##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
    Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31,
    2009ORo

TRANSITION REPORT UNDER SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    Commission File Number
    001-15875
  King Pharmaceuticals,
    Inc.
 Exact name of registrant as
    specified in its charter
   TennesseeState or other jurisdiction
    of
    incorporation or organization

54-1684963I.R.S. Employer
    Identification No.501 Fifth Street
    Bristol, TennesseeAddress of Principal
    Executive Offices

37620Zip
    Code   Registrants telephone number, including area code:
    (423) 989-8000
  Securities registered under Section 12(b) of the
    Exchange Act:
   Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock

New York Stock Exchange   Securities registered under Section 12(g) of the
    Exchange Act:
    None
  þ o
  o þ
  þ o
  o o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated
    filer þ

Accelerated
    filer o

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
    Documents
    Incorporated by Reference:
    Certain information required in Part III of this Annual
    Report on
    Form 10-K
    is incorporated
    by reference from the registrants Proxy Statement for its
    2010 annual meeting of shareholders.




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##### 






Table of
    Contents
   
 PART I


2Item 1.


Business


2Item 1A.


Risk Factors


18Item 1B.


Unresolved Staff Comments


30Item 2.


Properties


30Item 3.


Legal Proceedings


30Item 4.


Reserved


31PART II


31Item 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


31Item 6.


Selected Financial Data


33Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


35Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


68Item 8.


Financial Statements and Supplementary Data


69Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


69Item 9A.


Controls and Procedures


69Item 9B.


Other Information


69PART III


70PART IV


70Item 15.


Exhibits, Financial Statement Schedules


70EX-10.64EX-10.65EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2




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PART I  Item 1.
    Business  (423) 989-8000.
        research and development

   distribution   manufacturing

   sales and marketing   packaging

   business development   quality control and assurance

   regulatory management              2




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Business
    Segments
    Segment
    Revenues
  ®
  For the Years Ended December 31,2009


2008


2007(In thousands)Branded Prescription Pharmaceuticals

$
1,113,005


$
1,263,488


$
1,857,813Animal Health


359,075







Meridian Auto-Injector


252,614



218,448



183,860Royalties and other


51,806



83,125



95,209Total revenues

$
1,776,500


$
1,565,061


$
2,136,882     Branded
    Prescription Pharmaceuticals Segment
    
    neuroscience (including
    Skelaxin®,

    Flector®

    Patch,
    Avinza®

    and
    Embeda®),
    hospital (including
    Thrombin-JMI®), and
    legacy products (including
    Levoxyl®,

    Bicillin®,

    Altace®

    and
    Cytomel®).   3




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Product

Product Description and IndicationNeuroscience

Products in this category are primarily marketed to primary care
    physicians, neurologists, orthopedic surgeons and pain
    specialists.Skelaxin®

A muscle relaxant tablet indicated for the relief of discomfort
    associated with acute, painful musculoskeletal conditions.Flector®

    Patch

A topical non-steroidal anti-inflammatory patch for the
    treatment of acute pain due to minor strains, sprains and
    contusions.Avinza®

A long-acting formulation of morphine indicated as a once-daily
    treatment for moderate-to-severe pain in patients who require
    continuous, around-the-clock opioid therapy for an extended
    period of time.Embeda®

A long-acting Schedule II opioid analgesic for the
    management of moderate-to-severe pain when a continuous,
    around-the-clock opioid analgesic is needed for an extended
    period of time.
    Embeda®

    contains pellets of an extended-release oral formulation of
    morphine sulfate, an opioid receptor agonist, surrounding an
    inner core of naltrexone hydrochloride, an opioid receptor
    antagonist.
    Embeda®

    is the first FDA-approved long-acting opioid designed to reduce
    drug liking and euphoria when tampered with by crushing or
    chewing. However, the clinical significance of the degree of
    reduction in drug liking and euphoria reported in clinical
    studies has not yet been established. There is no evidence that
    the naltrexone in
    Embeda®

    reduces the abuse liability of
    Embeda®.

    Embeda®

    became commercially available in late September 2009.Hospital

Products in this category are primarily marketed to hospitals.Thrombin-JMI®

A chromatographically purified topical (bovine) thrombin
    solution indicated as an aid to hemostasis whenever oozing blood
    and minor bleeding from capillaries and small venules is
    accessible.Legacy Branded

Products in this category are not actively promoted through our
    sales force and many have generic competition.Levoxyl®

Color-coded, potency-marked tablets indicated for thyroid
    hormone replacement or supplemental therapy for hypothyroidism.Bicillin®

A penicillin-based antibiotic suspension for deep muscular
    injection indicated for the treatment of infections due to
    penicillin-G-susceptible microorganisms.Altace®

An oral administration indicated for the treatment of
    hypertension and reduction of the risk of stroke, myocardial
    infarction (heart attack) and death from cardiovascular causes
    in patients 55 and over with either a history of coronary artery
    disease, stroke or peripheral vascular disease or with diabetes
    and one other cardiovascular risk factor (such as elevated
    cholesterol levels or cigarette smoking).
    Altace®

    is also indicated in stable patients who have demonstrated
    clinical signs of congestive heart failure after sustaining an
    acute myocardial infarction.Cytomel®

A tablet indicated in the medical treatment of hypothyroidism.  4




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Net Sales(In millions)NeuroscienceSkelaxin®

$
401.0Flector®

    Patch


138.6Avinza®


131.1Embeda®


16.9HospitalThrombin-JMI®

$
183.5Legacy BrandedLevoxyl®

$
70.8Bicillin®


51.6Altace®


36.4Cytomel®


34.1   Animal
    Health Segment
      
    antibiotic products (including
    Albac®,

    Aureomycin®,

    Aureomycin®-combination

    products,
    Aurofac®,

    Chlormax®

    and
    BMD®),
    anticoccidial products (including
    Bio-Cox®,

    Cygro®,

    Bovatec®,

    Avatec®,

    Deccox®,

    Robenz®,

    Cycostat®

    and
    Rofenaid®), and
    antibacterial products (including
    3-Nitro®

    and
    Histostat®).    Meridian
    Auto-Injector Segment
    ® ®
 5




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® ® ® ®
  Royalties
    and other Segment
  ® ® ® ®
  ®
  Recent
    Developments
    Industries
  and/or
    
    the aging of the patient population, including diseases specific
    to the aging process and demographic factors, including obesity,
    diabetes, cardiovascular disease, and patient and physician
    demand for products that meet chronic or unmet medical needs;
    technological innovation, both in drug discovery and corporate
    processes;
    merger and acquisition activity whereby pharmaceutical companies
    acquire one another, biotechnology companies, or particular
    products; 6




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
    cost containment and downward price pressure from managed care
    organizations and governmental entities, both in the United
    States and in other countries;
    increasing drug development, manufacturing and compliance costs
    for pharmaceutical producers;
    the actions of pharmaceutical companies that produce generic
    products and challenges to patent protection and sales
    exclusivity;
    more frequent product liability litigation;
    increased governmental scrutiny of the healthcare sector,
    including issues of product promotion, patient safety, cost,
    efficacy and reimbursement/insurance matters, as well as
    legislative and regulatory developments; and
    the cost of advertising and marketing, including
    direct-to-consumer
    advertising on television and in print.    
    technological innovation, both in drug discovery and corporate
    processes;
    merger and acquisition activity whereby animal health companies
    acquire one another, biotechnology companies, or particular
    products;
    cost containment and downward price pressure;
    increased drug development, manufacturing and compliance costs
    for producers of animal health products;
    more frequent product liability litigation; and
    increased governmental scrutiny of the sector, including
    governmental restrictions on the use of antibiotics in certain
    food-producing animals.  Sales and
    Marketing
  Branded
    Prescription Pharmaceuticals
      Animal
    Health
   7




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Meridian
    Auto-Injector
  ® ®
  ® ®
    Competition
  Branded
    Prescription Pharmaceuticals
      30-month 30-month Therapeutic
    Equivalence Evaluations
 8




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30-month
  30-month
  Animal
    Health Segment
    Meridian
    Auto-Injector Segment
  ® ®
  auto-injector
  Research
    and Development
  Branded
    Prescription Pharmaceuticals and Meridian Auto-Injector
    Segments
       9




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
    Remoxy®,

    a novel formulation of long-acting oxycodone with a proposed
    indication for the treatment of moderate to severe chronic pain,
    is specifically designed to resist certain common methods of
    misuse and abuse associated with long-acting oxycodone products
    that are currently available.
    Acurox®

    Tablets, a patented, orally administered, immediate release
    tablet containing oxycodone HCl as its sole active analgesic
    ingredient, has a proposed indication for the relief of moderate
    to severe pain.
    Acurox®

    uses Acura Pharmaceuticals Inc.s (Acura)
    patented
    Aversion®

    Technology, which is designed to deter misuse and abuse by
    intentional swallowing of excess quantities of tablets,
    intravenous injection of dissolved tablets and nasal snorting of
    crushed tablets.
    CorVuetm

    (binodenoson) is our next generation cardiac pharmacologic
    stress-imaging agent.
    Vanquixtm,

    a diazepam-filled auto-injector with a proposed indication for
    the treatment of acute, repetitive epileptic seizures, is
    currently in Phase III clinical trials.
    Eladur®,

    an investigational transdermal bupivacaine patch for the
    treatment of pain, is currently in Phase II clinical trials.
    Oxycodone NT, a novel formulation of long-acting oxycodone for
    the treatment of moderate to severe chronic pain, is currently
    in early stages of clinical development. Oxycodone NT is
    specifically designed to resist certain common methods of misuse
    and abuse associated with long-acting oxycodone products that
    are currently available.
    Hydrocodone NT, a novel formulation of long-acting hydrocodone
    for treatment of
    moderate-to-severe
    chronic pain, is currently in early stages of clinical
    development. Hydrocodone NT is specifically designed to resist
    certain common methods of misuse and abuse associated with
    long-acting hydrocodone products that are currently available.    Animal
    Health Segment
   10




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Research
    and Development Expenses
    Intellectual
    Property
  Patents,
    Licenses and Proprietary Rights
  ® ® ®
  ® method-of-use ® ®
  ®
  ®
  ® ®
  ®
  ® ®
   11




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® ® tm ® ®
    Trademarks
    Government
    Regulation
  Branded
    Prescription Pharmaceuticals and Meridian Auto-Injector
    Segments
      and/or
   12




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13




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Animal
    Health Segment
        Manufacturing
    Branded
    Prescription Pharmaceuticals and Meridian Auto-Injector
    Segments
    ® ® ® ® ® ®
   14




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Animal
    Health Segment
  ® ® ® ®
  Environmental
    Matters
      Backlog
    Executive
    Officers
  Name

Age

Position with the CompanyBrian A. Markison


50



President, Chief Executive Officer and Chairman of the Board of
    DirectorsJoseph Squicciarino


53



Chief Financial OfficerJames W. Elrod


49



Chief Legal Officer, SecretaryStephen J. Andrzejewski


44



Chief Commercial OfficerFrederick Brouillette, Jr.


58



Corporate Compliance OfficerEric J. Bruce


53



President, Alpharma Animal HealthEric G. Carter, M.D., Ph.D.


57



Chief Science Officer   Brian A. Markison
 15




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Joseph Squicciarino
  James W. Elrod
  Stephen J. Andrzejewski ®
  Frederick Brouillette, Jr.
  Eric J. Bruce
  Eric G. Carter M.D., Ph.D.
 16




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Employees
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K 1-800-SEC-0330
 17




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Item 1A.
    Risk
    Factors  You should carefully consider the risks described below and
    the other information contained in this report, including our
    audited consolidated financial statements and related notes. The
    risks described below are not the only ones facing our company.
    Additional risks not presently known to us or that we currently
    deem immaterial may also impair our business operations. If any
    of the adverse events described in this Risk Factors
    section or other sections of this report actually occurs, our
    business, results of operations and financial condition could be
    materially adversely affected, the trading price, if any, of our
    securities could decline and you might lose all or part of your
    investment.
  Risks
    Related to Our Businesses
  The
    uncertainty and expense of the drug development process, actions
    by our competitors and regulatory agencies and other factors may
    adversely affect our ability to implement our strategy to grow
    our business through increased sales, acquisitions, development
    and in-licensing, and, as a result, our business or competitive
    position in the pharmaceutical industry may
    suffer.
      and/or
      
    Remoxy®,

    a drug for the treatment of moderate to severe chronic pain that
    we are developing with Pain Therapeutics, Inc.; 18




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
    Acurox®

    Tablets, a drug for the treatment of moderate to severe pain
    that we are developing with Acura;
    Oxycodone NT, a drug for treatment of moderate to severe chronic
    pain; and
    Hydrocodone NT, a drug for treatment of moderate to severe
    chronic pain.    
    engage in product life-cycle management to develop new
    indications and line extensions for existing and acquired
    products;
    successfully develop, license or commercialize new products on a
    timely basis or at all;
    continue to develop products already in development in a cost
    effective manner; or
    obtain any FDA approvals necessary to successfully implement the
    strategies described above.      
    Skelaxin®

    competes in a highly genericized market with other muscle
    relaxants and could be subject to additional competition from
    generic products following a courts order ruling invalid
    two patents related to
    Skelaxin®

    in January 2009.
    Altace®

    has multiple generic substitutes that entered the market in
    December 2007 and in 2008.
    Sonata®

    competes with other insomnia treatments in a highly competitive
    market. A generic substitute entered the market in the second
    quarter of 2008.
    Levoxyl®

    competes in a competitive and highly genericized market with
    other levothyroxine sodium products.
    Beginning in the fourth quarter of 2007,
    Thrombin-JMI®,

    our bovine thrombin product, faced new competition from human
    thrombin and recombinant human thrombin.        
    develop or license their products more rapidly than we can,
    complete any applicable regulatory approval process sooner than
    we can,
    market or license their products before we can market or license
    our products, or
    offer their newly developed or licensed products at prices lower
    than our prices. 19




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If we
    cannot successfully defend our rights under the patents relating
    to our key products, such as
    Skelaxin®,

    or if we are unable to secure or defend our rights under other
    patents and trademarks and protect our trade secrets and other
    intellectual property, additional competitors could enter the
    market, and sales of affected products may decline
    materially.
  ®
          An
    expansion of restrictions on, or bans of, the use of antibiotics
    used in food-producing animals could result in a decrease in our
    sales.
   20




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
    additional countries, such as the U.S., where we have material
    sales of bacitracin-based products, restrict or ban the use of
    zinc bacitracin or other antibiotic feed additives;
    countries which are significant importers of meat act to prevent
    the importation of products from countries that allow the use of
    bacitracin-based or other antibiotic-containing products;
    there is an increase in public pressure to discontinue the use
    of antibiotic feed additives; or
    consumers or retailers decide to purchase fewer meat products
    from animals fed antibiotics. 21




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Potential
    adverse effects on human health linked to the raising or
    consumption of food-producing animals using our products could
    result in a decrease in our sales.
    Unfavorable
    results in pending and future claims and litigation matters
    could have a material adverse effect on our business, results of
    operations, financial condition and cash flows.
    If we
    cannot integrate the business of companies or products we
    acquire, or appropriately and successfully manage and coordinate
    third-party collaborative development activities, our business
    may suffer.
    The
    terms of our Revolving Credit Facility restricts, and other
    borrowing arrangements in the future could similarly restrict,
    our activities in various ways.
     22




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Any
    significant delays or difficulties in the manufacture of, or
    supply of materials for, our products may reduce our profit
    margins and revenues, limit the sales of our products, or harm
    our products reputations.
  ® ® ® ® ®
    We are
    subject to the risks of doing business outside of the United
    States.
        We are
    required annually, or on an interim basis as needed, to review
    the carrying value of our intangible assets and goodwill for
    impairment. If sales of our products decline because of, for
    example, generic competition or an inability to manufacture or
    obtain sufficient supply of product, the intangible asset value
    of any declining product could become impaired, which could
    result in a material adverse effect on our business, financial
    condition and results of operations.
   23




