    
    Programs
    
    Total(Restated)
    
    (Restated)
    
    
    
    
    
    
    
    
    
    (Restated)
    
    (Restated)Balance at December
31, 2005
    
    $
    110,826
    
    
    $
    
    
    
    $
    1,344
    
    
    $
    649
    
    
    $
    6,215
    
    
    $
    2,420
    
    
    $
    121,454Actual
    
    
    (95,731
    )
    
    
    
    
    
    
    (9,363
    )
    
    
    (4,225
    )
    
    
    (12,069
    )
    
    
    (8,224
    )
    
    
    (129,612
    )Provision
    
    
    72,317
    
    
    
    
    
    
    
    9,720
    
    
    
    4,023
    
    
    
    11,965
    
    
    
    11,202
    
    
    
    109,227Balance at December
31, 2006
    
    $
    87,412
    
    
    $
    
    
    
    $
    1,701
    
    
    $
    447
    
    
    $
    6,111
    
    
    $
    5,398
    
    
    $
    101,069Actual
    
    
    (57,216
    )
    
    
    
    
    
    
    (11,270
    )
    
    
    (1,432
    )
    
    
    (9,814
    )
    
    
    (15,942
    )
    
    
    (95,674
    )Provision
    
    
    38,591
    
    
    
    1,907
    
    
    
    10,080
    
    
    
    1,305
    
    
    
    8,584
    
    
    
    25,289
    
    
    
    85,756Balance at December
31, 2007
    
    $
    68,787
    
    
    $
    1,907
    
    
    $
    511
    
    
    $
    320
    
    
    $
    4,881
    
    
    $
    14,745
    
    
    $
    91,151
 Reserve for Sales Returns
    79




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Sales Discounts
    Contract Chargebacks
   80




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Managed Care and Medicaid Rebates
  ®
  Consumer Rebates and Loyalty Programs
 ,
 ® ® ® ®
  81




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##### Table of Contents



Use of Information from External Sources
  Use of Estimates in Reserves
  Share-Based Compensation
    82




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##### Table of Contents



Inventory
  Long-lived Assets
    Income Taxes
  83




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##### Table of Contents



Research and Development Costs and Accounting for Strategic Collaborations
   Legal Contingencies
 ® ®
 84




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Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Statements
and Financial Liabilities Fair Value Measurements, Disclosures about Fair Value of Financial Instruments.
 Accounting for Nonrefundable Advance
Payments for Goods or Services to Be Used in Future Research and Development Activities
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of Accounting Research Bulletin No. 51
 Accounting for Collaborative
Agreements Reporting Revenue Gross as a Principal versus Net as an Agent
 85




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##### Table of Contents



Interest Rate Sensitivity
Principal Amount by Expected Maturity as of December 31, 2007
 Financial instruments mature during year ended December 31,2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    ThereafterAvailable-for-sale securities
    
    $
    409,544
    
    
    $
    192,513
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    101,649Weighted-average yield rate
    
    
    5.15
    %
    
    
    4.82
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.44
    %Contingent convertible
senior notes due 2032
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    169,145Interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5
    %Contingent convertible
senior notes due 2033
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    283,910Interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.5
    %
  86




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87




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##### Table of Contents



Managements Report on Internal Control over Financial Reporting
   Revenue Recognition When Right of Return Exists
   Remediation Steps to Address Material Weakness
  
    
    conduct a full review of our accounting methodology for sales return reserves;
    
    assess the technical accounting capabilities of the accounting and finance
departments to ensure the proper knowledge, skills, and training; and
 88




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##### Table of Contents




    
    finance and accounting personnel to attend training sessions, covering relevant
topics, which include revenue recognition and related accounting concepts.
    89




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 The Board of Directors and Stockholders of Medicis Pharmaceutical Corporation
         
 90




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PART III
 
      
   
   
   
   91




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##### Table of Contents



PART IV
 
  Page(a) Documents filed as a part of this Report(1) Financial Statements:Index to consolidated financial statements
    
    
    F-1Report of Independent Registered Public
Accounting Firm
    
    
    F-2Consolidated balance sheets as of December 31, 2007
and 2006 (restated)
    
    
    F-3Consolidated statements of operations for the years ended December
31, 2007 and 2006, the six months ended December 31, 2005 and
2004 (unaudited) and the fiscal year ended June 30, 2005 (restated)
    
    
    F-5Consolidated statements of stockholders equity for the years ended
December 31, 2007 and 2006, the six months ended December 31,
2005 and the fiscal year ended June 30, 2005 (restated)
    
    
    F-6Consolidated statements of cash flows for the years ended
December 31, 2007 and 2006, the six months ended December 31,
2005 and 2004 (unaudited) and the fiscal year ended June 30,
2005 (restated)
    
    
    F-10Notes to consolidated financial statements
    
    
    F-11(2) Financial Statement Schedule:Schedule II  Valuation and Qualifying Accounts
    
    
    S-1This financial statement schedule should be read in conjunction with
the consolidated financial statements. Financial statement schedules
not included in this Annual Report on Form 10-K/A have been omitted
because they are not applicable or the required information is shown
in the financial statements or notes thereto.(3) Exhibits filed as part of this Report:
 Exhibit No.
    
    Description2.1
    
    Agreement of Merger by and between the Company, Medicis Acquisition Corporation and GenDerm
Corporation, dated November 28, 1997 (11)2.2
    
    Agreement of Plan of Merger, dated as of October 1, 2001, by and among the Company, MPC
Merger Corp. and Ascent Pediatrics, Inc. (17)3.1
    
    Certificate of Incorporation of the Company, as amended (23)3.2
    
    Amended and Restated By-Laws of the Company (43)4.1
    
    Amended and Restated Rights Agreement, dated as of August 17, 2005, between the Company and
Wells Fargo Bank, N.A., as Rights Agent(26)4.2
    
    Indenture, dated as of August 19, 2003, by and between the Company, as issuer, and Deutsche
Bank Trust Company Americas, as trustee (23)4.3
    
    Indenture, dated as of June 4, 2002, by and between the Company, as issuer, and Deutsche Bank
Trust Company Americas, as trustee.(19)4.4
    
    Supplemental Indenture dated as of February 1, 2005 to Indenture dated as of August 19, 2003
between the Company and Deutsche Bank Trust Company Americas as Trustee (25)4.5
    
    Registration Rights Agreement, dated as of June 4, 2002, by and between the Company and
Deutsche Bank Securities Inc. (19)4.6
    
    Form of specimen certificate representing Class A common stock (1)10.1
    
    Asset Purchase Agreement among the Company, Ascent Pediatrics, Inc., BioMarin Pharmaceutical
Inc., and BioMarin Pediatrics Inc., dated April 20, 2004 (23)10.2
    
    Merger Termination Agreement, dated as of December 13, 2005, by and among the Company,
Masterpiece Acquisition Corp., and Inamed Corporation(31)10.3
    
    Securities Purchase Agreement among the Company, Ascent Pediatrics, Inc., BioMarin
Pharmaceutical Inc. and BioMarin Pediatrics Inc., dated May 18, 2004 (23)10.4
    
    Termination Agreement dated October 19, 2005 between the Company and Michael A.
Pietrangelo(28)
 92




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##### Table of Contents



Exhibit No.
    
    Description10.5
    
    License Agreement among the Company, Ascent Pediatrics, Inc. and BioMarin Pediatrics Inc.,
dated May 18, 2004 (23)10.6
    
    Medicis Pharmaceutical Corporation 1995 Stock Option Plan (incorporated by
reference to Exhibit C to the definitive Proxy Statement for the 1995 Annual
Meeting of Shareholders previously filed with the SEC, File No. 0-18443)10.7(a)
    
    Employment Agreement between the Company and Jonah Shacknai, dated
July 24, 1996 (8)10.7(b)
    
    Amendment to Employment Agreement by and between the Company and
Jonah Shacknai, dated April 1, 1999 (15)10.7(c)
    
    Amendment to Employment Agreement by and between the Company and
Jonah Shacknai, dated February 21, 2001 (15)10.7(d)
    
    Third Amendment, dated December 30, 2005, to Employment Agreement between the Company and
Jonah Shacknai(32)10.8
    
    Medicis Pharmaceutical Corporation 2001 Senior Executive Restricted Stock Plan(30)10.9(a)
    
    Medicis Pharmaceutical Corporation 2002 Stock Option Plan (20)10.9(b)
    
    Amendment No. 1 to the Medicis Pharmaceutical Corporation 2002 Stock Option Plan, dated
August 1, 2005(29)10.10(a)
    
    Medicis Pharmaceutical Corporation 2004 Stock Incentive Plan(27)10.10(b)
    
    Amendment No. 1 to the Medicis Pharmaceutical Corporation 2004 Stock Option Plan, dated
August 1, 2005(29)10.11(a)
    
    Medicis Pharmaceutical Corporation 1998 Stock Option Plan(33)10.11(b)
    
    Amendment No. 1 to the Medicis Pharmaceutical Corporation 1998 Stock Option Plan, dated
August 1, 2005(29)10.11(c)
    
    Amendment No. 2 to the Medicis Pharmaceutical Corporation 1998 Stock Option Plan, dated
September 30, 2005(29)10.12(a)
    
    Medicis Pharmaceutical Corporation 1996 Stock Option Plan(34)10.12(b)
    
    Amendment No. 1 to the Medicis Pharmaceutical Corporation 1996 Stock Option Plan, dated
August 1, 2005(29)10.13
    
    Waiver Letter dated March 18, 2005 between the Company and Q-Med AB(27)10.14
    
    Supply Agreement, dated October 21, 1992, between Schein Pharmaceutical and the Company
(2)10.15
    
    Amendment to Manufacturing and Supply Agreement, dated March 2, 1993, between
Schein Pharmaceutical and the Company (3)10.16(a)
    
    Credit and Security Agreement, dated August 3, 1995, between the Company and
Norwest Business Credit, Inc. (5)10.16(b)
    
    First Amendment to Credit and Security Agreement, dated May 29, 1996,
between the Company and Norwest Bank Arizona, N.A. (8)10.16(c)
    
    Second Amendment to Credit and Security Agreement, dated November 22, 1996,
by and between the Company and Norwest Bank Arizona, N.A. as successor-in-interest
to Norwest Business Credit, Inc. (10)10.16(d)
    
    Third Amendment to Credit and Security Agreement, dated November 22, 1998, by
and between the Company and Norwest Bank Arizona, N.A., as successor-in-interest
to Norwest Business Credit, Inc. (12)10.16(e)
    
    Fourth Amendment to Credit and Security Agreement, dated November 22, 2000,
by and between the Company and Wells Fargo Bank Arizona, N.A., formerly
known as Norwest Bank Arizona, N.A., as successor-in-interest to Norwest Business
Credit, Inc.(16)10.16(f)
    
    Fifth Amendment to Credit and Security Agreement, dated November 22, 2002, by and between the
Company and Wells Fargo Bank Arizona, N.A., formerly known as Norwest Bank Arizona, N.A., as
successor-in-interest to Norwest Business Credit, Inc. (23)10.17(a)
    
    Patent Collateral Assignment and Security Agreement, dated August 3, 1995, by
the Company to Norwest Business Credit, Inc. (6)10.17(b)
    
    First Amendment to Patent Collateral Assignment and Security Agreement, dated
May 29, 1996, by the Company to Norwest Bank Arizona, N.A. (8)10.17(c)
    
    Amended and Restated Patent Collateral Assignment and Security Agreement, dated
November 22, 1998, by the Company to Norwest Bank Arizona, N.A. (12)10.18(a)
    
    Trademark Collateral Assignment and Security Agreement, dated August 3, 1995,
by the Company to Norwest Business Credit, Inc. (7)
 93




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##### Table of Contents



Exhibit No.
    
    Description10.18(b)
    
    First Amendment to Trademark Collateral Assignment and Security Agreement, dated
May 29, 1996, by the Company to Norwest Bank Arizona, N.A. (8)10.18(c)
    
    Amended and Restated Trademark, Tradename, and Service Mark Collateral
Assignment and Security Agreement, dated November 22, 1998, by the Company
to Norwest Bank Arizona, N.A. (12)10.19
    
    Assignment and Assumption of Loan Documents, dated May 29, 1996, from
Norwest Business Credit, Inc., to and by Norwest Bank Arizona, N.A. (8)10.20
    
    Multiple Advance Note, dated May 29, 1996, from the Company to Norwest Bank
Arizona, N.A. (8)10.21
    
    Asset Purchase Agreement dated November 15, 1998, by and among the Company and
Hoechst Marion Roussel, Inc., Hoechst Marion Roussel Deutschland GMHB and
Hoechst Marion Roussel, S.A. (12)10.22
    
    License and Option Agreement dated November 15, 1998, by and among the Company
and Hoechst Marion Roussel, Inc., Hoechst Marion Roussel Deutschland GMBH and
Hoechst Marion Roussel, S.A. (12)10.23
    
    Loprox Lotion Supply Agreement dated November 15, 1998, by and between the
Company and Hoechst Marion Roussel, Inc. (12)10.24
    
    Supply Agreement dated November 15, 1998, by and between the Company and
Hoechst Marion Roussel Deutschland GMBH (12)10.25
    
    Asset Purchase Agreement effective January 31, 1999, between the Company and
Bioglan Pharma Plc (14)10.26
    
    Stock Purchase Agreement by and among the Company, Ucyclyd Pharma, Inc. and
Syed E. Abidi, William Brusilow, Susan E. Brusilow and Norbert L. Wiech, dated
April 19, 1999 (14)10.27
    
    Asset Purchase Agreement by and between the Company and Bioglan Pharma Plc,
dated June 29, 1999 (14)10.28
    
    Asset Purchase Agreement by and among The Exorex Company, LLC, Bioglan
Pharma Plc, the Company and IMX Pharmaceuticals, Inc., dated June 29, 1999 (16)10.29
    
    Medicis Pharmaceutical Corporation Executive Retention Plan (14)10.30
    
    Asset Purchase Agreement between Warner Chilcott, plc and the Company, dated
September 14, 1999(14)10.31(a)
    
    Share Purchase Agreement between Q-Med International B.V. and Startskottet 21914
AB (under proposed change of name to Medicis Sweden Holdings AB), dated
February 10, 2003(21)10.31(b)
    
    Amendment No. 1 to Share Purchase Agreement between Q-Med International
B.V. and Startskottet 21914 AB (under proposed change of name to Medicis Sweden
Holdings AB), dated March 7, 2003(21)10.32
    
    Supply Agreement between Q-Med AB and the Company,
dated March 7, 2003(21)10.33
    
    Amended and Restated Intellectual Property Agreement between Q-Med AB and HA
North American Sales AB, dated March 7, 2003(21)10.34
    
    Supply Agreement between Medicis Aesthetics Holdings Inc., a wholly owned subsidiary of the
Company, and Q-Med AB, dated July 15, 2004 (23) Portions of this exhibit
(indicated by asterisks) have been omitted pursuant to a request for confidential treatment
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.10.35
    
    Intellectual Property License Agreement between Q-Med AB and Medicis Aesthetics Holdings
Inc., dated July 15, 2004 (23) Portions of this exhibit (indicated by asterisks)
have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2
under the Securities Exchange Act of 1934.10.36
    
    Note Agreement, dated as of October 1, 2001, by and among Ascent Pediatrics, Inc., the
Company, Furman Selz Investors II L.P., FS Employee Investors LLC, FS Ascent Investments LLC,
FS Parallel Fund L.P., BancBoston Ventures Inc. and Flynn Partners (17)10.37
    
    Voting Agreement, dated as of October 1, 2001, by and among the Company, MPC Merger Corp., FS
Private Investments LLC, Furman Selz Investors II L.P., FS Employee Investors LLC, FS Ascent
Investments LLC and FS Parallel Fund L.P. (17)10.38
    
    Exclusive Remedy Agreement, dated as of October 1, 2001, by and among the Company, Ascent
Pediatrics, Inc., FS Private Investments LLC, Furman Selz Investors II L.P., FS Employee
Investors LLC, FS Ascent Investments LLC and FS Parallel Fund L.P., BancBoston Ventures Inc.,
Flynn Partners, Raymond F. Baddour, Sc.D., Robert E. Baldini, Medical Science Partners L.P.
and Emmett Clemente, Ph.D. (17)
 94




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Exhibit No.
    
