Form 10-Q

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(Former Name, Former Address or Former Fiscal Year, if Changed Since Last Report)

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

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

As of August 3, 2009, all of the shares of the registrant’s common stock were held by Fresenius Kabi AG.

On September 10, 2008, APP Pharmaceuticals, Inc. (“APP” or “the Predecessor”), became a direct, wholly-owned operating subsidiary of Fresenius Kabi Pharmaceuticals Holding, Inc. (“FKP Holdings” or “the Company”) and an indirect wholly-owned subsidiary of Fresenius SE (“Fresenius” or “the Parent”) a societas europaea organized under the laws of the European Union and Germany, upon completion of the merger (the “Merger”) of a wholly-owned subsidiary of FKP Holdings (“Merger Sub”) with and into APP pursuant to the Agreement and Plan of Merger dated July 6, 2008 (the “Merger Agreement”) by and among Fresenius, FKP Holdings, Merger Sub and APP.

FKP Holdings is a Delaware corporation and an indirect wholly-owned subsidiary of Fresenius. FKP Holdings was formed on July 2, 2008, and prior to the Merger 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 assets and business of FKP Holdings consist exclusively of those of APP prior to the Merger. Accordingly, for accounting purposes FKP Holdings is considered the successor to APP and the accompanying condensed consolidated results of operations are presented for two distinct periods: the periods preceding the Merger, or “predecessor” periods (from January 1, 2008 through June 30, 2008), and the periods after the merger, or “successor” periods (from the inception of FKP Holdings on July 2, 2008), which include 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.

The Company incurred indebtedness in connection with the Merger, the aggregate proceeds of which were sufficient to pay the aggregate Merger consideration, repay a portion of the Company’s then outstanding indebtedness and pay fees and expenses related to the Merger. The Company also issued contingent value rights (“CVRs”) to the holders of APP common stock and the holders of stock options and restricted stock issued by APP prior to the Merger. The term “Transactions” refers to, collectively, (1) the Merger, (2) the incurrence of the initial merger-related indebtedness, and (3) the issuance of the CVRs. 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 the Company’s existing financing instruments that were incurred in connection with the Merger as they come due until at least January 1, 2010.

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.”

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.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the predecessor and successor periods described above are not necessarily indicative of the results that may be expected for the year ended December 31, 2009, or for any other future periods. In addition, the results of the successor period are not comparable to the results of the predecessor period due to the difference in the basis of presentation as a result of the application of purchase accounting as of the Merger date as well as the effect of the Transactions as described above.

Certain prior period balances have been reclassified to conform to the presentation adopted in the current period. These reclassifications were necessary to conform the Company’s financial statement presentation with those of its Parent.

The balance sheet information at December 31, 2008 has been derived from the audited consolidated financial statements of FKP Holdings as of that date, but does not include all of the information and notes required by GAAP for complete financial statements. These interim unaudited condensed consolidated financial statements of the Company and its Predecessor should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K filed on February 19, 2009.

The unaudited condensed consolidated financial statements of FKP Holdings include: (a) the assets, liabilities and results of operations of FKP Holdings, and (b) the assets, liabilities and results of operations of APP and its wholly owned subsidiaries (Pharmaceutical Partners of Canada, Inc. and APP Pharmaceuticals Manufacturing, LLC). All material intercompany balances and transactions have been eliminated in consolidation. APP is a wholly owned subsidiary of FKP Holdings, which itself is a wholly-owned subsidiary of its sole stockholder Fresenius Kabi AG. Fresenius Kabi AG is a wholly-owned subsidiary of Fresenius.

The preparation of financial statements in conformity with GAAP requires 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 consolidated financial statements. Estimates may also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”. SFAS 167 addresses the elimination of FASB Interpretation 46(R)’s exceptions to consolidating qualifying special-purpose entities (the “QSPE”) which means more entities will be subject to consolidation assessments and reassessments. The statement 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, SFAS 167 requires additional disclosures about a company’s involvement with a VIE and any significant changes in risk exposure due to that involvement. This statement is effective for the Company beginning in 2010. The Company is currently evaluating the impact of the adoption of SFAS 167 but does not anticipate it will have a material impact on our results of operations and financial condition.

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 FASB Accounting Standards Codification is intended to be the source of authoritative U.S. generally accepted accounting principles (GAAP) and reporting standards as issued by the FASB . Its primary purpose is to improve clarity and use of existing standards by grouping authoritative literature under common topics. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Codification does not change or alter existing GAAP and there is no expected impact on our consolidated financial position or results of operations.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”, which establishes accounting and disclosure requirements for subsequent events. SFAS 165 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 statement prospectively for the period ended June 30, 2009 and has evaluated subsequent events through August 3, 2009, the filing date of this report.

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets,” 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. FSP 142-3 must be applied prospectively to all intangible assets acquired as of and subsequent to fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of this new standard on January 1, 2009 did not impact the accompanying condensed consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment to FASB Statement No. 133.” SFAS 161 expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” requiring qualitative disclosures about the objectives and strategies for using derivatives, quantitative disclosures about the fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The effective date for adoption of SFAS 161 by the Company was the first quarter of 2009. We have adopted the provisions of SFAS 161 and have incorporated the required disclosures into these condensed consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 essentially redefines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. SFAS 157 applies where other accounting pronouncements require or permit fair value measurements. In November 2007, the FASB provided a one year deferral for the implementation of SFAS 157 for other non-financial assets and liabilities. Our Predecessor adopted the provisions of SFAS 157 for financial assets and liabilities measured at fair value on a recurring basis on January 1, 2008. 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 SFAS No. 157 on January 1, 2008 did not have a significant impact on the consolidated financial statements of our Predecessor. The Company adopted the provisions of SFAS 157 for non-financial assets and liabilities effective at the beginning of fiscal year 2009. The adoption of the provisions of SFAS 157 for non-financial assets and liabilities had no impact on our condensed consolidated financial statements.

Our Predecessor adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115,” on January 1, 2008. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are recognized in earnings at each subsequent reporting date. The adoption of this new standard on January 1, 2008 did not impact the accompanying condensed consolidated financial statements, as the fair value option was not elected for any of the instruments existing as of the adoption date.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” and SFAS No. 160, “Accounting and Reporting of Non-controlling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51”. These new standards will significantly change the accounting for and reporting of business combination transactions and non-controlling (minority) interests in consolidated financial statements. SFAS 141R and SFAS 160 were required to be adopted simultaneously and were effective in the first quarter of 2009. SFAS 141R and SFAS 160 are effective for business combination transactions completed and non-controlling (minority) interests created on or after January 1, 2009. The adoption of these statements effective January 1, 2009 had no impact on the accompanying condensed consolidated financial statements as we did not complete any business combination transactions or create any non-controlling (minority) interests during the period.

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 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.

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. Refer to Note 3—Adjusted EBITDA Calculation for Contingent Value Rights (CVR), for further details. As of September 10, 2008, immediately prior to the completion of the Merger, there were approximately 163,251,906 shares of APP common stock outstanding, and approximately 2,264,708 of these shares were a result of the conversion of outstanding options and restricted stock units (RSUs) granted under APP’s various stock compensation plans.

The aggregate consideration paid in the Merger was $4,908.1 million (including assumed APP debt), comprised as follows (in millions):

The CVRs were issued on the acquisition date and trade 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.

The acquisition was accounted for under the purchase method of accounting with the Company treated as the acquiring entity in accordance with SFAS No. 141, “Business Combinations.” 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.

As a result of closing the Merger late in the third quarter of 2008, the purchase price allocation is preliminary and is subject to future adjustment during the allocation period as defined in SFAS No. 141. The primary areas of the purchase price allocation that could be subject to future adjustment relate to the valuation of certain acquired properties, pre-acquisition contingencies, income taxes and residual goodwill. Additionally, the Company is in the process of making assessments in other areas that could affect the final purchase price allocation. The following summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):

Approximately $365.7 million of the purchase price represents the estimated fair value of acquired in-process research and 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 successor period, which included the acquisition date. The value assigned to purchased 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 purchased in-process R&D projects that were valued.

