UNITED STATES 
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 10-Q

|                                                                                                                                                 | 
|------------------------------------------------------------------------------------------------------------------------------------------------ | 
|(Mark One)                                                                                                                                      
|x QUARTERLY
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF
  THE SECURITIES EXCHANGE ACT OF 1934For the quarterly
  period ended September 30, 2006

or


o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934 For the transition period
from __________ to __________.


Commission File Number 1-8269

|                                                        
|--------------------------------------------------------
|OMNICARE,
  INC.                                        
|                                                        
|(Exact
  name of registrant as specified in its charter)

|                                  |  |                                     
|--------------------------------- |  | ------------------------------------
|Delaware                          |  | 31-1001351                          
|                                  |  |                                     
|(State
  or other jurisdiction of |  | (I.R.S. Employer Identification No.)
|incorporation
  or organization)  |  |                                     

|                                                            |           
|----------------------------------------------------------- | ----------
|100 East RiverCenter
  Boulevard, Covington, Kentucky 41011
|                                                           
|(Address
  of principal executive offices)                  | (Zip Code)

|                                                                                    
|------------------------------------------------------------------------------------
|(859)
  392-3300                                                                    
|                                                                                    
|(Registrants
  telephone number, including area code)                              
|                                                                                    
|                                                                                    
|(Former
  name, former address and former fiscal year, if changed since last report)

|                                                 |    |                                                                                                                                                                                                                                      
|------------------------------------------------ | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Indicate by check mark
  whether the registrant:
|                                                
|                                                 | 1) | has filed all reports
  required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
  1934 during the preceding 12 months (or for such shorter period that the
  registrant was required to file such reports), and
|                                                
|                                                 | 2) | has been subject to such
  filing requirements for the past 90 days.                                                                                                                                                                 

YesxNoo

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer or a
non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act (Check one):

| |                           |                      |                          | 
| | ------------------------- | -------------------- | ------------------------ | 
| | Large accelerated filer x | Accelerated
  filero | Non-accelerated
  filero | 

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).

YesoNox

APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS:

Indicate by check mark
whether the registrant has filed all documents and reports required to be filed
by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent
to the distribution of securities under a plan confirmed by a court.

Yeso No o

|                 |                                                                                                                                                                                              
|---------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|SEC 1296 (12-05) | Potential
  persons who are to respond to the collection of information contained in this
  form are not required to respond unless the form displays a currently valid
  OMB control number.

COMMON STOCK OUTSTANDING

|                           |  |                     |             |      |  |                      | 
|-------------------------- |  | ------------------- | ----------- | ---- |  | -------------------- | 
|                           |  | Number of 
  Shares |             | Date | 
|                           |  |                     |             |      | 
|Common Stock, $1 par value |  |                     | 121,427,571 |      |  | September
  30, 2006 | 

---



OMNICARE, INC. AND

SUBSIDIARY COMPANIES

INDEX

|         |                        |                                                                                                   |     
|-------- | ---------------------- | ------------------------------------------------------------------------------------------------- | ----
|         |                        |                                                                                                   | PAGE
|         |                        |                                                                                                   |     
|         |                        |                                                                                                   |     
|PART I.  | FINANCIAL INFORMATION: |                                                                                                  
|         |                        |                                                                                                  
|         | ITEM 1.                | FINANCIAL STATEMENTS (UNAUDITED)                                                                  |     
|         |                        |                                                                                                   |     
|         |                        | Consolidated Statements of Income 
  Three and nine months ended 
  September 30, 2006 and 2005 | 3   
|         |                        |                                                                                                   |     
|         |                        | Consolidated Balance Sheets  
  September 30, 2006 and December 31, 2005                         | 4   
|         |                        |                                                                                                   |     
|         |                        | Consolidated Statements of Cash Flows  
  Nine months ended  
  September 30, 2006 and 2005     | 5   
|         |                        |                                                                                                   |     
|         |                        | Notes to Consolidated Financial
Statements                                                        | 6   
|         |                        |                                                                                                   |     
|         | ITEM 2.                | MANAGEMENTS DISCUSSION AND ANALYSIS OF
  FINANCIAL CONDITION AND RESULTS OF OPERATIONS           | 42  
|         |                        |                                                                                                   |     
|         | ITEM 3.                | QUANTITATIVE AND QUALITATIVE DISCLOSURES
  ABOUT MARKET RISK                                      | 77  
|         |                        |                                                                                                   |     
|         | ITEM 4.                | CONTROLS AND PROCEDURES                                                                           | 79  
|         |                        |                                                                                                   |     
|PART II. | OTHER INFORMATION:     |                                                                                                  
|         |                        |                                                                                                  
|         | ITEM 1.                | LEGAL PROCEEDINGS                                                                                 | 80  
|         |                        |                                                                                                   |     
|         | ITEM 1A.               | RISK FACTORS                                                                                      | 83  
|         |                        |                                                                                                   |     
|         | ITEM 2.                | UNREGISTERED SALE OF EQUITY SECURITIES AND
  USE OF PROCEEDS                                      | 89  
|         |                        |                                                                                                   |     
|         | ITEM 6.                | EXHIBITS                                                                                          | 89  

---



PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED
STATEMENTS OF INCOME
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED

(in thousands,
except per share data)

|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|-------------------------------------------------------- |  | ----------------------------------- | --------- | ---------------------------------- | - | --------- | - | ---- | --------- | - | - | --------- | -
|                                                         |  | Three months ended,
  September 30, |           | Nine months ended,
  September 30, |  
|                                                         |  |                                     |           |                                    |  
|                                                         |  | 2006                                |           | 2005                               |   | 2006      |   | 2005 |          
|                                                         |  |                                     |           |                                    |   |           |   |      |          
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Net sales (Note 10)                                      |  | $                                   | 1,593,866 |                                    | $ | 1,454,977 |   | $    | 4,893,574 |   | $ | 3,674,520 |  
|Cost of sales (COS)                                    |  |                                     | 1,193,234 |                                    |   | 1,093,904 |   |      | 3,676,136 |   |   | 2,769,279 |  
|Heartland matters - COS (Note 10)                        |  |                                     | 22,769    |                                    |   |          |   |      | 22,769    |   |   |          |  
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Gross profit                                             |  |                                     | 377,863   |                                    |   | 361,073   |   |      | 1,194,669 |   |   | 905,241   |  
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Selling, general and administrative
  expenses (S,G&A) |  |                                     | 236,099   |                                    |   | 212,970   |   |      | 723,192   |   |   | 527,724   |  
|Restructuring and other related charges
  (Note 9)       |  |                                     | 5,119     |                                    |   | 8,950     |   |      | 24,721    |   |   | 8,950     |  
|Heartland matters - S,G&A (Note 10)                      |  |                                     | 2,216     |                                    |   |          |   |      | 2,216     |   |   |          |  
|Litigation charges (Note 10)                             |  |                                     | 9,886     |                                    |   |          |   |      | 108,468   |   |   |          |  
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Operating income                                         |  |                                     | 124,543   |                                    |   | 139,153   |   |      | 336,072   |   |   | 368,567   |  
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Investment income                                        |  |                                     | 3,407     |                                    |   | 1,212     |   |      | 8,255     |   |   | 3,456     |  
|Interest expense                                         |  |                                     | (43,368   | )                                  |   | (46,857   | ) |      | (128,849  | ) |   | (87,215   | )
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Income before income taxes                               |  |                                     | 84,582    |                                    |   | 93,508    |   |      | 215,478   |   |   | 284,808   |  
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Income tax provision                                     |  |                                     | 32,352    |                                    |   | 35,009    |   |      | 101,638   |   |   | 106,582   |  
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Net income                                               |  | $                                   | 52,230    |                                    | $ | 58,499    |   | $    | 113,840   |   | $ | 178,226   |  
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Earnings per share:                                      |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Basic                                                    |  | $                                   | 0.44      |                                    | $ | 0.57      |   | $    | 0.96      |   | $ | 1.74      |  
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Diluted (Note 3)                                         |  | $                                   | 0.43      |                                    | $ | 0.54      |   | $    | 0.93      |   | $ | 1.67      |  
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Dividends per common share                               |  | $                                   | 0.0225    |                                    | $ | 0.0225    |   | $    | 0.0675    |   | $ | 0.0675    |  
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Weighted average number of common shares
  outstanding:  |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Basic                                                    |  |                                     | 118,667   |                                    |   | 103,292   |   |      | 118,376   |   |   | 102,481   |  
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Diluted (Note 3)                                         |  |                                     | 122,114   |                                    |   | 108,038   |   |      | 122,904   |   |   | 107,593   |  
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  
|Comprehensive income                                     |  | $                                   | 53,839    |                                    | $ | 57,671    |   | $    | 113,315   |   | $ | 175,899   |  
|                                                         |  |                                     |           |                                    |   |           |   |      |           |   |   |           |  

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

3

---



CONSOLIDATED
BALANCE SHEETS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED

(in thousands,
except share data)

|                                                                                                                        |  |                      |           |                     |   |           |  
|----------------------------------------------------------------------------------------------------------------------- |  | -------------------- | --------- | ------------------- | - | --------- | -
|                                                                                                                        |  | September 30,
  2006 |           | December 31,
  2005 |  
|                                                                                                                        |  |                      |           |                     |  
|ASSETS                                                                                                                  |  |                      |           |                     |   |           |  
|Current assets:                                                                                                         |  |                      |           |                     |   |           |  
|Cash and cash equivalents                                                                                               |  | $                    | 279,293   |                     | $ | 215,421   |  
|Restricted cash                                                                                                         |  |                      | 13,292    |                     |   | 2,674     |  
|Deposits with drug wholesalers                                                                                          |  |                      | 1,372     |                     |   | 83,036    |  
|Accounts receivable, less allowances of
  $179,087 (2005-$169,390)                                                      |  |                      | 1,468,415 |                     |   | 1,260,634 |  
|Unbilled receivables                                                                                                    |  |                      | 20,634    |                     |   | 17,195    |  
|Inventories                                                                                                             |  |                      | 449,499   |                     |   | 473,942   |  
|Deferred income tax benefits                                                                                            |  |                      | 140,251   |                     |   | 107,967   |  
|Other current assets                                                                                                    |  |                      | 191,952   |                     |   | 200,026   |  
|                                                                                                                        |  |                      |           |                     |   |           |  
|Total current assets                                                                                                    |  |                      | 2,564,708 |                     |   | 2,360,895 |  
|                                                                                                                        |  |                      |           |                     |   |           |  
|Properties and equipment, at cost less
  accumulated depreciation of $275,299 (2005-$252,489)                           |  |                      | 214,648   |                     |   | 231,734   |  
|Goodwill                                                                                                                |  |                      | 4,238,697 |                     |   | 4,029,482 |  
|Identifiable intangible assets, less
  accumulated amortization of $71,529 (2005-$45,153)                               |  |                      | 327,148   |                     |   | 339,474   |  
|Other noncurrent assets                                                                                                 |  |                      | 221,211   |                     |   | 195,820   |  
|                                                                                                                        |  |                      |           |                     |   |           |  
|Total noncurrent assets                                                                                                 |  |                      | 5,001,704 |                     |   | 4,796,510 |  
|                                                                                                                        |  |                      |           |                     |   |           |  
|Total assets                                                                                                            |  | $                    | 7,566,412 |                     | $ | 7,157,405 |  
|                                                                                                                        |  |                      |           |                     |   |           |  
|                                                                                                                        |  |                      |           |                     |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                    |  |                      |           |                     |   |           |  
|Current liabilities:                                                                                                    |  |                      |           |                     |   |           |  
|Accounts payable                                                                                                        |  | $                    | 333,844   |                     | $ | 397,471   |  
|Accrued employee compensation                                                                                           |  |                      | 48,444    |                     |   | 56,063    |  
|Deferred revenue                                                                                                        |  |                      | 23,132    |                     |   | 24,857    |  
|Current debt (Note 6)                                                                                                   |  |                      | 6,882     |                     |   | 355,943   |  
|Accrued litigation (Note 10)                                                                                            |  |                      | 110,287   |                     |   |          |  
|Other current liabilities and income taxes
  payable                                                                    |  |                      | 280,839   |                     |   | 166,170   |  
|                                                                                                                        |  |                      |           |                     |   |           |  
|Total current liabilities                                                                                               |  |                      | 803,428   |                     |   | 1,000,504 |  
|                                                                                                                        |  |                      |           |                     |   |           |  
|Long-term debt                                                                                                          |  |                      | 654,008   |                     |   | 752,901   |  
|8.125% senior subordinated notes, due 2011                                                                              |  |                      | 8,225     |                     |   | 8,775     |  
|6.125% senior subordinated notes, net, due
  2013                                                                       |  |                      | 229,222   |                     |   | 230,216   |  
|6.75% senior subordinated notes, due 2013                                                                               |  |                      | 225,000   |                     |   | 225,000   |  
|6.875% senior subordinated notes, due 2015                                                                              |  |                      | 525,000   |                     |   | 525,000   |  
|4.00% junior subordinated convertible
  debentures, due 2033 (Note 6)                                                   |  |                      | 345,000   |                     |   |          |  
|3.25% convertible senior debentures, due
  2035                                                                         |  |                      | 977,500   |                     |   | 977,500   |  
|Deferred income tax liabilities                                                                                         |  |                      | 391,108   |                     |   | 249,034   |  
|Other noncurrent liabilities                                                                                            |  |                      | 277,789   |                     |   | 246,429   |  
|                                                                                                                        |  |                      |           |                     |   |           |  
|Total noncurrent liabilities                                                                                            |  |                      | 3,632,852 |                     |   | 3,214,855 |  
|                                                                                                                        |  |                      |           |                     |   |           |  
|Total liabilities                                                                                                       |  |                      | 4,436,280 |                     |   | 4,215,359 |  
|                                                                                                                        |  |                      |           |                     |   |           |  
|Commitments and contingencies (Note 10)                                                                                 |  |                      |           |                     |   |           |  
|Stockholders equity:                                                                                                   |  |                      |           |                     |   |           |  
|Preferred stock, no par value, 1,000,000
  shares authorized, none issued and outstanding                               |  |                      |          |                     |   |          |  
|Common stock, $1 par value, 200,000,000
  shares authorized, 124,231,300 shares issued (2005-122,619,100 shares issued) |  |                      | 124,231   |                     |   | 122,619   |  
|Paid-in capital                                                                                                         |  |                      | 1,873,992 |                     |   | 1,861,483 |  
|Retained earnings                                                                                                       |  |                      | 1,233,557 |                     |   | 1,127,915 |  
|Treasury stock, at cost-2,803,700 shares
  (2005-2,737,100 shares)                                                      |  |                      | (86,474   | )                   |   | (78,418   | )
|Deferred compensation (Note 2)                                                                                          |  |                      |          |                     |   | (76,904   | )
|Accumulated other comprehensive income                                                                                  |  |                      | (15,174   | )                   |   | (14,649   | )
|                                                                                                                        |  |                      |           |                     |   |           |  
|Total stockholders equity                                                                                              |  |                      | 3,130,132 |                     |   | 2,942,046 |  
|                                                                                                                        |  |                      |           |                     |   |           |  
|Total liabilities and stockholders
equity                                                                              |  | $                    | 7,566,412 |                     | $ | 7,157,405 |  
|                                                                                                                        |  |                      |           |                     |   |           |  

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

4

---



CONSOLIDATED
STATEMENTS OF CASH FLOWS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED

(in thousands)

|                                                                                                                               |  |                                    |          |      |   |            |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------- | -------- | ---- | - | ---------- | -
|                                                                                                                               |  | Nine months ended,
  September 30, |         
|                                                                                                                               |  |                                    |         
|                                                                                                                               |  | 2006                               |          | 2005 |  
|                                                                                                                               |  |                                    |          |      |  
|Cash flows
  from operating activities:                                                                                        |  |                                    |          |      |   |            |  
|Net income                                                                                                                     |  | $                                  | 113,840  |      | $ | 178,226    |  
|Adjustments to reconcile net income to net
  cash flows from operating activities:                                             |  |                                    |          |      |   |            |  
|Depreciation                                                                                                                   |  |                                    | 42,820   |      |   | 29,482     |  
|Amortization                                                                                                                   |  |                                    | 47,656   |      |   | 22,583     |  
|Provision for doubtful accounts                                                                                                |  |                                    | 54,499   |      |   | 40,352     |  
|Deferred tax provision                                                                                                         |  |                                    | 21,377   |      |   | 27,574     |  
|Write-off debt issuance costs                                                                                                  |  |                                    |         |      |   | 1,914      |  
|Changes in assets and liabilities, net of
  effects from acquisition of businesses:                                            |  |                                    |          |      |   |            |  
|Accounts receivable and unbilled
  receivables                                                                                 |  |                                    | (275,742 | )    |   | (134,356   | )
|Inventories                                                                                                                    |  |                                    | 23,989   |      |   | (30,959    | )
|Deposits with drug wholesalers                                                                                                 |  |                                    | 81,664   |      |   |           |  
|Current and noncurrent assets                                                                                                  |  |                                    | 2,858    |      |   | (15,819    | )
|Accounts payable                                                                                                               |  |                                    | (74,434  | )    |   | 34,285     |  
|Accrued employee compensation                                                                                                  |  |                                    | 11,128   |      |   | 7,854      |  
|Deferred revenue                                                                                                               |  |                                    | (1,725   | )    |   | (146       | )
|Income taxes payable                                                                                                           |  |                                    | 32,849   |      |   | 34,395     |  
|Current and noncurrent liabilities                                                                                             |  |                                    | 131,968  |      |   | (20,041    | )
|                                                                                                                               |  |                                    |          |      |   |            |  
|Net cash flows from operating activities                                                                                       |  |                                    | 212,747  |      |   | 175,344    |  
|                                                                                                                               |  |                                    |          |      |   |            |  
|                                                                                                                               |  |                                    |          |      |   |            |  
|Cash flows from investing activities:                                                                                          |  |                                    |          |      |   |            |  
|Acquisition of businesses, net of cash
  received                                                                              |  |                                    | (71,446  | )    |   | (2,566,335 | )
|Capital expenditures                                                                                                           |  |                                    | (22,900  | )    |   | (14,672    | )
|Transfer of cash to trusts for employee
  health and severance costs, net of payments out of the trust                         |  |                                    | (10,836  | )    |   | (5,898     | )
|Other                                                                                                                          |  |                                    | 93       |      |   | 39         |  
|                                                                                                                               |  |                                    |          |      |   |            |  
|Net cash flows from investing activities                                                                                       |  |                                    | (105,089 | )    |   | (2,586,866 | )
|                                                                                                                               |  |                                    |          |      |   |            |  
|                                                                                                                               |  |                                    |          |      |   |            |  
|Cash flows from financing activities:                                                                                          |  |                                    |          |      |   |            |  
|Borrowings on line of credit facilities and
  term A loan                                                                      |  |                                    | 133,000  |      |   | 3,543,000  |  
|Payments on line of credit facilities and
  term A loan                                                                        |  |                                    | (233,000 | )    |   | (1,068,385 | )
|Proceeds from long-term borrowings and
  obligations                                                                           |  |                                    | 63       |      |   | 41,546     |  
|Payments on long-term borrowings and
obligations                                                                               |  |                                    | (4,764   | )    |   | (612       | )
|Fees paid for financing arrangements                                                                                           |  |                                    | (3,413   | )    |   | (14,179    | )
|Change in cash overdraft balance                                                                                               |  |                                    | 12,982   |      |   | 8,054      |  
|Proceeds from stock offering, net of
  issuance costs                                                                          |  |                                    | 49,239   |      |   |           |  
|(Payments) for and proceeds from stock
  awards and exercise of stock options and warrants, net of stock tendered in
  payment |  |                                    | (2,661   | )    |   | 30,339     |  
|Excess tax benefits from stock-based
  compensation                                                                            |  |                                    | 11,678   |      |   |           |  
|Dividends paid                                                                                                                 |  |                                    | (8,198   | )    |   | (7,135     | )
|                                                                                                                               |  |                                    |          |      |   |            |  
|Net cash flows from financing activities                                                                                       |  |                                    | (45,074  | )    |   | 2,532,628  |  
|                                                                                                                               |  |                                    |          |      |   |            |  
|                                                                                                                               |  |                                    |          |      |   |            |  
|Effect of exchange rate changes on cash                                                                                        |  |                                    | 1,288    |      |   | (1,237     | )
|                                                                                                                               |  |                                    |          |      |   |            |  
|Net increase in cash and cash equivalents                                                                                      |  |                                    | 63,872   |      |   | 119,869    |  
|Cash and cash equivalents at beginning of
  period                                                                             |  |                                    | 215,421  |      |   | 84,169     |  
|                                                                                                                               |  |                                    |          |      |   |            |  
|                                                                                                                               |  |                                    |          |      |   |            |  
|Cash and cash equivalents at end of period                                                                                     |  | $                                  | 279,293  |      | $ | 204,038    |  
|                                                                                                                               |  |                                    |          |      |   |            |  

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

5

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED

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

Interim Financial Data

The
interim financial data is unaudited; however, in the opinion of the management
of Omnicare, Inc., the interim data includes all adjustments (which include
only normal adjustments, except as described in the Debt, Restructuring and
Other Related Charges and Commitments and Contingencies notes) considered
necessary for a fair presentation of the consolidated financial position,
results of operations and cash flows of Omnicare, Inc. and its consolidated
subsidiaries (Omnicare or the Company). These financial statements should be
read in conjunction with the Consolidated Financial Statements and related
notes included in Omnicares Annual Report on Form 10-K for the year ended
December 31, 2005 and any related updates included in the Companys periodic
quarterly Securities and Exchange Commission (SEC) filings. Certain
reclassifications of prior year amounts have been made to conform with the
current year presentation.

Description of Business and Summary of Significant Accounting Policies

The
Companys description of business and significant accounting policies have been
disclosed in its Annual Report on Form 10-K. As previously disclosed, these
financial statements should be read in conjunction with the Consolidated
Financial Statements and related notes included in Omnicares Annual Report on
Form 10-K for the year ended December 31, 2005 and any related updates
contained in the Companys periodic quarterly SEC filings, including those
presented below.

Stock-Based Compensation

Effective
January 1, 2006, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment
(SFAS 123R), which replaced Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation (SFAS 123) and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Prior to
the adoption of SFAS 123R, the Company accounted for stock incentive plans
under the recognition and measurement principles of APB 25, and related
Interpretations (intrinsic value method). As a result, no stock-based employee
compensation cost for stock options was reflected in net income.

SFAS
123R requires the Company to record compensation costs relating to share-based
payment transactions in its financial statements. Under the fair value
recognition provisions of SFAS 123R, 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). The Company elected the modified prospective method of
implementing SFAS 123R, which requires that SFAS 123R be applied to all new
awards whose inception date follows the effective date of January 1, 2006, and
all existing awards modified, repurchased or cancelled after January 1, 2006.
In addition, this method requires compensation cost for the portion of awards
for which service has not been rendered (i.e., nonvested portion)

6

---



and were
outstanding as of January 1, 2006. Estimated compensation for awards that were
outstanding as of January 1, 2006 is being recognized over the remaining
service period using the compensation cost estimate included in the SFAS 123
pro forma disclosures at the time the awards were issued. In accordance with
the modified prospective method, the Companys Consolidated Financial
Statements for prior periods have not been restated to reflect the adoption of
SFAS 123R.

Operating
income for the three and nine months ended September 30, 2006, includes
additional share-based compensation expense for stock options and stock awards
of approximately $1.0 million and $6.1 million before taxes, respectively,
related to the adoption of SFAS 123R. See the Stock-Based Employee
Compensation note for further information regarding the stock-based
compensation assumptions and expenses, including pro forma disclosures for the
comparable prior-year period as if the Company had recorded stock-based
compensation expense under SFAS 123.

Concentration of Credit Risk

The
  new prescription drug benefit under Medicare Part D (Part D) became
  effective on January 1, 2006. As a result, Omnicare experienced a significant
  shift in payor mix during the nine months ended September 30, 2006. The payor
  mix for the 2006 third quarter was approximately 42% Part D, 11% Medicaid, 42%
  private pay, third-party and facility, and 5% other sources. The Company estimates
  that approximately 38% and 39% of its Part D revenues during the three and nine
  months ended September 30, 2006, respectively, relate to patients enrolled in
  Part D prescription drug plans sponsored by United Health Group and its affiliates
  (United). Prior to the implementation of the new Medicare Part D
  program, most of the Part D residents served by the Company were reimbursed
  under state Medicaid programs and, to a lesser extent, private pay sources.

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

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

As
noted, the Company obtains reimbursement for drugs it provides to enrollees of
a given Part D Plan in accordance with the terms of the agreement negotiated
between it and that Part D Plan. The Company has entered into such agreements
with nearly all Part D Plan sponsors under which it will provide drugs and
associated services to their enrollees. The Company continues to have ongoing
discussions with Part D Plans in the ordinary course and may, as appropriate,
renegotiate agreements. Moreover, as expected in the transition to a new
program of this magnitude, certain administrative and payment issues have
arisen, resulting in higher operating expenses, as well as outstanding
receivables for copays and rejected claims of approximately $23 million and $29
million, respectively, at September 30, 2006. Until these administrative and
payment issues have been resolved, the Company will not be able to determine
the ultimate impact of the new Part D Drug Benefit on the Companys results of
operations, financial condition and cash flows.

7

---



Income Taxes

The
Companys effective income tax rate for the nine months ended September 30,
2006 was significantly higher than the comparable prior-year periods due, in
large part, to the nondeductibility of certain litigation charges recognized in
the current year periods.

Recently Issued Accounting Standards

In
February 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 155 (SFAS 155), Accounting
for Certain Hybrid Financial Instruments which nullifies and amends various
accounting guidance related to accounting for derivative instruments and
securitization transactions. The intent of this guidance is primarily to reduce
operational complexity associated with bifurcating embedded derivatives, among
other items. SFAS 155 is effective for new instruments issued by the Company
beginning January 1, 2007. The Company currently does not expect that the
adoption of SFAS 155 will have a material impact on its consolidated financial
position, results of operations or cash flows.

In
July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting
for Uncertainty in Income Taxes which clarifies the accounting of uncertainty
in income taxes recognized in an enterprises financial statements in
accordance with FASB Statement No. 109, Accounting for Income Taxes. The
intent of this guidance is primarily to prescribe a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The Company is
currently evaluating the impact of this statement but does not expect that the
adoption of FIN 48 will have a material impact on its consolidated financial
position, results of operations or cash flows.

In
October 2006, the FASB issued Statement of Financial Accounting Standards No.
158 (SFAS 158), Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans which improves financial reporting by requiring an
employer to recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of a
business entity. This Statement also improves financial reporting by requiring
an employer to measure the funded status of a plan as of the date of its
year-end statement of financial position, with limited exceptions. FAS 158 is
effective for the Company as of December 31, 2006. The Company currently uses
December 31 as its measurement date. The Company is currently in the process of
gathering information, including the finalization of the actuarial assumptions
to be utilized in its December 31, 2006 pension obligation calculations, to
evaluate the full impact of this statement. However, if the Company had adopted
SFAS 158 as of December 31, 2005, the impact would have been an increase in the
minimum pension liability and corresponding charge to other comprehensive
income of approximately $15 million.

2. Stock-Based
Employee Compensation

SFAS 123R Adoption

At
September 30, 2006, the Company had four stock-based employee compensation
plans under which incentive awards were outstanding, which are described more
fully below.

8

---



Omnicare
believes that the incentive awards issued under these plans serve to better
align the interests of its employees with those of its stockholders. Prior to
January 1, 2006, the Company accounted for those plans under the recognition
and measurement provisions of APB 25, and related Interpretations (intrinsic
value method). As a result, no stock-based employee compensation cost for stock
options was reflected in net income. Effective January 1, 2006, the Company
adopted the fair value recognition provisions of SFAS 123R as further described
in the Interim Financial Data, Description of Business and Summary of
Significant Accounting Policies note of the Notes to Consolidated Financial
Statements.

Stock-Based Employee Compensation Plans

During
2004, stockholders of the Company approved the 2004 Stock and Incentive 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 million shares of Company common
stock. Beginning May 18, 2004, stock-based incentive awards are made only from
the 2004 Stock and Incentive Plan.

During
1998, the Companys Board of Directors approved the 1998 Long-Term Employee
Incentive Plan (the 1998 Plan), under which the Company was authorized to
grant stock-based incentives to a broad base of employees (excluding executive
officers and directors of the Company) in an amount initially aggregating up to
1 million shares of Company common stock for non-qualified options, stock
awards and stock appreciation rights. In March 2000 and November 2002, the
Companys Board of Directors amended the 1998 Plan to increase the shares
available for granting to 3.5 million and 6.3 million, respectively.

During
1995, the Companys Board of Directors and stockholders approved the 1995
Premium-Priced Stock Option Plan, providing options to purchase 2.5 million
shares of Company common stock available for grant at an exercise price of 125%
of the stocks fair market value at the date of grant.

Under
the 1992 Long-Term Stock Incentive Plan, the Company granted stock awards and
stock options at not less than fair market value of the Companys common stock
on the date of grant.

The
Company also had a Director Stock Plan, which allowed for stock options and
stock awards to be granted to certain non-employee directors. As of May 18,
2004, this plan was terminated. Consequentially, awards are no longer made from
this plan.

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 generally granted with
an exercise price equal to the fair market value of Company stock upon grant.
Omnicares policy is to issue new shares upon stock option exercise. Certain
option and share awards provide for accelerated vesting if there is a change in
control, as defined in the plans.

9

---



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. Prior to May 18, 2004, stock options awarded under
the ESPP were issued out of the 1992 Long-Term Stock Incentive Plan and the
1998 Long-Term Employee Incentive Plan. Beginning May 18, 2004, stock options
under the ESPP are only issued out of the 2004 Stock and Incentive Plan.

Stock Awards

Non-vested
stock awards are granted to key employees at the discretion of the Compensation
and Incentive Committee of the Board of Directors. These awards are restricted
as to the transfer of ownership and generally vest over a seven-year period
(with a greater proportion vesting in the latter years), or five to ten-year
periods (vesting on a straight-line basis). 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

As
discussed in the Interim Financial Data, Description of Business and Summary
of Significant Accounting Policies note of the Notes to Consolidated Financial
Statements, effective January 1, 2006, the Company adopted the provisions of
SFAS 123R, which requires the Company to record compensation costs relating to
share-based payment transactions, including stock options, in its financial
statements, based on estimated fair values. The Company currently 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, as
further discussed below. 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 stock
options granted are expected to be outstanding and is estimated based on
historical stock option exercise experience. The expected volatility is based
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

10

---



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 three and nine
months ended September 30, 2006 and 2005 are as follows:

|                                                       |  |                                    |       |                                   |   |       |   |      |       |   |   |       |  
|------------------------------------------------------ |  | ---------------------------------- | ----- | --------------------------------- | - | ----- | - | ---- | ----- | - | - | ----- | -
|                                                       |  | Three months ended
  September 30, |       | Nine months ended
  September 30, |  
|                                                       |  | 2006                               |       | 2005                              |   | 2006  |   | 2005 |      
|                                                       |  |                                    |       |                                   |   |       |   |      |      
|Expected volatility                                    |  |                                    | 29    | %                                 |   | 34    | % |      | 29    | % |   | 34    | %
|Risk-free interest rate                                |  |                                    | 4.4   | %                                 |   | 4.1   | % |      | 4.4   | % |   | 4.1   | %
|Expected dividend yield                                |  |                                    | 0.2   | %                                 |   | 0.2   | % |      | 0.2   | % |   | 0.2   | %
|Expected term of stock
  options (in years)            |  |                                    | 4.7   |                                   |   | 5.0   |   |      | 4.7   |   |   | 5.0   |  
|Weighted-average fair
  value of stock options granted |  | $                                  | 15.04 |                                   | $ | 17.52 |   | $    | 17.09 |   | $ | 15.26 |  

Prior
to the adoption of SFAS 123R, the Company recognized the estimated compensation
cost of restricted stock awards over the vesting term in accordance with the
vesting schedule. Unrestricted stock awards were expensed during the period
granted. The estimated compensation cost was based on the fair market value of
Omnicares common stock on the date of the grant. Effective January 1, 2006,
the Company recognizes the compensation cost of restricted stock awards on a
straight-line basis over the requisite service periods of the awards, which are
generally the vesting period, with the amount of stock award compensation cost
recognized as of any balance sheet date being at least equal to the portion of
the grant-date value of the award that is vested at that date.

