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, 2011

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		115,808,485	June 30, 2011

1

OMNICARE, INC. AND
SUBSIDIARY COMPANIES
FORM 10-Q QUARTERLY REPORT JUNE 30, 2011
INDEX
			PAGE
PART 1 – FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)
	Consolidated Statements of Income -
		Three and six months ended – June 30, 2011 and 2010	3
	Consolidated Balance Sheets -
		June 30, 2011 and December 31, 2010	4
	Consolidated Statements of Cash Flows -
		Six months ended – June 30, 2011 and 2010	5
	Notes to Consolidated Financial Statements		6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		28
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		35
ITEM 4.	CONTROLS AND PROCEDURES		35
PART II – OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS		36
ITEM 1A.	RISK FACTORS		36
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		36
ITEM 6.	EXHIBITS		36

2

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,
	2011			2010			2011			2010
Net sales	$	1,555,906		$	1,491,425		$	3,081,477		$	2,983,796
Cost of sales		1,219,513			1,164,170			2,410,124			2,315,197
Gross profit		336,393			327,255			671,353			668,599
Selling, general and administrative expenses		192,474			185,919			382,641			368,690
Provision for doubtful accounts		24,357			20,986			48,887			42,928
Settlement, litigation and other related charges		19,816			29,361			25,829			34,867
Other miscellaneous charges		2,332			5,285			4,221			11,050
Operating income		97,414			85,704			209,775			211,064
Investment income		255			1,105			551			2,769
Interest expense		(27,996	)		(39,712	)		(56,801	)		(68,320	)
Amortization of discount on convertible notes		(5,989	)		(7,473	)		(11,862	)		(14,804	)
Income from continuing operations before income taxes		63,684			39,624			141,663			130,709
Income tax expense		27,403			15,879			56,227			49,523
Income from continuing operations		36,281			23,745			85,436			81,186
Loss from discontinued operations		(37,728	)		(12,146	)		(57,579	)		(18,735	)
Net income (loss)	$	(1,447	)	$	11,599		$	27,857		$	62,451
Earnings (loss) per common share - Basic:
Continuing operations	$	0.32		$	0.20		$	0.75		$	0.69
Discontinued operations		(0.33	)		(0.10	)		(0.51	)		(0.16	)
Net income (loss)	$	(0.01	)	$	0.10		$	0.24		$	0.53
Earnings (loss) per common share - Diluted:
Continuing operations	$	0.32		$	0.20		$	0.74		$	0.69
Discontinued operations		(0.33	)		(0.10	)		(0.50	)		(0.16	)
Net income (loss)	$	(0.01	)	$	0.10		$	0.24		$	0.53
Dividends per common share	$	0.0400		$	0.0225		$	0.0725		$	0.0450
Weighted average number of common shares outstanding:
Basic		113,487			117,434			113,806			117,598
Diluted		114,701			118,116			115,081			118,285
Comprehensive income (loss)	$	(981	)	$	9,310		$	24,944		$	61,187

The Notes to the 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,			December 31,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	521,610		$	494,484
Restricted cash		2,403			2,019
Accounts receivable, less allowances of $400,845 (2010-$401,027)		1,001,182			1,011,823
Inventories		356,597			418,965
Deferred income tax benefits		157,194			150,644
Other current assets		233,433			332,607
Current assets of discontinued operations		2,373			47,254
Total current assets		2,274,792			2,457,796
Properties and equipment, at cost less accumulated depreciation of $302,226 (2010-$284,533)		201,477			204,717
Goodwill		4,250,201			4,234,821
Identifiable intangible assets, less accumulated amortization of $228,152 (2010-$219,107)		241,348			259,809
Other noncurrent assets		145,464			156,941
Noncurrent assets of discontinued operations		12,772			49,329
Total noncurrent assets		4,851,262			4,905,617
Total assets	$	7,126,054		$	7,363,413
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	223,930		$	233,396
Accrued employee compensation		45,540			59,417
Deferred revenue		2,642			2,352
Current debt		3,503			3,537
Other current liabilities		203,267			273,191
Current liabilities of discontinued operations		5,900			22,361
Total current liabilities		484,782			594,254
Long-term debt, notes and convertible debentures (Note 5)		1,955,977			2,106,758
Deferred income tax liabilities		784,199			737,383
Other noncurrent liabilities		100,596			109,074
Total noncurrent liabilities		2,840,772			2,953,215
Total liabilities		3,325,554			3,547,469
Commitments and contingencies (Note 8)
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, 131,250,100 shares issued (2010-129,634,300 shares issued)		131,250			129,634
Paid in capital (Note 5)		2,467,706			2,424,978
Retained earnings		1,599,271			1,579,672
Treasury stock, at cost-15,441,600 shares (2010-13,011,700 shares )		(407,818	)		(333,554	)
Accumulated other comprehensive income		10,091			15,214
Total stockholders' equity		3,800,500			3,815,944
Total liabilities and stockholders' equity	$	7,126,054		$	7,363,413

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,
	2011			2010
Cash flows from operating activities:
Net income	$	27,857		$	62,451
Loss from discontinued operations		57,579			18,735
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation expense		23,935			22,835
Amortization expense		40,630			45,065
Debt redemption costs, net		(1,266	)		2,060
Tender premium		-			(7,323	)
Changes in assets and liabilities, net of effects from acquisition and divestiture of businesses:
Accounts receivable, net of provision for doubtful accounts		12,616			46,649
Inventories		62,750			9,030
Other current and noncurrent assets		120,370			(18,264	)
Accounts payable		(12,819	)		(40,645	)
Accrued employee compensation		(13,683	)		(11,174	)
Deferred revenue		290			(293	)
Current and noncurrent liabilities		(37,384	)		23,823
Net cash flows from operating activities of continuing operations		280,875			152,949
Net cash flows from operating activities of discontinued operations		420			628
Net cash flows from operating activities		281,295			153,577
Cash flows from investing activities:
Acquisition of businesses, net of cash received		(19,521	)		(11,855	)
Divestiture of businesses, net		10,599			-
Capital expenditures		(18,223	)		(11,489	)
Other		(2,516	)		9,979
Net cash flows used in investing activities of continuing operations		(29,661	)		(13,365	)
Net cash flows used in investing activities of discontinued operations		(413	)		(235	)
Net cash flows used in investing activities		(30,074	)		(13,600	)
Cash flows from financing activities:
Net payments on revolving credit facilities and Term A loan		-			(125,000	)
Proceeds from long-term borrowings and obligations					400,000
Payments on long-term borrowings and obligations		(175,664	)		(218,478	)
Fees paid for financing arrangements		-			(17,028	)
Increase in cash overdraft balance		4,413			3,127
Proceeds (payments) for stack awards and exercise of stock options, net of stock tendered in payment		26,538			(5,241	)
Payments for Omnicare common stock repurchase (Note 2)		(70,061	)		(49,154	)
Dividends paid		(8,258	)		(5,343	)
Other		(1,056	)		(3,266	)
Net cash flows used in financing activities of continuing operations		(224,088	)		(20,383	)
Net cash flows used in financing activities of discontinued operations		-			-
Net cash flows used in financing activities		(224,088	)		(20,383	)
Net increase (decrease) in cash and cash equivalents		27,133			119,594
Less increase in cash and cash equivalents of discontinued operations		7			393
Increase (decrease) in cash and cash equivalents of continuing operations		27,126			119,201
Cash and cash equivalents at beginning of period		494,484			275,707
Cash and cash equivalents at end of period	$	521,610		$	394,908

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 – Basis of Presentation

Omnicare, Inc. and its consolidated subsidiaries (“Omnicare” or the “Company”) have prepared the accompanying unaudited Consolidated Financial Statements in accordance with the accounting policies described in its 2010 Annual Report on Form 10-K (“2010 Annual Report”), and the interim reporting requirements of Form 10-Q.  Accordingly, certain information and note disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  The Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes included in the 2010 Annual Report and any related updates included in the Company’s periodic quarterly Securities and Exchange Commission (“SEC”) filings.  Certain reclassifications of prior year amounts have been made to conform with the current year presentation.  All amounts disclosed in the Consolidated Financial Statements and related notes are presented on a continuing operations basis unless otherwise stated.

Note 2 – Significant Accounting Policies

Interim Financial Data

The interim financial data is unaudited; however, in the opinion of Omnicare management, all known adjustments (which are normal in nature, except as disclosed herein) necessary for a fair statement of the Omnicare consolidated results of operations, financial position and cash flows for the interim periods presented have been made.  All significant intercompany accounts and transactions have been eliminated.

6

Accounts Receivable

The following table is an aging of the Company’s gross accounts receivable (net of allowances for contractual adjustments), aged based on payment terms and categorized based on the three primary overall types of accounts receivable characteristics (in thousands):

	June 30, 2011
	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	$	256,741	$	195,890	$	452,631
Facility payors		388,557		309,123		697,680
Private Pay payors		86,302		165,414		251,716
Total gross accounts receivable	$	731,600	$	670,427	$	1,402,027
	December 31, 2010
Medicare (Part D and Part B), Medicaid and Third-Party payors	$	260,788	$	185,934	$	446,722
Facility payors		389,887		312,996		702,883
Private Pay payors		96,047		167,198		263,245
Total gross accounts receivable	$	746,722	$	666,128	$	1,412,850

Stock-Based Compensation

Stock-based compensation expense recognized in the Consolidated Statements of Income for stock options and stock awards totaled approximately $5.3 million and $10.3 million for the three and six months ended June 30, 2011, respectively, and approximately $4.6 million and $11.8 million for the three and six months ended June 30, 2010, respectively.

Acquisitions

During the first six months of 2011, Omnicare completed one acquisition of a business, which was not significant to the Company.