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 9—Goodwill and Other Intangibles.

In connection with the Merger, each APP shareholder was issued one CVR 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.

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 FKP 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.

Because any amount payable to the holders of CVRs must be settled in cash, the CVRs are classified as liabilities in the accompanying unaudited condensed 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 CVR for the reporting period is included in non-operating income. At June 30, 2009 and December 31, 2008, the carrying value of the CVR liability was approximately $44.1 million and $57.1 million, respectively.

Inventories are valued at the lower of cost or market as determined under the first-in, first-out, or FIFO method, as follows:

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. In evaluating the market value of inventory pending regulatory approval as compared to the capitalized cost, we considered the market, pricing and demand for competing products, our anticipated selling price for the product and the position of the product in the regulatory review process. 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. At June 30, 2009 and December 31, 2008, inventory included $5.2 million and $5.6 million, respectively, in costs related to products pending FDA approval at our Melrose Park, Grand Island and Puerto Rico facilities.

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 unaudited condensed consolidated financial statements as an element of cost of sales; inventories are presented net of related reserves.

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.

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 the fair values of the interest rate swaps were initially recorded in accumulated other comprehensive income (loss) in the consolidated balance sheet and recognized in operations each period when the hedged item impacted results. Effective January 1, 2008, APP measured the fair value of the interest rate swaps under the guidance of SFAS 157, “Fair Value Measurements.”

All amounts owing 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 agreements were terminated on September 5, 2008, resulting in a recognized loss of $2.7 million. There were no penalties associated with the early pay-off of the debt or termination of the interest rate swap 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 may be increased to $500 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. Proceeds from the borrowings under Term Loans A2 and B2 were used to repay and replace the borrowings outstanding under the Spin-off Credit Agreement Term Loans A and B that were assumed in the Merger. The Senior Credit Facilities Agreement also provides APP Pharmaceuticals, LLC with a $150 million revolving credit facility, which replaces the Spin-off Credit Agreement 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 June 30, 2009, the balance outstanding on APP Pharmaceuticals, LLC senior credit facilities and revolving credit facility was $980.3 million and $75.0 million, respectively.

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 June 30, 2009 was $1,624.7 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 correspond to those applicable to the loans provided to such borrower under the Bridge Facility Agreement. The Bridge Intercompany Loan is 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 provides for an event of default and acceleration if there is 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 bears interest at the rate applicable to the corresponding loan under the Bridge Facility Agreement, plus a margin, if extended. 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 $1,300 million, $650 million of which was repaid in October of 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 $97.9 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.

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 (comprised of an additional $50 million drawn on the $300 million revolving credit facility under the Senior Credit Facilities Agreement and $116.9 million advanced by Fresenius under the terms of two Fresenius intercompany loans) 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.

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. At the closing of the Merger, the amounts outstanding under the Senior Intercompany Loans and Bridge Intercompany Loan were $1,102.5 million and $1,300.0 million, respectively. In connection with the transactions described above, the balance of the Senior Intercompany Loans was increased by a total of $533.1 million, reflecting the push-down of $483.1 million in additional borrowings under the Tranche B1 Term Loan facility and the $50 million additional draw under the $300 million revolving credit facility. The balance of the Bridge Intercompany Loan was reduced by $650 million and replaced with $533.1 million in additional Senior Intercompany Loans and two Fresenius SE intercompany loans to APP totaling $116.9 million. This $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.

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 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, we wrote-off $14.6 million of Bridge Intercompany Loan unamortized debt issuance costs and incurred debt issuance costs of $64.3 million for the new Intercompany Dollar and Euro loans. The outstanding loan balance of the unsecured intercompany loans outstanding at June 30, 2009 is $1,187 million.

The following is the repayment schedule for Term Loans A2 and B2 and intercompany loans as of June 30, 2009 (unaudited, in thousands):

Payments maturing over the next twelve months for term loans A2 and B2 are $53.0 million. Intercompany loan payments maturing over the next twelve months are $58.0 million.

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 principal and interest payments attributable to changes in interest rates or foreign currency fluctuations. In general, the Company enters into derivative transactions in limited situations based on management’s assessment of current market conditions and perceived risks.

Included in our intercompany borrowings are two Euro-denominated notes, a €200 million note 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 and related future interest payments. We have entered into foreign currency swaps with affiliates of Fresenius for the total of the Euro-denominated notes principal balance. These agreements began to mature in June 2009, with the latest maturity in January 2012, and are not designated as hedging instruments for accounting purposes. As the Euro-denominated intercompany notes payable represent a foreign currency transaction to us, during the six month period ended June 30, 2009, we recognized a $17.8 million foreign currency transaction loss in order to adjust the carrying value of the Euro-denominated notes to reflect the June 30, 2009 exchange rate, and an offsetting foreign currency transaction gain of $22.5 million related to the change in fair value of these swap agreements from a $4.1 million asset to a $26.6 million asset. The net foreign currency transaction gain of $4.7 million is included in other income (expense) in the accompanying unaudited condensed consolidated statement of operations for the six months ended June 30, 2009. We have also entered into foreign currency hedges for the €15.9 million of future cash flows related to the interest payments due on the €200 million note through December 10, 2010, and for the €30.5 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 of these foreign currency hedge agreements at June 30, 2009 is an asset of $5.1 million, and is included in long-term assets in our condensed consolidated balance sheets. For the six month period ended June 30, 2009, we recorded a deferred gain of $3.2 million, net of tax of $1.9 million, in other comprehensive income (loss).

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. At November 3, 2008 we had no initial net investment in these swaps as the swaps had an aggregate fair value of $15.9 million (liability) and Fresenius contributed an equal amount to us. 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 June 30, 2009 is a liability of $52.0 million, and is included in long-term liabilities in our condensed consolidated balance sheets. For the three and six month period ended June 30, 2009 we recorded in other comprehensive income (loss) a deferred gain of $13.1 million and $10.7 million, net of tax of $8.2 million and $6.7 million, respectively. For the three and six month period ended June 30, 2009 we recognized $0.8 million of interest income and $0.1 million in interest expense, which represented the amount of hedge ineffectiveness.

The Predecessor adopted SFAS No. 157, “Fair Value Measurements” on January 1, 2008 for financial assets and liabilities measured at fair value on a recurring basis. The adoption of SFAS 157 on January 1, 2008 did not have a significant impact on the consolidated financial statements of our Predecessor. Our Predecessor applied the fair value measurement guidance of SFAS 157 in the valuation of its interest rate swaps, which it entered into on February 14, 2008 and settled in September 2008, prior to the completion of the Merger. The Company adopted the provisions of SFAS 157 for non-financial assets and liabilities effective at the beginning of fiscal year 2009. The adoption of the provisions of SFAS 157 for non-financial assets and liabilities had no impact on our condensed consolidated financial statements.

In establishing a fair value, SFAS157 sets a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The basis of the fair value measurement is categorized in three levels, in order of priority, as described below:

Assets and liabilities recorded at fair value are valued using quoted market prices, or under a market approach, using other relevant information generated by market transactions involving identical or comparable instruments:

Net receivables and payables due from (to) related parties for the successor period ended June 30, 2009 pertain to amounts due from (to) Fresenius and its direct and indirectly owned subsidiaries, while related party amounts for the predecessor periods pertain to balances and transactions with New Abraxis, which was spun-off by APP on November 13, 2007. See below for a detailed discussion of these transactions.

In connection with the Merger and associated financing transactions, FKP Holdings and its subsidiaries entered into a number of intercompany loan agreements with financing subsidiaries of Fresenius, the Company’s parent, as described in Note 5—Long-Term Debt and Credit Facility. At June 30, 2009, the principal amount outstanding under these loans was $2,811.3 million. Interest expense recognized on these intercompany loans for the three and six months ended June 30, 2009 was $57.8 million and $110.4 million, respectively. Accrued interest of $68.6 million was due on these intercompany loans at June 30, 2009. As described in Note 5—Long-Term Debt and Credit Facility, in the quarter ended March 31, 2009, the Company paid $64.3 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 $97.9 million in issuance costs associated with these intercompany loans. These costs are expected to be repaid and are therefore included in the payable to Parent Company balance reflected in the accompanying condensed consolidated financial statements.

