8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934

Date of Report (Date of earliest event reported): July 29, 2011

Omnicare, Inc.

(Exact name of Registrant as specified in its charter)

              Delaware                                1-8269                                           31-1001351

(State or other jurisdiction of       (Commission                                (IRS Employer

     incorporation)                             File Number)                               Identification No.)

                 100 East RiverCenter Boulevard

                                Suite 1600

                             Covington, Kentucky 41011

(Address of principal executive offices) (Zip code)

 859-392-3300

(Registrant's telephone number, including area code)

Not applicable

(Former name and former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[ ] Written communications pursuant to Rule 425 under the Securities Act

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

[ ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

Item 8.01 Other Events.

Omnicare, Inc. ("Omnicare" or "the Company") is filing this Current Report on Form 8-K to retrospectively present its Contract Research Services business ("CRO Services") and its Tidewater Group Purchasing Organization (“Tidewater”) business as discontinued operations in the consolidated financial statements and notes thereto, Management's Discussion and Analysis of Financial Condition and Results of Operations and Selected Financial Data for all periods presented in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (the "2010 Form 10-K").  Upon the discontinuance of CRO Services, the Company now operates in one segment, the Pharmacy Services segment.  Accordingly, all segment data has been removed in the consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations.  This update is consistent with the presentation of continuing and discontinued operations included in the Company’s Form 10-Q for the second quarter ended June 30, 2011.  The divestiture of CRO Services and Tidewater was completed in April 2011.

The presentation of CRO Services and Tidewater as discontinued operations affects only the manner in which certain financial information was previously reported and does not restate or revise Omnicare’s net income (loss) in any previously reported financial statements.  Except for matters noted above affecting changes in presentation, no other information in the 2010 Form 10-K is being updated for events or developments that occurred subsequent to the filing of the 2010 Form 10-K on February 24, 2011.  Without limitation of the foregoing, this filing does not purport to update the Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the 2010 Form 10-K for any information, uncertainties, transactions, proceedings, risks, events or trends occurring or known to management.  More current information is contained in the Company's Quarterly Reports on Form 10-Q for the periods ended March 31 and June 30, 2011 and other filings with the Securities and Exchange Commission.  This Current Report on Form 8-K should be read in conjunction with the Company's 2010 Form 10-K and such Quarterly Reports on Form 10-Q and other filings.  The Quarterly Reports on Form 10-Q and other filings contain important information regarding events and developments of the Company that have occurred since the filing of the 2010 Form 10-K.

Information contained in the exhibits hereto should be read in conjunction with, and as a supplement to, information contained in the 2010 Form 10-K.  For significant developments since the filing of the 2010 Form 10-K, refer to Omnicare’s subsequent Quarterly Reports on Form 10-Q and other Securities and Exchange Commission filings.

Item 9.01 Financial Statements and Exhibits.

(d)	Exhibits.
99.1	Selected Financial Data
99.2	Management’s Discussion and Analysis of Financial Condition and Results of Operations
99.3	Financial Statements and Supplementary Data
99.4	Computation of Ratio of Earnings to Fixed Charges
99.5	Consent of PricewaterhouseCoopers, LLP
101	Interactive data files pursuant to Rule 405 of Regulation S-T

SIGNATURES

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

OMNICARE, INC.

By:	/s/ John L. Workman
Name: Title:	John L. Workman President and Chief Financial Officer

Dated:  July 29, 2011

EX-99.1

Exhibit 99.1

ITEM 6. - SELECTED FINANCIAL DATA

The following table summarizes certain selected financial data and should be read in conjunction with our consolidated financial statements and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included at Exhibit 99.3 and Exhibit 99.2.  All amounts disclosed herein relate to the Company’s continuing operations unless otherwise stated.

Five-Year Summary of Selected Financial Data
Omnicare, Inc. and Subsidiary Companies
(in thousands, except per share data)
	For the years ended and at December 31,
	2010 (a)			2009 (a)			2008 (a)			2007 (a)			2006 (a)
INCOME STATEMENT DATA:(b)
Net sales	$	6,030,670		$	6,001,053		$	5,992,450		$	5,894,572		$	6,183,690
Income from continuing operations	$	14,464		$	234,695		$	131,301		$	91,016		$	163,393
Discontinued operations		(120,573	)		(22,772	)		9,172			8,589			6,825
Net income (loss)	$	(106,109	)	$	211,923		$	140,473		$	99,605		$	170,218
Earnings (loss) per common share data - Basic (c):
Continuing operations	$	0.12		$	2.00		$	1.12		$	0.76		$	1.38
Discontinued operations		(1.04	)		(0.19	)		0.08			0.07			0.06
Net income	$	(0.91	)	$	1.81		$	1.20		$	0.83		$	1.44
Earnings (loss) per common share data - Diluted (c):
Continuing operations	$	0.13		$	2.00		$	1.11		$	0.75		$	1.34
Discontinued operations		(1.03	)		(0.19	)		0.08			0.07			0.06
Net income	$	(0.91	)	$	1.80		$	1.19		$	0.82		$	1.39
Dividends per common share	$	0.11		$	0.09		$	0.09		$	0.09		$	0.09
Weighted average number of common shares outstanding:
Basic		116,348			117,094			117,466			119,380			118,480
Diluted		116,927			117,777			118,313			121,258			122,536
BALANCE SHEET DATA (at end of period):
Cash and cash equivalents	$	494,484		$	275,707		$	214,666		$	274,200		$	137,631
Working capital (current assets less current liabilities)		1,863,542			1,601,790			1,731,225			1,803,990			1,872,427
Goodwill		4,234,821			4,152,255			4,091,971			4,179,192			4,063,313
Total assets		7,363,413			7,324,104			7,450,245			7,583,370			7,387,126
Long-term debt (excluding current portion), net of swaps (d)		2,106,758			1,980,239			2,352,822			2,416,113			2,525,030
Stockholders' equity (d)		3,815,944			3,875,993			3,654,869			3,540,823			3,427,022
OTHER FINANCIAL DATA:
Net cash flows from operating activities of continuing operations	$	368,903		$	480,715		$	433,589		$	500,007		$	110,069
EBITDA from continuing operations(e)		310,164			579,456			489,026			432,519			580,589
Net cash flows used by investing activities of continuing operations		(125,506	)		(142,646	)		(281,221	)		(192,603	)		(124,814	)
Capital expenditures(f)		(23,517	)		(29,231	)		(57,041	)		(40,985	)		(29,193	)
Net cash flows from financing activities of continuing operations		(18,652	)		(275,929	)		(208,706	)		(173,747	)		(59,638	)

See the related notes to Five-Year Summary of Selected Financial Data on the following pages.

1

(a) Certain amounts for all periods presented have been recast to present the Company’s Contract Research Services business (“CRO Services”) and Tidewater Group Purchasing Organization (“Tidewater”) as discontinued operations.  See the “Description of Business and Summary of Significant Accounting Policies” note of the Notes to Consolidated Financial Statements in Exhibit 99.3 of this filing.

(b) The following aftertax charges are included in net income for the years ended December 31 (in thousands):

	2010		2009		2008		2007		2006
Restructuring and other related charges	$	11,257	$	11,439	$	20,870	$	15,643	$	17,010
Settlement, litigation and other related charges		85,016		53,589		68,724		26,380		100,507
Goodwill and other asset impairment charges		13,900		-		-		-		-
Separation, employee benefit plan termination and related costs		40,553		-		-		-		-
Amortization of discount on convertible notes		18,495		17,309		16,220		15,037		13,940
Provision for doubtful accounts		30,371		-		-		-		-
Debt redemption loss and costs - total		26,077		-		-		-		-
Other expense		7,182		3,646		3,940		10,669		25,150
Total	$	232,851	$	85,983	$	109,754	$	67,729	$	156,607
Total tax impact (1)	$	116,816	$	45,150	$	55,981	$	41,137	$	57,853
For the 2010, 2009 and 2008 years data above, see the respective note at Exhibit 99.3 of this Filing. For the 2007 and 2006 years data, see that year's
consolidated financial statements for additional information on the nature of these charges.
(1) The tax effect was calculated by multiplying the tax-deductible pretax amounts by the appropriate effective tax rate.

(c) Earnings per share for continuing operations, discontinued operations and net income are 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.

(d)   In the second quarter of 2010, the Company completed its offering of $400 million aggregate principal amount of 7.75% senior subordinated notes due 2020 (the “7.75% Notes”).  A portion of the net proceeds from the issuance of the 7.75% Notes was used to purchase all $225 million of the Company’s 6.75% Senior Subordinated Notes due 2013 (the “6.75% Notes”).  In the fourth quarter of 2010, the Company completed its offering of $575 million of aggregate principal amount of 3.75% Convertible Senior Subordinated Notes due 2025 (the “3.75% Convertible Notes”).  A portion of the net proceeds were used to purchase $525 million of the Company’s 3.25% Convertible Debentures.  See the “Debt” note of the Notes to Consolidated Financial Statements in Exhibit 99.3, of this Filing for further information on these transactions.

(e)   “EBITDA” represents earnings before interest (net of investment income), income taxes, depreciation and amortization.  Omnicare uses EBITDA primarily as an indicator of the Company’s ability to service its debt, and believes that certain investors find EBITDA to be a useful financial measure for the same purpose.  However, EBITDA does not represent net cash flows from operating activities, as defined by United States Generally Accepted Accounting Principles (“U.S. GAAP”), and should not be considered as a substitute for operating cash flows as a measure of liquidity.  Omnicare’s calculation of EBITDA may differ from the calculation of EBITDA by others.  The following is a reconciliation of EBITDA to net cash flows from operating activities for the years ended December 31 (in thousands):

2

	2010			2009			2008			2007			2006
EBITDA from continuing operations	$	310,164		$	579,456		$	489,026		$	432,519		$	580,589
(Subtract)/add:
Interest expense, net of
investment income		(126,110	)		(110,223	)		(133,269	)		(154,351	)		(158,700	)
Income tax provision		(19,044	)		(96,856	)		(88,309	)		(57,888	)		(125,433	)
Write-off of debt issuance costs		6,636			-			-			-			-
Debt redemption tender offer premiums		(7,591	)		-			-			-			-
Goodwill and other asset impairment charges		22,884			-			-			-			-
Benefit plan termination and related costs		25,187			-			-			-			-
Loss on debt extinguishment		25,552			-			-			-			-
Changes in assets and liabilities, net of effects from acquisition and divestiture of businesses		108,273			17,680			110,100			249,809			(259,822	)
Deferred tax provision		22,952			90,658			56,041			29,918			73,435
Net cash flows from operating activities of continuing operations		368,903			480,715			433,589			500,007			110,069
Net cash flows from operating activities of discontinued operations		(288	)		3,079			4,608			5,522			(1,549	)
Net cash flows from operating activities	$	368,615		$	483,794		$	438,197		$	505,529		$	108,520

(f)   Primarily represents the purchase of computer equipment and software; machinery and equipment; and furniture, fixtures and leasehold improvements.

3

EX-99.2

EXHIBIT 99.2

ITEM 7. – 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 the “Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information” caption below, as well as the “Risk Factors” previously discussed at Item 1A of the 2010 Form 10-K.  All amounts disclosed herein relate to the Company’s continuing operations unless otherwise stated.

Overview of 2010 and Consolidated Results of Operations

Omnicare, Inc. (“Omnicare” or the “Company”) is a leading pharmaceutical services company.  Omnicare is the nation’s largest provider of pharmaceuticals and related pharmacy and ancillary services to long-term healthcare institutions.  Omnicare’s clients include primarily skilled nursing facilities (“SNFs”), assisted living facilities (“ALFs”), retirement centers, independent living communities, hospitals, hospice, and other healthcare settings and service providers.  Omnicare is also a provider of specialty pharmaceutical products and support services.  At December 31, 2010, Omnicare served long-term care facilities as well as chronic care and other settings comprising approximately 1,385,000 beds, including approximately 86,000 patients served by the patient assistance programs of its specialty pharmacy services business.  The comparable number at December 31, 2009 was approximately 1,377,000 beds (including 68,000 patients served by patient assistance programs).  Omnicare provides its long-term care pharmacy services in 47 states in the United States (“U.S.”), the District of Columbia and Canada at December 31, 2010.  For further description of the Company’s business activities see the “Business” caption of Part I, Item 1, of  the 2010 Form 10-K.

The Company committed to a plan to divest of its Contract Research Services (“CRO Services”) business in the first quarter of 2011 as it determined that the CRO Services business is no longer a good strategic fit within the Company’s portfolio of assets.  Also, in the second quarter of 2011, the Company divested its Tidewater Group Purchasing Organization (“Tidewater”).  This MD&A and the Consolidated Financial Statements and related notes included in Exhibit 99.3 of this Filing, have been recast to present CRO Services and Tidewater as discontinued operations for all periods presented.  Following the discontinuance of the operations of its CRO Services 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.

The following summary table presents consolidated net sales and results of operations of Omnicare for each of the years ended December 31, 2010, 2009 and 2008 (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”).

1

	For the years ended December 31,
	2010 (a)			2009 (a)			2008 (a)
Net sales	$	6,030,670		$	6,001,053		$	5,992,450
Gross profit		1,336,230			1,434,216			1,473,805
Selling, general and administrative expenses		747,608			766,172			854,482
Provision for doubtful accounts		136,630			92,495			106,240
Investment income		9,610			9,670			9,782
Interest expense		(135,720	)		(119,893	)		(143,051	)
Effective income tax rate		56.8	%		29.2	%		40.2	%
Income from continuing operations	$	14,464		$	234,695		$	131,301
Income (loss) from discontinued operations		(120,573	)		(22,772	)		9,172
Net income (loss)	$	(106,109	)	$	211,923		$	140,473
Earnings (loss) per common share data - Basic(b):
Continuing operations	$	0.12		$	2.00		$	1.12
Discontinued operations		(1.04	)		(0.19	)		0.08
Net income (loss)	$	(0.91	)	$	1.81		$	1.20
Earnings (loss) per common share data - Diluted(b):
Continuing operations	$	0.13		$	2.00		$	1.11
Discontinued operations		(1.03	)		(0.19	)		0.08
Net income (loss)	$	(0.91	)	$	1.80		$	1.19
EBITDA from continuing operations(c)	$	310,164		$	579,456		$	489,026

(a)   Certain amounts for all periods presented have been recast to present the Company's Contract Reaserch Services business ("CRO Services") and Tidewater Group Purchasing Organization ("Tidewater") as discontinued operations.  See the "Description of Business and Summary of Significant Accounting Policies" note of the Notes to Consolidated Financial Statements in Exhibit 99.3 of this filing.

(b)   Earnings per share for continuing operations, discontinued operations and net income are reported independently for each amount presented.  Accordingly, the sum of the individual amounts may not necessarily equal the separately calculated amounts for the corresponding period.

(c)   See Five-Year Summary of Selected Financial Data for a reconciliation of EBITDA to net cash flows from operating activities at Exhibit 99.1 of this Filing.

2010 vs. 2009

Net Sales

For the year ended December 31, 2010, Omnicare dispensed approximately 120,880,000 prescriptions in comparison to approximately 123,855,000 prescriptions dispensed during the prior-year.  Net sales for the year were favorably impacted by drug price inflation, acquisitions and growth in specialty pharmacy services.  Partially offsetting these factors were lower prescription volumes due to a lower average number of beds served year-over-year, along with a shift in mix towards assisted living which generally has lower penetration rates than skilled nursing facilities, reduced utilization trends for certain drugs and a reduction in census in client facilities in certain areas; reductions in reimbursement coupled with competitive pricing issues; as well as the increased availability and utilization of generic drugs.  While the Company is focused on reducing its costs to mitigate the impact of drug pricing and reimbursement issues, there can be no assurance that such issues or other pricing and reimbursement pressures will not adversely impact the Company.

Gross Profit

Gross profit as a percentage of total net sales was 22.2% for the year ended December 31, 2010, as compared with 23.9% in 2009.  Gross profit was unfavorably affected in the 2010 period by certain of the aforementioned items that reduced net sales, primarily the reductions in reimbursement coupled with competitive pricing issues and reduced prescription volumes.  Partially offsetting these factors were the increased availability and utilization of higher margin generic drugs, the favorable effect of drug price inflation and cost reduction and productivity improvement initiatives.

Increased leverage in purchasing favorably impacts gross profit and is primarily derived through discounts, rebates and other price concessions (“Discounts”) relating to purchases from the Company’s suppliers and vendors.  When recognizing the related receivables associated with these Discounts, Omnicare accounts for these Discounts as a reduction of cost of goods sold and inventories.  The Company records its estimates of Discounts earned during the period on the accrual basis of accounting, giving proper consideration to whether those Discounts have been earned based on the terms of applicable arrangements, and to the levels of inventories remaining on-hand.  Receivables related to Discounts are regularly adjusted based on the best available information, and to actual amounts as the applicable arrangements are settled and cash is received.  The aggregate amount of these adjustments has not been significant to the Company’s operations.

2

Leveraging of fixed and variable overhead costs primarily relates to generating higher sales volumes from pharmacy facilities with no or limited increases in fixed costs (e.g., rent, depreciation, etc.) and negligible to moderate increases in variable costs (e.g., utilities, labor, etc.), as well as the elimination of pharmacies through the Company’s productivity and consolidation initiatives, further discussed below.  The Company believes it will be able to continue to leverage fixed and variable overhead costs through both internal and acquired growth, including the continued integration of prior-period acquisitions.

Government and other reimbursement formulas generally adjust to take into account drug price inflation or deflation.  In order to enhance its gross profit margins, the Company strategically allocates its resources to those activities that will increase internal sales growth and favorably impact sales mix, or will lower costs.  In addition, through the ongoing development of its pharmaceutical purchasing programs, the Company is able to obtain volume discounts and thereby manage its pharmaceutical costs.

Selling, General and Administrative Expenses

Omnicare’s consolidated selling, general and administrative (“operating”) expenses as a percentage of net sales amounted to 12.4% in 2010, representing a decrease from the 12.8% experienced in the prior-year period.  Operating expenses for the year ended December 31, 2010 were favorably impacted largely by continued progress in the Company’s non-drug purchasing program and productivity improvements.

Provision for Doubtful Accounts

During the fourth quarter 2010, Omnicare implemented a Company-wide Reorganization Program.  Among other changes, this program has resulted in numerous senior management and other organizational leadership changes, including a realignment of division presidents for its long term care pharmacy divisions and change in its Office of General Counsel.  As a result of these activities and the performance of its year end closing process, the Company reassessed the allowance for doubtful accounts for facility receivables and concluded that an incremental charge of $48.5 million was necessary.  The key factors leading to management’s change in estimate relate primarily to a 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.  In particular, this new approach includes a heightened focus on settling outstanding accounts receivable disputes and the avoidance of protracted costly and often disruptive litigation with customers, where possible.  As a result of this change in approach, the Company believes it will have reduced opportunity to monetize disputed receivables through litigation, increasing the risk of uncollectible accounts receivable.

Investment Income

Investment income for the year ended December 31, 2010 was modestly lower than the amount earned in the comparable prior-year period.

Interest Expense

Interest expense was higher in 2010 than the prior-year period primarily due to higher interest rates on certain components of the Company’s overall debt portfolio, a moderately higher overall outstanding debt balance at year end 2010 versus year end 2009, and certain debt redemption costs recorded in 2010.  See additional information at the “Debt” note of the Notes to Consolidated Financial Statements.

Effective Income Tax Rate

The year-over-year change in the effective tax rate is largely due to certain non deductible expenses and a larger reduction of income tax expense in the 2009 versus 2010 periods relating to the reversal of certain unrecognized tax benefits for tax positions settled through the expiration of statutes of limitations.  See further discussion at the “Income Taxes” note of the Notes to Consolidated Financial Statements.

3

2009 vs. 2008

Net Sales

Net sales for the year were favorably impacted by drug price inflation, the increased use of certain higher acuity drugs, biologic agents and existing drugs with new therapeutic indications, and acquisitions, as well as growth in specialty pharmacy services.  Partially offsetting these factors were the unfavorable sales impact of the increased availability and utilization of generic drugs, reductions in reimbursement and/or utilization for certain drugs as well as competitive pricing issues, a lower average number of beds served year-over-year, as well as a shift in mix towards assisted living.

Gross Profit

Gross profit as a percentage of total net sales was 23.9% for the year ended December 31, 2009, as compared with 24.6% in 2008.  Gross profit was favorably impacted in the 2009 period largely due to the increased availability and utilization of higher margin generic drugs, purchasing improvements, the continued integration of acquisitions, productivity enhancements, and the favorable effect of drug price inflation.  More than offsetting these factors were certain of the aforementioned items that reduced net sales, primarily the reductions in reimbursement and/or utilization for certain drugs, competitive pricing issues and the lower average number of beds served year-over-year.

Selling, General and Administrative Expenses

Omnicare’s operating expenses as a percentage of net sales amounted to 12.8% in 2009, representing a decrease from the 14.3% experienced in the prior-year.  Operating expenses for the year ended December 31, 2009 were favorably impacted largely by continued progress in the Company’s productivity improvement initiatives, non-drug purchasing initiatives, reductions in employee benefit costs and the continued integration of prior-year acquisitions.  These favorable items were partially offset by increased operating costs associated with recent acquisitions.

Provision for Doubtful Accounts

The reduction in the provision for doubtful accounts during the 2009 period relates largely to the improved overall accounts receivable position of the Company.  Specifically, net accounts receivable of approximately $1,183 million at December 31, 2009 was $122 million lower than the December 31, 2008 balance of approximately $1,305 million.  Further, accounts receivable days sales outstanding were approximately 74 and 79 at December 31, 2009 and 2008, respectively, representing a year-over-year reduction of 5 days.

Investment Income

Investment income for the year ended December 31, 2009 was modestly lower than the amount earned in the prior-year, primarily due to lower interest rates versus the prior-year.

Interest Expense

Interest expense was lower than the prior-year, primarily due to lower debt outstanding resulting from payments aggregating $325 million on the Company’s senior term A loan facility, maturing on July 28, 2010 (the “Term Loans”), throughout 2008 and 2009, payments of $39.1 million to pay off a term note payable in the fourth quarter of 2008 and lower interest rates on variable rate loans.

Effective Income Tax Rate

The year-over-year decrease in the effective tax rate is largely due to the reduction of income tax expense in the 2009 period totaling approximately $32 million, primarily attributable to the reversal of certain unrecognized tax benefits for tax positions settled through the expiration of statutes of limitations, partially offset by certain nondeductible litigation costs recognized in the 2009 period.  See further discussion at the “Income Taxes” note of the Notes to Consolidated Financial Statements.

4

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, and is largely related to severance and employee buyout costs, which will primarily be operating expense related.  In implementing these initiatives, the Company recorded restructuring charges of approximately $3 million in the year ended December 31, 2010.  The Company anticipates that net positions eliminated and total savings as a result of the CWR Program will not significantly impact the Company’s overall employee base or overall operating results, respectively.

Omnicare Full Potential Program:

In 2006, the Company commenced the implementation of the “Omnicare Full Potential” Plan, a major initiative primarily designed to re-engineer the Company’s pharmacy operating model to increase efficiency and enhance customer growth, which was substantially completed in 2010.

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

Special Items

Financial results for the three years ended December 31, 2010 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):

	December 31,
	2010			2009		2008
Provision for doubtful accounts (i)	$	48,500		$	-	$	-
Restructuring and other related charges (ii)		17,165			19,814		34,089
Settlement, litigation and other related charges (iii)		113,709			77,449		99,267
Goodwill and other asset impairment charges (iv)		22,884			-		-
Separation, benefit plan termination and related costs (v)		64,760			-		-
Other miscellaneous charges, net (vi)		42,422			5,893		6,445
Amortization of discount on convertible notes (vii)		29,536			27,977		25,934
Debt redemption costs - interest expense (vii)		14,297			-		-
Gain on sale of rabbi trust assets (viii)		(3,606	)		-		-
Total special items	$	349,667		$	131,133	$	165,735

(i)   See further discussion at the “Accounts Receivable” caption of the “Description of Business and Summary of Significant Accounting Policies” note of the Notes to Consolidated Financial Statements.

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

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

(iv)   See further discussion at the “Goodwill and Other Intangible Assets” note of the Notes to Consolidated Financial Statements.

(v)   See further discussion at the “Separation, Benefit Plan Termination and Related Costs” note of the Notes to Consolidated Financial Statements.

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

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

(viii)   See further discussion at the “Employee Benefit Plans” note of the Notes to Consolidated Financial Statements.

5

Discontinued Operations

The loss from discontinued operations of the home healthcare and related ancillary businesses and Tidewater (collectively the “Non-Core Disposal Group”) was consistent with the loss experienced in the prior year period.

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.  Further, CRO Services recorded a $91 million goodwill impairment charge in the third quarter of 2010, largely as a result of the Company’s revised outlook on the CRO Services business.

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

Impact of Inflation

The Company estimates that drug price inflation for its highest dollar products during the three years ended December 31, 2010 has ranged between approximately 6% to 7%, which tends to impact sales and costs of sales at approximately the same level.  Therefore, inflation has not materially affected Omnicare’s net income, inasmuch as government and other reimbursement formulas generally adjust to take into account drug price inflation or deflation.

Financial Condition, Liquidity and Capital Resources

Cash and cash equivalents at December 31, 2010 were $496.5 million compared with $291.0 million at December 31, 2009 (including restricted cash amounts of $2.0 million and $15.3 million, respectively).

The Company generated net cash flows from operating activities of continuing operations of $368.9 million during the year ended December 31, 2010, compared with net cash flows from operating activities of continuing operations of $480.7 million and $433.6 million during the years ended December 31, 2009 and 2008, respectively.  Operating cash flows in 2010 were used primarily for debt payments, acquisition-related payments, capital expenditures, stock repurchases and dividend payments.  Net cash flows from operating activities during the year ended December 31, 2010 were unfavorably impacted by the decrease in net income as well as the year-over-year change in inventories due to large inventory reductions in 2009 as a result of Full Potential hub and spoke integration activities in 2009.  These unfavorable impacts were partially offset by a year-over-year reduction in accounts receivable as well as in the cash requirements relating to accounts payable activity.  Net cash flows from operating activities during the year ended December 31, 2009 were unfavorably impacted by a fourth quarter payment of approximately $63 million due to the settlement with the United States Attorney’s Office, District of Massachusetts, which was more than offset by the favorable impacts of a reduction in inventory and accounts receivable during the 2009 period.  Net cash flows from operating activities during the year ended December 31, 2008 were unfavorably impacted by the extra payment to the Company’s drug wholesaler of approximately $65 million (these payments are due weekly, and the year ended December 31, 2008 included one extra weekly payment), and the related impact on the year-over-year movement in accounts payable on 2008 operating cash flows.

Favorably impacting operating cash flow was the excess of tax deductible interest expense over book interest expense related to the Company’s 4.00% Junior Subordinated Convertible Debentures, 3.25% Convertible Debentures and 3.75% Convertible Notes.  This resulted in an increase in the Company’s deferred tax liabilities during the year ended December 31, 2010 and 2009 of $30.3 million and $28.5 million, respectively ($147.6 million cumulative as of December 31, 2010).  The recorded deferred tax liability could, under certain circumstances, be realized in the future upon conversion or redemption of the debt, which would serve to reduce operating cash flows.

Net cash used in investing activities of continuing operations was $125.5 million, $142.6 million and $281.2 million during the years ended December 31, 2010, 2009 and 2008, respectively.  Acquisitions of businesses required outlays of $111.8 million (including amounts payable relating to pre-2010 acquisitions) in 2010 relating to four acquisitions, which were primarily funded by operating cash flows.  Acquisitions of businesses during 2009 required cash payments of $92.9 million (including amounts payable pursuant to acquisition agreements relating to pre-2009 acquisitions), which were primarily funded by operating cash flows.  Acquisitions of businesses during 2008 required cash payments of $225.7 million (including amounts payable pursuant to acquisition agreements relating to pre-2008 acquisitions) which were primarily funded by operating cash flows.  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.

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Net cash used in financing activities of continuing operations was $18.7 million, $275.9 million and $208.7 million during the years ended December 31, 2010, 2009 and 2008, respectively.  In May 2010, the Company completed the issuance of $400 million aggregate principal amount of 7.75% Senior Subordinated Notes due 2020 (the “7.75% Notes”).  A portion of the net proceeds from the issuance of the 7.75% Notes was used to purchase all $225 million of the Company’s 6.75% Notes pursuant to a tender offer and consent solicitation and subsequent redemption.  Also, a portion of the proceeds were used to repurchase approximately $101 million of the Company’s stock as part of a previously announced common stock repurchase program discussed in further detail below.  Further, in December 2010, the Company completed the issuance of $575 million of 3.75% Convertible Senior Subordinated Notes due 2025 (the “3.75% Convertible Notes”).  A portion of the net proceeds from this issuance were used to purchase $525 million of the Company’s 3.25% Convertible Debentures pursuant to a tender offer and consent solicitation and subsequent redemption, which resulted in an economic gain (calculated as the difference between the $525 million face value of the extinguished debt and the actual amount paid by the Company to repurchase the debt of approximately $499 million) of approximately $26 million (even though the Company was required to recognize an accounting loss of $25.6 million due to its application of the authoritative guidance for convertible debt).  In January 2011, a portion of the net proceeds, together with cash on hand, was used to redeem $75 million of the Company’s 6.125% Senior Subordinated Notes due 2013.  During 2010, the Company paid off the remaining $125 million on the Term Loans.  During 2009, the Company paid down $275 million on the Term Loans.  During 2008, the Company completed its $100 million stock repurchase program as further discussed below, paid down $50.0 million on the Term Loans, and paid $39.1 million to pay off a term note payable.

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

At December 31, 2010, there were no outstanding borrowings on the Revolving Credit Facility, and the entire balance on the Term Loans had been paid off.  As of December 31, 2010, the Company had approximately $20 million outstanding relating to standby letters of credit, substantially all of which are subject to automatic annual renewals.

On February 17, 2011, the Company’s Board of Directors declared a quarterly cash dividend of 3.25 cents per share for an indicated annual rate of 13 cents per common share for 2011, which is greater than the annual dividends paid per common share for the 2010, 2009 and 2008 years.  Aggregate dividends of $12.8 million paid during 2010 were higher than the $10.7 million paid in 2009 and the $10.8 million paid in 2008, due primarily to an increase in dividends paid per common share to 11 cents in 2010 as compared to 9 cents per common share paid in 2009 and 2008.

On May 3, 2010, Omnicare announced that in conjunction with its second quarter 2010 refinancing (as described in the “Debt” note of the Notes to Consolidated Financial Statements), the Company’s Board of Directors authorized a new two-year program to repurchase, from time to time, shares of Omnicare's outstanding common stock having an aggregate value of up to $200 million, depending on market conditions and other factors.  In the year ended December 31, 2010, the Company repurchased approximately 4.4 million shares at an aggregate cost of approximately $101 million.  Additionally, during the second quarter of 2008, the Company repurchased approximately 4.1 million shares of Omnicare’s common stock at a cost of approximately $100 million under a previous stock buyback program authorized by its Board of Directors.

There were no known material commitments and contingencies outstanding at December 31, 2010, other than the contractual obligations summarized in the “Disclosures About Aggregate Contractual Obligations and Off-Balance Sheet Arrangements” caption below, certain acquisition-related payments potentially due in the future, including deferred payments, indemnification payments and payments originating from earnout and other provisions that may become payable, as well as the matters discussed in the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements, and the “Legal Proceedings” section at Part I, Item 3 of the 2010 Form 10-K.

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 summarizes the Company’s aggregate contractual obligations as of December 31, 2010, 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(a)	$	2,547,500	$	-	$	250,000	$	525,000	$	1,772,500
Capital lease obligations(a)		13,961		3,537		6,419		3,991		14
Operating lease obligations		129,454		29,975		50,351		32,674		16,454
Purchase obligations(b)		41,824		36,115		5,320		389		-
Other current obligations(c)		315,923		315,923		-		-		-
Other long-term obligations(d)		109,074		-		68,999		20,439		19,636
Subtotal		3,157,736		385,550		381,089		582,493		1,808,604
Future interest relating to debt and
capital lease obligations(e)		1,380,201		119,471		229,496		205,669		825,565
Total contractual cash obligations(f)	$	4,537,937	$	505,021	$	610,585	$	788,162	$	2,634,169

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

(b) Purchase obligations primarily consist of open inventory purchase orders, as well as obligations for other goods and services, at period end.

(c)           Other current obligations primarily consist of accounts payable at period end.

(d) Other long-term obligations are largely comprised of pension and excess benefit plan obligations, acquisition-related liabilities, as well as accruals relating to uncertain tax positions.

(e) Represents estimated future interest costs based on the stated fixed interest rate of the debt, or the variable interest rate in effect at period end for variable interest rate debt.  The estimated future interest costs presented in this table do not include any amounts potentially payable associated with the contingent interest and interest reset provisions of the Company’s convertible debentures and notes, as applicable.  To the extent that any debt would be paid off by Omnicare prior to the stated due date or refinanced, the estimated future interest costs would change accordingly.  Further, these analyses do not consider the effects of potential changes in the Company’s credit rating on future interest costs, as well as any tax effects associated with the Company’s interest costs.

(f) In addition, the Company has contractual cash obligations of approximately $24.6 million related to discontinued operations at December 31, 2010, primarily related to operating lease obligations.

As of December 31, 2010, the Company had approximately $20 million outstanding relating to standby letters of credit, substantially all of which are subject to automatic annual renewals.

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Off-Balance Sheet Arrangements:

As of December 31, 2010, the Company had two unconsolidated entities, Omnicare Capital Trust I (the “Old Trust”) and Omnicare Capital Trust II (the “New Trust”), which were established for the purpose of facilitating the offerings of the 4.00% Trust Preferred Income Equity Redeemable Securities due 2033 (the “Old Trust PIERS”) and the Series B 4.00% Trust Preferred Income Equity Redeemable Securities (the “New Trust PIERS”), respectively.  For financial reporting purposes, the Old Trust and New Trust are treated as equity method investments of the Company.  The Old Trust and New Trust are 100%-owned finance subsidiaries of the Company.  The Company has fully and unconditionally guaranteed the securities of the Old Trust and New Trust.  The Old 4.00% Debentures issued by the Company to the Old Trust and the 4.00% Convertible Debentures issued by the Company to the New Trust in connection with the issuance of the Old Trust PIERS and the New Trust PIERS, respectively, are presented as a single line item in Omnicare’s consolidated balance sheets and debt footnote disclosures.  Additionally, the related disclosures concerning the Old Trust PIERS and the New Trust PIERS, the guarantees, and the Old 4.00% Debentures and 4.00% Convertible Debentures are included in the “Debt” note of the Notes to Consolidated Financial Statements.  Omnicare records interest payable to the Old Trust and New Trust as interest expense in its consolidated statement of income.

As of December 31, 2010, the Company had no other unconsolidated entities, or any financial partnerships, such as entities often referred to as structured finance or special purpose entities, which might have been established for the purpose of facilitating off-balance sheet arrangements.

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% Notes during 2010, the Company entered into a Swap Agreement on all $400.0 million of its aggregate principal amount of the 7.75% 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 4.32% at December 31, 2010 (a 100 basis-point change in the interest rate would increase or decrease pretax interest expense by approximately $4.0 million per year).  Also, in December 2010, the Company entered into a Swap Agreement on all $525 million of its aggregate principal amount of the 6.875% Notes (“the 6.875% Swap Agreement”).  Under the 6.875% Swap Agreement, which hedges against exposure to long-term U.S. dollar interest rates, the Company receives a fixed rate of 6.875% and pays a floating rate based on LIBOR with an interest period of six months, plus a spread of 4.128% (a 100 basis-point change in the interest rate would increase or decrease pre-tax interest expense by approximately $5.25 million per year).

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The fair value of the Company’s fixed-rate debt facilities is based on quoted market prices in an active market (Level 1) and is summarized as follows (in thousands):

Fair Value of Financial Instruments
	December 31, 2010				December 31, 2009
Financial Instrument:	Book Value		Market Value		Book Value		Market Value
6.125% senior subordinated notes, due 2013, gross	$	250,000	$	251,300	$	250,000	$	248,000
6.75% senior subordinated notes, due 2013		-		-		225,000		219,500
6.875% senior subordinated notes, due 2015		525,000		535,500		525,000		528,500
7.75% senior subordinated notes, due 2020, gross		400,000		415,000		-		-
3.75% convertible senior subordinated notes, due 2025
Carrying value		353,505		-		-		-
Unamortized debt discount		221,495		-		-		-
Principal amount		575,000		636,400		-		-
4.00% junior subordinated convertible debentures, due 2033
Carrying value		201,282		-		199,071		-
Unamortized debt discount		143,718		-		145,929		-
Principal amount		345,000		266,900		345,000		254,400
3.25% convertible senior debentures, due 2035
Carrying value		370,837		-		773,120		-
Unamortized debt discount		81,663		-		204,380		-
Principal amount		452,500		427,600		977,500		801,600

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.

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

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

Critical Accounting Policies

The Company’s consolidated financial statements are prepared in accordance with U.S. GAAP.  In connection with the preparation of these financial statements, Omnicare management is required to make assumptions, judgments, and estimates that affect the reported amounts of assets, liabilities, stockholders' equity, revenues and expenses and the related disclosure of commitments and contingencies.  On a regular basis, the Company evaluates its critical estimates giving consideration to a combination of factors, including historical experience, current conditions, feedback from outside advisors where feasible, and on various other assumptions that are believed to be reasonable at the time and under the current circumstances.  The Company's significant accounting policies are summarized in the “Description of Business and Summary of Significant Accounting Policies” note of the Notes to Consolidated Financial Statements.

In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require significant management judgment in its application.  There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.  An accounting policy is considered to be critical if it is important to the determination of the registrant’s financial position and operating results, and requires significant judgment and estimates on the part of management in its application.  If actual results were to differ materially from the judgments and estimates made, the Company’s reported financial position and/or operating results could be materially affected.  The Company believes the following critical accounting policies and estimates involve more significant judgments and estimates used in the preparation of the consolidated financial statements.

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Revenue Recognition

In general, Omnicare recognizes revenue when products are delivered or services are rendered or provided to the customer, prices are fixed and determinable and collection is reasonably assured.

A significant portion of the Company’s revenues from sales of pharmaceutical and medical products have been reimbursed by the federal Medicare Part D plan and, to a lesser extent, state Medicaid programs.  Payments for services rendered to patients covered by these programs are generally less than billed charges.  The Company monitors its revenues and receivables from these reimbursement sources, as well as other third-party insurance payors, and records an estimated contractual allowance for certain sales and receivable balances at the revenue recognition date, to properly account for anticipated differences between billed and reimbursed amounts.  Accordingly, the total net sales and receivables reported in the Company’s financial statements are recorded at the amount ultimately expected to be received from these payors.  Since billing functions for a portion of the Company’s revenue systems are largely computerized, enabling on-line adjudication (i.e., submitting charges to Medicare, Medicaid or other third-party payors electronically, with simultaneous feedback of the amount to be paid) at the time of sale to record net revenues, exposure to estimating contractual allowance adjustments is limited primarily to unbilled and/or initially rejected Medicare, Medicaid and third-party claims (typically approved for reimbursement once additional information is provided to the payor).  For the remaining portion of the Company’s revenue systems, the contractual allowance is estimated for all billed, unbilled and/or initially rejected Medicare, Medicaid and third-party claims.  The Company evaluates several criteria in developing the estimated contractual allowances for billed, unbilled and/or initially rejected claims on a monthly basis, including historical trends based on actual claims paid, current contract and reimbursement terms, and changes in customer base and payor/product mix.  Contractual allowance estimates are adjusted to actual amounts as cash is received and claims are settled, and the aggregate impact of these resulting adjustments were not significant to the Company’s operations for any of the periods presented.  Further, Omnicare does not expect the reasonably possible effects of a change in estimate related to unsettled December 31, 2010 contractual allowance amounts from Medicare, Medicaid and third-party payors to be significant to its future consolidated results of operations, financial position and cash flows.

Patient co-payments are associated with Medicare Part D, certain state Medicaid programs, Medicare Part B and certain third-party payors and are typically not collected at the time products are delivered or services are rendered, but are billed to the individual as part of the Company’s normal billing procedures.  These co-payments are subject to the Company’s normal accounts receivable collections procedures.

