OxaliplatinTable for Injection. Oxaliplatin is an antineoplastic agent indicated for use in combination with Fluorouracil/leucovorin for (a) adjuvant therapy of stage III colon cancer in patients who have undergone complete resection of the primary tumor; and (b) treatment of advanced colorectal cancer. Oxaliplatin for Injection is the generic alternative for Eloxatin®, the brand name product of Sanofi Aventis US. Importantly, as opposed to the Eloxatin® that is currently on the market in the liquid form, our product is a lyophilized powder. Contents

InterestTable income and other income (expense), net was $0.4 million for combined 2008 year period versus $2.2 million in the comparable 2007 period. We recognized a foreign currency gain of approximately $4.0 million in our other income (expense), net related to the change in fair value of the intercompany currency swap agreements that we entered into in the fourth quarter of 2008. This foreign currency gain was offset by the $5.7 million currency loss we recorded in order to adjust the carrying value of our Euro-denominated intercompany note to reflect the December 31, 2008 exchange rate. Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2009~~2010

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

For the transition period from to

Commission file number 001-34172

Fresenius Kabi Pharmaceuticals Holding, Inc.

(Exact name of registrant as specified in its charter)


Delaware		98-0589183
(State of Incorporation)		(I.R.S. Employer Identification No.)

Else-Kroener-Strasse 1 61352 Bad Homburg v.d.H. Germany		+49 (6172) 608 0
(Address of principal executive offices, including zip code)		(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Contingent Value Rights, par value $0.001 per share		The NASDAQ Stock Market LLC
(Title of Class)		(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

As of February 2322, ~~2010~~2011, all of the shares of the registrant’s common stock were held by Fresenius Kabi AG.

Fresenius Kabi Pharmaceuticals Holding, Inc.

FORM 10-K

For the Year Ended December 31, ~~2009~~2010

TABLE OF CONTENTS

		Page
	PART I	1
Item 1.	Business	1	1
Item 1A.	Risk Factors	9	12
Item 1B.	Unresolved Staff Comments	18	19
Item 2.	Properties	18	20
Item 3.	Legal Proceedings	18	20
Item 4.	~~Submission~~Removed ofand ~~Matters to a Vote of Security Holders~~Reserved	21	23
	PART II	2123
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21	23
Item 6.	Selected Financial Data	22	24
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22	25
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	41	40
Item 8.	Financial Statements and Supplementary Data	42	41
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	84	79
Item 9A.	Controls and Procedures	84	79
Item 9B.	Other Information	85	80
	PART III	8580
	PART IV	8580
Item 15.	Exhibits, Financial Statement Schedule and Reports on Form 8-K	85	80
	Signatures	87	82

PART I

Item 1.

BUSINESS

Unless the context otherwise requires, references in this report to “Fresenius Kabi Pharmaceuticals,” “FKP Holdings, Inc.,” “FKP Holdings,” “the Company,” “we,” “us” and “our” refer to “Fresenius Kabi Pharmaceuticals Holding, Inc. and its subsidiaries, including our operating subsidiary APP Pharmaceuticals, Inc, or “APP” (and its subsidiaries APP Pharmaceuticals, LLC, APP Pharmaceuticals Manufacturing, LLC, and Pharmaceutical Partners of Canada, Inc.). References to “the Merger” refer to the Merger between a subsidiary of FKP Holdings, an indirect wholly owned subsidiary of Fresenius SE & Co. KGaA (“Fresenius”), a societas europaea organized under the laws of the European Union and Germany, and APP. References to “New APP,” and “APP Pharmaceuticals,” refer to the company prior to the merger with FKP Holdings and after the separation from Abraxis BioScience, Inc. in 2007. References to “Old Abraxis” refer to Abraxis BioScience, Inc. prior to the separation in 2007 and related transactions and references to “New Abraxis” refer to New Abraxis Inc., which was our wholly owned subsidiary prior to the separation and which changed its name to Abraxis BioScience, Inc. following the separation. References to the “distribution,” “separation” or “spin-off” refer to the transactions occurring in 2007, in which the proprietary business was separated from Old Abraxis and New Abraxis became an independent publicly-traded company.

Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K and other documents we file with the Securities and Exchange Commission contain forward-looking statements, as the term is defined in the Private Securities Litigation Reform Act of 1995. In addition, we may make forward-looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. Such forward-looking statements, whether expressed or implied, are subject to risks and uncertainties which could cause our actual results to differ materially from those implied by such forward-looking statements, due to a number of factors, many of which are beyond our control, which include, but are not limited to:

•

the market adoption of and demand for our existing and new pharmaceutical products;

•

our ability to maintain and/or improve sales and earnings performance;

•

the ability to successfully manufacture products in an efficient, time-sensitive and cost effective manner;

•

our ability to service our debt;

•

the impact on our products and revenues of patents and other proprietary rights licensed or owned by us, our competitors and other third parties;

•

our ability, and that of our suppliers, to comply with laws, regulations and standards, and the application and interpretation of those laws, regulations and standards, that govern or affect the pharmaceutical industry, the non-compliance with which may delay or prevent the sale of our products;

•

the difficulty in predicting the timing or outcome of product development efforts and regulatory approvals;

•

the availability and price of acceptable raw materials and components from third-party suppliers;

•

evolution of the fee-for-service arrangements being adopted by our major wholesale customers;

•

risks inherent in divestitures and spin-offs, including business risks, legal risks and risks associated with the tax and accounting treatment of such transactions;

•

inventory reductions or fluctuations in buying patterns by wholesalers or distributors;

•

the effect of the Merger on APP’s customer and supplier relationships, operating results and business generally;

•

risks that the Merger will disrupt APP’s current plans and operations, and the potential difficulties in retaining APP’s employees as a result of the Merger;

•

the outcome of any pending or future litigation and administrative claims;

•

the impact of recent legislative changes to the governmental reimbursement system;

• potential restructurings of FKP Holdings and its subsidiaries (which include APP and its subsidiaries) which could affect its ability to generate ~~Adjusted EBITDA~~revenues;

• the ability of FKP Holdings to generate Adjusted EBITDA sufficient to trigger a payment under the CVRs;

•

challenges of integration and restructuring associated with the Merger or other planned acquisitions and the challenges of achieving anticipated synergies; and

• the impact of any product liability, or other litigation to which the ~~company~~Company is, or may become a party.

Forward-looking statements also include the assumptions underlying or relating to any of the foregoing or other such statements. When used in this report, the words “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict” and similar expressions are generally intended to identify forward-looking statements.

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, whether as a result of new information, changes in assumptions, future events or otherwise. Readers should carefully review the factors described in Item 1A: Risk Factors below and other documents we file from time to time with the Securities and Exchange Commission for a more detailed description of the risks and other factors that may affect the forward-looking statements. Readers should understand that it is not possible to predict or identify all such factors. Consequently, readers should not consider any such list to be a complete set of all potential risks or uncertainties.

The CVRs

On September 10, 2008, FKP Holdings completed the Merger, following which APP became a wholly-owned subsidiary of FKP Holdings. Under the terms of the Merger, Fresenius acquired all of the outstanding common stock of APP for $23.00 in cash per share (the “Cash Purchase Price”) plus a contingent value right (“CVR”). The maximum amount payable under the CVR indenture is $6.00 per CVR. Our obligation to make a cash payment on the CVRs was determined on the basis of cumulative Adjusted EBITDA (as defined in the CVR indenture) for a three-year period ending on December 31, 2010, referred to as the “CVR measuring period.” The CVRs were intended to give holders an opportunity to participate in any Adjusted EBITDA, as defined in the CVR indenture, generated during the CVR measuring in excess of a threshold amount. Each CVR represented the right to receive a pro rata portion of an amount equal to 2.5 times the amount, if any, by which cumulative Adjusted EBITDA of APP and FKP Holdings and their subsidiaries on a consolidated basis, exceeded $1.268 billion for the CVR measuring period. Since Adjusted EBITDA for the CVR measuring period did not exceed this threshold amount, no amounts will be payable on the CVRs and the CVRs will expire valueless.

The CVRs do not represent equity, or voting securities of FKP Holdings, and they do not represent ownership interests in FKP Holdings. Holders of the CVRs are not entitled to any rights of a stockholder or other equity or voting securities of FKP Holdings, either at law or in equity. Similarly, holders of CVRs are not entitled to any dividends declared or paid with respect to any equity security of FK Holdings. A holder of a CVR is entitled only to those rights set forth in the CVR indenture. Additionally, the right to receive amounts payable under the CVRs, if any amount had been payable, is subordinated to all senior obligations of FKP Holdings. The CVRs currently trade on NASDAQ under the symbol “APCVZ”.

Under the terms of the CVR indenture, the amount payable in respect of each CVR is determined based on Adjusted EBITDA. As a result, in addition to reporting financial results in accordance with generally accepted accounting principles (“GAAP”), FKP Holdings also must calculate and present Adjusted EBITDA, which is a non-GAAP financial measure, for the cumulative period from January 1, 2008 until the expiration of the CVR measurement period (which was December 31, 2010) and settlement of the CVRs.

The calculation of Adjusted EBITDA under the CVR indenture for the year ended December 31, 2010 and the cumulative period from January 1, 2008 to December 31, 2010 is as follows (in thousands):


	For the Twelve Month Period Beginning January 1, 2010 and Ending December 31, 2010			For the Cumulative Period Beginning January 1, 2008 and Ending December 31, 2010
EBITDA CALCULATION:
Net income (loss)	$	109,569		$	(223,718	)

Interest expense		282,553			779,093
Interest income		(26	)		(1,674	)
Income taxes		42,653			39,127
Depreciation		19,842			57,082
Amortization		38,717			520,645
Intangible asset impairment		1,400			1,400
Fixed asset impairment		3,440			8,812

EBITDA	$	498,148		$	1,180,767


*Reconciliation to Adjusted EBITDA:*
Stock compensation		643			6,772
Merger and separation related costs		1,361			50,556
Puerto Rico costs *		—			29,475
Technology transfer costs *		—			6,425
Change in the value of contingent value rights		(42,282	)		(151,661	)
Other taxes		1,308			2,357
Gain on sale of fixed assets		(594	)		(185	)
Consulting fees		—			600
Foreign currency (gain)/loss		(679	)		(3,153	)
Puerto Rico closure costs		743			1,149
Other charges		4,837			2,484

Adjusted EBITDA – per CVR	$	463,485		$	1,125,586

*	Puerto Rico costs and Technology transfer costs reached the combined add back limit of $35.9 million as of June 30, 2009.

LOGO

FKP Holdings believes that its presentation of these non-GAAP financial measures is consistent with the requirements of the CVR indenture and also provides useful supplementary information to help investors in understanding the underlying operating performance and cash generating capacity of the Company. The calculation is based on the interpretation of the definition of Adjusted EBITDA set forth in the CVR indenture by management of FKP Holdings and the final determination of Adjusted EBITDA under the CVR indenture is subject to the terms of the CVR indenture.

FKP Holdings does use these non-GAAP financial measures internally for operating, budgeting and financial planning purposes and also believes that its presentation of these non-GAAP financial measures can assist management and investors in assessing the financial performance and underlying strength of its core business. The non-GAAP financial measures presented by FKP Holdings may not be comparable to similarly titled measures reported by other companies. The non-GAAP financial measures are in addition to, and not a substitute for or superior to, measures of financial performance calculated in accordance with GAAP.

Because any amount payable to the holders of CVRs would have been settled in cash, the CVRs are classified as liabilities in the consolidated financial statements. The estimated fair value of the CVRs at the date of acquisition was included in the cost of the acquisition. At each reporting date, the CVRs are marked-to-market based on the closing price of a CVR as reported by NASDAQ, and the change in the fair value of the CVRs for the reporting period is included in the statement of operations.

CVR Expiration

Within 15 days of the filing of this Form 10-K, we will deliver the CVR statement required by the CVR indenture to the trustee under the CVR indenture and the holders of record of the CVRs. As set forth above, the CVR statement will indicate that our and our subsidiaries’ cumulative Adjusted EBITDA for the measuring period did not exceed the threshold specified in the CVR indenture and that the CVRs are valueless. Shortly following the delivery of such statement, we intend to notify the NASDAQ of our intention to deregister the CVRs under the Securities Exchange Act of 1934 (the “Exchange Act”) and delist the CVRs from the NASDAQ. Following such notice, as permitted by the rules of the SEC and the NASDAQ, we intend within approximately 20 days to delist the CVRs from the NASDAQ and deregister the CVRs under Section 12(b) of the Exchange Act and terminate our reporting requirements under the Exchange Act. In addition, the register of CVR holders will be closed by the trustee and no further transfers of the CVRs will be recorded.

Our Business

We are an integrated pharmaceutical company that develops, manufactures and markets injectable pharmaceutical products. We believe that we are the only company with a primary focus on the injectable oncology, anti-infective, anesthetic/analgesic and critical care markets. We believe that we offer one of the most comprehensive injectable product portfolios in the pharmaceutical industry. We manufacture products in each of the three basic forms in which injectable products are sold: liquid, powder and lyophilized, or freeze-dried.

Our products are generally used in hospitals, long-term care facilities, alternate care sites and clinics within North America. Unlike the retail pharmacy market for oral products, the injectable pharmaceuticals marketplace is largely made up of end users who have relationships with group purchasing organizations (or “GPOs”), and/or specialty distributors who distribute products within a particular end-user market, such as oncology clinics. GPOs and specialty distributors generally enter into collective product purchasing agreements with pharmaceutical suppliers like us in an effort to secure more favorable drug pricing on behalf of their members.

Our Organizational History

Fresenius Kabi Pharmaceuticals Holding, Inc. (“FKP Holding” or the “Company”) is a wholly-owned subsidiary of Fresenius Kabi AG, and an indirect wholly-owned subsidiary of Fresenius SE & Co. KGaA (“Fresenius”), a ~~societas~~partnership ~~europaea~~limited by shares organized under the laws of Germany. FKP Holding was formed on July 2, 2008, in order to facilitate the acquisition of APP Pharmaceuticals, Inc. (“APP or the Predecessor”) discussed below. See Note 3 to the consolidated financial statements – Merger with APP for details.

On September 10, 2008, FKP Holding completed the acquisition of APP (the “Merger”) pursuant to an Agreement and Plan of Merger dated July 6, 2008 (the “Merger Agreement”), and APP became a wholly-owned subsidiary of FKP Holding. Effective with the Merger, each outstanding share of common stock of APP and certain stock options and restricted stock units of APP were converted into the right to receive $23.00 in cash, without interest, and one Contingent Value Right (“CVR”), issued by FKP Holding and representing the right to receive a cash payment, without interest, of up to $6.00 determined in accordance with the terms of the CVR Agreement. Refer to Note 4 to the consolidated financial statements —- Contingent Value Rights (CVR), for further details. The aggregate consideration paid in the Merger was $4,908.1 million, including $997.5 million in assumed APP debt. FKP Holding incurred $3,856 million in new external and intercompany debt due to Fresenius and its affiliates in connection with the Merger, the aggregate proceeds of which were used to pay the Merger consideration, repay a portion of APP’s then outstanding indebtedness and pay fees and expenses related to the Merger. See Note 98 to the consolidated financial statements - Long-Term Debt and Credit Facility.

The results of APP’s operations have been included in the consolidated financial statements of FKP Holding since September 10, 2008. APP is a fully-integrated pharmaceutical company that develops, manufactures and markets injectable pharmaceutical products with a primary focus on the oncology, anti-infective, anesthetic/analgesic and critical care markets. APP manufactures a comprehensive range of dosage formulations, and its products are used in hospitals, long-term care facilities, alternate care sites and clinics within North America. The Merger is an important step in Fresenius’ growth strategy. Through the merger with APP, Fresenius gains entry to the U.S. pharmaceuticals market and achieves a leading position in the global I.V. generics industry. The North American platform also provides further growth opportunities for Fresenius’ existing product portfolio.

Prior to the Merger, FKP Holding had not carried on any activities or operations except for those activities incidental to its formation and in connection with the transactions related to the Merger. Following the Merger, the business of FKP Holding consists exclusively of that of APP. Accordingly, for accounting purposes FKP Holding is considered the successor to APP and the consolidated financial statements included in Item 8 are presented for two distinct periods: the periods preceding the Merger, or “predecessor” periods (all periods prior to September 10, 2008), and the period after the merger, or “successor” period (from the inception of FKP Holding on July 2, 2008, which includes the results of APP from September 10, 2008, the date of acquisition). The Company applied purchase accounting to the opening balance sheet on September 10, 2008. The Merger resulted in a new basis of accounting for the assets acquired and liabilities assumed in connection with the acquisition of APP beginning on September 10, 2008. As a result of the acquisition and the application of purchase accounting as described above, the consolidated financial information for the period after the acquisition is presented on a different basis than that for the periods before the acquisition and, therefore, is not comparable.

APP is a Delaware corporation that was formed in 2007. American Pharmaceutical Partners, Inc. (“Old APP”) was a Delaware corporation formed in 2001. On April 18, 2006, Old APP completed a merger with American BioScience Inc. (or “ABI”), Old APP’s former parent. In connection with the closing of that merger, Old APP’s certificate of incorporation was amended to change its original name of American Pharmaceutical Partners, Inc. to Abraxis BioScience, Inc. which we refer to as “Old Abraxis.”

On5 November 13, 2007, Old Abraxis separated into two independent publicly-traded companies, APP Pharmaceuticals Inc., which held the Abraxis Pharmaceutical Products business, focusing primarily on manufacturing and marketing our oncology, anti-infective and critical care hospital-based generic injectable products and marketing our proprietary anesthetic/analgesic products (which we refer to collectively as the “hospital-based business”), and Abraxis BioScience, Inc. (“New Abraxis”) which held the Abraxis Oncology and Abraxis Research businesses (which we refer to as the “proprietary business”). APP continued to operate the hospital-based business under the name APP Pharmaceuticals, Inc. APP and New Abraxis entered into a series of agreements in connection with the separation, including a credit facility under which APP borrowed $1 billion, a portion of which was paid to New Abraxis in connection with the separation, and a $150 million revolving credit facility. These credit facilities were retired in connection with the Merger and replaced with a similar external facility. The historical operating results of Old Abraxis through the date of the separation are presented as discontinued operations. Refer to Note 6 to the consolidated financial statements - Discontinued Operations - Spin-off of New Abraxis, for further details.

On November 13, 2007, Old Abraxis separated into two independent publicly-traded companies, APP Pharmaceuticals Inc., which held the Abraxis Pharmaceutical Products business, focusing primarily on manufacturing and marketing our oncology, anti-infective and critical care hospital-based generic injectable products and marketing our proprietary anesthetic/analgesic products (which we refer to collectively as the “hospital-based business”), and Abraxis BioScience, Inc. (“New Abraxis”) which held the Abraxis Oncology and Abraxis Research businesses (which we refer to as the “proprietary business”). APP continued to operate the hospital-based business under the name APP Pharmaceuticals, Inc. APP and New Abraxis entered into a series of agreements in connection with the separation, including a credit facility under which APP borrowed $1 billion, a portion of which was paid to New Abraxis in connection with the separation, and a $150 million revolving credit facility. These credit facilities were retired in connection with the Merger and replaced with a similar external facility.

Our Products

Injectable Oncology Products

We presently manufacture and market 22 injectable oncology products in 52 dosages and formulations. According to IMS Health, Inc., or IMS, a pharmaceutical market research firm, during the last 12 months ending November ~~2009~~2010, we were a market leader for 6 of these products in terms of units sold in the United States. Net revenue of our injectable oncology products was $78114.2 million in ~~2009~~2010 and represented 9 10% of total ~~2009~~2010 revenue.

Oncology Products:

Carboplatin. Carboplatin is indicated for the initial treatment of advanced ovarian carcinoma in combination with other chemotherapeutic agents and for the palliative treatment of recurrent ovarian carcinoma after prior chemotherapy. Carboplatin is the generic equivalent of Bristol-Myers Squibb Company’s Paraplatin^®. We launched the liquid and lyophilized versions of carboplatin in October 2004, and we received approval for the liquid, 600 mg, multi-dose vial form of the product in February 2006.

Doxorubicin. Doxorubicin is indicated for use in adjuvant therapy for the treatment of breast cancer where there is evidence of axillary lymph node involvement following tumor resection. Doxorubicin has been successful in producing regression in disseminated neoplastic conditions, including several types of leukemias, ovarian, breast and bladder cancers as well as Hodgkin’s disease. Doxorubicin is the generic equivalent of Pharmacia & Upjohn Company’s Adriamycin^®. We launched the liquid version of doxorubicin in August 2007.

Fludarabine. Fludarabine is indicated for the treatment of adult patients with B-cell chronic lymphocytic leukemia whose disease is unresponsive, or has progressed, despite treatment with an alkylinating-agent containing regimen. We market both the liquid and lyophilized formulations. We launched fludarabine in October 2007.

Fluorouracil. Fluorouracil is part of a class of drugs known as “antineoplastics” which are used in the treatment of various cancers to slow or stop the growth of cancer cells. Fluorouracil is indicated for the palliative management of carcinoma of the colon, rectum, breast, stomach and pancreas and is the generic equivalent of Sicor Pharmaceuticals’ Adrucil^®. We launched fluorouracil in December 1998.

Ifosfamide. Ifosfamide is a chemotherapy drug used to treat germ cell testicular cancer and is often given in combination with mesna. Bristol-Myers originally marketed ifosfamide under the brand name Ifex^®. In response to customer requests, we were the first to offer individually packaged generic ifosfamide; our lyophilized form eliminated the need for the refrigerated storage required by the previous generic ifosfamide/mesna kit packaging. We launched ifosfamide in July 2002 with 180-day exclusivity.

Irinotecan. Irinotecan is a chemotherapy drug used to treat advanced cancer of the large intestine and rectum. It is indicated as a component of first-line therapy in combination with 5-fluorouracil and leucovorin for patients with metastatic colorectal cancer. The drug is also indicated for patients with metastatic colorectal cancer whose disease has recurred or progressed following initial fluorouracil-based therapy. We launched irinotecan in February 2008.

Mesna. Mesna is a cytoprotectant used to treat the side effects associated with certain chemotherapy drugs. Bristol-Myers originally marketed mesna under the brand name Mesnex^®. Launched in May 2001, we were the first to market a generic version of mesna.

Paclitaxel Injection,. Paclitaxel is an antineoplastic drug indicated as a first-line therapy in combination with Cisplatin for the treatment of advanced carcinoma of the ovary, as well as non-small cell lung cancer. As a second-line treatment, Paclitaxel is approved for the treatment of (a) AIDS-related Kaposi’s sarcoma; and (b) breast cancer after failure of combination chemotherapy for metastatic disease or relapse within 6 months. Paclitaxel is also indicated as an adjuvant therapy for the treatment of node-positive breast cancer. Paclitaxel is the generic equivalent of Bristol-Meyers Squibb’s Taxol®.

~~Cisplatin~~6 Injection, Cisplatin is an antineoplastic drug approved for use in combination with other chemotherapeutic agents as the treatment for metastatic testicular tumors or metastatic ovarian tumors in patients who have already received appropriate non-pharmacological therapy. As a single agent, Cisplatin is indicated (a) as a secondary-line therapy for metastatic ovarian tumors refractory to standard chemotherapy; and (b) for patients with transitional cell bladder cancer which is no longer amenable to surgery and/or radiotherapy. Cisplatin is the generic equivalent to Platino-AQ®, a product of Bristol-Meyers Squibb.

Cisplatin Injection. Cisplatin is an antineoplastic drug approved for use in combination with other chemotherapeutic agents as the treatment for metastatic testicular tumors or metastatic ovarian tumors in patients who have already received appropriate non-pharmacological therapy. As a single agent, Cisplatin is indicated (a) as a secondary-line therapy for metastatic ovarian tumors refractory to standard chemotherapy; and (b) for patients with transitional cell bladder cancer which is no longer amenable to surgery and/or radiotherapy. Cisplatin is the generic equivalent to Platino-AQ^®, a product of Bristol-Meyers Squibb.

Oxaliplatin for Injection. Oxaliplatin is an antineoplastic agent indicated for use in combination with Fluorouracil/leucovorin for (a) adjuvant therapy of stage III colon cancer in patients who have undergone complete resection of the primary tumor; and (b) treatment of advanced colorectal cancer. Oxaliplatin for Injection is the generic alternative for Eloxatin^®, the brand name product of Sanofi Aventis US. Importantly, as opposed to the Eloxatin^® that is currently on the market in the liquid form, our product is a liquid and lyophilized powder.

Topotecan for Injection. Topotecan for Injection is indicated for small cell lung cancer sensitive disease after failure of first-line chemotherapy, and is also indicated for use in combination therapy with Cisplatin for stage IV-B, and for recurrent, or persistent carcinoma of the cervix not amenable to curative treatment with surgery and/or radiation therapy. APP markets Topotecan for Injection in 4 mg single dose vials; the product is bar-coded and preservative-free.

Injectable Anti-Infective Products

We manufacture and market 2728 injectable anti-infective products. According to IMS, we were the United States market leader for 11 injectable anti-infective products in terms of units or dollars sold during the last twelve months ending November ~~2009~~2010. Our injectable anti-infective products generated net revenues of $~~226~~278.8 million in ~~2009~~2010 and represented 2524% of ~~2009~~2010 total net revenues.

We believe we offer one of the most comprehensive portfolios of injectable anti-infective products, including twelve different classes of antimicrobials. We believe we are the only generic pharmaceutical company that owns and operates a dedicated cephalosporins manufacturing facility in the United States. The Food and Drug Administration (“FDA”) requires dedicated facilities for the manufacture of cephalosporins.

Anti-Infective Products:

Aztreonam. Aztreonam for Injection, USP is indicated for the treatment of infections caused by susceptible gram-negative microorganisms, including urinary tract infections, lower respiratory tract infections, septicemia, skin and skin-structure infections including those associated with postoperative wounds, ulcers and burns, intra-abdominal infections and gynecologic infections. It is also indicated for adjunctive therapy to surgery in the management of infections caused by susceptible organisms. APP launched Aztreonam in single dose vials of 1 gram, 20 mL and 2 gram, 30 mL in June 2010. APP’s Aztreonam is AP-rated, bar-coded and latex-free.

Ampicillin. Ampicillin is a penicillin based antibiotic, which treats various types of infections of the skin, central nervous system, heart, respiratory tract, sinuses, ear and kidney.

Ampicillin and Sulbactam. Ampicillin and Sulbactam is an injectable antibacterial combination consisting of the seminsynthetic antibiotic ampicillin sodium and the beta-lactamase inhibitor sulbactam sodium. Administered intravenously or intramuscular, Ampicillin and Sulbactam is indicated for the treatment of several skin and skin structure, intra-abdominal and gynecological infections due to susceptible strains of microorganisms. Ampicillin and Sulbactam is the generic equivalent of Pfizer Inc.’s Unasyn^®. We launched this product in November 2006.

Azithromycin. Azithromycin is indicated for the treatment of community-acquired pneumonia and pelvic inflammatory disease when caused by susceptible microorganisms. Azithromycin is the generic equivalent of Pfizer Inc.’s Zithromax^®. We launched azithromycin in February 2006.

Cefotetan. Cefotetan is a second-generation cephalosporin with a broad range of anti-microbial activity. Cefotetan is often used for surgical prophylaxis and offers the longest half-life of any cephalopsorin. AstraZeneca marketed the innovator product under the brand name Cefotan®. We launched cefotetan in September 2007 and are currently the only company to market cefotetan vials in the United States.

Vancomycin. Vancomycin is an antibiotic used to treat some types of Staph, Strep or other infections, particularly in patients who are allergic to penicillins or cephalosporins. Eli Lilly originally marketed vancomycin under the brand name Vancocin^®.

Injectable Critical Care Products

We manufacture and market more than 87 injectable critical care products including 29 anesthetic/analgesic products. According to IMS, 1723 of our critical care products held first position and 1213 of our critical care products held second position in the United States market in terms of dollars sold in the last twelve months ending November ~~2009~~2010. Our critical care ~~and~~ and anesthetic/analgesic products generated net revenues of approximately $~~577~~739.1 million for the year ended December 31, ~~2009~~2010, and represented 65% of ~~2009~~2010 total net revenues.

Critical Care Products:

Heparin . Injectable heparin is a blood thinner used to prevent and treat blood clotting, especially during and after surgery. We manufacture the most comprehensive line of injectable therapeutic heparin. During 2008, we increased our manufacturing capacity and production and are currently the leading supplier in the U.S. market of therapeutic heparin vials.

Oxytocin. Oxytocin is used to induce labor at term and control postpartum bleeding. Wyeth-Ayerst originally marketed oxytocin under the brand name Pitocin^®. We currently hold the number one unit and dollar share position for oxytocin in the US market.

Levothyroxine. Levothyroxine is used as replacement or supplemental therapy in hypothyroidism. APP introduced 2 codes of Levothyroxine in 2008 and we continue to be the only U.S. supplier.

Hydralazine. Hydralazine is used for hypertension and congestive heart failure. APP entered this market in 2001. A shortage of product in 2006 by American Regent allowed APP to take the U.S. market; we continue to maintain leadership in sales and units.

Thiamine. Thiamine HCL is a water soluble vitamin used for thiamine deficiency. APP has been the U.S. market leader in sales and units since 2001.

Chorionic. Human Chorionic Gonadotropin (HCG) is used as part of assisted reproductive technology (ART) program, induces ovulation and pregnancy in infertile females when the cause of infertility is functional. Also used for treatment of hypogonadotroic hypogonadism and prepubertal cryptorchidism.

Protamine. Protamine Sulfate is an antidote, used for heparin overdoses and to neutralize heparin during surgery and dialysis procedures. APP has been the U.S. market leader in sales and units since 2001.

Dexamethasone. Dexamethasone Sodium Phosphate is primarily used as an anti-inflammatory or immunosuppressant agent in the treatment of a variety of diseases. APP has been the market leader in number of units since 2004.

~~Diprivan~~Propofol. ~~Diprivan®~~Propofol is aan ~~patent protected~~ intravenous sedative-hypnotic agent and the first of a new class of intravenous anesthetic agents—the alkylphenols. ~~Diprivan®~~Propofol is indicated for the induction of general anesthesia in adult and pediatric patients; maintenance of general anesthesia in adult and pediatric patients; and intensive care unit sedation for intubated, mechanically ventilated adults. ~~Zeneca~~Propofol ~~Pharmaceuticals~~was ~~first~~launched ~~commercially~~as ~~introduced~~an ~~Diprivan®~~authorized ingeneric ~~the~~of ~~United~~Diprivan ~~States~~ in ~~1989, and we purchased this product from AstraZeneca in June 2006. Diprivan® maintains~~ the ~~number~~fourth ~~one~~quarter ~~unit~~of ~~and dollar position in the US market~~2009.

Diprivan. Diprivan^® is a patent protected, intravenous sedative-hypnotic agent containing Ethylenediaminetetraacetic acid (EDTA), and the first of a new class of intravenous anesthetic agents—the alkylphenols. Diprivan^® is indicated for the induction of general anesthesia in adult and pediatric patients; maintenance of general anesthesia in adult and pediatric patients; and intensive care unit sedation for intubated, mechanically ventilated adults. Zeneca Pharmaceuticals first commercially introduced Diprivan^® in the United States in 1989, and we purchased this product from AstraZeneca in June 2006

Naropin. Naropin^® is a patent protected long-acting local anesthetic that contains ropivicaine HCI, which is a member of the amino amide class of local anesthetics. Naropin^® is indicated for the production of local or regional anesthesia for surgery and for acute pain management. AstraZeneca developed Naropin^®, and we purchased this product from AstraZeneca in June 2006.

Injectable Pharmaceutical Products under Development

We believe that we are currently ~~the~~a leader in injectable abbreviated new drug applications, or “ANDA”. Since June 1, 1998, when we acquired 14 pending ANDAs, we have filed ~~109~~114 applications with the Food and Drug Administration (“FDA”) and received a total of 8796 product approvals through December 31, ~~2009~~2010.

We currently have ~~over~~approximately 30 ANDAs pending with the FDA and over 7040 product candidates under development across our oncology, anti-infective and critical care product categories.

Research and Development

We have approximately 6563 employees dedicated to product development who have expertise in areas such as pharmaceutical formulation, analytical chemistry and drug delivery. We leased a 48,000 square foot research and development facility in Melrose Park, IL which terminated on December 31, 2010. We currently lease and operate 4856,000 square feet in a research and development facility in ~~Melrose Park~~Skokie, Illinois.

When developing new products, we consider a variety of factors, including:

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potential pricing and gross margins;

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existing and potential market size;

•

high barriers to entry;

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patent expiration date;

•

our manufacturing capabilities and access to raw materials;

•

potential development and competitive challenges; and

•

whether these products complement our existing products and the opportunity to leverage these products with the development of additional products.

We have made, and will continue to make, substantial investment in research and development. Research and development costs totaled $28.1 million in 2010, $28.3 million in 2009, and $51.5 million for the combined predecessor and successor period in 2008~~, and $46~~.5 ~~million~~Costs infor ~~2007.~~the ~~The~~ combined predecessor and successor period in 2008 ~~and~~includes ~~2007 include~~ Puerto Rico start-up ~~facility~~ facility costs.

Sales and Marketing

Our products are primarily marketed by a dedicated sales force to hospitals, long-term care facilities, alternate care sites, and clinics who administer injectable products in their offices. Many purchases by these customers are made through arrangements with Group Purchasing Organizations (GPOs), which negotiate collective purchasing agreements on behalf of their members, or through specialty distributors, which specialize in particular therapeutic categories such as oncology. We sell to members of all of the major GPOs in the United States, which we believe collectively represent over 95% of all hospital-based pharmaceutical purchasers in the United States. We also sell products to the leading specialty distributors. We believe we have access to nearly 100% of the buyers of injectable products in the United States. Our sales force is comprised of approximately 32 field sales and national accounts professionals, supported by our customer service and sales support groups. Our representatives typically have substantial injectable pharmaceutical sales experience in the geographic region in which they operate.

We currently derive, and expect to continue to derive, a large percentage of our revenue from customers that are members of a small ~~number~~ number of GPOs. Sales to our three major wholesale customers comprised 7574%, 7074%, and 7479% of our ~~2009~~2010, ~~2008~~2009 and ~~2007~~2008 ~~net~~gross revenue, respectively. As is traditional in the pharmaceutical industry, a significant amount of our generic pharmaceutical products are sold to end users under GPO contracts through a relatively small number of drug wholesalers, which comprise the primary pharmaceutical distribution chain in the United States. Currently, fewer than ten GPOs control a large majority of sales to hospital customers. We have purchasing arrangements with the major GPOs in the United States, including AmeriNet, Inc., Broadlane Healthcare Corporation, HealthTrust Purchasing Group, MedAssets Inc., Novation, LLC, Cardinal Health Purchasing, PACT, LLC, Premier Purchasing Partners, LP, International Oncology Network, Oncology Therapeutic Network, and U.S. Oncology, Inc. In order to maintain these relationships, we believe we need to be a reliable supplier, offer a broad product line, remain price competitive, comply with FDA regulations and provide high-quality products. Our GPO agreements are typically multi-year in duration and may be terminated on short notice.

Competition

Competition among pharmaceutical and other companies that develop, manufacture or market pharmaceutical products is intense. We compete with these entities in all areas of business, including competing to attract and retain qualified scientific and technical personnel.

We face competition from major, brand name pharmaceutical companies as well as generic manufacturers such as Hospira, Inc., Bedford Laboratories, Baxter Laboratories, and Teva Pharmaceuticals, ~~and~~as well as increased competition from new, overseas competitors.

Revenue and gross profit derived from sales of generic pharmaceutical products tend to follow a pattern based on regulatory and competitive factors. As patents for brand name products and related exclusivity periods expire, the first generic pharmaceutical manufacturer to receive regulatory approval for generic versions of these products is generally able to achieve significant market penetration and higher margins. As competing generic manufacturers receive regulatory approvals on similar products, market share, revenue and gross profit typically decline. The level of market share, revenue and gross profit attributable to a particular generic pharmaceutical product is normally related to the number of competitors in that product’s market and the timing of that product’s regulatory approval and launch in relation to competing approvals and launches. We continue to develop and introduce new products in a timely and cost-effective manner and identify niche products in order to maintain our revenue and gross margins.

Regulatory Considerations

Prescription pharmaceutical products are subject to extensive pre- and post-market regulation by the FDA, including regulations that govern the testing, manufacturing, safety, efficacy, labeling, storage, record keeping, advertising and promotion of the products under the Federal Food Drug and Cosmetic Act and the Public Health Services Act, and by comparable agencies in foreign countries. FDA approval is required before any dosage form of any drug can be marketed in the United States. All applications for FDA approval must contain information relating to pharmaceutical formulation, stability, manufacturing, processing, packaging, labeling and quality control.

Generic Drug Approval

The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, established abbreviated FDA approval procedures for those drugs that are no longer protected by patents and which are shown to be equivalent to previously approved proprietary drugs. Approval to manufacture these drugs is obtained by filing an abbreviated new drug application, or an ANDA. An ANDA is a comprehensive submission that must contain data and information pertaining to the active pharmaceutical ingredient, drug product formulation, specifications and stability of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures. As a substitute for clinical studies, the FDA may require data indicating that the ANDA drug formulation is equivalent to a previously approved proprietary drug. In order to obtain an ANDA approval of strength or dosage form that differs from the referenced brand name drug, an applicant must file and have granted an ANDA Suitability Petition. A product is not eligible for ANDA approval if it is not determined by the FDA to be equivalent to the referenced brand name drug or if it is intended for a different use. However, such a product might be approved under a New Drug Application, or an NDA, with supportive data from clinical trials.

One advantage of the ANDA approval process is that an ANDA applicant generally can rely upon equivalence data in lieu of conducting pre-clinical testing and clinical trials to demonstrate that a product is safe and effective for its intended use. We generally file ANDAs to obtain approval to manufacture and market our generic products. No assurance can be given that ANDAs submitted for our products will receive FDA approval on a timely basis, if at all.

Sales and Marketing Regulations

We are also subject to various federal and state laws pertaining to health care “fraud and abuse,” including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. The federal government has published regulations that identify “safe harbors” or exemptions for certain arrangements that do not violate the anti-kickback statutes. Due to the breadth of the statutory provisions and the absence of guidance in the form of regulations or court decisions addressing some of these practices, it is possible that our practices might be challenged under anti-kickback or similar laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third party payers (including Medicare and Medicaid), claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. The activities of our strategic partners relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines and civil monetary penalties, as well as the possibility of exclusion from federal health care programs (including Medicare and Medicaid). If the government were to allege against or convict us of violating these laws, there could be a material adverse effect on us. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and the increasing attention being given to them by law enforcement authorities.

Other Regulations

We are also subject to regulation under the Occupational Safety and Health Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, and other current and potential future federal, state, or local laws, rules, and/or regulations. Our research and development activities involve the controlled use of chemicals, biological materials and other hazardous materials. We believe that our procedures comply with the standards prescribed by federal, state, or local laws, rules, and/or regulations; however, the risk of injury or accidental contamination cannot be completely eliminated.

710

Manufacturing

Our manufacturing operations are located in Melrose Park, Illinois,; Grand Island, New York,; and Raleigh, North Carolina ~~and Barceloneta, Puerto Rico~~. These manufacturing facilities, include dedicated cephalosporin powder filling (discontinued during 2010), liquid filling line and oncolytic manufacturing suites. In aggregate, our facilities encompass approximately 1937,~~050,~~000 square feet of manufacturing, packaging, laboratory, office and warehouse space. In ~~2009~~2010, we ~~finalized~~ aclosed ~~plan to close~~ the Barceloneta, Puerto Rico manufacturing facility that we acquired in connection with the Merger, and totransferred ~~transfer~~ its production operations to existing Company plants in the United States. ~~We are continuing to operate this facility during the transition, and expect that manufacturing operations at the Puerto Rico facility will cease mid 2010.~~

We can produce a broad range of dosage formulations, including lyophilized products, liquids, both aseptically filled and terminally sterilized, and powders. We currently produce approximately 190 million vials of product per year and have the capacity to produce 250 million vials of product per year.

In addition to manufacturing, we have fully integrated manufacturing support systems, including quality assurance, quality control, regulatory affairs and inventory control. These support systems enable us to maintain high standards of quality for our products and simultaneously deliver reliable services and goods to our customers on a timely basis.

We are required to comply with the applicable FDA manufacturing requirements contained in the FDA’s current Good Manufacturing Practice, or cGMP, regulations. cGMP regulations require quality control and quality assurance as well as the corresponding maintenance of records and documentation. Our manufacturing facilities must meet cGMP requirements to permit us to manufacture our products. We are subject to the periodic inspection of our facilities, procedures and operations and/or the testing of our products by the FDA, the Drug Enforcement Administration and other authorities to assess our compliance with applicable regulations.

Failure to comply with the statutory and regulatory requirements subjects the manufacturer to possible legal or regulatory action, including the seizure or recall of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations, and civil and criminal penalties. Adverse experiences with the product must be reported to the FDA and could result in the imposition of market restriction through labeling changes or in product removal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval.

Raw Materials

The manufacture of our products requires raw materials and other components that must meet stringent FDA requirements. Some of these raw materials and other components currently are available only from a limited number of sources. Additionally, regulatory approvals for a particular product denote the raw materials and components, and the suppliers for such materials that may be used for that product. Even when more than one supplier exists, we may elect to list, and in some cases have only listed, one supplier in our applications with the FDA. Any change in or addition of a supplier not previously approved must then be submitted through a formal approval process with the FDA. From time to time, it is necessary to maintain increased levels of certain raw materials due to the anticipation of raw material shortages or in response to market opportunities.

Intellectual Property

We rely on trade secrets, unpatented proprietary know-how, continuing technological innovation and patent protection to preserve our competitive position. Our success depends on our ability to operate without infringing the patents and proprietary rights of third parties. We cannot determine with certainty whether patents or patent applications of other parties will materially affect our ability to make, use or sell any products. A number of pharmaceutical companies, biotechnology companies, universities and research institutions may have filed patent applications or may have been granted patents that cover aspects of our or our licensors’ products, product candidates or other technologies.

Intellectual property protection is highly uncertain and involves complex legal and factual questions. Our patents and those for which we have or will license rights may be challenged, invalidated, infringed or circumvented, and the rights granted in those patents may not provide proprietary protection or competitive advantages to us. We and our licensors may not be able to develop patentable products. Even if patent claims are allowed, the claims may not issue, or in the event of issuance, may not be sufficient to protect the technology owned by or licensed to us.

Third-party patent applications and patents could reduce the coverage of the patents licensed, or that may be licensed to or owned by us. If patents containing competitive or conflicting claims are issued to third parties, we may be enjoined from commercialization of products or be required to obtain licenses to these patents or to develop or obtain alternative technology. In addition, other parties may duplicate, design around or independently develop similar or alternative technologies to our licensors or ours.

811

Litigation may be necessary to enforce patents issued or licensed to us or to determine the scope or validity of another party’s proprietary rights. U.S. Patent and Trademark Office interference proceedings may be necessary if we and another party both claim to have invented the same subject matter. We could incur substantial costs and our management’s attention would be diverted if:

•

patent litigation is brought by third parties;

•

we are party to or participate in patent suits brought against or initiated by our licensors;

•

we initiate similar suits; or

•

we are party to or participate in an interference proceeding.

In addition, we may not prevail in any of these actions or proceedings.

Employees

As of December 31, ~~2009~~2010, we had a total of 1,~~615~~472 full-time employees, of which 6563 were engaged in research and development, ~~411~~371 were in quality assurance and quality control, ~~843~~731 were in manufacturing, 9698 were in sales and marketing and ~~200~~209 were in administration and finance. None of our employees are represented by a labor union or subject to a collective bargaining agreement. We have not experienced any work stoppage and consider our relations with our employees to be good.

Environment

We believe that our operations comply in all material respects with applicable laws and regulations concerning the environment. While it is impossible to predict accurately the future costs associated with environmental compliance and potential remediation activities, compliance with environmental laws is not expected to require significant capital expenditures and has not had, and is not expected to have, a material adverse effect on our earnings or competitive position.

Available Information

Our Internet address is www.apppharma.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, are available free of charge on our website as soon as reasonably practical after they are electronically filed or furnished to the SEC. These filings may also be read and copied at the SEC’s Public Reference Room at 450 Fifth Street N.W., Washington D.C., 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The information found on our website shall not be deemed incorporated by reference by any general statement into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent we specifically incorporate the information found on our website by reference, and shall not be deemed filed under such Acts.

The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information about issuers that file reports electronically with the SEC. The address of that site is http://www.sec.gov.

Item 1A.

RISK FACTORS

You should carefully consider the risks described below before investing in our securities. The risks described below are not only risks unique to our company. Our business is also subject to the risks that affect many other companies, such as competition and general economic conditions. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business operations and our liquidity.

Risks Related to the Contingent Value Rights

CVR holders will not receive any payment on the CVRs and the CVRs will expire valueless.

The right to receive any future payment on the CVRs was contingent upon our and our consolidated subsidiaries’ achievement of cumulative Adjusted EBITDA (calculated in accordance with the CVR indenture) in excess of the threshold specified in the CVR indenture, which was $1.268 billion for the three years ending December 31, 2010, or the measurement period. Our and our consolidated subsidiaries’ Adjusted EBITDA for the measurement period was $1.126 billion. Since our cumulative Adjusted EBITDA did not exceed the required threshold during the measuring period, no payment will be made under the CVRs and the CVRs will expire valueless. See Note 4 to the consolidated financial statements—Contingent Value Rights (CVR).

The CVRs will expire shortly following the filing of this 10-K and we will deregister and delist the CVRs shortly thereafter and following such actions the CVRs will have no value

We previously listed the CVRs on the NASDAQ with the trading symbol “APCVZ”. Within 15 days of the filing of this Form 10-K, we will deliver the CVR statement required by the CVR indenture to the trustee under the CVR indenture and the holders of record of the CVRs. As set forth above, the CVR statement will indicate that ours and our subsidiaries cumulative Adjusted EBITDA for the measuring period did not exceed the threshold specified in the CVR indenture. Shortly following the delivery of such statement, we intend to notify the NASDAQ of our intention to deregister the CVRs under the Securities Exchange Act of 1934 (the “Exchange Act”) and delist the CVRs from the NASDAQ. Within approximately 10 days following such notice, as permitted by the rules of the SEC and the NASDAQ, we intend to file a Form 25 with the NASDAQ and the SEC to delist the CVRs from the NASDAQ and deregister the CVRs under Section 12(b) of the Exchange Act. Within approximately 10 days of the filing of the Form 25, we intend to file a Form 15 with the SEC to terminate our reporting requirements under the Exchange Act. In addition, the trustee under the CVR indenture will be discharged and the register of CVR holders will be closed and no further transfers of the CVRs will be recorded. Following such actions the CVRs will have expired and will cease to have any value.

Since the CVRs will expire valueless, the CVRs may not trade or may trade at low volumes until they expire and are delisted and deregistered.

Although the CVRs are currently listed on the NASDAQ, given the fact that our and our consolidated subsidiaries Adjusted EBITDA for the three year period ended December 31, 2010 did not exceed the required threshold under the CVR indenture and the CVRs will expire valueless, there may be little or no market demand for the CVRs, making it difficult or impossible to resell the CVRs, which would have an adverse effect on the resale price, if any, of the CVRs. In addition, holders of CVRs may incur brokerage charges in connection with the resale of the CVRs, which in some cases could exceed the proceeds realized by the holder from the resale of its CVRs.

Risk Factors Related to Our Business

If we are unable to develop and commercialize new products, our ability to generate revenue ~~and Adjusted EBITDA~~ will deteriorate.

Profit margins for a pharmaceutical product generally decline as new competitors enter the market. As a result, our future success will depend on our ability to commercialize the product candidates we are currently developing, as well as our ability to develop new products in a timely and cost-effective manner. We currently have ~~over~~approximately 30 ANDAs pending with the FDA, and approximately 7040 product candidates under various stages of development. ~~Successful~~ Successful development and commercialization of product candidates will require significant investment in many areas, including research and development and sales and marketing, and we may not realize a return on those investments. In addition, development and commercialization of new products are subject to inherent risks, including:

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failure to receive necessary regulatory approvals;

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difficulty or impossibility of manufacture on a large scale;

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prohibitive or uneconomical costs of marketing products;

•

inability to secure raw material or components from third-party vendors in sufficient quantity or quality or at a reasonable cost;

•

failure of our products to be developed or commercialized prior to the successful marketing of similar or superior products by third parties;

•

lack of acceptance by customers;

•

impact of authorized generic competition;

•

infringement on the proprietary rights of third parties;

•

new patents may be granted for existing products, which could prevent the introduction of newly-developed products for additional periods of time; and

•

grant to another manufacturer by the FDA of a 180-day period of marketing exclusivity under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, as patents or other exclusivity periods for brand name products expire.

The timely and continuous introduction of new products is critical to our business. Our ability to grow revenue will deteriorate if we are unable to successfully develop and commercialize new products, which could have an adverse effect on our ~~ability to achieve the Adjusted EBITDA threshold required to trigger a payment under the CVRs~~business.

