##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
     Form 10-Q
  (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    June 30, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period from
    to   Commission File
    No. 001-15875
      King Pharmaceuticals,
    Inc.
 (Exact name of registrant as
    specified in its charter)
  Tennessee

54-1684963(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)501 Fifth Street, Bristol, TN(Address of principal
    executive offices)

37620(Zip Code)   (423) 989-8000
 (Registrants telephone
    number, including area code)
   þ o
    Large accelerated filer
    þ

Accelerated filer
    o

Non-accelerated
    filer o

Smaller reporting
    Company o   Rule 12b-2 o þ




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##### 





TABLE OF
    CONTENTS
   
 PagePart I  Financial
    InformationItem 1.

Financial Statements


3Condensed Consolidated Balance Sheets


3Condensed Consolidated Statements of
    Operations


4Condensed Consolidated Statements of Changes in
    Shareholders Equity and Other Comprehensive Income


5Condensed Consolidated Statements of Cash
    Flows


6Notes to Condensed Consolidated Financial
    Statements


7Item 2.

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


30Item 3.

Quantitative and Qualitative Disclosures about
    Market Risk


55Item 4.

Controls and Procedures


55Part II  Other
    InformationItem 1.

Legal Proceedings


55Item 1A.

Risk Factors


55Item 4.

Submission of Matters to a Vote of Security
    Holders


55Item 6.

Exhibits


56Signatures


57EX-10.1 PRODUCT DEVELOPMENT AGREEMENTEX-10.2 DIRECTOR COMPENSATION POLICYEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO   2




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##### Table of Contents



PART I 
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements  KING
    PHARMACEUTICALS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS
    (In thousands) 
    (Unaudited)
  June 30,


December 31,2008


2007ASSETSCurrent assets:Cash and cash equivalents

$
1,095,549


$
20,009Investments in debt securities


97,952



1,344,980Marketable securities


1,078



1,135Accounts receivable, net of allowance of $4,927 and $5,297


169,040



183,664Inventories


104,899



110,308Deferred income tax assets


94,171



100,138Income tax receivable






20,175Prepaid expenses and other current assets


39,216



39,245Total current assets


1,601,905



1,819,654Property, plant and equipment, net


264,439



257,093Intangible assets, net


674,521



780,974Goodwill


129,150



129,150Deferred income tax assets


364,700



343,700Investment in debt securities


334,082



Other assets (includes restricted cash of $16,428 and $16,480)


88,657



96,251Total assets

$
3,457,454


$
3,426,822LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable

$
65,197


$
76,481Accrued expenses


278,564



376,604Income taxes payable


17,149



Total current liabilities


360,910



453,085Long-term debt


400,000



400,000Other liabilities


61,947



62,980Total liabilities


822,857



916,065Commitments and contingencies (Note 8)Shareholders equity


2,634,597



2,510,757Total liabilities and shareholders equity

$
3,457,454


$
3,426,822    3




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    (In thousands, except per share data) 
    (Unaudited)
  Three Months Ended


Six Months EndedJune 30,


June 30,2008


2007


2008


2007Revenues:Net sales

$
373,173


$
522,330


$
786,083


$
1,018,036Royalty revenue


23,678



20,396



42,801



40,720Total revenues


396,851



542,726



828,884



1,058,756Operating costs and expenses:Cost of revenues, exclusive of depreciation, amortization and
    impairments shown below


102,185



125,530



193,646



236,984Selling, general and administrative, exclusive of co-promotion
    fees


101,910



125,684



213,811



248,038Co-promotion fees


10,063



47,524



28,020



93,482Total selling, general and administrative expense


111,973



173,208



241,831



341,520Research and development


48,662



37,355



77,170



69,626Research and development-in-process upon acquisition


5,500



3,100



5,500



3,100Total research and development


54,162



40,455



82,670



72,726Depreciation and amortization


31,805



40,412



91,503



76,090Asset impairments


39,429



74,810



39,429



74,810Restructuring charges (Note 12)


(542
)






517



460Total operating costs and expenses


339,012



454,415



649,596



802,590Operating income


57,839



88,311



179,288



256,166Other income (expense):Interest income


9,261



8,517



22,890



17,783Interest expense


(1,838
)


(1,853
)


(3,642
)


(3,878
)Other, net


(123
)


278



(827
)


(265
)Total other income


7,300



6,942



18,421



13,640Income from continuing operations before income taxes


65,139



95,253



197,709



269,806Income tax expense


22,118



30,394



67,055



88,893Income from continuing operations


43,021



64,859



130,654



180,913Discontinued operations:Loss from discontinued operations






(115
)






(335
)Income tax benefit






(41
)






(120
)Total loss from discontinued operations, net






(74
)






(215
)Net income

$
43,021


$
64,785


$
130,654


$
180,698Income per common share:Basic:Income from continuing operations

$
0.18


$
0.27


$
0.54


$
0.74Total loss from discontinued operations














Net income

$
0.18


$
0.27


$
0.54


$
0.74Diluted:Income from continuing operations

$
0.18


$
0.26


$
0.53


$
0.74Total loss from discontinued operations














Net income

$
0.18


$
0.26


$
0.53


$
0.74    4




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
    SHAREHOLDERS EQUITY
    AND OTHER COMPREHENSIVE INCOME
    (In thousands, except share data) 
    (Unaudited)
  AccumulatedOtherCommon Stock


Retained


ComprehensiveShares


Amount


Earnings


Income (Loss)


TotalBalance at December 31, 2006


243,151,223


$
1,244,986


$
1,043,902


$
(282
)

$
2,288,606Comprehensive income:Net income










180,698







180,698Foreign currency translation














567



567Total comprehensive income


















181,265Adoption of Financial Accounting Standards Board Interpretation
    No. 48










(1,523
)






(1,523
)Stock-based award activity


1,012,783



20,663











20,663Balance at June 30, 2007


244,164,006


$
1,265,649


$
1,223,077


$
285


$
2,489,011Balance at December 31, 2007


245,937,709


$
1,283,440


$
1,225,360


$
1,957


$
2,510,757Comprehensive income:Net income










130,654







130,654Net unrealized loss on investments in debt securities, net of
    taxes of $13,054














(21,012
)


(21,012
)Foreign currency translation














(336
)


