<PAGE>   1

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             ---------------------

                                  FORM 10-Q/A

(MARK ONE)

    [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
             EXCHANGE ACT OF 1934

             FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000

                                       OR

    [  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934

             FOR THE TRANSITION PERIOD FROM ________ TO ________

                          COMMISSION FILE NO. 0-24425

                           KING PHARMACEUTICALS, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                            <C>
                  TENNESSEE                                     54-1684963
       (State or other jurisdiction of                       (I.R.S. Employer
       incorporation or organization)                       Identification No.)

        501 FIFTH STREET, BRISTOL, TN                              37620
  (Address of principal executive offices)                      (Zip Code)
</TABLE>

      Registrant's telephone number, including area code:  (423) 989-8000

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of The Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

     Number of shares outstanding of Registrant's common stock as of November
10, 2000:  168,821,611

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<PAGE>   2

ITEM 1.  FINANCIAL STATEMENTS

     This quarterly report on Form 10-Q/A is being filed as a result of the
restatement of our consolidated financial statements for the three and nine
month periods ended September 30, 2000 in order to present certain nonrecurring
charges as extraordinary charges. Our Form 10-Q filed on November 14, 2000 is
hereby superseded and restated as amended in its entirety.

                           KING PHARMACEUTICALS, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2000            1999
                                                              -------------   ------------
<S>                                                           <C>             <C>
                                          ASSETS
CURRENT ASSETS:
  Cash, cash equivalents, and short-term investments........   $    8,047      $  131,723
  Investments...............................................           --          80,229
  Trade accounts receivable, net of allowance for doubtful
     accounts of $3,407 at December 31, 1999 and $4,000 at
     September 30, 2000.....................................      102,990          91,821
  Inventory.................................................       50,521          44,997
  Deferred income taxes.....................................       16,709          18,198
  Prepaid expenses and other current assets.................       14,872          10,965
                                                               ----------      ----------
          Total current assets..............................      193,139         377,933
Property, plant and equipment, net..........................      117,021         122,268
Investments.................................................           --          33,583
Intangible assets, net......................................      799,390         621,356
Other assets................................................       15,198          26,666
                                                               ----------      ----------
          Total assets......................................   $1,124,748      $1,181,806
                                                               ==========      ==========
                           LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..........................................   $   32,786      $   28,942
  Accrued expenses..........................................       76,435          61,497
  Income taxes payable......................................           --           9,225
  Current portion of long-term debt.........................        2,891          14,502
                                                               ----------      ----------
          Total current liabilities.........................      112,112         114,166
Long-term debt:
  Revolving credit facility.................................           --          45,000
  Term loans................................................       36,540         354,194
  Senior subordinated notes.................................      150,000         150,000
  Other.....................................................        3,815           4,161
Deferred income taxes.......................................       16,545          17,773
Other liabilities...........................................       29,755           1,500
                                                               ----------      ----------
          Total liabilities.................................      348,767         686,794
Commitments and contingencies (notes 5 and 7)
  Shareholders' equity......................................      775,981         495,012
                                                               ----------      ----------
          Total liabilities and shareholders' equity........   $1,124,748      $1,181,806
                                                               ==========      ==========
</TABLE>

                            See accompanying notes.

                                        1
<PAGE>   3

                           KING PHARMACEUTICALS, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED       NINE MONTHS ENDED
                                                        SEPTEMBER 30,            SEPTEMBER 30,
                                                    ----------------------   ----------------------
                                                       2000         1999        2000         1999
                                                    ----------    --------   ----------    --------
                                                    (RESTATED)               (RESTATED)
<S>                                                 <C>           <C>        <C>           <C>
Revenues:
  Net sales.......................................   $153,412     $139,447    $422,492     $336,214
  Royalty revenues................................      9,219        9,210      32,090       25,713
                                                     --------     --------    --------     --------
          Total revenues..........................    162,631      148,657     454,582      361,927
                                                     --------     --------    --------     --------
Operating costs and expenses:
  Cost of revenues................................     33,653       42,581     100,183       92,483
  Selling, general and administrative.............     30,219       29,859      91,215       75,110
  Depreciation and amortization...................     12,748        9,124      34,531       26,883
  Research and development........................      6,019        3,013      15,700        7,575
  Royalty expense.................................      2,533        2,266       7,050        6,059
  Nonrecurring charge -- research and
     development..................................      6,107           --       6,107           --
  Merger, restructuring, and other nonrecurring
     charges......................................     42,349           --      64,643           --
                                                     --------     --------    --------     --------
          Total operating costs and expenses......    133,628       86,843     319,429      208,110
                                                     --------     --------    --------     --------
  Operating income................................     29,003       61,814     135,153      153,817
                                                     --------     --------    --------     --------
Other income (expense):
  Interest income.................................      3,105        2,746      10,109        7,354
  Interest expense................................     (9,684)     (14,536)    (33,840)     (40,598)
  Other, net......................................      2,285         (133)      2,171         (207)
                                                     --------     --------    --------     --------
          Total other income (expense)............     (4,294)     (11,923)    (21,560)     (33,451)
                                                     --------     --------    --------     --------
Income before income taxes and extraordinary
  items...........................................     24,709       49,891     113,593      120,366
  Income tax expense..............................    (17,188)     (18,947)    (58,764)     (45,368)
                                                     --------     --------    --------     --------
Income before extraordinary items.................      7,521       30,944      54,829       74,998
Extraordinary items:
  Extinguishment of debt, net of taxes of $1,500
     for the three month period ending September
     30, 2000 and $4,494 and $445 for the nine
     month periods ending September 30, 2000 and
     1999.........................................     (2,561)          --      (7,246)        (705)
  Loss on disposed and impaired assets, net of
     taxes of $16,383.............................    (27,304)          --     (27,304)          --
                                                     --------     --------    --------     --------
Net income (loss).................................   $(22,344)    $ 30,944    $ 20,279     $ 74,293
                                                     ========     ========    ========     ========
Income (loss) per common share:
  Basic:
     Income before extraordinary items............   $   0.05     $   0.20    $   0.33     $   0.48
     Extinguishment of debt.......................      (0.02)          --       (0.04)          --
     Loss on disposed and impaired assets.........      (0.17)          --       (0.17)          --
                                                     --------     --------    --------     --------
     Net income (loss)............................   $  (0.14)    $   0.20    $   0.12     $   0.48
                                                     ========     ========    ========     ========
  Diluted:
     Income before extraordinary items............   $   0.04     $   0.20    $   0.33     $   0.47
     Extinguishment of debt.......................      (0.01)          --       (0.04)          --
     Loss on disposed and impaired assets.........      (0.16)          --       (0.17)          --
                                                     --------     --------    --------     --------
     Net income (loss)............................   $  (0.13)    $   0.20    $   0.12     $   0.47
                                                     ========     ========    ========     ========
</TABLE>

                            See accompanying notes.

                                        2
<PAGE>   4

                           KING PHARMACEUTICALS, INC.

      CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                  (UNAUDITED)
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                            UNREALIZED
                                                                 RETAINED    LOSS ON
                                          SHARES       AMOUNT    EARNINGS   SECURITIES    TOTAL
                                        -----------   --------   --------   ----------   --------
<S>                                     <C>           <C>        <C>        <C>          <C>
Balance at December 31, 1999..........  132,444,175   $228,211   $266,895      $(94)     $495,012
Three-for-two stock split declared
  February 3, 2000 -- Jones...........   23,992,412         --         --        --            --
Exercise of stock options.............    1,615,792     22,820         --        --        22,820
Shares tendered in payment of option
  exercise price......................      (27,903)       (27)        --        --           (27)
Amortization of unearned
  compensation........................           --         72         --        --            72
Cash dividend paid -- Jones...........           --         --     (2,619)       --        (2,619)
Net change in unrealized losses on
  marketable securities, net of tax...           --         --         --        94            94
April 19, 2000 issuance of common
  shares, net of $170 expenses........    6,000,000    165,350         --        --       165,350
June 22, 2000 issuance of common
  shares..............................    1,928,021     75,000         --        --        75,000
Net income............................           --         --     20,279        --        20,279
                                        -----------   --------   --------      ----      --------
Balance at September 30, 2000.........  165,952,497   $491,426   $284,555      $ --      $775,981
                                        ===========   ========   ========      ====      ========
</TABLE>

                            See accompanying notes.

                                        3
<PAGE>   5

                           KING PHARMACEUTICALS, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                NINE MONTHS ENDED
                                                                  SEPTEMBER 30,
                                                              ---------------------
                                                                2000        1999
                                                              ---------   ---------
<S>                                                           <C>         <C>
Cash flows from operating activities........................  $  92,854   $  84,913
Cash flows from investing activities:
  Purchase of investment securities.........................   (142,922)    (21,153)
  Proceeds from maturity and sale of investment
     securities.............................................    258,020      17,000
  Purchases of property, plant and equipment................    (13,116)     (7,143)
  Product acquisitions......................................   (204,000)    (91,650)
  Proceeds from sale of assets..............................        441          20
                                                              ---------   ---------
          Net cash (used in) investing activities...........   (101,577)   (102,926)
                                                              ---------   ---------
Cash flows from financing activities:
  Proceeds from revolving credit facility...................    114,000      87,000
  Payments on revolving credit facility.....................   (159,000)    (26,000)
  Proceeds from issuance of common shares and exercise of
     stock options, net.....................................    263,157       1,630
  Proceeds from exercise of warrants........................         --         540
  Payments of cash dividends................................     (2,619)     (2,957)
  Purchase of stock held in treasury........................         --      (4,456)
  Proceeds from long-term debt and capital lease
     obligations............................................         --          81
  Payments on other long-term debt and capital lease
     obligations............................................   (354,641)    (58,010)
  Repayment of senior subordinated seller notes.............         --     (75,000)
  Proceeds of senior subordinated notes.....................         --     150,000
  Proceeds from bridge loan facility........................     25,000          --
  Proceeds from seller note.................................     25,000          --
  Payment of seller note....................................    (25,000)         --
  Debt issuance costs.......................................       (850)     (6,746)
  Other.....................................................         --         167
                                                              ---------   ---------
          Net cash (used in) provided by financing
            activities......................................   (114,953)     66,249
                                                              ---------   ---------
Increase (decrease) in cash.................................   (123,676)     48,236
Cash, cash equivalents and short-term investments, beginning
  of period.................................................    131,723     128,646
                                                              ---------   ---------
Cash, cash equivalents and short-term investments, end of
  period....................................................  $   8,047   $ 176,882
                                                              =========   =========
</TABLE>

                            See accompanying notes.