7

Fair Value

The Company’s financial assets and liabilities, measured at fair value on a recurring basis, were as follows (in thousands):

				Based on
	Fair Value at June 30, 2011			Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)
Rabbi trust assets	$	4,492		$	4,492	$	-		$	-
7.75% interest rate swap agreement - fair value hedge		6,075			-		6,075			-
Derivatives		-			-		-			-
Total	$	6,075		$	0	$	6,075		$	-
				Based on
	Fair Value at December 31, 2010			Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)
Rabbi trust assets	$	85,741		$	85,741	$	-		$	-
7.75% interest rate swap agreement - fair value hedge	$	(829	)	$	-	$	(829	)	$	-
6.875% interest rate swap agreement - fair value hedge		(3,461	)		-		(3,461	)		-
Derivatives		-			-		-			-
Total	$	(4,290	)	$	-	$	(4,290	)	$	-

8

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

Fair Value of Financial Instruments
	June 30, 2011				December 31, 2010
Financial Instrument	Book Value		Fair Value		Book Value		Fair Value
6.125% senior subordinated notes, due 2013, gross	$	75,000	$	75,100	$	250,000	$	251,300
6.875% senior subordinated notes, due 2015		525,000		544,000		525,000		535,500
7.75% senior subordinated notes, due 2020, gross		400,000		431,000		400,000		415,500
3.75% convertible senior subordinated notes, due 2025
Carrying value		357,345		-		353,505		-
Unamortized debt discount		217,655		-		221,495		-
Principal amount		575,000		770,500		575,000		636,400
4.00% junior subordinated convertible debentures, due 2033
Carrying value		202,455		-		201,282		-
Unamortized debt discount		142,545		-		143,718		-
Principal amount		345,000		331,800		345,000		266,900
3.25% convertible senior debentures, due 2035
Carrying value		377,686		-		370,837		-
Unamortized debt discount		74,814		-		81,663		-
Principal amount		452,500		431,000		452,500		427,600

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) balances by component and in the aggregate, follow (in thousands):

	June 30,			December 31,
	2011			2010
Cumulative foreign currency translation adjustments	$	11,398		$	15,239
Unrealized gain on fair value of investments		(285	)		997
Pension and postemployment benefits		(1,022	)		(1,022	)
Total accumulated other comprehensive income, net	$	10,091		$	15,214

The amounts are net of applicable tax benefits which were not material at June 30, 2011 and December 31, 2010.

Income Taxes

The effective tax rate for the 2011 periods was slightly higher than the prior year periods due largely to certain non-deductible litigation costs in the 2011 periods.  The quarterly and year-to-date effective tax rates in 2011 and 2010 are higher than the federal statutory rate largely as a result of the impact of state and local income taxes and the aforementioned non-deductible litigation costs.

9

Other Miscellaneous Charges

Other Miscellaneous Charges consist of the following (in thousands):

	Three months ended,					Six months ended
	June 30,					June 30,
	2011		2010			2011		2010
Acquisition and other related costs	$	2,332	$	(164	)	$	4,221	$	63
Restructuring and other related charges		-		3,489			-		6,994
Stock option expense		-		1,293			-		2,576
Debt related costs		-		446			-		446
Repack matters - SG&A		-		221			-		971
Subtotal - other miscellaneous charges		2,332		5,285			4,221		11,050
Repack matters - COS		-		466			-		909
Total - other miscellaneous charges, net	$	2,332	$	5,751		$	4,221	$	11,959

Common Stock Repurchase Program

On May 3, 2010, Omnicare announced that the Company’s Board of Directors (“BOD”) authorized a 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.  On May 26, 2011, the BOD approved an additional $100 million of share repurchase authorization extending until December 31, 2012.  In the six months ended June 30, 2011, the Company repurchased approximately 2.3 million shares at an aggregate cost of approximately $70 million, for a cumulative amount of approximately 6.7 million shares and approximately $171 million through June 30, 2011.  Accordingly, the Company had approximately $129 million of combined share repurchase authority remaining as of June 30, 2011.

Recently Issued Accounting Standards

There are no recently issued accounting standards that are expected to have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

Note 3 – Discontinued Operations

Non-Core Disposal Group

In 2009, the Company commenced activities to divest certain home healthcare and related ancillary businesses (“the Disposal Group”) that are non-strategic in nature.  In 2010, Omnicare divested the home infusion business portion of the disposal group.  Also, in 2010, the Company entered into a letter of intent regarding its disposition of the remaining durable medical equipment (“DME”) portion of the Disposal Group.  The Company currently intends to close the DME transaction as soon as practicable, subject to certain conditions and applicable approvals.  In the second quarter of 2011, the Company divested of its Tidewater Group Purchasing Organization (“Tidewater”) as the Company determined it was no longer a good strategic fit within the Company’s portfolio of assets.  The Company does not consider the operations of the Disposal Group and Tidewater (collectively, the “Non-Core Disposal Group”) as significant, individually or in the aggregate, to the operations of Omnicare.

10

In the three and six months ended June 30, 2011, the Non-Core Disposal Group recorded an impairment loss of $5.1 million to reduce the carrying value of Tidewater to fair value based on the final terms of the divestiture.  In the three and six months ended June 30, 2010, the Non-Core Disposal Group recorded an impairment loss of approximately $10.3 million to reduce the carrying value of the Disposal Group to fair value as of June 30, 2010.  The net assets held for sale of the Non-Core Disposal Group are required to be measured at the lower of cost or fair value less costs to sell.  Prior to divestiture, the fair values are based on a market approach utilizing both selected guideline public companies and comparable industry transactions, which would be considered “Level 3” inputs within the fair value hierarchy.  The fair value amount is estimated, is reviewed quarterly and is finalized upon disposition of the individual components of the Non-Core Disposal Group.

CRO Services

As previously disclosed by the Company, the Contract Research Services organization (“CRO Services”) industry has been facing unfavorable market conditions.  The Company determined that its CRO Services business was no longer a good strategic fit within the Company’s portfolio of assets.  In light of these factors, and in connection with the reallocation of resources started in the second half of 2010, the Company committed to a plan to divest of its CRO Services business in the first quarter of 2011 and completed the divestiture in April 2011.  For the three and six months ended June 30, 2011, CRO Services recorded an impairment loss of $10.9 million and $51.8 million, respectively, to reduce the carrying value of the CRO Services operations to fair value based on the final terms of the divestiture.

The results from operations for all periods presented have been revised to reflect the results of the Non-Core Disposal Group and CRO Services as discontinued operations, including the impairment losses, as well as certain expenses of the Company related to the divestitures.

11

Selected financial information related to the discontinued operations of the Non-Core Disposal Group and CRO Services follows (in thousands):

	Three months ended,						Six months ended
	June 30,						June 30,
	2011			2010			2011			2010
Net sales - Non-Core Disposal Group ("NCDG")	$	6,600		$	14,885		$	15,686		$	32,099
Net sales - CRO Services		6,700			27,350			32,146			57,093
Net sales - total discontinued		13,300			42,235			47,832			89,192
Loss from operations of NCDG, pretax		(876	)		(2,816	)		(1,155	)		(7,471	)
Loss from operations of CRO Services, pretax		(2,426	)		(3,716	)		(4,921	)		(8,978	)
Loss from operations - total discontinued, pretax		(3,302	)		(6,532	)		(6,076	)		(16,449	)
Income tax benefit - NCDG		348			1,105			455			2,981
Income tax benefit - CRO Services		985			1,765			1,923			3,217
Income tax benefit - total discontinued		1,333			2,870			2,378			6,198
Loss from operations of NCDG, aftertax		(528	)		(1,711	)		(700	)		(4,490	)
Loss from operations of CRO Services, aftertax		(1,441	)		(1,951	)		(2,998	)		(5,761	)
Loss from operations - total discontinued, aftertax		(1,969	)		(3,662	)		(3,698	)		(10,251	)
Impairment loss on NCDG, pretax		(5,065	)		(10,343	)		(5,065	)		(10,343	)
Impairment loss on CRO Services, pretax		(10,882	)		-			(51,773	)		-
Income tax (expense) benefit of impairment loss on NCDG		(9,679	)		1,859			(9,679	)		1,859
Income tax (expense) benefit of impairment loss on CRO Services		(10,133	)		-			12,636			-
Impairment loss on total discontinued, aftertax		(35,759	)		(8,484	)		(53,881	)		(8,484	)
Loss from discontinued operations of NCDG		(15,272	)		(10,195	)		(15,444	)		(12,974	)
Loss from discontinued operations of CRO Services		(22,456	)		(1,951	)		(42,135	)		(5,761	)
Loss from discontinued operations - total	$	(37,728	)	$	(12,146	)	$	(57,579	)	$	(18,735	)

Note 4 – Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the six months ended June 30, 2011 are as follows (in thousands):

	Total
Goodwill balance as of December 31, 2010	$	4,234,821
Goodwill acquired in the six months ended June 30, 2011		4,033
Other		11,347
Goodwill balance as of June 30, 2011	$	4,250,201

Goodwill is reviewed at the reporting unit level for impairment using a fair value based approach at least annually or between annual tests if events occur or circumstances indicate there may be impairment.

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 to the Company’s Canadian pharmacy operations.

The Company’s intangible amortization expense for the three and six months ended June 30, 2011 was approximately $10 million and $20 million, respectively, and was approximately $9 million and $19 million for the three and six months ended June 30, 2010, respectively.

12

Note 5 – Debt

A summary of debt follows (in thousands):

	June 30,			December 31,
	2011			2010
Revolving loans, due 2015	$	-		$	-
6.125% senior subordinated notes, due 2013		75,000			250,000
6.875% senior subordinated notes, due 2015		525,000			525,000
7.75% senior subordinated notes, due 2020		400,000			400,000
3.75% convertible senior subordinated notes, due 2025		575,000			575,000
4.00% junior subordinated convertible debentures, due 2033		345,000			345,000
3.25% convertible senior debentures, due 2035		452,500			452,500
Capitalized lease and other debt obligations		15,919			13,961
Subtotal		2,388,419			2,561,461
(Subtract) interest rate swap agreements		6,075			(4,290	)
(Subtract) unamortized debt discount		(435,014	)		(446,876	)
(Subtract) current portion of debt		(3,503	)		(3,537	)
Total long-term debt, net	$	1,955,977		$	2,106,758

At June 30, 2011, there was no outstanding balance under the Company’s Revolving Credit Facility.  As of June 30, 2011, the Company had approximately $20 million outstanding relating to standby letters of credit, substantially all of which were subject to automatic annual renewals.  The Company amortized to expense approximately $1.4 million and $3.5 million of deferred debt issuance costs during the three months ended June 30, 2011 and 2010, respectively, and $2.8 million and $4.7 million during the six months ended June 30, 2011 and 2010, respectively, including the amounts disclosed in the following paragraph.

In the first six months of 2011, the Company redeemed $175 million aggregate principal amount of its outstanding 6.125% Senior Subordinated Notes, due 2013 (the “6.125% Notes”).  In connection with the redemption of the 6.125% Notes, the Company incurred debt redemption costs of approximately $0.2 million and $1.3 million, which were recorded in interest expense for the three and six months ended June 30, 2011, respectively.