Total
  pretax stock-based compensation expense recognized in the Consolidated Statement
  of Income as part of S,G&A expense for the three and nine months ended September
  30, 2006 is as follows (in thousands):

|                                         |  |                                         |       |                                        |   |        | 
|---------------------------------------- |  | --------------------------------------- | ----- | -------------------------------------- | - | ------ | 
|                                         |  | Three months ended
  September 30, 2006 |       | Nine months ended
  September 30, 2006 |  
|                                         |  |                                         |       |                                        |  
|                                         |  |                                         |       |                                        |   |        | 
|Stock awards                             |  | $                                       | 5,312 |                                        | $ | 15,268 | 
|                                         |  |                                         |       |                                        |   |        | 
|Stock
  options                          |  |                                         | 442   |                                        |   | 3,770  | 
|                                         |  |                                         |       |                                        |   |        | 
|                                         |  |                                         |       |                                        |   |        | 
|Total
  stock-based compensation expense |  | $                                       | 5,754 |                                        | $ | 19,038 | 
|                                         |  |                                         |       |                                        |   |        | 

The
following table illustrates the effect on net income and earnings per share,
for the three and nine months ended September 30, 2005, as if the Company had
accounted for share-

11

---



based payment transactions under the fair value recognition
provisions of SFAS 123, as amended by SFAS No.
148, Accounting for Stock-Based Compensation-Transition and Disclosure-an
amendment of SFAS 123 (SFAS 148) (in thousands, except per share data):

|                                                                                                                                                                |  |                                       |        |                                      |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | ------------------------------------ | -
|                                                                                                                                                                |  | Three monthsendedSeptember 30,
  2005 |        | Nine monthsendedSeptember 30,
  2005 |  
|                                                                                                                                                                |  |                                       |        |                                      |  
|Net income, as reported                                                                                                                                         |  | $                                     | 58,499 |                                      | $
|Add: Stock-based employee compensation
  expense (stock awards) included in reported net income, net of related tax
  effects                                   |  |                                       | 1,603  |                                      |  
|Deduct: Total stock-based employee
  compensation expense (stock options and awards) determined under the fair
  value based method, net of related tax effects |  |                                       | (3,373 | )                                    |  
|                                                                                                                                                                |  |                                       |        |                                      |  
|Pro forma net income                                                                                                                                            |  | $                                     | 56,729 |                                      | $
|                                                                                                                                                                |  |                                       |        |                                      |  
|                                                                                                                                                                |  |                                       |        |                                      |  
|Earnings per common share:                                                                                                                                      |  |                                       |        |                                      |  
|Basic - as reported                                                                                                                                             |  | $                                     | 0.57   |                                      | $
|                                                                                                                                                                |  |                                       |        |                                      |  
|Basic - pro forma                                                                                                                                               |  | $                                     | 0.55   |                                      | $
|                                                                                                                                                                |  |                                       |        |                                      |  
|                                                                                                                                                                |  |                                       |        |                                      |  
|Diluted - as reported                                                                                                                                           |  | $                                     | 0.54   |                                      | $
|                                                                                                                                                                |  |                                       |        |                                      |  
|Diluted - pro forma                                                                                                                                             |  | $                                     | 0.53   |                                      | $
|                                                                                                                                                                |  |                                       |        |                                      |  

Prior
to the adoption of SFAS 123R, the Company presented all tax benefits for
deductions resulting from the exercise of stock options and disqualifying dispositions
as operating cash flows on the Consolidated Statement of Cash Flows. SFAS 123R
requires the benefits of tax deductions in excess of recognized compensation
expense to be reported as a financing cash flow rather than an operating cash
flow, totaling approximately $11.7 million for the nine months ended September
30, 2006. This requirement serves to reduce net operating cash flows and
increase net financing cash flows in the period of adoption and thereafter.
Total cash flows remain unchanged from what would have been reported under
prior accounting rules.

Prior
to the adoption of SFAS 123R, the Company recorded a contra-equity balance for
the unearned (deferred) compensation cost related to nonvested restricted stock
awards. SFAS 123R required that this balance be charged against additional
paid-in capital upon adoption. As a result, the December 31, 2005 balance in
deferred compensation of $76.9 million was charged against paid-in capital upon
adoption of SFAS 123R, with no overall change to total stockholders equity.

As
of September 30, 2006, there was approximately $83 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 4.9 years. The total fair
value of shares vested during the three and nine months ended September 30,
2006 related to stock awards and stock options was approximately $0.3 million
and $19.9 million, respectively.

12

---



General Stock Option Information

A
summary of stock option activity under the plans for the nine months ended
September 30, 2006 is presented below (in thousands, except exercise price
data):

|                                           |  |        |       |                              |   |                         |  |   |         | 
|------------------------------------------ |  | ------ | ----- | ---------------------------- | - | ----------------------- |  | - | ------- | 
|                                           |  | Shares |       | WeightedAverageExercisePrice |   | AggregateIntrinsicValue | 
|                                           |  |        |       |                              |   |                         | 
|Options outstanding,
  beginning of period |  |        | 7,309 |                              | $ | 29.84                   |  |   |         | 
|Options granted                            |  |        | 71    |                              |   | 51.61                   |  |   |         | 
|Options exercised                          |  |        | (425  | )                            |   | 24.80                   |  |   |         | 
|Options forfeited                          |  |        | (51   | )                            |   | 37.67                   |  |   |         | 
|                                           |  |        |       |                              |   |                         |  |   |         | 
|Options outstanding, end
  of period       |  |        | 6,904 |                              | $ | 30.32                   |  | $ | 101,498 | 
|                                           |  |        |       |                              |   |                         |  |   |         | 
|Options exercisable, end
  of period       |  |        | 5,209 |                              | $ | 24.24                   |  | $ | 98,393  | 
|                                           |  |        |       |                              |   |                         |  |   |         | 

The
total intrinsic value of options exercised during the nine months ended September
30, 2006 was approximately $13.2 million.

The
following summarizes information about stock options outstanding and
exercisable as of September 30, 2006 (in thousands, except exercise price and
remaining life data):

|                        |  |                                       |       |                                                    |  |                              |     |                                       |  |                                                       |       |                              |  |       |  |  |  |     |  |  |   |       | 
|----------------------- |  | ------------------------------------- | ----- | -------------------------------------------------- |  | ---------------------------- | --- | ------------------------------------- |  | ----------------------------------------------------- | ----- | ---------------------------- |  | ----- |  |  |  | --- |  |  | - | ----- | 
|OPTIONS OUTSTANDING     |  | OPTIONS EXERCISABLE                   |      
|                        |  |                                       |      
|Range of ExercisePrices |  | NumberOutstanding atSeptember 30,2006 |       | WeightedAverageRemainingContractualLife (in years) |  | WeightedAverageExercisePrice |     | NumberExercisable atSeptember 30,2006 |  | Weighted
  AverageRemainingContractualLife (in years) |       | WeightedAverageExercisePrice | 
|                        |  |                                       |       |                                                    |  |                              |     |                                       |  |                                                       |       |                              | 
|$7.72-$15.45            |  |                                       | 1,285 |                                                    |  |                              | 2.8 |                                       |  | $                                                     | 15.30 |                              |  | 1,285 |  |  |  | 2.8 |  |  | $ | 15.30 | 
|15.46- 23.17            |  |                                       | 1,120 |                                                    |  |                              | 4.6 |                                       |  |                                                       | 18.79 |                              |  | 1,101 |  |  |  | 4.6 |  |  |   | 18.74 | 
|23.18- 30.90            |  |                                       | 2,218 |                                                    |  |                              | 6.4 |                                       |  |                                                       | 27.42 |                              |  | 2,106 |  |  |  | 6.4 |  |  |   | 27.42 | 
|30.91- 38.61            |  |                                       | 430   |                                                    |  |                              | 2.6 |                                       |  |                                                       | 36.46 |                              |  | 379   |  |  |  | 1.9 |  |  |   | 36.67 | 
|38.62- 61.79            |  |                                       | 1,851 |                                                    |  |                              | 8.5 |                                       |  |                                                       | 49.78 |                              |  | 338   |  |  |  | 7.4 |  |  |   | 42.42 | 
|                        |  |                                       |       |                                                    |  |                              |     |                                       |  |                                                       |       |                              |  |       |  |  |  |     |  |  |   |       | 
|                        |  |                                       |       |                                                    |  |                              |     |                                       |  |                                                       |       |                              |  |       |  |  |  |     |  |  |   |       | 
|$7.72-$61.79            |  |                                       | 6,904 |                                                    |  |                              | 5.8 |                                       |  | $                                                     | 30.32 |                              |  | 5,209 |  |  |  | 4.9 |  |  | $ | 24.24 | 
|                        |  |                                       |       |                                                    |  |                              |     |                                       |  |                                                       |       |                              |  |       |  |  |  |     |  |  |   |       | 

13

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General
Restricted Stock Award Information

A
summary of nonvested restricted stock awards for the nine months ended
September 30, 2006 is presented below (in thousands, except fair value data):

| |                         |  |                     |       |                                              |   |       | 
| | ----------------------- |  | ------------------- | ----- | -------------------------------------------- | - | ----- | 
| | Restricted Stock Awards |  | Non-vested
  Shares |       | Weighted
  Average
  Grant Date
  Fair Value |  
| |                         |  |                     |       |                                              |  
| | Beginning of period     |  |                     | 2,967 |                                              | $ | 29.80 | 
| | Awarded                 |  |                     | 329   |                                              |   | 56.88 | 
| | Vested                  |  |                     | (570  | )                                            |   | 21.47 | 
| | Forfeited               |  |                     | (19   | )                                            |   | 34.24 | 
| |                         |  |                     |       |                                              |   |       | 
| | End of period           |  |                     | 2,707 |                                              | $ | 34.81 | 
| |                         |  |                     |       |                                              |   |       | 

3. 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 awards, as well as convertible debentures.

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

|                                                 |  |                                          |        |                               |  |                                |  |   |      | 
|------------------------------------------------ |  | ---------------------------------------- | ------ | ----------------------------- |  | ------------------------------ |  | - | ---- | 
|                                                 |  | For the three months ended September 30, |       
|                                                 |  |                                          |       
|2006:                                            |  | Income
  (Numerator)                     |        | Common Shares
  (Denominator) |  | Per
  Common
  Share
  Amounts | 
|                                                 |  |                                          |        |                               |  |                                | 
|Basic EPS                                        |  |                                          |        |                               |  |                                |  |   |      | 
|Net income                                       |  | $                                        | 52,230 |                               |  | 118,667                        |  | $ | 0.44 | 
|                                                 |  |                                          |        |                               |  |                                |  |   |      | 
|Effect of Dilutive Securities                    |  |                                          |        |                               |  |                                |  |   |      | 
|4.00% junior subordinated convertible debentures |  |                                          | 72     |                               |  | 1,088                          |  |   |      | 
|Stock options, warrants and awards               |  |                                          |       |                               |  | 2,359                          |  |   |      | 
|                                                 |  |                                          |        |                               |  |                                |  |   |      | 
|Diluted EPS                                      |  |                                          |        |                               |  |                                |  |   |      | 
|Net income plus assumed conversions              |  | $                                        | 52,302 |                               |  | 122,114                        |  | $ | 0.43 | 
|                                                 |  |                                          |        |                               |  |                                |  |   |      | 
|                                                 |  |                                          |        |                               |  |                                |  |   |      | 
|2005:                                            |  |                                          |        |                               |  |                                |  |   |      | 
|                                                 |  |                                          |        |                               |  |                                |  |   |      | 
|Basic EPS                                        |  |                                          |        |                               |  |                                |  |   |      | 
|Net income                                       |  | $                                        | 58,499 |                               |  | 103,292                        |  | $ | 0.57 | 
|                                                 |  |                                          |        |                               |  |                                |  |   |      | 
|Effect of Dilutive Securities                    |  |                                          |        |                               |  |                                |  |   |      | 
|4.00% junior subordinated convertible debentures |  |                                          | 72     |                               |  | 1,819                          |  |   |      | 
|Stock options, warrants and awards               |  |                                          |       |                               |  | 2,927                          |  |   |      | 
|                                                 |  |                                          |        |                               |  |                                |  |   |      | 
|Diluted EPS                                      |  |                                          |        |                               |  |                                |  |   |      | 
|Net income plus assumed conversions              |  | $                                        | 58,571 |                               |  | 108,038                        |  | $ | 0.54 | 
|                                                 |  |                                          |        |                               |  |                                |  |   |      | 

14

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|                                                 |  |                                         |         |                                 |  |                                |  |   |      | 
|------------------------------------------------ |  | --------------------------------------- | ------- | ------------------------------- |  | ------------------------------ |  | - | ---- | 
|                                                 |  | For the nine months ended September 30, |        
|                                                 |  |                                         |        
|2006:                                            |  | Income
  (Numerator)                    |         | Common
  Shares
  (Denominator) |  | Per
  Common
  Share
  Amounts | 
|                                                 |  |                                         |         |                                 |  |                                | 
|Basic EPS                                        |  |                                         |         |                                 |  |                                |  |   |      | 
|Net income                                       |  | $                                       | 113,840 |                                 |  | 118,376                        |  | $ | 0.96 | 
|                                                 |  |                                         |         |                                 |  |                                |  |   |      | 
|Effect of Dilutive Securities                    |  |                                         |         |                                 |  |                                |  |   |      | 
|4.00% junior subordinated convertible debentures |  |                                         | 217     |                                 |  | 1,827                          |  |   |      | 
|Stock options, warrants and awards               |  |                                         |        |                                 |  | 2,701                          |  |   |      | 
|                                                 |  |                                         |         |                                 |  |                                |  |   |      | 
|Diluted EPS                                      |  |                                         |         |                                 |  |                                |  |   |      | 
|Net income plus assumed conversions              |  | $                                       | 114,057 |                                 |  | 122,904                        |  | $ | 0.93 | 
|                                                 |  |                                         |         |                                 |  |                                |  |   |      | 
|                                                 |  |                                         |         |                                 |  |                                |  |   |      | 
|2005:                                            |  |                                         |         |                                 |  |                                |  |   |      | 
|                                                 |  |                                         |         |                                 |  |                                |  |   |      | 
|Basic EPS                                        |  |                                         |         |                                 |  |                                |  |   |      | 
|Net income                                       |  | $                                       | 178,226 |                                 |  | 102,481                        |  | $ | 1.74 | 
|                                                 |  |                                         |         |                                 |  |                                |  |   |      | 
|Effect of Dilutive Securities                    |  |                                         |         |                                 |  |                                |  |   |      | 
|4.00% junior subordinated convertible debentures |  |                                         | 1,886   |                                 |  | 2,767                          |  |   |      | 
|Stock options, warrants and awards               |  |                                         |        |                                 |  | 2,345                          |  |   |      | 
|                                                 |  |                                         |         |                                 |  |                                |  |   |      | 
|Diluted EPS                                      |  |                                         |         |                                 |  |                                |  |   |      | 
|Net income plus assumed conversions              |  | $                                       | 180,112 |                                 |  | 107,593                        |  | $ | 1.67 | 
|                                                 |  |                                         |         |                                 |  |                                |  |   |      | 

During
the three and nine months ended September 30, 2006 and 2005, the anti-dilutive
effect associated with certain stock options, warrants and awards was excluded
from the computation of diluted EPS, since the exercise price was greater than
the average market price of the Companys common stock during these
periods.  The aggregate number of stock
options, warrants and awards excluded from the computation of diluted EPS for
the quarter ended September 30, 2006 totaled 1.7 million, and for the nine
months ended September 30, 2006 and 2005 totaled 1.6 million and 1.4 million,
respectively.  All stock options were
dilutive for the quarter ended September 30, 2005.

In
October 2004, the FASB ratified Emerging Issues Task Force (EITF) Issue No.
04-8, The Effect of Contingently Convertible Instruments on Diluted Earnings
per Share (EITF No. 04-8), which requires the shares underlying
contingently convertible debt instruments to be included in diluted earnings
per share computations using the if-converted accounting method, regardless
of whether the market price threshold has been met.  Under that method, the convertible debentures are assumed to be
converted to common shares (weighted for the number of days assumed to be
outstanding during the period), and interest expense, net of taxes, related to
the convertible debentures is added back to net income.  As further discussed in the Debt note of
the Notes to Consolidated Financial Statements, the Company completed the
exchange offer relating to the 4.00% junior subordinated convertible debentures
on March 8, 2005.  Accordingly, the
effect of Omnicares fourth quarter 2004 adoption of EITF No. 04-8 was to
decrease diluted earnings per share $0.02 for the nine months ended September
30, 2005 (primarily relating to the period from January 1, 2005 through the
exchange offering completion date of March 8, 2005).  For purposes of the if-converted calculation, 2.8 million
shares were assumed to be converted for the nine months ended September 30,
2005.  Additionally, interest expense
net of taxes, of $1.9 million for the nine months ended September 30, 2005, was
added back to net income for purposes of calculating diluted earnings per share
using this method.  There was no impact
relating to this change on reported diluted earnings per share for the three

15

---



months ended September 30, 2005, or the three and nine
months ended September 30, 2006.  See
further discussion of the 4.00% junior subordinated convertible debentures
exchange offering in the Debt note.

4. Acquisitions

Since
1989, the Company has been involved in a program to acquire providers of
pharmaceutical products and related pharmacy management services and medical
supplies to long-term care facilities and their residents.  The Companys strategy has included the
acquisition of freestanding institutional pharmacy businesses, as well as other
assets, generally insignificant in size, which have been combined with existing
pharmacy operations to augment their internal growth.  From time to time the Company may acquire other businesses, such
as long-term care software companies, contract research organizations, pharmacy
consulting companies, specialty pharmacy companies, medical supply companies,
hospice pharmacy companies and companies providing distribution and patient
assistance services for specialty pharmaceuticals, which complement the
Companys core business.  During the
first nine months of 2006, Omnicare completed certain acquisitions of businesses
and other assets in the Pharmacy Services segment, none of which were,
individually or in the aggregate, significant to the Company.  Acquisitions of businesses required cash
payments of $71.4 million (including amounts payable pursuant to acquisition
agreements relating to pre-2006 acquisitions) in the nine months ended
September 30, 2006.  The impact of
acquisitions on the Companys overall goodwill balance has been reflected in
the disclosures at the Goodwill and Other Intangible Assets note.  The Company has engaged an independent
valuation firm to assist with identification and valuation of other
identifiable assets in connection with the purchase price allocation for
certain acquisitions.  The Company also
continues to evaluate the tax effects 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 balance is
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.

On
July 28, 2005, Omnicare closed its $34.75 per share cash tender offer (the
Offer) for all of the issued and outstanding shares of the common stock (the
Shares) of NeighborCare, Inc. (NeighborCare).  Approximately 42,897,600 Shares were tendered in the Offer,
representing 97.2% of the then-outstanding Shares.  On July 28, 2005, Omnicare accepted for payment all Shares
validly tendered and not properly withdrawn.
In the Offer, after giving effect to the settlement of Shares tendered
that were subject to guaranteed delivery, the Company acquired the aggregate of
42,011,760 Shares, representing approximately 95.2% of the outstanding
Shares.  All Shares not tendered in the
Offer were converted into the right to receive the same consideration per Share
paid in the Offer.

The
acquisition of NeighborCare was accounted for as a purchase business
combination and included cash consideration of approximately $1.9 billion.  The cash consideration included the payoff
of certain NeighborCare debt totaling approximately $328 million, of which $78
million was retired by Omnicare immediately following the acquisition.  In addition, on August 27, 2005 the Company
closed its tender offer for cash to purchase all of the $250 million
outstanding principal amount of NeighborCares 6.875% senior subordinated notes
due 2013 (the NeighborCare Notes).
All of the NeighborCare Notes were validly tendered in the offer.  The

16

---



total consideration, excluding accrued and unpaid
interest, for each $1,000 principal amount of NeighborCare Notes validly
tendered was $1,096.85.

At
the time of the acquisition, NeighborCare was an institutional pharmacy
provider serving long-term care and skilled nursing facilities, specialty
hospitals and assisted and independent living communities comprising
approximately 295,000 beds in 34 states and the District of Columbia.  NeighborCare also provided infusion therapy
services, home medical equipment, respiratory therapy services, community-based
retail pharmacies and group purchasing.

Unaudited
pro forma combined results of operations of the Company and NeighborCare for
the three and nine months ended September 30, 2005 are presented below.  Such pro forma presentation has been
prepared assuming that the NeighborCare acquisition had been made as of January
1, 2005.

The
unaudited pro forma combined financial information of the Company and
NeighborCare for the three and nine months ended September 30, 2005 follows (in
thousands, except per share data):

|                              |  |                                             |           |                                            |   |           | 
|----------------------------- |  | ------------------------------------------- | --------- | ------------------------------------------ | - | --------- | 
|                              |  | Three Months
  ended
  September 30,
  2005 |           | Nine Months
  ended
  September 30,
  2005 |  
|                              |  |                                             |           |                                            |  
|Pro forma net sales           |  | $                                           | 1,574,615 |                                            | $ | 4,602,169 | 
|Pro forma net income          |  |                                             | 52,859    |                                            |   | 159,672   | 
|Pro forma earnings per share: |  |                                             |           |                                            |   |           | 
|Basic                         |  | $                                           | 0.51      |                                            | $ | 1.56      | 
|                              |  |                                             |           |                                            |   |           | 
|Diluted                       |  | $                                           | 0.49      |                                            | $ | 1.50      | 
|                              |  |                                             |           |                                            |   |           | 

The
pro forma information is presented for illustration purposes only and does not
purport to be indicative of the combined results of operations that actually
would have occurred if the acquisition of NeighborCare, Inc. had been effected
at the date indicated, or to project future financial condition or results of
operations for any future period.  The
pro forma information presented above gives effect only to historical results
and certain estimated historical adjustments (primarily interest costs and
intangible asset amortization expense, net of taxes), and does not reflect any
pro forma synergies not yet realized.

17

---



5. Goodwill and Other Intangible Assets

Changes
in the carrying amount of goodwill for the nine months ended September 30,
2006, by business segment, are as follows (in thousands):

|                                                                |  |                     |           |                |   |        |  |   |           | 
|--------------------------------------------------------------- |  | ------------------- | --------- | -------------- | - | ------ |  | - | --------- | 
|                                                                |  | Pharmacy
  Services |           | CRO
  Services |   | Total  | 
|                                                                |  |                     |           |                |   |        | 
|Balance as of
  December 31, 2005                               |  | $                   | 3,952,472 |                | $ | 77,010 |  | $ | 4,029,482 | 
|Goodwill
  acquired in the nine months ended September 30, 2006 |  |                     | 10,093    |                |   |       |  |   | 10,093    | 
|Other                                                           |  |                     | 186,039   |                |   | 13,083 |  |   | 199,122   | 
|                                                                |  |                     |           |                |   |        |  |   |           | 
|Balance as of
  September 30, 2006                              |  | $                   | 4,148,604 |                | $ | 90,093 |  | $ | 4,238,697 | 
|                                                                |  |                     |           |                |   |        |  |   |           | 

The
Other caption above includes the settlement of acquisition matters relating
to prior-year acquisitions (including 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).
Other also includes the effect of adjustments due to foreign currency
translations, which relate primarily to the Contract Research Organization
(CRO) Services segment, as well as the Companys Canadian pharmacy operations
that are included in the Pharmacy Services segment.  During the nine months ended September 30, 2006, the Company
recorded an increase in goodwill and a corresponding increase in deferred tax
liabilities in the amount of approximately $135 million related to book and tax
basis differences in the stock of subsidiaries acquired in the acquisition of
NeighborCare, as required under SFAS No. 109, Accounting for Income Taxes.

The
Company recently completed its annual goodwill impairment assessment and
determined that goodwill was not impaired.

The
decrease in the net carrying amount of the Companys other identifiable
intangible assets of approximately $12 million from December 31, 2005 primarily
relates to amortization expense recorded during the period partially offset by
increases due primarily to customer relationship assets and non-compete
agreements recorded as part of the purchase price allocation for certain
acquisitions.

6. Debt

Current and Long-Term
Debt

At
September 30, 2006, there was no outstanding balance under the Companys $800
million revolving credit facility, maturing on July 28, 2010 (the Revolving
Loans) and $600 million outstanding under the Companys senior term A loan
facility, maturing on July 28, 2010 (the Term Loans).  The Company repaid $100 million of the Term
Loans during the quarter ended September 30, 2006.  The interest rate on the Term Loans was 6.08% at September 30,
2006.  As of September 30, 2006, the
Company had approximately $23.3 million outstanding relating to standby letters
of credit, substantially all of which are subject to automatic annual
renewals.  Further, during October 2006,
the Company purchased all of the remaining $8.2 million of 8.125% senior
subordinated notes due 2011.

18

---



During
the quarter ended September 30, 2005, the Company entered into a new $3.4
billion Credit Agreement (Credit Agreement) consisting of a $1.9 billion
364-day loan facility, maturing between July 27, 2006 and August 17, 2006 (the
364-Day Loans), an $800 million revolving credit facility, maturing on July
28, 2010 (the Revolving Loans) and a $700 million senior term A loan
facility, maturing on July 28, 2010 (the Term Loans).  Interest on the outstanding balances of the
364-Day Loans is payable, at the Companys option, (i) at a Eurodollar Base
Rate (as defined in the Credit Agreement) plus a margin of 0.75% or (ii) at an
Alternate Base Rate (as defined in the Credit Agreement).  The 364-Day Loans were drawn at various
intervals during the third quarter of 2005, with each separate borrowing having
a slightly different interest rate based on the timing of the borrowing.  The 364-Day Loans were repaid in full with
proceeds from a major refinancing completed in late 2005 and terminated, which
has been disclosed in the Debt note in Omnicares Annual Report on Form 10-K
for the year ended December 31, 2005.
Interest on the outstanding balances of the Revolving Loans and the Term
Loans is payable, at the Companys option, (i) at a Eurodollar Base Rate (as
defined in the Credit Agreement) plus a margin based on the Companys senior
unsecured long-term debt securities rating and the Companys Capitalization
Ratio (as defined in the Credit Agreement), that can range from 0.50% to 1.75%
or (ii) at an Alternate Base Rate (as defined in the Credit Agreement).  The Credit Agreement requires the Company to
meet certain financial covenants, including a minimum consolidated net worth
and a minimum fixed charges coverage ratio, and customary affirmative and negative
covenants.

The
Company primarily used the net proceeds from the Credit Agreement to repay
amounts outstanding under the Companys old term A loan of $123.1 million and
old revolving credit facility of $181 million, and for the acquisitions of
NeighborCare, excelleRx, Inc. and RxCrossroads LLC (see additional discussion
at the Acquisitions note).

In
  connection with the execution of the Credit Agreement, the Company has deferred
  debt issuance costs of $11.7 million, which consisted of $2.7 million deferred
  from the old term A loan and the revolving credit facility and $9.0 million
  of new debt issuance costs. Interest expense during the three and nine months
  ended September 30, 2005 included a pretax charge of approximately $7.5 million
  ($4.7 million aftertax) in connection with the write-off of certain deferred
  financing fees related to the refinancing of the Companys old term A loan
  and revolving credit facility, the expensing of certain debt issuance costs
  related to the new term A loan and revolving credit facility, and debt costs
  related to the new 364-day loan facility. The Company amortized approximately
  $0.7 million and $1.9 million of the $11.7 million deferred debt issuance costs
  in the three and nine months ended September 30, 2006, respectively, and $0.4
  million during the three and nine months ended September 30, 2005.

The
Companys debt instruments, including related terms and financial covenants,
have been disclosed in the Debt note in Omnicares Annual Report on Form 10-K
for the year ended December 31, 2005.
In addition to the Credit Agreement, the Company had additional
borrowings of long-term debt during the nine months ended September 30, 2005
approximating $42.0 million, primarily consisting of a note payable carrying a
five-year term and a variable interest rate of 5.75% per annum at September 30,
2006.

At
September 30, 2006, the overall weighted average interest rate on the Companys
variable interest portion of its long-term debt, excluding the interest rate
swap agreement, was

19

---



6.06%.  The
estimated floating interest rate on the interest rate swap agreement was 7.64%
at September 30, 2006.

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 (the Old Trust PIERS) of Omnicare
Capital Trust I (the Old Trust), for an equal amount of Series B 4.00% Trust
Preferred Income Equity Redeemable Securities (the New Trust PIERS) 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 DebenturesIn connection
  with the offering of the Old Trust PIERS in the second quarter of 2003, the
  Company issued a corresponding amount of original 4.00% junior subordinated
  convertible debentures (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 Omnicare common stock for a predetermined period
  (twenty trading days out of thirty trading days prior to quarter-end), beginning with the quarter ending
  September 30, 2003, is more than 130% of the then-applicable conversion price
  (or $53.07) 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) and in certain other circumstances. 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. 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 by a third-party
  advisor, 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 financial
  position, cash flows and results of operations. 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 DebenturesOn
March 8, 2005, the Company completed the exchange of $333,766,950 aggregate
liquidation amount of the Old Trust PIERS (representing approximately 96.7% of
the total

20

---



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 (New 4.00%
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 New 4.00%
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).

At
December 31, 2005, the aforementioned contingent threshold of the Old Trust
PIERS and the New Trust PIERS had been attained.  Accordingly, the Old 4.00% Debentures and the New 4.00%
Debentures were convertible as of December 31, 2005, to cash and Omnicare
common stock, and were classified as current versus long-term debt on the
December 31, 2005 consolidated balance sheet.
As of September 30, 2006, the aforementioned contingent threshold had
not been met and, accordingly, the Old 4.00% Debentures and the New 4.00% Debentures
have been classified as long-term debt on the September 30, 2006 consolidated
balance sheet.

In
connection with the issuance of the Old 4.00% Debentures and the New 4.00%
Debentures, the Company has deferred $11.1 million in debt issuance costs, of
which approximately $0.1 million and $0.3 million was amortized to expense in
the three and nine months ended September 30, 2006 and 2005, respectively.  The nine months ended September 30, 2005
included a special charge to operating expenses totaling $1.2 million pretax
relating to professional fees and expenses incurred in connection with the
issuance of the New Trust PIERS.

7. Public Offering of Common Stock

During
January 2006, the underwriters of the common stock offering completed by the
Company in December 2005 exercised their option, in part, to purchase an
additional 850,000 shares of common stock, $1 par value, at $59.72 per
share.  Gross cash proceeds, before
underwriting discount, commission and expenses, were approximately $51 million.

8. 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.  Expense relating primarily to
the Companys matching contributions for these defined contribution plans was
$1.8 million and $5.3 million for the three and nine months ended September 30,
2006, respectively, and $1.5 million and $4.2 million for the three and nine
months ended September 30, 2005, respectively.

