10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2010

OR

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

Commission File Number 1-8269

Omnicare, Inc.

(Exact name of Registrant as specified in its Charter)

Delaware	31-1001351
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
100 East RiverCenter Boulevard Covington, Kentucky	41011
(Address of Principal Executive Offices)	(Zip Code)

(859) 392-3300

(Registrant’s telephone number)

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x 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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x       Accelerated filer  ¨       Non-Accelerated filer  ¨       Smaller reporting company  ¨

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

Common Stock Outstanding

	Number of Shares		Date
Common Stock, $1 par value		118,161,387	June 30, 2010

OMNICARE, INC. AND

SUBSIDIARY COMPANIES

FORM 10-Q QUARTERLY REPORT JUNE 30, 2010

INDEX

             PAGE

PART I - FINANCIAL INFORMATION:

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)
	Consolidated Statements of Income – Three and six months ended – June 30, 2010 and 2009	3
	Consolidated Balance Sheets – June 30, 2010 and December 31, 2009	4
	Consolidated Statements of Cash Flows – Six months ended – June 30, 2010 and 2009	5
	Notes to Consolidated Financial Statements	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	47
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	83
ITEM 4.	CONTROLS AND PROCEDURES	84

PART II - OTHER INFORMATION:

ITEM 1.	LEGAL PROCEEDINGS	85
ITEM 1A.	RISK FACTORS	91
ITEM 2.	UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS	102
ITEM 6.	EXHIBITS	102

PART I - FINANCIAL INFORMATION:

ITEM 1. - FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME

OMNICARE,  INC.  AND  SUBSIDIARY  COMPANIES

UNAUDITED

(in thousands, except per share data)

	Three months ended						Six months ended
	June 30,						June 30,
	2010			2009			2010			2009
Net sales	$	1,519,121		$	1,540,507		$	3,043,355		$	3,082,612
Cost of sales		1,182,864			1,168,778			2,354,768			2,320,546
Repack matters (Note 10)		466			815			909			1,917
Gross profit		335,791			370,914			687,678			760,149
Selling, general and administrative expenses		198,521			203,491			393,694			419,624
Provision for doubtful accounts		21,012			22,710			43,037			47,981
Restructuring and other related charges (Note 9)		5,480			5,883			12,519			12,800
Litigation and other related charges (Note 10)		29,361			28,357			34,867			70,022
Repack matters (Note 10)		221			381			971			1,272
Acquisition and other related costs (Note 3)		(164	)		2,011			63			2,850
Operating income		81,360			108,081			202,527			205,600
Investment income		1,105			1,032			2,769			3,439
Interest expense		(39,712	)		(29,775	)		(68,320	)		(61,062	)
Amortization of discount on convertible notes (Note 5)		(7,473	)		(6,927	)		(14,804	)		(13,724	)
Income from continuing operations before income taxes		35,280			72,411			122,172			134,253
Income tax provision		13,879			30,417			46,471			60,031
Income from continuing operations		21,401			41,994			75,701			74,222
Loss from discontinued operations (Note 2)		(9,802	)		(13,275	)		(13,250	)		(14,609	)
Net income	$	11,599		$	28,719		$	62,451		$	59,613
Earnings (loss) per common share - Basic:
Continuing operations	$	0.18		$	0.36		$	0.64		$	0.64
Discontinued operations		(0.08	)		(0.11	)		(0.11	)		(0.13	)
Net income	$	0.10		$	0.25		$	0.53		$	0.51
Earnings (loss) per common share - Diluted:
Continuing operations	$	0.18		$	0.36		$	0.64		$	0.63
Discontinued operations		(0.08	)		(0.11	)		(0.11	)		(0.12	)
Net income	$	0.10		$	0.24		$	0.53		$	0.51
Dividends per common share	$	0.0225		$	0.0225		$	0.0450		$	0.0450
Weighted average number of common
shares outstanding:
Basic		117,434			116,852			117,598			116,652
Diluted		118,116			117,640			118,285			117,490
Comprehensive income	$	9,310		$	27,223		$	61,187		$	57,898

The Notes to Consolidated Financial Statements are an integral part of these statements.

3

CONSOLIDATED BALANCE SHEETS

OMNICARE,  INC.  AND  SUBSIDIARY  COMPANIES

UNAUDITED

(in thousands,  except share data)

	June 30, 2010			December 31, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	394,911		$	275,709
Restricted cash		2,936			15,264
Accounts receivable, less allowances of $342,771 (2009-$332,603)		1,162,536			1,208,595
Unbilled receivables, CRO		18,687			21,868
Inventories		361,182			368,477
Deferred income tax benefits		123,363			113,575
Other current assets		219,706			197,492
Current assets of discontinued operations		9,969			18,627
Total current assets		2,293,290			2,219,607
Properties and equipment, at cost less accumulated depreciation of $342,588 (2009-$324,995)		205,102			208,969
Goodwill		4,280,260			4,273,695
Identifiable intangible assets, less accumulated amortization of $205,165 (2009-$186,424)		279,664			297,153
Rabbi trust assets for settlement of pension obligations		142,275			133,040
Other noncurrent assets		168,560			145,781
Noncurrent assets of discontinued operations		36,197			45,859
Total noncurrent assets		5,112,058			5,104,497
Total assets	$	7,405,348		$	7,324,104
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	219,470		$	256,886
Accrued employee compensation		31,015			43,688
Deferred revenue, CRO		15,625			11,226
Current debt		2,485			127,071
Other current liabilities		164,175			173,972
Current liabilities of discontinued operations		5,908			7,206
Total current liabilities		438,678			620,049
Long-term debt, notes and convertible debentures (Note 5)		2,187,378			1,980,239
Deferred income tax liabilities		603,374			571,622
Other noncurrent liabilities		285,484			276,201
Total noncurrent liabilities		3,076,236			2,828,062
Total liabilities		3,514,914			3,448,111
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized, none
issued and outstanding		-			-
Common stock, $1 par value, 200,000,000 shares authorized, 128,232,800
shares issued (2009-127,824,800 shares issued)		128,233			127,825
Paid-in capital (Note 5)		2,292,373			2,269,905
Retained earnings		1,755,727			1,698,620
Treasury stock, at cost-10,071,400 shares (2009-7,545,000 shares) (Note 1)		(269,295	)		(205,017	)
Accumulated other comprehensive income (loss)		(16,604	)		(15,340	)
Total stockholders' equity		3,890,434			3,875,993
Total liabilities and stockholders' equity	$	7,405,348		$	7,324,104

The Notes to Consolidated Financial Statements are an integral part of these statements.

4

CONSOLIDATED STATEMENTS OF CASH FLOWS

OMNICARE, INC. AND SUBSIDIARY COMPANIES

UNAUDITED

(in thousands)

	Six months ended June 30,
	2010			2009
Cash flows from operating activities:
Net income	$	62,451		$	59,613
Loss from discontinued operations		13,250			14,609
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation expense		23,583			25,467
Amortization expense		45,251			45,886
Write-off of debt issuance costs		2,060			-
Tender premium		(7,323	)		-
Changes in assets and liabilities, net of effects from acquisition and divestiture
of businesses:
Accounts receivable and unbilled receivables, net of provision for doubtful accounts		50,617			72,831
Inventories		9,027			112,253
Other current and noncurrent assets		(18,442	)		(11,583	)
Accounts payable		(41,140	)		(89,876	)
Accrued employee compensation		(12,732	)		(13,865	)
Deferred revenue		4,399			(8,412	)
Current and noncurrent liabilities		22,139			55,357
Net cash flows from operating activities of continuing operations		153,140			262,280
Net cash flows from operating activities of discontinued operations		437			662
Net cash flows from operating activities		153,577			262,942
Cash flows from investing activities:
Acquisition of businesses, net of cash received		(11,855	)		(43,100	)
Capital expenditures		(11,678	)		(15,315	)
Transfer of cash from trusts for employee health and severance
costs, net of payments out of the trust		11,256			843
Disbursements for loans and investments		(2,350	)		-
Other		1,072			(1,789	)
Net cash flows used in investing activities of continuing operations		(13,555	)		(59,361	)
Net cash flows used in investing activities of discontinued operations		(45	)		(444	)
Net cash flows used in investing activities		(13,600	)		(59,805	)
Cash flows from financing activities:
Net payments on revolving credit facility and term A loan		(125,000	)		(150,000	)
Proceeds from long-term borrowings and obligations		400,000			-
Payments on long-term borrowings and obligations		(218,478	)		(993	)
Fees paid for financing arrangements		(17,028	)		-
Increase (decrease) in cash overdraft balance		3,127			(137	)
Payments for Omnicare common stock repurchases (Note 1)		(49,154	)		-
Proceeds (payments) for stock awards and exercise of stock options,
net of stock tendered in payment		(5,241	)		9,464
Excess tax benefits from stock-based compensation		432			2,366
Dividends paid		(5,343	)		(5,352	)
Net cash flows used in financing activities of continuing operations		(16,685	)		(144,652	)
Net cash flows provided by financing activities of discontinued operations		-			-
Net cash flows used in financing activities		(16,685	)		(144,652	)
Effect of exchange rate changes on cash		(3,698	)		831
Net increase in cash and cash equivalents		119,594			59,316
Less increase in cash and cash equivalents of discontinued operations		392			218
Increase in cash and cash equivalents of continuing operations		119,202			59,098
Cash and cash equivalents at beginning of period		275,709			214,668
Cash and cash equivalents at end of period	$	394,911		$	273,766

The Notes to Consolidated Financial Statements are an integral part of these statements.

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OMNICARE, INC. AND SUBSIDIARY COMPANIES

UNAUDITED

Note 1 - Interim Financial Data, Description of Business and Summary of Significant Accounting Policies

Interim Financial Data

The interim financial data is unaudited; however, in the opinion of the management of Omnicare, Inc., the interim data includes all adjustments (which include only normal adjustments, except as described in the “Debt”, “Restructuring and Other Related Charges” and “Commitments and Contingencies” notes) considered necessary for a fair statement of the consolidated results of operations, financial position and cash flows of Omnicare, Inc. and its consolidated subsidiaries (“Omnicare” or the “Company”).  These financial statements should be read in conjunction with the Consolidated Financial Statements and related notes included in Omnicare’s Annual Report on Form 10-K for the year ended December 31, 2009 (“Omnicare’s 2009 Annual Report”) and any related updates included in the Company’s periodic quarterly Securities and Exchange Commission (“SEC”) filings.  The Company has discontinued a component of its pharmacy services business (see “Discontinued Operations” note).  All amounts disclosed in these Consolidated Financial Statements and related notes are presented on a continuing operations basis unless otherwise stated.

Description of Business and Summary of Significant Accounting Policies

The Company’s description of business and significant accounting policies have been disclosed in Omnicare’s 2009 Annual Report.  As previously stated, these financial statements should be read in conjunction with the Consolidated Financial Statements and related notes included in Omnicare’s 2009 Annual Report and any applicable updates contained in the Company’s periodic quarterly SEC filings, including those presented below.

Concentration of Risk

The prescription drug benefit under Medicare Part D (“Part D”) became effective on January 1, 2006.  As a result, providers of long-term care pharmacy services, including Omnicare, experienced a significant shift in payor mix beginning in 2006.  Approximately 44% of the Company’s revenues in the six months ended June 30, 2010 were generated under the Part D program.  The Company estimates that approximately 26% of these Part D revenues during the six months ended June 30, 2010 relate to patients enrolled in Part D prescription drug plans sponsored by UnitedHealth Group, Inc. and its affiliates (“United”).  United and a small number of other Part D Plan sponsors and pharmaceutical benefit managers reimburse a significant portion of the Company’s Part D revenues.   Prior to the implementation of the Medicare Part D program, most of the Part D residents served by the Company were reimbursed under state Medicaid programs and, to a lesser extent, private pay sources.

6

Under the Part D benefit, payment is determined in accordance with the agreements Omnicare has negotiated with the Part D Plans.  The remainder of Omnicare’s billings are paid or reimbursed primarily by long-term care facilities (including revenues for residents funded under Medicare Part A) and other third party payors, including private insurers, state Medicaid programs, as well as individual residents.

The Medicaid and Medicare programs are highly regulated.  The failure, even if inadvertent, of Omnicare and/or client facilities to comply with applicable reimbursement regulations could adversely affect Omnicare’s reimbursement under these programs and Omnicare’s ability to continue to participate in these programs.  In addition, failure to comply with these regulations could subject the Company to other penalties.

As noted, the Company obtains reimbursement for drugs it provides to enrollees of a given Part D Plan pursuant to the agreement it negotiates with that Part D Plan.  The Company has entered into such agreements with nearly all Part D Plan sponsors under which it will provide drugs and associated services to their enrollees.  The Company continues to have ongoing discussions with Part D Plans and renegotiates these agreements in the ordinary course.  Further, the proportion of the Company’s Part D business serviced under specific agreements may change over time based upon beneficiary choice, reassignment of dual eligibles to different Part D Plans or Part D Plan consolidation.  As such, reimbursement under these agreements is subject to change.  Moreover, as expected in the transit ion to a program of this magnitude, certain administrative and payment issues have arisen, resulting in higher operating expenses, as well as outstanding gross accounts receivable (net of allowances for contractual adjustments, and prior to any allowance for doubtful accounts), particularly for copays.  As of June 30, 2010, copays outstanding from Part D Plans were approximately $15 million relating to 2006 and 2007.  The Company is pursuing solutions, including legal actions against certain Part D Plans, to collect outstanding copays, as well as certain rejected claims.

On July 11, 2007, the Company commenced legal action against a group of its customers for, among other things, the collection of past-due receivables that are owed to the Company.  Specifically, approximately $106 million (excluding interest) is owed to the Company by this group of customers as of June 30, 2010, of which approximately $99 million is past-due based on applicable payment terms (a significant portion of which is not reserved based on the relevant facts and circumstances).

Until these administrative and payment issues relating to the Part D Drug Benefit as well as the aforementioned legal action against a group of Omnicare’s customers are fully resolved, there can be no assurance that the impact of these matters on the Company’s results of operations, financial position or cash flows will not change based on the outcome of any unforeseen circumstances.

7

Inventories

The Company receives discounts, rebates and/or other price concessions (“Discounts”) relating to purchases from its suppliers and vendors.  When recognizing the related receivables associated with these Discounts, Omnicare accounts for these Discounts as a reduction of cost of goods sold and inventories.  The Company records its estimates of Discounts earned during the period on the accrual basis of accounting, giving proper consideration to whether those Discounts have been earned based on the terms of  applicable arrangements, and giving proper consideration to authoritative guidance relating to customer payments and incentives.  Receivables related to Discounts are regularly adjusted based on the best available information, and to actual amounts as cash is received and the applicab le arrangements are settled.

Fair Value

The authoritative guidance for fair value measurements defines a hierarchy that prioritizes the inputs in fair value measurements.  “Level 1” measurements are measurements using quoted prices in active markets for identical assets or liabilities.  “Level 2” measurements use significant other observable inputs.  “Level 3” measurements are measurements using significant unobservable inputs which require a company to develop its own assumptions.  In recording the fair value of assets and liabilities, companies must use the most reliable measurement available.  The assets, as further described in detail at the “Fair Value” note of the Notes to the Consolidated Financial Statements in Omnicare’s 2009 Annual Report, measured at fair value as of June 30, 2010 and December 31, 2009 were as follows:

			Based on
			Quoted Prices		Other
	Fair Value at		in Active		Observable		Unobservable
	June 30,		Markets		Inputs		Inputs
	2010		(Level 1)		(Level 2)		(Level 3)
Rabbi trust assets	$	142,275	$	142,275	$	–	$	–
7.75% Interest rate swap agreement - fair value hedge (1)		8,698		–		8,698		–
Derivatives		–		–		–		–
Total	$	150,973	$	142,275	$	8,698	$	–
			Based on
			Quoted Prices		Other
	Fair Value at		in Active		Observable		Unobservable
	December 31,		Markets		Inputs		Inputs
		2009	(Level 1)		(Level 2)		(Level 3)
Rabbi trust assets	$	133,040	$	133,040	$	–	$	–
6.125% Interest rate swap agreement - fair value hedge (2)		3,595		–		3,595		–
Derivatives		–		–		–		–
Total	$	136,635	$	133,040	$	3,595	$	–

8

(1)   In connection with its offering of $400 million aggregate principal amount of 7.75% Senior Subordinated Notes due 2020 (the “7.75% Senior Notes”), the Company entered into an interest rate swap agreement with respect to all $400 million of the aggregate principal amount of the 7.75% Senior Notes (the “7.75% Swap Agreement”).  The 7.75% Swap Agreement hedges against exposure to long-term U.S. dollar interest rates, and is designated and accounted for as a fair value hedge.  The Company is accounting for the 7.75% Swap Agreement in accordance with the authoritative guidance regarding accounting for derivative instruments and hedging activities, so changes in the fair value of the 7.75% Swap Agreement are offset by changes in the recorded carrying value of the related 7.75% Senior Notes.  The fair val ue of the 7.75% Swap Agreement is recorded in the “Other noncurrent assets” or “Other noncurrent liabilities” line of the Consolidated Balance Sheets, as applicable, and as an adjustment to the book carrying value of the related 7.75% Senior Notes.  The fair value of over-the-counter derivative instruments, such as the Company’s interest rate swap, can be modeled for valuation using a variety of techniques.  The Company’s interest rate swap is valued using market inputs with mid-market pricing as a practical expedient for the bid/ask spread as allowed by the authoritative guidance for fair value measurements.  As such, the swap is categorized within Level 2 of the hierarchy.

(2)   In the second quarter of 2010, the counterparties to the interest rate swap agreement on the $250 million 6.125% Senior Subordinated Notes (the “6.125% Swap Agreement”) notified the Company that they were terminating the swap agreement effective June 1, 2010.

The fair value of the Company’s fixed-rate debt facilities is based on quoted market prices and is summarized as follows (in thousands):

Fair Value of Financial Instruments

	June 30, 2010				December 31, 2009
Financial Instrument:	Book Value		Fair Value		Book Value		Fair Value
6.125% senior subordinated notes, due 2013, gross	$	250,000	$	250,500	$	250,000	$	248,000
6.75% senior subordinated notes, due 2013		7,934		8,100		225,000		219,500
6.875% senior subordinated notes, due 2015		525,000		529,500		525,000		528,500
7.75% senior subordinated notes, due 2020		400,000		407,500		–		–
4.00% junior subordinated convertible debentures, due 2033
Carrying value		200,155		–		199,071		–
Unamortized debt discount		144,845		–		145,929		–
Principal amount		345,000		245,700		345,000		254,400
3.25% convertible senior debentures, due 2035
Carrying value		786,840		–		773,120		–
Unamortized debt discount		190,660		–		204,380		–
Principal amount		977,500		813,800		977,500		801,600

Accumulated Other Comprehensive Income (Loss)

The accumulated other comprehensive income (loss) balances at June 30, 2010 and December 31, 2009, net of aggregate applicable tax benefits of $16.3 million and $21.5 million, respectively, by component and in the aggregate, follow (in thousands):

9

	June 30,			December 31,
	2010			2009
Cumulative foreign currency translation adjustments	$	10,959		$	19,046
Unrealized gain on fair value of investments		4,135			73
Pension and postemployment benefits		(31,698	)		(34,459	)
Total accumulated other comprehensive income (loss), net	$	(16,604	)	$	(15,340	)

Income Taxes

The effective income tax rate was 39.3% and 38.0% for the three and six months ended June 30, 2010, respectively, as compared to the rate of 42.0% and 44.7%, respectively, for the same prior-year periods.  The year-over-year decrease in the effective tax rate is primarily attributable to certain nondeductible litigation costs recognized in the 2009 period.  The effective tax rates in 2010 and 2009 are higher than the federal statutory rate largely as a result of the impact of state and local income taxes and various nondeductible expenses (including a portion of the aforementioned litigation costs in 2009).

Common Stock Repurchase Program

On May 3, 2010, Omnicare announced that in conjunction with its second quarter 2010 refinancing (as described in the “Debt” note of these financial statements), the Company’s Board of Directors authorized a new two-year program to repurchase, from time to time, shares of Omnicare's outstanding common stock having an aggregate value of up to $200 million, depending on market conditions and other factors.  In the three and six months ended June 30, 2010, the Company repurchased approximately 2.0 million shares at an aggregate cost of approximately $49 million.  Accordingly, the Company had approximately $151 million of share repurchase authority remaining as of June 30, 2010.  These second quarter 2010 repurchases were made in open market transactions in compliance with Securities and Excha nge Commission Rule 10b-18 and other applicable legal requirements.  On June 30, 2010, Omnicare had approximately 118.2 million shares of common stock outstanding.

Recently Issued Accounting Standards

In March 2010, the Financial Accounting Standards Board (“FASB”) amended the authoritative guidance for derivatives and hedging – embedded derivatives to clarify the scope exception for embedded credit derivative features related to the transfer of credit risk in the form of subordination of one financial instrument for another.  These amendments address how to determine which embedded credit derivative features, including those in collateralized debt obligations and synthetic collateralized debt obligations, are considered to be embedded derivatives that should not be analyzed for potential bifurcation and separate accounting.  The Company does not anticipate the effect of this recently issued guidance to be material to its consolidated results of operations, financial position and cash flows.

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Note 2 – Discontinued Operations

In mid-2009, the Company commenced activities to divest certain home healthcare and related ancillary businesses (“the disposal group”) that are non-strategic in nature.  The disposal group, historically part of Omnicare’s Pharmacy Services segment, primarily represents ancillary businesses which accompanied other more strategic assets obtained by Omnicare in connection with the Company’s institutional pharmacy acquisition program.  The results from continuing operations for all periods presented have been revised to reflect the results of the disposal group as discontinued operations, including certain expenses of the Company related to the divestiture.  The Company anticipates completing the divestiture in the near term.  Selected financial data related to the discontinu ed operations of this disposal group for the three and six months ended June 30, 2010 and 2009 follows:

	Three months ended, June 30,						Six months ended June 30,
	2010			2009			2010			2009
Net sales	$	14,539		$	19,818		$	29,633		$	41,273
Loss from operations of disposal group, pretax		(2,188	)		(2,008	)		(7,912	)		(4,222	)
Income tax benefit		870			798			3,146			1,678
Loss from operations of disposal group, aftertax		(1,318	)		(1,210	)		(4,766	)		(2,544	)
Impairment charge, pretax		(10,343	)		(14,492	)		(10,343	)		(14,492	)
Income tax benefit on impairment charge		1,859			2,427			1,859			2,427
Impairment charge, aftertax		(8,484	)		(12,065	)		(8,484	)		(12,065	)
Loss from discontinued operations, aftertax	$	(9,802	)	$	(13,275	)	$	(13,250	)	$	(14,609	)

For the three and six months ended June 30, 2010 and 2009, the disposal group recorded an impairment charge of approximately $10.3 million and $14.5 million pretax ($8.5 million and $12.1 million aftertax), respectively, to reduce the carrying value of the disposal group to fair value as of June 30, 2010 and 2009.  The net assets held for sale of the disposal group are required to be measured at fair value for periods subsequent to July 1, 2009.  The fair values were based on a market approach utilizing both selected guideline public companies and comparable industry transactions, which would be considered “Level 2” inputs within the fair value hierarchy.  The fair value amount is estimated, is reviewed quarterly and will be finalized once any disposition of the disposal group has been complete d.  See the “Fair Value” note of the Notes to the Consolidated Financial Statements in Omnicare’s 2009 Annual Report for further discussion on the fair value hierarchy.

Note 3 – Acquisitions

Since 1989, the Company has been involved in a program to acquire providers of pharmaceutical products and related pharmacy services to long-term care facilities and their residents as well as patients in other care settings.  The Company’s strategy has included the acquisition of freestanding institutional pharmacy businesses as well as other assets, generally insignificant in size, which have been combined with existing pharmacy operations to augment their internal growth.  From time-to-time the Company may acquire other businesses, such as pharmacy consulting companies, specialty pharmacy companies, medical supply and service companies, hospice pharmacy companies and companies providing distribution and product support services for specialty pharmaceuticals, as well as contract research organizations, which complement the Company’s core businesses.

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Effective January 1, 2009, the Company adopted the provisions of the revised authoritative guidance for business combinations, which requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction at fair value; and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, including earn-out provisions.  This implementation resulted in acquisition and other related (credits)/costs of approximately $(0.2) million and $0.1 million pretax ($(0.1) million and $0.0 million, aftertax) during the three and six months ended June 30, 2010, respectively, and approximately $2.0 million and $2.9 million pretax ($1.2 million and $1.8 million, aftertax) in the three and six months ended June 30, 2009, respectively, which were primarily related to professional fees and acquisition related restructuring costs for acquisitions completed during the 2010 and 2009 periods, which were offset by a reduction in the 2010 period of the Company’s original estimate of contingent consideration payable for certain acquisitions.

During the first six months of 2010, Omnicare completed two acquisitions of businesses in the Pharmacy Services segment, neither of which were significant to the Company.  Acquisitions of businesses required outlays of $11.9 million (including amounts payable pursuant to acquisition agreements relating to pre-2010 acquisitions) in the six months ended June 30, 2010.  The impact of these aggregate acquisitions on the Company’s overall goodwill balance has been reflected in the disclosures at the “Goodwill and Other Intangible Assets” note.  The Company continues to evaluate the tax effects, identifiable intangible assets and other pre-acquisition contingencies relating to certain acquisitions.  Omnicare is in the process of completing its allocation of the purchase price for cert ain acquisitions and, accordingly, the goodwill and other identifiable intangible assets balances are preliminary and subject to change.  The net assets and operating results of acquisitions have been included in the Company’s consolidated financial statements from their respective dates of acquisition.

Note 4 - Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the six months ended June 30, 2010, by business segment, are as follows (in thousands):

	Pharmacy Services		CRO Services			Total
Balance as of December 31, 2009	$	4,181,492	$	92,203		$	4,273,695
Goodwill acquired in the six months
ended June 30, 2010		6,154		–			6,154
Other		2,876		(2,465	)		411
Balance as of June 30, 2010	$	4,190,522	$	89,738		$	4,280,260

The “Other” caption above includes the settlement of acquisition matters relating to prior-year acquisitions (including, where applicable, payments pursuant to acquisition agreements such as deferred payments, indemnification payments and payments originating from earnout provisions, as well as adjustments for the finalization of purchase price allocations, including identifiable intangible asset valuations).  “Other” also includes the effect of adjustments due to foreign currency translations, which relate primarily to the Contract Research Organization (“CRO”) Services segment, as well as one pharmacy located in Canada which is included in the Pharmacy Services segment.

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The decrease in the June 30, 2010 net carrying amount of the Company’s other identifiable intangible assets of approximately $17 million from December 31, 2009 primarily relates to amortization expense recorded during the six-month period, partially offset by increases due primarily to customer relationship assets and non-compete agreements associated with recent acquisitions, which have a weighted-average life of approximately 13 years.

Note 5 - Debt

A summary of debt follows (in thousands):

	June 30,			December 31,
	2010			2009
Revolving loans (see below)	$	-		$	-
Senior term A loan, due 2010		-			125,000
6.125% senior subordinated notes, due 2013 (see below)		250,000			250,000
6.75% senior subordinated notes, due 2013 (see below)		7,934			225,000
6.875% senior subordinated notes, due 2015		525,000			525,000
7.75% senior subordinated notes, due 2020 (see below)		400,000			-
4.00% junior subordinated convertible debentures, due 2033		345,000			345,000
3.25% convertible senior debentures, due 2035		977,500			977,500
Capitalized lease and other debt obligations		11,236			6,524
Subtotal		2,516,670			2,454,024
Add interest rate swap agreements (see below)		8,698			3,595
(Subtract) unamortized debt discount		(335,505	)		(350,309	)
(Subtract) current portion of debt		(2,485	)		(127,071	)
Total long-term debt, net	$	2,187,378		$	1,980,239

Revolving Loans

On May 18, 2010, the Company entered into a $400 million senior secured revolving credit facility, maturing on May 18, 2015 (the “Revolving Credit Facility”).  The Revolving Credit Facility includes letter of credit and swingline sublimits and is available up to the lesser of $400 million and a borrowing base of 50% of the Company’s accounts receivable, subject to certain eligibility criteria.  There are approximately $0.6 million of letters of credit currently outstanding which have been deemed to be letters of credit issued under the Revolving Credit Facility.  The interest rate applicable to the Revolving Credit Facility will be, at the Company’s option, a floating base rate, plus an applicable margin, or the London interbank offered rate (or LIBOR), plus an applicable margi n.  Initially, the applicable margins will be set at 2.00% with respect to floating base rate loans and 3.00% with respect to LIBOR loans. The applicable margins for the Revolving Credit Facility may increase or decrease based on the Company’s consolidated total leverage ratio as specified in the Revolving Credit Facility.  The Revolving Credit Facility is guaranteed by the Company’s subsidiaries, subject to certain exceptions, and secured by substantially all of the Company’s and the guarantors’ accounts receivable.  The Revolving Credit Facility contains certain financial covenants requiring maintenance of certain fixed charge coverage and leverage ratios, and customary affirmative and negative covenants.  The Company was in compliance with these covenants as of June 30, 2010.  In connection with entering the Revolving Credit Facility, the Company deferred $8.9 million in debt issuance costs, of which approximately $0.2 million was a mortized to expense in the three and six months ended June 30, 2010.

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On May 18, 2010, in connection with entering into the new Revolving Credit Facility, the Company’s existing credit agreement, dated as of July 28, 2005, (the “2005 Credit Facility”), was terminated.  All amounts outstanding under the senior term A loan component of the 2005 Credit Facility were paid off on May 18, 2010, and the $800 million revolving credit facility component of the 2005 Credit Facility was terminated.  In connection with the termination of the 2005 Credit Facility, the Company wrote off the remaining debt issuance costs of approximately $0.1 million, which was recorded in interest expense for the three and six months ended June 30, 2010.  The 2005 Credit Facility was scheduled to mature on July 28, 2010.

6.125% Senior Subordinated Notes Due 2013

In the second quarter of 2010, the counterparties to the interest rate swap agreement on the 6.125% Senior Subordinated Notes due 2013 notified the Company that they were terminating the swap agreement effective June 1, 2010.  As such, the Company began paying interest at the 6.125% stated rate effective June 1, 2010.

6.75% Senior Subordinated Notes Due 2013

On May 3, 2010, Omnicare commenced a tender offer (the “Tender Offer”) for cash to purchase any and all of the $225 million outstanding principal amount of its 6.75% Senior Subordinated Notes due 2013 (the “6.75% Senior Notes") and solicited consents to effect certain proposed amendments to the indenture governing the 6.75% Senior Notes.  On May 20, 2010, Omnicare purchased approximately $217 million aggregate principal amount of its outstanding 6.75% Senior Notes (approximately 96% of the total outstanding principal amount) pursuant to the tender offer.  Total consideration, excluding accrued and unpaid interest, for each $1,000 principal amount of the 6.75% Senior Notes was $1,033.75, which included a $30 early tender payment. On June 1, 2010, Omnicare called for redemption the 6.75% Se nior Notes that remained outstanding following the tender offer at a redemption price of 103.375% per $1,000 principal amount, plus accrued and unpaid interest to but not including the redemption date.  The redemption was completed on July 1, 2010.

In connection with the purchase of the 6.75% Senior Notes, the Company incurred early redemption fees of $7.3 million and the write-off of debt issuance costs of $1.9 million, both of which were recorded in interest expense for the three and six months ended June 30, 2010.  Additionally, the Company incurred approximately $0.4 million of professional fees associated with the purchase of the 6.75% Senior Notes, which were recorded in selling, general and administrative expenses for the three and six months ended June 30, 2010.

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7.75% Senior Subordinated Notes Due 2020

On May 18, 2010, Omnicare, Inc. completed its offering of the 7.75% Senior Notes.  In connection with the issuance of the 7.75% Senior Notes, the Company deferred $10.8 million in debt issuance costs, of which approximately $0.1 million was amortized to expense in the three and six months ended June 30, 2010.  The 7.75% Senior Notes contain certain restrictive covenants and events of default customary for such instruments.  The 7.75% Senior Notes are guaranteed by the Company’s subsidiaries, subject to certain exceptions.

In connection with its offering of the 7.75% Senior Notes, the Company entered into the 7.75% Swap Agreement.  Under the 7.75% Swap Agreement, which hedges against exposure to long-term U.S. dollar interest rates, the Company receives a fixed rate of 7.75% and pays a floating rate based on LIBOR with an interest period of six months, plus a spread of 3.87%.  The floating rate is determined semi-annually, in arrears, two London Banking Days prior to the first of each December and June.  The Company records interest expense on the 7.75% Senior Notes at the floating rate.  The estimated LIBOR-based floating rate (including the 3.87% spread) was 4.61% as of June 30, 2010.  The 7.75% Swap Agreement, which matches the terms of the 7.75% Senior Notes, is designated and accounted for as a fair value hedge.  The Company is accounting for the 7.75% Swap Agreement in accordance with the authoritative guidance for accounting for derivative instruments and hedging activities, so changes in the fair value of the 7.75% Swap Agreement are offset by changes in the recorded carrying value of the related 7.75% Senior Notes.  The fair value of the 7.75% Swap Agreement, approximately $8.7 million at June 30, 2010, is recorded in the “Other noncurrent assets” or “Other noncurrent liabilities” line of the Consolidated Balance Sheets, as applicable, and as an adjustment to the book carrying value of the related 7.75% Senior Notes.

The Company’s debt instruments, including related terms and certain financial covenants as well as a description of Omnicare’s Credit Agreement, have been disclosed in further detail at the “Debt” note of the Notes to Consolidated Financial Statements in Omnicare’s 2009 Annual Report, except where modified above.

At June 30, 2010, there was no outstanding balance under the Company’s Revolving Credit Facility.  The Company repaid the remaining $125 million on the Company’s senior term A loan facility, maturing on July 28, 2010 (the “Term Loans”) during the six months ended June 30, 2010.  As of June 30, 2010, the Company had approximately $22 million outstanding relating to standby letters of credit, substantially all of which are subject to automatic annual renewals.  The Company amortized to expense approximately $4.7 million and $2.9 million of deferred debt issuance costs during the six months ended June 30, 2010 and 2009, respectively, including the amounts disclosed separately above for the 2010 period.

The Company has two convertible debentures, the Series B 4.00% junior subordinated convertible debentures, due 2033 (the “4.00% Convertible Debentures”) and its 3.25% convertible senior debentures, due 2035 (with optional repurchase right, at par, of holders on December 15, 2015) (“3.25% Convertible Debentures”).  For further description of the Company’s convertible debt see the “Debt” note of the “Notes to Consolidated Financial Statements” in Omnicare’s 2009 Annual Report.  The authoritative guidance regarding the accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement), specifies that issuers of convertible debt instruments that may be settled in cash upon conversion (including partial ca sh settlement) should separately account for the liability and equity components in a manner that reflects the entity’s calculated nonconvertible debt borrowing rate when the debt was issued.  The carrying amounts of the Company’s convertible debt and related equity balances, are as follows (in thousands):

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	June 30, 2010			December 31, 2009
Carrying value of equity component	$	441,318		$	441,318
Principal amount of convertible debt	$	1,322,500		$	1,322,500
Unamortized debt discount		(335,505	)		(350,309	)
Net carrying value of convertible debt	$	986,995		$	972,191

As of June 30, 2010, the remaining amortization period for the debt discount was approximately 23.0 and 5.5 years for the 4.00% Convertible Debentures and 3.25% Convertible Debentures, respectively.

The effective interest rates for the liability components of the 4.00% Convertible Debentures and the 3.25% Convertible Debentures were 8.01% and 7.625%, respectively.  The impact of this accounting guidance was an increase in pretax interest expense of approximately $7.5 million and $14.8 million ($4.7 million and $9.3 million aftertax) for the three and six months ended June 30, 2010, respectively, and $6.9 million and $13.7 million ($4.3 million and $8.5 million aftertax) for the three and six months ended June 30, 2009, respectively.

Note 6 - Stock-Based Compensation

At June 30, 2010, the Company had four stock-based employee compensation plans under which incentive awards were outstanding, which are described in further detail at the “Stock-Based Compensation” note of the Notes to Consolidated Financial Statements in Omnicare’s 2009 Annual Report.  Omnicare believes that the incentive awards issued under these plans serve to better align the interests of its employees with those of its stockholders.  As further described in Omnicare’s 2009 Annual Report, non-vested stock awards are granted to key employees at the discretion of the Compensation and Incentive Committee of the Board of Directors.

Total pretax stock-based compensation expense recognized in the Consolidated Statement of Income as part of S,G&A expense for stock options and stock awards for the three and six months ended June 30, 2010 and 2009 is as follows (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2010		2009		2010		2009
Stock awards	$	3,313	$	5,136	$	9,215	$	10,651
Stock options		1,293		1,334		2,576		2,651
Total stock-based compensation
expense	$	4,606	$	6,470	$	11,791	$	13,302

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The assumptions used to value stock options granted during the periods ended June 30, 2010 and 2009 are as follows:

	2010	2009
Expected volatility	35.0%	36.3%
Risk-free interest rate	2.2%	2.4%
Expected dividend yield	0.3%	0.3%
Expected term of options (in years)	4.8	4.8

	Three months ended				Six months ended
	June 30,				June 30,
	2010		2009		2010		2009
Weighted average fair value per option	$	7.80	$	9.10	$	7.90	$	9.14

A summary of stock option activity under the plans for the six months ended June 30, 2010, is presented below (in thousands, except exercise price and term data):

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Options outstanding, beginning of period		6,323		$	32.50
Options granted		65			26.46
Options exercised		(349	)		16.76
Options forfeited		(558	)		33.85
Options outstanding, end of period		5,481		$	33.30		4.6	$	2,611
Options exercisable, end of period		4,609		$	34.18		4.0	$	2,351

The total exercise date intrinsic value of options exercised during the six months ended June 30, 2010 was $3.5 million.

A summary of non-vested restricted stock awards for the six months ended June 30, 2010 is presented below (in thousands, except grant price data):

	Shares			Weighted- Average Grant Date Price
Non-vested shares, beginning of period		2,595		$	29.52
Shares awarded		56			25.54
Shares vested		(372	)		34.02
Shares forfeited		(166	)		29.28
Non-vested shares, end of period		2,113		$	28.63

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As of June 30, 2010, there was approximately $54 million of total unrecognized compensation cost related to non-vested stock awards and stock options granted to Omnicare employees, which is expected to be recognized as expense prospectively over a remaining weighted-average period of approximately six years.  The total grant date fair value of shares vested during the six months ended June 30, 2010 related to stock awards and stock options was approximately $13.2 million.

See additional information at the “Subsequent Events” note.

Note 7 - Employee Benefit Plans

The Company has various defined contribution savings plans under which eligible employees can participate by contributing a portion of their salary for investment, at the direction of each employee, in one or more investment funds, as further described in Omnicare’s 2009 Annual Report.  Expense relating primarily to the Company’s matching contributions for these defined contribution plans was $1.5 million and $2.9 million for the three and six months ended June 30, 2010, respectively,  and $1.8 million and $3.6 million for the three and six months ended June 30, 2009, respectively.

The Company has various defined benefit plans, as further described in Omnicare’s 2009 Annual Report.  The following table presents the components of net periodic pension cost for all pension plans for the three and six months ended June 30, 2010 and 2009 (pretax, in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
	2010			2009			2010			2009
Service cost	$	924		$	374		$	1,847		$	749
Interest cost		1,339			1,499			2,679			2,998
Amortization of deferred amounts
(primarily prior actuarial losses)		1,968			250			3,936			500
Return on assets		(56	)		(60	)		(112	)		(120	)
Net periodic pension cost	$	4,175		$	2,063		$	8,350		$	4,127

As of June 30, 2010, the aggregate defined benefit plans’ liabilities totaled approximately $158 million.  During the first six months of 2010, the Company made $0.2 million in payments related to funding the rabbi trusts for the settlement of the Company’s pension obligations.  The fair value of these assets was approximately $142 million at June 30, 2010.  The aggregate defined benefit plans’ liabilities are the projected benefit obligation to be paid based upon services through retirement.  The aggregate assets in the rabbi trusts are the amounts required to fund the lump sum benefits of the Excess Benefit Plan.  These benefits were fully funded as of June 30, 2010.

See additional information at the “Subsequent Events” note.