In the second quarter of 2011, the interest rate swap agreement on the 6.875% senior subordinated notes due 2015 was terminated, and the Company began paying interest at the 6.875% stated rate effective May 11, 2011.

The estimated floating interest rate on the interest rate swap agreement was 4.27% versus the 7.75% stated rate on the corresponding senior subordinated notes due 2020 with remaining principal balance of $400 million at June 30, 2011.

The Company has three convertible debentures, its 3.75% Convertible Senior Subordinated Notes, due 2025 (the “3.75% Convertible Notes”), 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) (the “3.25% Convertible Debentures”).  Issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are required to 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):

	June 30,			December 31,
	2011			2010
Carrying value of equity component	$	619,223		$	619,223
Principal amount of convertible debt	$	1,372,500		$	1,372,500
Unamortized debt discount		(435,014	)		(446,876	)
Net carrying value of convertible debt	$	937,486		$	925,624

As of June 30, 2011, the remaining amortization period for the debt discount was approximately 14.5, 22.0 and 4.5 years for the 3.75% Convertible Notes, 4.00% Convertible Debentures and 3.25% Convertible Debentures, respectively.

The effective interest rates for the liability components of the 3.75% Convertible Notes, 4.00% Convertible Debentures and 3.25% Convertible Debentures were 8.25%, 8.01% and 7.625%, respectively.

13

Note 6 – Earnings (Loss) Per Share Data

The following is a reconciliation of the basic and diluted earnings (loss) 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
2011:	(Numerator)			(Denominator)		Share Amounts
Basic EPS
Income from continuing operations	$	36,281				$	0.32
Loss from discontinued operations		(37,728	)				(0.33	)
Net loss		(1,447	)		113,487	$	(0.01	)
Effect of Dilutive Securities
4.00% junior subordinated convertible debentures		72			275
Stock options, warrants and awards		-			939
Diluted EPS
Income from continuing operations plus assumed conversions		36,353				$	0.32
Loss from discontinued operations		(37,728	)				(0.33	)
Net loss plus assumed conversions	$	(1,375	)		114,701	$	(0.01	)
2010:
Basic EPS
Income from continuing operations	$	23,745				$	0.20
Loss from discontinued operations		(12,146	)				(0.10	)
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		23,817				$	0.20
Loss from discontinued operations		(12,146	)				(0.10	)
Net income plus assumed conversions	$	11,671			118,116	$	0.10

	Six months ended June 30,
	Income			Common Shares		Per Common
2011:	(Numerator)			(Denominator)		Share Amounts
Basic EPS
Income from continuing operations	$	85,436				$	0.75
Loss from discontinued operations		(57,579	)				(0.51	)
Net income		27,857			113,806	$	0.24
Effect of Dilutive Securities
4.00% junior subordinated convertible debentures		144			275
Stock options, warrants and awards		-			1,000
Diluted EPS
Income from continuing operations plus assumed conversions		85,580				$	0.74
Loss from discontinued operations		(57,579	)				(0.50	)
Net income plus assumed conversions	$	28,001			115,081	$	0.24
2010:
Basic EPS
Income from continuing operations	$	81,186				$	0.69
Loss from discontinued operations		(18,735	)				(0.16	)
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		81,330				$	0.69
Loss from discontinued operations		(18,735	)				(0.16	)
Net income plus assumed conversions	$	62,595			118,285	$	0.53

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, 2011 and 2010, 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 months ended June 30, 2011 and 2010 totaled 2.4 million and 4.8 million, respectively, and for the six months ended June 30, 2011 and 2010, totaled 2.6 million and 6.2 million respectively.

14

Note 7 – Restructuring and Other Related Charges

Company-wide Reorganization Program:

During 2010, the Company initiated a “Company-wide Reorganization Program” (the “CWR Program”), including a reshaping of the organization with the objective of deploying resources closer to the customers, allowing Omnicare to become more responsive to customer needs, better leveraging the Omnicare platform and better positioning the Company for potential growth.  The program is anticipated to be completed in 2011 and is currently estimated to result in restructuring and other related charges of approximately $13 million, which is largely related to severance and employment agreement buyout costs.

As of June 30, 2011, the Company has made cumulative payments of approximately $2.1 million of severance and other employee-related costs for the CWR Program.  The Company had liabilities of approximately $2.1 million at December 31, 2010, of which approximately $1.0 million was utilized in the six months ended June 30, 2011.  The remaining liabilities of $1.1 million at June 30, 2011 represent amounts not yet paid relating to actions taken in connection with the program (primarily severance and employment agreement buy-outs) and will be settled as these matters are finalized.

Omnicare Full Potential Program:

In connection with the previously disclosed “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, which was completed in 2010, the Company had liabilities of approximately $7.7 million at December 31, 2010, of which $2.1 million was utilized in the six months ended June 30, 2011.  The remaining liabilities of $5.6 million at June 30, 2011 represents amounts not yet paid relating to actions taken in connection with the program (primarily lease termination payments) and will be settled as these matters are finalized.

Note 8 – 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.  The following supplements the legal matters described in the notes to the Company’s consolidated financial statements for the year ended December 31, 2010, as set forth in the Company's 2010 Annual Report.

On December 13, 2010, a qui tam complaint entitled United States ex rel. Bartz v. Ortho-McNeil Pharmaceuticals, Inc., Johnson & Johnson, Janssen Pharmaceutica, Inc., Janssen Pharmaceutica Products, LP, McKesson Corporation, McKesson Specialty Pharmaceutical, LLC and Omnicare, Inc., Civil Action No. 05-cv-6010, which had been filed under seal with the U.S. District Court in Philadelphia, Pennsylvania, was ordered unsealed by the court.  The complaint was brought by Scott Bartz, a former employee of Johnson & Johnson, as a private party qui tam relator on behalf of the federal government and several state and local governments.  The U.S. Department of Justice has notified the court that it has declined to intervene.  The action alleges civil violations of the False Claims Act based on allegations that Johnson & Johnson and its affiliates provided the Company and McKesson with rebates, free drugs and other remuneration in order to limit Johnson & Johnson’s rebate liability to Medicaid.  The court granted Johnson & Johnson’s motion to transfer the action to U.S. District Court in Boston, Massachussets in February 2011.  The Company filed a motion to dismiss the complaint on May 27, 2011.  On June 10, 2011, the relator filed a notice of intent to voluntarily dismiss its claims against the Company, which is pending.  The Company believes that the allegations are without merit and intends to vigorously defend itself in this action if pursued.

15

On October 29, 2010, a qui tam complaint entitled United States ex rel. Banigan and Templin, et al. v. Organon USA, Inc., Omnicare, Inc. and Pharmerica, Inc., Civil No. 07-12153-RWZ, that had been filed under seal with the U.S. District Court in Boston, Massachusetts, was ordered unsealed by the court.  The complaint was brought by James Banigan and Richard Templin, former employees of Organon, as private party qui tam relators on behalf of the federal government and several state and local governments.  The action alleges civil violations of the False Claims Act based on allegations that Organon USA, Inc. and its affiliates paid the Company and several other long-term care pharmacies rebates, post-purchase discounts and other forms of remuneration in return for purchasing pharmaceuticals from Organon and taking steps to increase the purchase of Organon's drugs in violation of the Anti-Kickback Statute.  The U.S. Department of Justice has notified the court that it has declined to intervene in this action.  The Company filed a motion to dismiss the complaint on July 7, 2011.  The Company believes that the allegations are without merit and intends to vigorously defend itself in this action if pursued.

The Drug Enforcement Administration ("DEA") is investigating alleged errors and deficiencies in paperwork requirements for controlled substance dispensing at several of the Company's pharmacies in Ohio.  The United States Attorney's Office, Northern District of Ohio ("AUSA"), is conducting an investigation relating to this matter, and may seek monetary penalties.  The AUSA is also conducting a criminal investigation of the Company and several current and former employees in connection with the DEA audits.  The Company is cooperating with these investigations and intends to vigorously defend itself if these matters are pursued.  The Company recorded a provision for this matter in the quarters ended June 30, 2011 and December 31, 2010.

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, against 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 April 27, 2011 the court entered an order denying defendants’ motion to dismiss the complaint for failure to make a pre-suit demand and failure to state a claim.  Defendants have filed a notice of appeal from the decision in the Kentucky Court of Appeals, and plaintiff has moved to dismiss that appeal on the grounds that the order denying defendants’ motion to dismiss is not subject to an immediate appeal under Kentucky law.  The individual defendants have denied all allegations of wrongdoing, believe the claims against them to be completely without merit and intend to vigorously defend themselves in this action.

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 (“J&J”), the Company and certain unnamed defendants asserting violations of federal antitrust law and California unfair competition law arising out of certain arrangements between J&J 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.  The Company filed a motion to dismiss the amended complaint on October 6, 2010.  On January 21, 2011, the court dismissed the amended complaint and granted permission to file a new amended complaint, which was filed in February 2011.  The Company filed a motion to dismiss the second amended complaint in March 2011.  The motion to dismiss the second amended complaint is scheduled to be heard on August 12, 2011.  The Company believes the allegations are without merit and intends to vigorously defend itself if pursued.

16

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 action alleges civil violations of the 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.  On December 1, 2010, Resnick filed a motion to withdraw as a relator, which the court granted on December 14, 2010.  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 action.  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 services 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.  On November 1, 2010, the Company filed a motion to dismiss the lawsuit.  Relator responded and conceded to dismissal of one of the counts.  On July 7, 2011, the court granted the Company's motion in part and denied it in part.  The court granted the motion as to the allegations that the Company submitted claims for reimbursement for certain ancillary services that did not conform with Medicare and Medicaid regulations and submitted claims for reimbursement from newly acquired pharmacies that were in violation of certain Medicaid and Medicare regulations; the court dismissed those counts without prejudice.  The court denied the Company's motion as to the allegations that the Company violated certain FDA regulations regarding the storage and handling of a particular drug and retaliated against Relator.   The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

On November 19, 2010, the Company was served with a second amended qui tam complaint entitled United States ex rel. Rostholder v. Omnicare, Inc. and Omnicare Distribution Center, LLC f/k/a Heartland Repack Services LLC, No. CCB-07-1283, that was filed under seal with the U.S. District in Baltimore, Maryland in July 2009.  The U.S. Department of Justice notified the court on April 22, 2009 that it declined to intervene in this action.  The complaint was brought by Barry Rostholder as a private party qui tam relator on behalf of the federal government and several state and local governments.  The action, in general, alleges civil violations of the False Claims Act based on allegations that the Company submitted claims for reimbursement for drugs that were repackaged at its Heartland repackaging facility in violation of certain FDA regulations.  These allegations arise from the previously disclosed issues experienced by the Company at its Heartland repackaging facility, which suspended operations in 2006.  The Company believes that the claims in the complaint are without merit and intends to vigorously defend itself in this action if pursued.