Under certain circumstances, the Company accepts returns of medications and issues a credit memo to the applicable payor.  The Company estimates and accrues for sales returns based on historical return experience, giving consideration to the Company’s return policies.  Product returns are processed in the period received and are not significant when compared to the overall sales and gross profit of the Company.

Allowance for Doubtful Accounts

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

The allowance for doubtful accounts as of December 31, 2010 was $401.0 million, compared with $332.5 million at December 31, 2009.  The allowance for doubtful accounts represented 28.4% and 21.9% of gross receivables (net of contractual allowance adjustments) as of December 31, 2010 and December 31, 2009, respectively.  Unforeseen future developments could lead to changes in the Company’s provision for doubtful accounts levels and future allowance for doubtful accounts percentages, which could materially impact the overall financial results, financial position or cash flows of the Company.  For example, a one percentage point increase in the allowance for doubtful accounts as a percentage of gross receivables as of December 31, 2010 would result in an increase to the provision for doubtful accounts and related allowance for doubtful accounts of approximately $14.1 million.

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Patient charges pending approval from Medicare, Medicaid and third-party payors are primarily billed as private pay and, where applicable, are recorded net of an estimated contractual allowance at period end.  Once an approval to bill Medicare, Medicaid and/or third-party payors has been obtained, the private pay balance is reversed and a corresponding Medicare, Medicaid or third-party receivable amount is recorded.  The Company’s policy is to resolve accounts receivable with pending status as soon as practicable.  Pending accounts receivable balances were not a significant component of the overall accounts receivable balance at December 31, 2010.

Omnicare has standard policies and procedures for collection of its accounts receivable.  The Company’s collection efforts generally include the mailing of statements, followed up when necessary with delinquency notices, personal and other contacts, the use of an in-house national collections department or outside collection agencies, and potentially mediation/arbitration or litigation when accounts are considered unresponsive.  In the 2010 fourth quarter, Omnicare management decided to implement a different strategic approach for the resolution of past due accounts which are disputed and/or currently in litigation.  In particular, this new approach includes a heightened focus on maintaining positive relationships with current and former customers, with a greater priority on settling outstanding accounts receivable disputes and the avoidance of litigation where possible.  As a result of this change in approach, the Company believes there is an increased risk of uncollectible accounts receivable, and adjusted its provision for doubtful accounts accordingly.

Omnicare’s collection efforts primarily relate to its facility and private pay customers, as well as efforts to collect/rework Medicare Part D copays and rejected claims.  When Omnicare becomes aware that a specific customer is potentially unable to meet part or all of its financial obligations, for example, as a result of bankruptcy or deterioration in the customer’s operating results or financial position, the national credit and collections department includes the exposed balance in its allowance for doubtful accounts requirements.  At such time that a balance is definitively deemed to be uncollectible by Omnicare management (including the national credit and collections department), collections agencies and/or outside legal counsel, the balance is manually written off against the allowance for doubtful accounts.  At December 31, 2010, the Company does not have a significant portion of its overall accounts receivable balance placed in mediation/arbitration, litigation or with outside collection agencies.

Given the Company's experience, management believes that the aggregate reserves for potential losses are adequate, but if any of the Company's larger customers were to unexpectedly default on their obligations to Omnicare, the Company’s overall allowances for doubtful accounts may prove to be inadequate.  In particular, if economic conditions worsen, the payor mix shifts significantly or the Company's customers' reimbursement rates are adversely affected, impacting Omnicare’s customers' ability to pay their bills, management may adjust the allowance for doubtful accounts accordingly, and the Company’s accounts receivable collections, cash flows, financial position and results of operations would be adversely affected.

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

Goodwill

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 an impairment.

The Company’s assessment of goodwill impairment is largely dependent on estimates of future cash flows at the aggregated reporting unit level, and a weighted-average cost of capital.  The estimates of these future cash flows are based on assumptions and projections with respect to future revenues and expenses believed to be reasonable and supportable at the time the annual impairment analysis is performed.  Further, they require management’s subjective judgments and take into account assumptions about overall growth rates and increases in expenses.  To the extent the book carrying value of the assets would exceed their fair value; an impairment loss may be necessary.  Changes in the estimates of future cash flows or weighted-average cost of capital due to unforeseen events and circumstances could cause Omnicare’s analysis to indicate that goodwill is impaired in subsequent periods, and could result in the write-off of a portion or all of the Company’s goodwill, which could be material to the Company's financial position, results of operations or cash flows.

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The goodwill impairment test involves a two-step process.  The first step, used to identify potential impairment, is a comparison of the reporting unit's estimated fair value to its carrying value, including goodwill.  If the fair value of the reporting unit exceeds its carrying value, applicable goodwill is considered not to be impaired.  If the carrying value exceeds fair value, there is an indication of impairment and the second step is performed to measure the amount of the impairment.  The second step requires the Company to calculate an implied fair value of goodwill at the reporting unit level.  If the goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess.

The Company performed its annual goodwill impairment analysis for the years ended December 31, 2010 and 2009 and, except for the CRO goodwill impairment charge in 2010 discussed at the “Discontinued Operations” note of the Notes to Consolidated Financial Statements, concluded that goodwill had not been impaired.  Given the substantial amount of the excess of fair value over carrying value, none of the Company’s reporting units were considered to be “at risk” of failing step one of Omnicare’s most recent annual goodwill impairment test.

Taxes

The Company estimates its current and deferred tax assets and liabilities, including those relating to acquired subsidiaries, based on current tax laws in the statutory jurisdictions in which it operates.  These estimates include judgments about deferred tax assets and liabilities resulting from temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities, as well as the realization of deferred tax assets (including those relating to net operating losses).  The deferred tax assets and liabilities are determined based on the enacted tax rates expected to apply in the periods in which the deferred tax assets or liabilities are expected to be settled or realized.

Omnicare periodically reviews its deferred tax assets for recoverability and establishes a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized.  The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based on the evaluation of positive and negative evidence.  This evidence includes historical taxable income, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies.  Projected future taxable income is based on the Company’s expected results and assumptions as to the jurisdiction in which the income will be earned.  The expected timing of the reversals of existing temporary differences is based on current tax law and Omnicare’s tax methods of accounting.  If the Company is unable to generate sufficient future taxable income by jurisdiction, or if there is a material change in the actual effective tax rates or the time period within which the underlying temporary differences become taxable or deductible, or if the tax laws change unfavorably, then the Company could be required to increase its valuation allowance against its deferred tax assets, resulting in an increase in the effective tax rate and related tax expense.

The Company also reviews its tax liabilities, including those relating to acquired subsidiaries, giving consideration to the relevant authoritative guidance, including accounting for uncertainty in income taxes, which provides guidance for the financial statement recognition and measurement of income tax positions taken or expected to be taken in a tax return. Under this authoritative guidance, recognition and measurement are considered discrete events.  The recognition threshold is met when it is determined a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination by the relevant taxing authority.  If a tax position does not meet the more likely than not recognition threshold, the benefit of that position is not recognized in the financial statements.  A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is 50 percent likely of being realized upon ultimate resolution with a taxing authority.

Omnicare operates in a significant number of states and tax jurisdictions with varying tax laws.  The Company is subject to both federal and state audits of tax returns in the normal course of business.  While the Company believes it has provided adequately for tax liabilities in its consolidated financial statements, adverse determinations by applicable taxing authorities could have a material adverse effect on Omnicare’s consolidated financial position, results of operations or cash flows.  If the provisions for current or deferred taxes are not adequate, if the Company is unable to realize certain deferred tax assets or if the tax laws change unfavorably, the Company could potentially experience tax losses.  Likewise, if provisions for current and deferred taxes are in excess of those eventually needed, if the Company is able to realize additional deferred tax assets or if tax laws change favorably, the Company could experience potential tax gains.  A one percentage point change in the Company's overall 2010, 2009 and 2008 effective tax rates would impact income from continuing operations by $0.3 million, $3.3 million and $2.2 million, respectively.

13

Legal Contingencies

As part of its ongoing operations, the Company is subject to various inspections, audits, inquiries, investigations and similar actions by third parties, as well as governmental/regulatory authorities responsible for enforcing the laws and regulations to which the Company is subject (and including reviews of individual Omnicare pharmacy’s reimbursement documentation and administrative practices).  Oftentimes, these inspections, audits, investigations and inquiries relate to prior periods, including periods predating Omnicare’s actual ownership of a particular acquired unit.  The Company is also involved with various legal actions arising in the normal course of business.  Each quarter, the Company reviews, including consultation with its outside legal advisors where applicable, the status of inspections, audits, inquiries, investigations, legal claims and legal proceedings and assesses its potential financial exposure.  If the potential loss from any of these is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.  To the extent the amount of a probable loss is estimable only by reference to a range of equally probable outcomes, and no amount within the range appears to be a better estimate than any other amount, the low end of the range is accrued.  Because of inherent uncertainties related to these matters, the use of estimates, assumptions, judgments and external factors beyond the Company’s control, accruals are based on the best information available at the time.  As additional information becomes available, Omnicare reassesses the potential liability related to any pending inspections, audits, inquiries, investigations, claims and litigation and may revise its estimated exposure upward or downward accordingly.  Such revisions in the estimates of the potential liabilities could have a material impact on the Company’s consolidated financial statements.

Information pertaining to legal proceedings is further discussed 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” caption of the “Description of Business and Summary of Significant Accounting Policies” note of the Notes to Consolidated Financial Statements.

Outlook

Historically, the Company has derived approximately one-half of its revenues directly from government sources and one-half from the private sector (including individual residents, third-party insurers, long-term care and other institutional health care facilities).

As part of ongoing operations, the Company and its customers are subject to regulatory changes in the level of reimbursement received from the Medicare and Medicaid programs.  For additional information regarding regulatory changes, please see the “Government Regulation” caption of Part I, Item I of the 2010 Form 10-K as well as the “Federal and state healthcare legislation has significantly impacted our business, and future legislation and regulations are likely to affect us” and “Changes in industry pricing benchmarks could materially impact our performance” sections of Part I, Item 1A, of the 2010 Form 10-K, which section is incorporated by reference herein.

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

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

The Company’s outlook for future operating results are favorably impacted by the anticipated effects of certain pharmaceutical marketplace dynamics, such as branded drug price inflation and new generics, as well as productivity improvements in the Company’s operations.  Further, in addition to any potential impacts associated with the regulatory and other matters discussed in the preceding paragraphs, factors that could negatively impact the Company’s future operating results include the impact of pricing adjustments and bed losses, as well as an increase in its payroll costs.

14

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 Medicare Part D Plan sponsors or to the proportion of the Company’s Part D 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.

15

EX-99.3

EXHIBIT 99.3

ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements and Financial Statement Schedule

PAGE

Financial Statements:

Report of Independent Registered Public Accounting Firm	2
Consolidated Statements of Income	3
Consolidated Balance Sheets	4
Consolidated Statements of Cash Flows	5
Consolidated Statements of Stockholders' Equity	6
Notes to Consolidated Financial Statements	8

Financial Statement Schedule:

II - Valuation and Qualifying Accounts                                                                                                                     60

All other financial statement schedules are omitted because they are not applicable or because the required information is shown elsewhere in the Consolidated Financial Statements or Notes thereto.

1

Report of Independent Registered Public Accounting Firm

To the Stockholders and

Board of Directors of Omnicare, Inc.

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Omnicare, Inc. and its subsidiaries at December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting (not presented herein) appearing under Item 9A of the Annual Report on Form 10-K for the year ended December 31, 2010.  Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 4 to the consolidated financial statements the Company changed the manner in which it accounts for business combinations in 2009.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Cincinnati, Ohio

February 24, 2011, except with respect to our opinion on the consolidated financial statements and financial statement schedule insofar as it relates to the effects of discontinued operations discussed in Note 1, as to which the date is July 29, 2011.

2

CONSOLIDATED STATEMENTS OF INCOME
OMNICARE, INC. AND SUBSIDIARY COMPANIES
(in thousands, except per share data)
	For the years ended December 31,
	2010 (a)			2009 (a)			2008 (a)
Net sales	$	6,030,670		$	6,001,053		$	5,992,450
Cost of sales		4,694,440			4,566,837			4,518,645
Gross profit		1,336,230			1,434,216			1,473,805
Selling, general and administrative expenses		747,608			766,172			854,482
Provision for doubtful accounts		136,630			92,495			106,240
Restructuring and other related charges		17,165			19,814			34,089
Settlement, litigation and other related charges		113,709			77,449			99,267
Goodwill and other asset impairment charges		22,884			-			-
Separation, benefit plan termination and related costs		64,760			-			-
Other miscellaneous charges		44,320			8,535			914
Operating income		189,154			469,751			378,813
Investment income		9,610			9,670			9,782
Interest expense		(135,720	)		(119,893	)		(143,051	)
Amortization of discount on convertible notes		(29,536	)		(27,977	)		(25,934	)
Income from continuing operations before income taxes		33,508			331,551			219,610
Income tax provision		19,044			96,856			88,309
Income from continuing operations		14,464			234,695			131,301
Income (loss) from discontinued operations		(120,573	)		(22,772	)		9,172
Net income (loss)	$	(106,109	)	$	211,923		$	140,473
Earnings (loss) per common share - Basic:
Continuing operations	$	0.12		$	2.00		$	1.12
Discontinued operations		(1.04	)		(0.19	)		0.08
Net income (loss)	$	(0.91	)	$	1.81		$	1.20
Earnings (loss) per common share - Diluted:
Continuing operations	$	0.13		$	2.00		$	1.11
Discontinued operations		(1.03	)		(0.19	)		0.08
Net income (loss)	$	(0.91	)	$	1.80		$	1.19
Weighted average number of common shares outstanding:
Basic		116,348			117,094			117,466
Diluted		116,927			117,777			118,313
(a) Certain amounts for all periods presented have been recast to present the Company's Contract Research Services
("CRO Services") and Tidewater Group Purchasing Organization ("Tidewater") businesses as discontinued operations.
The Notes to Consolidated Financial Statements are an integral part of these statements.

3

CONSOLIDATED BALANCE SHEETS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
(in thousands,  except share data)	December 31,
	2010 (a)			2009 (a)
ASSETS
Current assets:
Cash and cash equivalents	$	494,484		$	275,707
Restricted cash		2,019			15,264
Accounts receivable, less allowances of $401,027 (2009-$332,541)		1,011,823			1,183,144
Inventories		418,965			368,477
Deferred income tax benefits		150,644			112,906
Rabbi trust assets		85,741			-
Other current assets		246,866			182,579
Current assets of discontinued operations		47,254			81,530
Total current assets		2,457,796			2,219,607
Properties and equipment, at cost less accumulated depreciation of $284,533 (2009-$300,655)		204,717			203,847
Goodwill		4,234,821			4,152,255
Identifiable intangible assets, less accumulated amortization of $219,107 (2009-$184,216)		259,809			293,831
Rabbi trust assets		-			133,040
Other noncurrent assets		156,941			147,037
Noncurrent assets of discontinued operations		49,329			174,487
Total noncurrent assets		4,905,617			5,104,497
Total assets	$	7,363,413		$	7,324,104
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	233,396		$	256,929
Accrued employee compensation		59,417			36,900
Deferred revenue		2,352			1,827
Current debt		3,537			127,069
Other current liabilities		273,191			172,922
Current liabilities of discontinued operations		22,361			22,170
Total current liabilities		594,254			617,817
Long-term debt, notes and convertible debentures (Note 10)		2,106,758			1,980,239
Deferred income tax liabilities		737,383			574,146
Other noncurrent liabilities		109,074			275,909
Total noncurrent liabilities		2,953,215			2,830,294
Total liabilities		3,547,469			3,448,111
Commitments and contingencies (Note 17)
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, 129,634,300 shares issued (2009-127,824,800 shares issued)		129,634			127,825
Paid-in capital (Note 10)		2,424,978			2,269,905
Retained earnings		1,579,672			1,698,620
Treasury stock, at cost-13,011,700 shares (2009-7,545,000 shares)		(333,554	)		(205,017	)
Accumulated other comprehensive (loss) income		15,214			(15,340	)
Total stockholders' equity		3,815,944			3,875,993
Total liabilities and stockholders' equity	$	7,363,413		$	7,324,104
(a) Certain amounts for all periods presented have been recast to present the Company's CRO Services and Tidewater businesses as discontinued operations.
The Notes to Consolidated Financial Statements are an integral part of these statements.

4

CONSOLIDATED STATEMENTS OF CASH FLOWS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
(in thousands)
	For the years ended December 31,
	2010 (a)			2009 (a)			2008 (a)
Cash flows from operating activities:
Net income (loss)	$	(106,109	)	$	211,923		$	140,473
Income (loss) from discontinued operations		120,573			22,772			(9,172	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation		46,096			47,919			46,385
Amortization		104,450			89,763			89,762
Write-off of debt issuance costs		6,636			-			-
Debt redemption tender offer premium		(7,591	)		-			-
Goodwill and other asset impairment charges		22,884			-			-
Benefit plan termination and related costs		25,187			-			-
Loss on debt extinguishment		25,552			-			-
Deferred tax provision		22,952			90,658			56,041
Changes in assets and liabilities, net of effects from acquisition and divesture of businesses:
Accounts receivable, net of provison for doubtful accounts		198,338			135,320			43,327
Inventories		(34,676	)		84,469			3,887
Current and noncurrent assets		38,966			(14,891	)		71,912
Accounts payable		(44,638	)		(74,414	)		(47,713	)
Accrued employee compensation		21,451			(6,436	)		22,028
Deferred revenue		525			(206	)		(581	)
Current and noncurrent liabilities		(71,693	)		(106,162	)		17,240
Net cash flows from operating activities of continuing operations		368,903			480,715			433,589
Net cash flows from (used in) operating activities of discontinued operations		(288	)		3,079			4,608
Net cash flows from operating activities		368,615			483,794			438,197
Cash flows from investing activities:
Acquisition of businesses, net of cash received		(111,812	)		(92,889	)		(225,710	)
Capital expenditures		(23,517	)		(29,231	)		(57,041	)
Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust		11,082			(10,547	)		847
Disbursements for loans and investments		(3,425	)		(6,800	)		-
Other		2,166			(3,179	)		683
Net cash flows used in investing activities of continuing operations		(125,506	)		(142,646	)		(281,221	)
Net cash flows used in investing activities of discontinued operations		(546	)		(2,191	)		(4,072	)
Net cash flows used in investing activities		(126,052	)		(144,837	)		(285,293	)
Cash flows from financing activities:
Borrowings on line of credit facilities		-			-			396,000
Payments on line of credit facilities, term A loan and notes payable		(125,000	)		(275,000	)		(485,081	)
Proceeds from long-term borrowings and obligations		975,000			-			-
Payments on long-term borrowings and obligations		(726,533	)		(1,592	)		(2,833	)
Fees paid for financing activities		(33,249	)		-			-
Increase (decrease) in cash overdraft balance		18,221			(637	)		(5,449	)
Payments for Omnicare common stock repurchases (Note 2)		(100,942	)		-			(100,165	)
Proceeds (payments) for stock awards and exercise of stock options, net of stock tendered in payment		(13,989	)		9,666			(1,390	)
Excess tax benefits from stock-based compensation		679			2,367			963
Dividends paid		(12,839	)		(10,733	)		(10,751	)
Net cash flows used in financing activities of continuing operations		(18,652	)		(275,929	)		(208,706	)
Net cash flows used in financing activities of discontinued operations		-			(479	)		(360	)
Net cash flows used in financing activities		(18,652	)		(276,408	)		(209,066	)
Effect of exchange rate changes on cash		(5,968	)		(1,099	)		(3,196	)
Net increase (decrease) in cash and cash equivalents		217,943			61,450			(59,358	)
Less increase (decrease) in cash and cash equivalents of discontinued operations		(834	)		409			176
Increase (decrease) in cash and cash equivalents of continuing operations		218,777			61,041			(59,534	)
Cash and cash equivalents at beginning of year		275,707			214,666			274,200
Cash and cash equivalents at end of year	$	494,484		$	275,707		$	214,666
(a) Certain amounts for all periods presented have been recast to present the Company's CRO Services and Tidewater businesses as discontinued operations.
The Notes to Consolidated Financial Statements are an integral part of these statements.

5

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

OMNICARE, INC. AND SUBSIDIARY COMPANIES

(in thousands, except per share data)

												Accumulated
												Other			Total
	Common		Paid-in			Retained			Treasury			Comprehensive			Stockholders'
	Stock		Capital			Earnings			Stock			Income			Equity
Balance at January 1, 2008	$	124,599	$	2,195,564		$	1,368,449		$	(89,791	)	$	(57,998	)	$	3,540,823
Dividends paid ($0.09 per share)		-		-			(10,751	)		-			-			(10,751	)
Stock acquired/issued for benefit plans		-		(343	)		-			2,319			-			1,976
Stock option exercises and amortization/forfeitures		264		10,138			-			-			-			10,402
Common stock repurchase		-		-			-			(100,165	)		-			(100,165	)
Stock awards, net of amortization/forfeitures		720		18,770			-			(5,541	)		-			13,949
Subtotal		125,583		2,224,129			1,357,698			(193,178	)		(57,998	)		3,456,234
Net income		-		-			140,473			-			-			140,473
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment		-		-			-			-			224			224
Unrealized appreciation in fair value of investments		-		-			-			-			4,940			4,940
Amortization of pension benefit costs		-		-			-			-			9,292			9,292
Actuarial gain on pension obligations		-		-			-			-			43,706			43,706
Comprehensive income		-		-			140,473			-			58,162			198,635
Balance at December 31, 2008		125,583		2,224,129			1,498,171			(193,178	)		164			3,654,869
Dividends paid ($0.09 per share)		-		-			(10,733	)		-			-			(10,733	)
Stock acquired/issued for benefit plans		-		23			-			569			-			592
Stock option exercises and amortization/forfeitures		1,079		24,619			-			-			-			25,698
Stock awards/issuance, net of amortization/forfeitures		1,163		21,883			-			(12,408	)		-			10,638
Adjustment to deferred tax convertible debt adjustment		-		(749	)		(741	)		-			-			(1,490	)
Subtotal		127,825		2,269,905			1,486,697			(205,017	)		164			3,679,574
Net income		-		-			211,923			-			-			211,923
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment		-		-			-			-			14,934			14,934
Unrealized depreciation in fair value of investments		-		-			-			-			(7,267	)		(7,267	)
Amortization of pension benefit costs		-		-			-			-			2,045			2,045
Actuarial loss on pension obligations		-		-			-			-			(25,216	)		(25,216	)
Comprehensive income		-		-			211,923			-			(15,504	)		196,419
Balance at December 31, 2009		127,825		2,269,905			1,698,620			(205,017	)		(15,340	)		3,875,993

6

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)

OMNICARE, INC. AND SUBSIDIARY COMPANIES

(in thousands, except per share data)

											Accumulated
											Other			Total
	Common		Paid-in		Retained			Treasury			Comprehensive			Stockholders'
	Stock		Capital		Earnings			Stock			Income			Equity
Balance at December 31, 2009		127,825		2,269,905		1,698,620			(205,017	)		(15,340	)		3,875,993
Dividends paid ($0.11 per share)		-		-		(12,839	)		-			-			(12,839	)
Stock acquired/issued for benefit plans		-		-		-			68			-			68
Stock option exercises and amortization/forfeitures		386		12,153		-			-			-			12,539
Common stock repurchase		-		-		-			(100,942	)		-			(100,942	)
Stock awards/issuance, net of amortization/forfeitures		1,423		36,837		-			(27,663	)		-			10,597
Adjustment to deferred tax convertible debt adjustment		-		106,083		-			-			-			106,083
Subtotal		129,634		2,424,978		1,685,781			(333,554	)		(15,340	)		3,891,499
Net loss		-		-		(106,109	)		-			-			(106,109	)
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment		-		-		-			-			(3,807	)		(3,807	)
Unrealized appreciation in fair value of investments		-		-		-			-			924			924
Amortization of pension benefit costs		-		-		-			-			3,458			3,458
Actuarial gain on pension obligations		-		-		-			-			29,979			29,979
Comprehensive income		-		-		(106,109	)		-			30,554			(75,555	)
Balance at December 31, 2010	$	129,634	$	2,424,978	$	1,579,672		$	(333,554	)	$	15,214		$	3,815,944
The Notes to Consolidated Financial Statements are an integral part of these statements.

7

Notes to Consolidated Financial Statements

Note 1 – Description of Business and Summary of Significant Accounting Policies

Description of Business

Omnicare, Inc. (“Omnicare” or the “Company”) is a leading geriatric pharmaceutical services company.  Omnicare is the nation’s largest provider of pharmaceuticals and related ancillary pharmacy 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.  At December 31, 2010, Omnicare served long-term care facilities as well as chronic care and other settings comprising approximately 1,385,000 beds, including approximately 86,000 patients served by the patient assistance programs of its specialty pharmacy services business.  The comparable number at December 31, 2009 was approximately 1,377,000 beds (including approximately 68,000 patients served by patient assistance programs).  Omnicare provides its long-term care pharmacy services in 47 states in the United States (“U.S.”), the District of Columbia and Canada at December 31, 2010.  Omnicare’s pharmacy services also include distribution and product support services for specialty pharmaceuticals.

Discontinued Operations

In March 2011, Omnicare committed to a plan to divest its Contract Research Services organization (“CRO Services”).  The sale of CRO Services was completed in April 2011. Also, in April 2011, the Company divested of its Tidewater Group Purchasing Organization (“Tidewater”).  In accordance with the accounting standard addressing the accounting for the impairment or disposal of long-lived assets, CRO Services and Tidewater are presented as discontinued operations in the Consolidated Statements of Income, Consolidated Balance Sheets, Consolidated Statements of Cash Flows, and the Notes to Consolidated Financial Statements herein for all periods presented.  See the “Discontinued Operations” note of the Notes to Consolidated Financial Statements for further discussion of discontinued operations.  Following the discontinuance of CRO Services, Omnicare now operates in one segment, the Pharmacy Services Segment.  Accordingly, operating segment data is no longer provided.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries.  Omnicare consolidates entities in which the Company is the primary beneficiary, in accordance with the authoritative guidance regarding the consolidation of variable interest entities.  All significant intercompany accounts and transactions have been eliminated in consolidation.

Translation of Foreign Financial Statements

Assets and liabilities of the Company’s foreign operations are translated at the year-end rate of exchange, and the income statements are translated at average rates of exchange.  Gains or losses from translating foreign currency financial statements are accumulated in a separate component of stockholders’ equity.

Cash Equivalents

Cash and cash equivalents include highly liquid investments with original maturities of three months or less. Carrying values of cash and cash equivalents approximate fair value due to the short-term nature of these instruments.

Omnicare maintains amounts on deposit with various financial institutions, which may, at times, exceed federally insured limits. However, management periodically evaluates the credit-worthiness of those institutions, and the Company has not experienced any losses on such deposits.

Restricted Cash

Restricted cash primarily represents cash transferred to separate irrevocable trusts for settlement of employee health and severance costs, and cash collected on behalf of third parties.

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Fair Value of Financial Instruments

The Company applies the authoritative guidance for fair value measurements, which defines a hierarchy which prioritizes the inputs in fair value measurements.  “Level 1” measurements are measurements using quoted prices in active markets for identical assets or liabilities.  “Level 2” measurements use significant observable inputs.  “Level 3” measurements are measurements using significant unobservable inputs which require a company to develop its own assumptions.  In recording the fair value of assets and liabilities, companies must use the most reliable measurement available.

See further discussion at the “Fair Value” note of the Notes to Consolidated Financial Statements.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist primarily of interest-bearing cash and cash equivalents, assets invested for settlement of the Company’s employee benefit obligations, accounts receivable and fixed to floating interest rate swap agreements.

The Company is exposed to credit risk in the event of default by the financial institutions or issuers of cash and cash equivalents to the extent recorded on the Consolidated Balance Sheets.  Specifically, at any given point in time, the Company has cash on deposit with financial institutions, and cash invested in high quality short-term money market funds and/or U.S. government-backed repurchase agreements, generally having original maturities of three months or less, in order to minimize its credit risk.

The Company establishes allowances for doubtful accounts based on various factors, including historical credit losses and specifically identified credit risks.  Management reviews the allowances for doubtful accounts on an ongoing basis for appropriateness.  For the years ended December 31, 2010, 2009 and 2008, no single customer accounted for 10% or more of revenues.  The Company generally does not require collateral from its customers relating to the extension of credit in the form of accounts receivable balances.

In 2010, approximately one-half of Omnicare’s pharmacy services billings were directly reimbursed by government-sponsored programs.  These programs include primarily federal Medicare Part D and, to a lesser extent, the state Medicaid programs.  The remainder of Omnicare’s billings were paid or reimbursed by individual residents or their responsible parties (private pay), facilities and other third-party payors, including private insurers.  A portion of these revenues also are indirectly dependent on government programs.  The table below represents the Company’s approximated payor mix (as a % of annual sales) for the last three years ended December 31,:

	2010	2009	2008
Private pay, third-party and facilities (a)	42%	43%	45%
Federal Medicare program (Part D & Part B)	46%	45%	43%
State Medicaid programs	9%	10%	10%
Other sources	3%	2%	2%
Totals	100%	100%	100%
(a) Includes payments from SNFs on behalf of their federal Medicare program-eligible residents (Medicare Part A) and for other services and supplies, as well as payments from third-party insurers and private pay.

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Accounts Receivable

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

	December 31, 2010
	Current and 0-180 Days Past Due		181 Days and Over Past Due		Total
Medicare (Part D and Part B), Medicaid and Third-Party payors	$	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 (net of contractual allowance adjustments)	$	746,722	$	666,128	$	1,412,850
	December 31, 2009
	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	$	324,942	$	177,054	$	501,996
Facility payors		404,134		360,752		764,886
Private Pay payors		106,321		142,482		248,803
Total gross accounts receivable (net of contractual allowance adjustments)	$	835,397	$	680,288	$	1,515,685

During the fourth quarter 2010, Omnicare implemented a Company-wide Reorganization Program.  Among other changes, this program has resulted in numerous senior management and other organizational leadership changes, including a realignment of division presidents for its long term care pharmacy divisions and change in its Office of General Counsel.  As a result of these activities and the performance of its year end closing process, the Company reassessed the allowance for doubtful accounts for facility receivables and concluded that an incremental charge of $48.5 million was necessary.  The key factors leading to management’s change in estimate relate primarily to a 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.  In particular, this new approach includes a heightened focus on settling outstanding accounts receivable disputes and the avoidance of protracted costly and often disruptive litigation, where possible.  As a result of this change in approach, the Company believes it will have reduced opportunity to monetize disputed receivables through litigation, increasing risk of uncollectible accounts receivable.

Notes Receivable

The Company periodically enters into notes receivable from its customers in the normal course of business.  These notes receivable and the related allowance for losses are recorded in the “Other Current Assets” and “Other Non-Current Assets” captions of the Consolidated Balance Sheets, and are not considered material to the consolidated financial position of the Company.  The Company assesses and monitors credit risk associated with notes receivable through review of the customer’s net worth, payment history, long-term debt ratings and/or other information available from recognized credit rating services.  The receivables are periodically assessed for significant changes in credit ratings or other information indicating an increase in exposure to credit risk.  Historic losses on notes receivable have not been material.

Inventories

Inventories consist primarily of purchased pharmaceuticals and medical supplies held for sale to customers and are stated at the lower of cost or market.  Cost is determined using the first-in, first-out method.  Physical inventories are typically performed on a monthly basis at all pharmacy sites, and in all cases the Company’s policy is to perform them at least once a quarter.  Cost of goods sold is recorded based on the actual results of the physical inventory counts, and is estimated when a physical inventory is not performed in a particular month.

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

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Properties and Equipment

Properties and equipment are stated at cost less accumulated depreciation.  Expenditures for maintenance, repairs, renewals and betterments that do not materially prolong the useful lives of the assets are charged to expense as incurred.  Depreciation of properties and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from five to 10 years for computer equipment and software, machinery and equipment, and furniture and fixtures.  Buildings and building improvements are depreciated over 40 years, and leasehold improvements are amortized over the lesser of the initial lease terms or their useful lives.  The Company capitalizes certain costs that are directly associated with the development of internally developed software, representing the historical cost of these assets.  Once the software is completed and placed into service, such costs are amortized over the estimated useful lives, ranging from five to 10 years.

Leases

Rental payments under operating leases are expensed.  Leases that substantially transfer all of the benefits and risks of ownership of property to Omnicare or otherwise meet the criteria for capitalization are accounted for as capital leases.  An asset is recorded at the time a capital lease is entered into together with its related long-term obligation to reflect its purchase and financing.  Property and equipment recorded under capital leases are depreciated on the same basis as previously described.

Valuation of Long-Lived Assets

Long-lived assets such as property and equipment, software (acquired and internally developed) and investments are reviewed for impairment when events or changes in circumstances indicate that the book carrying amount of the assets may not be recoverable.  An impairment loss would be recognized when estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its book carrying amount.

Goodwill, Intangibles and Other Assets

Intangible assets are comprised primarily of goodwill, customer relationship assets, noncompete agreements, technology assets, and trademarks and trade names, all originating from business combinations accounted for as purchase transactions.  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 an impairment.  Intangible assets that are being amortized under the authoritative guidance are amortized over their useful lives, ranging from five to 15 years.  Indefinite-lived intangible assets are reviewed annually for impairment, which resulted in a write-off of approximately $13.3 million during 2010, as further discussed at the “Goodwill and Other Intangible Assets” note of the Notes to Consolidated Financial Statements.

Debt issuance costs are included in the “Other noncurrent assets” line of the Consolidated Balance Sheets and are amortized over the life of the related debt, and to the put and initial redemption date of December 15, 2015 in the case of the 3.25% convertible senior debentures due 2035.

Insurance Accruals

The Company is self-insured for certain employee health, property and casualty insurance claims.  The Company carries a stop-loss umbrella policy for health insurance to limit the maximum potential liability for both individual and aggregate claims for a plan year.  Claims are paid as they are submitted to the respective plan administrators.  The Company records monthly expense for the self-insurance plans in its financial statements for incurred claims, based on historical claims experience and input from third-party insurance professionals in order to determine the appropriate accrual level.  The accrual gives consideration to claims that have been incurred but not yet paid and/or reported to the plan administrator.  The Company establishes the accruals based on the historical claim lag periods, current payment trends for similar insurance claims and input from third-party insurance and valuation professionals.

The book carrying amount of the Company’s property and casualty accrual available for self-insured retentions and deductibles, at December 31, 2010 and 2009, was $21.2 million and $21.4 million, respectively.  The discount rate utilized in the computation of the property and casualty accrual balance at December 31, 2010 and 2009, was 2.3% and 2.4%, respectively.

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Revenue Recognition

In general, Omnicare recognizes revenue when products are delivered or services are rendered or provided to the customer, prices are fixed and determinable and collection is reasonably assured.

A significant portion of the Company’s revenues from sales of pharmaceutical and medical products have been reimbursed by the federal Medicare Part D plan and, to a lesser extent, state Medicaid programs.  Payments for services rendered to patients covered by these programs are generally less than billed charges.  The Company monitors its revenues and receivables from these reimbursement sources, as well as other third-party insurance payors, and records an estimated contractual allowance for certain sales and receivable balances at the revenue recognition date, to properly account for anticipated differences between billed and reimbursed amounts.  Accordingly, the total net sales and receivables reported in the Company’s financial statements are recorded at the amount ultimately expected to be received from these payors.  Since billing functions for a portion of the Company’s revenue systems are largely computerized, enabling on-line adjudication (i.e., submitting charges to Medicare, Medicaid or other third-party payors electronically, with simultaneous feedback of the amount to be paid) at the time of sale to record net revenues, exposure to estimating contractual allowance adjustments is limited primarily to unbilled and/or initially rejected Medicare, Medicaid and third-party claims (typically approved for reimbursement once additional information is provided to the payor).  For the remaining portion of the Company’s revenue systems, the contractual allowance is estimated for all billed, unbilled and/or initially rejected Medicare, Medicaid and third-party claims.  The Company evaluates several criteria in developing the estimated contractual allowances for billed, unbilled and/or initially rejected claims on a monthly basis, including historical trends based on actual claims paid, current contract and reimbursement terms, and changes in customer base and payor/product mix.  Contractual allowance estimates are adjusted to actual amounts as cash is received and claims are settled, and the aggregate impact of these resulting adjustments were not significant to the Company’s operations for any of the periods presented.

Patient co-payments are associated with certain state Medicaid programs, Medicare Part B, Medicare Part D and certain third-party payors and are typically not collected at the time products are delivered or services are rendered, but are billed to the individual as part of the Company’s normal billing procedures.  These co-payments are subject to the Company’s normal accounts receivable collections procedures.

Under certain circumstances, the Company accepts returns of medications and issues a credit memo to the applicable payor.  The Company estimates and accrues for sales returns based on historical return experience, giving consideration to the Company’s return policies.  Product returns are processed in the period received, and are not significant.

Stock-Based Compensation

The Company records compensation costs relating to share-based payment transactions in its financial statements under a fair value recognition model.  Under the provisions of this guidance, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period of the award (usually the vesting period).

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Delivery Expenses

Omnicare incurred expenses totaling approximately $177 million, $181 million and $192 million for the years ended December 31, 2010, 2009 and 2008, respectively, to deliver the products sold to its customers.  Delivery expenses are included in the “Selling, general and administrative expenses” line of the Consolidated Statements of Income.

Evaluation of Subsequent Events

The Company evaluated subsequent events through the date the Consolidated Financial Statements were issued.  No matters were identified that would materially impact the Company’s Consolidated Financial Statements or require disclosure.

Income Taxes

The Company accounts for income taxes using the asset and liability method under which deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates to differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements.

Future tax benefits are recognized to the extent that realization of those benefits is considered to be more likely than not, and a valuation allowance is established for deferred tax assets which do not meet this threshold.

Under the authoritative guidance regarding the accounting for uncertainty in income taxes, which provides guidance for the financial statement recognition and measurement of income tax positions taken or expected to be taken in a tax return, recognition and measurement are considered discrete events.  The recognition threshold is met when it is determined a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination by the relevant taxing authority.  If a tax position does not meet the more likely than not recognition threshold, the benefit of that position is not recognized in the financial statements.  A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to be recognized in the financial statements.

Accumulated Other Comprehensive Income (Loss)

The accumulated other comprehensive income (loss) at December 31, 2010 and 2009, by component and in the aggregate, follow (in thousands):

	December 31,
	2010			2009
Cumulative foreign currency translation adjustments	$	15,239		$	19,046
Unrealized gain on fair value of investments		997			73
Pension and postemployment benefits		(1,022	)		(34,459	)
Total accumulated other comprehensive income (loss), net	$	15,214		$	(15,340	)

The amounts are net of applicable tax benefits of approximately $21.5 million in 2009.  The tax benefit amounts for 2010 were inconsequential.

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Other Miscellaneous Charges

Other miscellaneous charges consist of the following (in thousands):

	December 31,
	2010			2009			2008
Acquisition and other related costs (1)	$	5,319		$	1,399		$	-
Stock option expense (2)		4,207			5,633			-
Repack matters - SG&A (3)		663			1,503			914
Loss on plane lease (4)		6,785			-			-
Debt redemption loss and costs (5)		27,346			-			-
Subtotal - other miscellaneous charges		44,320			8,535			914
Repack matters - COS (3)		(1,898	)		(2,642	)		5,531
Total - other miscellaneous charges, net	$	42,422		$	5,893		$	6,445

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

(2)   See further discussion at the “Stock-Based Compensation” note of the Notes to Consolidated Financial Statements.

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

(4)   The year ended December 31, 2010 includes a charge relating to the termination of the Company’s prior aircraft lease.