                                        4
<PAGE>   6

                           KING PHARMACEUTICALS, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 2000 AND 1999
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

1. GENERAL

     The accompanying unaudited interim condensed consolidated financial
statements of King Pharmaceuticals Inc. (the "Company") have been prepared by
the Company in accordance with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X, and accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of items of a normal recurring nature) considered necessary for a fair
presentation have been included. Operating results for the three months and nine
months ended September 30, 2000 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2000. These interim
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's latest Annual Report on Form 10-K and its
Current Report on Form 8-K filed with the Securities and Exchange Commission on
October 19, 2000. The year-end condensed balance sheet was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. Certain reclassifications of financial
information have been made for comparative purposes.

     These consolidated financial statements include the accounts of King and
its wholly owned subsidiaries, Monarch Pharmaceuticals, Inc., Parkedale
Pharmaceuticals, Inc., Medco Research, Inc. (acquired February 25, 2000 and
renamed "King Pharmaceuticals Research and Development, Inc." effective November
1, 2000), Jones Pharma Incorporated (acquired August 31, 2000) and King
Pharmaceuticals of Nevada, Inc. All intercompany transactions and balances have
been eliminated in consolidation.

     After the Company issued its unaudited condensed consolidated financial
statements for the three and nine-month periods ended September 30, 2000, it
became aware that generally accepted accounting principles require that certain
material losses on disposed and impaired assets must be classified as
extraordinary. Extraordinary treatment is required for such losses when they are
recorded in connection with a disposal of assets that will occur within two
years following certain types of business combinations. As a result, the Company
has restated its results for the three and nine-month periods ended September
30, 2000. The impact of this change is to increase income before extraordinary
items by $27.3 million, or $0.16 per diluted share, for the three-month period
and $27.3 million, or $0.17 per diluted share, for the nine-month period. Net
income (loss) did not change.

     Accumulated other comprehensive income was $20,373 for the nine months
ended September 30, 2000.

2. NEW ACCOUNTING PRONOUNCEMENTS

     In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The Financial Accounting Standards Board delayed the
effective date of SFAS No. 133 for one year, to fiscal years beginning after
June 15, 2000. The delay published as SFAS No. 137, applies to quarterly and
annual financial statements. The Company is evaluating the provisions of SFAS
No. 133, but does not anticipate its adoption to have a material impact on
financial position or results of operations.

     In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements," ("SAB 101") which clarifies
accounting and reporting standards for revenue recognition. As a result of a
deferral of the effective date, SAB 101 will be effective for the fourth quarter
of

                                        5
<PAGE>   7
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

fiscal years beginning after December 15, 1999. The Company does not believe
that SAB 101 will have a material impact on its financial position or results of
operations.

3. EQUITY

  A. Earnings Per Share

     The basic and diluted income before extraordinary item per common share was
determined as follows:

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED       NINE MONTHS ENDED
                                                    SEPTEMBER 30,           SEPTEMBER 30,
                                                ---------------------   ---------------------
                                                   2000        1999        2000        1999
                                                ----------   --------   ----------   --------
                                                (RESTATED)              (RESTATED)
<S>                                             <C>          <C>        <C>          <C>
Income before extraordinary items.............   $  7,521    $ 30,944    $ 54,829    $ 74,998
Extraordinary items:
  Extinguishment of debt, net of taxes of
     $1,500 for the three month period ending
     September 30, 2000 and $4,494 and $445
     for the nine month periods ending
     September 30, 2000 and 1999..............     (2,561)         --      (7,246)       (705)
  Loss on disposed and impaired assets, net of
     taxes of $16,383.........................    (27,304)         --     (27,304)         --
                                                 --------    --------    --------    --------
Net income (loss).............................   $(22,344)   $ 30,944    $ 20,279    $ 74,293
                                                 ========    ========    ========    ========
Income (loss) per common share:
  Basic:
     Income before extraordinary items........   $   0.05    $   0.20    $   0.34    $   0.48
     Extinguishment of debt...................      (0.02)         --       (0.04)         --
     Loss on disposed and impaired assets.....      (0.17)         --       (0.17)         --
                                                 --------    --------    --------    --------
     Net income (loss)........................   $  (0.14)   $   0.20    $   0.13    $   0.48
                                                 ========    ========    ========    ========
  Diluted:
     Income before extraordinary items........   $   0.04    $   0.20    $   0.33    $   0.47
     Extinguishment of debt...................      (0.01)         --       (0.04)         --
     Loss on disposed and impaired assets.....      (0.16)         --       (0.17)         --
                                                 --------    --------    --------    --------
     Net income (loss)........................   $  (0.13)   $   0.20    $   0.12    $   0.47
                                                 ========    ========    ========    ========
Basic income per common share:
  Weighted average common shares..............    165,738     155,857     161,463     155,722
Diluted income per common share:
  Weighted average common shares..............    165,738     155,857     161,463     155,722
  Effect of stock options.....................      3,846       2,849       3,604       2,580
                                                 --------    --------    --------    --------
  Weighted average common shares plus assumed
     conversions..............................    169,584     158,706     165,067     158,302
                                                 ========    ========    ========    ========
</TABLE>

  B. Stock Split

     On June 2, 2000, the Company's Board of Directors declared a three for two
stock split for shareholders of record as of June 12, 2000, distributed June 21,
2000. The stock split has been reflected in all share data contained in these
financial statements prior to the date of the split.

  C. Authorized Common Stock

     On June 23, 2000, the shareholders approved at their annual meeting an
amendment to the Second Amended and Restated Charter to increase the number of
authorized shares of common stock to 300 million.

                                        6
<PAGE>   8
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. INVENTORIES

     Inventory consists of the following:

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2000            1999
                                                              -------------   ------------
<S>                                                           <C>             <C>
Finished goods (including $7,625 and $3,810 of sample
  inventory, respectively)..................................     $41,153        $25,649
Work-in-process.............................................       2,306          7,580
Raw materials...............................................       7,062         11,768
                                                                 -------        -------
                                                                 $50,521        $44,997
                                                                 =======        =======
</TABLE>

5. MERGERS, RESTRUCTURING AND NONRECURRING CHARGES

  A. Merger with Medco

     On February 25, 2000, the Company completed a merger with Medco Research,
Inc. ("Medco") by exchanging 7,221 (10,831 post-split) shares of its common
stock for all of the common stock of Medco. Each share of Medco was exchanged
for .6757 (1.01355 for 1 post-split) of one share of King common stock. In
addition, outstanding Medco stock options were converted at the same exchange
rate into options to purchase approximately 695 (1,042 post-split) shares of
King common stock. In February 2000, the Company paid $2,823 to a director for
services performed in connection with the successful completion of the merger.

     The Medco merger has been accounted for as a pooling of interests. In
connection with this transaction the Company charged to expense $20,789 of
merger related costs in the first quarter of 2000. The types of costs incurred,
the actual cash payments made and the remaining accrued balances at September
30, 2000 are summarized below:

<TABLE>
<CAPTION>
                                                                   ACTIVITY         ACCRUED
                                                      INCOME        THROUGH       BALANCE AT
                                                     STATEMENT   SEPTEMBER 30,   SEPTEMBER 30,
                                                      IMPACT         2000            2000
                                                     ---------   -------------   -------------
<S>                                                  <C>         <C>             <C>
Transaction costs..................................   $14,389       $13,589         $  800
Employee costs and other...........................     6,400         5,961            439
                                                      -------       -------         ------
          Total....................................   $20,789       $19,550         $1,239
                                                      =======       =======         ======
</TABLE>

  B. Merger with Jones

     On August 31, 2000, the Company completed a merger with Jones Pharma
Incorporated ("Jones") by exchanging 73,770 shares of its common stock for all
of the common stock of Jones. Each share of Jones was exchanged for 1.125 shares
of King common stock. In addition, outstanding Jones stock options were
converted at the same exchange rate into options to purchase approximately 4,024
shares of King common stock.

                                        7
<PAGE>   9
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Jones merger has been accounted for as a pooling of interests. In
connection with the merger with Jones, the Company incurred total merger and
restructuring related costs of $35.3 million. The types of costs incurred, the
actual cash payments made and the remaining accrued balances at September 30,
2000 are summarized below:

<TABLE>
<CAPTION>
                                                                   ACTIVITY         ACCRUED
                                                      INCOME        THROUGH       BALANCE AT
                                                     STATEMENT   SEPTEMBER 30,   SEPTEMBER 30,
                                                      IMPACT         2000            2000
                                                     ---------   -------------   -------------
<S>                                                  <C>         <C>             <C>
Transaction costs..................................   $21,484       $20,605         $  879
Employee costs, including severance and
  acceleration of vesting of options...............    10,096         2,149          7,947
Contract terminations..............................     3,661         3,661             --
Other..............................................        76            66             10
                                                      -------       -------         ------
          Total....................................   $35,317       $26,481         $8,836
                                                      =======       =======         ======
</TABLE>

     The following information presents certain unaudited financial statement
data of the separate companies as of the three and nine months ended September
30, 2000 and 1999.