17

As part of the previously disclosed civil settlement agreement entered into by the Company with the U.S. Attorney’s Office, District of Massachusetts in November 2009, 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 CIA without modification.  The requirements of the CIA have resulted 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 have been increased and will continue to be increased, and these price increases have resulted and may continue to result in the loss of certain contracts.

In February 2006, two substantially similar putative class action lawsuits were filed in the United States District Court for the Eastern District of Kentucky, and were consolidated and entitled Indiana State Dist. Council of Laborers & HOD Carriers Pension & Welfare Fund v. Omnicare, Inc., et al., No. 2:06cv26.  The amended consolidated complaint was filed against Omnicare, three of its officers and two of its directors and purported to be brought on behalf of all open-market purchasers of Omnicare common stock from August 3, 2005 through July 27, 2006, as well as all purchasers who bought their shares in the Company's public offering in December 2005.  The complaint contained claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (and Rule 10b-5) and Section 11 of the Securities Act of 1933 and sought, among other things, compensatory damages and injunctive relief.  Plaintiffs alleged that Omnicare (i) artificially inflated its earnings (and failed to file GAAP-compliant financial statements) by engaging in improper generic drug substitution, improper revenue recognition and overvaluation of receivables and inventories; (ii) failed to timely disclose its contractual dispute with UnitedHealth Group Inc.; (iii) failed to timely record certain special litigation reserves; and (iv) made other allegedly false and misleading statements about the Company’s business, prospects and compliance with applicable laws and regulations.  The defendants filed a motion to dismiss the amended complaint on March 12, 2007, and on October 12, 2007, the court dismissed the case.  On November 9, 2007, plaintiffs appealed the dismissal to the United States Court of Appeals for the Sixth Circuit.  On October 21, 2009, the Sixth Circuit Court of Appeals generally affirmed the district court's dismissal, dismissing plaintiff's claims for violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.  However, the appellate court reversed the dismissal for the claim brought for violation of Section 11 of the Securities Act of 1933, and returned the case to the district court for further proceedings.  On December 30, 2010, plaintiffs filed a motion in the district court requesting permission to file a third amended complaint.  On February 4, 2011, the defendants filed a motion to dismiss the sole remaining claim in plaintiff's second amended complaint.  On July 14, 2011, the court granted both motions and deemed the third amended complaint filed.  This complaint asserts a claim under Section 11 of the Securities Act of 1933 on behalf of all purchasers of Omnicare common stock in the December 2005 public offering.  The new complaint alleges that the 2005 registration statement contained false and misleading statements regarding Omnicare's policy of compliance with all applicable laws and regulations with particular emphasis on allegations of violation of the federal anti-kickback law in connection with three of Omnicare's acquisitions, Omnicare's contracts with two of its suppliers and its provision of pharmacist consultant services.  The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

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 other things, damages, restitution and injunctive relief.  The Isak and Fragnoli actions were later consolidated by agreement of the parties.  The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

18

The three and six months ended June 30, 2011 included charges of $19.8 million and $25.8 million, respectively, and approximately $29.4 million and $34.9 million for the three and six months ended June 30, 2010, respectively, reflected in “Settlement, litigation and other related charges” of the Consolidated Statements of Income, primarily for estimated litigation-related settlements and professional expenses for resolution of certain regulatory matters with various states, certain large customer disputes, costs associated with the settlement of the investigation by the United States Attorney’s Office, District of Massachusetts; 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 amounts, as well as any amounts relating to certain inspections, audits, inquiries and investigations activity are included in ”Settlement, litigation and other related charges” of the Consolidated Statements of Income.

During 2006, the Company experienced certain quality control and product recall issues, as well as fire damage, at one of its repackaging facilities.  In connection with the resolution of these matters (the “Repack Matters”) 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 and certain billing issues.  Addressing these issues served to increase costs.  The Company maintains product recall, property and casualty and business interruption insurance, and the extent of insurance recoveries for these expenses continues to be reviewed by its outside advisors.  The company incurred increased costs/(credits) [net of recoveries] of approximately $0.7 million and $1.9 million for the three and six months ended June 30, 2010, respectively.

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 that these matters will be resolved in an amount that would not exceed the amount of any pretax charges previously recorded by the Company.

As part of its ongoing operations, the Company is also 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.  Further, the Company is 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 range of loss associated with certain actions cannot be made, and there can be no assurance that the ultimate resolution of these matters, individually 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.

19

Note 9 – Segment Information

Following the discontinuance of the operations of the Company’s Clinical Research business, Omnicare operates in one segment, the Pharmacy Services Segment.  Accordingly, no operating segment data has been provided.  The Company is currently evaluating its overall organizational structure and the related internal financial and operational reporting.  It is anticipated that this review will be completed during the second half of 2011.  Upon completion of this review, changes, if any, in internal financial reporting will be reflected in the Company’s periodic filings.

Note 10 – Guarantor Subsidiaries

The Company’s 6.125% Senior Subordinated Notes due 2013, the 6.875% Senior Subordinated Notes due 2015, the 7.75% Senior Subordinated Notes due 2020 and the 3.75% Convertible Notes due 2025 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, 2011 and December 31, 2010 for the balance sheets, as well as the three and six months ended June 30, 2011 and 2010 for the statements of income, and the statements of cash flows for the six months ended June 30, 2011 and 2010.  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.

Summary Consolidating Statements of Income – Unaudited

(in thousands)

	Three months ended June 30,
				Guarantor			Non-Guarantor			Consolidating/Eliminating			Omnicare, Inc.
2011:	Parent			Subsidiaries			Subsidiaries			Adjustments			and Subsidiaries
Net sales	$	-		$	1,523,824		$	32,082		$	-		$	1,555,906
Cost of sales		-			1,197,232			22,281			-			1,219,513
Gross profit		-			326,592			9,801			-			336,393
Selling, general and administrative expenses		2,307			185,164			5,003			-			192,474
Provision for doubtful accounts		-			23,881			476			-			24,357
Settlement, litigation and other related charges		-			19,816			-			-			19,816
Other misellaneous charges		-			2,332			-			-			2,332
Operating income (loss)		(2,307	)		95,399			4,322			-			97,414
Investment income		147			108			-			-			255
Interest expense, including amortization
of discount on convertible notes		(33,710	)		(275	)		-			-			(33,985	)
Income (loss) from continuing operations
before income taxes		(35,870	)		95,232			4,322			-			63,684
Income tax (benefit) expense		(13,443	)		39,158			1,688			-			27,403
Income (loss) from continuing operations		(22,427	)		56,074			2,634			-			36,281
Loss from discontinued operations		-			(36,297	)		(1,431	)		-			(37,728	)
Equity of net income (loss) of subsidiaries		20,980			-			-			(20,980	)		-
Net income (loss)	$	(1,447	)	$	19,777		$	1,203		$	(20,980	)	$	(1,447	)
2010:
Net sales	$	-		$	1,456,614		$	34,811		$	-		$	1,491,425
Cost of sales		-			1,137,926			26,244			-			1,164,170
Gross profit		-			318,688			8,567			-			327,255
Selling, general and administrative expenses		1,118			181,151			3,650			-			185,919
Provision for doubtful accounts		-			20,422			564			-			20,986
Settlement, litigation and other related charges		-			29,361			-			-			29,361
Other miscellaneous charges		-			5,285			-			-			5,285
Operating income (loss)		(1,118	)		82,469			4,353			-			85,704
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	)		82,847			4,353			-			39,624
Income tax (benefit) expense		(17,656	)		31,695			1,840			-			15,879
Income (loss) from continuing operations		(29,920	)		51,152			2,513			-			23,745
Income (loss) from discontinued operations		-			(12,320	)		174			-			(12,146	)
Equity of net income (loss) of subsidiaries		41,519			-			-			(41,519	)		-
Net income (loss)	$	11,599		$	38,832		$	2,687		$	(41,519	)	$	11,599

20

Note 10 – Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income – Unaudited

(in thousands)

	Six months ended June 30,
							Non-			Consolidating/			Omnicare,
				Guarantor			Guarantor			Eliminating			Inc. and
2011:	Parent			Subsidiaries			Subsidiaries			Adjustments			Subsidiaries
Net sales	$	-		$	3,016,728		$	64,749		$	-		$	3,081,477
Cost of sales		-			2,365,369			44,755			-			2,410,124
Gross profit		-			651,359			19,994			-			671,353
Selling, general and administrative expenses		5,907			367,964			8,770			-			382,641
Provision for doubtful accounts		-			47,932			955			-			48,887
Settlement, litigation and other related charges		-			25,829			-			-			25,829
Other misellaneous charges		-			4,221			-			-			4,221
Operating income (loss)		(5,907	)		205,413			10,269			-			209,775
Investment income		363			188			-			-			551
Interest expense, including amortization
of discount on convertible notes		(68,057	)		(600	)		(6	)		-			(68,663	)
Income (loss) from continuing operations
before income taxes		(73,601	)		205,001			10,263			-			141,663
Income tax (benefit) expense		(27,615	)		79,870			3,972			-			56,227
Income (loss) from continuing operations		(45,986	)		125,131			6,291			-			85,436
Loss from discontinued operations		-			(55,032	)		(2,547	)		-			(57,579	)
Equity of net income (loss) of subsidiaries		73,843			-			-			(73,843	)		-
Net income (loss)	$	27,857		$	70,099		$	3,744		$	(73,843	)	$	27,857
2010:
Net sales	$	-		$	2,913,904		$	69,892		$	-		$	2,983,796
Cost of sales		-			2,262,324			52,873			-			2,315,197
Gross profit		-			651,580			17,019			-			668,599
Selling, general and administrative expenses		3,796			357,703			7,191			-			368,690
Provision for doubtful accounts		-			41,787			1,141			-			42,928
Settlement, litigation and other related charges		-			34,867			-			-			34,867
Other miscellaneous charges		-			11,050			-			-			11,050
Operating income (loss)		(3,796	)		206,173			8,687			-			211,064
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	)		207,756			8,687			-			130,709
Income tax (benefit) expense		(31,816	)		78,117			3,222			-			49,523
Income (loss) from continuing operations		(53,918	)		129,639			5,465			-			81,186
Loss from discontinued operations		-			(16,738	)		(1,997	)		-			(18,735	)
Equity of net income of subsidiaries		116,369			-			-			(116,369	)		-
Net income (loss)	$	62,451		$	112,901		$	3,468		$	(116,369	)	$	62,451

