10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 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 1-9860

BARR PHARMACEUTICALS, INC.

(Exact name of Registrant as specified in its charter)

Delaware	42-1612474
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. — Employer Identification No.)

400 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07677-7668
(Address of principal executive offices)

201-930-3300
(Registrant’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ           Accelerated filer o            Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of April 27, 2007 the registrant had 109,748,616 shares of $0.01 par value common stock outstanding.

BARR PHARMACEUTICALS, INC.

INDEX TO FORM 10-Q

	Page
	Number
Part I            Condensed Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2007 and December 31, 2006		3
Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2007 and 2006		4
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2007 and 2006		5
Notes to Condensed Consolidated Financial Statements (unaudited)		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3. Quantitative and Qualitative Disclosures About Market Risk		25
Item 4. Controls and Procedures		26
Part II            Other Information
Item 1. Legal Proceedings		27
Item 1A. Risk Factors		27
Item 6. Exhibits		28
Signatures		29
EX-10.1: EMPLOYMENT AGREEMENT
EX-10.2: SETTLEMENT AGREEMENT
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.0: CERTIFICATION

2

Part I. CONDENSED FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Barr Pharmaceuticals, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
(unaudited)

	March 31,			December 31,
	2007			2006
Assets
Current assets:
Cash and cash equivalents	$	194,662		$	231,975
Marketable securities		647,489			673,746
Accounts receivable, net of reserves of $251,379 and $238,311, respectively		452,793			515,303
Other receivables, net		59,338			76,491
Inventories		428,537			429,592
Deferred income taxes		82,064			82,597
Prepaid expenses and other current assets		40,783			35,936
Current assets held for sale		47,038			42,359
Total current assets		1,952,704			2,087,999
Property, plant and equipment, net of accumulated depreciation of $216,810 and $196,709, respectively		1,034,229			1,004,618
Deferred income taxes		13,831			37,872
Marketable securities		11,800			8,946
Other intangible assets, net		1,458,721			1,472,418
Goodwill		255,553			276,449
Long-term assets held for sale		9,808			9,820
Other assets		62,743			63,740
Total assets	$	4,799,389		$	4,961,862
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	138,719		$	144,807
Accrued liabilities		262,909			280,636
Current portion of long-term debt and capital lease obligations		650,921			742,192
Income taxes payable		4,088			21,359
Deferred tax liabilities		22			8,266
Current liabilities held for sale		13,243			14,633
Total current liabilities		1,069,902			1,211,893
Long-term debt and capital lease obligations		1,879,882			1,935,477
Deferred tax liabilities		211,287			221,471
Long-term liabilities held for sale		2,203			2,201
Other liabilities		98,244			84,494
Commitments & Contingencies (Note 13)
Minority interest		39,038			41,098
Shareholders’ equity:
Preferred stock, $1 par value per share; authorized 2,000,000; none issued		—			—
Common stock, $.01 par value per share; authorized 200,000,000; issued 109,743,073 and 109,536,481, respectively		1,097			1,095
Additional paid-in capital		624,873			610,232
Retained earnings		889,563			877,991
Accumulated other comprehensive income		83,990			76,600
Treasury stock at cost: 2,972,997 shares		(100,690	)		(100,690	)
Total shareholders’ equity		1,498,833			1,465,228
Total liabilities and shareholders’ equity	$	4,799,389		$	4,961,862

SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3

Barr Pharmaceuticals, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)
(unaudited)

	Three Months Ended
	March 31,
	2007			2006
Revenues:
Product sales	$	563,818		$	293,521
Alliance and development revenue		25,121			33,320
Other revenue		10,439			—
Total revenues		599,378			326,841
Costs and expenses:
Cost of sales		302,535			98,507
Selling, general and administrative		182,359			78,214
Research and development		61,224			37,705
Write-off of in-process research and development		1,549			—
Earnings from operations		51,711			112,415
Interest income		10,622			4,213
Interest expense		40,275			110
Other income, net		1,096			1,071
Earnings before income taxes and minority interest		23,154			117,589
Income tax expense		9,725			41,493
Minority interest		(1,535	)		—
Net earnings from continuing operations		11,894			76,096
Loss from discontinued operations, net of taxes		(322	)		—
Net earnings	$	11,572		$	76,096
Basic:
Earnings per common share — continuing operations	$	0.11		$	0.72
Earnings per common share — discontinued operations		—			—
Net earnings per common share — basic	$	0.11		$	0.72
Diluted:
Earnings per common share — continuing operations	$	0.11		$	0.70
Earnings per common share — discontinued operations		—			—
Net earnings per common share — diluted	$	0.11		$	0.70
Weighted average shares — basic		106,715			105,924
Weighted average shares — diluted		108,044			108,547

SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4

Barr Pharmaceuticals, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

	Three Months Ended
	March 31,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	11,572		$	76,096
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		72,308			18,014
Minority interest		1,526			—
Stock-based compensation expense		7,299			6,933
Deferred income tax expense (benefit)		2,004			(886	)
Loss on derivative instruments, net		1,514			—
Write-off of acquired in-process research and development		1,549			—
Other		(5,053	)		(268	)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable and other receivables, net		73,979			24,649
Inventories		2,692			4,686
Prepaid expenses		(4,097	)		1,483
Other assets		(1,176	)		17
Increase (decrease) in:
Accounts payable, accrued liabilities and other liabilities		(14,399	)		11,282
Income taxes payable		(17,460	)		13,039
Net cash provided by operating activities		132,258			155,045
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(23,154	)		(13,639	)
Proceeds from sale of property, plant and equipment and intangible assets		594			—
Purchases of marketable securities		(600,107	)		(641,103	)
Sales of marketable securities		625,864			462,430
Settlement of derivative instruments		1,636			—
Acquisitions, net of cash acquired		(33,500	)		(312	)
Investment in debt securities		(2,025	)		—
Investment in venture funds and other		206			(79	)
Net cash used in investing activities		(30,486	)		(192,703	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and capital leases		(150,439	)		(365	)
Tax benefit of stock incentives		2,733			2,361
Proceeds from exercise of stock options and employee stock purchases		4,713			20,378
Net cash (used in) provided by financing activities		(142,993	)		22,374
Effect of exchange-rate changes on cash and cash equivalents		3,908			—
Decrease in cash and cash equivalents		(37,313	)		(15,284	)
Cash and cash equivalents at beginning of period		231,975			30,010
Cash and cash equivalents at end of period	$	194,662		$	14,726

SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5

BARR PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except for share and per share amounts)
(unaudited)

1. Basis of Presentation

     Barr Pharmaceuticals, Inc. (“Barr” or the “Company”) is a Delaware holding company whose principal subsidiaries are Barr Laboratories, Inc., Duramed Pharmaceuticals, Inc. (“Duramed”) and PLIVA d.d. (“PLIVA”). The accompanying unaudited interim financial statements included in this Form 10-Q should be read in conjunction with the consolidated financial statements of Barr Pharmaceuticals, Inc. and its subsidiaries and the accompanying notes that are included in the Company’s Transition Report on Form 10-K/T for the six-month period ended December 31, 2006 (the “Transition Period”).

     In management’s opinion, the unaudited financial statements reflect all adjustments (including those that are normal and recurring) that are necessary in the judgment of management for a fair presentation of such statements in conformity with generally accepted accounting principles (“GAAP”) in the United States. The consolidated financial statements include all companies which Barr directly or indirectly controls (meaning it has more than 50% of voting rights in those companies). Investments in companies where Barr owns between 20% and 50% of a company’s voting rights are accounted for by using the equity method, with Barr recording its proportionate share of that company’s net income and shareholder’s equity. The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries, after elimination of inter-company accounts and transactions. Non-controlling interests in the Company’s subsidiaries are recorded, net of tax, as minority interest.

     In preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates. All information, data and figures provided in this report for the three months ended March 31, 2006 relate solely to Barr’s financial results and do not include PLIVA’s results.

     Certain amounts in the Company’s prior-period financial statements have been reclassified to conform to the presentation for the three months ended March 31, 2007. These include the Company’s reclassification of amortization expense from selling, general and administrative expense to cost of sales. See Note 7 below.

2. Recent Accounting Pronouncements

     In June 2006, the FASB issued FIN No. 48 (“FIN 48”)  Accounting for Uncertainty in Income Taxes– an interpretation of
FASB Statement 109. FIN 48 establishes a single model to address accounting for uncertain tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Upon adoption on January 1, 2007, the Company analyzed filing positions in all of the foreign, federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. See Note 10.

     In September 2006, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosure about fair value measurements. The statement is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact that adopting this statement will have on its consolidated financial statements.

     In February 2007, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 159 (“SFAS 159”), The Fair Value Option for Financial Assets and Financial Liabilities, providing companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. GAAP has required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the Company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which a company has chosen to use fair value on the face of the balance sheet. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of the adoption of this statement will have on its consolidated financial statements.

6

3. Earnings Per Share

     The following is a reconciliation of the numerators and denominators used to calculate earnings per common share (“EPS”) as presented in the condensed consolidated statements of operations:

	Three Months Ended
	March 31,
(table in thousands, except per share data)	2007			2006
Numerator for basic and diluted earnings (loss) per share
Net earnings from continuing operations	$	11,894		$	76,096
Net loss from discontinued operations		(322	)		—
Net earnings	$	11,572		$	76,096
Earnings per common share — basic:
Denominator: Weighted average shares		106,715			105,924
Earnings per common share — continuing operations	$	0.11		$	0.72
Earnings per common share — discontinued operations		—			—
Earnings per common share — basic	$	0.11		$	0.72
Earnings per common share — diluted:
Denominator: Weighted average shares — diluted		108,044			108,547
Earnings per common share — continuing operations	$	0.11		$	0.70
Earnings per common share — discontinued operations		—			—
Earnings per common share — diluted	$	0.11		$	0.70
Calculation of weighted average common shares — diluted
Weighted average shares		106,715			105,924
Effect of dilutive options and warrants		1,329			2,623
Weighted average shares — diluted		108,044			108,547
Not included in the calculation of diluted earnings per-share because their impact is antidilutive:
Stock options outstanding		151			22

4. Acquisitions and Business Combinations

PLIVA d.d.

     On October 24, 2006, the Company’s wholly owned subsidiary, Barr Laboratories Europe B.V. (“Barr Europe”), completed the acquisition of PLIVA, headquartered in Zagreb, Croatia. Under the terms of the cash tender offer, Barr Europe made a payment of $2,377,773 based on an offer price of HRK 820 (Croatian Kuna (“HRK”)) per share for all shares tendered during the offer period. The transaction closed with 96.4% of PLIVA’s total outstanding share capital being tendered to Barr Europe (17,056,977 of 17,697,419 outstanding shares at the date of the acquisition). Subsequent to the close of the cash tender offer, Barr Europe purchased an additional 217,531 shares on the Croatian stock market for $31,715, including 67,578 shares totaling $9,778 purchased during the three months ended March 31, 2007. As the acquisition was structured as a purchase of equity, the amortization of purchase price assigned to assets in excess of PLIVA’s historic tax basis will not be deductible for income tax purposes. With the addition of the treasury shares held by PLIVA, Barr Europe owned or controlled 97.4% of PLIVA’s voting share capital as of March 31, 2007 (17,274,508 of 17,740,016 outstanding shares).

7

     The purchase price of $9,778 for the 67,578 shares acquired during the three months ended March 31, 2007 has been allocated to the estimated fair values using the same valuation methodology as employed with shares acquired on October 24, 2006. The fair values attributed to in-process research and development (“IPR&D”), which was expensed during the three months ended March 31, 2007, was $1,549. The additional share purchases resulted in incremental goodwill of $219.

     The Company continues to refine its estimates and expects to finalize the valuation and complete the purchase price allocation for the PLIVA acquisition as soon as possible, but no later than October 24, 2007.

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

Products Acquired from Hospira, Inc.

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

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

5. Discontinued Operations

     Following its acquisition of PLIVA on October 24, 2006, the Company has been evaluating PLIVA’s operations and has decided to divest or exit certain non-core operations. The Company has decided to divest or exit its operations in Spain and its animal health business. As a result, as of March 31, 2007, the assets and liabilities relating to these businesses met the “held for sale” criteria of FAS 144, Accounting for the Impairment or Disposal of Long Lived Assets. The Company expects to sell these assets and the related liabilities held for sale within one year. Following the divestiture, the cash flows and operations of the divested operations will be eliminated from the Company’s ongoing operations, and the Company will cease to have continuing involvement with these operations. The Company’s operations in Spain are part of the generic pharmaceuticals segment. The Company’s animal health business is a separate operating segment which does not meet the quantitative thresholds for separate disclosure and, as such, is included in “other” in Note 14.