21

---



The
Company also has 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 Companys non-contributory, defined
benefit pension plan (the Qualified Plan) for corporate headquarters
employees, frozen and fully vested as of January 1, 1994.  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 Internal
Revenue Code.  The Company has
established rabbi trusts, which are invested primarily in a mutual fund holding
U.S. Treasury obligations, to provide for retirement obligations under the EBP.

The
Companys policy is to fund its retirement and pension obligations consistent
with the funding provisions of the Employee Retirement Income Security Act (ERISA).

The
following table presents the components of pension cost for each of the three
and nine months ended September 30, 2006 and 2005 (in thousands):

|                                                                      |  |                                    |       |                                   |   |       |   |      |       |   |   |       |  
|--------------------------------------------------------------------- |  | ---------------------------------- | ----- | --------------------------------- | - | ----- | - | ---- | ----- | - | - | ----- | -
|                                                                      |  | Three months ended
  September 30, |       | Nine months ended
  September 30, |  
|                                                                      |  |                                    |       |                                   |  
|                                                                      |  | 2006                               |       | 2005                              |   | 2006  |   | 2005 |      
|                                                                      |  |                                    |       |                                   |   |       |   |      |      
|Service cost                                                          |  | $                                  | 467   |                                   | $ | 404   |   | $    | 1,383 |   | $ | 1,177 |  
|Interest cost                                                         |  |                                    | 977   |                                   |   | 797   |   |      | 2,929 |   |   | 2,393 |  
|Amortization of
  deferred amounts (primarily prior actuarial losses) |  |                                    | 1,091 |                                   |   | 817   |   |      | 3,272 |   |   | 2,450 |  
|Return on assets                                                      |  |                                    | (44   | )                                 |   | (59   | ) |      | (132  | ) |   | (176  | )
|                                                                      |  |                                    |       |                                   |   |       |   |      |       |   |   |       |  
|Net periodic
  pension cost                                           |  | $                                  | 2,491 |                                   | $ | 1,959 |   | $    | 7,452 |   | $ | 5,844 |  
|                                                                      |  |                                    |       |                                   |   |       |   |      |       |   |   |       |  

During
the three and nine months ended September 30, 2006, the Company made payments
of $4.6 million and $9.6 million, respectively, related to funding plan assets
for the settlement of the Companys pension obligations, resulting in aggregate
assets for the settlement of the Companys pension obligations with a fair
value of approximately $75 million at period end (included in the Other
noncurrent assets section of the Consolidated Balance Sheets).  The Company anticipates payments of
approximately $4.5 million during the remainder of the 2006 year.  The aftertax accumulated unrealized
depreciation in fair value of investments included in accumulated other
comprehensive income at September 30, 2006 totaled $1.1 million, representing
an increase of $0.4 million from December 31, 2005.

In
addition, the Company has a supplemental pension plan (SPP) in which certain
of its officers participate.  Retirement
benefits under the SPP are calculated on the basis of a specified percentage of
the officers covered compensation, years of credited service and a vesting schedule,
as specified in the plan document.
Expense relating to the SPP was approximately $0.3 million and $0.7
million pretax for the three and nine months ended September 30, 2006,
respectively, and $0.2 million and $0.6 million for the three and nine months
ended September 30, 2005, respectively.
Obligations of the SPP of approximately $5.5 million were fully funded
in rabbi trusts at September 30, 2006.

22

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9. Restructuring and Other Related Charges

Omnicare
Full Potential Program

In
  the second quarter of 2006, the Company commenced the implementation of the
  Omnicare Full Potential Plan, a major initiative designed to re-engineer
  the Companys pharmacy operating model to increase efficiency and enhance
  customer growth. The Omnicare Full Potential Plan is expected to
  optimize resources across the entire organization by implementing best practices
  and a hub-and-spoke model whereby certain key support and production
  functions will be transferred to regional hubs specifically designed
  and managed to perform these tasks, with local spoke pharmacies
  focusing on time-sensitive services and customer-facing processes.

This
  program is expected to be completed over a 30-month period and is estimated
  to result in total pretax restructuring and other related charges of approximately
  $80 million. The charges include severance pay, lease costs, professional fees
  and other related costs. Approximately $18 million of this restructuring charge
  is associated with the initial phase of the program and will be taken in 2006.
  The Company recorded restructuring and other related charges of approximately
  $4.2 million and $12.6 million pretax (approximately $2.6 million and $7.9 million
  aftertax) during the three and nine months ended September 30, 2006, respectively,
  with the remaining portion of the initial phase to be taken over the balance
  of the 2006 year. The remainder of the overall restructuring charge will be
  recognized and disclosed over the fiscal years 2007 and 2008 as various phases
  of the project are finalized and implemented. The Company estimates that the
  initial phase of the program will lead to a reduction in force of approximately
  1,200 positions, associated primarily with pharmacy operations.

The
restructuring charges primarily include severance pay, certain professional
fees and other related costs.  The other
related charges are primarily comprised of professional fees.  Details of the Omnicare Full Potential
Plan restructuring and other related charges follow (pretax, in thousands):

|                                              |  |                             |        |                          |   |                                   |   |   |       | 
|--------------------------------------------- |  | --------------------------- | ------ | ------------------------ | - | --------------------------------- | - | - | ----- | 
|                                              |  | 2006
  Provision/
  Accrual |        | Utilized
  during
  2006 |   | Balance at
  September 30,
  2006 |  
|                                              |  |                             |        |                          |   |                                   |  
|Restructuring charges:                        |  |                             |        |                          |   |                                   |   |   |       | 
|Employee
severance                            |  | $                           | 5,686  |                          | $ | (2,261                            | ) | $ | 3,425 | 
|Lease
terminations                            |  |                             | 257    |                          |   | (17                               | ) |   | 240   | 
|Other assets, fees
and facility exit
  costs  |  |                             | 2,021  |                          |   |                                  |   |   | 2,021 | 
|                                              |  |                             |        |                          |   |                                   |   |   |       | 
|Total restructuring
charges                   |  |                             | 7,964  |                          | $ | (2,278                            | ) | $ | 5,686 | 
|                                              |  |                             |        |                          |   |                                   |   |   |       | 
|                                             
|Other related charges                         |  |                             | 4,661  |                          |   |                                   |   |   |       | 
|                                              |  |                             |        |                          |   |                                   |   |   |       | 
|Total restructuring and other related charges |  | $                           | 12,625 |                          |   |                                   |   |   |       | 
|                                              |  |                             |        |                          |   |                                   |   |   |       | 

As
of September 30, 2006, the Company had paid approximately $2.3 million of
severance and other employee-related costs.
The remaining liabilities at September 30, 2006 represent amounts not
yet paid relating to actions taken in connection with the program

23

---



(primarily severance payments and professional fees)
and will be settled as these matters are finalized.  The provision/accrual and corresponding payment amounts relating
to employee severance are being accounted for in accordance with SFAS No. 112 Employers
Accounting for Postemployment Benefits.

2005
Program

In
the third quarter of 2005, the Company announced the implementation of certain
consolidation plans and other productivity initiatives to streamline pharmacy
services and contract research organization operations, including maximizing
workforce and operating asset utilization, and producing a more cost-efficient,
operating infrastructure (the 2005 Program).
These consolidation and productivity initiatives were related, in part,
to the integration of NeighborCare.
Given the geographic overlap of the NeighborCare and Omnicare pharmacies,
substantial opportunities for consolidation existed at the time of
acquisition.  While the majority of
consolidations resulted in NeighborCare pharmacies being consolidated into
Omnicare pharmacies, depending on location, capacity and operating performance,
certain Omnicare pharmacies were also identified for consolidation into
NeighborCare locations.  Additionally,
as part of the evaluation process on how best to integrate the two
organizations, the Company also focused broadly on ways to lower operating
infrastructure costs to maximize efficiencies and asset utilization and
identified opportunities to right-size the business, streamline operations and
eliminate redundant assets.  This
portion of the consolidation activity and other productivity initiatives
resulted in the closure of 29 Omnicare facilities, of which 26 were pharmacy
operations.  There is a net reduction in
force of approximately 900 positions relating to the 2005 Program.  Of this reduction in force, approximately
96% were in the pharmacy operations and the remaining reductions were at the
corporate headquarters or the Companys contract research operations.  Substantially all of these positions have
been eliminated as of September 30, 2006.
Restructuring activities in the contract research organization segment
related primarily to facility lease obligations.  In addition, S,G&A expenses for the nine months ended
September 30, 2006 included a $6.1 million charge associated with retention payments
for certain NeighborCare employees as required under the acquisition agreement.

In
connection with this program, these particular consolidation and productivity
initiatives were substantially completed as of September 30, 2006.  These initiatives required total
restructuring and other related charges of approximately $31 million before
taxes, which related to the costs associated with the consolidation of Omnicare
pharmacies and the other consolidation and productivity initiatives described
above.  The Company recorded
restructuring and other related charges of approximately $19 million pretax
(approximately $12 million aftertax) during the year ended December 31,
2005.  Additionally, the Company
recorded restructuring and other related charges of approximately $1 million
and $12 million pretax (approximately $0.6 million and $7.7 million aftertax)
during the three and nine months ended September 30, 2006, respectively.

24

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The
restructuring charges primarily included severance pay, the buy-out of
employment agreements, lease terminations and other assets, fees and facility
exit costs.  The other related charges
consisted of professional fees associated with certain productivity
initiatives. Details of the 2005 Program restructuring and other related
charges follow (pretax, in thousands):

|                                              |  |                                  |        |                             |   |                          |  |                                   |         |   |   |        | 
|--------------------------------------------- |  | -------------------------------- | ------ | --------------------------- | - | ------------------------ |  | --------------------------------- | ------- | - | - | ------ | 
|                                              |  | Balance at
  December 31,
  2005 |        | 2006
  Provision/
  Accrual |   | Utilized
  during
  2006 |  | Balance at
  September 30,
  2006 |        
|                                              |  |                                  |        |                             |   |                          |  |                                   |        
|Restructuring charges:                        |  |                                  |        |                             |   |                          |  |                                   |         |   |   |        | 
|Employee
severance                            |  | $                                | 2,809  |                             | $ | 2,027                    |  | $                                 | (2,905  | ) | $ | 1,931  | 
|Employment agreement
buy-outs                 |  |                                  | 734    |                             |   | 1,459                    |  |                                   | (1,778  | ) |   | 415    | 
|Lease
terminations                            |  |                                  | 9,833  |                             |   | 3,077                    |  |                                   | (4,302  | ) |   | 8,608  | 
|Other assets, fees
and facility exit
  costs  |  |                                  | 1,335  |                             |   | 3,003                    |  |                                   | (2,627  | ) |   | 1,711  | 
|                                              |  |                                  |        |                             |   |                          |  |                                   |         |   |   |        | 
|Total restructuring
charges                   |  | $                                | 14,711 |                             |   | 9,566                    |  | $                                 | (11,612 | ) | $ | 12,665 | 
|                                              |  |                                  |        |                             |   |                          |  |                                   |         |   |   |        | 
|                                              |  |                                  |        |                             |   |                          |  |                                   |         |   |   |        | 
|Other related charges                         |  |                                  |        |                             |   | 2,530                    |  |                                   |         |   |   |        | 
|                                              |  |                                  |        |                             |   |                          |  |                                   |         |   |   |        | 
|Total restructuring and other related charges |  |                                  |        |                             | $ | 12,096                   |  |                                   |         |   |   |        | 
|                                              |  |                                  |        |                             |   |                          |  |                                   |         |   |   |        | 

As
of September 30, 2006, the Company had paid approximately $7.2 million of
severance and other employee-related costs.
The remaining liabilities at September 30, 2006 represent amounts not
yet paid relating to actions taken in connection with the program (primarily
severance payments and lease payments) and will be settled as these matters are
finalized.

10. Commitments and Contingencies

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

The
  Company has received administrative subpoenas from the United States Attorneys
  Office, District of Massachusetts, seeking information arising out of the Companys
  relationships with certain manufacturers and distributors of pharmaceutical
  products and certain customers, as well as with respect to contracts with certain
  companies acquired by the Company. The Company believes that it has complied
  with all applicable laws and regulations with respect to these matters.

25

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In
  addition, the federal government and certain states are investigating allegations
  relating to three generic pharmaceuticals provided by the Company in connection
  with the substitution of capsules for tablets (Ranitidine), tablets for capsules
  (Fluoxetine) and two 7.5 mg tablets for one 15 mg tablet (Buspirone). The Company
  is cooperating fully in these matters. The Company has recorded a special litigation
  charge of $0.4 million and $53.8 million pretax ($0.2 million and $42.8 million
  aftertax) in its financial results for the three and nine months ended September
  30, 2006, respectively, to establish a settlement reserve relating to the aforementioned
  inquiries by the federal government and certain states relating to three generic
  pharmaceuticals provided by the Company, based on discussions between these
  government representatives, the Company and its legal counsel. The Company anticipates
  making payments of approximately $51 million in the fourth quarter of 2006 related
  to these matters. There can be no assurance, however, that the settlement will
  be finalized or any settlement amounts will be paid in the Companys fourth quarter. This special
  litigation charge represents the Companys current best estimate of the
  settlement amounts and associated costs under SFAS 5.

On
  July 11, 2006, the Attorney Generals Office in Michigan provided the Companys
  legal counsel with information concerning an investigation that it has been
  conducting relating to certain billing issues under the Michigan Medicaid program.
  On October 5, 2006, the Company announced that it has entered into a voluntary
  Settlement Agreement with the State of Michigan to resolve certain billing issues
  under the Michigan Medicaid program. The Company also announced that it has
  reached an agreement in principle with the State of Michigan with respect to
  certain hospice claims. The Company cooperated fully with the States investigation.
  The Settlement Agreement does not include any finding of wrongdoing or any admission
  of liability. The Company has recorded a special litigation charge of $54.0
  million pretax, including $10.3 million and $43.7 million recorded in the net
  sales and litigation charges lines of the Consolidated Statements of Income,
  respectively, ($46.7 million aftertax) in its financial results for the nine
  months ended September 30, 2006 based on the terms of the settlement agreements.
  The Company paid $42 million related to the Michigan settlement in October 2006.

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.  The complaints,
which purport to be brought on behalf of purchasers of Omnicare common stock
from August 3, 2005 through January 27, 2006, allege that Omnicare has
artificially inflated its earnings by engaging in improper generic drug
substitution and that the defendants have made false and misleading statements
regarding the Companys business and prospects.  The complaints seek, among other things, compensatory damages and
injunctive relief.  On April 3, 2006,
Plaintiffs in the HOD Carriers case formally moved for consolidation and the
appointment of lead plaintiff and lead counsel pursuant to the Private Securities
Litigation Reform Act of 1995.  On May
22, 2006, that motion was granted, the cases were consolidated, and a lead
plaintiff and lead counsel were appointed.
On July 20, 2006, plaintiffs filed a consolidated amended complaint,
adding a third officer as a defendant and new factual allegations relating
primarily to revenue recognition, the valuation of receivables and the
valuation of inventories.  On October
31, 2006, plaintiffs moved for leave to file a second amended complaint.  The proposed second amended complaint, which
purports to be brought on

26

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behalf of all purchasers of Omnicare common stock from
August 3, 2005 through July 27, 2006, seeks to add two members of the Companys
Board of Directors as defendants and a new claim (asserted by a new proposed
plaintiff) 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.  In addition, the proposed second amended
complaint would, among other things, add allegations that the Company failed to
timely disclose its contractual dispute with United (see discussion of the
United matter at the Legal Proceedings section at Part II, Item 1 of this
Filing) and failed to timely record certain special litigation reserves.  Defendants response to plaintiffs motion
for leave to amend is due on or before November 20, 2006.

Also
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.  On April 7, 2006, the defendants moved to
stay all proceedings in both actions pending resolution of the earlier-filed
federal class actions and virtually identical derivative action (see
discussion of the Irwin matter below) pending in the Eastern District of
Kentucky.  Shortly thereafter, the
defendants moved to consolidate the Isak and Fragnoli actions, and
plaintiffs consented to the consolidation.
The motion to stay was argued to the court on July 27, 2006, and the
parties are awaiting a decision on the motion.

On
March 23, 2006, a shareholder derivative action entitled Irwin v. Gemunder, et al.,
2:06cv62, was filed in the United States District Court for the Eastern
District of Kentucky 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 purported improper substitution of generic
drugs.  The complaint seeks, among other
things, damages, restitution and injunctive relief.  On May 26, 2006, the Companys board of directors moved to
dismiss the complaint for failure to make a pre-suit demand, among other
grounds.  On July 27, 2006, the date
plaintiffs opposition to the motion to dismiss was due, plaintiff filed an
amended complaint, adding the same new factual allegations as were added to the
HOD
Carriers complaint and a third officer as a defendant.  On August 3, 2006, plaintiff was ordered by
the court to respond to the directors May 26, 2006 motion to dismiss by August
14, 2006.  Plaintiff complied with this
order and the motion has been fully briefed as of September 7, 2006.  A hearing on this motion has been scheduled
for November 16, 2006.

On
  September 18, 2006, a second shareholder derivative action entitled Geldzahler
  v. Gemunder, et al., was filed in United States District Court for the Eastern
  District of Kentucky 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, unjust enrichment
  and for violation of Section 14(a) of the Securities Exchange Act of 1934 arising
  out of the Companys alleged violations of federal and state health care
  laws based primarily upon the purported improper substitution of generic drugs.
  The complaint seeks,

27

---



among other things, damages, restitution and injunctive relief.
  On October 25, 2006, the defendants moved to stay the action pending resolution
  of the substantially similar derivative action (see discussion of the Irwin
  matter above) that is also pending before the court.

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

The
  three and nine months ended September 30, 2006 included a $9.5 million and $11.0
  million pretax charge ($5.9 million and $6.8 million aftertax), respectively,
  for litigation-related professional expenses in connection with the administrative
  subpoenas from the United States Attorneys Office, District of Massachusetts,
  the purported class and derivative actions and the Companys publicly disclosed
  lawsuit against United.

During
  the 2006 third quarter, the Company experienced certain quality control and
  product recall issues, as well as fire damage, at one of its repackaging facilities,
  Heartland Repack Services (Heartland). As a precautionary measure,
  the Company voluntarily and temporarily suspended operations at Heartland. During
  the time that the Heartland facility has been closed, the Company conducted
  certain environmental tests at the facility. Based on the results of these tests,
  which showed very low levels of beta lactam residue, and the time and expense
  associated with completing the necessary remediation procedures, as well as
  the short remaining term on the lease for the current facility, the Company
  has decided to relocate the repackaging operations to a new, nearby facility.
  The Company continues to work to address and resolve all issues and restore
  this repackaging operation to full capacity; however, the Company cannot currently
  predict when the new facility will be opened. In order to replace the capacity
  of the temporarily closed Heartland facility, the Company ramped up production
  in its other repackaging facility, as well as onsite in its individual pharmacies
  for use by their patients. As a result, Omnicare has been and continues to be
  able to meet the needs of all of its client facilities and their residents.
  Addressing these issues served to increase costs and as a result, the three
  and nine months ended September 30, 2006 included special charges of $25.0 million
  pretax ($22.8 million and $2.2 million was recorded in the cost of sales and
  operating expense sections of the Consolidated Statements of Income, respectively)
  ($15.4 million aftertax) for these increased costs, particularly relating to
  the write-off of inventory totaling $18.9 million pretax and $6.1 million pretax
  for the incremental costs associated with the quality control, product recall
  and fire damage issues at Heartland. The Company maintains product recall, property
  and casualty and business interruption insurance and the extent of insurance
  recovery for these expenses is currently being reviewed by its outside advisors.
  As of September 30, 2006, no receivables for insurance recoveries have been
  recorded by the Company.

Although
the Company cannot predict the ultimate outcome of the matters described in the
preceding paragraphs, there can be no assurance that the resolution of these
matters will not have a material adverse impact on the Companys consolidated
financial position, results of operations or cash flows or, in the case of the
investigations regarding certain drug substitutions and certain billing issues
under the Michigan Medicaid program and the matters relating to the Heartland
facility, that these matters will be resolved in an amount that would not
exceed the amount of the pretax charges recorded by the Company.

As
part of its ongoing operations, the Company is subject to various inspections,
audits, inquiries 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.
Omnicare is also involved in various legal actions arising in the normal
course of business.  These matters are
continuously being evaluated and, in many cases, are being contested by the
Company and the outcome is not predictable.
Consequently, an estimate of the possible loss or range of loss

28

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associated with these
actions cannot be made.  Although
occasional adverse outcomes (or settlements) may occur and could possibly have
an adverse effect on the results of operations and cash flows in any one
accounting period, outside of the matters described in the preceding
paragraphs, the Company is not aware of any such matters whereby it is presently
believed that the final disposition will have a material adverse affect
on the Companys overall consolidated financial position.

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.

11. Segment Information

Based
on the management approach, as defined by SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, Omnicare has two operating
segments.  The Companys larger segment
is Pharmacy Services.  Pharmacy Services
primarily provides distribution of pharmaceuticals, related pharmacy consulting
and other ancillary services, data management services, medical supplies, and
distribution and patient assistance services for specialty pharmaceuticals.  The Companys customers are primarily skilled
nursing, assisted living, hospice and other providers of healthcare services in
47 states in the United States of America (USA), the District of Columbia and
in Canada at September 30, 2006.  The
Companys other segment is CRO Services, which provides comprehensive product
development and research services to client companies in pharmaceutical,
biotechnology, medical devices and diagnostics industries in 30 countries
around the world at September 30, 2006, including the USA.

29

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The table below presents information about the
reportable segments as of and for the three and nine months ended September 30,
2006 and 2005 and should be read in conjunction with the paragraph that follows
(in thousands):

|                                        |  |                                  |           |                |   |                                 |   |                       |         |   |   |           |  
|--------------------------------------- |  | -------------------------------- | --------- | -------------- | - | ------------------------------- | - | --------------------- | ------- | - | - | --------- | -
|                                        |  | Three months ended September 30, |          
|                                        |  |                                  |          
|2006:                                   |  | Pharmacy
  Services              |           | CRO
  Services |   | Corporate
  and
  Consolidating |   | Consolidated
  Totals |        
|                                        |  |                                  |           |                |   |                                 |   |                       |        
|Net sales                               |  | $                                | 1,553,515 |                | $ | 40,351                          |   | $                     |        |   | $ | 1,593,866 |  
|Depreciation and amortization expense   |  |                                  | (28,070   | )              |   | (493                            | ) |                       | (776    | ) |   | (29,339   | )
|Heartland matters                       |  |                                  | (24,985   | )              |   |                                |   |                       |        |   |   | (24,985   | )
|Restructuring and other related charges |  |                                  | (4,336    | )              |   |                                |   |                       | (783    | ) |   | (5,119    | )
|Litigation charges                      |  |                                  | (9,886    | )              |   |                                |   |                       |        |   |   | (9,886    | )
|Operating income (expense)              |  |                                  | 140,894   |                |   | 1,371                           |   |                       | (17,722 | ) |   | 124,543   |  
|Total assets                            |  |                                  | 6,939,259 |                |   | 164,531                         |   |                       | 462,622 |   |   | 7,566,412 |  
|Capital expenditures                    |  |                                  | (7,541    | )              |   | (236                            | ) |                       | (558    | ) |   | (8,335    | )
|                                        |  |                                  |           |                |   |                                 |   |                       |         |   |   |           |  
|2005:                                   |  |                                  |           |                |   |                                 |   |                       |         |   |   |           |  
|                                        |  |                                  |           |                |   |                                 |   |                       |         |   |   |           |  
|Net sales                               |  | $                                | 1,410,653 |                | $ | 44,324                          |   | $                     |        |   | $ | 1,454,977 |  
|Depreciation and amortization expense   |  |                                  | (21,734   | )              |   | (511                            | ) |                       | (678    | ) |   | (22,923   | )
|Restructuring and other related charges |  |                                  | (4,439    | )              |   | (3,736                          | ) |                       | (775    | ) |   | (8,950    | )
|Operating income (expense)              |  |                                  | 153,803   |                |   | 27                              |   |                       | (14,677 | ) |   | 139,153   |  
|Total assets                            |  |                                  | 6,479,350 |                |   | 155,292                         |   |                       | 388,232 |   |   | 7,022,874 |  
|Capital expenditures                    |  |                                  | (6,211    | )              |   | (296                            | ) |                       | (227    | ) |   | (6,734    | )

30

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|                                        |  |                                 |           |                |   |                                 |   |                       |         |   |   |           |  
|--------------------------------------- |  | ------------------------------- | --------- | -------------- | - | ------------------------------- | - | --------------------- | ------- | - | - | --------- | -
|                                        |  | Nine months ended September 30, |          
|                                        |  |                                 |          
|2006:                                   |  | Pharmacy
  Services             |           | CRO
  Services |   | Corporate
  and
  Consolidating |   | Consolidated
  Totals |        
|                                        |  |                                 |           |                |   |                                 |   |                       |        
|Net sales                               |  | $                               | 4,768,671 |                | $ | 124,903                         |   | $                     |        |   | $ | 4,893,574 |  
|Depreciation and amortization expense   |  |                                 | (86,712   | )              |   | (1,473                          | ) |                       | (2,291  | ) |   | (90,476   | )
|Heartland matters                       |  |                                 | (24,985   | )              |   |                                |   |                       |        |   |   | (24,985   | )
|Restructuring and other related charges |  |                                 | (19,214   | )              |   | (1,302                          | ) |                       | (4,205  | ) |   | (24,721   | )
|Litigation charges                      |  |                                 | (108,468  | )              |   |                                |   |                       |        |   |   | (108,468  | )
|Operating income (expense)              |  |                                 | 398,625   |                |   | 3,835                           |   |                       | (66,388 | ) |   | 336,072   |  
|Total assets                            |  |                                 | 6,939,259 |                |   | 164,531                         |   |                       | 462,622 |   |   | 7,566,412 |  
|Capital expenditures                    |  |                                 | (21,229   | )              |   | (412                            | ) |                       | (1,259  | ) |   | (22,900   | )
|                                        |  |                                 |           |                |   |                                 |   |                       |         |   |   |           |  
|2005:                                   |  |                                 |           |                |   |                                 |   |                       |         |   |   |           |  
|                                        |  |                                 |           |                |   |                                 |   |                       |         |   |   |           |  
|Net sales                               |  | $                               | 3,533,955 |                | $ | 140,565                         |   | $                     |        |   | $ | 3,674,520 |  
|Depreciation and amortization expense   |  |                                 | (48,567   | )              |   | (1,495                          | ) |                       | (2,003  | ) |   | (52,065   | )
|Restructuring and other related charges |  |                                 | (4,439    | )              |   | (3,736                          | ) |                       | (775    | ) |   | (8,950    | )
|Operating income (expense)              |  |                                 | 405,375   |                |   | 6,296                           |   |                       | (43,104 | ) |   | 368,567   |  
|Total assets                            |  |                                 | 6,479,350 |                |   | 155,292                         |   |                       | 388,232 |   |   | 7,022,874 |  
|Capital expenditures                    |  |                                 | (12,803   | )              |   | (720                            | ) |                       | (1,149  | ) |   | (14,672   | )

In
accordance with EITF Issue No. 01-14, Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses Incurred, the Company
included in its reported CRO segment net sales amount, reimbursable
out-of-pockets totaling $5.5 million and $17.8 million for the three and nine
months ended September 30, 2006, respectively, and $6.5 million and $22.3
million for the three and nine months ended September 30, 2005, respectively.

31

---



|    |                         
|--- | ------------------------
|12. | Guarantor
  Subsidiaries

The
Companys 8.125% senior subordinated notes due 2011, the 6.125% senior
subordinated notes due 2013, the 6.75% senior subordinated notes due 2013 and
the 6.875% senior subordinated notes due 2015 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 September 30,
2006 and December 31, 2005 for the balance sheets, the three and nine months
ended September 30, 2006 and 2005 for the statements of income, and the
statements of cash flows for the nine months ended September 30, 2006 and
2005.  Separate complete financial
statements of the respective Guarantor Subsidiaries would not provide
additional meaningful information that would be useful in evaluating the
sufficiency of the Guarantor Subsidiaries and thus are not presented.  No consolidating/eliminating adjustment
column is presented for the condensed consolidating statements of cash flows
since there were no significant consolidating/eliminating adjustment amounts
during the periods presented.