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED     NINE MONTHS ENDED
                                                           SEPTEMBER 30,         SEPTEMBER 30,
                                                        -------------------   -------------------
                                                          2000       1999       2000       1999
                                                        --------   --------   --------   --------
<S>                                                     <C>        <C>        <C>        <C>
Net revenues:
  King................................................  $102,362   $104,909   $274,076   $240,914
  Medco...............................................     9,219      9,210     32,090     25,713
  Jones...............................................    51,050     34,538    148,416     95,300
                                                        --------   --------   --------   --------
          Total.......................................  $162,631   $148,657   $454,582   $361,927
                                                        ========   ========   ========   ========
Net income:
  King................................................  $(28,838)  $ 15,079   $(22,298)  $ 30,962
  Medco...............................................    (2,792)     3,318     (6,017)     9,421
  Jones...............................................     9,286     12,547     48,594     33,910
                                                        --------   --------   --------   --------
          Total.......................................  $(22,344)  $ 30,944   $ 20,279   $ 74,293
                                                        ========   ========   ========   ========
</TABLE>

<TABLE>
<CAPTION>
                                                                 AS OF           AS OF
                                                              DECEMBER 31,   SEPTEMBER 30,
                                                                  1999           2000
                                                              ------------   -------------
<S>                                                           <C>            <C>
Total assets:
  King......................................................   $  805,689     $  756,074
  Medco.....................................................       75,652         13,314
  Jones.....................................................      300,465        355,360
                                                               ----------     ----------
          Total.............................................   $1,181,806     $1,124,748
                                                               ==========     ==========
</TABLE>

                                        8
<PAGE>   10
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  C. Discontinuance of Fluogen(R) Product

     On September 27, 2000, the Company received written notification from the
FDA that it must cease manufacturing and distributing Fluogen(R), an influenza
vaccine, until the Company demonstrates compliance with related FDA regulations.
In addition, the notification recommended that the Company properly dispose of
Fluogen(R) inventory on hand. As a result of this notification, the Company
decided to permanently discontinue Fluogen(R) production and distribution. As a
result of these events, the Company recorded extraordinary losses on disposed
and impaired assets of $43.7 million, before tax benefit of $16.4 million, and a
nonrecurring charge of $8.6 million in the quarter ended September 30, 2000. A
summary of the types of costs accrued and incurred are summarized below:

<TABLE>
<CAPTION>
                                                                   ACTIVITY         ACCRUED
                                                      INCOME        THROUGH       BALANCE AT
                                                     STATEMENT   SEPTEMBER 30,   SEPTEMBER 30,
NONRECURRING CHARGES                                  IMPACT         2000            2000
--------------------                                 ---------   -------------   -------------
<S>                                                  <C>         <C>             <C>
Employee costs, including severance and
  acceleration of vesting of options...............   $ 6,505       $    --         $6,505
Contractual commitments and cleanup activities.....     2,106            --          2,106

EXTRAORDINARY CHARGES
---------------------
Inventory write-off................................    28,722        28,722             --
Goodwill impairment................................     5,055         5,055             --
Asset impairment...................................     9,910         9,910             --
                                                      -------       -------         ------
          Total....................................   $52,298       $43,687         $8,611
                                                      =======       =======         ======
</TABLE>

  D. Discontinuance of Pallacor(TM) Research and Development Efforts

     In September 2000 management decided to discontinue the research and
development efforts relating to Pallacor(TM) due to its inability to out license
rights to the product and its assessment of significant projected research and
development costs relative to the likelihood of the project's success. At
September 30, 2000 the Company has accrued $6.1 million for all estimated
remaining contractual commitments relating to this decision.

6. ACQUISITIONS

     On June 22, 2000, the Company entered into a co-promotion agreement with
the Wyeth-Ayerst division of American Home Products Corporation related to the
marketing of Altace(R) in the United States and Puerto Rico. In addition, the
co-promotion agreement transferred sales rights of Nordette(R), Wycillin(R) and
Bicillin(R) to the Company. Subsequently, on July 7, 2000, the Company completed
the acquisition of marketing rights in the United States and Puerto Rico to the
Nordette(R), Bicillin(R), and Wycillin(R) product lines from American Home
Products for $200.0 million as contemplated by the co-promotion agreement, plus
assumed liabilities of $3.0 million.

     This acquisition was financed with a draw of $10.0 million on a $50.0
million bridge loan, $25.0 million in the form of a note issued to American Home
Products, $37.5 million of the proceeds from the sale of stock to American Home
Products, $25.0 million received in connection with the co-promotion agreement
with American Home Products, $90.0 million from the revolving credit facility
and $12.5 million in excess cash from operations.

     On August 19, 1999 the Company acquired the antibiotic Lorabid(R) in the
United States and Puerto Rico from Eli Lilly and Company for a purchase price of
$91.7 million, including acquisition costs plus sales performance milestones
that could bring the total value of the deal to $158.0 million.

                                        9
<PAGE>   11
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following unaudited pro forma summary presents the financial
information as if the acquisition of the Nordette(R), Wycillin(R), Bicillin(R),
and Lorabid(R), product lines had occurred as of January 1, 1999. These pro
forma results have been prepared for comparative purposes and do not purport to
be indicative of what would have occurred had the acquisition been made on
January 1, 1999, nor is it indicative of future results.

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED     NINE MONTHS ENDED
                                                           SEPTEMBER 30,         SEPTEMBER 30,
                                                        -------------------   -------------------
                                                          2000       1999       2000       1999
                                                        --------   --------   --------   --------
<S>                                                     <C>        <C>        <C>        <C>
Net revenues..........................................  $162,631   $164,397   $486,258   $434,536
                                                        --------   --------   --------   --------
Net income (loss).....................................   (22,344)    32,281     29,230     87,299
                                                        --------   --------   --------   --------
Basic income per common share.........................     (0.14)      0.21       0.18       0.56
                                                        --------   --------   --------   --------
Diluted income per common share.......................     (0.14)      0.20       0.18       0.55
                                                        --------   --------   --------   --------
</TABLE>

7. CONTINGENCIES

  Fen/Phen Litigation:

     Many distributors, marketers and manufacturers of anorexigenic drugs have
been subject to claims relating to the use of these drugs. Generally, the
lawsuits allege that the defendants (1) misled users of the products with
respect to the dangers associated with them, (2) failed to adequately test the
products and (3) knew or should have known about the negative effects of the
drugs, and should have informed the public about the risks of such negative
effects. The actions generally have been brought by individuals in their own
right and have been filed in various state and federal jurisdictions throughout
the United States. They seek, among other things, compensatory and punitive
damages and/or court supervised medical monitoring of persons who have ingested
the product. The Company is one of many defendants in more than 75 lawsuits
which claim damages for personal injury arising from the Company's production of
phentermine, an anorexigenic drug, under contract for SmithKline Beecham
Corporation. The Company expects to be named in additional lawsuits related to
the Company's production of phentermine under contract for SmithKline. The
Company no longer manufactures phentermine for SmithKline.

     While the Company cannot predict the outcome of these suits, the Company
believes that the claims against it are without merit and intends to vigorously
pursue all defenses available to it. The Company is being indemnified in all of
these suits by SmithKline for which it manufactured the anorexigenic product,
provided that neither the lawsuits nor the associated liabilities are based upon
the independent negligence or intentional acts of the Company, and intends to
submit a claim for all unreimbursed costs to its product liability insurance
carrier. However, in the event that SmithKline is unable to satisfy or fulfill
its obligations under the indemnity, the Company would have to defend the
lawsuits and be responsible for damages, if any, which are awarded against it or
for amounts in excess of the Company's product liability coverage.

     In addition, Jones, a wholly-owned subsidiary of the Company, is a
defendant in more than two thousand five hundred multi-defendant lawsuits
involving the manufacture and sale of dexfenfluramine, fenfluramine, and
phentermine. These suits have been filed in various jurisdictions throughout the
United States, and in each of these suits Jones is one of many defendants,
including other manufacturers and other distributors of these drugs. Although
Jones has not at any time manufactured dexfenfluramine, fenfluramine, or
phentermine, Jones was a distributor of a generic phentermine product, and,
after the acquisition of Abana Pharmaceuticals by Jones, was a distributor of
Obenix(R), its branded phentermine product. The plaintiffs in these cases claim
injury as a result of ingesting a combination of these weight-loss drugs and are
seeking compensatory and punitive damages as well as medical care and court
supervised medical monitoring. The plaintiffs claim liability based on a variety
of theories including but not limited to, product liability, strict liability,
negligence, breach of warranty, and misrepresentation.

                                       10
<PAGE>   12
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Jones denies any liability incident to the distribution of Obenix(R) or its
generic phentermine product and intends to pursue all defenses available to it.
Jones has tendered defense of these lawsuits to its insurance carriers for
handling and they are currently defending these suits. The lawsuits are in
various stages of litigation, and it is too early to determine what, if any,
liability Jones will have with respect to the claims set forth in these
lawsuits. In the event that insurance coverage is inadequate to satisfy any
resulting liability, Jones will have to resume defense of these lawsuits and be
responsible for the damages, if any, that are awarded against it. Management of
the Company and Jones does not believe that the outcome of these lawsuits will
have a material adverse effect on the Company's business, financial condition,
results of operations or cash flow.

  State of Wisconsin Investment Board:

     On November 30, 1999, the Company entered into an agreement of merger with
Medco pursuant to which the Company acquired Medco in an all stock, tax-free
pooling of interests transaction, which was subject to approval by the Medco
shareholders. On January 5, 2000, Medco issued to its stockholders a proxy
statement with respect to the proposed transaction and noticed a meeting to
approve the transaction for February 10, 2000.

     On January 11, 2000, the State of Wisconsin Investment Board, ("SWIB"), a
Medco shareholder which held approximately 11.6% of the outstanding stock of
Medco, filed suit on behalf of a proposed class of Medco shareholders in the
Court of Chancery for the State of Delaware, New Castle County, against Medco
and members of Medco's board of directors to enjoin the shareholder vote on the
merger and the consummation of the merger. State of Wisconsin Investment Board
v. Bartlett, et al., C.A. No. 17727. SWIB alleged, among other things, that the
proxy materials filed by Medco failed to disclose all material information and
included misleading statements regarding the transaction, its negotiation, and
its approval by the Medco board of directors; that the Medco directors were not
adequately informed and did not adequately inform themselves of all reasonably
available information before recommending the transaction to Medco shareholders;
and that the Medco directors were disloyal and committed waste in allegedly
enabling one of the Medco directors to negotiate the transaction purportedly for
his own benefit and in agreeing to terms that precluded what the complaint
alleged were more beneficial alternative transactions. SWIB also moved for a
preliminary injunction to enjoin the shareholder vote and the merger based on
the claims asserted in its complaint. Medco and the other defendants denied all
allegations and continue to deny them.

