8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported)  July 27, 2010

Cephalon, Inc.

(Exact Name of Registrant as Specified in Charter)

Delaware	0-19119	23-2484489
(State or Other Jurisdiction	(Commission	(IRS Employer
of Incorporation)	File Number)	Identification No.)

41 Moores Rd.
Frazer, Pennsylvania	19355
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code (610) 344-0200

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02Results of Operations and Financial Condition.

The information under this caption is furnished by Cephalon, Inc. (the “Company”) in accordance with Securities Exchange Commission Release No. 33-8216. This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

On July 27, 2010, the Company issued a press release announcing certain financial results for the second quarter 2010 and guidance amounts for the third quarter 2010 and full-year 2010.  A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

In the attached press release, the Company discloses “Adjusted net income,” “Basic adjusted income per common share,” “Diluted adjusted income per common share,” “Basic adjusted income per common share guidance,” and “Adjusted net income guidance” for certain periods, all of which are considered “non-GAAP financial measures” under Securities and Exchange Commission rules.  A “non-GAAP financial measure” is defined as a numerical measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP in the Company’s financial statements.  Management does not intend the presentation of non-GAAP financial measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

For all periods presented, the Company reconciles net income on a GAAP basis to adjusted net income.  Management believes that the presentation of these adjusted measures is useful to investors because it provides a means of evaluating the Company’s operating performance and results from period to period on a comparable basis not otherwise apparent on a GAAP basis, since many one-time or infrequent charges, including items that may not affect the Company’s operations, do not meet the strict GAAP definition of unusual non-recurring items.  Furthermore, in preparing operating plans, budgets and forecasts, and in assessing historical performance, management relies, in part, on trends in the Company’s historical results, exclusive of these items, and provides its forecasts to investors on this basis.   Finally, management believes that this presentation is useful in facilitating comparisons between the Company and other companies in its industry, many of whom exclude similar items.

Basic adjusted income per common share and diluted adjusted income per common share represent the Company’s adjusted net income, as described above, on a per share basis.  Management believes that the presentation of these measures is meaningful because it provides investors with a means of evaluating adjusted net income against the Company’s previously issued adjusted income per common share guidance.  In addition, in assessing the Company’s performance against its previously issued per share guidance, management uses these adjusted per share measures.  The presentation of guidance for adjusted net income and basic adjusted net income per common share reconciles the Company’s projected net income and basic income per common share on a GAAP basis to its current quarterly and full-year guidance.  Management believes the presentation of these measures is useful to investors because it will enable investors to assess and compare the Company’s guidance on an adjusted and a GAAP basis with adjusted actual results, when issued.  Moreover, these measures provide a straightforward view of the Company’s operations free from the complexity associated with determining the daily impact on the income per share calculation resulting from the Company’s outstanding convertible notes.  Finally, management utilizes the adjusted net income and basic adjusted income per common share measures in connection with its internal budgeting and forecasting.

Item 9.01Financial Statements and Exhibits.

(d)Exhibits.

Exhibit No.	Description of Document
99.1	Press Release dated July 27, 2010

2

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 hereunto duly authorized.

	CEPHALON, INC.
Date: July 27, 2010	By:	/s/ Wilco Groenhuysen
		Wilco Groenhuysen
		Executive Vice President & Chief Financial Officer

3

EXHIBIT INDEX

Exhibit
Number	Description
99.1	Press Release dated July 27, 2010

4

EX-99.1

Exhibit 99.1

For immediate release

Cephalon Reports Record Sales and Earnings in Second Quarter 2010

Quarterly Sales of $712Million Increased 32 Percent

Quarterly Basic Adjusted EPS of $2.20 Increased 41 Percent

Ex-US Sales Exceed 25 Percent of Worldwide Sales for the First Time

Frazer, Pa. — July 27, 2010 — Cephalon, Inc. (Nasdaq: CEPH) today reported second quarter 2010 sales of $712.4 million, a 32 percent increase compared to sales of $539.0 million for the second quarter 2009.  Basic income per common share for the quarter was $1.18.  Excluding amortization expense and certain other items, basic adjusted income per common share for the quarter was $2.20, an increase of 41 percent over the comparable figure of $1.56 for the same period in 2009.   Adjusted net income for the second quarter of 2010 was $165.3 million, a 49 percent increase over the comparable $110.7 million for the second quarter of 2009.