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

Use of Estimates in the Preparation of Financial Statements

The preparation of the Company’s consolidated financial statements in accordance with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities and stockholders’ equity at the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and amounts reported in the accompanying notes to consolidated financial statements.  Significant estimates underlying the accompanying consolidated financial statements include the allowance for doubtful accounts and contractual allowance reserve; the net carrying value of inventories; acquisition-related accounting including goodwill and other indefinite-lived intangible assets, and the related impairment assessments; accruals pursuant to the Company’s restructuring initiatives; employee benefit plan assumptions and reserves; stock-based compensation; various other operating allowances and accruals (including employee health, property and casualty insurance accruals and related assumptions); fair value determinations; and current and deferred tax assets, liabilities and provisions.  Actual results could differ from those estimates depending upon the resolution of certain risks and uncertainties.

Potential risks and uncertainties, many of which are beyond the control of Omnicare, include, but are not necessarily limited to, such factors as overall economic, financial and business conditions; delays and reductions in reimbursement by the government and other payors to Omnicare and/or its customers; the overall financial condition of Omnicare’s customers; the effect of new government regulations, executive orders and/or legislative initiatives, including those relating to reimbursement and drug pricing policies and changes in the interpretation and application of such policies; efforts by payors to control costs; the outcome of disputes and litigation; the outcome of audit, compliance, administrative or investigatory reviews, including governmental/regulatory inquiries; other contingent liabilities; currency fluctuations between the U.S. dollar and other currencies; changes in international economic and political conditions; changes in interest rates; changes in the valuation of the Company’s financial instruments, including the swap agreements and other derivative instruments; changes in employee benefit plan assumptions and reserves; changes in tax laws and regulations; access to capital and financing; the demand for Omnicare’s products and services; pricing and other competitive factors in the industry; changes in insurance claims experience and related assumptions; the outcome of the Company’s annual goodwill and other identifiable intangible assets assessments; variations in costs or expenses; and changes in accounting rules and standards.

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Recently Issued Accounting Standards

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

In December 2010, the FASB amended the authoritative guidance for goodwill to modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts.  The new guidance requires those reporting units to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists.  The Company does not anticipate the effect of this recently issued guidance to be material to its consolidated results of operations, financial position and cash flows.

Reclassifications

Certain reclassifications of prior-year amounts have been made to conform with the current-year presentation, none of which were considered material to the Company’s financial statements taken as a whole.

Note 2 – Common Stock Repurchase Program

On May 3, 2010, Omnicare announced that the Company’s Board of Directors authorized a new two-year program to repurchase, from time to time, shares of Omnicare’s outstanding common stock having an aggregate value of up to $200 million.  In the year ended December 31, 2010, the Company repurchased approximately 4.4 million shares at an aggregate cost of approximately $101 million.  Accordingly, the Company had approximately $99 million of share repurchase authority remaining as of December 31, 2010.  Additionally, during the second quarter of 2008, the Company repurchased approximately 4.1 million shares of Omnicare’s common stock at a cost of approximately $100 million under a stock buyback program authorized by its Board of Directors.

Note 3 – Discontinued Operations

Non-Core Disposal Group

In mid-2009, the Company commenced activities to divest certain home healthcare and related ancillary businesses (“the Disposal Group”) that are non-strategic in nature.  In the quarter ended September 30, 2010, Omnicare reached an agreement to acquire substantially all of the assets of Walgreens’ long-term care pharmacy business.  In exchange, Walgreens acquired substantially all of the assets of Omnicare’s home infusion business, part of the Disposal Group.  This transaction closed in the fourth quarter of 2010.  Also, in 2010, the Company entered into a letter of intent regarding its disposition of the 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.

In 2010 and 2009, the Non-Core Disposal Group recorded an impairment charge of approximately $10.3 million and $14.5 million, respectively, to reduce the carrying value of the Disposal Group to fair value as of December 31, 2010 and 2009.  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.  The fair values were 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 will be finalized upon disposition of the Non-Core Disposal Group.

CRO Services

Adverse conditions in the contract research organization (“CRO Services”) market led to lower than anticipated levels of new business being added as well as early project terminations by clients and client-driven delays in the commencement of certain projects resulting in lower than expected operating profits and cash flows for this business.  Management anticipated a turnaround in its CRO Services business in the third quarter of 2010 based on various restructuring activities enacted in late 2009 and during the first half of 2010 (e.g., reductions-in-force, location consolidation, etc.).  Based on the unanticipated continuation of the decline in operating performance during the third quarter of 2010, coupled with the revised outlook, the Company’s earnings outlook for the CRO business was reduced.  As a result, the Company determined it was required to perform an interim impairment test with respect to goodwill and certain other intangible assets related to its CRO Services reporting unit outside of its normal fourth quarter test period.  Based on the results of the tests performed, the Company recorded a goodwill impairment charge in CRO Services of approximately $91 million in the third quarter of 2010.

The Company determined that the 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 the divestiture was completed in April 2011.

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The results from operations for all periods presented have been recast to reflect the results of the Non-Core Disposal Group and CRO Services as discontinued operations, including certain expenses of the Company related to the divestiture.  Selected financial information related to the discontinued operations of the Non-Core Disposal Group and CRO Services for the years ended December 31, 2010, 2009 and 2008 follows (in thousands):

	For the years ended December 31,
	2010			2009			2008
Net sales - Non-Core Disposal Group ("NCDG")	$	59,656		$	84,903		$	114,837
Net sales - CRO Services		109,176			156,707			203,320
Net sales - total discontinued		168,832			241,610			318,157
(Loss) from operations of NCDG, pretax		(14,025	)		(13,645	)		(307	)
(Loss) income from operations of CRO Services, pretax		(19,269	)		(3,581	)		15,886
(Loss) income from operations - total discontinued, pretax		(33,294	)		(17,226	)		15,579
Income tax benefit - NCDG		3,614			5,468			96
Income tax benefit (expense) - CRO Services		8,116			1,051			(6,503	)
Income tax benefit (expense) - total discontinued		11,730			6,519			(6,407	)
Loss from operations of NCDG, aftertax		(10,411	)		(8,177	)		(211	)
(Loss) income from operations of CRO Services, aftertax		(11,153	)		(2,530	)		9,383
(Loss) income from operations - total discontinued, aftertax		(21,564	)		(10,707	)		9,172
Impairment loss on NCDG, pretax		(10,343	)		(14,492	)		-
Impairment loss on CRO Services, pretax		(90,628	)		-			-
Income tax benefit of impairment loss on NCDG		1,859			2,427			-
Income tax benefit of impairment loss on CRO Services		103			-			-
Impairment loss on total discontinued, aftertax		(99,009	)		(12,065	)		-
Loss from discontinued operations of NCDG		(18,895	)		(20,242	)		(211	)
(Loss) income from discontinued operations of CRO Services		(101,678	)		(2,530	)		9,383
(Loss) income from discontinued operations - total		(120,573	)		(22,772	)		9,172

Note 4 – Acquisitions

Historically, the Company has been involved in a program to acquire providers of pharmaceutical products and related pharmacy services to long-term care facilities and their residents as well as patients in other care settings.  The Company’s strategy has included the acquisition of freestanding institutional pharmacy businesses as well as other assets, generally insignificant in size, which have been combined with existing pharmacy operations to augment their internal growth.  From time-to-time the Company may acquire other businesses, which complement the Company’s core businesses.

In the years ended 2010 and 2009, the Company incurred acquisition and other related costs of approximately $5.3 million and $1.4 million, respectively, which were primarily related to professional fees and acquisition related restructuring costs for acquisitions completed during 2010 and 2009, which were partially offset by a reduction of the Company’s original estimate of contingent consideration payable for certain acquisitions.

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During the years ended December 31, 2010, 2009 and 2008, the Company completed four, nine and 12 acquisitions of businesses, respectively, none of which were, individually or in the aggregate, significant to the Company.  Acquisitions of businesses required cash payments of approximately $112 million, $93 million and $226 million (including amounts payable pursuant to acquisition agreements relating to prior-period acquisitions) in 2010, 2009 and 2008, respectively.  The impact of these aggregate acquisitions on the Company’s overall goodwill balance has been reflected in the disclosures at the “Goodwill and Other Intangible Assets” note.  The Company continues to evaluate the tax effects, identifiable intangible assets and other pre-acquisition contingencies relating to certain acquisitions. Omnicare is in the process of completing its allocation of the purchase price for certain acquisitions, and accordingly, the goodwill and other identifiable intangible assets balances are preliminary and subject to change.  The net assets and operating results of acquisitions have been included in the Company’s consolidated financial statements from their respective dates of acquisition.

Amounts contingently payable through 2011, primarily representing payments originating from earnout provisions of acquisitions which were completed prior to January 1, 2009, total approximately $16 million as of December 31, 2010.

Note 5 – Cash and Cash Equivalents

A summary of cash and cash equivalents follows (in thousands):

	December 31,
	2010		2009
Cash	$	46,639	$	67,079
Money market funds		686		108,628
U.S. government-backed repurchase agreements		447,159		100,000
	$	494,484	$	275,707

Repurchase agreements represent investments in U.S. government-backed treasury issues at December 31, 2010 and 2009, under agreements to resell the securities to the counterparty.  The amounts in the money market funds are shown at fair value based on the quoted market prices of the investments.  The term of the repurchase agreements usually span overnight, but in no case is longer than 30 days.  The Company has a collateralized interest in the underlying securities of repurchase agreements, which are segregated in the accounts of the counterparty.

See additional information at the “Description of Business and Summary of Significant Accounting Policies” and “Fair Value” notes of the Notes to Consolidated Financial statements.

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Note 6 – Properties and Equipment

A summary of properties and equipment follows (in thousands):

	December 31,
	2010			2009
Land	$	3,646		$	3,646
Buildings and building improvements		15,957			15,419
Computer equipment and software		247,168			249,122
Machinery and equipment		117,232			124,608
Furniture, fixtures and leasehold improvements		105,247			111,707
		489,250			504,502
Accumulated depreciation		(284,533	)		(300,655	)
	$	204,717		$	203,847

Note 7 – Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the years ended December 31, 2010 and 2009 are as follows (in thousands):

	Total
Goodwill balance as of January 1, 2009	$	4,091,971
Goodwill acquired in the year ended December 31, 2009		38,495
Other		21,789
Goodwill balance as of December 31, 2009		4,152,255
Goodwill acquired in the year ended December 31, 2010		80,596
Other		1,970
Goodwill balance as of December 31, 2010	$	4,234,821

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 pharmacy located in Canada.

The Company performed its annual goodwill impairment analysis for the years ended December 31, 2010 and 2009 and, except for the CRO goodwill impairment charge in 2010 disclosed in the “Discontinued Operations” note of the Notes to Consolidated Financial Statements, Omnicare concluded that goodwill had not been impaired.

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The table below presents the Company’s other identifiable intangible assets at December 31, 2010 and 2009, all of which are subject to amortization, except trademark and trade names as described below (in thousands):

					December 31, 2010
	Original Amortization Life (in years)				Gross Carrying Amount		Accumulated Amortization and Impairment Losses			Net Carrying Amount
Customer relationship assets		8.5	-	15	$	392,281	$	(186,467	)	$	205,814
Trademark and trade names			-			39,672		(13,300	)		26,372
Non-compete agreements		4.5	-	15		48,036		(24,545	)		23,491
Technology assets		8	-	11.4		11,899		(7,859	)		4,040
Other		10	-	15		328		(236	)		92
Total					$	492,216	$	(232,407	)	$	259,809
					December 31, 2009
					Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationship assets					$	372,661	$	(152,063	)	$	220,598
Trademark and trade names						37,709		-			37,709
Non-compete agreements						49,139		(23,447	)		25,692
Technology assets						18,178		(8,424	)		9,754
Other						360		(282	)		78
Total					$	478,047	$	(184,216	)	$	293,831

Amortization expense related to identifiable intangible assets was $38.9 million, $39.2 million and $36.8 million for the years ended December 31, 2010, 2009 and 2008, respectively.  Omnicare’s trademark and trade names constitute identifiable intangible assets with indefinite useful lives based upon their expected useful lives and the anticipated effects of obsolescence, demand, competition and other factors per the requirements of the authoritative guidance regarding goodwill and other intangible assets.  Accordingly, these trademarks and trade names are not amortized, but are reviewed annually for impairment.  The Company performed its annual assessment for the year ended December 31, 2010, and concluded that certain trade names of the business were impaired and, accordingly, recorded an impairment loss of approximately $13.3 million in the fourth quarter of 2010, due to revisions in forecasted cash flows associated with those trade name intangible assets.  The fair value at December 31, 2010 was determined using projected revenue and cash flows developed by the Company (Level 3 inputs).

The Company also recorded other asset impairment charges of approximately $10 million in the three months and year ended December 31, 2010, primarily to write-off certain technology assets that were abandoned, and related non–compete agreement assets.  The fair value at December 31, 2010 was determined using projected revenue and cash flows developed by the Company (Level 3 inputs).

Estimated annual amortization expense for intangible assets subject to amortization at December 31, 2010 for the next five fiscal years is as follows (in thousands):

Year ended	Amortization
December 31,	Expense
2011	$	41,542
2012		40,209
2013		35,209
2014		33,782
2015		26,512

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Note 8 – Fair Value

The Company’s assets and (liabilities) measured at fair value as of December 31, 2010 and 2009 were as follows (in thousands):

				Based on
				Quoted Prices		Other
	Fair Value			in Active		Observable			Unobservable
	at December 31,			Markets		Inputs			Inputs
	2010			(Level 1)		(Level 2)			(Level 3)
Assets and (Liabilities) Measured at Fair Value on a Recurring Basis: (1)
Rabbi trust assets (2)	$	85,741		$	85,741	$	-		$	-
7.75% interest rate swap agreement - fair value hedge (3)	$	(829	)	$	-	$	(829	)	$	-
6.875% interest rate swap agreement - fair value hedge (3)		(3,461	)		-		(3,461	)		-
Derivatives (4)		-			-		-			-
Total	$	(4,290	)	$	-	$	(4,290	)	$	-

			Based on
			Quoted Prices		Other
	Fair Value		in Active		Observable		Unobservable
	at December 31,		Markets		Inputs		Inputs
	2009		(Level 1)		(Level 2)		(Level 3)
Assets and (Liabilities) Measured at Fair Value on a Recurring Basis: (1)
Rabbi trust assets (2)	$	133,040	$	133,040	$	-	$	-
6.125% interest rate swap agreement - fair value hedge (3)		3,595		-		3,595		-
Derivatives (4)		-		-		-		-
Total	$	136,635	$	133,040	$	3,595	$	-

See further discussion of Omnicare’s application of the authoritative guidance for fair value measurements, including clarification of Levels 1, 2 and 3, at the “Fair Value of Financial Instruments” caption of the “Description of Business and Summary of Significant Accounting Policies” note of the Notes to Consolidated Financial Statements.

(1)For cash and cash equivalents, restricted cash, accounts receivable, and accounts payable, the net carrying value of these items approximates their fair value at period end.  Further, at period end, the fair value of Omnicare’s variable rate debt facilities approximates the carrying value, as the effective interest rates fluctuate with changes in market rates.  The fair value of the Company’s fixed-rate debt facilities is based on quoted market prices and, while not recorded on the Consolidated Balance Sheets and thus excluded from the fair value table above, are included in the table below.

(2)The fair value of restricted funds held in trust (rabbi trust assets) for settlement of the Company’s pension obligations are based on quoted market prices in an active market of the investments held by the trustee.

(3)The fair value of the Company’s interest rate swap agreements are valued using market inputs with mid-market pricing as a practical expedient for the bid/ask spread.  As such, these swaps are categorized within Level 2 of the hierarchy.  The Company’s swap agreements are discussed in further detail at the “Debt” note of the Notes to Consolidated Financial Statements.

(4)The Company’s derivative instruments are discussed in further detail at the “Debt” note of the Notes to Consolidated Financial Statements.

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The fair value of the Company’s fixed-rate debt facilities is based on quoted market prices in an active market (Level 1) and is summarized as follows (in thousands):

Fair Value of Financial Instruments
	December 31, 2010				December 31, 2009
Financial Instrument:	Book Value		Market Value		Book Value		Market Value
6.125% senior subordinated notes, due 2013, gross	$	250,000	$	251,300	$	250,000	$	248,000
6.75% senior subordinated notes, due 2013		-		-		225,000		219,500
6.875% senior subordinated notes, due 2015		525,000		535,500		525,000		528,500
7.75% senior subordinated notes, due 2020, gross		400,000		415,000		-		-
3.75% convertible senior subordinated notes, due 2025
Carrying value		353,505		-		-		-
Unamortized debt discount		221,495		-		-		-
Principal amount		575,000		636,400		-		-
4.00% junior subordinated convertible debentures, due 2033
Carrying value		201,282		-		199,071		-
Unamortized debt discount		143,718		-		145,929		-
Principal amount		345,000		266,900		345,000		254,400
3.25% convertible senior debentures, due 2035
Carrying value		370,837		-		773,120		-
Unamortized debt discount		81,663		-		204,380		-
Principal amount		452,500		427,600		977,500		801,600

Note 9 – Leasing Arrangements

The Company has operating leases that cover various operating and administrative facilities and certain operating equipment.  In most cases, the Company expects that these leases will be renewed, or replaced by other operating leases, in the normal course of business.  There are no significant contingent rentals in the Company’s operating leases.  Omnicare, Inc. routinely guarantees many of the lease obligations of its subsidiaries in the normal course of business.

The following is a schedule of future minimum rental payments required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of December 31, 2010 (in thousands):

Year ended
December 31,
2011	$	29,975
2012		26,921
2013		23,430
2014		19,991
2015		12,683
Later years		16,454
Total minimum
payments required	$	129,454

The Company has approximately $1 million in aggregate minimum rentals scheduled to be received in the future under non-cancelable subleases as of December 31, 2010, which would serve to partially reduce the total minimum payments required as presented in the table above.

Total rent expense under operating leases for the years ended December 31, 2010, 2009 and 2008 were $56.7 million, $61.4 million and $69.8 million, respectively.

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Note 10 – Debt

A summary of debt follows (in thousands):

	December 31,
	2010			2009
Revolving loans, due 2015	$	-		$	-
Senior term A loan, due 2010		-			125,000
6.125% senior subordinated notes, due 2013		250,000			250,000
6.75% senior subordinated notes, due 2013		-			225,000
6.875% senior subordinated notes, due 2015		525,000			525,000
7.75% senior subordinated notes, due 2020		400,000			-
3.75% convertible senior subordinated notes, due 2025		575,000			-
4.00% junior subordinated convertible debentures, due 2033		345,000			345,000
3.25% convertible senior debentures, due 2035		452,500			977,500
Capitalized lease and other debt obligations		13,961			6,524
Subtotal		2,561,461			2,454,024
Add (subtract) interest rate swap agreements		(4,290	)		3,595
(Subtract) unamortized debt discount		(446,876	)		(350,309	)
(Subtract) current portion of debt		(3,537	)		(127,071	)
Total long-term debt, net	$	2,106,758		$	1,980,239

The following is a schedule of required debt payments due during each of the next five years and thereafter, as of December 31, 2010 (in thousands):

Year ended
December 31,
2011	$	3,537
2012		3,210
2013		253,210
2014		2,974
2015		526,017
Later years		1,772,513
Total debt payments	$	2,561,461

Total cash interest payments made for the years ended December 31, 2010, 2009 and 2008 were $110.3 million, $115.6 million and $135.1 million, excluding early redemption and tender premium payments.  As of December 31, 2010, the Company had approximately $20 million outstanding relating to standby letters of credit, substantially all of which are subject to automatic annual renewals.

Revolving Loans

On May 18, 2010, the Company entered into a $400 million senior secured revolving credit facility, maturing on May 18, 2015 (the “Revolving Credit Facility”).  The Revolving Credit Facility includes letter of credit and swingline sublimits and is available up to the lesser of $400 million or a borrowing base of 50% of the Company’s accounts receivable, subject to certain eligibility criteria.  There were approximately $20 million of letters of credit outstanding as of December 31, 2010 which have been deemed to be letters of credit issued under the Revolving Credit Facility.  The interest rate applicable to the Revolving Credit Facility will be, at the Company’s option, a floating base rate, plus an applicable margin, or the London interbank offered rate (or LIBOR), plus an applicable margin.  As of December 31, 2010, the applicable margins were set at 2.00% with respect to floating base rate loans and 3.00% with respect to LIBOR loans.  The applicable margins for the Revolving Credit Facility may increase or decrease based on the Company’s consolidated total leverage ratio as specified in the Revolving Credit Facility.  The Revolving Credit Facility is guaranteed by the Company’s subsidiaries, subject to certain exceptions, and secured by substantially all of the Company’s and the guarantors’ accounts receivable.  The Revolving Credit Facility contains certain financial covenants requiring maintenance of certain fixed charge coverage and leverage ratios, and customary affirmative and negative covenants.  In connection with entering into the Revolving Credit Facility, the Company deferred $8.9 million in debt issuance costs, of which approximately $1.1 million was amortized to expense in the year ended December 31, 2010.

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On May 18, 2010, in connection with entering into the new Revolving Credit Facility, the Company’s existing credit agreement, dated as of July 28, 2005, (the “2005 Credit Facility”), was terminated.  All amounts outstanding under the senior term A loan component of the 2005 Credit Facility were paid off on May 18, 2010, and the $800 million revolving credit facility component of the 2005 Credit Facility was terminated.  In connection with the termination of the 2005 Credit Facility, the Company wrote off the remaining debt issuance costs to interest expense, which amount was not significant.  The Company amortized to expense approximately $1 million and $3 million of these deferred debt issuance costs during the years ended December 31, 2009 and 2008, respectively.

6.125% Senior Subordinated Notes

The Company completed, during the second quarter of 2003, its offering of $250 million of 6.125% senior subordinated notes due 2013 (the “6.125% Notes”).  In connection with the issuance of the 6.125% Notes, the Company deferred $6.6 million in debt issuance costs, of which approximately $0.7 million was amortized to expense in each of the three years ended December 31, 2010.  The 6.125% Notes contain certain affirmative and negative covenants and events of default customary for such instruments.

In connection with its offering of the 6.125% Notes, the Company entered into an interest rate swap agreement with respect to all $250 million of the aggregate principal amount of the 6.125% Notes (the “6.125% Swap Agreement”).  In the second quarter of 2010, the counterparties to the interest rate swap agreement on the 6.125% Senior Notes terminated the swap agreement, effective June 1, 2010.  In connection with terminating the 6.125% Swap Agreement, the counterparties paid the Company approximately $2.6 million, which is being amortized as a reduction to interest expense over the remaining term of the 6.125% Notes.  As such, the Company began paying interest at the 6.125% stated rate effective June 1, 2010.  Under the 6.125% Swap Agreement, which hedged against exposure to long-term U.S. dollar interest rates, the Company received a fixed rate of 6.125% and paid a floating rate based on LIBOR with an interest period of six months, plus a spread of 2.27%.  The floating rate was determined semi-annually, in arrears, two London Banking Days prior to the first of each December and June.

On January 10, 2011, Omnicare redeemed $75 million aggregate principal amount of its outstanding 6.125% Notes.

6.75% Senior Subordinated Notes

On December 15, 2005, Omnicare completed its offering of $225 million aggregate principal amount of 6.75% senior subordinated notes due 2013 (the “6.75% Notes”).  In connection with the issuance of the 6.75% Notes, the Company deferred $4.6 million in debt issuance costs, of which approximately $0.3 million was amortized to expense in the year ended December 31, 2010 and $0.6 million was amortized to expense in each of the years ended December 31, 2009 and 2008, respectively.  The 6.75% Notes contained certain affirmative and negative covenants and events of default customary for such instruments.

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

In connection with the purchase of the 6.75% Notes, the Company incurred early redemption fees of $7.6 million and the write-off of debt issuance costs of $2.1 million, both of which were recorded in interest expense in the second quarter of the year ended December 31, 2010.  Additionally, the Company incurred approximately $0.4 million of professional fees associated with the purchase of the 6.75% Notes, which were recorded in selling, general and administrative expenses for the year ended December 31, 2010.

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7.75% Senior Subordinated Notes

On May 18, 2010, Omnicare, Inc. completed its offering of $400 million aggregate principal amount of 7.75% Senior Subordinated Notes due 2020, (the “7.75% Notes”).  In connection with the issuance of the 7.75% Notes, the Company deferred $9.6 million in debt issuance costs, of which approximately $0.6 million was amortized to expense in the year ended December 31, 2010.  The 7.75% Notes contain certain restrictive covenants and events of default customary for such instruments.  The 7.75% Notes are guaranteed by the Company’s subsidiaries, subject to certain exceptions.

In connection with its offering of the 7.75% Notes, the Company entered into the 7.75% Swap Agreement.  Under the 7.75% Swap Agreement, which hedges against exposure to long-term U.S. dollar interest rates, the Company receives a fixed rate of 7.75% and pays a floating rate based on LIBOR with an interest period of six months, plus a spread of 3.87%.  The floating rate is determined semi-annually, in arrears, two London Banking Days prior to the first of each December and June.  The Company records interest expense on the 7.75% Notes at the floating rate.  The estimated LIBOR-based floating rate (including the 3.87% spread) was 4.32% as of December 31, 2010.  The 7.75% Swap Agreement, which matches the terms of the 7.75% Notes, is designated and accounted for as a fair value hedge.  Accordingly, changes in the fair value of the 7.75% Swap Agreement are offset by changes in the recorded carrying value of the related 7.75% Notes.  The fair value of the 7.75% Swap Agreement, approximately $(0.8) million at December 31, 2010, is recorded in “Other noncurrent assets” or “Other noncurrent liabilities” on the Consolidated Balance Sheets, as applicable, and as an adjustment to the book carrying value of the related 7.75% Notes.

6.875% Senior Subordinated Notes

On December 15, 2005, Omnicare completed its offering of $525 million aggregate principal amount of 6.875% Senior Subordinated Notes (the “6.875% Notes”).  In connection with the issuance of the 6.875% Notes, the Company deferred $10.7 million in debt issuance costs, of which approximately $1 million was amortized to expense in each of the years ended December 31, 2010, 2009 and 2008, respectively.  The 6.875% Notes contain certain affirmative and negative covenants and events of default customary for such instruments.

In December 2010, the Company entered into a Swap Agreement on all $525 million of aggregate principal amount of the 6.875% Notes (“the 6.875% Swap Agreement”).  Under the 6.875% Swap Agreement, which hedges against exposure to long-term U.S. dollar interest rates, the Company receives a fixed rate of 6.875% and pays a floating rate based on LIBOR with an interest period of six months, plus a spread of 4.128%.  The 6.875% Swap Agreement is designated and accounted for as a fair value hedge.  Accordingly, changes in the fair value of the 6.875% Swap Agreement are offset by changes in the recorded carrying value of the related 6.875% Notes.  The fair value of the 6.875% Swap Agreement, approximately $(3.5) million at December 31, 2010, is recorded in “Other noncurrent assets” or “Other noncurrent liabilities” on the Consolidated Balance Sheets, as applicable, and as an adjustment to the book carrying value of the related 6.875% Notes.

4.00% Junior Subordinated Convertible Debentures:

During the first quarter of 2005, the Company completed its offer to exchange up to $345 million aggregate liquidation amount of 4.00% Trust Preferred Income Equity Redeemable Securities due 2033 of Omnicare Capital Trust I (the “Old Trust”), for an equal amount of Series B 4.00% Trust Preferred Income Equity Redeemable Securities  of Omnicare Capital Trust II (the “New Trust”).  The New Trust PIERS have substantially similar terms to the Old Trust PIERS, except that the New Trust PIERS have a net share settlement feature.  In connection with the exchange offer, the composition of the Company’s 4.00% junior subordinated convertible debentures underlying the trust PIERS was impacted.  Additional information regarding the 4.00% junior subordinated convertible debentures underlying the Old Trust PIERS and the New Trust PIERS is summarized below.

Original 4.00% Junior Subordinated Convertible Debentures

In connection with the offering of the Old Trust PIERS in the second quarter of 2003, the Company issued a corresponding amount of 4.00% junior subordinated convertible debentures (the “Old 4.00% Debentures”) due 2033 to the Old Trust.  The Old Trust is a 100%-owned finance subsidiary of the Company.  The Company has fully and unconditionally guaranteed the securities of the Old Trust.  The Old Trust PIERS offer fixed cash distributions at a rate of 4.00% per annum payable quarterly, and a fixed conversion price of $40.82 under a contingent conversion feature whereby the holders may convert their Old Trust PIERS if the closing sales price of Company common stock for a predetermined period, beginning with the quarter ending September 30, 2003, is more than 130% of the then-applicable conversion price or, during a predetermined period, if the daily average of the trading prices for the Old Trust PIERS is less than 105% of the average of the conversion values for the Old Trust PIERS through 2028 (98% for any period thereafter through maturity).  The Old Trust PIERS also will pay contingent distributions, commencing with the quarterly distribution period beginning June 15, 2009, if the average trading prices of the Old Trust PIERS for a predetermined period equals 115% or more of the stated liquidation amount of the Old Trust PIERS.  In this circumstance, the holder of the convertible debenture will receive 0.125 percent of the average trading price during the predetermined period.  Embedded in the Old Trust PIERS are two derivative instruments, specifically, a contingent interest provision and a contingent conversion parity provision.  The embedded derivatives are periodically valued, and at period end, the values of both derivatives embedded in the Old Trust PIERS were not material.  However, the values are subject to change, based on market conditions, which could affect the Company’s future results of operations, financial position or cash flows.  Omnicare irrevocably and unconditionally guarantees, on a subordinated basis, certain payments to be made by the Old Trust in connection with the Old Trust PIERS.  Subsequent to the first quarter 2005 exchange offer discussed in further detail at the Series B 4.00% Junior Subordinated Convertible Debentures caption below, the Company has $11,233,050 aggregate liquidation amount of the Old Trust PIERS and underlying Old 4.00% Debentures remaining outstanding at period end.

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Series B 4.00% Junior Subordinated Convertible Debentures

On March 8, 2005, the Company completed the exchange of $333,766,950 aggregate liquidation amount of the Old Trust PIERS (representing 96.7% of the total liquidation amount of the Old Trust PIERS outstanding) for an equal amount of the New Trust PIERS, plus an exchange fee of $0.125 per $50 stated liquidation amount of Old Trust PIERS.  Each New Trust PIERS represents an undivided beneficial interest in the assets of the New Trust, which assets consist solely of a corresponding amount of Series B 4.00% junior subordinated convertible debentures (the “4.00% Convertible Debentures”) issued by the Company with a stated maturity of June 15, 2033.  The Company has fully and unconditionally guaranteed the securities of the New Trust.  Subsequent to the completion of the exchange offering and at period end, the Company has $333,766,950 of 4.00% Convertible Debentures outstanding.

The terms of the New Trust PIERS are substantially identical to the terms of the Old Trust PIERS, except that the New Trust PIERS are convertible into cash and, if applicable, shares of Company common stock, whereas the outstanding Old Trust PIERS are convertible only into Company common stock (except for cash in lieu of fractional shares).

The purpose of the exchange offer was to change the conversion settlement provisions of the Old Trust PIERS.  By committing to pay up to the stated liquidation amount of the New Trust PIERS to be converted in cash upon conversion, the Company is able to account for the New Trust PIERS under the treasury stock method.

As of December 31, 2010 and 2009, the aforementioned contingent threshold had not been met and, accordingly, the Old 4.00% Debentures and the 4.00% Convertible Debentures have been classified as long-term debt on the December 31, 2010 and 2009 Consolidated Balance Sheets.

In connection with the issuance of the Old 4.00% Debentures and the 4.00% Convertible Debentures, the Company has deferred $6.1 million in debt issuance costs, of which approximately $0.2 million was amortized to expense in each of the years ended December 31, 2010, 2009 and 2008.

3.25% Convertible Senior Debentures

On December 15, 2005, Omnicare completed its offering of $977.5 million aggregate principal amount of 3.25% convertible senior debentures due 2035 (with optional redemption by Omnicare on or after, and optional repurchase right of holders on, December 15, 2015, at par) (the “3.25% Convertible Debentures”).  The 3.25% Convertible Debentures have an initial conversion price of approximately $79.73 per share under a contingent conversion feature whereby the holders may convert their 3.25% Convertible Debentures, prior to December 15, 2033, on any date during any fiscal quarter beginning after March 31, 2006 (and only during such fiscal quarter) if the closing sales price of the Company’s common stock was more than 130% of the then current conversion price for at least 20 trading days in the period of the 30 consecutive trading days ending on the last trading day of the previous fiscal quarter or during any five consecutive trading days period if, during each of the previous five consecutive trading days, the trading price of the convertible debentures for each day was less than 98 percent of the then current conversion price.  The 3.25% Convertible Debentures bear interest at a rate of 3.25% per year, subject to an upward adjustment on and after December 15, 2015 in certain circumstances, up to a rate not to exceed 1.99 times the original 3.25 percent interest rate per year.  The 3.25% Convertible Debentures also will pay contingent interest in cash, beginning with the six-month interest period commencing December 15, 2015, during any six-month period in which the trading price of the 3.25% Convertible Debentures for each of the five trading days ending on the second trading day immediately preceding the first day of the applicable six-month interest period equals or exceeds 120% of the principal amount of the 3.25% Convertible Debentures.  Embedded in the 3.25% Convertible Debentures are three derivative instruments, specifically, a contingent interest provision, an interest reset provision and a contingent conversion parity provision.  The embedded derivatives are valued periodically, and at period end, the values of the derivatives embedded in the 3.25% Convertible Debentures were not material.  However, the values are subject to change, based on market conditions, which could affect the Company’s future results of operations, financial position or cash flows.  In connection with the issuance of the 3.25% Convertible Debentures, the Company has deferred approximately $17.6 million in debt issuance costs, of which approximately $2 million was amortized to expense for the years ended December 31, 2010, 2009 and 2008.

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On November 17, 2010, Omnicare commenced a tender offer (the “3.25% Tender Offer”) for cash to purchase up to $525 million of its outstanding 3.25% Convertible Debentures.  On December 16, 2010, Omnicare purchased $525 million aggregate principal amount of its outstanding 3.25% Convertible Debentures pursuant to the 3.25% Tender Offer.  Total consideration required to complete the purchase, including accrued and unpaid interest, was approximately $498.8 million.  After giving effect to the purchase of the tendered debentures, $452.5 million aggregate principal amount of the 3.25% Convertible Debentures remain outstanding.  In connection with the purchase of the 3.25% Convertible Debentures, the Company incurred the write-off of debt issuance costs of $4.6 million, which were recorded in interest expense for the three months and year ended December 31, 2010.

Further, in connection with the extinguishment of $525 million of 3.25% Convertible Debentures, the Company was required to recognize an accounting loss of $25.6 million due to its application of the authoritative guidance for extinguishment of convertible debt.  The Company also incurred $1.3 million of professional fees associated with the purchase of the 3.25% Convertible Debentures.  The aforementioned loss on extinguishment and related professional fees were recorded in “Other Miscellaneous Charges” caption of its Consolidated Statements of Income, during the three months and year ended December 31, 2010.

3.75% Convertible Senior Subordinated Notes

On December 7, 2010, Omnicare completed its offering of $575 million aggregate principal amount of 3.75% convertible senior subordinated notes due 2025 (the “3.75% Convertible Notes”).  The 3.75% Convertible Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2011. The initial conversion rate is 36.4409 shares of common stock per $1,000 principal amount of 3.75% Convertible Notes (equivalent to an initial conversion price of approximately $27.44 per share), subject to adjustment in certain circumstances. Upon conversion, the Company will pay cash and shares of its common stock, if any, based on a daily conversion value calculated on a proportionate basis for each day of the 25 trading-day cash settlement averaging period. The conversion price is a 23.5% premium to the $22.22 closing price of the Company's common stock on December 1, 2010.  The 3.75% Convertible Notes are guaranteed by the Company’s subsidiaries, subject to certain excluded subsidiaries.  Embedded in the 3.75% Convertible Notes are two derivative instruments, specifically, a contingent interest provision and a contingent conversion parity provision.  The embedded derivatives are valued periodically, and at period end, the values of the derivatives embedded in the 3.75% Convertible Notes were not material.  However, the values are subject to change, based on market conditions, which could affect the Company’s future results of operations, financial position or cash flows.  In connection with the issuance of the 3.75% Convertible Notes, the Company has deferred approximately $9.4 million in debt issuance costs, of which approximately $0.1 million was amortized to expense for the year ended December 31, 2010.

Favorably impacting operating cash flow was the excess of tax deductible interest expense over book interest expense related to the Company’s 4.00% Convertible Debentures, 3.25% Convertible Debentures and 3.75% Convertible Notes.  This resulted in an increase in the Company’s deferred tax liabilities during the year ended December 31, 2010, 2009 and 2008 of $30.3 million, $28.5 million and $26.3 million, respectively ($147.6 million cumulative as of December 31, 2010).  The recorded deferred tax liability could, under certain circumstances, be realized in the future upon conversion or redemption which would serve to reduce operating cash flows.

26

The Company has three convertible debentures, the 4.00% Convertible Debentures, 3.25% Convertible Debentures and 3.75% Convertible Notes.  Issuers of convertible debt instruments which 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 equity balances are as follows (in thousands):

	December 31,
	2010			2009
Carrying value of equity component	$	619,223		$	441,318
Principal amount of convertible debt	$	1,372,500		$	1,322,500
Unamortized debt discount		(446,876	)		(350,309	)
Net carrying value of convertible debt	$	925,624		$	972,191

As of December 31, 2010, the remaining amortization period for the debt discount was approximately 22.5, 5 and 15 years for the 4.00% Convertible Debentures, 3.25% Convertible Debentures and 3.75% Convertible Notes, respectively.

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

Note 11 – Stock-Based Compensation

Stock-Based Compensation Plans

During 2004, stockholders of the Company approved the 2004 Stock and Incentive Plan (the “2004 Plan”), under which the Company is authorized to grant equity-based and other incentive compensation to employees, officers, directors, consultants and advisors of the Company in an amount aggregating up to 10.0 million shares of Company common stock.  Beginning May 18, 2004, stock-based incentive awards are made only from the 2004 Stock and Incentive Plan.

Prior to the 2004 Plan, the Company had the 1998 Long-Term Employee Incentive Plan and the 1992 Long-Term Stock Incentive Plan, all of which no longer issue stock-based incentives, but which had outstanding awards at December 31, 2010.

Under these plans, stock options vest and become exercisable at varying points in time, ranging up to four years in length, and have terms that generally span ten years from the grant date.  Stock option awards are granted with an exercise price at least equal to the fair market value of Company stock upon grant.  Omnicare’s normal practice is to issue new shares upon stock option exercise.  Certain stock option and share awards provide for accelerated vesting if there is a change in control, as defined in the plans.

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Employee Stock Purchase Plan

In November 1999, the Company’s Board of Directors adopted the Omnicare StockPlus Program, a non-compensatory employee stock purchase plan (the “ESPP”).  Under the ESPP, employees and non-employee directors of the Company who elect to participate may contribute up to 6% of eligible compensation (or an amount not to exceed $20,000 for non-employee directors) to purchase shares of the Company’s common stock.  For each share of stock purchased, the participant also receives two options to purchase additional shares of the Company’s stock.  The stock options are subject to a four-year vesting period and are generally subject to forfeiture in the event the related shares purchased are not held by the participant for a minimum of two years.  The stock options have a ten-year life from the date of issuance.  Amounts contributed to the ESPP are used by the plan administrator to purchase the Company’s stock on the open market or for shares issued by Omnicare.

Stock Awards

Non-vested stock awards are granted at the discretion of the Compensation, Nominating and Governance Committee of the Board of Directors.  These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods, typically three to ten-year periods (vesting on a straight-line basis), or a seven-year period (with a greater proportion vesting in the latter years).  Unrestricted stock awards are granted annually to all members of the Board of Directors, and non-employee directors also receive non-vested stock awards that generally vest on the third anniversary of the date of grant.  The fair value of a stock award is equal to the fair market value of a share of Company stock on the grant date.

Stock-Based Compensation

The Company uses the Black-Scholes options pricing model to determine the fair value of stock options on the grant date, which is affected by Omnicare’s stock price as well as assumptions regarding a number of complex and subjective variables.  These variables include Omnicare’s expected stock price volatility over the expected term of the awards, actual and projected employee exercise behaviors, the risk-free interest rate and the stock’s dividend yield.