As a result of the acquisition, we now have substantially more debt.

We now have substantial indebtedness as a result of the consummated acquisition. As of December 31, ~~2009~~2010 we have $ 3.97 billion of outstanding indebtedness; comprised of approximately $0.98 billion of term loans from a group of financial institutions and $32.09 billion of intercompany loans. There can be no assurance that our businesses will be able to generate sufficient cash flows from operations to meet our debt service obligations. Our level of indebtedness will have important consequences, including limiting our ability to invest operating cash flow to expand our businesses or execute our strategies, to capitalize on business opportunities and to react to competitive pressures, because we will need to dedicate a substantial portion of these cash flows to service our debt. In addition, we could be unable to refinance or obtain additional financing because of market conditions, high levels of debt and the restrictions included in the debt instruments executed in connection with our recent acquisition.

If sales of key products decline, our business may be adversely affected.

Our top ten products comprised approximately 58% of our total net revenue for the year ended December 31, ~~2009~~2010, with the top five products accounting for 4844% of our total net revenue. Our key products could lose market share or revenue due to numerous factors, many of which are beyond our control, including:

•

lower prices offered on similar products by other manufacturers;

•

substitute or alternative products or therapies;

•

development by others of new pharmaceutical products or treatments that are more effective than our products;

•

introduction of other generic equivalents or products which may be therapeutically interchanged with our products;

•

interruptions in manufacturing or supply;

•

changes in the prescribing practices of physicians;

•

changes in third-party reimbursement practices; and

•

migration of key customers to other manufacturers or sellers.

Any factor adversely affecting the sale of our key products may cause our revenues to decline~~, which could have an adverse effect on our ability to achieve the Adjusted EBITDA threshold required to trigger a payment under the CVRs~~.

We are subject to changes in general economic conditions that are beyond our control, including recession and declining consumer confidence.

The global economy is currently undergoing a period of unprecedented volatility, and the future economic environment may be less favorable than that of recent years. This has led, and could further lead, to reduced consumer spending in the foreseeable future, which may include reduced spending on healthcare. While generic drugs present an alternative to higher-priced branded products, our sales could be negatively impacted if patients forego obtaining healthcare and purchasing pharmaceutical products. In addition, reduced consumer spending may drive us and our competitors to decrease prices. These conditions may adversely affect our industry, business and results of operations.

If we or our suppliers are unable to comply with ongoing and changing regulatory standards, sales of our products could be delayed or prevented.

Virtually all aspects of our business, including the development, testing, manufacturing, processing, quality, safety, efficacy, packaging, labeling, record-keeping, distribution, storage and advertising and promotion of our products and disposal of waste products arising from these activities, are subject to extensive regulation by federal, state and local governmental authorities in the United States, including the FDA and the Department of Health and Human Services Office of Inspector General (OIG). Our business is also subject to regulation in foreign countries. Compliance with these regulations is costly and time-consuming.

Our manufacturing facilities and procedures and those of our suppliers are subject to ongoing regulation, including periodic inspection by the FDA and foreign regulatory agencies. For example, manufacturers of pharmaceutical products must comply with detailed regulations governing current good manufacturing practices, including requirements relating to quality control and quality assurance. We must spend funds, time and effort in the areas of production, safety, quality control and quality assurance to ensure compliance with these regulations. We cannot assure you that our manufacturing facilities or those of our suppliers will not be subject to regulatory action in the future.

Our products must receive appropriate regulatory clearance before they can be sold in a particular country, including the United States. We may encounter delays in the introduction of a product as a result of, among other things, failure of clinical trials to show safety or efficacy, undesirable side effects, insufficient or incomplete submissions to the FDA for approval of a product, objections by another company to submissions for approval, patent protection covering brand name products, patent challenges by other companies which result in a 180-day exclusivity period awarded to the challenger, and changes in regulatory policy during the period of product development or during the regulatory approval process. The FDA has the authority to revoke drug approvals previously granted and remove from the market previously approved products for various reasons, including issues related to current good manufacturing practices for that particular product or in general. We may be subject from time to time to product recalls initiated by them or by the FDA. Delays in obtaining regulatory approvals, the revocation of a prior approval or product recalls could impose significant costs on us and adversely affect our ability to generate revenue.

~~Our~~14 inability or the inability of our suppliers to comply with applicable FDA and other regulatory requirements can result in, among other things, warning letters, fines, consent decrees restricting or suspending our manufacturing operations, delay of approvals for new products, injunctions, civil penalties, recall or seizure of products, total or partial suspension of sales and criminal prosecution. Any of these regulatory actions could materially and adversely affect our ability to generate and receive revenue and result in the incurrence of significant expenses, which could have an adverse effect on our ability to achieve the Adjusted EBITDA threshold required to trigger a payment under the CVRs.

Our inability or the inability of our suppliers to comply with applicable FDA and other regulatory requirements can result in, among other things, warning letters, fines, consent decrees restricting or suspending our manufacturing operations, delay of approvals for new products, injunctions, civil penalties, recall or seizure of products, total or partial suspension of sales and criminal prosecution. Any of these regulatory actions could materially and adversely affect our ability to generate and receive revenue and result in the incurrence of significant expenses.

State pharmaceutical marketing compliance and reporting requirements may expose us to regulatory and legal action by state governments or other government authorities.

In recent years, several states, including California, Vermont, Maine, Minnesota, New Mexico, West Virginia and Nevada in addition to the District of Columbia, have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs and file periodic reports on sales, marketing, pricing and other activities. Similar legislation is being considered in other states. Many of these requirements are new and uncertain, and available guidance is limited. We have received notice regarding possible non-compliance with these state laws and certain licensing requirements. However, we continue to assess and address our compliance obligations under these state laws. Unless we are in full compliance with these laws, we could face enforcement action and fines and other penalties and could receive adverse publicity, all of which could harm our business.

If side effects or manufacturing problems are identified after the products are on the market, we may be subject to additional regulatory requirements or enforcement.

If side effects are identified after any of our products are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and reformulation of products, additional clinical trials, changes in labeling of products, and changes to or re-approvals of our manufacturing facilities may be required, any of which could have a material adverse effect on our sales of the affected products.

11After any of our products are approved for commercial use, we or regulatory bodies could decide that changes to the product labeling are needed to ensure the safety and effectiveness of the products. Label changes may be necessary for a number of reasons, including the identification of actual or theoretical safety or efficacy concerns by regulatory agencies or the discovery of significant problems with a similar product that implicates an entire class of products. Any significant concerns raised about the safety or efficacy of the products could also result in the need to reformulate those products, to conduct additional clinical trials, to make changes to the manufacturing processes, or to seek re-approval of the relevant manufacturing facilities. Significant concerns about the safety and effectiveness of a product could ultimately lead to the revocation of its marketing approval. The revision of product labeling or the regulatory actions described above could be required even if there is no clearly established connection between the product and the safety or efficacy concerns that have been raised. The revision of product labeling or the regulatory actions described above could have a material adverse effect on our sales of the affected products and on our business and results of operations.

After any of our products are approved for commercial use, we or regulatory bodies could decide that changes to the product labeling are needed to ensure the safety and effectiveness of the products. Label changes may be necessary for a number of reasons, including the identification of actual or theoretical safety or efficacy concerns by regulatory agencies or the discovery of significant problems with a similar product that implicates an entire class of products. Any significant concerns raised about the safety or efficacy of the products could also result in the need to reformulate those products, to conduct additional clinical trials, to make changes to the manufacturing processes, or to seek re-approval of the relevant manufacturing facilities. Significant concerns about the safety and effectiveness of a product could ultimately lead to the revocation of its marketing approval. The revision of product labeling or the regulatory actions described above could be required even if there is no clearly established connection between the product and the safety or efficacy concerns that have been raised. The revision of product labeling or the regulatory actions described above could have a material adverse effect on our sales of the affected products and on our business and results of operations, which could have an adverse effect on our ability to achieve the Adjusted EBITDA threshold required to trigger a payment under the CVRs.

The manufacture of our products is highly exacting and complex, and if we or our suppliers encounter production problems, our business may suffer.

Almost all of the pharmaceutical products we make are sterile, injectable drugs. We also purchase some of these products from other companies. The manufacture of all the products is highly exacting and complex, due in part to strict regulatory requirements and standards which govern both the manufacture of a particular product and the manufacture of these types of products in general. Problems may arise during their manufacture due to a variety of reasons including equipment malfunction, failure to follow specific protocols and procedures and environmental factors. If problems arise during the production of a batch of product, that batch of product may have to be discarded. This could, among other things, lead to loss of the cost of raw materials and components used, lost revenue, time and expense spent in investigating the cause and, depending on the cause, similar losses with respect to other batches or products. If such problems are not discovered before the product is released to the market, recall costs may also be incurred. To the extent we experience problems in the production of our pharmaceutical products, this may be detrimental to our business, operating results and reputation.

Our market is highly competitive, and if we are unable to compete successfully, our revenue will decline and our business will be harmed.

The markets for injectable pharmaceutical products are highly competitive, rapidly changing and undergoing consolidation. Most of our products are generic injectable versions of brand name products that are still being marketed by proprietary pharmaceutical companies. The first company to market a generic product is often initially able to achieve high sales, profitability and market share with respect to that product. Prices, revenue and market size for a product typically decline, however, as additional generic manufacturers enter the market.

We face, and will continue to face, competition from major, brand-name pharmaceutical companies as well as generic manufacturers such as Hospira, Inc., Bedford Laboratories, Baxter Laboratories (including Elkin-Sinn), SICOR Inc. (acquired by Teva Pharmaceuticals USA) and Mayne Pharma (acquired by Hospira, Inc.) and, in the future, increased competition from new, foreign competitors. Smaller and foreign companies may also prove to be significant competitors, particularly through collaboration arrangements with large and established companies. Some of our competitors have significantly greater research and development, financial, sales and marketing, manufacturing, regulatory and other resources than we have. As a result, they may be able to devote greater resources to the development, manufacture, marketing or sale of their products, receive greater resources and support for their products, initiate or withstand substantial price competition, more readily take advantage of acquisition or other opportunities, or otherwise more successfully market their products.

Any reduction in demand for our products could lead to a decrease in prices, fewer customer orders, reduced revenues, reduced margins and reduced levels of profitability or loss of market share. These competitive pressures could adversely affect our business and operating results~~, which could have an adverse effect on our ability to achieve the Adjusted EBITDA threshold required to trigger a payment under the CVRs~~.

We face uncertainty related to pricing and reimbursement and health care reform.

In both domestic and foreign markets, sales of our products will depend, in part, on the availability of reimbursement from third-party ~~payors~~ payers such as government health administration authorities, private health insurers, health maintenance organizations and other health care-related organizations. However, reimbursement by such payors is presently undergoing reform, and there is significant uncertainty at this time how this will affect sales of certain pharmaceutical products. There is possible U.S. legislation or regulatory action affecting, among other things, pharmaceutical pricing and reimbursement, including under Medicaid and Medicare, and the importation of prescription drugs that are marketed outside the U.S. and sold at prices that are regulated by governments of various foreign countries.

12In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (together the “Act”) was enacted in the U.S. This legislation contains several provisions that impact our business. Although many provisions of the new legislation do not take effect immediately, several provisions became effective in the first quarter of 2010. These include (1) an increase in the minimum Medicaid rebate to states participating in the Medicaid program from 15.1% to 23.1% on our branded prescription drugs, and from 11% to 13% on our generic prescription drugs; (2) the extension of the Medicaid rebate to Managed Care Organizations that dispense drugs to Medicaid beneficiaries; and (3) the expansion of the 340(B) Public Health Services drug pricing program, which provides outpatient drugs at reduced rates, to include additional hospitals, clinics, and healthcare centers. For the fiscal year ended December 31, 2010, we do not believe that these effective provisions of the legislation have had a material impact on our business. However, there are significant unknowns surrounding the actual implementation of the provisions of the legislation, and it is currently not possible to determine what effect, if any, the implementation of the legislation will have on our business in the longer-term.

~~Table~~The Medicaid program also requires pharmaceutical manufacturers to report certain information to the Centers for Medicare & Medicaid Services (CMS) on a periodic basis, including average manufacturer price and best price. The Medicare program requires manufacturers of ~~Contents~~Part B drugs, generally injectables, to report average sales prices to CMS on a quarterly basis. If a pharmaceutical manufacturer is found to have knowingly submitted false information to the government, it may be liable for civil monetary penalties per item of false information.

~~Medicare, Medicaid and other governmental reimbursement legislation or programs govern drug~~Beginning ~~coverage and reimbursement levels~~ in 2011, the ~~United~~Act ~~States. Federal law~~ requires ~~all~~drug ~~pharmaceutical~~ manufacturers to ~~rebate~~provide a ~~percentage~~50% ofdiscount ~~their~~to ~~revenue~~Medicare ~~arising~~beneficiaries ~~from~~whose ~~Medicaid-reimbursed~~prescription drug ~~sales~~costs tocause ~~individual~~them ~~states.~~to ~~Generic~~be ~~drug~~subject ~~manufacturers’ agreements~~to ~~with~~the ~~federal~~Medicare ~~and~~Part D ~~state~~coverage ~~governments~~gap ~~provide that~~ (i.e., the ~~manufacturer~~“donut ~~will~~hole”). ~~remit to each state Medicaid agency~~Also, onbeginning in ~~a quarterly basis~~2011, ~~11%~~we ofwill ~~the~~be ~~average~~assessed ~~manufacturer~~our ~~price~~share ~~for~~of ~~generic~~a ~~products marketed and sold under abbreviated~~ new ~~drug applications~~fee ~~covered~~payable by ~~the~~all ~~state’s~~branded ~~Medicaid~~prescription ~~program. For proprietary products, which are marketed and sold under new~~ drug ~~applications,~~ manufacturers ~~are~~and ~~required to rebate the greater of: (a) 15~~importers.1% ofThis ~~the~~fee ~~average~~will ~~manufacturer~~be ~~price~~calculated ~~or (b) the~~based ~~difference~~upon ~~between~~each ~~the average manufacturer price and the manufacturer~~organization’s ~~best~~percentage ~~price~~share toof ~~any~~total ~~customer~~branded ~~for~~prescription ~~products~~drug ~~sold~~sales ~~during a specified period. The Medicaid program also requires pharmaceutical manufacturers~~ to ~~report certain~~ ~~information to the Centers for Medicare~~U.S. &government ~~Medicaid~~programs ~~Services~~ (~~CMS)~~such onas ~~a periodic basis~~Medicare, ~~including~~Medicaid ~~average manufacturer price~~ and ~~best~~the ~~price.~~Department ~~The Medicare program requires manufacturers~~ of ~~Part~~Veterans BAffairs ~~drugs,~~and ~~generally~~Public ~~injectables,~~Health toService ~~report average~~discount ~~sales~~programs) ~~price~~made toduring ~~CMS on a quarterly basis. If a pharmaceutical manufacturer is found to have knowingly submitted false information to~~ the ~~government,~~previous ~~it may be liable for civil monetary penalties per item of false information~~year.

Both the federal and state governments in the United States and foreign governments continue to propose and pass new legislation, rules and regulations designed to contain or reduce the cost of health care. Existing regulations that affect the price of pharmaceutical and other medical products may also change before any of our products are approved for marketing. Cost control initiatives could decrease the price that we receive for any product we develop in the future. In addition, third-party payors are increasingly challenging the price and cost-effectiveness of medical products and services and litigation has been filed against a number of pharmaceutical companies in relation to these issues. Additionally, significant uncertainty exists as to the reimbursement status of newly approved injectable pharmaceutical products. Our products may not be considered cost effective or adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an adequate return on our investment.

If we are unable to maintain key customer arrangements, sales of our products and revenue will decline.

Almost all injectable pharmaceutical products are sold to customers through arrangements with group purchasing organizations, or GPOs, and distributors. The majority of hospitals contract with the GPO of their choice for their purchasing needs. Prior to the Merger, APP derived, and we expect will continue to derive, a large percentage of its revenue through a small number of GPOs. Currently, fewer than ten GPOs control a large majority of sales to hospital customers.

We have purchasing arrangements with the major GPOs in the United States, including AmeriNet, Inc., Broadlane Healthcare Corporation, MedAssets Inc., Novation, LLC, PACT, LLC, Premier Purchasing Partners, LP, International Oncology Network, and U.S. Oncology, Inc. In order to maintain these relationships, we believe that we need to be a reliable supplier, offer a broad product line, remain price competitive, comply with FDA regulations and provide high-quality products. The GPOs through which we sell our products also have purchasing agreements with other manufacturers that sell competing products and the bid process for products like ours is highly competitive. Most of our GPO agreements may be terminated on short notice. If we are unable to maintain these arrangements with GPOs and key customers, revenue offrom our products ~~would decline,~~will ~~which~~probably ~~could have an adverse effect on our ability to achieve the Adjusted EBITDA threshold required to trigger a payment under the CVRs~~decline.

The strategy to license rights to or acquire and commercialize proprietary or other specialty injectable products may not be successful, and we may never receive any return on our investment in these product candidates.

We may license rights to or acquire or commercialize proprietary or other specialty injectable products or technologies. Other companies, including those with substantially greater financial and sales and marketing resources, will compete with us to license rights to or acquire or commercialize these products. We may not be able to license rights to or acquire these proprietary or other products or technologies on acceptable terms, if at all. Even if we obtain rights to a pharmaceutical product and commit to payment terms, including, in some cases, up-front license payments, we may not be able to generate product sales sufficient to create a profit or otherwise avoid a loss.

A product candidate may fail to result in a commercially successful drug for other reasons, including the possibility that the product candidate may:

•

fail to receive necessary regulatory approvals;

•

be difficult or uneconomical to produce in commercial quantities;

•

be precluded from commercialization by proprietary rights of third parties; or

•

fail to achieve market acceptance.

The marketing strategy, distribution channels and levels of competition with respect to any licensed or acquired product may be different from those of our current products, and we may not be able to compete favorably in any new product category.

We depend heavily on the principal members of our management team, the loss of whom could harm our business.

We depend heavily on the principal members of our executive management team. Each of the members of our executive management team is employed “at will.” The loss of the services of any member of our executive management team may significantly delay or prevent the achievement of our product development or business objectives.

To be successful, we must attract, retain and motivate key employees, and the inability to do so could seriously harm our operations.

To be successful, we must attract, retain and motivate executives and other key employees. We face competition for qualified scientific, technical and other personnel, which may adversely affect our ability to attract and retain key personnel. We also must attract and motivate employees and keep them focused on our strategies and goals.

We depend on third parties to supply raw materials and other components and we may not be able to obtain sufficient quantities of these materials, which will limit our ability to manufacture our products on a timely basis and harm our operating results.

The manufacture of our products requires raw materials and other components that must meet stringent FDA requirements. Some of these raw materials and other components are available only from a limited number of sources. Additionally, our regulatory approval for each particular product specifies the raw materials and components, and the suppliers for such materials, that we may use for that product. Obtaining approval to change, substitute or add a raw material or component, or the supplier of a raw material or component, can be time consuming and expensive, as testing and regulatory approval is necessary. If our suppliers are unable to deliver sufficient quantities of these materials on a timely basis or we encounter difficulties in our relationships with these suppliers, the manufacture and sale of our products may be disrupted, and our business, operating results and reputation could be adversely affected.

Other companies may claim that we infringe on their intellectual property or proprietary rights, which could cause us to incur significant expenses or prevent us from selling our products.

Our success depends in part on our ability to operate our business without infringing the patents and proprietary rights of third parties. The manufacture, use, offer for sale and sale of pharmaceutical products have been subject to substantial litigation in the pharmaceutical industry. These lawsuits relate to the enforceability, validity and infringement of patents or proprietary rights of third parties. Infringement litigation is prevalent with respect to generic versions of products for which the patent covering the brand name product is expiring, particularly since many companies which market generic products focus their development efforts on products with expiring patents. A number of pharmaceutical companies, biotechnology companies, universities and research institutions may have filed patent applications or may have been granted patents that cover aspects of our products or their licensors’ products, product candidates or other technologies.

Future or existing patents issued to third parties may contain claims that conflict with our products. We are subject to infringement claims from time to time in the ordinary course of our business, and third parties could assert infringement claims against us in the future with respect to our current products, products we may develop or products we may license. In addition, our patents and patent applications, or those of our licensors, could face other challenges, such as interference, opposition and reexamination proceedings. Any such challenge, if successful, could result in the invalidation of, or a narrowing of scope of, any such patents and patent applications. Litigation or other proceedings could force us to:

•

stop or delay selling, manufacturing or using products that incorporate or are made using the challenged intellectual property;

•

pay damages; or

•

enter into licensing or royalty agreements that may not be available on acceptable terms, if at all.

Any litigation or interference proceedings, regardless of their outcome, would likely delay the regulatory approval process, be costly and require significant time and attention of key management and technical personnel.

Our inability to protect our intellectual property rights in the United States and foreign countries could limit our ability to manufacture or sell our products.

We rely on trade secrets, unpatented proprietary know-how, continuing technological innovation and patent protection to preserve our competitive position. Our patents and those for which we have or will license rights, may be challenged, invalidated, infringed or circumvented, and the rights granted in those for which we hold patents may not provide proprietary protection or competitive advantages to us. We and our licensors may not be able to develop patentable products. Even if patent claims are allowed, the claims may not issue, or in the event of issuance, may not be sufficient to protect the technology owned by or licensed to us. Third-party patents could reduce the coverage of the patents licensed, or that may be licensed to or owned by us. If patents containing competitive or conflicting claims are issued to third parties, we may be prevented from commercializing the products covered by such patents, or may be required to obtain or develop alternate technology. In addition, other parties may duplicate, design around or independently develop similar or alternative technologies.

We may not be able to prevent third parties from infringing or using our intellectual property. We generally control and limit access to, and the distribution of, our product documentation and other proprietary information. Despite these efforts to protect this proprietary information, however, unauthorized parties may obtain and use information that we regard as proprietary. Other parties may independently develop similar know-how or may even obtain access to our technologies.

The laws of some foreign countries do not protect proprietary information to the same extent as the laws of the United States, and many companies have encountered significant problems and costs in protecting their proprietary information in these foreign countries.

The U.S. Patent and Trademark Office and the courts have not established a consistent policy regarding the breadth of claims allowed in pharmaceutical patents. The allowance of broader claims may increase the incidence and cost of patent interference proceedings and the risk of infringement litigation. On the other hand, the allowance of narrower claims may limit the value of our proprietary rights.

We may become subject to federal and state false claims or other similar litigation brought by private individuals and the government.

The Federal False Claims Act allows persons meeting specified requirements to bring suit alleging false or fraudulent Medicare or Medicaid claims and to share in any amounts paid to the government in fines or settlement. These suits, known as qui tam actions, have increased significantly in recent years and have increased the risk that a health care company will have to defend a false claim action, pay fines and/or be excluded from Medicare and Medicaid programs. Federal false claims litigation can lead to civil monetary penalties, criminal fines and imprisonment and/or exclusion from participation in Medicare, Medicaid and other federally-funded health programs. Other alternate theories of liability may also be available to private parties seeking redress for such claims. A number of parties have brought claims against numerous pharmaceutical manufacturers, and we cannot be certain that such claims will not be brought against us, or if they are brought, that such claims might not be successful. A majority of states have enacted their own false claim act statutes and have used them to bring similar suits against pharmaceutical manufacturers.

We may need to change our business practices to comply with changes to, or may be subject to charges under, the fraud and abuse laws.

We are subject to various federal and state laws pertaining to health care fraud and abuse, including the federal Anti-Kickback Statute and its various state analogues, the federal False Claims Act and marketing and pricing laws. Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, imprisonment and exclusion from participation in federal and state health care programs such as Medicare and Medicaid. We believe that we are in substantial compliance with these laws, but the government could disagree and challenge our practices, which could materially and adversely affect our business. We may have to change our advertising and promotional business practices, or our existing business practices could be challenged as unlawful due to changes in laws, regulations or rules or due to administrative or judicial findings, which could materially adversely affect our business.

We may be required to defend lawsuits or pay damages for product liability claims.

Product liability is a major risk in testing and marketing pharmaceutical products. We may face substantial product liability exposure for products that we sell after regulatory approval. Historically, we carried product liability insurance and we continue to carry such policies. Product liability claims, regardless of their merits, could exceed policy limits, divert management’s attention and adversely affect our reputation and the demand for our products.

We may be required to indemnify Abraxis BioScience, Inc. and may not be able to collect on indemnification rights from Abraxis BioScience.

Under the terms of the separation and distribution agreement relating to the separation of Abraxis BioScience, Inc. from APP in November 2007, Abraxis BioScience agreed to indemnify APP from and after the spin-off with respect to all liabilities of the pre-separation company not related to APP’s business and the use by APP of any trademarks or other source identifiers owned by Abraxis BioScience. Similarly, APP agreed to indemnify Abraxis BioScience from and after the spin-off with respect to all liabilities of the pre-separation company related to APP’s business and the use by Abraxis BioScience of any trademarks or other source identifiers owned by APP. Under the terms of a tax allocation agreement relating to the separation of Abraxis BioScience from APP, Abraxis BioScience agreed to indemnify APP against all tax liabilities to the extent they relate to the proprietary products business, and APP agreed to indemnify Abraxis BioScience against all tax liabilities to the extent they relate to the hospital-based products business. In addition, Abraxis BioScience agreed to indemnify APP against any tax liability arising as a result of the spin-off failing to qualify as a tax-free distribution unless such tax liability is imposed as a result of an acquisition of APP, including the Merger, or certain other specified acts of APP. Under the terms of a manufacturing agreement relating to the separation of Abraxis BioScience from APP, Abraxis BioScience agreed to indemnify APP from any damages resulting from a third-party claim caused by or alleged to be caused by (i) Abraxis BioScience’s failure to perform its obligations under the manufacturing agreement; (ii) any product liability claim arising from the negligence, fraud or intentional misconduct of Abraxis BioScience or any of its affiliates or any product liability claim arising from Abraxis BioScience’s manufacturing obligations (or any failure or deficiency in Abraxis BioScience’s manufacturing obligations) under the manufacturing agreement; (iii) any claim that the manufacture, use or sale of APP’s pipeline products infringes a patent or any other proprietary right of a third party; or (iv) any recall, product liability claim or other third-party claim not arising from the gross negligence or bad faith of, or intentional misconduct or intentional breach of the manufacturing agreement by, APP by reason of the $100 million limitation of liability described below. Abraxis BioScience also agreed to indemnify APP for liabilities that Abraxis BioScience becomes subject to as a result of Abraxis BioScience’s activities under the manufacturing agreement and for which Abraxis BioScience is not responsible under the terms of the manufacturing agreement. APP agreed to indemnify Abraxis BioScience from any damages resulting from a third-party claim caused by or alleged to be caused by (i) APP’s gross negligence, bad faith, intentional misconduct or intentional failure to perform its obligations under the manufacturing agreement; or (ii) any product liability claim arising from the gross negligence or bad faith of, or intentional misconduct or intentional breach of the manufacturing agreement by APP. APP generally will not have any liability for monetary damages to Abraxis BioScience or third parties in connection with the manufacturing agreement for damages in excess of $100 million in the aggregate. There are no time limits on when an indemnification claim must be brought and no other monetary limits on the amount of indemnification that may be provided. In addition, indemnification obligations could be significant. Our ability to satisfy any of these indemnification obligations will depend upon our future financial strength. We cannot determine whether we will have to indemnify Abraxis BioScience for any substantial obligations after the separation. In addition, we also cannot assure you that, if Abraxis BioScience becomes obligated to indemnify us for any substantial obligations, Abraxis BioScience will have the ability to satisfy those obligations.

Fluctuations in our effective tax rate may adversely affect our business and results of operations.

Our effective tax rate is derived from a combination of applicable tax rates in the various countries, states and other jurisdictions in which we operate. Our effective tax rate may be lower or higher than our tax rates have been in the past due to numerous factors, including the sources of our income, any agreements we may have with taxing authorities in various jurisdictions, and the tax filing positions we take in various jurisdictions. We base our estimate of an effective tax rate at any given point in time upon a calculated mix of the tax rates applicable to our company and to estimates of the amount of business likely to be done in any given jurisdiction. The loss of one or more agreements with taxing jurisdictions, a change in the mix of our business from year to year and from country to country, changes in rules related to accounting for income taxes, changes in tax laws in any of the multiple jurisdictions in which we operate or adverse outcomes from tax audits that we may be subject to in any of the jurisdictions in which we operate could result in an unfavorable change in our effective tax rate, which change could have an adverse effect on our business and results of our operations.

Risks Related to the Contingent Value Rights

CVR holders may not receive any payment on the CVRs.

The right to receive any future payment on the CVRs will be contingent upon our and our consolidated subsidiaries’ achievement of cumulative Adjusted EBITDA (calculated in accordance with the CVR indenture) in excess of the threshold specified in the CVR indenture, which equals $1.267 billion for the three years ending December 31, 2010. If our cumulative Adjusted EBITDA does not exceed this threshold for any reason, no payment will be made under the CVRs and the CVRs will expire valueless. Our and our consolidated subsidiaries’ Adjusted EBITDA for the cumulative period beginning January 1, 2008 and ending December 31, 2009 was $663.6 million. Accordingly, the value, if any, of the CVRs is speculative, and the CVRs may ultimately have no value. See Note 4 to the consolidated financial statements—Contingent Value Rights (CVR).

It may be difficult to determine the amount of cash to be received under the CVRs until 2011 which makes it difficult to value the CVRs.

If any payment is made on the CVRs, it will not be made until June 2011 (except in certain cases of foreclosure of the APP shares pledged as security for our indebtedness), and the amount of any payment will not be determined prior to the second quarter of 2011. We will provide an interim statement of Adjusted EBITDA for each of 2008 and 2009, and a final statement of Adjusted EBITDA following the end of 2010. The final calculation of any CVR payment, however, will be provided to CVR holders as of December 31, 2010, no earlier than the second quarter of 2011. Because the amount of any payment on the CVRs will not be determined prior to the second quarter of 2011 and the CVR payment will be determined on the basis of cumulative Adjusted EBITDA for a three-year period, it may be difficult to value the CVRs, and accordingly it may be difficult or impossible for CVR holders to resell their CVRs.

Our management may not follow the business, financial and operational policies of APP prior to the Merger.

Our directors elected by Fresenius have significant authority with respect to the business, financial and operational policies of FKP Holdings and APP. There can be no assurance that the business, financial and operational policies of APP in effect prior to the Merger including, for example, APP’s business strategy, will continue after the Merger. Different policies may adversely affect the value of the CVRs and any payment thereunder. Except in limited circumstances described in the CVR indenture, we do not have any obligations to CVR holders regarding the operation of our business after the completion of the Merger.

We have no obligation to continue to research, develop or commercialize APP’s products.

We have no obligation to initiate or continue research, development or commercialization activities with respect to any APP products and, in our sole discretion, we may abandon efforts to research, develop or commercialize any product, whether or not such product was in development or commercialized as of the closing date of the Merger. Changes or abandonment of APP’s research, development or commercialization activities by us may adversely affect the amount of Adjusted EBITDA generated by us, and our consolidated subsidiaries, which would adversely affect the value of the CVRs and any payment thereunder.

The U.S. federal income tax treatment of the CVRs is unclear.

Pursuant to the CVR indenture, we agreed to report any CVR payment (excluding any imputed interest) as additional consideration for the sale of APP common stock. Assuming this method of reporting is correct, if a payment is made with respect to a CVR, the holder of the CVR generally should recognize capital gain or loss equal to the difference between the amount of such payment (less any imputed interest) and the holder’s adjusted tax basis in the CVR. We have also agreed that a portion of any CVR payment will be treated as interest income, in accordance with Section 483 of the Internal Revenue Code. However, there is no legal authority directly addressing the U.S. federal income tax treatment of the CVRs and, therefore, there can be no assurance that the Internal Revenue Service would not assert, or that a court would not sustain, a position that any CVR payment or a sale or exchange of a CVR does not attract capital gain treatment, or that a different method should be used for purposes of calculating the amount of imputed interest. If such a position were sustained, all or any part of any CVR payment could be treated as ordinary income and could be required to be included in income prior to the receipt of any CVR payment.

Any payments in respect of the CVRs are subordinated to the right of payment of our other indebtedness.

The CVRs are unsecured obligations of FKP Holdings and the CVR payments, acceleration payments, all other obligations under the CVR indenture and the CVRs and any rights or claims relating thereto are subordinated in right of payment to the prior payment in full of all of our senior obligations. Our senior obligations include all principal, interest, penalties, fees, indemnification, reimbursements, damages and other liabilities payable under, or with respect to, our and APP’s senior credit facilities and, so long as the senior obligations are outstanding pursuant to the preceding clause, intercompany loans and other senior debt. As a result of the financing arrangements entered into in connection with the Merger, as of December 31, 2008, there was approximately $3.9 billion outstanding under credit facilities of Fresenius and its subsidiaries that would be senior to the obligations under the CVRs. Substantially all of this indebtedness would be considered senior obligations for the purposes of the subordination provisions of the CVR indenture. In addition, if a default on our senior obligations would occur as a result of the CVR payment or there is an existing payment default on our senior obligations, the maturity of our senior obligations is accelerated or in other circumstances, no CVR payment will be payable, if any payment is due, until any such default is remedied.

An active public market for the CVRs may not develop, or the CVRs may trade at low volumes, both of which could have an adverse effect on the resale price, if any, of the CVRs.

The CVRs are a new security with a limited public trading market. An active public trading market for the securities may not develop or be sustained. We have listed the CVRs on NASDAQ, under the symbol “APCVZ”. However, there may be little or no market demand for the CVRs, making it difficult or impossible to resell the CVRs, which would have an adverse effect on the resale price, if any, of the CVRs. In addition, holders of CVRs may incur brokerage charges in connection with the resale of the CVRs, which in some cases could exceed the proceeds realized by the holder from the resale of its CVRs.

The market price and trading volume of the CVRs may be volatile.

The market price of the CVRs could fluctuate significantly for many reasons, including, without limitation:

• as a result of the risk factors listed in this report on Form 10-K;

• actual or anticipated fluctuations in the operating results of FKP Holdings;

• for reasons unrelated to operating performance, such as reports by industry analysts, investor perceptions, or negative announcements by our customers or competitors regarding their own performance;

• regulatory changes that could impact our business; and

• general economic, securities markets and industry conditions.

Item 1B.

UNRESOLVED STAFF COMMENTS

None.

Item 2.

PROPERTIES

We operate various facilities in the United States, Canada and Puerto Rico, which have an aggregate size of approximately 1,~~178~~218,000 square feet. Our facilities include the following:

Location

Use

Own/Lease

~~Lease Expiration~~

~~ApproximateSquare~~Lease ~~Feet~~Expiration

ApproximateSquare Feet

Schaumburg, Illinois

Administration

~~Lease~~

Lease

~~July 2016~~

~~48,000~~July 2016

48,000

Schaumburg, Illinois

Administration

~~Lease~~

Lease

~~May 2015~~

~~22,000~~May 2015

22,000

Ontario, Canada

Business office

Lease

June 2014

10,000

Schaumburg, Illinois

Administration

Lease

May 2021

16,000

Melrose Park, Illinois

Manufacturing (1)

Lease

December 2011

122,000

Ontario, Canada

Business office

Lease

June 2014

10,000

Melrose Park, Illinois

~~Research~~Manufacturing ~~and Development~~(1)

~~Lease~~

Lease

~~December, 2010~~

~~48,000~~December 2011

122,000

Melrose Park, Illinois

Warehouse and administrative

Lease

December 2011

71,000

Skokie, Illinois

Research and Development

Lease

May, 2021

56,000

Bensenville, Illinois

Distribution facility

Lease

September 2010

109,000

Melrose Park, Illinois

Warehouse and administrative

Lease

December 2011

71,000

Grand Island, New York

Manufacturing (2)

Own

—

214,000

Bensenville, Illinois

Distribution facility

Lease

September 2012

129,000

Grand Island, New York

~~Warehouse~~Manufacturing ~~and administrative~~ (32)

~~Own~~

Own

—

~~120,000~~—

210,000

Grand Island, New York

Manufacturing (43)

~~Own~~

Own

—

~~148,000~~—

148,000

Barceloneta, Puerto Rico

Manufacturing (5)

Own

—

172,000

Grand Island, New York

Warehouse and administrative (3)

Own

—

120,000

Raleigh, North Carolina

Manufacturing (6)

Own

—

94,000

Barceloneta, Puerto Rico

Manufacturing (4)

Own

—

172,000

1,178,000

Raleigh, North Carolina

Manufacturing (5)

Own

—

94,000

1,218,000

(1) We also use this facility for packaging, laboratory, office and warehouse space and have the option to extend the lease through December 2012.

(2)	Approximately 5,700 square feet of manufacturing space has been leased to New Abraxis through December 2011, with an option to extend until December 2012 in certain circumstances.

(3) This facility iswas ~~being~~purchased ~~marketed~~in ~~for~~September ~~sale~~2008 from Astellas Pharma Manufacturing, Inc., and iswas ~~expected~~leased back to ~~close~~Astellas ~~during~~through July 2009. We have occupied the ~~first~~facility ~~quarter~~since ~~2010~~the end of the lease with Astellas.

(4) ~~This~~Approximately 90,000 square feet of the Puerto Rico facility was ~~purchased~~conveyed into ~~September~~New ~~2008~~Abraxis, ~~from~~representing ~~Astellas~~the ~~Pharma~~active ~~Manufacturing,~~pharmaceutical ~~Inc~~ingredients manufacturing plant. In 2009, ~~and~~we ~~was~~finalized ~~leased~~a ~~back~~plan to ~~Astellas~~close ~~through~~the ~~July~~Barceloneta, ~~2009.~~Puerto WeRico ~~have~~manufacturing ~~occupied~~facility, ~~the~~and ~~facility~~to ~~since~~transfer ~~the~~its ~~end~~production ofoperations to existing Company plants in the ~~lease~~United ~~with~~States. ~~Astellas~~We ceased production in this facility in mid 2010.

(5) ~~Approximately~~This ~~90,000 square feet of the Puerto Rico~~ facility was ~~conveyed~~purchased toin ~~New~~November ~~Abraxis, representing the active pharmaceutical ingredients manufacturing plant currently leased to Pfizer for a term expiring on February 2012. In~~ 2009, wefrom ~~finalized~~Catalent aPharma ~~plan to close the Barceloneta~~Solutions, ~~Puerto Rico manufacturing facility, and to transfer its production operations to existing Company plants in the United States~~LLC. ~~We are continuing to operate this facility during the transition, and expect that manufacturing at the Puerto Rico facility will cease in mid 2010.~~

(6) This facility was purchased in November 2009 from Catalent Pharma Solutions, LLC.

Item 3.

LEGAL PROCEEDINGS

We are from time to time subject to claims and litigation arising in the ordinary course of business. These claims have included assertions that our products infringe existing patents, allegations of product liability and also claims that the uses of our products have caused personal injuries. We believe we have substantial defenses in these matters, however litigation is inherently unpredictable. Consequently any adverse judgment or settlement could have a material adverse effect on our results of operations, cash flows or financial condition for a particular period.

Summarized below are the more significant legal matters pending to which we are a party:

Patent Litigation

Pemetrexed Disodium

We ~~have~~had filed an abbreviated new drug application, or “ANDA”, seeking approval from the FDA to market pemetrexed disodium for injection, 500 mg/vial. The Reference Listed Drug for APP’s ANDA is Alimta®, a chemotherapy agent for the treatment of various types of cancer marketed by Eli Lilly. Eli Lilly is believed to be the exclusive licensee of certain patent rights from Princeton University. We notified Eli Lilly and Princeton University of our ANDA filing pursuant to the provisions of the Hatch-Waxman Act and, in June 2008, Eli Lilly and Princeton University filed a patent infringement action in the U.S. District Court for the District of Delaware seeking to prevent us from marketing this product until after the expiration of U.S. Patent 5,344,932, which is alleged to expire in 2016. WeEli Lilly’s ~~filed~~lawsuit ~~our~~against ~~Answer~~Teva ~~and~~was ~~Counterclaims~~subsequently inconsolidated ~~August~~into ~~2008~~this ~~and~~action. ~~trial~~In ~~is scheduled~~a ~~for~~bench ruling on November 15, 2010, the Judge ruled for Eli Lilly, upholding the validity of its ‘932 patent. APP intends to appeal the ruling. On December 17, 2010, both APP and Eli Lilly filed Proposed Findings of Facts and Conclusions of Law with the Court.

On October 29, 2010, Eli Lilly filed a second patent infringement suit against APP pertaining to its ‘209 patent for Pemetrexed in the United States District Court for the Southern District of Indiana. The ‘209 patent is scheduled to expire on May 24, 2022. APP’s response is due on February 21, 2011.

Naropin^®

In March 2007 we filed a complaint for patent infringement against Navinta LLC in the U.S District Court for the District of New Jersey. Navinta filed an ANDA seeking approval from the FDA to market ropivacaine hydrochloride injection, in the 2 mg/ml, 5 mg/ml and 10 mg/ml dosage forms. The Reference Listed Drug for Navinta’s ANDA is APP’s proprietary product Naropin^®. This matter proceeded to trial on July 20, 2009. The U.S. District Court, District of New Jersey reached a judgment in favor of the Company on August 3, 2009, determining that Navinta’s ANDA product infringed on the Company’s proprietary product Naropin. The judgment has been appealed by Navinta.

~~Oxaliplatin~~On July 22, 2010, APP filed a second action against Navinta/Sandoz, Hospira and Sagent/Strides in the same court alleging that defendants had filed separate ANDA applications for generic Naropin infringing patent-in-suit from the prior litigation. Sagent/Strides and Hospira were subsequently dismissed from the case after they made assurances before the Court that they would not seek FDA approval of their ANDA prior to the expiration of the patents. On August 17, 2010, the Patent and Trademark Office granted Navinta’s request for Re-examination of two of the patents-at-issue in the prior litigation. On November 9, 2010, the United States Court of Appeals for the Federal Circuit reversed and vacated the lower court’s ruling.

~~The~~On ~~Company filed ANDAs to market oxaliplatin for injection~~December 9, ~~10 mg and 50mg vials~~2010, ~~and~~APP ~~oxaliplatin~~filed ~~injection,~~a incombined ~~5mg/ml,~~Petition ~~10ml,~~for ~~20ml~~Panel Rehearing and 40Rehearing mlEn ~~dosage~~Banc ~~forms.~~to ~~The~~review ~~Reference Listed Drug is~~ the ~~chemotherapeutic~~ruling ~~agent~~issued ~~Eloxatin® marketed~~ by ~~Sanofi-Aventis that is approved for~~ the ~~treatment~~Court of ~~colorectal cancer~~Appeals. ~~Sanofi-Aventis~~Navinta isfiled ~~believed~~its response to ~~be the~~APP’s ~~exclusive~~petition ~~licensee~~on January 7, of2011 ~~certain patent rights from Debiopharm. We notified Sanofi-Aventis~~ and ~~Debiopharm of~~ the ~~ANDA~~Petition ~~filings~~is ~~pursuant~~currently topending. ~~the~~In ~~provisions of~~ the ~~Hatch-Waxman Act~~meantime, ~~and~~APP ~~Sanofi-Aventis~~has sought and ~~Debiopharm filed a patent infringement action in~~ the ~~U.S. District~~ Court ~~for~~issued ~~the~~a ~~District~~Temporary ofRestraining ~~New~~Order ~~Jersey~~preventing ~~seeking~~Navitna ~~to prevent us~~ from ~~marketing~~immediately ~~these~~seeking ~~products~~FDA ~~until~~approval ~~after the expiration~~ of ~~various~~its ~~U.S.~~ANDA ~~patents. Multiple cases proceeding against other generic drug manufacturers including a subsidiary of Fresenius Kabi were consolidated pursuant to a pre-trial scheduling order~~ in ~~April 2008. The defendants motion for summary judgment on one of~~ the ~~patent~~event APP’s atPetition ~~issue was granted and an order entered by~~ to the ~~U.S.~~Circuit ~~District~~ Court. ~~The order~~of ~~was~~Appeals ~~successfully~~is ~~challenged~~denied ~~by Sanofi-Aventis,~~ and ~~on November 17, 2009 Sanofi-Aventis’s motion seeking~~ a ~~preliminary~~mandate ~~injunction~~issues. toAPP ~~prevent~~has ~~sales~~also offiled ~~oxaliplatin~~a bythird ~~generic~~complaint ~~drug~~against ~~manufacturers~~Navinta/Sandoz ~~was~~not ~~heard.~~only ~~Instead~~seeking ofinfringement ~~ruling on the matter~~claims, ~~the~~but ~~Judge~~a ~~has~~declaratory ~~encouraged~~judgment ~~the~~and ~~parties~~a topreliminary ~~settle.~~and Apermanent ~~settlement~~injunction ~~hearing~~preventing isFDA approval ~~scheduled~~of ~~for~~Navinta’s ~~March 9, 2010~~ANDA.

Bivalirudin

We have filed an ANDA seeking approval from the FDA to market generic bivalirudin, 250 mg/vial for intravenous injection. The reference listed drug for APP’s ANDA is Angiomax, for use as an anticoagulant in patients with unstable angina and currently marketed by The Medicines Co. The Medicines Co. is believed to be the exclusive assignee of certain patent rights ~~from Gopal Krishna and Gary Musso~~. The patent, alleged to be generally directed to bivalirudin compositions, was issued on September 1, 2009. APP notified The Medicines Co. of our ANDA filing pursuant to the provisions of the Hatch-Waxman Act, and on October 8, 2009, The Medicines Co. filed a patent infringement action in the United States District Court for the District of Delaware seeking to prevent APP from marketing this product until after ~~its~~the patent’s expiration. We filed our Answer and Counterclaims on December 9, 2009. The Medicines Co. filed its response on December 28, 2009. ~~APP currently has a motion pending for Judgment on the Pleadings to remove allegations of willfullness. No status conference has been scheduled yet.~~

On March 23, 2010, the Judge ordered that this case be consolidated with four other infringement actions against Teva/Pliva Hrvatska for pre-trial purposes. On March 24, 2010, an interim protective order and scheduling order was approved by the Judge.

On April 26, 2010, APP filed another ANDA related to Bivalirudin. The Medicines Co. filed its infringement suit on June 1, 2010, and APP filed its Answer and Counter-Claims on June 28, 2010. The Parties have agreed to consolidate these actions. A similar suit by the Medicines Co. against Hospira for alleged patent infringement related to Bivalirudin was also consolidated into these actions.

Discovery is currently underway. Because of the additional patent claim and the addition of Hospira as a defendant, the fact discovery deadline was extended to May 6, 2011.

On August 3, 2010, in a related action in the United States District Court, Eastern District of Virginia, The Medicines Co. was granted summary judgment against the United States Government in its quest to vacate a prior ruling of the Patent and Trademark Office denying a patent term extension for its ‘404 bivalirudin patent. The Court applied a business day rather than calendar day construction to the term extension deadline. On August 19, 2010, APP filed a Motion to Intervene, which was denied on September 13, 2010. On September 17, 2010, APP filed a Notice of Appeal with the United States Court of Appeals for the Federal Circuit on both the patent term extension ruling and the Motion to Intervene. On October 5, 2010, The Medicines Co. filed a Motion to Dismiss the Appeal, which was denied on February 2, 2011.

Gemcitabine

We ~~have~~had filed an ANDA seeking approval from the FDA to market gemcitabine for injection, 200 mg base/vial, 1 g base/vial and 2 g base/vial. The reference listed drug for APP’s ANDA is Gemzar, for use as a treatment for non-small lung cancer, pancreatic cancer, breast cancer and ovarian cancer. Eli Lilly is the holder of the New Drug Application for Gemzar and is believed to be the owner of the patent rights, which isare set to expire on November 7, 2012, followed by a six month period of pediatric market exclusivity ending on May 7, 2013. APP notified Eli Lilly of our ANDA filing pursuant to the provisions of the Hatch-Waxman Act on November 4, 2009. On December 16, 2009, Eli Lilly filed a patent infringement action in the United States District Court in the Southern District of Indiana seeking to prevent APP from marketing this product until after its expiration. APP was served on January 7, 2010 and expects to file its response in March.

1921

exclusivity ending on May 7, 2013. APP notified Eli Lilly of our ANDA filing pursuant to the provisions of the Hatch-Waxman Act on November 4, 2009. On December 16, 2009, Eli Lilly filed a patent infringement action in the United States District Court in the Southern District of Indiana seeking to prevent APP from marketing this product until after the patent’s expiration. APP was served on January 7, 2010 and filed a Motion to Dismiss on March 19, 2010, basing its motion on the adjudicated invalidity of the patent in another action. While the Motion was pending, the Judge issued a Case Management Order, and set a trial date of January 2012.

On July 29, 2010, the Court of Appeals for the Federal Circuit affirmed the District Court’s opinion of patent invalidity in the other action and APP was dismissed from this matter on December 1, 2010.