(336
)Total comprehensive income


















109,306Stock-based award activity


544,273



14,534











14,534Balance at June 30, 2008


246,481,982


$
1,297,974


$
1,356,014


$
(19,391
)

$
2,634,597    5




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    (In thousands) 
    (Unaudited)
  Six Months Ended June 30,2008


2007Cash flows provided by operating activities

$
238,227


$
252,722Cash flows from investing activities:Transfers from (to) restricted cash


52



(231
)Purchases of investments in debt securities


(279,175
)


(869,683
)Proceeds from maturities and sales of investments in debt
    securities


1,158,055



891,870Purchases of property, plant and equipment


(32,950
)


(18,094
)Proceeds from sale of property and equipment


77



3Acquisition of
    Avinza®


(42
)


(296,492
)Loan repayment from Ligand






37,750Purchases of intellectual property and product rights


(6,855
)


(65,058
)Net cash provided by (used in) investing activities


839,162



(319,935
)Cash flows from financing activities:Net (payments) proceeds related to stock-based award activity


(1,849
)


9,764Debt issuance costs






(1,623
)Net cash (used in) provided by financing activities


(1,849
)


8,141Increase (decrease) in cash and cash equivalents


1,075,540



(59,072
)Cash and cash equivalents, beginning of period


20,009



113,777Cash and cash equivalents, end of period

$
1,095,549


$
54,705    6




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2008 and 2007
    (In thousands, except share and per share data)
    (Unaudited)
  1.
    General  Form 10-Q Rule 10-01 Regulation S-X Form 10-K
    2.
    Earnings
    Per Share    Three Months Ended June 30,


Six Months Ended June 30,2008


2007


2008


2007Basic income per common share:Weighted average common shares


243,439,861



242,745,937



243,365,118



242,568,089Diluted income per common share:Weighted average common shares


243,439,861



242,745,937



243,365,118



242,568,089Effect of stock options


39,053



813,989



36,902



648,956Effect of dilutive share awards


1,550,079



990,441



1,456,746



893,426Weighted average common shares


245,028,993



244,550,367



244,858,766



244,110,471   1 4
 7




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  3.
    Fair
    Value Measurements  Cash and Cash Equivalents.
  Marketable Securities.
  Investments in Debt Securities. Accounting for Certain Investments in Debt and Equity
    Securities,
          Fair Value
    Measurements No. 157-2, Effective Date of FASB Statement No. 157,
 8




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  The Fair Value Option for Financial
    Assets and Financial Liabilities contract-by-contract
    Fair Value Measurements at June 30, 2008 UsingQuoted Prices in


Significant Other


SignificantActive Markets for


Observable


UnobservableIdentical Assets


Inputs


InputsDescription

June 30, 2008


(Level 1)


(Level 2)


(Level 3)Money Market Funds

$
1,085,350


$
1,085,350


$



$
Marketable Securities


1,078



1,078







Investments in Debt Securities


432,034







16,075



415,959Total

$
1,518,462


$
1,086,428


$
16,075


$
415,959           Fair Value Measurements UsingSignificant UnobservableInputs (Level 3)Investments in Debt SecuritiesBeginning balance, December 31, 2007

$
Total gains or losses (realized/unrealized)Included in other comprehensive income (loss)


(28,418
)Transfers to Level 3


569,775Ending balance, March 31, 2008

$
541,357Total gains or losses (realized/unrealized)Included in other comprehensive income (loss)


(5,648
)Settlements


(103,675
)Transfers out of Level 3


(16,075
)Ending balance, June 30, 2008

$
415,959  9




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      4.
    Inventories   June 30,


December 31,2008


2007Raw materials

$
115,657


$
129,781Work-in-process


32,637



27,590Finished goods (including $5,106 and $3,901 of sample inventory,
    respectively)


66,879



61,324215,173



218,695Inventory valuation allowance


(110,274
)


(108,387
)Total inventories

$
104,899


$
110,308   5.
    Property,
    Plant and Equipment  ®
    6.  Acquisitions,
    Dispositions, Co-Promotions and Alliances
  ® ® ® tm
 10




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ®
  ®
  ® tm ® ® ® tm
  ® ®
 11




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    ® ® ® ®
  ®
  
    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 then the
    royalty payment will be 10% of all net sales up to $250,000,
    plus 15% of net sales greater than $250,000.  ® ® ®
    Intangible assets

$
285,700Goodwill


7,997Inventory


2,800$
296,497    12




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  tm ® tm ® tm ® tm
  7.
    Intangible
    Assets and Goodwill    June 30, 2008


December 31, 2007Gross





GrossCarrying


Accumulated


Carrying


AccumulatedAmount


Amortization


Amount


AmortizationTrademarks and product rights

$
856,558


$
464,187


$
890,091


$
407,264Patents


447,834



165,951



447,821



149,959Other intangibles


1,345



1,078



1,345



1,060Total intangible assets

$
1,305,737


$
631,216


$
1,339,257


$
558,283     ® ® ® ® ® ®
  ® ® ® ® ® ® ® ® ®
 13




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##### Table of Contents



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

MeridianSegment

Segment

TotalGoodwill

$
20,740


$
108,410


$
129,150   8.
    Commitments
    and Contingencies  Intellectual
    Property Matters
  Altace®
  ® ® ®
  ® ® ®
  ®
  Skelaxin®
  ® ® ® ®
 14




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ®
  30-month 30-month 30-month
  ® ®
  ®
 15




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ® ® ®
  ® ® ®
  Avinza®
  ® ®
  ® ® ®
  Average
    Wholesale Price Litigation
  In re:
    Pharmaceutical Industry Average Wholesale Pricing Litigation
   16




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Governmental
    Pricing Investigation and Related Matters
      and/or
 17




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
              Fen/Phen
    Litigation
  In re Fen-Phen
 18




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Litigation. and/or
  ®
  ®
      Hormone
    Replacement Therapy
  In re:
    Prempro Products Liability Litigation
 19




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Other
    Contingencies
  ® ®
    9.
    Accounting
    Developments  14-1, Accounting for Convertible Debt Instruments that May be
    Settled in Cash Upon Conversion 14-1). 14-1 14-1 14-1
  Disclosures about Derivative
    Instruments and Hedging Activities  an amendment of
    FASB Statement No. 133
 20




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  07-01, Accounting for Collaborative Arrangements 07-01). 07-01 07-01 07-01
  Business Combinations
  10.
    Income
    Taxes    11.
    Segment
    Information  ®
   21