The expected term of stock options granted represents the period of time that the stock options are expected to be outstanding and is estimated based primarily on historical stock option exercise experience.  The expected volatility is based primarily on the historical volatility of the Company’s stock over a period generally commensurate with the expected term of the stock options.  The risk-free interest rate used in the option valuation model is based on United States Treasury Strip (“stripped coupon interest”) issues with remaining terms similar to the expected term of the stock options.  The expected dividend yield is based on the current Omnicare stock yield.  The Company is required to estimate forfeitures at the time of the grant and revise those estimates in subsequent periods as necessary to reflect any changes in actual forfeiture experience.  Omnicare uses historical data to estimate pre-vesting stock option forfeitures and records stock-based compensation expense only for those awards that are expected to vest.  All stock option awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting period.

The assumptions used to value stock options granted during the years ended December 31, 2010, 2009 and 2008 are as follows:

	2010			2009			2008
Expected volatility		35	%		35	%		35	%
Risk-free interest rate		1.0	%		2.2	%		2.2	%
Expected dividend yield		0.5	%		0.4	%		0.4	%
Expected term of options (in years)		4.9			4.8			4.7
Weighted average fair value per option	$	7.54		$	8.16		$	7.56

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Total pretax stock-based compensation expense recognized in the Consolidated Statements of Income as part of S,G&A expense for stock options and stock awards for the year ended December 31, 2010 is approximately $5.4 million and $32.4 million (including the stock option and restricted stock award separation costs disclosed at the “Separation, Benefit Plan Termination and Related Costs” note of the Notes to Consolidated Financial Statements), approximately $5.3 million and $19.3 million for the year ended December 31, 2009, and approximately $5.0 million and $22.5 million for the year ended December 31, 2008, respectively.

As of December 31, 2010, there was approximately $59 million of total unrecognized compensation cost related to nonvested stock awards and stock options granted to Omnicare employees, which is expected to be recognized over a remaining weighted-average period of approximately 5 years.  The total grant date fair value of shares vested during the year ended December 31, 2010 related to stock options and stock awards was approximately $3.7 million  and $41.1  million (including the aforementioned separation costs), respectively.

General Stock Option Information

A summary of stock option activity under the plans for the year ended December 31, 2010, is presented below (in thousands, except exercise price data):

	2010
	Shares			Weighted Average Exercise Price
Options outstanding, beginning of year		6,323		$	32.50
Options granted		122			25.87
Options exercised		(386	)		17.18
Options forfeited		(642	)		33.93
Options outstanding, end of year		5,417			33.28
Options exercisable, end of year		4,872		$	34.11

The total exercise date intrinsic value of options exercised during the years ended December 31, 2010, 2009 and 2008 was approximately $3.6 million, $10.4 million and $3.6 million, respectively.

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The following summarizes information about stock options outstanding and exercisable as of December 31, 2010 (in thousands, except exercise price and remaining life data):

OPTIONS OUTSTANDING							OPTIONS EXERCISABLE
Range of Exercise Prices	Number Outstanding at December 31, 2010		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable at December 31, 2010		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$15.46 - $23.17		706		1.71	$	20.21		618		0.84	$	19.98
23.18 - 30.90		2,589		3.13		26.40		2,187		2.19		26.59
30.91 - 38.61		95		4.72		35.15		57		3.55		35.86
38.62 - 61.79		2,027		2.93		46.52		2,010		2.91		46.57
$15.46 - $61.79		5,417		2.90	$	33.28		4,872		2.33	$	34.11

General Restricted Stock Award Information

A summary of nonvested restricted stock awards for the year ended December 31, 2010, is presented below (in thousands, except fair value data):

	2010
	Shares			Weighted Average Grant Date Price
Nonvested shares, beginning of year		2,595		$	29.52
Shares awarded		1,421			24.57
Shares vested		(1,337	)		30.78
Shares forfeited		(294	)		27.84
Nonvested shares, end of year		2,385		$	26.07

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Note 12 - Separation, Benefit Plan Termination and Related Costs

Separation Costs:

On August 2, 2010, the Company announced that Joel F. Gemunder ("JFG") retired from his positions as the Company's President and Chief Executive Officer and as a member of the Board of Directors of the Company, effective July 31, 2010.  The JFG Separation Agreement provides that, in accordance with Mr. Gemunder's employment agreement, Mr. Gemunder receives an aggregate cash severance of approximately $16.2 million (excluding the Company’s share of employment taxes), payable in installments through July 1, 2011.  In addition, Mr. Gemunder earns interest on unpaid severance through February 1, 2011 at a rate of 8.75% per annum, per the agreement.  Mr. Gemunder was also paid for unused and accrued vacation time.

Additionally, pursuant to Mr. Gemunder's stock option and restricted stock agreements, on the retirement date, the unvested portion of 2,670,019 stock options and the 705,176 shares of restricted common stock held by Mr. Gemunder became fully vested.  As a result, the Company recorded a non-cash charge of approximately $14.1 million (excluding the Company’s share of employment taxes) in the third quarter of 2010.

On August 2, 2010, the Company also announced that Cheryl D. Hodges ("CDH"), Senior Vice President and Secretary of the Company, resigned from the Company effective July 31, 2010.  The CDH Separation Agreement provides that, in accordance with Ms. Hodges' employment agreement, Ms. Hodges receives an aggregate cash severance of approximately $2.1 million (excluding the Company’s share of employment taxes), payable in installments through July 1, 2011.  In addition, Ms. Hodges earns interest on unpaid severance through February 1, 2011 at a rate of 8.75% per annum, per the agreement.  Ms. Hodges was also paid for unused and accrued vacation time.

Further, pursuant to Ms. Hodges' stock option and restricted stock agreements, on the resignation date, the unvested portion of 446,859 stock options and the 111,573 shares of restricted common stock held by Ms. Hodges became fully vested.  As a result, the Company recorded a non-cash charge of approximately $3.1 million (excluding the Company’s share of employment taxes) in the third quarter of 2010.

A summary of the aforementioned separation costs (including employer payroll taxes) follows (in thousands):

	Year ended
	December 31, 2010
Severance	$	18,351
Restricted stock awards		15,934
Stock options		1,234
Interest expense		3,218
Accrued vacation		226
Company's share of employment taxes		610
Total separation costs	$	39,573

Benefit Plan Termination and Related Costs:

See additional information at the “Employee Benefit Plans” note of the Notes to Consolidated Financial Statements.

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Note 13 – Employee Benefit Plans

The Company has various defined contribution savings plans under which eligible employees can participate by contributing a portion of their salary for investment, at the direction of each employee, in one or more investment funds.  Several of the plans were adopted in connection with certain of the Company’s acquisitions.  The plans are primarily tax-deferred arrangements pursuant to Internal Revenue Code (“IRC”) Section 401(k) and are subject to the provisions of the Employee Retirement Income Security Act (“ERISA”).  The Company matches employee contributions in varying degrees (either in shares of the Company’s common stock or cash, in accordance with the applicable plan provisions) based on the contribution levels of the employees, as specified in the respective plan documents.  Expense relating primarily to the Company’s matching contributions for these defined contribution plans for the years ended December 31, 2010, 2009 and 2008 was $5.6 million, $6.6 million and $6.4 million, respectively.

The Company has a non-contributory, defined benefit pension plan covering certain corporate headquarters employees and the employees of several companies sold by the Company in 1992, for which benefits ceased accruing upon the sale (the “Qualified Plan”).  Benefits accruing under this plan to corporate headquarters employees were fully vested and frozen as of January 1, 1994.

The Company also had an excess benefit plan (“EBP”) that provides retirement payments to certain headquarters employees in amounts generally consistent with what they would have received under the Qualified Plan.  The retirement benefits provided by the EBP are generally comparable to those that would have been earned in the Qualified Plan, if payments under the Qualified Plan were not limited by the IRC.  On September 30, 2010, the Company terminated the defined benefit portion of its Excess Benefit Plan.  See additional information at the “Plan curtailment” and “Benefit plan termination and related costs” section of this Note.

The Qualified Plan is funded with an irrevocable trust, which consists of assets held in the Vanguard Intermediate Term Treasury Fund Admiral Shares fund (“Vanguard Fund”), a mutual fund holding U.S. Treasury obligations.  In addition, the Company has established rabbi trusts, which are also held in the Vanguard Fund, to provide for retirement obligations under the EBP.  The Company’s general approach is to fund its pension obligations in accordance with the funding provisions of ERISA.

Components of Net Periodic Pension Cost and Other Amounts
Recognized in Other Comprehensive Income (Pre-tax)
(in thousands):	For the years ended December 31,
Net Periodic Pension Cost (Pre-tax):		2010			2009			2008
Service cost	$	2,226		$	1,499		$	5,121
Interest cost		3,323			5,997			9,542
Amortization of deferred amounts (primarily prior actuarial losses)		4,891			1,000			14,694
Return on assets		(224	)		(242	)		(483	)
Net periodic pension cost		10,216			8,254			28,874
Benefit plan termination and related costs (see below)		25,187			-			-
Net periodic pension costs and benefit plan termination and related costs		35,403			8,254			28,874
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Pre-tax):
Net loss (gain), net of curtailment		(49,463	)		40,342			(71,435	)
Amortization of net (loss)		(4,891	)		(1,000	)		(14,680	)
Amortization of prior service cost		-			-			(14	)
Total loss (gain) recognized in other comprehensive income		(54,354	)		39,342			(86,129	)
Total loss (gain) recognized in net periodic pension cost and other comprehensive income	$	(18,951	)	$	47,596		$	(57,255	)

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Plan curtailment

As a result of plan curtailments, the projected benefit obligation of the Excess Benefit Plan was remeasured as of July 31, 2010 and September 30, 2010, resulting in a pretax increase to other comprehensive income of approximately $23.3 million during the 2010 year.

Benefit plan termination and related costs

On September 30, 2010, the Company terminated the defined benefit portion of its Excess Benefit Plan (“the Plan”) which was not a qualified plan under the Internal Revenue Code of 1986, as amended.  As a result of the termination, each active participant’s terminated plan liability was determined, based primarily on the participant’s compensation and duration of employment, as of September 30, 2010.  Partial payments were made to non-active participants through September 30, 2010, with remaining payments to be made at varying times spanning through September 2012.  As a result of the Plan termination, the Company recognized a one-time charge to expense of approximately $25 million in the third quarter of 2010 for benefit plan termination and related costs, primarily comprised of the recognition of previously deferred actuarial losses.

As of December 31, 2010, the Company had approximately $75 million in notes payable remaining to participants, recorded in “Other current liabilities” on the Consolidated Balance Sheets.  These notes payable were fully funded as of December 31, 2010 with rabbi trust assets, having a fair value of approximately $86 million, invested for the purpose of satisfying these obligations.

Approximately $58 million of payments were made during 2010 to three former executives (Joel F. Gemunder, Cheryl D. Hodges and Patrick E. Keefe) relating to the Plan (using funds obtained upon the liquidation of a portion of the rabbi trust assets).  Notes payable related to Mr. Gemunder and Ms. Hodges of approximately $66 million remain as of December 31, 2010 (included in the aforementioned $75 million), and were paid in full in February 2011.  In addition, under the terms of the related separation agreements, Mr. Gemunder and Ms. Hodges earned interest on their unpaid benefit plan amounts at a rate of 8.75% per annum until the final payments were made in February 2011.  In connection with the funding of the payments in 2010 to the former executives, the Company recorded a gain of approximately $3.6 million on rabbi trust assets liquidated to make the payments.

The estimated amount of net loss in accumulated other comprehensive income expected to be recognized as a component of net periodic pension cost during the 2011 year is approximately $0.1 million.

The actuarial assumptions used to calculate net periodic pension costs for years ended December 31 were as follows:

	2010	2009	2008
Discount rate	3.8%	5.6%	5.8%
Rate of increase in compensation levels	15.0%	10.0%	25.0%
Expected rate of return on assets	6.0%	6.0%	6.0%

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The actuarial assumptions used to calculate the benefit obligations at the end of plan year were as follows:

	2010	2009	2008
Discount rate	5.4%	3.8%	5.6%
Rate of increase in compensation levels	N/A	15.0%	10.0%
Expected rate of return on assets	6.0%	6.0%	6.0%

The discount rate assumption was determined giving consideration primarily to the Citigroup Pension Liability Index.  It should be noted that the actuarial calculation is highly dependent upon the stock price on the date(s) of stock award vesting and, accordingly, can fluctuate significantly with changes in Omnicare’s stock price.  The expected rate of return on assets was estimated based primarily on the historical rate of return on intermediate-term U.S. Government securities.

Obligations and Funded Status
(in thousands):
	For the years ended December 31,
Change in Plan Assets:	2010				2009
Fair value of plan assets at end of prior year	$	3,917		(1)	$	4,029
Actual return on plan assets		291				(68	)
Employer contributions		-				60
Benefits paid		(127	)			(104	)
Fair value of plan assets at end of year	$	4,081		(1)	$	3,917		(1)
Change in Projected Benefit Obligation:
Projected benefit obligation at end of prior year	$	157,120			$	109,696
Plan curtailment		(23,359	)			-
Establishment of notes payable		(86,389	)			-
Service cost		2,226				1,499
Interest cost		3,323				5,997
Actuarial loss/(gain)		(827	)			40,032
Benefits paid		(47,060	)			(104	)
Projected benefit obligation at end of year	$	5,034			$	157,120
Funded Status:
Projected benefit obligation in excess of plan assets	$	(953	)	(1)	$	(153,203	)	(1)
Accumulated benefit obligation at end of year	$	5,034			$	127,264

(1)   In addition to the irrevocable trust assets presented at fair value based on the quoted market prices of the investments held by the trustee in the table above, the Company has invested additional funds for settlement of the Company’s pension obligations in rabbi trusts, which totaled $133 million as of December 31, 2009.  Since rabbi trust assets do not serve to offset the Company’s pension obligation for accounting purposes per U.S. GAAP, the funded status above has been reflected as the difference between the projected benefit obligation for all plans and the irrevocable trust plan assets of the Qualified Plan.

The Company’s investment strategy generally targets investing in intermediate U.S. government and agency securities funds, seeking a moderate and sustainable level of current income by investing primarily in intermediate-term U.S. Treasury obligations with a low credit default risk.

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Amounts Recognized in the Consolidated Balance
Sheets Consist of (in thousands):
		December 31,
		2010		2009
Current liabilities		$	-	$	17,252
Noncurrent liabilities			953		135,951
Total		$	953	$	153,203
Amounts Recognized in Accumulated Other Comprehensive Income (Pretax) Consist of:
Net loss		$	950	$	55,530
Prior service cost			-		-
Total		$	950	$	55,530
Information for Pension Plans with an Accumulated Benefit Obligation in excess of Plan Assets (in thousands):
		December 31,
			2010		2009
Qualified Plan:
Projected benefit obligation		$	5,034	$	6,242
Accumulated benefit obligation			5,034		6,242
Fair value of plan assets (1)			4,081		3,917
EBP Plan:
Projected benefit obligation			-		150,878
Accumulated benefit obligation			-		121,022
Fair value of plan assets (1)			-		-
Grand Totals:
Projected benefit obligation			5,034		157,120
Accumulated benefit obligation			5,034		127,264
Fair value of plan assets (1)			4,081		3,917
(1)	See "Obligations and Funded Status" table of this note for further discussion.

No funding is anticipated to be necessary in 2011 relating to the Qualified Plan.

Projected benefit payments, which reflect expected future service, as appropriate, for each of the next five fiscal years and in the aggregate for the five fiscal years thereafter as of December 31, 2010 are estimated as follows (in thousands):

2011	$	149
2012		186
2013		192
2014		207
2015		230
Years 2016 - 2020		1,354

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Note 14 – Income Taxes

Provision

The provision for income taxes from continuing operations is comprised of the following (in thousands):

	For the years ended December 31,
	2010			2009		2008
Current provision	$	(3,908	)	$	6,198	$	32,268
Deferred provision		22,952			90,658		56,041
Total income tax provision from continuing operations	$	19,044		$	96,856	$	88,309

Tax benefits related to the exercise of stock options and stock awards have been credited (debited) to paid-in capital in amounts of $(1.2) million, $1.8 million and $(1.2) million for 2010, 2009 and 2008, respectively.

Effective Income Tax Rate

The difference between the Company’s reported income tax expense from continuing operations and the federal income tax expense from continuing operations computed at the statutory rate of 35% is explained in the following table (in thousands):

	For the years ended December 31,
	2010					2009					2008
Federal income tax at the statutory rate	$	11,728		35.0	%	$	116,043		35.0	%	$	76,863		35.0	%
State, local and foreign income taxes, net of federal income tax benefit		4,133		12.3			10,661		3.2			3,988		1.8
Reduction for tax positions settled, net of federal income tax benefit		(12,324	)	(36.8	)		(37,952	)	(11.4	)		(423	)	(0.2	)
Settlements and related reserves		13,746		41.0			5,307		1.6			7,500		3.4
Other, net (including tax accrual adjustments)		1,761		5.3			2,797		0.8			381		0.2
Total income tax provision from continuing operations	$	19,044		56.8	%	$	96,856		29.2	%	$	88,309		40.2	%

Income tax payments, net, amounted to$23.6 million, $60.9 million and$13.5 million in 2010, 2009 and 2008, respectively.

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Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2010			2009
Accounts receivable reserves	$	135,132		$	112,999
Net operating loss (“NOL”) carryforwards		80,824			83,375
Accrued liabilities		97,008			92,637
Pension obligations		29,274			60,035
Other		14,873			13,734
Gross deferred tax assets, before valuation allowances		357,111			362,780
Valuation allowances		(15,959	)		(20,255	)
Gross deferred tax assets, net of valuation allowances	$	341,152		$	342,525
Amortization of intangibles	$	532,133		$	485,461
Contingent convertible debentures interest		322,610			248,480
Fixed assets and depreciation methods		33,589			29,968
Subsidiary stock basis		12,240			12,259
Current and noncurrent assets		7,097			4,263
Other		20,222			23,334
Gross deferred tax liabilities	$	927,891		$	803,765

As of December 31, 2010, the Company has remaining deferred tax benefits related to its federal, state and foreign net operating losses totaling approximately $81 million ($38 million federal and $43 million state).  These NOLs will expire, in varying amounts, beginning in 2011 through 2030.  The potential future tax benefits of the NOLs have been offset by $16.0 million of valuation allowance based on the Company’s analysis of the likelihood of generating sufficient taxable income in the various jurisdictions to utilize the benefits before expiration.

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Uncertain Tax Positions

At January 1, 2010, the Company had gross unrecognized tax benefits of $27.7 million and ended the year with gross unrecognized tax benefits of $18.0 million.  A reconciliation of the beginning and ending of year amount of unrecognized tax benefit is as follows (in thousands):

	2010			2009			2008
Unrecognized tax benefits at beginning of year	$	27,700		$	66,902		$	77,586
Additions based on tax positions related to the current year		1,532			631			3,049
Additions for tax positions of prior years		3,100			1,062			5,123
Reductions for tax positions of prior years		(1,634	)		(2,405	)		(11,893	)
Settlement reductions		-			(2,042	)		(1,517	)
Reductions for tax positions settled through the expirations of the statute of limitations		(12,664	)		(36,448	)		(5,446	)
Unrecognized tax benefits at end of year	$	18,034		$	27,700		$	66,902

Included in the balance at December 31, 2010 are $13.9 million of unrecognized tax benefits, net of federal tax benefit that, if recognized, would affect the effective tax rate.  The liabilities for unrecognized tax benefits are carried in “Other noncurrent liabilities” on the Consolidated Balance Sheets because payment of cash is not anticipated within one year of the balance sheet date for any significant unrecognized amounts.  However, it is reasonably possible that $1.8 million, net of federal tax benefit, of unrecognized federal and state tax benefits will reverse within one year of the balance sheet date due to the expiration of statutes of limitations.  The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expenses.  During the year ended December 31, 2010, the Company recognized approximately $(1.8) million in interest, net of federal tax benefit, and penalties.  The Company had approximately $3.8 million for the payment of interest and penalties accrued at December 31, 2010.

The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions.  With few exceptions, the Company is no longer subject to U.S. federal examinations by tax authorities for years before 2007, and state and local, or non-U.S. income tax examinations, by tax authorities for years before 2006.

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Note 15 – Earnings Per Share Data

Basic earnings per share are computed based on the weighted-average number of shares of common stock outstanding during the period.  Diluted earnings per share include the dilutive effect of stock options, warrants and restricted stock awards, as well as convertible debentures.

The following is a reconciliation of the basic and diluted earnings per share (“EPS”) computations for both the numerator and denominator (in thousands, except per share data):

	For the years ended December 31,
	Income (loss)			Common Shares		Per Common
2010:	(Numerator)			(Denominator)		Share Amounts
Basic EPS
Income from continuing operations	$	14,464				$	0.12
Loss from discontinued operations		(120,573	)				(1.04	)
Net loss		(106,109	)		116,348	$	(0.91	)
Effect of Dilutive Securities (see below)
4.00% junior subordinated convertible debentures		289			275
Stock options, warrants and awards		-			304
Diluted EPS
Income from continuing operations plus assumed conversions		14,753				$	0.13
Loss from discontinued operations		(120,573	)				(1.03	)
Net loss plus assumed conversions	$	(105,820	)		116,927	$	(0.91	)
2009:
Basic EPS
Income from continuing operations	$	234,695				$	2.00
Loss from discontinued operations		(22,772	)				(0.19	)
Net income		211,923			117,094	$	1.81
Effect of Dilutive Securities
4.00% junior subordinated convertible debentures		284			275
Stock options, warrants and awards		-			408
Diluted EPS
Income from continuing operations plus assumed conversions		234,979				$	2.00
Loss from discontinued operations		(22,772	)				(0.19	)
Net income plus assumed conversions	$	212,207			117,777	$	1.80

2008:
Basic EPS
Income from continuing operations	$	131,301		$	1.12
Income from discontinued operations		9,172			0.08
Net income		140,473	117,466	$	1.20
Effect of Dilutive Securities
4.00% junior subordinated convertible debentures		279	275
Stock options, warrants and awards		-	572
Diluted EPS
Income from continuing operations plus assumed conversions		131,580		$	1.11
Income from discontinued operations		9,172			0.08
Net income plus assumed conversions	$	140,752	118,313	$	1.19

During the years ended December 31, 2010, 2009 and 2008, the anti-dilutive effect associated with certain stock options, warrants and stock 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 stock awards excluded from the computation of the diluted EPS for those years totaled approximately 4.6 million, 6.2 million and 6.5 million, respectively.

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Note 16 – Restructuring and Other Related Charges

Company-wide Reorganization Program:

During 2010, the Company initiated a “Company-wide Reorganization 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, and is largely related to severance and employee buyout costs, which will primarily be operating expense related.  In implementing these initiatives, the Company recorded restructuring charges of approximately $3 million in the year ended December 31, 2010.

Details of the Company-wide Reorganization Program restructuring related charges follow (pretax, in thousands):

	2010		Utilized			Balance at
	Provision/		during			December 31,
	Accrual		2010			2010
Restructuring charges:
Employee severance pay	$	446	$	(141	)	$	305
Employment agreement buy-outs		2,733		(933	)		1,800
Professional fees, facility exit costs and other		91		(91	)		-
Total restructuring charges	$	3,270	$	(1,165	)	$	2,105

Omnicare Full Potential Program:

In 2006, the Company commenced the implementation of the “Omnicare Full Potential” Plan, a major initiative primarily designed to re-engineer the Company’s pharmacy operating model to increase efficiency and enhance customer growth, which was substantially completed in 2010.  The Omnicare Full Potential Plan optimized resources across the entire organization through implementing best practices, including the realignment and right-sizing of functions, and a “hub-and-spoke” model, whereby certain key administrative and production functions were transferred to regional support centers (“hubs”) specifically designed and managed to perform these tasks, with local pharmacies (“spokes”) focusing on time-sensitive services and customer-facing processes.

The Company recorded restructuring and other related charges for the Omnicare Full Potential Program of approximately $14 million, $20 million and $34 million during the years ended December 31, 2010, 2009 and 2008, respectively, or cumulative aggregate restructuring and other related charges of approximately $110 million through 2010.  The Company eliminated approximately 2,700 positions in completing the Omnicare Full Potential program.

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

	Balance at		2008		Utilized			Balance at		2009
	December 31,		Provision/		during			December 31,		Provision/
	2007		Accrual		2008			2008		Accrual
Restructuring charges:
Employee severance	$	35	$	3,983	$	(4,018	)	$	-	$	5,759
Employment agreement buy-outs		1,199		337		(1,501	)		35		135
Lease terminations		2,471		8,509		(2,969	)		8,011		3,416
Other assets, fees and facility exit costs		1,855		15,810		(15,272	)		2,393		5,071
Total restructuring charges	$	5,560		28,639	$	(23,760	)	$	10,439		14,381
Other related charges				5,450							5,433
Total restructuring and other related charges			$	34,089						$	19,814

	Utilized			Balance at		2010		Utilized			Balance at
	during			December 31,		Provision/		during			December 31,
	2009			2009		Accrual		2010			2010
Restructuring charges:
Employee severance	$	(5,759	)	$	-	$	6,398	$	(5,688	)	$	710
Employment agreement buy-outs		(170	)		-		-		-			-
Lease terminations		(4,314	)		7,113		3,578		(4,119	)		6,572
Other assets, fees and facility exit costs		(7,005	)		459		2,453		(2,531	)		381
Total restructuring charges	$	(17,248	)	$	7,572		12,429	$	(12,338	)	$	7,663
Other related charges							1,466
Total restructuring and other related charges						$	13,895

As of December 31, 2010, the Company has made cumulative payments of approximately $24 million of severance and other employee-related costs for the Omnicare Full Potential Plan.  The remaining liabilities at December 31, 2010 represent amounts not yet paid relating to actions taken in connection with the program (primarily lease payments and employee severance).  The provision/accrual and corresponding payment amounts relating to employee severance were accounted for primarily in accordance with the authoritative guidance for employers’ accounting for postemployment benefits; and the provision/accrual and corresponding payment amounts relating to employment agreement buy-outs are being accounted for primarily in accordance with the authoritative guidance regarding accounting for costs associated with exit or disposal activities.

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Note 17 – Commitments and Contingencies

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

On December 13, 2010, a qui tam complaint entitled United States ex rel. Bartz v. Ortho-McNeil Pharmaceuticals, Inc., Johnson & Johnson, Inc., 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, Inc. 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, Inc. and its affiliates provided the Company and McKesson with rebates, free drugs and other remuneration in order to limit Johnson & Johnson, Inc.’s rebate liability to Medicaid.  The Company believes that the allegations are without merit and intends to vigorously defend itself in this action if pursued.

On September 15, 2010, Omnicare entered into settlement agreements, without any finding of wrongdoing or admission of liability, with the State of Michigan, the Commonwealth of Massachusetts and David M. Kammerer ("Relator"), relating to sealed qui tam litigation originally filed by Relator in Ohio federal court in August 2003.  The Company has paid $11.6 million pursuant to the Michigan settlement agreement and $9.45 million pursuant to the Massachusetts settlement agreement to resolve allegations of inappropriate billing, beginning in August 1997, under the states' usual and customary charge provisions.   The Company has paid Relator's expenses and attorneys' fees of $385,000.  The Company recorded provisions of $24.2 million for these payments, and a separate unrelated matter with another state which is still under review, in the quarter ended June 30, 2010.

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 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 quarter ended December 31, 2010.

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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 the members of the Board and certain current and former officers of the Company, individually, purporting to assert claims for breach of fiduciary duty, unjust enrichment, gross mismanagement, and waste of corporate assets arising out of alleged violations of federal and state laws prohibiting the payment of illegal kickbacks and the submission of false claims in connection with the Medicare and Medicaid healthcare programs. Plaintiff alleges that the Board and senior management caused the Company to violate these laws, which has resulted in over $100 million in fines and penalties paid by Omnicare and exposed the Company and certain individual defendants to potential civil and criminal liability.  The Company believes that the action is without merit and intends to continue to defend itself vigorously.

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.  The Company believes the allegations are without merit and intends to vigorously defend itself if pursued.

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.

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On June 11, 2010, a qui tam complaint, entitled United States ex rel. Stone v. Omnicare Inc., No. 1:09cv4319, that was filed under seal with the U.S. District Court in Chicago, Illinois was unsealed by the court.  The U.S. Department of Justice and the various states named in the complaint have notified the court that they have declined to intervene in this action.  The complaint was brought by John Stone, the Company’s former Vice President of Internal Audit, as a private party qui tam relator on behalf of the federal government and several state governments.  The action alleges civil violations of the False Claims Act and certain state statutes based on allegations that the Company submitted claims for reimbursement for certain ancillary 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.  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.

On November 2, 2009, following an investigation by the U.S. Attorney’s Office, District of Massachusetts, the Company entered into a civil settlement agreement, without any finding of wrongdoing or any admission of liability, under which the Company paid the federal government and participating state governments $98 million plus interest from June 24, 2009 and related expenses to settle various alleged civil violations of federal and state laws concerning the Company’s relationships with certain manufacturers and distributors of pharmaceutical products and certain customers, as well as with respect to contracts with certain companies acquired by the Company.  As part of the settlement agreement, the Company also entered into an amended and restated corporate integrity agreement (“CIA”) with the Department of Health and Human Services Office of the Inspector General with a term of five years from November 2, 2009.  Pursuant to the CIA, the Company is required, among other things, to (i) create procedures designed to ensure that each existing, new or renewed arrangement with any actual or potential source of health care business or referrals to Omnicare or any actual or potential recipient of health care business or referrals from Omnicare does not violate the Anti-Kickback Statute, 42 U.S.C. (§) 1320a-7b(b) or related regulations, directives and guidance, including creating and maintaining a database of such arrangements; (ii) retain an independent review organization to review the Company’s compliance with the terms of the CIA and report to OIG regarding that compliance; and (iii) provide training for certain Company employees as to the Company’s requirements under the CIA.  The requirements of the Company’s prior corporate integrity agreement obligating the Company to create and maintain procedures designed to ensure that all therapeutic interchange programs are developed and implemented by Omnicare consistent with the CIA and federal and state laws for obtaining prior authorization from the prescriber before making a therapeutic interchange of a drug and to maintain procedures for the accurate preparation and submission of claims for federal health care program beneficiaries in hospice programs, have been incorporated into the amended and restated 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 will need to be increased, and there can be no assurance that such pricing will not result in the loss of certain contracts.

On February 2 and February 13, 2006, respectively, two substantially similar putative class action lawsuits, entitled Indiana State Dist. Council of Laborers & HOD Carriers Pension & Welfare Fund v. Omnicare, Inc., et al., No. 2:06cv26 (“HOD Carriers”), and Chi v. Omnicare, Inc., et al., No. 2:06cv31 (“Chi”), were filed against Omnicare and two of its officers in the United States District Court for the Eastern District of Kentucky purporting to assert claims for violation of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeking, among other things, compensatory damages and injunctive relief.  The complaints, which purported to be brought on behalf of all open-market purchasers of Omnicare common stock from August 3, 2005 through January 27, 2006, alleged that Omnicare had artificially inflated its earnings by engaging in improper generic drug substitution and that defendants had made false and misleading statements regarding the Company’s business and prospects.  On July 20, 2006, plaintiffs filed a consolidated amended complaint, adding a third officer as a defendant and new factual allegations primarily relating to revenue recognition, the valuation of receivables and the valuation of inventories.  The second amended complaint (i) expands the putative class to include all purchasers of Omnicare common stock from August 3, 2005 through July 27, 2006, (ii) names two members of the Company’s board of directors as additional defendants, (iii) adds a new plaintiff and a new claim for violation of Section 11 of the Securities Act of 1933 based on alleged false and misleading statements in the registration statement filed in connection with the Company’s December 2005 public offering, (iv) alleges that the Company failed to timely disclose its contractual dispute with UnitedHealth Group, Inc. and its affiliates (“United”), and (v) alleges that the Company failed to timely record certain special litigation reserves.  The defendants filed a motion to dismiss the second 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 §§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 second amended complaint with prejudice.  The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

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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.

The years ended 2010, 2009 and 2008 included a $113.7 million (including a $42.1 million charge in the fourth quarter), $77.4 million and $99.3 million charge, 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 (including a $24.2 million charge in the second quarter of 2010) and regulatory agencies (including the Michigan and Massachusetts qui tams and the DEA matter), certain large customer and contract disputes (including a previously disclosed $23.1 million charge in the third quarter of 2010 related to its preliminary settlement of legal action against a group of its customers for the collection of past-due receivables); costs associated with the settlement of the investigation by the United States Attorney’s Office, District of Massachusetts; the Company’s lawsuit against United; 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 $(1.2) million, $(1.1) million and $6.4 million for the years ended December 31, 2010, 2009 and 2008, 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, in the case of the Repack Matters and other billing matters, that these matters will be resolved in an amount that would not exceed the amount of the pretax charges previously recorded by the Company.

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As part of its ongoing operations, the Company is subject to various inspections, audits, inquiries, investigations and similar actions by third parties, as well as governmental/regulatory authorities responsible for enforcing the laws and regulations to which the Company is subject.  The Company is also involved in various legal actions arising in the normal course of business.  At any point in time, the Company is in varying stages of discussions on these matters.  These matters are continuously being evaluated and, in many cases, are being contested by the Company and the outcome is not predictable.  Consequently, an estimate of the 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.

Note 18 – 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.

The Company’s operations are primarily in the United States with one pharmacy located in Canada which is not material to the consolidated sales or total assets of Omnicare.

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Note 19 – Summary of Quarterly Results (Unaudited)

The following table presents the Company's quarterly financial information for 2010 and 2009 (in thousands, except per share data):

	First			Second			Third			Fourth			Full
	Quarter			Quarter			Quarter			Quarter			Year
2010 (a)
Net sales	$	1,492,371		$	1,491,425		$	1,516,207		$	1,530,667		$	6,030,670
Cost of sales		1,151,027			1,164,170			1,182,815			1,196,428			4,694,440
Gross profit		341,344			327,255			333,392			334,239			1,336,230
Selling, general and administrative expenses		182,771			185,919			190,745			188,173			747,608
Provision for doubtful accounts		21,942			20,986			22,376			71,326			136,630
Restructuring and other related charges		3,505			3,489			3,335			6,836			17,165
Settlement, litigation and other related charges		5,506			29,361			36,731			42,111			113,709
Goodwill and other asset impairment charges		-			-			-			22,884			22,884
Separation, benefit plan termination and related costs		-			-			64,760			-			64,760
Other miscellaneous charges		2,260			1,796			4,687			35,577			44,320
Operating income (loss)		125,360			85,704			10,758			(32,668	)		189,154
Investment income		1,664			1,105			4,096			2,745			9,610
Interest expense		(28,608	)		(39,712	)		(30,975	)		(36,425	)		(135,720	)
Amortization of discount on convertible notes		(7,331	)		(7,473	)		(7,615	)		(7,117	)		(29,536	)
Income (loss) from continuing operations before income taxes		91,085			39,624			(23,736	)		(73,465	)		33,508
Income tax provision		33,644			15,879			(14,100	)		(16,379	)		19,044
Income (loss) from continuing operations		57,441			23,745			(9,636	)		(57,086	)		14,464
Loss from discontinued operations		(6,589	)		(12,146	)		(93,630	)		(8,208	)		(120,573	)
Net income (loss)	$	50,852		$	11,599		$	(103,266	)	$	(65,294	)	$	(106,109	)
Earnings (loss) per common share - Basic:(b)
Continuing operations	$	0.49		$	0.20		$	(0.08	)	$	(0.50	)	$	0.12
Discontinued operations		(0.06	)		(0.10	)		(0.81	)		(0.07	)		(1.04	)
Net income (loss)	$	0.43		$	0.10		$	(0.89	)	$	(0.57	)	$	(0.91	)
Earnings (loss) per common share - Diluted:(b)
Continuing operations	$	0.49		$	0.20		$	(0.08	)	$	(0.50	)	$	0.13
Discontinued operations		(0.06	)		(0.10	)		(0.81	)		(0.07	)		(1.03	)
Net income (loss)	$	0.43		$	0.10		$	(0.89	)	$	(0.57	)	$	(0.91	)
Dividends per common share	$	0.0225		$	0.0225		$	0.0325		$	0.0325		$	0.11
Weighted average number of
common shares outstanding:
Basic		117,763			117,434			115,554			114,685			116,348
Diluted		118,455			118,116			115,554			114,685			116,927
Comprehensive income (loss)	$	51,877		$	9,310		$	(69,432	)	$	(67,310	)	$	(75,555	)

47

Note 19 – Summary of Quarterly Results (Unaudited)-Continued

	First			Second			Third			Fourth			Full
	Quarter			Quarter			Quarter			Quarter			Year
2009 (a)
Net sales	$	1,495,023		$	1,497,681		$	1,505,000		$	1,503,349		$	6,001,053
Cost of sales		1,123,529			1,142,547			1,153,246			1,147,515			4,566,837
Gross profit		371,494			355,134			351,754			355,834			1,434,216
Selling, general and administrative expenses		201,052			189,099			189,834			186,187			766,172
Provision for doubtful accounts		25,222			22,519			22,858			21,896			92,495
Restructuring and other related charges		6,865			5,230			3,673			4,046			19,814
Settlement, litigation and other related charges		41,665			28,357			1,739			5,688			77,449
Other miscellaneous charges		3,474			3,831			699			531			8,535
Operating income		93,216			106,098			132,951			137,486			469,751
Investment income		2,407			1,032			1,202			5,029			9,670
Interest expense		(31,285	)		(29,774	)		(29,588	)		(29,246	)		(119,893	)
Amortization of discount on convertible notes		(6,797	)		(6,927	)		(7,059	)		(7,194	)		(27,977	)
Income from continuing operations before income taxes		57,541			70,429			97,506			106,075			331,551
Income tax provision		28,221			29,734			18,005			20,896			96,856
Income from continuing operations		29,320			40,695			79,501			85,179			234,695
Income (loss) from discontinued operations		1,574			(11,976	)		(6,986	)		(5,384	)		(22,772	)
Net income	$	30,894		$	28,719		$	72,515		$	79,795		$	211,923
Earnings (loss) per common share - Basic:(b)
Continuing operations	$	0.25		$	0.35		$	0.68		$	0.73		$	2.00
Discontinued operations		0.01			(0.10	)		(0.06	)		(0.05	)		(0.19	)
Net income	$	0.27		$	0.25		$	0.62		$	0.68		$	1.81
Earnings (loss) per common share - Diluted:(b)
Continuing operations	$	0.25		$	0.35		$	0.67		$	0.72		$	2.00
Discontinued operations		0.01			(0.10	)		(0.06	)		(0.05	)		(0.19	)
Net income	$	0.26		$	0.24		$	0.61		$	0.68		$	1.80
Dividends per common share	$	0.0225		$	0.0225		$	0.0225		$	0.0225		$	0.09
Weighted average number of
common shares outstanding:
Basic		116,448			116,852			117,598			117,462			117,094
Diluted		117,341			117,640			118,145			117,980			117,777
Comprehensive income	$	30,675		$	27,223		$	75,031		$	63,490		$	196,419

48

Notes to Summary of Quarterly Results:

(a) Certain amounts for all periods presented have been recast to present CRO Services and Tidewater as discontinued operations.

(b) Earnings per share is calculated independently for each separately reported quarterly and full year period.  Accordingly, the sum of the separately reported quarters may not necessarily be equal to the per share amount for the corresponding full year period, as independently calculated.

Note 20 – Guarantor Subsidiaries

The Company’s 6.125% Notes due 2013,  the 6.875% 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 December 31, 2010 and 2009 for the balance sheets, as well as the statements of income and the statements of cash flows for each of the three years in the period ended December 31, 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.  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.