     The following combined amounts of our operations in Spain and the Company’s animal health business have been segregated from continuing operations and included in discontinued operations, net of taxes, in the condensed consolidated statement of operations, as shown below:

8

	March 31,
	2007
Revenues — Spain
Generics	$	7,460
Other		813
Net revenues — Spain	$	8,273
Revenues — Animal health
Generics	$	—
Other		7,305
Net revenues — Animal health	$	7,305
Total net revenues of discontinued operations	$	15,578
Loss before income taxes and minority interest		(234	)
Income tax expense		(97	)
Minority interest		9
Loss from discontinued operations - net of tax	$	(322	)

     The following combined amounts of assets and liabilities of those businesses have been segregated and included in assets held for sale and liabilities held for sale on the Company’s condensed consolidated balance sheet as of March 31, 2007 and December 31, 2006, as shown below:

	March 31,		December 31,
	2007		2006
Accounts receivable, net	$	22,371	$	17,762
Inventories		21,839		22,819
Prepaid expenses and other current assets		2,828		1,778
Current assets held for sale		47,038		42,359
Property, plant and equipment, net		5,597		5,581
Deferred income taxes		2,332		2,378
Other intangible assets, net		1,772		1,752
Other assets		107		109
Long-term assets held for sale		9,808		9,820
Assets held for sale	$	56,846	$	52,179
Accounts payable	$	9,415	$	11,316
Accrued liabilities		3,560		3,065
Current portion of long-term debt and capital lease obligations		268		252
Current liabilities held for sale		13,243		14,633
Long-term debt and capital lease obligations		1,712		1,738
Deferred tax liabilities		429		424
Other liabilities		62		39
Long-term liabilities held for sale		2,203		2,201
Liabilities held for sale	$	15,446	$	16,834

9

6. Inventories

     Inventories consist of the following:

	March 31,		December 31,
	2007		2006
Raw materials and supplies	$	165,243	$	160,345
Work-in-process		84,193		67,798
Finished goods		179,101		201,449
Total inventories	$	428,537	$	429,592

7.	Goodwill and Other Intangible Assets
	Goodwill at December 31, 2006 and March 31, 2007 was as follows:

	Generic			Proprietary
	Pharmaceuticals			Pharmaceuticals		Total
Goodwill balance at December 31, 2006	$	228,529		$	47,920	$	276,449
Additional acquisition of PLIVA shares		219			—		219
PLIVA goodwill adjustments		(23,584	)		—		(23,584	)
Currency translation effect		2,469			—		2,469
Goodwill balance at March 31, 2007	$	207,633		$	47,920	$	255,553

     PLIVA goodwill adjustments for the three months ended March 31, 2007 presented below include purchase price allocation and valuation revisions made based on additional information available to modify the Company’s initial etimates for certain assets and liabilities. The Company expects to make additional valuation revisions in the next calendar quarter for items where complete information has not been obtained.

Current assets	$	206
Property, plant & equipment		(36,265	)
Other non-current assets		291
Current liabilities		2,000
Deferred tax liabilities		5,870
Other liabilities		4,314
Total PLIVA goodwill adjustments	$	(23,584	)

     Intangible assets at March 31, 2007 and December 31, 2006 consist of the following:

	March 31,						December 31,
	2007						2006
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
Finite-lived intangible assets:
Product licenses	$	45,350	$	16,808	$	28,542	$	45,350	$	15,624	$	29,726
Product rights		1,325,976		101,375		1,224,601		1,302,116		64,788		1,237,328
Land use rights		88,668		460		88,208		88,053		166		87,887
Other		38,705		792		37,913		38,899		188		38,711
Total amortized finite-lived intangible assets		1,498,699		119,435		1,379,264		1,474,418		80,766		1,393,652
Indefinite-lived intangible assets — tradenames:		79,457		—		79,457		78,766		—		78,766
Total identifiable intangible assets	$	1,578,156	$	119,435	$	1,458,721	$	1,553,184	$	80,766	$	1,472,418

10

     The annual estimated amortization expense for the next five years on finite-lived intangible assets is as follows:

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

     The Company’s product licenses, product rights, land use rights and other finite lived intangible assets have weighted average useful lives of approximately 10, 17, 99 and 10 years, respectively. Amortization expense associated with these acquired intangibles was $40,726 and $8,865 for the three months ended March 31, 2007 and 2006, respectively. During the Transition Period (six months ended December 31, 2006), the Company revised the presentation of amortization expense to include this item within cost of sales instead of selling, general and administrative expense. The presentation for the three months ended March 31, 2006 was reclassified to conform to that of the three months ended March 31, 2007.

8.	Debt
	A summary of debt is as follows:

	March 31,		December 31,
	2007		2006
Credit Facilities (a)	$	2,265,700	$	2,415,703
Note due to WCC shareholders (b)		6,500		6,500
Obligation under capital leases (c)		2,565		2,819
Fixed rate bonds (d)		102,721		101,780
Dual-currency syndicated credit facility (e)		86,592		86,287
Euro commercial paper program (f)		26,638		26,334
Dual-currency term loan facility (g)		25,000		25,000
Multi-currency revolving credit facility (h)		13,319		13,167
Other		1,768		79
		2,530,803		2,677,669
Less: current installments of debt and capital lease obligations		650,921		742,192
Total long-term debt	$	1,879,882	$	1,935,477

(a)

In connection with the close of the PLIVA acquisition, on October 24, 2006, the Company entered into unsecured senior credit facilities (the “Credit Facilities”) and drew $2,000,000 under a five-year term facility and $415,703 under a 364-day term facility, both of which bear interest at variable rates of LIBOR plus 75 basis points (6.10% at March 31, 2007). The Company is obligated to repay the outstanding principal amount of the five-year term facility in 18 consecutive quarterly installments of $50,000, with the first payment having been made on March 30, 2007, with the balance of $1,100,000 due at maturity in October 2011. The 364-day term facility is due in full upon maturity in October 2007, but the Company elected to prepay $100,003 of the outstanding amount on March 30, 2007, leaving a balance of $315,700 outstanding. The Credit Facilities include customary covenants, including financial covenants limiting the total indebtedness of the Company on a consolidated basis.

(b)

In February 2004, the Company acquired all of the outstanding shares of Women’s Capital Corporation. In connection with that acquisition, the Company issued a four-year $6,500 promissory note to Women’s Capital Corporation shareholders. The note bears a fixed interest rate of 2%. The entire principal amount and all accrued interest is payable on February 25, 2008.

11

(c)	The Company has certain capital lease obligations for machinery, equipment and buildings in the United States and the Czech Republic. These obligations were established using interest rates available to the Company at the inception of each lease.
The Company’s long-term debt includes the following liabilities incurred by PLIVA prior to the acquisition (Euro to U.S. dollar equivalents are based on the exchange rate in effect at March 30, 2007):
(d)	In May 2004, PLIVA issued Euro denominated fixed rate bonds with a face value of EUR 75,000 ($99,893). The bonds mature in 2011 and bear annual interest at 5.75% payable semiannually. The Company recorded the bonds at fair value based on their prevailing market price on the PLIVA acquisition date, pursuant to the provisions of SFAS No. 141. At that time, the aggregate fair value of the bonds was EUR 77,401 ($103,091). The premium over face value of EUR 2,401 ($3,198) will be amortized over the remaining life of the bonds. Amortization for the three months ended March 31, 2007 was EUR 66 ($88).
(e)	On October 28, 2004, PLIVA entered into a dual-currency syndicated term loan facility pursuant to which the lenders provided the borrowers with an aggregate amount not to exceed $250,000, available to be drawn in either US dollars or Euros. The facility has a five-year term and bears interest at a variable rate based on LIBOR or Euribor plus 70 basis points. As of March 31, 2007, there was $59,873 outstanding with an effective interest rate of 6.13% and EUR 20,061 outstanding ($26,719) with an effective interest rate of 4.398%. The facility includes customary covenants.
(f)	In December 1998, PLIVA initiated, and in June 2003 updated, a commercial paper program that provides for an aggregate amount of Euro denominated financing not to exceed EUR 250,000 ($332,978) and bears interest at a variable interest rate. Currently, there is EUR 20,000 outstanding ($26,638) yielding 4.507% that is due on July 4, 2007.
(g)	On September 9, 2006, PLIVA entered into a dual currency term loan facility pursuant to which the lenders provided the borrowers an aggregate amount not to exceed $25,000, available to be drawn in either US dollars or Euros. The facility has a one-year term and bears interest at a variable rate based on LIBOR or Euribor plus a margin which is negotiated at the time the facility is drawn. As of March 31, 2007, there was $25,000 outstanding with an effective interest rate of 5.33% plus a negotiated margin. The facility includes customary covenants.
(h)	In June 2005, PLIVA entered into a EUR 30,000 multi-currency revolving credit facility ($39,957). The facility matures on December 31, 2007 and bears interest at a variable rate based on LIBOR, Euribor or another relevant reference rate plus a margin which is negotiated at the time the facility is drawn. As of March 31, 2007, there was EUR 10,000 outstanding ($13,319) with an effective interest rate of 3.857% plus a negotiated margin. The facility includes customary covenants.

     Principal maturities of existing long-term debt and amounts due on capital leases for the next five years and thereafter are as follows:

Twelve Months Ending March 31,
2009	$	213,383
2010	$	212,677
2011	$	200,474
2012	$	1,250,216
2013	$	146
Thereafter	$	124
Total principal maturities and amounts due on capital leases	$	1,877,020
Premium on fixed rate bond (e)	$	2,862
Total debt and capital lease obligations	$	1,879,882

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9. Accumulated Other Comprehensive Income

     Comprehensive income is defined as the total change in shareholders’ equity during the period other than from transactions with shareholders. For the Company, comprehensive income is comprised of net income, unrealized gains (losses) on securities classified for SFAS No. 115 purposes as “available for sale”, unrealized gains (losses) on pension and other post employment benefits and foreign currency translation adjustments. Comprehensive income for the three months ended March 31, 2007 and March 31, 2006 is $18,962 and $76,293, respectively.

     Accumulated other comprehensive income consists of the following:

	March 31,			December 31,
	2007			2006
Beginning balance	$	76,600		$	(377	)
Net unrealized gain on marketable securities, net of tax expense $69 and $21, respectively		985			105
Net unrealized gain on currency translation adjustments, net of tax expense $109 and $12,329, respectively		8,618			76,850
Net (loss) gain on cash flow hedge, net of tax (benefit) expense of ($1,345) and $11, respectively		(2,213	)		22
Net unrecognized gain		7,390			76,977
Ending balance	$	83,990		$	76,600

10. Income Taxes

     On January 1, 2007 the Company adopted FIN 48, and as a result, recorded a $4,500 increase in the net liability for unrecognized tax positions, which was entirely recorded as a $4,500 adjustment to the opening balance of goodwill relating to the PLIVA acquisition. The total amount of gross unrecognized tax benefits as of January 1, 2007 was $25,000, and did not change materially as of March 31, 2007. Included in the balance at March 31, 2007 was $13,200 of tax positions that, if recognized, would lower the Company’s effective tax rate. The Company is nearing completion of several tax audits and the expiration of the statute of limitations in several jurisdictions and it is possible that the amount of the liability for unrecognized tax benefits could change during the next 52-week period. An estimate of the range of the possible change cannot be made at this time.

     Upon adoption of FIN 48, the Company has elected an accounting policy to classify accrued interest and related penalties relating to unrecognized tax benefits in interest expense. Previously, the Company’s policy was to classify interest and penalties in its income tax provision. The Company had $2,600 accrued for interest and penalties at January 1, 2007 which has not changed materially as of March 31, 2007.

     The Company is currently being audited by the IRS for its June 30, 2005 and 2006 tax years and also for its December 31, 2006 tax year-end. Prior periods have either been audited or are no longer subject to an IRS audit. Audits in several state jurisdictions are currently underway for tax years 2002 to 2005. The foreign jurisdictions with significant operations currently being audited are Croatia for 2004 and 2005 (tax years that remain subject to examination are 2003-2006), and Poland for 2003 (tax years that remain subject to examination are 2001-2006). Additionally, although Germany is not currently being audited, the tax years that remain subject to examination are 2004-2006.

