##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, 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,
    2009ORo

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(State or other jurisdiction
    of
    incorporation or organization)

54-1684963(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
  Regulation S-T o o
  12b-2
  Large
    accelerated
    filer þ
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ




---



##### 



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


40Item 3.


Quantitative and Qualitative Disclosures about
    Market Risk


71Item 4.


Controls and Procedures


71Part II  Other
    InformationItem 1.


Legal Proceedings


72Item 1A.


Risk Factors


72Item 4.


Submission of Matters to a Vote of Security
    Holders


73Item 6.


Exhibits


74Signatures


75EX-31.1EX-31.2EX-32.1EX-32.2   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 31,2009


2008ASSETSCurrent assets:Cash and cash equivalents

$
442,192


$
940,212Investments in debt securities


41,064



6,441Marketable securities


1,419



511Accounts receivable, net of allowance of $3,847 and $4,713


209,266



245,070Inventories


224,077



258,303Deferred income tax assets


125,243



89,513Income tax receivable


12,357



Prepaid expenses and other current assets


120,078



129,214Total current assets


1,175,696



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


405,778



417,259Intangible assets, net


859,521



934,219Goodwill


416,494



450,548Deferred income tax assets


248,786



267,749Investments in debt securities


294,166



353,848Other assets (includes restricted cash of $16,635 and $16,580)


90,189



122,826Assets held for sale


7,900



11,500Total assets

$
3,498,530


$
4,227,213LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
61,325


$
140,908Accrued expenses


293,950



411,488Income taxes payable






10,448Short-term debt


5,298



5,230Current portion of long-term debt


159,410



439,047Total current liabilities


519,983



1,007,121Long-term debt


585,065



877,638Other liabilities


115,019



110,022Total liabilities


1,220,067



1,994,781Commitments and contingencies (Note 10)Shareholders equity


2,278,463



2,232,432Total liabilities and shareholders equity

$
3,498,530


$
4,227,213    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 30,2009


2008


2009


2008Revenues:Net sales

$
430,279


$
373,173


$
844,578


$
786,083Royalty revenue


14,709



23,678



29,467



42,801Total revenues


444,988



396,851



874,045



828,884Operating costs and expenses:Cost of revenues, exclusive of depreciation, amortization and
    impairments shown below


156,093



102,185



307,032



193,646Selling, general and administrative, exclusive of co-promotion
    fees


119,434



101,910



256,570



213,811Acquisition related costs


2,944







6,733



Co-promotion fees


1,197



10,063



2,595



28,020Total selling, general and administrative expense


123,575



111,973



265,898



241,831Research and development


21,202



48,662



48,458



77,170Research and
    development-in-process
    upon acquisition






5,500







5,500Total research and development


21,202



54,162



48,458



82,670Depreciation and amortization


52,862



31,989



106,211



91,855Asset impairments






39,429







39,429Restructuring charges (Note 14)


1,475



(542
)


49,525



517Total operating costs and expenses


355,207



339,196



777,124



649,948Operating income


89,781



57,655



96,921



178,936Other income (expense):Interest income


1,506



9,261



4,294



22,890Interest expense


(27,592
)


(5,291
)


(50,695
)


(10,271
)Loss on investments


(524
)






(1,347
)


Other, net


4,112



(123
)


1,333



(827
)Total other income


(22,498
)


3,847



(46,415
)


11,792Income before income taxes


67,283



61,502



50,506



190,728Income tax expense


29,348



20,741



23,293



64,411Net income

$
37,935


$
40,761


$
27,213


$
126,317Income per common share:Basic net income per common share

$
0.16


$
0.17


$
0.11


$
0.52Diluted net income per common share

$
0.15


$
0.17


$
0.11


$
0.52    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, 2007


245,937,709


$
1,359,817


$
1,213,057


$
1,957


$
2,574,831Comprehensive income:Net income










126,317







126,317Net 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


















104,969Stock-based award activity


544,273



14,534











14,534Balance at June 30, 2008


246,481,982


$
1,374,351


$
1,339,374


$
(19,391
)

$
2,694,334Balance at December 31, 2008


246,487,232


$
1,389,698


$
871,021


$
(28,287
)

$
2,232,432Adoption of FSP 115-2, net of taxes of $396










646



(646
)


Comprehensive income:Net income










27,213







27,213Reclassification of unrealized losses on investments in debt
    securities, net of taxes of $542














885



885Net unrealized gain on marketable securities, net of tax of $345














563



563Net unrealized loss on interest rate swap, net of taxes of $88














(144
)


(144
)Net unrealized gain on investments in debt securities, net of
    taxes of $2,518














4,108



4,108Foreign currency translation














(235
)


(235
)Total comprehensive income


















32,390Stock-based award activity


1,642,536



13,641











13,641Balance at June 30, 2009


248,129,768


$
1,403,339


$
898,880


$
(23,756
)

$
2,278,463    5




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)
    (Unaudited)
  Six Months Ended June 30,2009


2008Cash flows provided by operating activities

$
117,566


$
238,227Cash flows from investing activities:Transfers (to) from restricted cash


(55
)


52Purchases of investments in debt securities






(279,175
)Proceeds from maturities and sales of investments in debt
    securities


32,223



1,158,055Purchases of property, plant and equipment


(18,832
)


(32,950
)Proceeds from sale of property and equipment






77Proceeds from sale of
    Kadian®


34,800



Acquisition of Alpharma


(70,374
)


Acquisition of
    Avinza®


(1
)


(42
)Forward foreign exchange contracts


(3,117
)


Purchases of intellectual property and product rights


(1,206
)


(6,855
)Net cash (used in) provided by investing activities


(26,562
)


839,162Cash flows from financing activities:Proceeds from exercise of stock options


1,286



261Net payments related to stock-based award activity


(3,123
)


(2,110
)Payments on long-term debt


(585,227
)


Debt issuance costs


(1,313
)


Net cash used in financing activities


(588,377
)


(1,849
)Effect of exchange rate changes on cash


(647
)


(Decrease) increase in cash and cash equivalents


(498,020
)


1,075,540Cash and cash equivalents, beginning of period


940,212



20,009Cash and cash equivalents, end of period

$
442,192


$
1,095,549    6




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2009 and 2008
 (In thousands, except share and per share data)
 (Unaudited)
  1.
    General  Form 10-Q Rule 10-01 Regulation S-X Form 10-K 14-1 Accounting for Convertible Debt Instruments That May Be
    Settled in Cash Upon Conversion 14-1) 14-1 14-1.
      2.
    Earnings
    Per Share    Three Months Ended