49

Note 20 – Guarantor Subsidiaries – Continued

Summary Consolidating Statements of Income
(in thousands)	For the years ended December 31,
2010:	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
Net sales	$	-		$	5,891,219		$	139,451		$	-		$	6,030,670
Cost of sales		-			4,590,118			104,322			-			4,694,440
Gross profit		-			1,301,101			35,129			-			1,336,230
Selling, general and administrative expenses		9,569			722,789			15,250			-			747,608
Provision for doubtful accounts		-			134,391			2,239			-			136,630
Restructuring and other related charges		-			17,165			-			-			17,165
Settlement, litigation and other related charges		-			113,709			-			-			113,709
Goodwill and other asset impairment charges		-			22,884			-			-			22,884
Separation, benefit plan termination and related costs		-			64,760			-			-			64,760
Other miscellaneous charges		-			44,320			-			-			44,320
Operating (loss) income		(9,569	)		181,083			17,640			-			189,154
Investment income		939			8,671			-			-			9,610
Interest expense, including amortization of discount on convertible notes		(163,864	)		(1,392	)		-			-			(165,256	)
(Loss) income from continuing operations before income taxes		(172,494	)		188,362			17,640			-			33,508
Income tax (benefit) expense		(64,478	)		82,225			1,297			-			19,044
(Loss) income from continuing operations		(108,016	)		106,137			16,343			-			14,464
Loss from discontinued operations		-			(85,684	)		(34,889	)		-			(120,573	)
Equity in net income of subsidiaries		1,907			-			-			(1,907	)		-
Net income (loss)	$	(106,109	)	$	20,453		$	(18,546	)	$	(1,907	)	$	(106,109	)
2009:
Net sales	$	-		$	5,871,171		$	129,882		$	-		$	6,001,053
Cost of sales		-			4,459,310			107,527			-			4,566,837
Gross profit		-			1,411,861			22,355			-			1,434,216
Selling, general and administrative expenses		14,875			743,728			7,569			-			766,172
Provision for doubtful accounts		-			90,636			1,859			-			92,495
Restructuring and other related charges		-			19,814			-			-			19,814
Settlement, litigation and other related charges		-			77,449			-			-			77,449
Other miscellaneous charges		-			8,535			-			-			8,535
Operating (loss) income		(14,875	)		471,699			12,927			-			469,751
Investment income		886			8,784			-			-			9,670
Interest expense, including amortization of discount on convertible notes		(146,841	)		(1,029	)		-			-			(147,870	)
(Loss) income from continuing operations before income taxes		(160,830	)		479,454			12,927			-			331,551
Income tax (benefit) expense		(61,324	)		154,158			4,022			-			96,856
(Loss) income from continuing operations		(99,506	)		325,296			8,905			-			234,695
Loss from discontinued operations		-			(12,279	)		(10,493	)		-			(22,772	)
Equity in net income of subsidiaries		311,429			-			-			(311,429	)		-
Net income (loss)	$	211,923		$	313,017		$	(1,588	)	$	(311,429	)	$	211,923
2008:
Net sales	$	-		$	5,845,793		$	146,657		$	-		$	5,992,450
Cost of sales		-			4,399,119			119,526			-			4,518,645
Gross profit		-			1,446,674			27,131			-			1,473,805
Selling, general and administrative expenses		16,007			831,669			6,806			-			854,482
Provision for doubtful accounts		-			104,369			1,871			-			106,240
Restructuring and other related charges		-			34,089			-			-			34,089
Settlement, litigation and other related charges		-			99,267			-			-			99,267
Other miscellaneous charges		-			914			-			-			914
Operating (loss) income		(16,007	)		376,366			18,454			-			378,813
Investment income		1,584			8,198			-			-			9,782
Interest expense, including amortization of discount on convertible notes		(164,175	)		(1,784	)		(3,026	)		-			(168,985	)
(Loss) income from continuing operations before income taxes		(178,598	)		382,780			15,428			-			219,610
Income tax (benefit) expense		(69,083	)		151,480			5,912			-			88,309
(Loss) income from continuing operations		(109,515	)		231,300			9,516			-			131,301
Income from discontinued operations		-			9,090			82			-			9,172
Equity in net income of subsidiaries		249,988			-			-			(249,988	)		-
Net income	$	140,473		$	240,390		$	9,598		$	(249,988	)	$	140,473

50

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Balance Sheets

(in thousands)

As of December 31, 2010:	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
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 - 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 - 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 (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, net-noncurrent		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
As of December 31, 2009:	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
ASSETS
Cash and cash equivalents	$	230,866	$	32,202	$	12,639	$	-		$	275,707
Restricted cash		-		15,264		-		-			15,264
Accounts receivable, net (including intercompany)		-		1,169,809		19,221		(5,886	)		1,183,144
Inventories		-		361,156		7,321		-			368,477
Deferred income tax benefits, net-current		-		117,354		49		(4,497	)		112,906
Other current assets		1,026		179,940		1,613		-			182,579
Current assets - discontinued operations		-		73,246		8,284		-			81,530
Total current assets		231,892		1,948,971		49,127		(10,383	)		2,219,607
Properties and equipment, net		-		200,247		3,600		-			203,847
Goodwill		-		4,074,327		77,928		-			4,152,255
Identifiable intangible assets, net		-		284,482		9,349		-			293,831
Other noncurrent assets		29,930		250,098		49		-			280,077
Noncurrent assets - discontinued operations		-		150,707		23,780		-			174,487
Investment in subsidiaries		5,984,872		-		-		(5,984,872	)		-
Total assets	$	6,246,694	$	6,908,832	$	163,833	$	(5,995,255	)	$	7,324,104
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities (including intercompany)	$	144,793	$	453,232	$	3,508	$	(5,886	)	$	595,647
Current liabilities - discontinued operations		-		11,706		10,464		-			22,170
Long-term debt, notes and convertible debentures		1,975,786		4,450		3		-			1,980,239
Deferred income tax liabilities, net-noncurrent		250,122		317,105		11,416		(4,497	)		574,146
Other noncurrent liabilities		-		275,909		-		-			275,909
Stockholders’ equity		3,875,993		5,846,430		138,442		(5,984,872	)		3,875,993
Total liabilities and stockholders’ equity	$	6,246,694	$	6,908,832	$	163,833	$	(5,995,255	)	$	7,324,104

51

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Statements of Cash Flows
(in thousands)	For the year ended December 31,
2010	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows from / (used in) operating activities	$	(86,774	)	$	443,924		$	11,465		$	368,615
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			(111,812	)		-			(111,812	)
Capital expenditures		-			(22,496	)		(1,021	)		(23,517	)
Transfer of cash to trusts for employee health and
severance costs, net of payments out of the trust		-			11,082			-			11,082
Other		-			(1,791	)		(14	)		(1,805	)
Net cash flows used in investing activities		-			(125,017	)		(1,035	)		(126,052	)
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		975,000			-			-			975,000
Payments on long-term borrowings and obligations		(726,533	)		-			-			(726,533	)
Fees paid for financing activities		(33,249	)		-			-			(33,249	)
Increase in cash overdraft balance		9,744			8,477			-			18,221
Payments for Omnicare common stock repurchase		(100,942	)		-			-			(100,942	)
Payments for stock awards and exercise of stock
options, net of stock tendered in payment		(13,989	)		-			-			(13,989	)
Excess tax benefits from stock-based compensation		679			-			-			679
Dividends paid		(12,839	)		-			-			(12,839	)
Other		343,815			(342,706	)		(1,109	)		-
Net cash flows from  / (used in) financing activities		316,686			(334,229	)		(1,109	)		(18,652	)
Effect of exchange rate changes on cash		-			(120	)		(5,848	)		(5,968	)
Net increase (decrease) in cash and cash equivalents		229,912			(15,442	)		3,473			217,943
Less increase (decrease) in cash and cash
equivalents of discontinued operations		-			(838	)		4			(834	)
Increase (decrease) in cash and cash equivalents
of continuing operations		229,912			(14,604	)		3,469			218,777
Cash and cash equivalents at beginning of year		230,866			32,202			12,639			275,707
Cash and cash equivalents at end of year	$	460,778		$	17,598		$	16,108		$	494,484

52

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Statements of Cash Flows - Continued
(in thousands)	For the year ended December 31,
2009	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows from / (used in) operating activities	$	(64,390	)	$	553,249		$	(5,065	)	$	483,794
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			(92,889	)		-			(92,889	)
Capital expenditures		-			(28,412	)		(819	)		(29,231	)
Transfer of cash to trusts for employee health and
severance costs, net of payments out of the trust		-			(10,547	)		-			(10,547	)
Other		-			(12,170	)		-			(12,170	)
Net cash flows used in investing activities		-			(144,018	)		(819	)		(144,837	)
Cash flows from financing activities:
Payments on line of credit facilities, term A loan     and notes payable		(275,000	)		-			-			(275,000	)
Payments on long-term borrowings and obligations		(1,592	)		-			-			(1,592	)
(Decrease) increase in cash overdraft balance		(819	)		182			-			(637	)
Payments for stock awards and exercise of stock
options, net of stock tendered in payment		9,666			-			-			9,666
Excess tax benefits from stock-based compensation		2,367			-			-			2,367
Dividends paid		(10,733	)		-			-			(10,733	)
Other		420,404			(418,483	)		(2,400	)		(479	)
Net cash flows from  / (used in) financing activities		144,293			(418,301	)		(2,400	)		(276,408	)
Effect of exchange rate changes on cash		-			-			(1,099	)		(1,099	)
Net increase (decrease) in cash and cash equivalents		79,903			(9,070	)		(9,383	)		61,450
Less increase (decrease) in cash and cash
equivalents of discontinued operations		-			412			(3	)		409
Increase (decrease) in cash and cash equivalents
of continuing operations		79,903			(9,482	)		(9,380	)		61,041
Cash and cash equivalents at beginning of year		150,963			41,684			22,019			214,666
Cash and cash equivalents at end of year	$	230,866		$	32,202		$	12,639		$	275,707

53

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Statements of Cash Flows - Continued
(in thousands)	For the year ended December 31,
2008	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows from / (used in) operating activities	$	(73,175	)	$	515,417		$	(4,045	)	$	438,197
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			(225,710	)		-			(225,710	)
Capital expenditures		-			(57,084	)		43			(57,041	)
Transfer of cash to trusts for employee health and
severance costs, net of payments out of the trust		-			847			-			847
Other		-			(3,389	)		-			(3,389	)
Net cash flows from / (used in) investing activities		-			(285,336	)		43			(285,293	)
Cash flows from financing activities:
Borrowings on line of credit facilities		396,000			-			-			396,000
Payments on line of credit facilities, term A loan     and notes payable		(446,000	)		-			(39,081	)		(485,081	)
(Payments) proceeds on long-term borrowings and obligations		(3,193	)		360			-			(2,833	)
(Decrease) increase in cash overdraft balance		(5,723	)		274			-			(5,449	)
Payments for Omnicare common stock repurchase		(100,165	)		-			-			(100,165	)
Payments for stock awards and exercise of stock
options, net of stock tendered in payment		(1,390	)		-			-			(1,390	)
Excess tax benefits from stock-based compensation		963			-			-			963
Dividends paid		(10,751	)		-			-			(10,751	)
Other		203,300			(244,009	)		40,349			(360	)
Net cash flows from / (used in) financing activities		33,041			(243,375	)		1,268			(209,066	)
Effect of exchange rate changes on cash		-			-			(3,196	)		(3,196	)
Net decrease in cash and cash equivalents		(40,134	)		(13,294	)		(5,930	)		(59,358	)
Less increase (decrease) in cash and cash
equivalents of discontinued operations		-			310			(134	)		176
Decrease in cash and cash equivalents
of continuing operations		(40,134	)		(13,604	)		(5,796	)		(59,534	)
Cash and cash equivalents at beginning of year		191,097			55,288			27,815			274,200
Cash and cash equivalents at end of year	$	150,963		$	41,684		$	22,019		$	214,666

The Company’s 3.25% Convertible Debentures due 2035 are fully and unconditionally guaranteed on an unsecured basis by Omnicare Purchasing Company, LP, a wholly-owned subsidiary of the Company (the “Guarantor Subsidiary”).  The following condensed consolidating financial data illustrates the composition of Omnicare, Inc. (“Parent”), the Guarantor Subsidiary and the Non-Guarantor Subsidiaries as of December 31, 2010 and 2009 for the balance sheets, as well as the statements of income and the statements of cash flows for each of the three years in the period ended December 31, 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 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.

54

Note 20 – Guarantor Subsidiaries – Continued

Summary Consolidating Statements of Income
(in thousands)	For the years ended December 31,
2010:	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
Net sales	$	-		$	-		$	6,030,670		$	-		$	6,030,670
Cost of sales		-			-			4,694,440			-			4,694,440
Gross profit		-			-			1,336,230			-			1,336,230
Selling, general and administrative expenses		9,569			1,403			736,636			-			747,608
Provision for doubtful accounts		-			-			136,630			-			136,630
Restructuring and other related charges		-			-			17,165			-			17,165
Settlement, litigation and other related charges		-			-			113,709			-			113,709
Goodwill and other asset impairment charges		-			-			22,884			-			22,884
Separation, benefit plan termination and related costs		-			-			64,760			-			64,760
Other miscellaneous charges		-			-			44,320			-			44,320
Operating (loss) income		(9,569	)		(1,403	)		200,126			-			189,154
Investment income		939			-			8,671			-			9,610
Interest expense, including amortization of discount on convertible notes		(163,864	)		-			(1,392	)		-			(165,256	)
(Loss) income from continuing operations before income taxes		(172,494	)		(1,403	)		207,405			-			33,508
Income tax (benefit) expense		(64,478	)		(524	)		84,046			-			19,044
(Loss) income from continuing operations		(108,016	)		(879	)		123,359			-			14,464
Loss from discontinued operations		-			-			(120,573	)		-			(120,573	)
Equity in net income of subsidiaries		1,907			-			-			(1,907	)		-
Net income (loss)	$	(106,109	)	$	(879	)	$	2,786		$	(1,907	)	$	(106,109	)
2009:
Net sales	$	-		$	-		$	6,001,053		$	-		$	6,001,053
Cost of sales		-			-			4,566,837			-			4,566,837
Gross profit		-			-			1,434,216			-			1,434,216
Selling, general and administrative expenses		14,875			1,425			749,872			-			766,172
Provision for doubtful accounts		-			-			92,495			-			92,495
Restructuring and other related charges		-			-			19,814			-			19,814
Settlement, litigation and other related charges		-			-			77,449			-			77,449
Other miscellaneous charges		-			-			8,535			-			8,535
Operating (loss) income		(14,875	)		(1,425	)		486,051			-			469,751
Investment income		886			-			8,784			-			9,670
Interest expense, including amortization of discount on convertible notes		(146,841	)		-			(1,029	)		-			(147,870	)
(Loss) income from continuing operations before income taxes		(160,830	)		(1,425	)		493,806			-			331,551
Income tax (benefit) expense		(61,324	)		(543	)		158,723			-			96,856
(Loss) income from continuing operations		(99,506	)		(882	)		335,083			-			234,695
Loss from discontinued operations		-			-			(22,772	)		-			(22,772	)
Equity in net income of subsidiaries		311,429			-			-			(311,429	)		-
Net income (loss)	$	211,923		$	(882	)	$	312,311		$	(311,429	)	$	211,923
2008:
Net sales	$	-		$	-		$	5,992,450		$	-		$	5,992,450
Cost of sales		-			-			4,518,645			-			4,518,645
Gross profit		-			-			1,473,805			-			1,473,805
Selling, general and administrative expenses		16,007			1,343			837,132			-			854,482
Provision for doubtful accounts		-			-			106,240			-			106,240
Restructuring and other related charges		-			-			34,089			-			34,089
Settlement, litigation and other related charges		-			-			99,267			-			99,267
Other miscellaneous charges		-			-			914			-			914
Operating (loss) income		(16,007	)		(1,343	)		396,163			-			378,813
Investment income		1,584			-			8,198			-			9,782
Interest expense, including amortization of discount on convertible notes		(164,175	)		-			(4,810	)		-			(168,985	)
(Loss) income from continuing operations before income taxes		(178,598	)		(1,343	)		399,551			-			219,610
Income tax (benefit) expense		(69,083	)		(522	)		157,914			-			88,309
(Loss) income from continuing operations		(109,515	)		(821	)		241,637			-			131,301
Income from discontinued operations		-			-			9,172			-			9,172
Equity in net income of subsidiaries		249,988			-			-			(249,988	)		-
Net income (loss)	$	140,473		$	(821	)	$	250,809		$	(249,988	)	$	140,473

55

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Balance Sheets

(in thousands)

As of December 31, 2010:	Parent		Guarantor Subsidiary		Non-Guarantor Subsidiaries		Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
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 - 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 - 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 (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, net-noncurrent		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
As of December 31, 2009:	Parent		Guarantor Subsidiary		Non-Guarantor Subsidiaries		Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
ASSETS
Cash and cash equivalents	$	230,866	$	-	$	44,841	$	-		$	275,707
Restricted cash		-		-		15,264		-			15,264
Accounts receivable, net (including intercompany)		-		69		1,183,144		(69	)		1,183,144
Inventories		-		-		368,477		-			368,477
Deferred income tax benefits, net-current		-		-		117,403		(4,497	)		112,906
Other current assets		1,026		-		181,553		-			182,579
Current assets - discontinued operations		-		-		81,530		-			81,530
Total current assets		231,892		69		1,992,212		(4,566	)		2,219,607
Properties and equipment, net		-		19		203,828		-			203,847
Goodwill		-		-		4,152,255		-			4,152,255
Identifiable intangible assets, net		-		-		293,831		-			293,831
Other noncurrent assets		29,930		19		250,128		-			280,077
Noncurrent assets - discontinued operations		-		-		174,487		-			174,487
Investment in subsidiaries		5,984,872		-		7,222		(5,992,094	)		-
Total assets	$	6,246,694	$	107	$	7,073,963	$	(5,996,660	)	$	7,324,104
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities (including intercompany)	$	144,793	$	5	$	450,918	$	(69	)	$	595,647
Current liabilities - discontinued operations		-		-		22,170		-			22,170
Long-term debt, notes and convertible debentures		1,975,786		-		4,453		-			1,980,239
Deferred income tax liabilities, net-noncurrent		250,122		-		328,521		(4,497	)		574,146
Other noncurrent liabilities		-		-		275,909		-			275,909
Stockholders’ equity		3,875,993		102		5,991,992		(5,992,094	)		3,875,993
Total liabilities and stockholders’ equity	$	6,246,694	$	107	$	7,073,963	$	(5,996,660	)	$	7,324,104

56

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Statements of Cash Flows
(in thousands)	For the year ended December 31,
2010	Parent			Guarantor Subsidiary		Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows from / (used in) operating activities	$	(86,774	)	$	-	$	455,389		$	368,615
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			-		(111,812	)		(111,812	)
Capital expenditures		-			-		(23,517	)		(23,517	)
Transfer of cash to trusts for employee health and
severance costs, net of payments out of the trust		-			-		11,082			11,082
Other		-			-		(1,805	)		(1,805	)
Net cash flows used in investing activities		-			-		(126,052	)		(126,052	)
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		975,000			-		-			975,000
Payments on long-term borrowings and obligations		(726,533	)		-		-			(726,533	)
Fees paid for financing activities		(33,249	)		-		-			(33,249	)
Increase in cash overdraft balance		9,744			-		8,477			18,221
Payments for Omnicare common stock repurchase		(100,942	)		-		-			(100,942	)
Payments for stock awards and exercise of stock
options, net of stock tendered in payment		(13,989	)		-		-			(13,989	)
Excess tax benefits from stock-based compensation		679			-		-			679
Dividends paid		(12,839	)		-		-			(12,839	)
Other		343,815			-		(343,815	)		-
Net cash flows from  / (used in) financing activities		316,686			-		(335,338	)		(18,652	)
Effect of exchange rate changes on cash		-			-		(5,968	)		(5,968	)
Net increase / (decrease) in cash and cash equivalents		229,912			-		(11,969	)		217,943
Less decrease in cash and cash equivalents
of discontinued operations		-			-		(834	)		(834	)
Increase / (decrease) in cash and cash equivalents
of continuing operations		229,912			-		(11,135	)		218,777
Cash and cash equivalents at beginning of year		230,866			-		44,841			275,707
Cash and cash equivalents at end of year	$	460,778		$	-	$	33,706		$	494,484

57

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Statements of Cash Flows - Continued
(in thousands)	For the year ended December 31,
2009	Parent			Guarantor Subsidiary		Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows from / (used in) operating activities	$	(64,390	)	$	-	$	548,184		$	483,794
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			-		(92,889	)		(92,889	)
Capital expenditures		-			-		(29,231	)		(29,231	)
Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust		-			-		(10,547	)		(10,547	)
Other		-			-		(12,170	)		(12,170	)
Net cash flows used in investing activities		-			-		(144,837	)		(144,837	)
Cash flows from financing activities:
Payments on line of credit facilities, term A loan and notes payable		(275,000	)		-		-			(275,000	)
Payments on long-term borrowings and obligations		(1,592	)		-		-			(1,592	)
(Decrease) increase in cash overdraft balance		(819	)		-		182			(637	)
Payments for stock awards and exercise of stock options, net of stock tendered in payment		9,666			-		-			9,666
Excess tax benefits from stock-based compensation		2,367			-		-			2,367
Dividends paid		(10,733	)		-		-			(10,733	)
Other		420,404			-		(420,883	)		(479	)
Net cash flows from  / (used in) financing activities		144,293			-		(420,701	)		(276,408	)
Effect of exchange rate changes on cash		-			-		(1,099	)		(1,099	)
Net increase (decrease) in cash and cash equivalents		79,903			-		(18,453	)		61,450
Less increase in cash and cash equivalents of discontinued operations		-			-		409			409
Increase (decrease) in cash and cash equivalents of continuing operations		79,903			-		(18,862	)		61,041
Cash and cash equivalents at beginning of year		150,963			-		63,703			214,666
Cash and cash equivalents at end of year	$	230,866		$	-	$	44,841		$	275,707

58

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Statements of Cash Flows - Continued
(in thousands)	For the year ended December 31,
2008	Parent			Guarantor Subsidiary		Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows from / (used in) operating activities	$	(73,175	)	$	-	$	511,372		$	438,197
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			-		(225,710	)		(225,710	)
Capital expenditures		-			-		(57,041	)		(57,041	)
Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust		-			-		847			847
Other		-			-		(3,389	)		(3,389	)
Net cash flows from / (used in) investing activities		-			-		(285,293	)		(285,293	)
Cash flows from financing activities:
Borrowings on line of credit facilities		396,000			-		-			396,000
Payments on line of credit facilities, term A loan and notes payable		(446,000	)		-		(39,081	)		(485,081	)
Payments on long-term borrowings and obligations		(3,193	)		-		360			(2,833	)
(Decrease) increase in cash overdraft balance		(5,723	)		-		274			(5,449	)
Payments for Omnicare common stock repurchase		(100,165	)		-		-			(100,165	)
Payments for stock awards and exercise of stock options, net of stock tendered in payment		(1,390	)		-		-			(1,390	)
Excess tax benefits from stock-based compensation		963			-		-			963
Dividends paid		(10,751	)		-		-			(10,751	)
Other		203,300			-		(203,660	)		(360	)
Net cash flows from / (used in) financing activities		33,041			-		(242,107	)		(209,066	)
Effect of exchange rate changes on cash		-			-		(3,196	)		(3,196	)
Net decrease in cash and cash equivalents		(40,134	)		-		(19,224	)		(59,358	)
Less increase in cash and cash equivalents of discontinued operations		-			-		176			176
Decrease in cash and cash equivalents of continuing operations		(40,134	)		-		(19,400	)		(59,534	)
Cash and cash equivalents at beginning of year		191,097			-		83,103			274,200
Cash and cash equivalents at end of year	$	150,963		$	-	$	63,703		$	214,666

59

SCHEDULE II

OMNICARE, INC. AND SUBSIDIARY COMPANIES

Valuation and Qualifying Accounts

(in thousands)

			Additions
	Balance at		charged						Write-offs,			Balance
Year ended	beginning of		to cost						(net of recoveries)			at end
December 31,	period		and expenses			Acquisitions			and other			of period
Allowance for uncollectible accounts receivable:
2010	$	332,541	$	136,630		$	-		$	(68,144	)	$	401,027
2009		319,417		92,495			-			(79,371	)		332,541
2008		324,825		106,240			5,550			(117,198	)		319,417
Tax valuation allowance:
2010	$	20,255	$	(3,843	)	$	-		$	(453	)	$	15,959
2009		23,332		(3,055	)		-			(22	)		20,255
2008		29,492		(2,986	)		(990	)		(2,184	)		23,332

60

EX-99.4

EXHIBIT 99.4

EXHIBIT 12
Statement of Computation of Ratio of Earnings to Fixed Charges
Omnicare, Inc. and Subsidiary Companies
(in thousands, except ratio)
	For the years ended December 31,
	2010				2009				2008				2007				2006
Income from continuing operations before income taxes	$	33,508		(2)	$	331,551		(2)	$	219,610		(2)	$	148,904		(2)	$	288,826		(2)
Add fixed charges:
Interest expense		115,479				114,304				135,155				155,857				161,875
Amortization of discount on convertible notes (1)		29,536				27,977				25,934				24,041				22,286
Amortization of debt issuance expense		5,944				5,589				7,896				7,209				7,278
Interest expense-special items		14,297		(2)		-				-				-				-
Interest portion of rent expense		20,926				23,049				25,157				23,794				22,459
Adjusted income	$	219,690			$	502,470			$	413,752			$	359,805			$	502,724
Fixed charges:
Interest expense	$	115,479			$	114,304			$	135,155			$	155,857			$	161,875
Amortization of discount on convertible notes (1)		29,536				27,977				25,934				24,041				22,286
Amortization of debt issuance expense		5,944				5,589				7,896				7,209				7,278
Interest expense-special items		14,297		(2)		-				-				-				-
Interest portion of rent expense		20,926				23,049				25,157				23,794				22,459
Fixed charges	$	186,182			$	170,919			$	194,142			$	210,901			$	213,898
Ratio of earnings to fixed charges(3)		1.2	x			2.9	x			2.1	x			1.7	x			2.4	x

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

(2)   Certain of the Company’s debt agreements and indentures provide for the exclusion of various special charges/(credits) from applicable financial covenant coverage calculations.  The following listing of charges/(credits), which are included in the Company’s income from continuing operations before income taxes, includes certain of these excludable charges/(credits) for the years ended December 31 (in thousands):

	2010		2009		2008		2007		2006
Restructuring and other related charges (a)	$	17,165	$	19,814	$	34,089	$	25,116	$	27,188
Settlement, litigation and other related charges (b)		113,709		77,449		99,267		42,516		125,128
Goodwill and other asset impairment charges (c)		22,884		-		-		-		-
Separation, benefit plan termination and related costs (d)		64,760		-		-		-		-
Other expense (b)(e)(f)(g)(a)		87,316		5,893		6,445		17,193		39,858
Total - non-interest expense special items	$	305,834	$	103,156	$	139,801	$	84,825	$	192,174
Interest expense special items (e)	$	14,297	$	-	$	-	$	-	$	-
(a) See the "Restructuring and Other Related Charges" note of the Notes to Consolidated Financial Statements.
(b) See the "Commitments and Contingencies" note of the Notes to the Consolidated Financial Statements.
(c) See the "Goodwill and Other Intangible Assets" note of the Notes to the Consolidated Financial Statements.
(d) See the "Separation, Benefit Plan Termination and Related Costs" note of the Notes to the Consolidated Financial Statements.
(e) See the "Debt" note of the Notes to the Consolidated Financial Statements.
(f) See the "Acquisitions" note of the Notes to the Consolidated Financial Statements.
(g) See the "Stock-Based Compensation" note of the Notes to Consolidated Financial Statements.
For the 2007 and 2006 years data, see the respective note in that years consolidated financial statements for additional information on the nature of the charge reflected above

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

EX-99.5

EXHIBIT 99.5

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-02667, 333-77845, 333-95949, 333-36874 and 333-120450) and Form S-3ASR (No. 333-166710) of Omnicare, Inc., of our report dated February 24, 2011, except with respect to our opinion on the consolidated financial statements and financial statement schedule insofar as it relates to the effects of discontinued operations discussed in Note 1, as to which the date is July 29, 2011, relating to the financial statements and financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Current Report on Form 8-K.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Cincinnati, Ohio

July 29, 2011

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CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data	12 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008
Income Statement [Abstract]
Net sales	$ 6,030,670	$ 6,001,053	$ 5,992,450
Cost of sales	4,694,440	4,566,837	4,518,645
Gross profit	1,336,230	1,434,216	1,473,805
Selling, general and administrative expenses	747,608	766,172	854,482
Provision for doubtful accounts	136,630	92,495	106,240
Restructuring and other related charges	17,165	19,814	34,089
Settlement, litigation and other related charges	113,709	77,449	99,267
Goodwill and other asset impairment charges	22,884	0	0
Separation, benefit plan termination and related costs	64,760	0	0
Other miscellaneous charges	44,320	8,535	914
Operating income	189,154	469,751	378,813
Investment income	9,610	9,670	9,782
Interest expense	(135,720)	(119,893)	(143,051)
Amortization of discount on convertible notes	(29,536)	(27,977)	(25,934)
Income (loss) from continuing operations before income taxes	33,508	331,551	219,610
Income tax provision	19,044	96,856	88,309
Income (loss) from continuing operations	14,464	234,695	131,301
Income (Loss) from discontinued operations	(120,573)	(22,772)	9,172
Net income (loss)	$ (106,109)	$ 211,923	$ 140,473
Earnings (loss) per common share - Basic:
Continuing operations (in dollars per share)	$ 0.12	$ 2.00	$ 1.12
Discontinued operations (in dollars per share)	$ (1.04)	$ (0.19)	$ 0.08
Net income (in dollars per share)	$ (0.91)	$ 1.81	$ 1.20
Earnings (loss) per common share - Diluted:
Continuing operations (in dollars per share)	$ 0.13	$ 2.00	$ 1.11
Discontinued operations (in dollars per share)	$ (1.03)	$ (0.19)	$ 0.08
Net income (in dollars per share)	$ (0.91)	$ 1.80	$ 1.19
Weighted average number of common shares outstanding:
Basic (in shares)	116,348	117,094	117,466
Diluted (in shares)	116,927	117,777	118,313

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Cash and Cash Equivalents

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Cash and Cash Equivalents

Note 5 – Cash and Cash Equivalents

A summary of cash and cash equivalents follows (in thousands):

	December 31,
	2010		2009
Cash	$	46,639	$	67,079
Money market funds		686		108,628
U.S. government-backed repurchase agreements		447,159		100,000
	$	494,484	$	275,707

Repurchase agreements represent investments in U.S. government-backed treasury issues at December 31, 2010 and 2009, under agreements to resell the securities to the counterparty.  The amounts in the money market funds are shown at fair value based on the quoted market prices of the investments.  The term of the repurchase agreements usually span overnight, but in no case is longer than 30 days.  The Company has a collateralized interest in the underlying securities of repurchase agreements, which are segregated in the accounts of the counterparty.

See additional information at the “Description of Business and Summary of Significant Accounting Policies” and “Fair Value” notes of the Notes to Consolidated Financial statements.

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Properties and Equipment

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Properties and Equipment

Note 6 – Properties and Equipment

A summary of properties and equipment follows (in thousands):

	December 31,
	2010			2009
Land	$	3,646		$	3,646
Buildings and building improvements		15,957			15,419
Computer equipment and software		247,168			249,122
Machinery and equipment		117,232			124,608
Furniture, fixtures and leasehold improvements		105,247			111,707
		489,250			504,502
Accumulated depreciation		(284,533	)		(300,655	)
	$	204,717		$	203,847

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Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Goodwill and Other Intangible Assets

Note 7 – Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the years ended December 31, 2010 and 2009 are as follows (in thousands):

	Total
Goodwill balance as of January 1, 2009	$	4,091,971
Goodwill acquired in the year ended December 31, 2009		38,495
Other		21,789
Goodwill balance as of December 31, 2009		4,152,255
Goodwill acquired in the year ended December 31, 2010		80,596
Other		1,970
Goodwill balance as of December 31, 2010	$	4,234,821

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 pharmacy located in Canada.

The Company performed its annual goodwill impairment analysis for the years ended December 31, 2010 and 2009 and, except for the CRO goodwill impairment charge in 2010 disclosed in the “Discontinued Operations” note of the Notes to Consolidated Financial Statements, Omnicare concluded that goodwill had not been impaired.

The table below presents the Company’s other identifiable intangible assets at December 31, 2010 and 2009, all of which are subject to amortization, except trademark and trade names as described below (in thousands):

					December 31, 2010
	Original Amortization Life (in years)				Gross Carrying Amount		Accumulated Amortization and Impairment Losses			Net Carrying Amount
Customer relationship assets		8.5	-	15	$	392,281	$	(186,467	)	$	205,814
Trademark and trade names			-			39,672		(13,300	)		26,372
Non-compete agreements		4.5	-	15		48,036		(24,545	)		23,491
Technology assets		8	-	11.4		11,899		(7,859	)		4,040
Other		10	-	15		328		(236	)		92
Total					$	492,216	$	(232,407	)	$	259,809
					December 31, 2009
					Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationship assets					$	372,661	$	(152,063	)	$	220,598
Trademark and trade names						37,709		-			37,709
Non-compete agreements						49,139		(23,447	)		25,692
Technology assets						18,178		(8,424	)		9,754
Other						360		(282	)		78
Total					$	478,047	$	(184,216	)	$	293,831

Amortization expense related to identifiable intangible assets was $38.9 million, $39.2 million and $36.8 million for the years ended December 31, 2010, 2009 and 2008, respectively.  Omnicare’s trademark and trade names constitute identifiable intangible assets with indefinite useful lives based upon their expected useful lives and the anticipated effects of obsolescence, demand, competition and other factors per the requirements of the authoritative guidance regarding goodwill and other intangible assets.  Accordingly, these trademarks and trade names are not amortized, but are reviewed annually for impairment.  The Company performed its annual assessment for the year ended December 31, 2010, and concluded that certain trade names of the business were impaired and, accordingly, recorded an impairment loss of approximately $13.3 million in the fourth quarter of 2010, due to revisions in forecasted cash flows associated with those trade name intangible assets.  The fair value at December 31, 2010 was determined using projected revenue and cash flows developed by the Company (Level 3 inputs).

The Company also recorded other asset impairment charges of approximately $10 million in the three months and year ended December 31, 2010, primarily to write-off certain technology assets that were abandoned, and related non–compete agreement assets.  The fair value at December 31, 2010 was determined using projected revenue and cash flows developed by the Company (Level 3 inputs).

Estimated annual amortization expense for intangible assets subject to amortization at December 31, 2010 for the next five fiscal years is as follows (in thousands):

Year ended	Amortization
December 31,	Expense
2011	$	41,542
2012		40,209
2013		35,209
2014		33,782
2015		26,512

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Fair Value

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Fair Value

Note 8 – Fair Value

The Company’s assets and (liabilities) measured at fair value as of December 31, 2010 and 2009 were as follows (in thousands):

				Based on
				Quoted Prices		Other
	Fair Value			in Active		Observable			Unobservable
	at December 31,			Markets		Inputs			Inputs
	2010			(Level 1)		(Level 2)			(Level 3)
Assets and (Liabilities) Measured at Fair Value on a Recurring Basis: (1)
Rabbi trust assets (2)	$	85,741		$	85,741	$	-		$	-
7.75% interest rate swap agreement - fair value hedge (3)	$	(829	)	$	-	$	(829	)	$	-
6.875% interest rate swap agreement - fair value hedge (3)		(3,461	)		-		(3,461	)		-
Derivatives (4)		-			-		-			-
Total	$	(4,290	)	$	-	$	(4,290	)	$	-

			Based on
			Quoted Prices		Other
	Fair Value		in Active		Observable		Unobservable
	at December 31,		Markets		Inputs		Inputs
	2009		(Level 1)		(Level 2)		(Level 3)
Assets and (Liabilities) Measured at Fair Value on a Recurring Basis: (1)
Rabbi trust assets (2)	$	133,040	$	133,040	$	-	$	-
6.125% interest rate swap agreement - fair value hedge (3)		3,595		-		3,595		-
Derivatives (4)		-		-		-		-
Total	$	136,635	$	133,040	$	3,595	$	-

See further discussion of Omnicare’s application of the authoritative guidance for fair value measurements, including clarification of Levels 1, 2 and 3, at the “Fair Value of Financial Instruments” caption of the “Description of Business and Summary of Significant Accounting Policies” note of the Notes to Consolidated Financial Statements.

(1)For cash and cash equivalents, restricted cash, accounts receivable, and accounts payable, the net carrying value of these items approximates their fair value at period end.  Further, at period end, the fair value of Omnicare’s variable rate debt facilities approximates the carrying value, as the effective interest rates fluctuate with changes in market rates.  The fair value of the Company’s fixed-rate debt facilities is based on quoted market prices and, while not recorded on the Consolidated Balance Sheets and thus excluded from the fair value table above, are included in the table below.

(2)The fair value of restricted funds held in trust (rabbi trust assets) for settlement of the Company’s pension obligations are based on quoted market prices in an active market of the investments held by the trustee.

(3)The fair value of the Company’s interest rate swap agreements are valued using market inputs with mid-market pricing as a practical expedient for the bid/ask spread.  As such, these swaps are categorized within Level 2 of the hierarchy.  The Company’s swap agreements are discussed in further detail at the “Debt” note of the Notes to Consolidated Financial Statements.

(4)The Company’s derivative instruments are discussed in further detail at the “Debt” note of the Notes to Consolidated Financial Statements.

The fair value of the Company’s fixed-rate debt facilities is based on quoted market prices in an active market (Level 1) and is summarized as follows (in thousands):

Fair Value of Financial Instruments
	December 31, 2010				December 31, 2009
Financial Instrument:	Book Value		Market Value		Book Value		Market Value
6.125% senior subordinated notes, due 2013, gross	$	250,000	$	251,300	$	250,000	$	248,000
6.75% senior subordinated notes, due 2013		-		-		225,000		219,500
6.875% senior subordinated notes, due 2015		525,000		535,500		525,000		528,500
7.75% senior subordinated notes, due 2020, gross		400,000		415,000		-		-
3.75% convertible senior subordinated notes, due 2025
Carrying value		353,505		-		-		-
Unamortized debt discount		221,495		-		-		-
Principal amount		575,000		636,400		-		-
4.00% junior subordinated convertible debentures, due 2033
Carrying value		201,282		-		199,071		-
Unamortized debt discount		143,718		-		145,929		-
Principal amount		345,000		266,900		345,000		254,400
3.25% convertible senior debentures, due 2035
Carrying value		370,837		-		773,120		-
Unamortized debt discount		81,663		-		204,380		-
Principal amount		452,500		427,600		977,500		801,600

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Leasing Arrangements

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Leasing Arrangements

Note 9 – Leasing Arrangements

The Company has operating leases that cover various operating and administrative facilities and certain operating equipment.  In most cases, the Company expects that these leases will be renewed, or replaced by other operating leases, in the normal course of business.  There are no significant contingent rentals in the Company’s operating leases.  Omnicare, Inc. routinely guarantees many of the lease obligations of its subsidiaries in the normal course of business.

The following is a schedule of future minimum rental payments required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of December 31, 2010 (in thousands):

Year ended
December 31,
2011	$	29,975
2012		26,921
2013		23,430
2014		19,991
2015		12,683
Later years		16,454
Total minimum
payments required	$	129,454

The Company has approximately $1 million in aggregate minimum rentals scheduled to be received in the future under non-cancelable subleases as of December 31, 2010, which would serve to partially reduce the total minimum payments required as presented in the table above.

Total rent expense under operating leases for the years ended December 31, 2010, 2009 and 2008 were $56.7 million, $61.4 million and $69.8 million, respectively.

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Debt

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Debt

Note 10 – Debt

A summary of debt follows (in thousands):

	December 31,
	2010			2009
Revolving loans, due 2015	$	-		$	-
Senior term A loan, due 2010		-			125,000
6.125% senior subordinated notes, due 2013		250,000			250,000
6.75% senior subordinated notes, due 2013		-			225,000
6.875% senior subordinated notes, due 2015		525,000			525,000
7.75% senior subordinated notes, due 2020		400,000			-
3.75% convertible senior subordinated notes, due 2025		575,000			-
4.00% junior subordinated convertible debentures, due 2033		345,000			345,000
3.25% convertible senior debentures, due 2035		452,500			977,500
Capitalized lease and other debt obligations		13,961			6,524
Subtotal		2,561,461			2,454,024
Add (subtract) interest rate swap agreements		(4,290	)		3,595
(Subtract) unamortized debt discount		(446,876	)		(350,309	)
(Subtract) current portion of debt		(3,537	)		(127,071	)
Total long-term debt, net	$	2,106,758		$	1,980,239

The following is a schedule of required debt payments due during each of the next five years and thereafter, as of December 31, 2010 (in thousands):

Year ended
December 31,
2011	$	3,537
2012		3,210
2013		253,210
2014		2,974
2015		526,017
Later years		1,772,513
Total debt payments	$	2,561,461

Total cash interest payments made for the years ended December 31, 2010, 2009 and 2008 were $110.3 million, $115.6 million and $135.1 million, excluding early redemption and tender premium payments.  As of December 31, 2010, the Company had approximately $20 million outstanding relating to standby letters of credit, substantially all of which are subject to automatic annual renewals.