21

Note 10 – Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets

(in thousands)

					Non-		Consolidating/			Omnicare,
			Guarantor		Guarantor		Eliminating			Inc. and
As of June 30, 2011 (Unaudited):	Parent		Subsidiaries		Subsidiaries		Adjustments			Subsidiaries
ASSETS
Cash and cash equivalents	$	467,342	$	36,946	$	17,322	$	-		$	521,610
Restricted cash		-		2,403		-		-			2,403
Accounts receivable, net (including intercompany)		-		988,237		91,773		(78,828	)		1,001,182
Inventories		-		349,496		7,101		-			356,597
Deferred income tax benefits, net-current		-		155,620		2,177		(603	)		157,194
Other current assets		9,286		209,336		14,811		-			233,433
Current assets of discontinued operations		-		1,281		1,092		-			2,373
Total current assets		476,628		1,743,319		134,276		(79,431	)		2,274,792
Properties and equipment, net		-		196,746		4,731		-			201,477
Goodwill		-		4,169,083		81,118		-			4,250,201
Identifiable intangible assets, net		-		234,283		7,065		-			241,348
Other noncurrent assets		43,971		101,378		115		-			145,464
Noncurrent assets of discontinued operations		-		5,176		7,596		-			12,772
Investment in subsidiaries		5,582,615		-		-		(5,582,615	)		-
Total assets	$	6,103,214	$	6,449,985	$	234,901	$	(5,662,046	)	$	7,126,054
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities - continuing operations
(including intercompany)	$	34,250	$	501,772	$	21,688	$	(78,828	)	$	478,882
Current liabilities - discontinued operations		-		4,765		1,135		-			5,900
Long-term debt, notes and convertible debentures		1,943,561		12,416		-		-			1,955,977
Deferred income tax liabilities		324,903		444,582		15,317		(603	)		784,199
Other noncurrent liabilities		-		100,596		-		-			100,596
Stockholders' equity		3,800,500		5,385,854		196,761		(5,582,615	)		3,800,500
Total liabilities and stockholders' equity	$	6,103,214	$	6,449,985	$	234,901	$	(5,662,046	)	$	7,126,054
As of December 31, 2010 (unaudited):
ASSETS
Cash and cash equivalents	$	460,778	$	17,598	$	16,108	$	-		$	494,484
Restricted cash		-		2,019		-		-			2,019
Accounts receivable, net (including intercompany)		-		997,585		25,085		(10,847	)		1,011,823
Inventories		-		411,256		7,709		-			418,965
Deferred income tax benefits, net-current		-		145,886		5,198		(440	)		150,644
Other current assets		538		319,268		12,801		-			332,607
Current assets of discontinued operations		-		41,366		5,888		-			47,254
Total current assets		461,316		1,934,978		72,789		(11,287	)		2,457,796
Properties and equipment, net		-		200,442		4,275		-			204,717
Goodwill		-		4,154,723		80,098		-			4,234,821
Identifiable intangible assets, net		-		250,843		8,966		-			259,809
Other noncurrent assets		47,695		108,938		308		-			156,941
Noncurrent assets of discontinued operations		-		40,952		8,377		-			49,329
Investment in subsidiaries		5,763,499		-		-		(5,763,499	)		-
Total assets	$	6,272,510	$	6,690,876	$	174,813	$	(5,774,786	)	$	7,363,413
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities - continuing operations
(including intercompany)	$	36,203	$	525,819	$	20,718	$	(10,847	)	$	571,893
Current liabilities - discontinued operations		-		11,645		10,716		-			22,361
Long-term debt, notes and convertible debentures		2,096,333		10,425		-		-			2,106,758
Deferred income tax liabilities		319,740		404,493		13,590		(440	)		737,383
Other noncurrent liabilities		4,290		104,784		-		-			109,074
Stockholders' equity		3,815,944		5,633,710		129,789		(5,763,499	)		3,815,944
Total liabilities and stockholders' equity	$	6,272,510	$	6,690,876	$	174,813	$	(5,774,786	)	$	7,363,413

22

Note 10 – Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows - Unaudited

(in thousands)

	Six months ended June 30,
							Non-			Omnicare,
				Guarantor			Guarantor			Inc. and
2011:	Parent			Subsidiaries			Subsidiaries			Subsidiaries
Cash flows from operating activities:
Net cash flows (used in) from operating activities	$	(52,090	)	$	330,115		$	3,270		$	281,295
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			(19,521	)		-			(19,521	)
Divestiture of businesses, net		-			10,599			-			10,599
Capital expenditures		-			(17,042	)		(1,181	)		(18,223	)
Other		-			(2,923	)		(6	)		(2,929	)
Net cash flows used in investing activities		-			(28,887	)		(1,187	)		(30,074	)
Cash flows from financing activities:
Payments on long-term borrowings and obligations		(175,664	)		-			-			(175,664	)
Increase (decrease) in cash overdraft balance		(2,546	)		6,959			-			4,413
Payments for Omnicare common stock repurchase		(70,061	)		-			-			(70,061	)
Dividends paid		(8,258	)		-			-			(8,258	)
Other		315,183			(288,830	)		(871	)		25,482
Net cash flows from (used in) financing activities		58,654			(281,871	)		(871	)		(224,088	)
Net increase (decrease) in cash and cash equivalents		6,564			19,357			1,212			27,133
Less increase (decrease) in cash and cash equivalents of
discontinued operations		-			9			(2	)		7
Increase (decrease) in cash and cash equivalents of
continuing operations		6,564			19,348			1,214			27,126
Cash and cash equivalents at beginning of period		460,778			17,598			16,108			494,484
Cash and cash equivalents at end of period	$	467,342		$	36,946		$	17,322		$	521,610
2010:
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		-			(11,056	)		(433	)		(11,489	)
Other		-			9,747			(3	)		9,744
Net cash flows used in investing activities		-			(13,164	)		(436	)		(13,600	)
Cash flows from financing activities:
Net payments on revolving 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 in cash overdraft balance		5,067			(1,940	)		-			3,127
Payments for Omnicare common stock repurchase		(49,154	)		-			-			(49,154	)
Dividends paid		(5,343	)		-			-			(5,343	)
Other		189,131			(193,717	)		(3,921	)		(8,507	)
Net cash flows used in financing activities		179,195			(195,657	)		(3,921	)		(20,383	)
Net increase (decrease) in cash and cash equivalents		125,044			(8,854	)		3,404			119,594
Less increase in cash and cash equivalents of
discontinued operations		-			393			-			393
Increase (decrease) in cash and cash equivalents of
continuing operations		125,044			(9,247	)		3,404			119,201
Cash and cash equivalents at beginning of period		230,866			32,202			12,639			275,707
Cash and cash equivalents at end of period	$	355,910		$	22,955		$	16,043		$	394,908

23

Note 10 - Guarantor Subsidiaries (Continued)

The Company’s 3.25% convertible senior debentures due 2035 (with optional redemption by Omnicare on or after, or an optional repurchase right of holders on, December 15, 2015, at par) 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, 2011 and December 31, 2010 for the balance sheets, as well as the three and six months ended June 30, 2011 and 2010 for the statements of income and the statements of cash flows for the six months ended June 30, 2011 and 2010.  Management believes separate complete financial statements of the respective Guarantor Subsidiary would not provide information that would be necessary for 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.

Note 10 – Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income – Unaudited

(in thousands)

	Three months ended June 30,
							Non-			Consolidating/			Omnicare,
				Guarantor			Guarantor			Eliminating			Inc. and
2011:	Parent			Subsidiary			Subsidiaries			Adjustments			Subsidiaries
Net sales	$	-		$	-		$	1,555,906		$	-		$	1,555,906
Cost of sales		-			-			1,219,513			-			1,219,513
Gross profit		-			-			336,393			-			336,393
Selling, general and administrative expenses		2,307			323			189,844			-			192,474
Provision for doubtful accounts		-			-			24,357			-			24,357
Settlement, litigation and other related charges		-			-			19,816			-			19,816
Other miscellaneous charges		-			-			2,332			-			2,332
Operating income (loss)		(2,307	)		(323	)		100,044			-			97,414
Investment income		147			-			108			-			255
Interest expense, including amortization														-
of discount on convertible notes		(33,710	)		-			(275	)		-			(33,985	)
Income (loss) from continuing operations
before income taxes		(35,870	)		(323	)		99,877			-			63,684
Income tax (benefit) expense		(13,443	)		(121	)		40,967			-			27,403
Income (loss) from continuing operations		(22,427	)		(202	)		58,910			-			36,281
Loss from discontinued operations		-			-			(37,728	)		-			(37,728	)
Equity of net income (loss) of subsidiaries		20,980			-			-			(20,980	)		-
Net income (loss)	$	(1,447	)	$	(202	)	$	21,182		$	(20,980	)	$	(1,447	)
2010:
Net sales	$	-		$	-		$	1,491,425		$	-		$	1,491,425
Cost of sales		-			-			1,164,170			-			1,164,170
Gross profit		-			-			327,255			-			327,255
Selling, general and administrative expenses		1,118			336			184,465			-			185,919
Provision for doubtful accounts		-			-			20,986			-			20,986
Settlement, litigation and other related charges		-			-			29,361			-			29,361
Other miscellaneous charges		-			-			5,285			-			5,285
Operating income (loss)		(1,118	)		(336	)		87,158			-			85,704
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	)		87,536			-			39,624
Income tax (benefit) expense		(17,656	)		(125	)		33,660			-			15,879
Income (loss) from continuing operations		(29,920	)		(211	)		53,876			-			23,745
Loss from discontinued operations		-			-			(12,146	)		-			(12,146	)
Equity of net income of subsidiaries		41,519			-			-			(41,519	)		-
Net income (loss)	$	11,599		$	(211	)	$	41,730		$	(41,519	)	$	11,599