Six Months EndedJune 30,


June 30,2009


2008


2009


2008Basic income per common share:Weighted average common shares


244,693,041



243,439,861



244,290,940



243,365,118Diluted income per common share:Weighted average common shares


244,693,041



243,439,861



244,290,940



243,365,118Effect of stock options


20,242



39,053



12,709



36,902Effect of dilutive share awards


2,493,266



1,550,079



2,618,332



1,456,746Weighted average common shares


247,206,549



245,028,993



246,921,981



244,858,766    7




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  1 4
  3.
    Skelaxin®  ® ® ® ® ® ® ®
  4.
    Fair
    Value Measurements  Cash and Cash Equivalents.
  Derivatives. non-U.S. cash Accounting for Derivative Instruments and
    Hedging Activities
   8




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair Value of Derivative Instruments as of June 30,
    2009Fair Value

Fair Value ofBalance Sheet

of Asset

LiabilityLocation

Derivatives

DerivativesDerivatives designated as hedging
    instruments under SFAS No. 133Interest rate swap

Other liabilities

$



$
232     Three Months Ended June 30, 2009

Six Months Ended June 30, 2009Gain or





Gain or(Loss)





(Loss)Reclassified





ReclassifiedGain or

from



Gain or

from(Loss) in

Accumulated



(Loss) in

AccumulatedOther

Other



Other

OtherComprehensive

Comprehensive

Gain or

Comprehensive

Comprehensive

Gain orIncome on

Income Into

(Loss)

Income on

Income Into

(Loss)Derivative

Income

Recorded

Derivative

Income

RecordedDerivatives in SFAS No. 133

(Effective

(Effective

(Ineffective

(Effective

(Effective

(IneffectiveCash Flow Hedging Relationships

Portion)

Portion)

Portion)

Portion)

Portion)

Portion)Interest rate swap

$
299


$



$



$
(232
)

$



$
   Three Months

Six MonthsEnded June 30, 2009

Ended June 30, 2009Gain or (Loss)

Gain or (Loss)Recognized in

Recognized inDerivatives not Designated as

Income on

Income onHedging Instruments Under SFAS No. 133

Derivative Amount

Derivative AmountForeign currency contracts

Other Income

$
(8,523
)

$
429   Marketable Securities.
  Investments in Debt Securities. available-for-sale Accounting for Certain Investments in Debt and Equity
    Securities. Recognition and Presentation of
    Other-than-Temporary Impairments Other-than-temporary
   9




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        FAS 115-2
    The Fair Value Option for
    Financial Assets and Financial Liabilities
   10




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Fair Value Measurements at 6/30/2009 UsingQuoted Prices in


Significant Other


SignificantActive Markets for


Observable


UnobservableIdentical Assets


Inputs


InputsDescription

6/30/2009


(Level 1)


(Level 2)


(Level 3)Assets:Money Market Funds

$
419,609


$
419,609


$



$
U.S. government securities


4,981



4,981







Marketable Securities


1,419



1,419







Investments in Debt Securities


335,230











335,230Right to Sell Debt Securities


3,567











3,567Total Assets

$
764,806


$
426,009


$



$
338,797Liabilities:Interest Rate Swap

$
232


$



$
232


$
   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


$
        11




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##### Table of Contents



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


2008Beginning balance, January 1

$
361,913


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


(823
)


Included in other comprehensive income (loss)


(4,300
)


(28,418
)Settlements


(8,000
)


(154,950
)Transfers in and/or out of Level 3


1,700



724,725Ending balance, March 31

$
350,490


$
541,357Total gains or losses (realized/unrealized)Included in earnings


(524
)


Included in other comprehensive income (loss)


13,781



(5,648
)Settlements


(25,650
)


(151,425
)Transfers in and/or out of Level 3


700



31,675Ending balance, June 30

$
338,797


$
415,959   5.
    Inventories    June 30,


December 31,2009


2008Raw materials

$
81,671


$
82,273Work-in-process


52,477



62,836Finished goods (including $5,829 and $7,385 of sample inventory,
    respectively)


155,576



176,582289,724



321,691Inventory valuation allowance


(65,647
)


(63,388
)Total inventories

$
224,077


$
258,303   6.
    Property,
    Plant and Equipment     12




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    7.
    Acquisitions,
    Dispositions, Co-Promotions and Alliances  ® tm ®
        ValuationCurrent assets

$
913,391Current deferred income taxes


28,548Property, plant and equipment


156,981Intangible assets, net


300,000Goodwill


287,344In-process research and development


590,000Other long-term assets


26,679Current liabilities


(227,167
)Convertible debentures


(385,227
)Long-term deferred income taxes


(20,580
)Other long-term liabilities


(50,922
)Total Purchase Price

$
1,619,047  13




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##### Table of Contents



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


Amortization PeriodFlector®

    Patch

$
130,000



11 yearsAnimal Health intangibles


170,000



19 yearsTotal

$
300,000     Branded prescription pharmaceuticals

$
197,898Animal Health


89,446Total

$
287,344       tm
  tm tm
   14




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##### Table of Contents



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


Six Months EndedJune 30, 2008


June 30, 2008Total revenues

$
520,254


$
1,068,041Income from continuing operations


1,646



3,921Net income


(4,880
)


207,610Basic earnings per common share

$
(0.02
)

$
0.85Diluted earnings per common share

$
(0.02
)

$
0.85   ® ® ® ®
  ®
  MaximumPurchasePrice 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   ® ®
 15




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   8.
    Intangible
    Assets and Goodwill    June 30, 2009


December 31, 2008Gross





GrossCarrying


Accumulated


Carrying


AccumulatedAmount


Amortization


Amount


AmortizationBranded prescription pharmaceuticals

$
1,252,300


$
694,331


$
1,252,300


$
627,233Animal Health


170,000



4,819



170,000



Meridian Auto-Injector


181,508



45,378



179,879



41,281Royalties


3,731



3,490



3,731



3,177Other














Total intangible assets

$
1,607,539


$
748,018


$
1,605,910


$
671,691     ® ® ® ® ® and/or ® ®
  ® ® ® and/or
  ® ® ® ® ® and/or ®
 16




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##### Table of Contents



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


Health


MeridianSegment


Segment


Segment


TotalGoodwill at December 31, 2008

$
258,092


$
84,046


$
108,410


$
450,548Adjustment to Alpharma acquisition


(39,454
)


5,400







(34,054
)Goodwill at June 30, 2009

$
218,638


$
89,446


$
108,410


$
416,494     9.
    Long-Term
    Debt    June 30,


December 31,2009


2008Convertible senior notes

$
323,202


$
314,416Senior secured revolving credit facility


290,815



425,000Senior secured term facility


130,458



192,042Alpharma convertible senior notes






385,227Total long-term debt


744,475



1,316,685Less current portion


159,410



439,047Long-term portion

$
585,065


$
877,638   Convertible
    Senior Notes
  14-1, Accounting for Convertible Debt Instruments that May be
    Settled in Cash Upon Conversion 14-1). 14-1 14-1
  14-1, 1 4
 17