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We
    have entered into agreements with manufacturers and/or
    distributors of generic pharmaceutical products with whom we are
    presently engaged, or have previously been engaged, in
    litigation, and these agreements could subject us to claims that
    we have violated federal and/or state anti-trust
    laws.
  and/or and/or
    Sales
    of
    Thrombin-JMI®

    may be affected by the perception of risks associated with some
    of the raw materials used in its manufacture. If we are unable
    to maintain purification procedures at our facilities that are
    in accordance with the FDAs expectations for biological
    products generally, the FDA could limit our ability to
    manufacture biological products at those facilities, which could
    have a material adverse effect on our business, financial
    condition, results of operations and cash flows.
  ® ® ® ®
  ® ® ® ® ®
 24




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® ®
  Our
    charter and bylaws and applicable state laws discourage
    unsolicited takeover proposals and could prevent shareholders
    from realizing a premium on their common stock.
    
    the ability of our Board of Directors to designate the terms of
    and issue new series of preferred stock;
    advance notice requirements for nominations for election to our
    Board of Directors; and
    special voting requirements for the amendment of our charter and
    bylaws.    At
    times, our stock price has been volatile, and such volatility in
    the future could result in substantial losses for our
    investors.
    
    variations in our results of operations;
    perceived risks and uncertainties concerning our business;
    announcements of earnings;
    the commencement of, or adverse developments in, any material
    litigation or governmental investigation;
    failure to meet timelines for product development or other
    projections or forward-looking statements we may make to the
    public;
    failure to meet or exceed security analysts financial
    projections for our company;
    comments or recommendations made by securities analysts;
    general market conditions;
    perceptions about market conditions in the pharmaceutical
    industry;
    announcements of technological innovations or the results of
    clinical trials or studies;
    changes in marketing, product pricing and sales strategies or
    development of new products by us or our competitors;
    changes in domestic or foreign governmental regulations or
    regulatory approval processes; and
    announcements concerning regulatory compliance and government
    agency reviews.   25




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Compliance
    with the terms and conditions of our corporate integrity
    agreement with the Office of Inspector General of the United
    States Department of Health and Human Services requires
    significant resources and management time and, if we fail to
    comply, we could be subject to penalties or, under certain
    circumstances, excluded from government health care programs,
    which could materially reduce our sales.
        Risks
    Related to Our Industries
  New
    legislation or regulatory proposals may adversely affect our
    revenues, our business, financial condition, results of
    operations and cash flows.
      Failure
    to comply with laws and government regulations could adversely
    affect our ability to operate our business.
   26




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27




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and/or
    Any
    reduction in reimbursement levels by managed care organizations
    or other third-party payors may have an adverse effect on our
    revenues.
      Wholesaler
    and distributor buying patterns and other factors may cause our
    quarterly results to fluctuate, and these fluctuations may
    adversely affect our short-term results. Further, our access to
    wholesaler and distributor inventory levels and sales data
    affects our ability to estimate certain reserves included in our
    financial statements.
   28




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An
    increase in product liability claims or product recalls could
    harm our business and our financial condition, results of
    operations and cash flows could be materially adversely
    affected.
      The
    publication of negative results of studies or clinical trials
    may adversely affect the sales of our products or the values of
    the intangible assets associated with them.
    The
    insolvency of, or decreased purchasing by, any of our principal
    customers, who are wholesale pharmaceutical distributors, could
    have a material adverse effect on our business, financial
    condition, results of operations and cash flows.
   29




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Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Location

Principal Purposes

Business Segment(s)Bristol, Tennessee

Manufacturing, Distribution, and Administration

Branded Prescription PharmaceuticalsRochester, Michigan

Manufacturing

Branded Prescription PharmaceuticalsSt. Louis, Missouri

Manufacturing

Meridian Auto-InjectorSt. Petersburg, Florida

Manufacturing

Branded Prescription PharmaceuticalsMiddleton, Wisconsin

Manufacturing

Branded Prescription PharmaceuticalsVan Buren, Arkansas

Manufacturing

Animal HealthLongmont, Colorado

Manufacturing

Animal HealthChicago Heights, Illinois

Manufacturing

Animal HealthEagle Grove, Iowa

Manufacturing

Animal HealthSalisbury, Maryland

Manufacturing

Animal HealthWillow Island, West Virginia

Manufacturing

Animal HealthShenzhou, China

Manufacturing

Animal HealthYantai, China

Manufacturing

Animal Health         Item 3.
    Legal
    Proceedings   30




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Item 4.
    Reserved PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    2009High


LowFirst quarter

$
10.90


$
5.86Second quarter


10.23



6.68Third quarter


10.97



8.80Fourth quarter


12.45



9.92   2008High


LowFirst quarter

$
12.40


$
8.26Second quarter


10.61



8.47Third quarter


12.60



8.83Fourth quarter


10.66



6.98   Stock-Based
 31




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PERFORMANCE
    GRAPH
  COMPARISON
    OF FIVE-YEAR CUMULATIVE TOTAL RETURN
  2830-2839,
  COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
 Among King, the S&P 500 Index
 and NYSE US SIC Code
    2830-2839,
    Drug
   
  12/04

12/05

12/06

12/07

12/08

12/09King


100.0



136.45



128.39



82.58



85.65



98.95S&P 500


100.0



104.91



121.48



128.16



80.74



102.11NYSE US SIC Code
    2830-2839,
    Drug index


100.0



95.20



110.77



117.28



96.00



108.55   The stock price performance included in this graph is not
    necessarily indicative of future stock price performance.
   32




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##### Table of Contents



Item 6.
    Selected
    Financial Data    For the Years Ended December 31,2009


2008


2007


2006


2005(In thousands, except per share data)Statement of Income Data:Total revenues

$
1,776,500


$
1,565,061


$
2,136,882


$
1,988,500


$
1,772,881Operating income (loss)


236,354



(220,409
)


227,028



402,421



180,079Income (loss) from continuing operations before income taxes and
    discontinued operations


150,589



(216,156
)


238,357



417,003



178,115Income tax expense


58,636



125,880



62,888



132,975



61,485Income (loss) from continuing operations


91,953



(342,036
)


175,469



284,028



116,630Income (loss) from discontinued operations(1)










(237
)


367



1,203Net income (loss)

$
91,953


$
(342,036
)

$
175,232


$
284,395


$
117,833Income (loss) per common share:Basic:Income (loss) from continuing operations

$
0.38


$
(1.40
)

$
0.72


$
1.17


$
0.48Income from discontinued operations


















0.01Net income (loss)

$
0.38


$
(1.40
)

$
0.72


$
1.17


$
0.49Diluted:Income (loss) from continuing operations

$
0.37


$
(1.40
)

$
0.72


$
1.17


$
0.48Income from discontinued operations


















0.01Net income (loss)

$
0.37


$
(1.40
)

$
0.72


$
1.17


$
0.49Dividends declared per share of common stock

$
0.00


$
0.00


$
0.00


$
0.00


$
0.00   As of December 31,2009


2008


2007


2006


2005(In thousands)Balance Sheet Data:Working capital

$
632,947


$
662,143


$
1,366,569


$
1,055,677


$
276,329Total assets


3,328,590



4,228,580



3,390,010



3,284,937



2,965,242Total debt


428,228



1,321,915



297,747



282,216



345,000Shareholders equity


2,369,307



2,233,799



2,576,198



2,361,796



1,973,422     (1)
    
    Reflects the classification of certain legacy product lines as
    discontinued operations. 33




---



##### Table of Contents



A WARNING
    ABOUT FORWARD-LOOKING STATEMENTS
        
    the potential of, including anticipated net sales and
    prescription trends for, our branded prescription pharmaceutical
    products, particularly
    Skelaxin®,

    Avinza®,

    Thrombin-JMI®,

    Flector®

    Patch,
    Embeda®

    ,
    Levoxyl®,

    Altace®

    and
    Cytomel®;
    expectations regarding the enforceability and effectiveness of
    product-related patents, including, in particular, patents
    related to
    Skelaxin®,

    Avinza®,

    EpiPen®

    and
    Adenoscan®;
    expected trends and projections with respect to particular
    products, reportable segment and income and expense line items;
    the adequacy of our liquidity and capital resources;
    anticipated capital expenditures;
    the development, approval and successful commercialization of
    Remoxy®,

    Acurox®

    Tablets,
    CorVuetm

    and other products;
    the cost of and the successful execution of our growth and
    restructuring strategies;
    anticipated developments and expansions of our business;
    our plans for the manufacture of some of our products, including
    products manufactured by third parties;
    the potential costs, outcomes and timing of research, clinical
    trials and other development activities involving pharmaceutical
    products, including, but not limited to, the timing or outcomes
    of regulatory processes or the magnitude and timing of potential
    payments to third parties in connection with development
    activities;
    the development of product line extensions;
    the expected timing of the initial marketing of certain products;
    products developed, acquired or in-licensed that may be
    commercialized;
    our intent, beliefs or current expectations, primarily with
    respect to our future operating performance;
    expectations regarding sales growth, gross margins,
    manufacturing productivity, capital expenditures and effective
    tax rates;
    expectations regarding the outcome of various pending legal
    proceedings including the
    Skelaxin®,

    Avinza®

    and
    EpiPen®

    patent challenges, litigation, and other legal proceedings
    described in this report;
    expectations regarding our financial condition and liquidity as
    well as future cash flows and earnings; and 34




---



##### Table of Contents




    expectations regarding our ability to liquidate our holdings of
    auction rate securities and the temporary nature of unrealized
    losses recorded in connection with some of those securities.    Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    OVERVIEW
  Our
    Business
       research and development

   distribution   manufacturing

   sales and marketing   packaging

   business development   quality control and assurance

   regulatory management        35




---



##### Table of Contents



Recent
    Developments
  Embeda®
  ® around-the-clock ® ® ® ® ® ® ®
  ® ® ®
  Remoxy®
  ® ®
 36




---



##### Table of Contents



® around-the-clock, tm
  Acurox®

    Tablets
  ® ® ® ®
  ® ® ® ® ® ®
  CorVuetm (binodenoson) for Injection
  tm tm tm
  Department
    of Justice Investigation
  ® ®
   37




---



##### Table of Contents



OPERATING
    RESULTS
    For the Years Ended December 31,2009


2008


2007(In thousands)Total revenuesBranded prescription pharmaceuticals

$
1,113,005


$
1,263,488


$
1,857,813Animal Health


359,075







Meridian Auto-Injector


252,614



218,448



183,860Royalties and other


51,806



83,125



95,209Total revenues

$
1,776,500


$
1,565,061


$
2,136,882Cost of revenues, exclusive of depreciation, amortization and
    impairmentsBranded prescription pharmaceuticals

$
289,755


$
298,861


$
467,507Animal Health


224,500







Meridian Auto-Injector


101,864



85,550



76,050Royalties and other


6,645



10,414



22,977Total cost of revenues

$
622,764


$
394,825


$
566,534     For the Years Ended December 31,2009


2008


2007(In thousands)Gross revenues

$
2,097,953


$
1,899,096


$
2,623,330Commercial rebates


62,831



87,646



188,966Medicare Part D rebates


12,076



28,110



59,103Medicaid rebates


39,637



39,658



39,608Chargebacks


111,108



92,252



97,251Returns


20,468



12,892



11,679Trade discounts/other


75,333



73,477



90,211$
1,776,500


$
1,565,061


$
2,136,512Discontinued operations










(370
)Net revenues

$
1,776,500


$
1,565,061


$
2,136,882   ®
  ® ® ®
   38




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##### Table of Contents



® ® ® ® ®
    Accrual
    for Rebates, including Administrative Fees
  2009


2008


2007(In thousands)Balance at January 1, net of prepaid amounts

$
58,129


$
65,301


$
53,765Current provision related to sales made in current period


116,757



151,014



285,253Current (benefit) provision related to sales made in prior
    periods


(2,213
)


4,400



2,424Rebates paid


(131,939
)


(199,912
)


(276,141
)Alpharma acquisition


3,705



37,326



Balance at December 31, net of prepaid amounts

$
44,439


$
58,129


$
65,301       ® ® ® ® ® ®
  Accrual
    for Returns
  2009


2008


2007(In thousands)Balance at January 1

$
33,471


$
32,860


$
42,001Current provision


20,468



12,892



11,679Actual returns


(27,230
)


(21,658
)


(20,820
)Alpharma acquisition


3,636



9,377



Ending balance at December 31

$
30,345


$
33,471


$
32,860  39




---



##### Table of Contents



Accrual
    for Chargebacks
  2009


2008


2007(In thousands)Balance at January 1

$
9,965


$
11,120


$
13,939Current provision


111,108



92,252



97,251Actual chargebacks


(110,517
)


(93,563
)


(100,070
)Alpharma acquisition


37



156



Ending balance at December 31

$
10,593


$
9,965


$
11,120   Branded
    Prescription Pharmaceuticals Segment
  ChangeFor the Years Ended December 31,


2009 vs. 2008


2008 vs. 20072009


2008


2007


$


%


$


%(In thousands)Branded prescription pharmaceuticals revenue:Skelaxin®

$
400,998


$
446,243


$
440,003


$
(45,245
)


(10.1
)%

$
6,240



1.4
%Thrombin-JMI®


183,457



254,581



267,354



(71,124
)


(27.9
)


(12,773
)


(4.8
)Flector®Patch


138,649











138,649











Avinza®


131,148



135,452



108,546



(4,304
)


(3.2
)


26,906



24.8Embeda®


16,878











16,878











Levoxyl®


70,768



73,064



100,102



(2,296
)


(3.1
)


(27,038
)


(27.0
)Altace®


36,442



166,406



645,989



(129,964
)


(78.1
)


(479,583
)


(74.2
)Other


134,665



187,742



295,819



(53,077
)


(28.3
)


(108,077
)


(36.5
)Total revenue

$
1,113,005


$
1,263,488


$
1,857,813


$
(150,483
)


(11.9
)%

$
(594,325
)


(32.0
)%Cost of revenues, exclusive of depreciation, amortization and
    impairments

$
289,755


$
298,861


$
467,507


$
(9,106
)


(3.0
)%

$
(168,646
)


(36.1
)%   ® ® ® ® ® ® ® ® ®
 40




---



##### Table of Contents



® ® ®
  ® ®
  Sales
    of Key Products
  Skelaxin®
  ® ® ®
  ® ® ® ®
  ® ® ®
  ®
  ®
  Thrombin-JMI®
  ® ®
  Flector®

    Patch
  ® ® ® ®
 41




---



##### Table of Contents



®
  Avinza®
  ® ® ®
  ® ® ® ®
  ® ® ®
  ®
  ®
  Embeda®
  ® around-the-clock ® ®
  Sales
    of Other Products
  Levoxyl®
  ® ® ® ®
 42




---



##### Table of Contents



® ® ®
  Altace®
  ® ® ® ®
  ® ®
  Other
  ® ® ® ®
  ® ® ®
  ® ® ®
  ® ® ®
  ®
  Cost
    of Revenues
  ® ®
  ®
 43




---



##### Table of Contents



® ®
      
    Charges of $7.8 million in 2009 related to the sale of
    Flector®

    Patch inventory. At the time of our acquisition of Alpharma, we
    valued the inventory that was acquired based on the accounting
    requirements for business combinations. As a result, we
    increased the carrying value of the
    Flector®

    Patch inventory by $7.8 million. During 2009, the branded
    prescription pharmaceutical products segment reflects a charge
    related to the sale of this
    marked-up
    inventory.
    A charge of $8.1 million in 2008 primarily associated with
    minimum purchase requirements under a supply agreement to
    purchase raw materials associated with
    Altace®.
    An inventory valuation allowance that resulted in a charge of
    $78.8 million for inventories associated with
    Altace®

    in 2007. For additional information please see Note 7,
    Inventory, in Part IV, Item 15(a)(1),
    Financial Statements.
    A charge of $25.4 million primarily associated with minimum
    purchase requirements under a supply agreement to purchase raw
    material inventory associated with
    Altace®

    in 2007. For additional information please see Note 7,
    Inventory, in Part IV, Item 15(a)(1),
    Financial Statements.
    A contract termination that resulted in a charge of
    $3.8 million in 2007.    Animal
    Health
  For the Years Ended December 31,2009