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Three Months Ended


Six Months EndedJune 30,


June 30,2008


2007


2008


2007Total revenues:Branded pharmaceuticals

$
315,715


$
466,931


$
685,087


$
916,018Meridian Auto-Injector


55,260



50,896



98,172



93,911Royalties


23,678



20,396



42,801



40,720Contract manufacturing


119,510



158,580



253,336



316,966All other


2,095



1,053



2,408



1,449Eliminations


(119,407
)


(155,130
)


(252,920
)


(310,308
)Consolidated total net revenues

$
396,851


$
542,726


$
828,884


$
1,058,756Segment profit:Branded pharmaceuticals

$
237,006


$
371,172


$
534,009


$
733,385Meridian Auto-Injector


34,753



30,148



61,058



54,723Royalties


20,792



17,769



37,597



35,650Contract manufacturing


27



165



178



369All other


2,088



(2,058
)


2,396



(2,355
)Other operating costs and expense


(236,827
)


(328,885
)


(455,950
)


(565,606
)Other income


7,300



6,942



18,421



13,640Income from continuing operations before tax

$
65,139


$
95,253


$
197,709


$
269,806   As of


As ofJune 30,


December 31,2008


2007Total assets:Branded pharmaceuticals

$
3,119,666


$
3,097,153Meridian Auto-Injector


302,854



299,098Royalties


32,308



30,562Contract manufacturing and all other


2,626



9Consolidated total assets

$
3,457,454


$
3,426,822  22




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Three Months Ended


Six Months EndedJune 30,


June 30,2008


2007


2008


2007Total revenues:Neuroscience

$
151,677


$
159,448


$
316,293


$
304,818Hospital


66,986



73,992



137,903



144,152Acute care


15,414



14,070



35,203



38,840Legacy:Cardiovascular/metabolic


78,635



204,901



188,182



399,291Other


3,003



14,520



7,506



28,917Consolidated branded pharmaceutical revenues

$
315,715


$
466,931


$
685,087


$
916,018   12.
    Restructuring
    Activities  ®
    tm
    ®
 23




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##### Table of Contents



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











AccruedBalance at


Income








Balance atDecember 31,


Statement


Cash


Non-Cash


June 30,2007


Impact in 2008


Payments


Costs


2008Third quarter of 2007 actionEmployee separation payments

$
21,144


$
1,544


$
22,383


$



$
305Contract termination






(108
)


(304
)


196



Accelerated depreciation(1)






(88
)






(88
)


Other


880



173



1,053







First quarter of 2007 actionEmployee separation payments


1,061



(1,061
)










Third quarter of 2006 actionEmployee separation payments


3,475



(685
)


397



74



2,319Accelerated depreciation(1)






1,362







1,362



Fourth quarter of 2005 actionEmployee separation payments


774



654



1,129







299$
27,334


$
1,791


$
24,658


$
1,544


$
2,923     (1)
    
    Included in depreciation and amortization on the Consolidated
    Statements of Operations.    13.
    Stock-Based
    Compensation           24




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      14.
    Change in
    Estimate  ® ® ® ®
    15.
    Guarantor
    Financial Statements  1 4
   25




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  GUARANTOR
    SUBSIDIARIES
  CONDENSED
    CONSOLIDATING BALANCE SHEETS
 (In thousands)
 (Unaudited)
  June 30, 2008


December 31, 2007Non-














Non-Guarantor


Guarantor


Eliminating


King





Guarantor


Guarantor


Eliminating


KingKing


Subsidiaries


Subsidiaries


Entries


Consolidated


King


Subsidiaries


Subsidiaries


Entries


ConsolidatedASSETSCurrent assets:Cash and cash equivalents

$
1,082,846


$
6,199


$
6,504


$



$
1,095,549


$
9,718


$
4,645


$
5,646


$



$
20,009Investments in debt securities


97,952















97,952



1,344,980















1,344,980Marketable securities


1,078















1,078



1,135















1,135Accounts receivable, net


2,626



165,649



765







169,040



9



182,575



1,080







183,664Inventories


72,775



31,949



221



(46
)


104,899



76,981



33,361



269



(303
)


110,308Deferred income tax assets


56,731



37,427



13







94,171



54,917



45,182



39







100,138Income tax receivable






















18,721



1,454











20,175Prepaid expenses and other current assets


31,447



7,765



4







39,216



28,315



10,926



4







39,245Total current assets


1,345,455



248,989



7,507



(46
)


1,601,905



1,534,776



278,143



7,038



(303
)


1,819,654Property, plant and equipment, net


137,732



126,707











264,439



125,847



131,246











257,093Intangible assets, net






671,915



2,606







674,521







778,248



2,726







780,974Goodwill






129,150











129,150







129,150











129,150Deferred income tax assets


11,613



353,023



64







364,700



4,529



339,107



64







343,700Investment in debt securities


334,082















334,082



















Other assets


41,354



47,303











88,657



42,315



53,936











96,251Investments in subsidiaries


1,781,956











(1,781,956
)






1,671,776











(1,671,776
)


Total assets

$
3,652,192


$
1,577,087


$
10,177


$
(1,782,002
)

$
3,457,454


$
3,379,243


$
1,709,830


$
9,828


$
(1,672,079
)

$
3,426,822LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
41,782


$
23,280


$
135


$



$
65,197


$
52,664


$
23,408


$
409


$



$
76,481Accrued expenses


46,483



232,066



15







278,564



69,849



306,732



23







376,604Income taxes payable


19,415



(2,266
)










17,149



















Total current liabilities


107,680



253,080



150







360,910



122,513



330,140



432







453,085Long-term debt


400,000















400,000



400,000















400,000Other liabilities


56,454



5,493











61,947



55,227



7,753











62,980Intercompany payable (receivable)


453,461



(454,509
)


1,048











290,443



(291,114
)


671







Total liabilities


1,017,595



(195,936
)


1,198







822,857



868,183



46,779



1,103







916,065Shareholders equity


2,634,597



1,773,023



8,979



(1,782,002
)


2,634,597



2,511,060



1,663,051



8,725



(1,672,079
)


2,510,757Total liabilities and shareholders equity

$
3,652,192


$
1,577,087


$
10,177


$
(1,782,002
)