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11. Stock-based Compensation

     The Company adopted SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)), effective July 1, 2005. SFAS 123(R) requires the recognition of the fair value of stock-based compensation in net earnings. The Company has three stock-based employee compensation plans, two stock-based non-employee director compensation plans and an employee stock purchase plan. Stock-based compensation consists of stock options and stock-settled stock appreciation rights (“SSARs”) granted under the employee equity compensation plans, and shares purchased under the employee stock purchase plan. Stock options and SSARS are granted to employees at exercise prices equal to the fair market value of the Company’s stock at the dates of grant. Generally, stock options and SSARs granted to employees fully vest three years from the grant date and have a term of 10 years. Stock options granted to directors are generally exercisable on the date of the first annual shareholders’ meeting immediately following the date of grant. The Company recognizes stock-based compensation expense over the requisite service period of the individual grants, which generally equals the vesting period.

     The Company utilized the modified prospective transition method for adopting SFAS 123(R). Under this method, the provisions of SFAS 123(R) apply to all awards granted or modified after the date of adoption. In addition, the unrecognized expense of awards not yet vested at the date of adoption, determined under the original provisions of SFAS No. 123, are recognized in net earnings in the periods after the date of adoption.

     The Company recognized stock-based compensation expense for the three months ended March 31, 2007 and 2006 in the amount of $7,299 and $6,933, respectively. The Company also recorded related tax benefits for the three months ended March 31, 2007 and 2006 in the amount of $2,412 and $2,254, respectively. The effect on net income from recognizing stock-based compensation for the three-month periods ended March 31, 2007 and 2006 was $4,887 and $4,679, or $0.05 and $0.04 per basic and diluted share, respectively.

     The total number of shares of common stock issuable upon the exercise of stock options and SSARs granted during the three months ended March 31, 2007 and 2006 was 928,950 and 76,800, respectively, with weighted-average exercise prices of $49.46 and $66.54, respectively.

     For all of the Company’s stock-based compensation plans, the fair value of each grant was estimated at the date of grant using the Black-Scholes option-pricing model. Black-Scholes utilizes assumptions related to volatility, the risk-free interest rate, the dividend yield (which is assumed to be zero, as the Company has not paid any cash dividends) and option holder exercise behavior. Expected volatilities utilized in the model are based mainly on the historical volatility of the Company’s stock price and other factors. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect in the period of grant. The model incorporates exercise and post-vesting forfeiture assumptions based on an analysis of historical data. The average expected term is derived from historical and other factors. The stock-based compensation for the awards issued in the respective periods was determined using the following assumptions and calculated average fair values:

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

     As of March 31, 2007, the aggregate intrinsic value of awards outstanding and exercisable was $77,525 and $73,761, respectively. In addition, the aggregate intrinsic value of awards exercised during the three months ended March 31, 2007 and 2006 were $6,061 and $30,873, respectively. The total remaining unrecognized compensation cost related to unvested awards amounted to $52,578 at March 31, 2007 and is expected to be recognized over the next three years. The weighted average remaining requisite service period of the unvested awards was 26 months.

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12. Restructuring

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

     Through March 31, 2007, the Company has recorded restructuring costs primarily associated with severance costs and the costs of vacating certain duplicative PLIVA facilities in the U.S. Certain of these costs were recognized as liabilities assumed in the acquisition. Additionally, further restructuring costs incurred as part of the Company’s restructuring plan in connection with the acquisition will be considered part of the purchase price of PLIVA and will be recorded as an increase in goodwill. The components of the restructuring costs capitalized as a cost of the acquisition are as follows and are included in the generic pharmaceuticals segment:

	Balance				Balance
	as of				as of
	December 31,				March 31,
	2006		Payments		2007
Involuntary termination of PLIVA employees	$	8,277	$	611	$	7,666
Lease termination costs		10,201		—		10,201
	$	18,478	$	611	$	17,867

     Lease termination costs represent costs incurred to exit duplicative activities of PLIVA. Severance includes accrued severance benefits and costs associated with change-in-control provisions of certain PLIVA employment contracts.

     In addition, in connection with its restructuring of PLIVA’s U.S. operations, the Company incurred $3,004 of severance and retention bonus expense in the three months ended March 31, 2007.

13. Commitments and Contingencies

Litigation Matters

     The Company is involved in various legal proceedings incidental to its business, including product liability, intellectual property and other commercial litigation and antitrust actions. The Company records accruals for such contingencies to the extent that it concludes a loss is probable and the amount can be reasonably estimated. The Company also records accruals for litigation settlement offers made by the Company, whether or not the settlement offers have been accepted.

     The Company’s material litigation matters are summarized in its Transition Report on Form 10-K/T for the six month period ended December 31, 2006. Except for the Ovcon Antitrust Proceedings litigation settlement proposals summarized below, no material changes have occurred in the Company’s litigation matters since the filing of the Form 10-K/T.

     Ovcon Antitrust Proceedings

     To date, the Company has been named as a co-defendant with Warner Chilcott Holdings, Co. III, Ltd., and others in complaints filed in federal courts by the Federal Trade Commission, various state Attorneys General and certain private class action plaintiffs claiming to be direct and indirect purchasers of Ovcon-35^®. These actions, the first of which was filed by the FTC on or about December 2, 2005, allege, among other things, that a March 24, 2004 agreement between the Company and Warner Chilcott (then known as Galen Holdings PLC) constitutes an unfair method of competition, is anticompetitive and restrains trade in the market for Ovcon-35^® and its generic equivalents.

     In the actions brought on behalf of the indirect purchasers, the Company has reached an agreement in principle with the class representatives to settle plaintiffs’ claims. This settlement is subject to judicial approval and conditioned on the number of plaintiffs who exercise their right to opt-out of the settlement class not exceeding the threshold established by the terms of the settlement agreement.

     During the quarter ended March 31, 2007, the Company established a reserve (and corresponding charge in selling, general and administrative expenses) of $6,500 related to these and other settlement offers in the Ovcon Litigation.

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14. Segment Reporting

     The Company operates in two reportable business segments: generic pharmaceuticals and proprietary pharmaceuticals. The Company evaluates the performance of its operating segments based on net revenues and gross profit. The Company does not report depreciation expense, total assets and capital expenditures by segment as such information is neither used by management nor accounted for at the segment level. Net product sales and gross profit information for the Company’s operating segments consisted of the following:

Three months ended	Generic					Proprietary												% of
March 31, 2007	Pharmaceuticals		%			Pharmaceuticals		%			Other		%			Consolidated		revenue
Revenues:
Product sales	$	474,804		79	%	$	89,014		15	%	$	—		0	%	$	563,818		94	%
Alliance and development revenue		—		—	%		—		—	%		25,121		4	%		25,121		4	%
Other revenue		—		—	%		—		—	%		10,439		2	%		10,439		2	%
Total revenues	$	474,804		79	%	$	89,014		15	%	$	35,560		6	%	$	599,378		100	%
			Margin					Margin					Margin					Margin
Gross Profit:			%					%					%					%
Product sales	$	208,927		44	%	$	59,132		66	%	$	—		—	%	$	268,059		48	%
Alliance and development revenue		—		—	%		—		—	%		25,121		100	%		25,121		100	%
Other revenue		—		—	%		—		—	%		3,663		35	%		3,663		35	%
Total gross profit	$	208,927		44	%	$	59,132		66	%	$	28,784		81	%	$	296,843		50	%
Three months ended	Generic					Proprietary												% of
March 31, 2006	Pharmaceuticals		%			Pharmaceuticals		%			Other		%			Consolidated		revenue
Revenues:
Product sales	$	200,370		61	%	$	93,151		29	%	$	—		—	%	$	293,521		90	%
Alliance and development revenue		—		—	%		—		—	%		33,320		10	%		33,320		10	%
Other revenue		—		—	%		—		—	%		—		—	%		—		0	%
Total revenues	$	200,370		61	%	$	93,151		29	%	$	33,320		10	%	$	326,841		100	%
			Margin					Margin					Margin					Margin
Gross Profit: (1)			%					%					%					%
Product sales	$	129,419		65	%	$	65,595		70	%	$	—		—	%	$	195,014		66	%
Alliance and development revenue		—		—	%		—		—	%		33,320		100	%		33,320		100	%
Other revenue		—		—	%		—		—	%		—		—	%		—		—	%
Total gross profit	$	129,419		65	%	$	65,595		70	%	$	33,320		100	%	$	228,334		70	%

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

     Geographic Information

     The Company’s principal operations are in the United States and Europe. United States and Rest of World (“ROW”) sales are classified based on the geographic location of the customers. The table below presents revenues by geographic area based upon geographic location of the customer:

Product sales by geographic area

	Three Months Ended
	March 31,
	2007		2006
United States	$	392,620	$	291,760
ROW		171,198		1,761
Total product sales	$	563,818	$	293,521

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     The Company operates in more than 30 countries outside the United States. No single foreign country contributes more than 10% to consolidated product sales.

     The Company’s generic and proprietary pharmaceutical segment net product sales are represented in the following therapeutic categories for the following periods:

	Three Months
	March 31,
	2007		2006
Contraception	$	165,021	$	166,104
Psychotherapeutics		67,438		16,293
Cardiovascular		66,463		25,664
Antibiotics, antiviral & anti-infectives		66,925		13,916
Other (1)		197,971		71,544
Total	$	563,818	$	293,521

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

15. Subsequent Events

     On April 23, 2007, the Company entered into a lease for a new U.S. headquarters facility in Montvale, New Jersey. The Company intends to sublease its existing headquarters facility in Woodcliff Lake. The term of the new lease is 10.5 years, and is expected to commence in August 2007, when the Company plans to begin to take possession of the leased premises. The base rent payable during the first five years of the rental term will be $321 per month, increasing to $356 per month thereafter through expiration.

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

     The following discussion and analysis addresses material changes in the results of operations and financial condition of Barr Pharmaceuticals, Inc. and subsidiaries for the periods presented. This discussion and analysis should be read in conjunction with the consolidated financial statements, the related notes to consolidated financial statements and Management’s Discussion and Analysis of Results of Operations and Financial Condition included in the Company’s Transition Report on Form 10-K/T for the six-month period ended December 31, 2006 (the “Transition Report”), and the unaudited interim condensed consolidated financial statements and related notes included in Item 1 of this report on Form 10-Q.

Business Development Activities

     PLIVA Acquisition

     On October 24, 2006, the Company’s wholly owned subsidiary, Barr Laboratories Europe B.V. (“Barr Europe”), completed the acquisition of PLIVA, headquartered in Zagreb, Croatia. Under the terms of the cash tender offer, Barr Europe made a payment of approximately $2.4 billion based on an offer price of HRK 820 (Croatian Kuna (“HRK”)) per share for all shares tendered during the offer period. The transaction closed with 96.4% of PLIVA’s total outstanding share capital being tendered to Barr Europe (17,056,977 of 17,697,419 outstanding shares at the date of the acquisition). Subsequent to the close of the cash tender offer, Barr Europe purchased an additional 217,531 shares on the Croatian stock market for $31.7 million, including 67,578 shares purchased for $9.8 million during the three months ended March 31, 2007. As the acquisition was structured as a purchase of equity, the amortization of purchase price assigned to assets in excess of PLIVA’s historic tax basis will not be deductible for income tax purposes. With the addition of the treasury shares held by PLIVA, Barr Europe owned or controlled 97.4% of PLIVA’s voting share capital as of March 31, 2007 (17,274,508 of 17,740,016 outstanding shares).

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

     Products Acquired from Hospira, Inc.

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

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Results of Operations

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

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

	Three Months Ended March 31,
					Change
	2007		2006		$			%
Generic products:
Oral contraceptives	$	113.2	$	101.2	$	12.0			12	%
Other generics		361.6		99.1		262.5			265	%
Total generic products		474.8		200.3		274.5			137	%
Proprietary products		89.0		93.2		(4.2	)		-4	%
Total product sales		563.8		293.5		270.3			92	%
Alliance and development revenue		25.1		33.3		(8.2	)		-25	%
Other revenue		10.5		—		10.5			0	%
Total revenues	$	599.4	$	326.8	$	272.6			83	%

     Product Sales

     Generic Oral Contraceptives

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

     Other Generic Products

     During the three months ended March 31, 2007, sales of our other generic products (“Other Generics”) were $361.6 million, up from $99.1 million as compared to the three months ended March 31, 2006, an increase of $262.5 million. This increase was mainly due to $252.8 million of sales attributable to PLIVA products, including sales of Azithromycin of $36.1 million. In addition to higher sales from acquired products, we recorded $16.7 million in sales of Fentanyl Citrate, our generic version of Cephalon’s ACTIQ which we launched in September 2006. Partially offsetting these increases were lower sales of certain Other Generics, principally a $6.1 million decline in sales of Desmopressin. We launched Desmopressin in July 2005 with 180 days of exclusivity as a result of a successful paragraph IV patent challenge, and this exclusivity continued through February 2006. Since March 2006, competing generic products have reduced our sales of Desmopressin.