Revolving Loans

On May 18, 2010, the Company entered into a $400 million senior secured revolving credit facility, maturing on May 18, 2015 (the “Revolving Credit Facility”).  The Revolving Credit Facility includes letter of credit and swingline sublimits and is available up to the lesser of $400 million or a borrowing base of 50% of the Company’s accounts receivable, subject to certain eligibility criteria.  There were approximately $20 million of letters of credit outstanding as of December 31, 2010 which have been deemed to be letters of credit issued under the Revolving Credit Facility.  The interest rate applicable to the Revolving Credit Facility will be, at the Company’s option, a floating base rate, plus an applicable margin, or the London interbank offered rate (or LIBOR), plus an applicable margin.  As of December 31, 2010, the applicable margins were set at 2.00% with respect to floating base rate loans and 3.00% with respect to LIBOR loans.  The applicable margins for the Revolving Credit Facility may increase or decrease based on the Company’s consolidated total leverage ratio as specified in the Revolving Credit Facility.  The Revolving Credit Facility is guaranteed by the Company’s subsidiaries, subject to certain exceptions, and secured by substantially all of the Company’s and the guarantors’ accounts receivable.  The Revolving Credit Facility contains certain financial covenants requiring maintenance of certain fixed charge coverage and leverage ratios, and customary affirmative and negative covenants.  In connection with entering into the Revolving Credit Facility, the Company deferred $8.9 million in debt issuance costs, of which approximately $1.1 million was amortized to expense in the year ended December 31, 2010.

On May 18, 2010, in connection with entering into the new Revolving Credit Facility, the Company’s existing credit agreement, dated as of July 28, 2005, (the “2005 Credit Facility”), was terminated.  All amounts outstanding under the senior term A loan component of the 2005 Credit Facility were paid off on May 18, 2010, and the $800 million revolving credit facility component of the 2005 Credit Facility was terminated.  In connection with the termination of the 2005 Credit Facility, the Company wrote off the remaining debt issuance costs to interest expense, which amount was not significant.  The Company amortized to expense approximately $1 million and $3 million of these deferred debt issuance costs during the years ended December 31, 2009 and 2008, respectively.

6.125% Senior Subordinated Notes

The Company completed, during the second quarter of 2003, its offering of $250 million of 6.125% senior subordinated notes due 2013 (the “6.125% Notes”).  In connection with the issuance of the 6.125% Notes, the Company deferred $6.6 million in debt issuance costs, of which approximately $0.7 million was amortized to expense in each of the three years ended December 31, 2010.  The 6.125% Notes contain certain affirmative and negative covenants and events of default customary for such instruments.

In connection with its offering of the 6.125% Notes, the Company entered into an interest rate swap agreement with respect to all $250 million of the aggregate principal amount of the 6.125% Notes (the “6.125% Swap Agreement”).  In the second quarter of 2010, the counterparties to the interest rate swap agreement on the 6.125% Senior Notes terminated the swap agreement, effective June 1, 2010.  In connection with terminating the 6.125% Swap Agreement, the counterparties paid the Company approximately $2.6 million, which is being amortized as a reduction to interest expense over the remaining term of the 6.125% Notes.  As such, the Company began paying interest at the 6.125% stated rate effective June 1, 2010.  Under the 6.125% Swap Agreement, which hedged against exposure to long-term U.S. dollar interest rates, the Company received a fixed rate of 6.125% and paid a floating rate based on LIBOR with an interest period of six months, plus a spread of 2.27%.  The floating rate was determined semi-annually, in arrears, two London Banking Days prior to the first of each December and June.

On January 10, 2011, Omnicare redeemed $75 million aggregate principal amount of its outstanding 6.125% Notes.

6.75% Senior Subordinated Notes

On December 15, 2005, Omnicare completed its offering of $225 million aggregate principal amount of 6.75% senior subordinated notes due 2013 (the “6.75% Notes”).  In connection with the issuance of the 6.75% Notes, the Company deferred $4.6 million in debt issuance costs, of which approximately $0.3 million was amortized to expense in the year ended December 31, 2010 and $0.6 million was amortized to expense in each of the years ended December 31, 2009 and 2008, respectively.  The 6.75% Notes contained certain affirmative and negative covenants and events of default customary for such instruments.

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

In connection with the purchase of the 6.75% Notes, the Company incurred early redemption fees of $7.6 million and the write-off of debt issuance costs of $2.1 million, both of which were recorded in interest expense in the second quarter of the year ended December 31, 2010.  Additionally, the Company incurred approximately $0.4 million of professional fees associated with the purchase of the 6.75% Notes, which were recorded in selling, general and administrative expenses for the year ended December 31, 2010.

7.75% Senior Subordinated Notes

On May 18, 2010, Omnicare, Inc. completed its offering of $400 million aggregate principal amount of 7.75% Senior Subordinated Notes due 2020, (the “7.75% Notes”).  In connection with the issuance of the 7.75% Notes, the Company deferred $9.6 million in debt issuance costs, of which approximately $0.6 million was amortized to expense in the year ended December 31, 2010.  The 7.75% Notes contain certain restrictive covenants and events of default customary for such instruments.  The 7.75% Notes are guaranteed by the Company’s subsidiaries, subject to certain exceptions.

In connection with its offering of the 7.75% Notes, the Company entered into the 7.75% Swap Agreement.  Under the 7.75% Swap Agreement, which hedges against exposure to long-term U.S. dollar interest rates, the Company receives a fixed rate of 7.75% and pays a floating rate based on LIBOR with an interest period of six months, plus a spread of 3.87%.  The floating rate is determined semi-annually, in arrears, two London Banking Days prior to the first of each December and June.  The Company records interest expense on the 7.75% Notes at the floating rate.  The estimated LIBOR-based floating rate (including the 3.87% spread) was 4.32% as of December 31, 2010.  The 7.75% Swap Agreement, which matches the terms of the 7.75% Notes, is designated and accounted for as a fair value hedge.  Accordingly, changes in the fair value of the 7.75% Swap Agreement are offset by changes in the recorded carrying value of the related 7.75% Notes.  The fair value of the 7.75% Swap Agreement, approximately $(0.8) million at December 31, 2010, is recorded in “Other noncurrent assets” or “Other noncurrent liabilities” on the Consolidated Balance Sheets, as applicable, and as an adjustment to the book carrying value of the related 7.75% Notes.

6.875% Senior Subordinated Notes

On December 15, 2005, Omnicare completed its offering of $525 million aggregate principal amount of 6.875% Senior Subordinated Notes (the “6.875% Notes”).  In connection with the issuance of the 6.875% Notes, the Company deferred $10.7 million in debt issuance costs, of which approximately $1 million was amortized to expense in each of the years ended December 31, 2010, 2009 and 2008, respectively.  The 6.875% Notes contain certain affirmative and negative covenants and events of default customary for such instruments.

In December 2010, the Company entered into a Swap Agreement on all $525 million of aggregate principal amount of the 6.875% Notes (“the 6.875% Swap Agreement”).  Under the 6.875% Swap Agreement, which hedges against exposure to long-term U.S. dollar interest rates, the Company receives a fixed rate of 6.875% and pays a floating rate based on LIBOR with an interest period of six months, plus a spread of 4.128%.  The 6.875% Swap Agreement is designated and accounted for as a fair value hedge.  Accordingly, changes in the fair value of the 6.875% Swap Agreement are offset by changes in the recorded carrying value of the related 6.875% Notes.  The fair value of the 6.875% Swap Agreement, approximately $(3.5) million at December 31, 2010, is recorded in “Other noncurrent assets” or “Other noncurrent liabilities” on the Consolidated Balance Sheets, as applicable, and as an adjustment to the book carrying value of the related 6.875% Notes.

4.00% Junior Subordinated Convertible Debentures:

During the first quarter of 2005, the Company completed its offer to exchange up to $345 million aggregate liquidation amount of 4.00% Trust Preferred Income Equity Redeemable Securities due 2033 of Omnicare Capital Trust I (the “Old Trust”), for an equal amount of Series B 4.00% Trust Preferred Income Equity Redeemable Securities  of Omnicare Capital Trust II (the “New Trust”).  The New Trust PIERS have substantially similar terms to the Old Trust PIERS, except that the New Trust PIERS have a net share settlement feature.  In connection with the exchange offer, the composition of the Company’s 4.00% junior subordinated convertible debentures underlying the trust PIERS was impacted.  Additional information regarding the 4.00% junior subordinated convertible debentures underlying the Old Trust PIERS and the New Trust PIERS is summarized below.

Original 4.00% Junior Subordinated Convertible Debentures

In connection with the offering of the Old Trust PIERS in the second quarter of 2003, the Company issued a corresponding amount of 4.00% junior subordinated convertible debentures (the “Old 4.00% Debentures”) due 2033 to the Old Trust.  The Old Trust is a 100%-owned finance subsidiary of the Company.  The Company has fully and unconditionally guaranteed the securities of the Old Trust.  The Old Trust PIERS offer fixed cash distributions at a rate of 4.00% per annum payable quarterly, and a fixed conversion price of $40.82 under a contingent conversion feature whereby the holders may convert their Old Trust PIERS if the closing sales price of Company common stock for a predetermined period, beginning with the quarter ending September 30, 2003, is more than 130% of the then-applicable conversion price or, during a predetermined period, if the daily average of the trading prices for the Old Trust PIERS is less than 105% of the average of the conversion values for the Old Trust PIERS through 2028 (98% for any period thereafter through maturity).  The Old Trust PIERS also will pay contingent distributions, commencing with the quarterly distribution period beginning June 15, 2009, if the average trading prices of the Old Trust PIERS for a predetermined period equals 115% or more of the stated liquidation amount of the Old Trust PIERS.  In this circumstance, the holder of the convertible debenture will receive 0.125 percent of the average trading price during the predetermined period.  Embedded in the Old Trust PIERS are two derivative instruments, specifically, a contingent interest provision and a contingent conversion parity provision.  The embedded derivatives are periodically valued, and at period end, the values of both derivatives embedded in the Old Trust PIERS were not material.  However, the values are subject to change, based on market conditions, which could affect the Company’s future results of operations, financial position or cash flows.  Omnicare irrevocably and unconditionally guarantees, on a subordinated basis, certain payments to be made by the Old Trust in connection with the Old Trust PIERS.  Subsequent to the first quarter 2005 exchange offer discussed in further detail at the Series B 4.00% Junior Subordinated Convertible Debentures caption below, the Company has $11,233,050 aggregate liquidation amount of the Old Trust PIERS and underlying Old 4.00% Debentures remaining outstanding at period end.

Series B 4.00% Junior Subordinated Convertible Debentures

On March 8, 2005, the Company completed the exchange of $333,766,950 aggregate liquidation amount of the Old Trust PIERS (representing 96.7% of the total liquidation amount of the Old Trust PIERS outstanding) for an equal amount of the New Trust PIERS, plus an exchange fee of $0.125 per $50 stated liquidation amount of Old Trust PIERS.  Each New Trust PIERS represents an undivided beneficial interest in the assets of the New Trust, which assets consist solely of a corresponding amount of Series B 4.00% junior subordinated convertible debentures (the “4.00% Convertible Debentures”) issued by the Company with a stated maturity of June 15, 2033.  The Company has fully and unconditionally guaranteed the securities of the New Trust.  Subsequent to the completion of the exchange offering and at period end, the Company has $333,766,950 of 4.00% Convertible Debentures outstanding.

The terms of the New Trust PIERS are substantially identical to the terms of the Old Trust PIERS, except that the New Trust PIERS are convertible into cash and, if applicable, shares of Company common stock, whereas the outstanding Old Trust PIERS are convertible only into Company common stock (except for cash in lieu of fractional shares).

The purpose of the exchange offer was to change the conversion settlement provisions of the Old Trust PIERS.  By committing to pay up to the stated liquidation amount of the New Trust PIERS to be converted in cash upon conversion, the Company is able to account for the New Trust PIERS under the treasury stock method.

As of December 31, 2010 and 2009, the aforementioned contingent threshold had not been met and, accordingly, the Old 4.00% Debentures and the 4.00% Convertible Debentures have been classified as long-term debt on the December 31, 2010 and 2009 Consolidated Balance Sheets.

In connection with the issuance of the Old 4.00% Debentures and the 4.00% Convertible Debentures, the Company has deferred $6.1 million in debt issuance costs, of which approximately $0.2 million was amortized to expense in each of the years ended December 31, 2010, 2009 and 2008.

3.25% Convertible Senior Debentures

On December 15, 2005, Omnicare completed its offering of $977.5 million aggregate principal amount of 3.25% convertible senior debentures due 2035 (with optional redemption by Omnicare on or after, and optional repurchase right of holders on, December 15, 2015, at par) (the “3.25% Convertible Debentures”).  The 3.25% Convertible Debentures have an initial conversion price of approximately $79.73 per share under a contingent conversion feature whereby the holders may convert their 3.25% Convertible Debentures, prior to December 15, 2033, on any date during any fiscal quarter beginning after March 31, 2006 (and only during such fiscal quarter) if the closing sales price of the Company’s common stock was more than 130% of the then current conversion price for at least 20 trading days in the period of the 30 consecutive trading days ending on the last trading day of the previous fiscal quarter or during any five consecutive trading days period if, during each of the previous five consecutive trading days, the trading price of the convertible debentures for each day was less than 98 percent of the then current conversion price.  The 3.25% Convertible Debentures bear interest at a rate of 3.25% per year, subject to an upward adjustment on and after December 15, 2015 in certain circumstances, up to a rate not to exceed 1.99 times the original 3.25 percent interest rate per year.  The 3.25% Convertible Debentures also will pay contingent interest in cash, beginning with the six-month interest period commencing December 15, 2015, during any six-month period in which the trading price of the 3.25% Convertible Debentures for each of the five trading days ending on the second trading day immediately preceding the first day of the applicable six-month interest period equals or exceeds 120% of the principal amount of the 3.25% Convertible Debentures.  Embedded in the 3.25% Convertible Debentures are three derivative instruments, specifically, a contingent interest provision, an interest reset provision and a contingent conversion parity provision.  The embedded derivatives are valued periodically, and at period end, the values of the derivatives embedded in the 3.25% Convertible Debentures were not material.  However, the values are subject to change, based on market conditions, which could affect the Company’s future results of operations, financial position or cash flows.  In connection with the issuance of the 3.25% Convertible Debentures, the Company has deferred approximately $17.6 million in debt issuance costs, of which approximately $2 million was amortized to expense for the years ended December 31, 2010, 2009 and 2008.

On November 17, 2010, Omnicare commenced a tender offer (the “3.25% Tender Offer”) for cash to purchase up to $525 million of its outstanding 3.25% Convertible Debentures.  On December 16, 2010, Omnicare purchased $525 million aggregate principal amount of its outstanding 3.25% Convertible Debentures pursuant to the 3.25% Tender Offer.  Total consideration required to complete the purchase, including accrued and unpaid interest, was approximately $498.8 million.  After giving effect to the purchase of the tendered debentures, $452.5 million aggregate principal amount of the 3.25% Convertible Debentures remain outstanding.  In connection with the purchase of the 3.25% Convertible Debentures, the Company incurred the write-off of debt issuance costs of $4.6 million, which were recorded in interest expense for the three months and year ended December 31, 2010.

Further, in connection with the extinguishment of $525 million of 3.25% Convertible Debentures, the Company was required to recognize an accounting loss of $25.6 million due to its application of the authoritative guidance for extinguishment of convertible debt.  The Company also incurred $1.3 million of professional fees associated with the purchase of the 3.25% Convertible Debentures.  The aforementioned loss on extinguishment and related professional fees were recorded in “Other Miscellaneous Charges” caption of its Consolidated Statements of Income, during the three months and year ended December 31, 2010.

3.75% Convertible Senior Subordinated Notes

On December 7, 2010, Omnicare completed its offering of $575 million aggregate principal amount of 3.75% convertible senior subordinated notes due 2025 (the “3.75% Convertible Notes”).  The 3.75% Convertible Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2011. The initial conversion rate is 36.4409 shares of common stock per $1,000 principal amount of 3.75% Convertible Notes (equivalent to an initial conversion price of approximately $27.44 per share), subject to adjustment in certain circumstances. Upon conversion, the Company will pay cash and shares of its common stock, if any, based on a daily conversion value calculated on a proportionate basis for each day of the 25 trading-day cash settlement averaging period. The conversion price is a 23.5% premium to the $22.22 closing price of the Company's common stock on December 1, 2010.  The 3.75% Convertible Notes are guaranteed by the Company’s subsidiaries, subject to certain excluded subsidiaries.  Embedded in the 3.75% Convertible Notes are two derivative instruments, specifically, a contingent interest provision and a contingent conversion parity provision.  The embedded derivatives are valued periodically, and at period end, the values of the derivatives embedded in the 3.75% Convertible Notes were not material.  However, the values are subject to change, based on market conditions, which could affect the Company’s future results of operations, financial position or cash flows.  In connection with the issuance of the 3.75% Convertible Notes, the Company has deferred approximately $9.4 million in debt issuance costs, of which approximately $0.1 million was amortized to expense for the year ended December 31, 2010.

Favorably impacting operating cash flow was the excess of tax deductible interest expense over book interest expense related to the Company’s 4.00% Convertible Debentures, 3.25% Convertible Debentures and 3.75% Convertible Notes.  This resulted in an increase in the Company’s deferred tax liabilities during the year ended December 31, 2010, 2009 and 2008 of $30.3 million, $28.5 million and $26.3 million, respectively ($147.6 million cumulative as of December 31, 2010).  The recorded deferred tax liability could, under certain circumstances, be realized in the future upon conversion or redemption which would serve to reduce operating cash flows.

The Company has three convertible debentures, the 4.00% Convertible Debentures, 3.25% Convertible Debentures and 3.75% Convertible Notes.  Issuers of convertible debt instruments which 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 equity balances are as follows (in thousands):

	December 31,
	2010			2009
Carrying value of equity component	$	619,223		$	441,318
Principal amount of convertible debt	$	1,372,500		$	1,322,500
Unamortized debt discount		(446,876	)		(350,309	)
Net carrying value of convertible debt	$	925,624		$	972,191

As of December 31, 2010, the remaining amortization period for the debt discount was approximately 22.5, 5 and 15 years for the 4.00% Convertible Debentures, 3.25% Convertible Debentures and 3.75% Convertible Notes, respectively.

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

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Stock-Based Compensation

Note 11 – Stock-Based Compensation

Stock-Based Compensation Plans

During 2004, stockholders of the Company approved the 2004 Stock and Incentive Plan (the “2004 Plan”), under which the Company is authorized to grant equity-based and other incentive compensation to employees, officers, directors, consultants and advisors of the Company in an amount aggregating up to 10.0 million shares of Company common stock.  Beginning May 18, 2004, stock-based incentive awards are made only from the 2004 Stock and Incentive Plan.

Prior to the 2004 Plan, the Company had the 1998 Long-Term Employee Incentive Plan and the 1992 Long-Term Stock Incentive Plan, all of which no longer issue stock-based incentives, but which had outstanding awards at December 31, 2010.

Under these plans, stock options vest and become exercisable at varying points in time, ranging up to four years in length, and have terms that generally span ten years from the grant date.  Stock option awards are granted with an exercise price at least equal to the fair market value of Company stock upon grant.  Omnicare’s normal practice is to issue new shares upon stock option exercise.  Certain stock option and share awards provide for accelerated vesting if there is a change in control, as defined in the plans.

Employee Stock Purchase Plan

In November 1999, the Company’s Board of Directors adopted the Omnicare StockPlus Program, a non-compensatory employee stock purchase plan (the “ESPP”).  Under the ESPP, employees and non-employee directors of the Company who elect to participate may contribute up to 6% of eligible compensation (or an amount not to exceed $20,000 for non-employee directors) to purchase shares of the Company’s common stock.  For each share of stock purchased, the participant also receives two options to purchase additional shares of the Company’s stock.  The stock options are subject to a four-year vesting period and are generally subject to forfeiture in the event the related shares purchased are not held by the participant for a minimum of two years.  The stock options have a ten-year life from the date of issuance.  Amounts contributed to the ESPP are used by the plan administrator to purchase the Company’s stock on the open market or for shares issued by Omnicare.

Stock Awards

Non-vested stock awards are granted at the discretion of the Compensation, Nominating and Governance Committee of the Board of Directors.  These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods, typically three to ten-year periods (vesting on a straight-line basis), or a seven-year period (with a greater proportion vesting in the latter years).  Unrestricted stock awards are granted annually to all members of the Board of Directors, and non-employee directors also receive non-vested stock awards that generally vest on the third anniversary of the date of grant.  The fair value of a stock award is equal to the fair market value of a share of Company stock on the grant date.

Stock-Based Compensation

The Company uses the Black-Scholes options pricing model to determine the fair value of stock options on the grant date, which is affected by Omnicare’s stock price as well as assumptions regarding a number of complex and subjective variables.  These variables include Omnicare’s expected stock price volatility over the expected term of the awards, actual and projected employee exercise behaviors, the risk-free interest rate and the stock’s dividend yield.

The expected term of stock options granted represents the period of time that the stock options are expected to be outstanding and is estimated based primarily on historical stock option exercise experience.  The expected volatility is based primarily on the historical volatility of the Company’s stock over a period generally commensurate with the expected term of the stock options.  The risk-free interest rate used in the option valuation model is based on United States Treasury Strip (“stripped coupon interest”) issues with remaining terms similar to the expected term of the stock options.  The expected dividend yield is based on the current Omnicare stock yield.  The Company is required to estimate forfeitures at the time of the grant and revise those estimates in subsequent periods as necessary to reflect any changes in actual forfeiture experience.  Omnicare uses historical data to estimate pre-vesting stock option forfeitures and records stock-based compensation expense only for those awards that are expected to vest.  All stock option awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting period.

The assumptions used to value stock options granted during the years ended December 31, 2010, 2009 and 2008 are as follows:

	2010			2009			2008
Expected volatility		35	%		35	%		35	%
Risk-free interest rate		1.0	%		2.2	%		2.2	%
Expected dividend yield		0.5	%		0.4	%		0.4	%
Expected term of options (in years)		4.9			4.8			4.7
Weighted average fair value per option	$	7.54		$	8.16		$	7.56

Total pretax stock-based compensation expense recognized in the Consolidated Statements of Income as part of S,G&A expense for stock options and stock awards for the year ended December 31, 2010 is approximately $5.4 million and $32.4 million (including the stock option and restricted stock award separation costs disclosed at the “Separation, Benefit Plan Termination and Related Costs” note of the Notes to Consolidated Financial Statements), approximately $5.3 million and $19.3 million for the year ended December 31, 2009, and approximately $5.0 million and $22.5 million for the year ended December 31, 2008, respectively.

As of December 31, 2010, there was approximately $59 million of total unrecognized compensation cost related to nonvested stock awards and stock options granted to Omnicare employees, which is expected to be recognized over a remaining weighted-average period of approximately 5 years.  The total grant date fair value of shares vested during the year ended December 31, 2010 related to stock options and stock awards was approximately $3.7 million  and $41.1  million (including the aforementioned separation costs), respectively.

General Stock Option Information

A summary of stock option activity under the plans for the year ended December 31, 2010, is presented below (in thousands, except exercise price data):

	2010
	Shares			Weighted Average Exercise Price
Options outstanding, beginning of year		6,323		$	32.50
Options granted		122			25.87
Options exercised		(386	)		17.18
Options forfeited		(642	)		33.93
Options outstanding, end of year		5,417			33.28
Options exercisable, end of year		4,872		$	34.11

The total exercise date intrinsic value of options exercised during the years ended December 31, 2010, 2009 and 2008 was approximately $3.6 million, $10.4 million and $3.6 million, respectively.

The following summarizes information about stock options outstanding and exercisable as of December 31, 2010 (in thousands, except exercise price and remaining life data):

OPTIONS OUTSTANDING							OPTIONS EXERCISABLE
Range of Exercise Prices	Number Outstanding at December 31, 2010		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable at December 31, 2010		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$15.46 - $23.17		706		1.71	$	20.21		618		0.84	$	19.98
23.18 - 30.90		2,589		3.13		26.40		2,187		2.19		26.59
30.91 - 38.61		95		4.72		35.15		57		3.55		35.86
38.62 - 61.79		2,027		2.93		46.52		2,010		2.91		46.57
$15.46 - $61.79		5,417		2.90	$	33.28		4,872		2.33	$	34.11

General Restricted Stock Award Information

A summary of nonvested restricted stock awards for the year ended December 31, 2010, is presented below (in thousands, except fair value data):

	2010
	Shares			Weighted Average Grant Date Price
Nonvested shares, beginning of year		2,595		$	29.52
Shares awarded		1,421			24.57
Shares vested		(1,337	)		30.78
Shares forfeited		(294	)		27.84
Nonvested shares, end of year		2,385		$	26.07

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Separation, Benefit Plan Termination and Related Costs

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Separation, Benefit Plan Termination and Related Costs

Note 12 - Separation, Benefit Plan Termination and Related Costs

Separation Costs:

On August 2, 2010, the Company announced that Joel F. Gemunder ("JFG") retired from his positions as the Company's President and Chief Executive Officer and as a member of the Board of Directors of the Company, effective July 31, 2010.  The JFG Separation Agreement provides that, in accordance with Mr. Gemunder's employment agreement, Mr. Gemunder receives an aggregate cash severance of approximately $16.2 million (excluding the Company’s share of employment taxes), payable in installments through July 1, 2011.  In addition, Mr. Gemunder earns interest on unpaid severance through February 1, 2011 at a rate of 8.75% per annum, per the agreement.  Mr. Gemunder was also paid for unused and accrued vacation time.

Additionally, pursuant to Mr. Gemunder's stock option and restricted stock agreements, on the retirement date, the unvested portion of 2,670,019 stock options and the 705,176 shares of restricted common stock held by Mr. Gemunder became fully vested.  As a result, the Company recorded a non-cash charge of approximately $14.1 million (excluding the Company’s share of employment taxes) in the third quarter of 2010.

On August 2, 2010, the Company also announced that Cheryl D. Hodges ("CDH"), Senior Vice President and Secretary of the Company, resigned from the Company effective July 31, 2010.  The CDH Separation Agreement provides that, in accordance with Ms. Hodges' employment agreement, Ms. Hodges receives an aggregate cash severance of approximately $2.1 million (excluding the Company’s share of employment taxes), payable in installments through July 1, 2011.  In addition, Ms. Hodges earns interest on unpaid severance through February 1, 2011 at a rate of 8.75% per annum, per the agreement.  Ms. Hodges was also paid for unused and accrued vacation time.

Further, pursuant to Ms. Hodges' stock option and restricted stock agreements, on the resignation date, the unvested portion of 446,859 stock options and the 111,573 shares of restricted common stock held by Ms. Hodges became fully vested.  As a result, the Company recorded a non-cash charge of approximately $3.1 million (excluding the Company’s share of employment taxes) in the third quarter of 2010.

A summary of the aforementioned separation costs (including employer payroll taxes) follows (in thousands):

	Year ended
	December 31, 2010
Severance	$	18,351
Restricted stock awards		15,934
Stock options		1,234
Interest expense		3,218
Accrued vacation		226
Company's share of employment taxes		610
Total separation costs	$	39,573

Benefit Plan Termination and Related Costs:

See additional information at the “Employee Benefit Plans” note of the Notes to Consolidated Financial Statements.

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Employee Benefit Plans

Note 13 – Employee Benefit Plans

The Company has various defined contribution savings plans under which eligible employees can participate by contributing a portion of their salary for investment, at the direction of each employee, in one or more investment funds.  Several of the plans were adopted in connection with certain of the Company’s acquisitions.  The plans are primarily tax-deferred arrangements pursuant to Internal Revenue Code (“IRC”) Section 401(k) and are subject to the provisions of the Employee Retirement Income Security Act (“ERISA”).  The Company matches employee contributions in varying degrees (either in shares of the Company’s common stock or cash, in accordance with the applicable plan provisions) based on the contribution levels of the employees, as specified in the respective plan documents.  Expense relating primarily to the Company’s matching contributions for these defined contribution plans for the years ended December 31, 2010, 2009 and 2008 was $5.6 million, $6.6 million and $6.4 million, respectively.

The Company has a non-contributory, defined benefit pension plan covering certain corporate headquarters employees and the employees of several companies sold by the Company in 1992, for which benefits ceased accruing upon the sale (the “Qualified Plan”).  Benefits accruing under this plan to corporate headquarters employees were fully vested and frozen as of January 1, 1994.

The Company also had an excess benefit plan (“EBP”) that provides retirement payments to certain headquarters employees in amounts generally consistent with what they would have received under the Qualified Plan.  The retirement benefits provided by the EBP are generally comparable to those that would have been earned in the Qualified Plan, if payments under the Qualified Plan were not limited by the IRC.  On September 30, 2010, the Company terminated the defined benefit portion of its Excess Benefit Plan.  See additional information at the “Plan curtailment” and “Benefit plan termination and related costs” section of this Note.

The Qualified Plan is funded with an irrevocable trust, which consists of assets held in the Vanguard Intermediate Term Treasury Fund Admiral Shares fund (“Vanguard Fund”), a mutual fund holding U.S. Treasury obligations.  In addition, the Company has established rabbi trusts, which are also held in the Vanguard Fund, to provide for retirement obligations under the EBP.  The Company’s general approach is to fund its pension obligations in accordance with the funding provisions of ERISA.

Components of Net Periodic Pension Cost and Other Amounts
Recognized in Other Comprehensive Income (Pre-tax)
(in thousands):	For the years ended December 31,
Net Periodic Pension Cost (Pre-tax):		2010			2009			2008
Service cost	$	2,226		$	1,499		$	5,121
Interest cost		3,323			5,997			9,542
Amortization of deferred amounts (primarily prior actuarial losses)		4,891			1,000			14,694
Return on assets		(224	)		(242	)		(483	)
Net periodic pension cost		10,216			8,254			28,874
Benefit plan termination and related costs (see below)		25,187			-			-
Net periodic pension costs and benefit plan termination and related costs		35,403			8,254			28,874
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Pre-tax):
Net loss (gain), net of curtailment		(49,463	)		40,342			(71,435	)
Amortization of net (loss)		(4,891	)		(1,000	)		(14,680	)
Amortization of prior service cost		-			-			(14	)
Total loss (gain) recognized in other comprehensive income		(54,354	)		39,342			(86,129	)
Total loss (gain) recognized in net periodic pension cost and other comprehensive income	$	(18,951	)	$	47,596		$	(57,255	)

Plan curtailment

As a result of plan curtailments, the projected benefit obligation of the Excess Benefit Plan was remeasured as of July 31, 2010 and September 30, 2010, resulting in a pretax increase to other comprehensive income of approximately $23.3 million during the 2010 year.

Benefit plan termination and related costs

On September 30, 2010, the Company terminated the defined benefit portion of its Excess Benefit Plan (“the Plan”) which was not a qualified plan under the Internal Revenue Code of 1986, as amended.  As a result of the termination, each active participant’s terminated plan liability was determined, based primarily on the participant’s compensation and duration of employment, as of September 30, 2010.  Partial payments were made to non-active participants through September 30, 2010, with remaining payments to be made at varying times spanning through September 2012.  As a result of the Plan termination, the Company recognized a one-time charge to expense of approximately $25 million in the third quarter of 2010 for benefit plan termination and related costs, primarily comprised of the recognition of previously deferred actuarial losses.

As of December 31, 2010, the Company had approximately $75 million in notes payable remaining to participants, recorded in “Other current liabilities” on the Consolidated Balance Sheets.  These notes payable were fully funded as of December 31, 2010 with rabbi trust assets, having a fair value of approximately $86 million, invested for the purpose of satisfying these obligations.

Approximately $58 million of payments were made during 2010 to three former executives (Joel F. Gemunder, Cheryl D. Hodges and Patrick E. Keefe) relating to the Plan (using funds obtained upon the liquidation of a portion of the rabbi trust assets).  Notes payable related to Mr. Gemunder and Ms. Hodges of approximately $66 million remain as of December 31, 2010 (included in the aforementioned $75 million), and were paid in full in February 2011.  In addition, under the terms of the related separation agreements, Mr. Gemunder and Ms. Hodges earned interest on their unpaid benefit plan amounts at a rate of 8.75% per annum until the final payments were made in February 2011.  In connection with the funding of the payments in 2010 to the former executives, the Company recorded a gain of approximately $3.6 million on rabbi trust assets liquidated to make the payments.

The estimated amount of net loss in accumulated other comprehensive income expected to be recognized as a component of net periodic pension cost during the 2011 year is approximately $0.1 million.

The actuarial assumptions used to calculate net periodic pension costs for years ended December 31 were as follows:

	2010	2009	2008
Discount rate	3.8%	5.6%	5.8%
Rate of increase in compensation levels	15.0%	10.0%	25.0%
Expected rate of return on assets	6.0%	6.0%	6.0%

The actuarial assumptions used to calculate the benefit obligations at the end of plan year were as follows:

	2010	2009	2008
Discount rate	5.4%	3.8%	5.6%
Rate of increase in compensation levels	N/A	15.0%	10.0%
Expected rate of return on assets	6.0%	6.0%	6.0%

The discount rate assumption was determined giving consideration primarily to the Citigroup Pension Liability Index.  It should be noted that the actuarial calculation is highly dependent upon the stock price on the date(s) of stock award vesting and, accordingly, can fluctuate significantly with changes in Omnicare’s stock price.  The expected rate of return on assets was estimated based primarily on the historical rate of return on intermediate-term U.S. Government securities.

Obligations and Funded Status
(in thousands):
	For the years ended December 31,
Change in Plan Assets:	2010				2009
Fair value of plan assets at end of prior year	$	3,917		(1)	$	4,029
Actual return on plan assets		291				(68	)
Employer contributions		-				60
Benefits paid		(127	)			(104	)
Fair value of plan assets at end of year	$	4,081		(1)	$	3,917		(1)
Change in Projected Benefit Obligation:
Projected benefit obligation at end of prior year	$	157,120			$	109,696
Plan curtailment		(23,359	)			-
Establishment of notes payable		(86,389	)			-
Service cost		2,226				1,499
Interest cost		3,323				5,997
Actuarial loss/(gain)		(827	)			40,032
Benefits paid		(47,060	)			(104	)
Projected benefit obligation at end of year	$	5,034			$	157,120
Funded Status:
Projected benefit obligation in excess of plan assets	$	(953	)	(1)	$	(153,203	)	(1)
Accumulated benefit obligation at end of year	$	5,034			$	127,264

(1)   In addition to the irrevocable trust assets presented at fair value based on the quoted market prices of the investments held by the trustee in the table above, the Company has invested additional funds for settlement of the Company’s pension obligations in rabbi trusts, which totaled $133 million as of December 31, 2009.  Since rabbi trust assets do not serve to offset the Company’s pension obligation for accounting purposes per U.S. GAAP, the funded status above has been reflected as the difference between the projected benefit obligation for all plans and the irrevocable trust plan assets of the Qualified Plan.

The Company’s investment strategy generally targets investing in intermediate U.S. government and agency securities funds, seeking a moderate and sustainable level of current income by investing primarily in intermediate-term U.S. Treasury obligations with a low credit default risk.

Amounts Recognized in the Consolidated Balance
Sheets Consist of (in thousands):
		December 31,
		2010		2009
Current liabilities		$	-	$	17,252
Noncurrent liabilities			953		135,951
Total		$	953	$	153,203
Amounts Recognized in Accumulated Other Comprehensive Income (Pretax) Consist of:
Net loss		$	950	$	55,530
Prior service cost			-		-
Total		$	950	$	55,530
Information for Pension Plans with an Accumulated Benefit Obligation in excess of Plan Assets (in thousands):
		December 31,
			2010		2009
Qualified Plan:
Projected benefit obligation		$	5,034	$	6,242
Accumulated benefit obligation			5,034		6,242
Fair value of plan assets (1)			4,081		3,917
EBP Plan:
Projected benefit obligation			-		150,878
Accumulated benefit obligation			-		121,022
Fair value of plan assets (1)			-		-
Grand Totals:
Projected benefit obligation			5,034		157,120
Accumulated benefit obligation			5,034		127,264
Fair value of plan assets (1)			4,081		3,917
(1)	See "Obligations and Funded Status" table of this note for further discussion.

No funding is anticipated to be necessary in 2011 relating to the Qualified Plan.

Projected benefit payments, which reflect expected future service, as appropriate, for each of the next five fiscal years and in the aggregate for the five fiscal years thereafter as of December 31, 2010 are estimated as follows (in thousands):

2011	$	149
2012		186
2013		192
2014		207
2015		230
Years 2016 - 2020		1,354

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Income Taxes

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Income Taxes

Note 14 – Income Taxes

Provision

The provision for income taxes from continuing operations is comprised of the following (in thousands):

	For the years ended December 31,
	2010			2009		2008
Current provision	$	(3,908	)	$	6,198	$	32,268
Deferred provision		22,952			90,658		56,041
Total income tax provision from continuing operations	$	19,044		$	96,856	$	88,309

Tax benefits related to the exercise of stock options and stock awards have been credited (debited) to paid-in capital in amounts of $(1.2) million, $1.8 million and $(1.2) million for 2010, 2009 and 2008, respectively.

Effective Income Tax Rate

The difference between the Company’s reported income tax expense from continuing operations and the federal income tax expense from continuing operations computed at the statutory rate of 35% is explained in the following table (in thousands):

	For the years ended December 31,
	2010					2009					2008
Federal income tax at the statutory rate	$	11,728		35.0	%	$	116,043		35.0	%	$	76,863		35.0	%
State, local and foreign income taxes, net of federal income tax benefit		4,133		12.3			10,661		3.2			3,988		1.8
Reduction for tax positions settled, net of federal income tax benefit		(12,324	)	(36.8	)		(37,952	)	(11.4	)		(423	)	(0.2	)
Settlements and related reserves		13,746		41.0			5,307		1.6			7,500		3.4
Other, net (including tax accrual adjustments)		1,761		5.3			2,797		0.8			381		0.2
Total income tax provision from continuing operations	$	19,044		56.8	%	$	96,856		29.2	%	$	88,309		40.2	%

Income tax payments, net, amounted to$23.6 million, $60.9 million and$13.5 million in 2010, 2009 and 2008, respectively.

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2010			2009
Accounts receivable reserves	$	135,132		$	112,999
Net operating loss (“NOL”) carryforwards		80,824			83,375
Accrued liabilities		97,008			92,637
Pension obligations		29,274			60,035
Other		14,873			13,734
Gross deferred tax assets, before valuation allowances		357,111			362,780
Valuation allowances		(15,959	)		(20,255	)
Gross deferred tax assets, net of valuation allowances	$	341,152		$	342,525
Amortization of intangibles	$	532,133		$	485,461
Contingent convertible debentures interest		322,610			248,480
Fixed assets and depreciation methods		33,589			29,968
Subsidiary stock basis		12,240			12,259
Current and noncurrent assets		7,097			4,263
Other		20,222			23,334
Gross deferred tax liabilities	$	927,891		$	803,765

As of December 31, 2010, the Company has remaining deferred tax benefits related to its federal, state and foreign net operating losses totaling approximately $81 million ($38 million federal and $43 million state).  These NOLs will expire, in varying amounts, beginning in 2011 through 2030.  The potential future tax benefits of the NOLs have been offset by $16.0 million of valuation allowance based on the Company’s analysis of the likelihood of generating sufficient taxable income in the various jurisdictions to utilize the benefits before expiration.