Ameridose

We have filed a lawsuit against Ameridose, LLC in the United States District Court, District of New Jersey alleging infringement of our ‘086, ‘525 and ‘489 patents related to Naropin. The complaint, filed on August 10, 2010 and served on August 13, 2010, seeks injunctive relief and treble damages due to the willful and deliberate nature of the infringement. Ameridose filed its Answer and Counter-claims on September 24, 2010. On December 10, 2010, APP was granted leave to file a First Amended Complaint naming Medisca, Inc. as an additional defendant. On that same day, Ameridose filed a Motion to Stay the action pending the Patent and Trademark Office’s Re-Examination of the Patents-in-Suit in the Navinta Action. That Motion is currently pending.

Product Liability Matters

Sensorcaine

We have been named as a defendant in ~~approximately~~numerous ~~one hundred and thirteen~~ personal injury/product liability actions brought against us and other pharmaceutical companies and medical device manufacturers by plaintiffs claiming that they suffered injuries resulting from the post-surgical release of certain local anesthetics into the shoulder joint via a pain pump. We acquired several generic anesthetic products from AstraZeneca in June 2006. Pursuant to the Asset Purchase Agreement with AstraZeneca, we are responsible for indemnifying Astra Zeneca for defense of suits alleging injuries occurring after the acquisition date (unless the drugs are determined to be defective in manufacturing, in which case AstraZeneca will indemnify us pursuant to that certain Manufacturing and Supply Agreement entered into by us and AstraZeneca). Likewise, Astra Zeneca agreed to indemnify us for suits alleging injuries occurring prior to the acquisition date. ~~Forty~~We ofmaintain ~~the~~product ~~actions~~liability ~~involve~~insurance anfor ~~alleged~~these ~~event after the acquisition date~~matters. All of our local anesthetic products are approved by the FDA and continue to be marketed and sold to customers. Since December 2009, more than ~~100~~180 cases naming APP or New Abraxis have been dismissed due to lack of product identification or failure to plead with sufficient specificity to withstand a Motion to Dismiss.

~~The cases have been filed in various jurisdictions around the country~~Currently, ~~including~~there ~~Indiana, Kentucky, New York, Colorado, Ohio, Minnesota, and California. Some~~ are infive ~~state court, and most are in federal court. Discovery has just begun in most~~ cases. Wenaming ~~anticipate~~APP ~~additional~~as ~~cases~~a ~~will be filed throughout the U.S. and we maintain product liability insurance for these matters. In December 2009~~defendant, afour ~~group~~ of ~~plaintiffs~~those ~~filed~~involving aan ~~renewed~~alleged ~~motion~~event tooccurring ~~create~~after ~~a multi district litigation (“MDL”) in~~ the ~~United~~June ~~States~~2006 ~~District of Minnesota. Various plaintiffs~~product ~~and~~acquisition ~~defendants have requested transfers to different districts. An MDL panel recently denied plaintiffs’ motion for an expedited hearing~~ date ~~and will hear the motion on a date yet to be determined~~.

Aredia and Zometa

We have been named as a defendant in approximately 3025 personal injury/product liability cases brought against us and other manufacturers by plaintiffs claiming that they suffered injuries resulting from the use of pamidronate (the generic equivalent of Aredia®) prescribed for the management of metastic bone disease. Plaintiffs’ allege Aredia causes osteonecrosis to the jaw. Four cases have been consolidated into multi-district litigation before the Court in the U.S. District Court, Middle District Tennessee. We filed answers in three of the cases and filed a joinder in October 2008 with another defendant’s Motion to Dismiss for failure to serve the plaintiff’s complaint within 120 days of filing. The case was dismissed in November 2008. Defendants in these cases are opposed to the multi-district litigation Court issuing a remand order, and a ruling on this issue is pending before a United States Judicial Panel. Until a decision is reached, discovery in these cases remains stayed. Recently, four additional cases have been filed against us in a coordinated proceeding in the Superior Court of New Jersey, Middlesex County. One of those four complaints has yet to be served. Discovery has not yet started in these cases.

OnTwenty-one ~~December 2~~cases, ~~2009,~~consisting ~~nine~~of ~~cases~~31 plaintiffs, naming APP ~~were~~have been transferred to ana ~~MDL~~multi district litigation in the Eastern District of New York. ~~Seven~~After oflittle progress in determining product identification, the ~~nine~~Judge ~~cases~~ordered ~~have been~~the ~~served~~Plaintiffs onto ~~APP.~~amend Attheir acomplaints ~~January~~to reflect sufficient product identification by August 2620, 2010. At a status conference on September 2010, the ~~MDL~~ Judge ~~ordered~~granted ~~the~~an ~~parties~~extension to ~~begin~~October 20, ~~product~~2010. ~~identification~~One ~~discovery~~additional case naming APP and ~~has~~other ~~ordered~~defendants ais ~~progress~~currently ~~report~~comprised byof 116 plaintiffs and was originally filed on April 26, 2010. ~~Meanwhile,~~in ~~there~~the ~~are~~Eastern ~~currently~~District ~~eleven~~of ~~cases~~New ~~filed against~~York ~~APP~~and inis astill ~~coordinated~~pending ~~proceeding~~transfer into ~~New~~the ~~Jersey~~multi district litigation. In its Second Amended Complaint, filed on January 7, 2011, APP is identified by 105 plaintiffs.

Plaintiff fact sheets and a proposed case management order were submitted on January 21, 2011. A first round of motions to dismiss will be due on April 18, 2011.

There are currently two remaining cases filed against the Company in a coordinated proceeding in the Superior Court of New Jersey, Middlesex County. A final product identification report by plaintiffs was due on July 23, 2010, but was also extended. On February 2, 2011, plaintiffs reported that they served product identification subpoenas in these cases. The next case management conference is March 14, 2011.

Heparin

We currently have been named as a defendant in ~~three~~11 personal injury/product liability cases, ~~brought~~10 ~~against~~involving usallegations ~~and~~of ~~other manufacturers claiming that they suffered~~ side -effects from heparin-induced thrombocytopenia (“HIT”)., ~~The~~and ~~cases~~one ~~reside~~alleging inActive ~~the~~Pharmaceutical ~~United~~Ingredient ~~States~~(“API”) ~~District~~contamination. ~~Court~~These ofcases ~~New~~have ~~Jersey~~been ~~(Middlesex)~~filed in multiple state and ~~the~~federal ~~United~~jurisdictions. ~~States~~Motions ~~District~~to ~~Court~~Dismiss ofare ~~West~~pending ~~Virginia.~~in ~~Product~~three cases and product identification discovery is ~~underway~~proceeding in ~~all~~four ~~three~~ cases.

~~Breach~~22 ~~of Contract Matters~~

On February 9, 2005, Pharmacy, Inc. filed suit against us in the U.S. District Court for the Eastern District of New York alleging our predecessor breached an Asset Purchase Agreement entered into September 30, 2002 by the parties. In its complaint Pharmacy seeks to recover monetary damages and other relief for the alleged breach of the contract. Discovery and dispositive motions have been substantially completed and the parties submitted an amended pre-trial order on December 10, 2008. The parties participated in a court ordered mediation which resulted in the Company agreeing to pay Pharmacy, Inc. $3.0 million in consideration for a settlement and release of all claims with respect to this matter. The funds were paid in October 2009 and the case has been dismissed by the court.

In re Reglan/Metaclopraminde

APP has been named along with numerous other defendants in 38 short form complaints alleging Extrapyramidial Symptoms (EPS) and Involuntary Movement Disorder for ingestion of Reglan. APP’s predecessor in interest, Fujisawa, ceased manufacturing and distribution of this product in 1994, which pre-dates the formation of the Company. APP is actively seeking dismissal of all these cases.

As of February 2011, APP has been named in 84 complaints, but has also been dismissed as a defendant from 26 of these cases due to insufficient product identification.

Regulatory Matters

We are subject to regulatory oversight by the FDA and other regulatory authorities with respect to the development and manufacture of our products. Failure to comply with regulatory requirements can have a significant effect on our business and operations. Management has designed and operates a system of controls to attempt to ensure compliance with applicable regulatory requirements.

Item 4. ~~SUBMISSION~~REMOVED OFAND ~~MATTERS TO A VOTE OF SECURITY HOLDERS~~RESERVED

There were no matters submitted to a vote of security holders during the quarter ended December 31, 2009. No Annual meeting was held during 2009.

Part II.

Item 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Common Stock

On September 10, 2008, FKP Holdings completed the Merger, following which APP became a wholly-owned subsidiary of FKP Holdings. Under the terms of the Merger, Fresenius acquired all of the outstanding common stock of APP for $23.00 in cash per share (the “Cash Purchase Price”) plus a contingent value right (“CVR”). Our obligation to make a cash payment on the CVRs iswas determined on the basis of cumulative Adjusted EBITDA (as defined in the CVR indenture) for a three-year period ending on December 31, 2010. IfSince Adjusted EBITDA for that period ~~does~~did not exceed athe ~~specified~~required threshold amount, no amounts will be payable on the CVRs and the CVRs will expire valueless. ~~The cash payment on the CVRs, if any, will be determined after December 31, 2010, and will be payable June 30, 2011, unless accelerated as a result of a change in control.~~ See Note 3 – Merger with APP and Note 4 – Contingent Value Rights (CVR), to the consolidated financial statements for more details. The CVRs are currently traded on NASDAQ under the symbol “APCVZ”.

Issuer Purchases of Equity Securities

We did not purchase any of our securities during the fourth quarter of ~~2009~~2010.

2123

Item 6.

SELECTED FINANCIAL DATA

									Year ended December 31,
				(Successor)														(Predecessor)
	(Successor)								(Predecessor)
	Year endedDecember 31,2010			Year endedDecember 31,2009			July 2, 2008throughDecember 31,2008							January 1,2008 throughSeptember 9,2008				Year endedDecember 31,2007				Year endedDecember 31,2006
	Year endedDecember 31,2009			July 2, 2008throughDecember 31,2008					January 1,2008 throughSeptember 9,2008			2007				2006				2005
							(in thousands)
									(in thousands)
Net revenue	$	1,142,671		$	888,686		$	280,836						$	495,797			$	647,374			$	583,201
Net revenue	$	888,686		$	280,836				$	495,797		$	647,374			$	583,201			$	385,082
Gross profit		576,587			435,129			107,762							248,160				315,328				295,122
Gross profit		435,129			107,762					248,160			315,328				295,122				181,646
Income (loss) from continuing operations (1)		109,569			(30,385	)		(312,445	)						9,543				82,179				55,226
(Loss) income from continuing operations(1)		(30,385	)		(312,445	)				9,543			82,179				55,226				30,456
Loss from discontinued operations, net of taxes		—			—			—							—				(47,821	)			(102,123	)
Loss from discontinued operations, net of taxes		—			—					—			(47,821	)			(102,123	)			(12,799	)
Net income (loss)	$	109,569		$	(30,385	)	$	(312,445	)					$	9,543			$	34,358			$	(46,897	)
Net (loss) income	$	(30,385	)	$	(312,445	)			$	9,543		$	34,358			$	(46,897	)		$	17,657
The composition of stock-based compensation included above is as follows:
The composition of stock-based compensation included above is as follows:
Cost of sales	$	—		$	—		$	—						$	1,275			$	2,502			$	2,668
Cost of sales	$	—		$	—				$	1,275		$	2,502			$	2,668			$	2,947
Research and development		—			—			—							436				602				554
Research and development		—			—					436			602				554				465
Selling, general and administrative		643			360			19							4,039				8,977				7,902
Selling, general and administrative		360			19					4,039			8,977				7,902				8,625
Discontinued operations		—			—			—							—				16,517				23,899
Discontinued operations		—			—					—			16,517				23,899				4,372
	$	643		$	360		$	19						$	5,750			$	28,596			$	35,023
	$	360		$	19				$	5,750		$	28,596			$	35,023			$	16,409
Other data:
Other data:
Net cash provided by (used in) operating activities	$	229,031		$	13,295		$	(37,042	)					$	105,515			$	12,351			$	324,977
Cash flow provided by (used in) operating activities	$	13,295		$	(37,042	)			$	105,515		$	12,351			$	324,977			$	34,466
Net cash used in investing activities		(10,500	)		(5,563	)		(3,683,468	)						(13,839	)			(89,022	)			(372,800	)
Cash flow used in investing activities		(5,563	)		(3,683,468	)				(13,839	)		(89,022	)			(372,800	)			(43,172	)
Net cash provided by (used in) financing activities		(222,556	)		(10,892	)		3,733,428							5,016				66,893				59,391
Cash flow provided by (used in) financing activities		(10,892	)		3,733,428					5,016			66,893				59,391				33,872
Consolidated balance sheet data as of December 31:
Consolidated balance sheet data as of December 31:
Working capital (deficit)	$	(408,659	)	$	(273,880	)	$	93,343						$	—			$	216,727			$	65,556
Working capital (deficit)	$	(273,880	)	$	93,343				$	—		$	216,727			$	65,556			$	248,284
Total assets		4,703,166			4,858,685			4,837,746							—				1,077,587				1,773,721
Total assets		4,858,685			4,837,746					—			1,077,587				1,773,721				524,229
Long term debt, less current portion		3,144,396			3,436,662			3,718,322							—				995,000				165,000
Long term debt, less current portion		3,436,662			3,718,322					—			995,000				165,000				190,000
Total stockholder’s equity (deficit)		645,656			539,076			550,724							—				(79,771	)			1,033,361
Total stockholder’s equity (deficit)		539,076			550,724					—			(79,771	)			1,033,361				68,140

(1) Net of income attributable to ~~noncontrolling~~non-controlling interest of $11,383 in 2006 ~~and $25,875 in 2005~~.

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following management’s discussion and analysis of financial condition and results of operations, or MD&A, is intended to assist the reader in understanding our company, including our operating results and financial position. The MD&A is provided as a supplement to, and should be read in conjunction with the other sections of this Annual Report on Form 10-K, including “Item 1: Business”; “Item 1A: Risk Factors”; “Item 6: Selected Financial Data”; and “Item 8: Financial Statements and Supplementary Data.”

Background

Our products are generally used in hospitals, long-term care facilities, alternate care sites and clinics within North America. Unlike the retail pharmacy market for oral products, the injectable pharmaceuticals marketplace is largely made up of end users who have relationships with group purchasing organizations, or GPOs, and/or specialty distributors who distribute products within a particular end-user market, such as oncology clinics. GPOs and specialty distributors generally enter into collective product purchasing agreements with pharmaceutical suppliers like us in an effort to secure more favorable drug pricing on behalf of their members.

22Fresenius Kabi Pharmaceuticals Holding, Inc. (“FKP Holding” or the “Company”) is a wholly-owned subsidiary of Fresenius Kabi AG, and an indirect wholly-owned subsidiary of Fresenius SE & Co. KGaA (“Fresenius”), a societas europaea organized under the laws of Germany. FKP Holdings was formed on July 2, 2008, in order to facilitate the acquisition of APP Pharmaceuticals, Inc. (“APP or the Predecessor”) discussed below. See Note 3 to the consolidated financial statements – Merger with APP for details.

~~Table~~On September 10, 2008, FKP Holdings completed the acquisition of ~~Contents~~APP (the “Merger”) pursuant to an Agreement and Plan of Merger dated July 6, 2008 (the “Merger Agreement”), and APP became a wholly-owned subsidiary of FKP Holdings. Effective with the Merger, each outstanding share of common stock of APP and certain stock options and restricted stock units of APP were converted into the right to receive $23.00 in cash, without interest, and one Contingent Value Right (“CVR”), issued by FKP Holdings and representing the right to receive a cash payment, without interest, of up to $6.00 determined in accordance with the terms of the CVR Agreement. Refer to Note 4 to the consolidated financial statements – Contingent Value Rights (CVR), for further details. The aggregate consideration paid in the Merger was $4,908.1 million, including $997.5 million in assumed APP debt. We incurred $3,856 million in new external and intercompany debt due to Fresenius and its affiliates in connection with the Merger, the aggregate proceeds of which were used to pay the Merger consideration, repay a portion of APP’s then outstanding indebtedness and pay fees and expenses related to the Merger. See Note 8 to the consolidated financial statements – Long-Term Debt and Credit Facility.

Fresenius Kabi Pharmaceuticals Holding, Inc. (“FKP Holding” or the “Company”) is a wholly-owned subsidiary of Fresenius Kabi AG, and an indirect wholly-owned subsidiary of Fresenius SE (“Fresenius”), a societas europaea organized under the laws of Germany. FKP Holdings was formed on July 2, 2008, in order to facilitate the acquisition of APP Pharmaceuticals, Inc. (“APP or the Predecessor”) discussed below. See Note 3 to the consolidated financial statements – Merger with APP for details.

On September 10, 2008, FKP Holdings completed the acquisition of APP (the “Merger”) pursuant to an Agreement and Plan of Merger dated July 6, 2008 (the “Merger Agreement”), and APP became a wholly-owned subsidiary of FKP Holdings. Effective with the Merger, each outstanding share of common stock of APP and certain stock options and restricted stock units of APP were converted into the right to receive $23.00 in cash, without interest, and one Contingent Value Right (“CVR”), issued by FKP Holdings and representing the right to receive a cash payment, without interest, of up to $6.00 determined in accordance with the terms of the CVR Agreement. Refer to Note 4 to the consolidated financial statements — Contingent Value Rights (CVR), for further details. The aggregate consideration paid in the Merger was $4,908.1 million, including $997.5 million in assumed APP debt. We incurred $3,856 million in new external and intercompany debt due to Fresenius and its affiliates in connection with the Merger, the aggregate proceeds of which were used to pay the Merger consideration, repay a portion of APP’s then outstanding indebtedness and pay fees and expenses related to the Merger. See Note 9 to the consolidated financial statements- Long-Term Debt and Credit Facility.

The results of APP’s operations have been included in the consolidated financial statements of FKP Holdings since September 10, 2008. APP is a fully-integrated pharmaceutical company that develops, manufactures and markets injectable pharmaceutical products with a primary focus on the oncology, anti-infective, anesthetic/analgesic and critical care markets. APP manufactures a comprehensive range of dosage formulations, and its products are used in hospitals, long-term care facilities, alternate care sites and clinics within North America. The Merger is an important step in Fresenius’ growth strategy. Through the merger with APP, Fresenius gains entry to the U.S. pharmaceuticals market and achieves a leading position in the global I.V. generics industry. The North American platform also provides further growth opportunities for Fresenius’ existing product portfolio. Additionally, Fresenius expects to be able to market APP’s product range through its international marketing and sales network, enabling Fresenius to sell APP’s products globally.

Prior to the Merger, FKP Holdings had not carried on any activities or operations except for those activities incidental to its formation and in connection with the transactions related to the Merger. Following the Merger, the business of FKP Holdings consists exclusively of that of APP. Accordingly, for accounting purposes FKP Holdings is considered the successor to APP and the consolidated financial statements included in Item 8 are presented for two distinct periods: the periods preceding the Merger, or “predecessor” periods (all periods prior to September 10, 2008), and the period after the merger, or “successor” period (from the inception of FKP Holdings on July 2, 2008, which includes the results of APP from September 10, 2008, the date of acquisition). The Company applied purchase accounting to the opening balance sheet on September 10, 2008. The Merger resulted in a new basis of accounting for the assets acquired and liabilities assumed in connection with the acquisition of APP beginning on September 10, 2008. As a result of the acquisition and the application of purchase accounting as described above, the consolidated financial information for the period after the acquisition is presented on a different basis than that for the periods before the acquisition and, therefore, is not comparable.

~~APP~~25 is a Delaware corporation that was formed in 2007. American Pharmaceutical Partners, Inc. (“Old APP”) was a Delaware corporation formed in 2001. On April 18, 2006, Old APP completed a merger with American BioScience Inc. (or “ABI”), Old APP’s former parent. In connection with the closing of that merger, Old APP’s certificate of incorporation was amended to change its original name of American Pharmaceutical Partners, Inc. to Abraxis BioScience, Inc. which we refer to as “Old Abraxis.”

On November 13, 2007, Old Abraxis separated into two independent publicly-traded companies, APP Pharmaceuticals Inc., which held the Abraxis Pharmaceutical Products business, focusing primarily on manufacturing and marketing of oncology, anti-infective and critical care hospital-based generic injectable products and marketing of proprietary anesthetic/analgesic products (which we refer to collectively as the “hospital-based business”), and Abraxis BioScience, Inc. (“New Abraxis”) which held the Abraxis Oncology and Abraxis Research businesses (which we refer to as the “proprietary business”). APP continued to operate the hospital-based business under the name APP Pharmaceuticals, Inc. APP and New Abraxis entered into a series of agreements in connection with the separation, including a credit facility under which APP borrowed $1 billion, a portion of which was paid to New Abraxis in connection with the separation, and a $150 million revolving credit facility. These credit facilities were retired in connection with the Merger and replaced with a similar external facility. The historical operating results of Old Abraxis through the date of the separation are presented as discontinued operations. Refer to Note 6 to the consolidated financial statements—Discontinued Operations—Spin-off of New Abraxis, for further details.

RESULTS OF OPERATIONS

Overview

The following table sets forth the results of our operations for each of the three years ended December 31, ~~2009~~2010, ~~2008~~2009 and ~~2007~~2008, and forms the basis for the following discussion of our operating activities. For accounting purposes, the Company has separated its historical financial results for the ~~Predecessor~~ Predecessor Company (APP) for all periods prior to September 10, 2008, the effective date of the merger, and the Successor Company (FKP Holdings) for all periods after July 2, 2008 (the date of inception). The separate presentation is required as there was a change in accounting basis, which occurred when purchase accounting was applied to the acquisition of the Predecessor. Purchase accounting requires that the historical carrying value of assets acquired and liabilities assumed be adjusted to fair value, which may yield results that are not comparable on a period-to-period basis due to the different, and sometimes higher, cost basis associated with the allocation of the purchase price.

For purposes of discussing our historical results of operations, the following table compares the results of the successor companies for ~~the~~ the year ended December 31, 2009 with the combined results of the predecessor and successor companies for the year ended December 31, 2008, which we refer to as the combined 2008 year period~~, and compares the results for the combined 2008 period to those of our predecessor for the year ended December 31, 2007~~. This comparative presentation is intended to facilitate the discussion of relevant trends and changes affecting our operating results. Where significant, the effect of merger related transactions and the application of purchase accounting are highlighted.

										Favorable/ (Unfavorable)
	Year Ended December 31,									~~2009~~2010 vs. ~~2008~~2009						~~2008 vs. 2007~~	2009 vs. 2008
	2009			2008			2007			$			%			$				%
	2010			2009			2008			$			%				$				%
	(in thousands, except percentages)
Consolidated statements of operations data:
Net revenues
Critical care	$	~~576~~739,~~574~~142		$	~~476~~576,~~091~~574		$	~~399~~476,~~456~~091		$	~~100~~162,~~483~~568		21	%28	%	$	~~76,635~~$	100,483		19	%	21	%
Anti-infective		~~226~~278,~~035~~831			~~225~~226,~~274~~035			~~192~~225,~~596~~274			~~761~~52,796		0	%23	%		~~32,678~~	761		17	%	0	%
Oncology		78114,~~108~~187			6578,~~321~~108			5465,~~736~~321			1236,~~787~~079		20	%46	%		~~10,585~~	12,787		19	%	20	%
Contract manufacturing and other		710,~~969~~511			97,~~947~~969			~~586~~9,947			(12,~~978~~542	)	~~-20~~	%32	%		~~9,361~~	(1,978	)	~~1597~~	%	-20	%
Total net revenue		~~888~~1,~~686~~142,671			~~776~~888,~~633~~686			~~647~~776,~~374~~633			~~112~~253,~~053~~985		14	%29	%		~~129,259~~	112,053		20	%	14	%
Cost of sales		~~453~~566,~~557~~084			~~420~~453,~~711~~557			~~332~~420,~~046~~711			(32112,~~846~~527	)	-8	%-25	%		~~(88,665~~	)(32,846	)	~~-27~~	%	-8	%
Gross profit		~~435~~576,~~129~~587			~~355~~435,~~922~~129			~~315~~355,~~328~~922			79141,~~207~~458		22	%33	%		~~40,594~~	79,207		13	%	22	%
Percent of total net revenue		4950.05	%		4549.80	%		4845.78	%
Operating expenses:
Research and development		28,~~277~~119			5128,~~485~~277			4651,~~497~~485			~~23,208~~158		45	%1	%		~~(4,988~~	)23,208		~~-10.7~~	%	45	%
Percent of total net revenue		3.2.5	%		63.62	%		76.26	%
Selling, general and administrative		89116,~~994~~069			9489,~~270~~994			9094,~~229~~270			4(26,~~276~~075	)	5	%-29	%		~~(4,041~~	)4,276		-5	%	5	%
Percent of total net revenue		10.12	%		1210.1	%		1312.91	%
Merger related in-process research and development charge		—			~~365,700~~—			—365,700			~~365,700~~—		~~100~~	%—	%		~~(365,700~~	)365,700		NA		100	%
Amortization of merger related intangibles		36,650			2136,~~492~~650			1521,~~418~~492			~~(15,158~~—	)	~~-71~~	%—	%		~~(6,074~~	)(15,158	)	~~-39~~	%	-71	%
Impairment of fixed assets		53,~~372~~440			—5,372			—			(51,~~372~~932	)	—	36	%		—	(5,372	)	NA		—
Other merger related costs		1,~~447~~361			461,~~749~~447			—46,749			~~45,302~~86		97	%6	%		~~(46,749~~	)45,302		NA		97	%
Separation related costs		~~625~~—			~~2,381~~625			32,~~024~~381			~~1,756~~625		74	%100	%		~~643~~	1,756		21	%	74	%
Total operating expenses		~~162~~185,~~365~~639			~~582~~162,~~077~~365			~~155~~582,~~168~~077			~~419~~(23,~~712~~274	)	72	%-14	%		~~(426,909~~	)419,712		~~-275~~	%	72	%
Percent of total net revenue		1816.32	%		7418.93	%		2474.09	%
Income (loss) from operations		~~272~~390,~~764~~948			~~(226~~272,~~155~~764	)		~~160~~(226,~~160~~155	)		~~498~~118,~~919~~184		~~221~~	%43	%		~~(386,315~~	)498,919		~~-241~~	%	221	%
Percent of total net revenue		3034.72	%		~~-29~~30.17	%		24-29.71	%
Interest expense		(8363,~~185~~797	)		(9783,~~709~~185	)		(2597,~~162~~709	)		1419,~~524~~388		15	%23	%		~~(72,547~~	)14,524		~~-288~~	%	15	%
Intercompany interest expense		(~~248~~218,~~956~~756	)		(66248,~~690~~956	)		—(66,690	)		~~(182~~30,~~266~~200	)	~~273~~	%12	%		~~(66,690~~	)(182,266	)	NA		-273	%
Unrealized gain in the fair value of contingent value rights		8,163			101,216			—			(93,053	)	-92	%			101,216			NA
Unrealized gain on change in fair value of contingent value rights		42,282			8,163			101,216			34,119			418	%			(93,053	)			-92	%
Interest income and other, net		31,~~379~~545			~~360~~3,379			~~2,182~~360			3(1,~~019~~834	)	~~839~~	%-54	%		~~(1,822~~	)3,019		~~-84~~	%	839	%
(Loss) income from continuing operations before income taxes		(47,835	)		(288,978	)		137,180			241,143		-83	%			(426,158	)		-311	%
Income (loss) before income taxes		152,222			(47,835	)		(288,978	)		200,057			418	%			241,143				83	%
(Benefit) provision for income taxes		(17,450	)		13,924			55,001			31,374		225	%			41,077			75	%
Income tax expense (benefit)		42,653			(17,450	)		13,924			60,103			-344	%			31,374				225	%
(Loss) income from continuing operations		(30,385	)		(302,902	)		82,179		$	272,517		90	%		$	(385,081	)		-469	%
Net income (loss)		109,569			(30,385	)		(302,902	)	$	139,954			461	%		$	272,517				90	%
Percent of total net revenue		-39.46	%		-393.04	%		12-39.70	%

2426

										Favorable/ (Unfavorable)
	Year Ended December 31,									2009 vs. 2008		2008 vs. 2007
	2009			2008			2007			$	%	$	%
	(in thousands, except percentages)
Loss from discontinued operations, net of taxes		—						(47,821	)
Net (loss) income	$	(30,385	)	$	(302,902	)	$	34,358

Operating Results

Net revenues

Total net revenues for the year ended December 31, ~~2009~~2010 increased $~~112~~254.10 million, or 1429%, to $~~888~~1,142.7 million as compared to $~~776~~888.67 million for the ~~combined~~same ~~2008~~period ~~year~~in ~~period~~2009.

Net revenues for our critical care products for the year ended December 31, ~~2009~~2010 increased $~~100~~162.5 million, or 2128%, to $~~576~~739.61 million as compared to $~~476~~576.16 million for the ~~combined~~prior ~~2008~~ year period, ~~driven~~ driven primarily by ~~greater~~new ~~market~~product ~~penetration~~launches ofduring ~~our~~2010, ~~pre-existing~~along ~~products~~with ~~and~~increases byin ~~new~~net ~~product~~sales ~~launches~~due into ~~2009~~competitor supply constraints for certain of our products. Net revenue from anti-infective products for the year ended December 31, ~~2009~~2010 increased by $052.7 8 million to $~~226~~278.08 million compared to $~~225~~226.30 million ~~for~~in the ~~combined~~prior ~~2008~~ year period, due to new product launches in 2010 and increases in net sales due to competitor supply constraints for certain of our products. Net revenue for oncology products for the year ended December 31, ~~2009~~2010 increased by $1236.81 million, or 2046%, to $78114.12 million over the ~~combined~~prior ~~2008~~ year period, driven primarily ~~due~~by tonon-recurring product sales in the second quarter of 2010 along with new product launches and increases in ~~2009~~net sales due to competitor supply constraints. Contract manufacturing and other revenue for the year ended December 31, ~~2009~~2010 ~~decreased~~increased by $12.95 million to $810.05 million from $98.90 million for the ~~combined~~prior ~~2008~~ year period.

Total net revenues for the ~~combined~~ year ~~period~~ ended December 31, ~~2008~~2009 increased $~~129~~112.21 million, or 2014%, to $~~776~~888.67 million as compared to $~~647~~776.4 6 million for the ~~same~~combined ~~period~~2008 ~~in 2007~~period.

Net revenues for our critical care products for the ~~combined~~year ~~2008~~ended ~~year~~December 31, ~~period~~2009 increased byto $76100.65 million, or 1921%, to $~~476~~576.16 million ~~from~~as compared to $~~399~~476.51 million for the ~~prior~~combined 2008 year ~~due~~period, driven primarily toby ~~higher~~greater ~~sales~~market penetration of ~~heparin~~our pre-existing products and by new product launches in 2009. Net revenue from anti-infective products for the ~~combined~~year ~~2008~~ended ~~year~~December 31, ~~period~~2009 increased by $320.7 million, ~~or 17%,~~ to $~~225~~226.30 million ~~from~~compared to $~~192~~225.63 million infor the ~~prior~~combined 2008 year period ~~due to higher volume as a result of increased market penetration~~. Net revenue for oncology products for the ~~combined 2008~~ year ~~period~~ended December 31, 2009 increased by $1012.68 million, or 1920%, to $6578.31 million over the combined 2008 year period, primarily due to new product launches in ~~2008~~2009. Contract manufacturing and other revenue for the ~~combined~~year ~~2008~~ended ~~year~~December 31, ~~period~~2009 ~~increased~~decreased by $91.49 million to $98.90 million from $09.59 million for the ~~prior~~combined 2008 year period.

Gross profit

Gross profit for the year ended December 31, 2010 was $576.6 million, or 50.5% of total net revenue, as compared to $435.1 million, or 49.0% of total net revenue, in the same period of 2009. The improvement in the overall gross profit and related margin was primarily due to the overall increase in net sales, new product launches and improved product mix in 2010.

Gross profit for the year ended December 31, 2009 was $435.1 million, or 49.0% of total net revenue, as compared to $355.9 million, or 45.8% of total net revenue, in the combined 2008 year period. The improvement in the overall gross profit percentage was primarily due to improved product mix in 2009 and the inclusion of purchase-accounting related amortization in cost of sales for the combined 2008 year period, partially offset by the reporting of $22.8 million of our 2009 Puerto Rico facility costs in cost of sales as we completed our production validation and transfer of products to our Puerto Rico facility. In 2008, we reported $26.3 million of our Puerto Rico facility costs in research and development until we completed production validation and transfer of products to the facility, which occurred in September 2008. Cost of sales for the combined 2008 year period included $11.0 million in non-cash amortization of intangible product rights associated with a product acquisition. Cost of sales for the combined 2008 year period also included $45.5 million of non-cash expense reflecting the portion of the purchase accounting step-up in inventory associated with the Merger attributable to inventory sold during the period. Excluding the impact of the Puerto Rico facility costs and these non-cash charges, gross profit margin for the twelve months ended December 31, 2009 and the combined 2008 year period would have been 51.5% and 53.1%, respectively.

Gross profit for the combined 2008 year period was $355.9 million, or 45.8% of total net revenue, as compared to $315.3 million, or 48.7% of total net revenue, in the same period in 2007. The increase in gross profit dollars was principally due to higher net revenue in the combined 2008 year period while the decrease in the overall gross profit percentage was primarily due to the effect of recognizing higher inventory costs recorded in purchase accounting in cost of sales, competitive pricing pressures and increasing freight costs due to higher fuel prices. Cost of sales for the combined 2008 year period and 2007 included $11.0 million and $16.4 million, respectively, in non-cash amortization of intangible product rights associated with a product acquisition. Cost of sales for the combined 2008 year period also includes $45.5 million of non-cash expense reflecting the portion of the purchase accounting step-up in inventory associated with the Merger attributable to inventory sold during the period. Excluding the impact of these non-cash charges, gross profit margin for the combined 2008 year period and 2007 would have been 53.1% and 51.2%, respectively.

Research and development, or R&D

Research and development expense for the twelve months ended December 31, ~~2009~~2010 decreased $230.2 million, or ~~45.~~ 1%, to $28.31 million as compared to $5128.53 million for the ~~combined~~same ~~2008~~period ~~year~~in ~~period~~2009. The decrease was due primarily to the ~~classification~~timing of ~~$22.8~~projects ~~million~~during ~~of 2009 costs associated with our Puerto Rico facility in cost of goods sold as described above~~2010. ~~Excluding costs associated with our Puerto Rico facility research and development expense increased $3.1 million from $25.2 million for the combined 2008 year period to $28.3 million in 2009.~~

Research and development expense for ~~combined~~the ~~2008~~twelve ~~year~~months ~~period~~ended ~~increased~~December 31, 2009 decreased $523.02 million, or 1045.71%, to $5128.53 million ~~versus~~as compared to $4651.5 million for the ~~same~~combined ~~period~~2008 inyear ~~2007~~period. The decrease ~~increase~~ was due primarily to ~~higher~~the ~~development~~classification ~~activity~~of $22.8 million of 2009 costs associated with our ~~strategic~~Puerto ~~initiatives~~Rico facility in cost of goods sold as described above. Excluding costs associated with our Puerto Rico facility, research and development expense increased $3.1 million from $25.2 million for the combined 2008 year period asto ~~compared~~$28.3 tomillion ~~2007~~in 2009.

Selling, general and administrative, or SG&A

Selling, general and administrative expense for the twelve months ended December 31, 2010 increased $26.1 million to $116.1 million, or 10.2% of total net revenue, from $90.0 million, or 10.1% of total net revenue, for the same period in 2009. The increase in costs was in line with the increase in net sales, and also included the effects of severance related charges recorded during the first quarter of 2010, accrued settlement fees related to a commercial contract and higher professional fees.

Selling, general and administrative expense for the twelve months ended December 31, 2009 decreased $4.3 million to $90.0 million, or 10.1% of total net revenue, from $94.3 million, or 12.1% of total net revenue, for the combined 2008 year period. The decrease in costs was due primarily to the capitalization of $6.8 million in legal fees in 2009, associated with the defense of our Naropin patent. Similar fees incurred in the combined 2008 year period were expensed as we had not concluded that the likelihood of a successful defense of the patent was probable. Without this effect, SG&A expense would have increased to $96.8 million, or 10.9% of total net revenue for the twelve months ended December 31, 2009.

Selling, general and administrative expense for the combined 2008 year period increased $4.1 million to $94.3 million, or 12.1% of total net revenue, from $90.2 million, or 13.9% of total net revenue, for 2007. This increase in costs was due primarily to increased professional fees versus the prior year, while the decline in selling, general and administrative expense as a percent of total net revenue was due to better leverage of these costs as a result of the increase in revenue.

Amortization, impairment, merger and separation costs

The twelve months ended December 31, ~~2009~~2010 included $38.10 million of amortization of Merger-related intangibles and other costs associated with the Merger with APP~~. The combined 2008 year period included merger related costs of $433.9 million~~, ~~comprised~~as ofcompared ~~$46.7 million of direct professional fees and transaction related costs associated with the Merger, $21.5 million of amortization of merger related intangibles, and $365.7 million related~~ to the write-off of in-process research and development representing the value assigned in purchase accounting to projects that had not yet reached technological feasibility and had no alternative future use, which was immediately expensed in the condensed consolidated statement of operations as required under current GAAP. The $4638.71 million offor ~~direct professional fees and transaction related costs associated with~~ the ~~Merger~~same ~~were~~period ~~recognized~~ in ~~the predecessor period ended September 9, 2008~~2009.

Results for the twelve months ended December 31, 2010 included $3.4 million of expenses related mainly to the impairment of production equipment for discounted products. As a result of the finalization of a plan to close the Puerto Rico manufacturing facility during the year ended December 31, 2009, $5.4 million of impairment charges were ~~included~~reflected in the ~~current~~2009 ~~year~~ results. Separation costs for the year ended December 31, 2009 totaled $0.6 million as compared to $2.4 million for the combined 2008 year period.

The twelve months ended December 31, 2009 included $38.1 million of amortization of Merger-related intangibles and other costs associated with the Merger with APP. The combined 2008 year period included merger related costs of $433.9 million, comprised of ~~merger~~$46.7 million of direct professional fees and transaction related costs asassociated ~~described~~with ~~above~~the Merger, $21.5 ~~Included~~million inof ~~this~~amortization ~~total~~of ~~was~~merger related intangibles, and $21365.57 million related to the ~~amortization~~write-off of ~~Merger~~in-~~related~~process ~~intangibles~~research and development representing the value assigned in purchase accounting to projects that had not yet reached technological feasibility and had no alternative future use, anwhich ~~increase~~was ofimmediately ~~$6.1~~charged ~~million~~to ~~over~~expense ~~the~~as required under applicable generally accepted accounting principles (GAAP). The $1546.47 million ~~in such~~of direct professional fees and transaction related costs ~~reported~~associated with the Merger were recognized in ~~2007~~the predecessor period ended September 9, 2008.

Interest Expense and Intercompany Interest Expense

~~Interest~~Total ~~expense~~ interest on third party and intercompany debt decreased $49.6 million to $83282.25 million for the twelve months ended December 31, ~~2009,~~2010 ~~compared~~from to $97332.71 million for the ~~combined~~same ~~2008~~period ~~year~~in ~~period~~2009. ~~The~~Interest ~~decrease~~expense inon third party ~~interest~~debt ~~expense~~decreased ~~was~~to ~~primarily~~$63.8 ~~due~~million to for the ~~lower~~twelve ~~average~~months ~~third~~ended ~~party~~December 31, ~~debt~~2010, ~~levels~~compared ~~and~~to ~~interest~~$83.2 ~~rates~~million ~~along~~for ~~with~~the ~~recognition~~same period in ~~the~~2009. ~~prior~~The ~~year~~decrease ofin ~~$12.2~~third ~~million~~party of interest expense ~~resulting from~~is ~~the~~primarily ~~write-off~~due ofto ~~loan~~the ~~fees~~lower ~~related~~interest torates ~~the~~charged ~~credit~~on ~~facility~~outstanding ~~established~~borrowings indue ~~connection~~to ~~with~~ the ~~November 13,~~replacement of ~~2007~~Term ~~spin-off~~Loan ofB ~~New~~with ~~Abraxis,~~Term ~~which~~Loan ~~was~~C ~~assumed~~instruments in ~~the~~March ~~merger~~2010. ~~and~~Intercompany ~~repaid,~~interest ~~and~~expense ~~the~~decreased ~~write-off~~$30.2 ofmillion to $13218.48 million offor ~~unamortized~~the ~~deferred financing~~twelve ~~fees~~months ~~associated~~ended ~~with~~December 31, ~~the~~2010 ~~bridge~~compared ~~loan~~to ~~that~~$249.0 ~~was~~million ~~restructured~~ in the ~~fourth~~prior ~~quarter~~year ofperiod, ~~2008.~~driven ~~The~~mainly by ~~bridge~~lower ~~facility~~interest ~~was~~rates ~~refinanced~~on inoutstanding ~~the~~borrowings ~~first~~due ~~quarter~~to ofthe ~~2009~~replacement ~~and~~of weTerm ~~wrote-off~~Loan ~~the~~B ~~remaining~~with ~~unamortized~~Term ~~financing~~Loan ~~fees~~C ofinstruments ~~$14.6~~and ~~million~~a atdecrease ~~that time. Also, included~~ in ~~the~~overall ~~combined~~intercompany ~~2008~~debt ~~year~~of ~~period~~$115.3 ismillion ~~the~~to ~~loss~~$2,918.0 onmillion ~~settlement~~as of ~~our~~December 31, ~~predecessor’s~~2010 ~~interest~~from ~~rate swap of~~ $23,033.73 million, for ~~which~~the ~~occurred~~same period in ~~the~~2009. ~~predecessor~~The ~~period~~intercompany ~~ended~~interest ~~September 9,~~expense ~~2008,~~in ~~prior~~2009 toalso reflects the ~~Merger.~~write-off ~~Intercompany interest~~of ~~expense was~~ $~~249~~14.06 million ~~for~~in ~~the~~unamortized ~~twelve~~debt ~~months~~issue ~~ended~~costs ~~December 31,~~in ~~2009,~~connection ~~reflecting~~with the ~~$3,033.2~~intercompany ~~million~~debt ofrestructuring ~~outstanding~~in ~~intercompany~~the ~~debt~~first quarter of 2009.

26Interest expense on third party debt decreased to $83.2 million for the twelve months ended December 31, 2009, compared to $97.7 million for the combined 2008 year period. The decrease in third party interest expense was primarily due to the lower average third party debt levels and interest rates along with recognition in the combined 2008 year period of $12.2 million of interest expense resulting from the write-off of loan fees related to the credit facility established in connection with the November 13, 2007 spin-off of New Abraxis, which was assumed in the Merger and repaid, and the write-off of $13.4 million of unamortized deferred financing fees associated with the bridge loan that was restructured in the fourth quarter of 2008. The bridge facility was refinanced in the first quarter of 2009 and we wrote-off the remaining unamortized financing fees of $14.6 million at that time. Also, included in third party interest expense in the combined 2008 year period is the loss on settlement of our predecessor’s interest rate swap of $2.7 million, which occurred in the predecessor period ended September 9, 2008, prior to the Merger. Intercompany interest expense was $249.0 million for the twelve months ended December 31, 2009, reflecting the $3,033.2 million of outstanding intercompany debt.

Interest expense on third party debt increased to $97.7 million for the combined 2008 year period, compared to $25.2 million for the twelve months ended December 31, 2007. The $72.5 million increase in interest expense was primarily due to the fact that the Company and its predecessor had approximately $1.0 billion in third-party debt outstanding throughout the entire combined 2008 year period. In 2007, APP Pharmaceuticals had a modest outstanding debt level until it entered into a $1.0 billion credit facility in connection with the separation in November 2007. As noted above we additionally recognized $12.2 million of third-party interest expense resulting from the write-off of unamortized loan fees related to the credit facility established in connection with our predecessor’s November 2007 separation from New Abraxis, which was repaid at the time of the Merger, $13.4 million of third-party interest expense resulting from the write-off of unamortized debt issuance costs related to the restructuring of a portion of our bridge loan and $2.7 million of third-party interest expense resulting from the loss on settlement of our pre-merger interest rate swap, which occurred in the predecessor period ended September 9, 2008, prior to the Merger.

Other income, other non-operating items

Interest income and other ~~income~~, net consists primarily of interest earned on invested cash and cash equivalents, and the impact of foreign currency rate changes on intercompany trading and debt accounts denominated in Euros and Canadian dollars, ~~and~~as well as the related non-hedging derivative instruments, other financing costs and (gains)losses on the sale of fixed assets. Interest income and other ~~income (expense)~~, net was $31.45 million for the twelve months ended December 31, ~~2009~~2010 compared to $03.4 million in the ~~combined~~same ~~2008~~period ~~year~~in ~~period~~2009.

~~Additionally,~~28 in 2009 we recognized $8.2 million of income resulting from the change in fair value of the contingent value rights (CVRs) issued to APP shareholders in connection with the Merger. The estimated fair value of the CVRs at the date of the acquisition was included in the acquisition cost and is adjusted at each reporting date (marked-to-market) based on the closing price of a CVR as reported by NASDAQ, with the change in the fair value of the CVR for the reporting period being included in non-operating income.

~~The~~Additionally, ~~results~~in of2010 ~~the~~we ~~combined~~recognized ~~2008 year period include~~ $~~101~~42.23 million of income inresulting ~~the~~from ~~successor period related to~~ the change in fair value of the contingent value rights (CVRs) issued to APP shareholders in connection with the Merger compared to $8.2 million in the same period in 2009. The estimated fair value of the CVRs at the date of the acquisition was included in the acquisition cost ofand ~~the~~is ~~acquisition.~~adjusted Atat each reporting date, ~~the CVRs are~~ (marked-to-market) based on the closing price of a CVR as reported by NASDAQ, ~~and~~with the change in the fair value of the ~~CVRs~~CVR for the reporting period isbeing included in ~~operations.~~non-operating income.

Interest income and other, net was $3.4 million for the twelve months ended December 31, 2009 compared to $0.4 million in the combined 2008 year period, with the increase due to gain on foreign currency transactions and fixed asset sales.

In 2009, we recognized $8.2 million of income resulting from the change in fair value of the contingent value rights (CVRs) issued to APP shareholders in connection with the Merger compared to $101.2 million in the successor period in 2008.

Provision for Income Taxes

For the twelve month period ended December 31, ~~2009~~2010, weFKP Holdings reported an income tax ~~benefit~~expense of $1742.57 million on a pretax loss from continuing operations of $152.2 million, or an effective tax rate of 28.0%, compared to an income tax benefit of $17.5 million on a pre-tax loss of $47.8 million, or an effective ~~tax~~benefit rate of 36.5%, for the same period in 2009. ~~This~~The ~~rate~~2010 ~~differs~~and 2009 rates differ from the statutory U.S. federal tax rate of 35% due primarily to ~~state income taxes and~~ the ~~recognition of the~~ tax cost of a hypothetical distribution of the profits of our foreign subsidiaries and additional tax and interest costs recorded in connection with the U.S. Federal income tax examination offset by the non-~~taxability~~taxable change in the fair value of the ~~$8.2~~CVRs, ~~million~~a indomestic ~~income~~production ~~recognized~~activities ~~for~~deduction ~~accounting~~realized ~~purposes~~in 2010, as ~~result~~well ofas the ~~change~~effect inof ~~the~~state ~~liability~~and ~~related~~foreign toincome ~~the CVRs~~taxes.

For the successor period ended December 31, 2008, we reported an income tax benefit of $26.4 million on a pretax loss from continuing operations of $338.8 million, or an effective benefit rate of 7.8%. This rate differs from the statutory U.S. federal tax rate of 35% due primarily to the inclusion in pretax loss from continuing operations of $365.7 million related to the write-off of in-process ~~R&D~~research and development costs recognized in accounting for the Merger and a $101.2 million gain related to the change in fair value of the CVRs during the period, which are not included in the determination of taxable income, as well as the effect of state and foreign income taxes.

Tax expense on pretax income from continuing operations for the predecessor period from January 1, 2008 through September 9, 2008 was $40.3 million on pre-tax income from continuing operations of $49.9 million, or an effective tax rate of 80.9%. This rate differs from the statutory U.S. federal tax rate of 35% due primarily to the inclusion in pretax income from continuing operations of approximately $44.5 million of nondeductible costs incurred by APP ~~and~~ relating to the Merger, as well as the effect of state and foreign income taxes.

~~Our~~29 effective tax rate for the year ended December 31, 2007 was 40.1%. Our tax rate for this period was favorably impacted by the recognition of $3.1 million reduction of previously unrecognized tax benefits due to the closure of IRS examinations for the 2004 and 2005 tax years.