2008


2007(In thousands)Animal Health revenue

$
359,075


$



$
Cost of revenues, exclusive of depreciation, amortization and
    impairments


224,500







$
134,575


$



$
     marked-up
 44




---



##### Table of Contents



Meridian
    Auto-Injector
  ChangeFor the Years Ended December 31,


2009-2008


2008-20072009


2008


2007


$


%


$


%(In thousands)Meridian Auto-Injector revenue

$
252,614


$
218,448


$
183,860


$
34,166



15.6
%

$
34,588



18.8
%Cost of revenues, exclusive of depreciation, amortization and
    impairments


101,864



85,550



76,050



16,314



19.1



9,500



12.5$
150,750


$
132,898


$
107,810


$
17,852



13.4
%

$
25,088



23.3
%   ® Auto-Injector ®
  auto-injector
  ® ® ® ®
    Royalties
    and other Segment
  ChangeFor the Years Ended December 31,


2009-2008


2008-20072009


2008


2007


$


%


$


%(In thousands)Royalties and other revenue

$
51,806


$
83,125


$
95,209


$
(31,319
)


(37.7
)%

$
(12,084
)


(12.7
)%Cost of revenues, exclusive of depreciation, amortization and
    impairments


6,645



10,414



22,977



(3,769
)


(36.2
)


(12,563
)


(54.7
)$
45,161


$
72,711


$
72,232


$
(27,550
)


(37.9
)%

$
479



0.7
%   ®
  ® ®
 45




---



##### Table of Contents



® ®
  ®
  Operating
    Costs and Expenses
  ChangeFor the Years Ended December 31,


2009-2008


2008-20072009


2008


2007


$


%


$


%(In thousands)Cost of revenues, exclusive of depreciation, amortization and
    impairments

$
622,764


$
394,825


$
566,534


$
227,939



57.7
%

$
(171,709
)


(30.3
)%Selling, general and administrative


548,560



447,402



691,034



101,158



22.6



(243,632
)


(35.3
)Research and development


98,652



743,673



184,735



(645,021
)


(86.7
)


558,938



>100Depreciation and amortization


214,493



151,477



174,348



63,016



41.6



(22,871
)


(13.1
)Asset impairments


4,510



40,995



223,025



(36,485
)


(89.0
)


(182,030
)


(81.6
)Restructuring charges


51,167



7,098



70,178



44,069



>100



(63,080
)


(89.9
)Total operating costs and expenses

$
1,540,146


$
1,785,470


$
1,909,854


$
(245,324
)


(13.7
)%

$
(124,384
)


(6.5
)%   Selling,
    General and Administrative Expenses
  ChangeFor the Years Ended December 31,


2009-2008


2008-20072009


2008


2007


$


%


$


%(In thousands)Selling, general and administrative, exclusive of co-promotion
    fees

$
536,601


$
408,955


$
511,303


$
127,646



31.2
%

$
(102,348
)


(20.0
)%Acquisition related costs


6,733



1,382







5,351



>100



1,382



Co-promotion fees


5,226



37,065



179,731



(31,839
)


(85.9
)


(142,666
)


(79.4
)Total selling, general and administrative

$
548,560


$
447,402


$
691,034


$
101,158



22.6
%

$
(243,632
)


(35.3
)%     Co-Promotion ® ® ®
 46




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##### Table of Contents



®
  ® ® ®
  ® ®
    
    A charge of $6.7 million in 2009 and $1.4 million in
    2008 for costs related to the acquisition and integration of
    Alpharma. For additional information related to the acquisition
    of Alpharma, please see Note 9, Acquisitions,
    Dispositions, Co-Promotions and Alliances, in
    Part IV, Item 15(a)(1), Financial
    Statements.
    Income of $4.4 million during 2008 and charges of
    $2.1 million during 2007, primarily due to professional
    fees associated with a now completed government investigation
    and related litigation. During 2008 and 2007, we received
    payment from our insurance carriers for the recovery of
    professional fees in the amount of $11.0 million and
    $3.4 million, respectively. These recoveries have been
    reflected as reductions of professional fees in 2008 and 2007.  Research
    and Development Expense
  ChangeFor the Years Ended December 31,


2009-2008


2008-20072009


2008


2007


$


$(In thousands)Research and development

$
98,652


$
145,173


$
149,425


$
(46,521
)

$
(4,252
)Research and development  in-process upon acquisition






598,500



35,310



(598,500
)


563,190Total research and development

$
98,652


$
743,673


$
184,735


$
(645,021
)

$
558,938   ® ®
 47




---



##### Table of Contents




    A charge of $590.0 million for our acquisition of
    in-process research and development related to the completion of
    our acquisition of Alpharma on December 29, 2008. The
    charge represents purchase price allocation associated with
    Embeda®,

    Oxycodone NT and Hydrocodone NT projects of $410.0 million,
    $90.0 million and $90.0 million, respectively. The
    amounts associated with each of these projects were expensed
    because the in-process research and development projects had not
    received regulatory approval and had no alternative future use.
    In August 2009, the FDA approved
    Embeda®

    (morphine sulfate and naltrexone hydrocholoride) Extended
    Release Capsules, a long-acting Schedule II opioid
    analgesic for the management of
    moderate-to-severe
    pain when a continuous,
    around-the-clock
    opioid analgesic is needed for an extended period of time.
    Oxycodone NT and Hydrocodone NT, each long-acting treatments for
    moderate to severe chronic pain, are currently in the early
    stages of development. Oxycodone NT and Hydrocodone NT are each
    designed to resist certain common methods of misuse and abuse
    associated with long-acting oxycodone and hydrocodone products
    that are currently available. If the clinical development
    programs are successful, we would not expect to commercialize
    Oxycodone NT any sooner than 2012 and Hydrocodone NT any sooner
    than 2015. The estimated cost to complete the development of
    these products at the time of the acquisition was approximately
    $35 million each. We believe there is a reasonable
    probability of completing these projects successfully, but the
    success of the projects depends on the outcome of the clinical
    development programs and approval by the FDA.
    Charges totaling $6.0 million in 2008 for our acquisition
    of in-process research and development related to the exercise
    of our options for a third and fourth immediate-release opioid
    product under a License, Development and Commercialization
    Agreement with Acura to develop and commercialize certain opioid
    analgesic products utilizing Acuras
    Aversion®

    Technology in the United States, Canada and Mexico. The amount
    of each option exercise was $3.0 million. We believe there
    is a reasonable probability of completing the projects
    successfully, but the success of the projects depends on the
    successful outcome of the clinical development programs and
    approval of the products by the FDA. The estimated cost to
    complete each project at the time of the execution of the option
    was approximately $16.0 million for each product.
    A charge of $2.5 million in 2008 for our acquisition of
    in-process research and development associated with our Product
    Development Agreement with CorePharma to develop new
    formulations of
    Skelaxin®.

    Any intellectual property created as a result of the agreement
    will belong to us and we will grant CorePharma a non-exclusive,
    royalty-free license to use this newly created intellectual
    property with any product not containing metaxalone. The success
    of the project depends on additional development activities and
    FDA approval. The estimated cost to complete the development
    activities at the time of the execution of the agreement was
    approximately $2.5 million.
    A charge of $32.0 million during 2007 associated with our
    collaborative agreement with Acura to develop and commercialize
    certain immediate-release opioid analgesic products utilizing
    Acuras proprietary
    Aversion®

    Technology in the United States, Canada and Mexico. The
    agreement provides us with an exclusive license for
    Acurox®

    (oxycodone HCl/niacin) tablets and another immediate-release
    opioid product utilizing Acuras
    Aversion®

    Technology. In addition, the agreement provides us with an
    option to license all future opioid analgesic products developed
    utilizing Acuras
    Aversion®

    Technology.  ® ®
 48




---



##### Table of Contents



®
  
    A charge of $3.1 million during 2007 for a payment to
    Mutual Pharmaceutical Company Inc. (Mutual) to
    jointly research and develop one or more improved formulations
    of metaxalone. Under the agreement with Mutual, we sought
    Mutuals expertise in developing improved formulations of
    metaxalone, including improved formulations Mutual developed
    prior to execution of this agreement and access to Mutuals
    and United Research Laboratories rights in intellectual
    property pertaining to these formulations. Development
    activities under this agreement ceased in December 2007.  Depreciation
    and Amortization Expense
  ® ®
  ® ® ® ® and/or ®
  ® ® ® ®
  ® ® ®
  ® ® ®
  ® ®
  ®
 49




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##### Table of Contents



Other
    Operating Expenses
    
    Restructuring charges of $51.2 million in 2009 primarily
    due to our restructuring initiative designed to partially offset
    the potential decline in
    Skelaxin®

    net sales in the event a generic competitor enters the market.
    For additional information on the first quarter 2009
    restructuring event, please see Note 25,
    Restructuring Activities. in Part IV, Item
    15(a)(1), Financial Statements.
    Asset impairments of $2.0 million in 2009 associated with a
    decline in fair value of real estate classified as held for sale
    and due to a decline in the market and $2.5 million
    associated with a development project initiated in 2007. Under
    the terms of an agreement, a portion of the upfront development
    payment was refundable in the event certain FDA approvals were
    not obtained. In 2009, we suspended funding for the project.
    Asset impairment charges of $40.9 million in 2008 primarily
    associated with a decline in end-user demand for
    Synercid®.
    An intangible asset impairment charge of $146.4 million in
    2007 related to our
    Altace®

    product as a result of the invalidation of the 722 patent
    which covered the
    Altace®

    product. Following the Circuit Courts decision, we reduced
    the estimated useful life of this product and forecasted net
    sales. This decrease in estimated remaining useful life and
    forecasted net sales reduced the probability-weighted estimated
    undiscounted future cash flows associated with
    Altace®

    intangible assets to a level below their carrying value. We
    determined the fair value of these assets based on
    probability-weighted estimated discounted future cash flows.
    A charge of $46.4 million in 2007 related to the write-down
    of our Rochester, Michigan sterile manufacturing facility and
    certain legacy branded prescription pharmaceutical products. On
    October 1, 2007, we closed the asset purchase agreement
    with JHP, pursuant to which JHP acquired our Rochester, Michigan
    sterile manufacturing facility, some of our legacy products that
    are manufactured there and the related contract manufacturing
    business. For additional information, please see Note 9,
    Acquisitions, Dispositions, Co-Promotions and
    Alliances, in Part IV, Item 15(a)(1),
    Financial Statements.
    Intangible asset impairment charges of $30.2 million in
    2007 primarily related to our decision to no longer pursue the
    development of a new formulation of
    Intal®

    utilizing hydroflouroalkane as a propellant.
    Restructuring charges of $7.1 million in 2008 primarily
    related to our integration of Alpharma.
    Restructuring charges of $68.6 million in 2007 primarily
    due to our restructuring initiative designed to accelerate a
    planned strategic shift emphasizing our focus on the
    neuroscience and hospital markets and separation payments
    associated with the sale of the Rochester, Michigan sterile
    manufacturing facility discussed above.
    Restructuring charges of $1.6 million during 2007 for
    separation payments that primarily arose in connection with our
    decision to transfer the production of
    Levoxyl®

    from our St. Petersburg, Florida facility to the Bristol,
    Tennessee facility.  ®
 50




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##### Table of Contents



® and/or ®
  ® and/or
  ® ® ® ®
    NON-OPERATING
    ITEMS
  For the Years Ended December 31,2009


2008


2007(In thousands)Interest income

$
5,926


$
36,970


$
42,491Interest expense


(88,223
)


(21,631
)


(19,794
)Loss on investment


(5,884
)


(7,451
)


(11,591
)Other, net


2,416



(3,635
)


223Income tax expense


58,636



125,880



62,888Discontinued operations










(237
)   Other
    (Expense) Income
  Interest
    Income
    Interest
    Expense
   51




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##### Table of Contents



1 4
  Loss on
    Investment
    
    A loss of $5.9 million and $7.5 million in 2009 and
    2008 related to our investment in debt securities.
    A loss of $11.6 million in 2007 related to our investment
    in Palatin Technologies, Inc. (Palatin).  Income
    Tax Expense
          Off-Balance
    Sheet Arrangements, Contractual Obligations and Commercial
    Commitments
      Payment Due by PeriodLess Than


One to


Four to


More ThanTotal


One Year


Three Years


Five Years


Five Years(In thousands)Contractual Obligations:Long-term debt

$
492,261


$
85,550


$
6,711


$
400,000


$
Operating leases


76,101



12,558



23,184



20,890



19,469Unconditional purchase obligations


331,498



178,920



51,757



49,195



51,626Interest on long-term debt


17,573



6,267



10,000



1,306



Total

$
917,433


$
283,295


$
91,652


$
471,391


$
71,095  52




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##### Table of Contents



Liquidity
    and Capital Resources
  General
    Investments
    in Debt Securities
           53




---



##### Table of Contents



available-for-sale
  other-than-temporary.
      Skelaxin®
  ® ® ® ®
     54




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##### Table of Contents



Alpharma
  ® ®
    ® ® ® ®
  ®
  Maximum PurchasePrice PaymentFirst Quarter 2009

$
30.0 millionSecond Quarter 2009


25.0 millionThird Quarter 2009


25.0 millionFourth Quarter 2009


20.0 millionFirst Quarter 2010


20.0 millionSecond Quarter 2010


7.5 million   ® ®
   55




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##### Table of Contents



Senior
    Secured Revolving Credit Facility
              Senior
    Secured Term Facility
      CorePharma,
    LLC
  ®
 56




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##### Table of Contents



Acura
    Pharmaceuticals, Inc.
  ® ® ® ®
  ® ® ®
  Altace®
  ® ® ® ® ®
  ®
  Rochester
    Facility
   57




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##### Table of Contents



Avinza®
  ® ®
  ® ®
  
    If calendar year net sales are less than $200.0 million,
    the royalty payment will be 5% of all net sales.
    If calendar year net sales are greater than $200.0 million,
    then the royalty payment will be 10% of all net sales up to
    $250.0 million, plus 15% of net sales greater than
    $250.0 million.  Other
  ® ® ® ®
  
    For 2006, 15% of
    Altace®

    net sales up to $165.0 million, 42.5% of
    Altace®

    net sales in excess of $165.0 million and less than or
    equal to $465.0 million, and 52.5% of
    Altace®

    net sales that are in excess of $465.0 million and less
    than or equal to $585.0 million.
    For 2007, 30% of
    Altace®

    net sales, with the fee not to exceed $178.5 million.
    For 2008, 22.5% of
    Altace®

    net sales, with the fee not to exceed $134.0 million.
    For 2009, 14.2% of
    Altace®

    net sales, with the fee not to exceed $84.5 million.
    For 2010, 25% of
    Altace®

    net sales, with the fee not to exceed $5.0 million.  ® ®
  ® ®
   58




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##### Table of Contents



®
  ® ® ® ® ® ® ®
  Patent
    Challenges
  ® ® ® ® ® ®
  Cash
    Flows
  Operating
    Activities
  For the Years Ended December 31,2009

2008

2007(In thousands)Net cash provided by operating activities

$
430,729


$
491,391


$
672,649     ®
   59




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##### Table of Contents



For the Years Ended December 31,2009


2008


2007(In thousands)Accounts receivable, net of allowance

$
34,279


$
37,956


$
80,106Inventories


34,863



22,785



55,056Prepaid expenses and other current assets


1,231



16,785



(43,555
)Accounts payable


(56,916
)


9,673



(16,276
)Accrued expenses and other liabilities


(75,513
)


(180,960
)


(33,408
)Income taxes payable


(15,932
)


24,713



(9,009
)Deferred revenue


(4,680
)


(4,680
)


(4,680
)Other assets


10,296



27,078



(3,470
)Deferred taxes


46,553



37,313



(91,229
)Total changes from operating assets and liabilities and deferred
    taxes

$
(25,819
)

$
(9,337
)

$
(66,465
)     Investing
    Activities
  For the Years Ended December 31,2009

2008

2007(In thousands)Net cash provided by (used in) investing activities

$
94,219


$
(156,110
)

$
(776,251
)   ®
    ®
 60




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##### Table of Contents



Financing
    Activities
  For the Years Ended December 31,2009

2008

2007(In thousands)Net cash (used in) provided by financing activities

$
(922,552
)

$
584,922


$
9,834         Certain
    Indebtedness and Other Matters
  Convertible
    Senior Notes
  1 4
    Senior
    Secured Revolving Credit Facility
         61