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  14-1:
  Condensed
    Consolidated Statement of Operations
 Three months ended June 30, 2008
  As Computed


As ReportedUnder


Before


Effect ofFSP APB 14-1


FSP APB 14-1


ChangeDeprecation and amortization

$
31,989


$
31,805


$
184Total operating costs and expenses


339,196



339,012



184Operating income


57,655



57,839



(184
)Interest expense


(5,291
)


(1,838
)


(3,453
)Total other income


3,847



7,300



(3,453
)Income before income taxes


61,502



65,139



(3,637
)Income tax expense


20,741



22,118



(1,377
)Net Income

$
40,761


$
43,021


$
(2,260
)Income per common share:Basic net income per common share

$
0.17


$
0.18


$
(0.01
)Diluted net income per common share

$
0.17


$
0.18


$
(0.01
)Total comprehensive income

$
37,230


$
39,490


$
(2,260
)   Condensed
    Consolidated Statement of Operations
 Six months ended June 30, 2008
  As Computed


As ReportedUnder


Before


Effect ofFSP APB 14-1


FSP APB 14-1


ChangeDeprecation and amortization

$
91,855


$
91,503


$
352Total operating costs and expenses


649,948



649,596



352Operating income


178,936



179,288



(352
)Interest expense


(10,271
)


(3,642
)


(6,629
)Total other income


11,792



18,421



(6,629
)Income before income taxes


190,728



197,709



(6,981
)Income tax expense


64,411



67,055



(2,644
)Net Income

$
126,317


$
130,654


$
(4,337
)Income per common share:Basic net income per common share

$
0.52


$
0.54


$
(0.02
)Diluted net income per common share

$
0.52


$
0.53


$
(0.01
)Total comprehensive income

$
104,969


$
109,306


$
(4,337
)  18




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidated Balance Sheet
 As of December 31, 2008
  As Computed


As ReportedUnder


Before


Effect ofFSP APB 14-1


FSP APB 14-1


ChangeProperty, plant and equipment, net

$
417,259


$
409,821


$
7,438Deferred income tax assets


267,749



303,722



(35,973
)Other assets


122,826



124,774



(1,948
)Total assets


4,227,213



4,257,696



(30,483
)Long-term debt


877,638



963,222



(85,584
)Total liabilities


1,994,781



2,080,365



(85,584
)Retained earnings


871,021



892,297



(21,276
)Shareholders equity


2,232,432



2,177,331



55,101Total liabilities and shareholders equity


4,227,213



4,257,696



(30,483
)       June 30, 2009


December 31, 2008Gross carrying amount

$
400,000


$
400,000Unamortized debt discount


76,798



85,584Net carrying amount

$
323,202


$
314,416       Senior
    Secured Revolving Credit Facility
          Senior
    Secured Term Facility
   19




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Alpharma
    Convertible Senior Notes
    10.
    Commitments
    and Contingencies  Intellectual
    Property Matters
  Altace®
  ® ® ®
  ® ® ®
  ®
 20




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Skelaxin®
  ® ® method-of-use ® ® ®
  30-month 30-month 30-month
 21




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    method-of-use ® ®
  ® ®
  ® ® ® ®
  ® ® ® ®
 22




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Avinza®
  ® ®
  ®
  ® ® ®
  Adenoscan®
  ®
 23




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Epi-Pen
    Average
    Wholesale Price Litigation
  In re:
    Pharmaceutical Industry Average Wholesale Pricing Litigation
       24




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Governmental
    Pricing Investigation and Related Matters
      and/or
    Fen-Phen
    Litigation
  In re Fen-Phen Litigation. and/or
   25




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ®
  ®
    Hormone
    Replacement Therapy
  In re: Prempro Products
    Liability Litigation
 26




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Alpharma
    Matters
  and/or
  Department
    of Justice Investigation
  ® ® ®
    Chicken
    Litter Litigation
       27




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  AWP
    Litigation
  ®
    Environmental
    Matters
    Other
    Contingencies
  ® ®
  11.
    Accounting
    Developments  14-1, Accounting for Convertible Debt Instruments that May be
    Settled in Cash Upon Conversion.
  Disclosures
    about Derivative Instruments and Hedging Activities 
    an amendment of FASB Statement No. 133
  Business
    Combinations
 28




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Employers Disclosures about
    Postretirement Benefit Plan Assets
  SFAS 107-1 No. 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP 107-1). Disclosures about Fair Values of Financial Instruments Interim
    Financial Reporting FSP 107-1 FSP 107-1
  SFAS 157-4, Determining Fair Value When the Volume and Level of Activity
    for the Asset or Liability Have Significantly Decreased and
    Identifying Transactions That Are Not Orderly (FSP 157-4). FSP 157-4 Fair Value
    Measurements FSP 157-4
  SFAS 115-2 SFAS 124-2, Recognition and Presentation of
    Other-Than-Temporary
    Impairments (FSP 115-2). FSP 115-2 FSP 115-2
  Subsequent Events
  12.
    Income
    Taxes     29




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   13.
    Segment
    Information  ®
   30




---



##### Table of Contents



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


Six Months EndedJune 30,


June 30,2009


2008


2009


2008Total revenues:Branded prescription pharmaceuticals

$
275,110


$
315,715


$
552,814


$
685,087Animal Health


82,824







162,659



Meridian Auto-Injector


72,091



55,260



128,698



98,172Royalties


14,709



23,678



29,467



42,801Contract manufacturing


170,574



119,510



317,902



253,336All other


4



2,095



(52
)


2,408Eliminations


(170,324
)


(119,407
)


(317,443
)


(252,920
)Consolidated total net revenues

$
444,988


$
396,851


$
874,045


$
828,884Segment profit:Branded prescription pharmaceuticals(1)

$
204,219


$
237,006


$
415,996


$
534,009Animal Health(1)


26,340







45,557



Meridian Auto-Injector


45,286



34,753



79,383



61,058Royalties


12,900



20,792



25,842



37,597Contract manufacturing


169



27



338



178All other


(19
)


2,088



(103
)


2,396Other operating costs and expenses


(199,114
)


(237,011
)


(470,092
)


(456,302
)Other income


(22,498
)


3,847



(46,415
)


11,792Income before tax

$
67,283


$
61,502


$
50,506


$
190,728     (1)
    