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 both APP and New Abraxis were still wholly owned subsidiaries, related parties, 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. Transactions relating to these agreements during the period in which APP and New Abraxis were considered related parties are summarized in the following table:

As of June 30, 2009 and December 31, 2008, goodwill had a carrying value of $3,671.9 million and $3,669.7 million, respectively, with the increase in carrying value resulting entirely from the recognition of additional direct costs associated with the Merger between APP and FKP Holdings on September 10, 2008, as described in Note 2—Merger with APP.

All of our intangible assets, other than goodwill, are subject to amortization. Amortization expense on intangible assets attributable to operations for the three months and six months ended June 30, 2009 (successor period) was $9.2 million and $18.3 million, respectively. Amortization expense for the three months and six months ended June 30, 2008 (predecessor period) was $8.2 million and $15.9 million, respectively. At June 30, 2009, the weighted average expected lives of intangibles was approximately 18.7 years.

The following table reflects the components of identifiable intangible assets, all of which have finite lives, as of June 30, 2009 and December 31, 2008:

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. Accordingly, as future cash flows with respect to these products are expected to exceed 20 years, we have utilized a straight-line 20 year amortization period. 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.

Estimated annual amortization expense for identifiable intangible assets with finite lives in each of the five succeeding years is approximately $32.7 million.

Accrued liabilities consisted of the following at June 30, 2009 and December 31, 2008:

On January 1, 2007, our Predecessor adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). This interpretation clarifies the criteria that must be met prior to the recognition of the financial statement benefit of a position taken or expected to be taken in a tax return in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” The effect of the implementation of FIN 48 was not material. As of June 30, 2009, the total amount of gross unrecognized tax benefits, which are reported in other liabilities in our unaudited condensed consolidated balance sheet, was $2.7 million. This entire amount would impact goodwill if recognized. In addition, we accrue interest and any necessary penalties related to unrecognized tax positions in our provision for income taxes. For the six month period ended June 30, 2009, $0.4 million of such interest was accrued.

For the six-month period ended June 30, 2009, FKP Holdings reported an income tax benefit of $10.1 million on a pretax loss of $25.0 million, or an effective benefit rate of 40.7%. This rate differs from the statutory U.S. federal tax rate of 35% due primarily to the tax cost of a hypothetical distribution of the profits of our foreign subsidiaries, the non-taxability of the change in the fair value of the CVRs, as well as the effect of state and foreign income taxes.

Tax expense on pretax income for the six months ended June 30, 2008 was $23.4 million on pretax income of $56.5 million, or an effective rate of 41.4%. This rate differs from the statutory U.S. federal tax rate of 35% due primarily to the effect of state and foreign income taxes.

For the three-month period ended June 30, 2009, FKP Holdings reported an income tax expense of $6.8 million on pretax income of $3.1 million, or an effective tax rate of 217.8%. This rate differs from the statutory U.S. federal tax rate of 35% due primarily to the tax cost of a hypothetical distribution of profits of our foreign subsidiaries, the non-taxability of the change in the fair value of the CVRs, as well as the effect of state and foreign income taxes. Also, impacting the rate during the three month period is the correlation in pretax income recorded in the second quarter in comparison to the income tax expense that was recorded to reduce the income tax benefit from $17.0 million at March 31, 2009 to a $10.2 million income tax benefit recorded at June 30, 2009.

Tax expense on pretax income for the three months ended June 30, 2008 was $15.8 million on pretax income of $39.7 million, or an effective tax rate of 39.9%. This rate differs from the statutory U.S. federal tax rate of 35% due primarily to the effect of state and foreign income taxes.

Deferred tax assets are recognized if, in management’s judgment, it is more likely than not such assets will be realized. The Company has determined that it can not conclude that it is more likely than not that deferred tax assets related to carryovers of net operating losses in Puerto Rico will be realized. Accordingly, the Company recorded a valuation allowance of $1.0 million related to these future deductible amounts as of December 31, 2008. As the Puerto Rican entity has continued to incur losses, an additional $0.3 million was added to the valuation allowance in the period ended June 30, 2009. The total of $1.3 million represents the entire deferred tax asset resulting from the Puerto Rican loss carryovers. Management believes that all other deferred tax assets will be fully realized.

Through the date of the Merger, APP and its subsidiaries filed income tax returns in the U.S. Federal jurisdiction, Canada, Puerto Rico, and various state jurisdictions. APP is currently undergoing a federal income tax examination for tax years 2006 and 2007. APP is also currently under state income tax examinations in California, Illinois and North Carolina for various tax years. Although not currently under examination or audit, APP’s 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 2004 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.

On September 10, 2008, the date of the Merger, a wholly-owned subsidiary of FKP Holdings merged with and into APP pursuant to and by the Agreement and Plan of Merger dated July 6, 2008. Accordingly, FKP Holdings became the parent company of APP and its subsidiaries. For periods beginning January 1, 2009, APP and its subsidiaries will be included in the consolidated US Federal income tax return of FKP Holdings.

At June 30, 2009 and 2008, FKP Holdings had a cumulative loss from the change in the fair value of interest rate swaps, net of tax of $21.7 million and $1.3 million, respectively. The cumulative change in foreign currency swaps was a gain of $3.1 million as of June 30, 2009. There were no foreign currency swaps during the six months ended June 30, 2008. The cumulative foreign currency translation adjustment was a loss of $2.6 million as of June 30, 2009 and a gain of $1.8 million as of June 30, 2008.

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. We record accruals for such contingencies to the extent that we conclude a loss is probable and the amount can be reasonably estimated. We also record receivables for probable and estimable insurance recoveries from third party insurers.

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

We have filed an abbreviated new drug application, or “ANDA”, seeking approval from the United States Food and Drug Administration (“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. We filed our Answer and Counterclaims in August 2008 and are currently engaged in discovery.

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 has 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 is subject to appeal by Navinta.

We have filed ANDAs seeking approval from the FDA to market oxaliplatin for injection, 10 mg and 50mg vials, and oxaliplatin injection, in 5mg/ml, 10ml, 20ml and 40 ml dosage forms. The Reference Listed Drug is the chemotherapeutic agent Eloxatin^® marketed by Sanofi-Aventis that is approved for the treatment of colorectal cancer. Sanofi-Aventis is believed to be the exclusive licensee of certain patent rights from Debiopharm. We notified Sanofi-Aventis and Debiopharm of the ANDA filings pursuant to the provisions of the Hatch-Waxman Act, and Sanofi-Aventis and Debiopharm filed a patent infringement action in the U.S. District Court for the District of New Jersey seeking to prevent us from marketing these products until after the expiration of various U.S. patents. Multiple cases proceeding against other generic drug manufacturers were consolidated pursuant to a pre-trial scheduling order in April 2008. The defendants motion for summary judgment on one of the patent’s at issue was granted and an order entered by the U.S. District Court. Sanofi-Aventis has appealed the ruling with the U.S Court of Appeals.

We have been named as a defendant in approximately eighty-five 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 via a pain pump into the shoulder joint. 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 of the actions involve an alleged event after the acquisition date. All of our local anesthetic products are approved by the FDA and continue to be marketed and sold to customers.

The cases have been filed in various jurisdictions around the country, including Indiana, Kentucky, New York, Colorado, Ohio, Minnesota, and California. Some are in state court, and most are in federal court. Discovery has just begun in most cases. We anticipate additional cases will be filed throughout the U.S. and we maintain product liability insurance for these matters.

We have been named as a defendant in several 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.

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. A pre-trial conference has been set for July 31, 2009. We believe that we did not breach the contract and are vigorously defending this matter.

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.

The Company has evaluated events and transactions subsequent to June 30, 2009 through August 3, 2009, the date these condensed consolidated financial statements were included in Form 10-Q and filed with the SEC. Based on the definitions and requirements of SFAS No. 165, “Subsequent Events”, we have not identified any events that occurred subsequent to June 30, 2009 and through August 3, 2009, that require recognition or disclosure in the condensed consolidated financial statements.