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##### Table of Contents




    a base rate generally defined as the sum of (i) the greater
    of (a) the prime rate of Credit Suisse and (b) the
    federal funds effective rate plus 0.5% and
    (ii) 4.0%; or
    an adjusted rate generally defined as the sum of (i) the
    product of (a) LIBOR (by reference to the British Banking
    Association Interest Settlement Rates) and (b) a fraction,
    the numerator of which is one and the denominator of which is
    the number one minus certain maximum statutory reserves for
    Eurocurrency liabilities and (ii) 5.0%.      
    maintenance of maximum funded debt to consolidated EBITDA ratios
    that range from 1.50:1 to 3.25:1 (depending on dates and the
    occurrence of certain events relating to certain
    patents); and
    maintenance of minimum consolidated EBITDA to interest expense
    ratios that range from 3.75:1 to 4.00:1 (depending on dates and
    the occurrence of certain events relating to certain patents).         62




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##### Table of Contents



Senior
    Secured Term Facility
          
    maintenance of maximum funded debt to consolidated EBITDA ratios
    that range from 1.50:1 to 3.25:1 (depending on dates and the
    occurrence of certain events relating to certain
    patents); and
    maintenance of minimum consolidated EBITDA to interest expense
    ratios that range from 3.75:1 to 4.00:1 (depending on dates and
    the occurrence of certain events relating to certain patents).        Alpharma
    Convertible Senior Notes
     63




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##### Table of Contents



Impact
    of Inflation
    Critical
    Accounting Policies and Estimates
              
    Intangible assets, goodwill, and other long-lived
    assets.  When we acquire product rights in
    conjunction with either business or asset acquisitions, we
    allocate an appropriate portion of the purchase price to
    intangible assets, goodwill and other long-lived assets. The
    purchase price is allocated to products, acquired research and
    development, if any, and other intangibles using the assistance
    of valuation consultants. We estimate the useful lives of the
    assets by factoring in the characteristics of the products such
    as: patent protection, competition by products prescribed for
    similar indications, estimated future introductions of competing
    products, and other issues. The factors that drive the estimate
    of the life of the asset are inherently uncertain. We use a
    straight-line method of amortization for our intangible assets.   64




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GrossCarrying


Accumulated


Net BookAmount


Amortization


Value(In thousands)Branded Prescription PharmaceuticalsAvinza®

$
289,296


$
75,597


$
213,699Skelaxin®


287,207



244,823



42,384Sonata®


61,961



61,961



Flector®

    Patch


130,000



11,818



118,182Neuroscience


768,464



394,199



374,265Synercid®


70,959



47,888



23,071Other hospital


8,442



6,732



1,710Hospital


79,401



54,620



24,781Bicillin®


92,350



34,972



57,378Other legacy products


324,035



280,536



43,499Legacy products


416,385



315,508



100,877Total Branded


1,264,250



764,327



499,923Animal Health


170,000



9,633



160,367Meridian Auto-Injector


183,249



49,621



133,628Royalties and other


3,731



3,510



221Total intangible assets

$
1,621,230


$
827,091


$
794,139  65




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##### Table of Contents



For the Years Ended December 31,2009


2008Amortization





AmortizationImpairments


Expense


Impairments


Expense(In thousands)


(In thousands)Branded Prescription PharmaceuticalsAvinza®

$



$
26,664


$



$
26,553Skelaxin®






82,949







23,620Sonata®














315Flector®

    Patch






11,818







Neuroscience






121,431







50,488Synercid®






5,937



39,630



7,731Other hospital






305







304Hospital






6,242



39,630



8,035Bicillin®






3,702







3,702Altace®














29,687Other legacy products






5,719



1,251



11,937Legacy products






9,421



1,251



45,326Total Branded






137,094



40,881



103,849Animal Health






9,633







Meridian Auto-Injector






8,340







7,860Royalties and other






333







737Total

$



$
155,400


$
40,881


$
112,446     Remaining Life at December 31, 2009Skelaxin®


6 monthsAvinza®


7 years 11 monthsFlector®

    Patch


10 yearsSynercid®


4 yearsBicillin®


15 years 6 months   
    Inventories.  Our inventories are valued at the
    lower of cost or market value. We evaluate our entire inventory
    for short-dated or slow-moving product and inventory commitments
    under supply agreements based on projections of future demand
    and market conditions. For those units in inventory that are so
    identified, we estimate their market value or net sales value
    based on current realization trends. If the projected net
    realizable value is less than cost, on a product basis, we make
    a provision to reflect the lower value of that inventory. This
    methodology recognizes projected inventory losses at the time
    such losses are evident rather than at the time goods are
    actually sold. We maintain supply agreements with some of our
    vendors which contain minimum purchase requirements. We estimate
    future inventory requirements based on current facts and trends.
    Should our minimum purchase requirements under supply
    agreements, or if our estimated future inventory requirements
    exceed actual inventory quantities that we will be able to sell
    to our customers, we record a charge in costs of revenues. 66




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##### Table of Contents




    Accruals for rebates, returns and
    chargebacks.  We establish accruals for returns,
    chargebacks, Medicaid, Medicare and commercial rebates in the
    same period we recognize the related sales. The accruals reduce
    revenues and are included in accrued expenses. At the time a
    rebate or chargeback payment is made or a product return is
    received, which occurs with a delay after the related sale, we
    record a reduction to accrued expenses and, at the end of each
    quarter, adjust accrued expenses for differences between
    estimated and actual payments. Due to estimates and assumptions
    inherent in determining the amount of returns, chargebacks and
    rebates, the actual amount of product returns and claims for
    chargebacks and rebates may be different from our estimates.      
    Investments in debt securities.  Prior to the
    end of the first quarter of 2008 we invested in debt securities.
    Tax-exempt auction rate securities are long-term variable rate
    bonds tied to short-term interest rates that are reset through
    an auction process generally every seven, 28 or 35 days. On
    February 11, 2008, we began to experience auction failures
    with respect to our investments in auction rate securities. All
    of our investments in auction rate securities have experienced
    multiple failed auctions. We will not be able to liquidate these
    securities until a successful auction occurs, the issuer calls
    or restructures the underlying security, the underlying security
    matures or it is purchased by a buyer outside the auction
    process. Based on the frequency of auction failures and the lack
    of market activity, current market prices are not available for
    determining the fair value of these investments. As a result, we
    measure these investments using unobservable inputs.    
    Revenue recognition.  Revenue is recognized
    when title and risk of loss are transferred to customers,
    collection of sales is reasonably assured, and we have no
    further performance obligations. This is 67




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##### Table of Contents



generally at the time products are received by the customer.
    Accruals for estimated returns, rebates and chargebacks,
    determined based on historical experience, reduce revenues at
    the time of sale and are included in accrued expenses. Medicaid
    and certain other governmental pricing programs involve
    particularly difficult interpretations of relevant statutes and
    regulatory guidance, which are complex and, in certain respects,
    ambiguous. Moreover, prevailing interpretations of these
    statutes and guidance can change over time. We launched
    Embeda®

    in late September 2009. We have recognized revenue on
    Embeda®

    in a manner consistent with our other products, as described
    above, which is generally at the time the product is received by
    the customer. We believe
    Embeda®

    has similar characteristics of certain of our other
    pharmaceutical products such that we can reliably estimate
    expected returns of the product. Royalty revenue is recognized
    based on a percentage of sales (namely, contractually
    agreed-upon
    royalty rates) reported by third parties. For additional
    information, please see Note 2, Summary of
    Significant Accounting Policies, in Part IV,
    Item 15(a)(1), Financial Statements.  Recently
    Issued Accounting Standards
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Investment
    Risk
    Interest
    Rate Risk
      Foreign
    Currency Exchange Rate Risk
   68




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  page F-1.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure.    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
    Rule 13a-15(b) Rule 13a-15(e))
    Managements
    Report on Internal Control over Financial
    Reporting
  Rule 13a-15(f).
  Internal Control  Integrated
    Framework
    Changes
    in Internal Control over Financial Reporting
    Item 9B.
    Other
    Information   69




---



##### 



PART III  Form 10-K
 PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules  (a) Documents filed as a part of this report:
     
 Page NumberReport of Independent Registered Public
    Accounting Firm


F-1Consolidated Balance Sheets as of
    December 31, 2009 and 2008


F-2Consolidated Statements of Operations for the
    years ended December 31, 2009, 2008 and 2007


F-3Consolidated Statements of Shareholders
    Equity and Other Comprehensive Income (Loss) for the years ended
    December 31, 2009, 2008 and 2007


F-4Consolidated Statements of Cash Flows for the
    years ended December 31, 2009, 2008 and 2007


F-5Notes to Consolidated Financial Statements


F-6(2) Financial Statement Schedule Valuation
    and Qualifying Accounts


S-1      (b)
    Exhibits    ExhibitNumber

Description2
.1(1)

Stock and Asset Purchase Agreement among Alpharma Inc., Alpharma
    (Luxembourg) S.ar.l., Alpharma Bermuda G.P., and Alpharma
    International (Luxembourg) S.ar.l., Alfanor 7152 AS (under
    change of name to Otnorbidco AS), Otdenholdco ApS and
    Otdelholdco Inc., dated February 6, 20082
.2(2)

Agreement and Plan of Merger, dated as of November 23, 2008,
    among King Pharmaceuticals, Inc., Albert Acquisition Corp. and
    Alpharma Inc.3
.1(3)

Third Amended and Restated Charter of King Pharmaceuticals, Inc.3
.2(4)

Second Amended and Restated Bylaws of King Pharmaceuticals, Inc.4
.1(5)

Specimen Common Stock Certificate for King Pharmaceuticals, Inc.10
.1(5)*

1997 Incentive and Nonqualified Stock Option Plan for Employees
    of King Pharmaceuticals, Inc.10
.2(6)*

King Pharmaceuticals, Inc. 1998 Non-Employee Director Stock
    Option Plan10
.3(7)*

Offer Letter to Brian A. Markison, dated July 15, 200410
.4(8)*

Offer letter to Joseph Squicciarino dated May 25, 200510
.5(8)*

Offer letter to Eric J. Bruce dated May 19, 200510
.6(9)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Option
    Certificate and Nonstatutory Stock Option Grant Agreement 70




---



##### Table of Contents



ExhibitNumber

Description10
.7(10)

Settlement Agreement, dated as of October 31, 2005, among the
    United States of America acting through the entities named
    therein, King Pharmaceuticals, Inc. and Monarch Pharmaceuticals,
    Inc.10
.8(10)

State Settlement Agreement, dated as of October 31, 2005, among
    the state of Massachusetts, King Pharmaceuticals, Inc. and
    Monarch Pharmaceuticals, Inc. and general description of the
    other state settlement agreements10
.9(10)

Corporate Integrity Agreement, dated as of October 31, 2005,
    between the Office of Inspector General of the Department of
    Health and Human Services and King Pharmaceuticals, Inc.10
.10(11)*

King Pharmaceuticals, Inc. Incentive Plan10
.11(12)

Collaboration Agreement by and between King Pharmaceuticals,
    Inc. and Pain Therapeutics, Inc., dated as of November 9, 200510
.12(12)

License Agreement by and between King Pharmaceuticals, Inc. and
    Pain Therapeutics, Inc., dated as of December 29, 200510
.13(12)

License Agreement, by and between King Pharmaceuticals, Inc. and
    Mutual Pharmaceutical Company, Inc., dated as of December 6, 200510
.14(13)

Amended and Restated Copromotion Agreement between King
    Pharmaceuticals, Inc. and Wyeth, effective as of January 1, 200610
.15(14)*

A.L. Pharma Inc. Supplemental Pension Plan (Amended and Restated
    as of January 1, 2005)10
.16(14)*

Amendment No. 1 to the A.L. Pharma Inc. Supplemental Pension
    Plan (Amended and Restated as of January 1, 2005), effective
    March 31, 200610
.17(15)

Indenture, dated as of March 29, 2006, among King
    Pharmaceuticals, Inc., the Subsidiary Guarantors parties hereto
    and The Bank of New York Trust Company, N.A., as Trustee10
.18(15)

Registration Rights Agreement dated as of March 29, 2006 between
    King Pharmaceuticals, Inc., the Guarantors and the Initial
    Purchasers of Kings 1 1 / 4% Convertible Notes due
    2026, represented by Citigroup Global Markets Inc.10
.19(16)

Generic Distribution Agreement by and between King
    Pharmaceuticals, Inc. and Cobalt Pharmaceuticals, Inc., dated as
    of February 12, 200610
.20(16)

Product Supply Agreement by and among King Pharmaceuticals,
    Inc., Selamine Limited, Robin Hood Holdings Limited and Arrow
    Pharm Malta Limited, dated as of February 12, 200610
.21(16)

Ramipril Application License Agreement by and among King
    Pharmaceuticals, Inc., King Pharmaceuticals Research and
    Development, Inc., Arrow International Limited and Robin Hood
    Holdings Limited, dated as of February 12, 200610
.22(16)

Ramipril Patent License Agreement by and among King
    Pharmaceuticals, Inc., King Pharmaceuticals Research and
    Development, Inc., Selamine Limited and Robin Hood Holdings
    Limited, dated as of February 12, 200610
.23(16)

Amended and Restated U.S. Product Manufacturing Agreement by and
    between King Pharmaceuticals, Inc. and Sanofi-Aventis
    Deutschland GmbH, dated as of February 27, 200610
.24(16)

First Amendment to the U.S. Product Agreement by and between
    King Pharmaceuticals, Inc., Sanofi-Aventis U.S. LLC and
    Sanofi-Aventis Deutschland GmbH, dated as of February 27, 200610
.25(17)

Purchase Agreement between Ligand Pharmaceuticals Incorporated,
    King Pharmaceuticals, Inc. and King Pharmaceuticals Research and
    Development, Inc., dated as of September 6, 200610
.26(18)

Amendment No. 1 to Purchase Agreement, Contract Sales Force
    Agreement and Confidentiality Agreement by and between Ligand
    Pharmaceuticals Incorporated, King Pharmaceuticals, Inc. and
    King Pharmaceuticals Research and Development, Inc., dated as of
    January 3, 2007, effective as of November 30, 200610
.27(19)

Amendment No. 2 to Purchase Agreement, by and between King
    Pharmaceuticals, Inc., King Pharmaceuticals Research and
    Development, Inc. and Ligand Pharmaceuticals Incorporated,
    effective as of February 26, 200710
.28(20)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Option and
    Nonstatutory Stock Option Agreement 71




---



##### Table of Contents



ExhibitNumber

Description10
.29(20)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Restricted
    Stock Certificate and Restricted Stock Grant Agreement10
.30(20)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Long-Term
    Performance Unit Award Agreement (One-Year Performance Cycle)10
.31(20)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Long-Term
    Performance Unit Award Agreement (Three-Year Performance Cycle)10
.32(21)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Retention
    Grant Agreement10
.33(21)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Restricted
    Stock Unit Certificate and Restricted Stock Unit Grant Agreement10
.34(21)*

King Pharmaceuticals, Inc. Incentive Plan: Form Of Long-Term
    Performance Unit Award Agreement (One Year Performance Cycle)10
.35(21)*

King Pharmaceuticals, Inc. Incentive Plan: Form Of Long-Term
    Performance Unit Award Agreement (Three Year Performance Cycle)10
.36(3)

Credit Agreement dated as of April 19, 2007 among King
    Pharmaceuticals, Inc.; the Lenders named therein; Credit Suisse,
    Cayman Islands Branch, as Administrative Agent, as Collateral
    Agent and as Swingline Lender; Bank of America, N.A. and UBS
    Securities LLC, as Co-Syndication Agents; Citigroup Global
    Markets Inc., Wachovia Bank, National Association and The Royal
    Bank of Scotland plc, as Co-Documentation Agents; U.S. Bank
    National Association, as Managing Agent; and Credit Suisse
    Securities (USA) LLC, as Sole Lead Arranger and  Bookrunner10
.37(22)

Amendment No. 1, dated as of December 5, 2008, to Credit
    Agreement, dated as of April 19, 2007, among King
    Pharmaceuticals, Inc.; the Lenders named therein; Credit Suisse,
    Cayman Islands Branch, as Administrative Agent, Collateral Agent
    and Swingline Lender; Bank of America, N.A. and UBS Securities
    LLC, as Co-Syndication Agents; Citigroup Global Markets Inc.,
    Wachovia Bank, National Association and The Royal Bank of
    Scotland plc, as Co-Documentation Agents; U.S. Bank National
    Association as Managing Agent; Credit Suisse Securities (USA)
    LLC and Wachovia Capital Markets, LLC, as Joint Lead Arrangers
    and Joint Bookrunners10
.38(23)