Uncertain Tax Positions

At January 1, 2010, the Company had gross unrecognized tax benefits of $27.7 million and ended the year with gross unrecognized tax benefits of $18.0 million.  A reconciliation of the beginning and ending of year amount of unrecognized tax benefit is as follows (in thousands):

	2010			2009			2008
Unrecognized tax benefits at beginning of year	$	27,700		$	66,902		$	77,586
Additions based on tax positions related to the current year		1,532			631			3,049
Additions for tax positions of prior years		3,100			1,062			5,123
Reductions for tax positions of prior years		(1,634	)		(2,405	)		(11,893	)
Settlement reductions		-			(2,042	)		(1,517	)
Reductions for tax positions settled through the expirations of the statute of limitations		(12,664	)		(36,448	)		(5,446	)
Unrecognized tax benefits at end of year	$	18,034		$	27,700		$	66,902

Included in the balance at December 31, 2010 are $13.9 million of unrecognized tax benefits, net of federal tax benefit that, if recognized, would affect the effective tax rate.  The liabilities for unrecognized tax benefits are carried in “Other noncurrent liabilities” on the Consolidated Balance Sheets because payment of cash is not anticipated within one year of the balance sheet date for any significant unrecognized amounts.  However, it is reasonably possible that $1.8 million, net of federal tax benefit, of unrecognized federal and state tax benefits will reverse within one year of the balance sheet date due to the expiration of statutes of limitations.  The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expenses.  During the year ended December 31, 2010, the Company recognized approximately $(1.8) million in interest, net of federal tax benefit, and penalties.  The Company had approximately $3.8 million for the payment of interest and penalties accrued at December 31, 2010.

The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions.  With few exceptions, the Company is no longer subject to U.S. federal examinations by tax authorities for years before 2007, and state and local, or non-U.S. income tax examinations, by tax authorities for years before 2006.

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands	12 Months Ended
	Dec. 31, 2010	Dec. 31, 2009
Current assets:
Cash and cash equivalents	$ 494,484	$ 275,707
Restricted cash	2,019	15,264
Accounts receivable, less allowances of $401,027 (2009-$332,541)	1,011,823	1,183,144
Inventories	418,965	368,477
Deferred income tax benefits	150,644	112,906
Rabbi trust assets	85,741	0
Other current assets	246,866	182,579
Current assets of discontinued operations	47,254	81,530
Total current assets	2,457,796	2,219,607
Properties and equipment, at cost less accumulated depreciation of $284,533 (2009-$300,655)	204,717	203,847
Goodwill	4,234,821	4,152,255
Identifiable intangible assets, less accumulated amortization of $219,107 (2009-$184,216)	259,809	293,831
Rabbi trust assets	0	133,040
Other noncurrent assets	156,941	147,037
Noncurrent assets of discontinued operations	49,329	174,487
Total noncurrent assets	4,905,617	5,104,497
Total assets	7,363,413	7,324,104
Current liabilities:
Accounts payable	233,396	256,929
Accrued employee compensation	59,417	36,900
Deferred revenue	2,352	1,827
Current debt	3,537	127,069
Other current liabilities	273,191	172,922
Current liabilities of discontinued operations	22,361	22,170
Total current liabilities	594,254	617,817
Long-term debt, notes and convertible debentures (Note 10)	2,106,758	1,980,239
Deferred income tax liabilities	737,383	574,146
Other noncurrent liabilities	109,074	275,909
Total noncurrent liabilities	2,953,215	2,830,294
Total liabilities	3,547,469	3,448,111
Commitments and contingencies (Note 17)
Stockholders' equity:
Common stock, $1 par value, 200,000,000 shares authorized, 129,634,300 shares issued (2009-127,824,800 shares issued)	129,634	127,825
Paid-in capital (Note 10)	2,424,978	2,269,905
Retained earnings	1,579,672	1,698,620
Treasury stock, at cost-13,011,700 shares (2009-7,545,000 shares)	(333,554)	(205,017)
Accumulated other comprehensive (loss) income	15,214	(15,340)
Total stockholders' equity	3,815,944	3,875,993
Total liabilities and stockholders' equity	$ 7,363,413	$ 7,324,104

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Earnings (Loss) Per Share Data

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Earnings Per Share Data

Note 15 – Earnings Per Share Data

Basic earnings per share are computed based on the weighted-average number of shares of common stock outstanding during the period.  Diluted earnings per share include the dilutive effect of stock options, warrants and restricted stock awards, as well as convertible debentures.

The following is a reconciliation of the basic and diluted earnings per share (“EPS”) computations for both the numerator and denominator (in thousands, except per share data):

	For the years ended December 31,
	Income (loss)			Common Shares		Per Common
2010:	(Numerator)			(Denominator)		Share Amounts
Basic EPS
Income from continuing operations	$	14,464				$	0.12
Loss from discontinued operations		(120,573	)				(1.04	)
Net loss		(106,109	)		116,348	$	(0.91	)
Effect of Dilutive Securities (see below)
4.00% junior subordinated convertible debentures		289			275
Stock options, warrants and awards		-			304
Diluted EPS
Income from continuing operations plus assumed conversions		14,753				$	0.13
Loss from discontinued operations		(120,573	)				(1.03	)
Net loss plus assumed conversions	$	(105,820	)		116,927	$	(0.91	)
2009:
Basic EPS
Income from continuing operations	$	234,695				$	2.00
Loss from discontinued operations		(22,772	)				(0.19	)
Net income		211,923			117,094	$	1.81
Effect of Dilutive Securities
4.00% junior subordinated convertible debentures		284			275
Stock options, warrants and awards		-			408
Diluted EPS
Income from continuing operations plus assumed conversions		234,979				$	2.00
Loss from discontinued operations		(22,772	)				(0.19	)
Net income plus assumed conversions	$	212,207			117,777	$	1.80

2008:
Basic EPS
Income from continuing operations	$	131,301		$	1.12
Income from discontinued operations		9,172			0.08
Net income		140,473	117,466	$	1.20
Effect of Dilutive Securities
4.00% junior subordinated convertible debentures		279	275
Stock options, warrants and awards		-	572
Diluted EPS
Income from continuing operations plus assumed conversions		131,580		$	1.11
Income from discontinued operations		9,172			0.08
Net income plus assumed conversions	$	140,752	118,313	$	1.19

During the years ended December 31, 2010, 2009 and 2008, the anti-dilutive effect associated with certain stock options, warrants and stock 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 stock awards excluded from the computation of the diluted EPS for those years totaled approximately 4.6 million, 6.2 million and 6.5 million, respectively.

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Restructuring and Other Related Charges

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Restructuring and Other Related Charges

Note 16 – Restructuring and Other Related Charges

Company-wide Reorganization Program:

During 2010, the Company initiated a “Company-wide Reorganization 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, and is largely related to severance and employee buyout costs, which will primarily be operating expense related.  In implementing these initiatives, the Company recorded restructuring charges of approximately $3 million in the year ended December 31, 2010.

Details of the Company-wide Reorganization Program restructuring related charges follow (pretax, in thousands):

	2010		Utilized			Balance at
	Provision/		during			December 31,
	Accrual		2010			2010
Restructuring charges:
Employee severance pay	$	446	$	(141	)	$	305
Employment agreement buy-outs		2,733		(933	)		1,800
Professional fees, facility exit costs and other		91		(91	)		-
Total restructuring charges	$	3,270	$	(1,165	)	$	2,105

Omnicare Full Potential Program:

In 2006, the Company commenced the implementation of the “Omnicare Full Potential” Plan, a major initiative primarily designed to re-engineer the Company’s pharmacy operating model to increase efficiency and enhance customer growth, which was substantially completed in 2010.  The Omnicare Full Potential Plan optimized resources across the entire organization through implementing best practices, including the realignment and right-sizing of functions, and a “hub-and-spoke” model, whereby certain key administrative and production functions were transferred to regional support centers (“hubs”) specifically designed and managed to perform these tasks, with local pharmacies (“spokes”) focusing on time-sensitive services and customer-facing processes.

The Company recorded restructuring and other related charges for the Omnicare Full Potential Program of approximately $14 million, $20 million and $34 million during the years ended December 31, 2010, 2009 and 2008, respectively, or cumulative aggregate restructuring and other related charges of approximately $110 million through 2010.  The Company eliminated approximately 2,700 positions in completing the Omnicare Full Potential program.

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

	Balance at		2008		Utilized			Balance at		2009
	December 31,		Provision/		during			December 31,		Provision/
	2007		Accrual		2008			2008		Accrual
Restructuring charges:
Employee severance	$	35	$	3,983	$	(4,018	)	$	-	$	5,759
Employment agreement buy-outs		1,199		337		(1,501	)		35		135
Lease terminations		2,471		8,509		(2,969	)		8,011		3,416
Other assets, fees and facility exit costs		1,855		15,810		(15,272	)		2,393		5,071
Total restructuring charges	$	5,560		28,639	$	(23,760	)	$	10,439		14,381
Other related charges				5,450							5,433
Total restructuring and other related charges			$	34,089						$	19,814

	Utilized			Balance at		2010		Utilized			Balance at
	during			December 31,		Provision/		during			December 31,
	2009			2009		Accrual		2010			2010
Restructuring charges:
Employee severance	$	(5,759	)	$	-	$	6,398	$	(5,688	)	$	710
Employment agreement buy-outs		(170	)		-		-		-			-
Lease terminations		(4,314	)		7,113		3,578		(4,119	)		6,572
Other assets, fees and facility exit costs		(7,005	)		459		2,453		(2,531	)		381
Total restructuring charges	$	(17,248	)	$	7,572		12,429	$	(12,338	)	$	7,663
Other related charges							1,466
Total restructuring and other related charges						$	13,895

As of December 31, 2010, the Company has made cumulative payments of approximately $24 million of severance and other employee-related costs for the Omnicare Full Potential Plan.  The remaining liabilities at December 31, 2010 represent amounts not yet paid relating to actions taken in connection with the program (primarily lease payments and employee severance).  The provision/accrual and corresponding payment amounts relating to employee severance were accounted for primarily in accordance with the authoritative guidance for employers’ accounting for postemployment benefits; and the provision/accrual and corresponding payment amounts relating to employment agreement buy-outs are being accounted for primarily in accordance with the authoritative guidance regarding accounting for costs associated with exit or disposal activities.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Commitments and Contingencies

Note 17 – Commitments and Contingencies

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

On December 13, 2010, a qui tam complaint entitled United States ex rel. Bartz v. Ortho-McNeil Pharmaceuticals, Inc., Johnson & Johnson, Inc., 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, Inc. 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, Inc. and its affiliates provided the Company and McKesson with rebates, free drugs and other remuneration in order to limit Johnson & Johnson, Inc.’s rebate liability to Medicaid.  The Company believes that the allegations are without merit and intends to vigorously defend itself in this action if pursued.

On September 15, 2010, Omnicare entered into settlement agreements, without any finding of wrongdoing or admission of liability, with the State of Michigan, the Commonwealth of Massachusetts and David M. Kammerer ("Relator"), relating to sealed qui tam litigation originally filed by Relator in Ohio federal court in August 2003.  The Company has paid $11.6 million pursuant to the Michigan settlement agreement and $9.45 million pursuant to the Massachusetts settlement agreement to resolve allegations of inappropriate billing, beginning in August 1997, under the states' usual and customary charge provisions.   The Company has paid Relator's expenses and attorneys' fees of $385,000.  The Company recorded provisions of $24.2 million for these payments, and a separate unrelated matter with another state which is still under review, in the quarter ended June 30, 2010.

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 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 quarter ended 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 the members of the Board and certain current and former officers of the Company, individually, purporting to assert claims for breach of fiduciary duty, unjust enrichment, gross mismanagement, and waste of corporate assets arising out of alleged violations of federal and state laws prohibiting the payment of illegal kickbacks and the submission of false claims in connection with the Medicare and Medicaid healthcare programs. Plaintiff alleges that the Board and senior management caused the Company to violate these laws, which has resulted in over $100 million in fines and penalties paid by Omnicare and exposed the Company and certain individual defendants to potential civil and criminal liability.  The Company believes that the action is without merit and intends to continue to defend itself vigorously.

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.  The Company believes the allegations are without merit and intends to vigorously defend itself if pursued.

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.  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.

On November 2, 2009, following an investigation by the U.S. Attorney’s Office, District of Massachusetts, the Company entered into a civil settlement agreement, without any finding of wrongdoing or any admission of liability, under which the Company paid the federal government and participating state governments $98 million plus interest from June 24, 2009 and related expenses to settle various alleged civil violations of federal and state laws concerning the Company’s relationships with certain manufacturers and distributors of pharmaceutical products and certain customers, as well as with respect to contracts with certain companies acquired by the Company.  As part of the settlement agreement, the Company also entered into an amended and restated corporate integrity agreement (“CIA”) with the Department of Health and Human Services Office of the Inspector General with a term of five years from November 2, 2009.  Pursuant to the CIA, the Company is required, among other things, to (i) create procedures designed to ensure that each existing, new or renewed arrangement with any actual or potential source of health care business or referrals to Omnicare or any actual or potential recipient of health care business or referrals from Omnicare does not violate the Anti-Kickback Statute, 42 U.S.C. (§) 1320a-7b(b) or related regulations, directives and guidance, including creating and maintaining a database of such arrangements; (ii) retain an independent review organization to review the Company’s compliance with the terms of the CIA and report to OIG regarding that compliance; and (iii) provide training for certain Company employees as to the Company’s requirements under the CIA.  The requirements of the Company’s prior corporate integrity agreement obligating the Company to create and maintain procedures designed to ensure that all therapeutic interchange programs are developed and implemented by Omnicare consistent with the CIA and federal and state laws for obtaining prior authorization from the prescriber before making a therapeutic interchange of a drug and to maintain procedures for the accurate preparation and submission of claims for federal health care program beneficiaries in hospice programs, have been incorporated into the amended and restated 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 will need to be increased, and there can be no assurance that such pricing will not result in the loss of certain contracts.

On February 2 and February 13, 2006, respectively, two substantially similar putative class action lawsuits, entitled Indiana State Dist. Council of Laborers & HOD Carriers Pension & Welfare Fund v. Omnicare, Inc., et al., No. 2:06cv26 (“HOD Carriers”), and Chi v. Omnicare, Inc., et al., No. 2:06cv31 (“Chi”), were filed against Omnicare and two of its officers in the United States District Court for the Eastern District of Kentucky purporting to assert claims for violation of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeking, among other things, compensatory damages and injunctive relief.  The complaints, which purported to be brought on behalf of all open-market purchasers of Omnicare common stock from August 3, 2005 through January 27, 2006, alleged that Omnicare had artificially inflated its earnings by engaging in improper generic drug substitution and that defendants had made false and misleading statements regarding the Company’s business and prospects.  On July 20, 2006, plaintiffs filed a consolidated amended complaint, adding a third officer as a defendant and new factual allegations primarily relating to revenue recognition, the valuation of receivables and the valuation of inventories.  The second amended complaint (i) expands the putative class to include all purchasers of Omnicare common stock from August 3, 2005 through July 27, 2006, (ii) names two members of the Company’s board of directors as additional defendants, (iii) adds a new plaintiff and a new claim for violation of Section 11 of the Securities Act of 1933 based on alleged false and misleading statements in the registration statement filed in connection with the Company’s December 2005 public offering, (iv) alleges that the Company failed to timely disclose its contractual dispute with UnitedHealth Group, Inc. and its affiliates (“United”), and (v) alleges that the Company failed to timely record certain special litigation reserves.  The defendants filed a motion to dismiss the second 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 §§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 second amended complaint with prejudice.  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.

The years ended 2010, 2009 and 2008 included a $113.7 million (including a $42.1 million charge in the fourth quarter), $77.4 million and $99.3 million charge, 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 (including a $24.2 million charge in the second quarter of 2010) and regulatory agencies (including the Michigan and Massachusetts qui tams and the DEA matter), certain large customer and contract disputes (including a previously disclosed $23.1 million charge in the third quarter of 2010 related to its preliminary settlement of legal action against a group of its customers for the collection of past-due receivables); costs associated with the settlement of the investigation by the United States Attorney’s Office, District of Massachusetts; the Company’s lawsuit against United; 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 $(1.2) million, $(1.1) million and $6.4 million for the years ended December 31, 2010, 2009 and 2008, 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, in the case of the Repack Matters and other billing matters, that these matters will be resolved in an amount that would not exceed the amount of the pretax charges previously recorded by the Company.

As part of its ongoing operations, the Company is subject to various inspections, audits, inquiries, investigations and similar actions by third parties, as well as governmental/regulatory authorities responsible for enforcing the laws and regulations to which the Company is subject.  The Company is also involved in various legal actions arising in the normal course of business.  At any point in time, the Company is in varying stages of discussions on these matters.  These matters are continuously being evaluated and, in many cases, are being contested by the Company and the outcome is not predictable.  Consequently, an estimate of the 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.

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Segment Information

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Segment Information

Note 18 – 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.

The Company’s operations are primarily in the United States with one pharmacy located in Canada which is not material to the consolidated sales or total assets of Omnicare.

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Summary of Quarterly Results (Unaudited)

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Summary of Quarterly Results

Note 19 – Summary of Quarterly Results (Unaudited)

The following table presents the Company's quarterly financial information for 2010 and 2009 (in thousands, except per share data):

	First			Second			Third			Fourth			Full
	Quarter			Quarter			Quarter			Quarter			Year
2010 (a)
Net sales	$	1,492,371		$	1,491,425		$	1,516,207		$	1,530,667		$	6,030,670
Cost of sales		1,151,027			1,164,170			1,182,815			1,196,428			4,694,440
Gross profit		341,344			327,255			333,392			334,239			1,336,230
Selling, general and administrative expenses		182,771			185,919			190,745			188,173			747,608
Provision for doubtful accounts		21,942			20,986			22,376			71,326			136,630
Restructuring and other related charges		3,505			3,489			3,335			6,836			17,165
Settlement, litigation and other related charges		5,506			29,361			36,731			42,111			113,709
Goodwill and other asset impairment charges		-			-			-			22,884			22,884
Separation, benefit plan termination and related costs		-			-			64,760			-			64,760
Other miscellaneous charges		2,260			1,796			4,687			35,577			44,320
Operating income (loss)		125,360			85,704			10,758			(32,668	)		189,154
Investment income		1,664			1,105			4,096			2,745			9,610
Interest expense		(28,608	)		(39,712	)		(30,975	)		(36,425	)		(135,720	)
Amortization of discount on convertible notes		(7,331	)		(7,473	)		(7,615	)		(7,117	)		(29,536	)
Income (loss) from continuing operations before income taxes		91,085			39,624			(23,736	)		(73,465	)		33,508
Income tax provision		33,644			15,879			(14,100	)		(16,379	)		19,044
Income (loss) from continuing operations		57,441			23,745			(9,636	)		(57,086	)		14,464
Loss from discontinued operations		(6,589	)		(12,146	)		(93,630	)		(8,208	)		(120,573	)
Net income (loss)	$	50,852		$	11,599		$	(103,266	)	$	(65,294	)	$	(106,109	)
Earnings (loss) per common share - Basic:(b)
Continuing operations	$	0.49		$	0.20		$	(0.08	)	$	(0.50	)	$	0.12
Discontinued operations		(0.06	)		(0.10	)		(0.81	)		(0.07	)		(1.04	)
Net income (loss)	$	0.43		$	0.10		$	(0.89	)	$	(0.57	)	$	(0.91	)
Earnings (loss) per common share - Diluted:(b)
Continuing operations	$	0.49		$	0.20		$	(0.08	)	$	(0.50	)	$	0.13
Discontinued operations		(0.06	)		(0.10	)		(0.81	)		(0.07	)		(1.03	)
Net income (loss)	$	0.43		$	0.10		$	(0.89	)	$	(0.57	)	$	(0.91	)
Dividends per common share	$	0.0225		$	0.0225		$	0.0325		$	0.0325		$	0.11
Weighted average number of
common shares outstanding:
Basic		117,763			117,434			115,554			114,685			116,348
Diluted		118,455			118,116			115,554			114,685			116,927
Comprehensive income (loss)	$	51,877		$	9,310		$	(69,432	)	$	(67,310	)	$	(75,555	)

Note 19 – Summary of Quarterly Results (Unaudited)-Continued

	First			Second			Third			Fourth			Full
	Quarter			Quarter			Quarter			Quarter			Year
2009 (a)
Net sales	$	1,495,023		$	1,497,681		$	1,505,000		$	1,503,349		$	6,001,053
Cost of sales		1,123,529			1,142,547			1,153,246			1,147,515			4,566,837
Gross profit		371,494			355,134			351,754			355,834			1,434,216
Selling, general and administrative expenses		201,052			189,099			189,834			186,187			766,172
Provision for doubtful accounts		25,222			22,519			22,858			21,896			92,495
Restructuring and other related charges		6,865			5,230			3,673			4,046			19,814
Settlement, litigation and other related charges		41,665			28,357			1,739			5,688			77,449
Other miscellaneous charges		3,474			3,831			699			531			8,535
Operating income		93,216			106,098			132,951			137,486			469,751
Investment income		2,407			1,032			1,202			5,029			9,670
Interest expense		(31,285	)		(29,774	)		(29,588	)		(29,246	)		(119,893	)
Amortization of discount on convertible notes		(6,797	)		(6,927	)		(7,059	)		(7,194	)		(27,977	)
Income from continuing operations before income taxes		57,541			70,429			97,506			106,075			331,551
Income tax provision		28,221			29,734			18,005			20,896			96,856
Income from continuing operations		29,320			40,695			79,501			85,179			234,695
Income (loss) from discontinued operations		1,574			(11,976	)		(6,986	)		(5,384	)		(22,772	)
Net income	$	30,894		$	28,719		$	72,515		$	79,795		$	211,923
Earnings (loss) per common share - Basic:(b)
Continuing operations	$	0.25		$	0.35		$	0.68		$	0.73		$	2.00
Discontinued operations		0.01			(0.10	)		(0.06	)		(0.05	)		(0.19	)
Net income	$	0.27		$	0.25		$	0.62		$	0.68		$	1.81
Earnings (loss) per common share - Diluted:(b)
Continuing operations	$	0.25		$	0.35		$	0.67		$	0.72		$	2.00
Discontinued operations		0.01			(0.10	)		(0.06	)		(0.05	)		(0.19	)
Net income	$	0.26		$	0.24		$	0.61		$	0.68		$	1.80
Dividends per common share	$	0.0225		$	0.0225		$	0.0225		$	0.0225		$	0.09
Weighted average number of
common shares outstanding:
Basic		116,448			116,852			117,598			117,462			117,094
Diluted		117,341			117,640			118,145			117,980			117,777
Comprehensive income	$	30,675		$	27,223		$	75,031		$	63,490		$	196,419

Notes to Summary of Quarterly Results:

(a) Certain amounts for all periods presented have been recast to present CRO Services and Tidewater as discontinued operations.

(b) Earnings per share is calculated independently for each separately reported quarterly and full year period.  Accordingly, the sum of the separately reported quarters may not necessarily be equal to the per share amount for the corresponding full year period, as independently calculated.

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Guarantor Subsidiaries

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Guarantor Subsidiaries

Note 20 – Guarantor Subsidiaries

The Company’s 6.125% Notes due 2013,  the 6.875% 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 December 31, 2010 and 2009 for the balance sheets, as well as the statements of income and the statements of cash flows for each of the three years in the period ended December 31, 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.  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 20 – Guarantor Subsidiaries – Continued

Summary Consolidating Statements of Income

(in thousands)	For the years ended December 31,
2010:	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
Net sales	$	-		$	5,891,219		$	139,451		$	-		$	6,030,670
Cost of sales		-			4,590,118			104,322			-			4,694,440
Gross profit		-			1,301,101			35,129			-			1,336,230
Selling, general and administrative expenses		9,569			722,789			15,250			-			747,608
Provision for doubtful accounts		-			134,391			2,239			-			136,630
Restructuring and other related charges		-			17,165			-			-			17,165
Settlement, litigation and other related charges		-			113,709			-			-			113,709
Goodwill and other asset impairment charges		-			22,884			-			-			22,884
Separation, benefit plan termination and related costs		-			64,760			-			-			64,760
Other miscellaneous charges		-			44,320			-			-			44,320
Operating (loss) income		(9,569	)		181,083			17,640			-			189,154
Investment income		939			8,671			-			-			9,610
Interest expense, including amortization of discount on convertible notes		(163,864	)		(1,392	)		-			-			(165,256	)
(Loss) income from continuing operations before income taxes		(172,494	)		188,362			17,640			-			33,508
Income tax (benefit) expense		(64,478	)		82,225			1,297			-			19,044
(Loss) income from continuing operations		(108,016	)		106,137			16,343			-			14,464
Loss from discontinued operations		-			(85,684	)		(34,889	)		-			(120,573	)
Equity in net income of subsidiaries		1,907			-			-			(1,907	)		-
Net income (loss)	$	(106,109	)	$	20,453		$	(18,546	)	$	(1,907	)	$	(106,109	)
2009:
Net sales	$	-		$	5,871,171		$	129,882		$	-		$	6,001,053
Cost of sales		-			4,459,310			107,527			-			4,566,837
Gross profit		-			1,411,861			22,355			-			1,434,216
Selling, general and administrative expenses		14,875			743,728			7,569			-			766,172
Provision for doubtful accounts		-			90,636			1,859			-			92,495
Restructuring and other related charges		-			19,814			-			-			19,814
Settlement, litigation and other related charges		-			77,449			-			-			77,449
Other miscellaneous charges		-			8,535			-			-			8,535
Operating (loss) income		(14,875	)		471,699			12,927			-			469,751
Investment income		886			8,784			-			-			9,670
Interest expense, including amortization of discount on convertible notes		(146,841	)		(1,029	)		-			-			(147,870	)
(Loss) income from continuing operations before income taxes		(160,830	)		479,454			12,927			-			331,551
Income tax (benefit) expense		(61,324	)		154,158			4,022			-			96,856
(Loss) income from continuing operations		(99,506	)		325,296			8,905			-			234,695
Loss from discontinued operations		-			(12,279	)		(10,493	)		-			(22,772	)
Equity in net income of subsidiaries		311,429			-			-			(311,429	)		-
Net income (loss)	$	211,923		$	313,017		$	(1,588	)	$	(311,429	)	$	211,923
2008:
Net sales	$	-		$	5,845,793		$	146,657		$	-		$	5,992,450
Cost of sales		-			4,399,119			119,526			-			4,518,645
Gross profit		-			1,446,674			27,131			-			1,473,805
Selling, general and administrative expenses		16,007			831,669			6,806			-			854,482
Provision for doubtful accounts		-			104,369			1,871			-			106,240
Restructuring and other related charges		-			34,089			-			-			34,089
Settlement, litigation and other related charges		-			99,267			-			-			99,267
Other miscellaneous charges		-			914			-			-			914
Operating (loss) income		(16,007	)		376,366			18,454			-			378,813
Investment income		1,584			8,198			-			-			9,782
Interest expense, including amortization of discount on convertible notes		(164,175	)		(1,784	)		(3,026	)		-			(168,985	)
(Loss) income from continuing operations before income taxes		(178,598	)		382,780			15,428			-			219,610
Income tax (benefit) expense		(69,083	)		151,480			5,912			-			88,309
(Loss) income from continuing operations		(109,515	)		231,300			9,516			-			131,301
Income from discontinued operations		-			9,090			82			-			9,172
Equity in net income of subsidiaries		249,988			-			-			(249,988	)		-
Net income	$	140,473		$	240,390		$	9,598		$	(249,988	)	$	140,473

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Balance Sheets

(in thousands)

As of December 31, 2010:	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
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 - 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 - 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 (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, net-noncurrent		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
As of December 31, 2009:	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
ASSETS
Cash and cash equivalents	$	230,866	$	32,202	$	12,639	$	-		$	275,707
Restricted cash		-		15,264		-		-			15,264
Accounts receivable, net (including intercompany)		-		1,169,809		19,221		(5,886	)		1,183,144
Inventories		-		361,156		7,321		-			368,477
Deferred income tax benefits, net-current		-		117,354		49		(4,497	)		112,906
Other current assets		1,026		179,940		1,613		-			182,579
Current assets - discontinued operations		-		73,246		8,284		-			81,530
Total current assets		231,892		1,948,971		49,127		(10,383	)		2,219,607
Properties and equipment, net		-		200,247		3,600		-			203,847
Goodwill		-		4,074,327		77,928		-			4,152,255
Identifiable intangible assets, net		-		284,482		9,349		-			293,831
Other noncurrent assets		29,930		250,098		49		-			280,077
Noncurrent assets - discontinued operations		-		150,707		23,780		-			174,487
Investment in subsidiaries		5,984,872		-		-		(5,984,872	)		-
Total assets	$	6,246,694	$	6,908,832	$	163,833	$	(5,995,255	)	$	7,324,104
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities (including intercompany)	$	144,793	$	453,232	$	3,508	$	(5,886	)	$	595,647
Current liabilities - discontinued operations		-		11,706		10,464		-			22,170
Long-term debt, notes and convertible debentures		1,975,786		4,450		3		-			1,980,239
Deferred income tax liabilities, net-noncurrent		250,122		317,105		11,416		(4,497	)		574,146
Other noncurrent liabilities		-		275,909		-		-			275,909
Stockholders’ equity		3,875,993		5,846,430		138,442		(5,984,872	)		3,875,993
Total liabilities and stockholders’ equity	$	6,246,694	$	6,908,832	$	163,833	$	(5,995,255	)	$	7,324,104

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Statements of Cash Flows

(in thousands)	For the year ended December 31,
2010	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows from / (used in) operating activities	$	(86,774	)	$	443,924		$	11,465		$	368,615
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			(111,812	)		-			(111,812	)
Capital expenditures		-			(22,496	)		(1,021	)		(23,517	)
Transfer of cash to trusts for employee health and
severance costs, net of payments out of the trust		-			11,082			-			11,082
Other		-			(1,791	)		(14	)		(1,805	)
Net cash flows used in investing activities		-			(125,017	)		(1,035	)		(126,052	)
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		975,000			-			-			975,000
Payments on long-term borrowings and obligations		(726,533	)		-			-			(726,533	)
Fees paid for financing activities		(33,249	)		-			-			(33,249	)
Increase in cash overdraft balance		9,744			8,477			-			18,221
Payments for Omnicare common stock repurchase		(100,942	)		-			-			(100,942	)
Payments for stock awards and exercise of stock
options, net of stock tendered in payment		(13,989	)		-			-			(13,989	)
Excess tax benefits from stock-based compensation		679			-			-			679
Dividends paid		(12,839	)		-			-			(12,839	)
Other		343,815			(342,706	)		(1,109	)		-
Net cash flows from  / (used in) financing activities		316,686			(334,229	)		(1,109	)		(18,652	)
Effect of exchange rate changes on cash		-			(120	)		(5,848	)		(5,968	)
Net increase (decrease) in cash and cash equivalents		229,912			(15,442	)		3,473			217,943
Less increase (decrease) in cash and cash
equivalents of discontinued operations		-			(838	)		4			(834	)
Increase (decrease) in cash and cash equivalents
of continuing operations		229,912			(14,604	)		3,469			218,777
Cash and cash equivalents at beginning of year		230,866			32,202			12,639			275,707
Cash and cash equivalents at end of year	$	460,778		$	17,598		$	16,108		$	494,484

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Statements of Cash Flows - Continued

(in thousands)	For the year ended December 31,
2009	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows from / (used in) operating activities	$	(64,390	)	$	553,249		$	(5,065	)	$	483,794
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			(92,889	)		-			(92,889	)
Capital expenditures		-			(28,412	)		(819	)		(29,231	)
Transfer of cash to trusts for employee health and
severance costs, net of payments out of the trust		-			(10,547	)		-			(10,547	)
Other		-			(12,170	)		-			(12,170	)
Net cash flows used in investing activities		-			(144,018	)		(819	)		(144,837	)
Cash flows from financing activities:
Payments on line of credit facilities, term A loan     and notes payable		(275,000	)		-			-			(275,000	)
Payments on long-term borrowings and obligations		(1,592	)		-			-			(1,592	)
(Decrease) increase in cash overdraft balance		(819	)		182			-			(637	)
Payments for stock awards and exercise of stock
options, net of stock tendered in payment		9,666			-			-			9,666
Excess tax benefits from stock-based compensation		2,367			-			-			2,367
Dividends paid		(10,733	)		-			-			(10,733	)
Other		420,404			(418,483	)		(2,400	)		(479	)
Net cash flows from  / (used in) financing activities		144,293			(418,301	)		(2,400	)		(276,408	)
Effect of exchange rate changes on cash		-			-			(1,099	)		(1,099	)
Net increase (decrease) in cash and cash equivalents		79,903			(9,070	)		(9,383	)		61,450
Less increase (decrease) in cash and cash
equivalents of discontinued operations		-			412			(3	)		409
Increase (decrease) in cash and cash equivalents
of continuing operations		79,903			(9,482	)		(9,380	)		61,041
Cash and cash equivalents at beginning of year		150,963			41,684			22,019			214,666
Cash and cash equivalents at end of year	$	230,866		$	32,202		$	12,639		$	275,707

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Statements of Cash Flows - Continued

(in thousands)	For the year ended December 31,
2008	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows from / (used in) operating activities	$	(73,175	)	$	515,417		$	(4,045	)	$	438,197
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			(225,710	)		-			(225,710	)
Capital expenditures		-			(57,084	)		43			(57,041	)
Transfer of cash to trusts for employee health and
severance costs, net of payments out of the trust		-			847			-			847
Other		-			(3,389	)		-			(3,389	)
Net cash flows from / (used in) investing activities		-			(285,336	)		43			(285,293	)
Cash flows from financing activities:
Borrowings on line of credit facilities		396,000			-			-			396,000
Payments on line of credit facilities, term A loan     and notes payable		(446,000	)		-			(39,081	)		(485,081	)
(Payments) proceeds on long-term borrowings and obligations		(3,193	)		360			-			(2,833	)
(Decrease) increase in cash overdraft balance		(5,723	)		274			-			(5,449	)
Payments for Omnicare common stock repurchase		(100,165	)		-			-			(100,165	)
Payments for stock awards and exercise of stock
options, net of stock tendered in payment		(1,390	)		-			-			(1,390	)
Excess tax benefits from stock-based compensation		963			-			-			963
Dividends paid		(10,751	)		-			-			(10,751	)
Other		203,300			(244,009	)		40,349			(360	)
Net cash flows from / (used in) financing activities		33,041			(243,375	)		1,268			(209,066	)
Effect of exchange rate changes on cash		-			-			(3,196	)		(3,196	)
Net decrease in cash and cash equivalents		(40,134	)		(13,294	)		(5,930	)		(59,358	)
Less increase (decrease) in cash and cash
equivalents of discontinued operations		-			310			(134	)		176
Decrease in cash and cash equivalents
of continuing operations		(40,134	)		(13,604	)		(5,796	)		(59,534	)
Cash and cash equivalents at beginning of year		191,097			55,288			27,815			274,200
Cash and cash equivalents at end of year	$	150,963		$	41,684		$	22,019		$	214,666

The Company’s 3.25% Convertible Debentures due 2035 are fully and unconditionally guaranteed on an unsecured basis by Omnicare Purchasing Company, LP, a wholly-owned subsidiary of the Company (the “Guarantor Subsidiary”).  The following condensed consolidating financial data illustrates the composition of Omnicare, Inc. (“Parent”), the Guarantor Subsidiary and the Non-Guarantor Subsidiaries as of December 31, 2010 and 2009 for the balance sheets, as well as the statements of income and the statements of cash flows for each of the three years in the period ended December 31, 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 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 20 – Guarantor Subsidiaries – Continued

Summary Consolidating Statements of Income

(in thousands)	For the years ended December 31,
2010:	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
Net sales	$	-		$	-		$	6,030,670		$	-		$	6,030,670
Cost of sales		-			-			4,694,440			-			4,694,440
Gross profit		-			-			1,336,230			-			1,336,230
Selling, general and administrative expenses		9,569			1,403			736,636			-			747,608
Provision for doubtful accounts		-			-			136,630			-			136,630
Restructuring and other related charges		-			-			17,165			-			17,165
Settlement, litigation and other related charges		-			-			113,709			-			113,709
Goodwill and other asset impairment charges		-			-			22,884			-			22,884
Separation, benefit plan termination and related costs		-			-			64,760			-			64,760
Other miscellaneous charges		-			-			44,320			-			44,320
Operating (loss) income		(9,569	)		(1,403	)		200,126			-			189,154
Investment income		939			-			8,671			-			9,610
Interest expense, including amortization of discount on convertible notes		(163,864	)		-			(1,392	)		-			(165,256	)
(Loss) income from continuing operations before income taxes		(172,494	)		(1,403	)		207,405			-			33,508
Income tax (benefit) expense		(64,478	)		(524	)		84,046			-			19,044
(Loss) income from continuing operations		(108,016	)		(879	)		123,359			-			14,464
Loss from discontinued operations		-			-			(120,573	)		-			(120,573	)
Equity in net income of subsidiaries		1,907			-			-			(1,907	)		-
Net income (loss)	$	(106,109	)	$	(879	)	$	2,786		$	(1,907	)	$	(106,109	)
2009:
Net sales	$	-		$	-		$	6,001,053		$	-		$	6,001,053
Cost of sales		-			-			4,566,837			-			4,566,837
Gross profit		-			-			1,434,216			-			1,434,216
Selling, general and administrative expenses		14,875			1,425			749,872			-			766,172
Provision for doubtful accounts		-			-			92,495			-			92,495
Restructuring and other related charges		-			-			19,814			-			19,814
Settlement, litigation and other related charges		-			-			77,449			-			77,449
Other miscellaneous charges		-			-			8,535			-			8,535
Operating (loss) income		(14,875	)		(1,425	)		486,051			-			469,751
Investment income		886			-			8,784			-			9,670
Interest expense, including amortization of discount on convertible notes		(146,841	)		-			(1,029	)		-			(147,870	)
(Loss) income from continuing operations before income taxes		(160,830	)		(1,425	)		493,806			-			331,551
Income tax (benefit) expense		(61,324	)		(543	)		158,723			-			96,856
(Loss) income from continuing operations		(99,506	)		(882	)		335,083			-			234,695
Loss from discontinued operations		-			-			(22,772	)		-			(22,772	)
Equity in net income of subsidiaries		311,429			-			-			(311,429	)		-
Net income (loss)	$	211,923		$	(882	)	$	312,311		$	(311,429	)	$	211,923
2008:
Net sales	$	-		$	-		$	5,992,450		$	-		$	5,992,450
Cost of sales		-			-			4,518,645			-			4,518,645
Gross profit		-			-			1,473,805			-			1,473,805
Selling, general and administrative expenses		16,007			1,343			837,132			-			854,482
Provision for doubtful accounts		-			-			106,240			-			106,240
Restructuring and other related charges		-			-			34,089			-			34,089
Settlement, litigation and other related charges		-			-			99,267			-			99,267
Other miscellaneous charges		-			-			914			-			914
Operating (loss) income		(16,007	)		(1,343	)		396,163			-			378,813
Investment income		1,584			-			8,198			-			9,782
Interest expense, including amortization of discount on convertible notes		(164,175	)		-			(4,810	)		-			(168,985	)
(Loss) income from continuing operations before income taxes		(178,598	)		(1,343	)		399,551			-			219,610
Income tax (benefit) expense		(69,083	)		(522	)		157,914			-			88,309
(Loss) income from continuing operations		(109,515	)		(821	)		241,637			-			131,301
Income from discontinued operations		-			-			9,172			-			9,172
Equity in net income of subsidiaries		249,988			-			-			(249,988	)		-
Net income (loss)	$	140,473		$	(821	)	$	250,809		$	(249,988	)	$	140,473

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Balance Sheets

(in thousands)