This Quarterly Report on Form 10-Q 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 and those of our consolidated subsidiaries 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:

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 “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, and in “Item 1A: Risk Factors” of Part II of this Form 10-Q and other documents we file from time to time with the Securities and Exchange Commission. 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 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. The MD&A is provided as a supplement to, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, including the information in “Item 1: Business”; “Item 1A: Risk Factors”, “Item 6: Selected Financial Data”; and “Item 8: Financial Statements and Supplementary Data.”

Fresenius Kabi Pharmaceuticals Holding, Inc. (“FKP Holdings” or “the Company”), including its operating subsidiary APP Pharmaceuticals, Inc, (“APP”) is 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 and critical care markets, and we further 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, and 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 in an effort to secure more favorable drug pricing on behalf of their members.

American Pharmaceutical Partners, Inc. (“Old APP”) began in 1996 with an initial focus on U.S. marketing and distribution of generic pharmaceutical products manufactured by others. In June 1998, Old APP acquired Fujisawa USA, Inc.’s generic injectable pharmaceutical business, including manufacturing facilities in Melrose Park, Illinois and Grand Island, New York and our research and development facility in Melrose Park, Illinois. Old APP also acquired additional assets in that transaction, including inventories, plant and equipment and abbreviated new drug applications that were approved by or pending with the FDA.

FKP Holding is a Delaware company formed in connection with the Fresenius merger discussed below. APP is a Delaware corporation that was formed in 2007. Old APP was a Delaware corporation formed in 2001 and a California corporation formed in 1996. On April 18, 2006, Old APP completed a merger with American BioScience, Inc., or ABI, 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.” Old Abraxis operated in two distinct business segments: Abraxis BioScience, representing the combined operations of Abraxis Oncology and Abraxis Research; and Abraxis Pharmaceutical Products, representing the hospital-based operations.

On November 13, 2007, Old Abraxis separated into two independent publicly-traded companies, New APP, 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”). New APP continued to operate the hospital-based business under the name APP Pharmaceuticals, Inc. New APP and New Abraxis entered into a series of agreements in connection with the separation, including a credit facility under which New APP borrowed $1 billion, a portion of which was paid to New Abraxis in connection with the separation, and an a $150 million revolving credit facility.

On September 10, 2008, APP was acquired by FKP Holdings pursuant to an Agreement and Plan of Merger dated July 6, 2008 (the “Merger Agreement”). FKP Holdings is an indirect, wholly owned subsidiary of Fresenius. In connection with the Merger, FKP Holdings purchased all of the outstanding common stock of APP for $23.00 per share and issued contingent value rights (CVRs) to APP shareholders. The outstanding debt arranged in connection with the spin-off of New Abraxis was retired and approximately $3,856 million in new external and intercompany debt due to Fresenius and its affiliates was issued in connection with the acquisition.

The following table sets forth the results of our operations for each of the three months ended June 30, 2009 and 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 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 in connection with 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.

Note: For purposes of discussing our historical results of operations, the following table compares the results of the Successor Company for the three months ended June 30, 2009 to those of our Predecessor for the three months ended June 30, 2008. 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.

Total net revenue for the three months ended June 30, 2009 increased $17.4 million, or 9%, to $215.3 million as compared to $197.9 million for the same quarter in 2008. The increase in total net revenue for the three months ended June 30, 2009 over the prior year period was due to a 9% increase in unit prices. Unit volume was comparable to the prior period with no significant change.

Net revenue for our critical care products for the three months ended June 30, 2009 increased to $151.9 million, an increase of $38.4 million, or 34%, over the prior year period, driven primarily by increased Heparin sales. Net revenue from anti-infective products for the three months ended June 30, 2009 decreased by $15.5 million, or 28%, to $43.8 million from $59.3 million in the prior year period, due to delayed approvals for new products and pricing pressure. Net revenue from oncology products for the three months ended June 30, 2009 decreased $5.1 million, or 24%, to $16.6 million from $21.7 million in the prior period, mainly due to the timing of large stocking orders within our oncology distributors and pricing pressure. Contract manufacturing revenue decreased by $0.3 million to $3.1 million in the second quarter of 2009 as compared to $3.4 million for the same quarter in the prior year.

Gross profit for the three months ended June 30, 2009 was $109.8 million, or 51.0% of total net revenue, as compared to $94.1 million, or 47.6% of total net revenue, in the same quarter of 2008. The increase in gross profit was principally due to higher revenue in the 2009 quarter. The improvement in the overall gross profit percentage was primarily due to improved product mix, partially offset by the reporting 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 our Puerto Rico facility costs in research and development as production validation and transfer of products to the facility were in process. Cost of sales for the three-month periods ended June 30, 2009 and 2008 included $0.5 million and $4.1 million, respectively, in non-cash amortization of intangible product rights associated with a product acquisition. Excluding the impact of this non-cash charge, gross profit margin for the three months ended June 30, 2009 and 2008 would have been 51.2% and 49.6%, respectively.

Research and development expense for the three months ended June 30, 2009 decreased $6.1 million, or 44%, to $7.7 million compared to $13.8 million for the same quarter in 2008. The decrease was due primarily to the reporting of 2009 costs associated with our Puerto Rico facility in cost of goods sold as described above.

Selling, general and administrative expense for the three months ended June 30, 2009 increased $2.8 million to $24.0 million, or 11.2% of total net revenue, from $21.2 million, or 10.7% of total net revenue, for the same period in 2008. This increase in costs was due primarily to increased professional fees compared to the prior year period.

Results for the three months ended June 30, 2009 included $9.3 million of amortization of Merger-related intangibles and other merger costs associated with the Merger with APP. The prior year (predecessor) amortization of Merger-related intangibles and other merger costs of $4.7 million relates to the merger between APP and Abraxis BioScience. Separation costs for the three months ended June 30, 2009 totaled $0.2 million compared to $1.2 million for the same period ended June 30, 2008.

Interest expense for three months ended June 30, 2009 was comparable to the prior period ended June 30, 2008. Intercompany interest expense was $65.9 million for the three months ended June 30, 2009 reflecting the $2,811.3 million of intercompany debt and amortization of related debt issuance costs incurred in connection with the closing of the Merger on September 10, 2008.

Interest income and other consists primarily of interest earned on invested cash and cash equivalents, the impact of foreign currency rate changes on intercompany trading and debt accounts denominated in Euros, and other financing costs. Interest income and other was $1.7 million of expense for the three months ended June 30, 2009 versus $0.5 million of income in the comparable 2008 period. The increase in expense was primarily due to foreign currency transaction losses during the period.

Additionally, in the three months ended June 30, 2009 we recognized $16.3 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 cost of the acquisition 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.

For the three month period ended June 30, 2009, FKP Holdings reported income tax expense of $6.8 million on pretax income of $3.1 million, or an effective tax rate of 217.8%. This rate differs from the statutory U.S. federal tax rate of 35% due primarily to the effect of state and foreign income taxes, offset by the non-taxability of the $16.3 million in income recognized for accounting purposes as a result of the change in the liability related to the CVRs. Tax expense on the $39.7 million in pretax income for the predecessor period from April 1 through June 30, 2008 was $15.8 million, an effective rate of 39.8%. This rate differs from the statutory U.S. federal tax rate of 35% due primarily to the effect of state and foreign income taxes.

The following table sets forth the results of our operations for each of the six months ended June 30, 2009 and 2008, and forms the basis for the following discussion of our operating activities:

Total net revenue for the six months ended June 30, 2009 increased $61.5 million, or 18%, to $407.5 million as compared to $346.0 million for the same period in 2008. The 18% increase in total net revenue for the six months ended June 30, 2009 over the prior year period was comprised of a 3% unit volume increase and a 15% increase in unit prices.