Central nervous system (CNS) franchise sales were $337.9 million during the quarter, a 16 percent increase compared to the same period last year.  Pain franchise reported sales were $113.1 million, an 8 percent decrease versus second quarter 2009.  Oncology franchise sales were $129.9 million, a 58 percent increase over the same period last year due to strong sales of TREANDA® (bendamustine hydrochloride).  Other product sales were $131.4 million dollars, an increase of 208 percent versus second quarter of 2009 due to the expansion of our European business.

“This was a momentous quarter as we significantly expanded our global capabilities with the addition of Mepha, continued to execute on our product life cycle strategies in the U.S. and advanced the most promising pipeline in our history,” said Frank Baldino, Jr., Ph.D., Chairman and CEO.

The company is updating its guidance for 2010.  Total sales guidance is $2.630-$2.710 billion. This includes CNS franchise sales of $1.25-$1.29 billion, pain franchise sales of $440-$475 million, oncology franchise sales of $485-$515 million, and other product sales of $440-$460 million. Full year R&D and SG&A guidance is $450-$470 million and $910-$930 million, respectively.  Adjusted net income guidance is increased to $562-$577 million and basic adjusted income per common share guidance is increased to $7.45-$7.65 assuming 75.4 million basic shares outstanding.

SOURCE:  Cephalon, Inc. · 41 Moores Road · Frazer, PA  19355 · (610) 344-0200 · Fax (610) 344-0065

For the third quarter 2010, Cephalon is introducing sales guidance of $670-$700 million, adjusted net income guidance of $135.9-$143.5 million and basic adjusted income per common share guidance of $1.80-$1.90.

Basic adjusted income per common share guidance for both the third quarter 2010 and full-year 2010 is reconciled below and is subject to the assumptions set forth therein. References in this press release to basic income per common share, basic adjusted income per common share, basic adjusted income per common share guidance, adjusted net income, adjusted net income guidance, adjusted net income per common share, adjusted net income per common share guidance refers to those metrics on an “attributable to Cephalon” basis and does not include any income or losses attributable to noncontrolling interests.

Cephalon’s management will discuss the company’s second quarter 2010 performance in a conference call with investors beginning at 5:00 p.m. U.S. EDT today.  To participate in the conference call, dial +913-312-1497 and refer to conference code 3249552. Investors can listen to the call live by logging on to the company’s website at www.cephalon.com and clicking on “Investor Information,” then “Webcast.”  The conference call will be archived and available to investors for one week after the call.

About Cephalon, Inc.

Cephalon is a global biopharmaceutical company dedicated to discovering, developing and bringing to market medications to improve the quality of life of individuals around the world.  Since its inception in 1987, Cephalon has brought first-in-class and best-in-class medicines to patients in several therapeutic areas.  Cephalon has the distinction of being one of the world’s fastest-growing biopharmaceutical companies, now among the Fortune 1000 and a member of the S&P 500 Index, employing approximately 4,000 people worldwide.  The company sells numerous branded and generic products around the world. In total, Cephalon sells more than 150 products in nearly 100 countries.  More information on Cephalon and its products is available at http://www.cephalon.com

# # #

In addition to historical facts or statements of current condition, this press release may contain forward-looking statements. Forward-looking statements provide Cephalon’s current expectations or forecasts of future events. These may include statements regarding anticipated scientific progress on its research programs; development of potential pharmaceutical products; interpretation of clinical results; prospects for regulatory approval; manufacturing development and capabilities; market prospects for its products; sales, adjusted net income and basic adjusted income per common share guidance for the third quarter 2010 and full-year 2010 and SG&A and R&D guidance for the full-year 2010; and other statements regarding matters that are not historical facts. You may identify some of these forward-looking statements by the use of words in the statements such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” or other words and terms of similar meaning. Cephalon’s performance and financial results could differ materially from those reflected in these forward-looking statements due to general financial, economic, regulatory and political conditions affecting the biotechnology and pharmaceutical industries as well as more specific risks and uncertainties facing Cephalon such as those