     Proprietary Products

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

     Alliance and Development Revenue

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

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

     Other Revenue

     We recorded $10.5 million of other revenue during the three months ended March 31, 2007. This revenue is primarily attributable to non-core operations which include our diagnostics, disinfectants, dialysis and infusions (“DDD&I”) business. This business was acquired through the PLIVA acquisition, and as such, there are no comparable operations for the three months ended March 31, 2006.

     Cost of Sales

     The following table sets forth cost of sales data, in dollars, as well as the resulting gross margins expressed as a percentage of product sales (except ‘‘other’’, which is expressed as a percentage of our other revenue line item), for three months ended March 31, 2007 and 2006 (dollars in millions):

	Three Months Ended March 31,
							Change
	2007			2006			$		%
Generic products	$	265.8		$	70.9		$	194.9		275	%
Gross margin		44.0	%		64.6	%
Proprietary products	$	29.9		$	27.6		$	2.3		8	%
Gross margin		66.4	%		70.4	%
Other revenue	$	6.8		$	—		$	6.8		100	%
Gross margin		34.9	%		N/A
Total cost of sales	$	302.5		$	98.5		$	204.0		207	%
Gross margin		47.3	%		66.4	%

Cost of sales includes the following:

• our manufacturing and packaging costs for products we manufacture;

• amortization expense (as discussed further below);

• the write-off of the step-up in inventory arising from acquisitions, including PLIVA;

• profit-sharing or royalty payments we make to third parties, including raw material suppliers;

• the cost of products we purchase from third parties;

• lower of cost or market adjustments to our inventories; and

• stock-based compensation expense relating to employees within certain departments that we allocate to cost of sales.

     In prior periods, we included amortization expenses related to acquired product intangibles in selling, general and administrative (“SG&A”) expenses rather than cost of sales. As discussed in our Transition Report, we revised our presentation of amortization expense to include it within cost of sales rather than SG&A. We have adjusted our discussion regarding the quarter ended March 31, 2006 presented below to reflect this change.

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

20

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

     Generics: In our generics segment, cost of sales increased by $194.9 million in large part due to the $262.5 million increase in Other Generics sales, as described above, and $26.0 million of higher amortization expense arising primarily from product intangibles created as a result of the PLIVA acquisition. When combined with the charge related to the $32.3 million step-up in inventory described above, our generics margins declined from 64.6% to 44.0%. Partially offsetting this decrease in gross margins were higher sales of our Generic OCs and a full quarter of sales of Fentanyl Citrate, both of which positively impacted gross margins in our generics segment.

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

Selling, General and Administrative Expense

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

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

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

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

Research and Development

     The following table sets forth research and development expenses and the write-off of acquired in-process research and development (“IPR&D”) for the three months ended March 31, 2007 and 2006 (dollars in millions):

	Three Months Ended March 31,
					Change
	2007		2006		$		%
Research and development	$	61.2	$	37.7	$	23.5		62	%
Write-off of acquired IPR&D	$	1.5	$	—	$	1.5		N/A

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

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

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Interest Income

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

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

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

Interest Expense

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

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

     The increase in interest expense for the three months ended March 31, 2007 as compared to the three months ended March 31, 2006 is due to the $2.6 billion of debt the Company has incurred in connection with the PLIVA acquisition (both to finance the acquisition and debt assumed from PLIVA). As a result of the incurrence of such debt, the Company estimates that interest expense will be approximately $155 million in 2007.

Income Taxes

     The following table sets forth income tax expense and the resulting effective tax rate stated as a percentage of pre-tax income for the three months ended March 31, 2007 and 2006 (dollars in millions):

	Three Months Ended March 31,
							Change
	2007			2006			$			%
Income tax expense	$	9.7		$	41.5		$	(31.8	)		-77 %
Effective tax rate		42.0	%		35.3	%

     The Company’s effective tax rate increased in the current quarter to 42.0% from 35.3% in the same period of the prior year. The increase is primarily attributed to effects from the PLIVA acquisition, including: the change in geographic mix of pre-tax income; the negative impact of purchase accounting creating pre-tax losses in lower tax jurisdictions; the negative impact resulting from certain entities with pre-tax losses for which the Company could not recognize a tax benefit; and the change in the current corporate structure creating certain tax inefficiencies, which are expected to diminish over time.

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Liquidity and Capital Resources

Overview

     Our primary source of liquidity has been cash from operations, which entails the collection of accounts and other receivables related to product sales, and royalty and other payments we receive from third parties in various ventures, such as Teva with respect to generic Allegra and Kos Pharmaceuticals, Inc., a subsidiary of Abbott Laboratories, with respect to Niaspan and Advicor. Our primary uses of cash include repayment of our senior credit facilities, financing inventory, research and development programs, marketing and selling, capital projects and investing in business development activities.

Operating Activities

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

Investing Activities

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

Financing Activities

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

     Under Croatian law, our ownership of more than 95% of the voting shares in PLIVA permits us to undertake the necessary actions to acquire the remainder of PLIVA’s outstanding share capital. We initiated this process at a price of HRK 820 per share, the same per share price offered to shareholders during the formal tender period. This process and the subsequent pay out to remaining shareholders is expected to be completed by June 30, 2007. We intend to fund the payout from cash balances on hand and anticipate that the remaining investment will be approximately $80 million.

Sufficiency of Cash Resources

     We believe our current cash and cash equivalents, marketable securities, investment balances, cash flows from operations and undrawn amounts under our revolving credit facility are adequate to fund our operations, service our debt requirements, make planned capital expenditures and to capitalize on strategic opportunities as they arise.

Off-Balance Sheet Arrangements

     The Company does not have any material off-balance sheet arrangements that have had, or are expected to have, an effect on our financial statements.

Critical Accounting Policies

     The methods, estimates and judgments we use in applying the accounting policies most critical to our financial statements have a significant impact on our reported results. The Securities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of our financial condition and results, and/or require us to make our most difficult and subjective judgments. Based on this definition, our most critical policies are the following: (1) revenue recognition and provisions for estimated reductions to gross product sales; (2) revenue recognition and provisions of alliance and development revenue; (3) inventories; (4) income taxes; (5) contingencies; (6) acquisitions and amortization of intangible assets; (7) derivative instruments; and (8) foreign currency translation and transactions. Although we believe that our estimates and assumptions are reasonable, they are based upon information available at the time the estimates and assumptions were made. We review the factors

23

that influence our estimates and, if necessary, adjust them. Actual results may differ significantly from our estimates.

     There are no updates to our Critical Accounting Policies from those described in our Transition Report on Form 10-K/T for the six months ended December 31, 2006. Please see the “Critical Accounting Policies” sections of that report for a comprehensive discussion of our critical accounting policies.

Recent Accounting Pronouncements

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

     In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”) The Fair Value Option for Financial Assets and Financial Liabilities, providing companies with an option to report selected financial assets and liabilities at fair value. The Standard’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. GAAP has required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of Barr’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which companies have chosen to use fair value on the face of the balance sheet. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact that the adoption of this statement will have on our consolidated financial statements.

     In June 2006, the FASB issued FIN No. 48 (“FIN 48”) Accounting for Uncertainty in Income Taxes– an interpretation of FASB Statement 109. FIN 48 establishes a single model to address accounting for uncertain tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. Upon adoption on January 1, 2007, we analyzed filing positions in all of the foreign, federal and state jurisdictions where the Company is required to file income tax returns, as well as all open tax years in these jurisdictions.

     As a result of the implementation of FIN 48, we recorded a $4.5 million increase in the net liability for unrecognized tax positions, which was entirely recorded as a $4.5 million adjustment to the opening balance of goodwill relating to the PLIVA acquisition. The total amount of gross unrecognized tax benefits as of January 1, 2007 was $25 million, and did not change materially as of March 31, 2007. Included in the balance at March 31, 2007 was $13.2 million of tax positions that, if recognized, would lower the effective tax rate. We are nearing completion of several tax audits and the expiration of the statute of limitations in several jurisdictions and it is possible that the amount of the liability for unrecognized tax benefits could change during the next 52-week period. An estimate of the range of the possible change cannot be made at this time.

     Upon adoption of FIN 48, we have elected an accounting policy to classify accrued interest and related penalties relating to unrecognized tax benefits in interest expense. Previously, our policy was to classify interest and penalties in its income tax provision. We had $2.6 million accrued for interest and penalties at January 1, 2007 which has not changed materially as of March 31, 2007.

Forward-Looking Statements

     The preceding sections contain a number of forward-looking statements. To the extent that any statements made in this report contain information that is not historical, these statements are essentially forward-looking. Forward-looking statements can be identified by their use of words such as “expects,” “plans,” “will,” “may,” “anticipates,” “believes,” “should,” “intends,” “estimates” and other words of similar meaning. These statements are subject to risks and uncertainties that cannot be predicted or quantified and, consequently, actual results may differ materially

24

from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, in no particular order:

• the difficulty in predicting the timing and outcome of legal proceedings, including patent-related matters such as patent challenge settlements and patent infringement cases;

• the difficulty of predicting the timing of FDA approvals;

• court and FDA decisions on exclusivity periods;

• the ability of competitors to extend exclusivity periods for their products;

• our ability to complete product development activities in the timeframes and for the costs we expect;

• market and customer acceptance and demand for our pharmaceutical products;

• our dependence on revenues from significant customers;

• reimbursement policies of third party payors;

• our dependence on revenues from significant products;

• the use of estimates in the preparation of our financial statements;

• the impact of competitive products and pricing on products, including the launch of authorized generics;

• the ability to launch new products in the timeframes we expect;

• the availability of raw materials;

• the availability of any product we purchase and sell as a distributor;

• the regulatory environment in the markets where we operate;

• our exposure to product liability and other lawsuits and contingencies;

• the increasing cost of insurance and the availability of product liability insurance coverage;

• our timely and successful completion of strategic initiatives, including integrating companies (such as PLIVA) and products we acquire and implementing our new SAP enterprise resource planning system;

• fluctuations in operating results, including the effects on such results from spending for research and development, sales and marketing activities and patent challenge activities;

• the inherent uncertainty associated with financial projections;

• our expansion into international markets through our PLIVA acquisition, and the resulting currency, governmental, regulatory and other risks involved with international operations;

• our ability to service our significantly increased debt obligations as a result of the PLIVA acquisition;

• changes in generally accepted accounting principles; and

• other risks detailed in our SEC filings from time to time, including in our Transition Report on Form 10-K/T for the six months ended December 31, 2006.

     We wish to caution each reader of this report to consider carefully these factors as well as specific factors that may be discussed with each forward-looking statement in this report or disclosed in our filings with the SEC, as such factors, in some cases, could affect our ability to implement our business strategies and may cause actual results to differ materially from those contemplated by the statements expressed herein. Readers are urged to carefully review and consider these factors. We undertake no duty to update the forward-looking statements even though our situation may change in the future.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     We are exposed to market risk for changes in interest rates and foreign currency exchange rates. We manage these exposures through operational means and, when appropriate, through the use of derivative financial instruments.

Interest Rate Risk

     Our exposure to interest rate risk relates primarily to our investment portfolio of approximately $854 million, borrowings under our credit facilities of approximately $2,265.7 million and approximately $152 million of other debt acquired from PLIVA. Our investment portfolio consists principally of cash and cash equivalents and market auction debt securities primarily classified as “available for sale.” The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we maintain our portfolio in a variety of high credit quality debt securities, including U.S., state and local government and corporate obligations, commercial paper and money market funds. Over 95% of our portfolio

25

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

     We manage the interest rate risk of our net portfolio of investments and debt with the use of financial risk management instruments or derivatives, including interest rate swaps and forward rate agreements.

     During the three months ended March 31, 2007, a 10% increase in interest rates would have increased the net interest expense of our combined investment, debt and financial risk management portfolios by $2.7 million.

Foreign Exchange Rate Risk

     A significant portion of our revenues and earnings are generated internationally in various currencies. We also have a number of investments in foreign subsidiaries whose net assets are exposed to currency translation risk. We seek to manage these exposures through operational means, to the extent possible, by matching functional currency revenues and costs and functional currency assets and liabilities. Exposures that cannot be managed operationally are hedged using foreign exchange forwards, swaps and option contracts.