    Description10.39
    
    Medicis Pharmaceutical Corporation 1992 Stock Option Plan(35)10.40
    
    Form of Stock Option Agreement for Medicis Pharmaceutical Corporation 2004 Stock Incentive
Plan(36)10.41
    
    Form of Restricted Stock Agreement for Medicis Pharmaceutical Corporation 2004 Stock
Incentive Plan(36)10.42
    
    Letter Agreement dated as of March 13, 2006 among Medicis Pharmaceutical Corporation,
Aesthetica Ltd., Medicis Aesthetics Holdings Inc., Ipsen S.A. and Ipsen Ltd.(37)10.43 *
    
    Development and Distribution Agreement by and between Aesthetica, Ltd. and Ipsen, Ltd.(38)10.44 *
    
    Trademark License Agreement by and between Aesthetica, Ltd. and Ipsen, Ltd.(38)10.45 *
    
    Trademark Assignment Agreement by and between Aesthetica, Ltd. and Ipsen, Ltd.(38)10.46(a)
    
    Medicis 2006 Incentive Award Plan(39)10.46(b)
    
    Amendment to the Medicis 2006 Incentive Award Plan, dated July 10, 2006(41)10.46(c)
    
    Amendment No. 2 to the Medicis 2006 Incentive Award Plan, dated April 11, 2007(46)10.46(d)
    
    Amendment No. 3 to the Medicis 2006 Incentive Award Plan, dated April 16, 2007(45)10.46(e)
    
    Form of Stock Option Agreement for Medicis Pharmaceutical Corporation 2006 Incentive Award
Plan(48)10.46(f)
    
    Form of Restricted Stock Agreement for Medicis Pharmaceutical Corporation 2006 Incentive
Award Plan(48)10.47
    
    Employment Agreement, dated July 25, 2006, between Medicis Pharmaceutical Corporation and
Mark A. Prygocki, Sr.(40)10.48
    
    Employment Agreement, dated July 25, 2006, between Medicis Pharmaceutical Corporation and
Mitchell S. Wortzman, Ph.D.(40)10.49
    
    Employment Agreement, dated July 25, 2006, between Medicis Pharmaceutical Corporation and
Richard J. Havens(40)10.50
    
    Employment Agreement, dated July 27, 2006, between Medicis Pharmaceutical Corporation and
Jason D. Hanson(40)10.51 *
    
    Office Sublease by and between Apex 7720 North Dobson, L.L.C., an Arizona limited liability
company, and Medicis Pharmaceutical Corporation, dated as of July 26, 2006(42)10.52
    
    Corporate Integrity Agreement between the Office of Inspector General of the department of
Health and Human Services and Medicis Pharmaceutical Corporation(44)10.53 *
    
    Collaboration Agreement, dated as of August 23, 2007, by and between Ucyclyd Pharma, Inc. and
Hyperion Therapuetics, Inc.(47)12 +
    
    Computation of Ratios of Earnings to Fixed Charges21.1 +
    
    Subsidiaries23.1 +
    
    Consent of Independent Registered Public Accounting Firm24.1
    
    Power of Attorney See signature page31.1 +
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act, as amended31.2 +
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act, as amended32.1 +
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2 +
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 +
    
    Filed herewith*
    
    Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request
for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.(1)
    
    Incorporated by reference to the Registration Statement on Form S-1 of the Registrant,
File No. 33-32918, filed with the SEC on January 16, 1990(2)
    
    Incorporated by reference to the Registration Statement on Form S-1 of the Company, File
No. 33-54276, filed with the SEC on June 11, 1993(3)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year
ended June 30, 1993, File No. 0-18443, filed with the SEC on October 13, 1993 95




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(4)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year
ended June 30, 1995, File No. 0-18443, previously filed with the SEC (the 1994 Form 10-K)(5)
    
    Incorporated by reference to the Companys 1995 Form 10-K(6)
    
    Incorporated by reference to the Companys 1995 Form 10-K(7)
    
    Incorporated by reference to the Companys 1995 Form 10-K(8)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year
ended June 30, 1996, File No. 0-18443, previously filed with the SEC(9)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997, File No. 0-18443, previously filed with the SEC(10)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996, File No. 0-18443, previously filed with the SEC(11)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC
on December 15, 1997(12)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter
ended December 31, 1998, File No. 0-18443, previously filed with the SEC(13)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC
on July 13, 2006(14)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year
ended June 30, 1999, File No. 0-18443, previously filed with the SEC(15)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2001, File No. 0-18443, previously filed with the SEC(16)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year
ended June 30, 2001, File No. 0-18443, previously filed with the SEC(17)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC
on October 2, 2001(18)
    
    Incorporated by reference to the Companys registration statement on Form 8-A12B/A filed
with the SEC on June 4, 2002(19)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC
on June 6, 2002(20)
    
    Incorporated by reference to the Companys Annual Report on Form
10-K for the fiscal year ended June 30, 2002, File No. 0-18443, previously filed with the SEC(21)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC on March 10, 2003(22)
    
    Incorporated by reference to the Companys Quarterly Report on
Form 10-Q for the quarter ended December 31, 2003, File No. 0-18443, previously filed with the SEC(23)
    
    Incorporated by reference to the Companys Annual Report on Form
10-K for the fiscal year ended June 30, 2004, File No. 0-18443, previously filed with the SEC(24)
    
    Incorporated by reference to the Companys Current Report on Form
8-K filed with the SEC on March 21, 2005(25)
    
    Incorporated by reference to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 2005, File No. 0-18443, previously filed with the
SEC(26)
    
    Incorporated by reference to the Companys Current Report on
Form 8-K filed with the SEC on August 18, 2005(27)
    
    Incorporated by reference to the Companys Annual Report on
Form 10-K for the fiscal year ended June 30, 2005, File No. 0-18443, previously filed with the SEC(28)
    
    Incorporated by reference to the Companys Current Report on
Form 8-K filed with the SEC on October 20, 2005(29)
    
    Incorporated by reference to the Companys Annual Report on
Form 10-K/A for the fiscal year ended June 30, 2005, File No. 0-18443, previously filed with the
SEC on October 28, 2005(30)
    
    Incorporated by reference to the Companys Quarterly Report on
Form 10-Q for the quarter ended September 30, 2005, File No. 0-18443, previously filed with
the SEC(31)
    
    Incorporated by reference to the Companys Current Report on
Form 8-K filed with the SEC on December 13, 2005(32)
    
    Incorporated by reference to the Companys Current Report on
Form 8-K filed with the SEC on January 3, 2006 96




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##### Table of Contents



(33)
    
    Incorporated by reference to Appendix 1 to the Companys definitive Proxy Statement for
the 1998 Annual
Meeting of Stockholders filed with the SEC on December 2, 1998(34)
    
    Incorporated by reference to Appendix 2 to the Companys definitive Proxy Statement for
the 1996 Annual Meeting of Stockholders filed with the SEC on October 23, 1996(35)
    
    Incorporated by reference to Exhibit B to the Companys definitive Proxy Statement for
the 1992 Annual Meeting of Stockholders previously filed with the SEC(36)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K/T for the six month
transition period ended December 31, 2005, File No. 0-18443, previously filed with the SEC on March 16, 2006(37)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC on March 16, 2006(38)
    
    Incorporated by reference to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 2006, File No. 0-18443, previously filed with the
SEC(39)
    
    Incorporated by reference to Appendix A to the Companys Definitive Proxy Statement for
the 2006 Annual Meeting of Stockholders filed with the SEC on April 13, 2006(40)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC on July 31, 2006(41)
    
    Incorporated by reference to the Companys Quarterly Report on
Form 10-Q for the quarter ended June 30, 2006, File No. 0-18443, previously filed with the SEC(42)
    
    Incorporated by reference to the Companys Quarterly Report on
Form 10-Q for the quarter ended September 30, 2006, File No. 0-18443, previously filed with the SEC(43)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC on April 16, 2007(44)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC on April 30, 2007(45)
    
    Incorporated by reference to Appendix A to the Companys Definitive Proxy Statement on
Schedule 14A filed with the SEC on April 16, 2007(46)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 dated September 3, 2007(47)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended
September 30, 2007, File No. 0-18443, previously filed with the SEC(48)
    
    Incorporated by reference to the Companys Annual Report on
Form 10-K for the year ended December 31, 2007, File No. 0-18443, previously filed with the SEC(b)
    
    The exhibits to this Form 10-K/A follow the Companys Financial Statement Schedule included
in this Form 10-K.(c)
    
    The Financial Statement Schedule to this Form 10-K/A appears on page S-1 of this Form 10-K/A. 97




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##### Table of Contents



SIGNATURES
   MEDICIS PHARMACEUTICAL CORPORATIONBy:
    /s/ JONAH SHACKNAIJonah ShacknaiChairman of the Board and Chief Executive Officer POWER OF ATTORNEY
   SIGNATURE
    
    TITLE
    
    DATE/s/ JONAH SHACKNAI
    
    Chairman of the Board of Directors
    
    November 10, 2008Jonah Shacknai
    
    and Chief Executive Officer
(Principal Executive Officer)/s/ RICHARD D. PETERSON
    
    Executive Vice President, Chief Financial
Officer,
    
    November 10, 2008Richard D. Peterson
    
    and Treasurer
(Principal Financial and Accounting Officer)/s/ ARTHUR G. ALTSCHUL, JR.
    
    Director
    
    November 10, 2008Arthur G. Altschul, Jr./s/ SPENCER DAVIDSON
    
    Director
    
    November 10, 2008Spencer Davidson/s/ STUART DIAMOND
    
    Director
    
    November 10, 2008Stuart Diamond/s/ PETER S. KNIGHT, ESQ.
    
    Director
    
    November 10, 2008Peter S. Knight, Esq./s/ MICHAEL A. PIETRANGELO
    
    Director
    
    November 10, 2008Michael A. Pietrangelo/s/ PHILIP S. SCHEIN, M.D.
    
    Director
    
    November 10, 2008Philip S. Schein, M.D./s/ LOTTIE SHACKELFORD
    
    Director
    
    November 10, 2008Lottie Shackelford
 98




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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PAGEReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of December 31, 2007 and 2006
(restated)
    
    F-3Consolidated Statements of Operations for the years ended
December 31, 2007 and 2006, the six months ended December
31, 2005 and December 31, 2004 (unaudited), and the fiscal
year ended June 30, 2005 (restated)
    
    F-5Consolidated Statements of Stockholders Equity for the
years ended December 31, 2007 and 2006, the six months ended
December 31, 2005, and the fiscal year ended June 30, 2005
(restated)
    
    F-6Consolidated Statements of Cash Flows for the years ended
December 31, 2007 and 2006, the six months ended December
31, 2005 and December 31, 2004 (unaudited), and the fiscal
year ended June 30, 2005 (restated)
    
    F-10Notes to Consolidated Financial Statements
    
    F-11
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 To the Board of Directors and Stockholders of Medicis Pharmaceutical Corporation
    Revenue Recognition When Right of Return
Exists
    
 F-2




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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share amounts)
 DECEMBER 31,2007
    
    
    2006(Restated)
    
    
    (Restated)AssetsCurrent assets:Cash and cash equivalents
    
    $
    108,046
    
    
    $
    203,319Short-term investments
    
    
    686,634
    
    
    
    350,942Accounts receivable, less allowances:December 31, 2007 and 2006: $830 (restated)
and $2,148 (restated), respectively22,205
    
    
    
    71,665Inventories, net
    
    
    29,973
    
    
    
    27,016Deferred tax assets, net
    
    
    9,190
    
    
    
    17,428Other current assets
    
    
    18,049
    
    
    
    15,990Total current assets
    
    
    874,097
    
    
    
    686,360Property and equipment, net
    
    
    13,850
    
    
    
    6,576Intangible assets:Intangible assets related to product line
acquisitions and business combinations258,873
    
    
    
    239,396Other intangible assets
    
    
    6,695
    
    
    
    5,684265,568
    
    
    
    245,080Less: accumulated amortization
    
    
    92,482
    
    
    
    76,241Net intangible assets
    
    
    173,086
    
    
    
    168,839Goodwill
    
    
    63,107
    
    
    
    63,107Deferred tax assets, net
    
    
    59,577
    
    
    
    65,367Long-term investments
    
    
    17,072
    
    
    
    130,290Other assets
    
    
    12,622
    
    
    
    2,181$
    1,213,411
    
    
    $
    1,122,720
  F-3




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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
 CONSOLIDATED BALANCE SHEETS, Continued
 (in thousands, except share amounts)
 DECEMBER 31,2007
    
    
    2006(Restated)
    
    
    (Restated)LiabilitiesCurrent liabilities:Accounts payable
    
    $
    34,891
    
    
    $
    47,513Current portion of contingent convertible senior notes
    
    
    283,910
    
    
    
    169,155Reserve for sales returns
    
    
    68,787
    
    
    
    87,412Income taxes payable
    
    
    7,731
    
    
    
    12,654Other current liabilities
    
    
    55,807
    
    
    
    46,556Total current liabilities
    
    
    451,126
    
    
    
    363,290Long-term liabilities:Contingent convertible senior notes
    
    
    169,145
    
    
    
    283,910Deferred revenue
    
    
    6,667
    
    
    
    Other liabilities
    
    
    3,172
    
    
    
    Commitments and ContingenciesStockholders EquityPreferred stock, $0.01 par value; shares authorized: 5,000,000; no shares issued
    
    
    
    
    
    
    Class A common stock, $0.014 par value; shares authorized: 150,000,000; issued
and outstanding: 69,005,019, and 68,044,363 at December 31, 2007 and 2006,
respectively
    
    
    965
    
    
    
    952Class B common stock, $0.014 par value; shares authorized: 1,000,000; issued
and outstanding: none
    
    
    
    
    
    
    Additional paid-in capital
    
    
    641,907
    
    
    
    598,435Accumulated other comprehensive income
    
    
    2,221
    
    
    
    537Accumulated earnings
    
    
    281,218
    
    
    
    218,392Less: Treasury stock, 12,656,503 and 12,650,233 shares at cost at
December 31, 2007 and 2006, respectively
    
    
    (343,010
    )
    
    
    (342,796
    )Total stockholders equity
    
    
    583,301
    
    
    
    475,520$
    1,213,411
    
    
    $
    1,122,720
  F-4




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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share data)
 SIX MONTHS ENDED
    
    
    YEAR ENDEDYEARS ENDED DECEMBER 31,
    
    
    DECEMBER 31,
    
    
    JUNE 30,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(UNAUDITED)Net product revenues
    
    $
    441,868
    
    
    $
    377,548
    
    
    $
    156,963
    
    
    $
    144,116
    
    
    $
    293,888Net contract revenues
    
    
    15,526
    
    
    
    15,617
    
    
    
    8,385
    
    
    
    34,168
    
    
    
    71,785Net revenues
    
    
    457,394
    
    
    
    393,165
    
    
    
    165,348
    
    
    
    178,284
    
    
    
    365,673Cost of product revenues (1)
    
    
    56,110
    
    
    
    46,106
    
    
    
    25,765
    
    
    
    29,425
    
    
    
    58,125Gross profit
    
    
    401,284
    
    
    
    347,059
    
    
    
    139,583
    
    
    
    148,859
    
    
    
    307,548Operating expenses:Selling, general and administrative (2)
    
    
    242,633
    
    
    
    202,457
    
    
    
    78,535
    
    
    
    63,305
    
    
    
    130,927Impairment of intangible assets
    
    
    4,067
    
    
    
    52,586
    
    
    
    9,171
    
    
    
    
    
    
    
    Research and development (3)
    
    
    39,428
    
    
    
    161,837
    
    
    
    22,367
    
    
    
    45,140
    
    
    
    65,676Depreciation and amortization
    
    
    24,548
    
    
    
    23,048
    
    
    
    12,420
    
    
    
    10,222
    
    
    
    22,350Operating income (loss)
    
    
    90,608
    
    
    
    (92,869
    )
    
    
    17,090
    
    
    
    30,192
    
    
    
    88,595Other income, net
    
    
    
    
    
    
    
    
    
    
    59,801
    
    
    
    
    
    
    
    Interest and investment income
    
    
    38,390
    
    
    
    30,787
    
    
    
    10,059
    
    
    
    5,076
    
    
    
    11,470Interest expense
    
    
    (10,018
    )
    
    
    (10,640
    )
    
    
    (5,333
    )
    
    
    (5,324
    )
    
    
    (10,640
    )Income (loss) before income tax
    
    
    118,980
    
    
    
    (72,722
    )
    
    
    81,617
    
    
    
    29,944
    
    
    
    89,425Income tax expense (benefit)
    
    
    48,544
    
    
    
    (24,570
    )
    
    
    29,811
    
    
    
    10,377
    
    
    
    30,996Net income (loss)
    
    $
    70,436
    
    
    $
    (48,152
    )
    
    $
    51,806
    
    
    $
    19,567
    
    
    $
    58,429Basic net income (loss) per share
    
    $
    1.26
    
    
    $
    (0.88
    )
    
    $
    0.95
    
    
    $
    0.35
    
    
    $
    1.06Diluted net income (loss) per share
    
    $
    1.08
    
    
    $
    (0.88
    )
    
    $
    0.79
    
    
    $
    0.32
    
    
    $
    0.92Cash dividend declared per common share
    
    $
    0.12
    
    
    $
    0.12
    
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.12Basic common shares outstanding
    
    
    55,988
    
    
    
    54,688
    
    
    
    54,323
    
    
    
    55,972
    
    
    
    55,196Diluted common shares outstanding
    
    
    71,246
    
    
    
    54,688
    
    
    
    69,772
    
    
    
    72,160
    
    
    
    70,909(1) amounts exclude amortization of
intangible assets related to acquired
products
    
    $
    21,606
    
    
    $
    20,017
    
    
    $
    10,899
    
    
    $
    8,933
    
    
    $
    19,620(2) amounts include share-based
compensation expense
    
    $
    21,031
    
    
    $
    24,453
    
    
    $
    13,947
    
    
    $
    258
    
    
    $
    515(3) amounts include share-based
compensation expense
    
    $
    112
    
    
    $
    1,626
    
    
    $
    1,000
    
    
    $
    
    
    
    $
    
  F-5




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##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 (in thousands)
 Class A
    
    
    Class BCommon Stock
    
    
    Common StockShares
    
    
    Amount
    
    
    Shares
    
    
    AmountBalance at June 30, 2004, as previously reported
    
    
    65,419
    
    
    $
    916
    
    
    
    758
    
    
    $
    10Effect of restatement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2004 (restated)
    
    
    65,419
    
    
    
    916
    
    
    
    758
    
    
    
    10Comprehensive income:Net income (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains on foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive incomeConversion of Class B common stock to Class A common stock
    
    
    758
    
    
    
    10
    
    
    
    (758
    )
    
    
    (10
    )Conversion of contingent convertible senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares issued for deferred compensation, net
of award reacquisitions
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation, net of award
reacquisitionsExercise of stock options
    
    
    812
    
    
    
    12
    
    
    
    
    
    
    
    Tax effect of stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2005
    
    
    67,007
    
    
    
    938
    
    
    
    
    
    
    
    Comprehensive income:Net income (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains on foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive incomeAdjustment for adoption of SFAS No. 123(R)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares issued for deferred compensation
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    Tax effect of stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2005
    
    
    67,052
    
    
    
    938
    
    
    
    
    
    
    
    
  F-6




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##### Table of Contents



AccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    TreasuryPaid-In
    
    
    Comprehensive
    
    
    Deferred
    
    
    Accumulated
    
    
    StockCapital
    
    
    Income (Loss)
    
    
    Compensation
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    Total$
    517,468
    
    
    $
    (1,020
    )
    
    $
    (1,212
    )
    
    $
    230,049
    
    
    
    (8,682
    )
    