LIQUIDITY AND CAPITAL RESOURCES

Overview

The following table summarizes key elements of our financial position as of December 31, ~~2009~~2010, ~~2008~~2009 and ~~2007~~2008, and our sources and (uses) of cash and cash equivalents for the indicated periods in ~~2009~~2010, 2009 and ~~2007~~2008:

	December 31,2009			December 31,2008			December 31,2007
	December 31,2010			December 31,2009				December 31,2008
	(in thousands)
Summary Financial Position:
Cash, cash equivalents and short-term investments	$	108,~~469~~844		$	4210,~~241~~469		$	~~31,788~~$	42,241
Working capital	$	(~~273~~408,~~880~~659	)	$	93(273,~~343~~880	)	$	~~216,727~~$	93,343
Total assets	$	4,~~858~~703,~~685~~166		$	4,~~837~~858,~~746~~685		$	~~1,077,587~~$	4,837,746
Total stockholders’ equity (deficit)	$	539,076		$	550,724		$	(79,771	)
Total stockholder’s equity (deficit)	$	645,656		$	539,076			$	550,724

	Successor			~~Combined~~			~~Successor~~			~~Predecessor~~		Predecessor
	For the twelvemonths endedDecember 31,2009			For the twelvemonths ended,December 31,2008			July 2 throughDecember 31,2008			January 1 throughSeptember 9, 2008				For the twelvemonths endedDecember 31,2007
	For the twelvemonths endedDecember 31,2010			For the twelvemonths endedDecember 31,2009			July 2 throughDecember 31,2008					January 1 throughSeptember 9,2008
Summary of Sources and (Uses) of Cash and Cash Equivalents:
Operating activities	$	13,295		$	68,473		$	(37,042	)	$	105,515			$	12,353
				(in thousands)
Investing activities		(5,563	)		(3,697,307	)		(3,683,468	)		(13,839	)			(89,022	)
Operating activities	$	229,031		$	13,295		$	(37,042	)			$	105,515
Financing activities		(10,892	)		3,738,444			3,733,428			5,016				66,893
Investing activities		(10,500	)		(5,563	)		(3,683,468	)				(13,839	)
Effect of exchange rates on cash and cash equivalents		5,188			(6,760	)		(4,477	)		(2,283	)			2,267
Financing activities		(222,556	)		(10,892	)		3,733,428					5,016
Increase (decrease) in cash and cash equivalents		2,028			102,850			8,441			94,409				(7,509	)
Effect of exchange rates on cash and cash equivalents		2,400			5,188			(4,477	)				(2,283	)
Cash and cash equivalents, beginning of year		8,441			31,788			—			31,788				39,297
Increase (decrease) in cash and cash equivalents		(1,625	)		2,028			8,441					94,409
Cash and cash equivalents, end of year	$	10,469		$	134,638		$	8,441		$	126,197			$	31,788
Cash and cash equivalents, beginning of period		10,469			8,441			—					31,788
Cash and cash equivalents, end of period	$	8,844		$	10,469		$	8,441				$	126,197

Sources and Uses of Cash

Overview

~~Prior~~In toconnection ~~our~~with ~~predecessor’s~~the ~~November~~Merger, ~~2007~~our ~~separation~~parent contributed ~~from~~$900.0 ~~New~~million ~~Abraxis,~~and ~~cash~~loaned ~~flow~~approximately ~~from~~$3.0 ~~operations~~billion ~~was~~to ~~our~~FKP ~~primary source of liquidity~~Holdings. InWe ~~connection~~used ~~with~~ the ~~November~~proceeds ~~2007~~of ~~separation~~the ~~from~~capital ~~New~~contribution ~~Abraxis, APP~~ and ~~New~~intercompany ~~Abraxis~~loans ~~entered~~to ~~into~~complete athe ~~series~~Merger. ofWe ~~agreements,~~also ~~including~~assumed aour predecessor’s credit facility ~~under~~in ~~which~~connection ~~APP borrowed~~with ~~$1 billion~~the Merger, awhich ~~portion~~we ofretired ~~which~~and ~~was~~replaced ~~paid~~with toa ~~New~~similar ~~Abraxis~~facility. inPrincipally ~~connection~~as ~~with~~a ~~the~~result ~~separation~~of these transactions, ~~and~~as aof ~~$150~~December 31, ~~million~~2010 ~~revolving~~we ~~credit~~have ~~facility~~$3.7 ~~These~~billion ~~credit~~of ~~facilities~~outstanding ~~were~~indebtedness; ~~retired~~comprised inof ~~connection~~approximately ~~with~~$0.8 ~~the~~billion ~~Merger~~of ~~and~~term ~~replaced~~loans ~~with~~from a ~~similar~~ ~~external~~group ~~facility~~of ~~that~~financial ~~includes~~institutions ~~both~~and ~~term~~$2.9 ~~and~~billion ~~revolving~~of ~~credit~~intercompany ~~arrangements~~loans.

InWe ~~connection~~anticipate ~~with~~that ~~the~~available ~~Merger,~~cash ~~our~~and ~~parent~~cash ~~contributed~~equivalents, ~~$900.0~~cash ~~million~~generated from operations, and ~~loaned~~funds ~~approximately~~available ~~$3.0~~under ~~billion~~our credit facility or through borrowings or capital contributions from Fresenius, our parent, will be sufficient to ~~FKP~~finance ~~Holdings.~~our Weoperations, ~~used~~including ongoing product development and capital expenditures for at least the ~~proceeds~~next oftwelve months. In the event we engage in future acquisitions or capital ~~contribution~~projects, ~~and~~we ~~intercompany~~may ~~loans~~have to ~~complete~~raise ~~the~~additional ~~Merger.~~capital Wethrough ~~also~~additional ~~assumed~~borrowings ~~our~~or ~~predecessor’s~~through ~~credit~~additional ~~facility~~intercompany indebt. ~~connection~~Fresenius ~~with~~has ~~the~~committed ~~Merger,~~to ~~which~~the weCompany ~~retired~~that ~~and~~it ~~replaced~~will ~~with~~provide afinancial ~~similar~~support ~~facility.~~to ~~Principally~~FKP asHoldings asufficient ~~result~~for ofit ~~these~~to ~~transactions,~~satisfy asits ofobligations ~~December 31,~~and ~~2009~~debt weservice ~~have~~requirements $arising ~~3.9~~under ~~billion~~all ofexisting ~~outstanding~~financing ~~indebtedness;~~instruments ~~comprised~~that ofwere ~~approximately~~entered ~~$0.9~~into ~~billion~~in ofconnection ~~term~~with ~~loans~~the ~~from~~Merger, and to which the Company is a ~~group~~party, ofas ~~financial~~they ~~institutions~~come ~~and~~due ~~$3.0~~until ~~billion~~at ofleast ~~intercompany~~January 1, ~~loans~~2012.

We anticipate that available cash and cash equivalents, cash generated from operations, and funds available under our credit facility or through borrowings or capital contributions from Fresenius, our parent, will be sufficient to finance our operations, including ongoing product development and capital expenditures for at least the next twelve months. In the event we engage in future acquisitions or capital projects, we may have to raise additional capital through additional borrowings or through additional intercompany debt. Fresenius has committed to the Company that it will provide financial support to FKP Holdings sufficient for it to satisfy its obligations and debt service requirements arising under all existing financing instruments that were entered into in connection with the Merger, and to which the Company is a party, as they come due until at least January 1, 2011.

Operating Activities

Cash flow from operations has been our primary source of liquidity. Net cash provided by operating activities was $13229.30 million for the twelve months ended December 31, ~~2009~~2010 as compared to $6813.53 million for the ~~combined~~same ~~2008~~period ~~year~~in ~~period~~2009. The change in cash provided by operating activities for the ~~2009~~2010 period as compared to ~~2008~~2009 was primarily due to ~~the~~higher net ~~settlement of~~ ~~non-current~~earnings, ~~intercompany~~improved ~~receivables~~collections ~~and~~on ~~payables~~accounts ~~with~~receivable, ~~our~~and ~~parent~~better ~~company~~management ~~resulting~~of ininventory ~~operating~~and ~~cash~~accounts ~~outflow~~payable ~~of $70~~balances.0 ~~million~~Operating incash ~~2009.~~flows ~~The~~for ~~settlement~~2009 ~~was~~were ~~funded~~impacted by ~~borrowings~~net onsettlements ~~the~~of ~~Company’s~~non-current ~~target~~intercompany ~~revolver~~receivables and ~~was~~payables ~~repaid~~with ~~through proceeds~~our ~~from~~parent ~~short~~company ~~term~~resulting ~~intercompany notes. Other significant items included~~ in an operating cash ~~flows~~outflow ~~included the impact~~ of ~~the~~$70.0 ~~increase~~million in ~~inventories and accrued intercompany interest, and the collection of tax receivables~~2009. Excluding the settlement of non-current intercompany balances with our parent, cash flow from operations would have ~~increased~~been $~~14.8 million to $~~83.3 million for the twelve months ended December 31, 2009.

~~Net~~30 cash provided by operating activities was a combined $68.5 million for the combined 2008 year period ($37.0 million cash used in the successor period and $105.5 million cash provided in the predecessor period) as compared to cash provided by operations of $12.4 million for the year ended December 31, 2007. The change in cash provided by operating activities for the combined 2008 year period as compared to 2007 was due primarily to lower net earnings which were more than offset by the high levels of non-cash charges and credits that were recognized in the successor period relating to purchase accounting, including the write-off of in-process research and development (“IPR&D”) and the recognition of the fair value adjustment to inventory in cost of sales as the related goods were sold, as well as the fair market value adjustments to the CVRs.

Net cash provided by operating activities was $13.3 million for the twelve months ended December 31, 2009 as compared to $68.5 million for the combined 2008 year period. Net cash provided by operating activities for the 2009 period included the net settlement of non-current intercompany receivables and payables with our parent company resulting in operating cash outflow of $70.0 million in 2009. The settlement was funded by borrowings on the Company’s target revolver and was repaid through proceeds from short term intercompany notes. Other significant items included in operating cash flows in 2009 included the impact of the increase in inventories and accrued intercompany interest, and the collection of tax receivables. Excluding the settlement of intercompany balances with our parent, cash flow from operations would have been $83.3 million for the twelve months ended December 31, 2009. For the successor and predecessor periods in 2008, net cash provided (used) in operating activities was ($37.0) million and $105.5 million, respectively. The reduction in operating cash flow in the 2008 successor period was due to higher levels of cash required for working capital.

Investing Activities

Our investing activities include cash paid for acquisitions, capital expenditures necessary to expand and maintain our manufacturing capabilities and infrastructure, and outlays to acquire various product or intellectual property rights needed to grow and maintain our business. Cash used in investing activities during the twelve months ended December 31, ~~2009~~ 2010 was $510.65 million, which included $1613.75 million for purchases of property, plant and equipment ~~along~~offset ~~with~~by anproceeds ~~additional $2.0~~received ~~million~~on ~~of payments related to~~ the ~~acquisition~~sale of ~~APP and $10.7 million for the purchase of a manufacturing facility in Raleigh~~property, ~~North~~plant ~~Carolina~~ and ~~$10.1~~equipment ~~million~~of ~~related to cash paid for intangible assets. Cash used in investing activities was offset by~~ $333.90 million ~~of payments received on intercompany notes receivable and cash proceeds on sale of fixed assets~~.

Cash used in investing activities during the ~~combined~~twelve ~~2008~~months ~~year~~ended ~~period~~December 31, 2009 was $~~3,697~~5.36 million, (which included $~~3,683~~16.57 million for ~~cash~~purchases ~~used~~of inproperty, ~~the~~plant ~~successor~~and ~~period~~equipment ~~and~~along with an additional $132.80 million of ~~cash~~payments ~~used~~related into the ~~predecessor period), which included the payments for the~~ acquisition ~~assets~~ of APP, ~~net~~and ~~of cash of~~ $~~3,624~~10.27 million ~~and~~for the purchase of a manufacturing facility ~~adjacent~~in toRaleigh, ~~our~~North ~~Grand~~Carolina ~~Island~~and ~~facility~~$10.1 ~~Cash~~million ~~used~~related into cash ~~investing~~paid ~~activities~~ for ~~the~~intangible ~~twelve~~assets. ~~months~~Cash ~~ended~~used ~~December 31,~~in ~~2007~~investing ~~included~~activities ~~purchases~~was ofoffset ~~property, plant~~by ~~and equipment totaling~~ $8633.19 million, ~~including~~of ~~$32.5~~payments ~~million~~received ~~relating~~on tointercompany ~~the~~notes ~~acquisition~~receivable ofand ~~our~~cash ~~manufacturing~~proceeds ~~facility~~on insale ~~Puerto~~of ~~Rico~~fixed assets.

Cash used in investing activities during the combined 2008 year period was $3,697.3 million ($3,683.5 million cash used in the successor period and $13.8 million of cash used in the predecessor period), which included the payments for the acquisition assets of APP, net of cash of $3,624.2 million and the purchase of a manufacturing facility adjacent to our Grand Island facility.

Financing Activities

Financing activities generally include external borrowings under our credit facility and intercompany borrowing activity with Fresenius and its affiliated companies, and, prior to the Merger, the issuance or repurchase of our common stock and proceeds from the exercise of employee stock options. Net cash used in financing activities for the twelve months ended December 31, ~~2009~~2010 was $10222.96 million which reflected net ~~proceeds~~payments on external and internal borrowings of $3176.35 million and $25132.34 million, ~~offset~~respectively, byalong with payments of deferred financing costs of $6713.57 million.

Net cash ~~provided~~used byin financing activities for the ~~combined~~twelve ~~2008~~months ~~year~~ended ~~period was $3~~December 31,~~738.4~~ ~~million~~2009 ~~($3,733.4~~was ~~million of cash provided in the successor period and~~ $510.09 million ~~of cash provided in the predecessor period)~~ which reflected ~~the~~net ~~$900.0 million capital contribution received from Fresenius and~~ proceeds ~~from~~on ~~the~~ external and ~~intercompany~~internal borrowings ~~incurred~~of ~~to finance~~$31.3 ~~the~~million ~~Merger~~and ~~totaling~~ $25.3 million,~~856.2~~ ~~million~~respectively, offset by ~~the retirement of pre-merger debt of $997.5 million and Merger-related~~ payments of ~~certain~~deferred financing costs of $2567.5 million.

Net cash provided by financing activities ~~was $66.9 million~~ for the ~~twelve~~combined ~~months~~2008 ~~ended~~year ~~December 31,~~period ~~2007~~was $3,738.4 ~~which~~million ~~included~~($3,733.4 ~~issuance~~million of ~~$1 billion~~ ofcash ~~debt~~provided in ~~connection~~the ~~with~~successor ~~the~~period ~~separation,~~and as$5.0 ~~well~~million asof cash provided in the ~~issuance~~predecessor ofperiod) ~~other~~which ~~debt~~reflected ofthe $~~366~~900.0 million, ~~reduced~~capital bycontribution received ~~repayment~~from ofFresenius ~~borrowings~~and ofproceeds ~~$531~~from ~~million~~the external and ~~notes~~intercompany ~~payable~~borrowings ofincurred ~~$67~~to ~~million.~~finance ~~The~~the Merger totaling $~~696~~3,856.4 million, ~~outflow~~offset ~~reflected~~by in the ~~consolidated~~ ~~statement~~retirement of ~~cash~~pre-merger ~~flows~~debt ~~for~~of ~~2007 includes~~ $~~700~~997.05 million ofand ~~cash~~Merger-related ~~that~~payments ~~distributed~~of tocertain financing ~~New~~costs ~~Abraxis as part~~ of ~~the~~$25.5 ~~separation~~million.

Sources of Financing and Capital Requirements

~~Prior~~A tosummary ~~the Merger, our predecessor had historically financed its operations primarily through cash flow from operations and borrowings under lines~~ of ~~credit. Fresenius,~~ our ~~ultimate~~external ~~parent, provided the capital to expand our business through the acquisition of APP,~~ and ~~has~~intercompany ~~committed to the Company that it will provide financial support sufficient for it to satisfy its obligations and~~ debt ~~service requirements arising under all existing financing instruments that were entered into in connection with the Merger, and to which the Company~~ is ~~a party,~~ as ~~they~~ ~~come~~follows ~~due~~(in ~~until~~thousands): ~~at least January 1, 2011.~~


	December 31, 2010		December 31, 2009
External debt
Senior Credit Facilities, with interest at variable rates based on LIBOR plus a margin. Term loan B2 and C2 are subject to a minimum rate
Term loan A2, due in semi-annual installments through September 10, 2013	$	391,000	$	462,500
Term loan B2, due in equal semi-annual installments with a final balloon payment on September 10, 2014		—		458,944
Term loan C2, due in equal semi-annual installments beginning June 10, 2010, with a final balloon payment on September 10, 2014		404,219		—
Target revolving credit facility loan, due at expiration of the facility on September 10, 2013		—		—

Spin-off Senior Secured Credit Agreement

On November 13, 2007, APP and certain of its wholly-owned subsidiaries entered into a senior secured credit agreement (the “Spin-off Credit Agreement”) with certain lenders and Deutsche Bank AG New York Branch, as Administrative Agent. The Spin-off Credit Agreement provided for two term loan facilities: a Term Loan A facility for $500 million and a Term Loan B facility for $500 million. The Credit Agreement also provided for a revolving credit facility of $150 million. The term loan facilities were scheduled to mature on November 13, 2013, and the revolving credit facility was scheduled to expire on November 13, 2012. A portion of the proceeds from the debt financing was used to repay APP’s existing indebtedness and fees and expenses related to the financing, and $700 million was contributed to New Abraxis immediately prior to the separation.

Additionally, on February 14, 2008, APP entered into interest rate swap agreements with an aggregate notional principal amount of $990 million. Under these agreements, APP paid interest to the counterparty at a fixed rate of 3.04% on the notional amount, and received interest at a variable rate equal to one-month LIBOR. The interest rate swaps were scheduled to expire in February, 2009. APP formally designated these swaps as hedges of its exposure to variability in future cash flows attributable to the LIBOR-based interest payments due on the credit facilities. Accordingly, the interest rate swaps were reported at fair value in the balance sheet and changes in their fair values were initially recorded in accumulated other comprehensive income in the balance sheet and recognized in operations each period when the hedged item impacted results.

All amounts owed under these credit facilities became due and payable and the agreements terminated upon the closing of the Merger on September 10, 2008. The interest rate swap was terminated on September 5, 2008 resulting in a recognized loss of $2.7 million, which is included in interest expense of the predecessor period in 2008. There were no penalties associated with the early pay-off of the debt or termination of the interest rate swap agreements.

Fresenius Merger—Credit Agreements

On August 20, 2008, in connection with the acquisition of APP described in Note 2—Merger with APP, Fresenius entered into a $2.45 billion credit agreement with Deutsche Bank AG, London Branch, as administrative agent, Deutsche Bank AG, London Branch, Credit Suisse, London Branch, and J.P. Morgan plc, as arrangers and book running managers, and the other lenders party thereto (the “Senior Credit Facilities Agreement”) and a $1.3 billion bridge credit agreement with Deutsche Bank AG, London Branch, as the administrative agent, Deutsche Bank AG, London Branch, Credit Suisse, London Branch, and J.P. Morgan plc, as arrangers and book running managers, and the other lenders party thereto (the “Bridge Facility Agreement”) to assist in the funding of the transaction. The $2.45 billion Senior Credit Facilities Agreement includes a $1 billion term loan A, a $1 billion term loan B, and revolving credit facilities of $300 million, which was subsequently increased to $400 million, and $150 million. Proceeds from borrowings under these credit facilities, together with other available funds provided by Fresenius through equity contributions and loans to FKP Holdings and its subsidiaries, were utilized to complete the purchase of APP on September 10, 2008.

The Senior Credit Facilities Agreement provides APP Pharmaceuticals, LLC, a wholly owned subsidiary of APP, with two term loan facilities: a Tranche A2 Term Loan (“Term Loan A2”) for $500 million and Tranche B2 Term Loan (“Term Loan B2”) for $497.5 million. The Senior Credit Facilities Agreement also provides APP Pharmaceuticals, LLC with a $150 million revolving credit facility. The revolving credit facility includes a $50 million sub-limit for swingline loans and a $20 million sub-limit for letters of credit. The Term Loan A2 and B2 loan facilities mature on September 10, 2013 and September 10, 2014, respectively, and the revolving credit facility expires on September 10, 2013. We incurred and capitalized approximately $25 million in debt issue costs in connection with the Senior Credit Facilities Agreement. As of December 31, 2009, the balance outstanding on APP Pharmaceuticals, LLC senior credit facilities was $921.4 million and the revolving credit facility had no outstanding balance.

Pursuant to the Senior Credit Facilities Agreement, Fresenius Kabi Pharmaceuticals, LLC (which was merged with and into APP Pharmaceuticals, Inc. upon consummation of the Merger) entered into an intercompany loan with the borrower of the $500 million Tranche A1 Term Loan and the $502.5 million Tranche B1 Term Loan, and an affiliate of FKP Holdings entered into an intercompany loan with the borrower under the $300 million revolving facility under the Senior Credit Facilities Agreement (collectively, the “Senior Intercompany Loans”), the amount, maturity and other financial terms of which correspond to those applicable to the loans provided to such borrowers under the Senior Credit Facilities Agreement described above. The Senior Intercompany Loans are guaranteed by FKP Holdings and certain of its affiliates and subsidiaries and secured by the assets of FKP Holdings and certain of its affiliates and subsidiaries. The Senior Intercompany Loans provide for an event of default and acceleration if there is an event of default and acceleration under the Senior Credit Facilities Agreement, but acceleration of the Senior Intercompany Loans may not occur prior to acceleration of the loans under the Senior Credit Facilities Agreement. By entering into certain of the Senior Intercompany Loans with Fresenius Kabi Pharmaceuticals, LLC, Fresenius effectively pushed-down its Merger-related term loan borrowings under the Senior Credit Facilities Agreement to the FKP Holdings group. The Senior Intercompany Loans bear interest at a variable rate based on the rates applicable to the corresponding loans under the Senior Credit Facilities Agreement, plus a margin, as discussed below, and are due in 2013 and 2014, as applicable. The balance of the Senior Intercompany Loans outstanding at December 31, 2009 was $1,386.0 million.

The interest rate on each borrowing under the Senior Credit Facilities Agreement is a rate per annum equal to the aggregate of (a) the applicable margin and (b) LIBOR or EURIBOR for the relevant interest period, subject, in the case of Term Loan B, to a minimum LIBOR or EURIBOR. The applicable margin for Term Loan A Facilities and the Revolving Credit Facilities is variable and depends on the Fresenius Leverage Ratio as defined in the Senior Credit Facilities Agreement.

The Senior Credit Facilities Agreement contains a number of affirmative and negative covenants that are assessed at the Fresenius level and are not separately assessed at APP Pharmaceuticals, LLC. The obligations of APP Pharmaceuticals, LLC under the Senior Credit Facilities Agreement are unconditionally guaranteed by Fresenius SE, Fresenius Kabi AG, Fresenius ProServe GmbH and APP Pharmaceuticals, Inc. and are secured by a first-priority security interest in substantially all tangible and intangible assets of APP Pharmaceuticals, Inc. and APP Pharmaceuticals, LLC.

Pursuant to the Bridge Facility Agreement, FKP Holdings entered into an intercompany loan (the “Bridge Intercompany Loan”) with an affiliate of FKP Holdings who was the borrower under the Bridge Facility Agreement, the amount, maturity, and other financial terms of which corresponded to those applicable to the loans provided to such borrower under the Bridge Facility Agreement. The Bridge Intercompany Loan was guaranteed by certain of its affiliates and subsidiaries and secured by the assets of FKP Holdings and certain of its affiliates and subsidiaries. The Bridge Intercompany Loan provided for an event of default and acceleration if there was an event of default and acceleration under the Bridge Facility Agreement, but acceleration of the Bridge Intercompany Loan may not occur prior to acceleration of the loans under the Bridge Facility Agreement. By entering into the Bridge Intercompany Loan with FKP Holdings, Fresenius effectively pushed-down its Merger-related borrowings under the Bridge Credit Facility Agreement to FKP Holdings. The Bridge Intercompany Loan bore interest at the rate applicable to the corresponding loan under the Bridge Facility Agreement, plus a margin. In addition, Fresenius SE made two other intercompany loans totaling $456.2 million to FKP Holdings as part of the acquisition. These intercompany loans include fixed interest rates and mature on September 10, 2014. As described below, the original borrowing under the Bridge Facility Agreement was $1.3 billion, $650 million of which was repaid in October 2008 and the remainder of which was repaid in January 2009. Also as described below, the related intercompany loans were refinanced in connection with the repayments made on the Bridge Facility Agreement.

In connection with the intercompany loans described above, Fresenius also pushed-down to the Company approximately $101.1 million in fees and costs incurred in connection with establishing the Senior Credit Facilities Agreement and Bridge Facilities Agreement, the proceeds of which were used to finance the Merger.

Post-Merger Activity

On October 6, 2008, the amount available under the Senior Credit Facilities Agreement was increased to approximately $2.95 billion by increasing the amount of the Tranche B1 Term Loan facility by $483.1 million. On October 10, 2008, the full amount of the increase to the Tranche B1 Term Loan facility under the Senior Credit Facilities Agreement was drawn down. These funds, along with an additional $166.9 million of proceeds from other borrowings were used to repay a portion of the $1.3 billion outstanding under the Bridge Facility Agreement, so that the aggregate amount outstanding under Bridge Facility Agreement, after these repayments, was $650 million. The $650 million repayment of the Bridge Intercompany Loan resulted in the write-off of $13.4 million in related debt issuance costs in the fourth quarter of 2008. These changes to the Senior Credit Facilities Agreement and Bridge Credit Facility Agreement were also reflected in the Senior Intercompany Loans and Bridge Intercompany Loan. The balance of the Bridge Intercompany Loan outstanding at December 31, 2008 was $650.0 million.

On January 21, 2009, the borrower under the Bridge Facility Agreement, which is an affiliate of Fresenius, issued two tranches of notes in a private placement. The issuer sold $500 million aggregate principal amount of fixed interest rate senior notes and €275 million aggregate principal amount of fixed interest rate senior notes. The notes are senior unsecured obligations of the issuer and mature on July 15, 2015. Proceeds of the notes issuance were used among other things, to repay in full the $650 million outstanding under the Bridge Facility Agreement. Upon the repayment of the bridge loan, the Bridge Intercompany Loan was refinanced and replaced with an Intercompany Dollar Loan of $500 million and an Intercompany Euro Loan of €115.7 million. The interest payments for these notes are at fixed interest rates and are due semi-annually on January 15 and July 15. These new intercompany loans are not guaranteed or secured and the principal for both of these loans is due July 15, 2015. As a result of the refinancing, in the first quarter of 2009, the Company wrote-off $14.6 million of Bridge Intercompany Loan unamortized debt issuance costs and incurred debt issuance costs of $67.5 million for the new Intercompany Dollar and Euro loans.

~~During~~A ~~the~~summary ~~second half~~ of ~~2009,~~our ~~the~~external ~~Company~~and ~~restructured certain of its unsecured~~ intercompany ~~loans.~~debt ~~The~~is ~~Company did not receive or pay any cash~~ as afollows result of the $523.1 million, $150 million and $75 million transactions described below. In connection with the restructuring, obligations related to $523.1 million of these unsecured intercompany loans were transferred from Fresenius SE to Fresenius Kabi AG along with the related outstanding accrued interest. The terms of these loans were unchanged (in ~~the transfer. Also, during the second half of 2009, the Company entered into the following unsecured intercompany loans with Fresenius Kabi AG~~thousands): $150 million note of which the proceeds were used to pay down the entire $150 million balance outstanding under the $300 million revolving facility under the Senior Intercompany Loans; $75 million note and a $50 million note of which the proceeds were used to pay down the full amounts outstanding in September and December, respectively, under the APP Pharmaceuticals, LLC revolving credit facility under the Senior Credit Facilities Agreement; and $85 million note of which cash proceeds were received of $73.7 million and were used to pay our December debt costs and $11.3 million resulting from interest and principal payments made on our behalf. Prior to year end the $75 million note and the $150 million note were combined into a $225 million note. The $360 million of unsecured intercompany loans due to Fresenius Kabi AG are at fixed interest rates and have maturity dates of 30 or 60 days. These loans are intended to be extended for the near term and are included in the current portion of intercompany debt in the consolidated balance sheet.

On December 10, 2009 the Company entered into unsecured intercompany loans with Fresenius Kabi AG in the amount of 13 million Euros, $46.3 million and $32.3 million. The proceeds of these loans were used to pay the voluntary principal prepayments on Senior Intercompany Loans Euro Tranche Term B1 Loan of 13 million Euros and Tranche Term B1 Loan of $46.3 million and on APP Pharmaceuticals, LLC senior credit facilities Term Loan B2 of $32.3 million. These Fresenius Kabi AG notes are at fixed interest rates and have a maturity date of September 10, 2014. There was no change to principal maturity dates related to this exchange of notes. The balance of the unsecured intercompany loans at December 31, 2009 was $1,647.2 million.


	December 31, 2010			December 31, 2009
Total external debt		795,219			921,444
Current maturities of external debt		(127,475	)		(76,475	)

Long-term external debt	$	667,744		$	844,969

Internal debt
Intercompany Credit Facilities
Short-term unsecured intercompany loans payable to Fresenius Kabi AG, due in 30 to 60 days from date of issue, with interest at fixed rates	$	309,000		$	360,000
Secured senior intercompany loans payable to a financing subsidiary of Fresenius SE & Co. KGaA, with interest at variable rates based on LIBOR or EURIBOR plus a margin. Term loan B1 and C1 are subject to a minimum rate
Term loan A1, due in semi-annual installments through September 10, 2013		391,000			462,500
Term loan B1, due in equal semi-annual installments with a final balloon payment on September 10, 2014		—			657,742
Term loan C1, due in equal semi-annual installments with a final balloon payment on September 10, 2014		579,313			—
Euro currency term loan B1 (€195.5 million), due in equal semi-annual installments with a final balloon payment on September 10, 2014		—			265,791
Euro currency term loan C1 (€162.5 million), due in equal semi-annual installments with a final balloon payment on September 10, 2014		217,133			—
Unsecured intercompany loans payable to a financing subsidiary of Fresenius SE & Co. KGaA, due July 15, 2015, with interest at fixed rates
US dollar denominated		500,000			500,000
Euro currency denominated (€115.7 million)		154,589			166,668
Unsecured intercompany loans payable to Fresenius Kabi AG, due September 10, 2014, with interest at fixed rates
US dollar denominated		722,826			601,775
Euro currency denominated loans payable (€33.0 million as of December 31, 2010 and €13 million as of December 31, 2009)		44,095			18,728

Total intercompany debt		2,917,956			3,033,204
Current maturities of intercompany debt		(441,302	)		(441,511	)

Long-term intercompany debt	$	2,476,654		$	2,591,693

~~The~~Fresenius ~~following~~Merger—Credit isAgreements ~~the repayment schedule for Term Loans A2 and B2 and the intercompany loans outstanding as of December 31, 2009 (in thousands):~~

	Term Loan A2		Term Loan B2		IntercompanyFresenius		Total
2010	$	71,500	$	4,975	$	441,511	$	517,986
2011		122,500		4,975		132,511		259,986
2012		150,000		4,975		160,011		314,986
2013		118,500		4,975		128,511		251,986
2014		—		439,044		1,503,992		1,943,036
2015 and thereafter		—		—		666,668		666,668
	$	462,500	$	458,944	$	3,033,204	$	3,954,648

On August 20, 2008, in connection with the acquisition of APP, Fresenius entered into various credit arrangements to assist in funding the transaction. These credit facilities included a Senior Credit Facilities Agreement and a Bridge Facility Agreement. Proceeds from borrowings under these credit facilities, together with other available funds provided by Fresenius through equity contributions and loans to FKP Holdings and its subsidiaries, were utilized to complete the purchase of APP on September 10, 2008.

AsThe aSenior ~~result~~Credit ofFacilities Agreement ~~the~~provided ~~use~~Fresenius ofand ~~derivative~~certain ~~instruments,~~of ~~the Company~~its issubsidiaries ~~exposed~~with tovarious ~~counterparty~~ credit ~~risk~~facilities. ~~when~~These ~~these~~include ~~instruments~~two ~~are~~term inloan anfacilities ~~asset~~and ~~position.~~a ~~The~~$150 ~~Company~~million ~~manages~~revolving ~~the counterparty~~ credit ~~risk~~facility byunder ~~entering~~which ~~into~~APP ~~derivative contracts only with its Parent company and its affiliates. As a result~~Pharmaceuticals, ~~as of December 31~~LLC, ~~2009, the Company does not expect to experience any losses as~~ a ~~result~~wholly ofowned ~~default~~subsidiary of ~~its~~APP, is ~~counterparty~~the obligor.

~~Foreign~~Pursuant ~~Currency~~to ~~Contracts:~~the ~~Included~~Senior inCredit ~~our~~Facilities ~~intercompany~~Agreement, ~~borrowings~~FKP ~~are~~Holdings ~~several~~and ~~Euro-denominated~~its ~~notes,~~subsidiaries ~~€197.5 million~~have ~~notes~~entered ~~with~~into various ~~maturities~~secured insenior ~~2014~~intercompany ~~and~~loans awith ~~€115.7 million~~finance ~~note~~subsidiaries ~~with~~of aFresenius ~~maturity~~SE & ~~in 2015~~Co. InKGaA ~~connection with these borrowings~~(collectively, wethe ~~entered~~“Senior ~~into~~Intercompany ~~intercompany~~Loans”), ~~foreign~~the ~~currency~~amount, ~~swap~~maturity ~~contracts~~and inother ~~order~~financial toterms ~~limit~~of ~~our~~which ~~exposure~~correspond to ~~changes~~those inapplicable to ~~current~~the ~~exchange~~loans ~~rates~~provided onto ~~the~~such ~~Euro-denominated~~borrowers ~~notes~~under ~~principal~~the ~~balance~~Senior ~~and~~Credit ~~related~~Facilities ~~future~~Agreement ~~interest~~described ~~payments~~above. WeThe ~~have entered~~Senior ~~into~~Intercompany ~~foreign~~Loans ~~currency~~are ~~swaps~~guaranteed ~~with~~by ~~affiliates~~FKP ofHoldings ~~Fresenius~~and ~~for~~certain ~~the~~of ~~total~~its ofaffiliates ~~the~~and ~~Euro-denominated~~subsidiaries ~~notes~~and ~~principal~~secured ~~balance.~~by ~~These~~the ~~agreements~~assets ~~mature~~of atFKP Holdings ~~various~~and ~~dates~~certain ~~through~~of ~~January~~its ~~2012,~~affiliates and ~~are~~subsidiaries. ~~not~~The ~~designated~~Senior asIntercompany ~~hedging~~Loans ~~instruments~~provide for ~~accounting~~ ~~purposes.~~an ~~During~~event ~~the~~of ~~year~~default ~~ended December 31, 2009~~ and ~~the~~acceleration ~~successor~~if ~~period~~there inis ~~2008,~~an weevent ~~recognized a foreign currency gain~~ of ~~approximately~~default ~~$30.1 million~~ and ~~$4.0~~acceleration ~~million,~~under ~~respectively,~~the inSenior ~~our~~Credit ~~other~~Facilities ~~income~~Agreement, ~~(expense)~~but ~~related~~acceleration of to the ~~change~~ inSenior ~~fair~~Intercompany ~~value~~Loans ofmay ~~these~~not ~~swap~~occur ~~agreements.~~prior ~~These~~to ~~foreign~~acceleration ~~currency~~of ~~gains~~the ~~were~~loans ~~offset~~under ~~by a~~ the ~~$26.2~~Senior ~~million~~Credit ~~and~~Facilities $8Agreement.2 ~~million~~By ~~currency~~entering ~~losses~~into wethe ~~recorded~~Senior inIntercompany ~~2009~~Loans, ~~and~~Fresenius ineffectively ~~the~~pushed-down ~~successor~~its ~~period~~Merger-related interm ~~2008,~~loan inborrowings under ~~order to adjust~~ the ~~carrying~~Senior ~~value~~Credit ofFacilities ~~the Euro-denominated~~Agreement ~~note~~ to ~~reflect~~ the ~~year-end~~FKP ~~exchange~~Holdings ~~rate~~group.

WeThe ~~have~~Senior ~~also~~Credit ~~entered~~Facilities ~~into~~Agreement ~~foreign~~contains ~~currency hedges for the~~a ~~€18.9 million~~number of ~~future~~affirmative ~~cash~~and ~~flows~~negative ~~related~~covenants tothat ~~the~~are ~~interest~~assessed ~~payments~~at ~~due on~~ the ~~€197.5 million~~Fresenius ~~notes~~level ~~through December 12, 2011,~~ and ~~for~~are ~~the~~not ~~€25.4 million~~separately ofassessed ~~future~~at ~~cash~~FKP ~~flows~~Holdings ~~related~~or toits ~~the interest payments on the €115~~subsidiaries.~~7 million~~ ~~note~~The ~~through~~Company’s ~~January 17,~~obligations ~~2012.~~under ~~These~~the ~~foreign~~Senior ~~currency~~Credit ~~agreements~~Facilities ~~have~~Agreement ~~been designated as hedges of our exposure to fluctuations in interest payments on outstanding Euro-denominated borrowings due to changes in Euro/U.S.~~are ~~dollar~~unconditionally ~~exchange~~guaranteed ~~rates~~by (aFresenius ~~cash~~SE & ~~flow hedge)~~Co. ~~The~~KGaA ~~fair value of these foreign currency hedges at December 31, 2009~~ and ~~2008~~certain ~~is an asset~~ of ~~$5.0~~its ~~million and $0.0 million~~subsidiaries, ~~respectively~~ and isare ~~included~~secured inby ~~current~~a ~~prepaid expenses and other current assets and other non~~first-~~current~~priority ~~assets,~~security ~~net~~interest in ~~our~~substantially ~~consolidated~~all ~~balance~~tangible ~~sheet. During the year ended December 31, 2009~~ and ~~the~~intangible ~~successor~~assets ~~period~~of inAPP ~~2008~~Pharmaceuticals, ~~we recognized a foreign currency gain of $5~~Inc.0 ~~million~~ and ~~$0.0 million~~APP Pharmaceuticals, ~~respectively, in other comprehensive income (loss)~~LLC.

Interest Rate Swaps: On November 3, 2008, we entered into four interest rate swap agreements with Fresenius for an aggregate notional principal amount of $900 million. These agreements require us to pay interest at an average fixed rate of 3.97% and entitle us to receive interest at variable rate equal to threePost-~~month LIBOR~~Merger onActivity the notional amount. The interest rate swaps expire in October 2011 and December 2013. These swaps have been designated as hedges of our exposure to fluctuations in interest payments on outstanding variable rate borrowings due to changes in interest rates (a cash flow hedge). The fair value of these interest rate swap agreements at December 31, 2009 and 2008 is a liability of $53.2 million and $69.3 million, respectively, and is included in long-term liabilities in our consolidated balance sheets. As noted above the Company entered into derivative contracts with its Parent, who pushed down the interest rate swap agreements to the Company. From inception of the agreements to the time the interest rate swaps were transferred to the Company the Parent recognized $15.9 million in losses in other comprehensive income (loss). From the time the interest rate swap agreements were transferred to the Company through December 31, 2009, we recorded a deferred loss of $22.3 million, net of tax benefit of $14.1 million, in other comprehensive income (loss) and recognized $0.9 million, in intercompany interest expense, which represented the amount of hedge ineffectiveness.

~~The~~In ~~CVRs~~October 2008, the amount available under the Senior Credit Facilities Agreement was increased and the full amount of the increase to the facility was drawn down. These funds, along with an additional $166.9 million of proceeds from other intercompany borrowings were used to repay a portion of the balance outstanding under the Bridge Facility Agreement. On January 21, 2009, the borrower under the Bridge Facility Agreement, which is an affiliate of Fresenius, issued two tranches of notes in a private placement. Proceeds of the notes issuance were used, among other things, to repay in full the balance outstanding under the Bridge Facility Agreement. Upon the repayment of the bridge loan, the Bridge Intercompany Loan was refinanced and replaced with an Intercompany Dollar Loan of $500 million and an Intercompany Euro Loan of €115.7 million. These new intercompany loans are not guaranteed or secured. As a result of the refinancing, in the first quarter of 2009, the Company wrote-off $14.6 million of Bridge Intercompany Loan unamortized debt issuance costs and incurred debt issuance costs of $67.5 million for the new Intercompany Dollar and Euro loans.

InOn ~~connection with the Merger,~~ each ~~APP shareholder was issued one contingent value right~~ of ~~FKP Holdings. The CVRs are intended to give holders an opportunity to participate in any excess Adjusted EBITDA~~December 10, as2009 ~~defined~~and ~~in the CVR Indenture, generated during the three years ending December~~February 3110, 2010, ~~referred to as~~ the Company ~~“CVR~~entered ~~measuring~~into ~~period,”~~three inunsecured ~~excess~~intercompany ofloans awith ~~threshold~~Fresenius ~~amount.~~Kabi ~~Each~~AG ~~CVR~~in ~~represents~~ the ~~right~~amounts ~~to receive a pro rata portion~~ of an€13 million, ~~amount equal to 2~~$46.53 ~~times~~million ~~the amount by which cumulative Adjusted EBITDA of APP~~ and ~~FKP Holdings and their subsidiaries on a consolidated basis, exceeds~~ $132.~~267~~3 ~~billion~~million ~~for~~and ~~the three years ending December~~€20 31million, ~~2010~~$71.3 ~~The~~million ~~maximum~~and ~~amount payable under the CVR Indenture is~~ $649.~~00 per~~8 ~~CVR. If Adjusted EBITDA for the CVR measuring period does not exceed this threshold amount~~million, ~~no amounts will be payable on the CVRs and the CVRs will expire valueless~~respectively. ~~The~~These ~~cash~~loans ~~payment on the CVRs, if any, will be determined after~~replaced ~~December 31,~~Senior ~~2010,~~Intercompany ~~and~~Loans ~~will be payable June 30, 2011, except in the case~~ of alike ~~change~~amounts. ofThese ~~control~~Fresenius ofKabi ~~FKP~~AG ~~Holdings,~~notes ~~which~~bear ~~may~~fixed ~~result~~interest ~~in an acceleration of any payment~~rates. ~~The~~There ~~acceleration~~was ~~payment,~~no ~~if any, is payable within six months after the~~ change ~~of control giving rise~~ to ~~the~~principal ~~acceleration~~maturity ~~payment.~~dates ~~Because any amount payable to the holders of CVRs must be settled in cash, the CVRs are classified~~ as ~~liabilities~~a inresult ~~the consolidated financial statements. The estimated fair value~~ of ~~the CVRs~~this atexchange ~~the date~~ of ~~acquisition was included in the cost of the acquisition~~notes. At each reporting date, the CVRs are marked-to-market based on the closing price of a CVR as reported by NASDAQ, and the change in the fair value of the CVRs for the reporting period is included in operations.

~~Assuming~~On March 18, 2010, the ~~Adjusted~~2008 ~~EBITDA~~Senior ~~threshold~~Credit isFacilities ~~met~~Agreement was amended, ~~the~~and ~~maximum~~Term ~~amount~~Loan ~~payable~~B, ~~under~~consisting of APP’s Term Loan B2 ~~the~~and ~~CVR~~Term ~~Indenture~~Loan isB1 ~~$979~~were replaced with a lower interest bearing Term Loan C, consisting of APP’s Term Loan C2 and Term Loan C1.5 ~~million~~There was no change to principal amount outstanding as a result of this exchange of notes. ~~Such~~The ~~payment,~~amendments ifto ~~any~~the 2008 Senior Credit Agreement also modified certain of the financial covenants, ~~would~~which beare ~~due~~measured onat ~~June~~the consolidated Fresenius SE 30& Co. KGaA level, ~~2011~~as defined in the agreement. InAs a result of the ~~event~~debt ~~that~~replacement ~~such~~in athe ~~payment~~first isquarter ~~required~~of 2010, the weCompany ~~would~~incurred ~~likely~~debt ~~need~~issuance tocosts ~~seek~~of ~~financing~~$13.7 ~~from~~million ~~either~~for anthe ~~external~~Term ~~source~~Loan orC, ~~Fresenius~~of which $12.2 million was paid directly by the Company and ~~its~~$1.5 ~~affiliates~~million ~~in order~~was topushed ~~satisfy~~down from the ~~obligation~~Parent.

~~The~~Subsequent ~~CVRs~~to ~~do not represent equity, or voting securities of FKP Holdings, and they do not represent ownership interests in FKP Holdings. Holders of~~ the ~~CVRs~~period ~~are~~ended ~~not entitled to any rights of a stockholder or other equity or voting securities of FKP Holdings~~September 30, ~~either at law or in equity. Similarly~~2010, ~~holders of CVRs are not entitled to any dividends declared or paid with respect to any equity security of FK Holdings. A holder of a CVR is entitled only to those rights set forth in~~ the ~~CVR~~Company ~~indenture.~~replaced ~~Additionally,~~ the ~~right~~outstanding toTarget ~~receive~~Revolver ~~amounts~~with ~~payable~~fixed ~~under~~rate ~~the CVRs, if any, is~~unsecured ~~subordinated~~intercompany tonotes ~~all~~with ~~senior~~Fresenius ~~obligations~~Kabi ofAG ~~FKP~~which ~~Holdings.~~mature ~~The CVRs trade on NASDAQ under the symbol “APCVZ”~~monthly.

~~Under the~~There ~~terms~~was ofno ~~the~~amount ~~CVR~~outstanding ~~Indenture,~~under the ~~amount,~~target ifrevolver ~~any, payable in respect of each CVR on June~~at December 3031, ~~2011~~2010 isand ~~determined based on Adjusted EBITDA~~2009. AsThe afollowing ~~result,~~is inthe ~~addition~~repayment toschedule ~~reporting~~for ~~financial~~Term ~~results~~Loans inA2 ~~accordance with generally accepted accounting principles (“GAAP”), FKP Holdings also must calculate~~ and ~~present Adjusted EBITDA~~C2, ~~which is a non-GAAP financial measure, for~~ the ~~cumulative~~target ~~period~~revolver ~~from~~and ~~January 1, 2008 to~~ the ~~current~~intercompany ~~reporting~~loans ~~date~~outstanding ~~until~~as ~~the expiration~~ of ~~the CVR measurement period (~~December 31, 2010) ~~and~~(in ~~settlement~~thousands): ~~of the CVRs.~~


	Term Loan A2		Term Loan C2		Target Revolver		Intercompany Fresenius		Total
2011	$	122,500	$	4,975	$	—	$	441,302	$	568,777
2012		150,000		4,975		—		159,802		314,777
2013		118,500		4,975		—		128,303		251,778
2014		—		389,294		—		1,533,958		1,923,252
2015		—		—		—		654,589		654,589

	$	391,000	$	404,219	$	—	$	2,917,953	$	3,713,173

Derivatives

The Company does not engage in the trading of derivative financial instruments except where the Company’s objective is to manage the variability of forecasted inventory purchases due to changes in foreign currency exchange rates, and the variability of payments of principal and interest attributable to changes in interest or foreign currency exchange rates. In general, the Company enters into derivative transactions in limited situations based on management’s assessment of current market conditions and perceived risks.

As a result of the use of derivative instruments, the Company is exposed to counterparty credit risk when these instruments are in an asset position. The Company manages the counterparty credit risk by entering into derivative contracts only with its Parent company and its affiliates. As a result, as of December 31, 2010, the Company does not expect to experience any losses as a result of default of its counterparty.

Foreign Currency Contracts: Included in our intercompany borrowings are several Euro-denominated notes, including €195.5 million notes with a maturity in 2014 and a €115.7 million note with a maturity in 2015. In connection with these borrowings, we entered into intercompany foreign currency swap contracts in order to limit our exposure to changes in current exchange rates on

~~The~~ the ~~calculation~~Euro-denominated notes principal balance. We have entered into foreign currency swaps with affiliates of ~~Adjusted~~Fresenius ~~EBITDA~~for ~~under~~the total of the ~~CVR~~Euro-denominated ~~Indenture~~notes principal balance. These agreements mature at various dates through January 2012, and are not designated as hedging instruments for accounting purposes. During the year ended December 31, 2010, 2009 and the ~~cumulative~~successor period ~~from~~in ~~January 1~~2008, ~~2008~~we torecognized ~~December~~ a foreign currency (loss)/gain of approximately ($31.9) million, ~~2009~~$30.1 ismillion asand ~~follows~~$4.0 million, respectively, in our other income (expense) related to the change in ~~thousands~~fair value of these swap agreements. These foreign currency (losses):/gains were offset by $32.6 million, ($26.2) million and ($8.2) million in currency gains/(losses) we recorded in 2010, 2009 and in the successor period in 2008, in order to adjust the carrying value of the Euro-denominated notes to reflect the year-end exchange rate.

	For the twelve monthPeriod BeginningJanuary 1, 2009 andEnding December 31, 2009			For the CumulativePeriod BeginningJanuary 1, 2008 andEnding December 31, 2009
EBITDA CALCULATION:
Net loss	$	(30,385	)	$	(333,287	)
Interest expense (net of interest income)		332,044			494,891
Income tax benefit		(17,450	)		(3,525	)
Depreciation		17,821			37,219
Amortization		38,185			481,928
EBITDA	$	340,215		$	677,226
Reconciliation to Adjusted EBITDA:
Stock compensation		360			6,129
Merger and separation related costs		1,447			48,754
Puerto Rico costs		9,535			32,802
Technology transfer costs		1,019			2,098
Change in fair value of contingent value rights		(8,163	)		(109,379	)
Other taxes		518			1,386
Loss on sale of fixed assets		260			342
Consulting fees		400			600
Foreign currency gain		(4,036	)		(2,474	)
Puerto Rico closure costs		5,778			5,778
Other charges (credits), net		(489	)		297
Adjusted EBITDA – per CVR Indenture	$	346,844		$	663,559

We have also entered into foreign currency hedges for the €6.3 million of future cash flows related to the interest payments due on the €195.5 million notes through October 2012, and €15.2 million of future cash flows related to the interest payments on the €115.7 million note through January 2012. These foreign currency agreements have been designated as hedges of our exposure to fluctuations in interest payments on outstanding Euro-denominated borrowings due to changes in Euro/U.S. dollar exchange rates (a cash flow hedge).