Net revenues for our critical care products for the six months ended June 30, 2009 increased by $68.9 million, or 34%, to $273.6 million from $204.7 million for the prior period, due primarily to higher sales volume of Heparin. Net revenue for anti-infective products for the six months ending June 30, 2009 decreased by $10.5 million, or 10%, to $91.8 million from $102.3 million in the prior year period, mainly due to delayed approvals for new products and pricing pressure. Net revenue for oncology products for the six months ended June 30, 2009 increased by $2.7 million, or 8%, to $35.4 million, mainly due to the timing of large stocking orders within our oncology distributors and pricing pressure. Contract manufacturing for the six months ended June 30, 2009 increased by $0.5 million to $6.8 million from $6.3 million for the same period in the prior year.

Gross profit for the six months ended June 30, 2009 was $209.8 million, or 51.5% of total net revenue, as compared to $164.2 million, or 47.5% of total net revenue, in the same period of 2008. The improvement in the overall gross profit percentage was primarily due to improved product mix, partially offset by the reporting 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 our Puerto Rico facility costs in research and development as production validation and transfer of products to the facility were in process. Cost of sales for the six-month period ended June 30, 2009 and 2008 included $0.5 million and $8.2 million, respectively, in non-cash amortization of intangible product rights associated with a product acquisition. Excluding the impact of this non-cash charge, gross profit margin for the six months ended June 30, 2009 and 2008 would have been 51.6% and 49.8%, respectively.

Research and development expense for the six months ended June 30, 2009 decreased $11.8 million, or 45%, to $14.4 million as compared to the prior year period in 2008. The decrease was due primarily to the reporting of 2009 costs associated with our Puerto Rico facility in cost of goods sold as described above.

Selling, general and administrative expense for the six months ended June 30, 2009 increased $4.9 million to $47.2 million, or 11.6% of total net revenue, from $42.2 million, or 12.2% of total net revenue, for the same period in 2008. This increase was due primarily to higher professional fees over the prior year.

The six months ended June 30, 2009 included $18.8 million of amortization of Merger-related intangibles and other merger costs associated with the Merger with APP. The prior year (predecessor) amortization of Merger-related intangibles and other merger costs of $8.5 million relates to the merger between APP and Abraxis BioScience. Separation costs for the six months ended June 30, 2009 totaled $0.1 million, compared to $1.6 million for the same period ended June 30, 2008.

Interest expense increased to $34.5 million for the six months ended June 30, 2009, compared to $30.8 million for the same period in 2008. The increase in interest expense is due to higher average debt levels outstanding during the period. Intercompany interest expense was $137.4 million for the six months ended June 30, 2009 reflecting the $2,811.3 million of intercompany debt and amortization of related debt issuance costs, including $14.6 million in unamortized deferred financing costs that were written off in the first quarter of 2009 in connection with the refinancing and restructuring of the bridge financing that was put in place in connection with the Merger in September of 2008.

Interest income and other consists primarily of interest earned on invested cash and cash equivalents, the impact of foreign currency rate changes on intercompany trading and debt accounts denominated in Euros, and other financing costs. Interest income and other was $4.6 million of income for the six months ended June 30, 2009 compared to $1.5 million of income in the prior period. The increase was primarily due to higher foreign currency transaction gains.

Additionally, in 2009 we recognized $13.1 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.

For the six month period ended June 30, 2009, FKP Holdings reported an income tax benefit of $10.2 million on a pretax loss from operations of $25.0 million, or an effective benefit rate of 40.7%. This rate differs from the statutory U.S. federal tax rate of 35% due primarily to the effect of state and foreign income taxes, offset by the non-taxability of the $13.1 million in income recognized for accounting purposes as a result of the change in the liability related to the CVRs. Tax expense on the $56.5 million pretax income from operations for the predecessor period from January 1 through June 30, 2008 was $23.4 million, an effective rate of 41.5%. This rate differs from the statutory U.S. federal tax rate of 35% due primarily to the effect of state and foreign income taxes.

The following table summarizes key elements of our financial position and sources and (uses) of cash and cash equivalents for the periods indicated:

Net cash provided by operating activities was $49.4 million for the six months ended June 30, 2009 (successor period) as compared to net cash provided by operating activities of $53.5 million for the six months ended June 30, 2008 (predecessor period). The change in cash provided by operating activities for the 2009 period as compared to the same period in 2008 was due primarily to lower net earnings in 2009, reduced collection of outstanding trade receivables and an increase in inventory during the first half of 2009.

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 six month period ended June 30, 2009 was $14.6 million as compared to $9.1 million during the six month period ended June 30, 2008. The six months ended June 30, 2009 included $2.0 million of Merger related payments of direct acquisition costs and $2.5 million of product rights purchased, as well as purchases of plant and equipment.

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 six month periods ended June 30, 2009 and 2008 was $42.0 million and $1.5 million, respectively. Financing inflows in the six months ended June 30, 2009 included $33.8 million received upon the maturity of short-term notes receivable from affiliates and net borrowings under the revolver loan of $75.0 million, offset by net payments under secured and unsecured credit facilities of $88.1 million and $62.7 million in debt issuance costs paid in the period related to the refinancing of our bridge loan facilities as a result of the private placement completed by Fresenius in January 2009.

Our primary sources of liquidity for our operating and working capital needs, including funding for our research and development activities, as well as to support the capital expenditures necessary to expand and maintain our manufacturing capabilities and infrastructure, and to acquire various product or intellectual property rights needed to grow and maintain our business is through cash flow generated from our operations and our existing credit facilities. Capital to expand our business through acquisition has been provided by Fresenius, our ultimate parent.

We are also party to a “keep well” agreement with Fresenius under which Fresenius has agreed to provide us with financial support sufficient to satisfy the obligations and debt service requirements that arise under our existing financial instruments that we incurred in connection with the Merger. The keep well agreement will extend until at least January 1, 2010.

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. Proceeds from the borrowings under Term Loans A2 and B2 were used to repay and replace the borrowings outstanding under the Spin-off Credit Agreement Term Loans A and B that were assumed in the Merger. The Senior Credit Facilities agreement also provides APP Pharmaceuticals, LLC with a $150 million revolving credit facility, which replaces the Spin-off Credit Agreement 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 June 30, 2009, the balance outstanding on APP Pharmaceuticals, LLC senior credit facilities and revolving credit facility was $980.3 million and $75.0 million, respectively.

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 June 30, 2009 was $1,624.7 million.

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.

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 correspond to those applicable to the loans provided to such borrower under the Bridge Facility Agreement. The Bridge Intercompany Loan is 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 provides for an event of default and acceleration if there is 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 bears interest at the rate applicable to the corresponding loan under the Bridge Facility Agreement, plus a margin and is due in 2009 or 2015, if extended. 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 $1,300 million, $650 million of which was repaid in October of 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.

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 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, we wrote-off $14.6 million of Bridge Intercompany Loan unamortized debt issuance costs and incurred debt issuance costs of $64.3 million for the new Intercompany Dollar and Euro loans. The outstanding loan balance of the unsecured intercompany loans outstanding at June 30, 2009 is $1,187 million.

The following is the repayment schedule for Term Loans A2 and B2 and intercompany loans as of June 30, 2009 (unaudited, in thousands):

Payments maturing over the next twelve months for term loans A2 and B2 are $53.0 million. Intercompany loan payments maturing over the next twelve months are $58.0 million.

Included in our intercompany borrowings are two Euro-denominated notes, a €200 million note 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 and related future interest payments. We have entered into foreign currency swaps with affiliates of Fresenius for the total of the Euro-denominated notes principal balance. These agreements began to mature in June 2009, with the latest maturity in January 2012, and are not designated as hedging instruments for accounting purposes. As the Euro-denominated intercompany notes payable represent a foreign currency transaction to us, during the six month period ended June 30, 2009, we recognized a $17.8 million foreign currency transaction loss in order to adjust the carrying value of the Euro-denominated notes to reflect the June 30, 2009 exchange rate, and an offsetting foreign currency transaction gain of $22.5 million related to the change in fair value of these swap agreements from a $4.1 million asset to a $26.6 million asset. The net foreign currency transaction gain of $4.7 million is included in other income (expense) in the accompanying unaudited condensed consolidated statement of operations for the six months ended June 30, 2009. We have also entered into foreign currency hedges for the €15.9 million of future cash flows related to the interest payments due on the €200 million note through December 10, 2010, and for the €30.5 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 of these foreign currency hedge agreements at June 30, 2009 is an asset of $5.1 million, and is included in long-term assets in our condensed consolidated balance sheets. For the six month period ended June 30, 2009 we recorded a deferred gain of $3.2 million, net of tax of $1.9 million, in other comprehensive income (loss).