     After Medco distributed a supplemental proxy statement on January 31, 2000
and the court postponed the February 10, 2000 vote on the merger agreement for
15 days to allow shareholders sufficient time to consider the supplemental
disclosures, the court rejected SWIB's claims in a February 24, 2000 Memorandum
Opinion and denied preliminary injunctive relief because SWIB had not shown a
reasonable likelihood of success following trial on the merits. The court made a
number of preliminary findings, including that the Medco board of directors
properly delegated to one of its directors the responsibility to negotiate the
merger; that the payment of the negotiating fee was a proper exercise of
business judgment and did not constitute waste; that the other merger provisions
were also valid; that the Medco directors were adequately informed of all
material information reasonably available to them prior to approving the merger
agreement; that the Medco directors acted independently and in good faith to
benefit the economic interests of the Medco shareholders; that the alleged
omissions in the proxy statements were not material; and that the Medco board of
directors fully met its duty of complete disclosure with respect to the
transaction.

     SWIB has filed an Application for a Scheduling Order stating its intention
to dismiss the case, before a class has been certified, without prejudice. In
the meantime, the action is still pending. While SWIB has indicated that it does
not intend to prosecute the merits of the case further, another shareholder
could intervene and continue the action. Even though SWIB lost its motion for
preliminary injunction, and is going to dismiss the case, SWIB has claimed that
its attorneys are entitled to an award of attorneys' fees and costs.

                                       11
<PAGE>   13
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SWIB has petitioned the court for approximately $7.26 million in attorneys' fees
and approximately $270,000 in costs.

     A hearing on SWIB's petition to dismiss and for attorneys' fees and costs
was held on June 26, 2000 in the Court of Chancery for the State of Delaware. No
ruling has yet been issued.

     The Company believes that SWIB's case, including SWIB's claim for
significant attorneys' fees which includes fees based on a formula related to an
alleged benefit conferred on Medco shareholders, is meritless, and the Company
is vigorously contesting it. The Company believes SWIB's actions did not confer
a benefit on the Medco shareholders. The Company also believes it is unlikely
that another shareholder will intervene to continue the action, but if that
results then the Company will vigorously contest it.

  Other:

     The FDA announced in an August 14, 1997 Federal Register Notice that orally
administered drug products containing levothyroxine sodium are now classified as
new drugs. Manufacturers who wish to continue to market these products must
submit new drug applications (NDAs). After August 14, 2001, any levothyroxine
sodium product marketed without an approved NDA will be subject to regulatory
action including, among other actions, withdrawal of the product. Levoxyl(R),
since it was marketed prior to the date of this notice, will continue to be
eligible for marketing until August 14, 2001. The Company has submitted the
requisite NDA and the FDA has acknowledged its filing. The NDA is pending review
by the FDA.

     The Company is involved in various routine legal proceedings incident to
the ordinary course of its business. Management believes that the outcome of all
pending legal proceedings in the aggregate will not have a material adverse
affect on the Company's consolidated financial position, results of operations,
or cash flow.

8. LONG-TERM DEBT

     On April 19, 2000, the Company completed an offering of 6,000 shares of
common stock, at a price of $27.59 per share. The Company received net proceeds
from the underwriter of $165.4 million on April 25, 2000. On April 28, 2000,
after giving the required notice to the Administrative Agent, the Company
prepaid $143.8 million of its Senior Credit Facility. On June 22, 2000, the
Company issued 1,928 shares of common stock to a third party in connection with
the Altace(R) co-promotion agreement. Of the net proceeds of $75 million, $37.5
million was used to make a mandatory prepayment against the outstanding term
loans as required by the Senior Credit Facility.

     In addition, the Company used existing cash and short term investments from
the Jones merger to prepay an additional $126,000 in the third quarter of 2000
relating to its Senior Credit Facility.

     As a result of these prepayments, during the three months and nine months
ended September 30, 2000, an extraordinary charge of $2.6 million and $7.2
million, net of related tax benefits, associated with the write-off of certain
unamortized deferred financing costs was recorded.

     As of September 30, 2000 the Company has $100.0 million of availability
under the Senior Credit Facility.

                                       12
<PAGE>   14
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2000            1999
                                                              -------------   ------------
<S>                                                           <C>             <C>
Revolving credit facility...................................    $     --        $ 45,000
Tranche A...................................................          --          97,235
Tranche B...................................................      12,951         269,921
Senior subordinated notes...................................     150,000         150,000
Other.......................................................      30,295           5,701
                                                                --------        --------
     Total..................................................     193,246         567,857
     Less current portion...................................       2,891          14,502
                                                                --------        --------
                                                                $190,355        $553,355
                                                                ========        ========
</TABLE>

9. SEGMENT REPORTING

     The Company's business is classified into three reportable segments;
Branded Pharmaceutical, Contract Manufacturing and Licensed Products. Branded
Pharmaceutical includes a variety of branded prescription products over five
therapeutic areas, including cardiovascular, anti-infective, vaccines and
biologicals, thyroid-disorder drugs, and women's health products. These branded
prescription products have been aggregated because of the similarity in
regulatory environment, manufacturing process, method of distribution, and type
of customer. Licensed Products represents the licensed manufacturing and
marketing rights to some of the Company's products to corporate partners in
exchange for royalty payments on future product sales. Contract Manufacturing
represents contract manufacturing services provided for pharmaceutical and
biotechnology companies. The classification all other primarily includes generic
pharmaceutical and development services.

     The Company primarily evaluates its segments based on gross profit.
Reportable segments were separately identified based on revenues, gross profit
and total assets.

     The following represents selected information for the Company's operating
segments for the periods indicated:

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED     NINE MONTHS ENDED
                                                           SEPTEMBER 30,         SEPTEMBER 30,
                                                        -------------------   -------------------
                                                          2000       1999       2000       1999
                                                        --------   --------   --------   --------
<S>                                                     <C>        <C>        <C>        <C>
Total Revenues:
  Branded pharmaceutical..............................  $141,612   $127,570   $383,267   $300,369
  Licensed products...................................     9,219      9,210     32,090     25,713
  Contract manufacturing..............................    14,663     26,256     47,428     51,973
  All other...........................................       848      2,335      6,102      8,814
  Eliminations........................................    (3,711)   (16,714)   (14,305)   (24,942)
                                                        --------   --------   --------   --------
          Consolidated total revenues.................  $162,631   $148,657   $454,582   $361,927
                                                        ========   ========   ========   ========
Gross profit (loss):
  Branded pharmaceutical..............................  $117,136   $ 95,820   $312,573   $238,540
  Licensed products...................................     7,305      7,399     26,669     20,994
  Contract manufacturing..............................     1,830       (566)     5,360     (1,583)
  All other...........................................       174      1,157      2,747      5,434
                                                        --------   --------   --------   --------
          Consolidated gross profit...................  $126,445   $103,810   $347,349   $263,385
                                                        ========   ========   ========   ========
</TABLE>

                                       13
<PAGE>   15
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                  AS OF          AS OF
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2000            1999
                                                              -------------   ------------
<S>                                                           <C>             <C>
Total assets:
  Branded pharmaceutical....................................   $  974,468      $  937,690
  Licensed products.........................................       13,314          77,162
  Contract manufacturing....................................      139,059         168,484
  All other.................................................          751           1,070
  Eliminations..............................................       (2,844)         (2,600)
                                                               ----------      ----------
          Consolidated total assets.........................   $1,124,748      $1,181,806
                                                               ==========      ==========
</TABLE>

10. OTHER INCOME

     Included in other income for the three months and nine months ended
September 30, 2000, is $2.5 million related gains on interest swap contracts
which have been terminated or no longer hedge outstanding indebtedness.

11. GUARANTOR FINANCIAL STATEMENTS

     The Company's wholly-owned subsidiaries Monarch Pharmaceuticals, Inc.,
Medco Research, Inc., Parkedale Pharmaceuticals, Inc., Jones Pharma Incorporated
and King Pharmaceuticals of Nevada, Inc. (the "Guarantor Subsidiaries") have
guaranteed the Company's performance under the $150,000, 10 3/4% Senior
Subordinated Notes due 2009 on a joint and several basis. There are no
restrictions under the Company's financing arrangements on the ability of the
Guarantor Subsidiaries to distribute funds to the Company in the form of cash
dividends, loans or advances. The following combined financial data provides
information regarding the financial position, results of operations and cash
flows of the Guarantor Subsidiaries (condensed consolidated/combined financial
data). Separate financial statements and other disclosures concerning the
Guarantor Subsidiaries are not presented because management has determined that
such information would not be material to the holders of the notes.

