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Both net income per share and revenues missed estimates. Growth in total net revenues during the quarter was driven by higher product sales in the company's Generic division as a result of new products launched since the third quarter of 2005, and was partially offset by lower Brand product sales. Operating income also slipped 22.

2% over the prior year period while gross profit fell 8.5%. Both gross and operating margins sank.

On November 3, the company closed the acquisition of Andrx. Dwelling on this transaction, Watson chairman and CEO Dr Allen Chao said the company's business continues to generate strong operating cash flow, allowing it to close the Andrx acquisition with lower than expected borrowings and a strong balance sheet going into 2007. Dr Chao added, "Andrx not only strengthens our competitive position in sustained-release technology, but broadens our product portfolio and pipeline.

" "The addition of Andrx is one of several key strategic initiatives we have undertaken to enhance long term revenues growth, reduce costs and achieve operating efficiencies," he concluded. The Corona, California-based specialty pharmaceutical company posted net income of $34.4 million, or $0.

31 per share, compared to net income of $39.1 million, or $0.35 per share, for the same period of 2005.

Net income for the quarter under review included $4.4 million, which represented $2.8 million, net of tax, or $0.

02 per share, of facility rationalization costs. Net revenues increased to $440.5 million from $410.

3 million for the third quarter of 2005. On average, 20 analysts, polled by First Call/Thomson Financial, estimated net income for Watson to be at $0.34 per share.

Their estimates ranged between $0.29 and $0.39.

Meanwhile, consensus revenues estimate by 16 Wall Street analysts was at $478.45 million. Their estimates were in the range of $460.

50-497 million. However, gross profit slipped to $182.6 million from $199.

5 million for the third quarter of 2005, but was 1.7% higher than $179.5 million in the second quarter 2006.

The decrease in gross profit is attributed primarily to lower generic product pricing from the year ago period. Overall gross margin was 41.5% in the quarter compared to 48.

6% in the third quarter of 2005. This was, however, better than 35.2% in the second quarter 2006.

The addition of pravastatin sodium tablets and oxycodone HCl controlled-release tablets, both distributed generic products with lower gross margins, contributed to the year-over-year decline, according to Watson Pharma. The company, however, noted that improvement in gross margin compared to the previous quarter was due to a favorable product mix. Down the line, operating income slipped to $49.

29 million from $63.37 million for the year ago quarter. Operating margin plunged 4.

2 percentage points to 11.2% of net revenues compared to 15.4% of net revenues in the third quarter of 2005.

A decrease of $2.8 million, or 2%, in operating expenses to $133.3 million in the quarter was not enough to offset diminished operating profit.

Total GENERIC PRODUCTS sales in the third quarter of 2006 grew 10.3% to $347.6 million from $315.

2 million in the year-ago quarter. This can be attributed to the addition of pravastatin sodium tablets and oxycodone HCl controlled-release tablets C-II. On a sequential quarter basis, the sales, however, decreased $71.

8 million, or 17%, from the second quarter 2006. This was largely due to lower sales of pravastatin sodium, in anticipation of additional competition in late October. Generics sold for $263.

7 million, up 12.6% from $234.1 million recorded during the third quarter of 2005.

Generic oral contraceptives sold $83.9 million in the quarter compared to $81.1 million in the corresponding quarter of last year.

Net-net, generic product sales contributed 80% to the total product net sales compared to 77% last year. BRAND PRODUCTS sales at $85.6 million contributed 20% to total product net sales during third quarter of 2006 compared to 23% due to sales of $91.

6 million in the similar quarter of last year. Brand product sales declined 6.5% over last year period.

Watson attributed the decline in sales of Ferrlecit within its Nephrology franchise and lower pricing on Trelstar. On the margin front, gross margin on product net sales was 40.5% for the quarter compared to 48.

2% last year. Gross margin on the generic product sales was 32.4% versus 40.

6% year ago, and this margin on brand product sales was 73.2% versus 74.4% in the prior year period.

For the first nine months of 2006, net income was $44.0 million, or $0.43 per share, as compared to net income of $118.

1 million, or $1.02 per share, for the same period of 2005. Total net revenues for the first nine months of 2006 increased 11% to $1,358.

1 million, as compared to $1,227.4 million for the same period of 2005. Generic products sales were $1088.

5 million, an 18% increase from $920.9 million in the corresponding last year period. However, Brand products sales declined 13% to $256.

8 million from $296.8 million last year. Cash flow from operations was $141.

5 million in the quarter and $337.8 million for the first nine months of 2006. Cash and marketable securities were $906.

8 million as of September 30, 2006. Additional information is that with the recent addition of Andrx's generic pipeline, Watson currently has 66 Abbreviated New Drug Applications ( | | | ) on file with the U.S.

Food and Drug Administration ( | | | ). Watson expects to realize approximately two months of Andrx's operating results in its 2006 results. Due to the timing of the close of the Andrx acquisition on November 3, and numerous adjustments anticipated following the close of the transaction, the company is not prepared to provide a forecast for its 2006 results on a combined basis.

Excluding revenues anticipated from certain new product launches and the impact of the Andrx acquisition on the company's financial results for the fourth quarter, Watson expects its fourth quarter operating results to be similar to third quarter levels. During the regular trading session of Tuesday, the stock traded in the red throughout, moving in the range of $25.92-26.

40 and closed nine cents lower at $26.25. Traded volume in this session was 845k.

The stock weakened further from the regular close in the after-hours session. In the diminutive session it traded, the stock fell to a low of $25.30 and was seen at $25.

63 last with 3,300 shares being traded.