~~FKP~~During ~~Holdings~~the ~~believes~~second ~~that~~quarter ~~its~~of ~~presentation~~2010, ofwe ~~these~~entered ~~non-GAAP~~into ~~financial~~foreign ~~measures~~currency isforward ~~consistent~~contracts ~~with~~for ~~the requirements~~€22.7 million of ~~the~~future ~~CVR~~cash ~~Indenture~~flows related ~~and~~to ~~also~~certain ~~provides~~forecasted ~~useful~~inventory ~~supplementary~~purchases ~~information~~from toJuly ~~help~~2010 ~~investors~~through inJune ~~understanding~~2011. ~~the~~These ~~underlying~~foreign ~~operating~~currency ~~performance~~agreements ~~and~~have ~~cash~~been ~~generating~~designated ~~capacity~~as hedges of ~~the~~our ~~Company.~~exposure ~~The~~to ~~calculation~~fluctuations isin ~~based~~future onpayments ~~the~~related ~~interpretation of~~to ~~the~~these ~~definition~~forecasted ofpurchases ~~Adjusted~~due ~~EBITDA~~to changes ~~set~~in ~~forth~~Euro/U.S. indollar ~~the~~exchange ~~CVR~~rates ~~Indenture~~(a bycash ~~management~~flow ofhedge). ~~FKP~~At ~~Holdings~~December 31, ~~and~~2010 ~~the~~we ~~final~~have ~~determination~~€13.8 million of ~~Adjusted~~outstanding ~~EBITDA~~foreign ~~under~~currency ~~the~~forward ~~CVR~~contracts ~~Indenture~~related ~~is subject~~ to the ~~terms~~forecasted ~~of the CVR Indenture~~transactions.

~~FKP~~Interest ~~Holdings~~Rate ~~does~~Swaps: ~~use~~On ~~these~~November 3, ~~non-GAAP~~2008, ~~financial~~we ~~measures~~entered ~~internally~~into four interest rate swap agreements with Fresenius for ~~operating~~an aggregate notional principal amount of $900 million, ~~budgeting~~(the ~~and~~“2008” ~~financial~~interest ~~planning~~rate ~~purposes~~swaps”). ~~and~~These ~~also believes~~agreements ~~that~~require ~~its~~us ~~presentation~~to ofpay ~~these~~interest ~~non-GAAP~~at ~~financial~~an ~~measures~~average ~~can~~fixed ~~assist~~rate ~~management~~of 3.97% and ~~investors~~entitle inus ~~assessing~~to receive interest at a variable rate equal to three-month LIBOR, which is equal to the ~~financial~~benchmark ~~performance~~for ~~and~~the ~~underlying~~term ~~strength~~A ofLoans ~~its~~being ~~core~~hedged, ~~business~~on the notional amount. The ~~non-GAAP~~2008 ~~financial~~interest ~~measures~~rate ~~presented~~swaps byexpire ~~FKP~~in ~~Holdings~~October 2011 and December 2013. During the third quarter of 2010 we entered into six additional ~~may~~interest ~~not~~rate beswap ~~comparable~~agreements with Fresenius for an aggregate principal amount of $600 million, (the “2010 interest rate swaps”). These swap agreements require us to ~~similarly~~pay ~~titled~~interest ~~measures~~at ~~reported~~an byaverage ~~other~~fixed ~~companies~~rate of 2.16% ~~The~~and ~~non-GAAP~~entitle ~~financial~~us ~~measures~~to ~~are~~receive interest inat ~~addition~~a variable rate equal to three-month LIBOR, ~~and~~subject ~~not~~to a ~~substitute~~minimum ~~for~~LIBOR, orwhich ~~superior~~is equal to the benchmark rate for the Term C Loan being hedged, ~~measures~~on the notional amount. The 2010 interest rate swaps expire on September 10, 2014 and all interest rate swaps have been designated as hedges of ~~financial~~our ~~performance~~exposure ~~calculated~~to fluctuations in ~~accordance~~interest ~~with~~payments ~~GAAP~~on outstanding variable rate borrowings due to changes in interest rates (a cash flow hedge).

Capital Requirements

Our future capital requirements will depend on numerous factors, including:

•

the obligations placed upon our company from our credit agreements discussed above, including any debt covenants related to those obligations;

•

working capital requirements and production, sales, marketing and development costs required to support our business;

•

the need for manufacturing expansion and improvement;

•

the transfer of products from our Puerto Rico to Raleigh and Grand Island manufacturing facilities;

• the requirements related to the settlement of the CVRs in 2011, if any;

•

the requirements of any potential future acquisitions, asset purchases or equity investments; and

•

the amount of cash generated by operations, including potential milestone and license revenue.

We anticipate that available cash and short-term notes receivable, cash generated from operations, and funds available under our credit facility or through borrowings or capital contributions from Fresenius, our parent, will be sufficient to finance our operations, including ongoing product development and capital expenditures for at least the next twelve months. In the event we engage in future acquisitions or capital projects, we may have to raise additional capital through additional borrowings or through additional intercompany debt. Fresenius has committed to the Company that it will provide financial support to FKP Holdings sufficient for it to satisfy its obligations and debt service requirements arising under all existing financing instruments entered into in connection with the Merger, and to which the Company is a party, as they come due until at least January 1, ~~2011~~2012.

As described above, we are responsible for servicing the debt of $0.9 billion incurred in connection with the Merger, as well as to pay the principal and interest on the outstanding intercompany debt of $3.0 billion with funds generated by our operations. We expect that our funds generated by operations will be sufficient to satisfy all of our debt obligations, however it is likely that we will need to request that Fresenius refinance certain of our intercompany obligations, including those coming due in ~~2010~~2011, in order to extend their maturities.

Our ability to meet our debt service obligations will depend on our future performance, which will be affected by financial, business, economic and other factors, including potential changes in customer preferences, the success of product and marketing innovations and pressure from competitors. If we do not have enough money to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell assets or borrow more money. We may not be able to, at any given time, refinance this debt, sell assets or borrow more money on terms acceptable to us or at all, the failure to do any of which could have adverse consequences for our business, financial condition and results of operations.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual obligations represent future cash commitments and liabilities under the amount and/or timing of agreements with third parties and intercompany agreements, and exclude contingent liabilities for which we cannot reasonably predict the amount and/or timing of future payment. The following information summarizes our contractual obligations and other commitments, including credit facilities and operating leases, as of December 31, ~~2009~~2010:

	Payments due by period
Contractual Obligations	Total		~~Less than1 year~~	Less than1 year		~~1-3 years~~		1-3 years	~~3-5 years~~		~~More~~3-5 ~~than5~~ years		More than5 years
	(in thousands)
Term Loans A2 and B2 and intercompany loans principal repayments (excluding interest)	$	3,954,648	$	517,986		$	574,972		$	2,195,022	$	666,668
Term Loans A2 and C2 and intercompany loans principal repayments (excluding interest)	$	3,713,173		$	568,777			$	566,555		$	2,577,841	$	—
Operating lease obligations		1725,~~028~~893		~~7,231~~	7,236		~~5,193~~		6,432	~~3,167~~		14,~~437~~579		7,646
Total	$	3,~~971~~739,~~676~~066	$	~~525,217~~$	576,013	$	~~580,165~~	$	$572,987	~~2,198,189~~	$	~~668~~2,~~105~~582,420	$	7,646

Obligations related to interest on debt, ~~the settlement of the Contingent Value Rights~~ and liabilities for uncertain tax positions are not included in the table above because the timing and amount of any required payments cannot be reasonably estimated.

We do not currently have any off-balance sheet arrangements that are material or reasonably likely to be material to our financial position or results of operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires ~~management~~ management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates in our consolidated financial statements are discussed below. Actual results could vary from these estimates.

Revenue Recognition

Product Revenue Recognition

We recognize revenue from the sale of a product and for contract manufacturing when title and risk of loss have transferred to the customer, collection is reasonably assured and we have no further performance ~~obligation~~obligations. This is typically when the product is received by the customer. At the time of sale, as further described below, we reduce sales and ~~provide~~ provide for estimated chargebacks, contractual allowances or customer rebates, product returns and customer credits and cash discounts. These provisions are established based on consideration of such factors as our historical experience, estimated and actual customer inventory levels, the terms of customer rebate arrangements, and current contract sales terms with wholesalers and end-user customers, among others. We have extensive, internal historical information on chargebacks, rebates and customer returns and credits which we use as ~~the primary factor~~ in determining the related provision and reserve requirements. As further described below, due to the nature of our generic injectable products and their primary use in hospital and clinical settings with generally consistent demand, we believe that this internal historical data, in conjunction with ~~periodic~~ review of available third-party data, provides a reliable basis for such estimates. In 2009, we ~~revised~~continued to revise our methodology to estimate certain of our sales provisions to reflect the availability of new information. Accruals for sales provisions are presented in our financial statements as a reduction of revenue and accounts receivable or, in the case of contractual allowances, an increase in accrued liabilities. We regularly review information related to these estimates and adjust our reserves accordingly if, and when, actual experience differs from estimates.

We periodically review the wholesale supply levels of our more significant products by reviewing inventory reports purchased or available from wholesalers, evaluating our unit sales volumes, and assessing data from third-party market research firms and our periodic visits to wholesaler warehouses. Based on this information, we attempt to keep a consistent wholesale stocking level of approximately two- to six-weeks across our hospital-based products. The buying patterns of our customers do vary from time to time, both from customer to customer and product to product, but we do not believe that variances in our historic wholesale stocking levels or speculative buying activity in our hospital-based distribution channels has had a significant impact on our historic sales comparisons or sales provisions.

Sales Provisions

Our sales provisions totaled $1,~~478~~178.53 million, $1,~~222~~478.05 million, and $1,~~080~~222.10 million , for the ~~year~~years ended December 31, 2010, 2009, and the combined 2008 year period ~~and the year ended December 31~~, ~~2007,~~ respectively, and related reserves totaled $~~173~~139.51 million, and $~~176~~173.54 million at December 31, ~~2009~~2010 and ~~2008~~2009, respectively.

Chargebacks

Following industry practice, we typically sell our products to independent pharmaceutical wholesalers at wholesale list price. These wholesalers in turn sell our products to an end user, normally a hospital or alternative healthcare facility, at a lower contractual price previously established between the end user and us via a group purchasing organization, or GPO. GPOs enter into collective purchasing contracts with pharmaceutical suppliers to secure more favorable product pricing on behalf of their end-user members.

Our initial sale to the wholesaler, and the resulting receivable, are recorded at our wholesale list price. However, as our agreements with our wholesalers specify that they are entitled to a credit for the difference between the wholesale list price and the lower end-user contract price, we reduce reported sales and receivables by the difference between the wholesale list price and the estimated end-user contract price by recording a chargeback provision and reserve at the time of sale. When the wholesaler ultimately sells the product to the end user at the end-user contract price, the wholesaler charges us, via a chargeback, for the difference between the wholesale list price and the end-user contract price and such chargeback is offset against the chargeback reserve established at the time of sale. On a monthly basis, we compare our recorded chargeback reserve to our estimate of the net proceeds we will realize from the wholesaler based on the estimated ending wholesale units in the distribution channel pending chargeback and the estimated end-user selling price of those units and adjust the chargeback provision as necessary.

~~The determination of the estimated provision for chargebacks and the related reserve~~ requires us to make significant estimates and judgments. The most significant estimates inherent in the measurement of the initial chargeback provision relate to the proportion of wholesale units that will ultimately be sold to an end-user ~~with a lower-price contractual relationship with us, and the ultimate end-user~~ contract-selling price we will realize when those units are sold. We base our estimates of these factors primarily on internal, product-specific sales and chargeback processing experience, estimated wholesaler inventory stocking levels, current contract pricing, IMS data and our expectation for future contract pricing changes. In our monthly assessment of the adequacy of our recorded chargeback reserve, we consider these same factors in estimating the ending wholesale units in the distribution channel pending chargeback and the net proceeds we will realize from the wholesaler. The amount of product in the channel is comprised of product at the distributor and product that the distributor has sold to an end-user, but has yet to report as end user sales. Accordingly, in estimating the ending wholesale units in the distribution channel pending chargeback, we also must make assumptions about the time lag between the date the product is sold to the wholesaler and the date the wholesaler sells the product to the end-user customer, and between the sale date and the date that sale is reported to us enabling us to process the chargeback. Physical inventory in the channel is based on inventory data received from certain of our wholesalers; for others it is estimated based on evaluation of our monthly sales to our wholesalers and our knowledge of inventory turnover at our major wholesalers. We estimate end user sales made but not yet reported to us based on either actual chargebacks processed in the following month or the historical average number of days to process a chargeback from the date of the end user sale. Our estimate of the chargeback provision and reserve could also be impacted by a number of market conditions that are beyond our control, including: competitive pricing, competitive products and changes impacting demand in both the distribution channel and at the level of the healthcare provider. We regularly review information related to these estimates and adjust our provisions and reserves accordingly if, and when, actual experience differs from our estimates.

Our net chargeback reserve totaled $~~129~~89.05 million and $~~143~~129.30 million at December 31, ~~2009~~2010 and ~~2008~~2009, respectively. ~~Based~~Due onto information constraints in the ~~availability~~ distribution channel, it has not been practical, and has not been necessary, for us to capture and quantify the impact of ~~new~~current ~~information~~versus ~~regarding~~prior ~~inventory~~year inactivity on the ~~wholesale~~chargeback provision. Information constraints within the distribution channel ~~and~~primarily relate to our inability to track product through the ~~chargeback~~channel ~~processing~~on ~~lag~~a unit or specific lot basis. In addition, for the most part, we ~~revised~~do not receive information from our ~~methodology~~customers with respect to the level of their sales that are subject to chargeback. The lack of information on a specific lot basis precludes us from tracking actual chargeback activity to the period of our initial sale. As a result, we rely on internal data, external wholesaler and IMS data and management estimates in order to estimate the amount of product in the channel subject to future chargeback. ~~reserve~~We also review current year chargeback activity to determine whether material changes in ~~2009~~the provision relate to prior period sales; such changes have not been material to our consolidated statements of operations. ~~This~~A ~~change~~one percent decrease in ~~estimate~~our ~~reduced~~estimated end-user contract-selling prices would reduce total net revenue for the ~~estimated~~year ended December 31, 2010 by $0.7 million ~~chargeback~~and ~~reserve~~a one percent increase in wholesale units pending chargeback at December 31, ~~2009~~2010 bywould ~~approximately~~decrease total net revenue for the year ended December 31, 2010 by $50.5 7 million.

~~Due~~Contractual ~~to information constraints in the distribution channel~~Allowances, itFee ~~has~~for ~~not been practical~~Service, ~~and~~Returns ~~has not been necessary, for us to capture~~ and quantify the impact of current versus prior year activity on the chargeback provision. Information constraints within the distribution channel primarily relate to our inability to track product through the channel on a unit or specific lot basis. In additionCredits, ~~for~~Cash ~~the most part~~Discounts, weMedicaid do not receive information from our customers with respect to the level of their sales that are subject to chargeback. The lack of information on a specific lot basis precludes us from tracking actual chargeback activity to the period of our initial sale. As a result, we rely on internal data, external wholesaler and ~~IMS~~Bad ~~data~~Debts and management estimates in order to estimate the amount of product in the channel subject to future chargeback. We also review current year chargeback activity to determine whether material changes in the provision relate to prior period sales; such changes have not been material to our statements of operations. A one percent decrease in our estimated end-user contract-selling prices would reduce total net revenue for the year ended December 31, 2009 by $0.9 million and a one percent increase in wholesale units pending chargeback at December 31, 2009 would decrease total net revenue for the year ended December 31, 2009 by $0.8 million.

~~Contractual~~Our ~~Allowances,~~net ~~Fee~~reserve for ~~Service~~other sales provisions totaled $49.6 million and $44.5 million at December 31, ~~Returns~~2010 and ~~Credits~~2009, ~~Cash~~respectively. Contractual ~~Discounts~~allowances, which generally consist of rebates or administrative fees, are offered to certain wholesale customers, GPOs and ~~Bad~~end-user ~~Debts~~customers consistent with pharmaceutical industry practices. Settlement of rebates and fees due to customers generally occurs between one to fifteen (15) months from the date of sale. We establish an estimated reserve for contractual allowances at the time of sale based on the historical relationship between sales and such allowances. Upon receipt of request for credit, we establish a specific liability for the fees or rebates due to the customer based on the specific terms of each agreement by adjusting our original estimate.

Our net reserve for other sales provisions totaled $44.5 million and $33.2 million at December 31, 2009 and 2008, respectively. Contractual allowances, which generally consist of rebates or administrative fees, are offered to certain wholesale customers, GPOs and end-user customers consistent with pharmaceutical industry practices. Settlement of rebates and fees due to customers generally occurs between one to fifteen (15) months from the date of sale. We establish a general reserve for contractual allowances at the time of sale based on the historical relationship between sales and such allowances. Upon receipt of request for credit, we establish a specific liability for the fees or rebates due to the customer based on the specific terms of each agreement.

From time to time we enter into inventory management agreements with our wholesale customers which require us to pay a fee in connection with their distribution of our products or their performance of other services, including for example providing us with sales data and performing other services and contractual rights for us. In addition, we may be required to enter into such agreements in the future in order to maintain our relationships with other such wholesalers. We are unable to ascertain the potential impact of the terms of any such future agreements on our sales, but do not believe that such future agreements would result in a substantial change in wholesale stocking levels of our products as compared to current levels.

Consistent with industry practice, our return policy permits our customers to return products within a window of time before and after the expiration of product dating. We provide for product returns and other customer credits at the time of sale by applying historical experience factors, generally based on historic data on credits issued by credit type or product, relative to related sales and we provide specifically for identified outstanding returns and credits in the period in which they become known.

We generally offer our customers a standard cash discount on our hospital-based products for prompt payments and, from time-to-time, may offer an additional discount and/or extended terms in support of product launches or other promotional programs. A provision for cash discounts is established at the time of sale based on the terms of sale and adjusted for historical experience factors regarding the level of cash discount taken.

We establish a reserve for bad debts based on general and identified customer credit exposure. Our actual losses due to bad debts were less than $0.2 million in each of 2010, 2009 and 2008.

We establish a reserve for bad debts based on general and identified customer credit exposure. Our actual losses due to bad debts were less than $0.2 million in each of 2009, 2008 and 2007.

Inventories

Inventories consist of products currently approved for marketing and costs related to certain products that are pending regulatory approval. From time to time, we capitalize inventory costs associated with products prior to regulatory approval based on our judgment of probable future regulatory approval, commercial success and realizable value. Such judgment incorporates our knowledge and best judgment of where the product is in the regulatory review process, our required investment in the product, market conditions, competing products and our economic expectations for the product post-approval relative to the risk of manufacturing the product prior to approval. If final regulatory approval for such products is denied or delayed, we revise our estimates and judgments about the recoverability of the capitalized costs and, where required, provide reserves for or write-off such inventory in the period those estimates and judgments change.

We routinely review our inventory and establish reserves when the cost of the inventory is not expected to be recovered or the cost of a product exceeds estimated net realizable value. In instances where inventory is at or approaching expiration, is not expected to be saleable based on our quality and control standards or is selling for a price below cost, we reserve for any inventory impairment based on the specific facts and circumstances. Provisions for inventory reserves are reflected in the consolidated financial statements as an element of cost of sales; inventories are presented net of related reserves.

Income taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating loss and capital loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated financial statements in the period that includes the legislative enactment date.

In determining our current income tax provision, we assess temporary differences resulting from differing treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded in our consolidated balance sheets. When we maintain deferred tax assets, we must assess the likelihood that these assets will be recovered through adjustments to future taxable income. To the extent we believe recovery is not likely, we establish a valuation allowance. We record an allowance reducing the asset to a value we believe is more likely than not to be recoverable based on our expectation of future taxable income. The accounting estimate related to the valuation allowance is susceptible to change from period to period as it requires management to make assumptions about our future income over the lives of the deferred tax assets. Forecasting future income requires us to use judgment. In estimating future income, we use our internal operating budgets and long-range planning projections. We develop our budgets and long-range projections based on recent results, trends, economic and industry forecasts influencing our performance, and planned timing of new product launches, among other factors. Significant changes in the expected realization of the deferred tax asset would require that we adjust the valuation allowance applied against the gross value of our total deferred tax assets, resulting in a change to net income.

As of ~~December 31,~~ 2008, we estimated that it is not likely that we will generate future taxable income in certain jurisdictions in which we have cumulative net operating losses and, therefore, we had provided a valuation allowance against the related deferred tax assets. Specifically, in August 2008, our predecessor determined that it could not conclude that it was more likely than not that tax benefits related to carryovers of net operating losses in Puerto Rico would be realized. Accordingly, APP recorded a valuation allowance of $1.0 million as of December 31, ~~2008. This amount represented the entire deferred tax asset resulting from the Puerto Rican loss carryovers. Because of the decision to shut down the Puerto Rican plant in September 2009~~2010, ~~the~~management ~~deferred tax asset relating to the net operating losses in Puerto Rico was written off, as was the related valuation allowance. There was no net effect to income tax expense. Management~~ believes that all ~~other~~ deferred tax assets are more likely than not to be fully realized.

Our company is subject to tax audits in numerous jurisdictions in the U.S. as well as in Canada and Puerto Rico. Tax audits by their very nature are often complex and can require several years to complete. In the normal course of business, we are subject to challenges from the IRS and other tax authorities regarding amounts of taxes due. These challenges may alter the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. The benefits of tax positions that are more likely than not of being sustained upon audit based on the technical merits of the tax position are recognized in the consolidated financial statements; positions that do not meet this threshold are not recognized. For tax positions that are at least more likely than not of being sustained upon audit, the largest amount of the benefit that is more likely than not of being sustained is recognized in the consolidated financial statements.

In evaluating our unrecognized tax positions, we consider a variety of factors, including the technical merits of our tax positions, new and changing interpretations of tax laws and regulations, and the status of any pending or potential examinations of our tax returns by the applicable tax authorities. APP and its subsidiaries file income tax returns in the US Federal jurisdiction, Canada, Puerto Rico, and various state jurisdictions. APP is currently under Federal income tax examination for its 2008 and 2009 tax years. APP is also currently under state income tax examinations in California, Illinois, New York and North Carolina for various tax years. Although not currently under examination or audit, APP’s Canadian income tax returns for the 2005 through 2009 tax years, its Puerto Rican income tax returns for 2006 through 2009 tax years and its state income tax returns for the 2003 through 2009 tax years remain open for possible examination by the appropriate governmental agencies. There are no other open federal, state, or foreign government income tax audits at this time.

As of December 31, 2010, the total amount of gross unrecognized tax benefits, which are reported in other liabilities in our consolidated balance sheet, was $19.8 million. This entire amount would impact income tax expense if recognized. In addition, we accrue interest and any necessary penalties related to unrecognized tax positions in our provision for income taxes. For the twelve months ended December 31, 2010, $0.5 million of such interest was accrued.

In evaluating our unrecognized tax positions, we consider a variety of factors, including the technical merits of our tax positions, new and changing interpretations of tax laws and regulations, and the status of any pending or potential examinations of our tax returns by the applicable tax authorities. APP and its subsidiaries file income tax returns in the US Federal jurisdiction, Canada, Puerto Rico, and various state jurisdictions. APP is currently under Federal income tax examination for its 2006 and 2007 tax years. APP is also currently under state income tax examinations in California, Illinois, New York and North Carolina for various tax years. Although not currently under examination or audit, APP’s US federal income tax return for 2008, its Canadian income tax returns for the 2005 through 2008 tax years, its Puerto Rican income tax returns for the 2006 through 2008 tax years and its state income tax returns for the 2003 through 2008 tax years remain open for possible examination by the appropriate governmental agencies. There are no other open federal, state, or foreign government income tax audits at this time.

As of December 31, 2009, the total amount of gross unrecognized tax benefits, which are reported in other liabilities in our consolidated balance sheet, was $17.2 million. This entire amount would impact income tax expense if recognized. In addition, we accrue interest and any necessary penalties related to unrecognized tax positions in our provision for income taxes. For the twelve months ended December 31, 2009, $0.4 million of such interest was accrued.

Impairment of long-lived assets

We test long-lived assets, such as property, plant, and equipment and purchased intangibles subject to amortization, for recoverability when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Examples of events or circumstances that may be indicative of impairment include:

•

A significant adverse change in legal factors or in the business climate that could affect the value of the asset, including, by way of example, a successful challenge of our patent rights resulting in generic competition earlier than expected.

•

A significant adverse change in the extent or manner in which an asset is used, including, by way of example, restrictions imposed by the FDA or other regulatory authorities that affect our ability to manufacture or sell a product.

•

A projection or forecast that demonstrates losses associated with an asset, including, by way of example, a change in a government reimbursement program that results in an inability to sustain projected product revenues or profitability or the introduction of a competitor’s product that results in a significant loss of market share.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized equal to the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the consolidated balance sheets and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.

The value of intangible assets is determined primarily using the “income method,” which starts with a forecast of all expected future net cash flows. Accordingly, the potential for impairment for intangible assets may exist if actual revenues are significantly less than those initially forecasted or actual expenses are significantly more than those initially forecasted. Some of the more significant estimates and assumptions inherent in the intangible asset impairment assessment process include: the amount and timing of projected future cash flows; the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, including consideration of any technical, legal, regulatory, or economic barriers to entry as well as expected changes in standards of practice for indications addressed by the asset.

Valuation Goodwill

Goodwill represents the excess of the cost of an acquired business over the amounts assigned to the net assets. Goodwill is not amortized but is tested for impairment at a reporting unit level on an annual basis or if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Goodwill is tested for impairment using a two-step test. The first step, which is used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, thus the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

Significant judgment is applied when goodwill is assessed for impairment. In performing our assessment of the carrying value of goodwill, we use the present value of estimated future cash flows to establish the estimated fair value of our reporting unit as of the testing date. Estimating the discounted future cash flows involves significant assumptions. These assumptions are related to factors inherent in the business planning process, including future growth rates, the timing of introduction and level of acceptance of new products, the effects of competition, changes in volume, market pricing, cost, and business environment changes. Our assumed discount rate also has a significant impact on the estimated fair value of our reporting unit. Changes in economic and operating conditions impacting these assumptions could result in an impairment of goodwill in future periods. When available and as appropriate, we use comparative market multiples to corroborate the estimated fair value.

For the years presented, we did not recognize any goodwill impairment as the estimated fair value of our reporting unit with goodwill exceeded its carrying amount by more than 25%. While we believe that the assumptions used in estimating the fair value of our goodwill are reasonable and appropriate, we have recognized approximately $3.6 billion in goodwill in our consolidated balance sheet, and could be required to recognize significant goodwill impairment charges in the future if we have declines in profitability due to changes in volume, market pricing, cost, or the business environment. Future adverse changes in our economic environment could affect the discount rate and significant adverse changes to our business environment and future cash flows could cause us to record impairment charges in future periods which could be material.

Significant judgment is applied when goodwill is assessed for impairment. In performing our assessment of the carrying value of goodwill, we use the present value of estimated future cash flows to establish the estimated fair value of our reporting unit as of the testing date. Estimating the discounted future cash flows involves significant assumptions. These assumptions are related factors inherent in the business planning process, including future growth rates, the timing and acceptance of new products, the effects of competition, changes in volume, market pricing, cost, and business environment changes. Our assumed discount rate also has a significant impact on the estimated fair value of our reporting unit. Changes in economic and operating conditions impacting these assumptions could result in an impairment of goodwill in future periods. When available and as appropriate, we use comparative market multiples to corroborate the estimated fair value.

For the years presented, we did not recognize any goodwill impairment as the estimated fair value of our reporting unit with goodwill exceeded its carrying amount by more than 25%. While we believe that the assumptions used in estimating the fair value of our goodwill are reasonable and appropriate, we have recognized approximately $3.7 billion in goodwill in our consolidated balance sheet, and could be required to recognize significant goodwill impairment charges in the future if we have declines in profitability due to changes in volume, market pricing, cost, or the business environment. Future adverse changes in our economic environment could affect the discount rate and significant adverse changes to our business environment and future cash flows could cause us to record impairment charges in future periods which could be material.

RECENT ACCOUNTING PRONOUNCEMENTS

~~Recently~~In ~~Issued~~January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06 ~~Pronouncements~~that requires additional disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the sensitivity of fair value measurements to changes in assumptions, and (4) transfers between the three levels of the fair value hierarchy. The disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements are effective for fiscal years beginning after December 15, 2010, and for the interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this guidance but does not anticipate it will have a material impact on our results of operations or financial condition. All other requirements of this ASU were effective in interim and annual periods beginning after December 15, 2009. The adoption of this guidance had no impact on our consolidated financial statements.

In ~~June~~December ~~2009~~2010, the ~~Financial Accounting Standards Board (“~~FASB”) issued ~~guidance~~ASU ~~that eliminates~~No. 2010-28, ~~the~~When ~~exceptions~~ to ~~the~~Perform ~~rules~~Step ~~requiring~~2 ~~consolidation~~ of ~~qualifying~~the ~~special-purpose~~Goodwill ~~entities~~Impairment ~~which~~Test ~~means~~for ~~more~~Reporting ~~entities~~Units with ~~will~~Zero beor ~~subject~~Negative toCarrying ~~consolidation~~Amounts ~~assessments~~to ~~and~~modify ~~reassessments.~~Step ~~The~~1 ~~guidance also requires ongoing reassessment~~ of ~~whether~~ ~~a company is~~ the ~~primary~~goodwill ~~beneficiary~~impairment oftest; arequiring ~~variable~~companies ~~interest~~with ~~entity~~reporting ~~(“VIE”)~~units ~~and~~with ~~clarifies~~zero ~~characteristics~~or ~~that~~negative ~~identify~~carrying aamounts ~~VIE.~~to Inperform ~~addition,~~Step ~~additional~~2 ~~disclosures~~of ~~about~~the agoodwill ~~company’s~~impairment ~~involvement~~analysis ~~with~~if ait ~~VIE~~is ~~and~~more ~~any significant~~likely ~~changes~~than innot ~~risk exposure due to~~ that ~~involvement~~a ~~are~~goodwill ~~required~~impairment exists. This guidance is effective for ~~the~~fiscal ~~Company~~years beginning inafter December 15, 2010. ~~The~~Early ~~Company~~adoption is ~~currently~~not ~~evaluating~~permitted. ~~the~~This ~~impact of the adopting this~~ guidance ~~but~~is ~~does~~ not ~~anticipate~~expected itto ~~will have a material~~ impact on our ~~results~~consolidated ~~of operations or~~ financial ~~condition~~statements.

~~Recently~~In ~~Adopted~~June ~~Accounting~~2009, ~~Pronouncements~~the FASB issued ASU 2009-17, which eliminates the exceptions to the rules requiring consolidation of qualifying special-purpose entities (the “QSPE”), which means more entities will be subject to consolidation assessments and reassessments. The guidance also requires ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity (“VIE”) and clarifies characteristics that identify a VIE. In addition, additional disclosures about a company’s involvement with a VIE and any significant changes in risk exposure due to that involvement are required. This guidance was effective for the Company beginning in 2010, and its adoption had no impact on our consolidated financial statements.

InItem ~~June 2009, the FASB issued Statement No~~7A. ~~168,~~ ~~“The~~QUANTITATIVE ~~FASB~~AND ~~Accounting~~QUALITATIVE ~~Standards~~DISCLOSURES ~~Codification~~ABOUT ~~and~~MARKET the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162” (“the ASC” or “the Codification”). Effective for interim and annual periods ended after September 15, 2009, the Codification became the source of authoritative U.S. generally accepted accounting principles (GAAP) and reporting standards recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. This statement is not intended to change existing GAAP and as such did not have an impact on the consolidated financial statements of the Company. The Company has updated its references in these consolidated financial statements to reflect the Codification. RISK

InWe ~~December~~are ~~2007,~~exposed ~~the~~to ~~FASB~~market ~~issued~~risks ~~new~~associated ~~accounting~~with ~~guidance~~changes onin ~~business~~interest ~~combinations~~rates and ~~non-controlling~~foreign ~~interests~~currency inexchange ~~consolidated financial statements~~rates. ~~The~~Interest ~~new~~rate ~~guidance~~changes ~~revises~~affect ~~the~~primarily ~~method~~our ~~of accounting for a number of aspects of business combinations and non~~short-~~controlling~~term ~~interest,~~advances ~~including~~to ~~acquisition~~our ~~costs,~~parent ~~contingencies (including contingent assets, contingent liabilities~~ and ~~contingent purchase price), the impacts of partial and step-acquisitions~~its ~~(including~~affiliates ~~the valuation of net assets attributable to non-acquired minority interests)~~ and ~~post-acquisition~~our ~~exit~~debt ~~activities~~obligations. ofChanges ~~acquired~~in ~~businesses.~~foreign ~~The~~currency ~~new~~exchange ~~guidance~~rates iscan ~~effective~~affect ~~for~~cash ~~the~~flows ~~Company~~ for ~~business~~inventory ~~combinations~~purchases, ~~completed~~ and ~~non-controlling~~ ~~interests~~interest ~~acquired~~and orprincipal ~~created~~related ~~after~~to ~~January 1,~~our ~~2009.~~debt ~~The~~obligations ~~adoption~~that ofare ~~this~~denominated ~~guidance~~in onforeign ~~January 1~~currencies, ~~2009~~as ~~did~~well ~~not~~as ~~impact~~our operations ~~the~~outside ~~accompanying~~of ~~consolidated~~the ~~financial~~United ~~statements~~States.

Foreign Currency Risk: We have operations in Canada; however, both revenue and expenses of those operations are typically denominated in the currency of the country of operations, providing a partial hedge. Nonetheless, our Canadian subsidiary is presented in our financial statements in U.S. dollars and can be impacted by foreign currency exchange fluctuations through both (i) translation risk, which is the risk that the financial statements for a particular period or as of a certain date depend on the prevailing exchange rates of the various currencies against the U.S. dollar, and (ii) transaction risk, which is the risk that the currency impact of transactions denominated in currencies other than the subsidiary’s functional currency may vary due to currency fluctuations.

With respect to translation risk, even though there may be fluctuations of currencies against the U.S. dollar, which may impact comparisons with prior periods, the translation impact is included in accumulated other comprehensive income, a component of stockholder’s equity, and does not affect the underlying results of operations. Gains and losses related to transactions denominated in a currency other than the functional currency of the countries in which we operate are included in the consolidated statements of operations.

Included in our intercompany borrowings are several Euro-denominated notes, €195.5 million notes with a maturity in 2014 and a €115.7 million note with a maturity in 2015. In connection with these borrowings, we entered into intercompany foreign currency forward swap contracts in order to limit our exposure to changes in exchange rates on the Euro-denominated notes principal balance. We have entered into foreign currency swaps with affiliates of Fresenius for the total of the Euro-denominated notes principal balance. These agreements mature at various dates through January 2012, and are not designated as hedging instruments for accounting purposes.

We have also entered into foreign currency hedges for the €18.9 million of future cash flows related to the interest payments due on the €195.5 million notes through December 12, 2011, of which €6.3 million was remaining as of December 31, 2010 and for the €25.4 million of future cash flows related to the interest payments on the €115.7 million note through January 17, 2012 of which €15.2 million was remaining as of December 31, 2010. In addition, during 2010 we entered into foreign currency hedges for €22.7 million of future cash flows related to planned inventory purchases from a subsidiary of our parent company through July, 2011. These foreign currency agreements have been designated as hedges of our exposure to fluctuations in cash payments for inventory and interest payments on outstanding purchase orders and Euro-denominated borrowings due to changes in Euro/U.S. dollar exchange rates (a cash flow hedge).

InBecause ~~April~~we ~~2008,~~have ~~the~~entered ~~FASB~~into ~~issued~~agreements ~~guidance that amends the factors that should be considered in developing renewal or extension assumptions used~~ to ~~determine~~hedge ~~the~~our ~~useful~~most ~~life~~significant ofexposures ~~a recognized intangible asset and requires enhanced disclosures relating~~ to: ~~(a) the entity’s accounting policy on the treatment of costs incurred to renew or~~changes ~~extend~~in ~~the~~currency ~~term~~exchange ofrates a(i.e. ~~recognized~~changes ~~intangible asset; (b)~~ in ~~the~~Euro/U.S. ~~period~~dollar ofexchange ~~acquisition or renewal, the weighted-average period prior to the next renewal or extension (both explicit and implicit~~rate), bywe ~~major~~do ~~intangible~~not ~~asset~~believe ~~class; and (c) for an entity~~ that ~~capitalizes~~a ~~renewal~~change orin ~~extension costs,~~ the ~~total~~Euro/U.S. ~~amount~~dollar ofexchange ~~costs~~rate ~~incurred~~would tohave ~~renew or extend the term of~~ a ~~recognized~~significant ~~intangible~~impact ~~asset~~on ~~for~~our ~~each~~operating ~~period~~results, ~~for which a statement of~~ financial position isor ~~presented,~~cash ~~by major intangible asset class~~flows. ~~The adoption of this new guidance on January 1, 2009 did not impact the accompanying consolidated financial statements.~~

InInvestment ~~March 2008,~~Risk: ~~the FASB~~The ~~issued~~primary ~~updated~~objective ~~guidance~~of ~~that~~our ~~requires~~investment ~~qualitative~~activities ~~disclosures~~is ~~about~~to ~~the~~preserve ~~objectives~~principal ~~and~~while ~~strategies~~at ~~for~~the ~~using~~same ~~derivatives,~~time maximizing ~~quantitative~~the ~~disclosures~~income ~~about~~we ~~the~~receive ~~fair~~from ~~value~~our ~~amounts~~activities ofwithout ~~and~~increasing ~~gains~~risk. ~~and~~Since ~~losses~~our ~~on derivative~~merger ~~instruments~~with Fresenius, ~~and~~we ~~disclosures~~use ~~about~~its ~~credit-risk-related~~cash ~~contingent~~management ~~features~~system into ~~derivative~~invest ~~agreements.~~excess ~~The~~cash ~~effective~~not ~~date~~needed for ~~adoption~~current ofoperations. ~~this~~At ~~guidance~~December 31, by2010, ~~the~~we ~~Company~~did ~~was~~not ~~the first quarter of 2009. We~~ have ~~incorporated the required~~any ~~disclosures~~cash ~~into~~deposits ~~these~~with ~~consolidated financial statements~~Fresenius.

InInterest ~~September~~Rate ~~2006,~~Risk: ~~the~~We ~~FASB~~are ~~issued~~also ~~guidance~~exposed ~~that~~to ~~essentially redefined~~changes ~~fair value, established a framework for measuring fair value~~ in ~~accordance~~interest ~~with~~rates ~~GAAP,~~on ~~and~~our variable ~~expanded~~rate ~~disclosures about fair value measurements~~borrowings. ~~This~~ ~~guidance~~As ~~applies~~of ~~where other accounting pronouncements require or permit fair value measurements and was effective for fiscal years beginning after November~~December 1531, ~~2007 for financial assets and liabilities~~2010, ~~as well as for any other assets and liabilities that are carried at fair value on a recurring basis in the financial statements~~$795.2 Inmillion ~~November~~was ~~2007,~~outstanding the FASB provided a one year deferral for the implementation of this guidance for other non-financial assets and liabilities. Our predecessor adopted this guidance for financial assets and liabilities measured at fair value on aour ~~recurring~~credit ~~basis~~facility ~~on January 1, 2008,~~ and ~~the~~we ~~Company~~had ~~adopted~~approximately it$2.918 ~~for~~billion ~~non-financial assets and liabilities effective at the beginning~~ of ~~fiscal~~outstanding ~~year~~intercompany ~~2009~~loans. ~~The~~If ~~effects of its adoption were determined by~~ the ~~types~~interest ofrates ~~instruments~~on ~~carried at fair value in~~ our ~~financial~~outstanding ~~statements~~variable atborrowings were ~~the time of adoption as well as the methods utilized~~ to ~~determine~~increase ~~their~~by ~~fair values prior to adoption. The adoption of this guidance on January~~ 1%, ~~2008~~our ~~did~~interest ~~not~~expense ~~have~~would aincrease ~~significant~~by ~~impact on the consolidated financial statements of our predecessor~~$12.8 ~~The~~million ~~adoption~~based ~~of the guidance for non-financial assets and liabilities had no impact~~ on our ~~consolidated~~outstanding ~~financial~~debt ~~statements~~balances ~~for~~at ~~fiscal~~December 31, ~~2009~~2010.

InWe ~~April~~have ~~2009,~~entered ~~the~~into ~~FASB~~interest ~~issued~~rate ~~updated~~swap ~~guidance~~agreements ~~related~~with toFresenius ~~fair-value~~for ~~measurements~~an toaggregate ~~clarify~~notional ~~the~~principal ~~guidance~~amount ~~related~~of to$1.500 billion. ~~measuring~~Agreements ~~fair-value~~for $900 million notional principal require us to pay ininterest ~~inactive~~at ~~markets,~~an ~~modify~~average ~~the~~fixed ~~recognition~~rate of 3.97% and ~~measurement~~entitle ofus ~~other-than-temporary~~to ~~impairments~~receive ofinterest ~~debt~~at ~~securities,~~a ~~and~~variable ~~require~~rate ~~public~~equal ~~companies~~to three-month LIBOR, which is equal to ~~disclose~~the benchmark for the ~~fair~~term ~~values~~A ofLoans ~~financial~~being ~~instruments~~hedged, inon ~~interim~~the ~~periods~~notional amount. ~~The~~These ~~updated~~interest ~~guidance~~rate isswaps expire ~~effective~~in ~~for~~October ~~interim~~2011 and ~~annual~~December ~~periods~~2013. ~~ended~~The ~~after~~agreements ~~June 15,~~for ~~2009,~~an ~~with~~aggregate ~~early~~principal ~~adoption~~amount ~~permitted~~of ~~for~~$600 ~~periods~~million ~~ended~~require ~~after~~us ~~March 15,~~to ~~2009~~pay interest at an average fixed rate of 2.16% ~~The~~and ~~Company~~entitle ~~adopted~~us ~~the~~to ~~updated~~receive ~~guidance~~interest inat ~~the~~a ~~first~~variable ~~quarter~~rate ofequal ~~fiscal~~to ~~year~~three-month ~~2009~~LIBOR, subject to a minimum LIBOR, which ~~required certain~~is ~~additional~~equal ~~disclosures~~to ~~regarding~~the benchmark rate for the ~~fair~~Term ~~value~~C ofLoan ~~financial~~being ~~instruments~~hedged, inon the ~~financial~~notional ~~statements~~amount. These interest rate swaps expire on September 10, 2014.

InItem ~~May 2009, the FASB issued guidance which establishes accounting and disclosure requirements for subsequent events~~8. ~~This~~FINANCIAL ~~guidance~~STATEMENTS ~~details~~AND ~~the~~SUPPLEMENTARY period after the balance sheet date during which the Company should evaluate events or transactions that occur for potential recognition or disclosure in the financial statements, the circumstances under which the Company should recognize events or transactions occurring after the balance sheet date in its financial statements and the required disclosures for such events. The Company adopted this guidance in the second quarter of 2009, and has evaluated subsequent events through the filing date of this report. DATA

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks associated with changes in interest rates and foreign currency exchange rates. Interest rate changes affect primarily our short-term advances to our parent and its affiliates and our debt obligations. Changes in foreign currency exchange rates can affect interest and principal cash flows related to our debt obligations that are denominated in foreign currencies, as will as our operations outside of the United States.

Foreign Currency Risk: We have operations in Canada; however, both revenue and expenses of those operations are typically denominated in the currency of the country of operations, providing a partial hedge. Nonetheless, our Canadian subsidiary is presented in our financial statement in U.S. dollars and can be impacted by foreign currency exchange fluctuations through both (i) translation risk, which is the risk that the financial statements for a particular period or as of a certain date depend on the prevailing exchange rates of the various currencies against the U.S. dollar, and (ii) transaction risk, which is the risk that the currency impact of transactions denominated in currencies other than the subsidiary’s functional currency may vary due to currency fluctuations.

With respect to translation risk, even though there may be fluctuations of currencies against the U.S. dollar, which may impact comparisons with prior periods, the translation impact is included in accumulated other comprehensive income, a component of stockholders’ equity, and does not affect the underlying results of operations. Gains and losses related to transactions denominated in a currency other than the functional currency of the countries in which we operate are included in the condensed consolidated statements of operations.

Included in our intercompany borrowings are several Euro-denominated notes, €197.5 million notes with a maturity in 2014 and a €115.7 million note with a maturity in 2015. In connection with these borrowings, we entered into intercompany foreign currency forward swap contracts in order to limit our exposure to changes in current exchange rates on the Euro-denominated notes principal balance. We have entered into foreign currency swaps with affiliates of Fresenius for the total of the Euro-denominated notes principal balance. These agreements mature at various dates through January 2012, and are not designated as hedging instruments for accounting purposes.

During 2009 we have also entered into foreign currency hedges for the €18.9 million of future cash flows related to the interest payments due on the €197.5 million notes through December 12, 2011, and for the €25.4 million of future cash flows related to the interest payments on the €115.7 million note through January 17, 2012. These foreign currency agreements have been designated as hedges of our exposure to fluctuations in interest payments on outstanding Euro-denominated borrowings due to changes in Euro/U.S. dollar exchange rates (a cash flow hedge).

Investment Risk: The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our activities without increasing risk. Since our merger with Fresenius, we use its cash management system to invest excess cash not needed for current operations. At December 31, 2009, we did not have any cash deposits with Fresenius.

Interest Rate Risk: We are also exposed to changes in interest rates on our variable rate borrowings. As of December 31, 2009, $921.5 million was outstanding on our credit facility and we had approximately $3,033.2 million of outstanding intercompany loans. If the interest rates on our outstanding borrowings were to increase by 1%, our interest expense would increase by $30.5 million (after considering the impact of the swap agreement described below) based on our outstanding debt balances at December 31, 2009.

On November 3, 2008, we entered into four interest rate swap agreements with Fresenius for an aggregate notional principal amount of $900 million. These agreements require us to pay interest at an average fixed rate of 3.97% and entitle us to receive interest at a variable rate equal to three-month LIBOR, which is equal to the benchmark rate for the Term A Loans being hedged, on the notional amount. The interest rate swaps expire in October 2011 and December 2013. These swaps have been designated as hedges of our exposure to fluctuations in interest payments on outstanding variable rate borrowings due to changes in interest rates (a cash flow hedge). The fair value of these interest rate swap agreements at December 31, 2009 is a liability of $53.2 million, and is included in long-term liabilities in our consolidated balance sheets.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

The Board of Directors

Fresenius Kabi Pharmaceuticals Holding, Inc.:

We have audited the accompanying consolidated balance sheets of Fresenius Kabi Pharmaceuticals Holding, Inc. and subsidiaries (the Company) as of December 31, ~~2009~~2010 and ~~2008~~2009, and the related consolidated statements of operations, ~~stockholders~~stockholder’s equity, and cash flows for each of the years in the two-year period ended December 31, 2010 ~~2009~~ and the period from July 2, 2008 through December 31, 2008, and the consolidated statements of operations, ~~stockholder~~stockholders’s equity, and cash flows of APP Pharmaceuticals, Inc. and ~~subsidiaries~~Subsidiaries (~~formerly known as Abraxis BioScience, Inc.) (~~the “ Predecessor”) for the period from January 1, 2008 through September 9, 2008. Our audits also included the ~~2009 and 2008~~ information in the financial statement schedule included in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fresenius Kabi Pharmaceuticals Holding, Inc. and subsidiaries at December 31, ~~2009~~2010 and ~~2008~~2009, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, ~~2009~~2010 and the period from July 2, 2008 through December 31, 2008, inand ~~conformity with U.S. generally accepted accounting principles. Further, in our opinion,~~ the ~~consolidated financial statements referred to above present fairly, in all material respects, the~~ results of ~~the Predecessor’s~~ operations and ~~their~~ cash flows of the Predecessor for the period from January 1, 2008 through September 9, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion the related ~~2009 and 2008~~ information in the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, effective September 10, 2008, the Company acquired all of the outstanding stock of the Predecessor in a business combination accounted for as a purchase. As a result of the acquisition, the consolidated financial information for the period after the acquisition is presented on a different basis than that for the periods before the acquisition and, therefore, is not comparable.

/s/ KPMG

Chicago, Illinois

February 2321, ~~2010~~ 2011

4342

Report of Independent Registered Public Accounting Firm

The Board of Directors

APP Pharmaceuticals, Inc.