Exclusive License and Distribution Agreement, by and between
    IBSA Institut Biochimique SA (Switzerland) and Alpharma
    Pharmaceuticals LLC, dated as of August 16, 200710
.39(23)

Exclusive License Agreement, dated September 4, 2007, between
    IDEA AG and Alpharma Ireland Limited10
.40(24)

First Amendment to License Agreement, dated March 31, 2008,
    between IDEA AG and Alpharma Ireland Limited10
.41(23)

Registration Rights Agreement, dated October 12, 2007 between
    Alpharma Inc., IDEA AG and any Stockholders10
.42(25)*

Amended and Restated King Pharmaceuticals, Inc. Severance Pay
    Plan: Tier I, effective October 16, 200710
.43(26)

License, Development and Commercialization Agreement, between
    King Pharmaceuticals Research and Development, Inc. and Acura
    Pharmaceuticals, Inc., dated October 30, 200710
.44(26)*

King Pharmaceuticals, Inc. Deferred Compensation Plan10
.45(27)*

Amended and Restated King Pharmaceuticals, Inc. Non-Employee
    Directors Deferred Compensation Plan10
.46(27)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Restricted
    Stock Certificate and Restricted Stock Grant Agreement10
.47(28)

Metaxalone 800 mg Product Agreement, dated January 2, 2008,
    by and among King Pharmaceuticals, Inc., King Pharmaceuticals
    Research and Development, Inc. and CorePharma LLC10
.48(29)*

Alpharma Inc. Change in Control Plan, Amended and Restated
    Effective January 25, 200810
.49(30)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Option
    Certificate and Nonstatutory Stock Option Agreement10
.50(30)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Restricted
    Stock Certificate and Restricted Stock Grant Agreement 72




---



##### Table of Contents



ExhibitNumber

Description10
.51(30)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Long-Term
    Performance Unit Award Agreement (One-Year Performance Cycle)10
.52(30)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Long-Term
    Performance Unit Award Agreement (Three-Year Performance Cycle)10
.53(31)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Restricted
    Unit Certificate and Restricted Unit Grant Agreement10
.54(32)

Product Development Agreement between King Pharmaceuticals,
    Inc., King Pharmaceuticals Research and Development, Inc. and
    CorePharma LLC, dated June 18, 200810
.55(33)

Settlement Agreement, dated August 21, 2008, by and among King
    Pharmaceuticals, Inc., other defendants, and Representative
    Plaintiffs related to a certain consolidated shareholder
    derivative action entitled, In Re: King Pharmaceuticals, Inc.
    Derivative Litigation10
.56(34)

Development and License Agreement between Durect Corporation and
    Alpharma Ireland Limited, dated as of September 19, 200810
.57(22)

Asset Purchase Agreement by and between King Pharmaceuticals,
    Inc. and Actavis Elizabeth, L.L.C., dated as of December 17,
    2008.10
.58(22)

Term Loan Credit Agreement, dated as of December 29, 2008, among
    King Pharmaceuticals, Inc., the Lenders party thereto, Credit
    Suisse, as Administrative Agent and Collateral Agent, Credit
    Suisse Securities (USA) LLC and Wachovia Capital Markets, LLC as
    Joint Bookrunners and Joint Lead Arrangers, Wachovia Bank,
    National Association and SunTrust Bank as Co-Syndication Agents,
    DNB First Bank and U.S. Bank National Association as
    Co-Documentation Agents, DZ Bank AG, Deutsche
    Zentral-Genossenschaftsbank, New York Branch, Siemens Financial
    Services, Inc., The PrivateBank and Trust Company and Union
    Bank, N.A. as Senior Managing Agents10
.59(35)*

2009 Executive Management Incentive Awards10
.60(35)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Option
    Certificate and Nonstatutory Stock Option Agreement10
.61(35)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Restricted
    Stock Certificate and Restricted Stock Grant Agreement10
.62(35)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Long-Term
    Performance Unit Award Agreement (One-Year Performance Cycle)10
.63(35)*

King Pharmaceuticals, Inc. Incentive Plan: Form of Long-Term
    Performance Unit Award Agreement (Three-Year Performance Cycle)10
.64*

Executive Management Awards Program, as adopted by the
    Compensation and Human Resources Committee of the Board of
    Directors on December 3, 2009 and as effective on January 1, 201010
.65*

Director Compensation Policy for Non-Employee Directors of King
    Pharmaceuticals, Inc., amended February 17, 201021
.1

Subsidiaries of the Registrant as of February 25, 201023
.1

Consent of PricewaterhouseCoopers LLP31
.1

Certificate of Chief Executive Officer Pursuant to Section 302
    of the Sarbanes-Oxley Act of 200231
.2

Certificate of Chief Financial Officer Pursuant to Section 302
    of the Sarbanes-Oxley Act of 200232
.1

Certificate of Chief Executive Officer Pursuant to Section 906
    of the Sarbanes-Oxley Act of 200232
.2

Certificate of Chief Financial Officer Pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002     *
    
    Denotes management contract or compensatory plan or arrangement.
    
    Portions of this Exhibit have been omitted and filed separately
    with the Securities and Exchange Commission as part of an
    application for confidential treatment pursuant to the
    Securities Exchange Act of 1934.(1)
    
    Incorporated by reference to Alpharma Inc.s Current Report
    on
    Form 8-K
    filed on February 7, 2008.(2)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed November 24, 2008.(3)
    
    Incorporated by reference to Kings Quarterly Report on
    Form 10-Q
    filed August 7, 2007. 73




---



##### Table of Contents



(4)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed September 17, 2009.(5)
    
    Incorporated by reference to Kings Registration Statement
    on
    Form S-1
    (Registration No.
    333-38753)
    filed October 24, 1997.(6)
    
    Incorporated by reference to Kings Registration Statement
    on
    Form S-8
    (File
    No. 333-45276)
    filed September 6, 2000.(7)
    
    Incorporated by reference to Kings Quarterly Report on
    Form 10-Q
    filed March 21, 2005.(8)
    
    Incorporated by reference to Kings Quarterly Report on
    Form 10-Q
    filed August 9, 2005.(9)
    
    Incorporated by reference to Kings Quarterly Report on
    Form 10-Q
    filed October 9, 2005.(10)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed November 4, 2005.(11)
    
    Incorporated by reference to Kings Definitive Proxy
    Statement as Appendix B, filed April 28, 2005, related
    to the 2005 annual meeting of shareholders.(12)
    
    Incorporated by reference to Kings Annual Report on
    Form 10-K
    filed March 3, 2006.(13)
    
    Incorporated by reference to Kings Quarterly Report of
    Form 10-Q
    filed November 9, 2006.(14)
    
    Incorporated by reference to Alpharma Inc.s Annual Report
    on
    Form 10-K
    filed on March 1, 2007.(15)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed March 30, 2006.(16)
    
    Incorporated by reference to Kings Quarterly Report on
    Form 10-Q
    filed May 10, 2006.(17)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed September 12, 2006.(18)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed January 5, 2007.(19)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed March 2, 2007.(20)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed March 27, 2007.(21)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed May 21, 2007.(22)
    
    Incorporated by reference to Kings Annual Report on
    Form 10-K
    filed March 2, 2009.(23)
    
    Incorporated by reference to Alpharma Inc.s Quarterly
    Report on
    Form 10-Q
    filed on October 30, 2007.(24)
    
    Incorporated by reference to Alpharma Inc.s Quarterly
    Report on
    Form 10-Q
    filed May 9, 2008.(25)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed October 22, 2007.(26)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed November 5, 2007.(27)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed December 5, 2007.(28)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed January 8, 2008.(29)
    
    Incorporated by reference to Alpharma Inc.s Annual Report
    on
    Form 10-K
    filed February 27, 2008.(30)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed April 1, 2008.(31)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed May 21, 2008.(32)
    
    Incorporated by reference to Kings Quarterly Report on
    Form 10-Q
    filed August 7, 2008.(33)
    
    Incorporated by reference to Kings Current Report on
    Form 8-K
    filed August 27, 2008.(34)
    
    Incorporated by reference to Alpharma Inc.s Quarterly
    Report on
    Form 10-Q
    filed on October 29, 2008.(35)
    
    Incorporated by reference to Kings Quarterly Report on
    Form 10-Q
    filed May 11, 2009. 74




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     Internal Control  Integrated
    Framework
        
      F-1




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.CONSOLIDATED BALANCE SHEETS
    as of December 31, 2009 and 2008
    (In thousands, except share data)
  2009


2008ASSETSCurrent assets:Cash and cash equivalents

$
545,312


$
940,212Investments in debt securities


29,258



6,441Marketable securities


2,100



511Accounts receivable, net of allowance of $3,401 and $4,713


210,256



245,070Inventories


182,291



258,303Deferred income tax assets


83,675



89,513Income tax receivable


16,091



Prepaid expenses and other current assets


60,860



129,214Total current assets


1,129,843



1,669,264Property, plant and equipment, net


391,839



417,259Intangible assets, net


794,139



934,219Goodwill


467,613



450,548Deferred income tax assets


264,162



269,116Investments in debt securities


218,608



353,848Other assets (includes restricted cash of $15,900 and $16,580)


56,496



122,826Assets held for sale


5,890



11,500Total assets

$
3,328,590


$
4,228,580LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
86,692


$
140,908Accrued expenses


320,992



411,488Income taxes payable






10,448Short-term debt


3,662



5,230Current portion of long-term debt


85,550



439,047Total current liabilities


496,896



1,007,121Long-term debt


339,016



877,638Other liabilities


123,371



110,022Total liabilities


959,283



1,994,781Commitments and contingencies (Note 19)Shareholders equity:Preferred stock, 15,000,000 shares authorized, no shares
    issued or outstanding






Common stock, no par value, 600,000,000 shares authorized,
    248,444,711 and 246,487,232 shares issued and outstanding


1,421,489



1,391,065Retained earnings


963,620



871,021Accumulated other comprehensive (loss) income


(15,802
)


(28,287
)Total shareholders equity


2,369,307



2,233,799Total liabilities and shareholders equity

$
3,328,590


$
4,228,580     The
    accompanying notes are an integral part of the consolidated
    financial statements.
 F-2




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS
    for the years ended December 31, 2009, 2008 and 2007
    (In thousands, except share data)
  2009


2008


2007Revenues:Net sales

$
1,725,703


$
1,485,619


$
2,054,293Royalty revenue


50,797



79,442



82,589Total revenues


1,776,500



1,565,061



2,136,882Operating costs and expenses:Costs of revenues, exclusive of depreciation, amortization and
    impairments shown below


622,764



394,825



566,534Selling, general and administrative, exclusive of co-promotion
    fees


536,601



408,955



511,303Acquisition related costs


6,733



1,382



Co-promotion fees


5,226



37,065



179,731Total selling, general and administrative


548,560



447,402



691,034Research and development


98,652



145,173



149,425Research and development  in process upon acquisition






598,500



35,310Total research and development


98,652



743,673



184,735Depreciation and amortization


214,493



151,477



174,348Asset impairments


4,510



40,995



223,025Restructuring charges


51,167



7,098



70,178Total operating costs and expenses


1,540,146



1,785,470



1,909,854Operating income (loss)


236,354



(220,409
)


227,028Other (expense) income:Interest income


5,926



36,970



42,491Interest expense


(88,223
)


(21,631
)


(19,794
)Loss on investment


(5,884
)


(7,451
)


(11,591
)Other, net


2,416



(3,635
)


223Total other (expense) income


(85,765
)


4,253



11,329Income (loss) from continuing operations before income taxes


150,589



(216,156
)


238,357Income tax expense


58,636



125,880



62,888Income (loss) from continuing operations


91,953



(342,036
)


175,469Discontinued operations:Loss from discontinued operations










(369
)Income tax benefit










(132
)Total loss from discontinued operations










(237
)Net income (loss)

$
91,953


$
(342,036
)

$
175,232Income (loss) per common share:Basic: Income (loss) from continuing operations

$
0.38


$
(1.40
)

$
0.72Income (loss) from discontinued operations










Net income (loss)

$
0.38


$
(1.40
)

$
0.72Diluted: Income (loss) from continuing operations

$
0.37


$
(1.40
)

$
0.72Income (loss) from discontinued operations










Net income (loss)

$
0.37


$
(1.40
)

$
0.72     The
    accompanying notes are an integral part of the consolidated
    financial statements.
 F-3




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS
    EQUITY
    AND OTHER COMPREHENSIVE INCOME (LOSS)
    for the years ended December 31, 2009, 2008 and 2007
    (In thousands, except share data)
  AccumulatedOtherCommon Stock


Retained


ComprehensiveShares


Amount


Earnings


(Loss) Income


TotalBalance, December 31, 2006


243,151,223


$
1,322,730


$
1,039,348


$
(282
)

$
2,361,796Comprehensive income:Net income










175,232







175,232Reclassification of unrealized losses on marketable securities
    to earnings, net of tax of $377














615



615Foreign currency translation














1,624



1,624Total comprehensive income


















177,471Adoption of Financial Accounting Standards Board Interpretation
    No. 48










(1,523
)






(1,523
)Stock-based award activity


2,786,486



38,454











38,454Balance, December 31, 2007


245,937,709


$
1,361,184


$
1,213,057


$
1,957


$
2,576,198Comprehensive income:Net loss










(342,036
)






(342,036
)Net unrealized loss on investments in debt securities, net of
    taxes of $17,219














(28,092
)


(28,092
)Foreign currency translation














(2,152
)


(2,152
)Total comprehensive loss


















(372,280
)Stock-based award activity


549,523



29,881











29,881Balance, December 31, 2008


246,487,232


$
1,391,065


$
871,021


$
(28,287
)

$
2,233,799Comprehensive income:Net income










91,953







91,953Reclassification of unrealized losses on investments in debt
    securities, net of taxes of $2,370














4,116



4,116Net unrealized gain on marketable securities, net of tax of $600














989



989Net unrealized gain on investments in debt securities, net of
    taxes of $5,671














9,568



9,568Unrecognized loss on pension, net of taxes of $2,564














(4,151
)


(4,151
)Foreign currency translation














2,609



2,609Total comprehensive income


















105,084Adoption of FASB statement on
    other-than-temporary
    investments, net of taxes of $396










646



(646
)


Stock-based award activity


1,957,479



30,424











30,424Balance, December 31, 2009


248,444,711


$
1,421,489


$
963,620


$
(15,802
)

$
2,369,307     The
    accompanying notes are an integral part of the consolidated
    financial statements.
 F-4




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS
    for the years ended December 31, 2009, 2008 and 2007
    (In thousands)
  2009


2008


2007Cash flows from operating activities of continuing operations:Net income (loss)

$
91,953


$
(342,036
)

$
175,232Income from discontinued operations










237Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Depreciation and amortization


214,493



151,477



174,348Amortization of deferred financing costs and debt discounts


52,520



15,836



14,033Deferred income taxes


46,553



37,313



(91,229
)Impairment of intangible assets and other non-cash charges


41,938



40,995



256,478Loss on sale of assets










46,354In-process research and development charges






598,500



35,310Loss on investment


5,884



7,451



11,591Other non-cash items, net


13,837



(6,009
)


(2,121
)Stock-based compensation


35,923



34,514



27,652Changes in operating assets and liabilities net of effects from
    acquisitions:Accounts receivable


34,279



37,956



80,106Inventories


34,863



22,785



55,056Prepaid expenses and other current assets


1,231



16,785



(43,555
)Other assets


10,296



27,078



(3,470
)Accounts payable


(56,916
)


9,673



(16,276
)Accrued expenses and other liabilities


(75,513
)


(180,960
)


(33,408
)Deferred revenue


(4,680
)


(4,680
)


(4,680
)Income taxes


(15,932
)


24,713



(9,009
)Net cash provided by operating activities of continuing
    operations


430,729



491,391



672,649Cash flows from investing activities of continuing operations:Purchases of investments in debt securities