$
3,457,454


$
3,379,243


$
1,709,830


$
9,828


$
(1,672,079
)

$
3,426,822  26




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  GUARANTOR
    SUBSIDIARIES
  CONDENSED
    CONSOLIDATING STATEMENTS OF OPERATIONS
 (In thousands)
 (Unaudited)
  Three Months Ended June 30, 2008


Three Months Ended June 30, 2007Non-














Non-Guarantor


Guarantor


Eliminating


King





Guarantor


Guarantor


Eliminating


KingKing


Subsidiaries


Subsidiaries


Entries


Consolidated


King


Subsidiaries


Subsidiaries


Entries


ConsolidatedRevenues:Net sales

$
110,568


$
373,243


$
(59
)

$
(110,579
)

$
373,173


$
130,933


$
520,847


$
78


$
(129,528
)

$
522,330Royalty revenue






23,678











23,678







20,396











20,396Total revenues


110,568



396,921



(59
)


(110,579
)


396,851



130,933



541,243



78



(129,528
)


542,726Operating costs and expenses:Cost of revenues


31,350



181,160



291



(110,616
)


102,185



46,109



208,905



44



(129,528
)


125,530Selling, general and administrative


61,853



50,140



(20
)






111,973



68,203



104,781



224







173,208Research and development


1,722



52,440











54,162



1,234



39,221











40,455Depreciation and amortization


5,859



25,886



60







31,805



4,883



35,469



60







40,412Asset impairments


114



39,315











39,429







74,810











74,810Restructuring charges


(12
)


(530
)










(542
)


















Total operating costs and expenses


100,886



348,411



331



(110,616
)


339,012



120,429



463,186



328



(129,528
)


454,415Operating income


9,682



48,510



(390
)


37



57,839



10,504



78,057



(250
)






88,311Other income (expense):Interest income


9,223



38











9,261



8,496



21











8,517Interest expense


(1,830
)


(8
)










(1,838
)


(1,849
)


(4
)










(1,853
)Other, net


(153
)


104



(74
)






(123
)


175



38



65







278Equity in earnings (loss) of subsidiaries


33,107











(33,107
)






51,555











(51,555
)


Intercompany interest (expense) income


(3,154
)


3,160



(6
)










(6,051
)


6,112



(61
)






Total other income (expense)


37,193



3,294



(80
)


(33,107
)


7,300



52,326



6,167



4



(51,555
)


6,942Income (loss) from continuing operations before income taxes


46,875



51,804



(470
)


(33,070
)


65,139



62,830



84,224



(246
)


(51,555
)


95,253Income tax expense (benefit)


3,854



18,426



(162
)






22,118



(1,955
)


32,435



(86
)






30,394Income (loss) from continuing operations


43,021



33,378



(308
)


(33,070
)


43,021



64,785



51,789



(160
)


(51,555
)


64,859Discontinued operations:Loss from discontinued operations


























(115
)










(115
)Income tax benefit


























(41
)










(41
)Total loss from discontinued operations, net


























(74
)










(74
)Net income (loss)

$
43,021


$
33,378


$
(308
)

$
(33,070
)

$
43,021


$
64,785


$
51,715


$
(160
)

$
(51,555
)

$
64,785  27




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  GUARANTOR
    SUBSIDIARIES
  CONDENSED
    CONSOLIDATING STATEMENTS OF OPERATIONS
 (In thousands)
 (Unaudited)
  Six Months Ended June 30, 2008


Six Months Ended June 30, 2007Non-














Non-Guarantor


Guarantor





King





Guarantor


Guarantor





KingKing


Subsidiaries


Subsidiaries


Eliminations


Consolidated


King


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedRevenues:Net sales

$
229,705


$
785,485


$
279


$
(229,386
)

$
786,083


$
258,695


$
1,016,108


$
127


$
(256,894
)

$
1,018,036Royalty revenue






42,801











42,801







40,720











40,720Total revenues


229,705



828,286



279



(229,386
)


828,884



258,695



1,056,828



127



(256,894
)


1,058,756Operating costs and expenses:Cost of revenues


66,349



356,620



321



(229,644
)


193,646



93,295



400,347



236



(256,894
)


236,984Selling, general and administrative


134,758



107,052



21







241,831



139,070



202,355



95







341,520Research and development


2,304



80,366











82,670



2,022



70,704











72,726Depreciation and amortization


10,025



81,358



120







91,503



9,680



66,290



120







76,090Asset impairments


114



39,315











39,429







74,810











74,810Restructuring charges


(356
)


873











517



460















460Total operating costs and expenses


213,194



665,584



462



(229,644
)


649,596



244,527



814,506



451



(256,894
)


802,590Operating income (loss)


16,511



162,702



(183
)


258



179,288



14,168



242,322



(324
)






256,166Other income (expense):Interest income


22,818



67



5







22,890



17,719



60



4







17,783Interest expense


(3,620
)


(22
)










(3,642
)


(3,852
)


(26
)










(3,878
)Other, net


(529
)


(769
)


471







(827
)


(384
)


(7
)


126







(265
)Equity in earnings of subsidiaries


110,820











(110,820
)






160,499











(160,499
)


Intercompany interest (expense) income


(6,720
)


6,733



(13
)










(10,988
)


11,107



(119
)






Total other income (expenses)


122,769



6,009



463



(110,820
)


18,421



162,994



11,134



11



(160,499
)


13,640Income (loss) from continuing operations before income taxes


139,280



168,711



280



(110,562
)


197,709



177,162



253,456



(313
)


(160,499
)


269,806Income tax expense (benefit)


8,626



58,403



26







67,055



(3,536
)


92,539



(110
)






88,893Income (loss) from continuing operations


130,654



110,308



254



(110,562
)


130,654



180,698



160,917



(203
)


(160,499
)


180,913Discontinued operations:Loss from discontinued operations


























(335
)










(335
)Income tax benefit


























(120
)










(120
)Total loss from discontinued operations


























(215
)










(215
)Net income (loss)

$
130,654


$
110,308


$
254


$
(110,562
)

$
130,654


$
180,698


$
160,702


$
(203
)

$
(160,499
)

$
180,698  28




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  GUARANTOR
    SUBSIDIARIES
  CONDENSED
    CONSOLIDATING STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
  Six Months Ended June 30, 2008