2

set forth in its reports on Form 8-K, 10-Q and 10-K filed with the U.S. Securities and Exchange Commission. Given these risks and uncertainties, any or all of these forward-looking statements may prove to be incorrect. Therefore, you should not rely on any such factors or forward-looking statements. Furthermore, Cephalon does not intend to update publicly any forward-looking statement, except as required by law. The Private Securities Litigation Reform Act of 1995 permits this discussion.

This press release and/or the financial results attached to this press release include “Adjusted Net Income,” “Basic Adjusted Income per Common Share,” “Adjusted Net Income Guidance,” “Basic Adjusted Income per Common Share Guidance,” and “Diluted Adjusted Income Per Common Share,” amounts that are considered “non-GAAP financial measures” under SEC rules. As required, we have provided reconciliations of these measures. Additional required information is located in the Form 8-K furnished to the SEC in connection with this press release.

Source: Cephalon, Inc.

Contacts:

Media:	Investors:
Candace Steele Flippin	Robert (Chip) Merritt
610-727-6231	610-738-6376
csteele@cephalon.com	cmerritt@cephalon.com

3

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
REVENUES:
Net sales	$	712,435		$	539,021		$	1,289,116		$	1,053,387
Other revenues	14,475			8,792			34,379			14,394
	726,910			547,813			1,323,495			1,067,781
COSTS AND EXPENSES:
Cost of sales	170,739			105,407			275,782			203,177
Research and development	101,261			102,085			206,638			205,109
Selling, general and administrative	258,468			223,656			463,109			424,246
Restructuring charges	4,581			1,245			5,325			2,882
Acquired in-process research and development	—			9,368			—			40,118
	535,049			441,761			950,854			875,532
INCOME FROM OPERATIONS	191,861			106,052			372,641			192,249
OTHER INCOME (EXPENSE):
Interest income	1,300			930			3,230			1,634
Interest expense	(28,182		)	(20,114		)	(54,973		)	(36,718		)
Other income (expense), net	(9,332		)	32,104			(16,603		)	38,643
	(36,214		)	12,920			(68,346		)	3,559
INCOME BEFORE INCOME TAXES	155,647			118,972			304,295			195,808
INCOME TAX EXPENSE	63,254			46,932			111,565			79,986
NET INCOME	92,393			72,040			192,730			115,822
NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTEREST	(3,329		)	12,724			6,899			27,525
NET INCOME ATTRIBUTABLE TO CEPHALON, INC.	$	89,064		$	84,764		$	199,629		$	143,347
BASIC INCOME PER COMMON SHARE ATTRIBUTABLE TO CEPHALON, INC.	$	1.18		$	1.19		$	2.66		$	2.05
DILUTED INCOME PER COMMON SHARE ATTRIBUTABLE TO CEPHALON, INC.	$	1.11		$	1.11		$	2.46		$	1.87
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ATTRIBUTABLE TO CEPHALON, INC.	75,192			71,119			75,092			69,962
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION ATTRIBUTABLE TO CEPHALON, INC.	80,507			76,629			81,223			76,808

CEPHALON, INC. AND SUBSIDIARIES

Reconciliation of GAAP Net Income to Adjusted Net Income Attributable to Cephalon, Inc.