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. At November 3, 2008 we had no initial net investment in these swaps as the swaps had an aggregate fair value of $15.9 million (liability) and Fresenius contributed an equal amount to us. 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 June 30, 2009 is a liability of $52.1 million, and is included in long-term liabilities in our condensed consolidated balance sheets. For the three and six month period ended June 30, 2009 we recorded in other comprehensive income (loss) a deferred gain of $13.1 million and $10.7 million, net of tax of $8.2 million and $6.7 million, respectively. For the three and six month period ended June 30, 2009 we recognized $0.8 million of interest income and $0.1 million in interest expense, which represented the amount of hedge ineffectiveness.

In 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, as defined in the CVR Indenture, generated 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. The maximum amount payable under the CVR Indenture is $6.00 per CVR. 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 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.

Because any amount payable to the holders of CVRs must be settled in cash, the CVRs are classified as liabilities in the condensed 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 CVR for the reporting period is included in non-operating income.

Assuming the Adjusted EBITDA threshold is met, the maximum amount payable under the CVR Indenture is $979.5 million. Such payment would be due on June 30, 2011. In the event that such a payment is required, we would likely need to seek financing from either an external source or Fresenius and its affiliates, in order to satisfy the obligation.

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.”

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 defined by the CVR indenture). 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 to the current reporting date until the expiration of the CVR measurement period (December 31, 2010) and settlement of the CVRs.

The calculation of Adjusted EBITDA under the CVR Indenture for the six month period ended June 30, 2009 and the cumulative period from January 1, 2008 to June 30, 2009 is as follows (unaudited, in thousands):

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. FKP Holdings uses 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.

We anticipate that available cash and short-term investments, cash generated from operations and funds available under our credit facility 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 major capital projects, we may have to raise additional capital through additional borrowings or the issuance of debt or equity securities.

As described above, we are responsible for servicing the external debt of $1.0 billion incurred in connection with the Merger, as well as to pay the principal and interest on the outstanding intercompany debt of $2.8 billion. While we expect that funds generated by our operations will be sufficient to enable us to satisfy our debt service obligations, 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. At any given time, we may not be able to 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.

For information regarding critical accounting estimates, see the caption “Critical Accounting Estimates” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2008. There have been no significant changes to our critical accounting estimates during the second quarter of 2009.

See Note 1 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for information related to recent accounting pronouncements.

We are exposed to market risks associated with changes in interest rates and foreign currency exchange rates. Interest rate changes affect primarily the interest we earn on our short-term advances to our parent and its affiliates and the interest we pay on our debt obligations. Changes in foreign currency exchange rates can affect the amount of our debt and interest obligations as well as our operations outside of the United States.

Foreign Currency Risk: We have operations in Canada and Puerto Rico; 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 according 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 two Euro-denominated notes, a €200 million note 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 and related future interest payments. We have entered into foreign currency swaps with affiliates of Fresenius for the total of the Euro-denominated notes principal balance. These agreements begin to mature in June 2009, with the latest maturity in January 2012, and are not designated as hedging instruments for accounting purposes. As the Euro-denominated intercompany notes payable represent a foreign currency transaction to us, during the six month period ended June 30, 2009, we recognized a $17.8 million foreign currency transaction gain in order to adjust the carrying value of the Euro-denominated notes to reflect the June 30, 2009 exchange rate, and an offsetting foreign currency transaction gain of $22.5 million related to the change in fair value of these swap agreements from a $4.1 million asset to a $26.6 million asset. The net foreign currency transaction gain of $4.7 million is included in other income (expense) in the accompanying condensed consolidated statement of operations for the six months ended June 30, 2009. We have also entered into foreign currency hedges for the €15.9 million of future cash flows related to the interest payments due on the €200 million note through December 10, 2010, and for the €30.5 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 of these foreign currency hedge agreements at June 30, 2009 is an asset of $5.1 million, and is included in long-term assets in our condensed consolidated balance sheets. For the six month period ended June 30, 2009 we recorded a deferred gain of $3.2 million, net of tax of $1.9 million, in other comprehensive income (loss).

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. Accordingly, our investments at December 31, 2008 consisted solely of short-term notes receivable received in exchange for our cash deposits with Fresenius. We did not have any investments with Fresenius at June 30, 2009.

Interest Rate Risk: We are also exposed to changes in interest rates on our variable rate borrowings. As of June 30, 2009, $1,055.3 million was outstanding on our credit facility and we had approximately $2,811.3 million of outstanding intercompany loans. If the interest rates on our outstanding borrowings were to increase by 1%, our interest expense would increase $38.8 million based on our outstanding debt balances at June 30, 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. At November 3, 2008 we had no initial net investment in these swaps as the swaps had an aggregate fair value of $15.9 million (liability) and Fresenius contributed an equal amount to us. 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 June 30, 2009 is a liability of $52.1 million, and is included in long-term liabilities in our consolidated balance sheets. For the six month period ended June 30, 2009, we recorded a deferred gain of $10.7 million, net of tax of $6.7 million, in other comprehensive income (loss) and recognized $0.1 million in interest expense, which represented the amount of hedge ineffectiveness.

Under the rules and regulations of the Securities and Exchange Commission, we are not required to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 until we file our Annual Report on Form 10-K for our fiscal year ending December 31, 2009. In our Annual Report on Form 10-K for our fiscal year ending December 31, 2009, management and our independent registered public accounting firm will be required to provide an assessment as to the effectiveness of our internal control over financial reporting.

We maintain disclosure controls and procedures, as such term is defined under Exchange Act Rules 13a-15(e) and 15d-15(e), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance we necessarily are required to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the quarterly period covered by this report. Based on their evaluation and subject to the foregoing, management has concluded that our disclosure controls and procedures were effective as of June 30, 2009.

There was no change in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

We have filed an abbreviated new drug application, or “ANDA”, seeking approval from the United States Food and Drub Administration (“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. We filed our Answer and Counterclaims in August 2008 and are currently engaged in discovery.

mg/ml and 10 mg/ml dosage forms. The Reference Listed Drug for Navinta’s ANDA is APP’s proprietary product Naropin^®. This matter is scheduled to proceed 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 is subject to appeal by Navinta.

We have been named as a defendant in several 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.

On February 9, 2005 Pharmacy, Inc. filed suit against us in the U.S. District Court for the Eastern District of New York alleging we 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 have submitted an amended pre-trial order on December 10, 2008. A pre-trial conference has been set for July 31, 2009. We believe that we did not breach the contract and are vigorously defending this matter.

For information regarding risks related to our business and our outstanding contingent value rights, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008. There have been no significant changes to our risk factors during the second quarter of 2009.

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


FKP PHARMACEUTICALS HOLDING, INC.