Six Months Ended June 30, 2007Non-











Non-Guarantor


Guarantor


King





Guarantor


Guarantor


KingKing


Subsidiaries


Subsidiaries


Consolidated


King


Subsidiaries


Subsidiaries


ConsolidatedCash flows provided by operating activities

$
54,889


$
182,857


$
481


$
238,227


$
(18,093
)

$
269,952


$
863


$
252,722Cash flows from investing activities:Transfers from (to) restricted cash


52











52



(231
)










(231
)Purchases of investments in debt securities


(279,175
)










(279,175
)


(869,683
)










(869,683
)Proceeds from maturities and sales of investments in debt
    securities


1,158,055











1,158,055



891,870











891,870Purchases of property, plant and equipment


(25,383
)


(7,567
)






(32,950
)


(11,654
)


(6,440
)






(18,094
)Proceeds from sale of property and equipment


77











77







3







3Acquisition of
    Avinza®


(42
)










(42
)


(23
)


(296,469
)






(296,492
)Loan repayment from Ligand


















37,750











37,750Purchases of intellectual property and product rights






(6,855
)






(6,855
)






(65,058
)






(65,058
)Net cash provided by (used in) investing activities


853,584



(14,422
)






839,162



48,029



(367,964
)






(319,935
)Cash flows from financing activities:Net (payments) proceeds related to stock-based award activity


(1,849
)










(1,849
)


9,764











9,764Debt issuance costs


















(1,623
)










(1,623
)Intercompany


166,504



(166,881
)


377







(96,194
)


95,654



540



Net cash provided by (used in) financing activities


164,655



(166,881
)


377



(1,849
)


(88,053
)


95,654



540



8,141Increase (decrease) in cash and cash equivalents


1,073,128



1,554



858



1,075,540



(58,117
)


(2,358
)


1,403



(59,072
)Cash and cash equivalents, beginning of period


9,718



4,645



5,646



20,009



101,210



8,749



3,818



113,777Cash and cash equivalents, end of period

$
1,082,846


$
6,199


$
6,504


$
1,095,549


$
43,093


$
6,391


$
5,221


$
54,705  29




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following discussion contains certain forward-looking
    statements that reflect managements current views of
    future events and operations. This discussion should be read in
    conjunction with the following: (a) Risk
    Factors in our Annual Report on
    Form 10-K
    for the year ended December 31, 2007, which are
    supplemented by the discussion which follows; (b) our
    audited consolidated financial statements and related notes
    which are included in our Annual Report on
    Form 10-K
    for the year ended December 31, 2007; and (c) our
    unaudited consolidated financial statements and related notes
    which are included in this report on
    Form 10-Q.
    Please see the sections entitled Risk Factors and
    A Warning About Forward-Looking Statements for a
    discussion of the uncertainties, risks and assumptions
    associated with these statements.
  I.
    OVERVIEW  Our
    Business
          
    neuroscience (including
    Skelaxin®,
    Avinza®
    and
    Sonata®),
    hospital (including
    Thrombin-JMI®
    and
    Synercid®),
    acute care (including
    Bicillin®
    and
    Intal®), and
    legacy products (including
    Altace®,
    Levoxyl®
    and
    Cytomel®).  ®
  Recent
    Developments
  ® ® tm
 30




---



##### Table of Contents



® ®
  tm tm tm ®
  ® tm
 31




---



##### Table of Contents



II.
    RESULTS
    OF OPERATIONS  Three
    and Six Months Ended June 30, 2008 and 2007
    For the Three Months


For the Six MonthsEnded June 30,


Ended June 30,2008


2007


2008


2007(In thousands)


(In thousands)Total RevenuesBranded pharmaceuticals

$
315,715


$
466,931


$
685,087


$
916,018Meridian Auto-Injector


55,260



50,896



98,172



93,911Royalties


23,678



20,396



42,801



40,720Contract manufacturing


103



3,450



416



6,658Other


2,095



1,053



2,408



1,449Total revenues

$
396,851


$
542,726


$
828,884


$
1,058,756Cost of Revenues, exclusive of depreciation, amortization and
    impairmentsBranded pharmaceuticals

$
78,709


$
95,759


$
151,078


$
182,633Meridian Auto-Injector


20,507



20,748



37,114



39,188Royalties


2,886



2,627



5,204



5,070Contract manufacturing


76



3,285



238



6,289Other


7



3,111



12



3,804Total cost of revenues

$
102,185


$
125,530


$
193,646


$
236,984     For the Three Months


For the Six MonthsEnded June 30,


Ended June 30,2008


2007


2008


2007(In thousands)


(In thousands)Gross Sales

$
474,958


$
667,423


$
1,024,377


$
1,302,262Commercial Rebates


15,332



45,124



57,008



94,062Medicare Part D Rebates


5,433



14,670



21,630



29,636Medicaid Rebates


9,042



12,179



21,306



20,897Chargebacks


25,574



22,582



45,786



46,227Returns


3,975



6,490



8,425



5,236Trade Discounts/Other


18,751



23,766



41,338



47,784396,851



542,612



828,884



1,058,420Discontinued Operations






(114
)






(336
)Net Sales

$
396,851


$
542,726


$
828,884


$
1,058,756   ® ® ®
  ® ® ® ® ®
 32




---



##### Table of Contents



Accrual
    for Rebates, including Administrative Fees (in
    thousands):
  2008


2007Balance at January 1, net of prepaid amounts

$
65,301


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


67,155



72,088Current provision related to sales made in prior periods


2,982



534Rebates paid


(83,660
)


(67,255
)Balance at March 31, net of prepaid amounts

$
51,778


$
59,132Current provision related to sales made in current period


36,297



72,822Current provision related to sales made in prior periods


(6,490
)


(849
)Rebates paid


(55,692
)


(72,924
)Balance at June 30, net of prepaid amounts

$
25,893


$
58,181     ® ® ® ® ® ®
  ® ® ® ®
  Accrual
    for Returns (in thousands):
  2008


2007Balance at January 1

$
32,860


$
42,001Current provision


4,450



(1,254
)Actual returns


(4,135
)


(6,295
)Ending balance at March 31

$
33,175


$
34,452Current provision


3,975



6,490Actual returns


(6,845
)


(4,767
)Ending balance at June 30

$
30,305


$
36,175  33




---



##### Table of Contents



Accrual
    for Chargebacks (in thousands):
  2008


2007Balance at January 1

$
11,120


$
13,939Current provision


20,212



23,645Actual chargebacks


(21,080
)