As of December 31, 2010:	Parent		Guarantor Subsidiary		Non-Guarantor Subsidiaries		Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
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 - 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 - 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 (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, net-noncurrent		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
As of December 31, 2009:	Parent		Guarantor Subsidiary		Non-Guarantor Subsidiaries		Consolidating/ Eliminating Adjustments			Omnicare, Inc. and Subsidiaries
ASSETS
Cash and cash equivalents	$	230,866	$	-	$	44,841	$	-		$	275,707
Restricted cash		-		-		15,264		-			15,264
Accounts receivable, net (including intercompany)		-		69		1,183,144		(69	)		1,183,144
Inventories		-		-		368,477		-			368,477
Deferred income tax benefits, net-current		-		-		117,403		(4,497	)		112,906
Other current assets		1,026		-		181,553		-			182,579
Current assets - discontinued operations		-		-		81,530		-			81,530
Total current assets		231,892		69		1,992,212		(4,566	)		2,219,607
Properties and equipment, net		-		19		203,828		-			203,847
Goodwill		-		-		4,152,255		-			4,152,255
Identifiable intangible assets, net		-		-		293,831		-			293,831
Other noncurrent assets		29,930		19		250,128		-			280,077
Noncurrent assets - discontinued operations		-		-		174,487		-			174,487
Investment in subsidiaries		5,984,872		-		7,222		(5,992,094	)		-
Total assets	$	6,246,694	$	107	$	7,073,963	$	(5,996,660	)	$	7,324,104
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities (including intercompany)	$	144,793	$	5	$	450,918	$	(69	)	$	595,647
Current liabilities - discontinued operations		-		-		22,170		-			22,170
Long-term debt, notes and convertible debentures		1,975,786		-		4,453		-			1,980,239
Deferred income tax liabilities, net-noncurrent		250,122		-		328,521		(4,497	)		574,146
Other noncurrent liabilities		-		-		275,909		-			275,909
Stockholders’ equity		3,875,993		102		5,991,992		(5,992,094	)		3,875,993
Total liabilities and stockholders’ equity	$	6,246,694	$	107	$	7,073,963	$	(5,996,660	)	$	7,324,104

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Statements of Cash Flows

(in thousands)	For the year ended December 31,
2010	Parent			Guarantor Subsidiary		Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows from / (used in) operating activities	$	(86,774	)	$	-	$	455,389		$	368,615
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			-		(111,812	)		(111,812	)
Capital expenditures		-			-		(23,517	)		(23,517	)
Transfer of cash to trusts for employee health and
severance costs, net of payments out of the trust		-			-		11,082			11,082
Other		-			-		(1,805	)		(1,805	)
Net cash flows used in investing activities		-			-		(126,052	)		(126,052	)
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		975,000			-		-			975,000
Payments on long-term borrowings and obligations		(726,533	)		-		-			(726,533	)
Fees paid for financing activities		(33,249	)		-		-			(33,249	)
Increase in cash overdraft balance		9,744			-		8,477			18,221
Payments for Omnicare common stock repurchase		(100,942	)		-		-			(100,942	)
Payments for stock awards and exercise of stock
options, net of stock tendered in payment		(13,989	)		-		-			(13,989	)
Excess tax benefits from stock-based compensation		679			-		-			679
Dividends paid		(12,839	)		-		-			(12,839	)
Other		343,815			-		(343,815	)		-
Net cash flows from  / (used in) financing activities		316,686			-		(335,338	)		(18,652	)
Effect of exchange rate changes on cash		-			-		(5,968	)		(5,968	)
Net increase / (decrease) in cash and cash equivalents		229,912			-		(11,969	)		217,943
Less decrease in cash and cash equivalents
of discontinued operations		-			-		(834	)		(834	)
Increase / (decrease) in cash and cash equivalents
of continuing operations		229,912			-		(11,135	)		218,777
Cash and cash equivalents at beginning of year		230,866			-		44,841			275,707
Cash and cash equivalents at end of year	$	460,778		$	-	$	33,706		$	494,484

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Statements of Cash Flows - Continued

(in thousands)	For the year ended December 31,
2009	Parent			Guarantor Subsidiary		Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows from / (used in) operating activities	$	(64,390	)	$	-	$	548,184		$	483,794
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			-		(92,889	)		(92,889	)
Capital expenditures		-			-		(29,231	)		(29,231	)
Transfer of cash to trusts for employee health and
severance costs, net of payments out of the trust		-			-		(10,547	)		(10,547	)
Other		-			-		(12,170	)		(12,170	)
Net cash flows used in investing activities		-			-		(144,837	)		(144,837	)
Cash flows from financing activities:
Payments on line of credit facilities, term A loan     and notes payable		(275,000	)		-		-			(275,000	)
Payments on long-term borrowings and obligations		(1,592	)		-		-			(1,592	)
(Decrease) increase in cash overdraft balance		(819	)		-		182			(637	)
Payments for stock awards and exercise of stock
options, net of stock tendered in payment		9,666			-		-			9,666
Excess tax benefits from stock-based compensation		2,367			-		-			2,367
Dividends paid		(10,733	)		-		-			(10,733	)
Other		420,404			-		(420,883	)		(479	)
Net cash flows from  / (used in) financing activities		144,293			-		(420,701	)		(276,408	)
Effect of exchange rate changes on cash		-			-		(1,099	)		(1,099	)
Net increase (decrease) in cash and cash equivalents		79,903			-		(18,453	)		61,450
Less increase in cash and cash equivalents
of discontinued operations		-			-		409			409
Increase (decrease) in cash and cash equivalents
of continuing operations		79,903			-		(18,862	)		61,041
Cash and cash equivalents at beginning of year		150,963			-		63,703			214,666
Cash and cash equivalents at end of year	$	230,866		$	-	$	44,841		$	275,707

Note 20 – Guarantor Subsidiaries – Continued

Condensed Consolidating Statements of Cash Flows - Continued

(in thousands)	For the year ended December 31,
2008	Parent			Guarantor Subsidiary		Non-Guarantor Subsidiaries			Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
Net cash flows from / (used in) operating activities	$	(73,175	)	$	-	$	511,372		$	438,197
Cash flows from investing activities:
Acquisition of businesses, net of cash received		-			-		(225,710	)		(225,710	)
Capital expenditures		-			-		(57,041	)		(57,041	)
Transfer of cash to trusts for employee health and
severance costs, net of payments out of the trust		-			-		847			847
Other		-			-		(3,389	)		(3,389	)
Net cash flows from / (used in) investing activities		-			-		(285,293	)		(285,293	)
Cash flows from financing activities:
Borrowings on line of credit facilities		396,000			-		-			396,000
Payments on line of credit facilities, term A loan     and notes payable		(446,000	)		-		(39,081	)		(485,081	)
Payments on long-term borrowings and obligations		(3,193	)		-		360			(2,833	)
(Decrease) increase in cash overdraft balance		(5,723	)		-		274			(5,449	)
Payments for Omnicare common stock repurchase		(100,165	)		-		-			(100,165	)
Payments for stock awards and exercise of stock
options, net of stock tendered in payment		(1,390	)		-		-			(1,390	)
Excess tax benefits from stock-based compensation		963			-		-			963
Dividends paid		(10,751	)		-		-			(10,751	)
Other		203,300			-		(203,660	)		(360	)
Net cash flows from / (used in) financing activities		33,041			-		(242,107	)		(209,066	)
Effect of exchange rate changes on cash		-			-		(3,196	)		(3,196	)
Net decrease in cash and cash equivalents		(40,134	)		-		(19,224	)		(59,358	)
Less increase in cash and cash equivalents
of discontinued operations		-			-		176			176
Decrease in cash and cash equivalents
of continuing operations		(40,134	)		-		(19,400	)		(59,534	)
Cash and cash equivalents at beginning of year		191,097			-		83,103			274,200
Cash and cash equivalents at end of year	$	150,963		$	-	$	63,703		$	214,666

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Schedule II Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2010

Schedule to Financial Statements [Abstract]

Schedule II - Valuation and Qualifying Accounts

SCHEDULE II

OMNICARE, INC. AND SUBSIDIARY COMPANIES

Valuation and Qualifying Accounts

(in thousands)

			Additions
	Balance at		charged						Write-offs,			Balance
Year ended	beginning of		to cost						(net of recoveries)			at end
December 31,	period		and expenses			Acquisitions			and other			of period
Allowance for uncollectible accounts receivable:
2010	$	332,541	$	136,630		$	-		$	(68,144	)	$	401,027
2009		319,417		92,495			-			(79,371	)		332,541
2008		324,825		106,240			5,550			(117,198	)		319,417
Tax valuation allowance:
2010	$	20,255	$	(3,843	)	$	-		$	(453	)	$	15,959
2009		23,332		(3,055	)		-			(22	)		20,255
2008		29,492		(2,986	)		(990	)		(2,184	)		23,332

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Document Information	12 Months Ended
	Dec. 31, 2010
Document Type	8-K
Amendment Flag	true
Amendment Description	Restatement
Document Period End Date	Dec. 31, 2010

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Entity Information (USD $)	12 Months Ended
	Dec. 31, 2010
Entity Registrant Name	OMNICARE INC
Entity Central Index Key	0000353230
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	No
Entity Filer Category	Large Accelerated Filer
Entity Public Float	$ 2,721,616,660
Entity Common Stock, Shares Outstanding	116,882,996
Document Fiscal Year Focus	2010
Document Fiscal Period Focus	FY

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data	Dec. 31, 2010	Dec. 31, 2009
Current assets:
Allowances on accounts receivable	$ 401,027	$ 332,541
Accumulated depreciation on properties and equipment	284,533	300,655
Accumulated amortization on identifiable intangible assets	$ 219,107	$ 184,216
Stockholders' equity:
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Common stock, par value (in dollars per share)	$ 1.00	$ 1.00
Common stock, shares authorized (in shares)	200,000,000	200,000,000
Common stock, shares issued (in shares)	129,634,300	127,824,800
Treasury stock, shares (in shares)	13,011,700	7,545,000

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CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (USD $) In Thousands	12 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008
Cash flows from operating activities:
Net income (loss)	$ (106,109)	$ 211,923	$ 140,473
Loss from discontinued operations	120,573	22,772	(9,172)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation	46,096	47,919	46,385
Amortization	104,450	89,763	89,762
Write-off of debt issuance costs	6,636	0	0
Debt redemption tender offer premium	(7,591)	0	0
Goodwill impairment charge	22,884	0	0
Benfit plan termination costs	25,187	0	0
Loss on debt extinguishment	25,552	0	0
Deferred tax provision	22,952	90,658	56,041
Changes in assets and liabilities, net of effects from acquisition and divestiture of businesses:
Accounts receivable and unbilled receivables, net of provison for doubtful accounts	198,338	135,320	43,327
Inventories	(34,676)	84,469	3,887
Current and noncurrent assets	38,966	(14,891)	71,912
Accounts payable	(44,638)	(74,414)	(47,713)
Accrued employee compensation	21,451	(6,436)	22,028
Deferred revenue	525	(206)	(581)
Current and noncurrent liabilities	(71,693)	(106,162)	17,240
Net cash flows from operating activities of continuing operations	368,903	480,715	433,589
Net cash flows from operating activities of discontinued operations	(288)	3,079	4,608
Net cash flows from operating activities	368,615	483,794	438,197
Cash flows from investing activities:
Acquisition of businesses, net of cash received	(111,812)	(92,889)	(225,710)
Capital expenditures	(23,517)	(29,231)	(57,041)
Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust	11,082	(10,547)	847
Disbursements for loans and investments	(3,425)	(6,800)	0
Other	2,166	(3,179)	683
Net cash flows used in investing activities of continuing operations	(125,506)	(142,646)	(281,221)
Net cash flows used in investing activities of discontinued operations	(546)	(2,191)	(4,072)
Net cash flows used in investing activities	(126,052)	(144,837)	(285,293)
Cash flows from financing activities:
Borrowings on line of credit facilities	0	0	396,000
Payments on line of credit facilities, term A loan and notes payable	(125,000)	(275,000)	(485,081)
Proceeds from long-term borrowings and obligations	975,000	0	0
Payments on long-term borrowings and obligations	(726,533)	(1,592)	(2,833)
Fees paid for financing activities	(33,249)	0	0
Increase (Decrease) in cash overdraft balance	18,221	(637)	(5,449)
Payments for Omnicare common stock repurchases (Note 2)	(100,942)		(100,165)
Proceeds (payments) for stock awards and exercise of stock options, net of stock tendered in payment	(13,989)	9,666	(1,390)
Excess tax benefits from stock-based compensation	679	2,367	963
Dividends paid	(12,839)	(10,733)	(10,751)
Net cash flows used in financing activities of continuing operations	(18,652)	(275,929)	(208,706)
Net cash flows used in financing activities of discontinued operations	0	(479)	(360)
Net cash flows used in financing activities	(18,652)	(276,408)	(209,066)
Effect of exchange rate changes on cash	(5,968)	(1,099)	(3,196)
Net increase (decrease) in cash and cash equivalents	217,943	61,450	(59,358)
Less increase (decrease) in cash and cash equivalents of discontinued operations	(834)	409	176
Increase (decrease) in cash and cash equivalents of continuing operations	218,777	61,041	(59,534)
Cash and cash equivalents at beginning of period	275,707	214,666	274,200
Cash and cash equivalents at end of period	$ 494,484	$ 275,707	$ 214,666

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $) In Thousands	Total	Common Stock	Paid in Capital	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Income
Balance at Dec. 31, 2007	$ 3,540,823	$ 124,599	$ 2,195,564	$ 1,368,449	$ (89,791)	$ (57,998)
Dividends Paid	(10,751)			(10,751)
Stock acquired issued for benefits plans	1,976		(343)		2,319
Stock option exercises and amortization/forfeitures	10,402	264	10,138
Common stock repurchase	(100,165)				(100,165)
Stock awards, net of amortization/forfeitures	13,949	720	18,770		(5,541)
Subtotal	3,456,234	125,583	2,224,129	1,357,698	(193,178)	(57,998)
Net income (loss)	140,473			140,473
Other comprehensive income(loss), net of tax:
Cumulative translation adjustment	224					224
Unrealized appreciation in fair value of investments	4,940					4,940
Amortization of pension benefit costs (gains)	9,292					9,292
Acturial gain on pension obligations	43,706					43,706
Comprehensive income	198,635			140,473		58,162
Balance at Dec. 31, 2008	3,654,869	125,583	2,224,129	1,498,171	(193,178)	164
Dividends Paid	(10,733)			(10,733)
Stock acquired issued for benefits plans	592		23		569
Stock option exercises and amortization/forfeitures	25,698	1,079	24,619
Stock awards, net of amortization/forfeitures	10,638	1,163	21,883		(12,408)
Adjustment to deferred tax convertible debt adjustment	(1,490)		(749)	(741)
Subtotal	3,679,574	127,825	2,269,905	1,486,697	(205,017)	164
Net income (loss)	211,923			211,923
Other comprehensive income(loss), net of tax:
Cumulative translation adjustment	14,934					14,934
Unrealized appreciation in fair value of investments	(7,267)					(7,267)
Amortization of pension benefit costs (gains)	2,045					2,045
Acturial gain on pension obligations	(25,216)					(25,216)
Comprehensive income	196,419			211,923		(15,504)
Balance at Dec. 31, 2009	3,875,993	127,825	2,269,905	1,698,620	(205,017)	(15,340)
Dividends Paid	(12,839)			(12,839)
Stock acquired issued for benefits plans	68				68
Stock option exercises and amortization/forfeitures	12,539	386	12,153
Common stock repurchase	(100,942)				(100,942)
Stock awards, net of amortization/forfeitures	10,597	1,423	36,837		(27,663)
Adjustment to deferred tax convertible debt adjustment	106,083		106,083
Subtotal	3,891,499	129,634	2,424,978	1,685,781	(333,554)	(15,340)
Net income (loss)	(106,109)			(106,109)
Other comprehensive income(loss), net of tax:
Cumulative translation adjustment	(3,807)					(3,807)
Unrealized appreciation in fair value of investments	924					924
Amortization of pension benefit costs (gains)	3,458					3,458
Acturial gain on pension obligations	29,979					29,979
Comprehensive income	(75,555)			(106,109)		30,554
Balance at Dec. 31, 2010	$ 3,815,944	$ 129,634	$ 2,424,978	$ 1,579,672	$ (333,554)	$ 15,214

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

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Description of Business and Summary of Significant Accounting Policies

Note 1 – Description of Business and Summary of Significant Accounting Policies

Description of Business

Omnicare, Inc. (“Omnicare” or the “Company”) is a leading geriatric pharmaceutical services company.  Omnicare is the nation’s largest provider of pharmaceuticals and related ancillary pharmacy 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.  At December 31, 2010, Omnicare served long-term care facilities as well as chronic care and other settings comprising approximately 1,385,000 beds, including approximately 86,000 patients served by the patient assistance programs of its specialty pharmacy services business.  The comparable number at December 31, 2009 was approximately 1,377,000 beds (including approximately 68,000 patients served by patient assistance programs).  Omnicare provides its long-term care pharmacy services in 47 states in the United States (“U.S.”), the District of Columbia and Canada at December 31, 2010.  Omnicare’s pharmacy services also include distribution and product support services for specialty pharmaceuticals.

Discontinued Operations

In March 2011, Omnicare committed to a plan to divest its Contract Research Services organization (“CRO Services”).  The sale of CRO Services was completed in April 2011. Also, in April 2011, the Company divested of its Tidewater Group Purchasing Organization (“Tidewater”).  In accordance with the accounting standard addressing the accounting for the impairment or disposal of long-lived assets, CRO Services and Tidewater are presented as discontinued operations in the Consolidated Statements of Income, Consolidated Balance Sheets, Consolidated Statements of Cash Flows, and the Notes to Consolidated Financial Statements herein for all periods presented.  See the “Discontinued Operations” note of the Notes to Consolidated Financial Statements for further discussion of discontinued operations.  Following the discontinuance of CRO Services, Omnicare now operates in one segment, the Pharmacy Services Segment.  Accordingly, operating segment data is no longer provided.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries.  Omnicare consolidates entities in which the Company is the primary beneficiary, in accordance with the authoritative guidance regarding the consolidation of variable interest entities.  All significant intercompany accounts and transactions have been eliminated in consolidation.

Translation of Foreign Financial Statements

Assets and liabilities of the Company’s foreign operations are translated at the year-end rate of exchange, and the income statements are translated at average rates of exchange.  Gains or losses from translating foreign currency financial statements are accumulated in a separate component of stockholders’ equity.

Cash Equivalents

Cash and cash equivalents include highly liquid investments with original maturities of three months or less. Carrying values of cash and cash equivalents approximate fair value due to the short-term nature of these instruments.

Omnicare maintains amounts on deposit with various financial institutions, which may, at times, exceed federally insured limits. However, management periodically evaluates the credit-worthiness of those institutions, and the Company has not experienced any losses on such deposits.

Restricted Cash

Restricted cash primarily represents cash transferred to separate irrevocable trusts for settlement of employee health and severance costs, and cash collected on behalf of third parties.

Fair Value of Financial Instruments

The Company applies the authoritative guidance for fair value measurements, which defines a hierarchy which prioritizes the inputs in fair value measurements.  “Level 1” measurements are measurements using quoted prices in active markets for identical assets or liabilities.  “Level 2” measurements use significant observable inputs.  “Level 3” measurements are measurements using significant unobservable inputs which require a company to develop its own assumptions.  In recording the fair value of assets and liabilities, companies must use the most reliable measurement available.

See further discussion at the “Fair Value” note of the Notes to Consolidated Financial Statements.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist primarily of interest-bearing cash and cash equivalents, assets invested for settlement of the Company’s employee benefit obligations, accounts receivable and fixed to floating interest rate swap agreements.

The Company is exposed to credit risk in the event of default by the financial institutions or issuers of cash and cash equivalents to the extent recorded on the Consolidated Balance Sheets.  Specifically, at any given point in time, the Company has cash on deposit with financial institutions, and cash invested in high quality short-term money market funds and/or U.S. government-backed repurchase agreements, generally having original maturities of three months or less, in order to minimize its credit risk.

The Company establishes allowances for doubtful accounts based on various factors, including historical credit losses and specifically identified credit risks.  Management reviews the allowances for doubtful accounts on an ongoing basis for appropriateness.  For the years ended December 31, 2010, 2009 and 2008, no single customer accounted for 10% or more of revenues.  The Company generally does not require collateral from its customers relating to the extension of credit in the form of accounts receivable balances.

In 2010, approximately one-half of Omnicare’s pharmacy services billings were directly reimbursed by government-sponsored programs.  These programs include primarily federal Medicare Part D and, to a lesser extent, the state Medicaid programs.  The remainder of Omnicare’s billings were paid or reimbursed by individual residents or their responsible parties (private pay), facilities and other third-party payors, including private insurers.  A portion of these revenues also are indirectly dependent on government programs.  The table below represents the Company’s approximated payor mix (as a % of annual sales) for the last three years ended December 31,:

	2010	2009	2008
Private pay, third-party and facilities (a)	42%	43%	45%
Federal Medicare program (Part D & Part B)	46%	45%	43%
State Medicaid programs	9%	10%	10%
Other sources	3%	2%	2%
Totals	100%	100%	100%
(a) Includes payments from SNFs on behalf of their federal Medicare program-eligible residents (Medicare Part A) and for other services and supplies, as well as payments from third-party insurers and private pay.

Accounts Receivable

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

	December 31, 2010
	Current and 0-180 Days Past Due		181 Days and Over Past Due		Total
Medicare (Part D and Part B), Medicaid and Third-Party payors	$	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 (net of contractual allowance adjustments)	$	746,722	$	666,128	$	1,412,850
	December 31, 2009
	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	$	324,942	$	177,054	$	501,996
Facility payors		404,134		360,752		764,886
Private Pay payors		106,321		142,482		248,803
Total gross accounts receivable (net of contractual allowance adjustments)	$	835,397	$	680,288	$	1,515,685

During the fourth quarter 2010, Omnicare implemented a Company-wide Reorganization Program.  Among other changes, this program has resulted in numerous senior management and other organizational leadership changes, including a realignment of division presidents for its long term care pharmacy divisions and change in its Office of General Counsel.  As a result of these activities and the performance of its year end closing process, the Company reassessed the allowance for doubtful accounts for facility receivables and concluded that an incremental charge of $48.5 million was necessary.  The key factors leading to management’s change in estimate relate primarily to a 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.  In particular, this new approach includes a heightened focus on settling outstanding accounts receivable disputes and the avoidance of protracted costly and often disruptive litigation, where possible.  As a result of this change in approach, the Company believes it will have reduced opportunity to monetize disputed receivables through litigation, increasing risk of uncollectible accounts receivable.

Notes Receivable

The Company periodically enters into notes receivable from its customers in the normal course of business.  These notes receivable and the related allowance for losses are recorded in the “Other Current Assets” and “Other Non-Current Assets” captions of the Consolidated Balance Sheets, and are not considered material to the consolidated financial position of the Company.  The Company assesses and monitors credit risk associated with notes receivable through review of the customer’s net worth, payment history, long-term debt ratings and/or other information available from recognized credit rating services.  The receivables are periodically assessed for significant changes in credit ratings or other information indicating an increase in exposure to credit risk.  Historic losses on notes receivable have not been material.

Inventories

Inventories consist primarily of purchased pharmaceuticals and medical supplies held for sale to customers and are stated at the lower of cost or market.  Cost is determined using the first-in, first-out method.  Physical inventories are typically performed on a monthly basis at all pharmacy sites, and in all cases the Company’s policy is to perform them at least once a quarter.  Cost of goods sold is recorded based on the actual results of the physical inventory counts, and is estimated when a physical inventory is not performed in a particular month.

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

Properties and Equipment

Properties and equipment are stated at cost less accumulated depreciation.  Expenditures for maintenance, repairs, renewals and betterments that do not materially prolong the useful lives of the assets are charged to expense as incurred.  Depreciation of properties and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from five to 10 years for computer equipment and software, machinery and equipment, and furniture and fixtures.  Buildings and building improvements are depreciated over 40 years, and leasehold improvements are amortized over the lesser of the initial lease terms or their useful lives.  The Company capitalizes certain costs that are directly associated with the development of internally developed software, representing the historical cost of these assets.  Once the software is completed and placed into service, such costs are amortized over the estimated useful lives, ranging from five to 10 years.

Leases

Rental payments under operating leases are expensed.  Leases that substantially transfer all of the benefits and risks of ownership of property to Omnicare or otherwise meet the criteria for capitalization are accounted for as capital leases.  An asset is recorded at the time a capital lease is entered into together with its related long-term obligation to reflect its purchase and financing.  Property and equipment recorded under capital leases are depreciated on the same basis as previously described.

Valuation of Long-Lived Assets

Long-lived assets such as property and equipment, software (acquired and internally developed) and investments are reviewed for impairment when events or changes in circumstances indicate that the book carrying amount of the assets may not be recoverable.  An impairment loss would be recognized when estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its book carrying amount.

Goodwill, Intangibles and Other Assets

Intangible assets are comprised primarily of goodwill, customer relationship assets, noncompete agreements, technology assets, and trademarks and trade names, all originating from business combinations accounted for as purchase transactions.  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 an impairment.  Intangible assets that are being amortized under the authoritative guidance are amortized over their useful lives, ranging from five to 15 years.  Indefinite-lived intangible assets are reviewed annually for impairment, which resulted in a write-off of approximately $13.3 million during 2010, as further discussed at the “Goodwill and Other Intangible Assets” note of the Notes to Consolidated Financial Statements.

Debt issuance costs are included in the “Other noncurrent assets” line of the Consolidated Balance Sheets and are amortized over the life of the related debt, and to the put and initial redemption date of December 15, 2015 in the case of the 3.25% convertible senior debentures due 2035.

Insurance Accruals

The Company is self-insured for certain employee health, property and casualty insurance claims.  The Company carries a stop-loss umbrella policy for health insurance to limit the maximum potential liability for both individual and aggregate claims for a plan year.  Claims are paid as they are submitted to the respective plan administrators.  The Company records monthly expense for the self-insurance plans in its financial statements for incurred claims, based on historical claims experience and input from third-party insurance professionals in order to determine the appropriate accrual level.  The accrual gives consideration to claims that have been incurred but not yet paid and/or reported to the plan administrator.  The Company establishes the accruals based on the historical claim lag periods, current payment trends for similar insurance claims and input from third-party insurance and valuation professionals.

The book carrying amount of the Company’s property and casualty accrual available for self-insured retentions and deductibles, at December 31, 2010 and 2009, was $21.2 million and $21.4 million, respectively.  The discount rate utilized in the computation of the property and casualty accrual balance at December 31, 2010 and 2009, was 2.3% and 2.4%, respectively.

Revenue Recognition

In general, Omnicare recognizes revenue when products are delivered or services are rendered or provided to the customer, prices are fixed and determinable and collection is reasonably assured.

A significant portion of the Company’s revenues from sales of pharmaceutical and medical products have been reimbursed by the federal Medicare Part D plan and, to a lesser extent, state Medicaid programs.  Payments for services rendered to patients covered by these programs are generally less than billed charges.  The Company monitors its revenues and receivables from these reimbursement sources, as well as other third-party insurance payors, and records an estimated contractual allowance for certain sales and receivable balances at the revenue recognition date, to properly account for anticipated differences between billed and reimbursed amounts.  Accordingly, the total net sales and receivables reported in the Company’s financial statements are recorded at the amount ultimately expected to be received from these payors.  Since billing functions for a portion of the Company’s revenue systems are largely computerized, enabling on-line adjudication (i.e., submitting charges to Medicare, Medicaid or other third-party payors electronically, with simultaneous feedback of the amount to be paid) at the time of sale to record net revenues, exposure to estimating contractual allowance adjustments is limited primarily to unbilled and/or initially rejected Medicare, Medicaid and third-party claims (typically approved for reimbursement once additional information is provided to the payor).  For the remaining portion of the Company’s revenue systems, the contractual allowance is estimated for all billed, unbilled and/or initially rejected Medicare, Medicaid and third-party claims.  The Company evaluates several criteria in developing the estimated contractual allowances for billed, unbilled and/or initially rejected claims on a monthly basis, including historical trends based on actual claims paid, current contract and reimbursement terms, and changes in customer base and payor/product mix.  Contractual allowance estimates are adjusted to actual amounts as cash is received and claims are settled, and the aggregate impact of these resulting adjustments were not significant to the Company’s operations for any of the periods presented.

Patient co-payments are associated with certain state Medicaid programs, Medicare Part B, Medicare Part D and certain third-party payors and are typically not collected at the time products are delivered or services are rendered, but are billed to the individual as part of the Company’s normal billing procedures.  These co-payments are subject to the Company’s normal accounts receivable collections procedures.

Under certain circumstances, the Company accepts returns of medications and issues a credit memo to the applicable payor.  The Company estimates and accrues for sales returns based on historical return experience, giving consideration to the Company’s return policies.  Product returns are processed in the period received, and are not significant.

Stock-Based Compensation

The Company records compensation costs relating to share-based payment transactions in its financial statements under a fair value recognition model.  Under the provisions of this guidance, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period of the award (usually the vesting period).

Delivery Expenses

Omnicare incurred expenses totaling approximately $177 million, $181 million and $192 million for the years ended December 31, 2010, 2009 and 2008, respectively, to deliver the products sold to its customers.  Delivery expenses are included in the “Selling, general and administrative expenses” line of the Consolidated Statements of Income.

Evaluation of Subsequent Events

The Company evaluated subsequent events through the date the Consolidated Financial Statements were issued.  No matters were identified that would materially impact the Company’s Consolidated Financial Statements or require disclosure.

Income Taxes

The Company accounts for income taxes using the asset and liability method under which deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates to differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements.

Future tax benefits are recognized to the extent that realization of those benefits is considered to be more likely than not, and a valuation allowance is established for deferred tax assets which do not meet this threshold.

Under the authoritative guidance regarding the accounting for uncertainty in income taxes, which provides guidance for the financial statement recognition and measurement of income tax positions taken or expected to be taken in a tax return, recognition and measurement are considered discrete events.  The recognition threshold is met when it is determined a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination by the relevant taxing authority.  If a tax position does not meet the more likely than not recognition threshold, the benefit of that position is not recognized in the financial statements.  A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to be recognized in the financial statements.

Accumulated Other Comprehensive Income (Loss)

The accumulated other comprehensive income (loss) at December 31, 2010 and 2009, by component and in the aggregate, follow (in thousands):

	December 31,
	2010			2009
Cumulative foreign currency translation adjustments	$	15,239		$	19,046
Unrealized gain on fair value of investments		997			73
Pension and postemployment benefits		(1,022	)		(34,459	)
Total accumulated other comprehensive income (loss), net	$	15,214		$	(15,340	)

The amounts are net of applicable tax benefits of approximately $21.5 million in 2009.  The tax benefit amounts for 2010 were inconsequential.

Other Miscellaneous Charges

Other miscellaneous charges consist of the following (in thousands):

	December 31,
	2010			2009			2008
Acquisition and other related costs (1)	$	5,319		$	1,399		$	-
Stock option expense (2)		4,207			5,633			-
Repack matters - SG&A (3)		663			1,503			914
Loss on plane lease (4)		6,785			-			-
Debt redemption loss and costs (5)		27,346			-			-
Subtotal - other miscellaneous charges		44,320			8,535			914
Repack matters - COS (3)		(1,898	)		(2,642	)		5,531
Total - other miscellaneous charges, net	$	42,422		$	5,893		$	6,445

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

(2)   See further discussion at the “Stock-Based Compensation” note of the Notes to Consolidated Financial Statements.

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

(4)   The year ended December 31, 2010 includes a charge relating to the termination of the Company’s prior aircraft lease.

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

Use of Estimates in the Preparation of Financial Statements

The preparation of the Company’s consolidated financial statements in accordance with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities and stockholders’ equity at the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and amounts reported in the accompanying notes to consolidated financial statements.  Significant estimates underlying the accompanying consolidated financial statements include the allowance for doubtful accounts and contractual allowance reserve; the net carrying value of inventories; acquisition-related accounting including goodwill and other indefinite-lived intangible assets, and the related impairment assessments; accruals pursuant to the Company’s restructuring initiatives; employee benefit plan assumptions and reserves; stock-based compensation; various other operating allowances and accruals (including employee health, property and casualty insurance accruals and related assumptions); fair value determinations; and current and deferred tax assets, liabilities and provisions.  Actual results could differ from those estimates depending upon the resolution of certain risks and uncertainties.

Potential risks and uncertainties, many of which are beyond the control of Omnicare, include, but are not necessarily limited to, such factors as overall economic, financial and business conditions; delays and reductions in reimbursement by the government and other payors to Omnicare and/or its customers; the overall financial condition of Omnicare’s customers; the effect of new government regulations, executive orders and/or legislative initiatives, including those relating to reimbursement and drug pricing policies and changes in the interpretation and application of such policies; efforts by payors to control costs; the outcome of disputes and litigation; the outcome of audit, compliance, administrative or investigatory reviews, including governmental/regulatory inquiries; other contingent liabilities; currency fluctuations between the U.S. dollar and other currencies; changes in international economic and political conditions; changes in interest rates; changes in the valuation of the Company’s financial instruments, including the swap agreements and other derivative instruments; changes in employee benefit plan assumptions and reserves; changes in tax laws and regulations; access to capital and financing; the demand for Omnicare’s products and services; pricing and other competitive factors in the industry; changes in insurance claims experience and related assumptions; the outcome of the Company’s annual goodwill and other identifiable intangible assets assessments; variations in costs or expenses; and changes in accounting rules and standards.

Recently Issued Accounting Standards

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

In December 2010, the FASB amended the authoritative guidance for goodwill to modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts.  The new guidance requires those reporting units to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists.  The Company does not anticipate the effect of this recently issued guidance to be material to its consolidated results of operations, financial position and cash flows.

Reclassifications

Certain reclassifications of prior-year amounts have been made to conform with the current-year presentation, none of which were considered material to the Company’s financial statements taken as a whole.

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Common Stock Repurchase Program

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Common Stock Repurchase Program

Note 2 – Common Stock Repurchase Program

On May 3, 2010, Omnicare announced that the Company’s Board of Directors authorized a new two-year program to repurchase, from time to time, shares of Omnicare’s outstanding common stock having an aggregate value of up to $200 million.  In the year ended December 31, 2010, the Company repurchased approximately 4.4 million shares at an aggregate cost of approximately $101 million.  Accordingly, the Company had approximately $99 million of share repurchase authority remaining as of December 31, 2010.  Additionally, during the second quarter of 2008, the Company repurchased approximately 4.1 million shares of Omnicare’s common stock at a cost of approximately $100 million under a stock buyback program authorized by its Board of Directors.

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Discontinued Operations

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Discontinued Operations

Note 3 – Discontinued Operations

Non-Core Disposal Group

In mid-2009, the Company commenced activities to divest certain home healthcare and related ancillary businesses (“the Disposal Group”) that are non-strategic in nature.  In the quarter ended September 30, 2010, Omnicare reached an agreement to acquire substantially all of the assets of Walgreens’ long-term care pharmacy business.  In exchange, Walgreens acquired substantially all of the assets of Omnicare’s home infusion business, part of the Disposal Group.  This transaction closed in the fourth quarter of 2010.  Also, in 2010, the Company entered into a letter of intent regarding its disposition of the 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.

In 2010 and 2009, the Non-Core Disposal Group recorded an impairment charge of approximately $10.3 million and $14.5 million, respectively, to reduce the carrying value of the Disposal Group to fair value as of December 31, 2010 and 2009.  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.  The fair values were 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 will be finalized upon disposition of the Non-Core Disposal Group.

CRO Services

Adverse conditions in the contract research organization (“CRO Services”) market led to lower than anticipated levels of new business being added as well as early project terminations by clients and client-driven delays in the commencement of certain projects resulting in lower than expected operating profits and cash flows for this business.  Management anticipated a turnaround in its CRO Services business in the third quarter of 2010 based on various restructuring activities enacted in late 2009 and during the first half of 2010 (e.g., reductions-in-force, location consolidation, etc.).  Based on the unanticipated continuation of the decline in operating performance during the third quarter of 2010, coupled with the revised outlook, the Company’s earnings outlook for the CRO business was reduced.  As a result, the Company determined it was required to perform an interim impairment test with respect to goodwill and certain other intangible assets related to its CRO Services reporting unit outside of its normal fourth quarter test period.  Based on the results of the tests performed, the Company recorded a goodwill impairment charge in CRO Services of approximately $91 million in the third quarter of 2010.

The Company determined that the 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 the divestiture was completed in April 2011.

The results from operations for all periods presented have been recast to reflect the results of the Non-Core Disposal Group and CRO Services as discontinued operations, including certain expenses of the Company related to the divestiture.  Selected financial information related to the discontinued operations of the Non-Core Disposal Group and CRO Services for the years ended December 31, 2010, 2009 and 2008 follows (in thousands):

	For the years ended December 31,
	2010			2009			2008
Net sales - Non-Core Disposal Group ("NCDG")	$	59,656		$	84,903		$	114,837
Net sales - CRO Services		109,176			156,707			203,320
Net sales - total discontinued		168,832			241,610			318,157
(Loss) from operations of NCDG, pretax		(14,025	)		(13,645	)		(307	)
(Loss) income from operations of CRO Services, pretax		(19,269	)		(3,581	)		15,886
(Loss) income from operations - total discontinued, pretax		(33,294	)		(17,226	)		15,579
Income tax benefit - NCDG		3,614			5,468			96
Income tax benefit (expense) - CRO Services		8,116			1,051			(6,503	)
Income tax benefit (expense) - total discontinued		11,730			6,519			(6,407	)
Loss from operations of NCDG, aftertax		(10,411	)		(8,177	)		(211	)
(Loss) income from operations of CRO Services, aftertax		(11,153	)		(2,530	)		9,383
(Loss) income from operations - total discontinued, aftertax		(21,564	)		(10,707	)		9,172
Impairment loss on NCDG, pretax		(10,343	)		(14,492	)		-
Impairment loss on CRO Services, pretax		(90,628	)		-			-
Income tax benefit of impairment loss on NCDG		1,859			2,427			-
Income tax benefit of impairment loss on CRO Services		103			-			-
Impairment loss on total discontinued, aftertax		(99,009	)		(12,065	)		-
Loss from discontinued operations of NCDG		(18,895	)		(20,242	)		(211	)
(Loss) income from discontinued operations of CRO Services		(101,678	)		(2,530	)		9,383
(Loss) income from discontinued operations - total		(120,573	)		(22,772	)		9,172

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Acquisitions

12 Months Ended

Dec. 31, 2010

Notes to Financial Statements [Abstract]

Acquisitions

Note 4 – Acquisitions

Historically, the Company has been involved in a program to acquire providers of pharmaceutical products and related pharmacy services to long-term care facilities and their residents as well as patients in other care settings.  The Company’s strategy has included the acquisition of freestanding institutional pharmacy businesses as well as other assets, generally insignificant in size, which have been combined with existing pharmacy operations to augment their internal growth.  From time-to-time the Company may acquire other businesses, which complement the Company’s core businesses.

In the years ended 2010 and 2009, the Company incurred acquisition and other related costs of approximately $5.3 million and $1.4 million, respectively, which were primarily related to professional fees and acquisition related restructuring costs for acquisitions completed during 2010 and 2009, which were partially offset by a reduction of the Company’s original estimate of contingent consideration payable for certain acquisitions.

During the years ended December 31, 2010, 2009 and 2008, the Company completed four, nine and 12 acquisitions of businesses, respectively, none of which were, individually or in the aggregate, significant to the Company.  Acquisitions of businesses required cash payments of approximately $112 million, $93 million and $226 million (including amounts payable pursuant to acquisition agreements relating to prior-period acquisitions) in 2010, 2009 and 2008, respectively.  The impact of these aggregate acquisitions on the Company’s overall goodwill balance has been reflected in the disclosures at the “Goodwill and Other Intangible Assets” note.  The Company continues to evaluate the tax effects, identifiable intangible assets and other pre-acquisition contingencies relating to certain acquisitions. Omnicare is in the process of completing its allocation of the purchase price for certain acquisitions, and accordingly, the goodwill and other identifiable intangible assets balances are preliminary and subject to change.  The net assets and operating results of acquisitions have been included in the Company’s consolidated financial statements from their respective dates of acquisition.

Amounts contingently payable through 2011, primarily representing payments originating from earnout provisions of acquisitions which were completed prior to January 1, 2009, total approximately $16 million as of December 31, 2010.