24

Note 10 – Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income – Unaudited

(in thousands)

	Six months ended June 30,
							Non-			Consolidating/			Omnicare,
				Guarantor			Guarantor			Eliminating			Inc. and
2011:	Parent			Subsidiary			Subsidiaries			Adjustments			Subsidiaries
Net sales	$	-		$	-		$	3,081,477		$	-		$	3,081,477
Cost of sales		-			-			2,410,124			-			2,410,124
Gross profit		-			-			671,353			-			671,353
Selling, general and administrative expenses		5,907			669			376,065			-			382,641
Provision for doubtful accounts		-			-			48,887			-			48,887
Settlement, litigation and other related charges		-			-			25,829			-			25,829
Other miscellaneous charges		-			-			4,221			-			4,221
Operating income (loss)		(5,907	)		(669	)		216,351			-			209,775
Investment income		363			-			188			-			551
Interest expense, including amortization
of discount on convertible notes		(68,057	)		-			(606	)		-			(68,663	)
Income (loss) from continuing operations
before income taxes		(73,601	)		(669	)		215,933			-			141,663
Income tax (benefit) expense		(27,615	)		(251	)		84,093			-			56,227
Income (loss) from continuing operations		(45,986	)		(418	)		131,840			-			85,436
Loss from discontinued operations		-			-			(57,579	)		-			(57,579	)
Equity of net income (loss) of subsidiaries		73,843			-			-			(73,843	)		-
Net income (loss)	$	27,857		$	(418	)	$	74,261		$	(73,843	)	$	27,857
2010:
Net sales	$	-		$	-		$	2,983,796		$	-		$	2,983,796
Cost of sales		-			-			2,315,197			-			2,315,197
Gross profit		-			-			668,599			-			668,599
Selling, general and administrative expenses		3,796			635			364,259			-			368,690
Provision for doubtful accounts		-			-			42,928			-			42,928
Settlement, litigation and other related charges		-			-			34,867			-			34,867
Other miscellaneous charges		-			-			11,050			-			11,050
Operating income (loss)		(3,796	)		(635	)		215,495			-			211,064
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	)		217,078			-			130,709
Income tax (benefit) expense		(31,816	)		(236	)		81,575			-			49,523
Income (loss) from continuing operations		(53,918	)		(399	)		135,503			-			81,186
Loss from discontinued operations		-			-			(18,735	)		-			(18,735	)
Equity of net income of subsidiaries		116,369			-			-			(116,369	)		-
Net income (loss)	$	62,451		$	(399	)	$	116,768		$	(116,369	)	$	62,451

25

Note 10 – Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets

(in thousands)

					Non-		Consolidating/			Omnicare,
			Guarantor		Guarantor		Eliminating			Inc. and
As of June 30, 2011 (Unaudited):	Parent		Subsidiary		Subsidiaries		Adjustments			Subsidiaries
ASSETS
Cash and cash equivalents	$	467,342	$	-	$	54,268	$	-		$	521,610
Restricted cash		-		-		2,403		-			2,403
Accounts receivable, net (including intercompany)		-		122		1,001,182		(122	)		1,001,182
Inventories		-		-		356,597		-			356,597
Deferred income tax benefits, net-current		-		-		157,797		(603	)		157,194
Other current assets		9,286		-		224,147		-			233,433
Current assets of discontinued operations		-		-		2,373		-			2,373
Total current assets		476,628		122		1,798,767		(725	)		2,274,792
Properties and equipment, net		-		14		201,463		-			201,477
Goodwill		-		19		4,250,182		-			4,250,201
Identifiable intangible assets, net		-		-		241,348		-			241,348
Other noncurrent assets		43,971		-		101,493		-			145,464
Noncurrent assets of discontinued operations		-		-		12,772		-			12,772
Investment in subsidiaries		5,582,615		-		-		(5,582,615	)		-
Total assets	$	6,103,214	$	155	$	6,606,025	$	(5,583,340	)	$	7,126,054
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities - continuing operations
(including intercompany)	$	34,250	$	34	$	444,720	$	(122	)	$	478,882
Current liabilities - discontinued operations		-		-		5,900		-			5,900
Long-term debt, notes and convertible debentures		1,943,561		-		12,416		-			1,955,977
Deferred income tax liabilities		324,903		-		459,899		(603	)		784,199
Other noncurrent liabilities		-		-		100,596		-			100,596
Stockholders' equity		3,800,500		121		5,582,494		(5,582,615	)		3,800,500
Total liabilities and stockholders' equity	$	6,103,214	$	155	$	6,606,025	$	(5,583,340	)	$	7,126,054
As of December 31, 2010 (unaudited):
ASSETS
Cash and cash equivalents	$	460,778	$	-	$	33,706	$	-		$	494,484
Restricted cash		-		-		2,019		-			2,019
Accounts receivable, net (including intercompany)		-		68		1,011,755		-			1,011,823
Inventories		-		-		418,965		-			418,965
Deferred income tax benefits, net-current		-		-		151,084		(440	)		150,644
Other current assets		538		-		332,069		-			332,607
Current assets of discontinued operations		-		-		47,254		-			47,254
Total current assets		461,316		68		1,996,852		(440	)		2,457,796
Properties and equipment, net		-		16		204,701		-			204,717
Goodwill		-		19		4,234,802		-			4,234,821
Identifiable intangible assets, net		-		-		259,809		-			259,809
Other noncurrent assets		47,695		-		109,246		-			156,941
Noncurrent assets of discontinued operations		-		-		49,329		-			49,329
Investment in subsidiaries		5,763,499		-		-		(5,763,499	)		-
Total assets	$	6,272,510	$	103	$	6,854,739	$	(5,763,939	)	$	7,363,413
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities - continuing operations
(including intercompany)	$	36,203	$	-	$	535,690	$	-		$	571,893
Current liabilities - discontinued operations		-		-		22,361		-			22,361
Long-term debt, notes and convertible debentures		2,096,333		-		10,425		-			2,106,758
Deferred income tax liabilities		319,740		-		418,083		(440	)		737,383
Other noncurrent liabilities		4,290		-		104,784		-			109,074
Stockholders' equity		3,815,944		103		5,763,396		(5,763,499	)		3,815,944
Total liabilities and stockholders' equity	$	6,272,510	$	103	$	6,854,739	$	(5,763,939	)	$	7,363,413

26

 

Note 10 – Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows - Unaudited

(in thousands)

	Six months ended June 30,
						Non-			Omnicare,
				Guarantor		Guarantor			Inc. and
2011:	Parent			Subsidiary		Subsidiaries			Subsidiaries
Cash flows from operating activities:
Net cash flows (used in) from operating activities	$	(52,090	)	$	-	$	333,385		$	281,295
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			-		(19,521	)		(19,521	)
Divestiture of businesses, net		-			-		10,599			10,599
Capital expenditures		-			-		(18,223	)		(18,223	)
Other		-			-		(2,929	)		(2,929	)
Net cash flows used in investing activities		-			-		(30,074	)		(30,074	)
Cash flows from financing activities:
Payments on long-term borrowings and obligations		(175,664	)		-		-			(175,664	)
Increase (decrease) in cash overdraft balance		(2,546	)		-		6,959			4,413
Payments for Omnicare common stock repurchase		(70,061	)		-		-			(70,061	)
Dividends paid		(8,258	)		-		-			(8,258	)
Other		315,183			-		(289,701	)		25,482
Net cash flows from (used in) financing activities		58,654			-		(282,742	)		(224,088	)
Net increase (decrease) in cash and cash equivalents		6,564			-		20,569			27,133
Less increase in cash and cash equivalents of		-
discontinued operations		-			-		7			7
Increase (decrease) in cash and cash equivalents of
continuing operations		6,564			-		20,562			27,126
Cash and cash equivalents at beginning of period		460,778			-		33,706			494,484
Cash and cash equivalents at end of period	$	467,342		$	-	$	54,268		$	521,610
2010:
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		-			-		(11,489	)		(11,489	)
Other		-			-		9,744			9,744
Net cash flows used in investing activities		-			-		(13,600	)		(13,600	)
Cash flows from financing activities:
Net payments on revolving credit facilities and Term A loan		(125,000	)		-		-			(125,000	)
Proceeds from long-term borrowings and obligaitons		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 in cash overdraft balance		5,067			-		(1,940	)		3,127
Payments for Omnicare common stock repurchase		(49,154	)		-		-			(49,154	)
Dividends paid		(5,343	)		-		-			(5,343	)
Other		189,131			-		(197,638	)		(8,507	)
Net cash flows from (used in) financing activities		179,195			-		(199,578	)		(20,383	)
Net increase (decrease) in cash and cash equivalents		125,044			-		(5,450	)		119,594
Less increase in cash and cash equivalents of
discontinued operations		-			-		393			393
Increase (decrease) in cash and cash equivalents of
continuing operations		125,044			-		(5,843	)		119,201
Cash and cash equivalents at beginning of period		230,866			-		44,841			275,707
Cash and cash equivalents at end of period	$	355,910		$	-	$	38,998		$	394,908

27

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, 2010, which appear in the Company’s Annual Report on Form 10-K, (“Omnicare’s 2010 Annual Report”), which was filed with the Securities and Exchange Commission on February 24, 2011. All amounts disclosed herein relate to the Company’s continuing operations unless otherwise stated.

Executive Overview

Omnicare, Inc. (“Omnicare” or the “Company”) 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, 2011, Omnicare served long-term care facilities as well as chronic care and other settings comprising approximately 1,376,000 beds relating to continuing operations, including approximately 93,000 patients served by the patient assistance programs of its specialty pharmacy services business.  Omnicare services customers in all 50 states in the United States, the District of Columbia and Canada at June 30, 2011.  For the three and six months ended June 30, 2011, Omnicare dispensed approximately 30,353,000 and 61,024,000 prescriptions, respectively.

In the first six months of 2011, the Company continued its heightened operational focus to improve the Company’s customer service and focus on driving consistent organic growth.  This focus consists of management team changes, redefining the organizational structure, beginning to insource certain administrative functions, improving employee relations, reallocating resources to align employee interests, reinforcing a commitment to compliance, and an overall organization-wide focus on the customer.  In the first six months of 2011, the Company believes it began to see some of the benefits of these efforts through positive trends in certain of its key business metrics, as beds served and scripts dispensed increased over the prior year periods.  Additionally, the Company’s specialty care business continued its strong performance.  Further, the benefit from recently launched generic drugs has served to offset the increased payroll and employee benefit costs associated with Omnicare’s initiatives to improve its infrastructure and payor-driven reimbursement reductions.