(26,557
)Ending balance at March 31

$
10,252


$
11,027Current provision


25,574



22,582Actual chargebacks


(25,286
)


(22,962
)Ending balance at June 30

$
10,540


$
10,647   Branded
    Pharmaceuticals Segment
  Change





ChangeFor the Three Months Ended June 30,


2008 vs. 2007


For the Six Months Ended June 30,


2008 vs. 20072008


2007


$


%


2008


2007


$


%(In thousands)








(In thousands)Branded Pharmaceutical revenue:Skelaxin®

$
107,221


$
108,007


$
(786
)


(0.7
)%

$
223,105


$
220,125


$
2,980



1.4
%Thrombin-JMI®


63,621



65,156



(1,535
)


(2.4
)


130,772



129,131



1,641



1.3Altace®


44,447



163,296



(118,849
)


(72.8
)


124,258



319,916



(195,658
)


(61.2
)Avinza®


34,990



34,850



140



0.4



67,013



44,249



22,764



51.4Levoxyl®


20,196



25,584



(5,388
)


(21.1
)


35,854



47,641



(11,787
)


(24.7
)Other


45,240



70,038



(24,798
)


(35.4
)


104,085



154,956



(50,871
)


(32.8
)Total revenue

$
315,715


$
466,931


$
(151,216
)


(32.4
)%

$
685,087


$
916,018


$
(230,931
)


(25.2
)%Cost of revenues, exclusive of depreciation, amortization and
    impairments

$
78,709


$
95,759


$
(17,050
)


(17.8
)%

$
151,078


$
182,633


$
(31,555
)


(17.3
)%   Sales
    of Key Products
  Skelaxin®
  ® ® ® ®
 34




---



##### Table of Contents



®
  Thrombin-JMI®
  ® ®
  Altace®
  ® ® ® ®
  ®
  Avinza®
  ® ® ® ®
  ® ®
  ®
  Levoxyl®
  ® ® ®
 35




---



##### Table of Contents



Other
  ® ®
  ® ® ® ® ® ®
  ® ® ®
  Cost
    of Revenues
  ® ®
      
    A charge of $2.6 million in the second quarter of 2008
    primarily associated with minimum purchase requirements under a
    supply agreement to purchase raw materials associated with
    Altace®.
    A charge of $3.8 million in the second quarter of 2007
    related to the termination of certain contracts.  Meridian
    Auto-Injector
  For the Three



For the SixMonths Ended

Change

Months Ended

ChangeJune 30,

2008 vs. 2007

June 30,

2008 vs. 20072008

2007

$

%

2008

2007

$

%(In thousands)





(In thousands)Meridian Auto-Injector revenue

$
55,260


$
50,896


$
4,364



8.6
%

$
98,172


$
93,911


$
4,261



4.5
%Cost of revenues, exclusive of depreciation, amortization and
    impairments


20,507



20,748



(241
)


(1.2
)


37,114



39,188



(2,074
)


(5.3
)  36




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##### Table of Contents



® ® ® ® ®
  Royalties
  For the Three



For the SixMonths

Change

Months Ended

ChangeEnded June 30,

2008 vs. 2007

June 30,

2008 vs. 20072008

2007

$

%

2008

2007

$

%(In thousands)





(In thousands)Royalty revenue

$
23,678


$
20,396


$
3,282



16.1
%

$
42,801


$
40,720


$
2,081



5.1
%Cost of revenues, exclusive of depreciation, amortization and
    impairments


2,886



2,627



259



9.9



5,204



5,070



134



2.6   ®
  ® ® ® ® ®
  Operating
    Costs and Expenses
  For the Three





For the SixMonths Ended


Change


Months Ended


ChangeJune 30,


2008 vs. 2007


June 30,


2008 vs. 20072008


2007


$


%


2008


2007


$


%(In thousands)








(In thousands)Cost of revenues, exclusive of depreciation, amortization and
    impairments as shown below

$
102,185


$
125,530


$
(23,345
)


(18.6
)%

$
193,646


$
236,984


$
(43,338
)


(18.3
)%Selling, general and administrative


111,973



173,208



(61,235
)


(35.4
)


241,831



341,520



(99,689
)


(29.2
)Research and development


54,162



40,455



13,707



33.9



82,670



72,726



9,944



13.7Depreciation and amortization


31,805



40,412



(8,607
)


(21.3
)


91,503



76,090



15,413



20.3Asset impairments


39,429



74,810



(35,381
)


(47.3
)


39,429



74,810



(35,381
)


(47.3
)Restructuring charges


(542
)






(542
)






517



460



57



12.4Total operating costs and expenses

$
339,012


$
454,415


$
(115,403
)


(25.4
)%

$
649,596


$
802,590


$
(152,994
)


(19.1
)%  37




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##### Table of Contents



Selling,
    General and Administrative Expenses
  For the Three





For the SixMonths Ended


Change


Months Ended


ChangeJune 30,


2008 vs. 2007


June 30,


2008 vs. 20072008


2007


$


%


2008


2007


$


%(In thousands)








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

$
101,910


$
125,684


$
(23,774
)


(18.9
)%

$
213,811


$
248,038


$
(34,227
)


(13.8
)%Co-promotion fees


10,063



47,524



(37,461
)


(78.8
)


28,020



93,482



(65,462
)


(70.0
)Total selling, general and administrative

$
111,973


$
173,208


$
(61,235
)


(35.4
)%

$
241,831


$
341,520


$
(99,689
)


(29.2
)%     ® ® ® ® ®
    Research
    and Development Expense
  For the Three





For the SixMonths Ended


Change


Months Ended


ChangeJune 30,


2008 vs. 2007


June 30,


2008 vs. 20072008


2007


$


%


2008


2007


$


%(In thousands)