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Note 8 - Earnings Per Share Data

Basic earnings per share are computed based on the weighted-average number of shares of common stock outstanding during the period.  Diluted earnings per share include the dilutive effect of stock options, warrants and restricted stock awards, as well as convertible debentures.  The following is a reconciliation of the basic and diluted earnings per share (“EPS”) computations for both the numerator and denominator (in thousands, except per share data):

	Three months ended June 30,
	Income			Common Shares		Per Common Share
2010:	(Numerator)			(Denominator)		Amounts
Basic EPS
Income from continuing operations	$	21,401				$	0.18
Loss from discontinued operations		(9,802	)				(0.08	)
Net income		11,599			117,434	$	0.10
Effect of Dilutive Securities
4.00% junior subordinated convertible
debentures		72			275
Stock options, warrants and awards		–			407
Diluted EPS
Income from continuing operations plus assumed conversions		21,473				$	0.18
Loss from discontinued operations		(9,802	)				(0.08	)
Net income plus assumed conversions	$	11,671			118,116	$	0.10
2009:
Basic EPS
Income from continuing operations	$	41,994				$	0.36
Loss from discontinued operations		(13,275	)				(0.11	)
Net income		28,719			116,852	$	0.25
Effect of Dilutive Securities
4.00% junior subordinated convertible
debentures		71			275
Stock options, warrants and awards		–			513
Diluted EPS
Income from continuing operations plus assumed conversions		42,065				$	0.36
Loss from discontinued operations		(13,275	)				(0.11	)
Net income plus assumed conversions	$	28,790			117,640	$	0.24

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	Six months ended June 30,
	Income			Common Shares		Per Common Share
2010:	(Numerator)			(Denominator)		Amounts
Basic EPS
Income from continuing operations	$	75,701				$	0.64
Loss from discontinued operations		(13,250	)				(0.11	)
Net income		62,451			117,598	$	0.53
Effect of Dilutive Securities
4.00% junior subordinated convertible
debentures		144			275
Stock options, warrants and awards		–			412
Diluted EPS
Income from continuing operations plus assumed conversions		75,845				$	0.64
Loss from discontinued operations		(13,250	)				(0.11	)
Net income plus assumed conversions	$	62,595			118,285	$	0.53
2009:
Basic EPS
Income from continuing operations	$	74,222				$	0.64
Loss from discontinued operations		(14,609	)				(0.13	)
Net income		59,613			116,652	$	0.51
Effect of Dilutive Securities
4.00% junior subordinated convertible
debentures		142			275
Stock options, warrants and awards		–			563
Diluted EPS
Income from continuing operations plus assumed conversions		74,364				$	0.63
Loss from discontinued operations		(14,609	)				(0.12	)
Net income plus assumed conversions	$	59,755			117,490	$	0.51

EPS is reported independently for each amount presented.  Accordingly, the sum of the individual amounts may not necessarily equal the separately calculated amounts for the corresponding period.

During the three and six months ended June 30, 2010 and 2009, the anti-dilutive effect associated with certain stock options, warrants and awards was excluded from the computation of diluted EPS, since the exercise price was greater than the average market price of the Company’s common stock during these periods.  The aggregate number of stock options, warrants and awards excluded from the computation of diluted EPS for the three and six months ended June 30, 2010 and 2009 totaled 4.8 million and 6.2 million, respectively.

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Note 9 - Restructuring and Other Related Charges

Omnicare Full Potential Program

In 2006, the Company commenced the implementation of the “Omnicare Full Potential” Plan, a major initiative primarily designed to re-engineer the Company’s pharmacy operating model to increase efficiency and enhance customer growth.  The Omnicare Full Potential Plan is expected to optimize resources across the entire organization by implementing best practices, including the realignment and right-sizing of functions, and a “hub-and-spoke” model, whereby certain key administrative and production functions will be transferred to regional support centers (“hubs”) specifically designed and managed to perform these tasks, with local pharmacies (“spokes”) focusing on time-sensitive services and customer-facing processes.  Additionally, in connection with this productiv ity enhancement initiative, the Company is also right-sizing and consolidating certain CRO operations.

This program is estimated to result in total pretax restructuring and other related charges of approximately $133 million.  As presented in further detail below, the Company recorded restructuring and other related charges for the Omnicare Full Potential Plan of approximately $5 million and $13 million pretax (approximately $3 million and $8 million aftertax) during the three and six months ended June 30, 2010, respectively, and approximately $6 million and $13 million pretax (approximately $4 million and $8 million aftertax) during the three and six months ended June 30, 2009, respectively, or cumulative aggregate restructuring and other related charges of approximately $124 million before taxes through the second quarter of 2010.  The remainder of the overall restructuring and other related charges will be recogni zed and disclosed prospectively, as the remaining portions of the project are finalized and implemented.  The Company eliminated approximately 1,200 positions in completing its initial phase of the program.  The completion of the program is estimated to result in an additional net reduction of approximately 1,400 positions (2,100 positions eliminated, net of 700 new positions filled in different geographic locations as well as to perform new functions required by the hub-and-spoke model of operations), of which approximately 1,300 positions had been eliminated as of June 30, 2010.  The foregoing reductions do not include additional savings expected from lower levels of overtime and reduced temporary labor.  The Company estimates reductions in overtime, excess hours and temporary help, as well as productivity gains, to equal an additional 820 full-time equivalents.  In addition, in July 2009, the Company implemented a temporary payroll containment and reductio n program across the organization designed to facilitate the achievement of the productivity and efficiency goals associated with the Full Potential Plan.

The restructuring charges associated with the overall program primarily include severance pay, the buy-out of employment agreements, lease terminations, and other exit-related asset disposals, professional fees and facility exit costs.  The other related charges are primarily comprised of professional fees.  Details of the Omnicare Full Potential Plan restructuring and other related charges follow (pretax, in thousands):

21

	Balance at		2010		Utilized			Balance at
	December 31,		Provision/		during			June 30,
Restructuring charges:	2009		Accrual		2010			2010
Employee severance	$	3,843	$	5,888	$	(8,775	)	$	956
Lease terminations		9,003		2,839		(3,723	)		8,119
Other assets, fees and facility exit costs		459		2,317		(2,376	)		400
Total restructuring charges	$	13,305		11,044	$	(14,874	)	$	9,475
Other related charges				1,475
Total restructuring and other related charges			$	12,519

As of June 30, 2010, the Company has made cumulative payments of approximately $34 million of severance and other employee-related costs for the Omnicare Full Potential Plan.  The remaining liabilities at June 30, 2010, represent amounts not yet paid relating to actions taken in connection with the program (primarily lease payments, severance and professional fees) and will be settled as these matters are finalized.  The provision/accrual and corresponding payment amounts relating to employee severance are being accounted for primarily in accordance with the authoritative guidance for employers’ accounting for postemployment benefits; and the provision/accrual and corresponding payment amounts relating to employment agreement buy-outs are being accounted for primarily in accordance with the authoritative guida nce regarding accounting for costs associated with exit or disposal activities.

Note 10 - Commitments and Contingencies

Omnicare continuously evaluates contingencies based upon the best available information.  The Company believes that liabilities have been recorded to the extent necessary in cases where the outcome is considered probable and reasonably estimable.  To the extent that resolution of contingencies results in amounts that vary from the Company’s recorded liabilities, future earnings will be charged or credited accordingly.

On April 14, 2010, a purported shareholder derivative action, entitled Manville Personal Injury Settlement Trust v. Gemunder, et al., Case No. 10-CI-01212, was filed in Kentucky State Court, Kenton Circuit, against the members of the Board and certain current and former officers of the Company, individually, purporting to assert claims for breach of fiduciary duty, unjust enrichment, gross mismanagement, and waste of corporate assets arising out of alleged violations of federal and state laws prohibiting the payment of illegal kickbacks and the submission of false claims in connection with the Medicare and Medicaid healthcare programs. Plaintiff alleges that the Board and senior management caused the Company to violate these laws, which has resulted in over $100 million in fines and penalties paid by Omnicare and exposed the Company and certain individual defendants to potential civil and criminal liability. On June 21, 2010, defendants filed a motion to dismiss the action in its entirety on the grounds that plaintiff failed to make a pre-suit demand on Omnicare's board prior to filing the case, or to adequately allege that such a demand would have been futile, and that the complaint fails to state a claim upon which relief can be granted.  Plaintiff's response to that motion is due August 13, 2010.  The Company believes that the action is without merit and intends to continue to defend itself vigorously.

22

On April 2, 2010, a purported class action lawsuit, entitled Spindler, et al. v. Johnson & Johnson Corp., Omnicare, Inc. and Does 1-10, Case No. CV-10-1414, was filed in the United States District Court for the Northern District of California, San Francisco Division, against Johnson & Johnson, the Company and certain unnamed defendants asserting violations of federal antitrust law and California unfair competition law arising out of certain arrangements between Johnson & Johnson and the Company.  Plaintiffs allege, among other things, that the Company violated these laws by entering into agreements with J&J to promote J&J products.  On June 28, 2010, Johnson & Johnson and the Company filed motions to dismiss the complaint claiming that plaintiffs failed to state a claim.  In response, plaintiffs agreed to withdraw their complaint and filed an amended complaint on July 21, 2010.  The Company's response to the amended complaint is due on September 7, 2010.  The Company intends to mount a vigorous defense to the claims, which it believes are entirely without merit.

On January 8, 2010, a qui tam complaint, entitled United States ex rel. Resnick and Nehls v. Omnicare, Inc., Morris Esformes, Phillip Esformes and Lancaster Ltd. d/b/a Lancaster Health Group, No. 1:07cv5777, that was filed under seal with the U.S. District Court in Chicago, Illinois was unsealed by the court.  The U.S. Department of Justice and the State of Illinois have notified the court that they have declined to intervene in this action.  The complaint was brought by Adam Resnick and Maureen Nehls as private party “qui tam relators” on behalf of the federal government and two state governments.  The relators subsequently amended their complaint and served the Company on July 8, 2010.  The action alleges civil violations of t he False Claims Act and certain state statutes based on allegations that Omnicare acquired certain institutional pharmacies at above-market rates in violation of the Anti-Kickback Statute and applicable state statutes.  The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

On or about March 12, 2010, a qui tam complaint entitled State of Illinois, ex rel. Adam B. Resnick and Maureen Nehls v. Omnicare, Inc. Morris Esformes, Phillip Esformes, and Tim Dacy, No. D6 L 1926 that was filed under seal in Illinois state court, was unsealed by the court.  The State of Illinois notified the court that it declined to intervene in the action.  This complaint was brought by the same two qui tam relators, Adam Resnick and Maureen Nehls, that brought the complaint in the United States District Court in Chicago described above.  This complaint is based on allegations nearly identical to a portion of the allegations contained in that federal action.  The Company has not been served with the complaint in this act ion.  The Company believes that the allegations are without merit and intends to vigorously defend itself in this action if pursued.

On June 11, 2010, a qui tam complaint, entitled United States ex rel. Stone v. Omnicare Inc., No. 1:09cv4319, that was filed under seal with the U.S. District Court in Chicago, Illinois was unsealed by the court.  The U.S. Department of Justice and the various states named in the complaint have notified the court that they have declined to intervene in this action.  The complaint was brought by John Stone, the Company’s former Vice President of Internal Audit, as a private party qui tam relator on behalf of the federal government and several state governments.  The action alleges civil violations of the False Claims Act and certain state statutes based on allegations that the Company submitted claims for reimbursement for certain ancillary serv ices that did not conform with Medicare and Medicaid regulations, submitted claims for reimbursement from newly acquired pharmacies that were in violation of certain Medicaid and Medicare regulations, violated certain FDA regulations regarding the storage and handling of a particular drug, and violated certain Medicaid billing regulations relating to usual and customary charges.  Relator also asserts against the Company a retaliatory discharge claim under the False Claims Act.  The Company believes that the allegations are without merit and intends to vigorously defend itself in this action if pursued.

23

As previously disclosed, the U.S. Attorney’s Office, District of Massachusetts had been investigating allegations under the False Claims Act, 31 U.S.C. (§) 3729, et seq. and various state false claims statutes in five qui tam complaints (Maguire, Kammerer, Lisitza and two sealed complaints) concerning the Company’s relationships with certain manufacturers and distributors of pharmaceutical products and certain customers, as well as with respect to contracts with certain companies acquired by the Company.

The complaints in these cases, which have been dismissed with prejudice by the relators pursuant to the settlement described below (including the two sealed complaints, which have now been unsealed as part of the settlement), alleged that the Company violated the False Claims Act when it submitted claims for name brand drugs when actually providing generic versions of the same drug to nursing homes; provided consultant pharmacist services to its customers at below-market rates to induce the referral of pharmaceutical business; accepted discounts from drug manufacturers in return for recommending that certain pharmaceuticals be prescribed to nursing home residents; accepted rebates, post-purchase discounts, grants and other forms of remuneration from drug manufacturers in return for purchasing pharmaceuticals from those manufacture rs and taking steps to increase the purchase of those manufacturers’ drugs; made false statements and omissions to physicians in connection with its recommendations of those pharmaceuticals; substituted certain pharmaceuticals without physician authorization; accepted payments from certain generic drug manufacturers in return for entering into purchase arrangements with them; acquired certain institutional pharmacies at above-market rates to obtain contracts between those pharmacies and nursing homes; and made a payment to certain nursing home chains in return for the referral of pharmaceutical business.

On November 2, 2009, the Company entered into a civil settlement agreement, without any finding of wrongdoing or any admission of liability, finalizing a previously disclosed agreement in principle, under which the Company paid the federal government and participating state governments $98 million plus interest from June 24, 2009 (the date of the agreement in principle referenced above) and related expenses to settle various alleged civil violations of federal and state laws.  The settlement agreements release the Company from claims that the Company allegedly violated various federal and state laws due to the Company having allegedly made a payment to certain nursing home chains in return for the referral of pharmaceutical business; allegedly provided consultant pharmacist services to its customers at rates below the Company 's cost of providing the services and below fair market value to induce the referral of pharmaceutical business; allegedly accepted a payment from a generic drug manufacturer allegedly in exchange for purchasing that manufacturer’s products and recommending that physicians prescribe such products to nursing home patients; and allegedly accepted rebates, grants and other forms of remuneration from a drug manufacturer to induce the Company to recommend that physicians prescribe one of the manufacturer’s drugs, and the rebate agreements conditioned payment of the rebates upon the Company engaging in an “active intervention program” to convince physicians to prescribe the drug and requiring that all competitive products be prior authorized for the drug’s failure, where the Company failed to disclose to physicians that such intervention activities were a condition of it receiving such rebate payments.

24

The Company denies the contentions of the qui tam relators and the federal government as set forth in the settlement agreement and the complaints.  All 50 states and the District of Columbia have participated in the settlement.  In addition, the Department of Justice has advised the Company that it has no present intention of pursuing an investigation and/or filing suit under the False Claims Act against the Company with respect to allegations in the qui tam complaints that, during 1999-2003, pharmaceutical manufacturers named as defendants in the complaints made payments to the Company in return for the Company recommending and/or purchasing such manufacturers' drugs.

Pursuant to stipulations of dismissal executed in connection with the settlement agreement, the five complaints were dismissed.  As part of the settlement agreement, the Company also entered into an amended and restated corporate integrity agreement (“CIA”) with the Department of Health and Human Services Office of the Inspector General with a term of five years from November 2, 2009.  Pursuant to the CIA, the Company is required, among other things, to (i) create procedures designed to ensure that each existing, new or renewed arrangement with any actual or potential source of health care business or referrals to Omnicare or any actual or potential recipient of health care business or referrals from Omnicare does not violate the Anti-Kickback Statute, 42 U.S.C. (§) 1320a-7b(b) or related regulations, directives and guidance, including creating and maintaining a database of such arrangements; (ii) retain an independent review organization to review the Company’s compliance with the terms of the CIA and report to OIG regarding that compliance; and (iii) provide training for certain Company employees as to the Company’s requirements under the CIA.  The requirements of the Company’s prior corporate integrity agreement obligating the Company to create and maintain procedures designed to ensure that all therapeutic interchange programs are developed and implemented by Omnicare consistent with the CIA and federal and state laws for obtaining prior authorization from the prescriber before making a therapeutic interchange of a drug and to maintain procedures for the accurate preparation and submission of claims for federal health care program beneficiaries in hospice programs, have been incorporated into the amended and restated C IA without modification.  The requirements of the CIA are expected to result in increased costs to maintain the Company’s compliance program and greater scrutiny by federal regulatory authorities.  Violations of the corporate integrity agreement could subject the Company to significant monetary penalties.  Consistent with the CIA, the Company is reviewing its contracts to ensure compliance with applicable laws and regulations.  As a result of this review, pricing under certain of its consultant pharmacist services contracts will need to be increased, and there can be no assurance that such pricing will not result in the loss of certain contracts.

As previously disclosed, on November 14, 2006, the Company entered into a voluntary civil settlement of all federal and state civil claims arising from allegations relating to three generic pharmaceuticals provided by the Company in connection with the substitution of capsules for tablets (Ranitidine), tablets for capsules (Fluoxetine) and two 7.5 mg tablets for one 15 mg tablet (Buspirone).  Another issue alleged by one qui tam relator remains under seal and was not resolved by the settlement.  The settlement agreement did not include any finding of wrongdoing or any admission of liability.  As part of the settlement agreement, on November 9, 2006, the Company entered into a Corporate Integrity Agreement with the Department of Health and Human Servi ces Office of the Inspector General with a term of five years from November 9, 2006.  This Corporate Integrity Agreement has been amended and restated as described above.

25

On February 2 and February 13, 2006, respectively, two substantially similar putative class action lawsuits, entitled Indiana State Dist. Council of Laborers & HOD Carriers Pension & Welfare Fund v. Omnicare, Inc., et al., No. 2:06cv26 (“HOD Carriers”), and Chi v. Omnicare, Inc., et al., No. 2:06cv31 (“Chi”), were filed against Omnicare and two of its officers in the United States District Court for the Eastern District of Kentucky purporting to assert claims for violation of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeking, among other things, compensatory damages and injunctive relief.  The complaints, which purp orted to be brought on behalf of all open-market purchasers of Omnicare common stock from August 3, 2005 through January 27, 2006, alleged that Omnicare had artificially inflated its earnings by engaging in improper generic drug substitution and that defendants had made false and misleading statements regarding the Company’s business and prospects.  On April 3, 2006, plaintiffs in the HOD Carriers case formally moved for consolidation and the appointment of lead plaintiff and lead counsel pursuant to the Private Securities Litigation Reform Act of 1995.  On May 22, 2006, that motion was granted, the cases were consolidated, and a lead plaintiff and lead counsel were appointed.  On July 20, 2006, plaintiffs filed a consolidated amended complaint, adding a third officer as a defendant and new factual allegations primarily relating to revenue recognition, the valuation of receivables and the valuation of inventories.
60; On October 31, 2006, plaintiffs moved for leave to file a second amended complaint, which was granted on January 26, 2007, on the condition that no further amendments would be permitted absent extraordinary circumstances.  Plaintiffs thereafter filed their second amended complaint on January 29, 2007.  The second amended complaint (i) expands the putative class to include all purchasers of Omnicare common stock from August 3, 2005 through July 27, 2006, (ii) names two members of the Company’s board of directors as additional defendants, (iii) adds a new plaintiff and a new claim for violation of Section 11 of the Securities Act of 1933 based on alleged false and misleading statements in the registration statement filed in connection with the Company’s December 2005 public offering, (iv) alleges that the Company failed to timely disclose its contractual dispute with UnitedHealth Group, Inc. and its affiliates (“United”), and (v) alleges that the Company fai led to timely record certain special litigation reserves.  The defendants filed a motion to dismiss the second amended complaint on March 12, 2007, claiming that plaintiffs had failed adequately to plead loss causation, scienter or any actionable misstatement or omission.  That motion was fully briefed as of May 1, 2007.  In response to certain arguments relating to the individual claims of the named plaintiffs that were raised in defendants’ pending motion to dismiss, plaintiffs filed a motion to add, or in the alternative, to intervene an additional named plaintiff, Alaska Electrical Pension Fund, on July 27, 2007.  On October 12, 2007, the court issued an opinion and order dismissing the case and denying plaintiffs’ motion to add an additional named plaintiff.  On November 9, 2007, plaintiffs filed a notice of appeal with the United States Court of Appeals for the Sixth Circuit with respect to the dismissal of their case.  Oral argume nt was held on September 18, 2008.  On October 21, 2009, the Sixth Circuit Court of Appeals generally affirmed the district court’s dismissal, dismissing plaintiff’s claims for violation of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, as well as affirming the denial of Alaskan Electrical Pension Fund’s motion to intervene.  However, the appellate court reversed the dismissal of the claim brought for violation of Section 11 of the Securities Act of 1933, remanding the case to the district court for further proceedings, including application of the rule requiring plaintiffs to allege fraud with particularity to their Section 11 claim.  On November 3, 2009, plaintiffs filed a motion in the Court of Appeals seeking a rehearing or a rehearing en banc with respect to a single aspect of the Court's decision, namely, whether the federal rule requiring pleading with particularity should apply to their claim under Section 11 of the S ecurities Act.  On December 16, 2009, that petition was denied, and on January 13, 2010, that Court issued its mandate by which the Section 11 claim was remanded to the district court for further proceedings consistent with the decision and order of October 21, 2009.  At a conference on March 4, 2010, the district court stayed further proceedings pending the resolution of plaintiffs’ anticipated petition to the U. S. Supreme Court for a writ of certiorari.  Plaintiffs filed their petition for a writ of certiorari on May 14, 2010.  The petition is now fully briefed and awaiting determination.

26

On February 13, 2006, two substantially similar shareholder derivative actions, entitled Isak v. Gemunder, et al., Case No. 06-CI-390, and Fragnoli v. Hutton, et al., Case No. 06-CI-389, were filed in Kentucky State Circuit Court, Kenton Circuit, against the members of Omnicare’s board of directors, individually, purporting to assert claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment arising out of the Company’s alleged violations of federal and state health care laws based upon the same purportedly improper generic drug substitution that is the subject of the federal purported class action lawsuits.  The complaints seek, among ot her things, damages, restitution and injunctive relief.  The Isak and Fragnoli actions were later consolidated by agreement of the parties.  On January 12, 2007, the defendants filed a motion to dismiss the consolidated action on the grounds that the dismissal of the substantially identical shareholder derivative action, Irwin v. Gemunder, et al., 2:06cv62, by the United States District Court for the Eastern District of Kentucky on November 20, 2006 should be given preclusive effect and thus bars re-litigation of the issues already decided in Irwin.  Instead of opposing that motion, on March 16, 2007, the plaintiffs filed an amended consolidated complaint, which continues to name all of the directors as defendants and asserts the same claims, but attempts to bolster those claims by adding nearly all of the substantive allegations from the most recent complaint in the federal securities class action (see discussion of HOD Carriers above) and an amended complaint in Irwin that added the same factual allegations that were added to the consolidated amended complaint in the HOD Carriers action.  On April 16, 2007, defendants filed a supplemental memorandum of law in further support of their pending motion to dismiss contending that the amended complaint should be dismissed on the same grounds previously articulated for dismissal, namely, the preclusive effect of the dismissal of the Irwin action.  That motion has been fully briefed, oral argument was held on Augus t 21, 2007, and the court reserved decision.

The Company believes the above-described purported class and derivative actions are without merit and will be vigorously defended.

The three and six months ended June 30, 2010 included charges of $29.4 million and $34.9 million pretax ($19.9 million and $23.4 million after taxes), respectively, and approximately $28.4 million and $70.0 million pretax ($22.0 millon and $54.5 million after taxes) for the three and six months ended June 30, 2009, respectively, reflected in the “Litigation and other related charges” line of the Consolidated Statements of Income, primarily for estimated litigation-related settlements and professional expenses for resolution of certain regulatory matters with various states, as further discussed later in this note, as well as costs associated with the settlement of the investigation by the United States Attorney’s Office, District of Massachusetts; the Company’s lawsuit against United; certain large customer disp utes; the investigation by the federal government and certain states relating to drug substitutions; and purported class and derivative actions against the Company.  In connection with Omnicare’s participation in Medicare, Medicaid and other healthcare programs, the Company is subject to various inspections, audits, inquiries and investigations by governmental/regulatory authorities responsible for enforcing the laws and regulations to which the Company is subject.  Further, the Company maintains a compliance program which establishes certain routine periodic monitoring of the accuracy of the Company’s billing systems and other regulatory compliance matters and encourages the reporting of errors and inaccuracies.  As a result of the compliance program, Omnicare has made, and will continue to make, disclosures to the applicable governmental agencies of amounts, if any, determined to represent over-payments from the respective programs and, where applicable, those amou nts, as well as any amounts relating to certain inspections, audits, inquiries and investigations activity are included in the pretax special item reflected above.

27

During 2006, the Company experienced certain quality control and product recall issues, as well as fire damage, at one of its repackaging facilities.  As a precautionary measure, the Company voluntarily and temporarily suspended operations at this facility.  During the time that this facility was closed, the Company conducted certain environmental tests at the facility.  Based on the results of these tests, which showed very low levels of beta lactam residue, and the time and expense associated with completing the necessary remediation procedures, as well as the short remaining term on the lease for the current facility, the Company decided not to reopen this facility.  The Company has been cooperating with federal and state officials who have been conducting investigations relating to the Repack Matters (as defined below) and certain billing issues.  The Company continues to work to address and resolve certain remaining issues, and fully restore centralized repackaging to its original levels.  In order to replace the capacity of this facility, the Company ramped-up production in its other repackaging facility, as well as onsite in its individual pharmacies.  Further, in order to replace the repackaging capacity of the closed facility, on February 27, 2007, Omnicare entered into an agreement for the Repackaging Services division of Cardinal Health to serve as the contract repackager for pharmaceutical volumes previously repackaged at the closed facility.  The agreement initially extends through October 2010.  As a result, the Company has been and continues to be able to meet the needs of all of its client facilities and their residents.  Addressing these issues served to increase costs and, as a result, the three months ended June 30, 2010 included special charges of approximately $0.7 million pretax (approximately $0.5 million and approximately $0.2 million was recorded in the cost of sales and operating expenses sections of the Consolidated Statements of Income, respectively) ($0.4 million after taxes) for additional costs precipitated by the quality control, product recall and fire damage issues at this facility (“Repack Matters”).  The associated costs for the six months ended June 30, 2010 totaled $1.9 million pretax ($0.9 million and $1.0 million was recorded in the cost of sales and operating expenses sections of the Consolidated Statements of Income, respectively) ($1.2 million after taxes).  The three months ended June 30, 2009 included special charges of approximately $1.2 million (approximately $0.8 million and approximately $0.4 million was recorded in the cost of sales and operating expenses sections of the Consolidated Statements of Income, respectively) ($0.7 million after taxes) for additional co sts precipitated by the Repack Matters.  The associated costs for the six months ended June 30, 2009 totaled $3.2 million pretax ($1.9 million and $1.3 million was recorded in the cost of sales and operating expenses sections of the Consolidated Statements of Income, respectively) ($2.0 million after taxes).  The Company maintains product recall, property and casualty and business interruption insurance, and the extent of insurance recovery for these expenses continues to be reviewed by its insurers and outside advisors.  As of June 30, 2010, the Company has received approximately $10 million in insurance recoveries.

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The Company is in various stages of discussions with governmental/regulatory authorities responsible for enforcing the laws and regulations to which Omnicare is subject.  In light of discussions Omnicare is currently having regarding resolution of certain regulatory matters with various states, as referenced above, a provision of $24.2 million pretax has been recorded in the second quarter of 2010 for the Company’s aggregate estimate for anticipated payments to resolve such matters.  It is expected that any such resolutions will not include an admission of liability or wrongdoing by the Company.

Although the Company cannot know with certainty the ultimate outcome of the matters described in the preceding paragraphs other than as disclosed, there can be no assurance that the resolution of these matters will not have a material adverse impact on the Company’s consolidated results of operations, financial position or cash flows or, in the case of the investigations regarding certain drug substitutions and the Repack Matters and other billing matters, that these matters will be resolved in an amount that would not exceed the amount of the pretax charges recorded by the Company.

As part of its ongoing operations, the Company is subject to various inspections, audits, inquiries, investigations and similar actions by third parties, as well as governmental/regulatory authorities responsible for enforcing the laws and regulations to which the Company is subject.  The Company is also involved in various legal actions arising in the normal course of business.  At any point in time, the Company is in varying stages of discussions on these matters.  These matters are continuously being evaluated and, in many cases, are being contested by the Company and the outcome is not predictable.  Consequently, an estimate of the possible loss or range of loss associated with certain actions cannot be made, and there can be no assurance that the ultimate resolution of these matters, individ ually or in the aggregate, will not have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows.

The Company indemnifies the directors and officers of the Company for certain liabilities that might arise from the performance of their job responsibilities for the Company.  Additionally, in the normal course of business, the Company enters into contracts that contain a variety of representations and warranties and which provide general indemnifications.  The Company’s maximum exposure under these arrangements is unknown, as this involves the resolution of claims made, or future claims that may be made, against the Company, its directors and/or officers, the outcomes of which is unknown and not currently predictable.  Accordingly, no liabilities have been recorded for the indemnifications.

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Note 11 - Segment Information

Based on the “management approach,” as defined by the authoritative guidance for disclosures about segments of an enterprise and related information, Omnicare has two reportable segments.  The Company’s larger reportable segment is Pharmacy Services.  Pharmacy Services primarily provides distribution of pharmaceuticals, related pharmacy consulting and other ancillary services, data management services, medical supplies, and distribution and patient assistance services for specialty pharmaceuticals.  The Company’s customers are primarily skilled nursing, assisted living, hospice and other providers of healthcare services in 47 states in the United States, the District of Columbia and in Canada at June 30, 2010.  The Company’s other reportable segment is CRO Services, which provides comprehensive product development and research services to client companies in pharmaceutical, biotechnology, nutraceutical, medical devices and diagnostics industries in 32 countries around the world at June 30, 2010, including the United States.  Where applicable, operating segments have been aggregated giving consideration to the management approach.

The table below presents information about the segments as of and for the three and six months ended June 30, 2010 and 2009, and should be read in conjunction with the paragraph that follows (in thousands):

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	Three months ended June 30,
	Pharmacy			CRO			Corporate and			Consolidated
2010:	Services			Services			Consolidating			Totals
Net sales	$	1,491,771		$	27,350		$	–		$	1,519,121
Depreciation and amortization expense		(18,773	)		(457	)		(13,696	)		(32,926	)
Restructuring and other related charges		(2,632	)		(1,991	)		(857	)		(5,480	)
Litigation and other related charges		(29,361	)		–			–			(29,361	)
Repack matters		(687	)		–			–			(687	)
Acquisition and other related costs		164			–			–			164
Operating income (expense) from continuing operations		110,318			(3,716	)		(25,242	)		81,360
Total assets		6,634,134			163,164			608,050			7,405,348
Capital expenditures		(5,848	)		(63	)		(252	)		(6,163	)
2009:
Net sales	$	1,499,704		$	40,803		$	–		$	1,540,507
Depreciation and amortization expense		(21,385	)		(469	)		(13,983	)		(35,837	)
Restructuring and other related charges		(4,761	)		(653	)		(469	)		(5,883	)
Litigation and other related charges		(28,357	)		–			–			(28,357	)
Repack matters		(1,196	)		–			–			(1,196	)
Acquisition and other related costs		(2,011	)		–			–			(2,011	)
Operating income (expense) from continuing operations		129,557			967			(22,443	)		108,081
Total assets		6,724,776			162,785			438,465			7,326,026
Capital expenditures		(6,252	)		(222	)		(244	)		(6,718	)
	Six months ended June 30,
	Pharmacy			CRO			Corporate and			Consolidated
2010:	Services			Services			Consolidating			Totals
Net sales	$	2,986,262		$	57,093		$	–		$	3,043,355
Depreciation and amortization expense		(38,230	)		(927	)		(29,677	)		(68,834	)
Restructuring and other related charges		(4,559	)		(5,525	)		(2,435	)		(12,519	)
Litigation and other related charges		(34,867	)		–			–			(34,867	)
Repack matters		(1,880	)		–			–			(1,880	)
Acquisition and other related costs		(63	)		–			–			(63	)
Operating income (expense) from continuing operations		261,559			(8,978	)		(50,054	)		202,527
Total assets		6,634,134			163,164			608,050			7,405,348
Capital expenditures		(11,170	)		(176	)		(332	)		(11,678	)
2009:
Net sales	$	2,997,066		$	85,546		$	–		$	3,082,612
Depreciation and amortization expense		(42,227	)		(943	)		(28,183	)		(71,353	)
Restructuring and other related charges		(10,759	)		(705	)		(1,336	)		(12,800	)
Litigation and other related charges		(70,022	)		–			–			(70,022	)
Repack matters		(3,189	)		–			–			(3,189	)
Acquisition and other related costs		(2,850	)		–			–			(2,850	)
Operating income (expense) from continuing operations		250,739			3,959			(49,098	)		205,600
Total assets		6,724,776			162,785			438,465			7,326,026
Capital expenditures		(13,775	)		(742	)		(798	)		(15,315	)

In accordance with the authoritative guidance for income statement characterization of reimbursements received for “out-of-pocket” expenses incurred, Omnicare included in its reported CRO segment net sales amount, for the three and six month periods ended June 30, 2010, reimbursable out-of-pockets totaling $3.3 million and $7.2 million, respectively and $5.2 million and $10.9 million for the three and six months ended June 30, 2009, respectively.

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Note 12 – Subsequent Event

On August 2, 2010, the Company announced that Joel F. Gemunder (“JFG”) retired from his positions as the Company’s President and Chief Executive Officer and as a member of the Board of Directors of the Company, effective July 31, 2010.  The Company, Omnicare Management Company and Mr. Gemunder entered into a Separation Agreement, dated as of July 31, 2010.  The JFG Separation Agreement provides that, in accordance with Mr. Gemunder’s employment agreement, Mr. Gemunder will receive an aggregate cash severance amount of approximately $16.2 million pretax, payable in installments through July 1, 2011.

Additionally, pursuant to Mr. Gemunder’s stock option and restricted stock agreements, on the retirement date, the unvested portion of 2,670,019 stock options and the 705,176 shares of restricted common stock held by Mr. Gemunder became fully vested.  The Company anticipates this will result in a non-cash pretax charge ranging from approximately $14 million to $16 million in the third quarter of 2010.  Mr. Gemunder will also be paid for unused and accrued vacation time.  

On August 2, 2010, the Company also announced that Cheryl D. Hodges (“CDH”), Senior Vice President and Secretary of the Company, resigned from the Company effective as of July 31, 2010.  The Company, Omnicare Management Company and Ms. Hodges entered into a Separation Agreement, dated as of July 31, 2010.  The CDH Separation Agreement provides that, in accordance with Ms. Hodges’ employment agreement, Ms. Hodges will receive an aggregate cash severance amount of approximately $2.1 million pretax, payable in installments through July 1, 2011.

Further, pursuant to Ms. Hodges’ stock option and restricted stock agreements, on the resignation date, the unvested portion of 446,859 stock options and the 111,573 shares of restricted common stock held by Ms. Hodges became fully vested.  The Company anticipates this will result in a non-cash pretax charge ranging from approximately $3 million to $4 million in the third quarter of 2010.  Ms. Hodges will also be paid for unused and accrued vacation time.  

In addition, it is anticipated that Omnicare will incur additional termination and settlement related expenses in the near term relating to the Company’s welfare and pension benefit plans ranging from approximately $32 million to $36 million pretax, primarily comprised of benefits and amounts due to Mr. Gemunder and Ms. Hodges pursuant to the terms of such plans, as well as benefits and amounts due to Patrick E. Keefe, retired Executive Vice President and Chief Operating Officer of Omnicare, Inc., pursuant to the terms of such plans.  It is anticipated that the impact of the welfare and benefit plan related payments will not be significant to the Company’s operating cash flows as these obligations were funded with rabbi trust assets, as separately reflected on the consolidated balance sheet.

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Note 13 - Guarantor Subsidiaries

The Company’s 6.125% Senior Subordinated Notes due 2013, the 6.875% Senior Subordinated Notes due 2015 and the 7.75% Senior Subordinated Notes due 2020 are fully and unconditionally guaranteed on an unsecured, joint and several basis by certain wholly-owned subsidiaries of the Company (the “Guarantor Subsidiaries”).  The following condensed consolidating financial data illustrates the composition of Omnicare, Inc. (“Parent”), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries as of June 30, 2010 and December 31, 2009 for the balance sheets as well as the three and six months ended June 30, 2010 and 2009 for the statements of income, and the statements of cash flows for the six months ended June 30, 2010 and 2009.  Management believes separate complete financial statements of the respective Guarantor Subsidiaries would not provide information that would be necessary for evaluating the sufficiency of the Guarantor Subsidiaries, and thus are not presented.  The equity method has been used with respect to the Parent company’s investment in subsidiaries.  No consolidating/eliminating adjustment column is presented for the condensed consolidating statements of cash flows since there were no significant consolidating/eliminating adjustment amounts during the periods presented.