    $
    (190,908
    )
    
    $
    555,303(5,151
    )
    
    
    
    
    
    
    
    
    
    
    (57,260
    )
    
    
    
    
    
    
    
    
    
    
    (62,411
    )512,317
    
    
    
    (1,020
    )
    
    
    (1,212
    )
    
    
    172,789
    
    
    
    (8,682
    )
    
    
    (190,908
    )
    
    
    492,892
    
    
    
    
    
    
    
    
    
    
    
    58,429
    
    
    
    
    
    
    
    
    
    
    
    58,429
    
    
    
    (75
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (75
    )
    
    
    
    489
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48958,843
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    (6,565
    )
    
    
    
    
    
    
    
    
    
    
    (6,565
    )298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    (298
    )
    
    
    
    
    
    
    
    
    
    
    515
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51516,520
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,5324,672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,920
    )
    
    
    (150,000
    )
    
    
    (150,000
    )533,809
    
    
    
    (606
    )
    
    
    (697
    )
    
    
    224,653
    
    
    
    (12,620
    )
    
    
    (341,206
    )
    
    
    416,891
    
    
    
    
    
    
    
    
    
    
    
    51,806
    
    
    
    
    
    
    
    
    
    
    
    51,806
    
    
    
    636
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    636
    
    
    
    349
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34952,791827
    
    
    
    
    
    
    
    697
    
    
    
    
    
    
    
    
    
    
    
    (1,524
    )
    
    
    14,947
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,947
    
    
    
    
    
    
    
    
    
    
    
    (3,301
    )
    
    
    
    
    
    
    
    
    
    
    (3,301
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    430
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    430(7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )550,006
    
    
    
    379
    
    
    
    
    
    
    
    273,158
    
    
    
    (12,647
    )
    
    
    (342,730
    )
    
    
    481,751
 F-7




---



##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 (in thousands)
 Class A
    
    
    Class BCommon Stock
    
    
    Common StockShares
    
    
    Amount
    
    
    Shares
    
    
    AmountBalance at December 31, 2005
    
    
    67,052
    
    
    $
    938
    
    
    
    
    
    
    $
    Comprehensive income:Comprehensive income:Net loss (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized losses on foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive lossShare-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares issued for deferred compensation
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares held in lieu of employee taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    968
    
    
    
    14
    
    
    
    
    
    
    
    Tax effect of stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2006
    
    
    68,044
    
    
    
    952
    
    
    
    
    
    
    
    Comprehensive income:Net income (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gains on foreign currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive incomeAdjustment for adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares issued for deferred compensation
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares held in lieu of employee taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    924
    
    
    
    13
    
    
    
    
    
    
    
    Tax effect of stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2007
    
    
    69,005
    
    
    $
    965
    
    
    
    
    
    
    $
    
  F-8




---



##### Table of Contents



AccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    TreasuryPaid-In
    
    
    Comprehensive
    
    
    Deferred
    
    
    Accumulated
    
    
    StockCapital
    
    
    Income (Loss)
    
    
    Compensation
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    Total(Restated)
    
    
    
    
    
    
    
    
    
    
    (Restated)$
    550,006
    
    
    $
    379
    
    
    $
    
    
    
    $
    273,158
    
    
    
    (12,647
    )
    
    $
    (342,730
    )
    
    $
    481,751
    
    
    
    
    
    
    
    
    
    
    
    (48,152
    )
    
    
    
    
    
    
    
    
    
    
    (48,152
    )
    
    
    
    236
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    236
    
    
    
    (78
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (78
    )(47,994
    )26,078
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,078
    
    
    
    
    
    
    
    
    
    
    
    (6,614
    )
    
    
    
    
    
    
    
    
    
    
    (6,614
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (66
    )
    
    
    (66
    )18,430
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,4443,921
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,921598,435
    
    
    
    537
    
    
    
    
    
    
    
    218,392
    
    
    
    (12,650
    )
    
    
    (342,796
    )
    
    
    475,520
    
    
    
    
    
    
    
    
    
    
    
    70,436
    
    
    
    
    
    
    
    
    
    
    
    70,436
    
    
    
    885
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    885
    
    
    
    799
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79972,120
    
    
    
    
    
    
    
    
    
    
    
    (808
    )
    
    
    
    
    
    
    
    
    
    
    80821,143
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,143
    
    
    
    
    
    
    
    
    
    
    
    (6,802
    )
    
    
    
    
    
    
    
    
    
    
    (6,802
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (214
    )
    
    
    (214
    )19,739
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,7522,590
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,590$
    641,907
    
    
    $
    2,221
    
    
    $
    
    
    
    $
    281,218
    
    
    
    (12,656
    )
    
    $
    (343,010
    )
    
    $
    583,301
 F-9




---



##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 SIX MONTHS ENDED
    
    
    YEAR ENDEDYEARS ENDED DECEMBER 31,
    
    
    DECEMBER 31,
    
    
    JUNE 30,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(UNAUDITED)Operating Activities:Net income (loss) (restated)
    
    $
    70,436
    
    
    $
    (48,152
    )
    
    $
    51,806
    
    
    $
    19,567
    
    
    $
    58,429Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    24,548
    
    
    
    23,048
    
    
    
    12,420
    
    
    
    10,222
    
    
    
    22,350Amortization of deferred financing fees
    
    
    1,519
    
    
    
    2,144
    
    
    
    1,072
    
    
    
    1,072
    
    
    
    2,143Impairment of intangible assets
    
    
    4,067
    
    
    
    52,586
    
    
    
    9,171
    
    
    
    
    
    
    
    Loss on disposal of property and equipment
    
    
    19
    
    
    
    449
    
    
    
    34
    
    
    
    39
    
    
    
    52Loss on sale of product rights
    
    
    259
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Gain) loss on sale of
available-for-sale investments
    
    
    (105
    )
    
    
    (421
    )
    
    
    599
    
    
    
    103
    
    
    
    882Write-off of Inamed transaction costs
    
    
    
    
    
    
    
    
    
    
    14,042
    
    
    
    
    
    
    
    Share-based compensation expense
    
    
    21,143
    
    
    
    26,079
    
    
    
    14,947
    
    
    
    258
    
    
    
    515Deferred income tax expense (benefit)
    
    
    14,027
    
    
    
    (43,896
    )
    
    
    2,358
    
    
    
    (5,321
    )
    
    
    943Tax benefit from exercise of stock options and
vesting of restricted stock awards
    
    
    2,590
    
    
    
    3,921
    
    
    
    
    
    
    
    4,626
    
    
    
    4,672Excess tax benefits from share-based
payment arrangements
    
    
    (1,494
    )
    
    
    (2,166
    )
    
    
    (73
    )
    
    
    
    
    
    
    (Decrease) increase in provision for sales
discounts and chargebacks
    
    
    (1,318
    )
    
    
    154
    
    
    
    15
    
    
    
    (879
    )
    
    
    (642
    )(Amortization) accretion of (discount)/premium on
investments
    
    
    (3,369
    )
    
    
    (2,159
    )
    
    
    (418
    )
    
    
    5,010
    
    
    
    6,528Changes in operating assets and liabilities:Accounts receivable
    
    
    50,777
    
    
    
    (8,955
    )
    
    
    1,436
    
    
    
    (3,921
    )
    
    
    (6,422
    )Inventories
    
    
    (2,957
    )
    
    
    (7,940
    )
    
    
    1,625
    
    
    
    2,199
    
    
    
    (2,855
    )Other current assets
    
    
    (2,060
    )
    
    
    (3,749
    )
    
    
    4,194
    
    
    
    (1,942
    )
    
    
    1,886Accounts payable
    
    
    (12,622
    )
    
    
    (10,195
    )
    
    
    27,220
    
    
    
    4,557
    
    
    
    15,580Reserve for sales returns
    
    
    (18,625
    )
    
    
    (23,414
    )
    
    
    (2,456
    )
    
    
    9,698
    
    
    
    18,800Income taxes payable
    
    
    (4,420
    )
    
    
    (20,175
    )
    
    
    16,055
    
    
    
    7,716
    
    
    
    11,266Other current liabilities
    
    
    8,000
    
    
    
    21,878
    
    
    
    (6,057
    )
    
    
    (7,539
    )
    
    
    (4,146
    )Other liabilities
    
    
    8,529
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash provided by (used in)
operating activities
    
    
    158,944
    
    
    
    (40,963
    )
    
    
    147,990
    
    
    
    45,465
    
    
    
    129,981Investing Activities:Purchase of property and equipment
    
    
    (10,020
    )
    
    
    (4,450
    )
    
    
    (748
    )
    
    
    (1,829
    )
    
    
    (2,913
    )Equity investment in an unconsolidated entity
    
    
    (11,957
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payment of direct merger costs
    
    
    
    
    
    
    (27,420
    )
    
    
    (5,811
    )
    
    
    (129
    )
    
    
    (7,454
    )Payments for purchase of product rights
    
    
    (30,394
    )
    
    
    (2,164
    )
    
    
    (481
    )
    
    
    (3,085
    )
    
    
    (3,296
    )Proceeds from sale of product rights
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of available-for-sale investments
    
    
    (741,075
    )
    
    
    (822,512
    )
    
    
    (203,247
    )
    
    
    (440,602
    )
    
    
    (762,561
    )Sale of available-for-sale investments
    
    
    291,804
    
    
    
    349,034
    
    
    
    159,597
    
    
    
    489,352
    
    
    
    846,143Maturity of available-for-sale investments
    
    
    231,156
    
    
    
    290,597
    
    
    
    174,355
    
    
    
    32,451
    
    
    
    70,568Net cash (used in)
provided by
investing activities
    
    
    (269,486
    )
    
    
    (216,915
    )
    
    
    123,665
    
    
    
    76,158
    
    
    
    140,487Financing Activities:Payment of financing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )Payment of dividends
    
    
    (6,771
    )
    
    
    (6,581
    )
    
    
    (3,295
    )
    
    
    (3,115
    )
    
    
    (6,370
    )Payment of contingent convertible senior notes
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150,000
    )
    
    
    (150,000
    )Excess tax benefits from share-based
payment arrangements
    
    
    1,494
    
    
    
    2,166
    
    
    
    73
    
    
    
    
    
    
    
    Proceeds from the exercise of stock options
    
    
    19,752
    
    
    
    18,693
    
    
    
    430
    
    
    
    15,674
    
    
    
    16,583Net cash provided by (used in)
financing activities
    
    
    14,470
    
    
    
    14,278
    
    
    
    (2,792
    )
    
    
    (137,447
    )
    
    
    (139,793
    )Effect of exchange rate on cash and
cash equivalents
    
    
    799
    
    
    
    (78
    )
    
    
    349
    
    
    
    724
    
    
    
    489Net (decrease) increase in cash and cash
equivalents
    
    
    (95,273
    )
    
    
    (243,678
    )
    
    
    269,212
    
    
    
    (15,100
    )
    
    
    131,164Cash and cash equivalents at beginning
of period
    
    
    203,319
    
    
    
    446,997
    
    
    
    177,785
    
    
    
    46,621
    
    
    
    46,621Cash and cash equivalents at end of period
    
    $
    108,046
    
    
    $
    203,319
    
    
    $
    446,997
    
    
    $
    31,521
    
    
    $
    177,785
  F-10




---



##### Table of Contents



MEDICIS PHARMACEUTICAL CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. THE COMPANY AND BASIS OF PRESENTATION
 The Company
  ® ® ® ® ® ®
  Basis of Presentation
  NOTE 2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
 Revenue Recognition When Right of
Return Exists Materiality Considering Effects of Prior Misstatements When
Quantifying Misstatements in Current Year Financial Statements
 F-11




---



##### Table of Contents



F-12




---



##### Table of Contents



CONSOLIDATED BALANCE SHEETAs of December 31, 2007 (in
thousands, except share data)
 AsPreviously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    108,046
    
    
    
    
    
    
    $
    108,046Short-term investments
    
    
    686,634
    
    
    
    
    
    
    
    686,634Accounts receivable, less allowances of $830 ($10,658 as
previously reported)12,377
    
    
    
    9,828
    
    
    
    22,205Inventories, net
    
    
    29,973
    
    
    
    
    
    
    
    29,973Deferred tax assets, net
    
    
    
    
    
    
    9,190
    
    
    
    9,190Other current assets
    
    
    18,049
    
    
    
    
    
    
    
    18,049Total current assets
    
    
    855,079
    
    
    
    19,018
    
    
    
    874,097Property and equipment, net
    
    
    13,850
    
    
    
    
    
    
    
    13,850Intangible assets:Intangible assets related to product line
acquisitions and business combinations
    
    
    258,873
    
    
    
    
    
    
    
    258,873Other intangible assets
    
    
    7,063
    
    
    
    (368
    )
    
    
    6,695265,936
    
    
    
    (368
    )
    
    
    265,568Less: accumulated amortization
    
    
    92,482
    
    
    
    
    
    
    
    92,482Net intangible assets
    
    
    173,454
    
    
    
    (368
    )
    
    
    173,086Goodwill
    
    
    63,107
    
    
    
    
    
    
    
    63,107Deferred tax assets, net
    
    
    59,445
    
    
    
    132
    
    
    
    59,577Long-term investments
    
    
    17,072
    
    
    
    
    
    
    
    17,072Other assets
    
    
    12,622
    
    
    
    
    
    
    
    12,622$
    1,194,629
    
    
    $
    18,782
    
    
    $
    1,213,411LiabilitiesCurrent liabilities:Accounts payable
    
    $
    34,891
    
    
    
    
    
    
    $
    34,891Current portion of contingent convertible senior notes
    
    
    283,910
    
    
    
    
    
    
    
    283,910Reserve for sales returns
    
    
    
    
    
    
    68,787
    
    
    
    68,787Income taxes payable
    
    
    7,734
    
    
    
    (3
    )
    
    
    7,731Deferred tax liabilities, net
    
    
    11,684
    
    
    
    (11,684
    )
    
    
    Other current liabilities
    
    
    56,781
    
    
    
    (974
    )
    
    
    55,807395,000
    
    
    
    56,126
    
    
    
    451,126Long-term liabilities:Contingent convertible senior notes
    
    
    169,145
    
    
    
    
    
    
    
    169,145Deferred revenue
    
    
    6,667
    
    
    
    
    
    
    
    6,667Other liabilities
    
    
    1,862
    
    
    
    1,310
    
    
    
    3,172Commitments and ContingenciesStockholders EquityPreferred stock, $0.01 par value; shares authorized:5,000,000 no shares issued
    
    
    
    
    
    
    
    
    
    
    Class A common stock, $0.014 par value, shares authorized:150,000,000; issued and outstanding: 69,005,019
    
    
    965
    
    
    
    
    
    
    
    965Class B common stock, $0.014 par value, shares authorized:1,000,000; issued and outstanding: none
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    641,907
    
    
    
    
    
    
    
    641,907Accumulated other comprehensive income
    
    
    2,221
    
    
    
    
    
    
    
    2,221Accumulated earnings
    
    
    319,872
    
    
    
    (38,654
    )
    
    
    281,218Less: Treasury stock, 12,656,503 shares at cost
    
    
    (343,010
    )
    
    
    
    
    
    
    (343,010
    )Total stockholders equity
    
    
    621,955
    
    
    
    (38,654
    )
    
    
    583,301$
    1,194,629
    
    
    $
    18,782
    
    
    $
    1,213,411
 F-13




---



##### Table of Contents



CONSOLIDATED BALANCE SHEET
As of December 31, 2006 (in
thousands, except share data)
 AsPreviously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    203,319
    
    
    
    
    
    
    $
    203,319Short-term investments
    
    
    350,942
    
    
    
    
    
    
    
    350,942Accounts receivable, less allowances of $2,148 ($37,443 as
previously reported)
    
    
    36,370
    
    
    
    35,295
    
    
    
    71,665Inventories, net
    
    
    27,016
    
    
    
    
    
    
    
    27,016Deferred tax assets, net
    
    
    
    
    
    
    17,428
    
    
    
    17,428Other current assets
    
    
    15,990
    
    
    
    
    
    
    
    15,990Total current assets
    
    
    633,637
    
    
    
    52,723
    
    
    
    686,360Property and equipment, net
    
    
    6,576
    
    
    
    
    
    
    
    6,576Intangible assets:Intangible assets related to product line
acquisitions and business combinations
    
    
    239,396
    
    
    
    
    
    
    
    239,396Other intangible assets
    
    
    6,052
    
    
    
    (368
    )
    
    
    5,684245,448
    
    
    
    (368
    )
    
    
    245,080Less: accumulated amortization
    
    
    76,241
    
    
    
    
    
    
    
    76,241Net intangible assets
    
    
    169,207
    
    
    
    (368
    )
    
    
    168,839Goodwill
    
    
    63,107
    
    
    
    
    
    
    
    63,107Deferred tax assets, net
    
    
    65,234
    
    
    
    133
    
    
    
    65,367Long-term investments
    
    
    130,290
    
    
    
    
    
    
    
    130,290Other assets
    
    
    2,181
    
    
    
    
    
    
    
    2,181$
    1,070,232
    
    
    $
    52,488
    
    
    $
    1,122,720LiabilitiesCurrent liabilities:Accounts payable
    
    $
    47,513
    
    
    
    
    
    
    $
    47,513Current portion of contingent convertible senior notes
    
    
    169,155
    
    
    
    
    
    
    
    169,155Reserve for sales returns
    
    
    
    
    
    
    87,412
    
    
    
    87,412Income taxes payable
    
    
    11,346
    
    
    
    1,308
    
    
    
    12,654Deferred tax liabilities, net
    
    
    946
    
    
    
    (946
    )
    
    
    Other current liabilities
    
    
    47,803
    
    
    
    (1,247
    )
    
    
    46,556276,763
    
    
    
    86,527
    
    
    
    363,290Long-term liabilities:Contingent convertible senior notes
    
    
    283,910
    
    
    
    
    
    
    
    283,910Commitments and ContingenciesStockholders EquityPreferred stock, $0.01 par value; shares authorized: 5,000,000 no shares issued
    