(Unaudited)

	Three Months Ended
	June 30,
	2010			2009
GAAP NET INCOME ATTRIBUTABLE TO CEPHALON, INC.	$	89,064		$	84,764
Cost of sales adjustments	52,209		(1)	30,470		(1)
Research and development adjustments	317		(2)	1,790		(2)
Selling, general and administrative adjustments	9,225		(3)	12,874		(3)
Restructuring charges	4,581		(4)	1,245		(4)
Interest expense adjustment	18,476		(5)	12,965		(5)
Other (income) expense adjustment	5,398		(6)	(32,608		)(6)
In-process research and development adjustments	—			9,368		(7)
Arana noncontrolling interest adjustments	—			(819		)(8)
Income tax adjustment	(14,017		)(9)	(9,341		)(9)
*Noncontrolling Interest adjustments:
Other revenues	—			(75		)
Research and development	(2,018		)	9,993
Selling, general and administrative	200			1,795
Other income (expense)	1			(99		)
Interest income	—			(73		)
Interest expense	(3		)	221
Income taxes	(2,658		)	24
Less amount attributable to noncontrolling interest	4,478			(11,786		)
	76,189			25,944
ADJUSTED NET INCOME ATTRIBUTABLE TO CEPHALON, INC.	$	165,253		$	110,708
BASIC ADJUSTED INCOME PER COMMON SHARE	$	2.20		$	1.56
DILUTED ADJUSTED INCOME PER COMMON SHARE	$	2.05		$	1.44
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING	75,192			71,119
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION	80,507			76,629

* Amounts recorded by our Variable Interest Entities that have been excluded from net income attributable to Cephalon, Inc.

Notes to Reconciliation of GAAP Net Income to Adjusted Net Income

(1)To exclude the on-going amortization of acquired intangible assets ($32.2M in 2010; $23.0M in 2009), accelerated depreciation related to restructuring ($5.5M in 2010; $4.5M in 2009), amortization of inventory revaluation related to Mepha ($5.0M in 2010) and the write-off of modafinil purchase commitments in excess of estimated requirements ($9.4M in 2010; $3.0M in 2009).

(2)To exclude accelerated depreciation related to restructuring ($0.3M in 2010 and 2009) and charges related to our transaction with Arana Therapeutics Limited ($1.5M in 2009).

(3)In 2010, to exclude charges related to the acquisition of Mepha ($7.9M) and the acquisition of Ception noncontrolling interest ($1.4M). In 2009, to exclude charges related to the acquisition of Arana Therapeutics Limited ($6.3M) and charges related to our settlement with Takeda ($6.5M) to resolve our remaining contractual arrangements.

(4)To exclude costs related to restructurings.

(5)To exclude imputed interest expense associated with convertible debt.

(6)In 2010, to exclude the following losses related to the acquisition of Mepha AG:

· $2.9M loss on foreign exchange derivative instruments; and

· $2.5M loss on foreign exchange of Swiss Franc acquisition funds.

In 2009, to exclude the following gains and losses related to the acquisition of Arana Therapeutics Limited:

· $6.6M gain on pre-bid Arana holding;

· $2.8M loss on contingent consideration (90% ownership incentive payment);

· $10.0M gain on excess of net assets over consideration;

· $13.7M gains on foreign exchange derivative instruments; and

· $5.1M gain on foreign exchange of Australian Dollar acquisition funds.

(7)To exclude the impact of Acusphere deconsolidation.

(8)To exclude the portion of non-cash charges related to our acquisition of Arana Therapeutics Limited that are reflected in (6) above but do not affect net income because they are attributed to noncontrolling interests.

(9)To reflect the tax effect of pre-tax adjustments at applicable tax rates and certain other tax adjustments primarily related to changes in valuation allowances and other changes in tax assets and liabilities.

CEPHALON, INC. AND SUBSIDIARIES

Reconciliation of GAAP Net Income to Adjusted Net Income Attributable to Cephalon, Inc.

(Unaudited)