                                       14
<PAGE>   16
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                             GUARANTOR SUBSIDIARIES

                       CONDENSED COMBINED BALANCE SHEETS
                                  (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2000            1999
                                                              -------------   ------------
<S>                                                           <C>             <C>
                                  ASSETS
Current assets:
  Cash and cash equivalents.................................    $     --        $123,272
  Investments...............................................          --          80,229
  Trade accounts receivable.................................      95,267          85,988
  Inventory.................................................      45,986          39,020
  Deferred income taxes.....................................       2,794           4,162
  Prepaid expenses and other current assets.................       2,029           7,904
                                                                --------        --------
          Total current assets..............................     146,076         340,575
Property, plant and equipment, net..........................      93,477          99,776
Intangible assets, net......................................     375,678         183,117
Other assets................................................       7,583           8,851
Investments.................................................          --          33,583
                                                                --------        --------
          Total assets......................................    $622,814        $665,902
                                                                ========        ========

                           LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt.........................    $     27        $     27
  Accounts payable..........................................      28,008          33,532
  Accrued expenses and other liabilities....................      68,246          44,694
  Income taxes payable......................................      21,363           9,224
                                                                --------        --------
          Total current liabilities.........................     117,644          87,477
Long-term debt..............................................          22              42
Other long-term liabilities.................................       1,872           1,500
Intercompany payable........................................          --          57,290
Deferred income taxes.......................................       2,398           5,135
                                                                --------        --------
          Total Liabilities.................................     121,936         151,444
Shareholders' equity........................................     500,878         514,458
                                                                --------        --------
          Total liabilities and shareholders' equity........    $622,814        $665,902
                                                                ========        ========
</TABLE>

                                       15
<PAGE>   17
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                             GUARANTOR SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED     NINE MONTHS ENDED
                                                           SEPTEMBER 30,         SEPTEMBER 30,
                                                        -------------------   -------------------
                                                          2000       1999       2000       1999
                                                        --------   --------   --------   --------
<S>                                                     <C>        <C>        <C>        <C>
Revenues:
          Total net revenues..........................  $162,358   $160,310   $453,048   $370,047
                                                        --------   --------   --------   --------
Operating costs and expenses:
  Cost of revenues....................................    33,709     55,037    102,482    104,418
  Selling, general and administrative.................    28,384     24,712     86,379     63,091
  Royalty expense.....................................     1,914      3,154      5,421      7,881
  Depreciation and amortization.......................     5,464      4,641     11,270     19,184
  Research and development expense....................     5,704      3,013     14,908      7,575
  Non-recurring -- research and development...........     6,107         --      6,107         --
  Merger, restructuring and other non-recurring
     charges..........................................    24,696         --     42,377         --
                                                        --------   --------   --------   --------
          Total operating costs and expenses..........   105,978     90,557    268,944    202,149
                                                        --------   --------   --------   --------
  Operating income....................................    56,380     69,753    184,104    167,898
                                                        --------   --------   --------   --------
Other income (expense):
  Interest income.....................................     2,720      2,644      9,129      7,188
  Other, net..........................................    (2,073)      (152)    (4,460)      (260)
                                                        --------   --------   --------   --------
          Total other income..........................       647      2,492      4,669      6,928
                                                        --------   --------   --------   --------
Income before income taxes and extraordinary item.....    57,027     72,345    188,773    174,826
Income tax expense....................................   (25,679)   (27,763)   (65,625)   (67,014)
                                                        --------   --------   --------   --------
Income before extraordinary item......................    31,348     44,482    123,148    107,812
Extraordinary item:
  Loss on disposed and impaired assets, net of taxes
     of $16,383.......................................   (27,304)        --    (27,304)        --
                                                        --------   --------   --------   --------
          Net income..................................  $  4,044   $ 44,482   $ 95,844   $107,812
                                                        ========   ========   ========   ========
</TABLE>

                                       16
<PAGE>   18
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                             GUARANTOR SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               NINE MONTHS ENDED
                                                                 SEPTEMBER 30,
                                                              --------------------
                                                                2000        1999
                                                              ---------   --------
<S>                                                           <C>         <C>
Net cash provided by operating activities...................  $ 141,245   $ 94,571
                                                              ---------   --------
Cash flows from investing activities:
  Purchase of investment securities.........................   (142,922)        --
  Proceeds from maturity and sale of investments............    258,020         --
  Proceeds from sale of property and equipment..............         43         --
  Product acquisition.......................................   (204,000)        --
  Purchases of intangible assets............................         --     (9,036)
  Purchases of property and equipment.......................     (9,973)    (5,516)
                                                              ---------   --------
          Net cash (used in) investing activities...........    (98,832)   (14,552)
                                                              ---------   --------
Cash flows from financing activities:
  Intercompany liability....................................    (59,602)        --
  Proceeds from exercise of stock options and warrants......      3,166      2,170
  Payments of cash dividends................................     (2,619)    (2,957)
  Purchase of stock held in treasury........................         --     (4,456)
  Increase (decrease) in inter-company payable..............   (106,610)   (36,373)
  Increase (decrease) in long-term debt.....................        (20)        75
                                                              ---------   --------
          Net cash (used in) financing activities...........   (165,685)   (41,541)
                                                              ---------   --------
Change in cash and cash equivalents.........................   (123,272)    38,478
Cash and cash equivalents, beginning of period..............    123,272    127,487
                                                              ---------   --------
Cash and cash equivalents, end of period....................  $      --   $165,965
                                                              =========   ========
</TABLE>

12. SUBSEQUENT EVENTS

     On October 20, 2000, the Company issued 2,703 shares of common stock and
received net proceeds of $109.5 million, of which $57.9 million was used to
reduce debt and the remainder was invested in short-term investments.

     In November 2000, the Company received $50.0 million from American Home
Products in accordance with the co-promotion agreement. These proceeds have been
invested in short-term investments.

                                       17
<PAGE>   19

                        PART I -- FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

     The following discussion contains certain forward-looking statements that
reflect management's current views of future events and operations. These
forward-looking statements involve certain significant risks and uncertainties,
and actual results may differ materially from the forward-looking statements.
Some important factors which may cause results to differ include: our
significant leverage and debt service requirements, dependence on our ability to
continue to acquire branded products, dependence on sales of our products,
management of our growth and integration of our acquisitions. Other important
factors that may cause actual results to differ materially from the
forward-looking statements are discussed in various sections of our Annual
Report on Form 10-K for the year ended December 31, 1999 and Form 8-K filed
October 19, 2000, which are on file with the Securities and Exchange Commission.
We do not undertake to publicly update or revise any of our forward-looking
statements even if experience or future changes show that the indicated results
or events will not be realized. The following presentation of management's
discussion and analysis of financial condition and results of operations should
be read in conjunction with our unaudited consolidated financial statements and
related notes thereto.

OVERVIEW

     We are a vertically integrated pharmaceutical company that researches,
develops, manufactures, markets and sells primarily branded prescription
pharmaceutical products. Through a national sales force of over 400
representatives and co-promotion arrangements, we market our branded
pharmaceutical products to general/family practitioners, internal medicine
physicians, cardiologists, endocrinologists, pediatricians and hospitals across
the country.

     Our primary business strategy is to acquire established branded
pharmaceutical products and to increase their sales through focused marketing
and promotion, life cycle management as well as by securing new indications,
developing product line extensions and devising new formulations or dosages. In
pursuing acquisitions, we seek to capitalize on opportunities in the
pharmaceutical industry created by cost containment initiatives and
consolidation among large, global pharmaceutical companies. We also seek
attractive company acquisitions that add products or product pipelines,
technologies or sales and marketing capabilities to our key therapeutic areas.
These activities are attractive to us because they may expand the market for our
branded pharmaceutical products, provide market exclusivity or sales levels that
do not attract significant competition. In addition to branded pharmaceuticals,
we also provide contract manufacturing for a number of the world's leading
pharmaceutical and biotechnology companies, including Warner-Lambert Company,
Centocor, Inc., Genetics Institute, Inc. and Hoffman-La Roche Inc.

     Our branded pharmaceutical products can be divided primarily into five
therapeutic areas: (i) cardiovascular (including Altace(R), Thalitone(R) and
Procanbid(R)), (ii) anti-infectives (including Lorabid(R), Bicillin(R),
Cortisporin(R), Neosporin(R) and Coly-Mycin M(R)), (iii) vaccines and
biologicals (including Bicillin(R) Thrombin-JMI(R) and Aplisol(R)), (iv)
thyroid-disorder drugs (including Levoxyl(R), Tapazole(R), Cytomel(R), and
Triostat(R)), and (v) women's health (including Menest(R), Nordette(R) and
Pitocin(R)). Most of these products are marketed to general/family practitioners
and internal medicine physicians. Unlike many of our competitors, we have a
broad therapeutic focus that provides us with opportunities to purchase a wide
variety of products. In addition, we have well known products in all of our
therapeutic categories that generate high prescription volumes. Our portfolio of
well-recognized prescription brand names includes, among others, Altace(R),
Lorabid(R), Neosporin(R), Cortisporin(R), Bicillin(R), Levoxyl(R), Tapazole(R),
Cytomel(R), Menest(R), Nordette(R), Pitocin(R), and Anusol-HC(R).

     We acquired from Glaxo Wellcome the Cortisporin(R) product line in March
1997, the Viroptic(R) product line in May 1997 and six additional branded
products, including Septra(R), and exclusive licenses, free of royalty
obligations, for the prescription formulations of Neosporin(R) and Polysporin(R)
in November 1997 (the "Glaxo Acquisition").

                                       18
<PAGE>   20

     In June 1997, through Jones Pharma Incorporated discussed below, we
acquired Cytomel(R) and Triostat(R) from SmithKline Beecham Corporation for a
purchase price of $22.8 million. In connection with the acquisition, we entered
into manufacturing agreements for the supply of both products.

     In February 1998 we acquired from Warner-Lambert 15 branded pharmaceutical
products, the Parkedale facility located in Rochester, Michigan and certain
manufacturing contracts for third parties for $127.9 million, including $2.9
million of assumed liabilities (the "Sterile Products Acquisition").

     In June 1998 we launched our new Cortisporin(R)-TC Otic line.
Cortisporin(R)-TC Otic is a product line extension for our Cortisporin(R) Otic
Suspension product.

     In December 1998 we acquired from Hoechst Marion Roussel, Inc., ("HMR")
predecessor to Aventis, for $362.5 million the United States rights to
Altace(R), an Angiotensin Converting Enzyme ("ACE") inhibitor, HMR's worldwide
rights to Silvadene(R) and HMR's worldwide rights to AVC(TM), (the "Altace
Acquisition"). Aventis currently manufactures Altace(R) for us.

     In August 1999, we acquired the antibiotic Lorabid(R) from Eli Lilly and
Company for $91.7 million including acquisition costs plus sales performance
milestones that could bring the total value of the deal to $158.0 million. The
final contingent payment will be made if we achieve $140.0 million in annual net
sales of Lorabid(R). As part of the agreement, we acquired or licensed all of
Lilly's rights in the United States and Puerto Rico to Lorabid(R), including
Lorabid(R)'s new drug applications, investigational new drug applications, and
certain patents and associated United States copyright and trademark material.
Lilly manufactures Lorabid(R) for us. Lorabid(R) has United States patent
protection through December 31, 2005.