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Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income – Unaudited

(in thousands)

	Three months ended June 30,
2010:	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
Net sales	$	–		$	1,475,339		$	43,782		$	–		$	1,519,121
Cost of sales		–			1,150,221			32,643			–			1,182,864
Repack matters		–			466			–			–			466
Gross profit		–			324,652			11,139			–			335,791
Selling, general and administrative expenses		1,118			191,598			5,805			–			198,521
Provision for doubtful accounts		–			20,448			564			–			21,012
Restructuring and other related charges		–			5,446			34			–			5,480
Litigation and other related charges		–			29,361			–			–			29,361
Repack matters		–			221			–			–			221
Acquisition and other related costs		–			(164	)		–			–			(164	)
Operating income (loss)		(1,118	)		77,742			4,736			–			81,360
Investment income		193			912			–			–			1,105
Interest expense, including amortization of
discount on convertible notes		(46,651	)		(534	)		–			–			(47,185	)
Income (loss) from continuing operations before income taxes		(47,576	)		78,120			4,736			–			35,280
Income tax (benefit) expense		(17,656	)		29,765			1,770			–			13,879
Income (loss) from continuing operations		(29,920	)		48,355			2,966			–			21,401
Loss from discontinued operations		–			(9,523	)		(279	)		–			(9,802	)
Equity in net income of subsidiaries		41,519			–			–			(41,519	)		–
Net income	$	11,599		$	38,832		$	2,687		$	(41,519	)	$	11,599
2009:
Net sales	$	–		$	1,496,113		$	44,394		$	–		$	1,540,507
Cost of sales		–			1,133,316			35,462			–			1,168,778
Repack matters		–			815			–			–			815
Gross profit		–			361,982			8,932			–			370,914
Selling, general and administrative expenses		1,603			194,925			6,963			–			203,491
Provision for doubtful accounts		–			22,254			456			–			22,710
Restructuring and other related charges		–			5,588			295			–			5,883
Litigation and other related charges		–			28,357			–			–			28,357
Repack matters		–			381			–			–			381
Acquisition and other related costs		–			2,011			–			–			2,011
Operating income (loss)		(1,603	)		108,466			1,218			–			108,081
Investment income		100			932			–			–			1,032
Interest expense, including amortization of     discount on convertible notes		(36,513	)		(188	)		(1	)		–			(36,702	)
Income (loss) from continuing operations before income taxes		(38,016	)		109,210			1,217			–			72,411
Income tax (benefit) expense		(14,519	)		44,455			481			–			30,417
Income (loss) from continuing operations		(23,497	)		64,755			736			–			41,994
Loss from discontinued operations		–			(12,620	)		(655	)		–			(13,275	)
Equity in net income of subsidiaries		52,216			–			–			(52,216	)		–
Net income	$	28,719		$	52,135		$	81		$	(52,216	)	$	28,719

34

Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income - Unaudited

(in thousands)

	Six months ended June 30,
2010:	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
Net sales	$	–		$	2,955,391		$	87,964		$	–		$	3,043,355
Cost of sales		–			2,288,847			65,921			–			2,354,768
Repack matters		–			909			–			–			909
Gross profit		–			665,635			22,043			–			687,678
Selling, general and administrative expenses		3,796			377,039			12,859			–			393,694
Provision for doubtful accounts		–			41,896			1,141			–			43,037
Restructuring and other related charges		–			11,013			1,506			–			12,519
Litigation and other related charges		–			34,867			–			–			34,867
Repack matters		–			971			–			–			971
Acquisition and other related costs		–			63			–			–			63
Operating income (loss)		(3,796	)		199,786			6,537			–			202,527
Investment income		386			2,383			–			–			2,769
Interest expense, including amortization of     discount on convertible notes		(82,324	)		(800	)		–			–			(83,124	)
Income (loss) from continuing operations before income taxes		(85,734	)		201,369			6,537			–			122,172
Income tax (benefit) expense		(31,816	)		75,834			2,453			–			46,471
Income (loss) from continuing operations		(53,918	)		125,535			4,084			–			75,701
Loss from discontinued operations		–			(12,634	)		(616	)		–			(13,250	)
Equity in net income of subsidiaries		116,369			–			–			(116,369	)		–
Net income	$	62,451		$	112,901		$	3,468		$	(116,369	)	$	62,451
2009:
Net sales	$	–		$	2,993,839		$	88,773		$	–		$	3,082,612
Cost of sales		–			2,249,159			71,387			–			2,320,546
Repack matters		–			1,917			–			–			1,917
Gross profit		–			742,763			17,386			–			760,149
Selling, general and administrative expenses		8,541			399,228			11,855			–			419,624
Provision for doubtful accounts		–			47,075			906			–			47,981
Restructuring and other related charges		–			12,505			295			–			12,800
Litigation and other related charges		–			70,022			–			–			70,022
Repack matters		–			1,272			–			–			1,272
Acquisition and other related costs		–			2,850			–			–			2,850
Operating income (loss)		(8,541	)		209,811			4,330			–			205,600
Investment income		536			2,903			–			–			3,439
Interest expense, including amortization of
discount on convertible notes		(74,341	)		(444	)		(1	)		–			(74,786	)
Income (loss) from continuing operations before income taxes		(82,346	)		212,270			4,329			–			134,253
Income tax (benefit) expense		(31,489	)		89,830			1,690			–			60,031
Income (loss) from continuing operations		(50,857	)		122,440			2,639			–			74,222
Loss from discontinued operations		–			(13,238	)		(1,371	)		–			(14,609	)
Equity in net income of subsidiaries		110,470			–			–			(110,470	)		–
Net income	$	59,613		$	109,202		$	1,268		$	(110,470	)	$	59,613

35

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets

(inthousands)

As of June 30, 2010 (Unaudited):	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating/Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
ASSETS
Cash and cash equivalents	$	346,869	$	26,014	$	22,028	$	–		$	394,911
Restricted cash		–		2,936		–		–			2,936
Accounts receivable, net (including intercompany)		–		1,147,851		46,638		(31,953	)		1,162,536
Unbilled receivables, CRO		–		18,687		–		–			18,687
Inventories		–		353,762		7,420		–			361,182
Deferred income tax benefits, net-current		–		123,623		4,237		(4,497	)		123,363
Other current  assets		1,287		201,171		17,248		–			219,706
Current assets of discontinued operations		–		7,742		2,227		–			9,969
Total current assets		348,156		1,881,786		99,798		(36,450	)		2,293,290
Properties and equipment, net		–		200,591		4,511		–			205,102
Goodwill		–		4,188,218		92,042		–			4,280,260
Identifiable intangible assets, net		–		270,586		9,078		–			279,664
Other noncurrent assets		50,061		260,699		75		–			310,835
Noncurrent assets of discontinued operations		–		28,302		7,895		–			36,197
Investment in subsidiaries		5,963,133		–		–		(5,963,133	)		–
Total assets	$	6,361,350	$	6,830,182	$	213,399	$	(5,999,583	)	$	7,405,348
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities - continuing
operations (including intercompany)	$	33,347	$	407,239	$	24,137	$	(31,953	)	$	432,770
Current liabilities of discontinued operations		–		5,168		740		–			5,908
Long-term debt, notes and convertible debentures		2,178,626		8,752		–		–			2,187,378
Deferred income tax liabilities, net-noncurrent		258,943		335,964		12,964		(4,497	)		603,374
Other noncurrent liabilities		–		285,484		–		–			285,484
Stockholders’ equity		3,890,434		5,787,575		175,558		(5,963,133	)		3,890,434
Total liabilities and stockholders’ equity	$	6,361,350	$	6,830,182	$	213,399	$	(5,999,583	)	$	7,405,348

36

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets - (Continued)

(inthousands)

As of December 31, 2009:	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
ASSETS
Cash and cash equivalents	$	223,644	$	33,664	$	18,401	$	–		$	275,709
Restricted cash		–		15,264		–		–			15,264
Accounts receivable, net (including intercompany)		–		1,192,627		21,854		(5,886	)		1,208,595
Unbilled receivables, CRO		–		21,868		–		–			21,868
Inventories		–		361,156		7,321		–			368,477
Deferred income tax benefits, net-current		–		118,023		49		(4,497	)		113,575
Other current  assets		1,026		192,555		3,911		–			197,492
Current assets of discontinued operations		–		15,274		3,353		–			18,627
Total current assets		224,670		1,950,431		54,889		(10,383	)		2,219,607
Properties and equipment, net		–		204,891		4,078		–			208,969
Goodwill		–		4,195,767		77,928		–			4,273,695
Identifiable intangible assets, net		–		287,804		9,349		–			297,153
Other noncurrent assets		29,930		248,842		49		–			278,821
Noncurrent assets of discontinued operations		–		22,557		23,302		–			45,859
Investment in subsidiaries		5,992,094		–		–		(5,992,094	)		–
Total assets	$	6,246,694	$	6,910,292	$	169,595	$	(6,002,477	)	$	7,324,104
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities - continuing
operations (including intercompany)	$	144,793	$	460,809	$	13,127	$	(5,886	)	$	612,843
Current liabilities of discontinued operations		–		6,361		845		–			7,206
Long-term debt, notes and convertible debentures		1,975,786		4,450		3		–			1,980,239
Deferred income tax liabilities, net-noncurrent		250,122		314,581		11,416		(4,497	)		571,622
Other noncurrent liabilities		–		276,201		–		–			276,201
Stockholders’ equity		3,875,993		5,847,890		144,204		(5,992,094	)		3,875,993
Total liabilities and stockholders’ equity	$	6,246,694	$	6,910,292	$	169,595	$	(6,002,477	)	$	7,324,104

37

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows - Unaudited

(in thousands)

	Six months ended June 30,
2010:	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows (used in) from operating activities	$	(54,151	)	$	199,967		$	7,761		$	153,577
Cash flows from investing activities:
Acquisition of businesses, net of cash received		–			(11,855	)		–			(11,855	)
Capital expenditures		–			(11,245	)		(433	)		(11,678	)
Transfer of cash from trusts for employee health and severance
costs, net of payments out of the trust		–			11,256			–			11,256
Other		–			(1,320	)		(3	)		(1,323	)
Net cash flows used in investing activities		–			(13,164	)		(436	)		(13,600	)
Cash flows from financing activities:
Net payments on line of credit facilities and term A loan		(125,000	)		–			–			(125,000	)
Proceeds from long-term borrowings and obligations		400,000			–			–			400,000
Payments on long-term borrowings and obligations		(218,478	)		–			–			(218,478	)
Fees paid for financing arrangements		(17,028	)		–			–			(17,028	)
Increase (decrease) in cash overdraft balance		5,067			(1,940	)		–			3,127
Payments for Omnicare common stock repurchases		(49,154	)		–			–			(49,154	)
Payments for stock awards and exercise of stock options,
net of stock tendered in payment		(5,241	)		–			–			(5,241	)
Excess tax benefits from stock-based compensation		432			–			–			432
Dividends paid		(5,343	)		–			–			(5,343	)
Other		192,121			(192,121	)		–			–
Net cash flows from (used in) financing activities		177,376			(194,061	)		–			(16,685	)
Effect of exchange rate changes on cash		–			–			(3,698	)		(3,698	)
Net increase (decrease) in cash and cash equivalents		123,225			(7,258	)		3,627			119,594
Less increase in cash and cash equivalents of discontinued operations		–			392			–			392
Increase (decrease) in cash and cash equivalents of continuing operations		123,225			(7,650	)		3,627			119,202
Cash and cash equivalents at beginning of period		223,644			33,664			18,401			275,709
Cash and cash equivalents at end of period	$	346,869		$	26,014		$	22,028		$	394,911

38

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows - (Continued) - Unaudited

(in thousands)

	Six months ended June 30,
2009:	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows (used in) from operating activities	$	(24,797	)	$	297,991		$	(10,252	)	$	262,942
Cash flows from investing activities:
Acquisition of businesses, net of cash received		–			(43,100	)		–			(43,100	)
Capital expenditures		–			(15,120	)		(195	)		(15,315	)
Transfer of cash from trusts for employee health and severance
costs, net of payments out of the trust		–			843			–			843
Other		–			(2,233	)		–			(2,233	)
Net cash flows used in investing activities		–			(59,610	)		(195	)		(59,805	)
Cash flows from financing activities:
Net payments on line of credit facilities and term A loan		(150,000	)		–			–			(150,000	)
Payments on long-term borrowings and obligations		(993	)		–			–			(993	)
(Decrease) increase in cash overdraft balance		(671	)		534			–			(137	)
Payments for stock awards and exercise of stock options,
net of stock tendered in payment		9,464			–			–			9,464
Excess tax benefits from stock-based compensation		2,366			–			–			2,366
Dividends paid		(5,352	)		–			–			(5,352	)
Other		240,209			(240,209	)		–			–
Net cash flows from (used in) financing activities		95,023			(239,675	)		–			(144,652	)
Effect of exchange rate changes on cash		–			–			831			831
Net increase (decrease) in cash and cash equivalents		70,226			(1,294	)		(9,616	)		59,316
Less increase (decrease) in cash and cash equivalents of discontinued operations		–			447			(229	)		218
Increase (decrease) in cash and cash equivalents of continuing operations		70,226			(1,741	)		(9,387	)		59,098
Cash and cash equivalents at beginning of period		145,178			44,109			25,381			214,668
Cash and cash equivalents at end of period	$	215,404		$	42,368		$	15,994		$	273,766

39

Note 13 - Guarantor Subsidiaries (Continued)

The Company’s 3.25% convertible senior debentures due 2035 are fully and unconditionally guaranteed on an unsecured basis by Omnicare Purchasing Company, LP, a wholly-owned subsidiary of the Company (the “Guarantor Subsidiary”).  The following condensed consolidating financial data illustrates the composition of Omnicare, Inc. (“Parent”), the Guarantor Subsidiary and the Non-Guarantor Subsidiaries as of June 30, 2010 and December 31, 2009 for the balance sheets as well as the statements of income for the three and six months ended June 30, 2010 and 2009, and the statements of cash flows for the six months ended June 30, 2010 and 2009.  Management believes separate complete financial statements of the respective Guarantor Subsidiary would not provide information that would be necessary f or evaluating the sufficiency of the Guarantor Subsidiary, and thus are not presented.  The equity method has been used with respect to the Parent company’s investment in subsidiaries.  The Guarantor Subsidiary does not have any material net cash flows in the condensed consolidating statements of cash flows.  No consolidating/eliminating adjustments column is presented for the condensed consolidating statements of cash flows since there were no significant consolidating/eliminating adjustment amounts during the periods presented.

40

Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income - Unaudited

(in thousands)

	Three months ended June 30,
2010:	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
Net sales	$	–		$	–		$	1,519,121		$	–		$	1,519,121
Cost of sales		–			–			1,182,864			–			1,182,864
Repack matters		–			–			466			–			466
Gross profit		–			–			335,791			–			335,791
Selling, general and administrative expenses		1,118			336			197,067			–			198,521
Provision for doubtful accounts		–			–			21,012			–			21,012
Restructuring and other related charges		–			–			5,480			–			5,480
Litigation and other related charges		–			–			29,361			–			29,361
Repack matters		–			–			221			–			221
Acquisition and other related costs		–			–			(164	)		–			(164	)
Operating income (loss)		(1,118	)		(336	)		82,814			–			81,360
Investment income		193			–			912			–			1,105
Interest expense, including amortization of
discount on convertible notes		(46,651	)		–			(534	)		–			(47,185	)
Income (loss) from continuing operations before income taxes		(47,576	)		(336	)		83,192			–			35,280
Income tax (benefit) expense		(17,656	)		(125	)		31,660			–			13,879
Income (loss) from continuing operations		(29,920	)		(211	)		51,532			–			21,401
Loss from discontinued operations		–			–			(9,802	)		–			(9,802	)
Equity in net income of subsidiaries		41,519			–			–			(41,519	)		–
Net income (loss)	$	11,599		$	(211	)	$	41,730		$	(41,519	)	$	11,599
2009:
Net sales	$	–		$	–		$	1,540,507		$	–		$	1,540,507
Cost of sales		–			–			1,168,778			–			1,168,778
Repack matters		–			–			815			–			815
Gross profit		–			–			370,914			–			370,914
Selling, general and administrative expenses		1,603			396			201,492			–			203,491
Provision for doubtful accounts		–			–			22,710			–			22,710
Restructuring and other related charges		–			–			5,883			–			5,883
Litigation and other related charges		–			–			28,357			–			28,357
Repack matters		–			–			381			–			381
Acquisition and other related costs		–			–			2,011			–			2,011
Operating income (loss)		(1,603	)		(396	)		110,080			–			108,081
Investment income		100			–			932			–			1,032
Interest expense, including amortization of
discount on convertible notes		(36,513	)		–			(189	)		–			(36,702	)
Income (loss) from continuing operations before income taxes		(38,016	)		(396	)		110,823			–			72,411
Income tax (benefit) expense		(14,519	)		(154	)		45,090			–			30,417
Income (loss) from continuing operations		(23,497	)		(242	)		65,733			–			41,994
Loss from discontinued operations		–			–			(13,275	)		–			(13,275	)
Equity in net income of subsidiaries		52,216			–			–			(52,216	)		–
Net income (loss)	$	28,719		$	(242	)	$	52,458		$	(52,216	)	$	28,719

41

Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income - Unaudited

(in thousands)

	Six months ended June 30,
2010:	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
Net sales	$	–		$	–		$	3,043,355		$	–		$	3,043,355
Cost of sales		–			–			2,354,768			–			2,354,768
Repack matters		–			–			909			–			909
Gross profit		–			–			687,678			–			687,678
Selling, general and administrative expenses		3,796			635			389,263			–			393,694
Provision for doubtful accounts		–			–			43,037			–			43,037
Restructuring and other related charges		–			–			12,519			–			12,519
Litigation and other related charges		–			–			34,867			–			34,867
Repack matters		–			–			971			–			971
Acquisition and other related costs		–			–			63			–			63
Operating income (loss)		(3,796	)		(635	)		206,958			–			202,527
Investment income		386			–			2,383			–			2,769
Interest expense, including amortization of
discount on convertible notes		(82,324	)		–			(800	)		–			(83,124	)
Income (loss) from continuing operations before income taxes		(85,734	)		(635	)		208,541			–			122,172
Income tax (benefit) expense		(31,816	)		(236	)		78,523			–			46,471
Income (loss) from continuing operations		(53,918	)		(399	)		130,018			–			75,701
Loss from discontinued operations		–			–			(13,250	)		–			(13,250	)
Equity in net income of subsidiaries		116,369			–			–			(116,369	)		–
Net income (loss)	$	62,451		$	(399	)	$	116,768		$	(116,369	)	$	62,451
2009:
Net sales	$	–		$	–		$	3,082,612		$	–		$	3,082,612
Cost of sales		–			–			2,320,546			–			2,320,546
Repack matters		–			–			1,917			–			1,917
Gross profit		–			–			760,149			–			760,149
Selling, general and administrative expenses		8,541			817			410,266			–			419,624
Provision for doubtful accounts		–			–			47,981			–			47,981
Restructuring and other related charges		–			–			12,800			–			12,800
Litigation and other related charges		–			–			70,022			–			70,022
Repack matters		–			–			1,272			–			1,272
Acquisition and other related costs		–			–			2,850			–			2,850
Operating income (loss)		(8,541	)		(817	)		214,958			–			205,600
Investment income		536			–			2,903			–			3,439
Interest expense, including amortization of
discount on convertible notes		(74,341	)		–			(445	)		–			(74,786	)
Income (loss) from continuing operations before income taxes		(82,346	)		(817	)		217,416			–			134,253
Income tax (benefit) expense		(31,489	)		(315	)		91,835			–			60,031
Income (loss) from continuing operations		(50,857	)		(502	)		125,581			–			74,222
Loss from discontinued operations		–			–			(14,609	)		–			(14,609	)
Equity in net income of subsidiaries		110,470			–			–			(110,470	)		–
Net income (loss)	$	59,613		$	(502	)	$	110,972		$	(110,470	)	$	59,613

42

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets

(inthousands)

As of June 30, 2010 (Unaudited):	Parent		Guarantor Subsidiary		Non-Guarantor Subsidiaries		Consolidating/Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
ASSETS
Cash and cash equivalents	$	346,869	$	–	$	48,042	$	–		$	394,911
Restricted cash		–		–		2,936		–			2,936
Accounts receivable, net (including intercompany)		–		45		1,162,536		(45	)		1,162,536
Unbilled receivables, CRO		–		–		18,687		–			18,687
Inventories		–		–		361,182		–			361,182
Deferred income tax benefits, net-current		–		–		127,860		(4,497	)		123,363
Other current  assets		1,287		–		218,419		–			219,706
Current assets of discontinued operations		–		–		9,969		–			9,969
Total current assets		348,156		45		1,949,631		(4,542	)		2,293,290
Properties and equipment, net		–		17		205,085		–			205,102
Goodwill		–		–		4,280,260		–			4,280,260
Identifiable intangible assets, net		–		–		279,664		–			279,664
Other noncurrent assets		50,061		19		260,755		–			310,835
Noncurrent assets of discontinued operations		–		–		36,197		–			36,197
Investment in subsidiaries		5,963,133		–		–		(5,963,133	)		–
Total assets	$	6,361,350	$	81	$	7,011,592	$	(5,967,675	)	$	7,405,348
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities - continuing
operations (including intercompany)	$	33,347	$	–	$	399,468	$	(45	)	$	432,770
Current liabilities of discontinued operations		–		–		5,908		–			5,908
Long-term debt, notes and convertible debentures		2,178,626		–		8,752		–			2,187,378
Deferred income tax liabilities, net-noncurrent		258,943		–		348,928		(4,497	)		603,374
Other noncurrent liabilities		–		–		285,484		–			285,484
Stockholders’ equity		3,890,434		81		5,963,052		(5,963,133	)		3,890,434
Total liabilities and stockholders’ equity	$	6,361,350	$	81	$	7,011,592	$	(5,967,675	)	$	7,405,348

43

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets - (Continued)

(inthousands)

As of December 31, 2009:	Parent		Guarantor Subsidiary		Non-Guarantor Subsidiaries		Consolidating/Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
ASSETS
Cash and cash equivalents	$	223,644	$	–	$	52,065	$	–		$	275,709
Restricted cash		–		–		15,264		–			15,264
Accounts receivable, net (including intercompany)		–		69		1,208,595		(69	)		1,208,595
Unbilled receivables, CRO		–		–		21,868		–			21,868
Inventories		–		–		368,477		–			368,477
Deferred income tax benefits, net-current		–		–		118,072		(4,497	)		113,575
Other current  assets		1,026		–		196,466		–			197,492
Current assets of discontinued operations		–		–		18,627		–			18,627
Total current assets		224,670		69		1,999,434		(4,566	)		2,219,607
Properties and equipment, net		–		19		208,950		–			208,969
Goodwill		–		–		4,273,695		–			4,273,695
Identifiable intangible assets, net		–		–		297,153		–			297,153
Other noncurrent assets		29,930		19		248,872		–			278,821
Noncurrent assets of discontinued operations		–		–		45,859		–			45,859
Investment in subsidiaries		5,992,094		–		–		(5,992,094	)		–
Total assets	$	6,246,694	$	107	$	7,073,963	$	(5,996,660	)	$	7,324,104
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities - continuing
operations (including intercompany)	$	144,793	$	5	$	468,114	$	(69	)	$	612,843
Current liabilities of discontinued operations		–		–		7,206		–			7,206
Long-term debt, notes and convertible debentures		1,975,786		–		4,453		–			1,980,239
Deferred income tax liabilities, net-noncurrent		250,122		–		325,997		(4,497	)		571,622
Other noncurrent liabilities		–		–		276,201		–			276,201
Stockholders’ equity		3,875,993		102		5,991,992		(5,992,094	)		3,875,993
Total liabilities and stockholders’ equity	$	6,246,694	$	107	$	7,073,963	$	(5,996,660	)	$	7,324,104

44

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows - Unaudited

(in thousands)

	Six months ended June 30,
2010:	Parent			Guarantor Subsidiary		Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows (used in) from operating activities	$	(54,151	)	$	–	$	207,728		$	153,577
Cash flows from investing activities:
Acquisition of businesses, net of cash received		–			–		(11,855	)		(11,855	)
Capital expenditures		–			–		(11,678	)		(11,678	)
Transfer of cash from trusts for employee health and severance
costs, net of payments out of the trust		–			–		11,256			11,256
Other		–			–		(1,323	)		(1,323	)
Net cash flows used in investing activities		–			–		(13,600	)		(13,600	)
Cash flows from financing activities:
Net payments on line of credit facilities and term A loan		(125,000	)		–		–			(125,000	)
Proceeds from long-term borrowings and obligations		400,000			–		–			400,000
Payments on long-term borrowings and obligations		(218,478	)		–		–			(218,478	)
Fees paid for financing arrangements		(17,028	)		–		–			(17,028	)
Increase (decrease) in cash overdraft balance		5,067			–		(1,940	)		3,127
Payments for Omnicare common stock repurchases		(49,154	)		–		–			(49,154	)
Payments for stock awards and exercise of stock options,
net of stock tendered in payment		(5,241	)		–		–			(5,241	)
Excess tax benefits from stock-based compensation		432			–		–			432
Dividends paid		(5,343	)		–		–			(5,343	)
Other		192,121			–		(192,121	)		–
Net cash flows from (used in) financing activities		177,376			–		(194,061	)		(16,685	)
Effect of exchange rate changes on cash		–			–		(3,698	)		(3,698	)
Net increase (decrease) in cash and cash equivalents		123,225			–		(3,631	)		119,594
Less increase in cash and cash equivalents of discontinued operations		–			–		392			392
Increase (decrease) in cash and cash equivalents of continuing operations		123,225			–		(4,023	)		119,202
Cash and cash equivalents at beginning of period		223,644			–		52,065			275,709
Cash and cash equivalents at end of period	$	346,869		$	–	$	48,042		$	394,911

45

Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows - (Continued) - Unaudited

(in thousands)

	Six months ended June 30,
2009:	Parent			Guarantor Subsidiary		Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows (used in) from operating activities	$	(24,797	)	$	–	$	287,739		$	262,942
Cash flows from investing activities:
Acquisition of businesses, net of cash received		–			–		(43,100	)		(43,100	)
Capital expenditures		–			–		(15,315	)		(15,315	)
Transfer of cash from trusts for employee health and severance
costs, net of payments out of the trust		–			–		843			843
Other		–			–		(2,233	)		(2,233	)
Net cash flows used in investing activities		–			–		(59,805	)		(59,805	)
Cash flows from financing activities:
Net payments on line of credit facilities and term A loan		(150,000	)		–		–			(150,000	)
Payments on long-term borrowings and obligations		(993	)		–		–			(993	)
(Decrease) increase in cash overdraft balance		(671	)		–		534			(137	)
Payments for stock awards and exercise of stock options,
net of stock tendered in payment		9,464			–		–			9,464
Excess tax benefits from stock-based compensation		2,366			–		–			2,366
Dividends paid		(5,352	)		–		–			(5,352	)
Other		240,209			–		(240,209	)		–
Net cash flows from (used in) financing activities		95,023			–		(239,675	)		(144,652	)
Effect of exchange rate changes on cash		–			–		831			831
Net increase (decrease) in cash and cash equivalents		70,226			–		(10,910	)		59,316
Less increase in cash and cash equivalents of discontinued operations		–			–		218			218
Increase (decrease) in cash and cash equivalents of continuing operations		70,226			–		(11,128	)		59,098
Cash and cash equivalents at beginning of period		145,178			–		69,490			214,668
Cash and cash equivalents at end of period	$	215,404		$	–	$	58,362		$	273,766

46

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)

The following discussion should be read in conjunction with the Consolidated Financial Statements, related notes and other financial information appearing elsewhere in this report.  In addition, see “Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information.”  The reader should also refer to the Consolidated Financial Statements and notes thereto and MD&A, including critical accounting policies, for the year ended December 31, 2009, which appear in the Company’s Annual Report on Form 10-K, (“Omnicare’s 2009 Annual Report”), which was filed with the Securities and Exchange Commission on February 25, 2010.All amounts disclosed herein relate to the Company̵ 7;s continuing operations unless otherwise stated.

Overview of Three and Six Months Ended June 30, 2010 and Results of Operations

Omnicare, Inc. (“Omnicare” or the “Company”) is a leading geriatric pharmaceutical services company.  Omnicare is the nation’s largest provider of pharmaceuticals and related pharmacy and ancillary services to long-term healthcare institutions.  Omnicare’s clients include primarily skilled nursing facilities (“SNFs”), assisted living facilities (“ALFs”), retirement centers, independent living communities, hospitals, hospice, and other healthcare settings and service providers.  Omnicare is also a provider of specialty pharmaceutical products and support services.  At June 30, 2010, Omnicare served long-term care facilities as well as chronic care and other settings comprising approximately 1,353,000 beds relating to continuing operations , including approximately 79,000 patients served by the patient assistance programs of its specialty pharmacy services business.  The comparable number at December 31, 2009 was 1,377,000 relating to continuing operations (including approximately 68,000 patients served by patient assistance programs).  The comparable number at June 30, 2009 was 1,384,000 relating to continuing operations (including approximately 59,000 patients served by patient assistance programs).  Omnicare provides its pharmacy services in 47 states in the United States, the District of Columbia and Canada at June 30, 2010.  Omnicare also provides comprehensive product development and research services for the pharmaceutical, biotechnology, nutraceutical, medical devices and diagnostic industries in 32 countries worldwide.  For further description of the Company’s business activities, see the “Business” caption of Part I, Item 1 of Omnicare’s 2009 Annual Report.

Further, disclosures relating to the recent departure of certain executives from the Company, including additional expense to be recorded in the near term as a result of the related separation agreements and/or pursuant to the terms of applicable welfare and pension benefit plans, are presented at the “Subsequent Events” note of the Notes to Consolidated Financial Statements.

The following summary table presents consolidated net sales and results of operations of Omnicare for the three and six months ended June 30, 2010 and 2009 (in thousands, except per share amounts).  The Company has disclosed in this MD&A, with the exception of EBITDA (discussed below) and days sales outstanding, only those measures that are in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).

47

	Three months ended, June 30,						Six months ended, June 30,
	2010 (a)			2009 (a)			2010 (a)			2009 (a)
Net sales	$	1,519,121		$	1,540,507		$	3,043,355		$	3,082,612
Income from continuing operations	$	21,401		$	41,994		$	75,701		$	74,222
Discontinued operations (a)		(9,802	)		(13,275	)		(13,250	)		(14,609	)
Net income	$	11,599		$	28,719		$	62,451		$	59,613
Earnings (loss) per common share - Basic:(b)
Continuing operations	$	0.18		$	0.36		$	0.64		$	0.64
Discontinued operations (a)		(0.08	)		(0.11	)		(0.11	)		(0.13	)
Net income	$	0.10		$	0.25		$	0.53		$	0.51
Earnings (loss) per common share - Diluted:(b)
Continuing operations	$	0.18		$	0.36		$	0.64		$	0.63
Discontinued operations (a)		(0.08	)		(0.11	)		(0.11	)		(0.12	)
Net income	$	0.10		$	0.24		$	0.53		$	0.51
EBITDA from continuing operations(c)	$	106,813		$	136,991		$	256,557		$	263,229
EBITDA from continuing operations reconciliation
to net cash flows from operating activities:
EBITDA from continuing operations(c)	$	106,813		$	136,991		$	256,557		$	263,229
(Subtract)/Add:
Interest expense, net of investment income		(38,607	)		(28,743	)		(65,551	)		(57,623	)
Income tax provision		(13,879	)		(30,417	)		(46,471	)		(60,031	)
Write-off of debt issuance costs		2,060			–			2,060			–
Tender premium		(7,323	)		–			(7,323	)		–
Changes in assets and liabilities, net of
effects from acquisition and divestitures of businesses		(13,733	)		63,672			13,868			116,705
Net cash flows from operating activities
of continuing operations		35,331			141,503			153,140			262,280
Net cash flows from operating activities
of discontinued operations		229			521			437			662
Net cash flows from operating activities	$	35,560		$	142,024		$	153,577		$	262,942

(a)   In mid-2009, the Company commenced activities to divest certain home healthcare and related ancillary businesses (“the disposal group”) that are non-strategic in nature.  The disposal group, historically part of Omnicare’s Pharmacy Services segment, primarily represents ancillary businesses which accompanied other more strategic assets obtained by Omnicare in connection with the Company’s institutional pharmacy acquisition program.  The results from continuing operations for all periods presented have been revised to reflect the results of the disposal group as discontinued operations, including certain expenses of the Company related to the divestiture.  The Company anticipates completing the divestiture in the near term.  See further discussion at the “Discontinued Operations̶ 1; note of the Notes to Consolidated Financial Statements.

(b)   Earnings per share is reported independently for each amount presented.  Accordingly, the sum of the individual amounts may not necessarily equal the separately calculated amounts for the corresponding period.

(c)   “EBITDA” represents earnings before interest (net of investment income), income taxes, depreciation and amortization.  Omnicare uses EBITDA primarily as an indicator of the Company’s ability to service its debt, and believes that certain investors find EBITDA to be a useful financial measure for the same purpose.  However, EBITDA does not represent net cash flows from operating activities, as defined by U.S. GAAP, and should not be considered as a substitute for operating cash flows as a measure of liquidity.  The Company’s calculation of EBITDA may differ from the calculation of EBITDA by others.

48

Three Months Ended June 30, 2010 vs. 2009

Total net sales for the three months ended June 30, 2010 were $1,519.1 million versus $1,540.5 million in the comparable prior-year period.  Income from continuing operations for the three months ended June 30, 2010 was $21.4 million versus $42.0 million earned in the comparable 2009 period.  Diluted earnings per share from continuing operations for the three months ended June 30, 2010 were $0.18 versus $0.36 in the same prior-year period.  In total, including discontinued operations, net income for the three months ended June 30, 2010 was $11.6 million, or $0.10 per diluted share, as compared with $28.7 million, or $0.24 per diluted share, earned in the comparable prior-year period.  Operating cash flows from continuing operations totaled $35.3 million for the three months ended June 30, 2010 as compared to $141.5 million for the same period of 2009.  EBITDA from continuing operations totaled $106.8 million for the three months ended June 30, 2010 as compared with $137.0 million for the same period of 2009.  In mid-2009, the Company commenced activities to divest certain home healthcare and related ancillary businesses that are non-strategic in nature.  The disposal group, historically part of Omnicare’s Pharmacy Services segment, primarily represents ancillary businesses which accompanied other more strategic assets obtained by Omnicare in connection with the Company’s institutional pharmacy acquisition program.  The results from continuing operations for all periods presented have been revised to reflect the results of the disposal group as discontinued operations, including certain expenses of the Company related to the divestiture.

Net sales for the quarter were impacted primarily by the unfavorable sales impact of the increased availability and utilization of generic drugs, lower prescription volumes due to reductions in utilization for certain drugs, lower census in client facilities in certain areas as well as a lower average number of beds served year-over-year, along with a shift in mix towards assisted living, reductions in reimbursement and competitive pricing issues, and lower sales in the Company’s clinical research business. Partially offsetting these factors were the favorable impact of drug price inflation, the increased use of certain higher acuity drugs and biologic agents, acquisitions, as well as growth in specialty pharmacy services.  See discussion of sales and operating profit results in more detail at the “Pharmacy Servic es Segment” and “CRO Services Segment” captions below.

The Company continues to be impacted by the unilateral reduction in April 2006 by UnitedHealth Group, Inc. and its affiliates (“United”) in the reimbursement rates paid by United to Omnicare by switching to its PacifiCare pharmacy network contract for services rendered by Omnicare to beneficiaries of United’s drug benefit plans under the Medicare Part D program.  The differential in reimbursement rates that resulted from United’s action, as compared with reimbursement rates under the originally negotiated contract, reduced sales and operating profit in the second quarter of 2010 and 2009 by approximately $22 million and $26 million (approximately $13 million and $16 million aftertax), respectively, and cumulatively since April 2006 by approximately $428 million (approximately $266 million aftertax).
60; This matter is currently the subject of litigation initiated by Omnicare and is before the federal appellate court in the Seventh Circuit Court of Appeals.  See further discussion at the “Legal Proceedings” section at Part II, Item 1 of this Filing.

49

The Company’s consolidated gross profit was $335.8 million for the three months ended June 30, 2010, compared with the same prior-year period amount of $370.9 million.  Gross profit as a percentage of total net sales was 22.1% in the three months ended June 30, 2010, versus 24.1% in the comparable 2009 period.  Gross profit was unfavorably affected in the 2010 period largely by certain of the aforementioned items that reduced net sales, primarily the reductions in prescription volumes and reimbursement, and competitive pricing issues.  Partially offsetting these factors were the increased availability and utilization of higher margin generic drugs, the continued integration of acquisitions, cost reduction and productivity improvement initiatives, and the favorable effect of drug price inflation.

Omnicare’s consolidated selling, general and administrative (“operating”) expenses for the three months ended June 30, 2010 were $198.5 million as compared with the comparable prior-year amount of $203.5 million.  Operating expenses as a percentage of net sales amounted to 13.1% in the second quarter of 2010 versus 13.2% in the comparable prior-year period.  Operating expenses for the quarter ended June 30, 2010 were favorably impacted largely by continued progress in the Company’s productivity improvement initiatives and non-drug purchasing program, as well as the continued integration of prior-period acquisitions.

The provision for doubtful accounts for the three months ended June 30, 2010 was $21.0 million versus $22.7 million in the comparable prior-year period.  Net accounts receivable of approximately $1,163 million at June 30, 2010 was $46 million lower than the December 31, 2009 balance of approximately $1,209 million.  Further, accounts receivable days sales outstanding were approximately 71 and 78 at June 30, 2010 and 2009, respectively, representing a year-over-year reduction of 7 days.

Investment income for the three months ended June 30, 2010 of $1.1 million was modestly higher than the $1.0 million earned in the comparable prior-year period.

Interest expense for the three months ended June 30, 2010 of $39.7 million was higher than the $29.8 million in the comparable prior-year period primarily due to special charges for debt redemption costs, including the write-off of debt issuance costs related to the Company’s previously announced refinancing transactions, as mentioned in further detail below, as well as higher interest rates on the Company’s $250 million 6.125% Senior Subordinated Notes (the “6.125% Senior Notes) due to the cancellation of the interest rate swap agreement by the counterparties and higher outstanding debt due to the issuance of $400 million aggregate principal amount of 7.75% Senior Subordinated Notes due 2020 (the “7.75% Senior Notes”) in the second quarter.  These were partially offset by payments aggregating $3 25 million on the senior term A loan facility, maturing on July 28, 2010 (the “Term Loans”), during the second quarter of 2009 through the second quarter of 2010 resulting in the payoff of the Term Loans in full in the second quarter of 2010, as well as payments of $217 million on the Company’s 6.75% Senior Subordinated Notes due 2013 (the “6.75% Senior Notes”).  See additional information at the “Debt” note of the Notes to Consolidated Financial Statements.

The effective income tax rate was 39.3% for the three months ended June 30, 2010, as compared to the second quarter of 2009 rate of 42.0%.  The year-over-year decrease in the effective tax rate is largely due to certain nondeductible litigation costs recognized in the 2009 period.  The effective tax rates in 2010 and 2009 are higher than the federal statutory rate largely as a result of the impact of state and local income taxes and various nondeductible expenses (including a portion of the aforementioned litigation costs in 2009).

50

Special Items and Accounting Changes:

Financial results for the three months ended June 30, 2010 from continuing operations included the following charges totaling approximately $54.0 million pretax ($35.4 million aftertax), which largely impacted the Pharmacy Services segment.  The tax effect was calculated by multiplying the tax-deductible pretax amounts by the appropriate effective tax rate.  Management believes that these special items are either infrequent occurrences or otherwise not related to Omnicare’s ordinary course of business and/or are non-cash in nature:

(i)           Operating income included restructuring and other related charges of approximately $5.5 million pretax ($3.4 million aftertax), relating to the implementation of the “Omnicare Full Potential” Plan, a major initiative primarily designed to re-engineer the pharmacy operating model to increase efficiency and enhance customer growth.  Additionally, in connection with this productivity enhancement initiative, the Company is also right-sizing and consolidating certain CRO operations.  See further discussion at the “Restructuring and Other Related Charges” note of the Notes to Consolidated Financial Statements and the “Restructuring and Other Related Charges” section of this MD&A.

(ii)           During 2006, the Company experienced certain quality control and product recall issues, as well as fire damage, at one of its repackaging facilities, as described in further detail at the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements (the “Repack Matters”).  In addressing and resolving these Repack Matters, the Company continues to experience increased costs and, as a result, the three months ended June 30, 2010 included special charges of $0.7 million pretax (approximately $0.5 million and $0.2 million was recorded in the cost of sales and operating expense sections of the Consolidated Statements of Income, respectively) ($0.4 million aftertax) for these increased costs.  The Compan y maintains product recall, property and casualty and business interruption insurance, and the extent of insurance recovery for these expenses continues to be reviewed by its insurers and outside advisors.  As of June 30, 2010, the Company has received approximately $10 million in insurance recoveries.

(iii)             Operating income included special litigation and other related charges of $29.4 million pretax ($19.9 million aftertax) for estimated litigation-related settlements and professional expenses for resolution of certain regulatory matters with various states, as further discussed below and at the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements, and the “Legal Proceedings” section at Part II, Item 1 of this Filing, as well as costs associated with the settlement of the investigation by the United States Attorney’s Office, District of Massachusetts, certain large customer disputes and purported class and derivative actions against the Company.  Additionally, in connection with Omni care’s participation in Medicare, Medicaid and other healthcare programs, the Company is subject to various inspections, audits, inquiries and investigations by governmental/regulatory authorities responsible for enforcing the laws and regulations to which the Company is subject.  Further, the Company maintains a compliance program which establishes certain routine periodic monitoring of the accuracy of the Company’s billing systems and other regulatory compliance matters and encourages the reporting of errors and inaccuracies.  As a result of the compliance program, Omnicare has made, and will continue to make, disclosures to the applicable governmental agencies of amounts, if any, determined to represent over-payments from the respective programs and, where applicable, those amounts, as well as any amounts relating to certain inspections, audits, inquiries and investigations activity are included in the pretax special item reflected above.  The Company is in variou s stages of discussions with governmental/regulatory authorities responsible for enforcing the laws and regulations to which Omnicare is subject.  In light of discussions Omnicare is currently having regarding resolution of certain regulatory matters with various states, as referenced above, a provision of $24.2 million pretax has been recorded in the second quarter of 2010 for the Company’s aggregate estimate for anticipated payments to resolve such matters.  It is expected that any such resolutions will not include an admission of liability or wrongdoing by the Company.

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(iv)           Operating income included acquisition and other related costs/(credits) of approximately $(0.2) million pretax ($(0.1) million aftertax) related to the adoption of the accounting change for business combinations.  These expenses were primarily related to a reduction in the Company’s original estimate of contingent consideration payable for certain acquisitions, partially offset by professional fees and acquisition related restructuring costs for 2010 and 2009 acquisitions.  See further discussion at the “Acquisitions” note of the Notes to Consolidated Financial Statements.

(v)           Operating expenses included approximately $1.3 million in pretax charges ($0.8 million aftertax) relating to the adoption of the accounting change for share-based payments, which primarily relates to stock option expense.  The authoritative guidance requires the Company to record compensation costs based on estimated fair values relating to share-based payment transactions, including stock options, in its consolidated financial statements.

(vi)           The Company recorded a $7.5 million non-cash charge to pretax interest expense ($4.7 million aftertax) related to the adoption of the accounting change for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement).  See further discussion of this authoritative guidance, including the aforementioned amortization of discount on convertible notes, at the “Debt” note of the Notes to Consolidated Financial Statements.

(vii)           The Company recorded a special charge of $9.8 million before taxes ($0.4 million and $9.4 million was recorded in the operating expense and interest expense sections of the income statement, respectively) ($6.2 million after taxes) in connection with debt redemption costs related to the Company’s previously announced refinancing transactions.  See further discussion at the “Debt” note of the Notes to Consolidated Financial Statements.

Financial results for the three months ended June 30, 2009 from continuing operations included the following charges totaling approximately $45.8 million pretax ($32.8 million aftertax), which primarily impacted the Pharmacy Services segment.  The tax effect was calculated by multiplying the tax-deductible pretax amounts by the appropriate effective tax rate.  Management believes that these special items are either infrequent occurrences or otherwise not related to Omnicare’s ordinary course of business and/or are non-cash in nature:

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(i)           Operating income included restructuring and other related charges of approximately $5.9 million pretax ($3.6 million aftertax), relating to the aforementioned implementation of the “Omnicare Full Potential” Plan.  See further discussion at the “Restructuring and Other Related Charges” note of the Notes to Consolidated Financial Statements and the “Restructuring and Other Related Charges” section of this MD&A.

(ii)           In addressing and resolving the aforementioned Repack Matters, the Company continues to experience increased costs and as a result, the three months ended June 30, 2009 included special charges of $1.2 million pretax (approximately $0.8 million and $0.4 million was recorded in the cost of sales and operating expense sections of the Consolidated Statements of Income, respectively) ($0.7 million aftertax) for these increased costs.  The Company maintains product recall, property and casualty and business interruption insurance, and the extent of insurance recovery for these expenses continues to be reviewed by its insurers and outside advisors.  As of June 30, 2009, the Company had received no material insurance recoveries.

 (iii)           Operating income included special litigation and other related charges of $28.4 million pretax ($22.0 million aftertax) for litigation-related settlements and professional expenses primarily in connection with the investigation by the United States Attorney’s Office, District of Massachusetts, the Company’s lawsuit against United, certain other large customer disputes, purported class and derivative actions against the Company, the investigation by the federal government and certain states relating to drug substitutions, and the Company’s response to subpoenas it received relating to other legal proceedings to which the Company is not a party.  With respect to these proceedings to which the Company is a party, including the investig ation by the United States Attorney’s Office, District of Massachusetts, see further discussion at the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements, and the “Legal Proceedings” section at Part II, Item 1 of this Filing.

(iv)           Operating income included acquisition and other related costs of approximately $2.0 million pretax ($1.3 million aftertax) related to the adoption of the accounting change for business combinations.  These expenses were primarily related to professional fees from acquisitions completed during the quarter.  See further discussion at the “Acquisitions” note of the Notes to Consolidated Financial Statements.

(v)           Operating expenses included approximately $1.4 million in pretax charges ($0.9 million aftertax) relating to the adoption of the accounting change for share-based payments, which primarily relates to stock option expense.  This guidance requires the Company to record compensation costs based on estimated fair values relating to share-based payment transactions, including stock options, in its consolidated financial statements.

(vi)           The Company recorded a $6.9 million non-cash increase in pretax interest expense ($4.3 million aftertax) related to the retrospective adoption of the accounting change for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement).  See further discussion of this authoritative guidance, including this amortization of discount on convertible notes, at the “Debt” note of the Notes to Consolidated Financial Statements.