We have audited the accompanying consolidated statements of operations, stockholders’ equity, and cash flows of APP Pharmaceuticals, Inc. and subsidiaries (previously known as Abraxis BioScience, Inc.) for the year ended December 31, 2007. Our audit also included the 2007 information in financial statement schedule included in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of their operations and cash flows of APP Pharmaceuticals, Inc. and subsidiaries for the year ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the 2007 information in the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Chicago, Illinois

March 17, 2008

Fresenius Kabi Pharmaceuticals Holding, Inc.

Consolidated Balance Sheets

	December 31,2009			December 31,2008
	December 31,2010					December 31,2009
	(in thousands, except share data)
Assets
Current assets:
Cash and cash equivalents	$	108,~~469~~844		$	~~8,441~~	$	10,469
Note receivable from Parent		—			33,800
Accounts receivable, net		52,201					85,517
Accounts receivable, net		85,517			81,630
Inventories		237,218					212,065
Inventories		212,065			170,354
Prepaid expenses and other current assets		20,377					31,606
Prepaid expenses and other current assets		31,606			19,756
Current receivables from related parties		2,282					1,219
Current receivables from related parties		1,219			—
Income taxes receivable		—					51,963
Income taxes receivable		51,963			25,291
Deferred income taxes		34,176					18,880
Deferred income taxes		18,880			13,367
Total current assets		355,098					411,719
Total current assets		411,719			352,639
Property, plant and equipment, net		118,195					129,784
Property, plant and equipment, net		129,784			150,693
Intangible assets, net		466,198					506,215
Intangible assets, net		506,215			534,304
Goodwill		3,662,173					3,664,371
Goodwill		3,664,371			3,662,126
Deferred financing costs		94,675					117,166
Deferred financing costs		117,166			103,793
Other non-current assets, net		6,827					29,430
Non-current receivables from related parties		—			27,832
Total assets	$	4,703,166				$	4,858,685
Other non-current assets, net		29,430			6,359
Liabilities and stockholder’s equity
Total assets	$	4,858,685		$	4,837,746
Current liabilities:
Liabilities and stockholder’s equity
Accounts payable	$	70,125				$	53,238
Current liabilities:
Accrued liabilities		59,091					57,320
Accounts payable	$	53,238		$	38,777
Current payables to related parties		13,061					9,914
Accrued liabilities		57,320			48,139
Accrued intercompany interest		45,004					47,141
Current payables to related parties		9,914			2,129
Income tax payable		1,006					—
Accrued intercompany interest		47,141			26,640
Fair value of CVR liability-current portion		6,693					—
Current portion of long-term debt		76127,475			~~43,719~~		76,475
Current portion of intercompany debt		441,~~511~~302			~~99,892~~		441,511
Total current liabilities		~~685~~763,~~599~~757			~~259,296~~		685,599
Long-term debt		~~844~~667,~~969~~744			~~953,781~~		844,969
Deferred income taxes, non-current		7770,~~593~~181			~~81,889~~		77,593
Fair value of interest rate swaps with Parent and affiliates		5358,~~188~~031			~~69,332~~		53,188
Intercompany note payable to Parent and affiliates		2,~~591~~476,~~693~~652			~~2,764,541~~		2,591,693
Intercompany payable to Parent and affiliates		—			97,996
Fair value of CVR liability- non-current		—					48,976
CVR payable		48,976			57,138
Other non-current liabilities		21,145					17,591
Other non-current liabilities		17,591			3,049
Total liabilities		4,057,510					4,319,609
Total liabilities		4,319,609			4,287,022
Stockholder’s equity:
Stockholder’s equity:
Common stock - $0.001 par value; 1,000 shares authorized issued and outstanding in 2010 and 2009		—					—
Common stock - $0.001 par value; 1,000 shares authorized issued and outstanding in 2009 and 2008		—			—
Additional paid-in capital		901,022					900,379
Additional paid-in capital		900,379			900,019
Accumulated deficit		(233,261	)				(342,830	)
Accumulated deficit		(342,830	)		(312,445	)
Accumulated other comprehensive loss		(22,105	)				(18,473	)
Accumulated other comprehensive loss		(18,473	)		(36,850	)
Total stockholder’s equity		645,656					539,076
Total stockholder’s equity		539,076			550,724
Total liabilities and stockholder’s equity	$	4,703,166				$	4,858,685
Total liabilities and stockholder’s equity	$	4,858,685		$	4,837,746

See accompanying notes to consolidated financial statements

4543

Fresenius Kabi Pharmaceuticals Holding, Inc.

Consolidated Statements of Operations

	(Successor)								~~(Predecessor)~~			(Predecessor)
	Year endedDecember 31			July 2throughDecember 31					January 1throughSeptember 9
	Year endedDecember 312010			Year endedDecember 312009			July 2throughDecember 312008					January 1throughSeptember 92008
	2009			2008					2008			2007
	(in thousands)
Net revenue	$	~~888~~1,~~686~~142,671		$	~~280~~888,~~836~~686		$	280,836	$	~~495,797~~		$	~~647~~495,~~374~~797
Cost of sales		~~453~~566,~~557~~084			~~173~~453,~~074~~557			173,074		~~247,637~~			~~332~~247,~~046~~637
Gross profit		~~435~~576,~~129~~587			~~107~~435,~~762~~129			107,762		~~248,160~~			~~315~~248,~~328~~160
Operating expenses:
Research and development		28,~~277~~119			1628,~~352~~277			16,352		~~35,133~~			4635,~~497~~133
Selling, general and administrative		89116,~~994~~069			3189,~~374~~994			31,374		~~62,896~~			9062,~~229~~896
Write-off of merger in-process research and development		—			~~365,700~~—			365,700		—			—
Amortization of merger-related intangibles		36,650			1136,~~209~~650			11,209		~~10,283~~			1510,~~418~~283
Impairment of fixed assets		53,~~372~~440			—5,372			—		—			—
Merger related costs		1,~~447~~361			21,~~529~~447			2,529		~~44,220~~			—44,220
Separation related costs		~~625~~—			~~142~~625			142		~~2,239~~			32,~~024~~239
Total operating expenses		~~162~~185,~~365~~639			~~427~~162,~~306~~365			427,306		~~154,771~~			~~155~~154,~~168~~771
Income (loss) from operations		~~272~~390,~~764~~948			~~(319~~272,~~544~~764	)		(319,544	)	~~93,389~~			~~160~~93,~~160~~389
Interest expense		(8363,~~185~~797	) )		(5283,~~585~~185	)		(52,585	)	~~(45,124~~	)		(2545,~~162~~124	)
Intercompany interest expense		(~~248~~218,~~956~~756	)		(66248,~~690~~956	)		(66,690	)	—			—
Unrealized gain in the fair value of contingent value rights		842,~~163~~282			~~101~~8,~~216~~163			101,216		—			—
Interest income and other, net		31,~~379~~545			(13,~~233~~379	)		(1,233	)	~~1,593~~			21,~~182~~593
(Loss) income from continuing operations before income taxes		(47,835	)		(338,836	)				49,858			137,180
Income (loss) before income taxes		152,222			(47,835	)		(338,836	)				49,858
(Benefit) provision for income taxes		(17,450	)		(26,391	)				40,315			55,001
Income tax expense (benefit)		42,653			(17,450	)		(26,391	)				40,315
(Loss) income from continuing operations		(30,385	)		(312,445	)				9,543			82,179
Net income (loss)	$	109,569		$	(30,385	)	$	(312,445	)			$	9,543
Loss from discontinued operations, net of taxes		—			—					—			(47,821	)
The composition of stock-based compensation included above is as follows:
Net (loss) income	$	(30,385	)	$	(312,445	)			$	9,543		$	34,358
Cost of sales	$	—		$	—		$	—				$	1,275
The composition of stock-based compensation from continuing operations included above is as follows:
Research and development		—			—			—					436
Cost of sales	$	—		$	—				$	1,275		$	2,502
Selling, general and administrative		643			360			19					4,039
Research and development		—			—					436			602
	$	643		$	360		$	19				$	5,750
Selling, general and administrative		360			19					4,039			8,977
	$	360		$	19				$	5,750		$	12,081

See accompanying notes to consolidated financial statements

4644

Fresenius Kabi Pharmaceuticals Holding, Inc.

Consolidated Statements of Stockholder’s Equity (Deficit)

Years Ended December 31, ~~2009~~2010, ~~2008~~2009 and ~~2007~~2008

	Common Stock					~~AdditionalPaid-inCapital~~	AdditionalPaid-in Capital			~~RetainedEarnings(Deficit)~~	RetainedEarnings(Deficit)			~~OtherComprehensiveIncome (Loss)~~	OtherComprehensiveIncome (Loss)			~~Treasury Stock~~	Treasury Stock						~~Total~~		Total
	Shares		~~Amount~~	Amount														~~Shares~~	Shares		~~Amount~~		Amount
	(in thousands, except share data)
Predecessor:
Balance, January 1, 2007	165,928,134		$	166		$	1,085,196			$	4,483			$	1,257			(6,705,116	)		$	(57,741	)		$	1,033,361
Balance, December 31, 2007		160,069,196		$	160		$	(96,357	)		$	13,715			$	2,711				—				—			$	(79,771	)
Distribution of New Abraxis							(1,173,518	)			(25,043	)			(773	)		—				—				(1,199,334	)
Exercise of stock options		849,853			1			7,431				—				—				—				—				7,431
Exercise of stock options	439,325						3,450				—				—			—				—				3,450
Unrestricted stock vesting and stock options forfeited		68,149			—			46				—				—				—				—				46
Issuance of stock for employee retirement and stock purchase plan	220,010			—			3,801				—				—			—				—				3,801
Stock compensation expense		—			—			5,276				—				—				—				—				5,276
Unrestricted stock vesting and stock options forfeited	127,375			—			(2,611	)			—				—			—				—				(2,611	)
Unvested restricted stock under RSU II plan		—			—			1,596				—				—				—				—				1,596
Retirement of common stock	—			—			—				(83	)			—			—				—				(83	)
Tax benefit of disqualifying disposition		—			—			1,509				—				—				—				—				1,509
Purchase/(retirement) of treasury stock	(6,689,148	)		(6	)		(57,735	)			—				—			6,705,116				57,741				—
Comprehensive income:		—			—			—				—				—				—				—
Legal settlement	43,500			—			14,763				—				—			—				—				14,763
Net income		—			—			—				9,543				—				—				—				9,543
Stock compensation expense	—			—			28,136				—				—			—				—				28,136
Foreign currency translation adjustments		—			—			—				—				(2,302	)			—				—				(2,302	)
Tax benefit of stock compensation plans	—			—			1,083				—				—			—				—				1,083
Comprehensive income		—			—			—				—				—				—				—				7,241
Tax benefit of licensing agreement	—			—			1,078				—				—			—				—				1,078
Predecessor:
Comprehensive income:	—			—			—				—				—			—				—
Balance, September 9, 2008		160,987,198		$	161		$	(80,499	)		$	23,258			$	409				—				—			$	(56,671	)
Net income	—			—			—				34,358				—			—				—				34,358
Successor:
Unrealized loss on available-for-sale securities, net of tax	—			—			—				—				(460	)		—				—				(460	)
Balance, July 2, 2008		—			—			—				—				—				—				—				—
Foreign currency translation adjustments	—			—			—				—				2,687			—				—				2,687
Capital contribution from Fresenius Kabi AG		1,000			—			900,000				—				—				—				—				900,000
Comprehensive income	—			—			—				—				—			—				—				36,585
Stock compensation expense		—			—			19				—				—				—				—				19
Balance, December 31, 2007	160,069,196		$	160		$	(96,357	)		$	13,715			$	2,711			—				—			$	(79,771	)
Comprehensive income:
Exercise of stock options	849,853			1			7,431				—				—			—				—				7,431
Net loss		—			—			—				(312,445	)			—				—				—				(312,445	)
Unrestricted stock vesting and stock options forfeited	68,149			—			46				—				—			—				—				46
Unrealized loss on Intercompany interest rate swap, net of $20,308 tax benefit		—			—			—				—				(32,338	)			—				—				(32,338	)
Stock compensation expense	—			—			5,276				—				—			—				—				5,276
Foreign currency translation adjustments		—			—			—				—				(4,512	)			—				—				(4,512	)
Unvested restricted stock under RSU II plan	—			—			1,596				—				—			—				—				1,596
Comprehensive loss		—			—			—				—				—				—				—				(349,295	)
Tax benefit of disqualifying disposition	—			—			1,509				—				—			—				—				1,509
Balance, December 31, 2008		1,000		$	—		$	900,019			$	(312,445	)		$	(36,850	)			—				—			$	550,724
Comprehensive income:	—			—			—				—				—			—				—
Net income	—			—			—				9,543				—			—				—				9,543
Foreign currency translation adjustments	—			—			—				—				(2,302	)		—				—				(2,302	)
Comprehensive income	—			—			—				—				—			—				—				7,241
Predecessor:
Balance, September 9, 2008	160,987,198		$	161		$	(80,499	)		$	23,258			$	409			—				—			$	(56,671	)
Successor:
Balance, July 2, 2008	—			—			—				—				—			—				—				—
Capital contribution from Fresenius Kabi AG	1,000			—			900,000				—				—			—				—				900,000
Stock compensation expense	—			—			19				—				—			—				—				19
Comprehensive income:
Net Loss	—			—			—				(312,445	)			—			—				—				(312,445	)
Unrealized loss on Intercompany interest rate swap, net of $20,308 tax benefit	—			—			—				—				(32,338	)		—				—				(32,338	)

4745

	Common Stock					~~AdditionalPaid-inCapital~~		~~RetainedEarnings(Deficit)~~AdditionalPaid-inCapital			~~OtherComprehensiveIncome~~ RetainedEarnings(~~Loss~~Deficit)			~~Treasury~~OtherComprehensiveIncome ~~Stock~~(Loss)			~~Total~~Treasury Stock					Total
	Shares		~~Amount~~		Amount									~~Shares~~		~~Amount~~	Shares			Amount
	(in thousands, except share data)
Foreign currency translation adjustments	—			—			—		—			(4,512	)	—		—		(4,512	)
Stock compensation expense		—				—			360			—			—			—			—		360
Comprehensive loss	—			—			—		—			—		—		—		(349,295	)
Comprehensive income:
Balance, December 31, 2008	1,000		$	—		$	900,019	$	(312,445	)	$	(36,850	)	—		—	$	550,724
Net loss		—				—			—			(30,385	)		—			—			—		(30,385	)
Stock compensation expense	—			—			360		—			—		—		—		360
Unrealized gain on Intercompany interest rate swap, net of $6,235 tax		—				—			—			—			10,074			—			—		10,074
Comprehensive income:
Foreign currency translation adjustments		—				—			—			—			5,216			—			—		5,216
Net Loss	—			—			—		(30,385	)		—		—		—		(30,385	)
Unrealized gain on foreign currency cash flow hedges, net of $1,928 tax		—				—			—			—			3,087			—			—		3,087
Unrealized gain on Intercompany interest rate swap, net of $6,235 tax	—			—			—		—			10,074		—		—		10,074
Comprehensive loss		—				—			—			—			—			—			—		(12,008	)
Foreign currency translation adjustments	—			—			—		—			5,216		—		—		5,216
Balance, December 31, 2009		1,000			$	—		$	900,379		$	(342,830	)	$	(18,473	)		—			—	$	539,076
Unrealized gain on foreign currency fair value hedges, net of $1,928 tax	—			—			—		—			3,087		—		—		3,087
Stock compensation expense		—				—			643			—			—			—			—		643
Comprehensive loss	—			—			—		—			—		—		—		(12,008	)
Comprehensive income:
Balance, December 31, 2009	1,000		$	—		$	900,379	$	(342,830	)	$	(18,473	)	—		—	$	539,076
Net income		—				—			—			109,569			—			—			—		109,569
Unrealized loss on Intercompany interest rate swap, net of $3,220 tax benefit and $2,783 realized loss net of tax benefit $1,082 reclassified from accumulated other comprehensive income		—				—			—			—			(3,411	)		—			—		(3,411	)
Foreign currency translation adjustments		—				—			—			—			2,407			—			—		2,407
Unrealized loss on foreign currency cash flow hedges, net of $913 tax benefit		—				—			—			—			(2,628	)		—			—		(2,628	)
Comprehensive loss		—				—			—			—			—			—			—		106,580
Balance, December 31, 2010		1,000			$	—		$	901,022		$	(233,261	)	$	(22,105	)		—			—	$	645,656

See accompanying notes to consolidated financial statements

4846

Fresenius Kabi Pharmaceuticals Holding, Inc.

Consolidated Statements of Cash Flows

	(Successor)								~~(Predecessor)~~					(Predecessor)
	Year EndedDecember 31,2009			July 2throughDecember 31,2008					January 1throughSeptember 9,2008			Year EndedDecember 31,2007
	Year EndedDecember 31,2010			Year EndedDecember 31,2009			July 2throughDecember 31,2008							January 1throughSeptember 9,2008
	(in thousands)
Cash flows from operating activities:
Cash flows from operating activities:
Net income (loss)		109,569			(30,385	)		(312,445	)						9,543
Net (loss) income from continuing operations	$	(30,385	)	$	(312,445	)			$	9,543		$	82,179
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net loss from discontinued operations, net of taxes		—			—					—			(47,821	)
Depreciation		19,842			17,841			6,896							12,503
Net (loss) income		(30,385	)		(312,445	)				9,543			34,358
Amortization		2,067			1,535			24							99
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Amortization of product rights		—			—			17							10,960
Depreciation		17,841			6,896					12,503			28,460
Amortization of merger related inventory step-up		—			—			45,465							—
Amortization		1,535			24					1,633			1,796
Merger related research and development charge		—			—			365,700							—
Amortization of product rights		—			17					10,960			16,440
Amortization of merger related intangibles		36,650			36,650			11,208							10,284
Amortization of merger related inventory step-up		—			45,465					—			—
Amortization of loan fees		36,234			39,422			19,727							1,534
Merger related research and development charge		—			365,700					—			—
Change in the fair value of contingent value rights		(42,282	)		(8,163	)		(101,216	)						—
Amortization of merger related intangibles		36,650			11,208					10,284			50,811
Write-off of deferred financing fees		—			14,661			12,241							—
Amortization of loan fees		39,422			19,727					—			—
Stock-based compensation		643			360			19							5,749
Change in the fair value of contingent value rights		(8,162	)		(101,216	)				—			—
(Gain)/loss on disposal of property, plant and equipment		(594	)		303			19							87
Write-off of deferred financing fees		14,661			12,241					—			—
Excess tax benefit from stock-based compensation		—			—			—							(493	)
Stock-based compensation		360			19					5,749			28,598
Loss/(gain) on non-cash foreign currency transactions		610			(4,308	)		1,527							—
Non-cash issuance for legal expenses		—			—					—			14,763
Stock option grants/forfeitures		—			—			—							(328	)
Loss on disposal of property, plant and equipment		303			19					87			797
Deferred income taxes		(16,375	)		(13,601	)		(3,270	)						(2,054	)
Excess tax benefit from stock-based compensation		—			—					(493	)		(1,083	)
Impairment of intangible assets		1,400			—			—							—
Unrealized foreign currency (gain)/loss		(4,308	)		1,527					—			—
Impairment of fixed assets		3,440			5,372			—							—
Stock option grants/forfeitures		—			—					(328	)		(2,611	)
Other non cash charges		(723	)		169			—							—
Deferred income taxes		(13,601	)		(3,270	)				(2,054	)		(10,142	)
Changes in operating assets and liabilities:
Impairment of fixed assets		5,372			—					—			—
Accounts receivable, net		33,316			(7,535	)		(7,253	)						5,816
Equity in net income of Drug Source Company, LLC, net of dividends received		—			—					—			(3,291	)
Income tax receivable		51,963			12,109			—							—
Other non cash charges		169			—					—			—
Current receivables from related parties		(1,063	)		(1,219	)		—							—
Changes in operating assets and liabilities:
Inventories		(25,153	)		(42,989	)		11,181							(32,344	)
Accounts receivable, net		(7,535	)		(7,253	)				5,816			(42,199	)
Prepaid expenses and other current and non-current assets		2,860			683			5,045							(1,460	)
Income tax receivable		12,109			—					—			—
Non-current receivables from related parties		—			27,832			—							37,223
Inventories		(42,989	)		11,181					(32,344	)		(12,165	)
Accounts payable and accrued expenses		15,112			21,308			(46,957	)						41,386
Prepaid expenses and other current, non-current assets		683			5,045					(1,460	)		(7,900	)
Income taxes payable		1,006			—			(44,970	)						6,696
Current receivables from related parties		(1,219	)		—					—			—
Current payables to related parties		3,147			7,785			—							—
Non-current receivables (due to) from related parties		27,832			—					37,223			(6,997	)
Intercompany payable Parent and affiliates		—			(97,717	)		—							—
Deferred revenue		—			—					—			(33,945	)
Accrued intercompany interest		(2,137	)		30,406			—							—
Minimum royalties payable		—			—					—			(984	)
Other non-current liabilities		(501	)		2,776			—							314
Current payables to related parties		7,785			—					—			—
Net cash provided by (used in) operating activities		229,031			13,295			(37,042	)						105,515
Intercompany payable Parent and affiliates		(97,717	)		—					—			—
Cash flows from investing activities:
Accrued intercompany interest		30,406			—					—			—
Purchases of property, plant and equipment		(13,474	)		(16,723	)		(24,703	)						(13,039	)
Other non-current liabilities		2,776			—					314			2,607
Purchases of intangible assets		(100	)		(10,097	)		(750	)						(800	)
Income taxes payable		—			(44,970	)				6,696			(80,031	)
Proceeds from sale of fixed assets		3,074			154			—							—
Accounts payable, accrued expenses		21,307			(46,957	)				41,386			35,071
Proceeds from (payments for) investment with related parties		—			33,800			(33,800	)						—
Net cash (used in) provided by operating activities		13,295			(37,042	)				105,515			12,353
Assets acquired, net of cash		—			(12,697	)		(3,624,215	)						—
Cash flows from investing activities:
Net cash used in investing activities		(10,500	)		(5,563	)		(3,683,468	)						(13,839	)
Purchases of property, plant and equipment		(16,723	)		(24,703	)				(13,039	)		(86,160	)
Cash flows from financing activities
Purchases of intangible assets		(10,097	)		(750	)				(800	)		(2,862	)
Proceeds from the exercise of stock options and the sale of stock under employee retirement and stock purchase plan		—			—			—							7,815
Proceeds from sale of fixed assets		154			—					—			—
Proceeds from (payments for) investment with related parties		33,800			(33,800	)				—			—
Assets acquired, net of cash		(12,697	)		(3,624,215	)				—			—
Net cash used in investing activities		(5,563	)		(3,683,468	)				(13,839	)		(89,022	)
Cash flows from financing activities
Proceeds from the exercise of stock options the sale of stock under employee retirement and stock purchase plan		—			—					7,815			7,251
Proceeds of borrowings under unsecured credit facility, net		25,283			—					—			—
Proceeds of borrowings under secured credit facility, net		31,281			—					—			—
Proceeds from issuance of debt		—			3,856,451					—			1,366,000
Notes payable		—			—					—			(66,735	)
Excess tax benefit from stock-based compensation		—			—					493			1,083
Repayment of borrowings		—			(997,500	)				(2,500	)		(531,000	)
Payment of deferred financing costs excluding amount paid by Fresenius		(67,456	)		(25,523	)				(792	)		(13,275	)
Equity contribution from Fresenius		—			900,000					—			—
Separation asset transfer		—			—					—			(696,431	)
Net cash (used) provided by financing activities		(10,892	)		3,733,428					5,016			66,893
Effect of exchange rates on cash		5,188			(4,477	)				(2,283	)		2,267

4947

	(Successor)							~~(Predecessor)~~					(Predecessor)
	Year EndedDecember 31,2009			July 2throughDecember 31,2008				January 1throughSeptember 9,2008		Year EndedDecember 31,2007
	Year EndedDecember 31,2010			Year EndedDecember 31,2009			July 2throughDecember 31,2008						January 1throughSeptember 9,2008
	(in thousands)
(Payments)/proceeds of borrowings under unsecured credit facility, net		(132,337	)		25,283			—						—
Net increase (decrease) in cash and cash equivalents		2,028			8,441				94,409		(7,509	)
(Payments)/proceeds of borrowings under secured credit facility, net		(76,475	)		31,281			—						—
Cash and cash equivalents, beginning of period		8,441			—				31,788		39,297
Proceeds from issuance of debt		—			—			3,856,451						—
Cash and cash equivalents, end of period	$	10,469		$	8,441			$	126,197	$	31,788
Excess tax benefit from stock-based compensation		—			—			—						493
Supplemental disclosure of cash flow information:
Repayment of borrowings		—			—			(997,500	)					(2,500	)
Cash paid for interest		257,487			53,927				47,008		17,552
Payment of deferred financing costs		(13,744	)		(67,456	)		(25,523	)					(792	)
Cash (received) paid for income taxes, net of refunds		(19,166	)		6,135				45,270		122,501
Equity contribution from Fresenius		—			—			900,000						—
Supplemental disclosure of noncash investing and financing activities:
Net cash (used) provided by financing activities		(222,556	)		(10,892	)		3,733,428						5,016
Intercompany principal and interest payments made on Company’s behalf, net		9,906			—				—		—
Effect of exchange rates on cash		2,400			5,188			(4,477	)					(2,283	)
Net (decrease) increase in cash and cash equivalents		(1,625	)		2,028			8,441						94,409
Cash and cash equivalents, beginning of period		10,469			8,441			—						31,788
Cash and cash equivalents, end of period	$	8,844		$	10,469		$	8,441					$	126,197
Supplemental disclosure of cash flow information:
Cash paid for interest		248,566			257,487			53,927						47,008
Cash (received) paid for income taxes, net of refunds		6,474			(19,166	)		6,135						45,270
Supplemental disclosure of noncash investing and financing activities:
Intercompany principal and interest payments made on Company’s behalf, net		—			9,906			—						—

See accompanying notes to consolidated financial statements

5048

Fresenius Kabi Pharmaceuticals Holding, Inc.

Notes to Consolidated Financial Statements

December 31, ~~2009~~2010

1. Description of Business and Basis of Presentation

Our products are generally used in hospitals, long-term care facilities, alternate care sites and clinics within North America. Unlike the retail pharmacy market for oral products, the injectable pharmaceuticals marketplace is largely made up of end users who have relationships with group purchasing organizations, or GPOs, and/or specialty distributors who distribute products within a particular end-user market, such as oncology clinics. GPOs and specialty distributors generally enter into collective product purchasing agreements with pharmaceutical suppliers like us in an effort to secure more favorable drug pricing on behalf of their members.

Fresenius Kabi Pharmaceuticals Holding, Inc. is a wholly-owned subsidiary of Fresenius Kabi AG, and an indirect wholly-owned subsidiary of of Fresenius SE & Co. KGaA (“Fresenius” or “Parent Company”), a societas europaea organized under the laws of Germany. FKP Holdings was formed on July 2, 2008, in order to facilitate the acquisition of APP Pharmaceuticals, Inc. (“APP or the Predecessor”) discussed below. See Note 3 to the consolidated financial statements – Merger with APP for details.

On September 10, 2008, FKP Holdings completed the acquisition of APP (the “Merger”) pursuant to an Agreement and Plan of Merger dated July 6, 2008 (the “Merger Agreement”), and APP became a wholly-owned subsidiary of FKP Holdings. Effective with the Merger, each outstanding share of common stock of APP and certain stock options and restricted stock units of APP were converted into the right to receive $23.00 in cash, without interest, and one Contingent Value Right (“CVR”), issued by FKP Holdings and representing the right to receive a cash payment, without interest, of up to $6.00 determined in accordance with the terms of the CVR Agreement. Refer to Note 4 to the consolidated financial statements —– Contingent Value Rights (CVR), for further details. The aggregate consideration paid in the Merger was $4,908.1 million, including $997.5 million in assumed APP debt. We incurred $3,856 million in new external and intercompany debt due to Fresenius and its affiliates in connection with the Merger, the aggregate proceeds of which were used to pay the Merger consideration, repay a portion of APP’s then outstanding indebtedness and pay fees and expenses related to the Merger. Fresenius has committed to the Company that it will provide financial support to FKP Holdings sufficient for it to satisfy its obligations and debt service requirements arising under all existing financing instruments, entered into in connection with the Merger, and to which the Company is a party, as they come due until at least January 1, 2011.

Prior to the Merger, FKP Holdings had not carried on any activities or operations except for those activities incidental to its formation and in connection with the transactions related to the Merger. Following the Merger, the business of FKP Holdings consists exclusively of that of APP. Accordingly, for accounting purposes FKP Holdings is considered the successor to APP and these consolidated financial statements are presented for two distinct periods: the periods preceding the Merger, or “predecessor” periods (all periods prior to September 10, 2008), and the period after the merger, or “successor” period (from the inception of FKP Holdings on July 2, 2008, which includes the results of APP from September 10, 2008, the date of acquisition). The Company applied purchase accounting to the opening balance sheet on September 10, 2008. The Merger resulted in a new basis of accounting for the assets acquired and liabilities assumed in connection with the acquisition of APP beginning on September 10, 2008. As a result of the acquisition and the application of purchase accounting as described above, the consolidated financial information for the period after the acquisition is presented on a different basis than that for the periods before the acquisition and, therefore, is not comparable.

5149

2. Summary of Significant Accounting Policies

Consolidation

The accompanying consolidated successor period financial statements of FKP Holdings include the accounts of the Company and its majority-owned subsidiaries, including the assets, liabilities and results of operations of APP and its wholly owned subsidiaries (Pharmaceutical Partners of Canada, Inc. and APP Pharmaceuticals Manufacturing, LLC) from the date of the Merger. The accompanying consolidated predecessor period financial statements include the accounts of APP Pharmaceuticals, Inc. and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

In 2006, American Pharmaceutical Partners, Inc. (“Old APP”) completed a merger with American BioScience Inc. (or “ABI”), Old APP’s former parent. In connection with the closing of that merger, Old APP’s certificate of incorporation was amended to change its name to Abraxis BioScience, Inc. (“Old Abraxis”). On November 13, 2007, Old Abraxis separated into two independent publicly-traded companies. New APP, which operated the hospital-based business under the name APP Pharmaceuticals, Inc., and New Abraxis, which operated the proprietary business under the name Abraxis BioScience, Inc. Accordingly, the historical operating results of Old Abraxis through the date of the separation are presented as discontinued operations. Refer to Note 6—Discontinued Operations - Spin-off of New Abraxis, for further details.

Fiscal Year

Both the Company and the Predecessor use a calendar fiscal year, beginning on January 1 and ending on December 31.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates may also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates, but management does not believe such differences will materially affect the Company’s financial position, results of operations or cash flows. Significant items subject to such estimates and assumptions include ~~the measurement of fair values in purchase accounting~~; provisions and reserves for chargebacks, contractual allowances, returns, credits, and cash discounts; the recoverability of inventory pending regulatory approval and the net realizable value of inventory; the carrying amount of property, plant and equipment, intangibles and goodwill; the valuation of deferred income tax assets; and liabilities for self-insured obligations and other contingencies.

Cash, Cash Equivalents and Short-term Investments

Cash and cash equivalents include investments having a maturity of three months or less at the time of acquisition. These short-term investments consist of highly-liquid, debt instruments that are recorded at cost. Since the Merger, excess cash not needed for current operations has been invested in short-term debt instruments issued by the Parent through its centralized cash management system. Income earned on short-term investments is recorded as interest income.

Accounts Receivable and Concentration of Credit Risk

Accounts receivable relate primarily to amounts owed by customers for trade sales of products. We typically enter into multi-year ~~contractual~~ contractual agreements with GPOs and individual hospital groups to supply our products to end-user hospital and alternate site customers. As is traditional in the pharmaceutical industry, a significant amount of our generic pharmaceutical products are sold to end users under GPO contracts through a limited number of drug wholesalers, which comprise the primary pharmaceutical distribution chain in the United States. Collectively, and approximately proportionately, three of these wholesalers ~~represented~~ represented approximately 8274% and 8482% of accounts receivable at December 31, ~~2009~~2010 and ~~2008~~2009, respectively. An allowance for doubtful accounts is recorded to provide for estimated losses resulting from uncollectible accounts, and is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. To help control our credit exposure, we routinely monitor the creditworthiness of all of our customers, review outstanding customer balances for collectability and record allowances for bad debts as necessary. Historical credit losses have been insignificant.

5250

Inventories

Inventories are stated at the lower of cost or market (net realizable value). Cost is determined under the first-in, first-out, or FIFO, method. Inventories consist of the following at December 31, ~~2009~~2010 and ~~2008~~2009:

	December 31, 2009									December 31, 2008
	December 31, 2010													December 31, 2009
	Approved		~~PendingRegulatoryApproval~~	PendingRegulatoryApproval		~~TotalInventory~~		TotalInventory		~~Approved~~		~~PendingRegulatoryApproval~~		Approved	~~TotalInventory~~		PendingRegulatoryApproval		TotalInventory
	(in thousands)
Finished goods	$	7091,~~551~~742		~~16,733~~$	181	$	~~87,284~~	$	91,923	$	~~72,677~~		—	$	$70,551	~~72,677~~	$	16,733	$	87,284
Work in process		2742,~~934~~301		~~1,499~~	1,670		~~29,433~~		43,971		~~16,574~~		~~1,512~~		27,934	~~18,086~~		1,499		29,433
Raw materials		9098,~~476~~472		~~4,872~~	2,852		~~95,348~~		101,324		~~75,482~~		~~4,109~~		90,476	~~79,561~~		4,872		95,348
	$	~~188~~232,~~961~~515	$	~~23,104~~$	4,703	$	~~212,065~~	$	237,218	$	~~164,733~~	$	~~5,621~~	$	$188,961	~~170,354~~	$	23,104	$	212,065

At December 31, 2010 ~~2009~~ and December 31, ~~2008~~2009, inventory included $234.17 million and $523.61 million, respectively, in costs related to products pending FDA approval. The decrease in the inventory pending regulatory approval from December 31, 2009 to December 31, 2010, was due to increases in reserves related to uncertainty in the FDA approval of certain products.

We routinely review our inventory and establish reserves when the cost of the inventory is not expected to be recovered or the cost of a product exceeds estimated net realizable market value. In instances where inventory is at or approaching expiration, is not expected to be saleable based on our quality and control standards or is selling for a price below cost, we reserve for any inventory impairment based on the specific facts and circumstances. Provisions for inventory reserves are reflected in the consolidated financial statements as an element of cost of sales; inventories are presented net of related reserves.

Property, Plant and Equipment

Property, plant and equipment is stated on the basis of cost or allocated acquisition value. Provisions for depreciation are computed for financial reporting purposes using the straight-line method over the estimated useful life of the related asset; leasehold improvements are amortized over the lesser of the estimated useful life of the related asset or the term of the related lease. Amortization of leasehold improvements is included in depreciation expense. The estimated useful lives of assets are as follows:


Buildings and improvements			7-30 years
Machinery and equipment			3-10 years
Furniture and fixtures			5-7 years

Depreciation expense was ~~from~~$19.8 ~~continuing~~million ~~operations~~in ~~was~~2010, $17.8 million in 2009, and $6.9 million in the 2008 successor period and $12.5 million in the 2008 predecessor period (a total of $19.4 million in 2008)~~, and $28~~.~~5 million~~ ~~for the period ended December 31, 2007.~~

53Property, plant, and equipment consist of the following:


	December 31,
	2010			2009
	(in thousands)
Land	$	4,267		$	4,472
Building and improvements		46,821			44,065
Machinery and equipment		46,057			41,998
Furniture and fixtures		34,627			27,560
Construction in progress		31,046			36,470

		162,818			154,565
Less allowance for depreciation		(44,623	)		(24,781	)

	$	118,195		$	129,784

~~Property~~Included in property, plant, and equipment ~~consists~~is $5.2 million and $0.0 million of ~~the~~assets ~~following:~~held for sale as of December 31, 2010 and 2009, respectively. The held for sale assets mainly relate to manufacturing equipment at our Puerto Rico and Grand Island facilities.

	December 31,
	2009			2008
	(in thousands)
Land	$	4,472		$	3,672
Building and improvements		44,065			42,480
Machinery and equipment		41,998			44,680
Furniture and fixtures		27,560			25,498
Construction in progress		36,470			41,308
		154,565			157,638
Less allowance for depreciation		(24,781	)		(6,945	)
	$	129,784		$	150,693

Long-lived assets are evaluated periodically to determine if adjustment to the depreciation and amortization period or to the unamortized balance is warranted. Such evaluation is based principally on the expected utilization of the long-lived assets. We test for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable by comparing the carrying value to the sum of the estimated undiscounted future cash flows expected to result from the operation and eventual disposition of the asset group. If the sum of the undiscounted future cash flows is less than the carrying value, the fair value of the asset group is estimated. The amount of impairment is calculated by subtracting the estimated fair value of the asset group from the carrying value of the asset group. For the years ended December 31, 2010 and 2009, we recorded impairment charges related to property, plant and equipment of $3.4 million and $5.4 million, respectively. We did not record impairment charges in either the successor or predecessor periods in 2008.

Maintenance and repairs of property and equipment are expensed as incurred. We capitalize replacements and improvements that increase the estimated useful life or productive capacity of an asset and we capitalize interest on major construction and development projects while in progress.

Gains or losses on disposition of property and equipment are recognized in interest income and other, net in the consolidated statements of operations.

Deferred Financing Costs

Costs incurred in connection with the issuance of and amendments to our credit facilities are capitalized and amortized using the effective interest method. Unamortized debt issue costs are written-off in conjunction with the refinancing or termination of the applicable debt arrangement prior to its scheduled maturity.

We ~~capitalized~~recorded deferred financing costs of approximately $162 million associated with the senior secured credit agreement entered into in connection with the 2008 Merger and $13.3 million associated with the senior secured credit agreement entered into in in connection with our Predecessor’s November 2007 separation from New Abraxis. In 2009, we wrote-off $14.6 million in unamortized debt issuance costs in connection with certain modifications to our intercompany loan agreements. In the 2008 successor period we wrote-off $12.2 million of unamortized deferred financing costs related to debt repaid in that period. Amortization and write-off of debt issue costs are recognized in third party and intercompany interest expense in the consolidated statements of operations.

In March of 2010, the 2008 Senior Credit Facilities Agreement was amended. As a result, the Company incurred and capitalized debt issuance costs of $13.7 million, of which $12.2 million was paid directly by the Company and $1.5 million was pushed down from the Parent.

Goodwill and Intangible Assets

We evaluate goodwill and other intangible assets not subject to amortization for impairment annually at October 1 or more frequently whenever indicators of potential impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others, (i) significant decline in expected future cash flows, (ii) a sustained, significant decline in equity price and market capitalization, (iii) a significant adverse change in legal factors or in the business climate, (iv) unanticipated competition, and (v) slower growth rates. Goodwill is considered impaired when the fair value of a reporting unit is determined to be less than the carrying value including goodwill. The impairment loss is determined based on a comparison of the implied fair value of the reporting unit’s goodwill to the actual carrying value. Intangible assets not subject to amortization are considered impaired when the intangible asset’s fair value is determined to be less than the carrying value.

In performing our assessment of the carrying value of goodwill, we use the present value of estimated future cash flows to establish the estimated fair value of our reporting unit as of the testing date. This approach includes many assumptions related to future growth rates, discount rates, market comparables, control premiums and tax rates, among other considerations. Changes in economic and operating conditions impacting these assumptions could result in an impairment of goodwill in future periods. When available and as appropriate, we use comparative market multiples to corroborate the estimated fair value. In ~~2009~~fiscal years 2010 and ~~2008~~ 2009, we did not recognize any goodwill impairment, as the estimated fair value of our reporting unit with goodwill exceeded its carrying amount as of our annual testing date in both periods.

5452

Intangible assets subject to amortization are also evaluated for impairment periodically or when indicators of impairment are determined to exist. We test for impairment of intangible assets subject to amortization by comparing the sum of the estimated undiscounted future cash flows expected to result from the use of the asset to the carrying value. If the sum of the estimated undiscounted future cash flows is less than the carrying value, the fair value of the asset group is determined. The amount of impairment, if any, is calculated by subtracting the fair value of the asset from the carrying value of the asset. Our impairment loss calculations require us to apply judgments in estimating future cash flows and asset fair values. These judgments include those required to develop asset level projections of future cash flows and assessments of the probability that certain business scenarios will be realized.

Other intangible assets could become impaired in the future or require additional charges as a result of declines in profitability due to changes in volume, market pricing, cost, manner in which an asset is used, laws and regulations, or in the business environment. Significant adverse changes in our business environment and estimated future cash flows could cause us to record additional impairment charges in future periods which could be material.

We amortize the cost of intangible assets on a straight-line basis over the period of expected benefit, which is equal to the period over which revenues are expected to be derived from such assets (weighted average amortization period of approximately eighteen and one-half years). The ranges for the amortization periods are generally as follows:


	Years
Developed product technology		20
Product rights		10
Patents		5
Contracts and other		5
Customer relationships		3

Product Revenue Recognition

At the time of sale, as further described below, we reduce sales and provide for estimated chargebacks, contractual allowances or customer rebates, product returns, customer credits and cash discounts. We base our estimates of required provisions and reserves for chargebacks, rebates and customer returns and credits on consideration of such factors as our historical experience estimated and actual customer inventory levels, the terms of customer rebate arrangements, and current contract sales terms with wholesalers and end-user customers, amount others. As further described below, due to the nature of our generic injectable products and their primary use in hospital and clinical settings with generally consistent demand, we believe that this historical data, in conjunction with periodic review of available third-party data, provides a reliable basis for such estimates. We regularly review information related to these estimates and adjust our provisions and reserves accordingly if, and when, actual experience differs from estimates. In 2009, we revised our methodology to estimate certain of our sales provisions to reflect the availability of new information. The methodology we used to estimate theses sales provisions was consistent across all periods presented.

Accruals for sales provisions are presented in our consolidated financial statements as a reduction of revenues and accounts receivable or, in the case of contractual allowances, in accrued liabilities. Our total sales provisions totaled $1,178.3 million in 2010, $1,478.5 million in 2009 and $490.3 million in the 2008 successor period and $731.7 million in the 2008 predecessor period (a total of $1,222.0 million in 2008), and ~~$1,080.1 million in 2007, and~~ related reserves totaled $~~173~~139.51 million and $~~176~~173.5 million at December 31, ~~2009~~2010 and ~~2008~~2009, respectively.

Chargebacks

Following industry practice, we typically sell our products to independent pharmaceutical wholesalers at wholesale list price. The wholesalers in turn sell our products to an end user, normally a hospital or alternative healthcare facility, at a lower contractual price previously established between the end user and us via a group purchasing organization, or GPO. GPOs enter into collective purchasing contracts with pharmaceutical suppliers to secure more favorable product pricing on behalf of their end-user members.

The determination of the estimated provision for chargebacks and the related reserve requires us to make significant estimates and judgments. The most significant estimates inherent in the measurement of the initial chargeback provision relate to the proportion of wholesale units that will ultimately be sold to an end-user with a lower-price contractual relationship with us, and the ultimate end-user contract selling price we will realize when those units are sold. We base our estimates of these factors on internal, product-specific sales and chargeback processing experience, current contract pricing, our expectation for future contract pricing changes and IMS data. In our monthly assessment of the adequacy of our recorded chargeback reserve, we consider these same factors in estimating the ending wholesale units in the distribution channel pending chargeback and the net proceeds we will realize from the wholesaler. The amount of product in the channel is comprised of product at the distributor and product that the distributor has sold to an end-user, but has yet to report as end user sales. Accordingly, in estimating the ending wholesale units in the distribution channel pending chargeback, we also must make assumptions about the time lag between the date the product is sold to the wholesaler and the date the wholesaler sells the product to the end-user customer, and between the sale date and the date that sale is reported to us enabling us to process the chargeback. Physical inventory in the channel is based on inventory data received from certain of our wholesalers; for others it is estimated based on evaluation of our monthly sales to our wholesalers and our knowledge of inventory turnover at our major wholesalers. We estimate end user sales made but not yet reported to us based on either actual chargebacks processed in the following month or the historical average number of days to process a chargeback from the date of the end user sale.

Our estimate of the chargeback provision and reserve could also be impacted by a number of market conditions that are beyond our control, including: competitive pricing, competitive products and changes impacting demand in both the distribution channel and at the level of the healthcare provider. We regularly review information related to these estimates and adjust our provisions and reserves accordingly if, and when, actual experience differs from our estimates.

Due to information constraints in the distribution channel, it has not been practical, and has not been necessary, for us to capture and quantify the impact of current versus prior year activity on the chargeback provision. Information constraints within the distribution channel primarily relate to our inability to track product through the channel on a unit or specific lot basis. In addition, for the most part, we do not receive information from our customers with respect to the level of their sales that are subject to chargeback. The lack of information on a specific lot basis precludes us from tracking actual chargeback activity to the period of its initial sale. As a result, we rely on internal data, external wholesaler and IMS data and management estimates in order to estimate the amount of inventory in the channel subject to future chargeback. We also review current year chargeback activity to determine whether changes in the provision relate to prior period sales; such changes have not been material to the consolidated statement of operations.

The provision for chargebacks is presented in our consolidated financial statements as a reduction of sales. Activity in the reserve for chargebacks for the periods included in the consolidated financial statements was as follows:

	Year Ended December 31,
	2009			2008			2007
	2010			2009			2008
	(in thousands)
Balance at beginning of period	$	~~143~~129,~~265~~002		$	~~100~~143,~~413~~265		$	92100,~~427~~413
Provision for chargebacks		1,~~341~~026,~~571~~974			1,~~122~~341,~~109~~571			1,~~006~~122,~~686~~109
Credits or checks issued to third parties		(1,~~355~~066,~~834~~493	)		(1,~~079~~355,~~257~~834	)		(~~997~~1,~~968~~079,257	)
Balance transferred at separation		—			—			(732	)
Balance at end of period	$	89,483		$	129,002		$	143,265
Balance at end of period	$	129,002		$	143,265		$	100,413

For the period ended December 31, 2008, our chargeback provision totaled $447.1 million in the successor period and $675.0 million in the predecessor period (a total of $1,122.1 million in 2008). The balance of this reserve accounted was not impacted by purchase accounting.

~~Based~~54 on the availability of new information regarding inventory in the wholesale distribution channel and the chargeback processing lag, we revised our methodology to estimate the chargeback reserve in 2009. This change in estimate reduced the estimated chargeback reserve at December 31, 2009 by approximately $5.5 million.

Contractual ~~allowances~~Allowances, ~~which~~Fee ~~generally~~for ~~consist of rebates or administrative fees~~Service, ~~are~~Returns ~~offered~~and ~~to certain wholesale customers~~Credits, ~~GPOs~~Cash and end-user customers consistent with pharmaceutical industry practices. Settlement of rebates and fees due to customers generally occurs between one to fifteen (15) months from the date of sale. We establish a general reserve for contractual allowances at the time of sale based on the historical relationship between sales and such allowances. Upon receipt of request for creditDiscounts, weMedicaid establish a specific liability for the fees or rebates due to the customer based on the specific terms of each agreement. Contractual allowances are reflected in the consolidated financial statements as a reduction of revenue and asBad ~~a current accrued liability.~~ Debts

Contractual allowances, which generally consist of rebates or administrative fees, are offered to certain wholesale customers, GPOs and end-user customers consistent with pharmaceutical industry practices. Settlement of rebates and fees due to customers generally occurs between one to fifteen (15) months from the date of sale. We establish an estimated reserve for contractual allowances at the time of sale based on the historical relationship between sales and such allowances. Upon receipt of request for credit, we establish a specific liability for the fees or rebates due to the customer based on the specific terms of each agreement by adjusting our original estimate. Contractual allowances are reflected in the consolidated financial statements as a reduction of revenue and as a current accrued liability.

We establish a reserve for bad debts based on general and identified customer credit exposure. Our actual losses due to bad debts were less than $0.2 million in each of ~~2009~~2010, ~~2008~~2009 and ~~2007~~2008.

Activity in the reserve for other sales provisions for the periods included in the consolidated financial statements was as follows:

	Year Ended December 31,
	2009			2008			2007
	2010			2009			2008
	(in thousands)
Balance at beginning of period	$	3344,~~206~~436		$	2433,~~554~~206		$	3124,~~650~~554
Provisions		~~136~~151,~~907~~280			99136,~~856~~907			7399,~~435~~856
Credits or checks issued to third parties		(~~125~~146,~~677~~068	)		(91125,~~204~~677	)		(7491,~~617~~204	)
Balance transferred at separation		—			—			(5,914	)
Balance at end of period	$	49,648		$	44,436		$	33,206
Balance at end of period	$	44,436		$	33,206		$	24,554

For the period ended December 31, 2008, our other sales provisions totaled $56.7 million in the successor period and $43.1 million in the predecessor period (a total of $99.8 million in 2008). The balance of this reserve account was not impacted by purchase accounting.