    
    
    
    
    
    
    
    
    
    Class A common stock, $0.014 par value, shares authorized:150,000,000; issued and outstanding: 68,044,363
    
    
    952
    
    
    
    
    
    
    
    952Class B common stock, $0.014 par value, shares authorized:1,000,000; issued and outstanding: none
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    598,435
    
    
    
    
    
    
    
    598,435Accumulated other comprehensive income
    
    
    537
    
    
    
    
    
    
    
    537Accumulated earnings
    
    
    252,431
    
    
    
    (34,039
    )
    
    
    218,392Less: Treasury stock, 12,650,233 shares at cost
    
    
    (342,796
    )
    
    
    
    
    
    
    (342,796
    )Total stockholders equity
    
    
    509,559
    
    
    
    (34,039
    )
    
    
    475,520$
    1,070,232
    
    
    $
    52,488
    
    
    $
    1,122,720
 F-14




---



##### Table of Contents



CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2007 (in
thousands, except per share data)
 AsPreviously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedNet product revenues
    
    $
    449,125
    
    
    $
    (7,257
    )
    
    $
    441,868Net contract revenues
    
    
    15,526
    
    
    
    
    
    
    
    15,526Net revenues
    
    
    464,651
    
    
    
    (7,257
    )
    
    
    457,394Cost of product revenues (1)
    
    
    50,968
    
    
    
    5,142
    
    
    
    56,110Gross profit
    
    
    413,683
    
    
    
    (12,399
    )
    
    
    401,284Operating expenses:Selling, general and administrative (2)
    
    
    247,917
    
    
    
    (5,284
    )
    
    
    242,633Impairment of intangible assets
    
    
    4,067
    
    
    
    
    
    
    
    4,067Research and development (3)
    
    
    39,428
    
    
    
    
    
    
    
    39,428Depreciation and amortization
    
    
    24,548
    
    
    
    
    
    
    
    24,548Operating income
    
    
    97,723
    
    
    
    (7,115
    )
    
    
    90,608Interest and investment income
    
    
    38,390
    
    
    
    
    
    
    
    38,390Interest expense
    
    
    (10,018
    )
    
    
    
    
    
    
    (10,018
    )Income before income tax
    
    
    126,095
    
    
    
    (7,115
    )
    
    
    118,980Income tax expense
    
    
    51,044
    
    
    
    (2,500
    )
    
    
    48,544Net income
    
    $
    75,051
    
    
    $
    (4,615
    )
    
    $
    70,436Basic net income per share
    
    $
    1.34
    
    
    $
    (0.08
    )
    
    $
    1.26Diluted net income per share
    
    $
    1.14
    
    
    $
    (0.06
    )
    
    $
    1.08Cash dividend declared per common share
    
    $
    0.12
    
    
    
    
    
    
    $
    0.12Basic common shares outstanding
    
    
    55,988
    
    
    
    
    
    
    
    55,988Diluted common shares outstanding
    
    
    71,246
    
    
    
    
    
    
    
    71,246(1) amount excludes amortization of intangible assets
related to acquired products
    
    $
    21,606
    
    
    
    
    
    
    $
    21,606(2) amount includes share-based compensation expense
    
    $
    21,031
    
    
    
    
    
    
    $
    21,031(3) amount includes share-based compensation expense
    
    $
    112
    
    
    
    
    
    
    $
    112
 F-15




---



##### Table of Contents



CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2006 (in
thousands, except per share data)
 AsPreviously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedNet product revenues
    
    $
    333,625
    
    
    $
    43,923
    
    
    $
    377,548Net contract revenues
    
    
    15,617
    
    
    
    
    
    
    
    15,617Net revenues
    
    
    349,242
    
    
    
    43,923
    
    
    
    393,165Cost of product revenues (1)
    
    
    41,741
    
    
    
    4,365
    
    
    
    46,106Gross profit
    
    
    307,501
    
    
    
    39,558
    
    
    
    347,059Operating expenses:Selling, general and administrative (2)
    
    
    206,822
    
    
    
    (4,365
    )
    
    
    202,457Impairment of intangible assets
    
    
    52,586
    
    
    
    
    
    
    
    52,586Research and development (3)
    
    
    161,837
    
    
    
    
    
    
    
    161,837Depreciation and amortization
    
    
    23,048
    
    
    
    
    
    
    
    23,048Operating loss
    
    
    (136,792
    )
    
    
    43,923
    
    
    
    (92,869
    )Interest and investment income
    
    
    30,787
    
    
    
    
    
    
    
    30,787Interest expense
    
    
    (10,640
    )
    
    
    
    
    
    
    (10,640
    )Loss before income tax
    
    
    (116,645
    )
    
    
    43,923
    
    
    
    (72,722
    )Income tax benefit
    
    
    (40,796
    )
    
    
    16,226
    
    
    
    (24,570
    )Net loss
    
    $
    (75,849
    )
    
    $
    27,697
    
    
    $
    (48,152
    )Basic net loss per share
    
    $
    (1.39
    )
    
    $
    0.51
    
    
    $
    (0.88
    )Diluted net loss per share
    
    $
    (1.39
    )
    
    $
    0.51
    
    
    $
    (0.88
    )Cash dividend declared per common share
    
    $
    0.12
    
    
    
    
    
    
    $
    0.12Basic common shares outstanding
    
    
    54,688
    
    
    
    
    
    
    
    54,688Diluted common shares outstanding
    
    
    54,688
    
    
    
    
    
    
    
    54,688(1) amount excludes amortization of intangible assets
related to acquired products
    
    $
    20,017
    
    
    
    
    
    
    $
    20,017(2) amount includes share-based compensation expense
    
    $
    24,453
    
    
    
    
    
    
    $
    24,453(3) amount includes share-based compensation expense
    
    $
    1,626
    
    
    
    
    
    
    $
    1,626
 F-16




---



##### Table of Contents



CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 2005 (in
thousands, except per share data)
 AsPreviously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedNet product revenues
    
    $
    155,569
    
    
    $
    1,394
    
    
    $
    156,963Net contract revenues
    
    
    8,385
    
    
    
    
    
    
    
    8,385Net revenues
    
    
    163,954
    
    
    
    1,394
    
    
    
    165,348Cost of product revenues (1)
    
    
    24,111
    
    
    
    1,654
    
    
    
    25,765Gross profit
    
    
    139,843
    
    
    
    (260
    )
    
    
    139,583Operating expenses:Selling, general and administrative (2)
    
    
    80,189
    
    
    
    (1,654
    )
    
    
    78,535Impairment of intangible assets
    
    
    9,171
    
    
    
    
    
    
    
    9,171Research and development (3)
    
    
    22,367
    
    
    
    
    
    
    
    22,367Depreciation and amortization
    
    
    12,420
    
    
    
    
    
    
    
    12,420Operating income
    
    
    15,696
    
    
    
    1,394
    
    
    
    17,090Other income, net
    
    
    59,801
    
    
    
    
    
    
    
    59,801Interest and investment income
    
    
    10,059
    
    
    
    
    
    
    
    10,059Interest expense
    
    
    (5,333
    )
    
    
    
    
    
    
    (5,333
    )Income before income tax
    
    
    80,223
    
    
    
    1,394
    
    
    
    81,617Income tax expense
    
    
    30,502
    
    
    
    (691
    )
    
    
    29,811Net income
    
    $
    49,721
    
    
    $
    2,085
    
    
    $
    51,806Basic net income per share
    
    $
    0.92
    
    
    $
    0.03
    
    
    $
    0.95Diluted net income per share
    
    $
    0.76
    
    
    $
    0.03
    
    
    $
    0.79Cash dividend declared per common share
    
    $
    0.06
    
    
    
    
    
    
    $
    0.06Basic common shares outstanding
    
    
    54,323
    
    
    
    
    
    
    
    54,323Diluted common shares outstanding
    
    
    69,772
    
    
    
    
    
    
    
    69,772(1) amount excludes amortization of intangible assets
related to acquired products
    
    $
    10,899
    
    
    
    
    
    
    $
    10,899(2) amount includes share-based compensation expense
    
    $
    13,947
    
    
    
    
    
    
    $
    13,947(3) amount includes share-based compensation expense
    
    $
    1,000
    
    
    
    
    
    
    $
    1,000
 F-17




---



##### Table of Contents



CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 2004
(unaudited)
(in thousands, except per share data)
 AsPreviously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedNet product revenues
    
    $
    146,999
    
    
    $
    (2,883
    )
    
    $
    144,116Net contract revenues
    
    
    34,168
    
    
    
    
    
    
    
    34,168Net revenues
    
    
    181,167
    
    
    
    (2,883
    )
    
    
    178,284Cost of product revenues (1)
    
    
    27,270
    
    
    
    2,155
    
    
    
    29,425Gross profit
    
    
    153,897
    
    
    
    (5,038
    )
    
    
    148,859Operating expenses:Selling, general and administrative (2)
    
    
    65,736
    
    
    
    (2,431
    )
    
    
    63,305Research and development
    
    
    45,140
    
    
    
    
    
    
    
    45,140Depreciation and amortization
    
    
    10,222
    
    
    
    
    
    
    
    10,222Operating income
    
    
    32,799
    
    
    
    (2,607
    )
    
    
    30,192Interest and investment income
    
    
    5,076
    
    
    
    
    
    
    
    5,076Interest expense
    
    
    (5,324
    )
    
    
    
    
    
    
    (5,324
    )Income before income tax
    
    
    32,551
    
    
    
    (2,607
    )
    
    
    29,944Income tax expense
    
    
    11,328
    
    
    
    (951
    )
    
    
    10,377Net income
    
    $
    21,223
    
    
    $
    (1,656
    )
    
    $
    19,567Basic net income per share
    
    $
    0.38
    
    
    $
    (0.03
    )
    
    $
    0.35Diluted net income per share
    
    $
    0.34
    
    
    $
    (0.02
    )
    
    $
    0.32Cash dividend declared per common share
    
    $
    0.06
    
    
    
    
    
    
    $
    0.06Basic common shares outstanding
    
    
    55,972
    
    
    
    
    
    
    
    55,972Diluted common shares outstanding
    
    
    72,160
    
    
    
    
    
    
    
    72,160(1) amount excludes amortization of intangible assets
related to acquired products
    
    $
    8,933
    
    
    
    
    
    
    $
    8,933(2) amount includes share-based compensation expense
    
    $
    258
    
    
    
    
    
    
    $
    258
 F-18




---



##### Table of Contents



CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended June 30, 2005 (in
thousands, except per share data)
 AsPreviously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedNet product revenues
    
    $
    305,114
    
    
    $
    (11,226
    )
    
    $
    293,888Net contract revenues
    
    
    71,785
    
    
    
    
    
    
    
    71,785Net revenues
    
    
    376,899
    
    
    
    (11,226
    )
    
    
    365,673Cost of product revenues (1)
    
    
    55,447
    
    
    
    2,678
    
    
    
    58,125Gross profit
    
    
    321,452
    
    
    
    (13,904
    )
    
    
    307,548Operating expenses:Selling, general and administrative (2)
    
    
    135,154
    
    
    
    (4,227
    )
    
    
    130,927Research and development
    
    
    65,676
    
    
    
    
    
    
    
    65,676Depreciation and amortization
    
    
    22,350
    
    
    
    
    
    
    
    22,350Operating income
    
    
    98,272
    
    
    
    (9,677
    )
    
    
    88,595Interest and investment income
    
    
    11,470
    
    
    
    
    
    
    
    11,470Interest expense
    
    
    (10,640
    )
    
    
    
    
    
    
    (10,640
    )Income before income tax
    
    
    99,102
    
    
    
    (9,677
    )
    
    
    89,425Income tax expense
    
    
    34,112
    
    
    
    (3,116
    )
    
    
    30,996Net income
    
    $
    64,990
    
    
    $
    (6,561
    )
    
    $
    58,429Basic net income per share
    
    $
    1.18
    
    
    $
    (0.12
    )
    
    $
    1.06Diluted net income per share
    
    $
    1.01
    
    
    $
    (0.09
    )
    
    $
    0.92Cash dividend declared per common share
    
    $
    0.12
    
    
    
    
    
    
    $
    0.12Basic common shares outstanding
    
    
    55,196
    
    
    
    
    
    
    
    55,196Diluted common shares outstanding
    
    
    70,909
    
    
    
    
    
    
    
    70,909(1) amount excludes amortization of intangible assets
related to acquired products
    
    $
    19,620
    
    
    
    
    
    
    $
    19,620(2) amount includes share-based compensation expense
    
    $
    515
    
    
    
    
    
    
    $
    515
 F-19




---



##### Table of Contents



CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2007
(in thousands)
 AsPreviously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedOperating Activities:Net income
    
    $
    75,051
    
    
    $
    (4,615
    )
    
    $
    70,436Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    24,548
    
    
    
    
    
    
    
    24,548Amortization of deferred financing fees
    
    
    1,519
    
    
    
    
    
    
    
    1,519Impairment of intangible assets
    
    
    4,067
    
    
    
    
    
    
    
    4,067Loss on disposal of property and equipment
    
    
    19
    
    
    
    
    
    
    
    19Loss on sale of product rights
    
    
    259
    
    
    
    
    
    
    
    259Gain on sale of available-for-sale investments
    
    
    (105
    )
    
    
    
    
    
    
    (105
    )Share-based compensation expense
    
    
    21,143
    
    
    
    
    
    
    
    21,143Deferred income tax expense
    
    
    16,527
    
    
    
    (2,500
    )
    
    
    14,027Tax benefit from exericise of stock options and
vesting of restricted stock awards
    
    
    2,590
    
    
    
    
    
    
    
    2,590Excess tax benefits from share-based payment
arrangements
    
    
    (1,494
    )
    
    
    
    
    
    
    (1,494
    )Decrease in provision for sales discounts
and chargebacks
    
    
    (26,785
    )
    
    
    25,467
    
    
    
    (1,318
    )Amortization of (discount) premium on investments
    
    
    (3,369
    )
    
    
    
    
    
    
    (3,369
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    50,777
    
    
    
    
    
    
    
    50,777Inventories
    
    
    (2,957
    )
    
    
    
    
    
    
    (2,957
    )Other current assets
    
    
    (2,060
    )
    
    
    
    
    
    
    (2,060
    )Accounts payable
    
    
    (12,622
    )
    
    
    
    
    
    
    (12,622
    )Reserve for sales returns
    
    
    
    
    
    
    (18,625
    )
    
    
    (18,625
    )Income taxes payable
    
    
    (4,420
    )
    
    
    
    
    
    
    (4,420
    )Other current liabilities
    
    
    7,727
    
    
    
    273
    
    
    
    8,000Other liabilities
    
    
    8,529
    
    
    
    
    
    
    
    8,529Net cash provided by operating activities
    
    
    158,944
    
    
    
    
    
    
    
    158,944Investing Activities:Purchase of property and equipment
    
    
    (10,020
    )
    
    
    
    
    
    
    (10,020
    )Equity investment in unconsolidated entity
    
    
    (11,957
    )
    
    
    
    
    
    
    (11,957
    )Payments for purchase of product rights
    
    
    (30,394
    )
    
    
    
    
    
    
    (30,394
    )Proceeds from sale of product rights
    
    
    1,000
    
    
    
    
    
    
    
    1,000Purchase of available-for-sale investments
    
    
    (741,075
    )
    
    
    
    
    
    
    (741,075
    )Sale of available-for-sale investments
    
    
    291,804
    
    
    
    
    
    
    
    291,804Maturity of available-for-sale investments
    
    
    231,156
    
    
    
    
    
    
    
    231,156Net cash used in investing activities
    
    
    (269,486
    )
    
    
    
    
    
    
    (269,486
    )Financing Activities:Payment of dividends
    
    
    (6,771
    )
    
    
    
    
    
    
    (6,771
    )Payment of contingent convertible senior notes
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Excess tax benefits from share-based payment
arrangements
    
    
    1,494
    
    
    
    
    
    
    
    1,494Proceeds from the exercise of stock options
    
    
    19,752
    
    
    
    
    
    
    
    19,752Net cash provided by financing activities
    
    
    14,470
    
    
    
    
    
    
    
    14,470Effect of exchange rate on cash and cash equivalents
    
    
    799
    
    
    
    
    
    
    
    799Net decrease in cash and cash equivalents
    
    
    (95,273
    )
    
    
    
    
    
    
    (95,273
    )Cash and cash equivalents at beginning of period
    
    
    203,319
    
    
    
    
    
    
    
    203,319Cash and cash equivalents at end of period
    
    $
    108,046
    
    
    $
    
    
    
    $
    108,046
 F-20




---



##### Table of Contents



CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2006
(in thousands)
 AsPreviously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedOperating Activities:Net loss
    
    $
    (75,849
    )
    
    $
    27,697
    
    
    $
    (48,152
    )Adjustments to reconcile net income to net cash used in
operating activities:Depreciation and amortization
    
    
    23,048
    
    
    
    
    
    
    
    23,048Amortization of deferred financing fees
    
    
    2,144
    
    
    
    
    
    
    
    2,144Impairment of intangible assets
    
    
    52,586
    
    
    
    
    
    
    
    52,586Loss on disposal of property and equipment
    
    
    449
    
    
    
    
    
    
    
    449Gain on sale of available-for-sale investments
    
    
    (421
    )
    
    
    
    
    
    
    (421
    )Share-based compensation expense
    
    
    26,079
    
    
    
    
    
    
    
    26,079Deferred income tax benefit
    
    
    (60,122
    )
    
    
    16,226
    
    
    
    (43,896
    )Tax benefit from exericise of stock options and
vesting of restricted stock awards
    
    
    3,921
    
    
    
    
    
    
    
    3,921Excess tax benefits from share-based payment
arrangements
    
    
    (2,166
    )
    
    
    
    
    
    
    (2,166
    )Increase in provision for sales discounts
and chargebacks
    
    
    19,282
    
    
    
    (19,128
    )
    
    
    154Amortization of (discount) premium on investments
    
    
    (2,159
    )
    
    
    
    
    
    
    (2,159
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (8,955
    )
    