(In thousands)Research and development

$
48,662


$
37,355


$
11,307



30.3
%

$
77,170


$
69,626


$
7,544



10.8
%Research and development 
    in-process
    upon acquisition


5,500



3,100



2,400



77.4



5,500



3,100



2,400



77.4Total research and development

$
54,162


$
40,455


$
13,707



33.9
%

$
82,670


$
72,726


$
9,944



13.7
%  38




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##### Table of Contents



® tm
    
    A charge of $3.0 million in the second quarter of 2008 for
    our acquisition of in-process research and development related
    to the exercise of our option for a third 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. We believe
    there is a reasonable probability of completing the project
    successfully, however the success of the project depends on the
    successful outcome of the clinical development program and
    approval of the product by the FDA. The estimated cost to
    complete the project at the time of the execution of the
    agreement was approximately $16.0 million.  
    A charge of $2.5 million in the second quarter of 2008 for
    our acquisition of in-process research and development
    associated with our Product Development Agreement with
    CorePharma LLC (Core) to develop new formulations of
    Skelaxin®.
    Any intellectual property created as a result of the agreement
    will belong to us and we will grant Core 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 $3.1 million in the second quarter of 2007 for
    our acquisition of in-process research development under an
    agreement with Mutual Pharmaceutical Company
    (Mutual) to jointly research and develop one or more
    improved formulations of metaxalone. The development activities
    under the agreement with Mutual ceased in December 2007.  Depreciation
    and Amortization Expense
  ®
  ® ®
  ® ® ® ® ®
 39




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##### Table of Contents



®
  ®
  Other
    Operating Expenses
    
    Asset impairment charges of $39.4 million in the second
    quarter of 2008 and $29.3 million in the second quarter of
    2007. The intangible asset impairment charge in the second
    quarter of 2008 was primarily associated with a decline in
    end-user demand for
    Synercid®.
    The intangible asset impairment charge in the second quarter of
    2007 was primarily related to our decision to no longer pursue
    the development of a new formulation of
    Intal®
    utilizing hydrofluoroalkane as a propellant.
    A charge of $45.6 million in the second quarter of 2007
    related to the write-down of our Rochester, Michigan sterile
    manufacturing facility and certain legacy branded pharmaceutical
    products which were sold to JHP in October 2007. For
    additional information, please see Note 6,
    Acquisitions, Dispositions, Co-promotions and
    Alliances in Part I, Item 1, Financial
    Statements.  ® ® ® ®
  Non-Operating
    Items
  For the Three Months


For the Six MonthsEnded June 30,


Ended June 30,2008


2007


2008


2007(In thousands)


(In thousands)Interest income

$
9,261


$
8,517


$
22,890


$
17,783Interest expense


(1,838
)


(1,853
)


(3,642
)


(3,878
)Other, net


(123
)


278



(827
)


(265
)Total other income


7,300



6,942



18,421



13,640Income tax expense


22,118



30,394



67,055



88,893Discontinued operations






(74
)






(215
)   Interest
    Income
    Income
    Tax Expense
   40




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##### Table of Contents



Liquidity
    and Capital Resources
  General
        Fair Value Measurements
       41




---



##### Table of Contents



®
  ® tm ® ®
  tm tm tm
  ® ® ® ® ®
  ®
 42




---



##### Table of Contents



®
    ® ® ® ®
  ®
  
    If calendar year net sales are $200.0 million or less, 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.  ® ® ®
  tm ® tm ®
 43




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##### Table of Contents



tm ® tm
  ® Co-Promotion ® ® ®
  
    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.  ® ®
  tm
  ® ®
  ® ® ®
   44




---



##### Table of Contents



®
  ® ® tm ® ® ®
  ® ® ® ®
  Governmental
    Pricing Investigation and Related Matters
    Patent
    Challenges
  ® ® ® ®
  Cash
    Flows
  Operating
    Activities
  For theSix Months EndedJune 30,2008


2007(In thousands)Net cash provided by operating activities

$
238,227


$
252,722  45




---



##### Table of Contents



®
    For theSix Months EndedJune 30,2008


2007(In thousands)Accounts receivable, net of allowance

$
14,601


$
2,972Inventories


5,409



18,256Prepaid expenses and other current assets


29



(26,596
)Accounts payable


(6,095
)


(5,735
)Accrued expenses and other liabilities


(99,850
)


(69,671
)Income taxes payable


40,249



11,535Deferred revenue


(2,340
)


(2,340
)Other assets


3,453



(8,264
)Deferred taxes


(4,293
)


(15,438
)Total changes in operating assets and liabilities and deferred
    taxes

$
(48,837
)

$
(95,281
)   Investing
    Activities
  For theSix Months EndedJune 30,2008


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

$
839,162


$
(319,935
)     ®
   46




---



##### Table of Contents



Financing
    Activities
  For theSix Months EndedJune 30,2008


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

$
(1,849
)

$
8,141     Certain
    Indebtedness and Other Matters
  1 4 1 4
        Form S-3 and/or
 47




---



##### Table of Contents



Impact
    of Inflation
    Recently
    Issued Accounting Standards
    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 product rights and trademarks,
    patents, 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. However, patents have specific
    legal lives over which they are amortized. Conversely,
    trademarks and product rights have no specific legal lives.
    Trademarks and product rights will continue to be an asset to us
    after the expiration of the patent, as their economic value is
    not tied exclusively to the patent. We believe that by
    establishing separate lives for the patent versus the trademark
    and product rights, we are in essence using an accelerated
    method of amortization for the product as a whole. This results
    in greater amortization in earlier years when the product is
    under patent protection, as we are amortizing both the patent
    and the trademark and product rights, and less amortization when
    the product faces potential generic competition, as the
    amortization on the patent is eliminated. Because we have no
    discernible evidence to show a decline in 48




---



##### Table of Contents



cash flows for trademarks and product rights, or for patents, we
    use the straight-line method of amortization for both
    intangibles.        GrossCarrying