By:		/s/ Richard J. Tajak
		Richard J. Tajak
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)


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

Else-Kroener-Strasse 1 61352 Bad Homburg v.d.H. Germany
(Address of principal executive offices)		(Zip Code)


		Page
PART I. Financial Information

Item 1.	Financial Statements (Unaudited)	3

	Condensed consolidated balance sheets – June 30, 2009 and December 31, 2008	3

	Condensed consolidated statements of operations – Successor periods for the three and six months ended June 30, 2009 and Predecessor periods for the three and six months ended June 30, 2008	4

	Condensed consolidated statements of cash flows – Successor period for the six months ended June 30, 2009 and Predecessor period for the six months ended June 30, 2008	5

	Notes to condensed consolidated financial statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4.	Controls and Procedures	33

PART II. Other Information

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3.	Defaults Upon Senior Securities	35

Item 4.	Submission of Matters to a Vote of Security Holders	35

Item 5.	Other Information	35

Item 6.	Exhibits	35

Signatures		36


	June 30, 2009			December 31, 2008
	(in thousands, except share data)
Assets
Current assets:
Cash and cash equivalents	$	3,072		$	8,441
Note receivable from Parent		—			33,800
Accounts receivable, net		81,825			86,557
Inventories		202,950			170,354
Prepaid expenses and other current assets		30,147			19,961
Current receivables from related parties		13,275			11,930
Income taxes receivable		25,425			30,695
Deferred income taxes		10,510			10,712

Total current assets		367,204			372,450

Property, plant and equipment, net		150,052			150,693
Intangible assets, net		516,167			532,306
Goodwill		3,671,864			3,669,677
Deferred income taxes, non-current		13,850			22,296
Deferred financing costs		134,823			96,242
Other non-current assets, net		23,035			4,197

Total assets	$	4,876,995		$	4,847,861


Liabilities and stockholder’s equity
Current liabilities:
Accounts payable	$	53,738		$	38,777
Accrued liabilities		44,441			53,066
Accrued intercompany interest		68,642			26,640
Current portion of long-term debt		52,976			43,719
Current portion of intercompany debt		57,957			99,892
Deferred income taxes, current		1,596			2,046

Total current liabilities		279,350			264,140


Long-term debt		1,002,294			953,781
Deferred income taxes, non-current		105,686			104,888
Fair value of interest rate swaps with Parent and affiliates		51,995			65,377
Intercompany notes payable to Parent and affiliates		2,753,370			2,764,541
Intercompany payable to Parent and affiliates		85,374			84,223
CVR payable		44,078			57,138
Other non-current liabilities		3,076			3,049

Total liabilities		4,325,223			4,297,137

Stockholder’s equity:
Common stock - $0.001 par value; 1,000 shares authorized in 2009 and 2008; 1,000 shares issued and outstanding in 2009 and 2008		—			—
Additional paid-in capital		900,135			900,019
Accumulated deficit		(327,244	)		(312,445	)
Accumulated other comprehensive loss		(21,119	)		(36,850	)

Total stockholder’s equity		551,772			550,724

Total liabilities and stockholder’s equity	$	4,876,995		$	4,847,861


	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
	(Successor)			(Predecessor)			(Successor)			(Predecessor)
Net revenue	$	215,335		$	197,918		$	407,532		$	345,997
Cost of sales		105,569			103,771			197,746			181,788

Gross profit		109,766			94,147			209,786			164,209
Operating expenses:
Research and development		7,678			13,833			14,378			26,163
Selling, general and administrative		24,032			21,173			47,187			42,193
Amortization of merger related intangibles		9,162			3,857			18,325			7,713
Separation related costs		169			1,212			146			1,603
Merger related costs		187			805			508			805

Total operating expenses		41,228			40,880			80,544			78,477

Income from operations		68,538			53,267			129,242			85,732
Interest expense		(14,106	)		(14,041	)		(34,486	)		(30,757	)
Intercompany interest expense		(65,867	)		—			(137,351	)		—
Change in the fair value of contingent value rights		16,325			—			13,060			—
Interest income and other		(1,755	)		514			4,570			1,493

Income (loss) from continuing operations before income taxes		3,135			39,740			(24,965	)		56,468
Provision (benefit) for income taxes from continuing operations		6,829			15,848			(10,166	)		23,419

Net income (loss) from continuing operations		(3,694	)		23,892			(14,799	)		33,049

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company


	Successor			Predecessor
	Six Months Ended June 30,
	2009			2008
	(Successor)			(Predecessor)
	(in thousands)
Cash flows from operating activities:
Net (loss) income		(14,799	)		33,049
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		10,412			9,259
Amortization		19,100			1,213
Amortization of product rights		—			8,220
Amortization of merger related intangibles		18,325			7,713
Write-off of deferred financing fees		14,661			—
(Gain) loss on non-cash foreign currency transactions		(5,110	)		—
Change in fair value contingent value rights		(13,060	)		—
Stock-based compensation		116			4,513
Loss on disposal of property, plant and equipment		383			35
Excess tax benefit from stock-based compensation		—			(493	)
Stock option grants/forfeitures		—			(328	)
Deferred income taxes		303			(2,055	)
Other		(105	)		—
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable, net		4,732			11,822
Inventories		(32,596	)		(20,489	)
Income taxes receivable		5,270			(1,471	)
Prepaid expenses and other current assets		(9,855	)		73
Current receivables from related parties		(1,345	)		—
Non-current receivables from related parties		—			8,020
Other non-current liabilities		—			313
Accrued intercompany interest		42,002			—
Accounts payable and accrued liabilities		10,968			(5,852	)

Net cash provided by operating activities		49,402			53,542

Cash flows from investing activities:
Purchases of property, plant and equipment		(10,142	)		(8,250	)
Purchases of other non-current assets		(2,500	)		(800	)
Cash paid for acquisition of business		(2,000	)		—

Net cash used in investing activities		(14,642	)		(9,050	)
Cash flows from financing activities:
Proceeds from the exercise of stock options		—			1,312
Proceeds from revolver, net		75,000			—
Repayments of borrowings, under unsecured credit facility, net		(70,889	)		(2,500	)
Repayments of borrowings, under secured credit facility, net		(17,230	)		—
Excess tax benefit from stock-based compensation		—			493
Proceeds from note receivable from Parent		33,800			—
Payment of deferred financing costs		(62,679	)		(792	)

Net cash used in financing activities		(41,998	)		(1,487	)
Effect of exchange rates on cash		1,869			(903	)

Net (decrease) increase in cash and cash equivalents		(5,369	)		42,102
Cash and cash equivalents, beginning of period		8,441			31,788

Cash and cash equivalents, end of period	$	3,072		$	73,890


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


Net working capital and other assets	$	295.8
Property, plant and equipment		133.0
In-process research and development		365.7
Identifiable intangible assets		542.0
Deferred tax liability, net		(100.3	)
Long-term debt		(997.5	)
Goodwill		3,671.9

Total	$	3,910.6


	For the Period Ended
	June 30, 2009						December 31, 2008
	Approved		Pending Regulatory Approval		Total Inventory		Approved		Pending Regulatory Approval		Total Inventory
	(in thousands)
Finished goods	$	83,504		—	$	83,504	$	72,677		—	$	72,677
Work in process		34,051		738		34,789		16,574		1,512		18,086
Raw materials		80,238		4,419		84,657		75,482		4,109		79,591

	$	197,793	$	5,157	$	202,950	$	164,733	$	5,621	$	170,354


	Term Loan A2		Term Loan B2		Target Revolver		Intercompany Fresenius		Total
2009	$	24,000	$	2,488	$	—	$	28,979	$	55,467
2010		71,500		4,975		—		81,457		157,932
2011		122,500		4,975		—		132,457		259,932
2012		150,000		4,975		—		159,957		314,932
2013		118,500		4,975		75,000		128,457		326,932
2014 and thereafter		—		471,381		—		2,280,021		2,751,402

	$	486,500	$	493,769	$	75,000	$	2,811,328	$	3,866,597


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.