	Six Months Ended
	June 30,
	2010			2009
GAAP NET INCOME ATTRIBUTABLE TO CEPHALON, INC.	$	199,629		$	143,347
Cost of sales adjustments	83,175		(1)	56,178		(1)
Research and development adjustments	676		(2)	3,086		(2)
Selling, general and administrative adjustments	11,502		(3)	13,744		(3)
Restructuring charges	5,325		(4)	2,882		(4)
Interest expense adjustment	36,055		(5)	23,500		(5)
Other (income) expense adjustment	11,567		(6)	(39,527		)(6)
In-process research and development adjustments	—			40,118		(7)
Arana noncontrolling interest adjustments	—			(819		)(8)
Income tax adjustment	(38,690		)(9)	(30,717		)(9)
*Noncontrolling Interest adjustments:
Other revenues	(31		)	33
Research and development	6,094			19,224
Selling, general and administrative	3,222			6,546
Other income (expense)	166			(95		)
Interest income	(7		)	(145		)
Interest expense	154			1,000
Income taxes	(3,848		)	24
Less amount attributable to noncontrolling interest	(5,750		)	(26,587		)
	109,610			68,445
ADJUSTED NET INCOME ATTRIBUTABLE TO CEPHALON, INC.	$	309,239		$	211,792
BASIC ADJUSTED INCOME PER COMMON SHARE	$	4.12		$	3.03
DILUTED ADJUSTED INCOME PER COMMON SHARE	$	3.81		$	2.76
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING	75,092			69,962
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION	81,223			76,808

* Amounts recorded by our Variable Interest Entities that have been excluded from net income attributable to Cephalon, Inc.

Notes to Reconciliation of GAAP Net Income to Adjusted Net Income

(1)To exclude the on-going amortization of acquired intangible assets ($58.0M in 2010; $44.2M in 2009), accelerated depreciation related to restructuring ($10.7M in 2010; $9.0M in 2009), amortization of inventory revaluation related to Mepha ($5.0M in 2010) and the write-off of modafinil purchase commitments in excess of estimated requirements ($9.4M in 2010; $3.0M in 2009).

(2)To exclude accelerated depreciation related to restructuring ($0.7M in 2010; $0.6M in 2009), charges related to payments for several research and development collaborations ($1.0M in 2009) and charges related to our transaction with Arana Therapeutics Limited ($1.5M in 2009).

(3)In 2010, to exclude charges related to the acquisition of Mepha ($10.1M) and the acquisition of Ception noncontrolling interest ($1.4M). In 2009, to exclude charges related to the acquisition of Arana Therapeutics Limited ($7.2M) and charges related to our settlement with Takeda ($6.5M) to resolve our remaining contractual arrangements.

(4)To exclude costs related to restructurings.

(5)To exclude imputed interest expense associated with convertible debt.

(6)In 2010, to exclude the following losses related to the acquisition of Mepha AG:

· $9.1M loss on foreign exchange derivative instruments; and

· $2.5M loss on foreign exchange of Swiss Franc acquisition funds.

In 2009, to exclude the following gains and losses related to the acquisition of Arana Therapeutics Limited:

· $6.6M gain on pre-bid Arana holding;

· $2.8M loss on contingent consideration (90% ownership incentive payment);

· $10.0M gain on excess of net assets over consideration;

· $19.0M gains on foreign exchange derivative instruments;

· $5.1M gain on foreign exchange of Australian Dollar acquisition funds; and

· $1.6M dividend income related to our initial purchase of Arana shares.

(7)To exclude charges related to the deconsolidation of Acusphere ($9.3M), the acquisition of worldwide license rights related to LUPUZOR from ImmuPharma ($30.0M) and license rights for bendamustine hydrochloride in China and Hong Kong ($0.8M) in 2009.

(8)To exclude the portion of non-cash charges related to our acquisition of Arana Therapeutics Limited that are reflected in (6) above but do not affect net income because they are attributed to noncontrolling interests.

(9)To reflect the tax effect of pre-tax adjustments at applicable tax rates and certain other tax adjustments primarily related to; changes in valuation allowances and other changes in tax assets and liabilities.

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED SALES DETAIL

(In thousands)

(Unaudited)