Accumulated


Net BookAmount


Amortization


Value(In thousands)BrandedAvinza®

$
285,700


$
35,657


$
250,043Skelaxin®


278,837



149,967



128,870Sonata®


61,961



61,961



Neuroscience


626,498



247,585



378,913Synercid®


72,525



38,970



33,555Other hospital


8,442



6,275



2,167Hospital


80,967



45,245



35,722Intal®


34,033



31,114



2,919Bicillin®


92,350



29,419



62,931Other acute care


5,992



5,828



164Acute care


132,375



66,361



66,014Altace®


156,744



156,744



Other legacy products


127,266



75,188



52,078Legacy products


284,010



231,932



52,078Total Branded


1,123,850



591,123



532,727Meridian Auto-Injector


178,156



37,286



140,870Royalties


3,731



2,807



924Contract manufacturing










All other










Total intangible assets

$
1,305,737


$
631,216


$
674,521  49




---



##### Table of Contents



Trademarks, Product


Net BookPatents


Rights and Other


Value(In thousands)BrandedAvinza®

$
250,043


$



$
250,043Skelaxin®






128,870



128,870Neuroscience


250,043



128,870



378,913Synercid®


31,199



2,356



33,555Other hospital






2,167



2,167Hospital


31,199



4,523



35,722Intal®






2,919



2,919Bicillin®






62,931



62,931Other acute care






164



164Acute care






66,014



66,014Altace®










Other legacy products






52,078



52,078Legacy products






52,078



52,078Total Branded


281,242



251,485



532,727Meridian Auto-Injector






140,870



140,870Royalties


641



283



924Contract manufacturing










All other










Total intangible assets

$
281,883


$
392,638


$
674,521  50




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##### Table of Contents



Three Months Ended


Three Months EndedJune 30, 2008


June 30, 2007Amortization





AmortizationImpairments


Expense


Impairments


Expense(In thousands)


(In thousands)BrandedAvinza®

$



$
6,639


$



$
6,874Skelaxin®






5,902







3,887Neuroscience






12,541







10,761Synercid®


38,064



2,375







2,375Other hospital






76







418Hospital


38,064



2,451







2,793Intal®






1,459



27,693



1,402Bicillin®






926







925Other acute care






82



1,566



371Acute care






2,467



29,259



2,698Altace®














7,563Other legacy products


1,251



1,455







3,716Legacy products


1,251



1,455







11,279Total Branded


39,315



18,914



29,259



27,531Meridian Auto-Injector






1,945







1,984Royalties






185







11Contract manufacturing














All other














Total intangible assets

$
39,315


$
21,044


$
29,259


$
29,526  51




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##### Table of Contents



Six Months Ended


Six Months EndedJune 30, 2008


June 30, 2007Amortization





AmortizationImpairments


Expense


Impairments


Expense(In thousands)


(In thousands)BrandedAvinza®

$



$
13,277


$



$
9,104Skelaxin®






11,713







7,774Sonata®






315







Neuroscience






25,305







16,878Synercid®


38,064



4,750







4,750Other hospital






152







836Hospital


38,064



4,902







5,586Intal®






2,918



27,693



2,804Bicillin®






1,851







1,851Other acute care






165



1,566



743Acute care






4,934



29,259



5,398Altace®






29,687







15,028Other legacy products


1,251



2,911







7,433Legacy products


1,251



32,598







22,461Total Branded


39,315



67,739



29,259



50,323Meridian Auto-Injector






3,865







3,950Royalties






367







22Contract manufacturing














All other














Total intangible assets

$
39,315


$
71,971


$
29,259


$
54,295     Remaining Life at June 30, 2008Trademark &Patent


Product RightsSkelaxin®






5 years 6 monthsAvinza®


9 years 5 months



Intal®






6 monthsSynercid®


5 years 6 months



5 years 6 monthsBicillin®






17 years   
    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 52




---



##### Table of Contents



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.  
    Accruals for rebates, returns and
    chargebacks.  We establish accruals for returns,
    chargebacks and 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.      
    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 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. Royalty revenue is recognized based on a percentage of
    sales (namely, contractually
    agreed-upon
    royalty rates) reported by third parties.  A WARNING
    ABOUT FORWARD-LOOKING STATEMENTS
     53




---



##### Table of Contents




    the potential of, including anticipated net sales and
    prescription trends for, our branded pharmaceutical products,
    particularly
    Altace®,
    Skelaxin®,
    Avinza®,
    Thrombin-JMI®,
    Levoxyl®
    and
    Sonata®;
    expectations regarding the enforceability and effectiveness of
    product-related patents, including in particular patents related
    to
    Skelaxin®,
    Avinza®
    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 acceptance, priority review or approval of the NDA for
    Remoxy®
    by the FDA;
    the development, approval and successful commercialization of
    Remoxy®,
    Acuroxtm
    Tablets,
    CorVuetm
    and other products;
    the successful execution of our growth and restructuring
    strategies, including our accelerated strategic shift;
    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 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®
    and
    Avinza®
    patent challenges, derivative litigation and other legal
    proceedings described in this report;
    expectations regarding the NDA that Purdue submitted to the FDA
    for a reformulated version of its long-acting oxycodone product;
    expectations regarding our financial condition and liquidity as
    well as future cash flows and earnings; and
    expectations regarding our ability to liquidate our holdings of
    auction rate securities and the temporary nature of the
    unrealized losses recorded in connection with these securities.  Form 10-K,
 54




---



##### Table of Contents



Item 3.
    Quantitative
    and Qualitative Disclosures about Market Risk          Item 4.
    Controls
    and Procedures  Rules 13a-15(e) 15d-15(e)
  Rules 13a-15(f) 15d-15(f)
 PART II 
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings    Item 1A.
    Risk
    Factors  Form 10-K
  Item 4.
    Submission
    of Matters to a Vote of Security Holders   55




---



##### Table of Contents



Election of Directors.
  WithholdFor


AuthorityR. Charles Moyer


202,660,375



9,797,351D. Gregory Rooker


201,401,907



11,055,819Ted G. Wood


145,219,600



67,238,126     Class II(terms to expire in 2009)

Earnest W. Deavenport, Jr.
    Elizabeth M. GreethamClass III(terms to expire in 2010)

Philip A. Incarnati
    Gregory D. Jordan
    Brian A. Markison   Ratification of Independent Registered Public
    Accounting Firm.
  For


Against


Abstain203,094,064



7,388,539



1,975,122   Item 6.
    Exhibits  Number



Exhibit Title10
.1



Product Development Agreement dated June 18, 2008, among
    King Pharmaceuticals, Inc., King Pharmaceuticals Research and
    Development, Inc. and CorePharma, LLC.10
.2



Compensation Policy for Non-Employee Directors.31
.1



Certificate of Chief Executive Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.31
.2



Certificate of Chief Financial Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.32
.1



Certificate of Chief Executive Officer Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.32
.2



Certificate of Chief Financial Officer Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.    
    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. 56




---



##### Table of Contents



SIGNATURES      By:
    /s/  BRIAN
    A. MARKISON   President and Chief Executive Officer
    By:
    /s/  JOSEPH
    SQUICCIARINO   Chief Financial Officer
   57