Shipping and Handling Fees and Costs

Shipping and handling fees billed to customers are recognized in revenues. Other shipping and handling costs are included in cost of sales.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss and capital loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated financial statements in the period that includes the legislative enactment date.

Deferred tax assets are evaluated for recoverability at each reporting date. A valuation allowance is established for deferred tax assets that are not considered more likely than not to be recoverable based on our expectation of future taxable income.

Our company is subject to tax audits in the numerous jurisdictions in which we operate. In the normal course of business, we are subject to challenges from the IRS and other tax authorities regarding amounts of taxes due. These challenges may alter the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. The benefits of tax positions that are judged to be more likely than not of being sustained upon audit based on the technical merits of the tax position are recognized in the consolidated financial statements; positions that do not meet this threshold are not recognized. For tax positions that are at least more likely than not of being sustained upon audit, the largest amount of the benefit that is more likely than not of being sustained is recognized in the consolidated financial statements.

The determination of the Company’s provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is also required in assessing the timing and amounts of deductible and taxable items, establishing reserves for uncertain tax positions and evaluating the recoverability of deferred tax assets.

Research and Development Costs

Research and development costs are expensed as incurred or as assets are consumed and consist of costs related to pre-production manufacturing scale-up activities and related salaries and other personnel-related expenses, operating costs of equipment and facilities, depreciation, raw material and production costs and professional services.

Equity-Based Compensation

Prior to the Merger and subsequent plan termination, our Predecessor accounted for the recognition of compensation cost for all share-based payments (including employee stock options) at fair value. Effective January 1, 2006, our Predecessor used a modified version of retrospective application to determine the fair value of stock options. As a result, stock-based employee compensation for options was recorded as an expense based on the fair value method and using the straight-line attribution method to recognize share-based compensation expense over the vesting period of the award.

To determine stock-based compensation, our Predecessor used the Black-Scholes option pricing model to estimate the fair value of options granted under share-based compensation plans. The Black-Scholes option pricing model requires us to estimate a variety of factors, including the applicable risk-free rate, the expected term of the option, the volatility of the common stock and the forfeiture rate. The risk-free rate of interest for the average contractual life of an option is based on the U.S. Treasury yield curve in effect at the time of grant. The assumed dividend yield is zero as APP did not anticipate paying any dividends. The expected term of awards granted is based upon the historical exercise patterns of the participants in APP’s plans and the expected volatility is based on the historical volatility of APP’s stock over the expected term of the award. Compensation expense related to awards of restricted stock units is based upon the market price on the date of grant of the shares for which vested units may be exchanged.

Following the Merger, we terminated our stock-based compensation programs.

Fair Value of Financial Instruments

Our financial instruments consist mainly of cash and cash equivalents, ~~notes receivable from Parent,~~ accounts receivable, accounts payable, borrowings under our credit facility, intercompany loans and currency and interest rate swap agreements, and our outstanding contingent value rights. Cash equivalents are stated at cost which approximates fair value. ~~Notes receivable from Parent are stated at cost which approximates market value due to the short maturity of these instruments.~~ At December 31, ~~2009~~2010 and ~~2008~~2009, the carrying amounts of other items comprising current assets and current liabilities approximate fair value due to the short-term nature of these financial instruments. The interest rates on borrowings under the bank credit facility and intercompany loan agreements are revised periodically to reflect changes in market interest rates; as such, the carrying amounts of these obligations approximate fair value. Our currency and interest rate swap agreements and our outstanding contingent value rights are reflected in the accompanying consolidated financial statements at fair value.

Foreign Currency Translation

Local currencies are considered the functional currencies for the Company’s operations outside the United States. Assets and liabilities of foreign operations are translated into U.S. dollars at the rate of exchange in effect at the balance sheet date with the related translation adjustments reported in ~~stockholders~~stockholder’s equity as a component of accumulated other comprehensive income (loss). ~~Revenues and expenses are translated into U.S. dollars at average monthly exchange~~ rates prevailing during the year. Foreign currency transaction gains and losses related to assets and liabilities that are denominated in a currency other than the functional currency are reported in the consolidated statements of operations in the period they occur.

Revenues and expenses are translated into U.S. dollars at average monthly exchange rates prevailing during the year. Foreign currency transaction gains and losses related to assets and liabilities that are denominated in a currency other than the functional currency are reported in the consolidated statements of operations in the period they occur.

Derivative Instruments and Hedging Activities

The Company records all derivative instruments on the balance sheet at fair value. Changes in the fair value of derivative instruments are included in operations or deferred in accumulated other comprehensive income (loss), depending on whether a derivative is designated as, and is effective as, a hedge and on the type of hedging transaction. Changes in fair value of derivatives that are designated as cash flow hedges are deferred in accumulated other comprehensive income (loss) until the underlying hedged transactions are recognized in operations, at which time any deferred hedging gains or losses are also recorded in operations. If a derivative instrument is designated as a fair value hedge, changes in the fair value of the instrument are reported in interest income and other, net in the consolidated statements of operations, and offset the change in fair value of the hedged assets, liabilities or firm commitments. The ineffective portion of an instrument’s change in fair value is immediately recognized in interest income and other, net. Instruments that do not meet the criteria for hedge accounting or for which the Company has not elected hedge accounting are marked to fair value each period with unrealized gains or losses reported in interest income and other, net.

RECENT ACCOUNTING PRONOUNCEMENTS

In ~~June~~December ~~2009~~2010, the ~~Financial Accounting Standards Board (“~~FASB”) issued ~~guidance~~ASU ~~that eliminates~~No. 2010-28, ~~the~~When ~~exceptions~~ to ~~the~~Perform ~~rules~~Step ~~requiring~~2 ~~consolidation~~ of ~~qualifying~~the ~~special-purpose~~Goodwill ~~entities~~Impairment ~~(the~~Test ~~“QSPE”)~~for ~~which~~Reporting ~~means~~Units with ~~more~~Zero ~~entities~~or ~~will~~Negative beCarrying ~~subject~~Amounts to ~~consolidation~~modify ~~assessments~~Step ~~and~~1 ~~reassessments. The guidance also requires ongoing reassessment~~ of ~~whether a company is~~ the ~~primary~~goodwill ~~beneficiary~~impairment oftest; arequiring ~~variable~~companies ~~interest~~with ~~entity~~reporting ~~(“VIE”)~~units ~~and~~with ~~clarifies~~zero ~~characteristics~~or ~~that~~negative ~~identify~~carrying aamounts ~~VIE.~~to Inperform ~~addition,~~Step ~~additional~~2 ~~disclosures~~of ~~about~~the agoodwill ~~company’s~~impairment ~~involvement~~analysis ~~with~~if ait ~~VIE~~is ~~and~~more ~~any~~likely ~~significant~~than ~~changes~~not ~~in risk exposure due to~~ that ~~involvement~~a ~~are~~goodwill ~~required~~impairment exists. This guidance is effective for ~~the~~fiscal ~~Company~~years beginning inafter December 15, 2010. ~~The~~Early ~~Company~~adoption is ~~currently~~not ~~evaluating~~permitted. ~~the~~This ~~impact of the adopting this~~ guidance ~~but~~is ~~does~~ not ~~anticipate~~expected itto ~~will have a material~~ impact on our ~~results~~consolidated ~~of operations or~~ financial ~~condition~~statements.

In June 2009, the FASB issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162” (“the ASC” or “the Codification”). Effective for interim and annual periods ended after September 15, 2009, the Codification became the source of authoritative U.S. generally accepted accounting principles (GAAP) and reporting standards recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. This statement is not intended to change existing GAAP and as such did not have an impact on the consolidated financial statements of the Company. The Company has updated its references in these consolidated financial statements to reflect the Codification.

In December 2007, the FASB issued new accounting guidance on business combinations and non-controlling interests in consolidated financial statements. The new guidance revises the method of accounting for a number of aspects of business combinations and non-controlling interest, including acquisition costs, contingencies (including contingent assets, contingent liabilities and contingent purchase price), the impacts of partial and step-acquisitions (including the valuation of net assets attributable to non-acquired minority interests) and post-acquisition exit activities of acquired businesses. The new guidance is effective for the Company for business combinations completed and non-controlling interests acquired or created after January 1, 2009. The adoption of this guidance on January 1, 2009 did not impact the accompanying consolidated financial statements.

In April 2008, the FASB issued guidance that amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset and requires enhanced disclosures relating to: (a) the entity’s accounting policy on the treatment of costs incurred to renew or extend the term of a recognized intangible asset; (b) in the period of acquisition or renewal, the weighted-average period prior to the next renewal or extension (both explicit and implicit), by major intangible asset class; and (c) for an entity that capitalizes renewal or extension costs, the total amount of costs incurred to renew or extend the term of a recognized intangible asset for each period for which a statement of financial position is presented, by major intangible asset class. The adoption of this new guidance on January 1, 2009 did not impact the accompanying consolidated financial statements.

In March 2008, the FASB issued updated guidance that requires qualitative disclosures about the objectives and strategies for using derivatives, quantitative disclosures about the fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The effective date for adoption of this guidance by the Company was the first quarter of 2009. We have incorporated the required disclosures into these condensed consolidated financial statements. In September 2006, the FASB issued guidance that essentially redefined fair value, established a framework for measuring fair value in accordance with GAAP, and expanded disclosures about fair value measurements. This guidance applies where other accounting pronouncements require or permit fair value measurements and was effective for fiscal years beginning after November 15, 2007 for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in the financial statements. In November 2007, the FASB provided a one year deferral for the implementation of this guidance for other non-financial assets and liabilities. Our Predecessor adopted this guidance for financial assets and liabilities measured at fair value on a recurring basis on January 1, 2008, and the Company adopted it for non-financial assets and liabilities effective at the beginning of fiscal year 2009. The effects of its adoption were determined by the types of instruments carried at fair value in our financial statements at the time of adoption as well as the methods utilized to determine their fair values prior to adoption. The adoption of this guidance on January 1, 2008 did not have a significant impact on the consolidated financial statements of our Predecessor. The adoption of the guidance for non-financial assets and liabilities had no impact on our consolidated financial statements for fiscal year 2009.

In April 2009, the FASB issued updated guidance related to fair-value measurements to clarify the guidance related to measuring fair-value in inactive markets, modify the recognition and measurement of other- than-temporary impairments of debt securities, and require public companies to disclose the fair values of financial instruments in interim periods. The updated guidance is effective for interim and annual periods ended after June 15, 2009, with early adoption permitted for periods ended after March 15, 2009. The Company adopted the updated guidance in the first quarter of fiscal year 2009, which required certain additional disclosures regarding the fair value of financial instruments in the financial statements.

In May 2009, the FASB issued guidance which establishes accounting and disclosure requirements for subsequent events. This guidance details the period after the balance sheet date during which the Company should evaluate events or transactions that occur for potential recognition or disclosure in the financial statements, the circumstances under which the Company should recognize events or transactions occurring after the balance sheet date in its financial statements and the required disclosures for such events. The Company adopted this guidance in the second quarter of 2009, and has evaluated subsequent events through the filing date of this report.

3. Merger with APP

On September 10, 2008, FKP Holdings completed the Merger, following which APP became a wholly-owned subsidiary of FKP Holdings. The results of APP’s operations have been included in the consolidated financial statements of FKP Holdings since September 10, 2008. APP is a fully-integrated pharmaceutical company that develops, manufactures and markets injectable pharmaceutical products with a primary focus on the oncology, anti-infective, anesthetic/analgesic and critical care markets. APP manufactures a comprehensive range of dosage formulations, and its products are used in hospitals, long-term care facilities, alternate care sites and clinics within North America. The Merger is an important step in Fresenius’ growth strategy. Through the merger with APP, Fresenius ~~gains~~gained entry to the U.S. pharmaceuticals market and ~~achieves~~achieved a leading position in the global I.V. generics industry. The North American platform also provides further growth opportunities for Fresenius’ existing product portfolio.

6057

Effective with the Merger, each outstanding share of common stock of APP and certain stock options and restricted stock units of APP were converted into the right to receive $23.00 in cash, without interest, and one CVR issued by FKP Holdings and representing the right to receive a cash payment, without interest, of up to $6.00 determined in accordance with the terms of the CVR Agreement. The aggregate consideration paid in the Merger was $4,908.1 million (including assumed APP debt), comprised as follows (in millions):


Purchase of outstanding common stock (cash portion)	$	3,702.7
Buy-out of restricted stock units and stock options under stock compensation plans		27.7
Estimated fair value of CVRs		158.4
Direct acquisition costs		21.8

Fair value of consideration paid		3,910.6
Assumption of APP debt		997.5

Total aggregate consideration	$	4,908.1

The CVRs were issued on the acquisition date and are traded on the NASDAQ Capital Market (“NASDAQ”) under the symbol “APCVZ.” The fair value of the CVRs at the date of the acquisition was estimated based on the average of their closing prices for the five trading days following the acquisition. Direct costs of the acquisition include investment banking fees, legal and accounting fees and other external costs directly related to the acquisition.

As the APP acquisition occurred prior to December 15, 2008, the acquisition was accounted for under the purchase method of accounting with the Company treated as the acquiring entity in accordance with the transition guidance in ASC 805-10-65. Accordingly, the consideration paid by the Company to complete the acquisition has been allocated to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of acquisition. The excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. Goodwill is non-amortizing for financial statement purposes and is not tax deductible.

The following summarizes the final fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):

Net working capital and other assets	$	323.1
Property, plant and equipment		108.8
In-process research and development		365.7
Identifiable intangible assets		542.0
Deferred tax liability, net		(9593.97	)
Long-term debt		(997.5	)
Goodwill		3,~~664~~662.42
Total	$	3,910.6

The changes in goodwill from December 31, ~~2008~~2009 to December 31, ~~2009~~2010 are primarily due to ~~(i) finalization~~ of a plan to close the acquired Barceloneta, Puerto Rico manufacturing facility and to transfer its production operations to existing Company plants in the United States; (ii) tax adjustments resulting from the decision to close the Puerto Rico manufacturing facility, filing of tax returns covering the ~~pre-~~acquisition period and other acquisition-related matters; (iii) changes in the estimated fair value of acquired fixed assets, in part due to the finalization of the decision to close the Puerto Rico facility; (iv) revisions to the estimated fair values of certain acquired assets and assumed liabilities related to the APP acquisition. ~~The Company recorded an immaterial amount of these final purchase accounting adjustments in the fourth quarter of 2009.~~

OnIn September 8,of 2009, the Board of Directors of FKP Holdings ~~formally~~ formally approved management’s plan to close the Barceloneta, Puerto Rico manufacturing facility and transfer production operations to existing Company plants in the United States. ~~This action is consistent with the Company’s objective to lower overall manufacturing costs and to strengthen the Company’s long-term competitive position.~~ The closure iswas ~~expected~~completed toin bethe ~~substantially~~fourth ~~completed~~quarter byof ~~mid~~ 2010. The Company acquired the Barceloneta, Puerto Rico manufacturing facility in connection with the September 2008 acquisition of APP. Various plans to lower the Company’s overall manufacturing costs, including the closure of the Puerto Rico manufacturing facility along with the transfer of its production operations to existing Company plants in the United States, have been under consideration since the date of the acquisition and, accordingly, the decision to close this facility resulted in various adjustments to the estimated amounts assigned to certain assets acquired, liabilities assumed and residual goodwill in connection with the APP acquisition based on market valuations of the related assets and liabilities. These adjustments included a reduction in the estimated fair value of the acquired plant and equipment at the Puerto Rico facility, the recognition of estimated liabilities for employee severance and contract termination costs related to the Puerto Rico facility, and the recording of associated tax effects.

Due to the decision to close the Puerto Rico facility, (which was made in 2009) and the recognition of the related impairments for tax purposes, the Company expects to be able to file a carry back claim and recover approximately $39.2 million of taxes paid by APP in prior years. The portion of this benefit attributable to the assets acquired and liabilities assumed in connection with the purchase of APP has been reflected as an adjustment to goodwill in the consolidated balance sheet.

Because the Company continued to operate the Puerto Rico facility subsequent to the acquisition date, a portion of the adjustment to the carrying value of property and equipment (approximately $5.4 million) and the anticipated tax benefit (approximately $7.9 million) have been reflected in the consolidated statement of operations for the period ended December 31, 2009.

Approximately $365.7 million of the purchase price represents the estimated fair value of acquired in-process research and ~~development~~ development (R&D) projects that had not yet reached technological feasibility and had no alternative future use. Accordingly, this amount was immediately expensed in the 2008 successor period~~, $252~~.0 ~~million as of the acquisition date and $113.7 million upon finalization of the fair value of the R&D projects during the fourth quarter 2008.~~ The value assigned to the acquired in-process R&D was determined by project using a discounted cash flow model. The discount rates used take into consideration the stage of completion and the risks surrounding the successful development and commercialization of each of the acquired in-process R&D projects that were valued.

~~Identifiable~~58 intangible assets consist of developed product technology and are amortized using the straight-line method over the estimated useful life of the assets of 20 years. Refer to Note 7 to the consolidated financial statements—Goodwill and Other Intangibles.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents the combined historical results of the operations of the Company and APP as if the acquisition had occurred on the first day of the periods presented.

Unaudited pro forma results of operations are as follows (in thousands):

	Three months endedDecember 31, 2008			For the year endedDecember 31,
				2008			2007
Sales	$	232,756		$	776,633		$	647,374
Gross profit	$	132,341		$	368,271		$	288,408
Net loss	$	(59,066	)	$	(402,692	)	$	(542,932	)

This unaudited pro forma financial information is not intended to represent or be indicative of what would have occurred if the transaction had taken place on the dates presented and is not indicative of what the Company’s actual results of operations would have been had the acquisition been completed at the beginning of the periods indicated above. The unaudited pro forma information includes the write-off of $365.7 million of in-process R&D and $45.5 million of expense in cost of goods sold due to inventory step up. Further, the pro forma combined results do not reflect one-time costs to fully merge and operate the combined organization more efficiently, or anticipated synergies expected to result from the combination and should not be relied upon as being indicative of the future results that the Company will experience.

4. Contingent Value Rights (CVR)

In connection with the Merger, each APP shareholder was issued one contingent value right of FKP Holdings for each share held. The CVRs are intended to give holders an opportunity to participate in any excess Adjusted EBITDA, as defined in the CVR Indenture, generated by FKP Holdings during the three years ending December 31, 2010, referred to as the “CVR measuring period,” in excess of a threshold amount. Each CVR represents the right to receive a pro rata portion of an amount equal to 2.5 times the amount by which cumulative Adjusted EBITDA of APP and FKP Holdings and their subsidiaries on a consolidated basis, exceeds $1.267 billion for the three years ending December 31, 2010. If Adjusted EBITDA for the CVR measuring period does not exceed this threshold amount, no amounts will be payable on the CVRs and the CVRs will expire valueless. The maximum amount payable under the CVR Indenture is $6.00 per CVR. The cash payment on the CVRs, if any, will be determined after December 31, 2010, and will be payable June 30, 2011, except in the case of a change of control of FKP Holdings, which may result in an acceleration of any payment. The acceleration payment, if any, is payable within six months after the change of control giving rise to the acceleration payment.

Identifiable intangible assets consist of developed product technology and are amortized using the straight-line method over the estimated useful life of the assets of 20 years. Refer to Note 7 to the consolidated financial statements – Goodwill and Other Intangibles.

4. Contingent Value Rights (CVR)

The CVRs do not represent equity, or voting securities of FKP Holdings, and they do not represent ownership interests in FKP Holdings. Holders of the CVRs are not entitled to any rights of a stockholder or other equity or voting securities of FKP Holdings, either at law or in equity. Similarly, holders of CVRs are not entitled to any dividends declared or paid with respect to any equity security of FK Holdings. A holder of a CVR is entitled only to those rights set forth in the CVR Indenture. Additionally, the right to receive amounts payable under the CVRs, if any, is subordinated to all senior obligations of FKP Holdings. The CVRs trade on NASDAQ under the symbol “APCVZ”.

Because ~~any~~ an amount payable to the holders of CVRs must be settled in cash, the CVRs are classified as liabilities in the accompanying consolidated financial statements. The estimated fair value of the CVRs at the date of acquisition was included in the cost of the acquisition. AtThe CVRs are recorded at fair value each reporting date, ~~the~~in ~~CVRs~~accordance ~~are~~with ~~marked-to-market~~ASC 820 (Fair Value Measurements and Disclosures) based on the closing price of a CVR as reported by NASDAQ, and is not reflective of any payment required per the terms of the CVR Indenture. The change in the fair value of the CVRs for the reporting period is included in the statements of operations. At December 31, ~~2009~~2010 and ~~2008~~2009, the carrying value of the CVR liability was approximately $496.07 million and $5749.10 million, respectively.

5. Adjusted EBITDA Calculation for Contingent Value Rights

Under the terms of the CVR Indenture, the amount, if any, payable in respect of each CVR on June 30, 2011 is determined based on Adjusted EBITDA. As a result, in addition to reporting financial results in accordance with generally accepted accounting principles, FKP Holdings also must calculate and present Adjusted EBITDA, which is a non-GAAP financial measure, for the cumulative period from January 1, 2008 to the current reporting date until the expiration of the CVR measurement period (December 31, 2010) and settlement of the CVRs.

Under the CVR Indenture, Adjusted EBITDA is measured without taking into account the Merger and assuming that APP would have remained a stand-alone company with its existing assets; it also excludes (i) costs, expenses, and revenue from sales outside the U.S. and Canada, and (ii) costs, expenses and revenue for sales of product not currently under development by APP at the time of the Merger.

Adjusted EBITDA, as defined in the CVR Indenture, consists of consolidated net income determined in accordance with U.S. GAAP plus:

•

interest expense, the provision for income taxes, and depreciation and amortization;

•

non-cash charges or losses resulting from (i) the sale or other disposal of assets; (ii) impairment charges or asset write-offs related to intangible assets, long-lived assets, and investments in debt and equity securities; (iii) losses from investments recorded using the equity method; and (iv) non-cash expenses relating to the vesting of warrants;

•

any extraordinary, unusual or non-recurring expenses or losses related to FKP Holdings’ acquisition of APP, and expenses (not to exceed $1 million in the aggregate) arising out of the spin-off of Abraxis BioScience from APP to APP’s stockholders on November 13, 2007;

•

any costs and expenses incurred in connection with any management equity plan;

•

any non-cash increase in expenses resulting from the revaluation of inventory, non-cash charges due to any change in accounting policy, or increased expenses due to purchase accounting associated with the Merger, including the issuance of the CVRs;

•

expenses with respect to liability or casualty events or business interruption only to the extent of any reasonably anticipated insurance recovery, and only to the extent that such recovery has not already been recorded in consolidated net income;

•59 ~~certain research and development expenses relating to the build-out of facilities and costs incurred to transfer production to or start-up any facilities not to exceed $34.9 million;~~

•

certain research and development expenses relating to the build-out of facilities and costs incurred to transfer production to or start-up any facilities not to exceed $35.9 million;

•

any deductions attributable to minority interests; and

•

any expenses or losses arising out of the consulting agreement among FKP Holdings, Dr. Soon-Shiong and Fresenius.

And less:

•

extraordinary and unusual or non-recurring cash gains;

•

non-cash gains;

•

gains on sales of fixed assets;

•

any net after-tax income from the early extinguishment of indebtedness or hedging obligations or other derivative instruments; and

•

all one-time gains from investments recorded using the equity method.

636. Goodwill and Other Intangibles

As of December 31, 2010 and 2009, goodwill had a carrying value of $ 3,662.2 million and $3,664.4 million, respectively. All of our intangible assets, other than goodwill, are subject to amortization. Changes in goodwill from December 31, 2009 to December 31, 2010 are primarily due to filing of tax returns covering the acquisition period.

The following table reflects the components of identifiable intangible assets, all of which have finite lives, as of December 31, 2010 and 2009:


	December 31, 2010				December 31, 2009				Category Amortization Period
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Category Amortization Period
	(in thousands)				(in thousands)
Developed product technology	$	489,000	$	56,378	$	489,000	$	31,928		20 years
Product rights		2,400		138		2,300		87		10 years
Patents		6,847		1,877		6,847		553		5 years
Contracts and other		43,500		19,932		45,500		11,641		5 years
Customer relationships		12,000		9,223		12,000		5,223		3 years

Total	$	553,747	$	87,548	$	555,647	$	49,432

We amortize all of our identifiable intangible assets with finite lives over their expected period of benefit using the straight-line method. In determining the appropriate amortization period and method for developed product technology, we considered, among other things, the nature of the products, the anticipated timing of cash flows and the relatively high barriers to entry for competition due to the complex development and manufacturing processes. In addition, the products all share in similar attributes in that they have a favorable risk profile (e.g., minimal side effects, adverse experiences, etc.) and are easy to administer to patients. Based on the risk profile and ease of use of the related products, we do not expect that new competing products will enter the market in the foreseeable future, and that the barriers to entry will help to protect the market positions of the products and preserve their useful lives. We have manufactured and sold many of our products for more than 20 years. Accordingly, as future cash flows with respect to these and our other products are expected to exceed 20 years, we have utilized the straight-line amortization method and a 20-year expected period of benefit. However, we cannot predict with certainty whether new competing products will enter the market, the timing of such competition or the Company’s ability to protect the market positions of its products and preserve their useful lives. In the event that we experience stronger or more rapid competition or other conditions that change the market positions of our products, we may need to accelerate the amortization of our developed product technology intangibles or recognize an impairment charge.

During the year ended December 31, 2010 the Company recognized $1.4 million of impairment in contracts and other intangible assets related to the inability to obtain FDA approval for certain products. For the year ended December 31, 2009 and the period from July 2, 2008 through December 31, 2008 (successor period) and the period from January 1 through September 9, 2008 (predecessor period) no impairments related to intangible assets was recognized.

The Company follows the policy of capitalizing patent defense costs when it determines that such costs are recoverable from future product sales and a successful defense is probable. These costs are amortized over the remaining useful life of the patent. Patent defense costs are expensed as incurred until the criteria for capitalization are met, previously capitalized costs are written-off when it is determined that the likelihood of success is no longer considered probable.

6Amortization expense on intangible assets attributable to operations for the years ended December 31, 2010 and 2009 was $38.7 ~~Discontinued~~million ~~Operations~~and –$38.1 ~~Spin-off~~million, respectively. Amortization expense for the period from July 2, 2008 through December 31, 2008 (successor period) was $11.2 million and for the period from January 1 through September 9, 2008 (predecessor period) was $10.3 million, (a total of ~~New~~$21.5 ~~Abraxis~~million in 2008). At December 31, 2010, the weighted average expected life of intangibles was approximately 16.7 years. Total estimated amortization expense for our finite-lived intangible assets for the next five years is as follows:

On November 13, 2007, Old Abraxis was separated into two independent publicly-traded companies: APP, which owns and operates the hospital-based business; and New Abraxis, which owns and operates the proprietary business. Following the spin-off, APP continued to operate the hospital-based business under the name APP Pharmaceuticals, Inc., which on September 10, 2008, became a wholly-owned subsidiary of FKP Holdings. For accounting purposes, the historical operating results of the proprietary business are presented as discontinued operations.


	Estimated Amortization
	(in thousands)
2011	$	37,294
2012		34,517
2013		32,009
2014		25,494
2015		24,500

~~Summarized~~7. ~~financial~~Acquisition ~~information~~of ~~for discontinued operations is as follows (in thousands):~~ Assets

	Year endedDecember 31, 2007
Net revenue	$	293,415
Loss before taxes		(67,854	)
Income taxes		(20,033	)
Net loss		(47,821	)

APP and New Abraxis also entered into a series of agreements in connection with the separation, including a separation and distribution agreement, a transition services agreement, an employee matters agreement, a tax allocation agreement, a manufacturing agreement and various real estate leases. Refer to Note 12 to the consolidated financial statements– Related Party Transactions. Also, in connection with the separation, APP incurred $1 billion of indebtedness and, in addition, entered into a $150 million revolving credit facility, each of which was extinguished as part of the Merger. There were no costs and expenses incurred related to discontinued operation expenses during 2009 or the successor or predecessor periods in 2008.

7. Goodwill and Other Intangibles

As of December 31, 2009 and 2008, goodwill had a carrying value of $3,664.4 million and $3,662.1 million, respectively, with the decrease in carrying value resulting from the finalization of fair value estimates related to the acquired net assets offset by the recognition of additional direct costs associated with the Merger. All of our intangible assets, other than goodwill, are subject to amortization.

The following table reflects the components of identifiable intangible assets, all of which have finite lives, as of December 31, 2009 and 2008:

	December 31, 2009				December 31, 2008				CategoryAmortizationPeriod
	GrossCarryingAmount		AccumulatedAmortization		GrossCarryingAmount		AccumulatedAmortization
	(in thousands)				(in thousands)
Developed product technology	$	489,000	$	31,928	$	489,000	$	7,478	20 years
Product rights		2,300		87		1,550		37	10 years
Patents		6,847		553		—		—	5 years
Contracts and other		45,500		11,641		43,000		2,508	5 years
Customer relationships		12,000		5,223		12,000		1,223	3 years
Total	$	555,647	$	49,432	$	545,550	$	11,246

We amortize all of our identifiable intangible assets with finite lives over their expected period of benefit using the straight-line method. In determining the appropriate amortization period and method for developed product technology, we considered, among other things, the nature of the products, the anticipated timing of cash flows and the relatively high barriers to entry for competition due to the complex development and manufacturing processes. In addition, the products all share similar attributes in that they have a favorable risk profile (e.g., minimal side effects, adverse experiences, etc.) and are easy to administer to patients. Based on the risk profile and ease of use of the related products, we do not expect that new competing products will enter the market in the foreseeable future, and that the barriers to entry will help to protect the market positions of the products and preserve their useful lives. We have manufactured and sold many of our products for more than 20 years. Accordingly, as future cash flows with respect to these and our other products are expected to exceed 20 years, we have utilized the straight-line amortization method and a 20-year expected period of benefit. However, we cannot predict with certainty whether new competing products will enter the market, the timing of such competition or the Company’s ability to protect the market positions of its products and preserve their useful lives. In the event that we experience stronger or more rapid competition or other conditions that change the market positions of our products, we may need to accelerate the amortization of our developed product technology intangibles or recognize an impairment charge.

Amortization expense on intangible assets attributable to operations for the year ended December 31, 2009 was $38.1 million. Amortization expense for the period from July 2, 2008 through December 31, 2008 (successor period) was $11.2 million and for the period from January 1 through September 9, 2008 (predecessor period) was $10.3 million, (a total of $21.5 million in 2008) and amortization expense for the year ended December 31, 2007 was $50.8 million. At December 31, 2009, the weighted average expected lives of intangibles was approximately 18.5 years. Total estimated amortization expense for our finite-lived intangible assets for the next five years is as follows:

	EstimatedAmortization
	(in thousands)
2010	$	38,917
2011		37,694
2012		34,916
2013		32,409
2014		25,494

8. Acquisition of Assets

On November 13, 2009 the Company finalized an Asset Purchase Agreement with Catalent Pharma Solutions, LLC to acquire its Raleigh, North Carolina manufacturing facility as well as related production equipment and certain raw materials for $10.7 million. The acquisition was accounted for using the purchase method of accounting and no goodwill or intangible assets were recognized.

98. Long-Term Debt and Credit Facility

~~Fresenius~~A ~~Merger~~summary –of ~~Credit~~our ~~Agreements~~external and intercompany debt (in thousands) is as follows:

On August 20, 2008, in connection with the acquisition of APP, Fresenius entered into a $2.45 billion credit agreement with Deutsche Bank AG, London Branch, as administrative agent; Deutsche Bank AG, London Branch; Credit Suisse, London Branch; and J.P. Morgan plc, as arrangers and book running managers, and the other lenders party thereto (the “Senior Credit Facilities Agreement”) and a $1.3 billion bridge credit agreement with Deutsche Bank AG, London Branch, as the administrative agent; Deutsche Bank AG, London Branch; Credit Suisse, London Branch; and J.P. Morgan plc, as arrangers and book running managers, and the other lenders party thereto (the “Bridge Facility Agreement”) to assist in the funding of the transaction. The $2.45 billion Senior Credit Facilities Agreement included a $1 billion term loan A, a $1 billion term loan B, and revolving credit facilities of $300 million, which was subsequently increased to $400 million, and $150 million. Proceeds from borrowings under these credit facilities, together with other available funds provided by Fresenius through equity contributions and loans to FKP Holdings and its subsidiaries, were utilized to complete the purchase of APP on September 10, 2008.


	December 31, 2010			December 31, 2009
External debt
Senior Credit Facilities, with interest at variable rates based on LIBOR plus a margin. Term loan B2 and C2 are subject to a minimum rate
Term loan A2, due in semi-annual installments through September 10, 2013	$	391,000		$	462,500
Term loan B2, due in equal semi-annual installments with a final balloon payment on September 10, 2014		—			458,944
Term loan C2, due in equal semi-annual installments beginning June 10, 2010, with a final balloon payment on September 10, 2014		404,219			—
Target revolving credit facility loan, due at expiration of the facility on September 10, 2013		—			—

Total external debt		795,219			921,444
Current maturities of external debt		(127,475	)		(76,475	)

Long-term external debt	$	667,744		$	844,969

Internal debt
Intercompany Credit Facilities
Short-term unsecured intercompany loans payable to Fresenius Kabi AG, due in 30 to 60 days from date of issue, with interest at fixed rates	$	309,000		$	360,000
Secured senior intercompany loans payable to a financing subsidiary of Fresenius SE & Co. KGaA & CO. KGaA, with interest at variable rates based on LIBOR or EURIBOR plus a margin. Term loan B1 and C1 are subject to a minimum rate
Term loan A1, due in semi-annual installments through September 10, 2013		391,000			462,500
Term loan B1, due in equal semi-annual installments with a final balloon payment on September 10, 2014		—			657,742
Term loan C1, due in equal semi-annual installments with a final balloon payment on September 10, 2014		579,313			—
Euro currency term loan B1 (€195.5 million), due in equal semi-annual installments with a final balloon payment on September 10, 2014		—			265,791
Euro currency term loan C1 (€162.5 million), due in equal semi-annual installments with a final balloon payment on September 10, 2014		217,133			—
Unsecured intercompany loans payable to a financing subsidiary of Fresenius SE & Co. KGaA, due July 15, 2015, with interest at fixed rates
US dollar denominated		500,000			500,000
Euro currency denominated (€115.7 million)		154,589			166,668

~~The~~61 Senior Credit Facilities Agreement provides APP Pharmaceuticals, LLC, a wholly owned subsidiary of APP, with two term loan facilities: a Tranche A2 Term Loan (“Term Loan A2”) for $500 million and Tranche B2 Term Loan (“Term Loan B2”) for $497.5 million. The Senior Credit Facilities Agreement also provides APP Pharmaceuticals, LLC with a $150 million revolving credit facility. The revolving credit facility includes a $50 million sub-limit for swingline loans and a $20 million sub-limit for letters of credit. The Term Loan A2 and B2 loan facilities mature on September 10, 2013 and September 10, 2014, respectively, and the revolving credit facility expires on September 10, 2013. We incurred and capitalized approximately $25 million in debt issue costs in connection with the Senior Credit Facilities Agreement. As of December 31, 2009, the balance outstanding on APP Pharmaceuticals, LLC senior credit facilities was $921.4 million and the revolving credit facility had no outstanding balance.

Pursuant to the Senior Credit Facilities Agreement, Fresenius Kabi Pharmaceuticals, LLC (which was merged with and into APP Pharmaceuticals, Inc. upon consummation of the Merger) entered into an intercompany loan with the borrower of the $500 million Tranche A1 Term Loan and the $502.5 million Tranche B1 Term Loan, and an affiliate of FKP Holdings entered into an intercompany loan with the borrower under the $300 million revolving facility under the Senior Credit Facilities Agreement (collectively, the “Senior Intercompany Loans”), the amount, maturity and other financial terms of which correspond to those applicable to the loans provided to such borrowers under the Senior Credit Facilities Agreement described above. The Senior Intercompany Loans are guaranteed by FKP Holdings and certain of its affiliates and subsidiaries and secured by the assets of FKP Holdings and certain of its affiliates and subsidiaries. The Senior Intercompany Loans provide for an event of default and acceleration if there is an event of default and acceleration under the Senior Credit Facilities Agreement, but acceleration of the Senior Intercompany Loans may not occur prior to acceleration of the loans under the Senior Credit Facilities Agreement. By entering into the Senior Intercompany Loans with Fresenius Kabi Pharmaceuticals, LLC, Fresenius effectively pushed-down its Merger-related term loan borrowings under the Senior Credit Facilities Agreement to the FKP Holdings group. The Senior Intercompany Loans bear interest at a variable rate based on the rates applicable to the corresponding loans under the Senior Credit Facilities Agreement, plus a margin, as discussed below, and are due in 2013 and 2014, as applicable. The balance of the Senior Intercompany Loans outstanding at December 31, 2009 was $1,386.0 million.


	December 31, 2010			December 31, 2009
Unsecured intercompany loans payable to Fresenius Kabi AG, due September 10, 2014, with interest at fixed rates
US dollar denominated		722,826			722,826
Euro currency denominated loans payable (€33.0 million as of December 31, 2010 and €13 million as of December 31, 2009)		44,095			18,728

Total intercompany debt		2,917,956			3,033,204
Current maturities of intercompany debt		(441,302	)		(441,511	)

Long-term intercompany debt	$	2,476,654		$	2,591,693

The interest rate on each borrowing under the Senior Credit Facilities Agreement is a rate per annum equal to the aggregate of (a) the applicable margin and (b) LIBOR or EURIBOR for the relevant interest period, subject, in the case of Term Loan B, to a minimum LIBOR or EURIBOR. The applicable margin for Term Loan A Facilities and the Revolving Credit Facilities is variable and depends on the Fresenius ~~Leverage~~Merger ~~Ratio~~– ~~as defined in the Senior~~ Credit ~~Facilities~~Agreements ~~Agreement.~~

~~The~~On ~~Senior~~August 20, ~~Credit~~2008, ~~Facilities~~in ~~Agreement~~connection ~~contains~~with athe ~~number~~acquisition of ~~affirmative~~APP, ~~and negative covenants that are assessed at the~~ Fresenius ~~level~~entered ~~and~~into ~~are~~various ~~not~~credit ~~separately~~arrangements ~~assessed~~to atassist ~~APP~~in ~~Pharmaceuticals,~~funding ~~LLC~~the transaction. ~~The obligations~~These ofcredit ~~APP~~facilities ~~Pharmaceuticals,~~included ~~LLC~~a ~~under the~~ Senior Credit Facilities Agreement ~~are~~and ~~unconditionally~~a ~~guaranteed~~Bridge byFacility ~~Fresenius~~Agreement. ~~SE,~~Proceeds ~~Fresenius~~from ~~Kabi~~borrowings ~~AG,~~under ~~Fresenius~~these ~~ProServe~~credit ~~GmbH~~facilities, ~~and~~together ~~APP~~with ~~Pharmaceuticals,~~other ~~Inc.~~available ~~and~~funds ~~are~~provided ~~secured~~ by aFresenius ~~first-priority security~~through ~~interest~~equity incontributions ~~substantially~~and ~~all~~loans ~~tangible~~to FKP Holdings and ~~intangible~~its subsidiaries, ~~assets~~were ofutilized ~~APP~~to ~~Pharmaceuticals,~~complete ~~Inc.~~the ~~and~~purchase of APP ~~Pharmaceuticals~~on September 10, ~~LLC~~2008.

~~Pursuant~~The toSenior ~~the~~Credit ~~Bridge Facility~~ Facilities Agreement, ~~FKP~~provided ~~Holdings entered into an intercompany loan (the “Bridge Intercompany Loan”) with an affiliate of~~ Fresenius ~~who was the borrower under the Bridge Facility Agreement, the amount, maturity,~~ and ~~other financial terms of which corresponded to those applicable to the loans provided to such borrower under the Bridge Facility Agreement. The Bridge Intercompany Loan was guaranteed by~~ certain of its ~~affiliates and~~ subsidiaries and secured by the assets of FKP Holdings and certain of its affiliates and subsidiaries. The Bridge Intercompany Loan provided for an event of default and acceleration if there was an event of default and acceleration under the Bridge Facility Agreement, but acceleration of the Bridge Intercompany Loan may not occur prior to acceleration of the loans under the Bridge Facility Agreement. By entering into the Bridge Intercompany Loan with ~~FKP~~various ~~Holdings,~~credit ~~Fresenius effectively pushed-down its Merger-related borrowings under the Bridge Credit Facility Agreement to FKP Holdings~~facilities. ~~The~~These ~~Bridge~~include ~~Intercompany~~two ~~Loan~~term ~~bore interest at the rate applicable to the corresponding~~ loan ~~under~~facilities ~~the~~and ~~Bridge Facility Agreement, plus~~ a ~~margin. As described below, the original borrowing under the Bridge Facility Agreement was~~ $~~1.3~~150 ~~billion, $650~~ million ofrevolving ~~which~~credit ~~was~~facility ~~repaid~~under ~~in October 2008 and the remainder of~~ which ~~was~~APP ~~repaid~~Pharmaceuticals, ~~in January 2009. As described below~~LLC, ~~the~~a ~~related~~wholly ~~intercompany~~owned ~~loans~~subsidiary ~~were~~of ~~refinanced~~APP, inis ~~connection with~~ the ~~repayments made on the Bridge Facility Agreement~~obligor.

InPursuant ~~addition~~to the Senior Credit Facilities Agreement, FKP Holdings and its subsidiaries have entered into various secured senior intercompany loans with finance subsidiaries of Fresenius SE & ~~made~~Co. ~~two~~KGaA (collectively, the “Senior Intercompany Loans”), the amount, maturity and other financial terms of which correspond to those applicable ~~intercompany~~to the loans ~~totaling~~provided ~~$456~~to such borrowers under the Senior Credit Facilities Agreement described above.2 ~~million~~The toSenior Intercompany Loans are guaranteed by FKP Holdings asand ~~part~~certain of its affiliates and subsidiaries and secured by the ~~acquisition~~assets of FKP Holdings and certain of its affiliates and subsidiaries. ~~These~~The ~~intercompany~~Senior ~~loans~~Intercompany ~~include~~Loans ~~fixed~~provide ~~interest~~for ~~rates~~an event of default and ~~mature~~acceleration onif ~~September 10~~there is an event of default and acceleration under the Senior Credit Facilities Agreement, ~~2014~~but acceleration of the Senior Intercompany Loans may not occur prior to acceleration of the loans under the Senior Credit Facilities Agreement. By entering into the Senior Intercompany Loans, Fresenius effectively pushed-down its Merger-related term loan borrowings under the Senior Credit Facilities Agreement to the FKP Holdings group.

InThe ~~connection~~Senior ~~with~~Credit ~~the~~Facilities ~~intercompany~~Agreement ~~loans~~contains ~~described~~a number ~~above,~~of ~~Fresenius~~affirmative ~~also~~and ~~pushed-down~~negative tocovenants ~~the~~that ~~Company~~are ~~approximately~~assessed ~~$101.1~~at ~~million~~the inFresenius ~~fees~~ level and ~~costs~~are ~~incurred~~not inseparately ~~connection~~assessed ~~with~~at ~~establishing~~FKP Holdings or its subsidiaries. The Company’s obligations under the Senior Credit Facilities Agreement are unconditionally guaranteed by Fresenius SE & Co. KGaA and ~~Bridge~~certain ~~Facilities~~of ~~Agreement~~its subsidiaries, ~~the~~and ~~proceeds~~are ofsecured ~~which~~by ~~were~~a ~~used~~first-priority tosecurity ~~finance~~interest ~~the~~in ~~Merger~~substantially all tangible and intangible assets of APP Pharmaceuticals, Inc. and APP Pharmaceuticals, LLC.

Post-Merger Activity

OnIn October 6, 2008, the amount available under the Senior Credit Facilities Agreement was increased toand ~~approximately $2.95 billion by increasing~~ the ~~amount of the Tranche B1 Term Loan facility by approximately $483.1 million. On October 10, 2008, the~~ full amount of the increase to the ~~Tranche~~ ~~B1 Term Loan~~ facility ~~under the Senior Credit Facilities Agreement~~ was drawn down. These funds, along with an additional $166.9 million of proceeds from other intercompany borrowings were used to repay a portion of the ~~$1.3~~balance ~~billion~~ outstanding under the Bridge Facility Agreement,. soOn ~~that~~January 21, 2009, the ~~aggregate~~borrower ~~amount outstanding~~ under the Bridge Facility Agreement, ~~after~~which ~~these~~is ~~repayments~~an affiliate of Fresenius, ~~was~~issued ~~$650~~two ~~million.~~tranches ~~The~~of ~~$650~~notes ~~million~~in ~~repayment~~a private placement. Proceeds of the ~~Bridge~~notes ~~Intercompany~~issuance ~~Loan~~were ~~resulted~~used, inamong ~~the~~other ~~write-off~~things, ofto ~~$13.4~~repay ~~million~~ in ~~related~~ ~~debt~~full ~~issuance~~the ~~costs~~balance inoutstanding under the ~~fourth~~Bridge ~~quarter~~Facility ~~of 2008~~Agreement. ~~These~~Upon ~~changes~~the torepayment of the ~~Senior~~bridge loan, ~~Credit~~the ~~Facilities~~Bridge ~~Agreement~~Intercompany ~~and~~Loan ~~Bridge~~was ~~Credit~~refinanced ~~Facility~~and ~~Agreement~~replaced ~~were~~with ~~also~~an ~~reflected~~Intercompany inDollar ~~the~~Loan ~~Senior~~of ~~Intercompany~~$500 ~~Loans~~million and ~~Bridge~~an Intercompany Euro Loan of €115.7 ~~The~~million. ~~balance~~These new intercompany loans are not guaranteed or secured. As a result of the refinancing, in the first quarter of 2009, the Company wrote-off $14.6 million of Bridge Intercompany Loan ~~outstanding~~unamortized atdebt ~~December 31,~~issuance ~~2008~~costs ~~was~~and incurred debt issuance costs of $~~650~~67.05 million for the new Intercompany Dollar and Euro loans.

66On each of December 10, 2009 and February 10, 2010, the Company entered into three unsecured intercompany loans with Fresenius Kabi AG in the amounts of €13 million, $46.3 million and $32.3 million and €20 million, $71.3 million and $49.8 million, respectively. These loans replaced Senior Intercompany Loans of like amounts. These Fresenius Kabi AG notes bear fixed interest rates. There was no change to principal maturity dates as a result of this exchange of notes.

On March 18, 2010, the 2008 Senior Credit Facilities Agreement was amended, and Term Loan B, consisting of APP’s Term Loan B2 and Term Loan B1 were replaced with a lower interest bearing Term Loan C, consisting of APP’s Term Loan C2 and Term Loan C1. There was no change to principal amount outstanding as a result of this exchange of notes. The amendments to the 2008 Senior Credit Agreement also modified certain of the financial covenants, which are measured at the consolidated Fresenius SE & Co. KGaA level, as defined in the agreement. As a result of the debt replacement in the first quarter of 2010, the Company incurred debt issuance costs of $13.7 million for the Term Loan C, of which $12.2 million was paid directly by the Company and $1.5 million was pushed down from the Parent.

OnSubsequent ~~January 21,~~to ~~2009,~~ the ~~borrower~~period ~~under~~ended the Bridge Facility Agreement, which is an affiliate of Fresenius, issued two tranches of notes in a private placement. The issuer sold $500 million aggregate principal amount of fixed interest rate senior notes and €275September ~~million aggregate principal amount of fixed interest rate senior notes. The notes are senior unsecured obligations of the issuer and mature on July 15~~30, ~~2015. Proceeds of the notes issuance were used among other things~~2010, ~~to repay in full~~ the ~~$650~~Company ~~million~~replaced ~~outstanding under~~ the ~~Bridge Facility Agreement.~~ ~~Upon~~outstanding ~~the~~target ~~repayment~~revolver ~~of the bridge loan, the Bridge Intercompany Loan was refinanced and replaced~~ with anfixed ~~Intercompany~~rate ~~Dollar~~unsecured ~~Loan~~intercompany ~~of $500 million and an Intercompany Euro Loan of €115.7 million. The interest payments for these~~ notes ~~are at fixed interest rates and are due semi-annually on January 15 and July 15 in line~~ with ~~the~~Fresenius ~~maturity~~Kabi ~~date~~AG ofwhich ~~the~~mature ~~senior notes~~monthly. These new intercompany loans are not guaranteed or secured and the principal for both of these loans is due July 15, 2015. As a result of the refinancing, in the first quarter of 2009, the Company wrote-off $14.6 million of Bridge Intercompany Loan unamortized debt issuance costs and incurred debt issuance costs of $67.5 million for the new Intercompany Dollar and Euro loans.