Summary Consolidating Statements of Income

|                                                 |  |                                  |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|------------------------------------------------ |  | -------------------------------- | ------- | ------------------------ | - | ---------------------------- | - | ------------------------------------------ | ------ | ----------------------------------- | - | ------- | - | - | --------- | -
|(in
  thousands)                                 |  | Three months ended September 30, |        
|                                                 |  |                                  |        
|2006:                                            |  | Parent                           |         | Guarantor
  Subsidiaries |   | Non-Guarantor
  Subsidiaries |   | Consolidating/
  Eliminating
  Adjustments |        | Omnicare, Inc.
  and
  Subsidiaries |  
|                                                 |  |                                  |         |                          |   |                              |   |                                            |        |                                     |  
|                                                
|Net sales (Note 10)                              |  | $                                |        |                          | $ | 1,536,041                    |   | $                                          | 57,825 |                                     | $ |        |   | $ | 1,593,866 |  
|Cost of sales (COS)                            |  |                                  |        |                          |   | 1,150,357                    |   |                                            | 42,877 |                                     |   |        |   |   | 1,193,234 |  
|Heartland matters - COS                          |  |                                  |        |                          |   | 22,769                       |   |                                            |       |                                     |   |        |   |   | 22,769    |  
|                                                 |  |                                  |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Gross profit                                     |  |                                  |        |                          |   | 362,915                      |   |                                            | 14,948 |                                     |   |        |   |   | 377,863   |  
|Selling, general and administrative
expenses     |  |                                  | 2,285   |                          |   | 223,791                      |   |                                            | 10,023 |                                     |   |        |   |   | 236,099   |  
|Restructuring and other related charges (Note
9) |  |                                  |        |                          |   | 5,119                        |   |                                            |       |                                     |   |        |   |   | 5,119     |  
|Litigation charges (Note 10)                     |  |                                  |        |                          |   | 2,216                        |   |                                            |       |                                     |   |        |   |   | 2,216     |  
|Heartland matters (Note 10)                      |  |                                  |        |                          |   | 9,886                        |   |                                            |       |                                     |   |        |   |   | 9,886     |  
|                                                 |  |                                  |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Operating income (loss)                          |  |                                  | (2,285  | )                        |   | 121,903                      |   |                                            | 4,925  |                                     |   |        |   |   | 124,543   |  
|Investment income                                |  |                                  | 2,542   |                          |   | 865                          |   |                                            |       |                                     |   |        |   |   | 3,407     |  
|Interest expense                                 |  |                                  | (42,490 | )                        |   | (177                         | ) |                                            | (701   | )                                   |   |        |   |   | (43,368   | )
|                                                 |  |                                  |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Income (loss) before income taxes                |  |                                  | (42,233 | )                        |   | 122,591                      |   |                                            | 4,224  |                                     |   |        |   |   | 84,582    |  
|Income tax (benefit) expense                     |  |                                  | (16,154 | )                        |   | 46,890                       |   |                                            | 1,616  |                                     |   |        |   |   | 32,352    |  
|Equity in net income of subsidiaries             |  |                                  | 78,309  |                          |   |                             |   |                                            |       |                                     |   | (78,309 | ) |   |          |  
|                                                 |  |                                  |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Net income (loss)                                |  | $                                | 52,230  |                          | $ | 75,701                       |   | $                                          | 2,608  |                                     | $ | (78,309 | ) | $ | 52,230    |  
|                                                 |  |                                  |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|                                                 |  |                                  |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|2005:                                            |  |                                  |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|                                                 |  |                                  |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|                                                 |  |                                  |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Net
  sales                                      |  | $                                |        |                          | $ | 1,383,638                    |   | $                                          | 71,339 |                                     | $ |        |   | $ | 1,454,977 |  
|Cost
  of sales                                  |  |                                  |        |                          |   | 1,041,326                    |   |                                            | 52,578 |                                     |   |        |   |   | 1,093,904 |  
|                                                 |  |                                  |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Gross
  profit                                   |  |                                  |        |                          |   | 342,312                      |   |                                            | 18,761 |                                     |   |        |   |   | 361,073   |  
|Selling,
  general and administrative expenses   |  |                                  | 422     |                          |   | 202,721                      |   |                                            | 9,827  |                                     |   |        |   |   | 212,970   |  
|Restructuring
  and other related charges        |  |                                  | 775     |                          |   | 7,603                        |   |                                            | 572    |                                     |   |        |   |   | 8,950     |  
|                                                 |  |                                  |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Operating
  income (loss)                        |  |                                  | (1,197  | )                        |   | 131,988                      |   |                                            | 8,362  |                                     |   |        |   |   | 139,153   |  
|Investment
  income                              |  |                                  | 295     |                          |   | 917                          |   |                                            |       |                                     |   |        |   |   | 1,212     |  
|Interest
  expense                               |  |                                  | (45,497 | )                        |   | (892                         | ) |                                            | (468   | )                                   |   |        |   |   | (46,857   | )
|                                                 |  |                                  |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Income
  (loss) before income taxes              |  |                                  | (46,399 | )                        |   | 132,013                      |   |                                            | 7,894  |                                     |   |        |   |   | 93,508    |  
|Income
  tax (benefit) expense                   |  |                                  | (17,372 | )                        |   | 49,425                       |   |                                            | 2,956  |                                     |   |        |   |   | 35,009    |  
|Equity
  in net income of subsidiaries           |  |                                  | 87,526  |                          |   |                             |   |                                            |       |                                     |   | (87,526 | ) |   |          |  
|                                                 |  |                                  |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Net
  income (loss)                              |  | $                                | 58,499  |                          | $ | 82,588                       |   | $                                          | 4,938  |                                     | $ | (87,526 | ) | $ | 58,499    |  
|                                                 |  |                                  |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  

32

---



|    |                                     
|--- | ------------------------------------
|12. | Guarantor
  Subsidiaries (Continued)

Summary Consolidating Statements of Income -
Continued

|                                                 |  |                                 |          |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|------------------------------------------------ |  | ------------------------------- | -------- | ------------------------ | - | ---------------------------- | - | ------------------------------------------ | ------- | ----------------------------------- | - | -------- | - | - | --------- | -
|(in
  thousands)                                 |  | Nine months ended September 30, |         
|                                                 |  |                                 |         
|2006:                                            |  | Parent                          |          | Guarantor
  Subsidiaries |   | Non-Guarantor
  Subsidiaries |   | Consolidating/
  Eliminating
  Adjustments |         | Omnicare, Inc.
  and
  Subsidiaries |  
|                                                 |  |                                 |          |                          |   |                              |   |                                            |         |                                     |  
|                                                 |  |                                 |          |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|Net sales (Note 10)                              |  | $                               |         |                          | $ | 4,652,525                    |   | $                                          | 241,049 |                                     | $ |         |   | $ | 4,893,574 |  
|Cost of sales (COS)                            |  |                                 |         |                          |   | 3,493,339                    |   |                                            | 182,797 |                                     |   |         |   |   | 3,676,136 |  
|Heartland matters - COS                          |  |                                 |         |                          |   | 22,769                       |   |                                            |        |                                     |   |         |   |   | 22,769    |  
|                                                 |  |                                 |          |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|Gross profit                                     |  |                                 |         |                          |   | 1,136,417                    |   |                                            | 58,252  |                                     |   |         |   |   | 1,194,669 |  
|Selling, general and administrative expenses     |  |                                 | 6,544    |                          |   | 680,527                      |   |                                            | 36,121  |                                     |   |         |   |   | 723,192   |  
|Restructuring and other related charges (Note 9) |  |                                 |         |                          |   | 24,721                       |   |                                            |        |                                     |   |         |   |   | 24,721    |  
|Litigation charges (Note 10)                     |  |                                 |         |                          |   | 2,216                        |   |                                            |        |                                     |   |         |   |   | 2,216     |  
|Heartland matters (Note 10)                      |  |                                 |         |                          |   | 108,468                      |   |                                            |        |                                     |   |         |   |   | 108,468   |  
|                                                 |  |                                 |          |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|Operating income (loss)                          |  |                                 | (6,544   | )                        |   | 320,485                      |   |                                            | 22,131  |                                     |   |         |   |   | 336,072   |  
|Investment income                                |  |                                 | 5,553    |                          |   | 2,702                        |   |                                            |        |                                     |   |         |   |   | 8,255     |  
|Interest expense                                 |  |                                 | (125,600 | )                        |   | (1,331                       | ) |                                            | (1,918  | )                                   |   |         |   |   | (128,849  | )
|                                                 |  |                                 |          |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|Income (loss) before income taxes                |  |                                 | (126,591 | )                        |   | 321,856                      |   |                                            | 20,213  |                                     |   |         |   |   | 215,478   |  
|Income tax (benefit) expense                     |  |                                 | (47,105  | )                        |   | 141,261                      |   |                                            | 7,482   |                                     |   |         |   |   | 101,638   |  
|Equity in net income of subsidiaries             |  |                                 | 193,326  |                          |   |                             |   |                                            |        |                                     |   | (193,326 | ) |   |          |  
|                                                 |  |                                 |          |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|Net income (loss)                                |  | $                               | 113,840  |                          | $ | 180,595                      |   | $                                          | 12,731  |                                     | $ | (193,326 | ) | $ | 113,840   |  
|                                                 |  |                                 |          |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|                                                
|2005:                                            |  |                                 |          |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|                                                 |  |                                 |          |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|                                                 |  |                                 |          |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|Net sales                                        |  | $                               |         |                          | $ | 3,513,681                    |   | $                                          | 160,839 |                                     | $ |         |   | $ | 3,674,520 |  
|Cost of sales                                    |  |                                 |         |                          |   | 2,651,815                    |   |                                            | 117,464 |                                     |   |         |   |   | 2,769,279 |  
|                                                 |  |                                 |          |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|Gross profit                                     |  |                                 |         |                          |   | 861,866                      |   |                                            | 43,375  |                                     |   |         |   |   | 905,241   |  
|Selling, general and administrative
expenses     |  |                                 | 2,638    |                          |   | 502,890                      |   |                                            | 22,196  |                                     |   |         |   |   | 527,724   |  
|Restructuring and other related charges          |  |                                 | 775      |                          |   | 7,603                        |   |                                            | 572     |                                     |   |         |   |   | 8,950     |  
|                                                 |  |                                 |          |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|Operating income (loss)                          |  |                                 | (3,413   | )                        |   | 351,373                      |   |                                            | 20,607  |                                     |   |         |   |   | 368,567   |  
|Investment income                                |  |                                 | 867      |                          |   | 2,589                        |   |                                            |        |                                     |   |         |   |   | 3,456     |  
|Interest expense                                 |  |                                 | (84,672  | )                        |   | (1,250                       | ) |                                            | (1,293  | )                                   |   |         |   |   | (87,215   | )
|                                                 |  |                                 |          |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|Income (loss) before income taxes                |  |                                 | (87,218  | )                        |   | 352,712                      |   |                                            | 19,314  |                                     |   |         |   |   | 284,808   |  
|Income tax (benefit) expense                     |  |                                 | (32,646  | )                        |   | 132,001                      |   |                                            | 7,227   |                                     |   |         |   |   | 106,582   |  
|Equity in net income of subsidiaries             |  |                                 | 232,798  |                          |   |                             |   |                                            |        |                                     |   | (232,798 | ) |   |          |  
|                                                 |  |                                 |          |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|Net income (loss)                                |  | $                               | 178,226  |                          | $ | 220,711                      |   | $                                          | 12,087  |                                     | $ | (232,798 | ) | $ | 178,226   |  
|                                                 |  |                                 |          |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  

33

---



|    |                                     
|--- | ------------------------------------
|12. | Guarantor
  Subsidiaries (Continued)

Condensed Consolidating Balance Sheets

(in thousands)

|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|------------------------------------------------------------- |  | ------ | --------- | ------------------------ | - | ---------------------------- |  | ------------------------------------------ | ------- | ----------------------------------- | - | ---------- | - | - | --------- | 
|As of September 30, 2006:                                     |  | Parent |           | Guarantor
  Subsidiaries |   | Non-Guarantor
  Subsidiaries |  | Consolidating/
  Eliminating
  Adjustments |         | Omnicare, Inc.
  and
  Subsidiaries |  
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |  
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|ASSETS                                                        |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Cash and cash equivalents                                     |  | $      | 225,935   |                          | $ | 26,315                       |  | $                                          | 27,043  |                                     | $ |           |   | $ | 279,293   | 
|Restricted cash                                               |  |        |          |                          |   | 13,292                       |  |                                            |        |                                     |   |           |   |   | 13,292    | 
|Deposits with drug wholesalers                                |  |        |          |                          |   | 1,372                        |  |                                            |        |                                     |   |           |   |   | 1,372     | 
|Accounts receivable, net (including intercompany)             |  |        |          |                          |   | 1,429,530                    |  |                                            | 42,986  |                                     |   | (4,101     | ) |   | 1,468,415 | 
|Unbilled receivables                                          |  |        |          |                          |   | 20,634                       |  |                                            |        |                                     |   |           |   |   | 20,634    | 
|Inventories                                                   |  |        |          |                          |   | 435,528                      |  |                                            | 13,971  |                                     |   |           |   |   | 449,499   | 
|Deferred income tax benefits (liabilities), net-current       |  |        | 13,924    |                          |   | 125,926                      |  |                                            | 401     |                                     |   |           |   |   | 140,251   | 
|Other current assets                                          |  |        | 2,165     |                          |   | 186,376                      |  |                                            | 3,411   |                                     |   |           |   |   | 191,952   | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Total current assets                                          |  |        | 242,024   |                          |   | 2,238,973                    |  |                                            | 87,812  |                                     |   | (4,101     | ) |   | 2,564,708 | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Properties and equipment, net                                 |  |        |          |                          |   | 200,840                      |  |                                            | 13,808  |                                     |   |           |   |   | 214,648   | 
|Goodwill                                                      |  |        |          |                          |   | 4,141,967                    |  |                                            | 96,730  |                                     |   |           |   |   | 4,238,697 | 
|Identifiable intangible assets, net                           |  |        |          |                          |   | 321,723                      |  |                                            | 5,425   |                                     |   |           |   |   | 327,148   | 
|Other noncurrent assets                                       |  |        | 61,762    |                          |   | 158,986                      |  |                                            | 463     |                                     |   |           |   |   | 221,211   | 
|Investment in subsidiaries                                    |  |        | 5,856,813 |                          |   |                             |  |                                            |        |                                     |   | (5,856,813 | ) |   |          | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Total assets                                                  |  | $      | 6,160,599 |                          | $ | 7,062,489                    |  | $                                          | 204,238 |                                     | $ | (5,860,914 | ) | $ | 7,566,412 | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|LIABILITIES AND STOCKHOLDERS EQUITY                          |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Current liabilities (including intercompany) - Notes 6 and
10 |  | $      | 53,215    |                          | $ | 741,489                      |  | $                                          | 12,825  |                                     | $ | (4,101     | ) | $ | 803,428   | 
|Long-term debt                                                |  |        | 600,000   |                          |   | 5,708                        |  |                                            | 48,300  |                                     |   |           |   |   | 654,008   | 
|8.125% senior subordinated notes, due 2011                    |  |        | 8,225     |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 8,225     | 
|6.125% senior subordinated notes, net, due 2013               |  |        | 229,222   |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 229,222   | 
|6.75% senior subordinated notes, due 2013                     |  |        | 225,000   |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 225,000   | 
|6.875% senior subordinated notes, due 2015                    |  |        | 525,000   |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 525,000   | 
|4.00% junior subordinated convertible debentures, due 2033    |  |        | 345,000   |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 345,000   | 
|3.25% convertible senior debentures, due 2035                 |  |        | 977,500   |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 977,500   | 
|Deferred income tax liabilities (benefits), net-noncurrent    |  |        | 46,525    |                          |   | 337,918                      |  |                                            | 6,665   |                                     |   |           |   |   | 391,108   | 
|Other noncurrent liabilities                                  |  |        | 20,780    |                          |   | 255,741                      |  |                                            | 1,268   |                                     |   |           |   |   | 277,789   | 
|Stockholders equity                                          |  |        | 3,130,132 |                          |   | 5,721,633                    |  |                                            | 135,180 |                                     |   | (5,856,813 | ) |   | 3,130,132 | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Total liabilities and stockholders
equity                    |  | $      | 6,160,599 |                          | $ | 7,062,489                    |  | $                                          | 204,238 |                                     | $ | (5,860,914 | ) | $ | 7,566,412 | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|As of
  December 31, 2005:                                    |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|ASSETS                                                        |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Cash and cash equivalents                                     |  | $      | 143,227   |                          | $ | 38,999                       |  | $                                          | 33,195  |                                     | $ |           |   | $ | 215,421   | 
|Restricted cash                                               |  |        |          |                          |   | 2,674                        |  |                                            |        |                                     |   |           |   |   | 2,674     | 
|Deposits with drug wholesalers                                |  |        |          |                          |   | 83,036                       |  |                                            |        |                                     |   |           |   |   | 83,036    | 
|Accounts receivable, net (including intercompany)             |  |        |          |                          |   | 1,244,234                    |  |                                            | 43,332  |                                     |   | (26,932    | ) |   | 1,260,634 | 
|Unbilled receivables                                          |  |        |          |                          |   | 17,195                       |  |                                            |        |                                     |   |           |   |   | 17,195    | 
|Inventories                                                   |  |        |          |                          |   | 457,072                      |  |                                            | 16,870  |                                     |   |           |   |   | 473,942   | 
|Deferred income tax benefits (liabilities), net-current       |  |        | (369      | )                        |   | 108,016                      |  |                                            | 320     |                                     |   |           |   |   | 107,967   | 
|Other current assets                                          |  |        | 1,469     |                          |   | 196,152                      |  |                                            | 2,405   |                                     |   |           |   |   | 200,026   | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Total current assets                                          |  |        | 144,327   |                          |   | 2,147,378                    |  |                                            | 96,122  |                                     |   | (26,932    | ) |   | 2,360,895 | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Properties and equipment, net                                 |  |        |          |                          |   | 215,625                      |  |                                            | 16,109  |                                     |   |           |   |   | 231,734   | 
|Goodwill                                                      |  |        |          |                          |   | 3,932,201                    |  |                                            | 97,281  |                                     |   |           |   |   | 4,029,482 | 
|Identifiable intangible assets, net                           |  |        |          |                          |   | 339,474                      |  |                                            |        |                                     |   |           |   |   | 339,474   | 
|Other noncurrent assets                                       |  |        | 68,616    |                          |   | 126,775                      |  |                                            | 429     |                                     |   |           |   |   | 195,820   | 
|Investment in subsidiaries                                    |  |        | 5,764,008 |                          |   |                             |  |                                            |        |                                     |   | (5,764,008 | ) |   |          | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Total assets                                                  |  | $      | 5,976,951 |                          | $ | 6,761,453                    |  | $                                          | 209,941 |                                     | $ | (5,790,940 | ) | $ | 7,157,405 | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|LIABILITIES AND STOCKHOLDERS EQUITY                          |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Current liabilities (including intercompany) - Note 6         |  | $      | 377,269   |                          | $ | 602,516                      |  | $                                          | 47,651  |                                     | $ | (26,932    | ) | $ | 1,000,504 | 
|Long-term debt                                                |  |        | 700,000   |                          |   | 6,837                        |  |                                            | 46,064  |                                     |   |           |   |   | 752,901   | 
|8.125% senior subordinated notes, due 2011                    |  |        | 8,775     |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 8,775     | 
|6.125% senior subordinated notes, net, due 2013               |  |        | 230,216   |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 230,216   | 
|6.75% senior subordinated notes, due 2013                     |  |        | 225,000   |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 225,000   | 
|6.875% senior subordinated notes, due 2015                    |  |        | 525,000   |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 525,000   | 
|3.25% convertible senior debentures, due 2035                 |  |        | 977,500   |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 977,500   | 
|Deferred income tax liabilities (benefits), net-noncurrent    |  |        | (28,639   | )                        |   | 283,701                      |  |                                            | (6,028  | )                                   |   |           |   |   | 249,034   | 
|Other noncurrent liabilities                                  |  |        | 19,784    |                          |   | 225,796                      |  |                                            | 849     |                                     |   |           |   |   | 246,429   | 
|Stockholders equity                                          |  |        | 2,942,046 |                          |   | 5,642,603                    |  |                                            | 121,405 |                                     |   | (5,764,008 | ) |   | 2,942,046 | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Total liabilities and stockholders
equity                    |  | $      | 5,976,951 |                          | $ | 6,761,453                    |  | $                                          | 209,941 |                                     | $ | (5,790,940 | ) | $ | 7,157,405 | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 

34

---



|    |                                     
|--- | ------------------------------------
|12. | Guarantor
  Subsidiaries (Continued)

Condensed Consolidating Statements of Cash
Flows

|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------- | -------- | ------------------------ | - | ---------------------------- | - | ----------------------------------- | ------ | - | - | -------- | -
|(in thousands)                                                                                             |  | Nine months ended September 30, |         
|                                                                                                           |  |                                 |         
|2006:                                                                                                      |  | Parent                          |          | Guarantor
  Subsidiaries |   | Non-Guarantor
  Subsidiaries |   | Omnicare, Inc.
  and
  Subsidiaries |       
|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |       
|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|Cash flows from operating activities:                                                                      |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|Provision for doubtful accounts                                                                            |  | $                               |         |                          | $ | 54,059                       |   | $                                   | 440    |   | $ | 54,499   |  
|Other                                                                                                      |  |                                 | (129,099 | )                        |   | 297,327                      |   |                                     | (9.980 | ) |   | 158,248  |  
|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|Net cash flows from operating activities                                                                   |  |                                 | (129,099 | )                        |   | 351,386                      |   |                                     | (9,540 | ) |   | 212,747  |  
|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|Cash flows from investing activities:                                                                      |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|Acquisition of businesses, net of cash received                                                            |  |                                 |         |                          |   | (70,849                      | ) |                                     | (597   | ) |   | (71,446  | )
|Capital expenditures                                                                                       |  |                                 |         |                          |   | (22,803                      | ) |                                     | (97    | ) |   | (22,900  | )
|Transfer of cash to trusts for employee health and severance costs,
  net of payments out of the trust     |  |                                 |         |                          |   | (10,836                      | ) |                                     |       |   |   | (10,836  | )
|Other                                                                                                      |  |                                 |         |                          |   | 93                           |   |                                     |       |   |   | 93       |  
|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|Net cash flows from investing activities                                                                   |  |                                 |         |                          |   | (104,395                     | ) |                                     | (694   | ) |   | (105,089 | )
|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|Cash flows from financing activities:                                                                      |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|Borrowings on line of credit facilities and term A loan                                                    |  |                                 | 133,000  |                          |   |                             |   |                                     |       |   |   | 133,000  |  
|Payments on line of credit facilities and term A loan                                                      |  |                                 | (233,000 | )                        |   |                             |   |                                     |       |   |   | (233,000 | )
|Proceeds from long-term borrowings and obligations                                                         |  |                                 | 63       |                          |   |                             |   |                                     |       |   |   | 63       |  
|Payments on long-term borrowings and obligations                                                           |  |                                 | (4,764   | )                        |   |                             |   |                                     |       |   |   | (4,764   | )
|Fees paid for financing arrangements                                                                       |  |                                 | (3,413   | )                        |   |                             |   |                                     |       |   |   | (3,413   | )
|Change in cash overdraft balance                                                                           |  |                                 | 1,280    |                          |   | 11,702                       |   |                                     |       |   |   | 12,982   |  
|Proceeds from stock offering, net of issuance costs                                                        |  |                                 | 49,239   |                          |   |                             |   |                                     |       |   |   | 49,239   |  
|(Payments) for stock awards and exercise of stock options and
  warrants, net of stock tendered in payment |  |                                 | (2,661   | )                        |   |                             |   |                                     |       |   |   | (2,661   | )
|Excess tax benefits from stock-based compensation                                                          |  |                                 | 11,678   |                          |   |                             |   |                                     |       |   |   | 11,678   |  
|Dividends paid                                                                                             |  |                                 | (8,198   | )                        |   |                             |   |                                     |       |   |   | (8,198   | )
|Other                                                                                                      |  |                                 | 268,583  |                          |   | (271,377                     | ) |                                     | 2,794  |   |   |         |  
|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|Net cash flows from financing activities                                                                   |  |                                 | 211,807  |                          |   | (259,675                     | ) |                                     | 2,794  |   |   | (45,074  | )
|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|Effect of exchange rate changes on cash                                                                    |  |                                 |         |                          |   |                             |   |                                     | 1,288  |   |   | 1,288    |  
|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|Net increase (decrease) in cash and cash equivalents                                                       |  |                                 | 82,708   |                          |   | (12,684                      | ) |                                     | (6,152 | ) |   | 63,872   |  
|Cash and cash equivalents at beginning of year                                                             |  |                                 | 143,227  |                          |   | 38,999                       |   |                                     | 33,195 |   |   | 215,421  |  
|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  
|Cash and cash equivalents at end of year                                                                   |  | $                               | 225,935  |                          | $ | 26,315                       |   | $                                   | 27,043 |   | $ | 279,293  |  
|                                                                                                           |  |                                 |          |                          |   |                              |   |                                     |        |   |   |          |  

35

---



|    |                                     
|--- | ------------------------------------
|12. | Guarantor
  Subsidiaries (Continued)

Condensed Consolidating Statements of Cash
Flows - Continued

|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | ------------------------ | - | ---------------------------- | - | ----------------------------------- | ------- | - | - | ---------- | -
|(in thousands)                                                                                            |  | Nine months ended September 30, |           
|                                                                                                          |  |                                 |           
|2005:                                                                                                     |  | Parent                          |            | Guarantor
  Subsidiaries |   | Non-Guarantor
  Subsidiaries |   | Omnicare, Inc.
  and
  Subsidiaries |        
|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |        
|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|Cash flows from operating activities:                                                                     |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|Provision for doubtful accounts                                                                           |  | $                               |           |                          | $ | 39,556                       |   | $                                   | 796     |   | $ | 40,352     |  
|Other                                                                                                     |  |                                 | 1,319      |                          |   | 151,325                      |   |                                     | (17,652 | ) |   | 134,992    |  
|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|Net cash flows from operating activities                                                                  |  |                                 | 1,319      |                          |   | 190,881                      |   |                                     | (16,856 | ) |   | 175,344    |  
|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|Cash flows from investing activities:                                                                     |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|Acquisition of businesses, net of cash received                                                           |  |                                 |           |                          |   | (2,562,605                   | ) |                                     | (3,730  | ) |   | (2,566,335 | )
|Capital expenditures                                                                                      |  |                                 |           |                          |   | (13,838                      | ) |                                     | (834    | ) |   | (14,672    | )
|Transfer of cash to trusts for employee health and severance costs,
  net of payments out of the trust    |  |                                 |           |                          |   | (5,898                       | ) |                                     |        |   |   | (5,898     | )
|Other                                                                                                     |  |                                 |           |                          |   | 39                           |   |                                     |        |   |   | 39         |  
|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|Net cash flows from investing activities                                                                  |  |                                 |           |                          |   | (2,582,302                   | ) |                                     | (4,564  | ) |   | (2,586,866 | )
|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|Cash flows from financing activities:                                                                     |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|Borrowings on line of credit facilities                                                                   |  |                                 | 3,543,000  |                          |   |                             |   |                                     |        |   |   | 3,543,000  |  
|Payments on line of credit facilities and term A loan                                                     |  |                                 | (1,068,385 | )                        |   |                             |   |                                     |        |   |   | (1,068,385 | )
|Proceeds from long-term borrowings and obligations                                                        |  |                                 | 153        |                          |   |                             |   |                                     | 41,393  |   |   | 41,546     |  
|Payments on long-term borrowings and obligations                                                          |  |                                 | (612       | )                        |   |                             |   |                                     |        |   |   | (612       | )
|Fees paid for financing arrangements                                                                      |  |                                 | (14,179    | )                        |   |                             |   |                                     |        |   |   | (14,179    | )
|Change in cash overdraft balance                                                                          |  |                                 | (7,131     | )                        |   | 15,185                       |   |                                     |        |   |   | 8,054      |  
|Proceeds from stock awards and exercise of stock options and
  warrants, net of stock tendered in payment |  |                                 | 30,339     |                          |   |                             |   |                                     |        |   |   | 30,339     |  
|Dividends paid                                                                                            |  |                                 | (7,135     | )                        |   |                             |   |                                     |        |   |   | (7,135     | )
|Other                                                                                                     |  |                                 | (2,373,873 | )                        |   | 2,373,873                    |   |                                     |        |   |   |           |  
|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|Net cash flows from financing activities                                                                  |  |                                 | 102,177    |                          |   | 2,389,058                    |   |                                     | 41,393  |   |   | 2,532,628  |  
|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|Effect of exchange rate changes on cash                                                                   |  |                                 |           |                          |   |                             |   |                                     | (1,237  | ) |   | (1,237     | )
|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|Net increase (decrease) in cash and cash equivalents                                                      |  |                                 | 103,496    |                          |   | (2,363                       | ) |                                     | 18,736  |   |   | 119,869    |  
|Cash and cash equivalents at beginning of period                                                          |  |                                 | 46,569     |                          |   | 32,453                       |   |                                     | 5,147   |   |   | 84,169     |  
|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  
|Cash and cash equivalents at end of period                                                                |  | $                               | 150,065    |                          | $ | 30,090                       |   | $                                   | 23,883  |   | $ | 204,038    |  
|                                                                                                          |  |                                 |            |                          |   |                              |   |                                     |         |   |   |            |  

36

---



|    |                                     
|--- | ------------------------------------
|12. | Guarantor
  Subsidiaries (Continued)

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 September 30,
2006 and December 31, 2005 for the balance sheets, the three and nine months
ended September 30, 2006 and 2005 for the statements of income, and the statements
of cash flows for each of the nine months ended September 30, 2006 and
2005.  Separate complete financial
statements of the respective Guarantor Subsidiary would not provide additional
meaningful information that would be useful in assessing 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 eliminations column is presented for the
condensed consolidating statements of cash flows since there were no
significant eliminating amounts during the periods presented.