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Pharmacy Services Segment

	Three months ended June 30,
	2010		2009
Net sales	$	1,491,771	$	1,499,704
Operating income from continuing operations	$	110,318	$	129,557

Omnicare’s Pharmacy Services segment recorded sales of $1,491.8 million for the three months ended June 30, 2010, as compared with the same 2009 period amount of $1,499.7 million, a decrease of $7.9 million.  At June 30, 2010, Omnicare served long-term care facilities as well as chronic care and other settings comprising approximately 1,353,000 beds relating to continuing operations, including approximately 79,000 patients served by the patient assistance programs of its specialty pharmacy business.  The comparable number at June 30, 2009 was 1,384,000 relating to continuing operations (including approximately 59,000 patients served by patient assistance programs).  For the three months ended June 30, 2010, Omnicare dispensed approximately 29,762,000 prescriptions in comparison to approximately 30,95 0,000 prescriptions dispensed during the same prior-year period.  Pharmacy Services sales were unfavorably impacted primarily by the increased availability and utilization of generic drugs, lower prescription volumes due to reductions in utilization for certain drugs, lower census in client facilities in certain areas as well as a lower average number of beds served year-over-year, along with a shift in mix towards assisted living, which typically has lower penetration rates than skilled nursing facilities, and reductions in reimbursement and competitive pricing issues.  Partially offsetting these factors were the favorable impact of drug price inflation, the increased use of certain higher acuity drugs and biologic agents, acquisitions, as well as growth in specialty pharmacy services.  While the Company is focused on reducing its costs to mitigate the impact of drug pricing and reimbursement issues, there can be no assurance that such issues or other pricing and reimbursement pressures will not adversely impact the Pharmacy Services segment.

Operating income of the Pharmacy Services segment was $110.3 million in the second quarter of 2010 as compared with the $129.6 million earned in the comparable period of 2009, a decrease of $19.3 million.  As a percentage of the segment’s sales, operating income was 7.4% for the second quarter of 2010, as compared with 8.6% in 2009.  The 2010 quarter was unfavorably affected primarily by the operating income effect of certain of the aforementioned items that reduced net sales, in particular lower prescription volumes, reductions in reimbursement and competitive pricing issues.  Operating income in 2010 was favorably impacted largely by the increased availability and utilization of higher margin generic drugs, drug price inflation, growth in specialty pharmacy services, lower bad debt expense, the con tinued progress in the Company’s cost reduction and productivity improvement initiatives and the continued integration of prior-period acquisitions.

The Company derives a significant portion of its revenues directly or indirectly from government-sponsored programs, principally the federal Medicare program and to a lesser extent state Medicaid programs.  As part of ongoing operations, the Company and its customers are subject to regulatory changes in the level of reimbursement received from the Medicare and Medicaid programs.

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In 1997 Congress mandated a prospective payment system (“PPS”) for reimbursement to skilled nursing facilities (“SNFs”) for their Medicare-eligible residents during a Medicare Part A-covered stay.  Under PPS, Medicare pays SNFs a fixed fee per patient per day based upon the acuity level of the resident, covering substantially all items and services, including pharmacy services.  PPS initially resulted in a significant reduction of reimbursement to SNFs.  Although some of the reductions were subsequently mitigated, the PPS fundamentally changed the payment for Medicare SNF services.

In recent years, SNFs have received the full market basket inflation increase to annual rates.  For fiscal year 2009, beginning October 1, 2008, SNFs received a 3.4 percent inflation update that increased overall payments to SNFs by $780 million.  However, for fiscal year 2010, beginning on October 1, 2009, payments to SNFs were reduced by 1.1 percent, or by $360 million to SNFs overall, compared to fiscal year 2009 levels.  While the payment levels reflect a 2.2 percent market basket inflation update, that amount was more than offset by a 3.3 percent ($1.050 billion) adjustment intended to recalibrate case mix weights to compensate for increased expenditures resulting from refinements made in January 2006.   On July 22, 2010, CMS published a notice with comment period updating SNF PPS rates for FY 2011, which begins October 1, 2010.  CMS estimates that overall estimated payments for SNFs in FY 2011 under the proposed rule would increase by $542 million, or 1.7 percent, compared to 2010 levels.  This payment amount reflects a market basket update of 2.3 percent, reduced by a negative 0.6 percentage adjustment to account for the difference between the forecasted and actual change in the market basket index for FY 2009.

Under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education and Reconciliation Act of 2010 (collectively, the “Affordable Care Act” or “ACA”), the market basket inflation update for SNFs will be reduced by the full so-called “productivity adjustment” beginning in fiscal year 2012.  This means that the market basket inflation increase will be reduced by a percent determined by the Department of Labor Statistics that reflects economy-wide productivity gains in delivering health care services and to encourage more efficient care.  Other ACA provisions impacting SNFs include, among others: a requirement that the Secretary of the Department of Health and Human Services (the “Secretary”) develop a plan for a SNF value-based purchasing pa yment system; the establishment of a national voluntary pilot program to bundle Medicare payments for hospital and post-acute services; new standards relating to quality assurance and performance improvement; a mandatory compliance program requirement; enhanced transparency disclosure and reporting requirements; and strengthened  fraud and abuse and penalty provisions.  These or other future reimbursement or operational changes could have an adverse effect on the financial condition of the Company’s SNF clients, which, in turn, could adversely affect the timing or level of their payments to Omnicare.

In December 2003, Congress enacted the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”), which included a major expansion of the Medicare prescription drug benefit under a new Medicare Part D.

The Part D drug benefit permits Medicare beneficiaries to enroll in prescription drug plans offered by private entities which provide coverage of outpatient prescription drugs (collectively, “Part D Plans”).  Part D Plans include plans providing the drug benefit on a stand-alone basis (known as “prescription drug plans”, or “PDPs”) and Medicare Advantage plans providing drug coverage as a supplement to an existing medical benefit under that Medicare Advantage plan (known as “MA-PDs”).  Medicare beneficiaries generally have to pay a premium to enroll in a Part D Plan, with the premium amount varying from plan to plan, although the Centers for Medicare and Medicaid Services (“CMS”) provides various federal subsidies to Part D Plans to reduce the cost to benef iciaries.  Medicare beneficiaries who are also entitled to benefits under a state Medicaid program (so-called “dual eligibles”) have their prescription drug costs covered by the Medicare drug benefit, unless they elect to opt out of Part D coverage.  Many nursing home residents Omnicare serves are dual eligibles.  In the 2010 year-to-date period, approximately 44% of Omnicare’s revenue was derived from beneficiaries covered under the federal Medicare Part D program.

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CMS provides premium and cost-sharing subsidies to Part D Plans for dual eligible residents of nursing homes.  Such dual eligibles are not required to pay a premium for enrollment in a Part D Plan, so long as the premium for the Part D Plan in which they are enrolled does not exceed the premium subsidy, nor are they required to meet deductibles or pay copayment amounts.  Further, all dual eligibles who do not affirmatively enroll in a Part D Plan are automatically enrolled into a PDP by CMS on a random basis from among those PDPs meeting CMS criteria for low-income premiums in the PDP region, unless they elect to opt out of Part D coverage.  Such dual eligible beneficiaries may select a different Part D Plan at any time through the Part D enrollment process.  Also, dual eligibles who are qualifyi ng covered retirees under an employer or union-sponsored qualified retiree prescription drug plan (plans which offer an alternative to Part D coverage supported by federal subsidies to the plan sponsor) will be determined to have elected not to enroll in a Part D Plan, unless they affirmatively enroll in a Part D Plan or contact CMS to indicate they wish to be auto-enrolled.  In summary, dual eligible residents of nursing homes are entitled to have their prescription drug costs covered by a Part D Plan, provided that the prescription drugs which they are taking are either on the Part D Plan’s formulary, or an exception to the plan’s formulary is granted, subject to prior authorization or similar utilization management requirements for certain drugs.  CMS requires the formularies of Part D Plans to include the types of drugs most commonly needed by Medicare beneficiaries and to offer an exceptions process to provide coverage for medically necessary drugs.

The Company obtains reimbursement for drugs it provides to enrollees of a given Part D Plan pursuant to the agreement it negotiates with that Part D Plan.  The Company has entered into such agreements with nearly all Part D Plan sponsors under which it will provide drugs and associated services to their enrollees.  The Company continues to have ongoing discussions with Part D Plans and renegotiates these agreements in the ordinary course.  Further, the proportion of the Company’s Part D business serviced under specific agreements may change over time based upon beneficiary choice, reassignment of dual eligibles to different Part D Plans, Part D Plan consolidation and other factors.  As such, reimbursement under these agreements is subject to change.

Moreover, as expected in the transition to a new program of this magnitude, certain administrative and payment issues have arisen, resulting in higher operating expenses, as well as outstanding gross accounts receivable (net of allowances for contractual adjustments, and prior to any allowance for doubtful accounts), particularly for copays owed by Part D Plans for dual eligibles and other low income subsidy eligible beneficiaries.  As of June 30, 2010, copays outstanding from Part D Plans were approximately $15 million, relating to 2006 and 2007.  The Company is pursuing solutions, including legal actions against certain Part D payors, to collect outstanding copays, as well as certain rejected claims.  Participants in the long-term care pharmacy industry continue to address these issues with CMS and the P art D Plans and attempt to develop solutions.  Among other things, on January 12, 2009, CMS finalized a change in its regulations requiring Part D Plan sponsors to accept and act upon certain types of documentation, referred to as “best available evidence,” to correct copays.  On April 15, 2010,  CMS issued final rules that make numerous changes to the regulations governing Part D, including certain Part D Plan payment rules and processes.  In particular, a new rule requires that, beginning in 2011, Part D Plans will be required to correct and pay copay amounts within 45 days of receiving “complete information” indicating that a claim adjustment is required based on a beneficiary’s low income subsidy status. The Company believes this will improve its collection of copays from Part D plans.  While many of the other changes in these final rules codify into regulation existing CMS practice, and as such are not expected to have a sig nificant effect, there can be no assurance that this or future regulatory changes to the Part D program will not adversely impact the Company’s results of operations, financial position or cash flows.

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For Medicare beneficiaries covered under a Medicare Part A stay, the Company receives reimbursement for drugs provided to such residents from the SNFs, in accordance with the terms of the agreements it has negotiated with each SNF.  The Company also receives reimbursement from the state Medicaid programs, for those Medicaid beneficiaries not eligible for the Part D program, including those under age 65 who are not disabled, and for certain drugs specifically excluded from Medicare Part D.

CMS has issued subregulatory guidance on many aspects of the Part D program, including the provision of pharmaceutical services to long-term care residents.  CMS has also expressed some concerns about pharmacies’ receipt of discounts, rebates and other price concessions from drug manufacturers.  For 2007 and 2008, CMS instructed Part D Plan sponsors to require pharmacies to disclose to the Part D Plan sponsor any discounts, rebates and other direct or indirect remuneration designed to directly or indirectly influence or impact utilization of Part D drugs.  The Company reported information specified by CMS with respect to rebates received by the Company for 2007 and the first quarter of 2008 to those Part D Plans which agreed to maintain the confidentiality of such information.  In November 2008, CMS suspended collection of the long-term care pharmacy rebate data from Part D Plan sponsors for calendar years 2008 and 2009.  Instead, CMS developed its plan to collect different non-rebate information to focus plan attention on network pharmacy compliance and appropriate drug utilization management.  The final Part D reporting requirements for calendar year 2010 include instructions for Part D Plans to report to CMS the number and cost of formulary versus non-formulary prescription drugs dispensed in the aggregate by each long-term care pharmacy and by all retail pharmacies as a group in the Part D Plan’s service area.  CMS also issued a memorandum on November 25, 2008 reminding Part D Plan sponsors of the requirement to (1) provide convenient access to network long-term care pharmacies to all of their enrollees residing in long-term care facilities, and (2) exclude payment for drugs that are covered under a Medicare Part A stay that would otherwise satisfy the d efinition of a Part D drug.  The Company will continue to work with Part D Plan sponsors to ensure compliance with CMS’s evolving policies related to long-term care pharmacy services.

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On July 15, 2008, Congress enacted the "Medicare Improvements for Patients and Providers Act of 2008” (“MIPPA”).  This law includes further reforms to the Part D program.  Among other things, as of January 1, 2010, the law requires that long-term care pharmacies have between 30 and 90 days to submit claims to a Part D Plan.  As of January 1, 2009, Part D Plan sponsors must update the prescription drug pricing data they use to pay pharmacies at least every seven days.  The law also expands the number of Medicare beneficiaries who are entitled to premium and cost-sharing subsidies by modifying previous income and asset requirements, eliminates late enrollment penalties for beneficiaries entitled to these subsidies, and limits the sales and marketing activities in which Part D Plan sponsors may engage.  On September 18, 2008, CMS published final regulations implementing many of the MIPPA Part D provisions, and the agency published another interim final rule with comment period on January 16, 2009 implementing additional MIPPA provisions related to drug formularies and protected classes of drugs.

The ACA also makes numerous changes to the Part D benefit, including: providing a $250 payment to Part D beneficiaries who reach the so-called “donut hole” coverage gap during 2010, and gradually eliminating the coverage gap beginning in 2011 and finishing in 2020;  requiring manufacturers of certain branded drug and biological products that are on the given Part D plan's formulary to provide, beginning in 2011, a discount equal to 50% of the negotiated price of such drugs when dispensed to beneficiaries not eligible for the low income subsidy during the coverage gap period; permitting the Secretary to establish certain categories of drugs warranting special formulary treatment; requiring Part D plan sponsors to provide additional medication therapy management services; reducing Part D subsidies for high-income be neficiaries (which will result in an increase in such beneficiaries’ premiums, beginning in 2011); and requiring the Secretary, beginning in 2012, to require Part D plan sponsors “to utilize specific, uniform dispensing techniques” as determined by the Secretary, such as weekly, daily, or automated dose dispensing, when dispensing drugs to enrollees in long-term care facilities to reduce prescription drug waste associated with 30-day fills.  The Secretary is required to consult with relevant stakeholders, including nursing facility representatives and residents, pharmacists, retail and long-term care pharmacies, Part D plans and others determined appropriate by the Secretary, in determining what techniques it will require.  Several other of these provisions will require CMS to promulgate regulations to establish the specific requirements under the statute. The Company cannot predict at this time whether such legislation and its implementing regulations, or future Part D legislation or regulations, will impact its business.

Moreover, CMS continues to issue guidance on and make other revisions to the Part D program.  The Company is continuing to monitor issues relating to implementation of the Part D benefit, and until further agency guidance is known and until all administrative and payment issues associated with this massive program are fully resolved, there can be no assurance that the impact of the Part D rules, future legislative changes, or the outcome of other potential developments relating to its implementation on our business, results of operations, financial position or cash flows will not change based on the outcome of any unforeseen future developments.

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The MMA also changed the Medicare payment methodology and conditions for coverage of certain items of durable medical equipment, prosthetics, orthotics, and supplies (“DMEPOS”) under Medicare Part B.  Approximately 1% of the Company’s revenue is derived from beneficiaries covered under Medicare Part B.  The changes impacted payment levels, clinical conditions for payment, quality standards (applied by CMS-approved accrediting organizations), and competitive bidding requirements.  Only suppliers that are winning bidders will be eligible to provide competitively bid items to Medicare beneficiaries in selected geographic areas, and winning bidders will be paid based on the median of the winning suppliers’ bids for each of the selected items in the region, rather than the Medicare fee s chedule amount.

In mid-2007, CMS conducted a first round of bidding for 10 DMEPOS product categories in 10 competitive bidding areas, and announced winning bidders in March 2008.  Due to concerns about implementation of the bidding program in MIPPA, Congress terminated the contracts awarded by CMS in the first round of competitive bidding and adopted a number of changes to the bidding program.  CMS was required to rebid those areas in 2009, with bidding for round two delayed until 2011 and to conduct a second phase of  bidding in 2011 in an additional 70 of the largest metropolitan statistical areas.  The delay was financed by reducing Medicare fee schedule payments for all items covered under round one competitive bidding by 9.5 percent nationwide, effective January 1, 2009, followed by a 2 percent increase in 2014 with certain exceptions (although as discussed below, this 2 percent scheduled increase was eliminated by the ACA).

Bidding for the new round one of the program began October 21, 2009, and ended December 21, 2009.  Contract suppliers are expected to be announced in June 2010, and the program is scheduled to go into effect January 1, 2011.  The Company participated in the new bidding process for round one, and has been awarded contracts to provide enteral nutrients, equipment and supplies in three regions.  On July 2, 2010, CMS announced that reimbursement to contract suppliers under the Round 1 rebid will average 32 percent below the Medicare DMEPOS fee schedule amounts, with weighted average reimbursement levels for products in the enteral nutrients, equipment and supplies category reduced by 28 percent compared to fee schedule amounts.  There can be no assurances that reimbursement levels established through the bidding process or other provisions of the new reimbursement framework will not adversely impact the Company’s results of operations, cash flows, or financial condition.

The ACA requires the Secretary to expand the number of areas to be included in round two of the competitive bidding program from 79 to 100 of the largest MSAs.  In addition, the ACA requires (rather than permits) the Secretary to use information regarding payments determined under competitive bidding to adjust DMEPOS payments in areas outside of competitive bidding areas beginning in 2016.  Likewise, for items furnished on or after January 1, 2016, the Secretary is directed to continue to adjust prices as additional information is obtained when new items are subject to competitive bidding or when contracts are recompeted. The ACA further revises Medicare payments to DMEPOS suppliers by eliminating the full inflation update to the fee schedule for 2011 through 2014, in addition to a 2% add-on scheduled to be applied in 2014 to those items that had been selected for inclusion in the first round of the DMEPOS competitive bidding program and that had been subject to a 9.5% fee schedule reduction in 2009.  Instead, for 2011 and each subsequent year, rates will be increased by an annual inflation index less the productivity adjustment.  CMS’s proposed physician fee schedule rule for CY 2011, published July 13, 2010, would implement a number of these ACA policies and make other reforms to the DMEPOS competitive bidding program, including implementing a national mail order competitive bidding program for diabetic testing supplies and making other refinements related to the furnishing of diabetes supplies; create an appeals process for suppliers considered to be in breach of contract; and clarifying reimbursement to grandfathered suppliers, among other things.  There can be no assurance  that reimbursement levels established through the bidding process or these legislative and regul atory changes will not adversely impact the Company’s results of operations, cash flows, or financial condition.

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CMS required all existing DMEPOS suppliers to submit proof of accreditation by a deemed accreditation organization by September 30, 2009.  MIPPA codifies the requirement that all suppliers be accredited by September 30, 2009 and extends the accreditation requirement to companies that subcontract with contract suppliers under the competitive bidding program.  The Company’s DMEPOS suppliers are accredited.

On January 2, 2009, CMS published a final rule requiring certain Medicare DMEPOS suppliers to furnish CMS with a $50,000 surety bond, although the required bond amount will be higher for certain “high-risk” suppliers with previous adverse legal actions.  A separate surety bond will be required for each National Provider Identifier obtained for DMEPOS billing purposes, with limited exceptions.  CMS did not establish exceptions from the bond requirement for pharmacies or for nursing facilities that bill for Medicare DMEPOS services provided to their own residents.  The Company has secured surety bonds for its DMEPOS suppliers.

The ACA includes many program integrity provisions impacting Medicare suppliers, including a provision that as a condition of a written order for DME under Medicare, the physicians must document that the physician, physician assistant, nurse practitioner, or clinical nurse specialist has had a face-to-face encounter (including through telehealth as permitted) with the beneficiary during the six-month period preceding the written order, or other reasonable timeframe as determined by the Secretary.

With respect to Medicaid, many states are facing budget pressures that could result in increased cost containment efforts impacting healthcare providers.  States have considerable latitude in setting payment rates for nursing facilities.  States also have flexibility to establish Medicaid managed care programs without the need to obtain a federal waiver.  Although these waiver programs generally exempt institutional care, including nursing facilities and institutional pharmacy services, some states do use managed care principles in their long-term care programs.  The Deficit Reduction Act (“DRA”), enacted in 2006, also gives states greater flexibility to expand access to home and community based services by allowing states to provide these services as an optional benefit without under going the waiver approval process, and includes a demonstration to encourage states to provide long-term care services in a community setting to individuals who currently receive Medicaid services in nursing homes.  The ACA contains additional incentives to state Medicaid programs to promote community-based care as an alternative to institutional long-term care services.   Such initiatives could increase state funding for home and community-based services, while prompting states to cut funding for nursing facilities.  No assurances can be given that state Medicaid programs ultimately will not change the reimbursement system for long-term care or pharmacy services in a way that adversely impacts the Company.

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The DRA also changed the so-called federal upper limit payment rules for multiple source prescription drugs covered under Medicaid.  The upper limit only applies to drug ingredient costs and does not include dispensing fees, which continue to be determined by the states.  First, the DRA redefined a multiple source drug subject to the upper limit rules to be a covered outpatient drug that has at least one other drug product that is therapeutically equivalent.  Thus, under the DRA, the federal upper limit would be triggered when there were two or more therapeutic equivalents, instead of three or more as was previously the case.  Second, effective January 1, 2007, the DRA changed the federal upper payment limit from 150 percent of the lowest published price for a drug (which is usually the whol esale acquisition cost) to 250 percent of the lowest average manufacturer price (“AMP”).  Congress expected these DRA provisions to reduce federal and state Medicaid spending by $8.4 billion over five years.  On July 17, 2007, CMS issued a final rule with comment period to implement changes to the upper limit rules.  Among other things, the final rule: established a new federal upper limit calculation for multiple source drugs based on 250 percent of the lowest AMP in a drug class; required CMS to post AMP amounts on its Web site; and established a uniform definition for AMP.  Additionally, the final rule provided that sales of drugs to long-term care pharmacies for supply to nursing homes and assisted living facilities (as well as associated discounts, rebates or other price concessions) are not to be taken into account in determining AMP where such sales can be identified with adequate documentation, and that any AMPs which are not at least 40% of the nex t highest AMP will not be taken into account in determining the upper limit amount (the so-called “outlier” test).  However, on December 19, 2007, the United States District Court for the District of Columbia issued a preliminary injunction that enjoins CMS from implementing provisions of the July 17, 2007 rule to the extent that it affects Medicaid reimbursement rates for retail pharmacies under the Medicaid program.  The order also enjoins CMS from posting AMP data on a public Web site or disclosing it to states.  As a result of this preliminary injunction, CMS did not post AMPs or new upper limit prices in late December 2007 based upon the July 17, 2007 final rule despite its earlier planned timetable, and the schedule for states to implement the new upper limits was delayed until further notice.  Separately, on March 14, 2008, CMS published an interim final rule with comment period revising the definition of multiple source drug set forth in the July 17 , 2007 final rule.  In short, the effect of the rule was that federal upper limits would apply in all states unless the state finds that a particular generic drug is not available within that state.  CMS also noted that the regulation is subject to the injunction by the United States District Court for the District of Columbia to the extent that it may affect Medicaid reimbursement rates for pharmacies.  On October 7, 2008, CMS published the final version of this rule, adopting the March 2008 interim final rule with technical changes effective November 6, 2008, although it continues to be subject to an injunction to the extent that it affects Medicaid pharmacy reimbursement rates.  Moreover, MIPPA delayed the adoption of the DRA’s new federal upper limit payment rules for Medicaid based on AMP for multiple source drugs and prevented CMS from publishing AMP data before October 1, 2009.  To date, CMS has not issued a new rule or published such AMP data.&# 160; Consequently, at this time upper payment limits currently in effect were established by CMS under the pre-DRA rules.  It is not clear whether or when CMS will publish new upper limits on additional drugs based upon these rules.

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Pursuant to the ACA, Congress has redefined "average manufacturer price" and "multiple source drug," and has established a new formula for calculating federal upper payment limits.  AMP is now defined as the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to "retail community pharmacies" and by retail community pharmacies purchasing directly from manufacturers.  However, the term expressly excludes a variety of items:  customary prompt payment discounts extended to wholesalers; bona fide service fees paid by manufacturers to wholesalers or retail community pharmacies (including distribution service fees, inventory management fees, product stocking allowances, and fees associated with administrative services agreements and patient care programs, such as medication compliance programs and patient education programs); reimbursement for recalled, damaged, expired or otherwise unsalable returned goods; and payments received from, or rebates and discounts provided to, pharmacy benefit managers, managed care organizations, mail order pharmacies, long-term care providers, or any other entity that does not conduct business as a wholesaler or retail community pharmacy.  The term “retail community pharmacy” is defined as an independent pharmacy, a chain pharmacy, a supermarket pharmacy, or a mass merchandiser pharmacy that is licensed as a pharmacy and dispenses medications to the general public at retail prices; the term expressly excludes pharmacies that dispense prescriptions through the mail, nursing home pharmacies, long-term care facility pharmacies, hospital pharmacies, clinics, charitable or not-for-profit pharmacies, government pharmacies, and pharmacy benefit managers.  The definition of "multiple source drug" is revi sed to require that a drug be available for purchase in the United States, rather than in the given state.

The ACA reverses the DRA provision requiring that upper payment limits be established where there are two or more therapeutically equivalent drugs for a multiple source drug, reverting to the pre-DRA requirement for three or more therapeutically equivalents to trigger this requirement.  The ACA’s new formula for federal upper payment limits requires that the Secretary calculate the limits as no less than 175% of the weighted average (determined on the basis of utilization) of the most recently reported monthly AMP available for purchase by retail community pharmacies on a nationwide basis.  The Secretary is required to use a “smoothing process” for AMPs; this may involve use of average monthly amounts reported by manufacturers over a given period (e.g. trailing 12 months) to reduce month-to-month v ariation in reported AMPs.

In addition to reporting AMPs, manufacturers are required to report to CMS the number of units of the product used to calculate its AMP; this data will be necessary to calculate weighted average AMPs determined on the basis of utilization.  Rather than publishing the AMP for each manufacturer's drug, CMS is required to publish only the weighted average AMP.

The ACA provisions technically go into effect October 1, 2010; however, as a practical matter, it appears that CMS will not be able to calculate new upper payment limits prior to December, 2010 at the earliest, since manufacturers will have until November 30, 2010 to report AMPs using the new definition and unit volume.  Since the AMPs reported by manufacturers under the existing DRA rules have not been published, and in any event AMP has been redefined pursuant to the ACA, the Company cannot at present determine what changes, if any, in upper limit prices will result from implementation of the ACA.  Further, given that the ACA requires only that upper limit prices be “not less than” the 175 percent amount described above, it is unclear when, and to what extent, any revisions in AMP-based upper limit pri ces will be implemented.

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With the advent of Medicare Part D, the Company’s revenues from state Medicaid programs are substantially lower than has been the case previously.  However, some of the Company’s agreements with Part D Plans and other payors have incorporated the Medicaid upper limit rules into the pricing mechanisms for prescription drugs.  The Company cannot predict the impact of the new law, as compared with current federal upper payment limits, on the Company’s business.  Further, there can be no assurance that the new federal upper limit payments, CMS or Congressional action, or other efforts by payors to limit reimbursement for certain drugs will not adversely impact the Company’s business.

MIPPA also seeks to promote e-prescribing by providing incentive payments for physicians and other practitioners paid under the Medicare physician fee schedule who are "successful electronic prescribers."  Specifically, successful electronic prescribers are to receive a 2 percent bonus during 2009 and 2010, a 1 percent bonus for 2011 and 2012 and a 0.5 percent bonus for 2013; practitioners who are not successful electronic prescribers are penalized by a 1 percent reduction from the current fee schedule in 2012, a 1.5 percent reduction in 2013, and thereafter a 2 percent reduction.  CMS has announced that to be a successful electronic prescriber and to receive an incentive payment for the 2010 e-prescribing reporting year, an individual eligible professional must report, using a qualified e-prescribing system, an e-p rescribing measure for at least 25 unique electronic prescribing events in which the measure is reportable by the eligible professional during 2010 (with separate criteria for group practices).  CMS has issued detailed guidelines on the specifications for qualified e-prescribing systems.  The Company is closely monitoring developments related to this initiative, and will seek to make available systems under which prescribers may submit prescriptions to the Company's pharmacies electronically so as to enable them to qualify for the incentive payments.

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009.  This $790 billion economic stimulus package includes a number of health care policy provisions, including approximately $19 billion in funding for health information technology infrastructure and Medicare and Medicaid incentives to encourage doctors, hospitals, and other providers to use health information technology to electronically exchange patients’ health information. On July 28, 2010, CMS published a final rule implementing the provisions of the ARRA that provide incentive payments to eligible professionals participating in Medicare and Medicaid programs that adopt and successfully demonstrate meaningful use of certified electronic health record (EHR) technology.  Entities are eligible to begin rece iving EHR incentive payments in 2011 (note that providers who receive an incentive payment from the Medicare EHR incentive program are not eligible to also receive the incentive payment under the MIPPA e-prescribing incentive program).  The final rule specifies the initial criteria that must be met to qualify for an EHR incentive payment; calculation of the incentive payment amounts; payment adjustments under Medicare for eligible providers that fail to demonstrate meaningful use of certified EHR technology; and other program participation requirements.  Also on July 28, 2010, HHS published a related final rule that specifies the Secretary’s adoption of an initial set of standards, implementation, specifications, and certification criteria for EHRs.   In other areas, the ARRA also strengthens federal privacy and security provisions to protect personally-identifiable health information.  In addition, the legislation increases Federal Medical Assistance Percen tage (“FMAP”) payments by approximately $87 billion to help support state Medicaid programs in the face of budget shortfalls.  The law also temporarily extends current Medicaid prompt payment requirements to nursing facility and hospital claims, requiring state Medicaid programs to reimburse providers for 90 percent of claims within 30 days of receipt and 99 percent of claims within 90 days of receipt.  The Obama Administration has issued a variety of guidance documents and regulations to implement the new law.  Congress is also considering extending the temporary Medicaid provisions as part of legislation designed to spur job creation, although such legislation has not been enacted to date. The Company is reviewing the implementation of the law and assessing the potential impact of the various provisions on the Company.

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Two other recent actions at the federal level could impact Medicaid payments to nursing facilities.  The Tax Relief and Health Care Act of 2006 modified several Medicaid policies including, among other things, reducing the limit on Medicaid provider taxes from 6 percent to 5.5 percent from January 1, 2008 through September 30, 2011.  On February 22, 2008, CMS published a final rule that implements this legislation, and makes other clarifications to the standards for determining the permissibility of provider tax arrangements.  Provisions of the rule were repeatedly delayed; currently the enforcement is delayed until June 30, 2010.  Second, on May 21, 2007, CMS published a rule designed to ensure that Medicaid payments to governmentally operated nursing facilities and certain other health care pro viders are based on actual costs and that state financing arrangements are consistent with the Medicaid statute.    CMS estimates that the rule would save $120 million during the first year and $3.87 billion over five years, but Congress blocked the rule through April 1, 2009.  The American Recovery and Reinvestment Act of 2009 expressed the sense of Congress that the Secretary of Health and Human Services should not promulgate the provider cost limit rule, citing a ruling by the United States District Court for the District of Columbia that the final rule was “improperly promulgated.”

Broader changes in federal healthcare policy have been adopted in the ACA. The new law seeks to expand access to affordable health insurance through insurance market reforms, the establishment of health insurance “exchanges” through which individuals and small businesses can purchase qualified insurance coverage, expansion of the Medicaid program and the imposition of health insurance mandates on employers and individuals.  The legislation also makes many changes to Medicare and Medicaid provider payments and operations, and directs the Secretary to conduct numerous pilot programs, demonstration projects and studies that could, in the future, lead to alternative healthcare delivery and payment systems. Further, the law empowers the new Independent Payment Advisory Board to recommend changes to the Medicare program to limit its spending growth that will go into effect automatically unless Congress enacts alternative legislation achieving the required level of savings, which could lead to additional changes in provider payments and the organization of the delivery system.

In order to rein in healthcare costs, the Company anticipates that federal and state governments will continue to review and assess alternate healthcare delivery systems, payment methodologies and operational requirements for healthcare providers, including long-term care facilities and pharmacies.  Given the debate regarding the cost of healthcare, managed care, universal healthcare coverage, and other healthcare issues, the Company cannot predict with any degree of certainty the impact of the ACA or additional healthcare initiatives, if any, will have on its business.  Further, the Company receives discounts, rebates and other price concessions from pharmaceutical manufacturers pursuant to contracts for the purchase of their products.  There can be no assurance that any changes in legislation or regulati ons, or interpretations of current law, that would eliminate or significantly reduce the discounts, rebates and other price concessions that the Company receives from manufacturers or that otherwise impact payment available for drugs under federal or state healthcare programs, would not have a material adverse impact on the Company’s overall consolidated results of operations, financial position or cash flows.  Longer term, funding for federal and state healthcare programs must consider the aging of the population; the growth in enrollees as eligibility is potentially expanded; the escalation in drug costs owing to higher drug utilization among seniors; the impact of the Medicare Part D benefit for seniors; the introduction of new, more efficacious but also more expensive medications; and the long-term financing of the entire Medicare program.  Given competing national priorities, it remains difficult to predict the outcome and impact on us of any changes in healthcare policy relati ng to the future funding of the Medicare and Medicaid programs.  Further, Medicare, Medicaid and/or private payor rates for pharmaceutical supplies and services may not continue to be based on current methodologies or remain comparable to present levels.  Any future healthcare legislation or regulation impacting these rates may materially adversely affect the Company’s business.

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On October 4, 2006, the plaintiffs in New England Carpenters Health Benefits Fund et al. v. First DataBank, Inc. and McKesson Corporation, CA No. 1:05-CV-11148-PBS (United District Court for the District of Massachusetts) and defendant First DataBank, Inc. (“First DataBank”) entered into a settlement agreement relating to First DataBank’s publication of average wholesale price (“AWP”).  AWP is a pricing benchmark that is widely used to calculate a portion of the reimbursement payable to pharmacy providers for the drugs and biologicals they provide, including under State Medicaid programs, Medicare Part D Plans and certain of the Company’s contracts with long-term care facilities.  The settlement agreement would have required First DataBank to cease publishing AWP two years after the settlement became effective unless a competitor of First DataBank was then publishing AWP, and would have required that First DataBank modify the manner in which it calculates AWP for over 8,000 distinct drugs (“NDCs”) from 125% of the drug’s wholesale acquisition cost (“WAC”) price established by manufacturers to 120% of WAC until First DataBank ceased publishing same.  In a related case, District Council 37 Health and Security Plan v. Medi-Span, CA No. 1:07-CV-10988-PBS (United States District Court for the District of Massachusetts), in which Medi-Span is accused of misrepresenting pharmaceutical prices by relying on and publishing First DataBank’s price list, the parties entered into a similar settlement agreement.  The Court granted preliminary approval of both agreements, but later after hearing various objections to the proposed se ttlements, indicated that it would not approve them.  On May 29, 2008, the plaintiffs and First DataBank filed a new settlement that included a reduction in the number of NDCs to which a new mark-up over WAC would apply (20% vs. 25%) from over 8,000 to 1,356, and removed the provision requiring that AWP no longer be published in the future.  First DataBank also agreed to contribute approximately $2 million to a settlement fund and for legal fees.  On July 15, 2008, Medi-Span and the plaintiffs in that litigation also proposed an amended settlement agreement under which Medi-Span agreed to reduce the mark-up over WAC (from 20% to 25%) for only the smaller number of NDCs, the requirement that AWP not be published in the future was removed, and Medi-Span agreed to pay $500,000 for the benefit of the plaintiff class.  First DataBank and Medi-Span, independent of these settlements, announced that they would, of their own volition, reduce to 20% the mark-up on all drugs with a mark-up higher than 20% and stop publishing AWP within two years after the changes in mark-up are implemented (in the case of First DataBank) or within two years after the settlement is finally approved (in the case of Medi-Span).  On March 17, 2009 the Court approved the proposed settlements, with a modification by the Court requiring that the change in mark-ups take place 180 days after the order approving the settlements is entered.  The Court entered an order approving the settlements on March 31, 2009.  While several entities appealed the Court’s order to the United States Court of Appeals for the First Circuit, on September 3, 2009 the Court of Appeals upheld the settlements.  First DataBank and Medi-Span implemented the changes in AWP on September 26, 2009.  In June, 2010, Medi-Span announced that, due to the lack of industry consensus on a replacement for AWP, it will continue publishing AWP until relevant industry or governmental organizatio ns develop a viable, generally accepted alternative price benchmark to replace AWP.

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The Company has taken a number of steps to prevent or mitigate the adverse effect on the Company’s reimbursement for drugs and biologicals which could otherwise result from these settlements.  For most state Medicaid programs reimbursing under an AWP formula, the Company is currently being reimbursed under old rate formulas using the new AWPs published in accordance with the settlements, resulting in lower reimbursement under these programs.  There can be no assurance that the First DataBank and Medi-Span settlements and associated unilateral actions by First DataBank and Medi-Span, or actions, if any, by the Company’s payors relating to AWP, will not have a further adverse impact on the Company’s reimbursement for drugs and biologicals and have implications for the use of AWP as a benchmark from w hich pricing in the pharmaceutical industry is negotiated, which could adversely affect the Company’s results of operations, financial position or cash flows.

Longer term, funding for federal and state healthcare programs must consider the aging of the population and the growth in enrollees as eligibility is expanded; the escalation in drug costs owing to higher drug utilization among seniors and the introduction of new, more efficacious but also more expensive medications; the impact of the Medicare Part D program; and the long-term financing of the Medicare and Medicaid programs.  Given competing national priorities, it remains difficult to predict the outcome and impact on the Company of any changes in healthcare policy relating to the future funding of the Medicare and Medicaid programs.

Demographic trends indicate that demand for long-term care will increase well into the middle of this century as the elderly population grows significantly.  Moreover, those over 65 consume a disproportionately high level of healthcare services, including prescription drugs, when compared with the under-65 population.  There is widespread consensus that appropriate pharmaceutical care is generally considered the most cost-effective form of treatment for the chronic ailments afflicting the elderly and also one that is able to improve the quality of life.  These trends not only support long-term growth for the geriatric pharmaceutical industry but also containment of healthcare costs and the well-being of the nation’s growing elderly population.

In order to fund this growing demand, the Company believes that the government and the private sector will continue to review, assess and possibly alter healthcare delivery systems and payment methodologies.  While it cannot at this time predict the ultimate effect of any of these initiatives on Omnicare’s business, management believes that the Company’s expertise in geriatric pharmaceutical care and pharmaceutical cost management position Omnicare to help meet the challenges of today’s healthcare environment.

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CRO Services Segment

	Three months ended
	June 30,
	2010			2009
Revenues	$	27,350		$	40,803
Operating (loss)/income	$	(3,716	)	$	967

Omnicare’s CRO Services segment revenues were $27.4 million for the three months ended June 30, 2010 versus the $40.8 million recorded in the same prior-year period, or lower by $13.4 million.  In accordance with the authoritative guidance for income statement characterization of reimbursements received for “out-of-pocket” expenses incurred, the Company included $3.3 million and $5.2 million of reimbursable out-of-pockets in its CRO Services segment reported revenue and cost of sales amounts for the three months ended June 30, 2010 and 2009, respectively.  Revenues for the 2010 quarter were lower than in the same prior-year period primarily due to lower levels of new business added, as well as early project terminations by clients and client-driven delays in the commencement of certain projects.

An operating loss in the CRO Services segment of $3.7 million in the second quarter of 2010 compared with operating income of $1.0 million in the same quarter of 2009, a decrease of $4.7 million.  As a percentage of the segment’s revenue, the operating loss was 13.6% in the second quarter of 2010 compared with operating income of 2.4% of revenue in the same period of 2009.  This decrease is primarily attributable to the aforementioned factors that reduced sales as well as restructuring charges of $2.0 million pretax ($1.3 million aftertax) in the three months ended June 30, 2010 incurred to rightsize and reposition the cost structure of the business.  Backlog at June 30, 2010 was $139.8 million, representing a decrease of $65.5 million from the December 31, 2009 backlog of $205.3 million, and a decre ase of $119.8 million from the June 30, 2009 backlog of $259.6 million.

Volatility can occur from time to time in the contract research business owing to factors such as the success or failure of its clients’ compounds, the timing or budgetary constraints of its clients, or consolidation within its client base.  The Company believes that new drug discovery remains an important priority for drug manufacturers and, in order to optimize their research and development efforts, they will continue to turn to contract research organizations to assist them in drug research development and commercialization.

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Six Months Ended June 30, 2010 vs. 2009

Total net sales for the six months ended June 30, 2010 were $3,043.4 million versus $3,082.6 million in the comparable prior-year period.  Income from continuing operations for the six months ended June 30, 2010 was $75.7 million versus $74.2 million earned in the comparable 2009 period.  Diluted earnings per share from continuing operations for the six months ended June 30, 2010 were $0.64 versus $0.63 in the same prior-year period.  In total, including discontinued operations, net income for the six months ended June 30, 2010 was $62.5 million, or $0.53 per diluted share, as compared with $59.6 million, or $0.51 per diluted share, earned in the comparable prior-year period.  Operating cash flows from continuing operations totaled $153.1 million for the six months ended June 30, 2010 as compared to $262.3 million for the same period of 2009.  EBITDA from continuing operations totaled $256.6 million for the six months ended June 30, 2010 as compared with $263.2 million for the same period of 2009.  In mid-2009, the Company commenced activities to divest certain home healthcare and related ancillary businesses that are non-strategic in nature.  The disposal group, historically part of Omnicare’s Pharmacy Services segment, primarily represents ancillary businesses which accompanied other more strategic assets obtained by Omnicare in connection with the Company’s institutional pharmacy acquisition program.  The results from continuing operations for all periods presented have been revised to reflect the results of the disposal group as discontinued operations, including certain expenses of the Company related to the divestiture.