    
    
    
    
    
    (8,955
    )Inventories
    
    
    (7,940
    )
    
    
    
    
    
    
    (7,940
    )Other current assets
    
    
    (3,749
    )
    
    
    
    
    
    
    (3,749
    )Accounts payable
    
    
    (10,195
    )
    
    
    
    
    
    
    (10,195
    )Reserve for sales returns
    
    
    
    
    
    
    (23,414
    )
    
    
    (23,414
    )Income taxes payable
    
    
    (20,175
    )
    
    
    
    
    
    
    (20,175
    )Other current liabilities
    
    
    23,259
    
    
    
    (1,381
    )
    
    
    21,878Net cash used in operating activities
    
    
    (40,963
    )
    
    
    
    
    
    
    (40,963
    )Investing Activities:Purchase of property and equipment
    
    
    (4,450
    )
    
    
    
    
    
    
    (4,450
    )Payment of direct merger costs
    
    
    (27,420
    )
    
    
    
    
    
    
    (27,420
    )Payments for purchase of product rights
    
    
    (2,164
    )
    
    
    
    
    
    
    (2,164
    )Purchase of available-for-sale investments
    
    
    (822,512
    )
    
    
    
    
    
    
    (822,512
    )Sale of available-for-sale investments
    
    
    349,034
    
    
    
    
    
    
    
    349,034Maturity of available-for-sale investments
    
    
    290,597
    
    
    
    
    
    
    
    290,597Net cash used in investing activities
    
    
    (216,915
    )
    
    
    
    
    
    
    (216,915
    )Financing Activities:Payment of dividends
    
    
    (6,581
    )
    
    
    
    
    
    
    (6,581
    )Excess tax benefits from share-based payment
arrangements
    
    
    2,166
    
    
    
    
    
    
    
    2,166Proceeds from the exercise of stock options
    
    
    18,693
    
    
    
    
    
    
    
    18,693Net cash provided by financing activities
    
    
    14,278
    
    
    
    
    
    
    
    14,278Effect of exchange rate on cash and cash equivalents
    
    
    (78
    )
    
    
    
    
    
    
    (78
    )Net decrease in cash and cash equivalents
    
    
    (243,678
    )
    
    
    
    
    
    
    (243,678
    )Cash and cash equivalents at beginning of period
    
    
    446,997
    
    
    
    
    
    
    
    446,997Cash and cash equivalents at end of period
    
    $
    203,319
    
    
    $
    
    
    
    $
    203,319
 F-21




---



##### Table of Contents



CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Month Ended December 31, 2005
(in thousands)
 AsPreviously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedOperating Activities:Net income
    
    $
    49,721
    
    
    $
    2,085
    
    
    $
    51,806Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    12,420
    
    
    
    
    
    
    
    12,420Amortization of deferred financing fees
    
    
    1,072
    
    
    
    
    
    
    
    1,072Impairment of intangible assets
    
    
    9,171
    
    
    
    
    
    
    
    9,171Loss on disposal of property and equipment
    
    
    34
    
    
    
    
    
    
    
    34Loss on sale of available-for-sale investments
    
    
    599
    
    
    
    
    
    
    
    599Write-off of Inamed transaction costs
    
    
    14,042
    
    
    
    
    
    
    
    14,042Share-based compensation expense
    
    
    14,947
    
    
    
    
    
    
    
    14,947Deferred income tax expense
    
    
    1,849
    
    
    
    509
    
    
    
    2,358Excess tax benefits from share-based payment
arrangements
    
    
    (73
    )
    
    
    
    
    
    
    (73
    )(Decrease) increase in provision for sales discounts
and chargebacks
    
    
    (913
    )
    
    
    928
    
    
    
    15Amortization of (discount) premium on investments
    
    
    (418
    )
    
    
    
    
    
    
    (418
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    1,436
    
    
    
    
    
    
    
    1,436Inventories
    
    
    1,625
    
    
    
    
    
    
    
    1,625Other current assets
    
    
    4,194
    
    
    
    
    
    
    
    4,194Accounts payable
    
    
    27,220
    
    
    
    
    
    
    
    27,220Reserve for sales returns
    
    
    
    
    
    
    (2,456
    )
    
    
    (2,456
    )Income taxes payable
    
    
    17,255
    
    
    
    (1,200
    )
    
    
    16,055Other current liabilities
    
    
    (6,191
    )
    
    
    134
    
    
    
    (6,057
    )Net cash provided by operating activities
    
    
    147,990
    
    
    
    
    
    
    
    147,990Investing Activities:Purchase of property and equipment
    
    
    (748
    )
    
    
    
    
    
    
    (748
    )Payment of direct merger costs
    
    
    (5,811
    )
    
    
    
    
    
    
    (5,811
    )Payments for purchase of product rights
    
    
    (481
    )
    
    
    
    
    
    
    (481
    )Purchase of available-for-sale investments
    
    
    (203,247
    )
    
    
    
    
    
    
    (203,247
    )Sale of available-for-sale investments
    
    
    159,597
    
    
    
    
    
    
    
    159,597Maturity of available-for-sale investments
    
    
    174,355
    
    
    
    
    
    
    
    174,355Net cash provided by investing activities
    
    
    123,665
    
    
    
    
    
    
    
    123,665Financing Activities:Payment of dividends
    
    
    (3,295
    )
    
    
    
    
    
    
    (3,295
    )Excess tax benefits from share-based payment
arrangements
    
    
    73
    
    
    
    
    
    
    
    73Proceeds from the exercise of stock options
    
    
    430
    
    
    
    
    
    
    
    430Net cash used in financing activities
    
    
    (2,792
    )
    
    
    
    
    
    
    (2,792
    )Effect of exchange rate on cash and cash equivalents
    
    
    349
    
    
    
    
    
    
    
    349Net increase in cash and cash equivalents
    
    
    269,212
    
    
    
    
    
    
    
    269,212Cash and cash equivalents at beginning of period
    
    
    177,785
    
    
    
    
    
    
    
    177,785Cash and cash equivalents at end of period
    
    $
    446,997
    
    
    $
    
    
    
    $
    446,997
 F-22




---



##### Table of Contents



CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended December 31, 2004
(unaudited)
(in thousands)
 AsPreviously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedOperating Activities:Net income
    
    $
    21,223
    
    
    $
    (1,656
    )
    
    $
    19,567Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    10,222
    
    
    
    
    
    
    
    10,222Amortization of deferred financing fees
    
    
    1,072
    
    
    
    
    
    
    
    1,072Loss on disposal of property and equipment
    
    
    39
    
    
    
    
    
    
    
    39Loss on sale of available-for-sale investments
    
    
    103
    
    
    
    
    
    
    
    103Share-based compensation expense
    
    
    258
    
    
    
    
    
    
    
    258Deferred income tax benefit
    
    
    (3,060
    )
    
    
    (2,261
    )
    
    
    (5,321
    )Tax benefit from exericise of stock options and
vesting of restricted stock awards
    
    
    5,058
    
    
    
    (432
    )
    
    
    4,626Increase (decrease) in provision for sales discounts
and chargebacks
    
    
    3,100
    
    
    
    (3,979
    )
    
    
    (879
    )Accretion of (discount) premium on investments
    
    
    5,010
    
    
    
    
    
    
    
    5,010Changes in operating assets and liabilities:Accounts receivable
    
    
    (957
    )
    
    
    (2,964
    )
    
    
    (3,921
    )Inventories
    
    
    2,621
    
    
    
    (422
    )
    
    
    2,199Other current assets
    
    
    (1,942
    )
    
    
    
    
    
    
    (1,942
    )Accounts payable
    
    
    4,557
    
    
    
    
    
    
    
    4,557Reserve for sales returns
    
    
    
    
    
    
    9,698
    
    
    
    9,698Income taxes payable
    
    
    5,974
    
    
    
    1,742
    
    
    
    7,716Other current liabilities
    
    
    (7,813
    )
    
    
    274
    
    
    
    (7,539
    )Net cash provided by operating activities
    
    
    45,465
    
    
    
    
    
    
    
    45,465Investing Activities:Purchase of property and equipment
    
    
    (1,829
    )
    
    
    
    
    
    
    (1,829
    )Payment of direct merger costs
    
    
    (129
    )
    
    
    
    
    
    
    (129
    )Payments for purchase of product rights
    
    
    (3,085
    )
    
    
    
    
    
    
    (3,085
    )Purchase of available-for-sale investments
    
    
    (440,602
    )
    
    
    
    
    
    
    (440,602
    )Sale of available-for-sale investments
    
    
    489,352
    
    
    
    
    
    
    
    489,352Maturity of available-for-sale investments
    
    
    32,451
    
    
    
    
    
    
    
    32,451Net cash provided by investing activities
    
    
    76,158
    
    
    
    
    
    
    
    76,158Financing Activities:Payment of financing costs
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Payment of dividends
    
    
    (3,115
    )
    
    
    
    
    
    
    (3,115
    )Purchase of treasury stock
    
    
    (150,000
    )
    
    
    
    
    
    
    (150,000
    )Proceeds from the exercise of stock options
    
    
    15,674
    
    
    
    
    
    
    
    15,674Net cash used in financing activities
    
    
    (137,447
    )
    
    
    
    
    
    
    (137,447
    )Effect of exchange rate on cash and cash equivalents
    
    
    724
    
    
    
    
    
    
    
    724Net decrease in cash and cash equivalents
    
    
    (15,100
    )
    
    
    
    
    
    
    (15,100
    )Cash and cash equivalents at beginning of period
    
    
    46,621
    
    
    
    
    
    
    
    46,621Cash and cash equivalents at end of period
    
    $
    31,521
    
    
    $
    
    
    
    $
    31,521
 F-23




---



##### Table of Contents



CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended June 30, 2005
(in thousands)
 AsPreviously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedOperating Activities:Net income
    
    $
    64,990
    
    
    $
    (6,561
    )
    
    $
    58,429Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    22,350
    
    
    
    
    
    
    
    22,350Amortization of deferred financing fees
    
    
    2,143
    
    
    
    
    
    
    
    2,143Loss on disposal of property and equipment
    
    
    52
    
    
    
    
    
    
    
    52Loss on sale of available-for-sale investments
    
    
    882
    
    
    
    
    
    
    
    882Share-based compensation expense
    
    
    515
    
    
    
    
    
    
    
    515Deferred income tax expense
    
    
    5,369
    
    
    
    (4,426
    )
    
    
    943Tax benefit from exericise of stock options and
vesting of restricted stock awards
    
    
    5,104
    
    
    
    (432
    )
    
    
    4,672Increase (decrease) in provision for sales discounts
and chargebacks
    
    
    3,118
    
    
    
    (3,760
    )
    
    
    (642
    )Accretion of (discount) premium on investments
    
    
    6,528
    
    
    
    
    
    
    
    6,528Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,480
    )
    
    
    (3,942
    )
    
    
    (6,422
    )Inventories
    
    
    (1,160
    )
    
    
    (1,695
    )
    
    
    (2,855
    )Other current assets
    
    
    1,886
    
    
    
    
    
    
    
    1,886Accounts payable
    
    
    15,580
    
    
    
    
    
    
    
    15,580Reserve for sales returns
    
    
    
    
    
    
    18,800
    
    
    
    18,800Income taxes payable
    
    
    9,524
    
    
    
    1,742
    
    
    
    11,266Other current liabilities
    
    
    (4,420
    )
    
    
    274
    
    
    
    (4,146
    )Net cash provided by operating activities
    
    
    129,981
    
    
    
    
    
    
    
    129,981Investing Activities:Purchase of property and equipment
    
    
    (2,913
    )
    
    
    
    
    
    
    (2,913
    )Payment of direct merger costs
    
    
    (7,454
    )
    
    
    
    
    
    
    (7,454
    )Payments for purchase of product rights
    
    
    (3,296
    )
    
    
    
    
    
    
    (3,296
    )Purchase of available-for-sale investments
    
    
    (762,561
    )
    
    
    
    
    
    
    (762,561
    )Sale of available-for-sale investments
    
    
    846,143
    
    
    
    
    
    
    
    846,143Maturity of available-for-sale investments
    
    
    70,568
    
    
    
    
    
    
    
    70,568Net cash provided by investing activities
    
    
    140,487
    
    
    
    
    
    
    
    140,487Financing Activities:Payment of financing costs
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Payment of dividends
    
    
    (6,370
    )
    
    
    
    
    
    
    (6,370
    )Purchase of treasury stock
    
    
    (150,000
    )
    
    
    
    
    
    
    (150,000
    )Proceeds from the exercise of stock options
    
    
    16,583
    
    
    
    
    
    
    
    16,583Net cash used in financing activities
    
    
    (139,793
    )
    
    
    
    
    
    
    (139,793
    )Effect of exchange rate on cash and cash equivalents
    
    
    489
    
    
    
    
    
    
    
    489Net increase in cash and cash equivalents
    
    
    131,164
    
    
    
    
    
    
    
    131,164Cash and cash equivalents at beginning of period
    
    
    46,621
    
    
    
    
    
    
    
    46,621Cash and cash equivalents at end of period
    
    $
    177,785
    
    
    $
    
    
    
    $
    177,785
 NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Cash and Cash Equivalents
  F-24




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##### Table of Contents



Short-Term and Long-Term Investments
  Inventories
    DECEMBER 31,2007
    
    
    2006Raw materials
    
    $
    9,002
    
    
    $
    8,637Finished goods
    
    
    24,789
    
    
    
    19,709Valuation reserve
    
    
    (3,818
    )
    
    
    (1,330
    )Total inventories
    
    $
    29,973
    
    
    $
    27,016
 Property and Equipment
  DECEMBER 31,2007
    
    
    2006Furniture, fixtures and equipment
    
    $
    19,102
    
    
    $
    12,330Leasehold improvements
    
    
    4,082
    
    
    
    2,20323,184
    
    
    
    14,533Less: accumulated depreciation
    
    
    (9,334
    )
    
    
    (7,957
    )$
    13,850
    
    
    $
    6,576
  F-25




---



##### Table of Contents



Goodwill
  Intangible Assets
  December 31, 2007
    
    
    December 31, 2006Weighted
    
    
    Accumulated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedAverage Life
    
    
    Gross
    
    
    Amortization
    
    
    Net
    
    
    Gross
    
    
    Amortization
    
    
    NetRelated to product line
acquisitions
    
    
    15.7
    
    
    $
    253,791
    
    
    $
    (87,406
    )
    
    $
    166,385
    
    
    $
    234,314
    
    
    $
    (72,299
    )
    
    $
    162,015Related to business
combinations
    
    
    7.5
    
    
    
    5,082
    
    
    
    (3,919
    )
    
    
    1,16
    
    
    
    3      5,082
    
    
    
    (2,996
    )
    
    
    2,086Patents and trademarks
(restated)
    
    
    18.0
    
    
    
    6,695
    
    
    
    (1,157
    )
    
    
    5,538
    
    
    
    5,684
    
    
    
    (946
    )
    
    
    4,738Total intangible assets
(restated)
    
    
    
    
    
    $
    265,568
    
    
    $
    (92,482
    )
    
    $
    173,086
    
    
    $
    245,080
    
    
    $
    (76,241
    )
    
    $
    168,839
  Impairment of Long-Lived Assets
   F-26




---



##### Table of Contents



®
 ®
 ® ®
  Long-lived asset related to LOPROX® products
    
    $
    49,163Long-lived asset related to ESOTERICA® products
    
    
    3,267Other long-lived asset
    
    
    156$
    52,586
 ® ® ® ® ®
 ® ® ® ® ® ®
 ® ®
 Deferred Financing Costs
  F-27




---



##### Table of Contents



Managed Care and Medicaid Reserves
  Consumer Rebates and Loyalty Programs
  Other Current Liabilities
  DECEMBER 31,2007
    
    
    2006(Restated)
    
    
    (Restated)Accrued incentives
    
    $
    15,324
    
    
    $
    13,479Managed care and Medicaid
reserves
    
    
    4,881
    
    
    
    6,111Legal reserves
    
    
    350
    
    
    
    10,500Accrued consumer rebate and loyalty
programs
    
    
    14,745
    
    
    
    5,398Deferred revenue
    
    
    4,758
    
    
    
    258Other accrued expenses
    
    
    15,749
    
    
    
    10,810$
    55,807
    
    
    $
    46,556
  Revenue Recognition
  F-28




---



##### Table of Contents



Advertising
  Share-Based Compensation
    WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateNumber
    
    
    Exercise
    
    
    Contractual
    
    
    Intrinsicof Shares
    
    
    Price
    
    
    Term
    
    
    ValueBalance at December 31, 2006
    
    
    12,989,011
    
    
    $
    27.63Granted
    
    
    119,553
    
    
    $
    33.75Exercised
    
    
    (891,739
    )
    
    $
    20.65Terminated/expired
    
    
    (549,870
    )
    
    $
    32.70Balance at December 31, 2007
    
    
    11,666,955
    
    
    $
    27.99
    
    
    
    4.69
    
    
    $
    24,241,643
 F-29




---



##### Table of Contents



WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateNumber
    
    Exercise
    
    Contractual
    
    Intrinsicof Shares
    
    Price
    
    Term
    
    ValueOutstanding
    
    
    10,784,370
    
    
    $
    28.23
    
    
    
    4.8
    
    
    $
    21,333,338Exercisable
    
    
    8,530,424
    
    
    $
    26.62
    
    
    
    4.4
    
    
    $
    21,218,606
  Year Ended
    
    Year Ended
    
    Six Months EndedDecember 31, 2007
    
    December 31, 2006
    
    December 31, 2005Expected dividend yield
    
    
    0.4
    
    
    
    0.4
    %
    
    
    0.4%Expected stock price volatility
    
    
    0.35
    
    
    
    0.36
    
    
    
    0.36Risk-free interest rate
    
    4.5% to 4.8%
    
    4.5% to 4.6%
    
    4.1% to 4.2%Expected life of options
    
    7 Years
    
    7 Years
    
    
    6 to 8 Years
 Six Months Ended
    
    Year EndedDecember 31, 2004
    
    June 30, 2005(UNAUDITED)Expected dividend yield
    
    
    0.3
    %
    
    
    0.3
    %Expected stock price volatility
    
    
    0.44
    
    
    