Summary Consolidating Statements of Income

|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|------------------------------------------------ |  | -------------------------------- | ------- | ---------------------- | - | ---------------------------- | - | ------------------------------------------ | --------- | ----------------------------------- | - | ------- | - | - | --------- | -
|(in
  thousands)                                 |  | Three months ended September 30, |        
|                                                 |  |                                  |        
|2006:                                            |  | Parent                           |         | Guarantor
  Subsidiary |   | Non-Guarantor
  Subsidiaries |   | Consolidating/
  Eliminating
  Adjustments |           | Omnicare, Inc.
  and
  Subsidiaries |  
|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |  
|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Net sales (Note 10)                              |  | $                                |        |                        | $ |                             |   | $                                          | 1,593,866 |                                     | $ |        |   | $ | 1,593,866 |  
|Cost of sales (COS)                            |  |                                  |        |                        |   |                             |   |                                            | 1,193,234 |                                     |   |        |   |   | 1,193,234 |  
|Heartland matters - COS                          |  |                                  |        |                        |   |                             |   |                                            | 22,769    |                                     |   |        |   |   | 22,769    |  
|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Gross profit                                     |  |                                  |        |                        |   |                             |   |                                            | 377,863   |                                     |   |        |   |   | 377,863   |  
|Selling, general and administrative
expenses     |  |                                  | 2,285   |                        |   | 237                          |   |                                            | 233,577   |                                     |   |        |   |   | 236,099   |  
|Restructuring and other related charges (Note
9) |  |                                  |        |                        |   |                             |   |                                            | 5,119     |                                     |   |        |   |   | 5,119     |  
|Litigation charges (Note 10)                     |  |                                  |        |                        |   |                             |   |                                            | 2,216     |                                     |   |        |   |   | 2,216     |  
|Heartland matters (Note 10)                      |  |                                  |        |                        |   |                             |   |                                            | 9,886     |                                     |   |        |   |   | 9,886     |  
|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Operating income (loss)                          |  |                                  | (2,285  | )                      |   | (237                         | ) |                                            | 127,065   |                                     |   |        |   |   | 124,543   |  
|Investment income                                |  |                                  | 2,542   |                        |   |                             |   |                                            | 865       |                                     |   |        |   |   | 3,407     |  
|Interest expense                                 |  |                                  | (42,490 | )                      |   |                             |   |                                            | (878      | )                                   |   |        |   |   | (43,368   | )
|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Income (loss) before income taxes                |  |                                  | (42,233 | )                      |   | (237                         | ) |                                            | 127,052   |                                     |   |        |   |   | 84,582    |  
|Income tax (benefit) expense                     |  |                                  | (16,154 | )                      |   | (91                          | ) |                                            | 48,597    |                                     |   |        |   |   | 32,352    |  
|Equity in net income of subsidiaries             |  |                                  | 78,309  |                        |   |                             |   |                                            |          |                                     |   | (78,309 | ) |   |          |  
|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Net income (loss)                                |  | $                                | 52,230  |                        | $ | (146                         | ) | $                                          | 78,455    |                                     | $ | (78,309 | ) | $ | 52,230    |  
|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|2005:                                            |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Net sales                                        |  | $                                |        |                        | $ |                             |   | $                                          | 1,454,977 |                                     | $ |        |   | $ | 1,454,977 |  
|Cost of sales                                    |  |                                  |        |                        |   |                             |   |                                            | 1,093,904 |                                     |   |        |   |   | 1,093,904 |  
|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Gross profit                                     |  |                                  |        |                        |   |                             |   |                                            | 361,073   |                                     |   |        |   |   | 361,073   |  
|Selling, general and administrative
expenses     |  |                                  | 422     |                        |   | 235                          |   |                                            | 212,313   |                                     |   |        |   |   | 212,970   |  
|Restructuring and other related charges          |  |                                  | 775     |                        |   |                             |   |                                            | 8,175     |                                     |   |        |   |   | 8,950     |  
|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Operating income (loss)                          |  |                                  | (1,197  | )                      |   | (235                         | ) |                                            | 140,585   |                                     |   |        |   |   | 139,153   |  
|Investment income                                |  |                                  | 295     |                        |   |                             |   |                                            | 917       |                                     |   |        |   |   | 1,212     |  
|Interest expense                                 |  |                                  | (45,497 | )                      |   |                             |   |                                            | (1,360    | )                                   |   |        |   |   | (46,857   | )
|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Income (loss) before income taxes                |  |                                  | (46,399 | )                      |   | (235                         | ) |                                            | 140,142   |                                     |   |        |   |   | 93,508    |  
|Income tax (benefit) expense                     |  |                                  | (17,372 | )                      |   | (88                          | ) |                                            | 52,469    |                                     |   |        |   |   | 35,009    |  
|Equity in net income of subsidiaries             |  |                                  | 87,526  |                        |   |                             |   |                                            |          |                                     |   | (87,526 | ) |   |          |  
|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Net income (loss)                                |  | $                                | 58,499  |                        | $ | (147                         | ) | $                                          | 87,673    |                                     | $ | (87,526 | ) | $ | 58,499    |  
|                                                 |  |                                  |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  

37

---



|    |                                     
|--- | ------------------------------------
|12. | Guarantor
  Subsidiaries (Continued)

Summary Consolidating Statements of Income -
Continued

|                                                 |  |                                 |          |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|------------------------------------------------ |  | ------------------------------- | -------- | ---------------------- | - | ---------------------------- | - | ------------------------------------------ | --------- | ----------------------------------- | - | -------- | - | - | --------- | -
|(in
  thousands)                                 |  | Nine months ended September 30, |         
|                                                 |  |                                 |         
|2006:                                            |  | Parent                          |          | Guarantor
  Subsidiary |   | Non-Guarantor
  Subsidiaries |   | Consolidating/
  Eliminating
  Adjustments |           | Omnicare, Inc.
  and
  Subsidiaries |  
|                                                 |  |                                 |          |                        |   |                              |   |                                            |           |                                     |  
|                                                 |  |                                 |          |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Net sales (Note 10)                              |  | $                               |         |                        | $ |                             |   | $                                          | 4,893,574 |                                     | $ |         |   | $ | 4,893,574 |  
|Cost of sales (COS)                            |  |                                 |         |                        |   |                             |   |                                            | 3,676,136 |                                     |   |         |   |   | 3,676,136 |  
|Heartland matters - COS                          |  |                                 |         |                        |   |                             |   |                                            | 22,769    |                                     |   |         |   |   | 22,769    |  
|                                                 |  |                                 |          |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Gross profit                                     |  |                                 |         |                        |   |                             |   |                                            | 1,194,669 |                                     |   |         |   |   | 1,194,669 |  
|Selling, general and administrative
expenses     |  |                                 | 6,544    |                        |   | 763                          |   |                                            | 715,885   |                                     |   |         |   |   | 723,192   |  
|Restructuring and other related charges (Note
9) |  |                                 |         |                        |   |                             |   |                                            | 24,721    |                                     |   |         |   |   | 24,721    |  
|Litigation charges (Note 10)                     |  |                                 |         |                        |   |                             |   |                                            | 2,216     |                                     |   |         |   |   | 2,216     |  
|Heartland matters (Note 10)                      |  |                                 |         |                        |   |                             |   |                                            | 108,468   |                                     |   |         |   |   | 108,468   |  
|                                                 |  |                                 |          |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Operating income (loss)                          |  |                                 | (6,544   | )                      |   | (763                         | ) |                                            | 343,379   |                                     |   |         |   |   | 336,072   |  
|Investment income                                |  |                                 | 5,553    |                        |   |                             |   |                                            | 2,702     |                                     |   |         |   |   | 8,255     |  
|Interest expense                                 |  |                                 | (125,600 | )                      |   |                             |   |                                            | (3,249    | )                                   |   |         |   |   | (128,849  | )
|                                                 |  |                                 |          |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Income (loss) before income taxes                |  |                                 | (126,591 | )                      |   | (763                         | ) |                                            | 342,832   |                                     |   |         |   |   | 215,478   |  
|Income tax (benefit) expense                     |  |                                 | (47,105  | )                      |   | (284                         | ) |                                            | 149,027   |                                     |   |         |   |   | 101,638   |  
|Equity in net income of subsidiaries             |  |                                 | 193,326  |                        |   |                             |   |                                            |          |                                     |   | (193,326 | ) |   |          |  
|                                                 |  |                                 |          |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Net income (loss)                                |  | $                               | 113,840  |                        | $ | (479                         | ) | $                                          | 193,805   |                                     | $ | (193,326 | ) | $ | 113,840   |  
|                                                 |  |                                 |          |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|                                                
|2005:                                            |  |                                 |          |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|                                                 |  |                                 |          |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|                                                 |  |                                 |          |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Net sales                                        |  | $                               |         |                        | $ |                             |   | $                                          | 3,674,520 |                                     | $ |         |   | $ | 3,674,520 |  
|Cost of sales                                    |  |                                 |         |                        |   |                             |   |                                            | 2,769,279 |                                     |   |         |   |   | 2,769,279 |  
|                                                 |  |                                 |          |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Gross profit                                     |  |                                 |         |                        |   |                             |   |                                            | 905,241   |                                     |   |         |   |   | 905,241   |  
|Selling, general and administrative
expenses     |  |                                 | 2,638    |                        |   | 682                          |   |                                            | 524,404   |                                     |   |         |   |   | 527,724   |  
|Restructuring and other related charges          |  |                                 | 775      |                        |   |                             |   |                                            | 8,175     |                                     |   |         |   |   | 8,950     |  
|                                                 |  |                                 |          |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Operating income (loss)                          |  |                                 | (3,413   | )                      |   | (682                         | ) |                                            | 372,662   |                                     |   |         |   |   | 368,567   |  
|Investment income                                |  |                                 | 867      |                        |   |                             |   |                                            | 2,589     |                                     |   |         |   |   | 3,456     |  
|Interest expense                                 |  |                                 | (84,672  | )                      |   |                             |   |                                            | (2,543    | )                                   |   |         |   |   | (87,215   | )
|                                                 |  |                                 |          |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Income (loss) before income taxes                |  |                                 | (87,218  | )                      |   | (682                         | ) |                                            | 372,708   |                                     |   |         |   |   | 284,808   |  
|Income tax (benefit) expense                     |  |                                 | (32,646  | )                      |   | (255                         | ) |                                            | 139,483   |                                     |   |         |   |   | 106,582   |  
|Equity in net income of subsidiaries             |  |                                 | 232,798  |                        |   |                             |   |                                            |          |                                     |   | (232,798 | ) |   |          |  
|                                                 |  |                                 |          |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Net income (loss)                                |  | $                               | 178,226  |                        | $ | (427                         | ) | $                                          | 233,225   |                                     | $ | (232,798 | ) | $ | 178,226   |  
|                                                 |  |                                 |          |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  

38

---



12. Guarantor
Subsidiaries (Continued)

Condensed Consolidating Balance Sheets

|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|------------------------------------------------------------- |  | ------ | --------- | ---------------------- | - | ---------------------------- |  | ------------------------------------------ | --------- | ----------------------------------- | - | ---------- | - | - | --------- | 
|(in thousands)                                                |  |        |           |                        |   |                              |  |                                            |           |                                     |  
|As of
  September 30, 2006:                                   |  | Parent |           | Guarantor
  Subsidiary |   | Non-Guarantor
  Subsidiaries |  | Consolidating/
  Eliminating
  Adjustments |           | Omnicare, Inc.
  and
  Subsidiaries |  
|                                                             
|                                                             
|ASSETS                                                        |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Cash and cash equivalents                                     |  | $      | 225,935   |                        | $ |                             |  | $                                          | 53,358    |                                     | $ |           |   | $ | 279,293   | 
|Restricted cash                                               |  |        |          |                        |   |                             |  |                                            | 13,292    |                                     |   |           |   |   | 13,292    | 
|Deposits with drug wholesalers                                |  |        |          |                        |   |                             |  |                                            | 1,372     |                                     |   |           |   |   | 1,372     | 
|Accounts receivable, net (including intercompany)             |  |        |          |                        |   |                             |  |                                            | 1,468,445 |                                     |   | (30        | ) |   | 1,468,415 | 
|Unbilled receivables                                          |  |        |          |                        |   |                             |  |                                            | 20,634    |                                     |   |           |   |   | 20,634    | 
|Inventories                                                   |  |        |          |                        |   |                             |  |                                            | 449,499   |                                     |   |           |   |   | 449,499   | 
|Deferred income tax benefits (liabilities), net-current       |  |        | 13,924    |                        |   |                             |  |                                            | 126,327   |                                     |   |           |   |   | 140,251   | 
|Other current assets                                          |  |        | 2,165     |                        |   |                             |  |                                            | 189,787   |                                     |   |           |   |   | 191,952   | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Total current assets                                          |  |        | 242,024   |                        |   |                             |  |                                            | 2,322,714 |                                     |   | (30        | ) |   | 2,564,708 | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Properties and equipment, net                                 |  |        |          |                        |   | 33                           |  |                                            | 214,615   |                                     |   |           |   |   | 214,648   | 
|Goodwill                                                      |  |        |          |                        |   |                             |  |                                            | 4,238,697 |                                     |   |           |   |   | 4,238,697 | 
|Identifiable intangible assets, net                           |  |        |          |                        |   |                             |  |                                            | 327,148   |                                     |   |           |   |   | 327,148   | 
|Other noncurrent assets                                       |  |        | 61,762    |                        |   | 19                           |  |                                            | 159,430   |                                     |   |           |   |   | 221,211   | 
|Investment in subsidiaries                                    |  |        | 5,856,813 |                        |   |                             |  |                                            |          |                                     |   | (5,856,813 | ) |   |          | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Total assets                                                  |  | $      | 6,160,599 |                        | $ | 52                           |  | $                                          | 7,262,604 |                                     | $ | (5,856,843 | ) | $ | 7,566,412 | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|LIABILITIES AND STOCKHOLDERS EQUITY                          |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Current liabilities (including intercompany) - Notes 6 and
10 |  | $      | 53,215    |                        | $ | 32                           |  | $                                          | 750,211   |                                     | $ | (30        | ) | $ | 803,428   | 
|Long-term debt                                                |  |        | 600,000   |                        |   |                             |  |                                            | 54,008    |                                     |   |           |   |   | 654,008   | 
|8.125% senior subordinated notes, due 2011                    |  |        | 8,225     |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 8,225     | 
|6.125% senior subordinated notes, net, due 2013               |  |        | 229,222   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 229,222   | 
|6.75% senior subordinated notes, due 2013                     |  |        | 225,000   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 225,000   | 
|6.875% senior subordinated notes, due 2015                    |  |        | 525,000   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 525,000   | 
|4.00% junior subordinated convertible debentures, due 2033    |  |        | 345,000   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 345,000   | 
|3.25% convertible senior debentures, due 2035                 |  |        | 977,500   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 977,500   | 
|Deferred income tax liabilities (benefits), net-noncurrent    |  |        | 46,525    |                        |   |                             |  |                                            | 344,583   |                                     |   |           |   |   | 391,108   | 
|Other noncurrent liabilities                                  |  |        | 20,780    |                        |   |                             |  |                                            | 257,009   |                                     |   |           |   |   | 277,789   | 
|Stockholders equity                                          |  |        | 3,130,132 |                        |   | 20                           |  |                                            | 5,856,793 |                                     |   | (5,856,813 | ) |   | 3,130,132 | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Total liabilities and stockholders
equity                    |  | $      | 6,160,599 |                        | $ | 52                           |  | $                                          | 7,262,604 |                                     | $ | (5,856,843 | ) | $ | 7,566,412 | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|As of December 31, 2005:                                      |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|                                                             
|                                                             
|ASSETS                                                        |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Cash and cash equivalents                                     |  | $      | 143,227   |                        | $ |                             |  | $                                          | 72,194    |                                     | $ |           |   | $ | 215,421   | 
|Restricted cash                                               |  |        |          |                        |   |                             |  |                                            | 2,674     |                                     |   |           |   |   | 2,674     | 
|Deposits with drug wholesalers                                |  |        |          |                        |   |                             |  |                                            | 83,036    |                                     |   |           |   |   | 83,036    | 
|Accounts receivable, net (including intercompany)             |  |        |          |                        |   | 169                          |  |                                            | 1,260,634 |                                     |   | (169       | ) |   | 1,260,634 | 
|Unbilled receivables                                          |  |        |          |                        |   |                             |  |                                            | 17,195    |                                     |   |           |   |   | 17,195    | 
|Inventories                                                   |  |        |          |                        |   |                             |  |                                            | 473,942   |                                     |   |           |   |   | 473,942   | 
|Deferred income tax benefits (liabilities), net-current       |  |        | (369      | )                      |   |                             |  |                                            | 108,336   |                                     |   |           |   |   | 107,967   | 
|Other current assets                                          |  |        | 1,469     |                        |   |                             |  |                                            | 198,557   |                                     |   |           |   |   | 200,026   | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Total current assets                                          |  |        | 144,327   |                        |   | 169                          |  |                                            | 2,216,568 |                                     |   | (169       | ) |   | 2,360,895 | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Properties and equipment, net                                 |  |        |          |                        |   | 38                           |  |                                            | 231,696   |                                     |   |           |   |   | 231,734   | 
|Goodwill                                                      |  |        |          |                        |   |                             |  |                                            | 4,029,482 |                                     |   |           |   |   | 4,029,482 | 
|Identifiable intangible assets, net                           |  |        |          |                        |   |                             |  |                                            | 339,474   |                                     |   |           |   |   | 339,474   | 
|Other noncurrent assets                                       |  |        | 68,616    |                        |   | 19                           |  |                                            | 127,185   |                                     |   |           |   |   | 195,820   | 
|Investment in subsidiaries                                    |  |        | 5,764,008 |                        |   |                             |  |                                            |          |                                     |   | (5,764,008 | ) |   |          | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Total assets                                                  |  | $      | 5,976,951 |                        | $ | 226                          |  | $                                          | 6,944,405 |                                     | $ | (5,764,177 | ) | $ | 7,157,405 | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|LIABILITIES AND STOCKHOLDERS EQUITY                          |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Current liabilities (including intercompany) - Note 6         |  | $      | 377,269   |                        | $ |                             |  | $                                          | 623,404   |                                     | $ | (169       | ) | $ | 1,000,504 | 
|Long-term debt                                                |  |        | 700,000   |                        |   |                             |  |                                            | 52,901    |                                     |   |           |   |   | 752,901   | 
|8.125% senior subordinated notes, due 2011                    |  |        | 8,775     |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 8,775     | 
|6.125% senior subordinated notes, net, due 2013               |  |        | 230,216   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 230,216   | 
|6.75% senior subordinated notes, due 2013                     |  |        | 225,000   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 225,000   | 
|6.875% senior subordinated notes, due 2015                    |  |        | 525,000   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 525,000   | 
|3.25% convertible senior debentures, due 2035                 |  |        | 977,500   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 977,500   | 
|Deferred income tax liabilities (benefits), net-noncurrent    |  |        | (28,639   | )                      |   |                             |  |                                            | 277,673   |                                     |   |           |   |   | 249,034   | 
|Other noncurrent liabilities                                  |  |        | 19,784    |                        |   |                             |  |                                            | 226,645   |                                     |   |           |   |   | 246,429   | 
|Stockholders equity                                          |  |        | 2,942,046 |                        |   | 226                          |  |                                            | 5,763,782 |                                     |   | (5,764,008 | ) |   | 2,942,046 | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Total liabilities and stockholders
equity                    |  | $      | 5,976,951 |                        | $ | 226                          |  | $                                          | 6,944,405 |                                     | $ | (5,764,177 | ) | $ | 7,157,405 | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 

39

---



12. Guarantor
Subsidiaries (Continued)

Condensed Consolidating Statements of Cash
Flows

|                                                                                                           |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------- | -------- | ---------------------- | - | ---------------------------- |  | ----------------------------------- | -------- | - | - | -------- | -
|(in
  thousands)                                                                                           |  | Nine months ended September 30, |         
|                                                                                                           |  |                                 |         
|2006:                                                                                                      |  | Parent                          |          | Guarantor
  Subsidiary |   | Non-Guarantor
  Subsidiaries |  | Omnicare, Inc.
  and
  Subsidiaries |         
|                                                                                                          
|                                                                                                          
|Cash flows from operating activities:                                                                      |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|Provision for doubtful accounts                                                                            |  | $                               |         |                        | $ |                             |  | $                                   | 54,499   |   | $ | 54,499   |  
|Other                                                                                                      |  |                                 | (129,099 | )                      |   |                             |  |                                     | 287,347  |   |   | 158,248  |  
|                                                                                                           |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|Net cash flows from operating activities                                                                   |  |                                 | (129,099 | )                      |   |                             |  |                                     | 341,846  |   |   | 212,747  |  
|                                                                                                           |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|                                                                                                           |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|Cash flows from investing activities:                                                                      |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|Acquisition of businesses, net of cash received                                                            |  |                                 |         |                        |   |                             |  |                                     | (71,446  | ) |   | (71,446  | )
|Capital expenditures                                                                                       |  |                                 |         |                        |   |                             |  |                                     | (22,900  | ) |   | (22,900  | )
|Transfer of cash to trusts for employee health and severance costs,
  net of payments out of the trust     |  |                                 |         |                        |   |                             |  |                                     | (10,836  | ) |   | (10,836  | )
|Other                                                                                                      |  |                                 |         |                        |   |                             |  |                                     | 93       |   |   | 93       |  
|                                                                                                           |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|Net cash flows from investing activities                                                                   |  |                                 |         |                        |   |                             |  |                                     | (105,089 | ) |   | (105,089 | )
|                                                                                                           |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|                                                                                                           |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|Cash flows from financing activities:                                                                      |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|Borrowings on line of credit facilities and term A loan                                                    |  |                                 | 133,000  |                        |   |                             |  |                                     |         |   |   | 133,000  |  
|Payments on line of credit facilities and term A loan                                                      |  |                                 | (233,000 | )                      |   |                             |  |                                     |         |   |   | (233,000 | )
|Proceeds from long-term borrowings and obligations                                                         |  |                                 | 63       |                        |   |                              |  |                                     |          |   |   | 63       |  
|Payments on long-term borrowings and obligations                                                           |  |                                 | (4,764   | )                      |   |                             |  |                                     |         |   |   | (4,764   | )
|Fees paid for financing arrangements                                                                       |  |                                 | (3,413   | )                      |   |                             |  |                                     |         |   |   | (3,413   | )
|Change in cash overdraft balance                                                                           |  |                                 | 1,280    |                        |   |                             |  |                                     | 11,702   |   |   | 12,982   |  
|Proceeds from stock offering, net of issuance costs                                                        |  |                                 | 49,239   |                        |   |                             |  |                                     |         |   |   | 49,239   |  
|(Payments) for stock awards and exercise of stock options and
  warrants, net of stock tendered in payment |  |                                 | (2,661   | )                      |   |                             |  |                                     |         |   |   | (2,661   | )
|Excess tax benefits from stock-based compensation                                                          |  |                                 | 11,678   |                        |   |                             |  |                                     |         |   |   | 11,678   |  
|Dividends paid                                                                                             |  |                                 | (8,198   | )                      |   |                             |  |                                     |         |   |   | (8,198   | )
|Other                                                                                                      |  |                                 | 268,583  |                        |   |                             |  |                                     | (268,583 | ) |   |         |  
|                                                                                                           |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|Net cash flows from financing activities                                                                   |  |                                 | 211,807  |                        |   |                             |  |                                     | (256,881 | ) |   | (45,074  | )
|                                                                                                           |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|                                                                                                           |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|Effect of exchange rate changes on cash                                                                    |  |                                 |         |                        |   |                             |  |                                     | 1,288    |   |   | 1,288    |  
|                                                                                                           |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|                                                                                                           |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|Net increase in cash and cash equivalents                                                                  |  |                                 | 82,708   |                        |   |                             |  |                                     | (18,836  | ) |   | 63,872   |  
|Cash and cash equivalents at beginning of year                                                             |  |                                 | 143,227  |                        |   |                             |  |                                     | 72,194   |   |   | 215,421  |  
|                                                                                                           |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  
|Cash and cash equivalents at end of year                                                                   |  | $                               | 225,935  |                        | $ |                             |  | $                                   | 53,358   |   | $ | 279,293  |  
|                                                                                                           |  |                                 |          |                        |   |                              |  |                                     |          |   |   |          |  

40

---



12. Guarantor
Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows -
Continued

|                                                                                                          |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | ------------------------ | - | ---------------------------- |  | ----------------------------------- | ---------- | - | - | ---------- | -
|(in
  thousands)                                                                                          |  | Nine months ended September 30, |           
|                                                                                                          |  |                                 |           
|2005:                                                                                                     |  | Parent                          |            | Guarantor
  Subsidiaries |   | Non-Guarantor
  Subsidiaries |  | Omnicare, Inc.
  and
  Subsidiaries |           
|                                                                                                         
|                                                                                                         
|Cash flows from operating activities:                                                                     |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|Provision for doubtful accounts                                                                           |  | $                               |           |                          | $ |                             |  | $                                   | 40,352     |   | $ | 40,352     |  
|Other                                                                                                     |  |                                 | 1,319      |                          |   |                             |  |                                     | 133,673    |   |   | 134,992    |  
|                                                                                                          |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|Net cash flows from operating activities                                                                  |  |                                 | 1,319      |                          |   |                             |  |                                     | 174,025    |   |   | 175,344    |  
|                                                                                                          |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|                                                                                                          |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|Cash flows from investing activities:                                                                     |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|Acquisition of businesses, net of cash received                                                           |  |                                 |           |                          |   |                             |  |                                     | (2,566,335 | ) |   | (2,566,335 | )
|Capital expenditures                                                                                      |  |                                 |           |                          |   |                             |  |                                     | (14,672    | ) |   | (14,672    | )
|Transfer of cash to trusts for employee health and severance costs,
  net of payments out of the trust    |  |                                 |           |                          |   |                             |  |                                     | (5,898     | ) |   | (5,898     | )
|Other                                                                                                     |  |                                 |           |                          |   |                             |  |                                     | 39         |   |   | 39         |  
|                                                                                                          |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|Net cash flows from investing activities                                                                  |  |                                 |           |                          |   |                             |  |                                     | (2,586,866 | ) |   | (2,586,866 | )
|                                                                                                          |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|                                                                                                          |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|Cash flows from financing activities:                                                                     |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|Borrowings on line of credit facilities                                                                   |  |                                 | 3,543,000  |                          |   |                             |  |                                     |           |   |   | 3,543,000  |  
|Payments on line of credit facilities and term A loan                                                     |  |                                 | (1,068,385 | )                        |   |                             |  |                                     |           |   |   | (1,068,385 | )
|Proceeds from long-term borrowings and obligations                                                        |  |                                 | 153        |                          |   |                             |  |                                     | 41,393     |   |   | 41,546     |  
|Payments on long-term borrowings and obligations                                                          |  |                                 | (612       | )                        |   |                             |  |                                     |           |   |   | (612       | )
|Fees paid for financing arrangements                                                                      |  |                                 | (14,179    | )                        |   |                             |  |                                     |           |   |   | (14,179    | )
|Change in cash overdraft balance                                                                          |  |                                 | (7,131     | )                        |   |                             |  |                                     | 15,185     |   |   | 8,054      |  
|Proceeds from stock awards and exercise of stock options and
  warrants, net of stock tendered in payment |  |                                 | 30,339     |                          |   |                             |  |                                     |           |   |   | 30,339     |  
|Dividends paid                                                                                            |  |                                 | (7,135     | )                        |   |                             |  |                                     |           |   |   | (7,135     | )
|Other                                                                                                     |  |                                 | (2,373,873 | )                        |   |                             |  |                                     | 2,373,873  |   |   |           |  
|                                                                                                          |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|Net cash flows from financing activities                                                                  |  |                                 | 102,177    |                          |   |                             |  |                                     | 2,430,451  |   |   | 2,532,628  |  
|                                                                                                          |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|                                                                                                          |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|Effect of exchange rate changes on cash                                                                   |  |                                 |           |                          |   |                             |  |                                     | (1,237     | ) |   | (1,237     | )
|                                                                                                          |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|                                                                                                          |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|Net increase (decrease) in cash and cash equivalents                                                      |  |                                 | 103,496    |                          |   |                             |  |                                     | 16,373     |   |   | 119,869    |  
|Cash and cash equivalents at beginning of period                                                          |  |                                 | 46,569     |                          |   |                             |  |                                     | 37,600     |   |   | 84,169     |  
|                                                                                                          |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  
|Cash and cash equivalents at end of period                                                                |  | $                               | 150,065    |                          | $ |                             |  | $                                   | 53,973     |   | $ | 204,038    |  
|                                                                                                          |  |                                 |            |                          |   |                              |  |                                     |            |   |   |            |  

41

---



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (MD&A)

The
following discussion should be read in conjunction with the consolidated
financial statements, related notes and other financial information appearing
elsewhere in this report. In addition, see Safe Harbor Statement under the
Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking
Information.

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 OVERVIEW

---

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, retirement centers, independent living communities,
hospitals, hospice, and other healthcare settings and service providers.
Omnicare provides its pharmacy services to long-term care facilities and other
chronic care settings comprising approximately 1,409,000 beds in 47 states in
the United States (U.S.), the District of Columbia and Canada at September
30, 2006. As well, Omnicare provides operational software and support systems
to long-term care pharmacy providers across the U.S. Omnicares pharmacy
services also include distribution and patient assistance services for
specialty pharmaceuticals. Omnicare provides comprehensive product development
and research services for the pharmaceutical, biotechnology, medical device and
diagnostic industries in 30 countries worldwide.

A
summary of the key operating results for the three and nine months ended
September 30, 2006 and 2005 follows (in thousands, except per share amounts):

|                                     |  |                                      |           |                                     |   |           |  |      |           |  |   |           | 
|------------------------------------ |  | ------------------------------------ | --------- | ----------------------------------- | - | --------- |  | ---- | --------- |  | - | --------- | 
|                                     |  | Three
  months ended
  September 30, |           | Nine
  months ended
  September 30, |  
|                                     |  |                                      |           |                                     |  
|                                     |  | 2006                                 |           | 2005                                |   | 2006      |  | 2005 |          
|                                     |  |                                      |           |                                     |   |           |  |      |          
|Consolidated:                        |  |                                      |           |                                     |   |           |  |      |           |  |   |           | 
|Net sales                            |  | $                                    | 1,593,866 |                                     | $ | 1,454,977 |  | $    | 4,893,574 |  | $ | 3,674,520 | 
|                                     |  |                                      |           |                                     |   |           |  |      |           |  |   |           | 
|Net income                           |  | $                                    | 52,230    |                                     | $ | 58,499    |  | $    | 113,840   |  | $ | 178,226   | 
|                                     |  |                                      |           |                                     |   |           |  |      |           |  |   |           | 
|Diluted earnings per share
  (EPS) |  | $                                    | 0.43      |                                     | $ | 0.54      |  | $    | 0.93      |  | $ | 1.67      | 
|                                     |  |                                      |           |                                     |   |           |  |      |           |  |   |           | 

Operating
results for the three and nine months ended September 30, 2006 included special
litigation charges of $9.9 million and $118.8 million pretax, including $10.3
million recorded in the net sales line of the Consolidated Statements of Income
for the nine month period ($6.1 million and $96.3 million aftertax),
respectively, as follows:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On
  October 5, 2006, the Company announced it had reached a voluntary Settlement
  Agreement with the State of Michigan to resolve certain billing issues under
  the Michigan Medicaid program. The Company also announced that it has reached
  an agreement in principle with the State of Michigan with respect to certain
  hospice claims. The nine months ended September 30, 2006 includes a special
  litigation charge of $54.0 million pretax, including $10.3 million and $43.7
  million recorded in the net sales and litigation charges lines of the
  Consolidated Statements of Income, respectively ($46.7 million aftertax),
  based on the terms of the settlement

42

---



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | agreements.
  The Company paid $42 million related to the Michigan settlement in October
  2006. See further discussion at the Commitments and Contingencies note of
  the Notes to Consolidated Financial Statements, and the Legal Proceedings
  section at Part II, Item 1 of this Filing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  
| |  | The three and nine months ended
        September 30, 2006 included a $0.4 million and $53.8 million pretax charge
        ($0.2 million and $42.8 million aftertax), respectively, to establish
        a settlement reserve relating to previously disclosed inquiries by the
        federal government and certain states relating to three generic pharmaceuticals
        provided by the Company, based on discussions between these government
        representatives, the Company and its legal counsel. As previously disclosed,
        the inquiries relate to the substitution of capsules for tablets (Ranitidine),
        tablets for capsules (Fluoxetine) and two 7.5 mg tablets for one 15 mg
        tablet (Buspirone). The Company anticipates making payments of approximately
        $51 million in the fourth quarter of 2006 related to these matters. There can be no assurance, however, that the settlement will
  be finalized or any settlement amounts will be paid in the Companys fourth quarter. This
        special litigation charge represents the Companys current best estimate
        of the settlement amounts and associated costs under Statement of Financial
        Accounting Standards (SFAS) No. 5, Accounting for Contingencies
        (SFAS 5). See further discussion at the Commitments
        and Contingencies note of the Notes to Consolidated Financial Statements,
        and the Legal Proceedings section at Part II, Item 1 of this
        Filing.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | The
  three and nine months ended September 30, 2006 included a $9.5 million and
  $11.0 million pretax charge ($5.9 million and $6.8 million aftertax),
  respectively, for litigation-related professional expenses in connection with
  the administrative subpoenas from the United States Attorneys Office,
  District of Massachusetts, the purported class and derivative actions and the
  Companys lawsuit against UnitedHealth Group and its Affiliates (United).
  See further discussion at the Legal Proceedings section at Part II, Item 1
  of this Filing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

Operating
results for the three and nine months ended September 30, 2006 included
restructuring and other related charges of approximately $5.1 million and $24.7
million pretax ($3.2 million and $15.5 million aftertax), respectively, as
follows:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The
  three and nine months ended September 30, 2006 included a $4.2 million and
  $12.6 million pretax charge ($2.6 million and $7.9 million aftertax),
  respectively, in connection with the implementation of the Omnicare Full
  Potential Plan, a major initiative designed to re-engineer the pharmacy
  operating model to increase efficiency and enhance customer growth. See
  further discussion of these restructuring and other related charges at the
  Restructuring and Other Related Charges section of this MD&A.                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | The
  three and nine months ended September 30, 2006 included a $0.9 million and
  $12.1 million pretax charge ($0.6 million and $7.7 million aftertax),
  respectively, in connection with the Companys previously disclosed
  consolidation efforts associated primarily with the NeighborCare, Inc.
  (NeighborCare) consolidation plan and other related productivity
  initiatives to streamline operations, maximize workforce and asset
  utilization, and produce a more cost-efficient, operating infrastructure. See
  further discussion of these restructuring and other related charges at the
  Restructuring and Other Related Charges section of this MD&A.

During
the 2006 third quarter, the Company experienced certain quality control and
product recall issues, as well as fire damage, at one of its repackaging
facilities, Heartland

43

---



Repack Services (Heartland). As a precautionary measure,
  the Company voluntarily and temporarily suspended operations at Heartland. During
  the time that the Heartland facility has been closed, the Company conducted
  certain environmental tests at the facility. Based on the results of these tests,
  which showed very low levels of beta lactam residue, and the time and expense
  associated with completing the necessary remediation procedures, as well as
  the short remaining term on the lease for the current facility, the Company
  has decided to relocate the repackaging operations to a new, nearby facility.
  The Company continues to work to address and resolve all issues and restore
  this repackaging operation to full capacity; however, the Company cannot currently
  predict when the new facility will be opened. In order to replace the capacity
  of the temporarily closed Heartland facility, the Company ramped up production
  in its other repackaging facility, as well as onsite in its individual pharmacies
  for use by their patients. As a result, Omnicare has been and continues to be
  able to meet the needs of all of its client facilities and their residents.
  Addressing these issues served to increase costs and as a result, the three
  and nine months ended September 30, 2006 included special charges of $25.0 million
  pretax ($22.8 million and $2.2 million was recorded in the cost of sales and
  operating expense sections of the Consolidated Statements of Income, respectively)
  ($15.4 million aftertax) for these increased costs, particularly relating to
  the write-off of inventory totaling $18.9 million pretax and $6.1 million pretax
  for the incremental costs associated with the quality control, product recall
  and fire damage issues at Heartland. The Company maintains product recall, property
  and casualty and business interruption insurance and the extent of insurance
  recovery for these expenses is currently being reviewed by its outside advisors.
  As of September 30, 2006, no receivables for insurance recoveries have been
  recorded by the Company.