	Balance at June 30, 2009		Basis of Fair Value Measurement (in thousands)
	Balance at June 30, 2009		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets – fair value of foreign currency swaps	$	31,693	$	—	$	31,693	$	—
Liabilities:
Contingent value rights	$	44,078	$	44,078		—		—
Fair value of interest rate swaps		51,995		—	$	51,995		—

Total liabilities	$	96,073	$	44,078	$	51,995	$	—


	Predecessor
	Six Months Ended June 30, 2008
	(in millions)
Transition service income	$	(0.5	)
Facility management fees		1.5
Net rental expense		1.3
Margins on the manufacture and distribution of Abraxane^®		(0.2	)


	June 30, 2009				December 31, 2008
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Category Amortization Period
	(in thousands)				(in thousands)
Product rights	$	489,000	$	19,703	$	489,000	$	7,478	20 years
Customer relationships		12,000		5,323		12,000		1,223	3 years
Developed product technology		1,550		62		1,550		35	10 years
Contracts and other		43,500		4,795		41,000		2,508	5 years

Total	$	546,050	$	29,883	$	543,550	$	11,244


	(Successor)			(Predecessor)
	Three Months Ended June 30,
	2009			2008
	(in thousands)
Foreign currency translation adjustments	$	2,671		$	91
Change in fair value of interest rate swaps		13,114			3,161
Change in the fair value of foreign currency swap		1,831			—

Other comprehensive gain (loss), net of tax		17,616			3,252
Net (loss) income		(3,694	)		23,892

Comprehensive income	$	13,922		$	27,144


	(Successor)			(Predecessor)
	Six Months Ended June 30,
	2009			2008
	(in thousands)
Foreign currency translation adjustments	$	1,881		$	(913	)
Change in fair value of interest rate swaps		10,702			(1,280	)
Change in the fair value of foreign currency swap		3,148			—

Other comprehensive gain (loss), net of tax		15,731			(2,193	)
Net (loss) income		(14,799	)		33,049

Comprehensive income	$	932		$	30,856


	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
	(in thousands)				(in thousands)
Critical care	$	151,909	$	113,532	$	273,613	$	204,714
Anti-infective		43,750		59,296		91,761		102,256
Oncology		16,607		21,726		35,401		32,747
Contract manufacturing and other		3,069		3,364		6,757		6,280

Total net revenue	$	215,335	$	197,918	$	407,532	$	345,997


	Three months Ended June 30, 2009			Three months Ended June 30, 2008
							Increase/(Decrease)
							$			%
	(Successor)			(Predecessor)
Net revenues
Critical care	$	151,909		$	113,532		$	38,377		34	%
Anti-infective		43,750			59,296			(15,546	)	-28	%
Oncology		16,607			21,726			(5,119	)	-24	%
Contract manufacturing and other		3,069			3,364			(295	)	-9	%

Total net revenue		215,335			197,918			17,417		9	%
Cost of sales		105,569			103,771			1,798		2	%

Gross profit		109,766			94,147			15,619		17	%

Percent to total revenue		51.0	%		47.6	%
Research and development		7,678			13,833			(6,155	)	-44	%
Selling, general and administrative		24,032			21,173			2,859		12	%
Amortization of merger-related intangibles		9,162			3,857			5,305		138	%
Separation costs		169			1,212			(1,043	)	-86	%
Merger related costs		187			805			(618	)	-77	%

Total operating expenses		41,228			40,880			348		1	%

Percent to total revenue		19.1	%		20.7	%
Income from operations		68,538			53,267			15,271		29	%

Percent to total revenue		31.8	%		26.9	%
Interest expense		(14,106	)		(14,041	)		65		1	%
Intercompany interest expense		(65,867	)		—			65,867		N/A
Change in the fair value of contingent value rights		16,325			—			16,325		N/A
Interest income and other		(1,755	)		514			(2,269	)	-441	%

Income before income taxes		3,135			39,740			(36,605	)	-92	%
Income tax expense		6,829			15,848			9,019		56.9	%

Net (loss) income	$	(3,694	)	$	23,892		$	(27,586	)	-115	%


	Six months Ended June 30, 2009			Six months Ended June 30, 2008			Increase/(Decrease)
	Six months Ended June 30, 2009			Six months Ended June 30, 2008			$			%
	(Successor)			(Predecessor)
Net revenues
Critical care	$	273,613		$	204,714		$	68,899		34	%
Anti-infective		91,761			102,256			(10,495	)	-10	%
Oncology		35,401			32,747			2,654		8	%
Contract manufacturing and other		6,757			6,280			477		8	%

Total net revenue		407,532			345,997			61,535		18	%
Cost of sales		197,746			181,788			15,958		9	%

Gross profit		209,786			164,209			45,577		28	%

Percent to total revenue		51.5	%		47.5	%
Research and development		14,378			26,163			(11,785	)	-45	%
Selling, general and administrative		47,187			42,193			4,994		12	%
Amortization of merger-related intangibles		18,325			7,713			10,612		138	%
Separation costs		146			1,603			(1,457	)	-91	%
Merger related costs		508			805			(297	)	-37	%

Total operating expenses		80,544			78,477			2,067		-3	%

Percent to total revenue		19.8	%		22.7	%
Income from operations		129,242			85,732			43,510		51	%

Percent to total revenue		31.7	%		24.8	%
Interest expense		(34,486	)		(30,757	)		3,729		12	%
Intercompany interest expense		(137,351	)		—			137,351		N/A
Change in the fair value of contingent value rights		13,060			—			13,060		N/A
Interest income and other		4,570			1,493			3,077		206	%

(Loss) income before income taxes		(24,965	)		56,468			(81,433	)	-144	%
Income tax (benefit) expense		(10,166	)		23,419			(33,585	)	-143	%

Net (loss) income	$	(14,799	)	$	33,049		$	(47,848	)	-145	%


	June 30, 2009		December 31, 2008
	(unaudited, in thousands)
Summary Financial Position:
Cash and cash equivalents	$	3,072	$	8,441

Working capital	$	87,856	$	108,310

Total assets	$	4,876,995	$	4,847,861

Total stockholders’ equity	$	551,774	$	550,724


	(Successor) Six Months Ended June 30, 2009			(Predecessor) Six Months Ended June 30, 2008
	(unaudited, in thousands)
Summary of Sources and (Uses) of Cash and Cash Equivalents:
Operating activities	$	49,402		$	53,542

Purchase of property, plant and equipment	$	(10,142	)	$	(8,250	)

Purchase of other non-cash assets	$	(2,500	)	$	(800	)

Assets acquired, net of cash	$	(2,000	)	$	—

Financing activities	$	(41,998	)	$	(1,487	)


	Term Loan A2		Term Loan B2		Target Revolver		Intercompany Fresenius		Total
2009	$	24,000	$	2,488	$	—	$	28,979	$	55,465
2010		71,500		4,975		—		81,457		157,932
2011		122,500		4,975		—		132,457		259,932
2012		150,000		4,975		—		159,957		314,932
2013		118,500		4,975		75,000		128,457		326,932
2014 and thereafter		—		471,381		—		2,280,021		2,751,402

	$	486,500	$	493,769	$	75,000	$	2,811,328	$	3,866,597


	For the Six Month Period Beginning January 1, 2009 and Ending June 30, 2009			For the Cumulative Period Beginning January 1, 2008 and Ending June 30, 2009
EBITDA CALCULATION:
Net loss	$	(14,799	)	$	(317,700	)

Interest expense (net of interest income)		171,767			334,885
Income tax (benefit)		(10,166	)		3,758
Depreciation		10,412			29,811
Amortization		18,837			462,580

EBITDA	$	176,051		$	513,334


*Reconciliation to Adjusted EBITDA:*
Stock compensation (FAS 123(R))		116			5,885
Merger and separation related costs		553			47,861
Puerto Rico costs		9,539			32,808
Technology transfer		1,014			2,097
Change in the value of contingent value rights		(13,060	)		(114,276	)
Other taxes		315			1,182
Loss on sale of fixed assets		383			463
Consulting fees		300			500
Foreign currency gain		(4,869	)		(3,307	)
Other non-cash charges		648			225

Adjusted EBITDA – per CVR Indenture	$	170,990		$	486,772


Exhibit Number		Description
2.1		Separation and Distribution Agreement among APP, Abraxis BioScience, LLC, APP Pharmaceuticals, LLC and Abraxis BioScience, Inc. (f/k/a New Abraxis, Inc.) (Incorporated by reference to Exhibit 2.3 to APP’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008)

2.2		Agreement and Plan of Merger, dated July 6, 2008 among APP, Fresenius SE, Fresenius Kabi Pharmaceuticals Holding LLC, and Fresenius Kabi Pharmaceuticals LLC (Incorporated by reference to Exhibit 2.1 to APP’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 2008)

3.1		Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 10, 2008)

3.2		Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 10, 2008)

4.1		Reference is made to Exhibits 3.1 and 3.2

10.29		Employment Agreement effective as of June 1, 2009, between Fresenius Kabi Pharmaceuticals Holding, Inc. and Dr. Christopher Bryant (Incorporated by reference to Exhibit 10.29 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 4, 2009)

31.1†		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2†		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1†		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002

32.2†		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002