    0.44Risk-free interest rate
    
    
    3.6
    %
    
    
    3.6
    %Expected life of options
    
    5 Years
    
    5 Years
   F-30




---



##### Table of Contents



6 Months
    
    
    12 MonthsEnded
    
    
    EndedDecember 31, 2004
    
    
    June 30,2005(Restated)
    
    
    (Restated)(UNAUDITED)Net income, as reported
    
    $
    19,567
    
    
    $
    58,429Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects
    
    
    10,195
    
    
    
    21,813Pro-forma net income
    
    $
    9,372
    
    
    $
    36,616Net income per common share:Basic, as reported
    
    $
    0.35
    
    
    $
    1.06Basic, pro forma
    
    $
    0.17
    
    
    $
    0.66Diluted, as reported
    
    $
    0.32
    
    
    $
    0.92Diluted, pro forma
    
    $
    0.17
    
    
    $
    0.61
   Weighted-AverageGrant-DateNonvested Shares
    
    Shares
    
    
    Fair ValueNonvested at December 31, 2006
    
    
    295,579
    
    
    $
    29.98Granted
    
    
    334,179
    
    
    $
    33.39Vested
    
    
    (42,657
    )
    
    $
    30.37Forfeited
    
    
    (34,332
    )
    
    $
    32.29Nonvested at December 31, 2007
    
    
    552,769
    
    
    $
    31.87
   F-31




---



##### Table of Contents



Shipping and Handling Costs
  Research and Development Costs and Accounting for Strategic Collaborations
   Income Taxes
  Legal Contingencies
  F-32




---



##### Table of Contents



Foreign Currency Translations
 Foreign Currency Translation.
 Earnings Per Common Share
  Use of Estimates and Risks and Uncertainties
   Fair Value of Financial Instruments
  Supplemental Disclosure of Cash Flow Information
  Reclassifications
  Recent Accounting Pronouncements
 Accounting for Uncertainty
in Income Taxes  an interpretation of FASB Statement No. 109
 F-33




---



##### Table of Contents



Fair Value Measurements
 The Fair Value Option for Financial
Statements and Financial Liabilities Fair Value Measurements, Disclosures about
Fair Value of Financial Instruments.
 Accounting for Nonrefundable
Advance Payments for Goods or Services to Be Used in Future Research and Development
Activities
 Business Combinations
 Noncontrolling Interests in
Consolidated Financial Statements  an amendment of Accounting Research Bulletin No. 51
 Accounting for
Collaborative Agreements
 F-34




---



##### Table of Contents



NOTE 4. CHANGE IN ESTIMATE
  NOTE 5. SEGMENT AND PRODUCT INFORMATION
 ® ® ® ® ® ® ® ® ® ® ® ®
 ® ® ®
 YEARS ENDED
    
    
    SIX MONTHS ENDED
    
    
    YEAR ENDEDDECEMBER 31,
    
    
    DECEMBER 31,
    
    
    JUNE 30,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2005(Unaudited)McKesson
    
    
    52.2
    %
    
    
    56.8
    %
    
    
    54.9
    %
    
    
    50.8
    %
    
    
    51.2
    %Cardinal
    
    
    16.9
    %
    
    
    19.3
    %
    
    
    18.9
    %
    
    
    19.7
    %
    
    
    21.8
    %
 ® ®
 F-35




---



##### Table of Contents



YEARS ENDED
    
    
    SIX MONTHS ENDED
    
    
    YEAR ENDEDDECEMBER 31,
    
    
    DECEMBER 31,
    
    
    JUNE 30,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Unaudited)Acne and acne-related
dermatological products
    
    $
    243,414
    
    
    $
    159,815
    
    
    $
    57,665
    
    
    $
    52,289
    
    
    $
    108,902Non-acne dermatological
products
    
    
    172,902
    
    
    
    199,613
    
    
    
    87,216
    
    
    
    84,762
    
    
    
    169,655Non-dermatological products
    
    
    41,078
    
    
    
    33,737
    
    
    
    20,467
    
    
    
    41,233
    
    
    
    87,116Total net revenues
    
    $
    457,394
    
    
    $
    393,165
    
    
    $
    165,348
    
    
    $
    178,284
    
    
    $
    365,673
 YEARS ENDED
    
    
    SIX MONTHS ENDED
    
    
    YEAR ENDEDDECEMBER 31,
    
    
    DECEMBER 31,
    
    
    JUNE 302007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Unaudited)Acne and acne-related dermatological products
    
    
    53
    %
    
    
    41
    %
    
    
    35
    %
    
    
    29
    %
    
    
    30
    %Non-acne dermatological products
    
    
    38
    
    
    
    51
    
    
    
    53
    
    
    
    48
    
    
    
    46Non-dermatological products
    
    
    9
    
    
    
    8
    
    
    
    12
    
    
    
    23
    
    
    
    24Total net revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 NOTE 6. STRATEGIC COLLABORATIONS
   ®
 F-36




---



##### Table of Contents



®
   TM TM TM TM TM
 NOTE 7. INVESTMENT IN REVANCE
  F-37




---



##### Table of Contents



Consolidation of Variable Interest Entities  an Interpretation of Accounting Research
Bulletin No. 51
 NOTE 8. STRATEGIC COLLABORATION WITH HYPERION
 ® Accounting for Revenue Arrangements with Multiple Deliverables, Revenue Recognition in Financial Statements ® ®
 F-38




---



##### Table of Contents



NOTE 9. DEVELOPMENT AND DISTRIBUTION AGREEMENT WITH IPSEN FOR RIGHTS TO
IPSENS BOTULINUM TOXIN TYPE A PRODUCT KNOWN AS RELOXIN ®
 ® ®
   ®
 ®
 NOTE 10. TERMINATION OF DEFINITIVE MERGER AGREEMENT WITH INAMED CORPORATION
  F-39




---



##### Table of Contents



® ® ® ®
    Termination fee received from Inamed, including
expense reimbursement fees
    
    $
    90.5Less:Transaction costs expensed, including legal and
advisory fees
    
    
    27.0Integration planning costs
    
    
    4.4$
    59.1
   NOTE 11. LICENSE OF ORAPRED ® TO BIOMARIN
 ® ® ®
 F-40




---



##### Table of Contents



®
 ® ®
  F-41




---



##### Table of Contents



NOTE 12. ACQUISITION OF DERMAL AESTHETIC ENHANCEMENT PRODUCTS FROM THE Q-MED GROUP
 ® ®  ® ® ® ®  ® ®
 NOTE 13. MERGER OF ASCENT PEDIATRICS, INC.
  NOTE 14. SHORT-TERM AND LONG-TERM INVESTMENTS
  F-42




---



##### Table of Contents



DECEMBER 31, 2007Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueCorporate notes and bonds
    
    $
    283,248
    
    
    $
    498
    
    
    $
    (624
    )
    
    $
    283,122Federal agency notes and bonds
    
    
    206,308
    
    
    
    968
    
    
    
    
    
    
    
    207,276Auction rate floating securities
    
    
    101,649
    
    
    
    1
    
    
    
    
    
    
    
    101,650Asset-backed securities
    
    
    76,936
    
    
    
    399
    
    
    
    (83
    )
    
    
    77,252Commercial paper
    
    
    34,409
    
    
    
    3
    
    
    
    (6
    )
    
    
    34,406Total securities
    
    $
    702,550
    
    
    $
    1,869
    
    
    $
    (713
    )
    
    $
    703,706
 DECEMBER 31, 2006Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueCorporate notes and bonds
    
    $
    165,993
    
    
    $
    32
    
    
    $
    (168
    )
    
    $
    165,857Federal agency notes and bonds
    
    
    219,067
    
    
    
    49
    
    
    
    (134
    )
    
    
    218,982Auction rate floating securities
    
    
    37,850
    
    
    
    
    
    
    
    
    
    
    
    37,850Asset-backed securities
    
    
    48,726
    
    
    
    27
    
    
    
    (37
    )
    
    
    48,716Commercial paper
    
    
    9,828
    
    
    
    
    
    
    
    (1
    )
    
    
    9,827Total securities
    
    $
    481,464
    
    
    $
    108
    
    
    $
    (340
    )
    
    $
    481,232
  DECEMBER 31, 2007EstimatedCost
    
    
    Fair ValueAvailable-for-saleDue in one year or less
    
    $
    409,569
    
    
    $
    409,543Due after one year through five years
    
    
    191,332
    
    
    
    192,513Due after five years through 10 years
    
    
    
    
    
    
    Due after 10 years
    
    
    101,649
    
    
    
    101,650$
    702,550
    
    
    $
    703,706
   F-43




---



##### Table of Contents



Less Than 12 Months
    
    
    Greater Than 12 MonthsGross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    LossCorporate notes and bonds
    
    $
    114,905
    
    
    $
    615
    
    
    $
    17,471
    
    
    $
    8Federal agency notes and bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Auction rate floating securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Asset-backed securities
    
    
    6,294
    
    
    
    83
    
    
    
    309
    
    
    
    1Commercial paper
    
    
    25,252
    
    
    
    6
    
    
    
    
    
    
    
    Total securities
    
    $
    146,451
    
    
    $
    704
    
    
    $
    17,780
    
    
    $
    9
  NOTE 15. CONTINGENT CONVERTIBLE SENIOR NOTES
  Classification of Obligations That Are Callable by the Creditor
 F-44




---



##### Table of Contents




    
    during any quarter commencing after June 30, 2002, if the closing price of
the Companys Class A common stock over a specified number of trading days
during the previous quarter, including the last trading day of such quarter, is
more than 110% of the conversion price of the Old Notes, or $31.96. The Old
Notes are initially convertible at a conversion price of $29.05 per share, which
is equal to a conversion rate of approximately 34.4234 shares per $1,000
principal amount of Old Notes, subject to adjustment;
    
    if the Company has called the Old Notes for redemption;
    
    during the five trading day period immediately following any nine consecutive
day trading period in which the trading price of the Old Notes per $1,000
principal amount for each day of such period was less than 95% of the product of
the closing sale price of the Companys Class A common stock on that day
multiplied by the number of shares of the Companys Class A common stock
issuable upon conversion of $1,000 principal amount of the Old Notes; or
    
    upon the occurrence of specified corporate transactions.
     Classification of Obligations That Are Callable by the Creditor
 F-45




---



##### Table of Contents




    
    during any quarter commencing after September 30, 2003, if the closing price
of the Companys Class A common stock over a specified number of trading days
during the previous quarter, including the last trading day of such quarter, is
more than 120% of the conversion price of the New Notes, or $46.51. The Notes
are initially convertible at a conversion price of $38.76 per share, which is
equal to a conversion rate of approximately 25.7998 shares per $1,000 principal
amount of New Notes, subject to adjustment;
    
    if the Company has called the New Notes for redemption;
    
    during the five trading day period immediately following any nine consecutive
day trading period in which the trading price of the New Notes per $1,000
principal amount for each day of such period was less than 95% of the product of
the closing sale price of the Companys Class A common stock on that day
multiplied by the number of shares of the Companys Class A common stock
issuable upon conversion of $1,000 principal amount of the New Notes; or
    
    upon the occurrence of specified corporate transactions.
     F-46




---



##### Table of Contents



Outstanding
    
    
    
    
    
    OutstandingConversion
    
    Principal Amounts
    
    Conversion
    
    Principal AmountsEligibility
    
    of Old Notes
    
    Eligibility
    
    of New NotesCriteria Met
    
    Converted During
    
    Criteria Met
    
    Converted DuringQuarter Ended
    
    For Old Notes?
    
    Subsequent Quarter
    
    For New Notes?
    
    Subsequent QuarterDecember 31, 2007
    
    No
    
    
    N/A
    
    
    No
    
    
    N/ASeptember 30, 2007
    
    No
    
    
    N/A
    
    
    No
    
    
    N/AJune 30, 2007
    
    No
    
    
    N/A
    
    
    No
    
    
    N/AMarch 31, 2007
    
    No
    
    
    N/A
    
    
    No
    
    
    N/ADecember 31, 2006
    
    Yes
    
    $
    5,000
    
    
    No
    
    
    N/ASeptember 30, 2006
    
    No
    
    
    N/A
    
    
    No
    
    
    N/AJune 30, 2006
    
    No
    
    
    N/A
    
    
    No
    
    
    N/AMarch 31, 2006
    
    No
    
    
    N/A
    
    
    No
    
    
    N/ADecember 31, 2005
    
    Yes
    
    $
    
    
    
    No
    
    
    N/ASeptember 30, 2005
    
    Yes
    
    $
    
    
    
    No
    
    
    N/AJune 30, 2005
    
    No
    
    
    N/A
    
    
    No
    
    
    N/AMarch 31, 2005
    
    No
    
    
    N/A
    
    
    No
    
    
    N/ADecember 31, 2004
    
    Yes
    
    $
    
    
    
    No
    
    
    N/ASeptember 30, 2004
    
    Yes
    
    $
    
    
    
    No
    
    
    N/A
  NOTE 16. COMMITMENTS AND CONTINGENCIES
 Occupancy Arrangements
    F-47




---



##### Table of Contents



YEAR ENDING DECEMBER 31,2008
    
    $
    2,6242009
    
    
    5,0102010
    
    
    6,3762011
    
    
    4,3242012
    
    
    4,353Thereafter
    
    
    35,388$
    58,075
 Research and Development and Consulting Contracts
  Litigation
  ® ®
 ® ®
 F-48




---



##### Table of Contents



® ®
  F-49




---



##### Table of Contents



NOTE 17. INCOME TAXES
  YEARS ENDED
    
    
    SIX MONTHS ENDED
    
    
    YEAR ENDEDDECEMBER 31,
    
    
    DECEMBER 31,
    
    
    JUNE 30,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Unaudited)CurrentFederal
    
    $
    31,639
    
    
    $
    14,172
    
    
    $
    26,008
    
    
    $
    14,887
    
    
    $
    28,806State
    
    
    186
    
    
    
    1,415
    
    
    
    1,115
    
    
    
    638
    
    
    
    1,235Foreign
    
    
    3,194
    
    
    
    3,870
    
    
    
    750
    
    
    
    110
    
    
    
    15635,019
    
    
    
    19,457
    
    
    
    27,873
    
    
    
    15,635
    
    
    
    30,197DeferredFederal
    
    
    13,091
    
    
    
    (42,662
    )
    
    
    1,841
    
    
    
    (5,042
    )
    
    
    783State
    
    
    434
    
    
    
    (1,365
    )
    
    
    79
    
    
    
    (216
    )
    
    
    34Foreign
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    (18
    )13,525
    
    
    
    (44,027
    )
    
    
    1,938
    
    
    
    (5,258
    )
    
    
    799Total
    
    $
    48,544
    
    
    $
    (24,570
    )
    
    $
    29,811
    
    
    $
    10,377
    
    
    $
    30,996
   YEARYEARS ENDED
    
    SIX MONTHS ENDED
    
    ENDEDDECEMBER 31,
    
    DECEMBER 31,
    
    JUNE 30,2007
    
    2006
    
    2005
    
    2004
    
    2005(Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)(Unaudited)Statutory federal income tax rate
    
    
    35.0
    %
    
    
    (35.0
    )%
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State tax rate, net of federal benefit
    
    
    0.9
    
    
    
    (1.9
    )
    
    
    1.3
    
    
    
    1.4
    
    
    
    1.4Share-based payments
    
    
    0.4
    
    
    
    3.1
    
    
    
    1.6
    
    
    
    
    
    
    
    Foreign taxes
    
    
    1.7
    
    
    
    3.9
    
    
    
    
    
    
    
    
    
    
    
    Tax exposures reserve
    
    
    (0.4
    )
    
    
    (6.8
    )
    
    
    
    
    
    
    
    
    
    
    0.1Non-deductible items
    
    
    1.3
    
    
    
    5.0
    
    
    
    0.6
    
    
    
    
    
    
    
    1.3Tax-exempt interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.4
    )
    
    
    (1.1
    )Credits and other
    
    
    (0.8
    )
    
    
    (2.1
    )
    
    
    (2.0
    )
    
    
    0.7
    
    
    
    (2.0
    )Valuation allowance
    
    
    2.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40.8
    %
    
    
    (33.8
    )%
    
    
    36.5
    %
    
    
    34.7
    %
    
    
    34.7
    %
 F-50




---



##### Table of Contents



DECEMBER 31,2007
    
    
    2006(Restated)
    
    
    (Restated)Current
    
    
    Long-term
    
    
    Current
    
    
    Long-termDeferred tax assets:Net operating loss
carryforwards
    
    $
    
    
    
    $
    4,959
    
    
    $
    
    
    
    $
    5,340Reserves and liabilities
    
    
    40,247
    
    
    
    774
    
    
    
    41,337
    
    
    
    Unrealized losses on securities
    
    
    
    
    
    
    
    
    
    
    84
    
    
    
    Excess of net book value over
tax basis of intangible assets
    
    
    
    
    
    
    65,060
    
    
    
    
    
    
    
    68,238Share-based payment awards
    
    
    
    
    
    
    15,946
    
    
    
    
    
    
    
    10,199Depreciation on property and equipment
    
    
    
    
    
    
    249
    
    
    
    
    
    
    
    38Capital loss carryover
    
    
    
    
    
    
    3,765
    
    
    
    
    
    
    
    426Charitable contributions, other
    
    
    
    
    
    
    2,623
    
    
    
    
    
    
    
    1,78340,247
    
    
    
    93,376
    
    
    
    41,421
    
    
    
    86,024Deferred tax liabilities:Unrealized gains on securities
    
    
    (418
    )
    
    
    
    
    
    
    
    
    
    
    Bond interest
    
    
    (30,639
    )
    
    
    (30,537
    )
    
    
    (23,993
    )
    
    
    (20,657
    )(31,057
    )
    
    
    (30,537
    )
    
    
    (23,993
    )
    
    
    (20,657
    )Valuation allowance
    
    
    