    The segment profit for branded prescription pharmaceuticals and
    Animal Health for the three months ended June 30, 2009
    includes charges of $2,440 and $13,618, respectively, related to
    the mark up of inventory upon acquisition of Alpharma. The
    segment profit for branded prescription pharmaceuticals and
    Animal Health for the six months ended June 30, 2009
    includes charges of $3,455 and $34,128, respectively. For
    additional information, please see Note 7. 31




---



##### Table of Contents



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


Six Months EndedJune 30,


June 30,2009


2008


2009


2008Total revenues:Neuroscience

$
170,853


$
151,677


$
327,954


$
316,293Hospital


52,698



66,986



104,657



137,903Legacy:Cardiovascular/metabolic


32,818



78,635



77,786



188,182Other


18,741



18,417



42,417



42,709Consolidated branded pharmaceutical revenues

$
275,110


$
315,715


$
552,814


$
685,087   14.
    Restructuring
    Activities  First
    Quarter of 2009 Action
  ® ® ® ®
  ®
      Fourth
    Quarter of 2008 Action
     32




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##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Third
    Quarter of 2006 Action
  ®
    Accrued














AccruedBalance at


Income











Balance atDecember 31,


Statement


Alpharma


Cash


Non-Cash


June 30,2008


Impact


Acquisition


Payments


Costs


2009First quarter of 2009 actionEmployee separation payments

$



$
47,764


$



$
38,484


$
3,196


$
6,084Contract termination






575







575







Other






457







457







Accelerated depreciation(1)






485











485



Fourth quarter of 2008 actionEmployee separation payments


49,437



903



3,487



16,096



(455
)


38,186Contract termination


16,801



(3
)


(20
)


5,132



(564
)


12,210Other


182



















182Accelerated depreciation(1)






196











196



Third quarter of 2008 actionEmployee separation payments


9











9







Third quarter of 2007 actionEmployee separation payments


103



(103
)














Contract termination






4







4







Third quarter of 2006 actionEmployee separation payments


2,462



(72
)






29



27



2,334Accelerated depreciation(1)






582











582



Fourth quarter of 2005 actionEmployee separation payments


8











8







$
69,002


$
50,788


$
3,467


$
60,794


$
3,467


$
58,996     (1)
    
    Included in depreciation and amortization on the Consolidated
    Statements of Operations.   33




---



##### Table of Contents



KING
    PHARMACEUTICALS, INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   15.
    Stock-Based
    Compensation              16.
    Pension
    Plans and Postretirement Benefits     34




---



##### Table of Contents



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


Six Months EndedJune 30, 2009


June 30, 2009Pension


Postretirement


Pension


PostretirementBenefits


Benefits


Benefits


BenefitsService Cost

$



$
21


$



$
42Interest Cost


758



101



1,516



202Expected return on plan assets


(707
)






(1,414
)


Recognized net actuarial loss


24



53



48



106Net periodic benefit cost

$
75


$
175


$
150


$
350   17.
    Change in
    Estimate  ® ® ® ®
  18.
    Guarantor
    Financial Statements  1 4
   35




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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, 2009


December 31, 2008Non-














Non-Guarantor


Guarantor


Eliminating


King





Guarantor


Guarantor


Eliminating


KingKing


Subsidiaries


Subsidiaries


Entries


Consolidated


King


Subsidiaries


Subsidiaries


Entries


ConsolidatedASSETSCurrent assets:Cash and cash equivalents

$
185,698


$
18,019


$
238,475


$



$
442,192


$
401,657


$
52


$
538,503


$



$
940,212Investments in debt securities


41,064















41,064



6,441















6,441Marketable securities


1,419















1,419



511















511Accounts receivable, net


2,687



163,578



43,001







209,266



61



140,502



104,507







245,070Inventories


92,505



99,462



34,338



(2,228
)


224,077



59,279



26,406



172,618







258,303Deferred income tax assets


38,755



86,015



473







125,243



36,041



26,146



27,326







89,513Income tax receivable


14,291



(2,190
)


256







12,357



















Prepaid expenses and other current assets


15,140



103,435



1,503







120,078



14,090



8,283



106,841







129,214Total current assets


391,559



468,319



318,046



(2,228
)


1,175,696



518,080



201,389



949,795







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


147,244



248,649



9,885







405,778



140,314



115,996



160,949







417,259Intangible assets, net






824,000



35,521







859,521







633,300



300,919







934,219Goodwill






416,041



453







416,494







129,150



321,398







450,548Investments in debt securities


294,166















294,166



353,848















353,848Deferred income tax assets


(28,408
)


280,274



(3,080
)






248,786



(18,117
)


340,764



(54,898
)






267,749Other assets


58,907



30,972



310







90,189



72,442



23,704



26,680







122,826Assets held for sale






7,900











7,900







11,500











11,500Investments in subsidiaries


2,963,171



917,884



48



(3,881,103
)






2,896,242











(2,896,242
)


Total assets

$
3,826,639


$
3,194,039


$
361,183


$
(3,883,331
)

$
3,498,530


$
3,962,809


$
1,455,803


$
1,704,843


$
(2,896,242
)

$
4,227,213LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
27,627


$
30,734


$
2,964


$



$
61,325


$
61,255


$
20,107


$
59,546


$



$
140,908Accrued expenses


21,991



262,840



9,119







293,950



32,456



165,460



213,572







411,488Income taxes payable






















1,288



169



8,991







10,448Short-term debt










5,298







5,298











5,230







5,230Current portion of long-term debt


159,410















159,410



53,820







385,227







439,047Total current liabilities


209,028



293,574



17,381







519,983



148,819



185,736



672,566







1,007,121Long-term debt


585,065















585,065



877,638















877,638Other liabilities


53,974



35,250



25,795







115,019



54,355



4,595



51,072







110,022Intercompany payable (receivable)


700,109



(726,790
)


26,681











649,565



(655,145
)


5,580







Total liabilities


1,548,176



(397,966
)


69,857







1,220,067



1,730,377



(464,814
)


729,218







1,994,781Shareholders equity


2,278,463



3,592,005



291,326



(3,883,331
)


2,278,463



2,232,432



1,920,617



975,625



(2,896,242
)


2,232,432Total liabilities and shareholders equity

$
3,826,639


$
3,194,039


$
361,183


$
(3,883,331
)

$
3,498,530


$
3,962,809


$
1,455,803


$
1,704,843


$
(2,896,242
)

$
4,227,213  36




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##### 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, 2009


Three Months Ended June 30, 2008Non-














Non-Guarantor


Guarantor





King





Guarantor


Guarantor





KingKing


Subsidiaries


Subsidiaries


Eliminations


Consolidated


King


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedRevenues:Net sales

$
83,573


$
528,701


$
39,362


$
(221,357
)

$
430,279


$
110,568


$
373,243


$
(59
)

$
(110,579
)