Omnicare believes it has an attractive business model, with a market leadership position in the long-term care market, and  its relative position in the growing specialty care market supported by strong cash flows.  Omnicare believes its business model positions the Company to benefit (presently and in the future) from certain factors including the favorable impact of branded drug price inflation and the increased availability of generic drugs.  Increased generic usage also benefits Omnicare’s payors, including facility customers and government-sponsored health programs, by lowering their healthcare costs.  During the first six months of 2011, the Company’s strong cash flow enabled Omnicare to pay off $175 million of long-term debt and also to return approximately 28% of the Company’s operating cash flow from continuing operations to shareholders, through dividends (which were increased from 3.25 cents per common share to 4.0 cents per common share during the second quarter of 2011) and share repurchases.

In connection with the reallocation of resources started in the second half of 2010 and the previously disclosed unfavorable market conditions experienced by its Contract Research Services organization (“CRO Services”) business, the Company committed to a plan to divest its CRO Services business in the first quarter of 2011 and completed the divestiture in April 2011.  Also, in the second quarter of 2011, the Company divested its Tidewater Group Purchasing Organization (“Tidewater”).  The Company determined that the CRO Services and Tidewater businesses were no longer good strategic fits within the Company’s portfolio of assets.  Following the discontinuance of the operations of its Clinical Research business, Omnicare operates in one segment, the Pharmacy Services Segment.  The Company is currently evaluating its overall organizational structure and the related internal financial and operational reporting.  It is anticipated that this review will be completed during the second half of 2011.  Upon completion of this review, changes, if any, in internal financial reporting will be reflected in the Company’s periodic filings.

28

Regulatory Matters Update

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 legislative and regulatory changes impacting operations and the level of reimbursement received from the Medicare and Medicaid programs.  For example, pursuant to the Patient Protection and Affordable Care Act, as amended by the Health Care and Education and Reconciliation Act of 2010 (collectively, the “ACA”), Centers for Medicare & Medicaid Services (“CMS”) has issued a final rule requiring long-term care pharmacies to dispense branded oral solid medications (other than antibiotics) every 14 days, rather than the current practice of every 30 days, effective as of January 1, 2013.  The proposed rule would have required dispensing for all branded medications every 7 days, effective as of January 1, 2012.  The Company does not believe this change will have a material impact on the Company’s results of operations, cash flows or financial condition.  Further, CMS is currently evaluating changes to the reimbursement rates paid to skilled nursing facilities for services provided under Medicare Part A which could, under one scenario, result in a payment decrease of 11.3% from fiscal year 2011 to 2012.  There can be no assurance that these or other legislative and regulatory changes will not adversely impact the Company’s results of operations, cash flows, or financial condition as a result of a number of possible factors, including unfavorable changes in reimbursement, increased operational costs, the assessment of penalties on the Company by regulators, and the potential loss of licenses by the Company and/or its customers.

Results of Operations for the Three and Six Months Ended June 30, 2011

The following summary table presents consolidated financial information and results of operations of Omnicare (in thousands, except per share amounts).  The Company has disclosed in this MD&A, with the exception of EBITDA (discussed below), only those measures that are in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).

	Three months ended,						Six months ended,
	June 30,						June 30,
	2011			2010			2011			2010
Net sales	$	1,555,906		$	1,491,425		$	3,081,477		$	2,983,796
Gross profit		336,393			327,255			671,353			668,599
Selling, general and administrative expenses		192,474			185,919			382,641			368,690
Provision for doubtful accounts		24,357			20,986			48,887			42,928
Investment income		255			1,105			551			2,769
Interest expense		(27,996	)		(39,712	)		(56,801	)		(68,320	)
Effective income tax rate		43.0	%		40.1	%		39.7	%		37.9	%
Income from continuing operations	$	36,281		$	23,745		$	85,436		$	81,186
Discontinued operations		(37,728	)		(12,146	)		(57,579	)		(18,735	)
Net income (loss)	$	(1,447	)	$	11,599		$	27,857		$	62,451
Earnings (loss) per common share - Basic:(a)
Continuing operations	$	0.32		$	0.20		$	0.75		$	0.69
Discontinued operations		(0.33	)		(0.10	)		(0.51	)		(0.16	)
Net income (loss)	$	(0.01	)	$	0.10		$	0.24		$	0.53
Earnings (loss) per common share - Diluted:(a)
Continuing operations	$	0.32		$	0.20		$	0.74		$	0.69
Discontinued operations		(0.33	)		(0.10	)		(0.50	)		(0.16	)
Net income (loss)	$	(0.01	)	$	0.10		$	0.24		$	0.53
EBITDA from continuing operations(b)	$	124,180		$	110,696		$	262,478		$	264,160
EBITDA from continuing operations reconciliation to net cash flows from operating activities:
EBITDA from continuing operations(b)	$	124,180		$	110,696		$	262,478		$	264,160
(Subtract)/Add:
Interest expense, net of investment income		(27,741	)		(38,607	)		(56,250	)		(65,551	)
Income tax provision		(27,403	)		(15,879	)		(56,227	)		(49,523	)
Debt redemption costs, net		(187	)		2,060			(1,266	)		2,060
Tender premium		-			(7,323	)		-			(7,323	)
Changes in assets and liabilities, net of effects
from acquisition and divestitures of businesses		68,097			(15,690	)		132,140			9,126
Net cash flows from operating activities
of continuing operations		136,946			35,257			280,875			152,949
Net cash flows from operating activities
of discontinued operations		(26	)		303			420			628
Net cash flows from operating activities	$	136,920		$	35,560		$	281,295		$	153,577

(a)   Earnings (loss) 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.

(b)   “EBITDA” from continuing operations 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.

29

The following discussion relates to amounts reflected in the immediately preceding table.

Net Sales

For the three and six months ended June 30, 2011, Omnicare dispensed approximately 30,353,000 and 61,024,000 prescriptions, respectively in comparison to approximately 29,762,000 and 59,978,000 prescriptions dispensed during the same prior-year periods.  Net sales for the three and six months ended June 30, 2011 were impacted primarily by the favorable impact of drug price inflation and growth in specialty pharmacy services.  Partially offsetting these factors was the unfavorable sales impact of the increased availability and utilization of generic drugs, reductions in reimbursement coupled with competitive pricing issues as well as a slightly lower average number of net beds served year-over-year.  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 continue to adversely impact the Company.

Gross Profit

Gross profit as a percentage of total net sales was 21.6% and 21.8% in the three and six months ended June 30, 2011, versus 21.9% and 22.4%, respectively, in the comparable 2010 periods.  Gross profit was unfavorably affected in the 2011 periods by certain of the aforementioned items that, individually, served to reduce net sales, primarily the reductions in reimbursement coupled with competitive pricing issues and a lower average number of net beds served year-over-year as well as by increased payroll and employee benefit costs in connection with the Company’s initiatives to improve its organizational structure.  Partially offsetting these factors were the increased availability and utilization of higher margin generic drugs, cost reduction and productivity improvement initiatives, as well as the favorable dollar effect of drug price inflation.

Selling, General and Administrative Expenses

Omnicare’s consolidated selling, general and administrative (“operating”) expenses as a percentage of net sales amounted to 12.4% and 12.4% in the three and six months ended June 30, 2011, respectively, versus 12.5% and 12.4%, respectively, in the comparable prior-year periods.  Operating expenses for the 2011 period were unfavorably impacted by increased payroll and employee benefit costs as well as other costs associated with Omnicare’s initiatives to improve its organizational structure and customer service which were offset primarily by continued progress in the Company’s non-drug purchasing program.

Provision for Doubtful Accounts

The increase in the provision for doubtful accounts in the three and six months ended June 30, 2011 is related to the decision in the fourth quarter of 2010 to implement a different strategic approach for the resolution of past due accounts which are disputed and/or currently in litigation and the Company’s ongoing efforts to continue to resolve these matters with customers.

Investment Income

Investment income for the three and six months ended June 30, 2011 was lower than the amount earned in the comparable prior-year period, due primarily to lower invested balances in the 2011 periods, related largely to the liquidation of rabbi trust assets in the second half of 2010 and the first half of 2011 to fund payments to former participants in the Company’s excess benefit plan.

Interest Expense

Interest expense was lower in 2011 than the prior-year periods primarily due to certain debt redemption costs recorded in 2010, including the write-off of debt issuance costs, related to the Company’s purchase of $217 million aggregate principal amount of its  outstanding 6.75% Senior Notes in the second quarter of 2010.

Effective Income Tax Rate

The effective tax rate for the 2011 periods was slightly higher than the prior year periods due largely to certain non-deductible litigation costs in the 2011 periods.  The quarterly and year-to-date effective tax rates in 2011 and 2010 are higher than the federal statutory rate largely as a result of the impact of state and local income taxes and the aforementioned non-deductible litigation costs.

30

Restructuring and Other Related Charges

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

Special Items

Financial results from continuing operations included the items presented in the table below.  Management considers these special items as not part of the core operating results of the Company and/or non-cash in nature (pretax):

	Three months ended,				Six months ended,
	June 30,				June 30,
	2011		2010		2011		2010
Settlement, litigation and other related charges (i)	$	19,816	$	29,361	$	25,829	$	34,867
Other miscellaneous charges, net (ii)		2,332		5,751		4,221		11,959
Amortization of discount on convertible notes (iii)		5,989		7,473		11,862		14,804
Debt redemption costs (iii)		-		9,384		1,079		9,384
Total	$	28,137	$	51,969	$	42,991	$	71,014

(i) See further discussion at the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements.

(ii) See further discussion at the “Other Miscellaneous Charges” caption of the “Significant Accounting Policies” note of the Notes to Consolidated Financial Statements.

(iii) See further discussion at the “Debt” note of the Notes to Consolidated Financial Statements.

Discontinued Operations

Net income for the three and six months ended June 30, 2011, was significantly impacted by losses from the divestiture of discontinued operations.  The loss from operations of the home healthcare and related ancillary businesses (the "Disposal Group") and Tidewater (collectively the “Non-Core Disposal Group”) for the three and six months ended June 30, 2011, in comparison to the same prior year period, primarily reflects the divestiture of the home infusion portion of the Disposal Group and the divestiture of Tidewater in April 2011.  For the three and six months ended June 30, 2011, the Non-Core Disposal Group recorded an impairment loss of $5.1 million to reduce the carrying value of Tidewater to fair value based on the final terms of the divestiture.  For the three and six months ended June 30, 2010, the Non-Core Disposal Group recorded an impairment loss of $10.3 million to reduce the carrying value of the Disposal Group to fair value as of June 30, 2010.