    
    
    
    (3,262
    )
    
    
    
    
    
    
    Net deferred tax (liabilities) assets
    
    $
    9,190
    
    
    $
    59,577
    
    
    $
    17,428
    
    
    $
    65,367
      F-51




---



##### Table of Contents



Accounting for Uncertainty
in Income Taxes
 Balance at January 1, 2007
    
    $
    4,310Additions based on tax positions related to the current year
    
    
    Additions for tax positions of prior years
    
    
    200Reductions for tax positions of prior years
    
    
    (1,100
    )Settlements
    
    
    Reductions due to lapse in statute of limitations
    
    
    Balance at December 31, 2007
    
    $
    3,410
   NOTE 18. SHARE REPURCHASE PROGRAM
  NOTE 19. DIVIDENDS DECLARED ON COMMON STOCK
  NOTE 20. STOCK OPTION PLANS
  F-52




---



##### Table of Contents



Weighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    AverageRange of
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseExercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$10.13 - $11.00
    
    
    657,577
    
    
    
    1.57
    
    
    $
    10.97
    
    
    
    657,577
    
    
    $
    10.97$11.53 - $18.33
    
    
    1,620,504
    
    
    
    4.19
    
    
    $
    17.86
    
    
    
    1,620,504
    
    
    $
    17.86$18.57 - $26.90
    
    
    483,333
    
    
    
    4.27
    
    
    $
    23.48
    
    
    
    428,643
    
    
    $
    23.42$26.95 - $26.95
    
    
    1,464,244
    
    
    
    3.54
    
    
    $
    26.95
    
    
    
    1,464,244
    
    
    $
    26.95$26.98 - $27.63
    
    
    1,621,594
    
    
    
    2.61
    
    
    $
    27.62
    
    
    
    1,615,294
    
    
    $
    27.63$27.70 - $29.13
    
    
    105,310
    
    
    
    4.99
    
    
    $
    28.34
    
    
    
    87,130
    
    
    $
    28.31$29.20 - $29.20
    
    
    1,998,590
    
    
    
    5.58
    
    
    $
    29.20
    
    
    
    1,479,452
    
    
    $
    29.20$29.25 - $32.56
    
    
    1,249,480
    
    
    
    5.83
    
    
    $
    31.57
    
    
    
    745,281
    
    
    $
    31.15$32.81 - $36.06
    
    
    193,553
    
    
    
    7.80
    
    
    $
    33.77
    
    
    
    52,280
    
    
    $
    33.77$38.45 - $39.04
    
    
    2,272,770
    
    
    
    6.55
    
    
    $
    38.49
    
    
    
    1,174,738
    
    
    $
    38.5211,666,955
    
    
    
    4.69
    
    
    $
    27.99
    
    
    
    9,325,143
    
    
    $
    26.40
  WeightedAverageQualified
    
    Non-Qualified
    
    Total
    
    PriceBalance at June 30, 2004
    
    
    1,557,567
    
    
    
    10,466,377
    
    
    
    12,023,944
    
    
    $
    23.82Granted
    
    
    
    
    
    
    2,795,890
    
    
    
    2,795,890
    
    
    $
    38.48Exercised
    
    
    (269,554
    )
    
    
    (542,216
    )
    
    
    (811,770
    )
    
    $
    20.43Terminated/expired
    
    
    (62,896
    )
    
    
    (296,790
    )
    
    
    (359,686
    )
    
    $
    28.82Balance at June 30, 2005
    
    
    1,225,117
    
    
    
    12,423,261
    
    
    
    13,648,378
    
    
    $
    26.89Granted
    
    
    
    
    
    
    843,550
    
    
    
    843,550
    
    
    $
    32.43Exercised
    
    
    (9,552
    )
    
    
    (8,444
    )
    
    
    (17,996
    )
    
    $
    23.87Terminated/expired
    
    
    (10,626
    )
    
    
    (83,970
    )
    
    
    (94,596
    )
    
    $
    28.85Balance at December 31, 2005
    
    
    1,204,939
    
    
    
    13,174,397
    
    
    
    14,379,336
    
    
    $
    27.21Granted
    
    
    
    
    
    
    91,125
    
    
    
    91,125
    
    
    $
    31.38Exercised
    
    
    (260,756
    )
    
    
    (739,075
    )
    
    
    (999,831
    )
    
    $
    20.43Terminated/expired
    
    
    (18,394
    )
    
    
    (463,225
    )
    
    
    (481,619
    )
    
    $
    30.60Balance at December 31, 2006
    
    
    925,789
    
    
    
    12,063,222
    
    
    
    12,989,011
    
    
    $
    27.63Granted
    
    
    
    
    
    
    119,553
    
    
    
    119,553
    
    
    $
    33.75Exercised
    
    
    (270,194
    )
    
    
    (621,545
    )
    
    
    (891,739
    )
    
    $
    20.65Terminated/expired
    
    
    (29,948
    )
    
    
    (519,922
    )
    
    
    (549,870
    )
    
    $
    32.70Balance at December 31, 2007
    
    
    625,647
    
    
    
    11,041,308
    
    
    
    11,666,955
    
    
    $
    27.99
 F-53




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##### Table of Contents



NOTE 21. NET INCOME (LOSS) PER COMMON SHARE
  YEARYEARS ENDED
    
    
    SIX MONTHS ENDED
    
    
    ENDEDDECEMBER 31,
    
    
    DECEMBER 31,
    
    
    JUNE 30,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Unaudited)BASICNet income (loss)
    
    $
    70,436
    
    
    $
    (48,152
    )
    
    $
    51,806
    
    
    $
    19,567
    
    
    $
    58,429Weighted average number of
common shares outstanding
    
    
    55,988
    
    
    
    54,688
    
    
    
    54,323
    
    
    
    55,972
    
    
    
    55,196Basic net income (loss) per
common share
    
    $
    1.26
    
    
    $
    (0.88
    )
    
    $
    0.95
    
    
    $
    0.35
    
    
    $
    1.06DILUTEDNet income (loss)
    
    $
    70,436
    
    
    $
    (48,152
    )
    
    $
    51,806
    
    
    $
    19,567
    
    
    $
    58,429Add:Tax-effected interest expense and
issue costs related to Old Notes
    
    
    2,950
    
    
    
    
    
    
    
    1,677
    
    
    
    1,675
    
    
    
    3,347Tax-effected interest expense and
issue costs related to New Notes
    
    
    3,357
    
    
    
    
    
    
    
    1,677
    
    
    
    1,677
    
    
    
    3,353Net income (loss) assuming dilution
    
    $
    76,743
    
    
    $
    (48,152
    )
    
    $
    55,160
    
    
    $
    22,919
    
    
    $
    65,129Weighted average number of
common shares outstanding
    
    
    55,988
    
    
    
    54,688
    
    
    
    54,323
    
    
    
    55,972
    
    
    
    55,196Effect of dilutive securities:Old Notes
    
    
    5,823
    
    
    
    
    
    
    
    5,823
    
    
    
    5,823
    
    
    
    5,823New Notes
    
    
    7,325
    
    
    
    
    
    
    
    7,325
    
    
    
    7,325
    
    
    
    7,325Stock options and restricted stock
    
    
    2,110
    
    
    
    
    
    
    
    2,301
    
    
    
    3,040
    
    
    
    2,565Weighted average number of
common shares assuming dilution
    
    
    71,246
    
    
    
    54,688
    
    
    
    69,772
    
    
    
    72,160
    
    
    
    70,909Diluted net income (loss) per
common share
    
    $
    1.08
    
    
    $
    (0.88
    )
    
    $
    0.79
    
    
    $
    0.32
    
    
    $
    0.92
    F-54




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##### Table of Contents



NOTE 22. FINANCIAL INSTRUMENTS  CONCENTRATIONS OF CREDIT AND OTHER RISKS
     NOTE 23. DEFINED CONTRIBUTION PLAN
  F-55




---



##### Table of Contents



NOTE 24. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  March 31, 2007
    
    June 30, 2007
    
    September 30, 2007
    
    December 31, 2007As
    
    
    
    
    
    As
    
    
    
    
    
    As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    As
    
    Previously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    RestatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    83,899
    
    
    $
    83,899
    
    
    $
    62,015
    
    
    $
    62,015
    
    
    $
    83,581
    
    
    $
    83,581
    
    
    $
    108,046
    
    
    $
    108,046Short-term investments
    
    
    560,565
    
    
    
    560,565
    
    
    
    534,500
    
    
    
    534,500
    
    
    
    682,526
    
    
    
    682,526
    
    
    
    686,634
    
    
    
    686,634Accounts receivable, net
    
    
    17,997
    
    
    
    47,465
    
    
    
    
    
    
    
    18,769
    
    
    
    15,295
    
    
    
    36,790
    
    
    
    12,377
    
    
    
    22,205Inventories, net
    
    
    30,842
    
    
    
    30,842
    
    
    
    30,657
    
    
    
    30,657
    
    
    
    28,542
    
    
    
    28,542
    
    
    
    29,973
    
    
    
    29,973Deferred tax assets, net
    
    
    20,892
    
    
    
    38,069
    
    
    
    22,940
    
    
    
    38,395
    
    
    
    20,132
    
    
    
    38,911
    
    
    
    
    
    
    
    9,190Other current assets
    
    
    22,814
    
    
    
    22,814
    
    
    
    19,166
    
    
    
    19,166
    
    
    
    15,728
    
    
    
    15,728
    
    
    
    18,049
    
    
    
    18,049Total current assets
    
    
    737,009
    
    
    
    783,654
    
    
    
    669,278
    
    
    
    703,502
    
    
    
    845,804
    
    
    
    886,078
    
    
    
    855,079
    
    
    
    874,097Property and equipment, net
    
    
    7,468
    
    
    
    7,468
    
    
    
    9,618
    
    
    
    9,618
    
    
    
    11,751
    
    
    
    11,751
    
    
    
    13,850
    
    
    
    13,850Intangible assets:Intangible assets related to product
line acquisitions and business
combinations
    
    
    239,396
    
    
    
    239,396
    
    
    
    260,773
    
    
    
    260,773
    
    
    
    260,773
    
    
    
    260,773
    
    
    
    258,873
    
    
    
    258,873Other intangible assets
    
    
    6,471
    
    
    
    6,103
    
    
    
    6,632
    
    
    
    6,264
    
    
    
    7,023
    
    
    
    6,655
    
    
    
    7,063
    
    
    
    6,695245,867
    
    
    
    245,499
    
    
    
    267,405
    
    
    
    267,037
    
    
    
    267,796
    
    
    
    267,428
    
    
    
    265,936
    
    
    
    265,568Less: accumulated amortization
    
    
    81,086
    
    
    
    81,086
    
    
    
    81,628
    
    
    
    81,628
    
    
    
    87,357
    
    
    
    87,357
    
    
    
    92,482
    
    
    
    92,482Net intangible assets
    
    
    164,781
    
    
    
    164,413
    
    
    
    185,777
    
    
    
    185,409
    
    
    
    180,439
    
    
    
    180,071
    
    
    
    173,454
    
    
    
    173,086Goodwill
    
    
    63,107
    
    
    
    63,107
    
    
    
    63,107
    
    
    
    63,107
    
    
    
    63,107
    
    
    
    63,107
    
    
    
    63,107
    
    
    
    63,107Deferred tax assets, net
    
    
    36,474
    
    
    
    36,608
    
    
    
    34,356
    
    
    
    34,490
    
    
    
    34,425
    
    
    
    34,559
    
    
    
    59,445
    
    
    
    59,577Long-term investments
    
    
    73,558
    
    
    
    73,558
    
    
    
    148,395
    
    
    
    148,395
    
    
    
    25,664
    
    
    
    25,664
    
    
    
    17,072
    
    
    
    17,072Other assets
    
    
    1,645
    
    
    
    1,645
    
    
    
    1,198
    
    
    
    1,198
    
    
    
    932
    
    
    
    932
    
    
    
    12,622
    
    
    
    12,622$
    1,084,042
    
    
    $
    1,130,453
    
    
    $
    1,111,729
    
    
    $
    1,145,719
    
    
    $
    1,162,122
    
    
    $
    1,202,162
    
    
    $
    1,194,629
    
    
    $
    1,213,411LiabilitiesCurrent liabilities:Accounts payable
    
    $
    51,396
    
    
    $
    51,396
    
    
    $
    40,514
    
    
    $
    40,514
    
    
    $
    50,543
    
    
    $
    50,543
    
    
    $
    34,891
    
    
    $
    34,891Current portion of contingent
convertible senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    283,910
    
    
    
    283,910Reserve for sales returns
    
    
    
    
    
    
    78,979
    
    
    
    
    
    
    
    71,264
    
    
    
    
    
    
    
    67,760
    
    
    
    
    
    
    
    68,787Income taxes payable
    
    
    36
    
    
    
    (4
    )
    
    
    430
    
    
    
    393
    
    
    
    8,830
    
    
    
    8,731
    
    
    
    7,734
    
    
    
    7,731Deferred tax liabilities, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,684
    
    
    
    Other current liabilities
    
    
    46,420
    
    
    
    44,228
    
    
    
    57,621
    
    
    
    47,703
    
    
    
    51,607
    
    
    
    57,072
    
    
    
    56,781
    
    
    
    55,807Total current liabilities
    
    
    97,852
    
    
    
    174,599
    
    
    
    98,565
    
    
    
    159,874
    
    
    
    110,980
    
    
    
    184,106
    
    
    
    395,000
    
    
    
    451,126Long-term liabilities:Contingent convertible senior notes
    
    
    453,060
    
    
    
    453,060
    
    
    
    453,060
    
    
    
    453,060
    
    
    
    453,055
    
    
    
    453,055
    
    
    
    169,145
    
    
    
    169,145Deferred revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    10,000
    
    
    
    6,667
    
    
    
    6,667Other liabilities
    
    
    
    
    
    
    1,310
    
    
    
    543
    
    
    
    1,853
    
    
    
    503
    
    
    
    1,813
    
    
    
    1,862
    
    
    
    3,172Commitments and Contingencies
Stockholders EquityPreferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Class A common stock
    
    
    958
    
    
    
    958
    
    
    
    962
    
    
    
    962
    
    
    
    963
    
    
    
    963
    
    
    
    965
    
    
    
    965Class B common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    615,165
    
    
    
    615,165
    
    
    
    627,728
    
    
    
    627,728
    
    
    
    633,830
    
    
    
    633,830
    
    
    
    641,907
    
    
    
    641,907Accumulated other comprehensive
income
    
    
    693
    
    
    
    693
    
    
    
    734
    
    
    
    734
    
    
    
    1,701
    
    
    
    1,701
    
    
    
    2,221
    
    
    
    2,221Accumulated earnings
    
    
    259,218
    
    
    
    227,572
    
    
    
    273,041
    
    
    
    244,412
    
    
    
    294,100
    
    
    
    259,704
    
    
    
    319,872
    
    
    
    281,218Less: Treasury stock
    
    
    (342,904
    )
    
    
    (342,904
    )
    
    
    (342,904
    )
    
    
    (342,904
    )
    
    
    (343,010
    )
    
    
    (343,010
    )
    
    
    (343,010
    )
    
    
    (343,010
    )Total stockholders equity
    
    
    533,130
    
    
    
    501,484
    
    
    
    559,561
    
    
    
    530,932
    
    
    
    587,584
    
    
    
    553,188
    
    
    
    621,955
    
    
    
    583,301$
    1,084,042
    
    
    $
    1,130,453
    
    
    $
    1,111,729
    
    
    $
    1,145,719
    
    
    $
    1,162,122
    
    
    $
    1,202,162
    
    
    $
    1,194,629
    
    
    $
    1,213,411
 F-56




---



##### Table of Contents



March 31, 2006
    
    June 30, 2006
    
    September 30, 2006
    
    December 31, 2006As
    
    
    
    
    
    As
    
    
    
    
    
    As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    As
    
    Previously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    RestatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    245,789
    
    
    $
    245,789
    
    
    $
    223,071
    
    
    $
    223,071
    
    
    $
    107,777
    
    
    $
    107,777
    
    
    $
    203,319
    
    
    $
    203,319Short-term investments
    
    
    352,879
    
    
    
    352,879
    
    
    
    393,068
    
    
    
    393,068
    
    
    
    470,492
    
    
    
    470,492
    
    
    
    350,942
    
    
    
    350,942Accounts receivable, net
    
    
    50,379
    
    
    
    67,210
    
    
    
    48,327
    
    
    
    66,116
    
    
    
    20,972
    
    
    
    42,349
    
    
    
    36,370
    
    
    
    71,665Inventories, net
    
    
    15,695
    
    
    
    15,695
    
    
    
    19,100
    
    
    
    19,100
    
    
    
    20,084
    
    
    
    20,084
    
    
    
    27,016
    
    
    
    27,016Deferred tax assets, net
    
    
    12,040
    
    
    
    44,352
    
    
    
    14,966
    
    
    
    43,153
    
    
    
    16,698
    
    
    
    40,665
    
    
    
    
    
    
    
    17,428Other current assets
    
    
    13,469
    
    
    
    13,469
    
    
    
    14,379
    
    
    
    14,379
    
    
    
    17,632
    
    
    
    17,632
    
    
    
    15,990
    
    
    
    15,990Total current assets
    
    
    690,251
    
    
    
    739,394
    
    
    
    712,911
    
    
    
    758,887
    
    
    
    653,655
    
    
    
    698,999
    
    
    
    633,637
    
    
    
    686,360Property and equipment, net
    
    
    5,025
    
    
    
    5,025
    
    
    
    4,726
    
    
    
    4,726
    
    
    
    6,438
    
    
    
    6,438
    
    
    
    6,576
    
    
    
    6,576Intangible assets:Intangible assets related to product
line acquisitions and business
combinations
    
    
    311,406
    
    
    
    311,406
    
    
    
    311,406
    
    
    
    311,406
    
    
    
    238,396
    
    
    
    238,396
    
    
    
    239,396
    
    
    
    239,396Other intangible assets
    
    
    5,133
    
    
    
    4,765
    
    
    