$
373,173Royalty revenue






14,709











14,709







23,678











23,678Total revenues


83,573



543,410



39,362



(221,357
)


444,988



110,568



396,921



(59
)


(110,579
)


396,851Operating costs and expenses:Cost of revenues


31,163



320,858



26,465



(222,393
)


156,093



31,350



181,160



291



(110,616
)


102,185Selling, general and administrative


46,453



70,101



7,021







123,575



61,853



50,140



(20
)






111,973Research and development


985



17,835



2,382







21,202



1,722



52,440











54,162Depreciation and amortization


4,793



46,763



1,306







52,862



5,922



26,007



60







31,989Asset impairments






















114



39,315











39,429Restructuring charges


803



672











1,475



(12
)


(530
)










(542
)Total operating costs and expenses


84,197



456,229



37,174



(222,393
)


355,207



100,949



348,532



331



(110,616
)


339,196Operating income


(624
)


87,181



2,188



1,036



89,781



9,619



48,389



(390
)


37



57,655Other income (expense):Interest income


979



10



517







1,506



9,223



38











9,261Interest expense


(26,402
)


(1,116
)


(74
)






(27,592
)


(5,283
)


(8
)










(5,291
)Loss on investments


(524
)














(524
)


















Other, net


482



2,046



1,584







4,112



(153
)


104



(74
)






(123
)Equity in earnings (loss) of subsidiaries


58,932



4,238



60



(63,230
)






33,031











(33,031
)


Intercompany interest (expense) income


(1,296
)


5,725



(4,429
)










(3,154
)


3,160



(6
)






Total other income (expense)


32,171



10,903



(2,342
)


(63,230
)


(22,498
)


33,664



3,294



(80
)


(33,031
)


3,847Income (loss) before income taxes


31,547



98,084



(154
)


(62,194
)


67,283



43,283



51,683



(470
)


(32,994
)


61,502Income tax expense (benefit)


(6,388
)


35,852



(116
)






29,348



2,522



18,381



(162
)






20,741Net income (loss)

$
37,935


$
62,232


$
(38
)

$
(62,194
)

$
37,935


$
40,761


$
33,302


$
(308
)

$
(32,994
)

$
40,761  37




---



##### 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, 2009


Six Months Ended June 30, 2008Non-














Non-Guarantor


Guarantor





King





Guarantor


Guarantor





KingKing


Subsidiaries


Subsidiaries


Eliminations


Consolidated


King


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedRevenues:Net sales

$
178,722


$
926,057


$
69,839


$
(330,040
)

$
844,578


$
229,705


$
785,485


$
279


$
(229,386
)

$
786,083Royalty revenue






29,467











29,467







42,801











42,801Total revenues


178,722



955,524



69,839



(330,040
)


874,045



229,705



828,286



279



(229,386
)


828,884Operating costs and expenses:Cost of revenues


58,093



530,253



49,566



(330,880
)


307,032



66,349



356,620



321



(229,644
)


193,646Selling, general and administrative


105,872



146,320



13,706







265,898



134,758



107,052



21







241,831Research and development


2,594



42,162



3,702







48,458



2,304



80,366











82,670Depreciation and amortization


9,650



94,709



1,852







106,211



10,142



81,593



120







91,855Asset impairments






















114



39,315











39,429Restructuring charges


14,307



35,218











49,525



(356
)


873











517Total operating costs and expenses


190,516



848,662



68,826



(330,880
)


777,124



213,311



665,819



462



(229,644
)


649,948Operating income (loss)


(11,794
)


106,862



1,013



840



96,921



16,394



162,467



(183
)


258



178,936Other income (expense):Interest income


2,428



277



1,589







4,294



22,818



67



5







22,890Interest expense


(48,468
)


(2,077
)


(150
)






(50,695
)


(10,249
)


(22
)










(10,271
)Loss on investments


(1,347
)














(1,347
)


















Other, net


41



1,947



(655
)






1,333



(529
)


(769
)


471







(827
)Equity in earnings of subsidiaries


71,550



12,048



40



(83,638
)






110,672











(110,672
)


Intercompany interest (expense) income


(2,687
)


9,473



(6,786
)










(6,720
)


6,733



(13
)






Total other income (expenses)


21,517



21,668



(5,962
)


(83,638
)


(46,415
)


115,992



6,009



463



(110,672
)


11,792Income (loss) before income taxes


9,723



128,530



(4,949
)


(82,798
)


50,506



132,386



168,476



280



(110,414
)


190,728Income tax expense (benefit)


(17,490
)


41,836



(1,053
)






23,293



6,069



58,316



26







64,411Net income (loss)

$
27,213


$
86,694


$
(3,896
)

$
(82,798
)

$
27,213


$
126,317


$
110,160


$
254


$
(110,414
)

$
126,317  38




---



##### 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, 2009


Six Months Ended June 30, 2008Non-











Non-Guarantor


Guarantor


King





Guarantor


Guarantor


KingKing


Subsidiaries


Subsidiaries


Consolidated


King


Subsidiaries


Subsidiaries


ConsolidatedCash flows provided by operating activities

$
(74,351
)

$
190,727


$
1,190


$
117,566


$
54,889


$
182,857


$
481


$
238,227Cash flows from investing activities:Transfers from (to) restricted cash


(28
)


(27
)






(55
)


52











52Purchases of investments in debt securities


















(279,175
)










(279,175
)Proceeds from maturities and sales of investments in debt
    securities


32,223











32,223



1,158,055











1,158,055Purchases of property, plant and equipment


(13,492
)


(5,168
)


(172
)


(18,832
)


(25,383
)


(7,567
)






(32,950
)Proceeds from sale of property and equipment


















77











77Proceeds from sale of
    Kadian®






34,800







34,800















Acquisition of Alpharma


(13,677
)


(56,697
)






(70,374
)














Acquisition of
    Avinza®


(1
)










(1
)


(42
)










(42
)Forward foreign exchange contracts










(3,117
)


(3,117
)














Purchases of intellectual property and product rights






(1,206
)






(1,206
)






(6,855
)






(6,855
)Net cash provided by (used in) investing activities


5,025



(28,298
)


(3,289
)


(26,562
)


853,584



(14,422
)






839,162Cash flows from financing activities:Proceeds from exercise of stock options


1,286











1,286



261











261Net payments related to stock-based award activity


(3,123
)










(3,123
)


(2,110
)










(2,110
)Payments on long-term debt


(200,000
)


(385,227
)






(585,227
)














Debt issuance costs


(1,313
)










(1,313
)














Intercompany


56,517



(49,179
)


(7,338
)






166,504



(166,881
)


377



Net cash provided by (used in) financing activities


(146,633
)


(434,406
)


(7,338
)


(588,377
)


164,655



(166,881
)