In
addition, the nine months ended September 30, 2006 included a charge of $6.1
million pretax ($3.9 million aftertax) associated with retention payments for
certain NeighborCare employees as required under the acquisition agreement.

The
  new prescription drug benefit under Medicare Part D (Part D) became
  effective on January 1, 2006. As a result, Omnicare experienced a significant
  shift in payor mix during the nine months ended September 30, 2006. The payor
  mix for the 2006 third quarter was approximately 42% Part D, 11% Medicaid, 42%
  private pay, third-party and facility, and 5% other sources. Prior to the implementation
  of the new Medicare Part D program, most of the Part D residents served by the
  Company were reimbursed under state Medicaid programs and, to a lesser extent,
  private pay sources. As expected with such a significant change in payor source
  and reimbursement system, the nine months ended September 30, 2006 was a transition
  period as the Company devoted considerable time, effort and resources to addressing
  certain administrative, operational and payment issues associated with the implementation
  of Part D. As a result, the Company incurred incremental expenses of approximately
  $6.0 million and $23.3 million pretax (approximately $3.7 million and $14.7
  million aftertax) during the three and nine month periods ended September 30,
  2006, respectively, comprising temporary labor, administrative and operating
  costs incurred in connection with the implementation of the new Medicare Part
  D drug benefit. These expenditures were necessary to support the billing and
  cash collection functions, as well as handle the disruption in the timing of
  work flow and delivery of medications created by these implementation issues.
  While considerable progress has been made in addressing many of the Part D implementation
  issues, Omnicare continues to devote resources to the ongoing resolution of
  these matters and expects incremental Part D transition expenses to continue
  in the fourth quarter of 2006.

44

---



The
  results for the three and nine months ended September 30, 2006 were also impacted
  by the unilateral reduction by United in the reimbursement rates paid by United
  to Omnicare under its pharmacy network contract for services rendered by Omnicare
  to beneficiaries of Uniteds drug benefit plans under the Medicare Part
  D program. The differential in rates that resulted from Uniteds action
  reduced sales and operating profit for the three and nine months ended September
  30, 2006 by approximately $19.7 million and $38.0 million (approximately $12.2
  million and $23.7 million aftertax), respectively. This matter is currently
  the subject of litigation initiated by Omnicare in federal court. See further
  discussion at the Legal Proceedings section at Part II, Item 1 of
  this Filing.

Effective
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS 123R). This Statement requires the Company to record
compensation costs relating to equity-based payments in its financial
statements. Under the fair value recognition provisions of SFAS 123R,
equity-based compensation cost is estimated at the grant date based on the
value of the award and is recognized as expense ratably over the requisite
service period of the award (usually the vesting period). The Company elected
the modified prospective application method of implementing SFAS 123R, which
requires that SFAS 123R be applied to all new awards whose inception date
follows the effective date of January 1, 2006, and all existing awards
modified, repurchased or cancelled after January 1, 2006. In addition, this
method requires compensation cost for the portion of awards for which service
has not been rendered (i.e., nonvested portion) and were outstanding as of
January 1, 2006. In accordance with the modified prospective method, the
Companys Consolidated Financial Statements for prior periods have not been
restated to reflect the adoption of SFAS 123R. Operating income for the three
and nine months ended September 30, 2006 includes additional equity-based
compensation expense for stock options and stock awards of approximately $1.0
million and $6.1 million pretax (approximately $0.6 million and $3.8 million
aftertax), respectively, related to the adoption of SFAS 123R.

Operating
results are discussed at the Pharmacy Services Segment and CRO Services
Segment captions below.

|                             |  |                                      |           |                                     |   |           |  |      |           |  |   |           | 
|---------------------------- |  | ------------------------------------ | --------- | ----------------------------------- | - | --------- |  | ---- | --------- |  | - | --------- | 
|                             |  | Three
  months ended
  September 30, |           | Nine
  months ended
  September 30, |  
|                             |  |                                      |           |                                     |  
|                             |  | 2006                                 |           | 2005                                |   | 2006      |  | 2005 |          
|                             |  |                                      |           |                                     |   |           |  |      |          
|Pharmacy
  Services Segment: |  |                                      |           |                                     |   |           |  |      |           |  |   |           | 
|Net sales                    |  | $                                    | 1,553,515 |                                     | $ | 1,410,653 |  | $    | 4,768,671 |  | $ | 3,533,955 | 
|                             |  |                                      |           |                                     |   |           |  |      |           |  |   |           | 
|Operating
  income           |  | $                                    | 140,894   |                                     | $ | 153,803   |  | $    | 398,625   |  | $ | 405,375   | 
|                             |  |                                      |           |                                     |   |           |  |      |           |  |   |           | 

The
sales growth for the three and nine months ended September 30, 2006 was driven
largely by the contribution of the NeighborCare, excelleRx, Inc. (excelleRx)
and RxCrossroads, L.L.C. (RxCrossroads) acquisitions that were completed in
the third quarter of 2005. In addition, sales growth is also attributable to
the ongoing execution of the Companys acquisition strategy, a favorable payor
mix shift (partially offset by the aforementioned reduction in reimbursement
rates under the United Part D contract) and drug price inflation. These
positive factors were partially offset by a marked increase in the use of
generic drugs, a lower number of beds served, prior period Medicaid
reimbursement reductions (although the impact from

45

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Medicaid reimbursement cuts now is much lower than seen historically
  due to the shift in payor mix largely from Medicaid to Medicare Part D) and
  competitive pricing pressures. Also unfavorably impacting sales for the three
  and nine months ended September 30, 2006, was a change to the equity method
  of accounting for certain pharmacy joint venture operations in which the Company
  owns less than a 100% interest. Accordingly, the deconsolidation of these operations
  reduced reported sales by approximately $22 million for both periods but had
  no impact on earnings. Operating income for the quarter and year-to-date period
  was positively impacted by the aforementioned increase in sales, the ongoing
  benefits of the Companys acquisition integration efforts and productivity
  enhancement initiatives throughout the Pharmacy Services segment and the increased
  penetration of generic drugs. These were more than offset by the special charges
  discussed below, as well as the Part D transition expenses and previously mentioned
  intensified competitive pricing and prior period Medicaid reimbursement reductions
  (although the impact from Medicaid reimbursement cuts now is much lower than
  seen historically due to the shift in payor mix largely from Medicaid to Medicare
  Part D). Specifically, operating income of the Pharmacy Services segment for
  the three months ended September 30, 2006 was impacted by special pretax charges
  of approximately $39.2 million, including the aforementioned $9.9 million in
  special litigation charges, $25.0 million in special charges related to the
  quality control, product recall and fire issues at Heartland and the previously
  mentioned restructuring and other related charges, of which approximately $4.3
  million was included in the Pharmacy Services segment. Operating income of the
  Pharmacy Services segment for the nine months ended September 30, 2006 was impacted
  by special pretax charges of approximately $169.1 million, including the aforementioned
  special litigation charges of $118.8 million, a $25.0 million charge related
  to the quality control, product recall and fire issues at Heartland, a $6.1
  million charge associated with retention payments for certain NeighborCare employees
  as required under the acquisition agreement and the previously mentioned restructuring
  and other related charges, of which approximately $19.2 million was included
  in the Pharmacy Services segment. The three and nine months ended September
  30, 2005 included restructuring and other related charges of approximately $4.4
  million in the Pharmacy Services segment.

|                      |  |                                      |        |                                     |   |        |  |      |         |  |   |         | 
|--------------------- |  | ------------------------------------ | ------ | ----------------------------------- | - | ------ |  | ---- | ------- |  | - | ------- | 
|                      |  | Three
  months ended
  September 30, |        | Nine
  months ended
  September 30, |  
|                      |  |                                      |        |                                     |  
|                      |  | 2006                                 |        | 2005                                |   | 2006   |  | 2005 |        
|                      |  |                                      |        |                                     |   |        |  |      |        
|CRO Services Segment: |  |                                      |        |                                     |   |        |  |      |         |  |   |         | 
|Revenues              |  | $                                    | 40,351 |                                     | $ | 44,324 |  | $    | 124,903 |  | $ | 140,565 | 
|                      |  |                                      |        |                                     |   |        |  |      |         |  |   |         | 
|Operating income      |  | $                                    | 1,371  |                                     | $ | 27     |  | $    | 3,835   |  | $ | 6,296   | 
|                      |  |                                      |        |                                     |   |        |  |      |         |  |   |         | 

The
  CRO Services segment revenues were lower for the three and nine months ended
  September 30, 2006 than in the comparable periods of 2005 due primarily to the
  early termination and client-driven delays in the commencement of certain projects
  during the first nine months of 2006. The decrease in operating income in the
  nine months ended September 30, 2006 is largely attributable to the reduction
  in revenues. The nine months ended September 30, 2006 and September 30, 2005
  also included the previously mentioned restructuring and other related charges,
  of which approximately $1.3 million and $3.7 million pretax, respectively, was
  included in the CRO Services segment. The year-over-year increase in operating
  income for three months ended September 30, 2006 is largely due to the three
  months ended September 30, 2005 including restructuring and other related charges
  of approximately $3.7 million pretax,

46

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although this
was partially offset by the impact of the previously mentioned reduction in
revenues.

Corporate
operating expenses increased year-over-year primarily as a result of the impact
of increased legal and professional costs, additional equity-based compensation
expense for stock options and stock awards related to the adoption of SFAS
123R, and the previously mentioned restructuring and other related charges.

RESULTS OF OPERATIONS

---

The
following table presents the consolidated net sales and results of operations
of Omnicare for the three and nine months ended September 30, 2006 and 2005 (in
thousands, except per share amounts).

|                                                                                   |  |                                      |           |                                     |   |           |   |      |           |   |   |           |  
|---------------------------------------------------------------------------------- |  | ------------------------------------ | --------- | ----------------------------------- | - | --------- | - | ---- | --------- | - | - | --------- | -
|                                                                                   |  | Three
  months ended
  September 30, |           | Nine
  months ended
  September 30, |  
|                                                                                   |  |                                      |           |                                     |  
|                                                                                   |  | 2006                                 |           | 2005                                |   | 2006      |   | 2005 |          
|                                                                                   |  |                                      |           |                                     |   |           |   |      |          
|                                                                                   |  |                                      |           |                                     |   |           |   |      |           |   |   |           |  
|Net sales                                                                          |  | $                                    | 1,593,866 |                                     | $ | 1,454,977 |   | $    | 4,893,574 |   | $ | 3,674,520 |  
|                                                                                   |  |                                      |           |                                     |   |           |   |      |           |   |   |           |  
|                                                                                   |  |                                      |           |                                     |   |           |   |      |           |   |   |           |  
|Net income                                                                         |  | $                                    | 52,230    |                                     | $ | 58,499    |   | $    | 113,840   |   | $ | 178,226   |  
|                                                                                   |  |                                      |           |                                     |   |           |   |      |           |   |   |           |  
|Earnings per share:                                                                |  |                                      |           |                                     |   |           |   |      |           |   |   |           |  
|Basic                                                                              |  | $                                    | 0.44      |                                     | $ | 0.57      |   | $    | 0.96      |   | $ | 1.74      |  
|                                                                                   |  |                                      |           |                                     |   |           |   |      |           |   |   |           |  
|Diluted                                                                            |  | $                                    | 0.43      |                                     | $ | 0.54      |   | $    | 0.93      |   | $ | 1.67      |  
|                                                                                   |  |                                      |           |                                     |   |           |   |      |           |   |   |           |  
|                                                                                   |  |                                      |           |                                     |   |           |   |      |           |   |   |           |  
|EBITDA(a)                                                                          |  | $                                    | 153,882   |                                     | $ | 162,076   |   | $    | 426,548   |   | $ | 420,632   |  
|                                                                                   |  |                                      |           |                                     |   |           |   |      |           |   |   |           |  
|EBITDA reconciliation to net cash flows
  from operating activities:               |  |                                      |           |                                     |   |           |   |      |           |   |   |           |  
|EBITDA(a)                                                                          |  | $                                    | 153,882   |                                     | $ | 162,076   |   | $    | 426,548   |   | $ | 420,632   |  
|(Subtract)/Add:                                                                    |  |                                      |           |                                     |   |           |   |      |           |   |   |           |  
|Interest expense, net of investment
income                                         |  |                                      | (39,961   | )                                   |   | (45,645   | ) |      | (120,594  | ) |   | (83,759   | )
|Income tax provision                                                               |  |                                      | (32,352   | )                                   |   | (35,009   | ) |      | (101,638  | ) |   | (106,582  | )
|Changes in assets and liabilities, net of
  effects from acquisition of businesses |  |                                      | (20,679   | )                                   |   | (7,003    | ) |      | (67,445   | ) |   | (124,787  | )
|Provision for doubtful accounts                                                    |  |                                      | 19,339    |                                     |   | 15,602    |   |      | 54,499    |   |   | 40,352    |  
|Write-off of debt issuance costs                                                   |  |                                      |          |                                     |   | 1,914     |   |      |          |   |   | 1,914     |  
|Deferred tax provision                                                             |  |                                      | 4,461     |                                     |   | 1,568     |   |      | 21,377    |   |   | 27,574    |  
|                                                                                   |  |                                      |           |                                     |   |           |   |      |           |   |   |           |  
|Net cash flows from operating activities                                           |  | $                                    | 84,690    |                                     | $ | 93,503    |   | $    | 212,747   |   | $ | 175,344   |  
|                                                                                   |  |                                      |           |                                     |   |           |   |      |           |   |   |           |  

(a)
EBITDA represents earnings before interest (net of investment income), income
taxes, depreciation and amortization. The Company believes that certain
investors find EBITDA to be a useful tool for measuring a companys ability to
service its debt, which is also the

47

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primary
purpose for which management uses this financial measure. 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. The Companys calculation of EBITDA may differ from the calculation
of EBITDA by others.

Three Months Ended September 30, 2006 vs. 2005

Consolidated

Net
sales for the three months ended September 30, 2006 rose to $1,593.9 million
from $1,455.0 million in the comparable prior-year period. Net income for the
three months ended September 30, 2006 was $52.2 million versus $58.5 million
earned in the comparable 2005 period. Diluted earnings per share for the three
months ended September 30, 2006 were $0.43 versus $0.54 in the same prior-year
period. EBITDA totaled $153.9 million for the three months ended September 30,
2006 as compared with $162.1 million for the same period of 2005.

The
three months ended September 30, 2006 included the following charges that
management considers to be special charges:

(i)
Operating income included a special charge of $25.0 million pretax, including
$22.8 million and $2.2 million recorded in the cost of sales and operating
expense sections of the Consolidated Statements of Income, respectively, ($15.4
million aftertax) related to the quality control, product recall and fire
issues at Heartland. See further discussion at the Commitments and
Contingencies note of the Notes to Consolidated Financial Statements.

(ii)
Operating income included a special litigation charge of $9.9 million pretax
($6.1 million aftertax) for litigation-related professional expenses in
connection with the administrative subpoenas from the United States Attorneys
Office, District of Massachusetts, the purported class and derivative actions,
the Companys lawsuit against United and the investigation by the federal
government and certain states relating to drug substitutions. See further
discussion at the Commitments and Contingencies note of the Notes to
Consolidated Financial Statements, and the Legal Proceedings section at Part
II, Item 1 of this Filing.

(iii)
Operating income included restructuring and other related charges of
approximately $5.1 million pretax ($3.2 million aftertax) in connection with
the Omnicare Full Potential Plan, as well as the previously disclosed
consolidation and productivity initiatives related, in part, to the integration
of the NeighborCare acquisition and other related activities. See further
discussion of the restructuring and other related charges at the Restructuring
and Other Related Charges section of this MD&A.

The three
months ended September 30, 2005 included the following charges that management
considers to be special charges:

(i)
Operating income included a restructuring charge of approximately $8.9 million
pretax ($5.6 million aftertax) in connection with the previously disclosed
consolidation and productivity initiatives related, in part, to the integration
of the NeighborCare acquisition and other related activities.

48

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(ii)
  Interest expense included a charge of approximately $7.5 million pretax ($4.7
  million aftertax) in connection with the write-off of certain deferred financing
  fees related to the refinancing of the Companys old term A loan and revolving
  credit facility, the expensing of certain debt issuance costs related to the
  new term A loan and revolving credit facility, and debt costs related to the
  364-day credit facility entered into in the third quarter of 2005. See further
  discussion of the associated financing transactions at the Financial Condition,
  Liquidity and Capital Resources section of this MD&A.

Pharmacy Services Segment

Omnicares
  Pharmacy Services segment recorded sales of $1,553.5 million for the three months
  ended September 30, 2006, exceeding the 2005 amount of $1,410.7 million by $142.8
  million, or 10.1%. At September 30, 2006, Omnicare served long-term care facilities
  and other chronic care settings comprising approximately 1,409,000 beds. Contributing
  in large measure to the year-over-year increase in sales was the completion
  of several acquisitions, in particular, the acquisition of NeighborCare completed
  in the third quarter of 2005. Further, the acquisitions of excelleRx and RxCrossroads
  in August 2005 also contributed to the year-over-year sales increase. In addition,
  Pharmacy Services sales increased due to the ongoing execution of its acquisition
  strategy, a favorable payor mix shift (partially offset by the aforementioned
  reduction in reimbursement rates under the United Part D contract) and drug
  price inflation. These positive factors were partially offset by a marked increase
  in the use of generic drugs, a lower number of beds served, prior period Medicaid
  reimbursement reductions (although the impact from Medicaid reimbursement cuts
  now is much lower than seen historically due to the shift in payor mix largely
  from Medicaid to Medicare Part D) and competitive pricing pressures. Also unfavorably
  impacting sales for the three months ended September 30, 2006, was a change
  to the equity method of accounting for certain pharmacy joint venture operations
  in which the Company owns less than a 100% interest. Accordingly, the deconsolidation
  of these operations reduced reported sales by approximately $22 million but
  had no impact on earnings. While the Company is focused on reducing the impact
  of these factors, there can be no assurance that these or other pricing and
  governmental reimbursement pressures will not continue to impact the Pharmacy
  Services segment.

Operating
income of the Pharmacy Services segment was $140.9 million in the third quarter
of 2006, a $12.9 million decrease as compared with the $153.8 million earned in
the comparable period of 2005. Operating income in the 2006 quarter benefited
from the increased sales discussed above, the addition of NeighborCare,
excelleRx and RxCrossroads, the increased use of generic drugs, the impact of
productivity enhancement initiatives, as well as the overall synergies from the
integration of prior-period acquisitions, particularly the NeighborCare
acquisition. Although operating margins are generally unfavorably impacted by
the initial addition of lower-margin institutional pharmacy acquisitions, the
integration efforts have historically resulted in drug purchasing improvements,
the consolidation of redundant pharmacy locations and other economies of scale,
which serve to leverage the Companys operating cost structure and have
historically resulted in improved operating margins in the long-term as cost
synergies are realized. The aforementioned positive factors were more than
offset by the special charges discussed below, as well as the Part D transition
expenses and previously mentioned intensified competitive pricing and prior
period Medicaid reimbursement reductions (although the impact from Medicaid
reimbursement cuts now is much lower than seen historically due to

49

---



the shift in
payor mix largely from Medicaid to Medicare Part D). Specifically, operating
income of the Pharmacy Services segment was impacted by special pretax charges
of approximately $39.2 million, including the aforementioned $9.9 million in
special litigation charges, the previously mentioned restructuring and other
related charges, of which approximately $4.3 million was included in the
Pharmacy Services segment, and the previously mentioned $25.0 million in
charges related to the quality control, product recall and fire issues at
Heartland. The three months ended September 30, 2005 included restructuring and
other related charges of approximately $4.4 million in the Pharmacy Services
segment.

On
July 28, 2005, Omnicare completed its acquisition of NeighborCare. The
acquisition, accounted for as a purchase business combination, included cash
consideration of approximately $1.9 billion. The cash consideration included
the payoff of certain NeighborCare debt totaling approximately $328 million, of
which $78 million was retired by the Company immediately following the
acquisition. In addition, the Company completed a tender offer for and subsequently
purchased all of the $250 million outstanding principal amount of
NeighborCares 6.875% senior subordinated notes, due 2013 (the NeighborCare
Notes). The total consideration, excluding accrued and unpaid interest, paid
for the NeighborCare Notes was approximately $274.2 million.

At
the time of the acquisition, NeighborCare was an institutional pharmacy
provider serving long-term care and skilled nursing facilities, specialty
hospitals and assisted and independent living communities comprising
approximately 295,000 beds in 34 states and the District of Columbia.
NeighborCare also provided infusion therapy services, home medical equipment,
respiratory therapy services, community-based retail pharmacies and group
purchasing.

The
NeighborCare acquisition has provided opportunities to achieve economies of
scale and cost synergies. The Company has implemented an integration plan under
which the processes have been put in place to achieve such savings in the
purchasing of pharmaceuticals, the elimination of redundant functions and the
consolidation of facilities in overlapping geographic territories.

Historically,
the Company has derived approximately one-half of its revenues directly from
government sources, principally state Medicaid programs and to a lesser extent
the federal Medicare program, and one-half from the private sector (including
individual residents, third-party insurers, long-term care and other
institutional health care facilities and its contract research organization
business).

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. Since 1997, Congress has passed a number of federal laws
that have effected major changes in the healthcare system.

The
Balanced Budget Act of 1997 (the BBA) sought to achieve a balanced federal
budget by, among other things, changing the reimbursement policies applicable
to various healthcare providers. In an important change for the skilled nursing
facility (SNF) industry, the BBA provided for the introduction in 1998 of the
prospective payment system (PPS) for Medicare-eligible residents of SNFs.
Prior to PPS, SNFs under Medicare received cost-based

50

---



reimbursement. Under PPS,  Medicare  pays SNFs a fixed fee per patient per day based upon the acuity level of the  resident,  covering
substantially  all items and  services  furnished  during a  Medicare-covered  stay,  including  pharmacy  services.  PPS resulted in a
significant reduction of reimbursement to SNFs. Admissions of Medicare
residents, particularly those requiring complex care, declined in many SNFs due
to concerns relating to the adequacy of reimbursement under PPS. This caused a
weakness in Medicare census leading to a significant reduction of overall
occupancy in the SNFs the Company serves. This decline in occupancy and acuity
levels adversely impacted Omnicares results beginning in 1999, as the Company
experienced lower utilization of Omnicare services, coupled with PPS-related
pricing pressure from Omnicares SNF customers.

In
1999 and 2000, Congress sought to restore some of the reductions in
reimbursement resulting from PPS. This legislation helped to improve the
financial condition of SNFs, motivated them to increase admissions,
particularly of higher acuity residents, and stabilized the unfavorable
operating trends attributable to PPS. One provision gave SNFs a temporary rate
increase for certain specific high-acuity patients beginning April 1, 2000, and
ending when Centers for Medicare & Medicaid Services (CMS) implemented a
refined patient classification system under PPS. For several years, CMS did not
implement such refinements, thus continuing the additional rate increase for
certain high-acuity patients through federal fiscal year 2005.

On
August 4, 2005 CMS issued its final SNF PPS rule for fiscal year 2006. Under
the rule, the CMS added nine patient classification categories to the PPS
patient classification system, thus triggering the expiration of the
high-acuity payments add-ons. However, CMS estimated that the rule would have a
slightly positive financial impact on SNFs in fiscal year 2006 because the
$1.02 billion reduction from the expiration of the add-on payments would be
more than offset by a $510 million increase in the nursing case-mix weight for
all of the RUG categories and a $530 million increase associated with various
updates to the payment rates (including updates to the wage and market basket
indexes), resulting in a $20 million overall increase in payments for fiscal
year 2006. The new patient classification refinements became effective on
January 1, 2006, and the market basket increase became effective October 1,
2005. On July 31, 2006, CMS issued the update to the SNF PPS rates for fiscal
year 2007. Effective October 1, 2006, SNFs receive the full 3.1 percent market
basket increase to rates, increasing payments to SNFs by approximately $560
million for fiscal year 2007. While the fiscal year 2007 SNF PPS rates do not
decrease payments to SNFs, the loss of revenues associated with future changes
in SNF payments could, in the future, have an adverse effect on the financial
condition of the Companys SNF clients which could, in turn, adversely affect
the timing or level of their payments to Omnicare.

Moreover,
  on February 8, 2006, the President signed into law the Deficit Reduction Act
  (DRA), which will reduce net Medicare and Medicaid spending by approximately
  $11 billion over five years. Among other things, the legislation reduces Medicare
  SNF bad debt payments by 30 percent for those individuals who are not dually
  eligible for Medicare and Medicaid. This provision is expected to reduce payments
  to SNFs by $100 million over 5 years (fiscal years 2006-2010). Further, on February
  6, 2006, the Bush Administration released its fiscal year 2007 budget proposal,
  which would reduce Medicare spending by $2.5 billion in fiscal year 2007 and
  $35.9 billion over 5 years. The proposed budget would, among other things, limit
  the payment update for the SNF PPS to market basket minus 0.4 percent in fiscal
  year 2008 and 2009. To enhance the long-term financing of the Medicare program,
  the budget also proposes automatic reductions in provider updates if general
  revenues are projected to exceed 45 percent of total

51

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Medicare financing. To date, congressional resolutions
have not included these reimbursement cuts, and these proposals would require
legislation to be implemented. Nonetheless, Congress may yet consider these and
other proposals in the future that would further restrict Medicare funding for
SNFs.

In
December 2003, Congress enacted the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 (MMA), which includes a major expansion of the
Medicare prescription drug benefit under a new Medicare Part D, effective
January 1, 2006. Prior to enrollment in Part D, beneficiaries were able to receive
assistance with their outpatient prescription drug costs through a prescription
drug discount card program. This discount card program began in June 2004, and
provided enrollees access to negotiated discounted prices for prescription
drugs. The discount card program ended May 15, 2006.

Under
the new Part D prescription drug benefit, Medicare beneficiaries may enroll in
Part D Plans which provide coverage of outpatient prescription drugs. The
deadline for Part D enrollment for 2006 was generally May 15, 2006, although
the deadline has been extended for certain low-income individuals. For 2007,
all Medicare beneficiaries may enroll in a Part D Plan (or change to a
different Part D Plan) between November 15 and December 31, 2006. Additionally,
nursing home residents may enroll at any time.

Medicare
beneficiaries generally have to pay a premium to enroll in a Part D Plan, with
the premium amount varying from plan to plan, although CMS is providing various
federal subsidies to Part D Plans to reduce the cost to beneficiaries. Medicare
beneficiaries who are also entitled to benefits under a state Medicaid program
(so-called dual eligibles), including nursing home residents served by the
Company whose drug costs were covered by state Medicaid programs prior to 2006,
now have their prescription drug costs covered by the new Medicare drug
benefit. (In 2005, approximately 46% of Omnicares revenue was
derived from beneficiaries covered under state Medicaid programs.)

CMS
  provides premium and cost-sharing subsidies to Part D Plans with respect to
  dual eligible residents of nursing homes. Therefore, such dual eligibles are
  not required to pay a premium for enrollment in a Part D Plan, so long as the
  premium for the Part D Plan in which they are enrolled is at or below the premium
  subsidy, nor are they required to meet deductibles or pay copayment amounts.
  Further, all dual eligibles who had not affirmatively enrolled in a Part D
  Plan as of December 31, 2005 were automatically enrolled into a PDP by CMS on
  a random basis from among those PDPs meeting CMS criteria for low-income premiums
  in the PDP region. As is the case for any nursing home beneficiary, such dual
  eligible beneficiaries may change Part D Plans at any time through the established
  Part D enrollment process. In sum, dual eligible residents of nursing homes
  are entitled to have their prescription drug costs covered by a Part D Plan,
  provided that the prescription drugs which they are taking are either on the
  Part D Plans formulary, or an exception to the plans formulary is
  granted. CMS requires the formularies of Part D Plans to include the types of
  drugs most commonly needed by Medicare beneficiaries, and that plans formulary
  exceptions criteria provide for coverage of drugs determined by the plan to
  be medically appropriate for the enrollee. The MMA also makes available partial
  premium and cost-sharing subsidies for certain other classes of low-income enrollees
  who do not qualify for Medicaid.

52

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Pursuant
to the final Part D rule, effective January 1, 2006, the Company obtains
reimbursement for drugs it provides to enrollees of a given Part D Plan in
accordance with the terms of agreements negotiated between it and that Part D
Plan. The Company has entered into such agreements with nearly all Part D Plan
sponsors under which it will provide drugs and associated services to their
enrollees. The Company continues to have ongoing discussions with Part D Plans
in the ordinary course and may, as appropriate, renegotiate agreements. Moreover, as
expected in the transition to a new program of this magnitude, certain
administrative and payment issues have arisen, resulting in higher operating
expenses, as well as outstanding receivables for copays and rejected claims of
approximately $23 million and $29 million, respectively, at September 30, 2006.
Until these
administrative and payment issues have been resolved, the Company will not be able to determine
the impact of the new Part D drug benefit on the Companys results of
operation, financial condition and cash flows.

The
MMA does not change the manner in which Medicare pays for drugs for Medicare
beneficiaries covered under a Medicare Part A stay. The Company continues to
receive reimbursement for drugs provided to such residents from the SNFs
pursuant to the contracts it has negotiated with each SNF. The Company also
continues to receive reimbursement from the state Medicaid programs, albeit to
a greatly reduced extent, for those Medicaid beneficiaries not eligible for the
Part D program, including those under age 65, and for certain drugs
specifically excluded from Medicare Part D.

CMS
  has issued subregulatory guidance on many aspects of the final Part D rule including
  the provision of pharmacy services to long-term care residents. CMS has also
  expressed some concerns about pharmacies receipt of discounts, rebates
  and other price concessions from drug manufacturers. Specifically, in a finalized
  Call Letter for the 2007 calendar year, CMS indicated that for 2007,
  CMS will require Part D sponsors to have policies and systems in place, as part
  of their drug utilization management programs, to protect beneficiaries and
  reduce costs when long-term care pharmacies are subject to incentives to move
  market share through access/performance rebates from drug manufacturers. For
  the purposes of managing and monitoring drug utilization, especially where such
  rebates exist, CMS instructs Part D Plan sponsors to require pharmacies to disclose
  to the Part D Plan sponsor any discounts, rebates and other direct or indirect
  remuneration designed to directly or indirectly influence or impact utilization
  of Part D drugs. CMS stated that Plan sponsors should provide assurances that
  such information will remain confidential. CMS has recently issued subregulatory
  guidelines specifying the information that CMS will require from Plan sponsors
  with respect to rebates paid to long-term care pharmacies. The Company intends
  to negotiate with Plan sponsors with respect to the terms and conditions under
  which rebate information would be provided.