(279,175
)


(2,744,575
)Proceeds from maturity and sale of investments in debt securities


129,064



1,207,080



2,289,780Transfer (to)/from restricted cash


680



(100
)


(512
)Acquisition of Alpharma, net of cash acquired


(70,230
)


(1,024,761
)


Purchases of property, plant and equipment


(38,778
)


(57,455
)


(49,602
)Purchases of product rights and intellectual property


(3,269
)


(12,109
)


(395,379
)Proceeds from the sale of
    Kadian®


84,800







Proceeds from sale of assets


858



10,410



86,287Loan to Ligand










37,750Forward foreign exchange contracts


(8,906
)






Net cash provided by (used in) investing activities of
    continuing operations


94,219



(156,110
)


(776,251
)Cash flows from financing activities of continuing operations:Proceeds from exercise of stock options, net


1,869



439



10,656Net (payments) proceeds related to stock-based award activity


(3,574
)


(2,441
)


705Proceeds from issuance of long-term debt






617,000



Payments on debt


(919,534
)






Debt issuance costs


(1,313
)


(30,076
)


(1,527
)Net cash (used in) provided by financing activities of
    continuing operations


(922,552
)


584,922



9,834Effect of exchange rate changes on cash


2,704







(Decrease) increase in cash and cash equivalents


(394,900
)


920,203



(93,768
)Cash and cash equivalents, beginning of year


940,212



20,009



113,777Cash and cash equivalents, end of year

$
545,312


$
940,212


$
20,009Supplemental disclosure of cash paid for: Interest

$
32,613


$
5,985


$
6,047Supplemental disclosure of cash paid for: Taxes

$
16,368


$
69,207


$
171,924     The
    accompanying notes are an integral part of the consolidated
    financial statements.
 F-5




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except share and per share data)
  1.
    The
    Company  ®
    ® ®
  2.
    Summary
    of Significant Accounting Policies  Use of Estimates.
       F-6




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Revenue recognition. agreed-upon
  Intangible Assets and Goodwill.
  Accruals for rebates, returns, and
    chargebacks.
  ® ® ®
   F-7




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Shipping and Handling Costs.
  Cash and Cash Equivalents.
  Restricted Cash.
  Investments in Debt Securities.
    available-for-sale Other-than-temporary
     F-8




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Marketable Securities. available-for-sale. Other-than-temporary other-than-temporary
  Accounts Receivable and Allowance for Doubtful
    Accounts.
  Inventories. first-in,
  Income Taxes.
  Litigation.
  Foreign currency translation and
    transactions.
  Financial Instruments and Derivatives. non-U.S. cash
 F-9




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Property, Plant and Equipment.
      Research and Development Costs.
  Deferred Financing Costs.
  Insurance.
  Advertising.
  Promotional Fees to Wyeth. ® ®
 F-10




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ® ® ® ® ®
  3.
    Invalidation
    of
    Altace®

    Patent  ® en banc 180-day ® ®
  ® ® ® ® ® ® ® ®
  4.
    Change in
    Estimate      5.
    Receivables    2009


2008Trade

$
192,043


$
218,027Royalty


9,957



18,182Other


8,256



8,861Total receivables

$
210,256


$
245,070  F-11




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   6.
    Concentrations
    of Credit Risk    2009

2008Customer A


13
%


17
%Customer B


27
%


23
%Customer C


10
%


12
%     For the Years Ended December 31,2009

2008

2007Customer A


20
%


30
%


35
%Customer B


27
%


28
%


27
%Customer C


14
%


14
%


13
%   7.
    Inventory    2009


2008Raw materials

$
62,054


$
82,273Work-in process


29,979



62,836Finished goods (including $3,908 and $7,385 of sample inventory,
    respectively)


126,705



176,582218,738



321,691Less inventory valuation allowance


(36,447
)


(63,388
)Inventories

$
182,291


$
258,303   ® ® ® ® ®
 F-12




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   8.
    Property,
    Plant and Equipment    2009


2008Land

$
16,210


$
16,415Buildings and improvements


267,472



188,207Machinery and equipment


300,163



342,323Capital projects in progress


51,738



59,731635,583



606,676Less accumulated depreciation


(243,744
)


(189,417
)Property, plant and equipment, net

$
391,839


$
417,259             9.
    Acquisitions,
    Dispositions, Co-Promotions and Alliances  Alpharma
  ® ® ®
   F-13




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        ValuationCurrent assets

$
915,306Current deferred income taxes


30,529Property, plant and equipment


153,267Intangible assets, net


300,000Goodwill


338,463In-process research and development


590,000Other long-term assets


26,679Current liabilities


(275,080
)Convertible debentures


(385,227
)Long-term deferred income taxes


(18,325
)Other long-term liabilities


(56,708
)Total purchase price

$
1,618,904     Weighted AverageValuation


Amortization PeriodFlector®

    Patch

$
130,000



11 yearsAnimal Health intangibles


170,000



19 yearsTotal

$
300,000     Branded prescription pharmaceuticals

$
246,284Animal Health


92,179Total

$
338,463     ®
 F-14




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ® moderate-to-severe around-the-clock
      For the Years EndedDecember 31,2008

2007Total revenues

$
2,054,259


$
2,503,938Loss from continuing operations

$
(5,211
)

$
(20,420
)Net income

$
195,717


$
8,810Basic net income per common share

$
0.80


$
0.04Diluted net income per common share

$
0.80


$
0.04   ® ® ® ®
  ®
  Maximum PurchasePrice PaymentFirst Quarter 2009

$
30,000Second Quarter 2009

$
25,000Third Quarter 2009

$
25,000Fourth Quarter 2009

$
20,000First Quarter 2010

$
20,000Second Quarter 2010

$
7,500  F-15




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ® ®
  Pain
    Therapeutics, Inc.
  ® ® ® around-the-clock tm
    
    $15,750 during 2008 as a result of the acceptance by the FDA of
    the NDA filing for
    Remoxy®,
    $5,100 during 2008 as a result of the acceptance by the FDA of
    an investigational new drug application for the third opioid
    painkiller under this alliance, and
    $5,000 in 2006 as a result of the acceptance of an
    investigational new drug application for the second opioid
    painkiller in development under this alliance.  ® ®
  ® ®
   F-16




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ® ® ® ®
    CorePharma,
    LLC
  ®
  Acura
    Pharmaceuticals, Inc.
  ® ® ® ® ®
   F-17




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    ® ® ® ® ® ®
  ® ®
  Rochester
    Facility
  ® ®
  Palatin
    Technologies, Inc.
   F-18




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Mutual
    Pharmaceutical Company
    Ligand
    Pharmaceuticals Incorporated
  ® ® ® ®
  ®
  
    If calendar year net sales are $200,000 or less, the royalty
    payment will be 5% of all net sales.
    If calendar year net sales are greater than $200,000, the
    royalty payment will be 10% of all net sales up to $250,000,
    plus 15% of net sales greater than $250,000. F-19




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   ® ® ®
    Intangible assets

$
285,700Goodwill


7,997Inventory


2,800$
296,497     Arrow
    International Limited
  ®
    ®
  Wyeth
  ® Co-Promotion
 F-20




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ® ® ®
  
    For 2007, 30% of
    Altace®

    net sales, with the fee not to exceed $178,500.
    For 2008, 22.5% of
    Altace®

    net sales, with the fee not to exceed $134,000.
    For 2009, 14.2% of
    Altace®

    net sales, with the fee not to exceed $84,500.
    For 2010, 25% of
    Altace®

    net sales, with the fee not to exceed $5,000.  ® ®
  10.
    Intangible
    Assets and Goodwill    2009


2008Gross





GrossCarrying


Accumulated


Carrying


AccumulatedAmount


Amortization


Amount


AmortizationBranded prescription pharmaceuticals

$
1,264,250


$
764,327


$
1,252,300


$
627,233Animal Health


170,000



9,633



170,000



Meridian Auto-Injector


183,249



49,621



179,879



41,281Royalties and other


3,731



3,510



3,731



3,177Total intangible assets

$
1,621,230


$
827,091


$
1,605,910


$
671,691     Fiscal Year Ended December 31,

Amount2010

$
114,9782011


72,5942012


72,5942013


72,5942014


65,827   ® ® ® ® ® and/or
 F-21




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ® ®
  ®
  ® ® ® and/or
  ® ® ® ® ®
  ® ® ®
  ® ® ® ® ® ® ®
  ® ® ® ® ® ®
 F-22




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Branded


Animal Health


MeridianSegment


Segment


Segment


TotalGoodwill at December 31, 2007

$
20,740


$



$
108,410


$
129,150Acquisition of Alpharma


237,352



84,046







321,398Goodwill at December 31, 2008


258,092



84,046



108,410



450,548Net adjustment to Alpharma acquisition


8,932



8,133







17,065Goodwill at December 31, 2009

$
267,024


$
92,179


$
108,410


$
467,613       11.
    Lease
    Obligations    2010

$
12,5582011


12,0632012


11,1212013


10,7182014


10,172Thereafter


19,469    F-23




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   12.
    Accrued
    Expenses    2009


2008Rebates

$
60,137


$
79,353Accrued co-promotion fees


1,203



3,057Product returns


30,345



33,471Chargebacks


10,593



9,965Royalties


37,742



39,003Restructuring


19,171



47,878Accrued bonuses


37,867



41,827Alpharma stock compensation






51,201DOJ settlement (Note 19)


42,500



Other


81,434



105,733Total accrued expenses

$
320,992


$
411,488   13.
    Long-Term
    Debt    2009


2008Convertible senior notes

$
332,305


$
314,416Senior secured revolving credit facility


92,261



425,000Senior secured term facility






192,042Alpharma convertible senior notes






385,227Total long-term debt


424,566



1,316,685Less current portion


85,550



439,047Long-term portion

$
339,016


$
877,638   Convertible
    Senior Notes
  General
  1 4 1 4
   F-24




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      
    if the price of the Companys common stock reaches a
    specified threshold during specified periods,
    if the Notes have been called for redemption, or
    if specified corporate transactions or other specified events
    occur.      Adoption of New Accounting
    Standards.
  Adoption
    of New Accounting Standards
     F-25




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Consolidated Statement of Operations
 for the years ended December 31, 2008 and 2007
  2008


2007As Reported








As ReportedAs Currently


Prior to


Effect of


As Currently


Prior to


Effect ofReported


Adoption


Change


Reported


Adoption


ChangeDepreciation and amortization

$
151,477


$
150,713


$
764


$
174,348


$
173,863


$
485Total operating costs and expenses


1,785,470



1,784,706



764



1,909,854



1,909,369



485Operating (loss) income


(220,409
)


(219,645
)


(764
)


227,028



227,513



(485
)Interest expense


(21,631
)


(7,943
)


13,688



(19,794
)


(7,818
)


11,976Total other (expense) income


4,253



17,941



(13,688
)


11,329



23,305



(11,976
)Income before income taxes


(216,156
)


(201,704
)


(14,452
)


238,357



250,818



(12,461
)Income tax expense


125,880



131,359



(5,479
)


62,888



67,600



(4,712
)Net (loss) income


(342,036
)


(333,063
)


(8,973
)


175,232



182,981



(7,749
)Income per common share:Basic net (loss) income per common share

$
(1.40
)

$
(1.37
)

$
(0.03
)

$
0.72


$
0.75


$
(0.03
)Diluted net (loss) income per common share

$
(1.40
)

$
(1.37
)

$
(0.03
)

$
0.72


$
0.75


$
(0.03
)Total comprehensive (loss) income

$
(372,280
)

$
(363,307
)

$
(8,973
)

$
177,471


$
185,220


$
(7,749
)   Consolidated Balance Sheet
 As of December 31, 2008
  As ReportedAs Currently


Prior to


Effect ofReported


Adoption


ChangeProperty, plant and equipment, net

$
417,259


$
409,821


$
7,438Deferred income tax assets


269,116



303,722



(34,606
)Other assets


122,826



124,774



(1,948
)Total assets


4,228,580



4,257,696



(29,116
)Long-term debt


877,638



963,222



(85,584
)Total liabilities


1,994,781



2,080,365



(85,584
)Common stock


1,391,065



1,313,321



77,744Retained earnings


871,021



892,297



(21,276
)Shareholders equity


2,233,799



2,177,331



56,468Total liabilities and shareholders equity


4,228,580



4,257,696



(29,116
)    F-26




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2009


2008Gross carrying amount

$
400,000


$
400,000Unamortized debt discount


67,695



85,584Net carrying amount

$
332,305


$
314,416   Senior
    Secured Revolving Credit Facility
                  
    a base rate generally defined as the sum of (i) the greater
    of (a) the prime rate of Credit Suisse and (b) the
    federal funds effective rate plus 0.5% and (ii) an
    applicable percentage of 4.0%; or
    an adjusted rate generally defined as the sum of (i) the
    product of (a) LIBOR (by reference to the British Banking
    Association Interest Settlement Rates) and (b) a fraction
    the numerator of which is one and the denominator of which is
    the number one minus certain maximum statutory reserves for
    eurocurrency liabilities and (ii) an applicable percentage
    of 5.0%.   F-27




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      
    maintenance of maximum funded debt to consolidated EBITDA ratios
    that range from 1.50 to 1 to 3.25 to 1 (depending on dates and
    the occurrence of certain events relating to certain
    patents); and
    maintenance of minimum consolidated EBITDA to interest expense
    ratios that range from 3.75 to 1 to 4.00 to 1 (depending on
    dates and the occurrence of certain events relating to certain
    patents).        Senior
    Secured Term Facility
          
    5.00% plus the Adjusted LIBO Rate, or
    4.00% plus the Alternate Base Rate. F-28




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Alpharma
    Convertible Senior Notes
    14.
    Other
    Liabilities    2009


2008Income taxes payable

$
69,126


$
56,375Restructuring


8,960



21,124Pension and postretirement benefits


21,223



11,839Other


24,062



20,684$
123,371


$
110,022   15.
    Fair
    Value Measurements  Cash and Cash Equivalents.
  Derivatives. non-U.S. cash
   F-29




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        For the Year Ended December 31, 2009Gain or (Loss) in

Gain or (Loss)Other

Reclassified fromComprehensive

Accumulated Other



Gain or (Loss)Income on

Comprehensive



RecordedDerivatives in Cash Flow

Derivative

Income into Income



in IncomeHedging Relationships

(Effective Portion)

(Effective Portion)



(Ineffective Portion)Interest rate swap

$



$
(232
)





$
(606
)   For the Year EndedDecember 31,2009Gain or (Loss)Recognized inDerivatives not Designated as



Income onHedging Instruments



Derivative AmountForeign currency contracts

Other income

$
(5,360
)   Marketable Securities. other-than-temporary other-than-temporary
  Investments in Debt Securities.
 F-30




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    available-for-sale Other-than-temporary other-than-temporary
      other-than-temporary, other-than-temporary. net-of-tax) other-than-temporary
     F-31




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    available-for-sale
      Fair Value Measurements at 12/31/2009 UsingQuoted Prices in


Significant Other


SignificantActive Markets for


Observable


UnobservableIdentical Assets


Inputs


InputsDescription

12/31/2009


(Level 1)


(Level 2)


(Level 3)Assets:Money market funds

$
518,950


$
518,950


$



$
U.S. government securities


4,138



4,138







Marketable securities


2,100



2,100







Investments in debt securities


247,866











247,866Right to sell debt securities


3,226











3,226Total assets

$
776,280


$
525,188


$



$
251,092   Fair Value Measurements at 12/31/2008 UsingQuoted Prices in


Significant Other


SignificantActive Markets for


Observable


UnobservableIdentical Assets


Inputs


InputsDescription

12/31/2008


(Level 1)


(Level 2)


(Level 3)Assets:Money market funds

$
833,653


$
833,653


$



$
Marketable securities


511



511







Investments in debt securities


360,289







2,400



357,889Right to sell debt securities


4,024











4,024Total assets

$
1,198,477


$
834,164


$
2,400


$
361,913Liabilities:Forward foreign exchange contracts

$
2,582


$



$
2,582


$
      F-32




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2009


2008Beginning balance, January 1

$
361,913


$
Total gains or losses (realized/unrealized)Included in earnings


(5,884
)