377



(1,849
)Net cash flows from exchange rate changes










(647
)


(647
)














Increase (decrease) in cash and cash equivalents


(215,959
)


(271,977
)


(10,084
)


(498,020
)


1,073,128



1,554



858



1,075,540Cash and cash equivalents, beginning of period


401,657



289,996



248,559



940,212



9,718



4,645



5,646



20,009Cash and cash equivalents, end of period

$
185,698


$
18,019


$
238,475


$
442,192


$
1,082,846


$
6,199


$
6,504


$
1,095,549  39




---



##### 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, 2008, 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, 2008; 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
    

research and development



distribution

manufacturing



sales and marketing

packaging



business development

quality control and assurance



regulatory management         
    securing from the U.S. Food and Drug Administration, which
    we refer to as the FDA, additional approved uses
    (indications) for our products;
    developing and producing different strengths;
    producing different package sizes;
    developing new dosage forms; and
    developing new product formulations.   40




---



##### Table of Contents



Recent
    Developments
  Skelaxin®
  ® ® ® ®
  Remoxy®
  ® ®
  ® around-the-clock, tm
  Acurox®

    Tablets
  ® ®
 41




---



##### Table of Contents



® ® ® ® ® ®
  CorVuetm(binodenoson) for Injection
  tm tm tm tm tm tm
  II.
    RESULTS
    OF OPERATIONS  Three
    and Six Months Ended June 30, 2009 and 2008
    For the Three Months


For the Six MonthsEnded June 30,


Ended June 30,2009


2008


2009


2008(In thousands)


(In thousands)Total RevenuesBranded prescription pharmaceuticals

$
275,110


$
315,715


$
552,814


$
685,087Animal Health


82,824







162,659



Meridian Auto-Injector


72,091



55,260



128,698



98,172Royalties


14,709



23,678



29,467



42,801Contract manufacturing


250



103



459



416Other


4



2,095



(52
)


2,408Total revenues

$
444,988


$
396,851


$
874,045


$
828,884Cost of Revenues, exclusive of depreciation, amortization and
    impairmentsBranded prescription pharmaceuticals

$
70,891


$
78,709


$
136,818


$
151,078Animal Health


56,484







117,102



Meridian Auto-Injector


26,805



20,507



49,315



37,114Royalties


1,809



2,886



3,625



5,204Contract manufacturing


81



76



121



238Other


23



7



51



12Total cost of revenues

$
156,093


$
102,185


$
307,032


$
193,646  42




---



##### Table of Contents



For the Three Months


For the Six MonthsEnded June 30,


Ended June 30,2009


2008


2009


2008(In thousands)Gross Sales

$
522,833


$
474,958


$
1,029,877


$
1,024,377Commercial Rebates


14,386



15,332



29,845



57,008Medicare Part D Rebates


3,099



5,433



5,638



21,630Medicaid Rebates


11,400



9,042



23,023



21,306Chargebacks


26,704



25,574



54,880



45,786Returns


5,345



3,975



8,228



8,425Trade Discounts/Other


16,911



18,751



34,218



41,338Net Sales

$
444,988


$
396,851


$
874,045


$
828,884     ® ® ® ® ®
    Accrual
    for Rebates, including Administrative Fees (in
    thousands):
  2009


2008Balance at January 1, net of prepaid amounts

$
58,129


$
65,301Current provision related to sales made in current period


28,512



67,155Current provision related to sales made in prior periods


1,109



2,982Alpharma acquisition


1,772



Rebates paid


(34,482
)


(83,660
)Balance at March 31, net of prepaid amounts

$
55,040


$
51,778Current provision related to sales made in current period


31,219



36,297Current provision related to sales made in prior periods


(2,334
)


(6,490
)Alpharma acquisition


885



Rebates paid


(35,474
)


(55,692
)Balance at June 30, net of prepaid amounts

$
49,336


$
25,893     ® ® ® ®
 43




---



##### Table of Contents



® ®
  ® ® ® ®
  Accrual
    for Returns (in thousands):
  2009


2008Balance at January 1

$
33,471


$
32,860Current provision


2,883



4,450Actual returns


(4,646
)


(4,135
)Ending balance at March 31

$
31,708


$
33,175Current provision


5,345



3,975Actual returns


(6,062
)


(6,845
)Ending balance at June 30

$
30,991


$
30,305   Accrual for Chargebacks (in thousands):
  2009


2008Balance at January 1

$
9,965


$
11,120Current provision


28,176



20,212Actual chargebacks


(27,244
)


(21,080
)Ending balance at March 31

$
10,897


$
10,252Current provision


26,704



25,574Actual chargebacks


(27,958
)


(25,286
)Ending balance at June 30

$
9,643


$
10,540  44




---



##### Table of Contents



Branded
    Prescription Pharmaceuticals Segment
  For the Three Months


Change


For the Six Months


ChangeEnded June 30,


2009 vs. 2008


Ended June 30,


2009 vs. 20082009


2008


$


%


2009


2008


$


%(In thousands)








(In thousands)Branded Prescription Pharmaceutical revenue:Skelaxin®

$
102,178


$
107,221


$
(5,043
)


(4.7
)%

$
202,777


$
223,105


$
(20,328
)


(9.1
)%Thrombin-JMI®


48,562



63,621



(15,059
)


(23.7
)


95,901



130,772



(34,871
)


(26.7
)Flector®

    Patch


38,621







38,621



100.0



55,397







55,397



100.0Avinza®


28,892



34,990



(6,098
)


(17.4
)


67,872



67,013



859



1.3Levoxyl®


15,280



20,196



(4,916
)


(24.3
)


34,852



35,854



(1,002
)


(2.8
)Altace®


8,059



44,447



(36,388
)


(81.9
)


17,870



124,258



(106,388
)


(85.6
)Other


33,518



45,240



(11,722
)


(25.9
)


78,145



104,085



(25,940
)


(24.9
)Total revenue

$
275,110


$
315,715


$
(40,605
)


(12.9
)%

$
552,814


$
685,087


$
(132,273
)


(19.3
)%Cost of revenues, exclusive of depreciation, amortization and
    impairments

$
70,891


$
78,709


$
(7,818
)


(9.9
)%

$
136,818


$
151,078


$
(14,260
)


(9.4
)%   Sales
    of Key Products
  Skelaxin®
  ® ® ®
  ® ® ®
  ®
  ®
  Thrombin-JMI®
  ® ®
 45




---



##### Table of Contents



Flector®

    Patch
  ® ® ® ® ® ®
  Avinza®
  ® ® ®
  ® ® ®
  ®
  ®
  Levoxyl®
  ® ® ®
  Altace®
  ® ® ®
 46