	Three Months Ended												%
	June 30,												Increase
	2010						2009						(Decrease)
	United States		Europe		Total		United States		Europe		Total		United States		Europe		Total
Net Sales:
PROVIGIL	$	268,550	$	16,280	$	284,830	$	246,583	$	15,485	$	262,068	9	%	5	%	9	%
NUVIGIL	40,968		—		40,968		16,786		—		16,786		144		—		144
GABITRIL	11,118		1,024		12,142		10,749		1,026		11,775		3		—		3
CNS	320,636		17,304		337,940		274,118		16,511		290,629		17		5		16
ACTIQ	14,471		14,067		28,538		18,759		19,106		37,865		(23	)	(26	)	(25	)
Generic OTFC	11,535		—		11,535		23,390		—		23,390		(51	)	—		(51	)
FENTORA	38,861		5,661		44,522		30,617		814		31,431		27		595		42
AMRIX	28,548		—		28,548		30,867		—		30,867		(8	)	—		(8	)
Pain	93,415		19,728		113,143		103,633		19,920		123,553		(10	)	(1	)	(8	)
TREANDA	99,732		—		99,732		55,820		—		55,820		79		—		79
Other	6,253		23,926		30,179		4,193		22,168		26,361		49		8		14
Oncology	105,985		23,926		129,911		60,013		22,168		82,181		77		8		58
Other	5,941		125,500		131,441		8,380		34,278		42,658		(29	)	266		208
	$	525,977	$	186,458	$	712,435	$	446,144	$	92,877	$	539,021	18	%	101	%	32	%
	Six Months Ended												%
	June 30,												Increase
	2010						2009						(Decrease)
	United States		Europe		Total		United States		Europe		Total		United States		Europe		Total
Net Sales:
PROVIGIL	$	513,151	$	34,130	$	547,281	$	485,012	$	30,418	$	515,430	6	%	12	%	6	%
NUVIGIL	75,890		—		75,890		16,786		—		16,786		352		—		352
GABITRIL	19,417		2,486		21,903		25,498		2,531		28,029		(24	)	(2	)	(22	)
CNS	608,458		36,616		645,074		527,296		32,949		560,245		15		11		15
ACTIQ	29,411		32,558		61,969		40,171		35,858		76,029		(27	)	(9	)	(18	)
Generic OTFC	24,314		—		24,314		47,502		—		47,502		(49	)	—		(49	)
FENTORA	77,341		9,390		86,731		63,907		1,237		65,144		21		659		33
AMRIX	53,683		—		53,683		57,104		—		57,104		(6	)	—		(6	)
Pain	184,749		41,948		226,697		208,684		37,095		245,779		(11	)	13		(8	)
TREANDA	180,989		—		180,989		106,017		—		106,017		71		—		71
Other	10,808		48,124		58,932		9,519		43,200		52,719		14		11		12
Oncology	191,797		48,124		239,921		115,536		43,200		158,736		66		11		51
Other	15,401		162,023		177,424		19,535		69,092		88,627		(21	)	135		100
	$	1,000,405	$	288,711	$	1,289,116	$	871,051	$	182,336	$	1,053,387	15	%	58	%	22	%

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	June 30			December 31,
	2010			2009
CURRENT ASSETS:
Cash and cash equivalents	$	927,446		$	1,647,635
Receivables, net	460,265			376,076
Inventory, net	293,679			240,576
Deferred tax assets, net	224,651			243,246
Other current assets	62,724			58,423
Total current assets	1,968,765			2,565,956
INVESTMENTS	12,583			12,427
PROPERTY AND EQUIPMENT, net	499,578			451,879
GOODWILL	802,551			590,284
INTANGIBLE ASSETS, net	1,210,810			981,857
DEBT ISSUANCE COSTS	16,529			18,862
OTHER ASSETS	35,078			36,830
	$	4,545,894		$	4,658,095
CURRENT LIABILITIES:
Current portion of long-term debt, net	$	635,932		$	818,925
Accounts payable	99,674			88,829
Accrued expenses	467,200			430,209
Total current liabilities	1,202,806			1,337,963
LONG-TERM DEBT	378,116			363,696
DEFERRED TAX LIABILITIES, net	206,855			159,328
OTHER LIABILITIES	268,472			111,728
Total liabilities	2,056,249			1,972,715
REDEEMABLE EQUITY	186,155			207,307
EQUITY:
Cephalon Stockholders’ Equity
Common stock, $0.01 par value	784			780
Additional paid-in capital	2,388,730			2,534,070
Treasury stock, at cost	(216,597		)	(208,427		)
Accumulated earnings (deficit)	20,970			(178,659		)
Accumulated other comprehensive income	46,159			114,194
Total Cephalon stockholders’ equity	2,240,046			2,261,958
Noncontrolling Interest	63,444			216,115
Total equity	2,303,490			2,478,073
	$	4,545,894		$	4,658,095