(11,475
)Adjustment to retained earnings upon adoption of new accounting
    pronouncement


1,042



Included in other comprehensive income (loss)


20,684



(45,311
)Settlements


(127,163
)


(355,400
)Transfers in and/or out of Level 3


500



774,099Ending balance, December 31

$
251,092


$
361,913   16.
    Pension
    Plans and Postretirement Benefits     F-33




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Benefit
    Obligations
  PostretirementPension Benefits


Benefits2009


2009Change in benefit obligationProjected benefit obligation (PBO) at beginning of
    year

$
51,081


$
9,305Service cost






93Interest cost


2,981



535Plan participants contributions






110Actuarial (gain) loss


(829
)


1,035Benefits paid


(1,685
)


(554
)Plan amendments






412Settlements


(36
)


PBO at end of year

$
51,512


$
10,936   Pension


Postretirement


Pension


PostretirementBenefit


Benefit


Benefit


BenefitObligation


Obligation


Obligation


Obligation2009


2009


2008


2008Weighted-average assumptions used to determine benefit
    obligations as of December 31:Discount rate


6.00
%


6.00
%


6.00
%


6.00
%Rate of compensation increase


N/A



N/A



N/A



N/AHealth care cost trend rateInitial rate


N/A



8
%


N/A



8
%Ultimate rate


N/A



5
%


N/A



5
%Number of years to ultimate rate


N/A



9



N/A



6  F-34




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Plan
    Assets
  PostretirementPension Benefits


Benefits2009


2009Change in plan assetsFair value of plan assets at beginning of year

$
45,787


$
Actual return on plan assets


(3,228
)


Employer contribution


50



444Plan participant contributions






110Benefits paid


(1,685
)


(554
)Settlements


(36
)


Fair value of plan assets at end of year

$
40,888


$
   Fair Value Measurements at 12/31/2009 UsingQuoted Prices in


Significant Other


SignificantActive Markets for


Observable


UnobservableIdentical Assets


Inputs


InputsDescription

12/31/2009


(Level 1)


(Level 2)


(Level 3)Assets:Money market funds

$
354


$
354


$



$
Mutual funds


40,534



40,534







Total assets

$
40,888


$
40,888


$



$
   Funded
    Status
    Postretirement





PostretirementPension Benefits


Benefits


Pension Benefits


Benefits2009


2009


2008


2008Funded status, end of yearFair value of plan assets

$
40,888


$



$
45,787


$
Benefit obligations


(51,512
)


(10,936
)


(51,081
)


(9,305
)Funded status

$
(10,624
)

$
(10,936
)

$
(5,294
)

$
(9,305
)Consolidated Balance SheetCurrent liability

$
(12
)

$
(487
)

$
(12
)

$
(330
)Noncurrent liability


(10,612
)


(10,449
)


(5,282
)


(8,975
)Liability recognized

$
(10,624
)

$
(10,936
)

$
(5,294
)

$
(9,305
)Accumulated other comprehensive incomePrior service cost

$



$
411


$



$
Net actuarial loss


5,228



1,076







Accumulated other comprehensive income

$
5,228


$
1,487


$



$
  F-35




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2009


2008Projected Benefit Obligation in Excess of Plan AssetsProjected benefit obligation, end of year

$
(51,512
)

$
(51,081
)Fair value of plan assets, end of year


40,888



45,787     2009


2008Accumulated Benefit Obligation in Excess of Plan AssetsProjected benefit obligation, end of year

$
(51,512
)

$
(51,081
)Accumulated benefit obligation, end of year


(51,512
)


(51,081
)Fair value of plan assets, end of year


40,888



45,787     One-Percentage-PointIncrease

DecreaseAccumulated postretirement benefit obligation change

$
1,517


$
(1,261
)Aggregate service and interest cost


96



(79
)   Expected
    Cash Flows
  Pension

PostretirementBenefits

BenefitsExpected employer contributions in 2010

$
121


$
487   Expected
    Benefit Payments
  Pension


PostretirementBenefits


Benefits2010

$
1,317


$
4872011


1,465



5272012


1,675



5672013


1,887



6352014


2,048



7222015 - 2019


13,679



4,302   F-36




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  PostretirementPension Benefits


BenefitsYear Ended


Years EndedDecember 31,


December 31,Components of Net Periodic Benefit Cost:

2009


2009Service cost

$



$
93Interest cost


2,981



535Expected return on plan assets


(2,831
)


Net amortization of transition obligations






(7
)Settlement (gain)/loss


2



Net periodic benefit cost

$
152


$
621   Postretirement





PostretirementPension Benefits


Benefits


Pension Benefits


Benefits2009


2009


2008


2008Other Changes in Plan Assets and Benefit Obligations
    Recognized in Other Comprehensive Income:Current year actuarial (gain) loss

$
5,230


$
1,076


$



$
Current year prior service cost






411







Settlement credit


(2
)










Total recognized other comprehensive income

$
5,228


$
1,487


$



$
   PostretirementPension Benefits


BenefitsWeighted-Average Assumptions Used to Determine Net Cost:

2009


2009Discount rate


6.00
%


6.00
%Expected return on plan assets


6.25
%


N/ARate of compensation increase


N/A



N/A     Pension


PostretirementNet actuarial loss

$
37


$
(5
)Prior service cost (benefit)






121Total

$
37


$
116  F-37




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   17.
    Income
    Taxes    For the Years Ended December 31,2009


2008


2007Income (loss) before income taxes:Domestic

$
151,389


$
(215,364
)

$
237,506Foreign


(800
)


(792
)


851Total

$
150,589


$
(216,156
)

$
238,357     For the Years Ended December 31,2009


2008


2007CurrentFederal

$
(3,354
)

$
82,772


$
143,304State


3,376



8,369



5,453Foreign


3,449



1,130



1,351Total current

$
3,471


$
92,271


$
150,108DeferredFederal

$
59,011


$
32,208


$
(89,006
)State


(2,787
)


1,510



1,181Foreign


(1,059
)


(109
)


605Total deferred

$
55,165


$
33,609


$
(87,220
)Total expense

$
58,636


$
125,880


$
62,888     For the Years Ended December 31,2009


2008


2007Federal statutory tax rate


35.0
%


35.0
%


35.0
%State income taxes, net of federal benefit


0.4



(4.4
)


2.6Foreign rate differential


(2.3
)






Research and development in process upon acquisition






(95.5
)


Change in valuation allowances


3.2







Stock compensation


2.8







Domestic manufacturing deduction






2.3



(3.9
)Tax-exempt interest income


(0.8
)


4.1



(5.6
)Other


0.6



0.3



(1.7
)Effective tax rate


38.9
%


(58.2
)%


26.4
%  F-38




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2009


2008Accrued expenses and reserves

$
67,178


$
93,934Net operating losses


285,665



300,057Intangible assets


315,615



296,151Other


75,904



41,843Total deferred tax assets


744,362



731,985Valuation allowance


(278,553
)


(276,416
)Net deferred tax assets


465,809



455,569Property, plant and equipment


(57,974
)


(60,365
)Other


(59,998
)


(36,575
)Total deferred tax liabilities


(117,972
)


(96,940
)Net deferred tax assets

$
347,837


$
358,629      F-39




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Liability ForUnrecognizedTax BenefitsBalance at January 1, 2007

$
36,748Additions based on tax positions of the current year


5,279Additions for tax provisions of prior years


51Reduction for expiration of applicable Statute of Limitations


(7,568
)Balance at December 31, 2007

$
34,510Additions based on tax positions of the current year


4,017Additions for tax provisions of prior years


4,101Reduction for expiration of applicable Statute of Limitations


(4,195
)Alpharma acquisition


11,514Balance at December 31, 2008

$
49,947Additions based on tax positions of the current year


5,630Additions for tax positions of prior years


6,450Reduction for expiration of applicable Statute of Limitations


(5,551
)Balance at December 31, 2009

$
56,476     non-U.S. income
      18.
    Benefit
    Plans   F-40




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    19.
    Commitments
    and Contingencies  Intellectual
    Property Matters
  Skelaxin®
  ® ® method-of-use ® ® ®
  30-month 30-month
 F-41




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    method-of-use ® ®
  ® ®
  ® ® ® ®
 F-42




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ® ® ® ®
  Avinza®
  ® ®
      ® ® ®
  Adenoscan®
   F-43




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ®
  EpiPen®
    Embeda®
  and/or ®
   F-44




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ®
  Average
    Wholesale Price Litigation
  In re:
    Pharmaceutical Industry Average Wholesale Pricing Litigation
     F-45




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Fen-Phen
    Litigation
  In
    re Fen-Phen Litigation. and/or
  ®
  ®
 F-46




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Hormone
    Replacement Therapy
  In re: Prempro Products
    Liability Litigation
  Alpharma
    Matters
  and/or
  Department
    of Justice Investigation
  ® ®
   F-47




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Chicken
    Litter Litigation
        AWP
    Litigation
  ®
   
    Superior Court for the State of Alaska, Third Judicial District
    of Anchorage;
    Second Judicial Court in and for Leon County, Florida;
    Circuit Court of Cook County, Illinois, County Department,
    Chancery Division; and
    Court of Common Pleas, for the Fifth Judicial District, State of
    South Carolina, County of Richland. F-48




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Environmental
    Matters
    Other
    Contingencies
    2010

$
178,9202011


27,9672012


23,7902013


24,3202014


24,875Thereafter


51,626Total

$
331,498     20.
    Segment
    Information  ®
 F-49




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      ®
  For the Years Ended December 31,2009


2008


2007Total revenues:Branded prescription pharmaceuticals

$
1,113,005


$
1,263,488


$
1,857,813Animal Health


359,075







Meridian Auto-Injector


252,614



218,448



183,860Royalties and other


51,806



83,125



95,209Total revenues

$
1,776,500


$
1,565,061


$
2,136,882Segment profit:Branded prescription pharmaceuticals(1)

$
823,250


$
964,627


$
1,390,306Animal Health(1)


134,575







Meridian Auto-Injector


150,750



132,898



107,810Royalties and other


45,161



72,711



72,232Other operating costs and expenses


(917,382
)


(1,390,645
)


(1,343,320
)Other (expense) income


(85,765
)


4,253



11,329Income (loss)  from continuing operations before tax

$
150,589


$
(216,156
)

$
238,357   As of December 31,2009


2008Total assets:Branded prescription pharmaceuticals

$
2,550,176


$
3,032,403Animal Health


471,999



860,524Meridian Auto-Injector


288,615



309,417Royalties and other


17,800



26,236Total assets

$
3,328,590


$
4,228,580     (1)
    
    The segment profit for branded prescription pharmaceuticals and
    Animal Health for 2009 includes additional costs of $7,810 and
    $34,128, respectively, related to the mark up of inventory upon
    acquisition of Alpharma, which was recognized as the related
    inventory was sold. For additional information, please see
    Note 9. F-50




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     For the Years Ended December 31,2009


2008


2007Total revenues:Neuroscience

$
691,693


$
612,853


$
627,244Hospital


197,673



267,913



292,380Legacy:Cardiovascular/metabolic


148,710



299,951



809,888Other


74,929



82,771



128,301Consolidated branded prescription pharmaceutical revenues

$
1,113,005


$
1,263,488


$
1,857,813       RevenuesFor the Years Ended December 31,2009


2008


2007Total revenues:United States

$
1,611,659


$
1,514,185


$
2,096,920Other


164,841



50,876



39,962Total

$
1,776,500


$
1,565,061


$
2,136,882   Long lived assetsAs of December 31,2009


2008Total long lived assets:United States

$
1,609,839


$
1,720,596Other


43,752



81,430Total

$
1,653,591


$
1,802,026   21.
    Stock-Based
    Compensation    Restricted
    Stock Awards, Restricted Stock Units and Long-Term Performance
    Unit Awards
   F-51




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             F-52




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    WeightedAverageGrant-DateShares


Fair ValueRestricted Stock Awards:Nonvested balance at December 31, 2008


2,748,115


$
12.40Granted


1,172,490



8.14Vested


(474,405
)


14.61Forfeited


(40,750
)


7.82Nonvested balance at December 31, 2009


3,405,450


$
10.68Restricted Stock Units:Nonvested balance at December 31, 2008


95,649


$
9.97Granted


128,766



8.87Vested


(54,108
)


9.98Forfeited






Nonvested balance at December 31, 2009


170,307


$
9.14Long-Term Performance Unit Awards (one-year performance
    cycle):Nonvested balance at December 31, 2008


2,080,111


$
17.37Granted


975,670



6.97Vested


(976,689
)


18.63Forfeited


(21,217
)


13.66Nonvested balance at December 31, 2009


2,057,875


$
12.28Long-Term Performance Unit Awards (three-year performance
    cycle):Nonvested balance at December 31, 2008


445,565


$
22.51Granted


184,325



11.38Vested


(94,630
)


25.12Forfeited


(4,100
)


7.23Nonvested balance at December 31, 2009


531,160


$
14.54     Stock
    Options
   F-53




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2009


2008


2007Expected volatility


41.9
%


43.9
%


43.7
%Expected term (in years)


6



6



6Risk-free interest rate


1.93
%


2.98
%


4.40
%Expected dividend yield


0.00
%


0.00
%


0.00
%Grant date fair value per share

$
2.98


$
4.30


$
9.15       WeightedAverageWeighted


Remaining


AggregateAverage


Contractual


IntrinsicShares


Exercise Price


Term (Years)


ValueOutstanding options, December 31, 2008


6,265,140


$
15.44



6.60


$
2,964Granted


1,989,040



6.97Exercised


(215,959
)


8.66Expired


(1,019,697
)


17.28Forfeited


(87,007
)


8.09Outstanding options, December 31, 2009


6,931,517


$
13.04



6.64


$
15,896Exercisable, December 31, 2009


3,694,829


$
17.21



4.80


$
2,238Expected to vest, December 31, 2009


2,925,647


$
8.29



8.76


$
12,405           2009


2008


2007Total intrinsic value of stock options exercised

$
272


$
224


$
1,779Total fair value of RSAs vested


6,931



8,202



985Total fair value of LPUs vested


20,578



3,354



1,288Total fair value of RSUs vested


540



840



779  F-54




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    22.
    Shareholders
    Equity  Preferred
    Shares
    Accumulated
    Other Comprehensive Income
    For the Years Ended December 31,2009


2008Net unrealized losses on investments in debt securities, net of
    tax

$
(15,054
)

$
(28,092
)Net unrealized gains on marketable securities, net of tax


989



Unrecognized loss on pensions, net of tax


(4,151
)


Foreign currency translation


2,414



(195
)$
(15,802
)

$
(28,287
)   23.
    Income
    per Common Share    For the Years Ended December 31,2009


2008


2007Basic income per common share:Weighted average common shares


244,644,594



243,539,157



242,854,421Diluted income per common share:Weighted average common shares


244,644,594



243,539,157



242,854,421Effect of stock options


146,301







402,208Effect of dilutive share awards


3,030,930







872,765Weighted average common shares


247,821,825



243,539,157



244,129,394      F-55




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  1 4
  24.
    Recently
    Issued Accounting Standards      other-than-temporary,
     F-56




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      25.
    Restructuring
    Activities  First
    Quarter of 2009 Action
  ® ® ® ®
  ®
   F-57




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fourth
    Quarter of 2008 Action
      Third
    Quarter of 2008 Action
  ®
  Third
    Quarter of 2007 Action
  ®
    tm
    Third
    Quarter of 2006 Action
  ®
 F-58




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accrued














Accrued














AccruedBalance at


Income











Balance at


Income











Balance atDecember 31,


Statement


Alpharma


Cash


Non-Cash


December 31,


Statement


Alpharma


Cash


Non-Cash


December 31,2007


Impact


Acquisition


Payments


Costs


2008


Impact


Acquisition


Payments


Costs


2009Third quarter of 2009 actionEmployee separation payments

$



$



$



$



$



$



$
1,087


$



$
7


$



$
1,080First quarter of 2009 actionEmployee separation payments


























48,585







45,083



3,188



314Contract termination


























575







575







Other


























461







461







Accelerated depreciation(1)


























230











230



Fourth quarter of 2008 actionEmployee separation payments






5,350



44,196







109



49,437



916



3,947



39,443



(1,320
)


16,177Contract termination






5



16,796











16,801



(3
)