---



##### Table of Contents



®
  Other
  ® ® ® ®
  ® ® ®
  ® ®
  Cost
    of Revenues
  ®
  ®
    Business Combinations ®
 47




---



##### Table of Contents



Animal
    Health
  For the Three


For the SixMonths Ended


Months EndedJune 30,


June 30,2009


2008


2009


2008(In thousands)


(In thousands)Animal Health revenue

$
82,824


$



$
162,659


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

$
56,484






$
117,102



     Business Combinations
  Meridian
    Auto-Injector
  For the Three





For the SixMonths Ended


Change


Months Ended


ChangeJune 30,


2009 vs. 2008


June 30,


2009 vs. 20082009


2008


$


%


2009


2008


$


%(In thousands)








(In thousands)Meridian Auto-Injector revenue

$
72,091


$
55,260


$
16,831



30.5
%

$
128,698


$
98,172


$
30,526



31.1
%Cost of revenues, exclusive of depreciation, amortization and
    impairments


26,805



20,507



6,298



30.7
%


49,315



37,114



12,201



32.9
%     ® ® ®
  ®
   48




---



##### Table of Contents



Royalties
  For the Three





For the SixMonths Ended


Change


Months Ended


ChangeJune 30,


2009 vs. 2009


June 30,


2009 vs. 20082009


2008


$


%


2009


2008


$


%(In thousands)








(In thousands)Royalty revenue

$
14,709


$
23,678


$
(8,969
)


(37.9
)%

$
29,467


$
42,801


$
(13,334
)


(31.2
)%Cost of revenues, exclusive of depreciation, amortization and
    impairments


1,809



2,886



(1,077
)


(37.3
)%


3,625



5,204



(1,579
)


(30.3
)%   ®
  ® ® ® ®
  ®
  Operating
    Costs and Expenses
  For the Three





For the SixMonths Ended


Change


Months Ended


ChangeJune 30,


2009 vs. 2008


June 30,


2009 vs. 20082009


2008


$


%


2009


2008


$


%(In thousands)








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

$
156,093


$
102,185


$
53,908



52.8
%

$
307,032


$
193,646


$
113,386



58.6
%Selling, general and administrative


123,575



111,973



11,602



10.4



265,898



241,831



24,067



10.0Research and development


21,202



54,162



(32,960
)


(60.9
)


48,458



82,670



(34,212
)


(41.4
)Depreciation and amortization


52,862



31,989



20,873



65.3



106,211



91,855



14,356



15.6Asset impairments






39,429



(39,429
)


(100.0
)






39,429



(39,429
)


(100.0
)Restructuring charges


1,475



(542
)


2,017



>100



49,525



517



49,008



>100Total operating costs and expenses

$
355,207


$
339,196


$
16,011



4.7
%

$
777,124


$
649,948


$
127,176



19.6
%  49




---



##### Table of Contents



Selling,
    General and Administrative Expenses
  For the Three





For the SixMonths Ended


Change


Months Ended


ChangeJune 30,


2009 vs. 2008


June 30,


2009 vs. 20082009


2008


$


%


2009


2008


$


%(In thousands)








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

$
119,434


$
101,910


$
17,524



17.2
%

$
256,570


$
213,811


$
42,759



20.0
%Acquisition related costs


2,944







2,944







6,733







6,733



Co-promotion fees


1,197



10,063



(8,866
)


(88.1
)


2,595



28,020



(25,425
)


(90.7
)Total selling, general and administrative

$
123,575


$
111,973


$
11,602



10.4
%

$
265,898


$
241,831


$
24,067



10.0
%     ® ® Co-Promotion ® ®
      Research
    and Development Expense
  For the Three





For the SixMonths Ended


Change


Months Ended


ChangeJune 30,


2009 vs. 2008


June 30,


2009 vs. 20082009


2008


$


%


2009


2008


$


%(In thousands)








(In thousands)Research and development

$
21,202


$
48,662


$
(27,460
)


(56.4
)%

$
48,458


$
77,170


$
(28,712
)


(37.2
)%Research and development 
    in-process
    upon acquisition






5,500



(5,500
)


(100.0
)






5,500



(5,500
)


(100.0
)Total research and development

$
21,202


$
54,162


$
(32,960
)


(60.9
)%

$
48,458


$
82,670


$
(34,212
)


(41.4
)%    50




---



##### 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 portion 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.    Depreciation
    and Amortization Expense
  ® ® ®.
  ® ® ® ® and/or ®
  ® ® ® ®
 51




---



##### Table of Contents



® ® and/or ®
  ® ® and/or
  ® ®
    Other
    Operating Expenses
    
    Asset impairment charges of $39.4 million in the second
    quarter of 2008, primarily associated with a decline in end-user
    demand for
    Synercid®.
    Restructuring charges of $1.5 million and
    $49.5 million in the second quarter and first six months of
    2009, respectively, 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 14,
    Restructuring Activities. in Part I,
    Item 1, Financial Statements.  Non-Operating
    Items
  For the Three Months


For the Six MonthsEnded June 30,


Ended June 30,2009


2008


2009


2008(In thousands)


(In thousands)Interest income

$
1,506


$
9,261


$
4,294


$
22,890Interest expense


(27,592
)


(5,291
)


(50,695
)


(10,271
)Loss on investment


(524
)






(1,347
)


Other, net


4,112



(123
)


1,333



(827
)Total other income


(22,498
)


3,847



(46,415
)


11,792Income tax expense


29,348



20,741



23,293



64,411   Loss
    on Investment
   52




---



##### Table of Contents



Interest
    Income
    Interest
    Expense
    14-1, Accounting for Convertible Debt Instruments that May be
    Settled in Cash Upon Conversion 14-1). 14-1 1 4
  Income
    Tax Expense
      Liquidity
    and Capital Resources
  General
    Investments
    in Debt Securities
     53




---



##### Table of Contents



Fair Value Measurements
      The Fair
    Value Option for Financial Assets and Financial Liabilities
  available-for-sale
  other-than-temporary.
     54




---



##### Table of Contents



Skelaxin®
  ® ® ® ®
      Alpharma
  ® tm
    ® ® ® ®
 55




---



##### Table of Contents



®
  MaximumPurchasePrice 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   ® ®
        Senior
    Secured Revolving Credit Facility
     56




---



##### Table of Contents



December 31, 2009

$403.8 millionDecember 31, 2010

$308.8 millionDecember 31, 2011

$213.8 millionMarch 31, 2012

$190.0 million       Senior
    Secured Term Facility
      2009

$30.0 million2010

$40.0 million2011

$40.0 million2012

$90.0 million        57




---



##### Table of Contents



CorePharma
  ®
  Acura
  ® ® ® ®
  ® ® ®
  Altace®
  ® ® ® ® ®
  ®
 58




---



##### 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
  ® Co-Promotion ® ® ®
  
    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.  ® ®
  ® ®
   59




---



##### Table of Contents



®
  ® ® ® ® ® ® ® ®
  Governmental
    Pricing Investigation and Related Matters
    Patent
    Challenges
  ® ® ® ® ® ®
  Cash
    Flows
  Operating
    Activities
  For theSix Months EndedJune 30,2009