Net sales for the six months ended June 30, 2010 were impacted primarily by the unfavorable sales impact of the increased availability and utilization of generic drugs, lower prescription volumes due to reductions in utilization for certain drugs, lower census in client facilities in certain areas as well as lower average number of beds served year-over-year, along with a shift in mix towards assisted living, reductions in reimbursement and competitive pricing issues, and lower sales in the Company’s clinical research business. Partially offsetting these factors were the favorable impact of drug price inflation, the increased use of certain higher acuity drugs and biologic agents, acquisitions, as well as growth in specialty pharmacy services.  See discussion of sales and operating profit results in more detail at the & #8220;Pharmacy Services Segment” and “CRO Services Segment” captions below.

The Company continues to be impacted by the unilateral reduction in April 2006 by United in the reimbursement rates paid by United to Omnicare by switching to its PacifiCare pharmacy network contract for services rendered by Omnicare to beneficiaries of United’s drug benefit plans under the Medicare Part D program.  The differential in reimbursement rates that resulted from United’s action, as compared with reimbursement rates under the originally negotiated contract, reduced sales and operating profit in the first six months of 2010 and 2009 by approximately $43 million and $48 million (approximately $27 million and $29 million aftertax), and cumulatively since April 2006 by approximately $428 million (approximately $266 million aftertax).  This matter is currently the subject of litigation initiated by Omnicare and is before the federal appellate court in the Seventh Circuit Court of Appeals.  See further discussion at the “Legal Proceedings” section at Part II, Item 1 of this Filing.

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The Company’s consolidated gross profit was $687.7 million for the six months ended June 30, 2010, compared with the same prior-year period amount of $760.1 million.  Gross profit as a percentage of total net sales was 22.6% in the six months ended June 30, 2010, versus 24.7% in the comparable 2009 period.  Gross profit was unfavorably affected in the 2010 period largely by certain of the aforementioned items that reduced net sales, primarily the reductions in prescription volumes and reimbursement, and competitive pricing issues.  Partially offsetting these factors were the increased availability and utilization of higher margin generic drugs, the continued integration of acquisitions, cost reduction and productivity improvement initiatives, and the favorable effect of drug price inflation.

Omnicare’s operating expenses for the six months ended June 30, 2010 were $393.7 million as compared with the comparable prior-year amount of $419.6 million.  Operating expenses as a percentage of net sales amounted to 12.9% in the first half of 2010 versus 13.6% in the comparable prior-year period.  Operating expenses for the six months ended June 30, 2010 were favorably impacted largely by continued progress in the Company’s productivity improvement initiatives and non-drug purchasing program, as well as the continued integration of prior-period acquisitions.

The provision for doubtful accounts for the six months ended June 30, 2010 was $43.0 million versus $48.0 million in the comparable prior-year period.  Net accounts receivable of approximately $1,163 million at June 30, 2010 was $46 million lower than the December 31, 2009 balance of approximately $1,209 million.  Further, accounts receivable days sales outstanding were approximately 71 and 78 at June 30, 2010 and 2009, respectively, representing a year-over-year reduction of 7 days.

Investment income for the six months ended June 30, 2010 of $2.8 million was modestly lower than the $3.4 million earned in the comparable prior-year period.

Interest expense for the six months ended June 30, 2010 of $68.3 million was higher than the $61.1 million in the comparable prior-year period, primarily due to special charges for debt redemption costs, including the write-off of debt issuance costs, related to the Company’s previously announced refinancing transactions, as mentioned in further detail below, as well as higher interest rates on the Company’s $250 million 6.125% Senior Subordinated Notes (the “6.125% Senior Notes”) due to the cancellation of the interest rate swap agreement by the counterparties and higher outstanding debt due to the issuance of $400 million aggregate principal amount of 7.75% Senior Subordinated Notes due 2020 (the “7.75% Senior Notes”) in the second quarter.  These were partially offset by payments aggrega ting $400 million on the senior term A loan facility, maturing on July 28, 2010 (the “Term Loans”), throughout 2009 and through the first six months of 2010 resulting in the payoff of the Term Loans in full in the second quarter of 2010, as well as payments of $217 million on the Company’s 6.75% Senior Subordinated Notes due 2013 (the “6.75% Senior Notes”).  See additional information at the “Debt” note of the Notes to Consolidated Financial Statements.

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The effective income tax rate was 38.0% for the six months ended June 30, 2010, as compared to the rate of 44.7% for the comparable prior-year period.  The year-over-year decrease in the effective tax rate is largely due to certain nondeductible litigation costs recognized in the 2009 period.  The effective tax rates in 2010 and 2009 are higher than the federal statutory rate largely as a result of the impact of state and local income taxes and various nondeductible expenses (including a portion of the aforementioned litigation costs in 2009).

Special Items and Accounting Changes:

Financial results for the six months ended June 30, 2010 from continuing operations included the following charges totaling approximately $76.5 million pretax ($49.6 million aftertax), which primarily impacted the Pharmacy Services segment.  The tax effect was calculated by multiplying the tax-deductible pretax amounts by the appropriate effective tax rate.  Management believes that these special items are either infrequent occurrences or otherwise not related to Omnicare’s ordinary course of business and/or are non-cash in nature:

(i)           Operating income included restructuring and other related charges of approximately $12.5 million pretax ($7.9 million aftertax), relating to the aforementioned implementation of the “Omnicare Full Potential” Plan.  See further discussion at the “Restructuring and Other Related Charges” note of the Notes to Consolidated Financial Statements and the “Restructuring and Other Related Charges” section of this MD&A.

(ii)           In addressing and resolving the previously mentioned Repack Matters, the Company continues to experience increased costs and, as a result, the six months ended June 30, 2010 included special charges of $1.9 million pretax (approximately $0.9 million and $1.0 million was recorded in the cost of sales and operating expense sections of the Consolidated Statements of Income, respectively) ($1.2 million aftertax) for these increased costs.  The Company maintains product recall, property and casualty and business interruption insurance, and the extent of insurance recovery for these expenses continues to be reviewed by its insurers and outside advisors.  As of June 30, 2010, the Company has received approximately $10 million in insurance recoveries .

(iii)           Operating income included special litigation and other related charges of $34.9 million pretax ($23.4 million aftertax) for estimated litigation-related settlements and professional expenses for resolution of certain regulatory matters with various states, as further discussed below and at the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements, and the “Legal Proceedings” section at Part II, Item 1 of this Filing, as well as costs associated with the settlement of the investigation by the United States Attorney’s Office, District of Massachusetts, certain large customer disputes and purported class and derivative actions against the Company.  In connection with Omnicare’s participation in Medicare, Medicaid and other healthcare programs, the Company is subject to various inspections, audits, inquiries and investigations by governmental/regulatory authorities responsible for enforcing the laws and regulations to which the Company is subject.  Further, the Company maintains a compliance program which establishes certain routine periodic monitoring of the accuracy of the Company’s billing systems and other regulatory compliance matters and encourages the reporting of errors and inaccuracies.  As a result of the compliance program, Omnicare has made, and will continue to make, disclosures to the applicable governmental agencies of amounts, if any, determined to represent over-payments from the respective programs and, where applicable, those amounts, as well as any amounts relating to certain inspections, audits, inquiries and investigations activity are included in the pretax special item reflected above.  The Company is in various stages of discussions wi th governmental/regulatory authorities responsible for enforcing the laws and regulations to which Omnicare is subject.  In light of discussions Omnicare is currently having regarding resolution of certain regulatory matters with various states, as referenced above, a provision of $24.2 million pretax has been recorded in the second quarter of 2010 for the Company’s aggregate estimate for anticipated payments to resolve such matters.  It is expected that any such resolutions will not include an admission of liability or wrongdoing by the Company.

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(iv)           Operating income included acquisition and other related costs of approximately $0.1 million pretax ($0.0 million aftertax) related to the adoption of the accounting change for business combinations.  These expenses were primarily related to professional fees and acquisition related restructuring costs for 2010 and 2009 acquisitions, partially offset by a reduction in the Company’s original estimate of contingent consideration payable for certain acquisitions.  See further discussion at the “Acquisitions” note of the Notes to Consolidated Financial Statements.

(v)           Operating expenses included approximately $2.6 million in pretax charges ($1.6 million aftertax) relating to the adoption of the accounting change for share-based payments, which primarily relates to stock option expense.  The authoritative guidance requires the Company to record compensation costs based on estimated fair values relating to share-based payment transactions, including stock options, in its consolidated financial statements.

(vi)           The Company recorded a $14.8 million non-cash charge to pretax interest expense ($9.3 million aftertax) related to the adoption of the accounting change for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement).  See further discussion of this authoritative guidance, including the aforementioned amortization of discount on convertible notes, at the “Debt” note of the Notes to Consolidated Financial Statements.

(vii)           The Company recorded a special charge of $9.8 million before taxes ($0.4 million and $9.4 million was recorded in the operating expense and interest expense sections of the income statement, respectively) ($6.2 million after taxes) in connection with debt redemption costs related to the Company’s previously announced refinancing transactions.  See further discussion at the “Debt” note of the Notes to Consolidated Financial Statements.

Financial results for the six months ended June 30, 2009 from continuing operations included the following charges totaling approximately $105.8 million pretax ($76.6 million aftertax), which primarily impacted the Pharmacy Services segment.  The tax effect was calculated by multiplying the tax-deductible pretax amounts by the appropriate effective tax rate.  Management believes that these special items are either infrequent occurrences or otherwise not related to Omnicare’s ordinary course of business and/or are non-cash in nature:

(i)           Operating income included restructuring and other related charges of approximately $12.8 million pretax ($7.9 million aftertax), relating to the aforementioned implementation of the “Omnicare Full Potential” Plan.  See further discussion at the “Restructuring and Other Related Charges” note of the Notes to Consolidated Financial Statements and the “Restructuring and Other Related Charges” section of this MD&A.

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(ii)           In addressing and resolving the aforementioned Repack Matters, the Company continues to experience increased costs and as a result, the six months ended June 30, 2009 included special charges of $3.2 million pretax (approximately $1.9 million and $1.3 million was recorded in the cost of sales and operating expense sections of the Consolidated Statements of Income, respectively) ($2.0 million aftertax) for these increased costs.  The Company maintains product recall, property and casualty and business interruption insurance, and the extent of insurance recovery for these expenses continues to be reviewed by its insurers and outside advisors.  As of June 30, 2009, the Company had received no material insurance recoveries.

 (iii)           Operating income included special litigation and other related charges of $70.0 million pretax ($54.5 million aftertax) for litigation-related settlements and professional expenses primarily in connection with the investigation by the United States Attorney’s Office, District of Massachusetts, the Company’s lawsuit against United, certain other large customer disputes, purported class and derivative actions against the Company, the investigation by the federal government and certain states relating to drug substitutions, and the Company’s response to subpoenas it received relating to other legal proceedings to which the Company is not a party.  With respect to these proceedings to which the Company is a party, including the investig ation by the United States Attorney’s Office, District of Massachusetts, see further discussion at the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements, and the “Legal Proceedings” section at Part II, Item 1 of this Filing.

(iv)           Operating income included acquisition and other related costs of approximately $2.9 million pretax ($1.7 million aftertax) related to the adoption of the accounting change for business combinations.  These expenses were primarily related to professional fees from acquisitions completed during the period.  See further discussion at the “Acquisitions” note of the Notes to Consolidated Financial Statements.

(v)           Operating expenses included approximately $3.2 million in pretax charges ($2.0 million aftertax) relating to the adoption of the accounting change for share-based payments, which primarily relates to stock option expense.  This guidance requires the Company to record compensation costs based on estimated fair values relating to share-based payment transactions, including stock options, in its consolidated financial statements.

(vi)           The Company recorded a $13.7 million non-cash increase in pretax interest expense ($8.5 million aftertax) related to the retrospective adoption of the accounting change for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement).  See further discussion of this authoritative guidance, including this amortization of discount on convertible notes, at the “Debt” note of the Notes to Consolidated Financial Statements.

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Pharmacy Services Segment

	Six months ended June 30,
	2010		2009
Net sales	$	2,986,262	$	2,997,066
Operating income from continuing operations	$	261,559	$	250,739

Omnicare’s Pharmacy Services segment recorded sales of $2,986.3 million for the six months ended June 30, 2010, as compared with the same 2009 period amount of $2,997.1 million, a decrease of $10.8 million.  At June 30, 2010, Omnicare served long-term care facilities as well as chronic care and other settings comprising approximately 1,353,000 beds relating to continuing operations, including approximately 79,000 patients served by the patient assistance programs of its specialty pharmacy business.  The comparable number at June 30, 2009 was 1,384,000 relating to continuing operations (including approximately 59,000 patients served by patient assistance programs).  For the six months ended June 30, 2010, Omnicare dispensed approximately 59,978,000 prescriptions in comparison to approximately 61,676,0 00 prescriptions dispensed during the same prior-year period.  Pharmacy Services sales were unfavorably impacted primarily by the increased availability and utilization of generic drugs, lower prescription volumes due to reductions in utilization for certain drugs, lower census in client facilities in certain areas as well as a lower average number of beds served year-over-year, along with a shift in mix towards assisted living, which typically has lower penetration rates than skilled nursing facilities, and reductions in reimbursement and competitive pricing issues.  Partially offsetting these factors were the favorable impact of drug price inflation, the increased use of certain higher acuity drugs and biologic agents, acquisitions, as well as growth in specialty pharmacy services.  While the Company is focused on reducing its costs to mitigate the impact of drug pricing and reimbursement issues, there can be no assurance that such issues or other pricing and reimbursement pre ssures will not adversely impact the Pharmacy Services segment.

Operating income of the Pharmacy Services segment was $261.6 million in the first six months of 2010 as compared with the $250.7 million earned in the comparable period of 2009, or an increase of $10.9 million.  As a percentage of the segment’s sales, operating income was 8.8% for the first six months of 2010, as compared with 8.4% in 2009.  The six months ended June 30, 2010 was favorably impacted largely by the increased availability and utilization of higher margin generic drugs, drug price inflation, growth in specialty pharmacy services, lower bad debt expense, the continued progress in the Company’s cost reduction and productivity improvement initiatives, the continued integration of prior-period acquisitions and the year-over-year impact of the previously mentioned special items.  Operat ing income in 2010 was unfavorably affected primarily by the operating income effect of certain of the aforementioned items that reduced net sales, in particular lower prescription volumes, reductions in reimbursement and competitive pricing issues.

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CRO Services Segment

	Six months ended
	June 30,
	2010			2009
Revenues	$	57,093		$	85,546
Operating income	$	(8,978	)	$	3,959

Omnicare’s CRO Services segment revenues were $57.1 million for the six months ended June 30, 2010 versus the $85.5 million recorded in the same prior-year period, or lower by $28.4 million.  In accordance with the authoritative guidance for income statement characterization of reimbursements received for “out-of-pocket” expenses incurred, the Company included $7.2 million and $10.9 million of reimbursable out-of-pockets in its CRO Services segment reported revenue and cost of sales amounts for the six months ended June 30, 2010 and 2009, respectively.  Revenues for 2010 were lower than in the same prior-year period primarily due to lower levels of new business added, as well as early project terminations by clients and client-driven delays in the commencement of certain projects.

An operating loss in the CRO Services segment of $9.0 million in the first six months of 2010 compared with operating income of $4.0 million in the same period of 2009, a decrease of $13.0 million.  As a percentage of the segment’s revenue, the operating loss was 15.7% in the first six months of 2010 compared with operating income of 4.6% of revenue in the same period of 2009.  This decrease is primarily attributable to the aforementioned factors that reduced sales as well as restructuring charges of $5.5 million pretax ($3.5 million aftertax) in the six months ended June 30, 2010 incurred to rightsize and reposition the cost structure of the business.

Volatility can occur from time to time in the contract research business owing to factors such as the success or failure of its clients’ compounds, the timing or budgetary constraints of its clients, or consolidation within its client base.  The Company believes that new drug discovery remains an important priority for drug manufacturers and, in order to optimize their research and development efforts, they will continue to turn to contract research organizations to assist them in drug research development and commercialization.

Discontinued Operations

In mid-2009, the Company commenced activities to divest certain home healthcare and related ancillary businesses (“the disposal group”) that are non-strategic in nature.  The disposal group, historically part of Omnicare’s Pharmacy Services segment, primarily represents ancillary businesses which accompanied other more strategic assets obtained by Omnicare in connection with the Company’s institutional pharmacy acquisition program.  The results from continuing operations for all periods presented have been revised to reflect the results of the disposal group as discontinued operations, including certain expenses of the Company related to the divestiture.  Selected financial data related to the discontinued operations of this disposal group for the three and six months ended June 30, 2010 and 2009 follows:

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	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Net sales	$	14,539		$	19,818		$	29,633		$	41,273
Loss from operations of disposal group, pretax		(2,188	)		(2,008	)		(7,912	)		(4,222	)
Income tax benefit		870			798			3,146			1,678
Loss from operations of disposal group, aftertax		(1,318	)		(1,210	)		(4,766	)		(2,544	)
Impairment charge, pretax		(10,343	)		(14,492	)		(10,343	)		(14,492	)
Income tax benefit on impairment charge		1,859			2,427			1,859			2,427
Impairment charge, aftertax		(8,484	)		(12,065	)		(8,484	)		(12,065	)
Loss from discontinued operations, aftertax	$	(9,802	)	$	(13,275	)	$	(13,250	)	$	(14,609	)

The loss from operations of disposal group for the three and six month periods ended June 30, 2010, in comparison to the same prior year periods, primarily reflects the impact of reimbursement reductions from Medicare and other payor groups as well as increased provision for doubtful accounts, partially offset by reduced operating costs.

Restructuring and Other Related Charges

Omnicare Full Potential Program

In 2006, the Company commenced the implementation of the “Omnicare Full Potential” Plan, a major initiative primarily designed to re-engineer the Company’s pharmacy operating model to increase efficiency and enhance customer growth.  The Omnicare Full Potential Plan is expected to optimize resources across the entire organization by implementing best practices, including the realignment and right-sizing of functions, and a “hub-and-spoke” model whereby certain key administrative and production functions will be transferred to regional support centers (“hubs”) specifically designed and managed to perform these tasks, with local pharmacies (“spokes”) focusing on time-sensitive services and customer-facing processes.  Additionally, in connection with this productivi ty enhancement initiative, the Company is also right-sizing and consolidating certain CRO operations.

This program is estimated to generate pretax savings in the range of $100 million to $120 million annually upon completion of the initiative.  It is anticipated that approximately one-half of these savings will be realized in cost of sales, with the remainder being realized in operating expenses.  The program is estimated to result in total pretax restructuring and other related charges of approximately $133 million over the implementation period.  The Company recorded restructuring and other related charges for the Omnicare Full Potential Plan of approximately $5 million and $13 million pretax (approximately $3 million and $8 million aftertax) during the three and six months ended June 30, 2010, respectively, and approximately $6 million and $13 million pretax (approximately $4 million and $8 million afte rtax) during the three and six months ended June 30, 2009, respectively, or cumulative aggregate restructuring and other related charges of approximately $124 million before taxes through the second quarter of 2010.  The remainder of the overall restructuring and other related charges will be recognized and disclosed prospectively, as the remaining portions of the project are finalized and implemented.  Incremental capital expenditures related to this program are expected to total approximately $55 million to $60 million over the entire implementation period.  The Company eliminated approximately 1,200 positions in completing its initial phase of the program.  The completion of the program is estimated to result in an additional net reduction of approximately 1,400 positions (2,100 positions eliminated, net of 700 new positions filled in different geographic locations as well as to perform new functions required by the hub-and-spoke model of operations), of which appro ximately 1,300 positions had been eliminated as of June 30, 2010.  The foregoing reductions do not include additional savings expected from lower levels of overtime and reduced temporary labor.  The aforementioned savings anticipated upon completion of the program also include reductions in overtime, excess hours and temporary help, and other productivity gains, equal to an additional 820 full-time equivalents. In addition, in July 2009, the Company implemented a temporary payroll containment and reduction program across the organization designed to facilitate the achievement of the productivity and efficiency goals associated with the Full Potential Plan.

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The restructuring charges primarily include severance pay, the buy-out of employment agreements, lease terminations, and other exit-related asset disposals, professional fees and facility exit costs.  The other related charges are primarily comprised of professional fees.

While the Company is working diligently to achieve the estimated savings as discussed above, there can be no assurances as to the ultimate outcome of the program, including the savings and/or related timing thereof, due to the inherent risks associated with the implementation of a project of this magnitude and the related new technologies.  Specifically, the potential inability to successfully mitigate implementation risks, including but not necessarily limited to, dependence on third-party suppliers and consultants for the timely delivery of technology as well as its performance at expected capacities, compliance with federal, state and local regulatory requirements, reliance on information technology and telecommunications support, timely completion of facility lease transactions and/or leasehold improvements, and the abili ty to obtain adequate staffing levels, individually or in the aggregate, could affect the overall success of the program from a savings and/or timing standpoint.

See further discussion at the “Restructuring and Other Related Charges” note of the Notes to Consolidated Financial Statements.

Financial Condition, Liquidity and Capital Resources

Cash and cash equivalents and restricted cash at June 30, 2010 were $397.8 million compared with $291.0 million at December 31, 2009 (including restricted cash amounts of $2.9 million and $15.3 million, respectively).

The Company generated positive net cash flows from operating activities of continuing operations of $153.1 million during the six months ended June 30, 2010, compared with net cash flows from operating activities of continuing operations totaling $262.3 million during the six months ended June 30, 2009.  Compared to the same prior-year period, operating cash flow was unfavorably impacted by accounts receivable and inventories, where the continued favorable performance in the 2010 period was lower than the level experienced in the prior-year period relating to heightened Full Potentional integration activities in 2009.  Also unfavorably impacting the 2010 period was a second quarter payment related to the Massachusetts litigation settlement totaling approximately $38 million and the approximately $7.3 million tender premium related to the repurchase of the Company’s 6.75% Senior Subordinated Notes due 2013 (the “6.75% Senior Notes”) discussed below.  These unfavorable impacts were partially offset by a year-over-year reduction in the cash requirements relating to accounts payable activity.

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Favorably impacting operating cash flow was the excess of tax deductible interest expense over book interest expense related to the Company’s 4.00% Junior Subordinated Convertible Debentures and 3.25% Convertible Senior Debentures.  This resulted in an increase in the Company’s deferred tax liabilities during the six months ended June 30, 2010 and 2009 of $15.3 million and $14.3 million, respectively ($132.6 million cumulative as of June 30, 2010).  The recorded deferred tax liability could, under certain circumstances, be realized in the future upon conversion or redemption which would serve to reduce operating cash flows.

Net cash used in investing activities of continuing operations was $13.6 million and $59.4 million for the six months ended June 30, 2010 and 2009, respectively.  Acquisitions of businesses, primarily funded by operating cash flows, required outlays of $11.9 million (including amounts payable pursuant to acquisition agreements relating to pre-2010 acquisitions) in the first six months of 2010.  Acquisitions of businesses during the first six months of 2009 required $43.1 million of cash payments (including amounts payable pursuant to acquisition agreements relating to pre-2009 acquisitions) which were primarily funded by invested cash and operating cash flows.  Omnicare’s capital requirements, in addition to the payment of debt and dividends, are primarily comprised of its acquisition program and cap ital expenditures, largely relating to investments in the Company’s information technology systems and the implementation of the “Omnicare Full Potential” Plan.

Net cash used in financing activities of continuing operations was $16.7 million for the six months ended June 30, 2010 as compared to $144.7 million for the comparable prior-year period.  In May 2010, the Company completed its previously announced issuance of $400 million of 7.75% Senior Subordinated Notes (the “7.75% Senior Notes”).  A portion of the net proceeds from the issuance of the 7.75% Senior Notes was used to purchase approximately $217 million of the Company’s 6.75% Senior Notes pursuant to a tender offer and consent solicitation (the redemption was completed on July 1, 2010).  Also, a portion of the proceeds were used to repurchase approximately $49 million of the Company’s stock as part of a previously announced common stock repurchase program discussed in further deta il below.  During each of the first six months of 2010 and 2009, the Company paid down $125 million and $150 million, respectively, on the Term Loans.

On May 18, 2010, the Company entered into a $400 million senior secured revolving credit facility, maturing on May 18, 2015 (the “Revolving Credit Facility”).  In connection with entering into the new Revolving Credit Facility, the Company’s existing credit agreement, maturing on July 28, 2010 was terminated.

At June 30, 2010, there were no outstanding borrowings under the Revolving Credit Facility, and the entire balance of the Term Loans had been paid off.

On May 25, 2010, the Company’s Board of Directors declared a quarterly cash dividend of 2.25 cents per common share for an indicated annual rate of 9 cents per common share for 2010, which is consistent with the annual dividends per share actually paid in 2009.  Aggregate dividends paid of $5.3 million during the six month period ended June 30, 2010 were consistent with those paid in the comparable prior-year period.

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On May 3, 2010, Omnicare announced that in conjunction with its second quarter 2010 refinancing (as described in the “Debt” note of the Notes to Consolidated Financial Statements), the Company’s Board of Directors authorized a new two-year program to repurchase, from time to time, shares of Omnicare's outstanding common stock having an aggregate value of up to $200 million, depending on market conditions and other factors.  In the three and six months ended June 30, 2010, the Company repurchased approximately 2.0 million shares at an aggregate cost of approximately $49 million.  Accordingly, the Company had approximately $151 million of share repurchase authority remaining as of June 30, 2010.  These second quarter 2010 repurchases were made in open market transactions in compliance with Securities and Exchange Commission Rule 10b-18 and other applicable legal requirements.  On June 30, 2010, Omnicare had approximately 118.2 million shares of common stock outstanding.

There were no known material commitments and contingencies outstanding at June 30, 2010, other than the contractual obligations summarized in the “Disclosures About Aggregate Contractual Obligations and Off-Balance Sheet Arrangements” caption below; certain acquisition-related payments potentially due in the future, including deferred payments, indemnification payments and payments originating from earnout and other provisions that may become payable; as well as the matters discussed in the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements, and the “Legal Proceedings” section at Part II, Item 1 of this Filing.

The Company believes that net cash flows from operating activities, credit facilities and existing cash balances will be sufficient to satisfy its future working capital needs, acquisition contingency commitments, debt servicing, capital expenditures and other financing requirements for the foreseeable future.  Additionally, the Company believes that external sources of financing, including short- and long-term debt financings, are available.  Due to recent conditions in the credit markets, Omnicare may not be able to refinance maturing debt at terms that are as favorable as those from which the Company previously benefited or at terms that are acceptable to Omnicare.  In addition, no assurances can be given regarding the Company’s ability to obtain additional financing in the future.

Disclosures About Aggregate Contractual Obligations and Off-Balance Sheet Arrangements

Aggregate Contractual Obligations:

The following table summarizes the Company’s aggregate contractual obligations as of June 30, 2010, the nature of which is described in further detail at the “Aggregate Contractual Obligations” caption of the MD&A section at Part II, Item 7 of Omnicare’s 2009 Annual Report, and the effect such obligations are expected to have on the Company’s liquidity and cash flows in future periods (in thousands):

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	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
Debt obligations (a)	$	2,505,434	$	–	$	257,934	$	–	$	2,247,500
Capital lease obligations		11,236		2,485		4,669		4,009		73
Operating lease obligations		143,225		33,686		53,029		36,640		19,870
Purchase obligations		50,855		41,934		8,145		776		–
Other current obligations		227,529		227,529		–		–		–
Other long-term obligations		285,484		–		243,904		21,586		19,994
Subtotal		3,223,763		305,634		567,681		63,011		2,287,437
Future interest costs relating to debt
and capital lease obligations		1,553,700		116,522		231,399		200,760		1,005,019
Total contractual cash obligations	$	4,777,463	$	422,156	$	799,080	$	263,771	$	3,292,456

(a)   The noted obligation amounts represent the principal portion of the associated debt obligations.  Details of the Company’s outstanding debt instruments, including the impact of recent refinancing activities, can be found in the “Debt” note of the Notes to Consolidated Financial Statements.

As of June 30, 2010, the Company had approximately $22 million outstanding relating to standby letters of credit, substantially all of which are subject to automatic annual renewals.

Off-Balance Sheet Arrangements:

A description of the Company’s Off-Balance Sheet Arrangements, for which there were no significant changes during the six months ended June 30, 2010, is presented at the “Off-Balance Sheet Arrangements” caption of Part II, Item 7 of Omnicare’s 2009 Annual Report.

Critical Accounting Policies

Allowance for Doubtful Accounts

Collection of accounts receivable from customers is the Company’s primary source of operating cash flow and is critical to Omnicare’s operating performance, cash flows and financial condition.  Omnicare’s primary collection risk relates to facility, private pay and Part D customers.  The Company provides a reserve for accounts receivable considered to be at increased risk of becoming uncollectible by establishing an allowance to reduce the carrying value of such receivables to their estimated net realizable value.  Omnicare establishes this allowance for doubtful accounts using the specific identification approach, and considering such factors as historical collection experience (i.e., payment history and credit losses) and creditworthiness, specifically identified credit risks, aging of accounts receivable by payor category, current and expected economic conditions and other relevant factors.  Management reviews this allowance for doubtful accounts on an ongoing basis for appropriateness.  Judgment is used to assess the collectability of account balances and the economic ability of customers to pay.

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The Company computes and monitors its accounts receivable days sales outstanding (“DSO”), a non-GAAP measure, in order to evaluate the liquidity and collection patterns of its accounts receivable.  DSO is calculated by averaging the beginning and end of quarter accounts receivable, less contractual allowances and the allowance for doubtful accounts, to derive "average accounts receivable" and dividing average accounts receivable by the sales amount (excluding reimbursable out-of-pockets) for the related quarter.  The resultant percentage is multiplied by 92 days to derive the DSO amount.  Omnicare’s DSO approximated 71 days at June 30, 2010, which was lower than the December 31, 2009 amount of 74 days by approximately 3 days.  On July 11, 2007, the Company commenced legal action against a group of its customers for, among other things, the collection of past-due receivables that are owed to the Company.  Specifically, approximately $106 million (excluding interest and prior to any allowance for doubtful accounts) is owed to the Company by this group of customers as of June 30, 2010, of which approximately $99 million is past-due based on applicable payment terms (a significant portion of which is not reserved based on the relevant facts and circumstances).  The $106 million represents approximately 6 days of the overall DSO at June 30, 2010.  As previously disclosed, the Company has experienced on-going administrative and payment issues associated with the Medicare Part D implementation, resulting in outstanding gross accounts receivable (net of allowances for contractual adjustments, and prior to any allowance for doubtful accounts), particularly for copays.  As of June 30, 2010, copays outstanding from Part D Plans were approximately $15 mi llion relating to 2006 and 2007.  The Company is pursuing solutions, including legal actions against certain Part D payors, to collect outstanding copays, as well as certain rejected claims.  Until all administrative and payment issues relating to the Part D Drug Benefit as well as the aforementioned legal action against a group of Omnicare’s customers are fully resolved, there can be no assurance that the impact of these matters on the Company’s results of operations, financial position or cash flows will not change based on the outcome of any unforeseen future developments.

The allowance for doubtful accounts as of June 30, 2010 was $342.8 million, compared with $332.6 million at December 31, 2009.  The allowance for doubtful accounts represented 22.8% and 21.6% of gross receivables (net of contractual allowance adjustments) as of June 30, 2010 and December 31, 2009, respectively.  Unforeseen future developments could lead to changes in the Company’s provision for doubtful accounts levels and future allowance for doubtful accounts percentages, which could materially impact the overall financial results, financial position or cash flows of the Company.  For example, a one percentage point increase in the allowance for doubtful accounts as a percentage of gross receivables (net of allowances for contractual adjustments, and prior to allowances for doubtful accounts) as of June 30, 2010 would result in an increase to the provision for doubtful accounts and related allowance for doubtful accounts on the balance sheet of approximately $15.1 million pretax.

The following table is an aging of the Company’s June 30, 2010, March 31, 2010 and December 31, 2009 gross accounts receivable (net of allowances for contractual adjustments, and prior to allowances for doubtful accounts), aged based on payment terms and categorized based on the four primary overall types of accounts receivable characteristics (in thousands):

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	June 30, 2010
	Current and 0-180 Days Past-Due		181 Days and Over Past-Due		Total
Medicare (Part D and Part B), Medicaid
and Third-Party payors	$	283,819	$	184,568	$	468,387
Facility payors		403,625		355,367		758,992
Private Pay payors		96,088		158,658		254,746
CRO		20,790		2,392		23,182
Total gross accounts receivable
(net of contractual allowance adjustments)	$	804,322	$	700,985	$	1,505,307
	March 31, 2010
Medicare (Part D and Part B), Medicaid
and Third-Party payors	$	292,455	$	179,136	$	471,591
Facility payors		416,360		358,532		774,892
Private Pay payors		100,794		152,046		252,840
CRO		20,723		1,944		22,667
Total gross accounts receivable
(net of contractual allowance adjustments)	$	830,332	$	691,658	$	1,521,990
	December 31, 2009
Medicare (Part D and Part B), Medicaid
and Third-Party payors	$	324,942	$	177,054	$	501,996
Facility payors		407,151		361,860		769,011
Private Pay payors		106,321		142,485		248,806
CRO		19,121		2,264		21,385
Total gross accounts receivable
(net of contractual allowance adjustments)	$	857,535	$	683,663	$	1,541,198

Inventories

The Company receives discounts, rebates and/or other price concessions (“Discounts”) relating to purchases from its suppliers and vendors.  When recognizing the related receivables associated with these Discounts, Omnicare accounts for these Discounts as a reduction of cost of goods sold and inventories.  The Company records its estimates of Discounts earned during the period on the accrual basis of accounting, giving proper consideration to whether those Discounts have been earned based on the terms of  applicable arrangements, and giving proper consideration to authoritative guidance relating to customer payments and incentives.  Receivables related to Discounts are regularly adjusted based on the best available information, and to actual amounts as cash is received and the applicab le arrangements are settled.  The aggregate amount of these adjustments have not been significant to the Company’s operations.

Goodwill

Given the substantial amount of the excess of fair value over carrying value, none of the Company’s reporting units were considered to be “at risk” of failing step one of Omnicare’s most recent goodwill impairment analysis.

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Legal Contingencies

The status of certain legal proceedings has been updated at the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements, and the “Legal Proceedings” section at Part II, Item 1 of this Filing.

Recently Issued Accounting Standards

Information pertaining to recently issued accounting standards is further discussed at the “Recently Issued Accounting Standards” section of the “Interim Financial Data, Description of Business and Summary of Significant Accounting Policies” note of the Notes to Consolidated Financial Statements of this Filing.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information

In addition to historical information, this report contains certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements include, but are not limited to, all statements regarding the intent, belief or current expectations regarding the matters discussed or incorporated by reference in this document (including statements as to “beliefs,” “expectations,” “anticipations,” “intentions” or similar words) and all statements which are not statements of historical fact.  Such forward-looking statements, together with other statements that are not historical, are based on management’s current expectations and involve known and unknown risks, uncerta inties, contingencies and other factors that could cause results, performance or achievements to differ materially from those stated.  The most significant of these risks and uncertainties are described in the Company’s Form 10-K, Form 10-Q and Form 8-K reports filed with the Securities and Exchange Commission and include, but are not limited to: overall economic, financial, political and business conditions; trends in the long-term healthcare, pharmaceutical and contract research industries; the ability to attract new clients and service contracts and retain existing clients and service contracts; the ability to consummate pending acquisitions; trends for the continued growth of the Company’s businesses; trends in drug pricing; delays and reductions in reimbursement by the government and other payors to customers and to the Company; the overall financial condition of the Company’s customers and the ability of the Company to assess and react to such financial condition of its cust omers; the ability of vendors and business partners to continue to provide products and services to the Company; the continued successful integration of acquired companies; the continued availability of suitable acquisition candidates; the ability to attract and retain needed management; competition for qualified staff in the healthcare industry; variations in demand for the Company’s products and services; variations in costs or expenses; the ability to implement productivity, consolidation and cost reduction efforts and to realize anticipated benefits; the ability of clinical research projects to produce revenues in future periods; the potential impact of legislation, government regulations, and other government action and/or executive orders, including those relating to Medicare Part D, including its implementing regulations and any subregulatory guidance, reimbursement and drug pricing policies and changes in the interpretation and application of such policies, including changes in calculation of a verage wholesale price; government budgetary pressures and shifting priorities; federal and state budget shortfalls; efforts by payors to control costs; changes to or termination of the Company’s contracts with Medicare Part D plan sponsors or to the proportion of the Company’s Part D business covered by specific contracts; the outcome of litigation; potential liability for losses not covered by, or in excess of, insurance; the impact of differences in actuarial assumptions and estimates as compared to eventual outcomes; events or circumstances which result in an impairment of assets, including but not limited to, goodwill and identifiable intangible assets; the final outcome of divestiture activities; market conditions; the outcome of audit, compliance, administrative, regulatory, or investigatory reviews; volatility in the market for the Company’s stock and in the financial markets generally; access to adequate capital and financing; changes in international economic and political conditi ons and currency fluctuations between the U.S. dollar and other currencies; changes in tax laws and regulations; changes in accounting rules and standards; and costs to comply with the Company’s Corporate Integrity Agreements.  Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, the Company’s actual results, performance or achievements could differ materially from those expressed in, or implied by, such forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  Except as otherwise required by law, the Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Omnicare’s primary market risk exposure relates to variable interest rate risk through its borrowings.  Accordingly, market risk loss is primarily defined as the potential loss in earnings due to higher interest rates on variable-rate debt of the Company.  The modeling technique used by Omnicare for evaluating interest rate risk exposure involves performing sensitivity analysis on the variable-rate debt, assuming a change in interest rates of 100 basis-points.  The Company’s debt obligations at June 30, 2010 include $250.0 million outstanding under its fixed-rate 6.125% Senior Notes, due 2013; $7.9 million outstanding under its fixed-rate 6.75% Senior Notes, due 2013; $525 million outstanding under its fixed-rate 6.875% Senior Notes, due 2015; $400 million outstanding under its fixed rate 7.75% Senior Notes due 2020, $345.0 million outstanding under its fixed-rate 4.00% Convertible Debentures, due 2033; and $977.5 million outstanding under its fixed-rate 3.25% Convertible Debentures, due 2035 (with an optional repurchase right, at par, of holders on December 15, 2015).  In connection with its offering of $400.0 million of 7.75% Senior Notes during 2010, the Company entered into a Swap Agreement on all $400.0 million of its aggregate principal amount of the 7.75% Senior Notes (the “7.75% Swap Agreement”).  Under the 7.75% Swap Agreement, which hedges against exposure to long-term U.S. dollar interest rates, the Company receives a fixed rate of 7.75% and pays a floating rate based on LIBOR with a maturity of six months, plus a spread of 3.87%.  The estimated LIBOR-based floating rate (including the 3.87% spread) was 4.61% at June 30, 2010 (a 100 basis-point change in the interest rate would increase or decrease pretax interest expense by approximately $4.0 m illion per year).  The 7.75% Swap Agreement, which matches the terms of the 7.75% Senior Notes, is designated and accounted for as a fair value hedge.  The Company is accounting for the 7.75% Swap Agreement in accordance with the authoritative guidance on derivatives and hedging, so changes in the fair value of the 7.75% Swap Agreement are offset by changes in the recorded carrying value of the related 7.75% Senior Notes.  The fair value of the 7.75% Swap Agreement is recorded as a noncurrent asset or (liability), with an offsetting increase or (decrease), respectively, to the book carrying value of the related 7.75% Senior Notes, and amounted to approximately $8.7 million at the end of the 2010 second quarter.  Additionally, at June 30, 2010, the fair value of Omnicare’s variable rate debt facilities approximated the carrying value, as the effective interest rates fluctuate with changes in market rates.

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The fair value of the Company’s fixed-rate debt facilities is based on quoted market prices and is summarized as follows (in thousands):

Fair Value of Financial Instruments

	June 30, 2010				December 31, 2009
Financial Instrument:	Book Value		Fair Value		Book Value		Fair Value
6.125% senior subordinated notes, due 2013, gross	$	250,000	$	250,500	$	250,000	$	248,000
6.75% senior subordinated notes, due 2013		7,934		8,100		225,000		219,500
6.875% senior subordinated notes, due 2015		525,000		529,500		525,000		528,500
7.75% senior subordinated notes, due 2020		400,000		407,500		–		–
4.00% junior subordinated convertible debentures, due 2033
Carrying value		200,155		–		199,071		–
Unamortized debt discount		144,845		–		145,929		–
Principal amount		345,000		245,700		345,000		254,400
3.25% convertible senior debentures, due 2035
Carrying value		786,840		–		773,120		–
Unamortized debt discount		190,660		–		204,380		–
Principal amount		977,500		813,800		977,500		801,600

Embedded in the Old Trust PIERS, the New Trust PIERS and the 3.25% Convertible Debentures are two derivative instruments, specifically, a contingent interest provision and a contingent conversion parity provision.  In addition, the 3.25% Convertible Debentures include an interest reset provision.  The embedded derivatives are periodically valued, and at period end, the values of the derivatives embedded in the Old Trust PIERS, the New Trust PIERS and the 3.25% Convertible Debentures were not material.  However, the values are subject to change, based on market conditions, which could affect the Company’s future consolidated results of operations, financial position or cash flows.

The Company has operations and revenue that occur outside of the U.S. and transactions that are settled in currencies other than the U.S. dollar, exposing it to market risk related to changes in foreign currency exchange rates.  However, the substantial portion of the Company’s operations and revenues and the substantial portion of the Company’s overall consolidated cash settlements are exchanged in U.S. dollars.  Therefore, changes in foreign currency exchange rates do not represent a substantial market risk exposure to the Company.