     As of March 31, 2007, a 10% depreciation in the value of the US dollar would have resulted in a decrease of $18.5 million in the fair value of the Company’s foreign exchange risk management instruments. These movements would have been offset by movements in the fair value in the opposite direction of the underlying transactions and balance sheet items being hedged.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

     We maintain disclosure controls (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”)) and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chairman and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

     At the conclusion of the three-month period ended March 31, 2007, we carried out an evaluation, under the supervision and with the participation of our management, including the Chairman and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chairman and Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in alerting them in a timely manner to information relating to Barr and its consolidated subsidiaries required to be disclosed in this report.

Changes in Internal Control Over Financial Reporting.

     There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2007 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     The disclosure under Note 13 — Commitments and Contingencies — Litigation Matters included in Part I of this report is incorporated in this Part II, Item 1 by reference.

Item 1A. Risk Factors

     In addition to the other information set forth in this report, you should carefully consider the factors discussed in the “Risk Factors” section in our Transition Report on Form 10-K/T for the six-month period ended December 31, 2006, which could materially affect our business, results of operations, financial condition or liquidity. The risks described in our Transition Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may materially adversely affect our business, results of operations, financial condition or liquidity. The risks described in our Transition Report have not materially changed.

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Item 6. Exhibits

Exhibit No.	Description
10.1	Employment Agreement between Zeljko Covic and PLIVA d.d. dated March 21, 2007
10.2	Settlement Agreement between Zeljko Covic and PLIVA d.d. dated March 21, 2007
31.1	Certification of Bruce L. Downey pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of William T. McKee pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.0	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BARR PHARMACEUTICALS, INC.
Dated: May 10, 2007	/s/ Bruce L. Downey
	Bruce L. Downey
	Chairman of the Board and Chief Executive Officer
	/s/ William T. McKee
	William T. McKee
	Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial Officer and Principal Accounting Officer)

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EX-10.1

Exhibit 10.1

Dated 21 March 2007

PLIVA d.d.
and
Željko Čović

AGREEMENT WITH THE

PRESIDENT OF THE MANAGEMENT BOARD

AND COO

Table of Contents

Contents		Page
1	Interpretation		2
2	Commencement of Agreement		3
3	Appointment and Duties of the COO		3
4	Hours		4
5	Interests of the COO		4
6	Location		4
7	Salary		4
8	Bonus		5
9	Stock Options		5
10	Company Car		6
11	Pension		6
12	Insurance		6
13	Expenses		7
14	Holidays		7
15	Confidentiality		7
16	Intellectual Property Rights		7
17	Termination and Suspension		8
18	Change of Control		9
19	Full and Final Settlement		9
20	Garden Leave		10
21	Restrictions after Termination of Employment		11
22	Contractual penalty		12
23	Return of Company Property		12
24	Directorships		12
25	Notices		12
26	Miscellaneous		12

1

     This Agreement is made effective on 1 January 2007 between:

(1)	PLIVA d.d whose registered address is Ulica grada Vukovara 49,10000, Zagreb Croatia (“PLIVA d.d.” or the “Company”); and
(2)	Željko Čović, Gajeva 59, 10000 Zagreb, Croatia (the “COO”).

This agreement records the terms on which the COO will serve and be employed by the Company.

1 Interpretation

In this agreement (and any schedules to it):

1.1 Definitions

“Agreement” means this agreement entered into by and between COO and the Company defining rights and obligations of the President of the Management Board and COO and the Company, following decisions of the Supervisory Board as of a) 13 July 2005 on appointment of the President of the Management Board for a Term; and b) 14 March 2007 on entering into this new agreement with the COO;

“Change of Control” means

(a)	the acquisition of control of the composition of the board of directors of PLIVA d.d. by a person (or group of persons acting together) not having such control as at the date of this agreement;
(b)	the acquisition of control of the exercise of more than 50 per cent of the voting rights attributable to the share capital of PLIVA d.d by a person (or group of persons acting together) not having such control as at the date of this agreement;
(c)	a merger of the Company with an entity other than a Group Company; or
(d)	the sale of the assets of PLIVA d.d. or substantially all of the assets of PLIVA d.d. to an entity not being a Group Company;

but the following do not constitute a Change of Control:

(i)	any change in the shareholders in PLIVA d.d. not within (a), (b) or (c) above;
(ii)	the winding up of PLIVA d.d. for the purpose of a reconstruction; and
(iii)	the transfer of any ownership of associated company, or of any of PLIVA d.d.’s operating assets, to another Group Company, provided that all or substantially all of the associated company or operating assets remain within the Group Company.

“Group” means PLIVA d.d. and its affiliated companies that are either directly or indirectly controlled by Barr Pharmaceuticals, Inc. (“BPI”).

“Group Company” means a member of the Group and “Group Companies” will be interpreted accordingly;

“Listing Rules” means the Listing Rules made by the UK Listing Authority relevant for listing on the London Stock Exchange and Listing Rules of the Zagreb Stock Exchange, and any other listing rules of any other regulated market that may be applicable to PLIVA d.d.;

“Management Board” means the Management Board of PLIVA d.d. from time to time;

2

“Material Change” means the assignment to, or the withdrawal from, the COO of any duties the effect of which constitutes a material change in the COO’s job or a material reduction in his responsibilities, status or authority which is related or follows the Change of Control;

“Supervisory Board” means the Supervisory Board of PLIVA d.d. from time to time;

“Term” means the period from 09 December 2005 to 30 June 2010 for which the COO is appointed President of the Management Board of PLIVA d.d.;

“Termination Date” means the date on which this Agreement terminates; and

“ZSE” means the Zagreb Stock Exchange.

2	Commencement of Agreement
2.1	The COO is employed by the Company as of 02 June 1980 and is employed for indefinite period of time.
2.2	This Agreement will be effective from 1 January 2007 on which date the agreement dated 24 October 2005 between PLIVA d.d. and the COO (the “Superseded Agreement”) will cease to have any further force or effect, all in accordance with the Settlement Agreement between the Company and COO as of 21 March 2007.
2.3	The employment will continue under the terms of this Agreement until end of the Term, and after the Term if so determined by this Agreement.
3	Appointment and Duties of the COO
3.1	The COO will serve as President of the Management Board and Chief Operating Officer, with the roles and responsibilities as defined by the law, Articles of Association of the Company, regulations pertaining to Management Board and other by-laws of PLIVA.
3.2	The COO may also serve in any other executive capacity in any of the Group Companies as the COO and the Company agree from time to time.
3.3	The COO will:

3.3.1	devote the whole of his working time, attention and skill to performing position of the President of the Management Board and COO;
3.3.2	properly perform his duties and exercise his powers;
3.3.3	accept any offices or directorships as reasonably required by the Supervisory Board;
3.3.4	comply with all rules, regulations and policies issued by PLIVA d.d. including any handbook issued and amended by PLIVA d.d. from time to time. In the event of any inconsistency between the rules, regulations and policies of PLIVA d.d. and any Group Company the rules, regulations and policies of PLIVA d.d. shall prevail;
3.3.5	obey the reasonable and lawful directions of the Supervisory Board; and
3.3.6	use all reasonable endeavours to promote the interests and reputation of every Group Company.

3

3.4	The COO accepts that with his consent (which he will not unreasonably withhold or delay) the Company may require him to perform COO or other executive duties of equivalent status to those referred to at clause 3.1 for any other Group Company.
3.5	The COO will keep the Supervisory Board fully informed of his conduct of the business, finances or affairs of the Company or any other Group Company in a prompt and timely manner. He will provide information to the Supervisory Board in writing if requested.
4	Hours
	The COO and the Company agree that the COO’s working time shall be regular working time in the Company, provided however that the COO will not be entitled to additional remuneration for hours worked in excess of usual business hours.
5	Interests of the COO
5.1	Subject to clause 5.2, while this Agreement is in force, the COO will not be directly or indirectly engaged or concerned in the conduct of any activity nor he will accept any directorship in any company not being a Group Company, (except as a representative of the Company or Group Companies) without first obtaining the written consent of the Supervisory Board, such consent not to be unreasonably withheld or delayed.
5.2	The COO may not hold or be interested in investments which amount to more than one per cent of the issued investments of any class of any one company whether or not those investments are listed or quoted on any recognised Stock Exchange or dealt in on the Alternative Investments Market, without first obtaining the written consent of the Supervisory Board, such consent not to be unreasonably withheld or delayed.
5.3	The COO will (and will procure that his spouse and dependent children) comply with all rules of law, including Croatian Securities Act, Criminal Law and Listing rules and any other rules or policies applicable to PLIVA d.d. or BPI from time to time in relation to the holding or trading of securities.
6	Location
	The COO’s place of work will be in the seat of the Company. The COO will be required to travel abroad when necessary and to the extent the reasonable business needs require so, the COO shall also work in other PLIVA’s locations or places where PLIVA operates.
7	Salary
7.1	The Company will pay the COO a gross base salary of EUR 450,000 per annum (“Base Salary”). Salary will be paid monthly in 12 equal instalments, when all PLIVA d.d. employees’ salaries are paid, for the previous month, and the equivalent will be payable in HRK according to the average exchange rate of Croatian National Bank on the date of calculation of the salary for each particular month.
7.2	The salary referred to in clause 7.1 includes director’s fees from PLIVA d.d. and any other Group company in which the COO is required to accept a directorship from time to time.

4

8	Bonus
8.1	The COO shall be eligible to receive a discretionary bonus (in accordance with the decision of the Supervisory Board) for each fiscal year of the Company that commences or terminates during the term of this Agreement, of up to 50% of the Base Salary earned during such year (or such higher or lower percentage as the Supervisory Board may allow from time to time during the term of this Agreement).
8.2	In the event that the Agreement is terminated, the following provisions will apply:

8.2.1	if the Agreement is terminated by the Company (other than by reason of the COO’s misconduct or in accordance with clause 17.7) the COO shall be entitled to unpaid bonus for the year in which the COO received the notice on termination, calculated at 50% of his Base Salary then in effect and pro-rated to reflect the number of days worked in the respective year, and shall be paid in full for any accrued but unpaid bonus, and payment of any such bonus shall be made within 2 weeks after the termination date, however not before the deadline set out in 8.5. For the avoidance of doubt, COO shall not be entitled to any bonus during any notice period after receipt of the notice on termination;
8.2.2	in the event that the COO resigns, the COO will have no entitlement to any bonus which hasn’t already been granted to him;
8.2.3	in the case of termination of the Agreement by the Company under the clause 17.7 no bonus shall be payable whether for the Bonus Year in which notice was given or in respect of any previous Bonus Year where such year’s bonus had not been paid;

8.3	In the event of termination of the Agreement by the Company pursuant to clause 17.2 or 18 or the COO pursuant to clause 18, the COO’s entitlement to bonus, if any, will be calculated at 50% of his Base Salary then in effect pro-rata to the date the Company gives notice in accordance with clause 17.2 or 18 or the date on which the COO serves a Material Change notice on the Company in accordance with clause 18.
8.4	The “Bonus Year” means the financial year from 01 January to 31 December in respect of which the annual bonus is being paid. The amount of bonus calculated in accordance with the above provisions represents the gross amount.
8.5	The annual bonus shall in any case be paid within 15 days from the day of approval of annual financial reports for the previous business year by the Supervisory Board.
9	Stock Options
9.1	Grant of Stock Options
	The COO shall be eligible to participate in the BPI stock incentive plan as from time to time in effect, subject to the terms and conditions of such plan; including an initial grant of 30,000 stock appreciation rights having an exercise price equal to the mean of the high and low price for BPI stock on the date of approval of this grant by the Board of Directors of BPI or a committee of the Board of Directors of BPI and for the purposes of this Agreement accepted and confirmed by the Supervisory Board, with one-third of the stock appreciation rights becoming exercisable (“vesting”) in 12 months from the date thereof (as of the date of approval of the Board of Directors of BPI), one-third of the stock appreciation rights vesting 24 months from the date thereof, and the remaining one-third of the stock appreciation rights vesting 36 months from the date thereof, provided in each

5

	case that the COO is employed by the Company on the vesting date in question, and otherwise having the same terms and conditions as set forth in the forms of tandem stock appreciation rights agreement and standalone stock appreciation rights agreement approved by the Board of Directors of BPI or a committee of the Board of Directors of BPI under the current stock incentive plan. (The stock appreciation rights will be granted with tandem (i.e., alternative) incentive stock options to the extent permitted by applicable law and any remaining stock appreciation rights will be granted as free-standing (i.e., standalone) stock appreciation rights.);
9.2	Tax
	The COO will promptly pay all taxes, eventual social security contributions, duties or other levies which arise or may arise in connection with the grant, vesting or exercise of the stock options or stock appreciation rights or any cash payment made under this clause 9 or will, on demand, repay any such amounts paid by the Company or any of its affiliated entities. The COO consents to the deduction of any such amounts and authorises the Company to sell, on his behalf, sufficient shares or other securities to meet any such liability.
10	Company Car
	The COO is entitled to use the Company car of AUDI A8 or similar class.
11	Pension
11.1	The Company shall pay to the COO annually gross amount equal to 15% of the Base salary to voluntarily pension fund as elected and notified to the Company by the COO, and which shall be paid in 12 equal monthly installments as long as this Agreement is in force.
11.2	The COO undertakes that, except to the extent determined by this Agreement, he will not be entitled to any other benefits related to the contribution to the pension scheme.
12	Insurance
12.1	The Company shall arrange and pay the cost for the COO insurance policy, including but not limited to life insurance, insurance for long term disease or disability, according to the Company policy in effect.
12.2	The Company shall arrange and pay the cost for the COO a private health insurance policy, in accordance with the Company’s policies.
12.3	The COO understands and agrees that if the Company provides long term illness/disability insurance and the Insurer appointed by the Company from time to time fails or refuses to provide the COO with any benefit under the insurance arrangement, the COO will have no right of action against the Company in respect of such failure or refusal.
12.4	The Company shall arrange and meet the cost of business travel insurance in respect of the COO’s performance of his duties under this Agreement. The COO’s rights and entitlements under such travel insurance will be subject to the terms of Company’s insurance cover from time to time.