The operating loss in the CRO Services business was primarily attributable 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.  For the three and six months ended June 30, 2011, CRO Services recorded an impairment loss of $10.9 million and $51.8 million, respectively, to reduce the carrying value of the CRO Services operations to fair value based on the final terms of the divestiture.

See further discussion at the “Discontinued Operations” note of the Notes to Consolidated Financial Statements.

Financial Condition, Liquidity and Capital Resources

Cash and cash equivalents and restricted cash at June 30, 2011 were $524.0 million compared with $496.5 million at December 31, 2010 (including restricted cash amounts of $2.4 million and $2.0 million, respectively).

The Company generated positive net cash flows from operating activities of continuing operations of $280.9 million during the six months ended June 30, 2011, compared with net cash flows from operating activities of continuing operations totaling $152.9 million during the six months ended June 30, 2010.  Compared to the same prior year period, operating cash flow was favorably impacted by the year-over-year change in inventories, accounts payable and non trade receivables which was partially offset by the unfavorable impact of the year-over-year change in trade accounts receivable.  Further, favorably impacting operating cash flow was the excess of tax deductible interest expense over book interest expense related to certain of the Company’s convertible debentures and notes, which has resulted in an increase in the Company’s deferred tax liabilities during the six months ended June 30, 2011 and 2010 of $5.9 million and $15.3 million, respectively ($153.5 million cumulative, the recorded deferred tax liability, as of June 30, 2011).  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.

31

Net cash used in investing activities of continuing operations was $29.7 million and $13.4 million for the six months ended June 30, 2011 and 2010, respectively.  Acquisitions of businesses, primarily funded by operating cash flows, required outlays of $19.5 million (including amounts payable pursuant to acquisition agreements relating to prior year acquisitions) in the first six months of 2011.  Acquisitions of businesses during the first six months of 2010 required $11.9 million of cash payments (including amounts payable pursuant to acquisition agreements relating to prior year acquisitions) which were primarily funded by invested cash and operating cash flows.  In the three and six months ended June 30, 2011, the Company had net cash inflows of approximately $10.6 million relating to the divestiture of its CRO Services and Tidewater businesses.  Omnicare’s capital requirements, in addition to the payment of debt and dividends, are primarily comprised of its acquisition program and capital expenditures, largely relating to investments in the Company’s information technology systems.

Net cash used in financing activities of continuing operations was $224.1 million for the six months ended June 30, 2011 as compared to $20.4 million for the comparable prior-year period.  In the six months ended 2011, the Company redeemed $175 million of its 6.125% Senior Subordinated Notes.  During the first six months of 2010, the Company completed its issuance of $400 million of 7.75% Senior Subordinated Notes (the “7.75% Notes”), purchased approximately $217 million of the Company’s 6.75% Senior Subordinated Notes due 2013 and paid down $125 million on its senior term A loan facility, maturing on July 28, 2010.  Further, on May 3, 2010, Omnicare announced that the Company’s Board of Directors (“BOD”) authorized a 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.  On May 26, 2011, the BOD approved an additional $100 million of share repurchase authority extending until December 31, 2012.  In the six months ended June 30, 2011, the Company repurchased approximately 2.3 million shares at an aggregate cost of approximately $70 million, versus 2.0 million shares at an aggregate cost of approximately $49 million in the prior period.  At June 30, 2011, there were no outstanding borrowings under the Revolving Credit Facility.

On May 26, 2011, the Company’s Board of Directors declared a quarterly cash dividend of 4.00 cents per common share, an increase from the previous dividend rate of 3.25 cents per common share, for an indicated annual rate of 15.25 cents per common share for 2011, which is greater than the annual dividends per share actually paid in 2010 of 11 cents.  Further, aggregate dividends paid of $8.3 million during the six months ended June 30, 2011 were greater than those paid in the comparable prior-year period by approximately $3 million.

There were no known material commitments and contingencies outstanding at June 30, 2011, 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.

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 at least the next year, although no such assurances can be given in that regard.  Additionally, the Company believes that external sources of financing, including short- and long-term debt financings, are available.  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.

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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, 2011, 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 2010 Annual Report, and the effect such obligations are expected to have on the Company’s liquidity and cash flows in future periods (in thousands):

	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
Debt obligations	$	2,372,500	$	-	$	75,000	$	525,000	$	1,772,500
Capital lease obligations		15,919		3,503		8,472		3,944		-
Operating lease obligations		125,099		29,397		50,613		29,008		16,081
Purchase obligations		38,631		33,311		5,320		-		-
Other current obligations		233,644		233,644		-		-		-
Other long-term obligations		100,596		-		67,744		20,408		12,444
Subtotal		2,886,389		299,855		207,149		578,360		1,801,025
Future interest costs relating to debt
and capital lease obligations		1,298,455		108,621		211,686		187,165		790,983
Total contractual cash obligations (a)	$	4,184,844	$	408,476	$	418,835	$	765,525	$	2,592,008

(a)    In addition, the Company has contractual cash obligations of approximately $1.2 million related to discontinued operations at June 30, 2011, primarily related to operating lease obligations.

As of June 30, 2011, the Company had approximately $20 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, 2011, is presented at the “Off-Balance Sheet Arrangements” caption of Part II, Item 7 of Omnicare’s 2010 Annual Report.

Critical Accounting Policies

The Company’s description of business and critical accounting policies have been disclosed in Omnicare’s 2010 Annual Report.

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Allowance for Doubtful Accounts

The allowance for doubtful accounts as of June 30, 2011 was $400.8 million, compared with $401.0 million at December 31, 2010.  The allowance for doubtful accounts represented 28.6% and 28.4% of gross receivables (net of contractual allowance adjustments) as of June 30, 2011 and December 31, 2010, 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 as of June 30, 2011 would result in an increase to the provision for doubtful accounts and related allowance for doubtful accounts of approximately $14.0 million.

See further discussion at the “Accounts Receivable” caption of the “Significant Accounting Policies” note of the Notes to Consolidated Financial Statements.

Legal Contingencies

The status of certain legal proceedings has been updated at the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements.

Recently Issued Accounting Standards

Information pertaining to recently issued accounting standards is further discussed at the “Recently Issued Accounting Standards” section of the “Significant Accounting Policies” note of the Notes to Consolidated Financial Statements.

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, uncertainties, 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 and pharmaceutical 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 customers; 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 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 average 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 pharmaceutical benefit managers, Medicare Part D Plan sponsors and/or commercial health insurers or to the proportion of the Company’s business covered by specific contracts; the outcome of disputes and litigation; potential liability for losses not covered by, or in excess of, insurance; the impact of executive separations; the impact of benefit plan terminations; 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 conditions 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 swap agreements related to certain of the Company’s borrowings.  Accordingly, market risk loss is primarily defined as the potential loss in earnings due to higher interest rates on fixed to floating rate swap agreements for certain 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.  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 4.27% at June 30, 2011 (a 100 basis-point change in the interest rate would increase or decrease pretax interest expense by approximately $4.0 million per year).

For information regarding the fair value of the Company’s fixed-rate debt facilities, see the “Significant Accounting Policies” note of the Notes to Consolidated Financial Statements.

See further discussion of the Company’s debt, swap agreements and derivative instruments at the “Debt” and “Fair Value” notes of the Notes to Consolidated Financial Statements at Part II, Item 8 of Omnicare’s 2010 Annual Report.

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 following 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 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.

(b)           There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION:

ITEM 1 - LEGAL PROCEEDINGS

Information relating to certain legal proceedings in which Omnicare is involved is included in the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements contained in Part I, Item I of this Filing and is incorporated herein by reference, and should be read in conjunction with the related disclosures previously reported in Omnicare’s 2010 Annual Report and Form 10-Q Quarterly Report for the quarter ended March 31, 2011.

ITEM 1A - RISK FACTORS

There has been no material change in the risk factors previously disclosed in Part I, Item 1A of Omnicare’s 2010 Annual Report.  In connection with the divestiture of the Company’s Contract Research Services (“CRO Services”) organization, any references to CRO Services in the Risk Factors are no longer applicable.  Certain information in the risk factor entitled “Federal and state healthcare legislation has significantly impacted our business, and future legislation and regulations are likely to affect us” has been updated by the discussion in the “Regulatory Matters Update” section of the MD&A at Part I, Item 2., of this report, which is incorporated by reference herein and should be read in conjunction with the risk factors disclosed in Omnicare’s 2010 Annual Report.

ITEM 2 - UNREGISTERED SALES 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, 2011 is as follows (in thousands, except per share data):

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, 2011		3	$	31.99		-	$	68,426
May 1 - 31, 2011		720		31.65		700		146,276
June 1 - 30, 2011		550		31.42		550		128,997
Total		1,273	$	31.52		1,250	$	128,997
(a) During the second quarter of 2011, the Company purchased 23 shares of Omnicare common stock in connection with its employee benefit plans, including any purchases associated with the vesting of restricted stock awards. These purchases were not made pursuant to a publicly announced repurchase plan or program.
(b) On May 3, 2010, Omnicare announced that the Company’s Board of Directors (“BOD”) authorized a 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. On May 26, 2011, the BOD approved an additional $100 million of share repurchase authorization extending until December 31, 2012. In the six months ended June 30, 2011, the Company repurchased approximately 2.3 million shares at an aggregate cost of approximately $70 million, for a cumulative amount of approximately 6.7 million shares and approximately $171 million through June 30, 2011. Accordingly, the Company had approximately $129 million of combined share repurchase authority remaining as of June 30, 2011.

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: July 26, 2011	By:	/s/ John L. Workman
		John L. Workman
		President and
		Chief Financial Officer
		(Principal Financial and
		Accounting Officer)

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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
(3.2)	Fourth Amended and Restated By-Laws of Omnicare, Inc.		Form 8-K February 22, 2011
(12)	Statement of Computation of Ratio of Earnings to Fixed Charges		Filed Herewith
(31.1)	Rule 13a-14(a) Certification of 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 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, 2011 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		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 Securities Exchange Act of 1934

* 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.

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