The Company does not have any financial instruments held for trading purposes.

ITEM 4 - CONTROLS AND PROCEDURES

(a)           Under applicable SEC regulations, management of a reporting company, with the participation of the principal executive officer and principal financial officer, must periodically evaluate the Company’s “disclosure controls and procedures,” which are defined generally as controls and other procedures of a reporting company designed to ensure that information required to be disclosed by the reporting company in its periodic reports filed with the SEC (such as this Form 10-Q) is recorded, processed, accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding disclosure.  Omnicare is an acquisitive company that continuously acquires and integrates new businesses.  Throughout and fol lowing an acquisition, Omnicare focuses on analyzing the acquiree’s procedures and controls to determine their effectiveness and, where appropriate, implements changes to conform them to the Company’s disclosure controls and procedures.  The Company’s Interim Chief Executive Officer and Chief Financial Officer evaluated the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q and concluded that they are effective.

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(b)           There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s quarter ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION:

ITEM 1 - LEGAL PROCEEDINGS

On May 18, 2006, an antitrust and fraud action entitled Omnicare, Inc. v. UnitedHealth Group, Inc., et al., 2:06-cv-00103-WOB, was filed by the Company in the United States District Court for the Eastern District of Kentucky against UnitedHealth Group, Inc., PacifiCare Health Systems, Inc., and RxSolutions, Inc. d/b/a Prescription Solutions, asserting claims of violations of federal and state antitrust laws, civil conspiracy and common law fraud arising out of an alleged conspiracy by defendants to illegally and fraudulently coordinate their negotiations with the Company for Medicare Part D contracts as part of an effort to defraud the Company and fix prices.  The complaint seeks, among other t hings, damages, injunctive relief and reformation of certain contracts.  On June 5, 2006, the Company filed a first supplemental and amended complaint in which it asserted the identical claims.  In an order dated November 9, 2006, a motion by defendants to transfer venue to the United States District Court for the Northern District of Illinois was granted, but a motion to dismiss the antitrust claims was denied without prejudice, with leave to refile in the transferee court.  On January 16, 2009, the United States District Court for the Northern District of Illinois granted a motion for summary judgment filed by the defendants.  On January 21, 2009, the Company filed a Notice of Appeal of the judgment and the related orders to the United States Court of Appeals for the Seventh Circuit.  On June 9, 2009, the Company filed its appellate brief in the Seventh Circuit Court of Appeals.  On July 10, 2009, defendants filed their appellate brief, and on Jul y 23, 2009, the Company filed its reply brief.  The Seventh Circuit Court of Appeals heard oral argument on the matter on November 13, 2009 and thereafter took the appeal under submission.

On April 14, 2010, a purported shareholder derivative action, entitled Manville Personal Injury Settlement Trust v. Gemunder, et al., Case No. 10-CI-01212, was filed in Kentucky State Court, Kenton Circuit, against the members of the Board and certain current and former officers of the Company, individually, purporting to assert claims for breach of fiduciary duty, unjust enrichment, gross mismanagement, and waste of corporate assets arising out of alleged violations of federal and state laws prohibiting the payment of illegal kickbacks and the submission of false claims in connection with the Medicare and Medicaid healthcare programs. Plaintiff alleges that the Board and senior management caused the Company to violate these laws, which has resulted in over $100 million in fines and penalties paid by Omnicare and exposed the Company and certain individual defendants to potential civil and criminal liability. On June 21, 2010, defendants filed a motion to dismiss theaction in its entiretyon the grounds that plaintiff failed to make a pre-suit demand on Omnicare's board prior to filing the case, or to adequately allege that such a demandwould have been futile,and that the complaint fails to state a claim upon which relief can be granted. Plaintiff's response to that motion is due August 13, 2010. The Company believes that the action is without merit and intends to continue to defend itself vigorously.

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On April 2, 2010, a purported class action lawsuit, entitled Spindler, et al. v. Johnson & Johnson Corp., Omnicare, Inc. and Does 1-10, Case No. CV-10-1414, was filed in the United States District Court for the Northern District of California, San Francisco Division, against Johnson & Johnson, the Company and certain unnamed defendants asserting violations of federal antitrust law and California unfair competition law arising out of certain arrangements between Johnson & Johnson and the Company.  Plaintiffs allege, among other things, that the Company violated these laws by entering into agreements with J&J to promote J&J products.  On June 28, 2010, Johnson & Johnson and the Company filed motions to dismiss the complaint claiming that plaintiffs failed to state a claim.  In response, plaintiffs agreed to withdraw their complaint and filed an amended complaint on July 21, 2010.  The Company's response to the amended complaint is due on September 7, 2010.  The Company intends to mount a vigorous defense to the claims, which it believes are entirely without merit.

On January 8, 2010, a qui tam complaint, entitled United States ex rel. Resnick and Nehls v. Omnicare, Inc., Morris Esformes, Phillip Esformes and Lancaster Ltd. d/b/a Lancaster Health Group, No. 1:07cv5777, that was filed under seal with the U.S. District Court in Chicago, Illinois was unsealed by the court.  The U.S. Department of Justice and the State of Illinois have notified the court that they have declined to intervene in this action.  The complaint was brought by Adam Resnick and Maureen Nehls as private party “qui tam relators” on behalf of the federal government and two state governments.  The relators subsequently amended their complaint and served the Company on July 8, 2010.  The action alleges civil violations of t he False Claims Act and certain state statutes based on allegations that Omnicare acquired certain institutional pharmacies at above-market rates in violation of the Anti-Kickback Statute and applicable state statutes.  The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

On or about March 12, 2010, a qui tam complaint entitled State of Illinois, ex rel. Adam B. Resnick and Maureen Nehls v. Omnicare, Inc. Morris Esformes, Phillip Esformes, and Tim Dacy, No. D6 L 1926 that was filed under seal in Illinois state court, was unsealed by the court.  The State of Illinois notified the court that it declined to intervene in the action.  This complaint was brought by the same two qui tam relators, Adam Resnick and Maureen Nehls, that brought the complaint in the United States District Court in Chicago described above.  This complaint is based on allegations nearly identical to a portion of the allegations contained in that federal action.  The Company has not been served with the complaint in this act ion.  The Company believes that the allegations are without merit and intends to vigorously defend itself in this action if pursued.

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On June 11, 2010, a qui tam complaint, entitled United States ex rel. Stone v. Omnicare Inc., No. 1:09cv4319, that was filed under seal with the U.S. District Court in Chicago, Illinois was unsealed by the court.  The U.S. Department of Justice and the various states named in the complaint have notified the court that they have declined to intervene in this action.  The complaint was brought by John Stone, the Company’s former Vice President of Internal Audit, as a private party qui tam relator on behalf of the federal government and several state governments.  The action alleges civil violations of the False Claims Act and certain state statutes based on allegations that the Company submitted claims for reimbursement for certain ancillary serv ices that did not conform with Medicare and Medicaid regulations, submitted claims for reimbursement from newly acquired pharmacies that were in violation of certain Medicaid and Medicare regulations, violated certain FDA regulations regarding the storage and handling of a particular drug, and violated certain Medicaid billing regulations relating to usual and customary charges.  Relator also asserts against the Company a retaliatory discharge claim under the False Claims Act.  The Company believes that the allegations are without merit and intends to vigorously defend itself in this action if pursued.

As previously disclosed, the U.S. Attorney’s Office, District of Massachusetts had been investigating allegations under the False Claims Act, 31 U.S.C. (§) 3729, et seq. and various state false claims statutes in five qui tam complaints (Maguire, Kammerer, Lisitza and two sealed complaints) concerning the Company’s relationships with certain manufacturers and distributors of pharmaceutical products and certain customers, as well as with respect to contracts with certain companies acquired by the Company.

The complaints in these cases, which have been dismissed with prejudice by the relators pursuant to the settlement described below (including the two sealed complaints, which have now been unsealed as part of the settlement), alleged that the Company violated the False Claims Act when it submitted claims for name brand drugs when actually providing generic versions of the same drug to nursing homes; provided consultant pharmacist services to its customers at below-market rates to induce the referral of pharmaceutical business; accepted discounts from drug manufacturers in return for recommending that certain pharmaceuticals be prescribed to nursing home residents; accepted rebates, post-purchase discounts, grants and other forms of remuneration from drug manufacturers in return for purchasing pharmaceuticals from those manufacture rs and taking steps to increase the purchase of those manufacturers’ drugs; made false statements and omissions to physicians in connection with its recommendations of those pharmaceuticals; substituted certain pharmaceuticals without physician authorization; accepted payments from certain generic drug manufacturers in return for entering into purchase arrangements with them; acquired certain institutional pharmacies at above-market rates to obtain contracts between those pharmacies and nursing homes; and made a payment to certain nursing home chains in return for the referral of pharmaceutical business.

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On November 2, 2009, the Company entered into a civil settlement agreement, without any finding of wrongdoing or any admission of liability, finalizing a previously disclosed agreement in principle, under which the Company has paid the federal government and participating state governments $98 million plus interest from June 24, 2009 (the date of the agreement in principle referenced above) and related expenses to settle various alleged civil violations of federal and state laws.  The settlement agreements release the Company from claims that the Company allegedly violated various federal and state laws due to the Company having allegedly made a payment to certain nursing home chains in return for the referral of pharmaceutical business; allegedly provided consultant pharmacist services to its customers at rates below the Com pany's cost of providing the services and below fair market value to induce the referral of pharmaceutical business; allegedly accepted a payment from a generic drug manufacturer allegedly in exchange for purchasing that manufacturer’s products and recommending that physicians prescribe such products to nursing home patients; and allegedly accepted rebates, grants and other forms of remuneration from a drug manufacturer to induce the Company to recommend that physicians prescribe one of the manufacturer’s drugs, and the rebate agreements conditioned payment of the rebates upon the Company engaging in an “active intervention program” to convince physicians to prescribe the drug and requiring that all competitive products be prior authorized for the drug’s failure, where the Company failed to disclose to physicians that such intervention activities were a condition of it receiving such rebate payments.

The Company denies the contentions of the qui tam relators and the federal government as set forth in the settlement agreement and the complaints.  All 50 states and the District of Columbia have participated in the settlement.  In addition, the Department of Justice has advised the Company that it has no present intention of pursuing an investigation and/or filing suit under the False Claims Act against the Company with respect to allegations in the qui tam complaints that, during 1999-2003, pharmaceutical manufacturers named as defendants in the complaints made payments to the Company in return for the Company recommending and/or purchasing such manufacturers' drugs.

Pursuant to stipulations of dismissal executed in connection with the settlement agreement, the five complaints were dismissed.  As part of the settlement agreement, the Company also entered into an amended and restated corporate integrity agreement (“CIA”) with the Department of Health and Human Services Office of the Inspector General with a term of five years from November 2, 2009.  Pursuant to the CIA, the Company is required, among other things, to (i) create procedures designed to ensure that each existing, new or renewed arrangement with any actual or potential source of health care business or referrals to Omnicare or any actual or potential recipient of health care business or referrals from Omnicare does not violate the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b) or related regulations, directives and guidance, including creating and maintaining a database of such arrangements; (ii) retain an independent review organization to review the Company’s compliance with the terms of the CIA and report to OIG regarding that compliance; and (iii) provide training for certain Company employees as to the Company’s requirements under the CIA.  The requirements of the Company’s prior corporate integrity agreement obligating the Company to create and maintain procedures designed to ensure that all therapeutic interchange programs are developed and implemented by Omnicare consistent with the CIA and federal and state laws for obtaining prior authorization from the prescriber before making a therapeutic interchange of a drug and to maintain procedures for the accurate preparation and submission of claims for federal health care program beneficiaries, including beneficiaries in hospice programs, have been incorporated into the amended and restated CIA without modification.  The requirements of the CIA are expected to result in increased costs to maintain the Company’s compliance program and greater scrutiny by federal regulatory authorities.  Violations of the corporate integrity agreement could subject the Company to significant monetary penalties.  Consistent with the CIA, the Company is reviewing its contracts to ensure compliance with applicable laws and regulations.  As a result of this review, pricing under certain of its consultant pharmacist services contracts will need to be increased, and there can be no assurance that such pricing will not result in the loss of certain contracts.

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On February 2 and February 13, 2006, respectively, two substantially similar putative class action lawsuits, entitled Indiana State Dist. Council of Laborers & HOD Carriers Pension & Welfare Fund v. Omnicare, Inc., et al., No. 2:06cv26 (“HOD Carriers”), and Chi v. Omnicare, Inc., et al., No. 2:06cv31 (“Chi”), were filed against Omnicare and two of its officers in the United States District Court for the Eastern District of Kentucky purporting to assert claims for violation of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeking, among other things, compensatory damages and injunctive relief.  The complaints, which purp orted to be brought on behalf of all open-market purchasers of Omnicare common stock from August 3, 2005 through January 27, 2006, alleged that Omnicare had artificially inflated its earnings by engaging in improper generic drug substitution and that defendants had made false and misleading statements regarding the Company’s business and prospects.  On April 3, 2006, plaintiffs in the HOD Carriers case formally moved for consolidation and the appointment of lead plaintiff and lead counsel pursuant to the Private Securities Litigation Reform Act of 1995.  On May 22, 2006, that motion was granted, the cases were consolidated, and a lead plaintiff and lead counsel were appointed.  On July 20, 2006, plaintiffs filed a consolidated amended complaint, adding a third officer as a defendant and new factual allegations primarily relating to revenue recognition, the valuation of receivables and the valuation of inventories.
60; On October 31, 2006, plaintiffs moved for leave to file a second amended complaint, which was granted on January 26, 2007, on the condition that no further amendments would be permitted absent extraordinary circumstances.  Plaintiffs thereafter filed their second amended complaint on January 29, 2007.  The second amended complaint (i) expands the putative class to include all purchasers of Omnicare common stock from August 3, 2005 through July 27, 2006, (ii) names two members of the Company’s board of directors as additional defendants, (iii) adds a new plaintiff and a new claim for violation of Section 11 of the Securities Act of 1933 based on alleged false and misleading statements in the registration statement filed in connection with the Company’s December 2005 public offering, (iv) alleges that the Company failed to timely disclose its contractual dispute with UnitedHealth Group, Inc. and its affiliates (“United”), and (v) alleges that the Company fai led to timely record certain special litigation reserves.  The defendants filed a motion to dismiss the second amended complaint on March 12, 2007, claiming that plaintiffs had failed adequately to plead loss causation, scienter or any actionable misstatement or omission.  That motion was fully briefed as of May 1, 2007.  In response to certain arguments relating to the individual claims of the named plaintiffs that were raised in defendants’ pending motion to dismiss, plaintiffs filed a motion to add, or in the alternative, to intervene an additional named plaintiff, Alaska Electrical Pension Fund, on July 27, 2007.  On October 12, 2007, the court issued an opinion and order dismissing the case and denying plaintiffs’ motion to add an additional named plaintiff.  On November 9, 2007, plaintiffs filed a notice of appeal with the United States Court of Appeals for the Sixth Circuit with respect to the dismissal of their case.  Oral argume nt was held on September 18, 2008.  On October 21, 2009, the Sixth Circuit Court of Appeals generally affirmed the district court’s dismissal, dismissing plaintiff’s claims for violation of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, as well as affirming the denial of Alaskan Electrical Pension Fund’s motion to intervene.  However, the appellate court reversed the dismissal of the claim brought for violation of Section 11 of the Securities Act of 1933, remanding the case to the district court for further proceedings, including application of the rule requiring plaintiffs to allege fraud with particularity to their Section 11 claim.  On November 3, 2009, plaintiffs filed a motion in the Court of Appeals seeking a rehearing or a rehearing en banc with respect to a single aspect of the Court's decision, namely, whether the federal rule requiring pleading with particularity should apply to their claim under Section 11 of the S ecurities Act.  On December 16, 2009, that petition was denied, and on January 13, 2010, that Court issued its mandate by which the Section 11 claim was remanded to the district court for further proceedings consistent with the decision and order of October 21, 2009.  At a conference on March 4, 2010, the district court stayed further proceedings pending the resolution of plaintiffs’ anticipated petition to the U. S. Supreme Court for a writ of certiorari.  Plaintiffs filed their petition for a writ of certiorari on May 14, 2010.  The petition is now fully briefed and awaiting determination.

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The Company is in various stages of discussions with governmental/regulatory authorities responsible for enforcing the laws and regulations to which Omnicare is subject.  In light of discussions Omnicare is currently having regarding resolution of certain regulatory matters with various states, as referenced above, a provision of $24.2 million pretax has been recorded in the second quarter of 2010 for the Company’s aggregate estimate for anticipated payments to resolve such matters.  It is expected that any such resolutions will not include an admission of liability or wrongdoing by the Company.

Information pertaining to other Legal Proceedings involving the Company is further discussed in the “Commitments and Contingencies” note of the “Notes to Consolidated Financial Statements” of this Filing.

Although the Company cannot predict the ultimate outcome of the matters described in the preceding paragraphs other than as disclosed and elsewhere in this Filing, there can be no assurance that the resolution of these matters will not have a material adverse impact on the Company’s consolidated results of operations, financial position or cash flows.

As part of its ongoing operations, the Company is subject to various inspections, audits, inquiries, investigations and similar actions by governmental/regulatory authorities responsible for enforcing laws and regulations to which the Company is subject, including reviews of individual Omnicare pharmacy's reimbursement documentation and administrative practices.

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ITEM 1A - RISK FACTORS

The Omnicare 2009 Annual Report on Form 10-K includes a detailed discussion of our risk factors.  The information presented below updates and should be read in conjunction with the risk factors and information disclosed in that Form 10-K.

Risks Relating to Our Business

Federal and state healthcare legislation has significantly impacted our business, and future legislation and regulations are likely to affect us.

Over the years, federal legislation has resulted in major changes in the healthcare system, which significantly affected healthcare providers.  Under PPS, Medicare pays SNFs a fixed fee per patient per day based upon the acuity level of the resident, covering substantially all items and services furnished during a Medicare-covered stay, including pharmacy services.  PPS initially resulted in a significant reduction of reimbursement to SNFs.  Congress subsequently sought to restore some of the reductions in reimbursement resulting from PPS.  Although some of the reductions were subsequently mitigated, the PPS fundamentally changed the payment for Medicare SNF services.

In recent years, SNFs have received the full market basket increase to annual rates.  For fiscal year 2009, beginning October 1, 2008, SNFs received a 3.4 percent inflation update that increased overall payments to SNFs by $780 million.  However, for fiscal year 2010, beginning on October 1, 2009, payments to SNFs were reduced by 1.1 percent, or $360 million to SNFs overall, compared to fiscal year 2009 levels. While the payment levels reflect a 2.2 percent market basket inflation update, that amount was more than offset by a 3.3 percent ($1.050 billion) adjustment intended to recalibrate case mix weights to compensate for increased expenditures resulting from refinements made in January 2006.  On July 22, 2010, CMS published a notice with comment period updating SNF PPS rates for FY 2011, which begins October 1, 2010.  CMS estimates that overall estimated payments for SNFs in FY 2011 under the proposed rule would increase by $542 million, or 1.7 percent, compared to 2010 levels.  This payment amount reflects a market basket update of 2.3 percent, reduced by a negative 0.6 percentage adjustment to account for the difference between the forecasted and actual change in the market basket index for FY 2009.

Under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education and Reconciliation Act of 2010 (collectively, the “Affordable Care Act” or “ACA”), the market basket inflation update for SNFs will be reduced by the full so-called “productivity adjustment” beginning in fiscal year 2012.  This means that the market basket inflation increase will be reduced by a percent determined by the Department of Labor Statistics that reflects economy-wide productivity gains in delivering health care services and to encourage more efficient care.  Other ACA provisions impacting SNFs include, among others: a requirement that the Secretary of the Department of Health and Human Services (the “Secretary”) develop a plan for a SNF value-based purchasing pa yment system; the establishment of a national voluntary pilot program to bundle Medicare payments for hospital and post-acute services; new standards relating to quality assurance and performance improvement; a mandatory compliance program requirement; enhanced transparency disclosure and reporting requirements; and strengthened  fraud and abuse and penalty provisions. These or other future reimbursement or operational changes could have an adverse effect on the financial condition of the Company’s SNF clients, which could, in turn, adversely affect the timing or level of their payments to Omnicare.

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The Medicare Part D prescription drug benefit significantly shifted the payor mix for our pharmacy services.  Effective January 1, 2006, the Part D drug benefit permits Medicare beneficiaries to enroll in Part D Plans for their drug coverage.  Medicare beneficiaries generally have to pay a premium to enroll in a Part D Plan, with the premium amount varying from plan to plan, although the Centers for Medicare & Medicaid Services (“CMS”) provides various federal subsidies to Part D Plans to reduce the cost to beneficiaries. Medicare beneficiaries who are also entitled to benefits under a state Medicaid program (so-called “dual eligibles”) have their prescription drug costs covered by the new Medicare drug benefit, unless they elect to opt out of Part D coverage.  Many nursing home residents Omnicare serves are dual eligibles, whose drug costs were previously covered by state Medicaid programs.  In the 2010 year-to-date period, approximately 44% of Omnicare’s revenue was derived from beneficiaries covered under the federal Medicare Part D program.

The Company obtains reimbursement for drugs it provides to enrollees of a given Part D Plan pursuant to the agreement it negotiates with that Part D Plan.  We have entered into such agreements with nearly all Part D Plan sponsors under which we provide drugs and associated services to their enrollees.  We continue to have ongoing discussions with Part D Plans and renegotiate these agreements in the ordinary course.  Further, the proportion of our Part D business serviced under specific agreements may change over time based upon beneficiary choice, reassignment of dual eligibles to different Part D Plans, Part D Plan consolidation and other factors.  As such, reimbursement under these agreements is subject to change.

Moreover, as expected in the transition to a program of this magnitude, certain administrative and payment issues have arisen, resulting in higher operating expenses, as well as outstanding gross accounts receivable (net of allowances for contractual adjustments, and prior to any allowance for doubtful accounts), particularly for copays owed by Part D Plans for dual eligibles and other low income subsidy eligible beneficiaries.  As of June 30, 2010, copays outstanding from Part D Plans were approximately $15 million relating to 2006 and 2007.  The Company is pursuing solutions, including legal actions against certain Part D payors, to collect outstanding copays, as well as certain rejected claims.  Participants in the long-term care pharmacy industry continue to address these issues with CMS and the Part D Plans and attempt to develop solutions.  Among other things, on January 12, 2009, CMS finalized a change in its regulations requiring Part D Plan sponsors to accept and act upon certain types of documentation, referred to as “best available evidence,” to correct co-pays.  On April 15, 2010, CMS issued final rules that make numerous changes to the regulations governing Part D, including certain Part D Plan payment rules and processes.  In particular, a new rule requires that, beginning in 2011, Part D Plans will be required to correct and pay copay amounts within 45 days of receiving “complete information” indicating that a claim adjustment is required based on a beneficiary’s low income subsidy status. The Company believes this will improve its collection of copays from Part D plans.  While many of the other changes in these final rules codify into regulation existing CMS practice, and as such are not expected to have a significant effect , there can be no assurance that this or future regulatory changes to the Part D program will not adversely impact the Company’s results of operations, financial position or cash flows.

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CMS has issued subregulatory guidance on many aspects of the Part D program, including the provision of pharmaceutical services to long-term care residents.  CMS has also expressed some concerns about pharmacies’ receipt of discounts, rebates and other price concessions from drug manufacturers.  For 2007 and 2008, CMS instructed Part D Plan sponsors to require pharmacies to disclose to the Part D Plan sponsor any discounts, rebates and other direct or indirect remuneration designed to directly or indirectly influence or impact utilization of Part D drugs.  The Company reported information specified by CMS with respect to rebates received by the Company for 2007 and the first quarter of 2008 to those Part D Plans which agreed to maintain the confidentiality of such information.  In November 2008, CMS suspended collection of the long-term care pharmacy rebate data from Part D Plan sponsors for calendar years 2008 and 2009.  Instead, CMS developed its plan to collect different non-rebate information to focus plan attention on network pharmacy compliance and appropriate drug utilization management.  The final Part D reporting requirements for calendar year 2010 include instructions for plans to report to CMS the number and cost of formulary versus non-formulary prescription drugs dispensed in the aggregate by each long-term care pharmacy and by all retail pharmacies as a group in the Part D Plan’s service area.  CMS also issued a memo on November 25, 2008 reminding Part D Plan sponsors of the requirement to (1) provide convenient access to network long-term care pharmacies to all of their enrollees residing in long-term care facilities, and (2) exclude payment for drugs that are covered under a Medicare Part A stay that would otherwise satisfy the definition of a Part D drug.  The Company will continue to work with Part D Plan sponsors to ensure compliance with CMS’s evolving policies related to long-term care pharmacy services.

MIPPA includes further reforms to the Part D program.  As of January 1, 2009, the law also requires Part D Plan sponsors to update the prescription drug pricing data they use to pay pharmacies at least every seven days. As of January 1, 2010, the law requires that long-term care pharmacies have between 30 and 90 days to submit claims to a Part D Plan.  The law also expands the number of Medicare beneficiaries who will be entitled to premium and cost-sharing subsidies by modifying previous income and asset requirements, eliminates late enrollment penalties for beneficiaries entitled to these subsidies, and limits the sales and marketing activities in which Part D Plan sponsors may engage, among other things.  On September 18, 2008, CMS published final regulations implementing many of the MIPPA Part D provis ions, and the agency published another interim final rule with comment period on January 16, 2009 implementing additional MIPPA provisions related to drug formularies and protected classes of drugs.

The ACA also makes numerous changes to the Part D benefit, including: providing a $250 payment to Part D beneficiaries who reach the so-called “donut hole” coverage gap during 2010, and gradually eliminating the coverage gap beginning in 2011 and finishing in 2020; requiring manufacturers of certain branded drug and biological products that are on the given Part D plan's formulary to provide, beginning in 2011, a discount equal to 50% of the negotiated price of such drugs when dispensed to beneficiaries not eligible for the low income subsidy during the coverage gap period; permitting the Secretary to establish certain categories of drugs warranting special formulary treatment; requiring Part D plan sponsors to provide additional medication therapy management services; reducing Part D subsidies for high-income beneficiaries (which will result in an increase in such beneficiaries’ premiums, beginning in 2011); and requiring the Secretary, beginning in 2012, to require Part D plan sponsors “to utilize specific, uniform dispensing techniques” as determined by the Secretary, such as weekly, daily, or automated dose dispensing, when dispensing drugs to enrollees in long-term care facilities to reduce prescription drug waste associated with 30-day fills.  The Secretary is required to consult with relevant stakeholders, including nursing facility representatives and residents, pharmacists, retail and long-term care pharmacies, Part D plans and others determined appropriate by the Secretary, in determining what techniques it will require.  Several other of these provisions will require CMS to promulgate regulations to establish the specific requirements under the statute.  The Company cannot predict at this time whether such legislation and its implementing regulations, or future Part D legislation or regulations, will impact its business.

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Moreover, CMS continues to issue guidance on and make revisions to the Part D program.  We are continuing to monitor issues relating to implementation of the Part D benefit, and until further agency guidance is known and until all administrative and payment issues associated with the transition to this massive program are fully resolved, there can be no assurance that the impact of the Part D rules, future legislative changes, or the outcome of other potential developments relating to its implementation on our business, results of operations, financial position or cash flows will not change based on the outcome of any unforeseen future developments.

The MMA also changed the Medicare payment methodology and conditions for coverage of certain items of DMEPOS under Medicare Part B.  Approximately 1% of our revenue is derived from beneficiaries covered under Medicare Part B.  The changes impacted payment levels, clinical conditions for payment, quality standards (applied by CMS-approved accrediting organizations), and competitive bidding requirements.  Only suppliers that are winning bidders will be eligible to provide competitively bid items to Medicare beneficiaries in selected geographic areas, and winning bidders will be paid based on the median of the winning suppliers’ bid for each of the selected items in the region, rather than the Medicare fee schedule amount.

In mid-2007, CMS conducted a first round of bidding for 10 DMEPOS product categories in 10 competitive bidding areas, and announced winning bidders in March 2008.  Due to concerns about implementation of the bidding program in MIPPA, Congress terminated the contracts awarded by CMS in the first round of competitive bidding, and adopted a number of changes to the bidding program.  CMS was required to rebid those areas in 2009, with bidding for round two delayed until 2011.  The delay was financed by reducing Medicare fee schedule payments for all items covered under round one competitive bidding by 9.5 percent nationwide effective January 1, 2009, followed by a 2 percent increase in 2014 with certain exceptions (although as discussed below, this 2 percent scheduled increase was eliminated by the ACA).

Bidding for the new round one of the program began October 21, 2009, and ended December 21, 2009.  Contract suppliers are expected to be announced in June 2010, and the program is scheduled to go into effect January 1, 2011.  We participated in the new bidding process for round one, and were awarded contracts to provide enteral nutrients, equipment and supplies in three regions.  On July 2, 2010, CMS announced that reimbursement to contract suppliers under the Round 1 rebid will average 32 percent below the Medicare DMEPOS fee schedule amounts, with weighted average reimbursement levels for products in the enteral nutrients, equipment and supplies category reduced by 28 percent compared to fee schedule amounts. There can be no assurances that reimbursement levels established through the bidding process or other provisions of the new reimbursement framework will not adversely impact the Company’s results of operations, cash flows, or financial condition.

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The ACA requires the Secretary to expand the number of areas to be included in round two of the competitive bidding program from 79 to 100 of the largest MSAs.  In addition, the ACA requires (rather than permits) the Secretary to use information regarding payments determined under competitive bidding to adjust DMEPOS payments in areas outside of competitive bidding areas beginning in 2016.  Likewise, for items furnished on or after January 1, 2016, the Secretary is directed to continue to adjust prices as additional information is obtained when new items are subject to competitive bidding or when contracts are recompeted. The ACA further revises Medicare payments to DMEPOS suppliers by eliminating the full inflation update to the fee schedule for 2011 through 2014, in addition to a 2% add-on scheduled to be applied in 2014 to those items that had been selected for inclusion in the first round of the DMEPOS competitive bidding program and that had been subject to a 9.5% fee schedule reduction in 2009.  Instead, for 2011 and each subsequent year, rates will be increased by an annual inflation index less the productivity adjustment.   CMS’s proposed physician fee schedule rule for CY 2011, published July 13, 2010, would implement a number of these ACA policies and make other reforms to the DMEPOS competitive bidding program, including implementing a national mail order competitive bidding program for diabetic testing supplies and making other refinements related to the furnishing of diabetes supplies; create an appeals process for suppliers considered to be in breach of contract; and clarifying reimbursement to grandfathered suppliers, among other things.  There can be no assurance that reimbursement levels established through the bidding process or these legislative and regulatory changes will not adversely impact the Company’s results of operations, cash flows, or financial condition.

With respect to Medicaid, many states are facing budget pressures that could result in increased cost containment efforts impacting healthcare providers.  States have considerable latitude in setting payment rates for nursing facility services.  States also have flexibility to establish Medicaid managed care programs without the need to obtain a federal waiver.  Although these waiver programs generally exempt institutional care, including nursing facilities and institutional pharmacy services, some states do use managed care principles in their long-term care programs.  The DRA also gives states greater flexibility to expand access to home and community based services by allowing states to provide these services as an optional benefit without undergoing the waiver approval process, and includes a demonstration to encourage states to provide long-term care services in a community setting to individuals who currently receive Medicaid services in nursing homes.  The ACA contains additional incentives to state Medicaid programs to promote community-based care as an alternative to institutional long-term care services. Such initiatives could increase state funding for home and community-based services, while prompting states to cut funding for nursing facilities.  No assurances can be given that state Medicaid programs ultimately will not change the reimbursement system for long-term care or pharmacy services in a way that adversely impacts the Company.

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The DRA also changed the so-called federal upper limit payment rules for multiple source prescription drugs covered under Medicaid.  The upper limit only applies to drug ingredient costs and does not include dispensing fees, which continue to be determined by the states.  First, the DRA redefined a multiple source drug subject to the upper limit rules to be a covered outpatient drug that has at least one other drug product that is therapeutically equivalent.  Thus, under the DRA, the federal upper limit would be triggered when there were two or more therapeutic equivalents, instead of three or more as was previously the case.  Second, effective January 1, 2007, the DRA changed the federal upper payment limit from 150 percent of the lowest published price for a drug (which is usually the wholesale acquisition cost) to 250 percent of the lowest average manufacturer price (“AMP”).  Congress expected these DRA provisions to reduce federal and state Medicaid spending by $8.4 billion over five years.  On July 17, 2007, CMS issued a final rule with comment period to implement changes to the upper limit rules.  Among other things, the final rule: established a new federal upper limit calculation for multiple source drugs based on 250 percent of the lowest AMP in a drug class; required CMS to post AMP amounts on its Web site; and established a uniform definition for AMP.  Additionally, the final rule provided that sales of drugs to long-term care pharmacies for supply to nursing homes and assisted living facilities (as well as associated discounts, rebates or other price concessions) are not to be taken into account in determining AMP where such sales can be identified with adequate documentation, and that any AMPs which are not at least 40% of the next hig hest AMP will not be taken into account in determining the upper limit amount (the so-called “outlier” test).  However, on December 19, 2007, the United States District Court for the District of Columbia issued a preliminary injunction that enjoins CMS from implementing provisions of the July 17, 2007 rule to the extent that it affects Medicaid reimbursement rates for retail pharmacies under the Medicaid program.  The order also enjoins CMS from posting AMP data on a public Web site or disclosing it to states.  As a result of this preliminary injunction, CMS did not post AMPs or new upper limit prices in late December 2007 based upon the July 17, 2007 final rule despite its earlier planned timetable, and the schedule for states to implement the new upper limits was delayed until further notice.  Separately, on March 14, 2008, CMS published an interim final rule with comment period revising the definition of multiple source drug set forth in the July 17, 200 7 final rule.  In short, the effect of the rule was that federal upper limits would apply in all states unless the state finds that a particular generic drug is not available within that state.  CMS also noted that the regulation is subject to the injunction by the United States District Court for the District of Columbia to the extent that it may affect Medicaid reimbursement rates for pharmacies.  On October 7, 2008, CMS published the final version of this rule, adopting the March 2008 interim final rule with technical changes effective November 6, 2008, although it continues to be subject to an injunction to the extent that it affects Medicaid pharmacy reimbursement rates. Moreover, MIPPA delayed the adoption of the DRA’s new federal upper limit payment rules for Medicaid based on AMP for multiple source drugs and prevented CMS from publishing AMP data before October 1, 2009.  To date, CMS has not issued a new rule or published such AMP data. Consequently, at this time upper payment limits currently in effect were established by CMS under the pre-DRA rules.  It is not clear whether or when CMS will publish new upper limits on additional drugs based upon these rules.

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Pursuant to the ACA, Congress has redefined "average manufacturer price" and "multiple source drug," and has established a new formula for calculating federal upper payment limits.  AMP is now defined as the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to "retail community pharmacies" and by retail community pharmacies purchasing directly from manufacturers.  However, the term expressly excludes a variety of items:  customary prompt payment discounts extended to wholesalers; bona fide service fees paid by manufacturers to wholesalers or retail community pharmacies (including distribution service fees, inventory management fees, product stocking allowances, and fees associated with administrative services agreements and patient care programs, such as medication compliance programs and patient education programs); reimbursement for recalled, damaged, expired or otherwise unsalable returned goods; and payments received from, or rebates and discounts provided to, pharmacy benefit managers, managed care organizations, mail order pharmacies, long-term care providers, or any other entity that does not conduct business as a wholesaler or retail community pharmacy.  The term “retail community pharmacy” is defined as an independent pharmacy, a chain pharmacy, a supermarket pharmacy, or a mass merchandiser pharmacy that is licensed as a pharmacy and dispenses medications to the general public at retail prices; the term expressly excludes pharmacies that dispense prescriptions through the mail, nursing home pharmacies, long-term care facility pharmacies, hospital pharmacies, clinics, charitable or not-for-profit pharmacies, government pharmacies, and pharmacy benefit managers.  T he definition of "multiple source drug" is revised to require that a drug be available for purchase in the United States, rather than in the given state.

The ACA reverses the DRA provision requiring that upper payment limits be established where there are two or more therapeutically equivalent drugs for a multiple source drug, reverting to the pre-DRA requirement for three or more therapeutically equivalents to trigger this requirement.  The ACA’s new formula for federal upper payment limits requires that the Secretary calculate the limits as no less than 175% of the weighted average (determined on the basis of utilization) of the most recently reported monthly AMP available for purchase by retail community pharmacies on a nationwide basis.  The Secretary is required to use a “smoothing process” for AMPs; this may involve use of average monthly amounts reported by manufacturers over a given period (e.g. trailing 12 months) to reduce month-to-month v ariation in reported AMPs.

In addition to reporting AMPs, manufacturers are required to report to CMS the number of units of the product used to calculate its AMP; this data will be necessary to calculate weighted average AMPs determined on the basis of utilization.  Rather than publishing the AMP for each manufacturer's drug, CMS is required to publish only the weighted average AMP.

The ACA provisions technically go into effect October 1, 2010; however, as a practical matter, it appears that CMS will not be able to calculate new upper payment limits prior to December, 2010 at the earliest, since manufacturers will have until November 30, 2010 to report AMPs using the new definition and unit volume.  Since the AMPs reported by manufacturers under the existing DRA rules have not been published, and in any event AMP has been redefined pursuant to the ACA, the Company cannot at present determine what changes, if any, in upper limit prices will result from implementation of the ACA.  Further, given that the ACA requires only that upper limit prices be “not less than” the 175 percent amount described above, it is unclear when, and to what extent, any revisions in AMP-based upper limit pri ces will be implemented.

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With the advent of Medicare Part D, our revenues from state Medicaid programs are substantially lower than has been the case previously.  However, some of our agreements with Part D Plans and other payors have incorporated the Medicaid upper limit rules into the pricing mechanisms for prescription drugs.  We cannot predict the impact of the new law, as compared with current federal upper payment limits, on our business.  Further, there can be no assurance that federal upper limit payments under pre-DRA rules, CMS adoption of a revised rule under the DRA, Congressional action, or other efforts by payors to limit reimbursement for certain drugs will not adversely impact our business.

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009.  This $790 billion economic stimulus package includes a number of health care policy provisions, including approximately $19 billion in funding for health information technology infrastructure and Medicare and Medicaid incentives to encourage doctors, hospitals, and other providers to use health information technology to electronically exchange patients’ health information.  The law also strengthens federal privacy and security provisions to protect personally-identifiable health information. On July 28, 2010, CMS published a final rule implementing the provisions of the ARRA that provide incentive payments to eligible professionals participating in Medicare and Medicaid programs that adopt and successfull y demonstrate meaningful use of certified electronic health record (EHR) technology.  Entities are eligible to begin receiving EHR incentive payments in 2011 (note that providers who receive an incentive payment from the Medicare EHR incentive program are not eligible to also receive certain incentive payment under the MIPPA e-prescribing incentive program).  The final rule specifies the initial criteria that must be met to qualify for an EHR incentive payment; calculation of the incentive payment amounts; payment adjustments under Medicare for eligible providers that fail to demonstrate meaningful use of certified EHR technology; and other program participation requirements.  Also on July 28, 2010, HHS published a related final rule that specifies the Secretary’s adoption of an initial set of standards, implementation, specifications, and certification criteria for EHRs.   In other areas, the ARRA increases Federal Medical Assistance Percentage (“FMAP ”) payments by approximately $87 billion to help support state Medicaid programs in the face of budget shortfalls.  The law also temporarily extends current Medicaid prompt payment requirements to nursing facility and hospital claims, requiring state Medicaid programs to reimburse providers for 90 percent of claims within 30 days of receipt and 99 percent of claims within 90 days of receipt.  The Obama Administration has issued a variety of guidance documents and regulations to implement the new law.  Congress is also considering extending the temporary Medicaid provisions as part of legislation designed to spur job creation, although such legislation has not been enacted to date.  Omnicare continues to review the implementation of the law and assess the potential impact of the various provisions on the Company.

Two other recent actions at the federal level could impact Medicaid payments to nursing facilities.  The Tax Relief and Health Care Act of 2006 modified several Medicaid policies including, among other things, reducing the limit on Medicaid provider taxes from 6 percent to 5.5 percent from January 1, 2008 through September 30, 2011.  On February 22, 2008, CMS published a final rule that implements this legislation, and makes other clarifications to the standards for determining the permissibility of provider tax arrangements.  Provisions of the rule were repeatedly delayed; currently enforcement is delayed until June 30, 2010.  Second, on May 21, 2007, CMS published a rule designed to ensure that Medicaid payments to governmentally operated nursing facilities and certain other health care provide rs are based on actual costs and that state financing arrangements are consistent with the Medicaid statute.  CMS estimates that the rule would save $120 million during the first year and $3.87 billion over five years, but Congress blocked the rule through April 1, 2009.  The American Recovery and Reinvestment Act of 2009 expresses the sense of Congress that the Secretary of Health and Human Services should not promulgate the provider cost limit rule, citing a ruling by the United States District Court for the District of Columbia that the final rule was “improperly promulgated.”

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Broader changes in federal healthcare policy have been adopted in the ACA. The new law seeks to expand access to affordable health insurance through insurance market reforms, the establishment of health insurance “exchanges” through which individuals and small businesses can purchase qualified insurance coverage, expansion of the Medicaid program and the imposition of health insurance mandates on employers and individuals.  The legislation also makes many changes to Medicare and Medicaid provider payments and operations, and directs the Secretary to conduct numerous pilot programs, demonstration projects and studies that could, in the future, lead to alternative healthcare delivery and payment systems. Further, the law empowers the new Independent Payment Advisory Board to recommend changes to the Medicare program to limit its spending growth that will go into effect automatically unless Congress enacts alternative legislation achieving the required level of savings, which could lead to additional changes in provider payments and the organization of the delivery system.