2008(In thousands)Net cash provided by operating activities

$
117,566


$
238,227     ®
 60




---



##### Table of Contents



For theSix Months EndedJune 30,2009


2008(In thousands)Accounts receivable, net of allowance

$
35,832


$
14,601Inventories


(3,026
)


5,409Prepaid expenses and other current assets


(9,563
)


29Accounts payable


(79,475
)


(6,095
)Accrued expenses and other liabilities


(48,422
)


(99,850
)Income taxes payable


(17,047
)


40,249Deferred revenue


(2,340
)


(2,340
)Other assets


734



3,453Deferred taxes


17,663



(4,293
)Total changes in operating assets and liabilities and deferred
    taxes

$
(105,644
)

$
(48,837
)   Investing
    Activities
  For theSix Months EndedJune 30,2009

2008(In thousands)Net cash (used in) provided by investing activities

$
(26,562
)

$
839,162   ®
    Financing
    Activities
  For theSix Months EndedJune 30,2009

2008(In thousands)Net cash used in financing activities

$
(588,377
)

$
(1,849
)       Certain
    Indebtedness and Other Matters
  1 4
 61




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##### Table of Contents



1 4
    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%.      
    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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Senior
    Secured Term Facility
        
    5.00% plus the Adjusted LIBO Rate or
    4.00% plus the Alternate Base Rate.      
    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).   63




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Alpharma
    Convertible Senior Notes
      Impact
    of Inflation
    Recently
    Issued Accounting Standards
    Critical
    Accounting Policies and Estimates
     64




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
    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 the
    straight-line method of amortization for both intangibles.     65




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GrossCarrying


Accumulated


Net BookAmount


Amortization


Value(In thousands)Branded Prescription PharmaceuticalsAvinza®

$
285,700


$
62,209


$
223,491Skelaxin®


278,853



201,956



76,897Sonata®


61,961



61,961



Flector®

    Patch


130,000



5,910



124,090Neuroscience


756,514



332,036



424,478Synercid®


70,959



44,919



26,040Other hospital


8,442



6,579



1,863Hospital


79,401



51,498



27,903Bicillin®


92,350



33,120



59,230Other legacy products


324,035



277,677



46,358Legacy products


416,385



310,797



105,588Total Branded


1,252,300



694,331



557,969Animal Health


170,000



4,819



165,181Meridian Auto-Injector


181,508



45,378



136,130Royalties


3,731



3,490



241Contract manufacturing










All other










Total intangible assets

$
1,607,539


$
748,018


$
859,521  66




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Three Months Ended


Three Months EndedJune 30, 2009


June 30, 2008Amortization





AmortizationImpairments


Expense


Impairments


Expense(In thousands)


(In thousands)Branded Prescription PharmaceuticalsAvinza®

$



$
6,638


$



$
6,639Skelaxin®






20,041







5,902Flector®

    Patch






2,955







Neuroscience






29,634







12,541Synercid®






1,484



38,064



2,375Other hospital






76







76Hospital






1,560



38,064



2,451Bicillin®






925







926Other legacy products






1,430



1,251



2,996Legacy products






2,355



1,251



3,922Total Branded






33,549



39,315



18,914Animal Health






2,411







Meridian Auto-Injector






2,062







1,945Royalties






127







185Contract manufacturing














All other














Total

$



$
38,149


$
39,315


$
21,044  67




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##### Table of Contents



Six Months Ended


Six Months EndedJune 30, 2009


June 30, 2008Amortization





AmortizationImpairments


Expense


Impairments


Expense(In thousands)


(In thousands)Branded Prescription PharmaceuticalsAvinza®

$



$
13,276


$



$
13,277Skelaxin®






40,082







11,713Sonata®














315Flector®

    Patch






5,910







Neuroscience






59,268







25,305Synercid®






2,968



38,064



4,750Other hospital






152







152Hospital






3,120



38,064



4,902Altace®














29,687Bicillin®






1,850







1,851Other legacy products






2,860



1,251



5,994Legacy products






4,710



1,251



37,532Total Branded






67,098



39,315



67,739Animal Health






4,819







Meridian Auto-Injector






4,097







3,865Royalties






313







367Contract manufacturing














All other














Total

$



$
76,327


$
39,315


$
71,971     Remaining Life at June 30, 2009Skelaxin®

1 yearAvinza®

8 years 5 monthsFlector®

    Patch

10 years 6 monthsSynercid®

4 years 6 monthsBicillin®

16 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 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. 68




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
    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. 69




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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®,

    the
    Flector®

    Patch,
    Levoxyl®,

    Altace®,

    Cytomel®

    and
    Synercid®;
    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 development, approval and successful commercialization of
    Remoxy®,

    Embedatm,

    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 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 and potential financial
    effects of various pending legal proceedings including the
    Skelaxin®

    and
    Avinza®

    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
    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. 70




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Item 3.
    Quantitative
    and Qualitative Disclosures about Market Risk            Item 4.
    Controls
    and Procedures  Form 10-Q, Rules 13a-15(e) 15d-15(e)
       71




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##### Table of Contents



PART II 
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings    Item 1A.
    Risk
    Factors  Form 10-K
  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.
           72




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##### Table of Contents




    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.  Item 4.
    Submission
    of Matters to a Vote of Security Holders    Election of Directors
  WithholdFor


AuthorityClass IR. Charles Moyer


215,396,104



7,628,636D. Gregory Rooker


211,737,378



11,287,362Ted G. Wood


216,003,140



7,021,600Class IIEarnest W. Deavenport, Jr.


209,188,351



13,836,389Elizabeth M. Greetham


215,803,439



7,221,301     Class III(terms to expire in 2010)Philip A. IncarnatiGregory D. JordanBrian A. Markison   Ratification of Independent Registered Public
    Accounting Firm
  For


Against


Abstain210,813,013



11,976,074



235,650  73




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##### Table of Contents



Non-Binding Shareholder
    Proposal
  For


Against


Abstain146,692,492



49,535,100



204,117   Item 6.
    Exhibits  ExhibitNumber

Description31
.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  74




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##### Table of Contents



SIGNATURES      By:
    /s/  Brian
    A. Markison   President and Chief Executive Officer
    By:
    /s/  Joseph
    Squicciarino   Chief Financial Officer
   75