     On February 25, 2000, we acquired Medco in an all stock transaction
accounted for as a pooling of interests valued at approximately $366 million.
Medco is now one of our wholly owned subsidiaries and, effective November 1,
2000, was renamed "King Pharmaceuticals Research and Development, Inc." We
exchanged approximately 10.8 million shares of King common stock for all of the
outstanding shares of Medco. Each share of Medco was exchanged for 1.01355 share
of King common stock. In addition, outstanding Medco stock options were
converted at the same exchange ratio to purchase approximately 1.0 million
shares of King common stock. Medco is engaged in the development and global
commercialization of cardiovascular medicines and adenosine-receptor
technologies. Medco's products and the related intellectual property rights are
typically obtained under license from academic or corporate sources who have
received United States patents. Medco then sponsors and directs any additional
preclinical studies and clinical testing needed for product registration and
marketing approval. These late-stage product development activities are
outsourced to independent clinical research organizations to maximize efficiency
and minimize internal overhead. Historically Medco has licensed the
manufacturing and marketing rights to its products to corporate partners in
exchange for licensing fees and royalty payments on future sales. A portion of
the formulation development, as well as microbiology, chemistry, manufacturing
and controls information, are typically provided by Medco's licensed corporate
partner, and Medco then submits to the United States Food and Drug
Administration ("FDA"), a New Drug Application ("NDA") to obtain the FDA's
clearance to market the drug. Medco has successfully developed two
adenosine-based products, Adenocard(R) and Adenoscan(R). The NDAs for
Adenocard(R) and Adenoscan(R) are held by Fujisawa Healthcare, Inc. and Medco
receives a royalty based on the sales of the products.

     On June 23, 2000, we entered into a co-promotion agreement with the
Wyeth-Ayerst division of American Home Products Corporation to market Altace(R),
an ACE inhibitor, in the United States and Puerto Rico. Subject to the terms of
the co-promotion agreement, we will pay American Home Products an annual fee
based on a percentage of net sales in exchange for its marketing efforts.
Additionally, American Home Products purchased $75.0 million of our common stock
and paid us $25.0 million in cash upon execution of the co-promotion agreement.
American Home Products paid us an additional $50.0 million in November 2000 as a
result of the FDA's final approval of new indications for Altace(R) approved by
the FDA on October 5, 2000.

     On July 7, 2000, we completed the acquisition of United States marketing
rights to the Nordette(R), Bicillin(R), and Wycillin(R) product lines from
American Home Products as contemplated by the co-promotion

                                       19
<PAGE>   21

agreement discussed above valued at $200 million, plus the assumption of certain
liabilities, financed with a draw of $10.0 million on a $50.0 million bridge
loan, $25.0 million in the form of a note issued to American Home Products,
$37.5 million of the proceeds from the sale of stock to American Home Products,
$25.0 million received in connection with the co-promotion agreement with
American Home Products, $90.0 million from the revolving credit facility, and
$12.5 million in cash from operations.

     On August 31, 2000, we acquired Jones Pharma Incorporated in an all stock
transaction accounted for as a tax-free pooling of interests for approximately
$2.4 billion. Jones is now one of our wholly-owned subsidiaries. We exchanged
approximately 74.0 million shares of King common stock for all of the
outstanding shares of Jones. Each share of Jones was exchanged for 1.125 shares
of King common stock. In addition, outstanding Jones stock options were
converted at the same exchange ratio to purchase approximately 4.0 million
shares of King common stock. Jones was an emerging specialty pharmaceutical
company with a national sales force of approximately 120 dedicated sales
representatives who promoted Jones' products throughout the United States.
Jones' strategy was to build a portfolio of growing products through the
acquisition of under-promoted, promotion-sensitive FDA-approved products from
other pharmaceutical companies. About half of Jones' sales were generated by the
thyroid-disorder drugs Levoxyl(R), Tapazole(R), Cytomel(R), and Triostat(R).
Jones' other products included Thrombin-JMI(R) for controlling blood loss during
surgery; Brevital Sodium(R), an anesthetic; and veterinary pharmaceuticals
including Soloxine(R) and Pancrezyme(R).

     Our strategy is to continue to acquire branded pharmaceutical products and
to create value by leveraging our marketing, manufacturing and product
development capabilities. The success of our marketing strategy will be aided by
our having gained approval from the FDA on October 5, 2000 of the new
indications for Altace(R) requested under the supplemental New Drug Application.

     We manufacture pharmaceutical products for a variety of pharmaceutical and
biotechnology companies under contracts expiring at various times within the
next four years. We intend to enter into additional manufacturing contracts in
cases where we identify contracts that offer significant volumes and attractive
revenues. We have not accepted or renewed manufacturing contracts with third
parties where we perceived insignificant volumes or revenues. In accordance with
our focus on branded pharmaceutical products, we expect that, over time, our
contract manufacturing will continue to be a smaller percentage of revenues.

     The following summarizes approximate net revenues by operating segment (in
thousands).

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED     NINE MONTHS ENDED
                                                           SEPTEMBER 30,         SEPTEMBER 30,
                                                        -------------------   -------------------
                                                          2000       1999       2000       1999
                                                        --------   --------   --------   --------
<S>                                                     <C>        <C>        <C>        <C>
Branded pharmaceuticals...............................  $141,612   $127,570   $383,265   $300,368
Licensed products.....................................     9,219      9,210     32,090     25,713
Contract manufacturing................................    10,952      9,542     33,125     27,032
Other.................................................       848      2,335      6,102      8,814
                                                        --------   --------   --------   --------
          Total.......................................  $162,631   $148,657   $454,582   $361,927
                                                        ========   ========   ========   ========
</TABLE>

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

  Revenues

     Net revenues increased $13.9 million, or 9.4%, to $162.6 million in 2000
from $148.7 million in 1999, due primarily to the acquisition and growth of
branded pharmaceutical products. The increase in revenues is primarily from the
revenue growth of Altace(R) and Levoxyl(R), and the acquisition of products from
American Home Products in July 2000.

     Net sales from branded pharmaceutical products increased $14.0 million, or
11.0%, to $141.6 million in 2000 from $127.6 million in 1999. The revenue growth
resulted from the sales increases of the Altace(R), Levoxyl(R), and
Thrombin-JMI(R) branded product lines offset by decreases in the volume of
Lorabid(R) and

                                       20
<PAGE>   22

Tapazole(R) brands as well as the discontinuance of Fluogen(R), which generated
$16.7 million net sales in the third quarter of 1999. In advance of or in
anticipation of a price increase, many of our customers may order pharmaceutical
products in larger than normal quantities. We cannot determine the exact
quantity of additional inventory that our customers may order in anticipation of
a price increase. The ordering of excess quantities in any quarter could cause
sales of some of our branded pharmaceutical products to be lower in the
subsequent quarter than they would have been otherwise.

     Revenues from licensed products remained consistent at $9.2 million for the
three months ended September 30, 2000 and 1999.

     Revenues from contract manufacturing remained relatively flat in 2000
compared to 1999.

     Net sales from other decreased $1.5 million, or 65.2%, to $848,000 in 2000
from $2.3 million in 1999 primarily due to decreased sales of a generic product
line.

  Operating Costs and Expenses

     Total operating costs and expenses increased $46.8 million, or 53.9%, to
$133.6 million in 2000 from $86.8 million in 1999. The increase was mostly due
to $48.5 million of merger, restructuring, and other nonrecurring charges
relating to employee severance arising from the discontinuance of Fluogen(R) and
Pallacor(TM), and merger and restructuring costs associated with the Company's
merger with Jones in a tax-free pooling of interests transaction during August
2000. (See note 5 to the financial statements.)

     Cost of revenues decreased $8.9 million, or 21.0% to $33.7 million in 2000
from $42.6 million in 1999. The decrease was due primarily to the reduction in
costs associated with the production of Fluogen(R). As a percentage of revenues,
cost of revenues decreased to 20.7% in 2000 from 28.6% in 1999 due to the
increase in sale of higher margin products.

     Selling, general and administrative expenses remained relatively flat at
$30.2 million in 2000 as compared to $29.9 million in 1999. As a percentage of
revenues, selling, general, and administrative expenses decreased to 18.6% in
2000 from 20.1% in 1999 due to increased revenues.

     Depreciation and amortization expense increased $3.6 million, or 39.7%, to
$12.7 million in 2000 from $9.1 million in 1999. This increase was primarily
attributable to having a full period of the amortization from the intangible
assets acquired in the acquisitions of Lorabid(R) in 1999, and the acquisitions
of Nordette(R), Bicillin(R), and Wycillin(R) in 2000.

     Research and development expense increased $3.0 million, or 100.0%, to $6.0
million in 2000 from $3.0 million in 1999. This increase resulted from increased
research and development activity and costs associated with the Pallacor(TM)
program.

     Royalty expense remained relatively flat at $2.5 million in 2000 as
compared to $2.3 million in 1999.

     During the three months ended September 30, 2000, the Company incurred
merger, restructuring, and other nonrecurring charges of $48.5 million as
compared to no similar charges during the three months ended September 30, 1999.
The nonrecurring charges incurred in 2000 related to merger and restructuring
costs of $33.8 million associated with the Company's tax-free pooling of
interests transaction with Jones during August 2000 and other restructuring
activities, restructuring and nonrecurring charges of $8.6 million related to
employee severance arising from the Company's decision to discontinue
Fluogen(R), and $6.1 million related to the Company's decision to discontinue
development of Pallacor(TM).

  Operating Income (Loss)

     Operating income decreased $32.8 million, or 53.1%, to $29.0 million in
2000 from $61.8 million in 1999. This decrease was due to the $48.5 million of
merger, restructuring, and other nonrecurring charges incurred during the three
months ended September 30, 2000. Excluding these special nonrecurring charges,
operating income increased $15.6 million, or 25.3%, to $77.5 million in 2000
from $61.8 million in 1999. This increase

                                       21
<PAGE>   23

was primarily due to increased revenues from certain branded pharmaceutical
products. As a percentage of net revenues, operating income decreased to 17.8%
in 2000 from 41.6% in 1999 for the reasons described above.