CMS
has indicated it will continue to issue guidance on the Part D program as it is
implemented. The Company is continuing to monitor implementation of the new
Part D benefit, and until further agency guidance is known and until the
administrative and payment issues associated with the transition to this
massive program have been resolved, the Company cannot predict the ultimate
effect of the final rule or the outcome of other potential developments related
to its implementation on our business, results of operations, financial
position or cash flows. The
MMA also reforms the Medicare Part B prescription drug payment methodology,
although the Companys revenues for drugs dispensed under Medicare Part B are
not significant in comparison to total revenues. The MMA also includes
administrative reforms designed to

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improve Medicare program
operations. It is uncertain at this time the impact that the MMAs legislative
reforms ultimately will have on the Company.

Other
healthcare funding issues remain, including pressures on federal and state
Medicaid budgets, and most states are taking steps to implement cost controls
within their Medicaid programs. Some states continue to experience budget
shortfalls, which may prompt them to consider implementing reductions in
Medicaid reimbursement and other cost control measures. Likewise, the DRA
includes several changes to the Medicaid program designed to rein in program
spending. These include, among others, strengthening the Medicaid asset
transfer restrictions for persons seeking to qualify for Medicaid long-term
care coverage, which could, due to the timing of the penalty period, increase
facilities exposure to uncompensated care. This provision is expected to
reduce Medicaid spending by an estimated $2.4 billion over 5 years. The law
also gives states greater flexibility to expand access to home and community
based services by allowing states to provide these services as an optional
benefit without undergoing the waiver approval process, and includes a new
demonstration to encourage states to provide long-term care services in a
community setting to individuals who currently receive Medicaid services in
nursing homes. Together these provisions could increase state funding for home
and community based services, while prompting states to cut funding for nursing
facilities. The DRA also changes the so-called Medicaid upper limit rules for
prescription drugs, effective January 1, 2007. Like the current upper limit, it
only applies to drugs ingredient costs and does not include dispensing fees,
which will continue to be determined by the states. With the advent of
Medicare Part D, the Companys revenue from state Medicaid programs is
substantially less than has been the case previously. However, some of the
Companys agreements with Part D Plans have incorporated the Medicaid upper
limit rules into the pricing mechanisms for prescription drugs.

In
addition, the Presidents proposed fiscal year 2007 budget includes a series of
proposals impacting Medicaid and the State Childrens Health Insurance Program
(SCHIP), including administrative changes to the financing structure of
Medicaid that would save more than $12 billion over five years. These changes
include further reductions in Medicaid drug reimbursement, reforms to Medicaid
drug rebate requirements, allowing states to use managed drug formularies, and
reforms to Medicaid provider taxes. While the Company has endeavored to adjust
to these types of funding pressures in the past, there can be no assurance that
these or future changes in Medicaid payments to nursing facilities, pharmacies,
or managed care systems, or their potential impact on payments under agreements
with Part D Plans, will not have an adverse impact on the Companys business.

On
  October 4, 2006, the plaintiffs in New England Carpenters Health Benefits
  Fund et al. v. First DataBank, Inc. and McKesson Corporation, CA No. 1:05-CV-11148-PBS
  (United District Court for the District of Massachussetts) and defendant First
  DataBank, Inc. (First DataBank) entered into a settlement agreement
  relating to First DataBanks publication of average wholesale price (AWP).
  AWP is a pricing benchmark that is widely used to calculate a portion of the
  reimbursement payable to pharmacy providers for the drugs and biologicals they
  provide, including under State Medicaid programs, Medicare Part D Plans and
  certain of the Companys contracts with long-term care facilities. The
  settlement agreement would require First DataBank to cease publishing AWP two
  years after the settlement becomes effective unless a competitor of First DataBank
  is then publishing AWP, and would require that First DataBank modify the manner
  in which it calculates AWP until First DataBank ceases publishing same. Although
  the settlement agreement is yet subject to approval of the court, the Company
  is evaluating the potential impact of the settlement in the context of certain
  of the contracts that it has with various payors and the actions that may be
  taken, if necessary, to offset or otherwise mitigate such impact. In addition,
  the government and private health insurance programs could discontinue or modify
  the use of AWP or otherwise implement payment methods that reduce the reimbursement
  for drugs and biologicals. There can be no assurance, however, that the First
  DataBank settlement, if approved, or actions, if any, by the government or private
  health insurance programs relating to AWP would not have an adverse impact on
  the Companys reimbursement for drugs and biologicals and have implications
  for the use of AWP as a benchmark from which pricing in the pharmaceutical industry
  is negotiated, which could adversely affect the Company.

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

Demographic
trends indicate that demand for long-term care will increase well into the
middle of this century as the elderly population grows significantly. Moreover,
those over 65 consume a disproportionately high level of healthcare services,
including prescription drugs,

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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. Further, the pace and quality of new drug development is yielding many
promising new drugs targeted at the diseases of the elderly. These new drugs
may be more expensive than older, less effective drug therapies due to rising
research costs. However, they are significantly more effective in curing or
ameliorating illness and in lowering overall healthcare costs by reducing,
among other things, hospitalizations, physician visits, nursing time and lab
tests. 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 anticipates 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 effect of the new Medicare Part D drug benefit or any further
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. Further, while volatility can occur from time to time in the
contract research business owing to factors such as the success or failure of
its clients compounds, the timing or budgetary constraints of its clients, or
consolidation within our client base, new drug discovery remains an important
priority of drug manufacturers. Drug manufacturers, in order to optimize their
research and development efforts, will continue to turn to contract research
organizations to assist them in accelerating drug research development and
commercialization.

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CRO
Services Segment

Omnicares
  CRO Services segment earned revenues of $40.4 million for the three months ended
  September 30, 2006, which were 9% lower than the $44.3 million recorded in the
  same prior-year period. In accordance with EITF Issue No. 01-14, Income
  Statement Characterization of Reimbursements Received for Out-of-Pocket
  Expenses Incurred (EITF No. 01-14), the Company included $5.5
  million and $6.5 million of reimbursable out-of-pockets in its reported CRO
  Services segment revenues and cost of sales for the quarters ended September
  30, 2006 and 2005, respectively. Revenues were lower for the three months ended
  September 30, 2006 than in the comparable period of 2005 primarily due to the
  aforementioned decrease in reimbursable out-of-pockets of $1.0 million and the
  early termination and client-driven delays in the commencement of certain projects.

Operating
income in the CRO Services segment was $1.4 million in the third quarter of
2006 compared with $0.03 million in the same 2005 period. The increase is
largely attributable to the recording of the previously mentioned restructuring
charge in the third quarter of 2005, of which approximately $3.7 million was
included in the CRO Services segment, although this was partially offset by the
impact of the previously mentioned reduction in revenues. Backlog at September
30, 2006 was $288.5 million, representing an increase of $19.6 million from the
December 31, 2005 backlog of $268.9 million and an increase of $30.2 million
from the September 30, 2005 backlog of $258.3 million.

Consolidated

The
  Companys consolidated gross profit of $377.9 million increased $16.8 million
  during the third quarter of 2006 from the same prior-year period amount of $361.1
  million. Gross profit as a percentage of total net sales of 23.7% in the three
  months ended September 30, 2006, was lower than the 24.8% experienced during
  the same period of 2005. Positively impacting overall gross profit margin were
  the Companys purchasing leverage associated with the procurement of pharmaceuticals
  and benefits realized from compliance with clinical programs, the increased
  use of generic drugs, the impact of productivity enhancements, a favorable payor
  mix shift (partially offset by the aforementioned United reimbursement rate
  reduction) and cost savings associated with the integration of NeighborCare,
  and the addition of the higher-margin RxCrossroads and excelleRx businesses.
  These favorable year-over-year factors were more than offset by the Part D transition
  expenses, a special charge in the 2006 third quarter relating to the previously
  discussed quality control, product recall and fire issues at Heartland, of which
  $22.8 million impacted gross profit, and the previously mentioned intensified
  competitive pricing and Medicaid reimbursement pressures (although the impact
  from Medicaid reimbursement cuts now is much lower than seen historically due
  to the shift in payor mix largely from Medicaid to Medicare Part D).

Omnicares
selling, general and administrative (operating) expenses for the quarter
ended September 30, 2006 of $236.1 million were higher than the comparable prior-year
amount of $213.0 million by $23.1 million, due primarily to the aforementioned
completion of several acquisitions, including NeighborCare, excelleRx and
RxCrossroads in the third quarter of 2005. Operating expenses as a percentage of
net sales amounted to 14.8% in the third quarter of 2006, representing an
increase from the 14.6% experienced in the comparable prior-year period. Operating
expenses for the quarter ended September 30, 2006 were unfavorably impacted by
a

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$2.6 million increase in amortization and depreciation
expenses, largely related to the 2005 acquisitions, $1.0 million of additional
equity-based compensation expense for stock options and stock awards related to
the adoption of SFAS 123R, increased professional costs and the previously
discussed temporary costs associated with the implementation of the new
Medicare Part D drug benefit. Partially offsetting the increased operating
expenses were the favorable impact of leveraging of fixed (e.g., rents) and
variable (e.g., utilities) overhead costs over a larger sales base in 2006 than
that which existed in 2005 and the Companys continued productivity
enhancements, including the ongoing restructuring programs.

Investment
income for the three months ended September 30, 2006 of $3.4 million was
approximately $2.2 million greater than the $1.2 million earned in the
comparable prior-year quarter, primarily due to higher interest rates and
average invested cash and retirement plan asset balances in comparison to the
same prior-year quarter.

Interest
expense for the three months ended September 30, 2006 of $43.4 million was
approximately $3.5 million lower than the $46.9 million in the comparable
prior-year period due primarily to the third quarter 2005 including a charge of
approximately $7.5 million pretax related to the debt extinguishment and the
new debt issuance in connection with the new Credit Agreement, partially offset
by the increased overall borrowings resulting from the new debt issuances
completed in the latter half of 2005 in connection with the previously
mentioned acquisitions, and increased interest rates for variable rate loans.

The
effective income tax rate was 38.25% in the third quarter of 2006, marginally
higher than the prior-year period rate of 37.4%. The effective tax rates in
2006 and 2005 are higher than the federal statutory rate largely as a result of
the combined impact of state and local income taxes, various nondeductible expenses
and tax-accrual adjustments.

Nine Months Ended September 30, 2006 vs. 2005

Consolidated

Net
sales for the nine months ended September 30, 2006 rose to $4,893.6 million
from $3,674.5 million in the comparable prior-year period. Net income for the nine
months ended September 30, 2006 was $113.8 million versus $178.2 million earned
in the comparable 2005 period. Diluted earnings per share for the nine months
ended September 30, 2006 were $0.93 versus $1.67 in the same prior-year period.
EBITDA totaled $426.5 million for the nine months ended September 30, 2006 as
compared with $420.6 million for the same period of 2005.

The
nine months ended September 30, 2006 included the following charges that
management considers to be special charges:

(i)
  Operating income included a special litigation charge of $53.8 million pretax
  ($42.8 million aftertax) to establish a settlement reserve relating to previously
  disclosed inquiries by the federal government and certain states concerning
  the substitution of three generic pharmaceuticals by the Company. The Company
  anticipates making payments of approximately $51 million in the fourth quarter
  of 2006 related to these matters. There can be no assurance, however, that the settlement will
  be finalized or any settlement amounts will be paid in the Companys fourth quarter. This special litigation charge represents
  the Companys current estimate of the settlement amounts and associated
  costs under SFAS 5. See further discussion at the Commitments and Contingencies

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note of the Notes to Consolidated Financial
Statements, and the Legal Proceedings section at Part II, Item 1 of this Filing.

(ii)
As previously discussed, on October 5, 2006, the Company announced it had
reached a voluntary Settlement Agreement with the State of Michigan to resolve
certain billing issues under the Michigan Medicaid program. The Company also
announced that it has reached an agreement in principle with the State of
Michigan with respect to certain hospice claims. The nine months ended
September 30, 2006 includes a special litigation charge of $54.0 million pretax
recorded in the 2006 second quarter, including $10.3 million and $43.7 million
recorded in the net sales and litigation charges lines of the Consolidated
Statements of Income, respectively ($46.7 million aftertax), based on the terms
of the settlement agreements. The Company paid $42 million related to the Michigan
settlement in October 2006. See further discussion at the Commitments and
Contingencies note of the Notes to Consolidated Financial Statements, and the Legal
Proceedings section at Part II, Item 1 of this Filing.

(iii)
Operating income included a special litigation charge of $11.0 million pretax ($6.8
million aftertax) for litigation-related professional expenses in connection
with the administrative subpoenas from the United States Attorneys Office,
District of Massachusetts, the purported class and derivative actions and the
Companys lawsuit against United.

(iv)
Operating income included restructuring and other related charges of
approximately $24.7 million pretax ($15.5 million aftertax) in connection with the
Omnicare Full Potential Program, as well as the previously disclosed
consolidation and productivity initiatives related, in part, to the integration
of the NeighborCare acquisition and other related activities. See further
discussion of the restructuring and other related charges at the Restructuring
and Other Related Charges section of this MD&A.

(v)
Operating income included special charges of $25.0 million pretax, including
$22.8 million and $2.2 million recorded in the cost of sales and operating
expense sections of the Consolidated Statements of Income, respectively, ($15.4
million aftertax) related to the quality control, product recall and fire
issues at Heartland. See further discussion at the Commitments and
Contingencies note of the Notes to Consolidated Financial Statements.

(vi)
Operating income included a special charge of approximately $6.1 million pretax
($3.9 million after tax) associated with retention payments for certain
NeighborCare employees as required under the acquisition agreement.

The
nine months ended September 30, 2005 included the following charges that
management considers to be special charges:

(i)
Operating income included a restructuring charge of approximately $8.9 million pretax
($5.6 million aftertax) in connection with the Companys previously disclosed
consolidation efforts associated with the NeighborCare integration plan and
other productivity initiatives.

(ii)
Interest expense included a charge of approximately $7.5 million pretax ($4.7
million aftertax) in connection with the write-off of certain deferred
financing fees related to the refinancing of the Companys old term A loan and
revolving credit facility, the expensing of

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certain debt issuance costs related to the new term A
loan and revolving credit facility, and debt costs related to the 364-day
credit facility entered into in the third quarter of 2005.

(iii)
Operating expenses included a charge of $1.2 million pretax in connection with
the issuance of the Series B 4.00% Trust Preferred Income Equity Redeemable
Securities (the New Trust PIERS) of Omnicare Capital Trust II (the New Trust).

(iv)
Operating expenses included a charge of $1.1 million pretax for
acquisition-related expenses pertaining to a proposed transaction that was not
consummated.

Pharmacy Services Segment

Omnicares
  Pharmacy Services segment recorded sales of $4,768.7 million for the nine months
  ended September 30, 2006, exceeding the comparable 2005 amount of $3,534.0 million
  by $1,234.7 million, or 34.9%. At September 30, 2006, Omnicare served long-term
  care facilities and other chronic care settings comprising approximately 1,409,000
  beds. Contributing in large measure to the year-over-year increase in sales
  was the completion of several acquisitions, in particular, the acquisition of
  NeighborCare completed in the third quarter of 2005. Further, the acquisitions
  of excelleRx and RxCrossroads in August 2005 also contributed to the year-over-year
  sales increase. In addition, Pharmacy Services sales increased due to the ongoing
  execution of its acquisition strategy, a favorable payor mix shift (partially
  offset by the aforementioned second quarter reduction in reimbursement rates
  under the United Part D contract) and drug price inflation. These positive factors
  were partially offset by a marked increase in the use of generic drugs, prior
  period Medicaid reimbursement reductions (although the impact from Medicaid
  reimbursement cuts now is much lower than seen historically due to the shift
  in payor mix largely from Medicaid to Medicare Part D) and competitive pricing
  pressures. Also unfavorably impacting sales for the nine months ended September
  30, 2006, was a change to the equity method of accounting for certain pharmacy
  joint venture operations in which the Company owns less than a 100% interest.
  Accordingly, the deconsolidation of these operations reduced reported sales
  by approximately $22 million but had no impact on earnings. While the Company
  is focused on reducing the impact of these factors, there can be no assurance
  that these or other pricing and governmental reimbursement pressures will not
  continue to impact the Pharmacy Services segment.

Operating
income of the Pharmacy Services segment was $398.6 million for the nine months
ended September 30, 2006, a $6.8 million decrease as compared with the $405.4
million earned in the comparable period of 2005. Operating income in the 2006 period
benefited from the increased sales discussed above, including the addition of
NeighborCare, excelleRx and RxCrossroads, the increased use of generic drugs,
the impact of productivity enhancement initiatives, as well as the overall
synergies from the integration of prior-period acquisitions, particularly the
NeighborCare acquisition. Although operating margins are generally unfavorably
impacted by the initial addition of lower-margin institutional pharmacy
acquisitions, the integration efforts have historically resulted in drug
purchasing improvements, the consolidation of redundant pharmacy locations and
other economies of scale, which serve to leverage the Companys operating cost
structure and have historically resulted in improved operating margins in the
long-term as cost synergies are realized. The aforementioned positive factors
were more than offset by the special charges discussed below, as well as the
Part D transition expenses and previously mentioned intensified competitive
pricing and prior period

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Medicaid reimbursement reductions (although the impact
from Medicaid reimbursement cuts now is much lower than seen historically due
to the shift in payor mix largely from Medicaid to Medicare Part D). Specifically,
operating income of the Pharmacy Services segment was impacted by special pretax
charges of approximately $169.1 million, including the aforementioned special
litigation charges of $118.8 million, a $6.1 million charge associated with
retention payments for certain NeighborCare employees as required under the
acquisition agreement and the previously mentioned restructuring and other
related charges, of which approximately $19.2 million was included in the
Pharmacy Services segment and the previously mentioned $25.0 million in charges
related to the quality control, product recall and fire issues at Heartland. The
nine months ended September 30, 2005 included restructuring and other related
charges of approximately $4.4 million in the Pharmacy Services segment.

CRO
Services Segment

Omnicares
  CRO Services segment earned revenues of $124.9 million for the nine months ended
  September 30, 2006, which were approximately 11.2% lower than the $140.6 million
  recorded in the same prior-year period. In accordance with EITF Issue No. 01-14,
  Income Statement Characterization of Reimbursements Received for Out-of-Pocket
  Expenses Incurred (EITF No. 01-14), the Company included $17.8
  million and $22.3 million of reimbursable out-of-pockets in its reported CRO
  Services segment revenues and cost of sales for the nine months ended September
  30, 2006 and 2005, respectively. Revenues were lower for the nine months ended
  September 30, 2006 than in the comparable period of 2005 primarily due to the
  aforementioned decrease in reimbursable out-of-pockets of $4.5 million and the
  early termination and client-driven delays in the commencement of certain projects
  during the first nine months of 2006.

Operating
income in the CRO Services segment was $3.8 million for the nine months ended September
30, 2006 compared with $6.3 million in the same 2005 period. The decrease is
attributable to the reduction in revenues discussed above. The nine months
ended September 30, 2006 and September 30, 2005 also included the previously
mentioned restructuring and other related charges, of which approximately $1.3
million and $3.7 million pretax, respectively, was included in the CRO Services
segment.

Consolidated

The
Companys consolidated gross profit of $1,194.7 million increased $289.5 million
during the nine months ended September 30, 2006 from the same prior-year period
amount of $905.2 million. Gross profit as a percentage of total net sales of 24.4%
in the nine months ended September 30, 2006, was slightly lower than the 24.6%
experienced during the same period of 2005. Positively impacting overall gross
profit margin were the Companys purchasing leverage associated with the
procurement of pharmaceuticals and benefits realized from compliance with
clinical programs, the increased use of generic drugs, the impact of
productivity enhancements, a favorable payor mix shift (partially offset by the
aforementioned United reimbursement rate reduction), cost savings associated
with the integration of NeighborCare, and the addition of the higher-margin
RxCrossroads and excelleRx businesses. These favorable year-over-year factors
were more than offset by the previously mentioned competitive pricing and Medicaid
reimbursement pressures (although the impact from Medicaid reimbursement cuts
now is much

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lower than seen historically due to the shift in payor
mix largely from Medicaid to Medicare Part D), Part D transition expenses and
special charges. Specifically, gross profit for the nine months ended September
30, 2006 was impacted by a special charge related to the previously discussed
quality control, product recall and fire issues at Heartland, of which $22.8
million impacted gross profit, and the Michigan Medicaid matter, of which $10.3
million impacted gross profit.

Omnicares
operating expenses for the nine months ended September 30, 2006 of $723.2
million were higher than the comparable prior-year amount of $527.7 million by
$195.5 million, due primarily to the aforementioned completion of several
acquisitions, including NeighborCare, excelleRx and RxCrossroads in the third
quarter of 2005. Operating expenses as a percentage of net sales amounted to 14.8%
for the nine months ended September 30, 2006, representing an increase from the
14.4% experienced in the comparable prior-year period. Operating expenses for
the nine months ended September 30, 2006 were unfavorably impacted by a $24.1
million increase in amortization and depreciation expenses, largely related to
the 2005 acquisitions, the aforementioned $6.1 million pretax charge associated
with retention payments for certain NeighborCare employees, $6.1 million pretax
of additional equity-based compensation expense for stock options and stock
awards related to the adoption of SFAS 123R, increased legal and professional
costs and the previously discussed temporary costs associated with the
implementation of the new Medicare Part D drug benefit. Partially offsetting
the increased operating expenses were the favorable impact of leveraging of
fixed (e.g., rents) and variable (e.g., utilities) overhead costs over a larger
sales base in 2006 than that which existed in 2005 and the Companys continued
productivity enhancements, including the ongoing restructuring program
commenced in connection with the NeighborCare acquisition and the commencement
of the Omnicare Full Potential Plan. In addition, the nine months ended September
30, 2005 included the aforementioned $1.2 million pretax special charge for
professional fees and expenses related to the first quarter 2005 trust PIERS
exchange offering and the aforementioned $1.1 million pretax special charge for
acquisition-related expenses.

Investment
income for the nine months ended September 30, 2006 of $8.3 million was
approximately $4.8 million greater than the $3.5 million earned in the comparable
prior-year period, primarily due to higher interest rates and average invested
cash and retirement plan asset balances in comparison to the same prior-year period.

Interest
expense for the nine months ended September 30, 2006 of $128.8 million was approximately
$41.6 million higher than the $87.2 million in the comparable prior-year period
due to increased overall borrowings resulting from the new debt issuances
completed in the latter half of 2005 in connection with the previously
mentioned acquisitions, and increased interest rates for variable rate loans.

The
  effective income tax rate was 47.2% in the year-to-date nine-month 2006 period,
  significantly higher than the comparable prior-year period rate of 37.4% due
  primarily to certain nondeductible litigation costs recognized in the period.
  The effective tax rates in 2006 and 2005 are higher than the federal statutory
  rate largely as a result of the combined impact of state and local income taxes,
  various nondeductible expenses (including a portion of the aforementioned litigation
  costs) and tax-accrual adjustments.

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Restructuring and Other
Related Charges

Omnicare
Full Potential Program

In
  the second quarter of 2006, the Company commenced the implementation of the
  Omnicare Full Potential Plan, a major initiative designed to re-engineer
  the Companys pharmacy operating model to increase efficiency and enhance
  customer growth. The Omnicare Full Potential Plan is expected to
  optimize resources across the entire organization by implementing best practices
  and a hub-and-spoke model whereby certain key support and production
  functions will be transferred to regional hubs specifically designed
  and managed to perform these tasks, with local spoke pharmacies
  focusing on time-sensitive services and customer-facing processes.

The
  Omnicare Full Potential Plan is expected to be completed over a
  30-month period and is estimated to generate pretax savings in the range of
  $100 million to $120 million annually upon completion of the initiative. It
  is anticipated that approximately one-half of these savings will be realized
  in cost of sales, and the remainder being realized in operating expenses. The
  program is estimated to result in total pretax restructuring and other related
  charges of approximately $80 million over this 30-month period. The charges
  include severance pay, lease costs, professional fees and other related costs.
  Approximately $18 million of this restructuring charge is associated with the
  initial phase of the program and will be taken in 2006. The Company recorded
  restructuring and other related charges of approximately $4.2 million and $12.6
  million pretax (approximately $2.6 million and $7.9 million aftertax) during
  the three and nine months ended September 30, 2006, respectively, with the remaining
  portion of the initial phase to be taken over the balance of the 2006 year.
  The remainder of the overall restructuring charge will be recognized and disclosed
  over the fiscal years 2007 and 2008 as various phases of the project are finalized
  and implemented. Incremental capital expenditures related to this program are
  expected to total $30 million to $40 million over the 30-month period. The Company
  estimates that the initial phase of the program will lead to a reduction in
  force of approximately 1,200 positions, associated primarily with pharmacy operations.

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The
restructuring charges primarily include severance pay, certain professional
fees and other related costs. The other related charges relate primarily to
professional fees. Details of the Omnicare Full Potential Plan restructuring
and other related charges follow (pretax, in thousands):

|                                              |  |                             |        |                          |   |                                   |   |   |       | 
|--------------------------------------------- |  | --------------------------- | ------ | ------------------------ | - | --------------------------------- | - | - | ----- | 
|                                              |  | 2006
  Provision/
  Accrual |        | Utilized
  during
  2006 |   | Balance at
  September 30,
  2006 |  
|                                              |  |                             |        |                          |   |                                   |  
|Restructuring charges:                        |  |                             |        |                          |   |                                   |   |   |       | 
|Employee severance                            |  | $                           | 5,686  |                          | $ | (2,261                            | ) | $ | 3,425 | 
|Lease terminations                            |  |                             | 257    |                          |   | (17                               | ) |   | 240   | 
|Other assets, fees and facility exit
costs    |  |                             | 2,021  |                          |   |                                  |   |   | 2,021 | 
|                                              |  |                             |        |                          |   |                                   |   |   |       | 
|Total restructuring charges                   |  |                             | 7,964  |                          | $ | (2,278                            | ) | $ | 5,686 | 
|                                              |  |                             |        |                          |   |                                   |   |   |       | 
|                                              |  |                             |        |                          |   |                                   |   |   |       | 
|Other related charges                         |  |                             | 4,661  |                          |   |                                   |   |   |       | 
|                                              |  |                             |        |                          |   |                                   |   |   |       | 
|Total restructuring and other related charges |  | $                           | 12,625 |                          |   |                                   |   |   |       | 
|                                              |  |                             |        |                          |   |                                   |   |   |       | 

As
of September 30, 2006, the Company had paid approximately $2.3 million of
severance and other employee-related costs. The remaining liabilities at
September 30, 2006 represent amounts not yet paid relating to actions taken in
connection with the program (primarily severance payments and professional
fees) and will be settled as these matters are finalized. The provision/accrual
and corresponding payment amounts relating to employee severance are being
accounted for in accordance with SFAS No. 112 Employers Accounting for
Postemployment Benefits.

2005
Program

In
the third quarter of 2005, the Company announced the implementation of certain
consolidation plans and other productivity initiatives to streamline pharmacy
services and contract research organization operations, including maximizing
workforce and operating asset utilization, and producing a more cost-efficient,
operating infrastructure (the 2005 Program). These consolidation and
productivity initiatives were related, in part, to the integration of
NeighborCare. Given the geographic overlap of the NeighborCare and Omnicare
pharmacies, substantial opportunities for consolidation existed at the time of
acquisition. While the majority of consolidations resulted in NeighborCare
pharmacies being consolidated into Omnicare pharmacies, depending on location,
capacity and operating performance, certain Omnicare pharmacies were also
identified for consolidation into NeighborCare locations. Additionally, as part
of the evaluation process on how best to integrate the two organizations, the
Company also focused broadly on ways to lower operating infrastructure costs to
maximize efficiencies and asset utilization and identified opportunities to
right-size the business, streamline operations and eliminate redundant assets.
This portion of the consolidation activity and other productivity initiatives
resulted in the closure of 29 Omnicare facilities, of which 26 were pharmacy
operations. There is a net reduction in force of approximately 900 positions
relating to the 2005

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Program. Of
this reduction in force, approximately 96% were in the pharmacy operations and
the remaining reductions were at the corporate headquarters or the Companys
contract research operations. Substantially all of these positions have been
eliminated as of September 30, 2006. Restructuring activities in the contract
research organization segment related primarily to facility lease obligations.

In
connection with this program, these particular consolidation and productivity
initiatives were substantially completed as of September 30, 2006. The Company
has generated in excess of $40 million in pretax savings from pharmacy closures
and other consolidation and productivity initiatives implemented in connection
with these activities. These initiatives required total restructuring and other
related charges of approximately $31 million before taxes, which related to the
costs associated with the consolidation of Omnicare pharmacies and the other
consolidation and productivity initiatives described above. The Company
recorded restructuring and other related charges of approximately $19 million
pretax (approximately $12 million aftertax) during the year ended December 31,
2005. Additionally, the Company recorded restructuring and other related
charges of approximately $1 million and $12 million pretax (approximately $0.6
million and $7.7 million aftertax) during the three and nine months ended
September 30, 2006, respectively.

The
restructuring charges primarily included severance pay, the buy-out of
employment agreements, lease terminations and other assets, fees and facility
exit costs. The other related charges consisted of professional fees associated
with certain productivity initiatives. Details of the 2005 Program
restructuring and other related charges follow (pretax, in thousands):

|                                              |  |                                  |        |                             |   |                          |  |                                   |         |   |   |        | 
|--------------------------------------------- |  | -------------------------------- | ------ | --------------------------- | - | ------------------------ |  | --------------------------------- | ------- | - | - | ------ | 
|                                              |  | Balance at
  December 31,
  2005 |        | 2006
  Provision/
  Accrual |   | Utilized
  during
  2006 |  | Balance at
  September 30,
  2006 |        
|                                              |  |                                  |        |                             |   |                          |  |                                   |        
|Restructuring charges:                        |  |                                  |        |                             |   |                          |  |                                   |         |   |   |        | 
|Employee severance                            |  | $                                | 2,809  |                             | $ | 2,027                    |  | $                                 | (2,905  | ) | $ | 1,931  | 
|Employment agreement buy-outs                 |  |                                  | 734    |                             |   | 1,459                    |  |                                   | (1,778  | ) |   | 415    | 
|Lease terminations                            |  |                                  | 9,833  |                             |   | 3,077                    |  |                                   | (4,302  | ) |   | 8,608  | 
|Other assets, fees and facility exit
costs    |  |                                  | 1,335  |                             |   | 3,003                    |  |                                   | (2,627  | ) |   | 1,711  | 
|                                              |  |                                  |        |                             |   |                          |  |                                   |         |   |   |        | 
|Total restructuring charges                   |  | $                                | 14,711 |                             |   | 9,566                    |  | $                                 | (11,612 | ) | $ | 12,665 | 
|                                              |  |                                  |        |                             |   |                          |  |                                   |         |   |   |        | 
|                                              |  |                                  |        |                             |   |                          |  |                                   |         |   |   |        | 
|Other related charges                         |  |                                  |        |                             |   | 2,530                    |  |                                   |         |   |   |        | 
|                                              |  |                                  |        |                             |   |                          |  |                                   |         |   |   |        | 
|Total restructuring and other related charges |  |                                  |        |                             | $ | 12,096                   |  |                                   |         |   |   |        | 
|                                              |  |                                  |        |                             |   |                          |  |                                   |         |   |   |        | 

As
of September 30, 2006, the Company had paid approximately $7.2 million of
severance and other employee-related costs. The remaining liabilities at
September 30, 2006 represent amounts not yet paid relating to actions taken in
connection with the program (primarily severance payments and lease payments)
and will be settled as these matters are finalized.

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|                                                      
|------------------------------------------------------
|FINANCIAL
  CONDITION, LIQUIDITY AND CAPITAL RESOURCES
|                                                      

Cash
and cash equivalents at September 30, 2006 were $292.6 million compared with
$218.1 million at December 31, 2005 (including restricted cash amounts of $13.3
million and $2.7 million, respectively).