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13	Expenses
13.1	The Company will reimburse the COO for all reasonable expenses properly incurred by him in performing his duties under this Agreement, provided that these are incurred in accordance with Company policy from time to time.
13.2	If the COO is provided with a credit or charge card by the Company this must only be used for expenses which he incurs in performing the duties of this Agreement.
14	Holidays
	The COO is entitled to 30 days’ paid holiday each year (in addition to other public holidays in Croatia) which shall be used at the latest by 30 June of the following year, after which date all unused holiday days shall lapse. The COO will pay due consideration to the operational requirements of the Company when arranging any holidays. For part years, the COO’s holiday entitlement for the year will be pro-rated to the length of his service in that year. Only 5 working days shall be calculated for the purpose of determination of duration of holiday.
15	Confidentiality
15.1	Without prejudice to the legal duties which he owes to the Company the COO agrees that he will not, except in the proper performance of his duties, copy, use or disclose to any person any of the Company’s trade secrets or confidential information. This restriction will continue to apply after the termination of the Agreement without limit in time but will not apply to trade secrets or confidential information which become public other than through unauthorised disclosure by the COO. The COO will use all reasonable endeavours to prevent the unauthorised copying use or disclosure of such information.
15.2	In the course of the Agreement the COO is likely to obtain trade secrets and confidential information belonging or relating to other Group Companies and other persons. He will treat such information as if it falls within the terms of clause 15.1 and clause 15.1 will apply with any necessary amendments to such information. If requested to do so by the Company the COO will enter into an agreement with other Group Companies and any other persons in the same terms as clause 15.1 with any amendments necessary to give effect to this provision.
15.3	Without prejudice to this clause, details of what the Company and the Group Companies regard as confidential information are set out in relevant policies of the Company and/or the Group Companies from time to time.
16	Intellectual Property Rights
16.1	In relation to each and every invention, improvement or discover (together called “the Group Company Invention”) which relates either directly or indirectly to the business of the Company or Group Company which the COO (jointly or alone) makes at any time during his employment, the COO will, subject to the Company or Group Companies complying with all statutory obligations, promptly disclose to the Company full details of all Group Company Inventions and then, as requested by the Company or Group Company and at its expense, do all things necessary or desirable to enable the Group Company (or its nominee) to exploit such Group Company Inventions for commercial purposes and to secure patent or other appropriate forms of protection for the same anywhere in the world.

7

	Decisions as to the patenting and exploitation of any such Group Company Inventions are at the sole discretion of the Group Company.
16.2	In relation to each and every copyright work, database or design which relates either directly or indirectly to the business of the Group Company (a “Company Work”) which the COO (jointly or alone) originates, conceives, writes or makes at any time during the period of this employment, the COO acknowledges that all intellectual property rights in and to such Company Work are the property of the Group Company. At the Company’s request the COO will assign to the Company all copyright (and all and any other proprietary or similar rights) throughout the world in Company Works.
16.3	The COO agrees that (at the request and expense of the Company) he will do all things necessary or desirable to substantiate the rights of the Group Company to each and every Group Company Invention or Company Work and that he will permit he Group Company (whom he irrevocably appoints as the Company’s attorney for this purpose) to execute documents, to use the COO’s name and to do all things which may be necessary or desirable for the Company to obtain for itself or its nominee the full benefit of each and every Group Company Invention or Company Work.
17	Termination and Suspension
17.1	The Agreement will be in force until the end of the Term unless terminated earlier by either party giving written notice in accordance with clauses 17.2, 17.5 or 18.
17.2	Either party may terminate the Employment by giving not less than 6 months’ written notice to the other.
17.3	In case the Company terminates this Agreement, in addition to the COO’s right to receive notice in accordance with clause 17.2, the COO shall be entitled to a severance payment equal to 18 months’ Base Salary (“18-months’ severance payment”) which will be paid to the COO within 4 weeks of the date of termination of the employment. This 18 months’ severance payment will only be payable if the Agreement is terminated by the Company on 6 months’ notice and will not be payable where such termination is by reason of the COO’s misconduct or in accordance with clause 17.7.
17.4	However, the Supervisory Board may accept shorter notice period in case the COO resign according to clause 17.2.
17.5	In case the COO becomes disabled from performing the duties from this Agreement (i) for a period of 60 consecutive days or 90 non-consecutive days in any period of 365 days and is likely that such disability will continue, or (ii) immediately upon occurrence of such disability becomes likely that the COO will not be able to perform his duties even after expiration of the 60 or 90 days, the Company may terminate this Agreement with the 6- months notice. In addition, the Company will pay the COO 18 months’ severance payment within 30 days after termination of the employment.
17.6	The COO’s entitlement to bonus, if any, on termination, is set out in clause 8.
17.7	The Company may terminate the Agreement with immediate effect by giving written notice if the COO:

17.7.1 commits any serious or persistent breach of his material obligations under this Agreement; or

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17.7.2	is guilty of any gross misconduct or conducts himself (whether in connection with the Agreement or not) in a way which in the reasonable opinion of the Supervisory Board is harmful to PLIVA d.d. or any Group Company; or
17.7.3	is guilty of dishonesty or is convicted of an offence (other than an offence under the road traffic legislation) whether in connection with the Agreement or not, in a way which in the reasonable opinion of the Supervisory Board is harmful to PLIVA d.d. or any Group Company; or
17.7.4	commits (or is reasonably believed by the Supervisory Board to have committed) a breach of any legislation in force or Group policies which may affect or relate to the business or reputation of any Group Company; or
17.7.5	becomes of unsound mind, is bankrupted or has a receiving order made against him; or
17.7.6	becomes disqualified from being a director of a company by decision of relevant authority; or
17.7.7	fails to follow lawful direction by Supervisory Board and the Management Board;

17.8	The COO will have no claim for damages or any other remedy against the Company and Group Companies if the Agreement is terminated for any of the reasons set out in clause 17.5 or 17.7.
17.9	The Company may suspend the COO for a reasonable period from the employment on full salary and contractual benefits at any time to investigate any matter in which the COO is implicated or involved (whether directly or indirectly) and to conduct any related disciplinary proceedings. During suspension, the COO shall not work, but is obliged to comply with the clause 15, 16 and 21 of the Agreement, and shall not undertake any action which may cause the damage to the Company or any Group Company.
18	Change of Control
	In the event of a termination of the Agreement either by the Company following Change of Control (unless the Company terminates pursuant to clause 17.7) or by the COO when there is a Material Change before the end of the Term the period of notice will be 6 months. In addition, the Company shall pay the COO severance payment of the amount that is equal to 18 months Base Salary. Severance will be paid to the COO within 4 weeks of the date on which the Agreement terminates.
19	Full and Final Settlement
	In the event that the COO becomes entitled to a severance payment under clauses 17.3, 17.5 or 18 of this Agreement, such payment is subject to and conditional upon the COO entering into a Settlement and Compromise Agreement with the Company and Pliva d.d. (of terms which are satisfactory to Pliva d.d.) the terms of that agreement will provide that the severance payments are made in full and final settlement of all and any claims the COO has or may have against the Company in respect of his employment by it or the termination of that employment (in addition to what he is entitled to according to this Agreement).

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20	Garden Leave
20.1	The COO agrees that:

20.1.1	at any time after notice to terminate the Agreement is given by either party; or
20.1.2	if the COO purports to terminate the Agreement by resigning without giving due notice and the Company does not accept his resignation; or
20.1.3	during the last six months of the Term;
the Company may require the COO to comply with any or all of the provisions in clauses 20.2 and 20.3 below for a maximum period of six months (the “Garden Leave Period”).

20.2 The COO will not, without prior written consent of the Supervisory Board as long as he assumes position of President of the Management Board and COO, be employed or otherwise engaged in the conduct of any activity, whether or not of a business nature during the Garden Leave Period. Further, the COO will not, unless requested by the Company:

20.2.1	enter or attend the premises of the Company or any other Group Company; or
20.2.2	contact or have any communication with any customer or client of the Company or any other Group Company in relation to the business of the Company or any other Group Company; or
20.2.3	contact or have any communication with any COO, officer, director, agent or consultant of the Company or any other Group Company in relation to the business of the Company or any other Group Company; or
20.2.4	remain or become involved in any aspect of the business of the Company or any other Group Company except as required by such companies.

20.3 The Company may require the COO:

20.3.1	to comply with the provisions of clause 21; and
20.3.2	to immediately resign from any directorship which he holds in the Company, any other Group Company or any other company where such directorship is held as a consequence or requirement of the Agreement, unless he is required to perform duties to which any such directorship relates, in which case he may retain such directorships while those duties are ongoing.

20.4	During the Garden Leave Period, the COO will be entitled to receive his salary and all contractual benefits except bonus and stock options, in accordance with the terms of this Agreement. Any unused holiday accrued at the commencement of the Garden Leave Period and any holiday accrued during any such period will be deemed to be taken by the COO during the Garden Leave Period.
20.5	All duties of the Agreement (whether express or implied), shall continue throughout the Garden Leave Period save as expressly varied by this clause.

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21	Restrictions after Termination of Employment
21.1	In this clause:
	“Relevant Date” means the Termination Date or, if earlier, the date on which the COO commences any Garden Leave Period; and
	“Restricted Period” means the period of 9 months (less any period of Garden Leave) commencing on the Termination Date;
21.2	The COO is likely to obtain trade secrets and confidential information and personal knowledge of and influence over customers and clients of the Group during the course of the Employment. To protect these interests of the Company, the COO agrees with the Company that he will be bound by the following covenants:

21.2.1	during the Restricted Period he will not be employed in, or carry on for his own account or for any other person, whether directly or indirectly, (or be a director of any company engaged in) any business which, by virtue of its location or otherwise, is or is about to be in competition with any business of the Company or any other Group Company being carried on by such company at the Relevant Date provided he was concerned or involved with that business at any time during his service with the Company;
21.2.2	during the Restricted Period he will not (either on his own behalf or for or with any other person), whether directly or indirectly, canvass or solicit in competition with the Company or any other Group Company the custom of any person who at any time during the 12 months prior to the Relevant Date was a customer or client of, or in the habit of dealing with, the Company or (as the case may be) any other Group Company and in respect of whom the COO had access to confidential information or with whose custom or business the COO was personally concerned;
21.2.3	during the Restricted Period he will not (either on his own behalf or for or with any other person, whether directly or indirectly) deal with or otherwise accept in competition with the Company or any Group Company the custom of any person who was at any time during the 12 months prior to the Relevant Date a customer or client of, or in the habit of dealing with, the Company or (as the case may be) any Group Company and in respect of whom the COO had access to confidential information or with whose custom or business the COO was personally concerned;

21.3	Each of the paragraphs contained in clause 21.2 constitutes an entirely separate and independent covenant. If any covenant is found to be invalid this will not affect the validity or enforceability of any of the other covenants.
21.4	Following the Termination Date, the COO will not represent himself as being in any way connected with the businesses of the Company or of any other Group Company (except to the extent agreed with the Company).
21.5	Any benefit given or deemed to be given by the COO to any Group Company is received and held on trust by the Company for the relevant Group Company. The COO will enter into appropriate restrictive covenants directly with other Group Companies if asked to do so by the Company.