In order to rein in healthcare costs, the Company anticipates that federal and state governments will continue to review and assess alternate healthcare delivery systems, payment methodologies and operational requirements for healthcare providers, including long-term care facilities and pharmacies.  Given the debate regarding the cost of healthcare, managed care, universal healthcare coverage, and other healthcare issues, the Company cannot predict with any degree of certainty the impact of the ACA or additional healthcare initiatives, if any, will have on its business.  Further, the Company receives discounts, rebates and other price concessions from pharmaceutical manufacturers pursuant to contracts for the purchase of their products.  There can be no assurance that any changes in legislation or regulati ons, or interpretations of current law, that would eliminate or significantly reduce the discounts, rebates and other price concessions that the Company receives from manufacturers or that otherwise impact payment available for drugs under federal or state healthcare programs, would not have a material adverse impact on the Company’s overall consolidated results of operations, financial position or cash flows.  Longer term, funding for federal and state healthcare programs must consider the aging of the population; the growth in enrollees as eligibility is potentially expanded; the escalation in drug costs owing to higher drug utilization among seniors; the impact of the Medicare Part D benefit for seniors; the introduction of new, more efficacious but also more expensive medications; and the long-term financing of the entire Medicare program.  Given competing national priorities, it remains difficult to predict the outcome and impact on us of any changes in healthcare policy relati ng to the future funding of the Medicare and Medicaid programs.  Further, Medicare, Medicaid and/or private payor rates for pharmaceutical supplies and services may not continue to be based on current methodologies or remain comparable to present levels.  Any future healthcare legislation or regulation impacting these rates may materially adversely affect the Company’s business.

If we fail to comply with licensure requirements, fraud and abuse laws or other applicable laws, we may need to curtail operations, we could be subject to significant penalties and we may be subject to governmental investigations, claims and litigation.

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Our pharmacy business is subject to extensive and often changing federal, state and local regulations, and our pharmacies are required to be licensed in the states in which they are located or do business.  While we continuously monitor the effects of regulatory activity on our operations and we currently have pharmacy licenses for each pharmacy we operate, the failure to obtain or renew any required regulatory approvals or licenses could adversely affect the continued operation of our business.  We also are subject to federal and state laws imposing registration, repackaging and labeling requirements on certain entities that repackage drugs for distribution; state and federal laws regarding the transfer and shipment of pharmaceuticals; and “drug pedigree” provisions requiring wholesale drug distributors to document a history of the transactions in a drug lot’s chain of distribution.  The long-term care facilities that contract for our services are also subject to federal, state and local regulations and are required to be licensed in the states in which they are located.  The failure by these long-term care facilities to comply with these or future regulations, or to obtain or renew any required licenses, could result in our inability to provide pharmacy services to these facilities and their residents.  We are also subject to federal and state laws that prohibit some types of direct and indirect payments between healthcare providers.  These laws, commonly known as the fraud and abuse laws, prohibit payments intended to induce or encourage the referral of patients to, or the recommendation of, a particular provider of items or services.  Violation of these laws can result in loss of licensure, civil and criminal penalties, and exclusion from the Medic aid, Medicare and other federal healthcare programs.

Health care companies are subject to numerous investigations by various governmental agencies. Further, under the federal False Claims Act, private parties have the right to bring qui tam, or “whistleblower,” suits against companies that submit false claims for payments to, or improperly retain overpayments from, the government.  Some states have adopted similar state whistleblower and false claims provisions.  We have from time to time received, and may in the future receive, government inquiries from federal and state agencies relating to the Company regarding compliance with various health care laws.  These investigations, claims or litigation could result in penalties, fines or other consequences, and there can be no assurance that the resolution of these matters, individually or in the agg regate, will not have a material adverse effect on our results of operations, financial position or cash flows.

Our pharmacies are registered with the appropriate state and federal authorities pursuant to statutes governing the regulation of controlled substances.  The Drug Enforcement Administration (“DEA”) has recently increased scrutiny and enforcement of long-term care pharmacy practices under the federal Controlled Substances Act.  We believe that this increased scrutiny and, in some cases, stringent interpretation of existing regulations, effectively changes longstanding practices for dispensing controlled substances in the long-term care facility setting.  We have been required to modify the controlled substances dispensing procedures at certain of our pharmacies to comply with the regulations as currently interpreted by the DEA.  Heightened enforcement of controlled substances regulatio ns could increase the overall regulatory burden and costs associated with our pharmacy services.  There can be no assurance that this heightened level of enforcement, or any fines or other penalties resulting therefrom, will not materially adversely affect our results of operations, financial condition or cash flows.

We expend considerable resources in connection with our compliance efforts.  We believe that we are in compliance in all material respects with state and federal regulations applicable to our business.  However, we cannot assure you that government enforcement agencies will agree with our assessment, or that we would not be subject to an enforcement action under applicable law.  Moreover, Congress has enacted health reform legislation that expands federal health care fraud enforcement authorities.  The Company cannot predict at this time the costs associated with compliance with such law.

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If we fail to comply with our Corporate Integrity Agreement, we could incur penalties or suffer other adverse consequences; there are costs associated with compliance.

In 2009, the Company entered into an amended and restated Corporate Integrity Agreement (“CIA”) which replaces the Company’s prior corporate integrity agreement entered into in 2006 and subsequently amended in 2007, and which requires, among other things, that the Company maintain and augment its compliance program in accordance with the terms of the agreement.  Pursuant to the CIA, the Company is required, among other things, to (i) create procedures designed to ensure that each existing, new or renewed arrangement with any actual or potential source of health care business or referrals to Omnicare or any actual or potential recipient of health care business or referrals from Omnicare does not violate the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), or related regulations, directives and guidance, i ncluding creating and maintaining a database of such arrangements; (ii) retain an independent review organization to review the Company’s compliance with the terms of the CIA and report to the Office of Inspector General regarding that compliance; and (iii) provide training for certain Company employees as to the Company’s obligations under the CIA.  The requirements of the Company’s prior corporate integrity agreement obligating the Company to, among other things, create and maintain procedures designed to ensure that all therapeutic interchange programs are developed and implemented by Omnicare consistent with the CIA and federal and state laws for obtaining prior authorization from the prescriber before making a therapeutic interchange of a drug and to maintain procedures for the accurate preparation and submission of claims for federal health care program beneficiaries, including beneficiaries in hospice programs, have been incorporated into the amended and restated CIA withou t modification.  The requirements of the CIA are expected to result in increased costs to maintain the Company’s compliance program and could result in greater scrutiny by federal regulatory authorities.  Violations of the corporate integrity agreement could subject the Company to significant monetary penalties or other adverse consequences.  Consistent with the CIA, the Company is reviewing its contracts to ensure compliance with applicable laws and regulations.  As a result of this review, pricing under certain of its consultant pharmacist services contracts will need to be increased, and there can be no assurance that such pricing will not result in the loss of certain contracts.

ITEM 2 - UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

(c)           Purchases of Equity Securities by the Issuer and Affiliated Purchasers

A summary of the Company’s repurchase of Omnicare, Inc. common stock during the quarter ended June 30, 2010 is as follows (in thousands, except per share data):

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Period	Total Number of Shares Purchased(a)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(b)
April 1 - 30, 2010		4	$	28.94		–	$	–
May 1 - 31, 2010		599		25.77		304		192,422
June 1 - 30, 2010		1,679		24.77		1,678		150,926
Total		2,282	$	25.04		1,982	$	150,926

(a) During the second quarter of 2010, the Company purchased 300 shares of Omnicare common stock in connection with its employee benefit plans, including any purchases associated with the vesting of restricted stock awards and the exercise of stock options.  These purchases were not made pursuant to a publicly announced repurchase plan or program.

(b) On May 3, 2010, Omnicare announced that in conjunction with its second quarter 2010 refinancing (as described in the “Debt” note of the Notes to Consolidated Financial Statements), the Company's Board of Directors authorized a new two-year program to repurchase, from time to time, shares of Omnicare's outstanding common stock having an aggregate value of up to $200 million, depending on market conditions and other factors.  In the three and six months ended June 30, 2010, the Company repurchased approximately 2.0 million shares under this program at an aggregate cost of approximately $49 million.  Accordingly, the Company had approximately $151 million of share repurchase authority remaining as of June 30, 2010.

ITEM 6 - EXHIBITS

See Index of Exhibits.

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SIGNATURE

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.

	Omnicare, Inc. Registrant
Date: August 5, 2010	By:	/s/ John L. Workman
		John L. Workman
		Executive Vice President and
		Chief Financial Officer (Principal Financial and Accounting Officer)

INDEX OF EXHIBITS

Number and Description of Exhibit (Numbers Coincide with Item 601 of Regulation S-K)		Document Incorporated by Reference from a Previous Filing, Filed Herewith or Furnished Herewith, as Indicated Below
(3.1)	Restated Certificate of Incorporation of Omnicare, Inc. (as amended)	Form 10-K March 27, 2003
(3.3)	Third Amended and Restated By-Laws of Omnicare, Inc.	Form 8-K December 23, 2008
(10.1)	Separation and Consulting Agreement, effective as of June 29, 2010, among Omnicare, Inc., Omnicare Management Company, MMD Professional Services, LLC and Patrick E. Keefe*	Filed Herewith
(12)	Statement of Computation of Ratio of Earnings to Fixed Charges	Filed Herewith
(31.1)	Rule 13a-14(a) Certification of Interim Chief Executive Officer of Omnicare, Inc. in accordance with Section 302 of the Sarbanes-Oxley Act of 2002	Filed Herewith
(31.2)	Rule 13a-14(a) Certification of Chief Financial Officer of Omnicare, Inc. in accordance with Section 302 of the Sarbanes-Oxley Act of 2002	Filed Herewith
(32.1)	Section 1350 Certification of Interim Chief Executive Officer of Omnicare, Inc. in accordance with Section 906 of the Sarbanes-Oxley Act of 2002**	Furnished Herewith
(32.2)	Section 1350 Certification of Chief Financial Officer of Omnicare, Inc. in accordance with Section 906 of the Sarbanes-Oxley Act of 2002**	Furnished Herewith
(101)	The following materials from the Omnicare, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statement of Cash Flows and (iv) the Notes to Consolidated Financial Statements tagged as blocks of text	As provided in Rule 406T of Regulation S-T, this information is furnished herewith and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securitites Exchange Act of 1934

* Indicates management contract or compensatory arrangement.

** A signed original of this written statement required by Section 906 has been provided to Omnicare, Inc. and will be retained by Omnicare, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

E-1

EX-10.1 2 exhibit10-1.htm KEEFE SEPARATION AND CONSULTING AGREEMENT

Exhibit 10.1

SEPARATION AND CONSULTING AGREEMENT

THIS SEPARATION AND CONSULTING AGREEMENT (“this Agreement”) is made this 29th day of June, 2010 by OMNICARE, INC., a corporation organized and existing under the laws of the State of Delaware, with its principal place of business at 1600 Rivercenter II, 100 East Rivercenter Boulevard, Covington, Kentucky 41011 (the “Company”), OMNICARE MANAGEMENT COMPANY, a corporation organized and existing under the laws of the State of Delaware and a wholly owned subsidiary of the Company, MMD PROFESSIONAL SERVICES, LLC, a limited liability company formed and existing under the laws of the State of Ohio, with its principal place of business at 6358 Turpin Hills Drive, Cincinnati, Ohio 45244 (the “Consultant”) and PATRICK E. KEEFE (the “Executive” or “Agent”).

INTRODUCTION

WHEREAS, Executive is the Executive Vice President and the Chief Operating Officer of the Company;

WHEREAS, Executive is a party to an employment agreement with Omnicare Management Company, dated March 4, 1993, as amended (the “Employment Agreement”);

WHEREAS, Executive desires to retire from employment with the Company and the parties wish to settle their mutual rights and obligations arising from such termination of employment subject to the terms and conditions as hereinafter set forth;

WHEREAS, Executive is the sole Member and Manager of the Consultant; and

WHEREAS, the Company, being cognizant of the substantial level of expertise acquired by Executive during his term of service with the Company, desires to engage Executive, through (and as the Agent of) the Consultant, to render consulting services to the Company as hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, the parties agree as follows:

1.  Cessation of Employment Relationship.

Executive will retire from the Company, effective June 29, 2010 (the “Termination Date”).  Executive hereby resigns, effective as of the Termination Date, from his positions of Executive Vice President and Chief Operating Officer of the Company and from all other positions and offices with the Company and any affiliate of the Company.

2.Payment Obligations.

(a)Severance.  The parties understand that the Executive’s termination of employment with the Company will be treated as a voluntary retirement and that the Executive will not be due any severance or other rights provided under Section 3 of his Employment Agreement.

(b)Stock Options.  As of the Termination Date, Executive will hold nonqualified stock options to purchase 410,315 shares of the common stock of the Company, of which 378,782 will have previously vested.  Pursuant to the terms of the applicable stock option agreements, any unvested stock options shall terminate on the Termination Date and any vested stock options shall remain exercisable for a period of either three (3) years or fifteen (15) months following the Termination Date (as set forth in the applicable stock option agreement).

(c)Restricted Stock.  On the Effective Date (as defined below), Executive will be granted an award of 132,261 shares of restricted stock of the Company pursuant to the restricted stock agreement attached as Exhibit B hereto.  All unvested shares of restricted stock of the Company held by Executive on the Termination Date shall be forfeited on such date.

(d)Other Benefits.  Executive will be paid any amount due under any welfare and other benefit plan of the Company, including the Excess Benefit Plan, in accordance with the terms of each such plan and applicable law.  Except as provided in this Agreement, or under the terms of any such benefit plans, Executive will not be due any other payments or benefits from the Company in connection with his termination of employment.

3.Consulting Services.  Subject to early termination as provided in Section 10 hereof, Consultant shall cause the Agent to provide advisory and consulting services set forth on Exhibit A hereto (the “Consulting Services”) for the Consulting Period (as defined below).

4.  Consulting Period.  The Consulting Services shall be provided for a period of twenty-four months commencing on July 1, 2010 (the “Effective Date”) and continuing for a period of two years (which period, as it may be extended, is hereinafter referred to as the “Consulting Period”).  The Consulting Period shall automatically be extended on the same terms and conditions for an additional period of one year on the second anniversary of the Effective Date and each anniversary date thereafter, unless the Company or the Consultant shall have notified the other party in writing not less than sixty (60) days prior to the expiration of the Consulting Period of such party’s intention to terminate the Consulting Period.

5.Time Commitment.  While the specific hours during which the Consultant and/or the Agent will provide Consulting Services to the Company shall be determined by mutual agreement of the parties, the parties contemplate that the Consultant shall make the Agent available to provide such Consulting Services for an aggregate of 420 hours per year.  The parties acknowledge that such hours of work will be irregular, and that the Consultant or the Agent may be called upon to provide Consulting Services frequently and on a continuing basis over the course of one or more consecutive days or weeks during the Consulting Period, and that such Consulting Services may not be required to be performed at all for one or more other periods of consecutive days or weeks during the Consulting Period.

6.Consulting Fee.  The Company shall pay Consultant a fixed fee during the Consulting Period at the rate of $225,000 per twelve month period (the “Consulting Fee”).  The Consulting Fee shall be payable in equal monthly installments in arrears.

7.Waiver and Release.  The receipt of the payments and benefits provided under this Agreement, including the Consulting Fee and pursuant to Section 2(c) hereof, will be conditioned upon the execution on the date hereof and non-revocation by Executive thereafter of the General Release and Covenant Not to Sue attached as Exhibit C hereto (the “Release”).  If the Release is not executed, valid and irrevocable as of the date that is seven days following the date hereof, then the Unvested Shares shall be forfeited, any unpaid Consulting Fees shall be forfeited and the Company will have the right to terminate the Consulting Period without the notice required by Section 10 hereof.

8.Status.  Consultant and Agent each acknowledge and agree its and his status at all times for services as a consultant hereunder shall be that of an independent contractor, and not as an employee or deemed employee of the Company or any of its affiliates.  The parties hereby acknowledge and agree that all Consulting Fees paid during the Consulting Period shall represent fees for services as an independent contractor, and shall therefore be paid without any deductions or withholdings taken therefrom for taxes or any other purpose.  The Consultant and Agent further acknowledge that the Company makes no warranties as to any tax consequences regarding payment of such fees, and specifically agrees that the determination of any tax liability or other consequences of the payment set forth above is their sole and complete responsibility and that they will pay all federal, state and local taxes assessed on such payments.

9.Business Expenses.  The Company shall reimburse Consultant for reasonable business expenses incurred by Consultant in the performance of the Consulting Services.  Such expenses shall be reimbursed within ten days of Consultant’s furnishing the Company with the documentation in connection with such expenses required by Company policy with regard to reimbursement of expenses.

10.Termination.  The Consulting Period may be terminated by the Company upon sixty (60) days prior written notice to the Consultant at any time.  Following the second anniversary of the Effective Date, the Consulting Period may be terminated by the Consultant upon sixty (60) days prior written notice to the Company.  The Consulting Period shall automatically terminate upon the death or disability of the Agent.  Except for the provisions of Section 11 hereof and any payment obligations of the Company for Consulting Services performed or expenses incurred pursuant to this Agreement by the Consultant prior to the effective date of the termination of the Consulting Period, all rights and obligations of the parties hereunder will expire upon termination of the Consulting Period.

11.Restrictive Covenants.

11.1Noncompetition.  Consultant and Agent each agree that, during the period beginning on the Effective Date and ending on the date that is 24 months following the last day of the Consulting Period (the “Restricted Period”), Consultant and Agent shall not, without the prior written consent of the Company, directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of or become an employee of or consultant to any business which competes, directly or indirectly, with the business as conducted by the Company, any of its subsidiary companies, or any of their respective successors during the Consulting Period.

11.2 Noninterference with Clients or Employees.  The Consultant and Agent each agree that during the Restricted Period, the Consultant and Agent shall not, on the Consultant's or Agent’s own behalf or on behalf of any other person or entity, solicit or in any manner influence or encourage any client, customer, employee or other person or entity that has a business relationship or prospective business relationship with the Company during the Consulting Period to terminate or limit in any way such relationship with the Company, or interfere in any way with such relationship.

11.3Nondisclosure.  Consultant and Agent, and any persons or entities over which Consultant or Agent has control, shall not at any time during or after termination of the Consulting Period, directly or indirectly, use any of the Company proprietary or confidential information for any purpose not associated with Company activities, or disseminate or disclose any such information to any person or entity not affiliated with the Company.  Such Company proprietary or confidential information includes, without limitation, sales methods, prospecting methods, customer lists, computer technology, programs and data, whether online or off-loaded on disk format , methods of presentation and any other plans, programs and materials used in managing, marketing or furthering the Company business.  Upon termination of the Consulting Period, Consultant and Agent will return to the Company all documents, records, notebooks, manuals, computer disks and similar repositories of or containing the Company proprietary or confidential information, including all copies thereof, then in Consultant’s or Agent’s possession or control whether prepared by Consultant, Agent or otherwise.  Consultant and Agent will undertake all reasonably necessary and appropriate steps to insure that the confidentiality of the Company proprietary or confidential information shall be maintained.

11.4Applicability.  The provisions of Sections 11.1 and 11.2 shall apply to, and survive, all terminations of the Consulting Period regardless of the cause or circumstances thereof and whether such termination was voluntary, involuntary or pursuant to notice not to extend the Consulting Period.

11.5Remedies.  In view of the services which Agent has performed and Consultant and Agent will perform for the Company, which are special, unique, extraordinary and intellectual in character, which place Consultant and Agent in a position of confidence and trust with the customers and employees of the Company and which provide or will provide Consultant and Agent with access to confidential financial information, trade secrets, “know-how” and other confidential and proprietary information of the Company, in view of the geographic scope and nature of the business in which the Company is engaged, and recognizing the value of the compensation payable pursuant to the terms of this Agreement, Consultant and Agent each expressly acknowledges that the restrictive covenants set forth in this Agreement are necessary in order to protect and maintain the proprietary interests of the Company and its affiliates and enforcement of such restrictive covenants will not prevent Consultant or Agent from earning a livelihood.  Consultant and Agent each also acknowledges that the scope of the operations of the Company are such that it is reasonable that the restrictions set forth in this Agreement are not more limited as to geographic area than is set forth herein.  Consultant and Agent each further acknowledges that the remedy at law for any breach or threatened breach of this Agreement will be inadequate and, accordingly, that the Company shall, in addition to all other available remedies (including, without limitation, seeking damages), be entitled to injunctive relief.  In the event Consultant or Agent breaches or threatens to breach the provisions of this Section 11, the Company may terminate the Consulting Period without the notice required under Section 10 hereof.  For purposes of this Section 11, all references to the Company will include all affiliates of the Company.

11.6Severability.  Any provision of this Section 11 which is deemed invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction and subject to this section, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of this Section 11 invalid, illegal or unenforceable in any other jurisdiction.  If any covenant should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such covenant shall be modified so that the scope of the covenant is reduced on ly to the minimum extent necessary to render the modified covenant valid, legal and enforceable.

12.Miscellaneous.

12.1Indemnification.  The Company shall indemnify and hold harmless the Consultant and Agent against all losses, claims, damages or liabilities arising out of actions or omissions of the Consultant or Agent in connection with the performance of the Consulting Services in compliance with this Agreement, except to the extent that any such loss, claim, damage or liability results from the gross negligence, willful misconduct or bad faith of the Consultant or Agent; provided, however, that the foregoing indemnification shall cover only claims related to the specific projects assigned to Consultant or Agent during the Consulting Period.

12.2Section 409A Compliance. To the extent applicable, it is intended that this Agreement comply with the provisions of Section 409A of the Internal Revenue Code, and this Agreement shall be construed and applied in a manner consistent with this intent.

12.3Waiver.  Failure of the Company at any time to enforce any provision of this Agreement or to require performance by Consultant of any provisions hereof shall in no way affect the validity of this Agreement or any part hereof or the right of the Company thereafter to enforce its rights hereunder; nor shall it be taken to constitute a condonation or waiver by the Company of that default or any other or subsequent default or breach.

12.4Notices.  All notices or other communications hereunder shall not be binding on either party hereto unless in writing, and delivered to the other party thereto at the following address:

If to the Company:	Omnicare, Inc. 1600 RiverCenter II 100 East RiverCenter Boulevard Covington, Kentucky  41011 Attention: General Counsel
If to the Omnicare Management Company:	Omnicare, Inc. 1600 RiverCenter II 100 East RiverCenter Boulevard Covington, Kentucky  41011 Attention: General Counsel
If to the Consultant:	MMD Professional Services, LLC 6358 Turpin Hills Drive Cincinnati, Ohio 45244 Attention: Patrick E. Keefe
If to the Agent:	6358 Turpin Hills Drive Cincinnati, Ohio 45244

Notices shall be deemed duly delivered upon hand delivery thereof at the above addresses, one day after deposit with a nationally recognized overnight delivery company, or three days after deposit thereof in the United States mails, postage prepaid, certified or registered mail.  Any party may change its address for notice by delivery of written notice thereof in the manner provided.

12.5Assignment.  No rights of any kind under this Agreement shall, without the prior consent of the Company, be transferable to or assignable by Consultant or Agent or any other person or, except as provided by applicable law, be subject to alienation, encumbrance, garnishment, attachment, execution or levy of any kind, voluntary or involuntary.  This Agreement shall be binding upon and shall inure to the benefit of the Company and its respective successors and assigns.

12.6Governing Law.  This Agreement shall be governed by and construed in accordance with the substantive laws of the State of Delaware, without regard to the conflicts of law principles thereof.

12.7Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same document.

12.8Headings.  The headings in this Agreement are intended solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement.

12.9Entire Agreement.  Except as specifically provided in this Agreement, this Agreement entered into among the parties as of the date hereof constitutes the entire understanding and agreement between the parties hereto, and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, concerning the subject matter hereof, including, without limitation, the Employment Agreement.  All negotiations by the parties concerning the subject matter hereof are merged into this Agreement, and there are no representations, warranties, covenants, understandings or agreements, oral or otherwise, in relation thereto by the parties hereto other than those incorporated herein.  No supplement modification or amendment of this Agreement shall be binding unless executed in writing by the parties.

SIGNATURES ON FOLLOWING PAGE

INTENDING TO BE LEGALLY BOUND, the parties or their duly authorized representatives have signed this Agreement as of the date first above written.

COMPANY

/s/ Joel F. Gemunder                                           

By:  Joel F. Gemunder

Title:  Chief Executive Officer

OMNICARE MANAGEMENT COMPANY

/s/ Joel F. Gemunder                                           

By:  Joel F. Gemunder

Title:  Chief Executive Officer

CONSULTANT

/s/ Patrick E. Keefe                                           

By:  Patrick E. Keefe

Title:  Manager

AGENT

/s/ Patrick E. Keefe

Patrick E. Keefe

EXHIBIT A

OMNICARE, INC. AND MMD PROFESSIONAL SERVICES, LLC

The Consulting Services to be provided by Consultant to the Company shall include:

(A)           Assisting the Company in the transition of all responsibilities heretofore held by Patrick E. Keefe, as Executive Vice President and Chief Operating Officer of the Company, to the person or persons, who will succeed to such responsibilities within the Company;

(B)Continued involvement in customer relationships with the Company's larger clients and continued involvement in certain of the Company's key operational initiatives; and

(C)Any other duties mutually agreed to by Consultant and the Chief Executive Officer of the Company.

All such Consulting Services shall be provided solely by Patrick E. Keefe, as the Consultant’s Agent.

All capitalized terms used in this Schedule A shall have the same meanings assigned to such terms in the Separation and Consulting Agreement.

EXHIBIT B

July 1, 2010

Patrick E. Keefe

6358 Turpin Hills Drive

Cincinnati, Ohio 45244

Dear Patrick:

I am pleased to inform you that the Compensation and Incentive Committee of the Board of Directors of Omnicare, Inc. (herein sometimes called the "Company"), at its meeting on June 29, 2010, has granted you 132,261 shares of common stock under the Omnicare, Inc. 2004 Stock and Incentive Plan (the "Plan") with a date of grant of July 1, 2010.  This letter evidences the issuance or transfer of such shares to you today and sets forth the Agreement under which such shares (hereinafter sometimes called the "Restricted Shares") are being issued or transferred to you.

1.   The Restricted Shares are issued or transferred to you subject to the following restrictions:

(a)   As long as you provide services to the Company or a Subsidiary (as defined in paragraph 9 below) and until the restrictions set forth in this subparagraph (a) lapse in accordance with paragraph 5, you will not, except as otherwise specifically required or permitted by this Agreement, sell, exchange, transfer, pledge, hypothecate or otherwise dispose of any of the Restricted Shares or any interest therein.

(b)   During your service with the Company or a Subsidiary, you will not, except as otherwise required or permitted by this Agreement, sell, exchange, transfer, pledge, hypothecate or otherwise dispose of any Restricted Shares, or any interest therein, with respect to which the restrictions on transfer herein imposed have not lapsed ("Non-vested Shares").

2.   Upon the issuance or transfer to you of the Restricted Shares, subject to the restrictions imposed by paragraph 1 of this Agreement, you shall be a stockholder of record of the Company with respect to the Restricted Shares and shall have, subject to the immediately following proviso, all rights of a holder of common stock with respect to such shares (including the right to vote such shares at any meeting of holders of common stock); provided, however, that any dividends declared and paid with respect to Non-vested Shares (“Non-Vested Dividends”) shall be distributable to you in accordance with this paragraph 2.  The Company shall contribute the Non-Vested Dividends to an irrevocable “rabbi trust” (which shall be a grantor trust within the meaning of Sections 671-678 of the Internal Revenue Code of 1986, as amended) fo r your benefit (the “Rabbi Trust”).  As soon as practicable following the vesting of any Non-vested Shares in accordance with paragraph 5 of this Agreement (but in no event more than two and a half months following the date of such vesting), the following amounts will be paid to you: (i) the Non-Vested Dividends, if any, with respect to such shares and (ii) interest on such Non-vested Dividends for the period from the date the applicable dividends were paid to other stockholders to the date of actual payment under this paragraph 2 at a rate equal to the highest interest rate, determined as of the first day of the month in which the applicable dividends were paid to the other stockholders, payable by the Company on any of its outstanding publicly-traded debt (or if no such public debt is then outstanding, the rate at which the Company could then borrow from its primary bank lender) plus 100 basis points (the "Imputed Interest"). In the event that you forfeit any Non-vested Shares in accordance with paragraph 5(b) of this Agreement, you shall forfeit the right to the Non-Vested Dividends and any related Imputed Interest with respect to such shares.  Assets in the Rabbi Trust are not subject to the claims of the Company’s general creditors unless the Company is insolvent or in bankruptcy.Amounts contributed to the Rabbi Trust for your benefit shall be invested as directed by the Company in its sole discretion and you shall not have any claim against the Company with respect to the investment decisions made by the Company.  If at the end of any calendar quarter in which any Non-vested Dividends remain payable to you the amount of such Non-vested Dividends plus the related Imputed Interest accrued as of such date exceeds the value of the assets in the Rabbi Trust allocated to pay such amounts, the Company shall contribute an additional amount to the Ra bbi Trust equal to such excess.  To evidence the restrictions set forth in this Agreement and until such restrictions shall have lapsed, the certificates for the Restricted Shares shall carry a legend to the effect, in form satisfactory to the Company's counsel, that they were issued or transferred subject to, and may be sold or otherwise disposed of only in accordance with, the terms of this Agreement.

3.   Under Section 83(b) of the Internal Revenue Code, you may, within 30 days from the date of grant of the Restricted Shares, make an election which would cause you to be taxed on the value of such Shares based on their Fair Market Value (as defined in the Plan) on the date of grant; otherwise, in the absence of such an election, you will be taxed at the times of the lapses of the restrictions on the Restricted Shares, based on their Fair Market Value at the times of the lapses.  Such taxes may be paid in cash or by the surrender of shares of Omnicare common stock.

4.   In the event that, as the result of a stock dividend, stock split, recapitalization, merger, consolidation, reorganization, or other similar event, you shall, as the owner of Restricted Shares, be entitled, under the terms of the Plan or otherwise, to new or additional or different shares or securities as follows:  (a) such new or additional or different shares or securities shall be deemed "Restricted Shares," (b) all the provisions of this Agreement relating to restrictions and lapse of restrictions shall be applicable thereto, and (c) the certificates or other instruments evidencing such new or additional or different shares or securities shall bear the legend referred to in the last sentence of paragraph 2.  The foregoing restrictions shall not apply to any fractional shares resulting from any such event, or to any preemptive o r other rights to purchase securities to which you, as a holder of Restricted Shares, may become entitled in connection with a public offering of common stock.

5.  

(a)   The restrictions set forth in paragraph 1 above on the transfer of the Restricted Shares shall lapse as to fifty (50) percent of the total grant of Restricted Shares on each of the first two anniversaries of the date of grant, subject to all the then applicable provisions of this Agreement.

(b)   Except as may otherwise be provided in any other agreement between you and the Company, if your service with the Company or a Subsidiary shall, while you hold any Non-vested Shares, terminate by reason of death, disability, retirement under a retirement plan of the Company or a Subsidiary at or after normal retirement age with the consent of the Compensation and Incentive Committee, as a termination without "cause" by the Company following your attainment of age 65 and at least 10 years of service, or a change in control of the Company, the restrictions on transfer applicable to such Non-vested Shares shall lapse in their entirety as of the effective date of such termination of service.  If your service with the Company or a Subsidiary shall, while you hold any Non-vested Shares, be terminated by the Company or if you resign from your servic e with the Company, such Non-vested Shares shall be forfeited by you as of the effective date of such termination, unless such termination results in such shares becoming fully vested upon one of the events specified in the immediately preceding sentence.  For purposes hereof, the term “cause” shall mean embezzlement or misappropriation of corporate funds, commission of a felony, misconduct resulting in material injury to the Company or any Subsidiary, significant activities harmful to the reputation of the Company or any Subsidiary, a significant violation of Company or Subsidiary policy, willful refusal to perform, or substantial disregard of, the duties properly assigned to you, or a significant violation of any contractual obligation to the Company or any Subsidiary.

(c)   If, as and when the restrictions lapse with respect to Restricted Shares pursuant to this paragraph 5, there will be delivered to you, promptly upon your request, certificates free of any legend for a like number of shares in exchange for the certificates for such Restricted Shares bearing the legend referred to in paragraph 2 of this Agreement.

6.   Except as otherwise expressly required or permitted by this Agreement, no right, benefit or interest in the Restricted Shares or under this Agreement shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation.

7.  

(a)   Nothing in paragraph 1 or elsewhere in this  Agreement shall preclude a transfer to your legal representatives following your death or a distribution to the persons provided for in paragraph 7(b)(iii) or shall preclude you, upon  not less than thirty (30) days advance written notice to the Company, from making a gift of any Restricted Shares, or any interest therein,

(i) to one or more of your Immediate Family Members,

(ii) to a trust of which the beneficiary or beneficiaries of the corpus or of the income, or both, is either yourself or one or more of your Immediate Family Members, or both, or

(iii) to a corporation all of the stock of which is owned by you or one or more of your Immediate Family Members, or both.

For the purposes of this provision, an "Immediate Family Member" shall be deemed to be a spouse, child, stepchild, grandchild, parent, brother or sister or child of a brother or sister of yours, whether of the whole or half blood, and whether the relationship arose by adoption.

(b) The term "Donee", as used in this Agreement, shall be deemed to mean

(i) the person, or collectively, all the persons (including a trust or corporation), to whom a gift permitted by paragraph 7(a) has been made by you,

(ii) your legal representatives following your death, and

(iii) the persons to whom Restricted Shares shall be  distributed by your legal representatives as  the persons whom they believe to be entitled  thereto under your will, or, in case of  intestacy, under the laws relating to  intestacy.

(c) In case of any gift, transfer or distribution to a Donee,

(i) the Restricted Shares so given, transferred or  distributed shall continue to be subject to all  the restrictions and other provisions of this  Agreement,

(ii) the certificates for the Restricted Shares so given, transferred or distributed shall bear the legend referred to in paragraph 2 of this  Agreement, and

(iii) the Donee shall, with respect to the Restricted Shares so given, transferred or distributed, have all the powers and shall be required to comply with all the restrictions and other provisions of this Agreement requiring the taking, or refraining from taking, of action to the same extent as you were immediately prior to the making of such gift, transfer or distribution.

8.   Any provision of this Agreement to the contrary, the Company may take such steps as it believes necessary or desirable to obtain sufficient funds from you to pay all taxes, if any, required by law to be withheld in respect of the Restricted Shares or the payment of any amounts from the Rabbi Trust including, but not limited to, requiring payments to the Company by you or on your behalf and/or taking deductions from amounts payable by the Company or the Rabbi Trust to you or on your behalf.

9.   As used in this Agreement, the term "Company, or a Subsidiary" shall mean the Company, its divisions and units, and all corporations or other forms of business association of which shares (or other ownership interests) having 50% or more of the voting power regularly entitled to vote for directors (or equivalent management) or regularly entitled to receive 50% or more of the dividends (or their equivalents) paid on the common stock (or its equivalent) are owned or controlled, directly or indirectly, by the Company.

10.   Each of the parties hereto agrees to execute and deliver all consents and other instruments and to take all other actions deemed necessary or desirable by counsel for the Company to carry out each term of this Agreement.  Without limiting the generality of the foregoing, you shall, if and when requested by the Company, deposit any or all certificates for the Restricted Shares, together with a stock power or other instrument of transfer appropriately executed in blank, with a bank and under a deposit agreement approved by the Company and, following such deposit, certificates for the Restricted Shares shall no longer carry the legend referred to in paragraph 2 of this Agreement, and new certificates shall be issued in place thereof, in which event, each of the parties agrees to give such instructions and to deliver or refrain from delivering s uch notices to the bank acting under such deposit agreement as may be necessary to carry out each term of this Agreement, to the end that all property deposited under such deposit agreement shall be paid, transferred, released or otherwise disposed of in accordance with the terms of this Agreement and each obligation thereunder.  Each party recognizes that the other party has no adequate remedy at law for breach of this Agreement and recognizes, consents and agrees that the other party shall be entitled to an injunction or decree of specific performance directed to the other party and to the bank acting under any such deposit agreement requiring that the provisions of this Agreement be carried out.

11.  

(a)   Any notice to the Company under or pursuant to this Agreement shall be deemed to have been given if and when delivered in person to the Secretary of the Company or if and when mailed by certified or registered mail to the Secretary of the Company at the executive offices of the Company, 100 E. RiverCenter Boulevard, Suite 1600, Covington, KY 41011, or such other address as the Company may from time to time designate in writing by notice to you given pursuant to paragraph 11(b) hereof.

(b)   Any notice to you under or pursuant to this Agreement shall be deemed to have been given if and when delivered to you in person or if and when mailed by certified or registered mail to you at your address hereinabove given or such other address as you may from time to time designate in writing by notice to the Company given pursuant to paragraph 11(a) above.

12.   Notwithstanding any remedy provided for in this Agreement, nothing in this Agreement shall preclude the Company from taking any other action or enforcing any other remedy available to the Company.

13.   This Agreement has been executed pursuant to the Plan, which is hereby incorporated herein by reference.  If any provision of this Agreement shall be inconsistent with any term or condition in the Plan, then the specific term or condition in the Plan shall supersede the conflicting provision in this Agreement as to the shares of common stock covered by the Plan.

14.   This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, and you, and to the extent applicable, each Donee.

15.   THIS AGREEMENT HAS BEEN EXECUTED, AND IT AND THE RESTRICTED SHARES HAVE BEEN OR ARE TO BE DELIVERED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AND THE VALIDITY, INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.

16.   In consideration of your receipt of stock awards on July 1, 2010, you hereby reconfirm your promises and obligations as set forth in the agreement with Omnicare, Inc. (or a subsidiary thereof) governing your service or otherwise containing covenants in favor of Omnicare, Inc. (and/or such subsidiary) in respect of nondisclosure, nonsolicitation and noncompetition.

Very truly yours,

Joel F. Gemunder

Executed and agreed to as of:

Patrick E. Keefe

Date: July 1, 2010

EXHIBIT C

GENERAL RELEASE AND COVENANT NOT TO SUE

I, PATRICK E. KEEFE, in consideration of and subject to the terms and conditions set out in the separation and consulting agreement dated June 29, 2010 (the “Separation and Consulting Agreement”) to which this General Release and Covenant Not to Sue (the “General Release”) is attached, do hereby release and forever discharge and covenant not to sue Omnicare, Inc. and its subsidiaries, affiliates, their directors, members, officers, executives, agents, stockholders, and its or their affiliates, successors and assigns (both individually and in their official capacities) (the “Releasees”), from any and all acti ons, causes of action, covenants, contracts, claims, demands, suits, and liabilities whatsoever, which I ever had, now have or which my heirs, executors, administrators and assigns, or any of them hereafter can, shall or may have by reason of my employment with or severance of my employment from Omnicare, Inc. and its affiliates as of the effective date of the Separation and Consulting Agreement and this General Release.

By signing this General Release, I am providing a complete waiver of all claims against the Releasees that may have arisen, whether known or unknown, up until and including the effective date of this General Release.  This includes, but is not limited to, claims based on Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Age Discrimination in Employment Act of 1967 (including the Older Workers Benefit Protection Act), the Americans With Disabilities Act, the Fair Labor Standards Act, the Equal Pay Act, the Family and Medical Leave Act, the Executive Retirement Income Security Act of 1974 (except as provided below), and all applicable amendments to the foregoing acts and laws, or any common law, public policy, contract (whether oral or written, express or implied) or tort law, and any other local, st ate or Federal law, regulation or ordinance having any bearing whatsoever on the terms and conditions of my employment and the cessation thereof.  This General Release shall not, however, constitute a waiver of any of my rights under (i) the Separation and Consulting Agreement, (ii) any employee benefit plan, program or arrangement of Omnicare, Inc., or (iii) any claims to enforce rights arising under the ADEA or other civil rights statute after I have signed the Separation and Consulting Agreement and this General Release.

I further agree, promise and covenant that, to the maximum extent permitted by law neither, I, nor any person, organization, or other entity acting on my behalf has or will file, charge, claim, sue, or cause or permit to be filed, charged or claimed, any action for damages or other relief (including injunctive, declaratory, monetary or other relief) against the Releasees involving any matter occurring in the past up to and including the date of this General Release, or involving or based upon any claims, demands, causes of action, obligations, damages or liabilities which are the subject of this General Release.  This General Release shall not affect my rights under the Older Workers Benefit Protection Act to have a judicial determination of the validity of this General Release and does not purport to limit any right I may h ave to file a charge under the ADEA or other civil rights statute or to participate in an investigation or proceeding conducted by the Equal Employment Opportunity Commission or other investigative agency.  This General Release does, however, waive and release any right to recover damages under the ADEA or other civil rights statute.

I have been given but declined twenty-one (21) days to review the Separation and Consulting Agreement and this General Release and have been given the opportunity to consult with legal counsel, and I have signed the Separation and Consulting Agreement and I am signing this General Release knowingly, voluntarily and with full understanding of its terms and effects, and I voluntarily accept the benefits and consulting fee provided for in the Separation and Consulting Agreement for the purpose of making full and final settlement of all claims referred to above.  If I have signed this General Release prior to the expiration of the twenty-one (21) day period, I have done so voluntarily.  I also understand that I have seven days after execution to revoke this General Release, and that this General Release will not become effective if I exercise my right to revoke my signature within seven (7) days of execution.