  Other Income (Expense)

     Interest income increased $359,000 from $2.7 million in 1999 to $3.1
million in 2000.

     Interest expense decreased $4.9 million, or 33.4%, to $9.7 million in 2000
from $14.5 million in 1999. This decrease is due to the reduced average debt
balance in 2000 resulting from the Company's prepayment of debt obligations
during 2000.

     Other income (expense) increased from ($133,000) in 1999 to $2.3 million in
2000 due to a $2.5 million gain related to interest swap contracts which have
been terminated or no longer hedge outstanding indebtedness.

  Income Tax Expense

     The effective tax rate in 1999 of 38.0% was increased to 70.0% in 2000 due
primarily to nondeductible merger related costs.

  Extraordinary Items

     The Company recognized an extraordinary loss of $4.1 million ($2.6 million
net of income taxes) during the three months ended September 30, 2000 due to the
write-off of unamortized financing costs resulting from the repayment of debt
during this period.

     On September 27, 2000, the Company received notification from the FDA that
it must cease manufacturing and distributing Fluogen(R), an influenza vaccine,
until the Company demonstrates compliance with related FDA regulations. In
addition, the notification recommended that the Company properly dispose of
Fluogen(R) inventory on hand. As a result of this notification, the Company
decided to permanently discontinue Fluogen(R) production and distribution. The
Company recorded extraordinary losses on disposed and impaired assets associated
with these events. The related losses were recorded in the quarter ended
September 30, 2000 and amounted to $43.7 million before tax benefit of $16.4
million.

  Net Income (Loss)

     Due to the factors set forth above, net income decreased $53.3 million, or
172.2%, to ($22.3) million in 2000 from $30.9 million in 1999.

NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

  Revenues

     Net revenues increased $92.7 million, or 25.6%, to $454.6 million in 2000
from $361.9 million in 1999, due primarily to the acquisition and growth of
branded products. The increase in revenues is primarily attributable to
increased sales of certain branded products.

     Net sales from branded pharmaceutical products increased $82.9 million, or
27.6%, to $383.3 million in 2000 from $300.4 million in 1999. The increase in
revenues from branded pharmaceutical products is primarily attributable to the
Altace(R), Levoxyl(R), Thrombin-JMI(R), and the acquisitions of Lorabid(R),
Nordette(R), and Bicillin(R). The increased revenues from branded pharmaceutical
products were offset by the discontinuance of Fluogen(R), which generated $17.5
million net sales in the nine months ended September 30, 1999. In advance of or
in anticipation of a price increase, many of our customers may order
pharmaceutical products in larger than normal quantities. We cannot determine
the exact quantity of additional inventory that our customers may order in
anticipation of a price increase. The ordering of excess quantities in any
quarter could cause sales of some of our branded pharmaceutical products to be
lower in the subsequent quarter than they would have been otherwise.

                                       22
<PAGE>   24

     Revenues from licensed products increased $6.4 million, or 24.8%, to $32.1
million in 2000 from $25.7 million in 1999 due to continued increases in unit
sales of Adenoscan(R) by Fujisawa, our North American licensee, offset in part
by a decrease in the royalty rate in August 2000.

     Revenues from contract manufacturing increased $6.1 million, or 22.5% to
$33.1 million in 2000 from $27.0 million in 1999 due primarily to increased
contract sales of Thrombin-JMI(R).

     Net sales from other decreased $2.7 million, or 30.8%, to $6.1 million in
2000 from $8.8 million in 1999 primarily due to decreased sales of a generic
product line.

  Operating Costs and Expenses

     Total operating costs and expenses increased $111.3 million, or 53.5%, to
$319.4 million in 2000 from $208.1 million in 1999. The increase was mostly due
to $70.8 million of merger, restructuring, and other nonrecurring charges
relating to employee severance arising from the discontinuance of Fluogen(R) and
Pallacor(TM), merger and restructuring costs associated with the tax-free
pooling of interests transaction with Medco in February 2000, and merger and
restructuring costs associated with the Company's merger with Jones in a
tax-free pooling of interests transaction during August 2000. (See note 5 to the
financial statements.)

     Cost of revenues increased $7.7 million, or 8.3%, to $100.2 million in 2000
from $92.5 million in 1999 due to increased sales offset by the elimination of
Fluogen(R) sales. As a percentage of total revenues, cost of revenues decreased
to 22.0% in 2000 from 25.6% in 1999 due to the increased sales of higher margin
products.

     Selling, general and administrative expenses increased $16.1 million, or
21.4%, to $91.2 million in 2000 from $75.1 million in 1999. This increase was
primarily attributable to the hiring of additional sales representatives during
the second half of 1999 and first half of 2000, as well as other personnel
costs, marketing and sampling costs associated with the new branded product
lines. As a percentage of net sales, selling, general and administrative
expenses decreased from 20.8% in 1999 to 20.1% in 2000.

     Depreciation and amortization expense increased $7.6 million, or 28.4%, to
$34.5 million in 2000 from $26.9 million in 1999. This increase was primarily
attributable to having a full period of the amortization from the intangible
assets acquired in the acquisition of Lorabid(R) in 1999 and the acquisitions of
Nordette(R), Bicillin(R), and Wycillin(R) in July 2000.

     Research and development expense increased $8.1 million, or 107.3%, to
$15.7 million in 2000 from $7.6 million in 1999. This increase resulted from
increased research and development activity and costs associated with the
Pallacor(TM) program.

     Royalty expense increased $1.0 million to $7.1 million in 2000 as compared
to $6.1 million in 1999. This is increase is due to increased sales volumes of
Adenoscan(R) and Adenocard(R).

     During the nine months ended September 30, 2000, the Company incurred
merger, restructuring, and other nonrecurring charges of $70.8 million as
compared to no similar charges during the nine months ended September 30, 1999.
The nonrecurring charges incurred in 2000 related to merger and restructuring
costs of $35.3 million associated with the Company's tax-free pooling of
interests transaction with Jones during August 2000, merger and restructuring
costs of $20.8 million associated with the tax-free pooling of interests
transaction with Medco in February 2000, restructuring and nonrecurring charges
of $8.6 million related to employee severance arising from the Company's
decision to discontinue Fluogen(R), and $6.1 million related to the Company's
decision to discontinue development of Pallacor(TM).

  Operating Income (Loss)

     Operating income decreased $18.7 million, or 12.1%, to $135.2 million in
2000 from $153.8 million in 1999. This decrease was due to the $70.8 million of
merger, restructuring, and other nonrecurring charges incurred during the nine
months ended September 30, 2000. Excluding these special nonrecurring charges,
operating income increased $52.1 million, or 33.9%, to $206 million in 2000 from
$153.8 million in 1999.

                                       23
<PAGE>   25

This increase was primarily due to increased revenues from certain branded
pharmaceutical products. As a percentage of net revenues, operating income
decreased to 29.7% in 2000 from 42.5% in 1999.

  Other Income (Expense)

     Interest income increased $2.8 million from $7.4 million in 1999 to $10.1
million in 2000. This increase was primarily due to higher investment income in
2000 as average investment balances were higher.

     Interest expense decreased $6.8 million, or 16.7%, to $33.8 million in 2000
from $40.6 million in 1999, as a result prepayment of debt obligations during
2000.

     Other income (expense) increased from ($207,000) in 1999 to $2.2 million in
2000 due to a $2.5 million gain related to interest swap contracts which have
been terminated or no longer hedge outstanding indebtedness.

  Income Tax Expense

     The effective tax rate in 1999 of 37.7% increased to 51.7% in 2000 due to
the non-deductible nature of certain merger costs.

  Extraordinary Items

     The Company recognized an extraordinary loss of $11.7 million ($7.2 million
net of income taxes) during the nine months ended September 30, 2000 due to the
write-off of unamortized financing costs resulting from the repayment of debt
during this period.

     On September 27, 2000, the Company received notification from the FDA that
it must cease manufacturing and distributing Fluogen(R), an influenza vaccine,
until the Company demonstrates compliance with related FDA regulations. In
addition, the notification recommended that the Company properly dispose of
Fluogen(R) inventory on hand. As a result of this notification, the Company
decided to permanently discontinue Fluogen(R) production and distribution. The
Company recorded extraordinary losses on disposed and impaired assets associated
with these events. The related losses were recorded in the quarter ended
September 30, 2000 and amounted to $43.7 million before tax benefit of $16.4
million.

  Net Income

     Due to the factors set forth above, net income decreased $54.0 million, or
72.7%, to 20.3 million in 2000 from $74.3 million in 1999.

LIQUIDITY AND CAPITAL RESOURCES

  General

     Our liquidity requirements arise from debt service, working capital
requirements and funding of acquisitions of branded products.

NINE MONTHS ENDED SEPTEMBER 30, 2000

     As of September 30, 2000 we have available up to $100.0 million under a
revolving line of credit.

     We generated net cash from operations of $92.9 million for the nine months
ended September 30, 2000. Our net cash provided from operations was primarily
the result of $20.3 million in net income, adjusted for non-cash depreciation
and amortization of $30.7 million, an increase in other long-term liabilities of
$22.3 million, non-cash extraordinary charges and non-cash non-recurring charges
of $61.4 million, an increase in accrued expenses of $10.7 million, and an
increase in accounts payable of $3.8 million. Additionally, we decreased other
assets by $2.1 million and recorded $1.4 million of non-cash amortization of
loan fees. An increase in accounts receivable of $11.1 million and an increase
in inventory of $34.1 million, an

                                       24
<PAGE>   26

increase in prepaid and other current assets of $4.8 million and a decrease in
income taxes payable of $9.0 million offset the items previously described.

     Cash flows used in investing activities was $101.6 million due to the
$200.0 million purchase of Nordette(R), Wycillin(R), and Bicillin(R), $13.1
million of capital expenditures, and the purchase of $142.9 million of
investment securities for the nine months ended September 30, 2000. The sale of
$258.0 million of investment securities offset the items previously mentioned.