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22	Contractual Penalty
	In case of the breach of any provision from the clause 20 or 21 of this Agreement, the COO shall be liable to pay the Company contractual penalty equal to 24 months of the average monthly gross salary paid to him in the last three months before termination of the Agreement within 30 days from the notice of the Company that breach is made. If the COO was compensated with anything in addition to base salary after the termination date and commits breach of the clause 20 or 21 of this Agreement, he shall be liable to pay back the Company any such payment.
23	Return of Company Property
23.1	At any time during the Agreement (at the request of the Company) and in any event when the Agreement terminates, the COO will immediately return to the Company:

23.1.1	all documents and other materials (whether originals or copies) made or compiled by or delivered to the COO during the Employment and concerning all the Group Companies. The COO will not retain any copies of any materials or other information; and
23.1.2	all other property belonging or relating to any of the Group Companies.

23.2	When the Agreement terminates, the COO will upon expiration of the notice period or Garden leave, whichever is longer, return to the Company any car provided to the COO which is in the possession or under the control of the COO.
24	Directorships
24.1	The COO’s office as a director of the Company or any other Group Company is subject to the Articles of Association of the relevant company (as amended from time to time) or any other document which governs appointment of Directors to any Group Company. If the provisions of this agreement conflict with the provisions of the Articles of Association or any other governing document, the Articles of Association and the governing document will prevail.
24.2	The COO must promptly resign from any office held in any Group Company if he is asked to do so by the Company.
24.3	The termination of any directorship or other office held by the COO will not terminate the COO’s employment or amount to a breach of terms of this Agreement by the Company.
24.4	During the Employment the COO will not do anything which could cause him to be disqualified from continuing to act as a director of any Group Company.
25	Notices
	Any notices given under this Agreement must be given in writing. Notice to the Company must be addressed to its registered office at the time the notice is given. Notice to the COO must be given to him personally or sent to his last known address.
26	Miscellaneous
26.1	This Agreement may only be modified by the written agreement of the parties.
26.2	The COO cannot assign this Agreement to anyone else.

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26.3	This Agreement supersedes any previous written or oral agreement between the parties in relation to the matters dealt with in it.
26.4	Reference to any provision of the law shall include any of its later amendments.
26.5	Headings will be ignored in construing this agreement.
26.6	If either party agrees to waives his rights under a provision of this Agreement, that waiver will only be effective if it is in writing and it is signed by him. A party’s agreement to waive any breach of any term or condition of this Agreement will not be regarded as a waiver of any subsequent breach of the same term or condition or a different term or condition.
26.7	This Agreement is governed by and will be interpreted in accordance with the laws of Croatia. Each of the parties submits to the exclusive jurisdiction of the relevant Court in Zagreb as regards any claim or matter arising under this Agreement.
26.8	The Agreement is signed in four original copies in Croatian and two original copies in English, whereby the COO keep one copy of the each, and the Company keeps three copies in Croatian and one copy on English. The English version shall be prevailing for the interpretation purpose.

For and on behalf of
PLIVA d.d.

Signed	/s/ Frederick J. Killion	Signed	/s/ Željko Čović
Frederick J. Killion		Željko Čović
President of the Supervisory Board of PLIVA d.d.
Date		Date

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EX-10.2

Exhibit 10.2

PLIVA d.d., Ulica grada Vukovara 49, Zagreb (dalje: “PLIVA”), koju sukladno čl. 268 Zakona o trgovačkim društvima (NN br. 111/93, 34/99, 52/00 i 118/03; dalje: “ZTD”) zastupa predsjednik nadzornog odbora, g. Frederick Jay Killion

i

Željko Čović, Predsjednik uprave PLIVE d.d., s prebivalištem u Gajeva 59, 10 000 Zagreb (dalje: “Predsjednik uprave”)

zaključili su dana 21. ožujka 2007.g. sljedeći

UGOVOR O NAGODBI

Članak 1.

Stranke potvrđuju da je dana 24. listopada 2006.g. došlo do “Promjene kontrole” nad PLIVOM na način kako je isti pojam definiran sukladno odredbama ugovora sklopljenog između PLIVE i Predsjednika uprave dana 24. listopada 2005.g, a koji je stupio na snagu dana 09. prosinca 2005 ..g. (dalje: “Važeći ugovor”).

Članak 2.

Stranke su suglasne da bi Predsjednik uprave u slučaju otkaza Važećeg ugovora kao posljedice “Bitne promjene”, kako je ista definirana Važećim ugovorom, a do kojeg bi došlo uslijed Promjene kontrole, stekao određena prava sukladno čl. 8.4, 9.4.1, 9.6, 18 i 19 Važećeg ugovora.

Predsjednik uprave bi u slučaju otkaza uslijed “Bitne promjene” ostvario određena prava i sukladno odredbama ugovora sklopljenog 07. rujna 2000.g. te njegovih naknadnih izmjena od 13. studenog 200l.g. i 13. studenog 2002.g. i odluke nadzornog odbora PLIVE od 26. rujna 2006.g. (dalje zajedno: “Stari ugovor”).

PLIVA d.d., Ulica grada Vukovara 49, Zagreb (hereinafter: “PLIVA”), pursuant to Art. 268 of the Companies Act (Official Gazette No. 111/93, 34/99, 52/00 and 118/03; hereinafter: “ZTD”) represented by the President of the Supervisory Board, Mr. Frederick Jay Killion

and

Željko Čović, President of the Management Board of PLIVA d.d., wit residence in Gajeva 59, 10 000 Zagreb (hereinafter: “President of the Board”)

concluded on this day of 21 March 2007 the following

SETTLEMENT AGREEMENT

Article 1

The parties hereby confirm that on 24 October 2006 “Change of control” occurred over PLIVA, as that term is defined by the provisions of the agreement concluded between PLIVA and President of the Board on 24 October 2005, in effect as of 09 December 2005 (hereinafter: the “Effective Agreement”).

Article 2

The parties hereto agree that in case of termination of the Effective Agreement as a result of a “Material Change”, as that term is defined by the Effective Agreement, which would result from the Change of Control, the President of the Board would be entitled to certain rights arising from Art. 8.4, 9.4.1, 9.6, 18 and 19 of the Effective Agreement.

The President of the Board would in case of termination as a result of a “Material Change” also be entitled to certain rights arising from provisions of the agreement dated 07 September 2001 and its subsequent amendments dated 13 November 2001 and 13 November 2002 and the resolution of PLIVA Supervisory Board as of 26 September 2006 (hereinafter together: the “Old Agreement”).

Članak 3.

Ugovorne strane ovom nagodbom ustvrđuju da je došlo do Bitne promjene.

Članak 4.

Imajući na umu najbolji interes PLIVE, njezinih dioničara i povezanih društava, a vodeći pritom računa o pravima Predsjednika uprave koja proizlaze iz Važećeg ugovora, ugovorne strane sklapaju ovu nagodbu (dalje: “Nagodba”) kako bi osigurale pomirenje interesa obiju ugovornih strana.

Stranke stoga sklapaju ovu Nagodbu imajući na umu prava koja bi Predsjednik uprave ostvario temeljem Starog i Važećeg ugovora u slučaju da je otkazao Važeći ugovor dana 31. prosinca 2006.g. pozivajući se pritom na čl. 18 istoga ugovora.

Sukladno navedenome, stranke su suglasne da PLIVA temeljem ove Nagodbe isplati Predsjedniku uprave, u roku od 15 (riječima: petnaest) dana od potpisa Nagodbe po obje strane, sljedeće bruto iznose:

a)	21.607.755,00 kn s osnove čl. 4 Starog ugovora, na ime neiskorištenih opcijskih prava za razdoblje od 09. prosinca 2002.g. do 09. prosinca 2005.g.;
b)	19.371.451,00 kn s osnove čl. 9.6 Važećeg ugovora, na ime opcijskih prava za 2006.g. uvećano za dodatnih 15.000 dionica sukladno istom članku;
c)	1.548.000,00 EUR s osnove otpremnine (čl. 18 Važećeg ugovora) i bonusa (čl. 8.4. Važećeg ugovora), protuvrijednost u kunama prema srednjem tečaju Hrvatske Narodne banke na dan plaćanja.

Svi iznosi navedeni u ovom članku specificirani su u Prilogu 1 ove Nagodbe i čine njezin sastavni dio.

Article 3

The parties hereto hereby determine that there has been a Material Change.

Article 4

Having in mind the best interest of PLIVA, its shareholders and affiliated entities, and also taking into consideration the rights of the President of the Board arising from the Effective Agreement, the parties hereto enter into this settlement (hereinafter: the “Settlement”) in order to reconcile the interests of both contracting parties.

The contracting parties therefore enter into this Settlement proceeding from the rights the President of the Board would acquire pursuant to the Old Agreement and to the Effective Agreement in case he terminated the Effective Agreement on 31 December 2006 pursuant to its Art. 18.

In accordance with the aforesaid, PLIVA undertakes to pay to the President of the Board pursuant to this Settlement the following gross amounts within 15 (in words: fifteen) days as of the execution of this Settlement by both contracting parties:

a)	HRK 21,607,755.00 based on Art. 4 of the Old Agreement, related to unexercised option rights for the period from 09 December 2002 until 09 December 2005;
b)	HRK 19,371,451.00 based on Art 9.6 of the Effective Agreement, related to option rights for the year 2006.g., increased by additional 15.000 shares pursuant to the same Article;
c)	EUR 1,548,000.00 in relation to severance (Art. 18 of the Effective Agreement) and bonus (Art. 8.4. of the Effective Agreement), all in HRK counter value according to mid exchange rate of the Croatian National Bank in effect on the date of payment.

All the amounts stated in this Article are specified in Exhibit 1 to this Settlement which forms an integral part hereof.

Sve poreze i doprinose iz navedenih iznosa snosit će Predsjednik uprave, pa će PLIVA stoga po odbitku doprinosa iz gore navedenih iznosa bruto plade te poreza i prireza na porez, tako dobiveni neto iznos isplatiti Predsjedniku uprave na njegov tekući račun.

Članak 5.

Ugovorne strane ovime utvrduju da se iznosi navedeni u ovoj Nagodbi isplaćuju kao potpuna i konačna naknada za svč potraživanja koja Predsjednik uprave ima ili bi mogao imati prema PLIVI temeljem ili u svezi s radnim odnosom, Starim i/ili Važećim ugovorom, ili bilo kojim drugim ugovorom s PLIVOM odnosno temeljem ili u svezi s članstvom u upravi kao i po bilo kojoj drugoj osnovi. Predsjednik uprave se ovime odriče bilo koje drugog potraživanja koje bi mogao imati prema PLIVI ili bilo kojem njenom povezanom društvu po bilo kojoj osnovi, izuzev potraživanja koja proizlaze iz ove Nagodbe.

Članak 6.

Ova Nagodba predstavlja punu volju stranaka, te se njome isključuju i zamjenjuju svi raniji usmeni ili pismeni uglavci, dogovori i sporazumi stranaka glede njenog predmeta.

Ova Nagodba se može naknadno izmijeniti samo pisanim putem, uz potpis ovlaštenih osoba obaju ugovornih strana.

Članak 7.

Ova Nagodba se ne može prenijeti na treću osobu, bilo u cijelosti ili djelomično, bez izričite, prethodne pisane suglasnosti PLIVE. PLIVA zadržava pravo prenijeti ovu Nagodbu, u cijelosti ili djelomično, na bilo koje povezano dručtvo u kojem slučaju će o istom promptno izvijestiti drugu ugovornu stranu.

Članak 8.

Za ovaj ugovor i njegovu interpretaciju mjerodavno je hrvatsko pravo.

Svi sporovi koji proizlaze iz ili su u svezi s ovom Nagodbom,, uključujući i one koji se odnose na pitanje njenog valjanog nastanka, povrede, ili

All taxes and contributions arising from the above mentioned amounts shall be borne by the President of the Board. Therefore, after deducting contributions from the above mentioned gross salary amounts as well as taxes and surtaxes, PLIVA shall pay such net amounts to the account of the President of the Board.

Article 5

The contracting parties hereby agree that the amounts mentioned in this Settlement are being paid as a full and final settlement of all and any claims the President of the Board has or might have against PLIVA arising from or in relation to his employment with PLIVA, to the Old and/or the Effective Agreement, or any other agreement concluded with PLIVA, as well as arising from or in relation to membership in the Management Board or on any other grounds. The President of the Board hereby waives any other claim he might have against PLIVA or any of its affiliated entities, excluding the claims arising from this Settlement.

Article 6

This Settlement represents the final agreement of the parties and supersedes any prior oral or written agreement or arrangement.

This Settlement may be changed only in writing, signed by the authorized representatives of both contracting parties.