~~During~~There was ~~the~~no ~~second~~amount ~~half~~outstanding ofunder ~~2009,~~ the ~~Company~~target ~~restructured~~revolver ~~certain~~at ~~of its unsecured intercompany loans. The Company did not receive or pay any cash as a result of the $523.1 million~~December 31, ~~$150~~2010 ~~million~~ and ~~$75 million transactions described below~~2009. In connection with the restructuring, obligations related to $523.1 million of these unsecured intercompany loans were transferred from Fresenius SE to Fresenius Kabi AG along with the related outstanding accrued interest. The ~~terms of these loans were unchanged in the transfer. Also, during the second half of 2009, the Company entered into the~~ following ~~unsecured~~is ~~intercompany loans with Fresenius Kabi AG: $150 million note of which~~ the ~~proceeds~~repayment ~~were~~schedule ~~used~~for toTerm ~~pay down the entire $150 million balance outstanding under the $300 million revolving facility under the Senior Intercompany~~ Loans; ~~$75~~A2 ~~million note~~ and ~~a $50 million note of which the proceeds were used to pay down the full amounts outstanding in September and December~~C2, ~~respectively, under~~ the ~~APP~~target ~~Pharmaceuticals,~~revolver ~~LLC~~balance ~~revolving credit facility under the Senior Credit Facilities Agreement;~~ and $85 million note of which cash proceeds were received of $73.7 million and were used to pay our December debt costs and $11.3 million resulting from interest and principal payments made on our behalf. Prior to year end the ~~$75 million note and the $150 million note were combined into a $225 million note. The $360 million of unsecured~~ intercompany loans ~~due~~outstanding toas ~~Fresenius Kabi AG are at fixed interest rates and have maturity dates~~ of 30December 31, ~~or 60 days. These~~2010 ~~loans are intended to be extended for the near term and are included~~ (in ~~the~~thousands): ~~current portion of intercompany debt in the consolidated balance sheet.~~

On December 10, 2009 the Company entered into additional unsecured intercompany loans with Fresenius Kabi AG in the amount of 13 million Euros, $46.3 million and $32.3 million. The proceeds of these loans were used to pay the voluntary principal prepayments on Senior Intercompany Loans Euro Tranche Term B1 Loan of 13 million Euros and Tranche Term B1 Loan of $46.3 million and on APP Pharmaceuticals, LLC senior credit facilities Term Loan B2 of $32.3 million. These Fresenius Kabi AG notes are at fixed interest rates and have a maturity date of September 10, 2014. There was no change to principal maturity dates related to this exchange of notes. The balance of the unsecured intercompany loans at December 31, 2009 was $1,647.2 million.


	Term Loan A2		Term Loan C2		Target Revolver		Intercompany Fresenius		Total
2011	$	122,500	$	4,975	$	—	$	441,302	$	568,777
2012		150,000		4,975		—		159,802		314,777
2013		118,500		4,975		—		128,303		251,778
2014		—		389,294		—		1,533,958		1,923,252
2015		—		—		—		654,589		654,589

	$	391,000	$	404,219	$	—	$	2,917,953	$	3,713,173

~~The~~9. ~~following~~Derivatives ~~is the repayment schedule for Term Loans A2 and B2 and the intercompany loans outstanding as of December 31, 2009 (in thousands):~~

	Term Loan A2		Term Loan B2		IntercompanyFresenius		Total
2010	$	71,500	$	4,975	$	441,511	$	517,986
2011		122,500		4,975		132,511		259,986
2012		150,000		4,975		160,011		314,986
2013		118,500		4,975		128,511		251,986
2014		—		439,044		1,503,992		1,943,036
2015 and thereafter		—		—		666,668		666,668
	$	462,500	$	458,944	$	3,033,204	$	3,954,648

10As a result of the use of derivative instruments, the Company is exposed to counterparty credit risk when these instruments are in an asset position. ~~Derivatives~~The Company manages the counterparty credit risk by entering into derivative contracts only with its Parent company and its affiliates. As a result, as of December 31, 2010, the Company does not expect to experience any losses as a result of default of its counterparty.

~~The~~Foreign ~~Company~~Currency ~~does~~Contracts: ~~not~~Included ~~engage~~in our intercompany borrowings are several Euro-denominated notes, including €195.5 million notes with a maturity in ~~the~~2014 ~~trading~~and ofa €115.7 million ~~derivative~~note ~~financial~~with ~~instruments~~a ~~except~~maturity ~~where~~in ~~the~~2015. ~~Company’s~~In ~~objective~~connection iswith these borrowings, we entered into intercompany foreign currency swap contracts in order to ~~manage~~limit our exposure to changes in current exchange rates on the Euro-denominated ~~variability~~notes principal balance. We have entered into foreign currency swaps with affiliates of ~~forecasted~~Fresenius for the total of the Euro-denominated notes principal balance. These agreements mature at various dates through January 2012, and ~~interest~~are ~~payments~~not ~~attributable~~designated toas hedging ~~changes~~instruments for accounting purposes. During the year ended December 31, 2010, 2009 and the successor period in ~~interest~~2008, ~~rates~~we orrecognized a foreign currency ~~exchange~~(loss)/gain ~~rate~~of ~~fluctuations~~approximately ($31.9) Inmillion, ~~general~~$30.1 million and $4.0 million, respectively, in our other income (expense) related to the ~~Company~~change ~~enters~~in ~~into~~fair ~~derivative~~value ~~transactions~~of these swap agreements. These foreign currency (losses)/gains were offset by $32.6 million, ($26.2) million and ($8.2) million in ~~limited~~currency ~~situations~~gains/(losses) ~~based~~we onrecorded ~~management’s~~in ~~assessment~~2010, 2009 and in the successor period in 2008, in order to adjust the carrying value of ~~current~~the ~~market~~Euro-denominated ~~conditions~~notes ~~and~~to ~~perceived~~reflect ~~risks~~the year-end exchange rate.

AsWe ahave ~~result~~also ofentered ~~the~~into ~~use~~foreign ofcurrency ~~derivative instruments,~~hedges for the ~~Company~~€6.3 million isof ~~exposed~~future cash flows related to ~~counterparty~~the ~~credit~~interest ~~risk~~payments ~~when~~due ~~these~~on ~~instruments~~the ~~are~~€195.5 million innotes anthrough ~~asset~~October ~~position~~2012, and €15.2 million ~~The~~of ~~Company~~future ~~manages~~cash ~~the~~flows ~~counterparty~~related ~~credit~~to ~~risk~~the byinterest ~~entering~~payments ~~into~~on ~~derivative~~the ~~contracts~~€115.7 million ~~only~~note ~~with~~through ~~its~~January ~~Parent~~2012. ~~company~~These ~~and~~foreign ~~its~~currency ~~affiliates. As~~agreements ahave ~~result,~~been designated as hedges of ~~December 31,~~our ~~2009,~~exposure ~~the~~to ~~Company~~fluctuations ~~does~~in ~~not~~interest payments ~~expect~~on tooutstanding ~~experience~~Euro-denominated ~~any~~borrowings ~~losses~~due asto achanges ~~result~~in ofEuro/U.S. ~~default~~dollar ofexchange ~~its~~rates ~~counterparty~~(a cash flow hedge).

67During the second quarter of 2010, we entered into foreign currency forward contracts for €22.7 million of future cash flows related to certain forecasted inventory purchases from July 2010 through June 2011. These foreign currency agreements have been designated as hedges of our exposure to fluctuations in future payments related to these forecasted purchases due to changes in Euro/U.S. dollar exchange rates (a cash flow hedge). At December 31, 2010 we have €13.8 million of outstanding foreign currency forward contracts related to these forecasted transactions.

Interest Rate Swaps: On November 3, 2008, we entered into four interest rate swap agreements with Fresenius for an aggregate notional principal amount of $900 million (the “2008” interest rate swaps”). These agreements require us to pay interest at an average fixed rate of 3.97% and entitle us to receive interest at a variable rate equal to three-month LIBOR, which is equal to the benchmark for the term A Loans being hedged, on the notional amount. The 2008 interest rate swaps expire in October 2011 and December 2013. During the third quarter of 2010, we entered into six additional interest rate swap agreements with Fresenius for an aggregate principal amount of $600 million (the “2010 interest rate swaps”). These swap agreements require us to pay interest at an average fixed rate of 2.16% and entitle us to receive interest at a variable rate equal to three-month LIBOR, subject to a minimum LIBOR, which is equal to the benchmark rate for the Term C Loan being hedged, on the notional amount. The 2010 interest rate swaps expire on September 10, 2014 and all interest rate swaps have been designated as hedges of our exposure to fluctuations in interest payments on outstanding variable rate borrowings due to changes in interest rates (a cash flow hedge).

~~Foreign~~The ~~Currency~~fair ~~Contracts:~~value ~~Included~~of inthese ~~our~~interest ~~intercompany~~rate ~~borrowings~~swap ~~are~~agreements ~~several Euro-denominated~~at ~~notes~~December 31, ~~€197.5 million~~2010 ~~notes~~and ~~with~~2009 was a ~~maturity~~liability inof ~~2014~~$58.0 million and ~~a €115~~$53.7 2 million, ~~note~~respectively, ~~with~~and ais ~~maturity~~included in ~~2015.~~long-term Inliabilities ~~connection~~in ~~with~~our ~~these~~consolidated ~~borrowings~~balance sheets. As noted, weabove the Company entered into ~~intercompany~~the ~~foreign~~2008 ~~currency~~interest ~~swap~~rate ~~contracts~~swaps inwith ~~order~~its ~~to limit~~Parent, ~~our~~who ~~exposure~~pushed todown ~~changes~~the interest inrate ~~current~~swap ~~exchange~~agreements ~~rates~~to on the ~~Euro-denominated~~Company. ~~notes~~From ~~principal~~inception ~~balance.~~of Wethe ~~have~~agreements ~~entered~~to ~~into~~the ~~foreign~~time ~~currency~~the ~~swaps~~2008 ~~with~~interest ~~affiliates~~rate ofswaps ~~Fresenius~~were ~~for~~transferred to the ~~total~~Company of the ~~Euro-denominated~~Parent ~~notes~~recognized ~~principal balance~~$15.9 ~~These agreements~~million ~~mature~~in atlosses ~~various~~in ~~dates~~other ~~through~~comprehensive ~~January~~income ~~2012,~~(loss). ~~and~~From ~~are~~the ~~not~~time the ~~designated~~2008 asinterest ~~hedging~~rate ~~instruments~~swap ~~for~~agreements ~~accounting~~were ~~purposes.~~transferred ~~During~~to the ~~year~~Company ~~ended~~through December 31, ~~2009 and the successor period in 2008~~2010, we ~~recognized~~recorded a ~~foreign~~deferred ~~currency~~loss ~~gain~~ of ~~approximately~~ $3025.17 million, ~~and~~net of tax benefit of $416.04 million, ~~respectively,~~ in ~~our~~ other comprehensive income (~~expense~~loss) ~~related~~and torecognized ~~the change in fair value of these swap agreements. These foreign currency gains were offset by~~ $260.2 million ~~and $8.2 million~~ in ~~currency~~intercompany ~~losses~~interest ~~we recorded in 2009 and in the successor period in 2008~~expense, inwhich ~~order~~represented ~~to adjust~~ the ~~carrying~~amount ~~value~~ of ~~the~~hedge ~~Euro-denominated notes to reflect the year-end exchange rate~~ineffectiveness.

We have also entered into foreign currency hedges for the €18.9 million of future cash flows related to the interest payments due on the €197.5 million notes through December 12, 2011, and for the €25.4 million of future cash flows related to the interest payments on the €115.7 million note through January 17, 2012. These foreign currency agreements have been designated as hedges of our exposure to fluctuations in interest payments on outstanding Euro-denominated borrowings due to changes in Euro/U.S. dollar exchange rates (a cash flow hedge). The fair value ofamounts ~~these foreign currency hedges at December 31, 2009 and 2008 is an asset of $5.0 million and $0.0 million, respectively and is included~~ in ~~current prepaid expenses and other current assets and other non-current assets, net in~~ our consolidated balance sheet. ~~During~~at ~~the year ended~~ December 31, ~~2009~~2010 and ~~the successor period in 2008~~2009, werelated ~~recognized~~to a foreign currency ~~gain~~forward ~~of $5.0 million~~ and ~~$0.0~~interest ~~million,~~rate ~~respectively,~~swap incontracts ~~other~~were ~~comprehensive~~as ~~income~~follows: ~~(loss).~~

Interest Rate Swaps: On November 3, 2008, we entered into four interest rate swap agreements with Fresenius for an aggregate notional principal amount of $900 million. These agreements require us to pay interest at an average fixed rate of 3.97% and entitle us to receive interest at a variable rate equal to three-month LIBOR, which is equal to the benchmark for the term A Loans being hedged, on the notional amount. The interest rate swaps expire in October 2011 and December 2013. These swaps have been designated as hedges of our exposure to fluctuations in interest payments on outstanding variable rate borrowings due to changes in interest rates (a cash flow hedge). The fair value of these interest rate swap agreements at December 31, 2009 and 2008 is a liability of $53.2 million and $69.3 million, respectively and is included in long-term liabilities in our consolidated balance sheets. As noted above the Company entered into derivative contracts with its Parent, who pushed down the interest rate swap agreements to the Company. From inception of the agreements to the time the interest rate swaps were transferred to the Company the Parent recognized $15.9 million in losses in other comprehensive income (loss). From the time the interest rate swap agreements were transferred to the Company through December 31, 2009, we recorded a deferred loss of $22.3 million, net of tax benefit of $14.1 million, in other comprehensive income (loss) and recognized $0.9 million, in intercompany interest expense, which represented the amount of hedge ineffectiveness. The Company did not enter into any derivatives during 2007.


	Asset Derivatives			Liability Derivatives
December 31, 2010 (In millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Foreign currency forward contracts-Interest (current)	Prepaid expense and other current assets	$	0.5	Other accrued expenses	$	0.6
Foreign currency forward contracts-Interest (non-current)	Other non-current assets, net		0.2	Other non-current liabilities		—
Foreign currency forward contracts-inventory (current)	Prepaid expense and other current assets		1.6	Other accrued expenses		—
Interest rate swap contracts (non-current)	Other non-current assets, net		—	Fair value of interest rate swaps with Parent and affiliates		58.0

Total		$	2.3		$	58.6


	Asset Derivatives			Liability Derivatives
(In millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives not designated as hedging instruments
Foreign currency forward contracts (current)	Prepaid expense and other current assets	$	0.3	Other accrued expenses	$	1.8
Foreign currency forward contracts-inventory (current)	Prepaid expense and other current assets		—	Other accrued expenses		0.5
Foreign currency forward contracts (non-current)	Other non-current assets, net		5.7	Other non-current liabilities		1.3

Total		$	6.0		$	3.6


	Asset Derivatives			Liability Derivatives
December 31, 2009 (In millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Foreign currency forward contracts-Interest (current)	Prepaid expense and other current assets	$	2.7	Other accrued expenses	$	—
Foreign currency forward contracts-Interest (non-current)	Other non-current assets, net		2.3	Other non-current liabilities		—
Interest rate swap contracts (non-current)	Other non-current assets, net		—	Fair value of interest rate swaps with Parent and affiliates		53.2

Total		$	5.0		$	53.2

6864

The fair value amounts in our consolidated balance sheet at December 31, 2009 and 2008, related to foreign currency forward and interest rate swap contracts were as follows:


	Asset Derivatives			Liability Derivatives
(In millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives not designated as hedging instruments
Foreign currency forward contracts (current)	Prepaid expense and other current assets	$	8.6	Other accrued expenses	$	—
Foreign currency forward contracts (non-current)	Other non-current assets, net		25.6	Other non-current liabilities		—

Total		$	34.2		$	—

	Asset Derivatives				Liability Derivatives
December 31, 2009 (In millions)	Balance Sheet Location	FairValue			Balance Sheet Location	FairValue
Derivatives designated as hedging instruments
Foreign currency forward contracts-Interest (current)	Prepaid expense and other current assets	$	2.7		Other accrued expenses	$	—
Foreign currency forward contracts-Interest (non-current)	Other non-current assets, net		2.3		Other non-current liabilities		—
Interest rate swap contracts (non-current)	Other non-current assets, net		—		Fair value of interest rate swaps with Parent and affiliates		53.2
Total		$	5.0			$	53.2
	Asset Derivatives				Liability Derivatives
(In millions)	Balance Sheet Location	FairValue			Balance Sheet Location	FairValue
Derivatives not designated as hedging instruments
Foreign currency forward contracts (current)	Prepaid expense and other current assets	$	8.6		Other accrued expenses	$	—
Foreign currency forward contracts (non-current)	Other non-current assets, net		25.6		Other non-current liabilities		—
Total		$	34.2			$	—
	Asset Derivatives				Liability Derivatives
December 31, 2008 (In millions)	Balance Sheet Location	FairValue			Balance Sheet Location	FairValue
Derivatives designated as hedging instruments
Foreign currency forward contracts-Interest (current)	Prepaid expense and other current assets	$	—		Other accrued expenses	$	—
Foreign currency forward contracts-Interest (non-current)	Other non-current assets, net		—		Other non-current liabilities		—
Interest rate swap contracts (non-current)	Other non-current assets, net		—		Fair value of interest rate swaps with Parent and affiliates		69.3
Total		$	—			$	69.3
	Asset Derivatives				Liability Derivatives
(In millions)	Balance Sheet Location	FairValue			Balance Sheet Location	FairValue
Derivatives not designated as hedging instruments
Foreign currency forward contracts (current)	Prepaid expense and other current assets	$	(0.2	)	Other accrued expenses	$	—
Foreign currency forward contracts (non-current)	Other non-current assets, net		4.2		Other non-current liabilities		—
Total		$	4.0			$	—

The pretax derivative gains and losses in our consolidated statement of operations for the years ended December 31, 2010 and 2009 and the successor period in 2008, related to our foreign currency forward and interest rate swap contracts were as follows:

69December 31, 2010


Derivatives in Cash Flow Hedging Relationships	Gain (Loss) Recognized in Other Comprehensive Income on Effective Portion of Derivative			Gain (Loss) on Effective Portion of Derivative Reclassified from Accumulated Other Comprehensive Income					Ineffective Portion of Gain (Loss) on Derivative and Amount Excluded from Effectiveness Testing Recognized in Income
(In millions)	Amount			Location		Amount			Location		Amount
Foreign currency forward contracts-Interest	$	(4.9	)		Interest income and other, net	$	—			Interest income and other, net	$	—
Foreign currency forward contracts-Inventory		1.6			Cost of Sales		1.0			Cost of Sales		—
Interest rate swap contracts		(8.3	)		Interest income and other, net		(2.8	)		Interest income and other, net		0.7

Total	$	11.6				$	(1.8	)			$	0.7


Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative
Foreign currency forward contracts	Interest income and other, net	$	(31.9	)

The pretax derivative gains and losses in our consolidated statement of operations for the year ended December 31, 2009 and the successor period in 2008, related to our foreign currency forward and interest rate swap contracts were as follows:

December 31, 2009


Derivatives in Cash Flow Hedging Relationships	Gain (Loss) Recognized in Other Comprehensive Income on Effective Portion of Derivative		Gain (Loss) on Effective Portion of Derivative Reclassified from Accumulated Other Comprehensive Income				Ineffective Portion of Gain (Loss) on Derivative and Amount Excluded from Effectiveness Testing Recognized in Income
(In millions)	Amount		Location		Amount		Location		Amount
Foreign currency forward contracts-Interest	$	5.0		Interest income and other, net	$	—		Interest income and other, net	$	—
Interest rate swap contracts		16.3		Interest income and other, net		—		Interest income and other, net		(0.2	)

Total	$	21.3			$	—			$	(0.2	)

Derivatives Not Designated as Hedging Instruments		Location ofGain (Loss)Recognized inIncome onDerivative		Gain (Loss)~~Recognizedin~~Recognized ~~IncomeonDerivative~~inIncome onDerivative
Foreign currency forward contracts		Interest incomeand other, net		$	30.1

December 31, 2008


Derivatives in Cash Flow Hedging Relationships	Gain (Loss) Recognized in Other Comprehensive Income on Effective Portion of Derivative			Gain (Loss) on Effective Portion of Derivative Reclassified from Accumulated Other Comprehensive Income				Ineffective Portion of Gain (Loss) on Derivative and Amount Excluded from Effectiveness Testing Recognized in Income
(In millions)	Amount			Location		Amount		Location		Amount
Foreign currency forward contracts-Interest	$	—			Interest income and other, net	$	—		Interest income and other, net	$	—
Interest rate swap contracts		(52.6	)		Interest income and other, net		—		Interest income and other, net		(0.8	)

Total	$	(52.6	)			$	—			$	(0.8	)


Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative
Foreign currency forward contracts	Interest income and other, net	$	4.0

~~11.~~66 ~~Fair Value Measurements~~

10. Fair Value Measurements

Accounting guidance on fair value measurements sets a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value for certain financial assets and liabilities. The basis of the fair value measurement is categorized in three levels, in order of priority, as described below:


Level 1:		Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2:		Quoted prices in markets that are not active, or financial instruments for which all significant inputs are observable either directly or indirectly.

Level 3:		Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable thus reflecting assumptions about the market participants.

In valuing assets and liabilities, we are required to maximize the use of quoted market prices and minimize the use of unobservable inputs. We calculated the fair value of our Level 1 and Level 2 instruments based on the exchange traded price of similar or identical instruments where available or based on other observable instruments. The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period.

The following table sets forth the Company’s financial assets and liabilities as of December 31, ~~2009~~2010 that are measured at fair value on a recurring basis, segregated by level within the fair value hierarchy:

			~~Basis of Fair Value Measurement (in thousands)~~	Basis of Fair Value Measurement (in thousands)
	Balance atDecember 31,2009		Quoted Prices inActive Markets forIdentical Items(Level 1)			Significant OtherObservable Inputs(Level 2)			SignificantUnobservableInputs(Level 3)
	Balance atDecember 31,2010			Quoted Prices inActive Markets forIdentical Items(Level 1)				Significant OtherObservable Inputs(Level 2)			SignificantUnobservableInputs(Level 3)
Assets – fair value of foreign currency swaps	$	398,~~244~~272	$	—$	—	$	~~39,244~~	$	$8,272	—	$	—
Liabilities:
Contingent value rights	$	486,~~976~~693	$	~~48,976~~$	6,693		—	$	—	—	$	—
Fair value of interest rate swaps		53,188		—		$	53,188			—
Fair value of foreign currency swaps		4,142			—				4,142			—
Total liabilities	$	102,163	$	48,976		$	53,188		$	—
Fair value of interest rate swaps		58,031			—				58,031			—
Total liabilities	$	68,866		$	6,693			$	62,173		$	—

1211. Related Party Transactions

Related ~~parties~~party balances and transactions as of December 31, 2010 and 2009, and for the ~~successor~~ periods ended December 31, 2010 and 2009 and the successor period in 2008, pertain to balances and transactions with Fresenius and its direct and indirectly owned subsidiaries,. ~~while~~Related ~~related~~ party ~~balances~~activities ~~and transactions~~ for the predecessor ~~periods~~period pertain to balances and transactions with New Abraxis~~, which was spun-off by APP on November 13, 2007~~. Below is a ~~detailed~~ discussion of these transactions.

Transactions with Fresenius

In connection with the Merger and associated financing transactions, FKP Holdings and its subsidiaries entered into a number of intercompany loan agreements with subsidiaries of Fresenius, the Company’s parent, as described in Note 98 to the consolidated financial statements— – Long-Term Debt and Credit Facility. At December 31, ~~2009~~2010 and ~~2008~~December 31, 2009, the principal amount outstanding under these loans was $32,~~033~~918.20 million and $23,~~864~~033.42 million, respectively. Interest expense recognized on these intercompany loans for the ~~year~~years ended December 31, 2010 and 2009 and the successor ~~2008~~ period in 2008, was $218.8 million, $249.0 million and $66.7 million, respectively. Accrued interest of $4745.10 million and $2647.61 million was due on these intercompany loans at December 31, ~~2009~~2010 and ~~2008~~2009, respectively. As described in Note 9 to the consolidated financial statements—Long-Term Debt and Credit Facility, in the year ended December 31, 2009 the Company paid $67.5 million in issuance costs related to the refinancing of the Bridge Intercompany Loan. In addition, during the successor period ended December 31, 2008, Fresenius pushed-down approximately $101.1 million in issuance costs associated with these intercompany loans.

The Company has recorded payables related to inventory purchases from Fresenius subsidiaries of $13.1 million and $9.9 million as of December 31, 2010 and 2009, respectively. Related intercompany charges included in cost of goods sold were $78.4 million and $28.5 million for the twelve months ended December 31, 2010 and 2009, respectively.

In December 2008, the Company entered into a $2.5 million, 5 year licensing agreement with a subsidiary of Fresenius related to certain oncology products. The capitalized product rights are included in intangible assets.

On December 29, 2008, FKP Holdings received two short-term notes totaling $33.8 million ($26.1 million and $7.7 million, respectively) from Fresenius in exchange for a short-term cash deposit. The $26.1 million and $7.7 million notes receivable became due and payable on January 2, 2009 and January 8, 2009, respectively. The interest rates on the notes receivable were 2.1% and 1.0% respectively, and were set based on the lender country’s LIBOR rate plus 0.5%. These two loans were repaid at maturity ~~and are reflected as notes receivable from Parent in the accompanying consolidated balance sheet at December 31, 2008~~.

~~Transactions~~67 ~~with New Abraxis~~

In connection with the November 13, 2007 separation, APP entered into a number of agreements that govern its relationship with New Abraxis for a period of time after the separation. These agreements were entered into while New Abraxis was still a wholly owned subsidiary of Old Abraxis. These agreements include (i) a tax allocation agreement, (ii) a dual officer agreement, (iii) an employee matters agreement, (iv) a transition services agreement, (v) a manufacturing agreement, and (vi) various real estate leases. The following is a description of these agreements.

Transactions with New Abraxis

In connection with the November 13, 2007 separation, APP entered into a number of agreements that govern its relationship with New Abraxis for a period of time after the separation. These agreements were entered into while New Abraxis was still a wholly owned subsidiary of Old Abraxis. These agreements include (i) a tax allocation agreement, (ii) a dual officer agreement, (iii) an employee matters agreement, (iv) a transition services agreement, (v) a manufacturing agreement, and (vi) various real estate leases. New Abraxis ceased to be a related party as of September 10, 2008, the Merger date with Fresenius. The following is a description of these agreements to the extent not terminated prior to the date hereof.

Tax Allocation Agreement

The tax allocation agreement allocates the liability for taxes. Under the tax allocation agreement, APP is responsible for and has agreed to indemnify New Abraxis against all tax liabilities to the extent they relate to APP’s hospital-based products business, and New Abraxis is responsible for and has agreed to indemnify APP against all tax liabilities to the extent they relate to New Abraxis’ proprietary products business. The tax allocation agreement also provides the extent to which, and the circumstances under which, the parties would be liable if the distribution were not to constitute a tax-free distribution under Section 355 and Section 368(a)(1)(D) of the Internal Revenue Code. In general, New Abraxis would be required to indemnify APP for any taxes resulting from a failure of the distribution to so qualify, unless such failure results solely from APP’s specified acts.

Dual Officer Agreement

APP entered into an agreement with New Abraxis under which APP and New Abraxis acknowledged and agreed that Dr. Soon-Shiong and Ms. Gopala may serve as an officer of both companies and receive compensation from either or both companies. APP also acknowledged and agreed in this agreement that neither Dr. Soon-Shiong nor Ms. Gopala will have any obligation to present to APP any business or corporate opportunity that may come to his or her attention, other than certain business opportunities relating to the manufacture or sale of products that either were manufactured and sold by the hospital-based products business prior to the separation or were the subject of an ANDA filed by APP prior to the separation and related transactions. This agreement does not ensure the continued services of either Dr. Soon-Shiong or Ms. Gopala following the separation and related transactions, restrict these individuals from resigning from APP or restrict APP’s board of directors from terminating their employment with APP. No person served as an executive officer of both New Abraxis and APP during the one year period following the distribution.

Employee Matters Agreement

APP entered into an employee matters agreement with New Abraxis, providing our respective obligations to employees and former employees who are or were associated with our respective businesses, and for other employment and employee benefit matters. Under the terms of the employee matters agreement, we generally assumed all liabilities and obligations related to employee benefits for current and former employees who are or were associated with the hospital-based products business, and New Abraxis generally assumed all liabilities and obligations related to employee benefits for current and former employees who are or were associated with the proprietary products business. Under the employee matters agreement, the parties have agreed to reimburse one another for all indemnifiable losses that each may incur on behalf of the other as a result of any of the benefit plans or any of the termination or severance obligations.

Transition Services Agreement

Pursuant to the transition services agreement, New Abraxis and APP will continue to provide to one another various services on an interim, transitional basis, for periods up to 24 months depending on the particular service. Services that New Abraxis provides to APP include legal services (e.g., assistance with SEC filings, labor and employment matters, and litigation support), financial services and corporate development. Services that APP provides to New Abraxis include information technology support, tax services, accounts payable services, internal audit services, accounts receivable services, general legal services, accounting related assistance, corporate insurance and franchise tax services, human resources, customer operations, sales and marketing support, corporate purchasing and facility services and regulatory support (including assistance with state and federal license renewals). Payments made under the transition services agreement are based on the providing party’s actual costs of providing a particular service. This agreement will terminate after a period of 24 months, but generally may be terminated earlier by either party as to specific services on certain conditions.

Manufacturing Agreement

APP entered into a manufacturing agreement with New Abraxis, through its wholly-owned subsidiary, APP Pharmaceuticals, LLC (“New APP LLC”), for the manufacture of Abraxane^® and certain of New Abraxis’ pipeline products by New APP LLC at APP’s Melrose Park and Grand Island manufacturing facilities. Under the terms of the manufacturing agreement, New Abraxis will perform certain manufacturing activities with respect to Abraxane^® or other pipeline products, principally related to the formulation and compounding of the active pharmaceutical ingredients in such products, and New APP LLC will undertake the remainder of the manufacturing processes. As part of the manufacturing services, New APP LLC will also provide New Abraxis with training related to proper manufacturing practices and other related training, assistance with quality assurance and control and information technology support related to manufacturing operations. With regard to the Melrose Park and Grand Island facilities, New APP LLC will be responsible for obtaining and maintaining necessary approvals to manufacture Abraxane^® or other pipeline products in compliance with the regulatory requirements applicable to the jurisdictions in which such products are sold, subject to the right to receive reimbursement from New Abraxis for the costs of such approvals in certain circumstances. New Abraxis will be responsible for obtaining and maintaining the remainder of the regulatory approvals required to sell and distribute Abraxane^® both in the United States and in other jurisdictions, and New Abraxis will be responsible for the final release of the product for sale at the completion of the manufacturing process.

In the manufacturing agreement, New APP LLC agreed with New Abraxis to cap the manufacturing growth of Abraxane^® and other pipeline products that New APP LLC is required to manufacture under the agreement over the term of the agreement. Further, in the event of capacity constraints at the Melrose Park or Grand Island facilities, the manufacturing agreement provides that the available capacity will be prorated between New Abraxis and New APP LLC according to the parties’ then current use of New APP LLC’s manufacturing capacity. While the manufacturing agreement allows New Abraxis to override these proration provisions, New Abraxis may only do so by paying New APP LLC additional fees under the manufacturing agreement. The fee New Abraxis would be required to pay New APP LLC to override the proration provisions of the manufacturing agreement is equal to the profit lost by New APP LLC as a result of New Abraxis’ election to override the proration provisions.

New Abraxis will pay New APP LLC a customary margin on its manufacturing costs. In addition, during each of the first three years of the manufacturing agreement, New Abraxis will pay New APP LLC a facility management fee equal to $3 million. The amount of this fee may be offset to the extent New APP employees are transferred to New Abraxis; such offset would be based upon the amount of compensation paid to such transferred employees. The term of the manufacturing agreement will end on December 31, 2011, which will be automatically extended for one year if either New APP LLC exercises its right to extend the lease on New Abraxis’ Melrose Park manufacturing facility for an additional year or New Abraxis exercises its right to extend the lease for New APP LLC’s Grand Island manufacturing facility for an additional year. (See “—Real Estate Leases” below).

The manufacturing agreement includes customary confidentiality provisions pursuant to which New Abraxis and New APP LLC will keep confidential all confidential information of the other party, subject to certain exceptions.

In addition, the manufacturing agreement contains the following indemnification provisions. New Abraxis will indemnify New APP LLC, its affiliates and its officers, directors, employees and agents (which are referred to as the “APP indemnified parties”) from any damages incurred by or assessed against them resulting from a third-party claim caused by or alleged to be caused by (i) New Abraxis’ failure to perform its obligations under the manufacturing agreement (ii) any product liability claim arising from the negligence, fraud or intentional misconduct of New Abraxis or any of its affiliates or any product liability claim arising from its manufacturing obligations (or any failure or deficiency in New Abraxis’ manufacturing obligations) under the manufacturing agreement; (iii) any claim that the manufacture, use or sale of Abraxane® or New Abraxis pipeline products infringes a patent or any other proprietary right of a third party; or (iv) any recall, product liability claim or other third-party claim not arising from the gross negligence or bad faith of, or intentional misconduct or intentional breach of the manufacturing agreement by, the APP indemnified parties. New Abraxis will also indemnify the APP indemnified parties for liabilities that they become subject to as a result of their activities under the manufacturing agreement and for which they are not responsible under the terms of the manufacturing agreement. New APP LLC will indemnify New Abraxis, and its affiliates, and their respective officers, directors, employees and agents from any damages incurred or assessed against them resulting from a third-party claim caused by or alleged to be caused by (i) New APP LLC’s gross negligence, bad faith, intentional misconduct or intentional failure to perform its obligations under the manufacturing agreement; and (ii) any product liability claim arising from the gross negligence or bad faith of, or intentional misconduct or intentional breach of the manufacturing agreement by, New APP LLC or its affiliates. The APP indemnified parties will not have any liability for monetary damages to New Abraxis or its affiliates or third parties in connection with the manufacturing agreement for damages in excess of $100 million in the aggregate, except to the extent that the damages are the result of (i) one of New APP LLC’s executive officers in bad faith affirmatively instructing their employees to intentionally breach New APP LLC’s obligation to manufacture Abraxane® or pipeline products under the manufacturing agreement or (ii) any intentional failure by New APP LLC, in bad faith, to cure any material breach of its obligation to manufacture Abraxane® or pipeline products under the manufacturing agreement following notice of this breach.

7368

negligence, fraud or intentional misconduct of New Abraxis or any of its affiliates or any product liability claim arising from its manufacturing obligations (or any failure or deficiency in New Abraxis’ manufacturing obligations) under the manufacturing agreement; (iii) any claim that the manufacture, use or sale of Abraxane^® or New Abraxis pipeline products infringes a patent or any other proprietary right of a third party; or (iv) any recall, product liability claim or other third-party claim not arising from the gross negligence or bad faith of, or intentional misconduct or intentional breach of the manufacturing agreement by, the APP indemnified parties. New Abraxis will also indemnify the APP indemnified parties for liabilities that they become subject to as a result of their activities under the manufacturing agreement and for which they are not responsible under the terms of the manufacturing agreement. New APP LLC will indemnify New Abraxis, and its affiliates, and their respective officers, directors, employees and agents from any damages incurred or assessed against them resulting from a third-party claim caused by or alleged to be caused by (i) New APP LLC’s gross negligence, bad faith, intentional misconduct or intentional failure to perform its obligations under the manufacturing agreement; and (ii) any product liability claim arising from the gross negligence or bad faith of, or intentional misconduct or intentional breach of the manufacturing agreement by, New APP LLC or its affiliates. The APP indemnified parties will not have any liability for monetary damages to New Abraxis or its affiliates or third parties in connection with the manufacturing agreement for damages in excess of $100 million in the aggregate, except to the extent that the damages are the result of (i) one of New APP LLC’s executive officers in bad faith affirmatively instructing their employees to intentionally breach New APP LLC’s obligation to manufacture Abraxane^® or pipeline products under the manufacturing agreement or (ii) any intentional failure by New APP LLC, in bad faith, to cure any material breach of its obligation to manufacture Abraxane^® or pipeline products under the manufacturing agreement following notice of this breach.

Real Estate Leases

Following the distribution, New Abraxis owns the manufacturing facility located on Ruby Street, Melrose Park, Illinois, and the research and development and the warehouse facility, both located in the same building on N. Cornell Avenue, Melrose Park, Illinois. APP owns the manufacturing facility located in Grand Island, New York. Following the distribution, the parties entered into a series of lease agreements to facilitate continued production of their respective pharmaceutical products while a manufacturing transition plan is being implemented. Under the terms of the lease agreements, New Abraxis leases the Ruby Street facility, consisting of approximately 122,000 square feet of office, warehouse and pharmaceutical manufacturing space, to APP. The initial term of the lease expires on December 31, 2011 and may be renewed at New Abraxis’ option for one additional year if APP is manufacturing a certain level of its products at the Ruby Street facility in the period prior to the expiration of the lease. During the term of the lease, New Abraxis will have access to the Ruby Street facility to perform certain elements of the manufacturing processes of Abraxane^® and other nab™ technology product candidates under the manufacturing agreement as well as, under certain circumstances, to provide contract manufacturing services to third parties. See “Manufacturing Agreement” above. In order to provide sufficient warehouse space to APP during the term of the Ruby Street lease, New Abraxis also leased the Cornell Warehouse facility, consisting of approximately 71,000 square feet of warehouse space, to APP. The initial term of the lease runs until December 31, 2011, and may be renewed at APP’s option for one additional year if the lease for the Ruby Street manufacturing facility is extended. New Abraxis also leased the Cornell R&D facility, consisting of approximately 48,000 square feet of research and development space, to APP. The initial term of the lease runs until December 31, 2010 and may be terminated upon twelve months written notice from and after January 1, 2009. This lease has no option to extend the term of the lease.

New Abraxis leased a portion of APP’s Grand Island facility, consisting of approximately 5,700 square feet of pharmaceutical manufacturing space, to allow New Abraxis to perform its obligations under the manufacturing agreement. The initial term of the lease runs until December 31, 2011, and may be renewed at New Abraxis’ option for one additional year if New Abraxis has not received regulatory approvals from the European Medicines Agency (or “EMEA”), the European equivalent to the FDA, to manufacture Abraxane^® in at least two facilities (not including our Grand Island facility) by June 30, 2011.

~~Transactions~~Related party transactions relating to these agreements during the predecessor period are summarized in the following table:

	Successor					Predecessor
	PredecessorJanuary 1throughSeptember 9,2008
	Year endedDecember 31,2009			July 2throughDecember 31,2008		January 1throughSeptember 9,2008			YearendedDecember 31,2007
Transition service income	$	275
						(in thousands)
Facility management fees		2,075
Transition service income	$	—		$	—	$	275		$	100
Net rental expense		(1,912	)
Facility management fees		—			—		2,075			300
Margins on the manufacture and distribution of Abraxane®		1,490
Net rental expense		—			—		(1,912	)		(200	)
Margins on the manufacture and distribution of Abraxane®		—			—		1,490			—

At69 December 31, 2007, net receivable from related parties totaled $7.0 million, $6.9 million of which was related to activities under the various agreements with New Abraxis, and $0.1 related to charges associated with services rendered under these agreements.

From time to time in the ordinary course of business, APP purchases active pharmaceutical ingredients or final dosage forms from Interchem Corporation and World Gen, LLC. Joseph M. Pizza, who became a director on December 19, 2007, is the president and chief executive officer of these entities. During the year ended December 31, 2007, we purchased a total of $20.7 million of products from these entities. As of December 31, 2007, we had approximately $3.8 million in accounts payable to these entities. Mr. Pizza has not been a board member of APP since the Merger, and has never been affiliated with FKP Holding.

1312. Accrued Liabilities

Accrued liabilities consisted of the following at December 31, ~~2009~~2010 and December 31, ~~2008~~2009:

	December 31,2009		December 31,2008
	December 31,2010				December 31,2009
	(in thousands)
Sales and marketing	$	2837,~~099~~520	$	~~17,881~~	$	28,099
Payroll and employee benefits		1711,~~935~~672		~~14,077~~		17,935
Legal and insurance		2,~~252~~056		~~5,068~~		2,252
Accrued interest		75,~~600~~624		~~5,903~~		7,600
Accrued separation costs		—		429
Other		2,219				1,434
Other		1,434		4,781
	$	59,091			$	57,320
	$	57,320	$	48,139

1413. Leases and Commitments

We have entered into various operating lease agreements for warehouses, office space, automobiles, communications equipment, information technology equipment and software, and office equipment. Rental expense ~~for~~amounted ~~continuing~~to ~~operations~~$7.1 ~~amounted~~million toin 2010, $5.9 million in 2009, $1.8 million in the successor period and $4.0 million in the predecessor period in 2008 (total of $5.8 million in 2008)~~, and $3~~.2 ~~million in 2007.~~ Rental expense is recognized on a straight-line basis.

As of December 31, ~~2009~~2010, total future annual minimum lease payments related to non-cancelable operating leases, are as follows:

Year	Total Amount
	(in thousands)
2010	$	7,231
2011	$	7,236
2011		3,531
2012		3,559
2012		1,662
2013		2,873
2013		1,586
2014		2,551
2014		1,581
2015		2,028
2015 and thereafter		1,437
2016 and thereafter		7,646
	$	1725,~~028~~893

1514. Employee Benefit Plan

APP sponsors a 401(k) defined-contribution plan, or 401(k) Plan, covering substantially all eligible employees. Employee contributions to the 401(k) Plan are voluntary. APP makes a qualified non-elective contribution to this plan in an amount equal to 3% of all eligible employees’ compensation, regardless of participation in the plan, with such employer contributions vesting immediately. Participants’ contributions are limited to their annual tax deferred contribution limit as allowed by the Internal Revenue Service. APP’s total matching contributions to the 401(k) Plan onwere a$3.0 ~~continuing~~million ~~operations~~in ~~basis~~2010, ~~were~~ $2.8 million in 2009, $0.8 million in the 2008 successor period and $1.6 million in the 2008 predecessor period (a total of $2.4 million in 2008)~~, and $2~~.1 ~~million in 2007.~~ APP may contribute additional amounts to the 401(k) Plan at its discretion, however APP has never made a discretionary contribution to the 401(k) Plan.

1615. Stockholder’s Equity

For accounting purposes, the September 10, 2008 Merger with Fresenius resulted in the cancellation of all outstanding shares of APP. In connection with its establishment, FKP Holdings issued 1,000 shares of its common stock to its direct parent, Fresenius Kabi AG.

Common Stock Voting Rights

The holders of both our common stock and that of our Predecessor are entitled to one vote for each share held of record upon such matters and in such manner as may be provided by law.

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Dividends

As part of the separation and distribution, APP distributed on a pro rata basis to holders of record of its common stock on November 13, 2007 one share of New Abraxis common stock for every four shares of APP common stock held on that date, or 39.9 million common stock shares ~~(see Note 6 to the consolidated financial statements – Discontinued Operations—Spin-off of New Abraxis above for more information)~~. Other than the distribution of shares of New Abraxis, APP never paid a dividend on any class of stock.

Under the terms of its various debt agreements, FKP Holdings has restrictions on paying cash dividends in the future. The CVR holders have no rights to dividends.

Treasury Stock

All treasury shares held by our Predecessor were cancelled as part of the separation and distribution of New Abraxis on November 13, 2007.

1716. Stock Options

Effective with the Merger, all outstanding “in the money” stock options and restricted stock units of APP were accelerated and became immediately 100% vested and were exercised in accordance with the terms of the Merger Agreement. “In the money” stock options were stock options with an exercise price less than the cash consideration of $23.00 plus the maximum CVR payment. In exchange, the holders received common shares, which were converted into the right to receive $23.00 in cash without interest, and one Contingent Value Right (“CVR”), issued by FKP Holdings and representing the right to receive a cash payment without interest of up to $6.00, as determined in accordance with the terms of the CVR Indenture. All “out of the money” stock options, which were stock options with an exercise price more than the combination of the Merger cash consideration of $23.00 plus the maximum CVR payment, were cancelled upon the closing of the Merger. As a result, all APP stock-based incentive plans were terminated as of the Merger date of September 10, 2008.

Prior to the Merger, APP sponsored the following stock compensation plans:

1997 Stock Option Plan

Under the 1997 Stock Option Plan, or the 1997 Plan, options to purchase shares of APP common stock were granted to certain employees and the directors with an exercise price equal to the estimated fair market value of APP’s common stock on the date of grant. The 1997 Plan stock options were vested upon completion of APP’s initial public offering in December 2001.

2001 Stock Incentive Plan

The 2001 Stock Incentive Plan, or the 2001 Plan, provided for the grant of incentive stock options and restricted stock to APP’s employees, including officers and employee directors, non-qualified stock options to employees, directors and consultants and other types of awards. Except as determined by APP’s compensation committee, the number of shares reserved for issuance increased annually on the first day of each fiscal year by an amount equal to the lesser of a) 6,000,000 shares, b) 5% of the total number of shares outstanding as of that date or c) a number of shares as determined by APP’s Board of Directors.

The compensation committee of APP’s Board of Directors administered the 2001 Plan and had the authority to determine the terms and conditions of awards, including the types of awards, the number of shares subject to each award, the vesting schedule of the awards and the selection of the grantees. The exercise price of all options granted under the 2001 Plan was determined by the compensation committee of APP’s Board of Directors, but in no event could this price be less than the fair market value of APP’s common stock on the date of grant.

2001 Non-Employee Director Stock Option Program

The 2001 Non-Employee Director Stock Option Program, or the 2001 Program, was adopted as part, and is subject to the terms and conditions, of the 2001 Plan. The 2001 Program established a program for the automatic grant of awards to APP’s non-employee directors at the time that they initially joined the board, and at each annual meeting of the stockholders at which they were elected.

Restricted Stock

Upon vesting, each restricted unit entitled the holder to one share of APP’s common stock. Compensation expense related to restricted stock grants was based upon the market price of APP’s common stock on the date of grant and was charged to operations on a straight-line basis over the applicable vesting period. Restricted stock units granted generally vested ratably over a four year period.

Restricted Unit Plan

In connection with the separation with Abraxis Bioscience, APP assumed the restricted units previously granted to its employees under the American BioScience Restricted Unit Plan II. Those awards became governed under the APP Pharmaceuticals, Inc. Restricted Stock Unit Plan (the “RSU Plan”). Shares of APP’s common stock were issuable upon the vesting of these units. The units issued under the RSU Plan vested one-half on April 18, 2008 (which was the second anniversary of the closing of the merger between Old Abraxis, then known as American Pharmaceutical Partners, and American BioScience). The balance of the shares were scheduled to vest on April 18, 2010, but were accelerated in connection with the Merger. The restricted stock units entitled their holders to receive a number of APP’s shares of common stock on each vesting date determined by taking the value of the vested portion of the award divided by APP’s average trading price over the three days prior to vesting; except that if the average trading price of APP’s stock was less than $14.47, then the notional price was divided by $14.47. The maximum number of APP’s shares that could be issued under this restricted unit plan was 345,542 shares.

Pursuant to an agreement between Old Abraxis and RSU Plan LLC (“RSU LLC”), RSU LLC agreed that prior to the date on which restricted stock units issued pursuant to the RSU Plan became vested, RSU LLC would deliver, or cause to be delivered, to APP the number of its shares of common stock or cash (or a combination thereof) in an amount sufficient to satisfy APP’s obligations relative to vested restricted units under the RSU Plan. APP was required to satisfy its obligations under the RSU Plan by paying to the participant’s cash and/or shares of its common stock in the same proportion as was delivered by the RSU LLC. The intention of this agreement was to have RSU LLC satisfy APP’s obligations under the RSU Plan so that there would not be any further dilution to APP’s stockholders as a result of APP’s assumption of certain awards under the American BioScience Restricted Unit Plan II. Effective with the Merger, all outstanding RSU’s of APP became immediately vested, were exercised and were exchanged for APP common shares, which were converted into the right to receive $23.00 in cash, without interest, and one Contingent Value Right (“CVR”).

At September 10, 2008, 373,279 restricted shares were outstanding under our 2001 Stock Incentive Plan with a weighted average per share market value of $12.82. All of these restricted shares were vested effective with the Merger. At December 31, 2007 487,397 restricted shares were outstanding with a weighted average per share market value of $12.56. During the successor period 94,754 restricted shares vested with a weighted average per share market value of $11.71 and 19,364 restricted shares were forfeited with a weighted average per share market value of $11.99. There were no unvested restricted shares outstanding at December 31, 2008.

~~Excluding~~Stock ~~the effects of discontinued operations, stock~~ based compensation costs for RSU awards were $0 million in the 2008 successor period and $3.1 million in the 2008 predecessor period (a total of $3.1 million in 2008)~~, and $6~~.0 ~~million in 2007.~~

Employee Stock Purchase Plan

Under the 2001 Employee Stock Purchase Plan, or the ESPP, eligible employees could contribute up to 10% of their base earnings toward the semi-annual purchase and issuance of APP common stock. The employees’ purchase price was equal to the lesser of 85% of the fair market value of the stock on the first business day of the offer period, or 85% of the fair market value of the stock on the last business day of the semi-annual purchase period. Employees could purchase no more than 625 shares of APP’s common stock within any given purchase period. ~~An aggregate of 9,238,726 shares of APP’s common stock were reserved for issua~~

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Filing Compare · Fresenius Kabi Pharmaceuticals Holding, Inc.