     Financing activities used $115.0 million comprised principally of $240.4
million in proceeds from the issuance of common stock, $22.8 million from the
exercise of employee stock options, and $114.0 million in proceeds from the
revolving credit facility, and $50.0 million of borrowings under the bridge loan
facility. These amounts were offset by repayments of the $25.0 million under the
bridge loan facility, $354.6 million relating to the term loans, and $159.0
million on the revolving credit facility.

     We financed the acquisition of Nordette(R), Bicillin(R), and Wycillin(R)
with borrowings under the revolving credit facility, cash generated from
operations, cash generated from the issuance of common stock, a bridge loan
facility, and a seller note.

     On October 20, 2000, we issued 2.7 million shares of common stock and
received net proceeds of $109.5 million, of which $57.9 million was used to
reduce debt and the remainder was invested in short-term investments.

     In November 2000, we received $50.0 million from American Home Products in
accordance with the co-promotion agreement. These proceeds have been invested in
short-term investments.

  Capital Expenditures

     Capital expenditures, including capital lease obligations, were $13.1
million and $7.1 million for the nine months ended September 30, 2000 and 1999,
respectively. The principal capital expenditures included property and equipment
purchases and building improvements. We anticipate total capital expenditures in
2000 to be approximately $18.0 million primarily to fund additional equipment
purchases and building improvements. In addition, we expect to increase our
capital expenditures over the next few years as a part of our acquisition and
growth strategy.

  Certain Indebtedness and Other Matters

     As of September 30, 2000, we had $193.2 million of long-term debt
(including current portion) and we have available up to $100.0 million under our
revolving credit facility. Of these amounts, approximately $37.9 million was at
variable rates based on LIBOR and the remainder at fixed rates. We have entered
into $285.0 million of interest rate hedging transactions with a group of
commercial banks to exchange our variable LIBOR for a fixed rate of interest. We
have also entered into a $150.0 million interest rate hedging agreement to
exchange our fixed interest rate for a variable LIBOR-based interest rate, with
the LIBOR rate fixed for three years. Certain financing arrangements require us
to maintain certain minimum net worth, debt to equity, cash flow and current
ratio requirements. As of September 30, 2000, we were in compliance with these
covenants.

     In April 2000, we completed an offering of 6.0 million shares of common
stock at a price of $27.59 per share. We received $165.4 million in net proceeds
from the offering on April 25, 2000. On June 22, 2000, we sold American Home
Products 1.9 million shares for $75.0 million. During the quarter we utilized
$201.3 million of these proceeds as prepayments on our senior credit facility.
After application of all prepayments and normal amortization, we have repaid the
balance of the tranche A term loan and $12.9 million remains outstanding under
the tranche B loan. As a result of these prepayments, we have recorded an
extraordinary charge related to the write-off of certain unamortized deferred
financing costs.

     On July 7, 2000, we completed the acquisition of marketing rights in the
United States and Puerto Rico to the Nordette(R), Bicillin(R), and Wycillin(R)
product lines from American Home Products as contemplated by the co-promotion
agreement for $200.0 million, financed with a draw of $10.0 million on a $50.0
million

                                       25
<PAGE>   27

bridge loan, $25.0 million in the form of a note issued to American Home
Products, $37.5 million of the proceeds from the sale of stock to American Home
Products, $25.0 million received in connection with the co-promotion agreement
with American Home Products, $90.0 million from the revolving credit facility
and $12.5 million in cash from operations.

     We believe that existing credit facilities and cash generated from
operations are sufficient to finance our current operations and working capital
requirements. However, in the event we make significant future acquisitions or
change our capital structure, we may be required to raise funds through
additional borrowings or the issuance of additional debt or equity securities.

     At present, we are actively pursuing acquisitions that may require the use
of substantial capital resources. There are no present agreements or commitments
with respect to any such acquisitions.

IMPACT OF INFLATION

     We have experienced only moderate raw material and labor price increases in
recent years. While we have passed some price increases along to our customers,
we have primarily benefited from rapid sales growth negating most inflationary
pressures.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board adopted SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. In June 1999, the FASB issues SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the effective date
of FASB Statement No. 133 -- an amendment of FASB Statement No. 133," that
revises SFAS No. 133, to become effective in the first quarter of fiscal 2001.
We are evaluating the provisions of SFAS No. 133, but do not anticipate its
adoption to have a material impact on our financial position or results of
operations.

     In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements," ("SAB 101") which clarifies
accounting and reporting standards for revenue recognition. As a result of a
deferral of the effective date, SAB 101 will be effective for the fourth quarter
of fiscal years beginning after December 15, 1999. We do not believe that SAB
101 will have a material impact on our financial position or results of
operations.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

     We use derivative instruments to manage our long-term interest rate
exposure, rather than for trading purposes.

     As of September 30, 2000, there were no significant changes in our
qualitative or quantitative market risk since the prior reporting period.
Subsequent to September 30, 2000, we terminated a $100.0 million interest rate
swap as a result of the paydown of our variable rate debt. A gain of
approximately $1.1 million was recognized in the third quarter.

FORWARD-LOOKING STATEMENTS

     This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements relate to
analyses and other information which are based on forecasts of future results
and estimates of amounts not yet determinable. These statements also relate to
our future prospects, developments, and business strategies.

     These forward-looking statements are identified by their use of terms and
phrases, such as "anticipate", "believe", "could", "estimate", "expect",
"intend", "may", "plan", "predict", "project", "will" and similar terms and
phrases, including references to assumptions. These statements are contained in
sections entitled

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<PAGE>   28

"Risk Factors", "Management's Discussions and Analysis of Financial Condition
and Results of Operations", "Business", and other sections included here and
within our Annual Report filed on Form 10-K.

     Such forward-looking statements include, but are not limited to: (a)
anticipated developments and expansions of our business; (b) increases in sales
of recently acquired products or royalty payments; (c) development of product
line extensions; (d) future findings and determinations of the FDA; (e) debt
service and leverage requirements; (f) the products which we expect to offer;
(g) the intent to market and distribute certain of our products internationally;
(h) the intent to manufacture certain products in our own facilities which are
currently manufactured for us by third parties; (i) the intent, belief or
current expectations, primarily with respect to our future operating
performance; (j) expectations regarding sales growth, gross margins,
manufacturing productivity, capital expenditures and effective tax rates; and
(k) expectations regarding our financial condition and liquidity as well as
future cash flows and earnings.

     Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. Such factors include, but are not limited to, the following: changes
in general economic and business conditions; dependence on continued acquisition
of products or companies; management of growth of business and integration of
product acquisitions; changes in current pricing levels; development of new
competitive products; changes in economic conditions and federal and state
regulations; competition for acquisition of products or companies; manufacturing
capacity constraints; and the availability, terms and deployment of capital. We
also refer you to our Annual Report on Form 10-K for the year ended December 31,
1999 as well as to the sections entitled "Risk Factors" in our registration
statement on Form S-3 filed with the SEC in January 2000, as supplemented and
our registration statement on Form S-4 filed with the SEC in July 2000.

     We do not undertake to update our forward-looking statements to reflect
future events or circumstances.

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<PAGE>   29

                          PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     The information required by this Item is incorporated by reference to Note
7 to the Condensed Consolidated Financial Statements included elsewhere in this
document.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

     None

(b) Reports on Form 8-K

     We filed the following Current Reports on Form 8-K during the quarter ended
September 30, 2000:

          (1) A Current Report on Form 8-K filed July 18, 2000 reported under
     Item 5 the announcement on July 13, 2000 of the execution of a definitive
     merger agreement between King and Jones Pharma Incorporated to merge the
     two companies in a stock-for-stock transaction. A press release relating to
     these events was issued on July 13, 2000.

          (2) A Current Report on Form 8-K filed September 1, 2000 indicated
     under Item 2 the merger of King with Jones Pharma Incorporated in a
     tax-free pooling of interests transaction, effective August 31, 2000. On
     August 31, 2000, King issued press releases regarding the approval of the
     merger by shareholders of King and Jones and the closing of the merger.

          (3) A Current Report on Form 8-K filed September 12, 2000 announced
     under Item 5 changes to King's management team. A press release relating to
     these events was issued on September 12, 2000.

          (4) A Current Report on Form 8-K/A filed September 21, 2000 included
     under Item 7 certain financial statements related to King's acquisition of
     the rights of American Home Products Corporation in the United States and
     Puerto Rico to the pharmaceutical products Nordette(R), Bicillin(R) and
     Wycillin(R). This acquisition occurred on July 7, 2000 pursuant to an Asset
     Purchase Agreement dated June 22, 2000. The financial statements included
     in the report were as follows:

             (a) Financial Statements of Businesses Acquired.

                Report of Independent Public Accountants

                Statement of Assets Acquired and Liabilities Assumed

                Statements of Net Revenues in Excess of Direct Expenses

                Notes to Statements

             (b) Unaudited Pro Forma Consolidated Financial Information.

                Unaudited Pro Forma Consolidated Financial Statements

               King Pharmaceuticals, Inc. Unaudited Pro Forma Consolidated
               Balance Sheet as of June 30, 2000

               Notes to Unaudited Pro Forma Consolidated Balance Sheet

               King Pharmaceuticals, Inc. Pro Forma Consolidated Statement of
               Operations for the Year Ended December 31, 1999

               King Pharmaceuticals, Inc. Pro Forma Consolidated Statement of
               Operations for the Six Months Ended June 30, 2000

               Notes To Unaudited Pro Forma Consolidated Statements of
               Operations

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<PAGE>   30

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                          KING PHARMACEUTICALS, INC.

Date: January 22, 2001                    By: /s/ JOHN M. GREGORY
                                            ------------------------------------
                                            John M. Gregory
                                            Chairman and Chief Executive Officer

Date: January 22, 2001                    By: /s/ JAMES R. LATTANZI
                                            ------------------------------------
                                            James R. Lattanzi
                                            Chief Financial Officer

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