(605
)


8,079



(1,079
)


9,193Other










182











182



(1
)






(1
)






182Accelerated depreciation(1)


























140











140



Third quarter of 2008 actionEmployee separation payments






272







261



2



9











9







Third quarter of 2007 actionEmployee separation payments


21,144



1,530







22,571







103



(103
)














Contract termination






(94
)






(291
)


197







4







4







Accelerated depreciation(1)






(88
)










(88
)






















Other


880



174







1,054



























First quarter of 2007 actionEmployee separation payments


1,061



(1,061
)


































Third quarter of 2006 actionEmployee separation payments


3,475



180







1,009



184



2,462



(354
)






890



33



1,185Accelerated depreciation(1)






2,685











2,685







590











590



Fourth quarter of 2005 actionEmployee separation payments


774



743







1,509







8











8







$
27,334


$
9,696


$
61,174


$
26,113


$
3,089


$
69,002


$
52,127


$
3,342


$
94,558


$
1,782


$
28,131     (1)
    
    Included in depreciation and amortization on the Consolidated
    Statements of Income.   F-59




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  26.
    Quarterly
    Financial Information (unaudited)    First


Second


Third


Fourth2009 By QuarterTotal revenues

$
429,057


$
444,988


$
463,349


$
439,106Operating income


7,140



89,781



87,168



52,265Net income (loss)


(10,722
)


37,935



42,488



22,252Basic income (loss) per common share(1)

$
(0.04
)

$
0.16


$
0.17


$
0.09Diluted income (loss) per common share(1)

$
(0.04
)

$
0.15


$
0.17


$
0.09   First


Second


Third


Fourth2008 By QuarterTotal revenues

$
432,033


$
396,851


$
388,445


$
347,732Operating income (loss)


121,281



57,655



122,800



(522,145
)Net income (loss)


85,556



40,761



82,472



(550,825
)Basic income (loss) per common share(1)

$
0.35


$
0.17


$
0.34


$
(2.26
)Diluted income (loss) per common share(1)

$
0.35


$
0.17


$
0.34


$
(2.26
)     (1)
    
    Quarterly amounts may not total to annual amounts due to the
    effect of rounding on a quarterly basis.  27.
    Guarantor
    Financial Statements     F-60




---



##### Table of Contents





KING
    PHARMACEUTICALS, INC.NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    GUARANTOR SUBSIDIARIES
    CONDENSED CONSOLIDATING BALANCE SHEETS
  As of December 31, 2009


As of December 31, 2008Non














NonGuarantor


Guarantor


Eliminating


King





Guarantor


Guarantor


Eliminating


KingKing


Subsidiaries


Subsidiaries


Entries


Consolidated


King


Subsidiaries


Subsidiaries


Entries


ConsolidatedASSETSCurrent assets:Cash and cash equivalents

$
277,603


$
30,779


$
236,930


$



$
545,312


$
401,657


$
52


$
538,503


$



$
940,212Investments in debt securities


29,258















29,258



6,441















6,441Marketable securities


2,100















2,100



511















511Accounts receivable, net


2,467



174,713



33,076







210,256



61



140,502



104,507







245,070Inventories


43,834



111,242



28,642



(1,427
)


182,291



59,279



26,406



172,618







258,303Deferred income tax assets


30,828



52,597



250







83,675



36,041



26,146



27,326







89,513Income tax receivable


17,983



(1,865
)


(27
)






16,091



















Prepaid expenses and other current assets


14,972



44,384



1,504







60,860



14,090



8,283



106,841







129,214Total current assets


419,045



411,850



300,375



(1,427
)


1,129,843



518,080



201,389



949,795







1,669,264Property, plant, and equipment, net


148,399



234,233



9,207







391,839



140,314



115,996



160,949







417,259Intangible assets, net






759,583



34,556







794,139







633,300



300,919







934,219Goodwill






467,613











467,613







129,150



321,398







450,548Deferred income tax assets


(26,551
)


290,104



609







264,162



(16,750
)


340,764



(54,898
)






269,116Investments in debt securities


218,608















218,608



353,848















353,848Other assets


32,368



23,795



333







56,496



72,442



23,704



26,680







122,826Assets held for sale






5,890











5,890







11,500











11,500Investments in subsidiaries


3,027,491



938,020



(88
)


(3,965,423
)






2,896,242











(2,896,242
)


Total assets

$
3,819,360


$
3,131,088


$
344,992


$
(3,966,850
)

$
3,328,590


$
3,964,176


$
1,455,803


$
1,704,843


$
(2,896,242
)

$
4,228,580LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
27,377


$
53,966


$
5,349


$



$
86,692


$
61,255


$
20,107


$
59,546


$



$
140,908Accrued expenses


31,541



279,662



9,789







320,992



32,456



165,460



213,572







411,488Income taxes payable






















1,288



169



8,991







10,448Short term debt










3,662







3,662











5,230







5,230Current portion of long term debt


85,550















85,550



53,820







385,227







439,047Total current liabilities


144,468



333,628



18,800







496,896



148,819



185,736



672,566







1,007,121Long-term debt


339,016















339,016



877,638















877,638Other liabilities


59,884



48,579



14,908







123,371



54,355



4,595



51,072







110,022Intercompany payable (receivable)


906,685



(932,193
)


25,508











649,565



(655,145
)


5,580







Total liabilities


1,450,053



(549,986
)


59,216







959,283



1,730,377



(464,814
)


729,218







1,994,781Shareholders equity


2,369,307



3,681,074



285,776



(3,966,850
)


2,369,307



2,233,799



1,920,617



975,625



(2,896,242
)


2,233,799Total liabilities and shareholders equity

$
3,819,360


$
3,131,088


$
344,992


$
(3,966,850
)

$
3,328,590


$
3,964,176


$
1,455,803


$
1,704,843


$
(2,896,242
)

$
4,228,580  F-61




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)GUARANTOR SUBSIDIARIES
    CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS INCOME
    (LOSS)
  For the Year Ended 12/31/2009


For the Year Ended 12/31/2008


For the Year Ended 12/31/2007Non














Non














NonGuarantor


Guarantor





King





Guarantor


Guarantor





King





Guarantor


Guarantor





KingKing


Subsidiaries


Subsidiaries


Eliminations


Consolidated


King


Subsidiaries


Subsidiaries


Eliminations


Consolidated


King


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedRevenues:Net sales

$
367,968


$
1,626,112


$
149,930


$
(418,307
)

$
1,725,703


$
430,901


$
1,456,260


$
36,770


$
(438,312
)

$
1,485,619


$
578,050


$
2,049,800


$
437


$
(573,994
)

$
2,054,293Royalty revenue






50,797











50,797







79,442











79,442







82,589











82,589Total revenues


367,968



1,676,909



149,930


$
(418,307
)


1,776,500



430,901



1,535,702



36,770



(438,312
)


1,565,061



578,050



2,132,389



437



(573,994
)


2,136,882Operating costs and expenses:Cost of revenues


98,509



846,046



98,047



(419,838
)


622,764



128,399



690,554



14,488



(438,616
)


394,825



284,626



855,196



403



(573,691
)


566,534Selling, general and administrative


209,841



309,287



29,432







548,560



252,211



191,775



3,416







447,402



301,522



389,218



294







691,034Research and development


5,977



89,443



3,232







98,652



6,556



147,117



590,000







743,673



6,414



178,321











184,735Depreciation and amortization


20,385



190,402



3,706







214,493



19,821



131,338



318







151,477



19,613



154,495



240







174,348Asset impairments






4,510











4,510



114



39,315



1,566







40,995







223,025











223,025Restructuring charges


14,939



36,228











51,167



3,750



3,348











7,098



37,729



32,449











70,178Total operating costs and expenses


349,651



1,475,916



134,417



(419,838
)


1,540,146



410,851



1,203,447



609,788



(438,616
)


1,785,470



649,904



1,832,704



937



(573,691
)


1,909,854Operating income (loss)


18,317



200,993



15,513



1,531



236,354



20,050



332,255



(573,018
)


304



(220,409
)


(71,854
)


299,685



(500
)


(303
)


227,028Other income (expense):Interest income


3,601



(4,274
)


6,599







5,926



36,873



64



33







36,970



42,376



106



9







42,491Interest expense


(83,708
)


(4,246
)


(269
)






(88,223
)


(21,602
)


(29
)










(21,631
)


(19,740
)


(54
)










(19,794
)Loss on investment


(5,884
)














(5,884
)


(7,451
)














(7,451
)


(11,591
)














(11,591
)Other, net


586



(1,803
)


3,633







2,416



(2,798
)


150



(987
)






(3,635
)


(1,093
)


827



489







223Equity in earnings (loss) of subsidiaries


137,332



20,461



(79
)


(157,714
)






(335,768
)










335,768







210,824











(210,824
)


Intercompany interest (expense) income


(5,858
)


22,921



(17,063
)










(11,682
)


28,909



(17,227
)










(8,729
)


8,807



(78
)






Total other income (expenses)


46,069



33,059



(7,179
)


(157,714



(85,765
)


(342,428
)


29,094



(18,181
)


335,768



4,253



212,047



9,686



420



(210,824
)


11,329Income (loss) from continuing operations before income taxes


64,386



234,052



8,334



(156,183
)


150,589



(322,378
)


361,349



(591,199
)


336,072



(216,156
)


140,193



309,371



(80
)


(211,127
)


238,357Income tax (benefit) expense


(27,567
)


84,327



1,876







58,636



19,658



105,201



1,021







125,880



(35,342
)


97,535



695







62,888Income (loss) from continuing operations


91,953



149,725



6,458



(156,183
)


91,953



(342,036
)


256,148



(592,220
)


336,072



(342,036
)


175,535



211,836



(775
)


(211,127
)


175,469Discontinued operations:Loss from discontinued operations














































(369
)










(369
)Income tax benefit














































(132
)










(132
)Total loss from discontinued operations














































(237
)










(237
)Net income (loss)

$
91,953


$
149,725


$
6,458


$
(156,183
)

$
91,953


$
(342,036
)

$
256,148


$
(592,220
)

$
336,072


$
(342,036
)

$
175,535


$
211,599


$
(775
)

$
(211,127
)

$
175,232  F-62




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    GUARANTOR SUBSIDIARIES
    CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
  For the Year Ended December 31, 2009


For the Year Ended December 31, 2008


For the Year Ended December 31, 2007Non














Non














NonGuarantor


Guarantor





King





Guarantor


Guarantor





King





Guarantor


Guarantor





KingKing


Subsidiaries


Subsidiaries


Eliminations


Consolidated


King


Subsidiaries


Subsidiaries


Eliminations


Consolidated


King


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedCash flows provided by operating activities of continuing
    operations

$
55,687


$
370,189


$
4,853


$



$
430,729


$
104,480


$
383,528


$
3,383


$



$
491,391


$
50,989


$
620,503


$
1,157


$



$
672,649Cash flows from investing activities of continuing operations:Purchase of investments in debt securities






















(279,175
)














(279,175
)


(2,744,575
)














(2,744,575
)Proceeds from maturity and sale of investments in debt securities


129,064















129,064



1,207,080















1,207,080



2,289,780















2,289,780Transfer (to)/from restricted cash


707



(27
)










680



(100
)














(100
)


(512
)














(512
)Acquisition of Alpharma, net of cash acquired


(13,533
)


(56,697
)










(70,230
)


(1,557,347
)






532,586







(1,024,761
)


















Purchases of property, plant and equipment


(27,461
)


(10,996
)


(321
)






(38,778
)


(43,676
)


(13,766
)


(13
)






(57,455
)


(31,844
)


(17,758
)










(49,602
)Purchases of product rights and intellectual property


(8
)


(3,261
)










(3,269
)


(44
)


(12,065
)










(12,109
)


(23
)


(395,356
)










(395,379
)Proceeds from sales of
    Kadian®






84,800











84,800







































Proceeds from sale of assets


10



848











858



10,350



60











10,410



8



86,279











86,287Loan to Ligand










































37,750















37,750Forward foreign exchange contracts










(8,906
)






(8,906
)






































Net cash provided by (used in) investing activities of
    continuing operations


88,779



14,667



(9,227
)






94,219



(662,912
)


(25,771
)


532,573







(156,110
)


(449,416
)


(326,835
)










(776,251
)Cash flows from financing activities of continuing operations:Proceeds from exercise of stock options, net


1,869















1,869



439















439



10,656















10,656Net (payments) proceeds related to stock-based award activity


(3,574
)














(3,574
)


(2,441
)














(2,441
)


705















705Proceeds from issuance of long-term debt






















617,000















617,000



















Payments on debt


(532,739
)


(385,227
)


(1,568
)






(919,534
)






































Debt issuance costs


(1,313
)














(1,313
)


(30,076
)














(30,076
)


(1,527
)














(1,527
)Intercompany


267,237



(258,846
)


(8,391
)










365,449



(362,350
)


(3,099
)










297,101



(297,772
)


671







Net cash (used in) provided by financing activities of
    continuing operations


(268,520
)


(644,073
)


(9,959
)






(922,552
)


950,371



(362,350
)


(3,099
)






584,922



306,935



(297,772
)


671







9,834Effect of exchange rate changes on cash










2,704







2,704







































(Decrease) increase in cash and cash equivalents


(124,054
)


(259,217
)


(11,629
)






(394,900
)


391,939



(4,593
)


532,857







920,203



(91,492
)


(4,104
)


1,828







(93,768
)Cash and cash equivalents, beginning of year


401,657



289,996



248,559







940,212



9,718



4,645



5,646







20,009



101,210



8,749



3,818







113,777Cash and cash equivalents, end of year

$
277,603


$
30,779


$
236,930


$



$
545,312


$
401,657


$
52


$
538,503


$



$
940,212


$
9,718


$
4,645


$
5,646


$



$
20,009  F-63




---



##### Table of Contents





SIGNATURES
      By:
    /s/  Brian
    A. Markison   Chairman of the Board,
 President and Chief Executive Officer
      Signature

Capacity

Date/s/  BRIAN
    A. MARKISONBrian
    A. Markison

Chairman of the Board, President and Chief Executive Officer

February 25, 2010/s/  JOSEPH
    SQUICCIARINOJoseph
    Squicciarino

Chief Financial Officer (principal financial and accounting
    officer)

February 25, 2010/s/  TED
    G. WOODTed
    G. Wood

Lead Independent Director

February 25, 2010/s/  KEVIN
    S. CRUTCHFIELDKevin
    S. Crutchfield

Director

February 25, 2010Earnest
    W. Deavenport, Jr.

Director/s/  ELIZABETH
    M. GREETHAMElizabeth
    M. Greetham

Director

February 25, 2010/s/  PHILIP
    A. INCARNATIPhilip
    A. Incarnati

Director

February 25, 2010/s/  GREGORY
    D. JORDANGregory
    D. Jordan

Director

February 25, 2010/s/  R.
    CHARLES MOYERR.
    Charles Moyer

Director

February 25, 2010/s/  D.
    GREG ROOKERD.
    Greg Rooker

Director

February 25, 2010/s/  DERACE
    L. SCHAFFER, M.D.Derace
    L. Schaffer, M.D.

Director

February 25, 2010  II-1




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.



Schedule II.
    Valuation and Qualifying Accounts  Column A

Column B


Column C Additions


Column D


Column EChargedBalances at


Charged to


(Credited)





Balance atBeginning of


Cost and


to Other





End ofDescription

Period


Expenses


Accounts(2)


Deductions(1)


Period(In thousands)Allowance for doubtful accounts, deducted from accounts
    receivable in the balance sheetYear ended December 31, 2009


4,713



888



346



2,546



3,401Year ended December 31, 2008


5,297



266



863



1,713



4,713Year ended December 31, 2007


5,437



950







1,090



5,297Valuation allowance for deferred tax assets, deducted from
    deferred income tax assets in the balance sheetYear ended December 31, 2009


276,416



19,446



(10,939
)


6,370



278,553Year ended December 31, 2008


9,094



885



267,090



653



276,416Year ended December 31, 2007


8,085



2,248







1,239



9,094     (1)
    
    Amounts represent write-offs of accounts.(2)
    
    Reserve related to certain state and foreign net operating
    losses and certain other deferred tax assets of Alpharma in the
    year ended December 31, 2008. S-1