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended
	June 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	192,730		$	115,822
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax benefit	(18,059		)	(385		)
Depreciation and amortization	106,724			87,029
Stock-based compensation expense	21,630			24,840
Amortization of debt discount and debt issuance costs	35,692			23,749
Loss (gain) on foreign exchange contracts	9,499			(26,754		)
Gain on acquisition of Arana	—			(10,008		)
IPR&D from Acusphere deconsolidation	—			8,366
Other	3,193			(5,283		)
Changes in operating assets and liabilities:
Receivables	(25,581		)	74,211
Inventory	18,985			(9,550		)
Other assets	9,474			31,479
Accounts payable, accrued expenses and deferred revenues	23,955			1,493
Other liabilities	(189		)	(1,501		)
Net cash provided by operating activities	378,053			313,508
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(22,997		)	(30,234		)
Cash balance from consolidation of variable interest entity	—			52,563
Investment in Ception	—			(75,000		)
Acquisition of Arana, net of cash acquired	—			(211,803		)
Acquisition of Mepha, net of cash acquired	(549,463		)	—
Purchases of investments	(60		)	(9,082		)
(Cash settlements of) proceeds from foreign exchange contracts	(9,499		)	26,754
Sales and maturities of available-for-sale investments	—			4,456
Net cash used for investing activities	(582,019		)	(242,346		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock	—			288,000
Proceeds from exercises of common stock options	14,370			6,271
Windfall tax benefits from stock-based compensation	—			197
Acquisition of treasury stock	(33		)	(29		)
Acquisition of Ception NCI	(299,289		)	—
Payments on and retirements of long-term debt	(221,478		)	(9,131		)
Net proceeds from issuance of convertible subordinated notes	—			484,738
Proceeds from sale of warrants	—			37,640
Purchase of convertible note hedge	—			(121,040		)
Net cash (used for) provided by financing activities	(506,430		)	686,646
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(9,793		)	(341		)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(720,189		)	757,467
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	1,647,635			524,459
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	927,446		$	1,281,926

CEPHALON, INC. AND SUBSIDIARIES

Reconciliation of Projected GAAP Basic Income per Common Share

to Basic Adjusted Income Per Common Share Guidance

(Unaudited)

	Three Months Ended							Twelve Months Ended
	September 30, 2010							December 31, 2010
Projected GAAP basic income per common share	$	1.33		—	$	1.43		$	5.31		—	$	5.51
Amortization of current intangibles	$	0.41		—	$	0.41		$	1.55		—	$	1.55
Accelerated depreciation adjustment- CIMA	$	0.02		—	$	0.02		$	0.09		—	$	0.09
Accelerated depreciation adjustment- Mitry-Mory	$	—		—	$	—		$	0.10		—	$	0.10
Cost of sales adjustments	$	0.07		—	$	0.07		$	0.26		—	$	0.26
Selling, general and administrative adjustments	$	—		—	$	—		$	0.15		—	$	0.15
Restructuring adjustments	$	0.01		—	$	0.01		$	0.04		—	$	0.04
Other income (expense) adjustments	$	—		—	$	—		$	0.15		—	$	0.15
Interest expense adjustments	$	0.20		—	$	0.20		$	0.88		—	$	0.88
Tax effect of pre-tax adjustments at the applicable tax rates	$	(0.24	)	—	$	(0.24	)	$	(1.08	)	—	$	(1.08	)
Basic adjusted income per common share guidance	$	1.80		—	$	1.90		$	7.45		—	$	7.65

The company’s guidance is being issued based on certain assumptions including:

·Adjusted effective tax rate of approximately 33.3 percent in 2010; and

·Weighted average number of common shares outstanding of 75.5 and 75.4 million shares for the three months ended September 30, 2010 and the twelve months ended December 31, 2010, respectively.