Article 7

This Settlement shall not be assigned or otherwise transferred in whole or in part without the prior written consent of PLIVA. PLIVA however has the right to such transfer to any of its affiliated entities in which case it undertakes to promptly inform the other contracting party thereon.

Article 8

This Settlement shall be exclusively governed by and interpreted in accordance with the Croatian law.

All disputes arising out of or relating to this Settlement, including such relating to its validity, breach or termination, and any legal consequence

prestanka, te na sve pravne učinke koje iz toga proizlaze, bit će podvrgnuti arbitraži u skladu s važećim Pravilnikom o arbitraži pri Stalnom izbranom sudištu Hrvatske gospodarske komore (Zagrebačka pravila). Broj arbitara bit će jedan. Mjerodavno pravo bit će hrvatsko pravo. Jezik arbitraže bit će engleski, a mjesto arbitraže Zagreb. Ovlaštenik za imenovanje bit će predsjednik Stalnog izbranog sudišta.

Članak 9.

U slučaju da bilo koja odredba ove Nagodbe je ili postane nevaljana, nezakonita ili neizvršiva, to neće imati utjecaja na njene preostale odredbe i takva će odredba biti zamijenjena odredbom koja najbolje odgovara svrsi zamijenjen odredbe.

Članak 10.

Ova Nagodba sastavljena je u četiri istovjetna primjerka, tri za PLIVU i jedan za Predsjednika uprave. U slučaju bilo kakvih odstupanja u odnosu na hrvatski i engleski tekst ove Nagodbe, mjerodavan je hrvatski tekst.

thereof shall be finally settled by the arbitration in accordance with the Rules of Arbitration of the Permanent Arbitration Court at the Croatian Chamber of Economy as in force (the Zagreb Rules). The number of arbitrators shall be one. The substantive law of Croatia shall be applicable. The language of the arbitration shall be English and the place of arbitration shall be Zagreb. The appointing authority shall be the President of the Permanent Arbitration Court.

Article 9

If any provision of this Settlement is or becomes invalid, illegal or unenforceable, then such provision shall not affect any other provision of this Settlement and such provision will be replaced by a provision which best meets the purpose of the replaced provision.

Article 10

This Settlement has been executed in four copies, three to be kept by PLIVA and one by the President of the Board. In case of any discrepancies between the Croatian and English version of the text, the Croatian version shall prevail

PLIVA d.d.

Predsjednik Nadzornog odbora/

President of the Supervisory Board

/s/ Frederick Jay Killion

Frederick Jay Killion

/s/ Željko Čović

Željko Čović

EXHIBIT 1

- Overview of Current Number of Option Rights

Date: 23th January 2007

1. OLD CONTRACT

Stock Option Plan from 9.12.2002. to 8.12.2005.

In HRK

																						Stock Option Estimated as Salary
Stock Option Estimated as Capital Income																						cost
						Tax for		Tax for																		Net
						capital income		capital income		Net		Net salary		Gross*		Contribution		Total		Total salary cost +		Total				salary
	Number of	Exercise	Market	CAPITAL		(PLIVA’s		(Emloyee’s		capital		for tax		salary		on salary		salary		capital income		salary		Gross		(44,56% of
Over period	Options	price	price	INCOME		obligation)		obligation)		income		PLIVA’s obligation		for tax obl.		of 17,2%		cost		cost		cost		salary		gross salary)
9.12.2002-8.12.2003	11.200	380,64	820		4.920.832		870.987				4.920.832		870.987		1.954.859		336.236		2.291.094		7.211.926		7.211.926		6.153.521		2.742.009
9.12.2003-8.12.2004	12.200	371,02	820		5.477.507		969.519				5.477.507		969.519		2.176.004		374.273		2.550.277		8.027.784		8.027.784		6.849.645		3.052.202
9.12.2004-8.12.2005	13.200	298,72	820		6.880.896		1.217.919				6.880.896		1.217.919		2.733.517		470.165		3.203.682		10.084.578		10.084.578		8.604.589		3.834.205
TOTAL:	36.600				17.279.235		3.058.425		0		17.279.235		3.058.425		6.864.380		1.180.673		8.045.054		25.324.289		25.324.289		21.607.755		9.628.416

In USD

																						Stock Option Estimated as Salary
Stock Option Estimated as Capital Income																						cost
						Tax for		Tax for																		Net
						capital income		capital income		Net		Net salary		Gross*		Contribution		Total		Total salary cost +		Total				salary
	Number of	Exercise	Market	CAPITAL		(PLIVA’s		(Emloyee’s		capital		for tax		salary		on salary		salary		capital income		salary		Gross		(44,56% of
Over period	Options	price	price	INCOME		obligation)		obligation)		income		PLIVA’s obligation		tor tax obl.		of 17,2%		cost		cost		cost		salary		gross salary)
9.12.2002-8.12.2003	11.200	67,13	144,61		867.776		153.596				867.776		153.596		344.734		59.294		404.029		1.271.805		1 .271.805		1.085.157		483.546
9.12.2003-8.12.2004	12.200	65,43	144,61		965.996		170.981				965.996		170.981		383.753		66.006		449.759		1.415.755		1.415.755		1.207.982		538.277
9.12.2004-8.12.2005	13.200	52,68	144,61		1.213.476		214.785				1.213.476		214.785		482.068		82.916		564.983		1.778.459		1.778.459		1.517.457		676.179
TOTAL:	36.600				3.047.248		539.363		0		3.047.248		539.363		1.210.555		208.216		1.418.771		4.466.019		4.466.019		3.810.596		1.698.002

1/3

EXHIBIT 1

- Overview of Current Number of Option Rights

Date: 23th January 2007

*Gross up factor for net: 2,244417013

2. EXISTING CONTRACT

Stock Option Plan for 2006 and in case of change of control In HRK

																						Stock Option Estimated as Salary
Stock Option Estimated as Capital Income																						cost
						Tax for		Tax for																		Net
						capital income		capital income		Net		Net salary		Gross		Contribution		Total				Total				salary
	Number of	Exercise	Market	CAPITAL		(PLIVA’s		(Employee’s		capital		for tax		salary		on salary		salary		Total capital income		salary		Gross		(44,56% of
Over period	Options	price	price	INCOME		obligation)		obligation)		income		PLIVA’s obligation		for tax obl.		of 17,2%		cost		cost		cost		salary		gross salary)
1.1.2006-31.12.2006 **	12.687	0,00	820		10.403.340				1.841.391		8.561.949										10.403.340		10.403.340		8.876.570		3.955.400
In case of change of control	15.000	0,00	820		12.300.000				2.177.100		10.122.900										12.300.000		12.300.000		10.494.881		4.676.519
TOTAL:	27.687				22.703.340		0		4.018.491		18.684.849		0		0		0		0		22.703.340		22.703.340		19.371.451		8.631.918

In USD

																						Stock Option Estimated as Salary
Stock Option Estimated as Capital Income																						cost
						Tax for		Tax for																		Net
						capital income		capital income		Net		Net salary		Gross		Contribution		Total				Total				salary
	Number of	Exercise	Market	CAPITAL		(PLIVA’s		(Employee’s		capital		for tax		Salary		on salary		salary		Total capital income		salary		Gross		(44,56% of
Over period	Options	price	price	INCOME		obligation)		obligation)		income		PLIVA’s obligation		for tax obl.		of 17,2%		cost		cost		cost		salary		gross salary)
1.1.2006-31.12.2006 **	12.687	0,00	144,61		1.834.667				324.736		1.509.931										1.834.667		1.834.667		1.565.416		697.549
In case of change of control	15.000	0,00	144,61		2.169.150				383.940		1.785.210										2.169.150		2.169.150		1.850.811		824.721
TOTAL:	27.687				4.003.817		0		708.676		3.295.141		0		0		0		0		4.003.817		4.003.817		3.416.226		1.522.270

** For 2006 number of granted shares of 12.687 is calculated for target options of 23.500 shares by average closing price of HRK 377,32 on ZSE in period from 01.01.2005. to 31.12.2005 and by market price of HRK 820,00. The middle foreign exchange rate of National Bank of Croatia used at 11 January 2007 USD 1 = HRK 5,670255

2/3

EXHIBIT 1

- Overview of Current Number of Option Rights

Date: 23th January 2007

3. SUMMARY OF OLD AND EXISTING CONTRACTS	CONFIDETIAL
Stock Option Plan from 9.12.2002 to 31.12.2006 and in case of change of control	In HRK

Summary of Stock Option Estimated

Summary of Stock Option Estimated as Capital Income

as Salary cost

Tax for

Tax for

Net

capital income

capital income

Net

Net salary

Gross

Contribution

Total

Total salary cost +

Total

salary

Number of

Exercise

Market

CAPITAL

(PLIVA’s

(Emloyee’s

capital

for tax

salary

on salary

salary

capital income

salary

Gross

(44,56% of

Over period

Options

price

price

INCOME

obligation)

obligation)

income

PLIVA’s obligation

for tax obl.

of 17,2%

cost

cost

cost

salary

gross salary)

ALLTOTAL:

64.287

39.982.575

3.058.425

4.018.491

35.964.084

3.058.425

6.864.380

1.180.673

8.045.054

48.027.629

48.027.629

40.979.206

18.260.334

In USD

Summary of Stock Option Estimated

Summary of Stock Option Estimated as Capital Income

as Salary cost

Tax for

Tax for

Net

capital income

capital income

Net

Net salary

Gross

Contribution

Total

Total salary cost +

Total

salary

Number of

Exercise

Market

CAPITAL

(PLIVA’s

(Emloyee’s

capital

for tax

salary

on salary

salary

capital income

salary

Gross

(44,56% of

Over period

Options

price

price

INCOME

obligation)

obligation)

income

PLIVA’s obligation

for tax obl.

of 17,2%

cost

cost

cost

salary

gross salary)

ALLTOTAL:

64.287

7.051.065

539.363

708.676

6.342.389

539.363

1.210.555

208.216

1.418.771

8.469.836

8.469.836

7.226.822

3.220.272

Zagreb, 23 January 2007

3/3

EXHIBIT 1

REVIEW OF SALARY FROM 01.01.2007 — 30.06.2010.AND OF TARGET BONUS FOR 2006.

In EUR

							TOTAL salary cost		ESTIMATION TOTAL
							(with contribution		NET SALARY
	Annual gross		Target gross bonus (60% of				on gross salary of		(44,56% of gross
For year	salary		annual gross salary)		TOTAL gross salary		17,2%)		salary)
TOTAL		1.505.000,00		258.000,00		1.763.000,00		2.066.236,00		785.592,80
TOTAL EXLUDED NOTICE
PERIOD OF 6 MONTHS		1.290.000,00		258.000,00		1.548.000,00		1.814.256,00		689.788,80

In USD

							TOTAL salary cost		ESTIMATION TOTAL
							(with contribution		NET SALARY
	Annual gross		Target gross bonus (60% of				on gross salary of		(44,6% of gross
For year	salary		annual gross salary)		TOTAL gross salary		17,2%)		salary)
TOTAL		1.955.446,41		335.219,39		2.290.665,80		2.684.660,32		1.020.720,68
TOTAL EXLUDED NOTICE
PERIOD OF 6 MONTHS		1.676.096,93		335.219,39		2.011.316,31		2.357.262,72		896.242,55

The middle foreign exchange rate of National Bank of Croatia used at
EUR 1 = USD       11 January 2007
1,299299943

Zagreb, 29 January 2007

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF BRUCE L. DOWNEY PURSUANT TO
EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Bruce L. Downey, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Barr Pharmaceuticals, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a15(f) and 15(d)-15(f) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2007

/s/ Bruce L. Downey  

Bruce L. Downey 

Chairman of the Board and Chief
Executive Officer 

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF WILLIAM T. MCKEE PURSUANT TO
EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William T. McKee, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Barr Pharmaceuticals, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a15(f) and 15(d)-15(f) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2007

/s/ William T. McKee  

William T. McKee 

Executive Vice President, Chief
Financial Officer, and Treasurer 

EX-32.0

EXHIBIT 32.0

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned hereby certifies, in his capacity as an officer of Barr Pharmaceuticals, Inc. (the “Company”), for the purposes of 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

(1) The Quarterly Report of the Company on Form 10-Q for the period ended March 31, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 10, 2007

/s/Bruce L. Downey Bruce L. Downey

Chairman of the Board and Chief Executive Officer

/s/William T. McKee William T. McKee

Executive Vice President, Chief Financial Officer, and Treasurer

A signed original of this written statement required by Section 906 has been provided to Barr Pharmaceuticals, Inc. and will be retained by Barr Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.