I acknowledge that I have not relied on any representations or statements not set forth in the Separation and Consulting Agreement or this General Release.  I will not disclose the contents or substance of the Separation and Consulting Agreement or this General Release to anyone except my immediate family and any tax, legal or other counsel I have consulted regarding the meaning or effect hereof, and I will instruct each of the foregoing not to disclose the same.

The Separation and Consulting Agreement and this General Release will be governed by and construed in accordance with the laws of the State of Delaware.  If any provision in this General Release is held invalid or unenforceable for any reason, the remaining provisions shall be construed as if the invalid or unenforceable provision had not been included.

IN WITNESS WHEREOF, I have executed this General Release on this 29th day of June.

_____________________________

Patrick E. Keefe

Commonwealth of Kentucky

)  ss.:

County of                                              )

On this _____ day of _________, 2010, before me, the undersigned, a Notary Public in and for said Commonwealth, personally appeared PATRICK E. KEEFE, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and who acknowledged to me that he voluntarily executed the same.

_______________________________

Notary Public

EX-12 3 exhibit12.htm STATEMENT OF COMPUTATION

EXHIBIT 12

Statement of Computation of Ratio of Earnings to Fixed Charges

Omnicare, Inc. and Subsidiary Companies

(in thousands, except ratios)

Unaudited

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Income from continuing operations before income taxes	$	35,280	(1)	$	72,411	(1)	$	122,172	(1)	$	134,253	(1)
Add fixed charges:
Interest expense		36,255			28,699			63,622			58,162
Amortization of discount on convertible notes (3)		7,473			6,927			14,804			13,724
Amortization of debt issuance expense		3,457			1,076			4,698			2,900
Interest portion of rent expense		5,103			5,195			10,434			11,663
Adjusted income	$	87,568		$	114,308		$	215,730		$	220,702
Fixed charges:
Interest expense	$	36,255		$	28,699		$	63,622		$	58,162
Amortization of discount on convertible notes (3)		7,473			6,927			14,804			13,724
Amortization of debt issuance expense		3,457			1,076			4,698			2,900
Interest portion of rent expense		5,103			5,195			10,434			11,663
Fixed charges	$	52,288		$	41,897		$	93,558		$	86,449
Ratio of earnings to fixed charges(2)		1.7x			2.7x			2.3x			2.6x

(1)           Income from continuing operations before income taxes includes certain special items and accounting change impacts (pretax), (which are further discussed in the Management’s Discussion and Analysis at Part I, Item 2 of this Filing):

	Three months ended,					Six months ended
	June 30,					June 30,
	2010			2009		2010		2009
Restructuring and other related charges (a)	$	5,480		$	5,883	$	12,519	$	12,800
Litigation and other related charges (b)		29,361			28,357		34,867		70,022
Repack matters (b)		687			1,196		1,880		3,189
Acquisition and other related costs (c)		(164	)		2,011		63		2,850
Stock option expense (d)		1,293			1,439		2,576		3,183
Debt reimbursement costs (e)		9,830			–		9,830		–

(a) See the "Restructuring and Other Related Charges" note of the Notes to the Consolidated Financial Statements.

(b) See the "Commitments and Contingencies" note of the Notes to the Consolidated Financial Statements.

(c) See the "Acquisitions" note of the Notes to the Consolidated Financial Statements.

(d) See the "Stock-Based Compensation" note of the Notes to the Consolidated Financial Statements.

(e) See the "Debt" note of the Notes to the Consolidated Financial Statements.

(2)           The ratio of earnings to fixed charges has been computed by adding income from continuing operations before income taxes and fixed charges to derive adjusted income, and dividing adjusted income by fixed charges.  Fixed charges consist of interest expense on debt (including the amortization of debt issuance expense) and one-third (the proportion deemed representative of the interest portion) of rent expense.

(3)           See the “Debt” note of the Notes to Consolidated Financial Statements.

EX-31.1 4 exhibit31-1.htm EXHIBIT 31.1 CERTIFICATION

Exhibit 31.1

RULE 13a-14(a) CERTIFICATION IN ACCORDANCE WITH SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, James D. Shelton, Interim President and Chief Executive Officer of Omnicare, Inc. (the “Company”), certify that:

1.I have reviewed this report on Form 10-Q of the Company;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.   The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5.   The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date:  August 5, 2010

/s/ James D. Shelton                                            

James D. Shelton

 Interim President and Chief Executive Officer

EX-31.2 5 exhibit31-2.htm EXHIBIT 31.2 CERTIFICATION

Exhibit 31.2

RULE 13a-14(a) CERTIFICATION IN ACCORDANCE WITH SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, John L. Workman, Executive Vice President and Chief Financial Officer of Omnicare, Inc. (the “Company”), certify that:

1.      I have reviewed this report on Form 10-Q of the Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.   The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date:  August 5, 2010

By:	/s/ John L. Workman
	John L. Workman
	Executive Vice President and
	Chief Financial Officer

EX-32.1 6 exhibit32-1.htm EXHIBIT 32.1 CERTIFICATION

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, James D. Shelton, Interim President and Chief Executive Officer of Omnicare, Inc. (the “Company”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2010 (the “Periodic Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  August 5, 2010

/s/ James D. Shelton                                            

James D. Shelton

Interim President and Chief Executive Officer

EX-32.2 7 exhibit32-2.htm EXHIBIT 32.2 CERTIFICATION

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, John L. Workman, Executive Vice President and Chief Financial Officer of Omnicare, Inc. (the “Company”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2010 (the “Periodic Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  August 5, 2010

By:	/s/ John L. Workman
	John L. Workman
	Executive Vice President and
	Chief Financial Officer

-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

Exhibit 10.1

SEPARATION AND CONSULTING AGREEMENT

THIS SEPARATION AND CONSULTING AGREEMENT (“this Agreement”) is made this 29th day of June, 2010 by OMNICARE, INC., a corporation organized and existing under the laws of the State of Delaware, with its principal place of business at 1600 Rivercenter II, 100 East Rivercenter Boulevard, Covington, Kentucky 41011 (the “Company”), OMNICARE MANAGEMENT COMPANY, a corporation organized and existing under the laws of the State of Delaware and a wholly owned subsidiary of the Company, MMD PROFESSIONAL SERVICES, LLC, a limited liability company formed and existing under the laws of the State of Ohio, with its principal place of business at 6358 Turpin Hills Drive, Cincinnati, Ohio 45244 (the “Consultant”) and PATRICK E. KEEFE (the “Executive” or “Agent”).

INTRODUCTION

WHEREAS, Executive is the Executive Vice President and the Chief Operating Officer of the Company;

WHEREAS, Executive is a party to an employment agreement with Omnicare Management Company, dated March 4, 1993, as amended (the “Employment Agreement”);

WHEREAS, Executive desires to retire from employment with the Company and the parties wish to settle their mutual rights and obligations arising from such termination of employment subject to the terms and conditions as hereinafter set forth;

WHEREAS, Executive is the sole Member and Manager of the Consultant; and

WHEREAS, the Company, being cognizant of the substantial level of expertise acquired by Executive during his term of service with the Company, desires to engage Executive, through (and as the Agent of) the Consultant, to render consulting services to the Company as hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, the parties agree as follows:

1.  Cessation of Employment Relationship.

Executive will retire from the Company, effective June 29, 2010 (the “Termination Date”).  Executive hereby resigns, effective as of the Termination Date, from his positions of Executive Vice President and Chief Operating Officer of the Company and from all other positions and offices with the Company and any affiliate of the Company.

2.Payment Obligations.

(a)Severance.  The parties understand that the Executive’s termination of employment with the Company will be treated as a voluntary retirement and that the Executive will not be due any severance or other rights provided under Section 3 of his Employment Agreement.

(b)Stock Options.  As of the Termination Date, Executive will hold nonqualified stock options to purchase 410,315 shares of the common stock of the Company, of which 378,782 will have previously vested.  Pursuant to the terms of the applicable stock option agreements, any unvested stock options shall terminate on the Termination Date and any vested stock options shall remain exercisable for a period of either three (3) years or fifteen (15) months following the Termination Date (as set forth in the applicable stock option agreement).

(c)Restricted Stock.  On the Effective Date (as defined below), Executive will be granted an award of 132,261 shares of restricted stock of the Company pursuant to the restricted stock agreement attached as Exhibit B hereto.  All unvested shares of restricted stock of the Company held by Executive on the Termination Date shall be forfeited on such date.

(d)Other Benefits.  Executive will be paid any amount due under any welfare and other benefit plan of the Company, including the Excess Benefit Plan, in accordance with the terms of each such plan and applicable law.  Except as provided in this Agreement, or under the terms of any such benefit plans, Executive will not be due any other payments or benefits from the Company in connection with his termination of employment.

3.Consulting Services.  Subject to early termination as provided in Section 10 hereof, Consultant shall cause the Agent to provide advisory and consulting services set forth on Exhibit A hereto (the “Consulting Services”) for the Consulting Period (as defined below).

4.  Consulting Period.  The Consulting Services shall be provided for a period of twenty-four months commencing on July 1, 2010 (the “Effective Date”) and continuing for a period of two years (which period, as it may be extended, is hereinafter referred to as the “Consulting Period”).  The Consulting Period shall automatically be extended on the same terms and conditions for an additional period of one year on the second anniversary of the Effective Date and each anniversary date thereafter, unless the Company or the Consultant shall have notified the other party in writing not less than sixty (60) days prior to the expiration of the Consulting Period of such party’s intention to terminate the Consulting Period.

5.Time Commitment.  While the specific hours during which the Consultant and/or the Agent will provide Consulting Services to the Company shall be determined by mutual agreement of the parties, the parties contemplate that the Consultant shall make the Agent available to provide such Consulting Services for an aggregate of 420 hours per year.  The parties acknowledge that such hours of work will be irregular, and that the Consultant or the Agent may be called upon to provide Consulting Services frequently and on a continuing basis over the course of one or more consecutive days or weeks during the Consulting Period, and that such Consulting Services may not be required to be performed at all for one or more other periods of consecutive days or weeks during the Consulting Period.

6.Consulting Fee.  The Company shall pay Consultant a fixed fee during the Consulting Period at the rate of $225,000 per twelve month period (the “Consulting Fee”).  The Consulting Fee shall be payable in equal monthly installments in arrears.

7.Waiver and Release.  The receipt of the payments and benefits provided under this Agreement, including the Consulting Fee and pursuant to Section 2(c) hereof, will be conditioned upon the execution on the date hereof and non-revocation by Executive thereafter of the General Release and Covenant Not to Sue attached as Exhibit C hereto (the “Release”).  If the Release is not executed, valid and irrevocable as of the date that is seven days following the date hereof, then the Unvested Shares shall be forfeited, any unpaid Consulting Fees shall be forfeited and the Company will have the right to terminate the Consulting Period without the notice required by Section 10 hereof.

8.Status.  Consultant and Agent each acknowledge and agree its and his status at all times for services as a consultant hereunder shall be that of an independent contractor, and not as an employee or deemed employee of the Company or any of its affiliates.  The parties hereby acknowledge and agree that all Consulting Fees paid during the Consulting Period shall represent fees for services as an independent contractor, and shall therefore be paid without any deductions or withholdings taken therefrom for taxes or any other purpose.  The Consultant and Agent further acknowledge that the Company makes no warranties as to any tax consequences regarding payment of such fees, and specifically agrees that the determination of any tax liability or other consequences of the payment set forth above is their sole and complete responsibility and that they will pay all federal, state and local taxes assessed on such payments.

9.Business Expenses.  The Company shall reimburse Consultant for reasonable business expenses incurred by Consultant in the performance of the Consulting Services.  Such expenses shall be reimbursed within ten days of Consultant’s furnishing the Company with the documentation in connection with such expenses required by Company policy with regard to reimbursement of expenses.

10.Termination.  The Consulting Period may be terminated by the Company upon sixty (60) days prior written notice to the Consultant at any time.  Following the second anniversary of the Effective Date, the Consulting Period may be terminated by the Consultant upon sixty (60) days prior written notice to the Company.  The Consulting Period shall automatically terminate upon the death or disability of the Agent.  Except for the provisions of Section 11 hereof and any payment obligations of the Company for Consulting Services performed or expenses incurred pursuant to this Agreement by the Consultant prior to the effective date of the termination of the Consulting Period, all rights and obligations of the parties hereunder will expire upon termination of the Consulting Period.

11.Restrictive Covenants.

11.1Noncompetition.  Consultant and Agent each agree that, during the period beginning on the Effective Date and ending on the date that is 24 months following the last day of the Consulting Period (the “Restricted Period”), Consultant and Agent shall not, without the prior written consent of the Company, directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of or become an employee of or consultant to any business which competes, directly or indirectly, with the business as conducted by the Company, any of its subsidiary companies, or any of their respective successors during the Consulting Period.

11.2 Noninterference with Clients or Employees.  The Consultant and Agent each agree that during the Restricted Period, the Consultant and Agent shall not, on the Consultant's or Agent’s own behalf or on behalf of any other person or entity, solicit or in any manner influence or encourage any client, customer, employee or other person or entity that has a business relationship or prospective business relationship with the Company during the Consulting Period to terminate or limit in any way such relationship with the Company, or interfere in any way with such relationship.

11.3Nondisclosure.  Consultant and Agent, and any persons or entities over which Consultant or Agent has control, shall not at any time during or after termination of the Consulting Period, directly or indirectly, use any of the Company proprietary or confidential information for any purpose not associated with Company activities, or disseminate or disclose any such information to any person or entity not affiliated with the Company.  Such Company proprietary or confidential information includes, without limitation, sales methods, prospecting methods, customer lists, computer technology, programs and data, whether online or off-loaded on disk format , methods of presentation and any other plans, programs and materials used in managing, marketing or furthering the Company business.  Upon termination of the Consulting Period, Consultant and Agent will return to the Company all documents, records, notebooks, manuals, computer disks and similar repositories of or containing the Company proprietary or confidential information, including all copies thereof, then in Consultant’s or Agent’s possession or control whether prepared by Consultant, Agent or otherwise.  Consultant and Agent will undertake all reasonably necessary and appropriate steps to insure that the confidentiality of the Company proprietary or confidential information shall be maintained.

11.4Applicability.  The provisions of Sections 11.1 and 11.2 shall apply to, and survive, all terminations of the Consulting Period regardless of the cause or circumstances thereof and whether such termination was voluntary, involuntary or pursuant to notice not to extend the Consulting Period.

11.5Remedies.  In view of the services which Agent has performed and Consultant and Agent will perform for the Company, which are special, unique, extraordinary and intellectual in character, which place Consultant and Agent in a position of confidence and trust with the customers and employees of the Company and which provide or will provide Consultant and Agent with access to confidential financial information, trade secrets, “know-how” and other confidential and proprietary information of the Company, in view of the geographic scope and nature of the business in which the Company is engaged, and recognizing the value of the compensation payable pursuant to the terms of this Agreement, Consultant and Agent each expressly acknowledges that the restrictive covenants set forth in this Agreement are necessary in order to protect and maintain the proprietary interests of the Company and its affiliates and enforcement of such restrictive covenants will not prevent Consultant or Agent from earning a livelihood.  Consultant and Agent each also acknowledges that the scope of the operations of the Company are such that it is reasonable that the restrictions set forth in this Agreement are not more limited as to geographic area than is set forth herein.  Consultant and Agent each further acknowledges that the remedy at law for any breach or threatened breach of this Agreement will be inadequate and, accordingly, that the Company shall, in addition to all other available remedies (including, without limitation, seeking damages), be entitled to injunctive relief.  In the event Consultant or Agent breaches or threatens to breach the provisions of this Section 11, the Company may terminate the Consulting Period without the notice required under Section 10 hereof.  For purposes of this Section 11, all references to the Company will include all affiliates of the Company.

11.6Severability.  Any provision of this Section 11 which is deemed invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction and subject to this section, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of this Section 11 invalid, illegal or unenforceable in any other jurisdiction.  If any covenant should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such covenant shall be modified so that the scope of the covenant is reduced on ly to the minimum extent necessary to render the modified covenant valid, legal and enforceable.

12.Miscellaneous.

12.1Indemnification.  The Company shall indemnify and hold harmless the Consultant and Agent against all losses, claims, damages or liabilities arising out of actions or omissions of the Consultant or Agent in connection with the performance of the Consulting Services in compliance with this Agreement, except to the extent that any such loss, claim, damage or liability results from the gross negligence, willful misconduct or bad faith of the Consultant or Agent; provided, however, that the foregoing indemnification shall cover only claims related to the specific projects assigned to Consultant or Agent during the Consulting Period.

12.2Section 409A Compliance. To the extent applicable, it is intended that this Agreement comply with the provisions of Section 409A of the Internal Revenue Code, and this Agreement shall be construed and applied in a manner consistent with this intent.

12.3Waiver.  Failure of the Company at any time to enforce any provision of this Agreement or to require performance by Consultant of any provisions hereof shall in no way affect the validity of this Agreement or any part hereof or the right of the Company thereafter to enforce its rights hereunder; nor shall it be taken to constitute a condonation or waiver by the Company of that default or any other or subsequent default or breach.

12.4Notices.  All notices or other communications hereunder shall not be binding on either party hereto unless in writing, and delivered to the other party thereto at the following address:

If to the Company:	Omnicare, Inc. 1600 RiverCenter II 100 East RiverCenter Boulevard Covington, Kentucky  41011 Attention: General Counsel
If to the Omnicare Management Company:	Omnicare, Inc. 1600 RiverCenter II 100 East RiverCenter Boulevard Covington, Kentucky  41011 Attention: General Counsel
If to the Consultant:	MMD Professional Services, LLC 6358 Turpin Hills Drive Cincinnati, Ohio 45244 Attention: Patrick E. Keefe
If to the Agent:	6358 Turpin Hills Drive Cincinnati, Ohio 45244

Notices shall be deemed duly delivered upon hand delivery thereof at the above addresses, one day after deposit with a nationally recognized overnight delivery company, or three days after deposit thereof in the United States mails, postage prepaid, certified or registered mail.  Any party may change its address for notice by delivery of written notice thereof in the manner provided.

12.5Assignment.  No rights of any kind under this Agreement shall, without the prior consent of the Company, be transferable to or assignable by Consultant or Agent or any other person or, except as provided by applicable law, be subject to alienation, encumbrance, garnishment, attachment, execution or levy of any kind, voluntary or involuntary.  This Agreement shall be binding upon and shall inure to the benefit of the Company and its respective successors and assigns.

12.6Governing Law.  This Agreement shall be governed by and construed in accordance with the substantive laws of the State of Delaware, without regard to the conflicts of law principles thereof.

12.7Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same document.

12.8Headings.  The headings in this Agreement are intended solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement.

12.9Entire Agreement.  Except as specifically provided in this Agreement, this Agreement entered into among the parties as of the date hereof constitutes the entire understanding and agreement between the parties hereto, and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, concerning the subject matter hereof, including, without limitation, the Employment Agreement.  All negotiations by the parties concerning the subject matter hereof are merged into this Agreement, and there are no representations, warranties, covenants, understandings or agreements, oral or otherwise, in relation thereto by the parties hereto other than those incorporated herein.  No supplement modification or amendment of this Agreement shall be binding unless executed in writing by the parties.

SIGNATURES ON FOLLOWING PAGE

INTENDING TO BE LEGALLY BOUND, the parties or their duly authorized representatives have signed this Agreement as of the date first above written.

COMPANY

/s/ Joel F. Gemunder                                           

By:  Joel F. Gemunder

Title:  Chief Executive Officer

OMNICARE MANAGEMENT COMPANY

/s/ Joel F. Gemunder                                           

By:  Joel F. Gemunder

Title:  Chief Executive Officer

CONSULTANT

/s/ Patrick E. Keefe                                           

By:  Patrick E. Keefe

Title:  Manager

AGENT

/s/ Patrick E. Keefe

Patrick E. Keefe

EXHIBIT A

OMNICARE, INC. AND MMD PROFESSIONAL SERVICES, LLC

The Consulting Services to be provided by Consultant to the Company shall include:

(A)           Assisting the Company in the transition of all responsibilities heretofore held by Patrick E. Keefe, as Executive Vice President and Chief Operating Officer of the Company, to the person or persons, who will succeed to such responsibilities within the Company;

(B)Continued involvement in customer relationships with the Company's larger clients and continued involvement in certain of the Company's key operational initiatives; and

(C)Any other duties mutually agreed to by Consultant and the Chief Executive Officer of the Company.

All such Consulting Services shall be provided solely by Patrick E. Keefe, as the Consultant’s Agent.

All capitalized terms used in this Schedule A shall have the same meanings assigned to such terms in the Separation and Consulting Agreement.

EXHIBIT B

July 1, 2010

Patrick E. Keefe

6358 Turpin Hills Drive

Cincinnati, Ohio 45244

Dear Patrick:

I am pleased to inform you that the Compensation and Incentive Committee of the Board of Directors of Omnicare, Inc. (herein sometimes called the "Company"), at its meeting on June 29, 2010, has granted you 132,261 shares of common stock under the Omnicare, Inc. 2004 Stock and Incentive Plan (the "Plan") with a date of grant of July 1, 2010.  This letter evidences the issuance or transfer of such shares to you today and sets forth the Agreement under which such shares (hereinafter sometimes called the "Restricted Shares") are being issued or transferred to you.

1.   The Restricted Shares are issued or transferred to you subject to the following restrictions:

(a)   As long as you provide services to the Company or a Subsidiary (as defined in paragraph 9 below) and until the restrictions set forth in this subparagraph (a) lapse in accordance with paragraph 5, you will not, except as otherwise specifically required or permitted by this Agreement, sell, exchange, transfer, pledge, hypothecate or otherwise dispose of any of the Restricted Shares or any interest therein.

(b)   During your service with the Company or a Subsidiary, you will not, except as otherwise required or permitted by this Agreement, sell, exchange, transfer, pledge, hypothecate or otherwise dispose of any Restricted Shares, or any interest therein, with respect to which the restrictions on transfer herein imposed have not lapsed ("Non-vested Shares").

2.   Upon the issuance or transfer to you of the Restricted Shares, subject to the restrictions imposed by paragraph 1 of this Agreement, you shall be a stockholder of record of the Company with respect to the Restricted Shares and shall have, subject to the immediately following proviso, all rights of a holder of common stock with respect to such shares (including the right to vote such shares at any meeting of holders of common stock); provided, however, that any dividends declared and paid with respect to Non-vested Shares (“Non-Vested Dividends”) shall be distributable to you in accordance with this paragraph 2.  The Company shall contribute the Non-Vested Dividends to an irrevocable “rabbi trust” (which shall be a grantor trust within the meaning of Sections 671-678 of the Internal Revenue Code of 1986, as amended) fo r your benefit (the “Rabbi Trust”).  As soon as practicable following the vesting of any Non-vested Shares in accordance with paragraph 5 of this Agreement (but in no event more than two and a half months following the date of such vesting), the following amounts will be paid to you: (i) the Non-Vested Dividends, if any, with respect to such shares and (ii) interest on such Non-vested Dividends for the period from the date the applicable dividends were paid to other stockholders to the date of actual payment under this paragraph 2 at a rate equal to the highest interest rate, determined as of the first day of the month in which the applicable dividends were paid to the other stockholders, payable by the Company on any of its outstanding publicly-traded debt (or if no such public debt is then outstanding, the rate at which the Company could then borrow from its primary bank lender) plus 100 basis points (the "Imputed Interest"). In the event that you forfeit any Non-vested Shares in accordance with paragraph 5(b) of this Agreement, you shall forfeit the right to the Non-Vested Dividends and any related Imputed Interest with respect to such shares.  Assets in the Rabbi Trust are not subject to the claims of the Company’s general creditors unless the Company is insolvent or in bankruptcy.Amounts contributed to the Rabbi Trust for your benefit shall be invested as directed by the Company in its sole discretion and you shall not have any claim against the Company with respect to the investment decisions made by the Company.  If at the end of any calendar quarter in which any Non-vested Dividends remain payable to you the amount of such Non-vested Dividends plus the related Imputed Interest accrued as of such date exceeds the value of the assets in the Rabbi Trust allocated to pay such amounts, the Company shall contribute an additional amount to the Ra bbi Trust equal to such excess.  To evidence the restrictions set forth in this Agreement and until such restrictions shall have lapsed, the certificates for the Restricted Shares shall carry a legend to the effect, in form satisfactory to the Company's counsel, that they were issued or transferred subject to, and may be sold or otherwise disposed of only in accordance with, the terms of this Agreement.

3.   Under Section 83(b) of the Internal Revenue Code, you may, within 30 days from the date of grant of the Restricted Shares, make an election which would cause you to be taxed on the value of such Shares based on their Fair Market Value (as defined in the Plan) on the date of grant; otherwise, in the absence of such an election, you will be taxed at the times of the lapses of the restrictions on the Restricted Shares, based on their Fair Market Value at the times of the lapses.  Such taxes may be paid in cash or by the surrender of shares of Omnicare common stock.

4.   In the event that, as the result of a stock dividend, stock split, recapitalization, merger, consolidation, reorganization, or other similar event, you shall, as the owner of Restricted Shares, be entitled, under the terms of the Plan or otherwise, to new or additional or different shares or securities as follows:  (a) such new or additional or different shares or securities shall be deemed "Restricted Shares," (b) all the provisions of this Agreement relating to restrictions and lapse of restrictions shall be applicable thereto, and (c) the certificates or other instruments evidencing such new or additional or different shares or securities shall bear the legend referred to in the last sentence of paragraph 2.  The foregoing restrictions shall not apply to any fractional shares resulting from any such event, or to any preemptive o r other rights to purchase securities to which you, as a holder of Restricted Shares, may become entitled in connection with a public offering of common stock.

5.  

(a)   The restrictions set forth in paragraph 1 above on the transfer of the Restricted Shares shall lapse as to fifty (50) percent of the total grant of Restricted Shares on each of the first two anniversaries of the date of grant, subject to all the then applicable provisions of this Agreement.

(b)   Except as may otherwise be provided in any other agreement between you and the Company, if your service with the Company or a Subsidiary shall, while you hold any Non-vested Shares, terminate by reason of death, disability, retirement under a retirement plan of the Company or a Subsidiary at or after normal retirement age with the consent of the Compensation and Incentive Committee, as a termination without "cause" by the Company following your attainment of age 65 and at least 10 years of service, or a change in control of the Company, the restrictions on transfer applicable to such Non-vested Shares shall lapse in their entirety as of the effective date of such termination of service.  If your service with the Company or a Subsidiary shall, while you hold any Non-vested Shares, be terminated by the Company or if you resign from your servic e with the Company, such Non-vested Shares shall be forfeited by you as of the effective date of such termination, unless such termination results in such shares becoming fully vested upon one of the events specified in the immediately preceding sentence.  For purposes hereof, the term “cause” shall mean embezzlement or misappropriation of corporate funds, commission of a felony, misconduct resulting in material injury to the Company or any Subsidiary, significant activities harmful to the reputation of the Company or any Subsidiary, a significant violation of Company or Subsidiary policy, willful refusal to perform, or substantial disregard of, the duties properly assigned to you, or a significant violation of any contractual obligation to the Company or any Subsidiary.

(c)   If, as and when the restrictions lapse with respect to Restricted Shares pursuant to this paragraph 5, there will be delivered to you, promptly upon your request, certificates free of any legend for a like number of shares in exchange for the certificates for such Restricted Shares bearing the legend referred to in paragraph 2 of this Agreement.

6.   Except as otherwise expressly required or permitted by this Agreement, no right, benefit or interest in the Restricted Shares or under this Agreement shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation.

7.  

(a)   Nothing in paragraph 1 or elsewhere in this  Agreement shall preclude a transfer to your legal representatives following your death or a distribution to the persons provided for in paragraph 7(b)(iii) or shall preclude you, upon  not less than thirty (30) days advance written notice to the Company, from making a gift of any Restricted Shares, or any interest therein,

(i) to one or more of your Immediate Family Members,

(ii) to a trust of which the beneficiary or beneficiaries of the corpus or of the income, or both, is either yourself or one or more of your Immediate Family Members, or both, or

(iii) to a corporation all of the stock of which is owned by you or one or more of your Immediate Family Members, or both.

For the purposes of this provision, an "Immediate Family Member" shall be deemed to be a spouse, child, stepchild, grandchild, parent, brother or sister or child of a brother or sister of yours, whether of the whole or half blood, and whether the relationship arose by adoption.

(b) The term "Donee", as used in this Agreement, shall be deemed to mean

(i) the person, or collectively, all the persons (including a trust or corporation), to whom a gift permitted by paragraph 7(a) has been made by you,

(ii) your legal representatives following your death, and

(iii) the persons to whom Restricted Shares shall be  distributed by your legal representatives as  the persons whom they believe to be entitled  thereto under your will, or, in case of  intestacy, under the laws relating to  intestacy.

(c) In case of any gift, transfer or distribution to a Donee,

(i) the Restricted Shares so given, transferred or  distributed shall continue to be subject to all  the restrictions and other provisions of this  Agreement,

(ii) the certificates for the Restricted Shares so given, transferred or distributed shall bear the legend referred to in paragraph 2 of this  Agreement, and

(iii) the Donee shall, with respect to the Restricted Shares so given, transferred or distributed, have all the powers and shall be required to comply with all the restrictions and other provisions of this Agreement requiring the taking, or refraining from taking, of action to the same extent as you were immediately prior to the making of such gift, transfer or distribution.

8.   Any provision of this Agreement to the contrary, the Company may take such steps as it believes necessary or desirable to obtain sufficient funds from you to pay all taxes, if any, required by law to be withheld in respect of the Restricted Shares or the payment of any amounts from the Rabbi Trust including, but not limited to, requiring payments to the Company by you or on your behalf and/or taking deductions from amounts payable by the Company or the Rabbi Trust to you or on your behalf.

9.   As used in this Agreement, the term "Company, or a Subsidiary" shall mean the Company, its divisions and units, and all corporations or other forms of business association of which shares (or other ownership interests) having 50% or more of the voting power regularly entitled to vote for directors (or equivalent management) or regularly entitled to receive 50% or more of the dividends (or their equivalents) paid on the common stock (or its equivalent) are owned or controlled, directly or indirectly, by the Company.

10.   Each of the parties hereto agrees to execute and deliver all consents and other instruments and to take all other actions deemed necessary or desirable by counsel for the Company to carry out each term of this Agreement.  Without limiting the generality of the foregoing, you shall, if and when requested by the Company, deposit any or all certificates for the Restricted Shares, together with a stock power or other instrument of transfer appropriately executed in blank, with a bank and under a deposit agreement approved by the Company and, following such deposit, certificates for the Restricted Shares shall no longer carry the legend referred to in paragraph 2 of this Agreement, and new certificates shall be issued in place thereof, in which event, each of the parties agrees to give such instructions and to deliver or refrain from delivering s uch notices to the bank acting under such deposit agreement as may be necessary to carry out each term of this Agreement, to the end that all property deposited under such deposit agreement shall be paid, transferred, released or otherwise disposed of in accordance with the terms of this Agreement and each obligation thereunder.  Each party recognizes that the other party has no adequate remedy at law for breach of this Agreement and recognizes, consents and agrees that the other party shall be entitled to an injunction or decree of specific performance directed to the other party and to the bank acting under any such deposit agreement requiring that the provisions of this Agreement be carried out.

11.  

(a)   Any notice to the Company under or pursuant to this Agreement shall be deemed to have been given if and when delivered in person to the Secretary of the Company or if and when mailed by certified or registered mail to the Secretary of the Company at the executive offices of the Company, 100 E. RiverCenter Boulevard, Suite 1600, Covington, KY 41011, or such other address as the Company may from time to time designate in writing by notice to you given pursuant to paragraph 11(b) hereof.

(b)   Any notice to you under or pursuant to this Agreement shall be deemed to have been given if and when delivered to you in person or if and when mailed by certified or registered mail to you at your address hereinabove given or such other address as you may from time to time designate in writing by notice to the Company given pursuant to paragraph 11(a) above.

12.   Notwithstanding any remedy provided for in this Agreement, nothing in this Agreement shall preclude the Company from taking any other action or enforcing any other remedy available to the Company.

13.   This Agreement has been executed pursuant to the Plan, which is hereby incorporated herein by reference.  If any provision of this Agreement shall be inconsistent with any term or condition in the Plan, then the specific term or condition in the Plan shall supersede the conflicting provision in this Agreement as to the shares of common stock covered by the Plan.

14.   This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, and you, and to the extent applicable, each Donee.

15.   THIS AGREEMENT HAS BEEN EXECUTED, AND IT AND THE RESTRICTED SHARES HAVE BEEN OR ARE TO BE DELIVERED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AND THE VALIDITY, INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.

16.   In consideration of your receipt of stock awards on July 1, 2010, you hereby reconfirm your promises and obligations as set forth in the agreement with Omnicare, Inc. (or a subsidiary thereof) governing your service or otherwise containing covenants in favor of Omnicare, Inc. (and/or such subsidiary) in respect of nondisclosure, nonsolicitation and noncompetition.

Very truly yours,

Joel F. Gemunder

Executed and agreed to as of:

Patrick E. Keefe

Date: July 1, 2010

EXHIBIT C

GENERAL RELEASE AND COVENANT NOT TO SUE

I, PATRICK E. KEEFE, in consideration of and subject to the terms and conditions set out in the separation and consulting agreement dated June 29, 2010 (the “Separation and Consulting Agreement”) to which this General Release and Covenant Not to Sue (the “General Release”) is attached, do hereby release and forever discharge and covenant not to sue Omnicare, Inc. and its subsidiaries, affiliates, their directors, members, officers, executives, agents, stockholders, and its or their affiliates, successors and assigns (both individually and in their official capacities) (the “Releasees”), from any and all acti ons, causes of action, covenants, contracts, claims, demands, suits, and liabilities whatsoever, which I ever had, now have or which my heirs, executors, administrators and assigns, or any of them hereafter can, shall or may have by reason of my employment with or severance of my employment from Omnicare, Inc. and its affiliates as of the effective date of the Separation and Consulting Agreement and this General Release.

By signing this General Release, I am providing a complete waiver of all claims against the Releasees that may have arisen, whether known or unknown, up until and including the effective date of this General Release.  This includes, but is not limited to, claims based on Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Age Discrimination in Employment Act of 1967 (including the Older Workers Benefit Protection Act), the Americans With Disabilities Act, the Fair Labor Standards Act, the Equal Pay Act, the Family and Medical Leave Act, the Executive Retirement Income Security Act of 1974 (except as provided below), and all applicable amendments to the foregoing acts and laws, or any common law, public policy, contract (whether oral or written, express or implied) or tort law, and any other local, st ate or Federal law, regulation or ordinance having any bearing whatsoever on the terms and conditions of my employment and the cessation thereof.  This General Release shall not, however, constitute a waiver of any of my rights under (i) the Separation and Consulting Agreement, (ii) any employee benefit plan, program or arrangement of Omnicare, Inc., or (iii) any claims to enforce rights arising under the ADEA or other civil rights statute after I have signed the Separation and Consulting Agreement and this General Release.

I further agree, promise and covenant that, to the maximum extent permitted by law neither, I, nor any person, organization, or other entity acting on my behalf has or will file, charge, claim, sue, or cause or permit to be filed, charged or claimed, any action for damages or other relief (including injunctive, declaratory, monetary or other relief) against the Releasees involving any matter occurring in the past up to and including the date of this General Release, or involving or based upon any claims, demands, causes of action, obligations, damages or liabilities which are the subject of this General Release.  This General Release shall not affect my rights under the Older Workers Benefit Protection Act to have a judicial determination of the validity of this General Release and does not purport to limit any right I may h ave to file a charge under the ADEA or other civil rights statute or to participate in an investigation or proceeding conducted by the Equal Employment Opportunity Commission or other investigative agency.  This General Release does, however, waive and release any right to recover damages under the ADEA or other civil rights statute.

I have been given but declined twenty-one (21) days to review the Separation and Consulting Agreement and this General Release and have been given the opportunity to consult with legal counsel, and I have signed the Separation and Consulting Agreement and I am signing this General Release knowingly, voluntarily and with full understanding of its terms and effects, and I voluntarily accept the benefits and consulting fee provided for in the Separation and Consulting Agreement for the purpose of making full and final settlement of all claims referred to above.  If I have signed this General Release prior to the expiration of the twenty-one (21) day period, I have done so voluntarily.  I also understand that I have seven days after execution to revoke this General Release, and that this General Release will not become effective if I exercise my right to revoke my signature within seven (7) days of execution.

I acknowledge that I have not relied on any representations or statements not set forth in the Separation and Consulting Agreement or this General Release.  I will not disclose the contents or substance of the Separation and Consulting Agreement or this General Release to anyone except my immediate family and any tax, legal or other counsel I have consulted regarding the meaning or effect hereof, and I will instruct each of the foregoing not to disclose the same.

The Separation and Consulting Agreement and this General Release will be governed by and construed in accordance with the laws of the State of Delaware.  If any provision in this General Release is held invalid or unenforceable for any reason, the remaining provisions shall be construed as if the invalid or unenforceable provision had not been included.

IN WITNESS WHEREOF, I have executed this General Release on this 29th day of June.

_____________________________

Patrick E. Keefe

Commonwealth of Kentucky

)  ss.:

County of                                              )

On this _____ day of _________, 2010, before me, the undersigned, a Notary Public in and for said Commonwealth, personally appeared PATRICK E. KEEFE, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and who acknowledged to me that he voluntarily executed the same.

_______________________________

Notary Public

EX-12

EXHIBIT 12

Statement of Computation of Ratio of Earnings to Fixed Charges

Omnicare, Inc. and Subsidiary Companies

(in thousands, except ratios)

Unaudited

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Income from continuing operations before income taxes	$	35,280	(1)	$	72,411	(1)	$	122,172	(1)	$	134,253	(1)
Add fixed charges:
Interest expense		36,255			28,699			63,622			58,162
Amortization of discount on convertible notes (3)		7,473			6,927			14,804			13,724
Amortization of debt issuance expense		3,457			1,076			4,698			2,900
Interest portion of rent expense		5,103			5,195			10,434			11,663
Adjusted income	$	87,568		$	114,308		$	215,730		$	220,702
Fixed charges:
Interest expense	$	36,255		$	28,699		$	63,622		$	58,162
Amortization of discount on convertible notes (3)		7,473			6,927			14,804			13,724
Amortization of debt issuance expense		3,457			1,076			4,698			2,900
Interest portion of rent expense		5,103			5,195			10,434			11,663
Fixed charges	$	52,288		$	41,897		$	93,558		$	86,449
Ratio of earnings to fixed charges(2)		1.7x			2.7x			2.3x			2.6x

(1)           Income from continuing operations before income taxes includes certain special items and accounting change impacts (pretax), (which are further discussed in the Management’s Discussion and Analysis at Part I, Item 2 of this Filing):

	Three months ended,					Six months ended
	June 30,					June 30,
	2010			2009		2010		2009
Restructuring and other related charges (a)	$	5,480		$	5,883	$	12,519	$	12,800
Litigation and other related charges (b)		29,361			28,357		34,867		70,022
Repack matters (b)		687			1,196		1,880		3,189
Acquisition and other related costs (c)		(164	)		2,011		63		2,850
Stock option expense (d)		1,293			1,439		2,576		3,183
Debt reimbursement costs (e)		9,830			–		9,830		–

(a) See the "Restructuring and Other Related Charges" note of the Notes to the Consolidated Financial Statements.

(b) See the "Commitments and Contingencies" note of the Notes to the Consolidated Financial Statements.

(c) See the "Acquisitions" note of the Notes to the Consolidated Financial Statements.

(d) See the "Stock-Based Compensation" note of the Notes to the Consolidated Financial Statements.

(e) See the "Debt" note of the Notes to the Consolidated Financial Statements.

(2)           The ratio of earnings to fixed charges has been computed by adding income from continuing operations before income taxes and fixed charges to derive adjusted income, and dividing adjusted income by fixed charges.  Fixed charges consist of interest expense on debt (including the amortization of debt issuance expense) and one-third (the proportion deemed representative of the interest portion) of rent expense.

(3)           See the “Debt” note of the Notes to Consolidated Financial Statements.

EX-31.1

Exhibit 31.1

RULE 13a-14(a) CERTIFICATION IN ACCORDANCE WITH SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, James D. Shelton, Interim President and Chief Executive Officer of Omnicare, Inc. (the “Company”), certify that:

1.I have reviewed this report on Form 10-Q of the Company;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.   The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5.   The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date:  August 5, 2010

/s/ James D. Shelton                                            

James D. Shelton

 Interim President and Chief Executive Officer

EX-31.2

Exhibit 31.2

RULE 13a-14(a) CERTIFICATION IN ACCORDANCE WITH SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, John L. Workman, Executive Vice President and Chief Financial Officer of Omnicare, Inc. (the “Company”), certify that:

1.      I have reviewed this report on Form 10-Q of the Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.   The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date:  August 5, 2010

By:	/s/ John L. Workman
	John L. Workman
	Executive Vice President and
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, James D. Shelton, Interim President and Chief Executive Officer of Omnicare, Inc. (the “Company”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2010 (the “Periodic Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  August 5, 2010

/s/ James D. Shelton                                            

James D. Shelton

Interim President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, John L. Workman, Executive Vice President and Chief Financial Officer of Omnicare, Inc. (the “Company”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2010 (the “Periodic Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  August 5, 2010

By:	/s/ John L. Workman
	John L. Workman
	Executive Vice President and
	Chief Financial Officer