    5,477
    
    
    
    5,109
    
    
    
    5,852
    
    
    
    5,484
    
    
    
    6,052
    
    
    
    5,684316,539
    
    
    
    316,171
    
    
    
    316,883
    
    
    
    316,515
    
    
    
    244,248
    
    
    
    243,880
    
    
    
    245,448
    
    
    
    245,080Less: accumulated amortization
    
    
    81,582
    
    
    
    81,582
    
    
    
    86,710
    
    
    
    86,710
    
    
    
    71,404
    
    
    
    71,404
    
    
    
    76,241
    
    
    
    76,241Net intangible assets
    
    
    234,957
    
    
    
    234,589
    
    
    
    230,173
    
    
    
    229,805
    
    
    
    172,844
    
    
    
    172,476
    
    
    
    169,207
    
    
    
    168,839Goodwill
    
    
    63,269
    
    
    
    63,269
    
    
    
    63,107
    
    
    
    63,107
    
    
    
    63,107
    
    
    
    63,107
    
    
    
    63,107
    
    
    
    63,107Deferred tax assets, net
    
    
    
    
    
    
    
    
    
    
    29,602
    
    
    
    29,735
    
    
    
    44,058
    
    
    
    44,191
    
    
    
    65,234
    
    
    
    65,367Long-term investments
    
    
    4,693
    
    
    
    4,693
    
    
    
    2,222
    
    
    
    2,222
    
    
    
    65,695
    
    
    
    65,695
    
    
    
    130,290
    
    
    
    130,290Other assets
    
    
    3,789
    
    
    
    3,789
    
    
    
    3,253
    
    
    
    3,253
    
    
    
    2,716
    
    
    
    2,716
    
    
    
    2,181
    
    
    
    2,181$
    1,001,984
    
    
    $
    1,050,759
    
    
    $
    1,045,994
    
    
    $
    1,091,735
    
    
    $
    1,008,513
    
    
    $
    1,053,622
    
    
    $
    1,070,232
    
    
    $
    1,122,720LiabilitiesCurrent liabilities:Accounts payable
    
    $
    35,767
    
    
    $
    35,767
    
    
    $
    60,491
    
    
    $
    60,491
    
    
    $
    27,608
    
    
    $
    27,608
    
    
    $
    47,513
    
    
    $
    47,513Current portion of contingent
convertible senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,155
    
    
    
    169,155Reserve for sales returns
    
    
    
    
    
    
    106,090
    
    
    
    
    
    
    
    95,653
    
    
    
    
    
    
    
    87,583
    
    
    
    
    
    
    
    87,412Income taxes payable
    
    
    9,217
    
    
    
    10,889
    
    
    
    9,798
    
    
    
    9,421
    
    
    
    8,882
    
    
    
    11,860
    
    
    
    11,346
    
    
    
    12,654Deferred tax liabilities, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    946
    
    
    
    Other current liabilities
    
    
    30,042
    
    
    
    30,042
    
    
    
    33,863
    
    
    
    33,863
    
    
    
    41,735
    
    
    
    41,735
    
    
    
    47,803
    
    
    
    46,556Total current liabilities
    
    
    75,026
    
    
    
    182,788
    
    
    
    104,152
    
    
    
    199,428
    
    
    
    78,225
    
    
    
    168,786
    
    
    
    276,763
    
    
    
    363,290Long-term liabilities:Contingent convertible senior notes
    
    
    453,065
    
    
    
    453,065
    
    
    
    453,065
    
    
    
    453,065
    
    
    
    453,065
    
    
    
    453,065
    
    
    
    283,910
    
    
    
    283,910Deferred tax liabilities, net
    
    
    11,735
    
    
    
    11,602
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commitments and ContingenciesStockholders EquityPreferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Class A common stock
    
    
    939
    
    
    
    939
    
    
    
    943
    
    
    
    943
    
    
    
    945
    
    
    
    945
    
    
    
    952
    
    
    
    952Class B common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    557,753
    
    
    
    557,753
    
    
    
    571,509
    
    
    
    571,509
    
    
    
    581,947
    
    
    
    581,947
    
    
    
    598,435
    
    
    
    598,435Accumulated other comprehensiv
income
    
    
    1,486
    
    
    
    1,486
    
    
    
    474
    
    
    
    474
    
    
    
    877
    
    
    
    877
    
    
    
    537
    
    
    
    537Accumulated earnings
    
    
    244,710
    
    
    
    185,856
    
    
    
    258,581
    
    
    
    209,046
    
    
    
    236,250
    
    
    
    190,798
    
    
    
    252,431
    
    
    
    218,392Less: Treasury stock
    
    
    (342,730
    )
    
    
    (342,730
    )
    
    
    (342,730
    )
    
    
    (342,730
    )
    
    
    (342,796
    )
    
    
    (342,796
    )
    
    
    (342,796
    )
    
    
    (342,796
    )Total stockholders equity
    
    
    462,158
    
    
    
    403,304
    
    
    
    488,777
    
    
    
    439,242
    
    
    
    477,223
    
    
    
    431,771
    
    
    
    509,559
    
    
    
    475,520$
    1,001,984
    
    
    $
    1,050,759
    
    
    $
    1,045,994
    
    
    $
    1,091,735
    
    
    $
    1,008,513
    
    
    $
    1,053,622
    
    
    $
    1,070,232
    
    
    $
    1,122,720
   F-57




---



##### Table of Contents



YEAR ENDED DECEMBER 31, 2007(FOR THE QUARTERS ENDED)March 31, 2007 (a)
    
    June 30, 2007 (b)
    
    September 30, 2007 (c)
    
    December 31, 2007 (d)As
    
    
    
    
    
    As
    
    
    
    
    
    As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    As
    
    Previously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    RestatedNet product revenues
    
    $
    92,371
    
    
    $
    95,922
    
    
    $
    105,902
    
    
    $
    110,644
    
    
    $
    116,532
    
    
    $
    107,093
    
    
    $
    134,320
    
    
    $
    128,209Net contract revenues
    
    
    2,743
    
    
    
    2,743
    
    
    
    2,962
    
    
    
    2,962
    
    
    
    3,890
    
    
    
    3,890
    
    
    
    5,931
    
    
    
    5,931Net revenues
    
    
    95,114
    
    
    
    98,665
    
    
    
    108,864
    
    
    
    113,606
    
    
    
    120,422
    
    
    
    110,983
    
    
    
    140,251
    
    
    
    134,140Cost of product revenues
    
    
    10,497
    
    
    
    11,562
    
    
    
    14,011
    
    
    
    15,266
    
    
    
    17,461
    
    
    
    18,583
    
    
    
    8,998
    
    
    
    10,698Gross profit (1)
    
    
    84,617
    
    
    
    87,103
    
    
    
    94,853
    
    
    
    98,340
    
    
    
    102,961
    
    
    
    92,400
    
    
    
    131,253
    
    
    
    123,442Operating expenses:Selling, general and
administrative
    
    
    62,260
    
    
    
    61,195
    
    
    
    59,894
    
    
    
    58,639
    
    
    
    60,285
    
    
    
    58,877
    
    
    
    65,480
    
    
    
    63,924Impairment of
intangible assets
    
    
    
    
    
    
    
    
    
    
    4,067
    
    
    
    4,067
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Research and development
    
    
    8,006
    
    
    
    8,006
    
    
    
    7,148
    
    
    
    7,148
    
    
    
    7,354
    
    
    
    7,354
    
    
    
    16,920
    
    
    
    16,920Depreciation and amortization
    
    
    5,455
    
    
    
    5,455
    
    
    
    5,878
    
    
    
    5,878
    
    
    
    6,461
    
    
    
    6,461
    
    
    
    6,754
    
    
    
    6,754Operating income
    
    
    8,896
    
    
    
    12,447
    
    
    
    17,866
    
    
    
    22,608
    
    
    
    28,861
    
    
    
    19,708
    
    
    
    42,099
    
    
    
    35,844Investment and interest income
    
    
    9,007
    
    
    
    9,007
    
    
    
    9,251
    
    
    
    9,251
    
    
    
    9,842
    
    
    
    9,842
    
    
    
    10,290
    
    
    
    10,290Interest expense
    
    
    (2,658
    )
    
    
    (2,658
    )
    
    
    (2,568
    )
    
    
    (2,568
    )
    
    
    (2,396
    )
    
    
    (2,396
    )
    
    
    (2,396
    )
    
    
    (2,396
    )Income
before income tax expense
    
    
    15,245
    
    
    
    18,796
    
    
    
    24,549
    
    
    
    29,291
    
    
    
    36,307
    
    
    
    27,154
    
    
    
    49,993
    
    
    
    43,738Income tax expense
    
    
    5,957
    
    
    
    7,115
    
    
    
    9,026
    
    
    
    10,751
    
    
    
    13,547
    
    
    
    10,161
    
    
    
    22,514
    
    
    
    20,517Net income
    
    $
    9,288
    
    
    $
    11,681
    
    
    $
    15,523
    
    
    $
    18,540
    
    
    $
    22,760
    
    
    $
    16,993
    
    
    $
    27,479
    
    
    $
    23,221Basic net income per
common share
    
    $
    0.17
    
    
    $
    0.21
    
    
    $
    0.28
    
    
    $
    0.33
    
    
    $
    0.41
    
    
    $
    0.30
    
    
    $
    0.49
    
    
    $
    0.41Diluted net income per
common share
    
    $
    0.15
    
    
    $
    0.19
    
    
    $
    0.24
    
    
    $
    0.28
    
    
    $
    0.34
    
    
    $
    0.26
    
    
    $
    0.41
    
    
    $
    0.35Basic common shares
outstanding
    
    
    55,626
    
    
    
    55,626
    
    
    
    55,936
    
    
    
    55,936
    
    
    
    56,120
    
    
    
    56,120
    
    
    
    56,263
    
    
    
    56,263Diluted common shares
outstanding
    
    
    71,720
    
    
    
    71,720
    
    
    
    71,318
    
    
    
    71,318
    
    
    
    71,155
    
    
    
    71,155
    
    
    
    70,980
    
    
    
    70,980
 YEAR ENDED DECEMBER 31, 2006(FOR THE QUARTERS ENDED)March 31, 2006 (e)
    
    June 30, 2006 (f)
    
    September 30, 2006 (g)
    
    December 31, 2006 (h)As
    
    
    
    
    
    As
    
    
    
    
    
    As
    
    
    
    
    
    AsPreviously
    
    As
    
    Previously
    
    As
    
    Previously
    
    As
    
    Previously
    
    AsReported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    RestatedNet product revenues
    
    $
    71,087
    
    
    $
    76,621
    
    
    $
    80,646
    
    
    $
    92,041
    
    
    $
    86,189
    
    
    $
    97,847
    
    
    $
    95,705
    
    
    $
    111,041Net contract revenues
    
    
    4,071
    
    
    
    4,071
    
    
    
    4,386
    
    
    
    4,386
    
    
    
    3,798
    
    
    
    3,798
    
    
    
    3,362
    
    
    
    3,362Net revenues
    
    
    75,158
    
    
    
    80,692
    
    
    
    85,032
    
    
    
    96,427
    
    
    
    89,987
    
    
    
    101,645
    
    
    
    99,067
    
    
    
    114,403Cost of product revenues
    
    
    12,179
    
    
    
    14,162
    
    
    
    9,419
    
    
    
    10,876
    
    
    
    8,518
    
    
    
    9,142
    
    
    
    11,626
    
    
    
    11,927Gross profit (1)
    
    
    62,979
    
    
    
    66,530
    
    
    
    75,613
    
    
    
    85,551
    
    
    
    81,469
    
    
    
    92,503
    
    
    
    87,441
    
    
    
    102,476Operating expenses:Selling, general and
administrative
    
    
    51,223
    
    
    
    49,240
    
    
    
    51,065
    
    
    
    49,608
    
    
    
    53,641
    
    
    
    53,017
    
    
    
    50,894
    
    
    
    50,593Impairment of
intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,586
    
    
    
    52,586
    
    
    
    
    
    
    
    Research and development
    
    
    97,218
    
    
    
    97,218
    
    
    
    43,767
    
    
    
    43,767
    
    
    
    8,983
    
    
    
    8,983
    
    
    
    11,869
    
    
    
    11,869Depreciation and amortization
    
    
    5,856
    
    
    
    5,856
    
    
    
    5,800
    
    
    
    5,800
    
    
    
    5,854
    
    
    
    5,854
    
    
    
    5,538
    
    
    
    5,538Operating (loss) income
    
    
    (91,318
    )
    
    
    (85,784
    )
    
    
    (25,019
    )
    
    
    (13,624
    )
    
    
    (39,595
    )
    
    
    (27,937
    )
    
    
    19,140
    
    
    
    34,476Investment and interest income
    
    
    7,020
    
    
    
    7,020
    
    
    
    7,262
    
    
    
    7,262
    
    
    
    7,928
    
    
    
    7,928
    
    
    
    8,577
    
    
    
    8,577Interest expense
    
    
    (2,658
    )
    
    
    (2,658
    )
    
    
    (2,658
    )
    
    
    (2,658
    )
    
    
    (2,666
    )
    
    
    (2,666
    )
    
    
    (2,658
    )
    
    
    (2,658
    )(Loss) income before income tax expense
    
    
    (86,956
    )
    
    
    (81,422
    )
    
    
    (20,415
    )
    
    
    (9,020
    )
    
    
    (34,333
    )
    
    
    (22,675
    )
    
    
    25,059
    
    
    
    40,395Income tax expense (benefit)
    
    
    1,587
    
    
    
    4,239
    
    
    
    (35,934
    )
    
    
    (33,858
    )
    
    
    (13,656
    )
    
    
    (6,081
    )
    
    
    7,207
    
    
    
    11,130Net (loss) income
    
    $
    (88,543
    )
    
    $
    (85,661
    )
    
    $
    15,519
    
    
    $
    24,838
    
    
    $
    (20,677
    )
    
    $
    (16,594
    )
    
    $
    17,852
    
    
    $
    29,265Basic net (loss) income per
common share
    
    $
    (1.63
    )
    
    $
    (1.58
    )
    
    $
    0.28
    
    
    $
    0.46
    
    
    $
    (0.38
    )
    
    $
    (0.30
    )
    
    $
    0.32
    
    
    $
    0.53Diluted net (loss) income per
common share
    
    $
    (1.63
    )
    
    $
    (1.58
    )
    
    $
    0.25
    
    
    $
    0.38
    
    
    $
    (0.38
    )
    
    $
    (0.30
    )
    
    $
    0.27
    
    
    $
    0.43Basic common shares
outstanding
    
    
    54,356
    
    
    
    54,356
    
    
    
    54,501
    
    
    
    54,501
    
    
    
    54,747
    
    
    
    54,747
    
    
    
    55,139
    
    
    
    55,139Diluted common shares
outstanding
    
    
    54,356
    
    
    
    54,356
    
    
    
    69,733
    
    
    
    69,733
    
    
    
    54,747
    
    
    
    54,747
    
    
    
    71,314
    
    
    
    71,314
 F-58




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##### Table of Contents



(1)
    
    Gross profit does not include amortization of the related intangibles. 
 (a)
    
    Operating expenses included approximately $5.5 million of compensation expense
related to stock options and restricted stock.(b)
    
    Operating expenses included approximately $5.6 million of compensation expense
related to stock options and restricted stock and approximately $4.1 million for the
write-down of an intangible asset.(c)
    
    Operating expenses included approximately $4.5 million of compensation expense
related to stock options and restricted stock and approximately $2.2 million of
professional fees related to the Companys strategic collaboration with Hyperion.(d)
    
    Operating expenses included approximately $9.3 million related to the Companys
option to acquire Revance or to license Revances product currently under
development, including approximately $1.3 million of professional fees incurred
related to the transaction, and approximately $5.5 million of compensation expense
related to stock options and restricted stock.(e)
    
    Operating expenses included approximately $90.9 million related to the Companys
development and distribution agreement with Ipsen for the development of
Reloxin®, $7.2 million of compensation expense related to stock options
and restricted stock, $6.0 million related to a loss contingency for a legal matter
and $1.8 million related to a settlement of a dispute related to the Companys
merger with Ascent.(f)
    
    Operating expenses included approximately $35.1 million related to the Companys
development and distribution agreement with Ipsen for the development of
Reloxin®, $7.3 million of compensation expense related to stock options
and restricted stock, and $2.0 million related to a loss contingency for a legal
matter.(g)
    
    Operating expenses included approximately $52.6 million for the write-down of
intangible assets, $6.6 million of compensation expense related to stock options and
restricted stock and $2.2 million related to a loss contingency for a legal matter.(h)
    
    Operating expenses included approximately $4.9 million of compensation expense
related to stock options and restricted stock.   2007
  F-59




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##### Table of Contents



2006
     F-60




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##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 Balance at
    
    Charged tobeginning of
    
    costs and
    
    Charged to
    
    
    
    
    
    Balance atDescription
    
    period
    
    expenses
    
    other accounts
    
    Deductions
    
    end of period(Restated)
    
    (Restated)
    
    
    
    
    
    (Restated)
    
    (Restated)(in thousands)Year Ended December 31, 2007Deducted from Asset Accounts:Accounts Receivable:Allowances
    
    $
    2,148
    
    
    $
    11,385
    
    
    
    
    
    
    $
    (12,703
    )
    
    $
    830Year Ended December 31, 2006Deducted from Asset Accounts:Accounts Receivable:Allowances
    
    $
    1,994
    
    
    $
    13,743
    
    
    
    
    
    
    $
    (13,589
    )
    
    $
    2,148Six Months EndedDecember 31, 2005Deducted from Asset Accounts:Accounts Receivable:Allowances
    
    $
    1,978
    
    
    $
    6,344
    
    
    
    
    
    
    $
    (6,328
    )
    
    $
    1,994Year Ended June 30, 2005Deducted from Asset Accounts:Accounts Receivable:Allowances
    
    $
    2,620
    
    
    $
    11,025
    
    
    
    
    
    
    $
    (11,667
    )
    
    $
    1,978
   S-1