The
  Company generated positive net cash flows from operating activities of $212.7
  million during the nine months ended September 30, 2006, compared with net cash
  flows from operating activities of $175.3 million during the nine months ended
  September 30, 2005. Compared to the same prior-year period, cash flow from operating
  activities was impacted by an increase in accounts receivable primarily due
  to increased revenue, and administrative and payment issues associated with
  the implementation of the new Medicare Part D drug benefit. This unfavorable
  impact was partially offset by the first quarter 2006 return of a $38.3 million
  deposit from one of the Companys drug wholesalers. Cash flow from operations
  for the quarter ended September 30, 2006 also included the return of a $44.0
  million deposit from another of the Companys drug wholesalers in connection
  with a change in terms to more frequent, weekly payments. The impact of these
  more frequent payments on cash flow in the third quarter of 2006 slightly more
  than offset the $44.0 million return of the deposit. Cash flow in the prior-year
  period was unfavorably impacted by approximately $39.7 million owing to a broad-based
  slowdown in receipts from the Illinois Department of Public Aid (Illinois Medicaid).
  Operating cash flows, as well as proceeds from the issuance of common stock,
  were used primarily for acquisition-related payments, capital expenditures,
  dividend payments, debt payments and to increase the Companys cash position
  as compared with December 31, 2005. The Company paid $42 million in October
  2006 related to the previously discussed voluntary Settlement Agreement with
  the State of Michigan announced on October 5, 2006. In addition, the Company
  anticipates making payments of approximately $51 million in the fourth quarter
  of 2006 related to the previously recorded reserve associated with the aforementioned
  drug substitution matters. There can be no assurance, however, that the settlement will
  be finalized or any settlement amounts will be paid in the Companys fourth quarter.

Net
cash used in investing activities was $105.1 million and $2,586.9 million for
the nine months ended September 30, 2006 and 2005, respectively. Acquisitions
of businesses required cash payments of $71.4 million (including amounts
payable pursuant to acquisition agreements relating to pre-2006 acquisitions)
in 2006, which were primarily funded by proceeds from the issuance of common
stock and operating cash flows. Acquisitions of businesses during the first
nine months of 2005 required $2,566.3 million of cash payments (including
amounts payable pursuant to acquisition agreements relating to pre-2005
acquisitions), which were primarily funded by long-term debt borrowings, the
issuance of common stock and operating cash flows. Omnicares capital
requirements, in addition to the payment of debt and dividends, are primarily
comprised of its acquisition program and capital expenditures, largely relating
to investments in the Companys information technology systems.

Net
cash used in financing activities was $45.1 million for the nine months ended
September 30, 2006 as compared to net cash provided by financing activities of
$2,532.6 million for the comparable prior-year period. During the nine months
ended September 30, 2006, the Company paid down $100 million on the Companys
senior term A loan facility, maturing on July 28, 2010 (the Term Loans).
Borrowings during the nine months ended September 30, 2005 were primarily
related to the Company entering into the new $3.4 billion Credit Agreement as
further discussed in the 2005 Refinancing section of the Disclosures About
Aggregate Contractual Obligations and Off-Balance Sheet Arrangements section
of this MD&A. In

65

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January 2006,
the underwriters of the common stock offering completed by the Company in
December 2005 exercised their option, in part, to purchase an additional
850,000 shares of common stock at $59.72 per share, for gross cash proceeds of
approximately $51 million. Additional borrowings of long-term debt totaled
approximately $42 million during the nine months ended September 30, 2005 and,
as previously stated, were largely used for payments relating to the
acquisition of businesses.

At
September 30, 2006, there were no outstanding borrowings under the $800 million
revolving credit facility, and $600 million in borrowings were outstanding
under the senior term A loan facility due 2010. As noted above, the Company
repaid $100 million of the Term Loans during the quarter ended September 30,
2006. As of September 30, 2006, the Company had approximately $23.3 million
outstanding relating to standby letters of credit, substantially all of which
are subject to automatic annual renewals.

In
addition, at December 31, 2005, the contingent threshold of the Old Trust PIERS
and the New Trust PIERS had been attained. Accordingly, the Old 4.00%
Debentures and the New 4.00% Debentures were convertible as of December 31,
2005, to cash and Omnicare common stock, and were classified as current versus
long-term debt on the December 31, 2005 consolidated balance sheet. As of
September 30, 2006, the aforementioned contingent threshold had not been met
and, accordingly, the Old 4.00% Debentures and the New 4.00% Debentures have
been classified as long-term debt on the September 30, 2006 consolidated
balance sheet. See further discussion at the Disclosures About Contractual
Obligations and Off-Balance Sheet Arrangements section of this MD&A.

Aggregate
dividends of $2.7 million and $8.2 million for the three and nine months ended
September 30, 2006, respectively, were modestly higher than the comparable
prior period amounts of $2.4 million and $7.1 million, respectively, due to the
late 2005 and early 2006 common stock offering, as further discussed at the
Public Offering of Common Stock note of the Notes to Consolidated Financial
Statements.

There
were no known material commitments and contingencies outstanding at September
30, 2006, 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 provisions that may become payable, and the matters
discussed in the Commitments and Contingencies note of the Notes to Consolidated
Financial Statements, and the Legal Proceedings section at Part II, Item 1 of
this Filing.

The
Company believes that net cash flows from operating activities, credit
facilities and other short- and long-term debt financings will be sufficient to
satisfy its future working capital needs, acquisition contingency commitments,
debt servicing, capital expenditures and other financing requirements for the
foreseeable future. Although the Company has no current plans to refinance its
indebtedness, issue additional indebtedness, or issue additional equity, the
Company believes that external sources of financing are readily available and
will access them as deemed appropriate (although 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:

|                                                                    |  |       |           |                    |   |           |  |           |         |                 |   |         |  |   |           | 
|------------------------------------------------------------------- |  | ----- | --------- | ------------------ | - | --------- |  | --------- | ------- | --------------- | - | ------- |  | - | --------- | 
|                                                                    |  | Total |           | Less Than 1
  Year |   | 1-3 Years |  | 4-5 Years |         | After 5
  Years |  
|                                                                    |  |       |           |                    |   |           |  |           |         |                 |  
|                                                                    |  |       |           |                    |   |           |  |           |         |                 |  
|Debt obligations(a)                                                 |  | $     | 2,975,564 |                    | $ |          |  | $         |        |                 | $ | 644,839 |  | $ | 2,330,725 | 
|Capital lease obligations(a)                                        |  |       | 16,051    |                    |   | 6,882     |  |           | 6,101   |                 |   | 1,951   |  |   | 1,117     | 
|Operating lease obligations                                         |  |       | 185,072   |                    |   | 45,573    |  |           | 65,348  |                 |   | 35,878  |  |   | 38,273    | 
|Purchase obligations(b)                                             |  |       | 89,009    |                    |   | 86,009    |  |           | 3,000   |                 |   |        |  |   |          | 
|Other current obligations(c)                                        |  |       | 368,374   |                    |   | 368,374   |  |           |        |                 |   |        |  |   |          | 
|Other long-term obligations(d)                                      |  |       | 277,789   |                    |   |          |  |           | 110,245 |                 |   | 47,308  |  |   | 120,236   | 
|                                                                    |  |       |           |                    |   |           |  |           |         |                 |   |         |  |   |           | 
|Subtotal                                                            |  |       | 3,911,859 |                    |   | 506,838   |  |           | 184,694 |                 |   | 729,976 |  |   | 2,490,351 | 
|Future interest relating to debt and
  capital lease obligations(e) |  |       | 1,992,532 |                    |   | 152,897   |  |           | 304,731 |                 |   | 256,145 |  |   | 1,278,759 | 
|                                                                    |  |       |           |                    |   |           |  |           |         |                 |   |         |  |   |           | 
|Total contractual cash obligations                                  |  | $     | 5,904,391 |                    | $ | 659,735   |  | $         | 489,425 |                 | $ | 986,121 |  | $ | 3,769,110 | 
|                                                                    |  |       |           |                    |   |           |  |           |         |                 |   |         |  |   |           | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The noted
  obligation amounts represent the principal portion of the associated debt
  obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(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 and the obligation
  associated with the interest rate Swap Agreement discussed below.                                                                                                                                                                                                                                                                                                                                                                       
|   
|(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. 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.

As
of September 30, 2006, the Company had approximately $23.3 million outstanding
relating to standby letters of credit, substantially all of which are subject
to automatic annual renewals.

2005 Refinancing

During
the latter half of 2005, the Company entered into a new $3.4 billion Credit
Agreement (Credit Agreement) consisting of a $1.9 billion 364-day loan
facility, with original maturity dates spanning from July 26, 2005 through
August 17, 2005 (the 364-Day Loans), a five year $800 million revolving
credit facility, maturing on July 28, 2010 (the Revolving Loans) and the Term
Loans. Interest on the outstanding balances of the 364-Day Loans was payable,
at the Companys option, (i) at a Eurodollar Base Rate (as defined in the
Credit

67

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Agreement)
plus a margin of 0.75% or (ii) at an Alternate Base Rate (as defined in the
Credit Agreement). The 364-Day Loans were drawn at various intervals during the
third quarter of 2005, with each separate borrowing having a slightly different
interest rate based on the timing of the borrowing. The 364-Day Loans were
repaid in full with proceeds from a major refinancing completed in late 2005
and terminated, as further described below. Interest on the outstanding
balances of the Revolving Loans and the Term Loans is payable, at the Companys
option, (i) at a Eurodollar Base Rate plus a margin based on the Companys
senior unsecured long-term debt securities rating and the Companys
Capitalization Ratio (as defined in the Credit Agreement), that can range from
0.50% to 1.75%, or (ii) at an Alternate Base Rate. The interest rate on the Term
Loans was 6.08% at September 30, 2006. The Credit Agreement requires the
Company to comply with certain financial covenants, including a minimum
consolidated net worth and a minimum fixed charges coverage ratio, and
customary affirmative and negative covenants.

The
Company primarily used the net proceeds from the Credit Agreement to repay
amounts outstanding, as of July 28, 2005, under the Companys old term A loan
of $123.1 million and old revolving credit facility of $181 million, and for
the acquisitions of NeighborCare, excelleRx and RxCrossroads. As of September
30, 2006, there was no amount drawn under the Revolving Loans and $600 million
outstanding under the Term Loans due 2010. The Company repaid $100 million of
the Term Loans during the quarter ended September 30, 2006. As of September 30,
2006, the Company had approximately $23.3 million outstanding relating to
standby letters of credit, substantially all of which are subject to automatic
annual renewals.

In
connection with the execution of the new Credit Agreement, the Company has
deferred debt issuance costs of $11.7 million, of which approximately $0.7
million and $1.9 million was amortized in the three and nine months ended
September 30, 2006, respectively.

On
December 15, 2005, the Company completed its offering of $225 million aggregate
principal amount of 6.75% senior subordinated notes due 2013 (the 6.75% Senior
Notes), and its offering of $525 million aggregate principal amount of 6.875%
senior subordinated notes due 2015 (the 6.875% Senior Notes). In connection
with the issuance of the 6.75% Senior Notes and the 6.875% Senior Notes, the
Company has deferred $15.0 million of debt issuance costs, of which
approximately $0.4 million and $1.2 million was amortized in the three and nine
months ended September 30, 2006, respectively.

On
December 15, 2005, Omnicare also completed its offering of $977.5 million
aggregate principal amount of 3.25% convertible senior debentures due 2035 (the
3.25% Convertible Debentures), including the exercise in full by the
underwriters of their option to purchase additional 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 and in certain other circumstances.
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. The

68

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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 by a third-party advisor, and at September 30, 2006, the values of
the derivatives were not material. However, the values are subject to change, based
on market conditions, which could affect the Companys future financial
position, cash flows and results of operations. In connection with the issuance
of the 3.25% Convertible Debentures, the Company has deferred $26.4 million of
debt issuance costs, of which approximately $0.7 million and $2.0 million was
amortized in the three and nine months ended September 30, 2006, respectively.

Also
on December 15, 2005, the Company completed an offering of 12,825,000 shares of
common stock (not including the underwriters option to purchase additional
shares), $1 par value, at $59.72 per share for gross proceeds of approximately
$766 million (the 2005 Common Stock Offering). In January 2006, the
underwriters exercised their option, in part, to purchase an additional 850,000
shares of common stock at $59.72 for additional gross proceeds of approximately
$51 million.

On
December 5, 2005, Omnicare commenced a tender offer (the Tender Offer) for
cash to purchase any and all of the $375 million outstanding principal amount
of its 8.125% senior subordinated notes due 2011 (the 8.125% Senior Notes),
originally issued, at par value, in 2001. In connection with the Tender Offer,
the Company solicited consents to effect certain proposed amendments to the
indenture governing the 8.125% Senior Notes. On December 16, 2005 (the Consent
Payment Deadline), tenders and consents had been received with respect to
$366.2 million aggregate principal amount of the 8.125% Senior Notes
(approximately 98% of the total outstanding principal amount). The total
consideration, excluding accrued and unpaid interest, for each $1,000 principal
amount of 8.125% Senior Notes validly tendered prior to December 16, 2005 was
$1,048.91, which included a $20 consent payment. Subsequent to the Consent
Payment Deadline and December 31, 2005, and prior to the Tender Offer
expiration of midnight, New York City time, on January 3, 2006, an additional
$0.6 million aggregate principal amount was validly tendered. The total consideration,
excluding accrued and unpaid interest, for each $1,000 principal amount of
8.125% Senior Notes validly tendered subsequent to the Consent Payment Deadline
and prior to expiration was $1,028.91, which did not include a $20 consent
payment. As of September 30, 2006, approximately $8.2 million of the 8.125%
Senior Notes remained outstanding. During October 2006, the Company purchased
all of the remaining $8.2 million of the 8.125% Senior Notes.

The
Company had additional borrowings of long-term debt during the nine months
ended September 30, 2005 approximating $42 million, primarily consisting of a
note payable carrying a five-year term and a variable interest rate, listed at
5.75% per annum as of September 30, 2006.

4.00% Junior Subordinated Convertible Debentures

During
the first quarter of 2005, Omnicare completed its offer to exchange up to $345
million aggregate liquidation amount of 4.00% Trust Preferred Income Equity
Redeemable

69

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Securities
(the Old Trust PIERS) of the Omnicare Capital Trust I (the Old Trust), for
an equal amount of the New Trust PIERS of 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 (twenty trading days out of thirty trading days prior to quarter-end), beginning with the quarter ending
September 30, 2003, is more than 130% of the then-applicable conversion price
(or $53.07) 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) and in certain other circumstances. 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. 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 valued periodically by a third-party advisor, and at September
30, 2006, 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 financial position, cash
flows and results of operations. 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 offering 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 approximately 96.7% of
the total liquidation amount of the Old Trust PIERS outstanding) for an equal
amount of New Trust PIERS of the New Trust 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 New 4.00% 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 New 4.00%
Debentures outstanding.

70

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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).

At
December 31, 2005, the aforementioned contingent threshold of the Old Trust
PIERS and the New Trust PIERS had been attained. Accordingly, the Old 4.00%
Debentures and the New 4.00% Debentures were convertible as of December 31,
2005, to cash and Omnicare common stock, and were classified as current versus
long-term debt on the December 31, 2005 consolidated balance sheet. As of
September 30, 2006, the aforementioned contingent threshold had not been met
and, accordingly, the Old 4.00% Debentures and the New 4.00% Debentures have
been classified as long-term debt on the September 30, 2006 consolidated
balance sheet.

In
connection with the issuance of the Old 4.00% Debentures and the New 4.00%
Debentures, the Company has deferred $11.1 million in debt issuance costs, of
which approximately $0.1 million and $0.3 million was amortized in the three
and nine months ended September 30, 2006 and 2005, respectively. As previously
disclosed, the nine months ended September 30, 2005 included a special charge
to operating expenses totaling $1.2 million pretax in connection with
professional fees and expenses incurred relating to the issuance of the New
Trust PIERS.

The
Credit Agreement, the 8.125% Senior Notes, the 6.125% senior subordinated
notes, due 2013 (6.125% Senior Notes), the 6.75% Senior Notes, the 6.875%
Senior Notes, the Old and New 4.00% Debentures, and the 3.25% Convertible
Debentures contain representations and warranties, covenants and events of
default customary for such facilities. Interest rates charged on borrowings
outstanding under the Credit Agreement are based on prevailing market rates as
further discussed in the Quantitative and Qualitative Disclosures About Market
Risk section below.

Off-Balance
Sheet Arrangements:

As
of period end, the Company had two unconsolidated entities, the Old Trust and
the New Trust, which were established for the purpose of facilitating the
offerings of the Old Trust PIERS and 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 New 4.00% 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 on Omnicares consolidated balance sheet, and the related
disclosures concerning the Old Trust PIERS and the New Trust PIERS, the
guarantees and the Old 4.00% Debentures and New 4.00% Debentures are included
in Omnicares 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 period end, 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.

71

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Critical Accounting Policies

Stock-Based
Compensation

Effective
January 1, 2006, the Company adopted the provisions of SFAS 123R, which
replaced SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123) and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees (APB
25). Prior to the adoption of SFAS 123R, the Company accounted for stock
incentive plans under the recognition and measurement principles of APB 25, and
related Interpretations (intrinsic value method). As a result, no stock-based
employee compensation cost for stock options was reflected in net income. As
further described in the Recently Issued Accounting Standards section of this
MD&A, and in the Stock-Based Employee Compensation note of the Notes to
the Consolidated Financial Statements, SFAS 123R requires the Company to record
compensation costs relating to share-based payment transactions in its
financial statements. Under the fair value recognition provisions of SFAS 123R,
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).

The
Company currently 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, as further discussed below. 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 stock options granted are expected to be outstanding
and is estimated based on historical stock option exercise experience. The
expected volatility is based 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. Considering the importance of each of
the above assumptions in the calculation of fair value, the Company re-evaluates
the estimate of these assumptions on a quarterly basis. While the Company
believes its stock option fair value calculations are materially accurate, a
one percentage point change in any of the individual aforementioned
assumptions, holding all other assumptions constant, would not have a material
impact on the fair value calculated by 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 and
financial condition. Omnicares primary collection risk generally relates to
facility, private pay and Part D customers. The Company provides a reserve for accounts
receivable that could become uncollectible by

72

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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 on an
ongoing basis for appropriateness. Judgment is used to assess the
collectibility of account balances and the economic ability of customers to
pay.

The
Company computes and monitors its accounts receivable days sales outstanding
(DSO) in order to evaluate the liquidity and collection patterns of its
accounts receivable. DSO is calculated by averaging the beginning and end of
quarter accounts receivable, less contractual allowances and the allowance for
doubtful accounts, to derive average accounts receivable; and dividing
average accounts receivable by the sales amount (excluding reimbursable
out-of-pockets) for the related quarter. The resultant percentage is multiplied
by 92 days to derive the DSO amount. Omnicares DSO was approximately 84 days
at September 30, 2006, which was higher than the December 31, 2005 DSO of
approximately 72 days largely due to the shift in payor mix from Medicaid to
Medicare Part D. The allowance for doubtful accounts as of September 30, 2006
was $179.1 million compared with $169.4 million at December 31, 2005. These
allowances for doubtful accounts represent 10.9% and 11.8% of gross receivables (net of contractual
allowances) as of September 30, 2006 and December 31, 2005, respectively. While
there have been no significant changes in the Companys bad debt expensing during the period ended September 30,
2006, unforeseen changes to future allowance for doubtful accounts percentages
could materially impact the overall financial results and/or financial position
of the Company. For example, a one percentage point increase in the allowance
for doubtful accounts as a percentage of gross receivables (net of contractual
allowances) as of September 30, 2006 would result in an increase to the
allowance for doubtful accounts, as well as bad debt expense, of approximately
$16.5 million pretax.

The
following table is an aging of the Companys September 30, 2006 and December
31, 2005 gross accounts receivable (net of allowances for contractual
adjustments, and prior to allowances for doubtful accounts), aged based on
payment terms and categorized based on the four primary overall types of
accounts receivable characteristics (in thousands):

|                                                                             |  |                                     |           |                                |   |         |  |   |           | 
|---------------------------------------------------------------------------- |  | ----------------------------------- | --------- | ------------------------------ | - | ------- |  | - | --------- | 
|                                                                             |  | September 30, 2006                  |          
|                                                                             |  |                                     |          
|                                                                             |  | Current and
  0-180 Days
  Past Due |           | 181 Days and
  Over
  Past Due |   | Total   | 
|                                                                             |  |                                     |           |                                |   |         | 
|Medicaid, Medicare Part B, Medicare Part D and Third-Party
payors            |  | $                                   | 513,800   |                                | $ | 72,326  |  | $ | 586,126   | 
|Facility payors                                                              |  |                                     | 554,785   |                                |   | 223,765 |  |   | 778,550   | 
|Private Pay payors                                                           |  |                                     | 164,612   |                                |   | 100,200 |  |   | 264,812   | 
|CRO                                                                          |  |                                     | 17,755    |                                |   | 259     |  |   | 18,014    | 
|                                                                             |  |                                     |           |                                |   |         |  |   |           | 
|Total gross accounts receivable (net of contractual allowance
  adjustments) |  | $                                   | 1,250,952 |                                | $ | 396,550 |  | $ | 1,647,502 | 
|                                                                             |  |                                     |           |                                |   |         |  |   |           | 

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|                                                                             |  |                                     |           |                                |   |         |  |   |           | 
|---------------------------------------------------------------------------- |  | ----------------------------------- | --------- | ------------------------------ | - | ------- |  | - | --------- | 
|                                                                             |  | December 31, 2005                   |          
|                                                                             |  |                                     |          
|                                                                             |  | Current and
  0-180 Days
  Past Due |           | 181 Days and
  Over
  Past Due |   | Total   | 
|                                                                             |  |                                     |           |                                |   |         | 
|Medicaid, Medicare Part B and Third-Party payors                             |  | $                                   | 409,383   |                                | $ | 37,883  |  | $ | 447,266   | 
|Facility payors                                                              |  |                                     | 549,186   |                                |   | 170,752 |  |   | 719,938   | 
|Private Pay payors                                                           |  |                                     | 171,907   |                                |   | 71,740  |  |   | 243,647   | 
|CRO                                                                          |  |                                     | 18,816    |                                |   | 357     |  |   | 19,173    | 
|                                                                             |  |                                     |           |                                |   |         |  |   |           | 
|Total gross accounts receivable (net of contractual allowance
  adjustments) |  | $                                   | 1,149,292 |                                | $ | 280,732 |  | $ | 1,430,024 | 
|                                                                             |  |                                     |           |                                |   |         |  |   |           | 

Legal
Contingencies

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

|                            
|----------------------------
|DILUTED
  EARNINGS PER SHARE
|                            

In
  October 2004, the Financial Accounting Standards Board (FASB) ratified
  EITF No. 04-8, which requires the shares underlying contingently convertible
  debt instruments to be included in diluted earnings per share computations using
  the if-converted accounting method, regardless of whether the market
  price threshold has been attained. Under that method, the convertible debentures
  are assumed to be converted to common shares (weighted for the number of days
  assumed to be outstanding during the period), and interest expense, net of taxes,
  related to the convertible debentures is added back to net income. As further
  discussed in the Debt note of the Notes to Consolidated Financial
  Statements, the Company completed the exchange offer relating to the 4.00% junior
  subordinated convertible debentures on March 8, 2005. Accordingly, the effect
  of EITF No. 04-8 on the Companys 2005 earnings results was to decrease
  diluted earnings per share by $0.02 for the nine months ended September 30,
  2005 (primarily relating to the period from January 1, 2005 through the exchange
  offering completion date of March 8, 2005). For purposes of the if-converted
  calculation, 2.8 million shares were assumed to be converted for the nine months
  ended September 30, 2005. Additionally, interest expense net of taxes, of $1.9
  million for the nine months ended September 30, 2005, was added back to net
  income for purposes of calculating diluted earnings per share using this method.
  There was no impact relating to this change on reported diluted earnings per
  share for the three months ended September 30, 2005 or the three and nine months
  ended September 30, 2006. See further discussion of the trust PIERS exchange
  offering in the Disclosures About Aggregate Contractual Obligations and
  Off-Balance Sheet Arrangements section of this MD&A.

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|                                      
|--------------------------------------
|RECENTLY
  ISSUED ACCOUNTING STANDARDS
|                                      

In
December 2004, the FASB issued SFAS 123R which the Company adopted effective
January 1, 2006. This statement requires the Company to record compensation
costs relating to equity-based payments in its financial statements. Under the
fair value recognition provisions of SFAS 123R, equity-based compensation cost
is estimated at the grant date based on the value of the award and is
recognized as expense ratably over the requisite service period of the award
(usually the vesting period). The Company elected the modified prospective
application method of implementing SFAS 123R, which requires that SFAS 123R be
applied to all new awards whose inception date follows the effective date of
January 1, 2006, and all existing awards modified, repurchased or cancelled
after January 1, 2006. In addition, this method requires compensation cost for
the portion of awards for which service has not been rendered (i.e., nonvested
portion) and were outstanding as of January 1, 2006. In accordance with the
modified prospective method, the Companys Consolidated Financial Statements
for prior periods have not been restated to reflect the adoption of SFAS 123R.
Prior to January 1, 2006, the Company accounted for stock incentive plans under
the recognition and measurement provisions of APB 25, and related
Interpretations (intrinsic value method). As a result, no stock-based employee
compensation cost for stock options was reflected in net income, as all options
granted under the plans had an exercise price equal to or greater than the
market value of the underlying common stock upon grant. Operating income for
the three and nine months ended September 30, 2006 includes additional
equity-based compensation expense for stock options and stock awards of
approximately $1.0 million and $6.1 million pretax ($0.6 million and $3.8
million aftertax), respectively, related to the adoption of SFAS 123R. As of
September 30, 2006, there was approximately $83 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 4.9 years. Omnicare currently expects
the dilutive impact of this new standard on its financial results for the full
year 2006 to reduce diluted earnings per share by approximately $0.04, based on
the nine months ended September 30, 2006 actual experience and outstanding
stock options and restricted stock awards at September 30, 2006. To the extent
that any new stock options or stock awards are granted subsequent to September
30, 2006, the estimated dilutive impact to Omnicares 2006 diluted earnings per
share and thereafter would change accordingly.

In
February 2006, the FASB issued SFAS No. 155 (SFAS 155), Accounting for
Certain Hybrid Financial Instruments which nullifies and amends various
accounting guidance related to accounting for derivative instruments and
securitization transactions. The intent of this guidance is primarily to reduce
operational complexity associated with bifurcating embedded derivatives, among
other items. SFAS 155 is effective for new instruments issued by the Company
beginning January 1, 2007. The Company currently does not expect that the
adoption of SFAS 155 will have a material impact on its consolidated financial
position, results of operations or cash flows.

In
July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting
for Uncertainty in Income Taxes which clarifies the accounting of uncertainty in
income taxes recognized in an enterprises financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes. The intent of this
guidance is primarily to prescribe a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 is effective

75

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for fiscal
years beginning after December 15, 2006. The Company is currently evaluating
the impact of this statement but does not expect that the adoption of FIN 48
will have a material impact on its consolidated financial position, results of
operations or cash flows.

In
October 2006, the FASB issued Statement of Financial Accounting Standards No.
158 (SFAS 158), Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans which improves financial reporting by requiring an
employer to recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of a
business entity. This Statement also improves financial reporting by requiring
an employer to measure the funded status of a plan as of the date of its
year-end statement of financial position, with limited exceptions. FAS 158 is
effective for the Company as of December 31, 2006. The Company currently uses
December 31 as its measurement date. The Company is currently in the process of
gathering information, including the finalization of the actuarial assumptions
to be utilized in its December 31, 2006 pension obligation calculations, to
evaluate the full impact of this statement. However, if the Company had adopted
SFAS 158 as of December 31, 2005, the impact would have been an increase in the
minimum pension liability and corresponding charge to other comprehensive
income of approximately $15 million.

|                                                                                                                          
|--------------------------------------------------------------------------------------------------------------------------
|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, pharmaceutical and contract
research industries; the ability to attract new clients and service contracts
and retain existing clients and service contracts; the ability to consummate
pending acquisitions; trends for the continued growth of the Companys
businesses; trends in drug pricing; delays and reductions in reimbursement by
the government and other payors to customers and to the Company; the overall
financial condition of the Companys customers and the ability of the Company
to assess and react to such financial condition of its 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; the demand for the Companys products and services;
variations in costs or expenses; the ability to implement productivity,

76

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consolidation
and cost reduction efforts and to realize anticipated benefits; the ability of
clinical research projects to produce revenues in future periods; the potential
impact of legislation, government regulations, and other government action
and/or executive orders, including those relating to Medicare Part D, including
its implementing regulations and any subregulatory guidance, reimbursement and
drug pricing policies and changes in the interpretation and application of such
policies; 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; the
outcome of litigation; potential liability for losses not covered by, or in
excess of, insurance; the impact of differences in actuarial assumptions and
estimates as compared to eventual outcomes; events or circumstances which
result in an impairment of assets, including but not limited to, goodwill;
market conditions; the outcome of audit, compliance, administrative 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. 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Omnicares
primary market risk exposure relates to variable interest rate risk through its
borrowings. Accordingly, market risk loss is primarily defined as the potential
loss in earnings due to higher interest rates on variable-rate debt of the
Company. The modeling technique used by Omnicare for evaluating interest rate
risk exposure involves performing sensitivity analysis on the variable-rate
debt, assuming a change in interest rates of 100 basis-points. The Companys
debt obligations at September 30, 2006 include $600 million outstanding under
the variable-rate term A loan at an interest rate of 6.08% at September 30,
2006 (a 100 basis-point change in the interest rate would increase or decrease
pretax interest expense by approximately $6.0 million per year); $44.8 million
borrowed on a variable-rate term loan at an interest rate of 5.75% at September
30, 2006 (a 100 basis-point change in the interest rate would increase or
decrease pretax interest expense by approximately $0.4 million per year); $8.2
million outstanding under its fixed-rate 8.125% Senior Notes, due 2011; $250
million outstanding under its fixed-rate 6.125% Senior Notes, due 2013; $225
million outstanding under its fixed-rate 6.75% Senior Notes, due 2013; $525
million outstanding under its fixed-rate 6.875% Senior Notes, due 2015; $345
million outstanding under its fixed-rate 4.00% Convertible Debentures, due
2033; and $977.5 million outstanding under its fixed-rate 3.25% Convertible
Debentures, due 2035 (with an optional repurchase right of holders on December
15, 2015). In connection with its offering of $250.0 million of 6.125% Senior
Notes, during the second quarter of 2003, the Company entered into a Swap
Agreement on all $250.0 million of its aggregate principal amount of the 6.125%
Senior Notes. Under the Swap Agreement, which hedges against exposure to
long-term U.S. dollar interest rates, the Company receives a fixed rate of
6.125%

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and pays a floating rate based on LIBOR with a maturity of nine
  months, plus a spread of 2.27%. The estimated LIBOR-based floating rate (including
  the 2.27% spread) was 7.64% at September 30, 2006 (a 100 basis-point change
  in the interest rate would increase or decrease pretax interest expense by approximately
  $2.5 million per year). The Swap Agreement, which matches the terms of the 6.125%
  Senior Notes, is designated and accounted for as a fair value hedge. The Company
  is accounting for the Swap Agreement in accordance with SFAS No. 133, as amended,
  so changes in the fair value of the Swap Agreement are offset by changes in
  the recorded carrying value of the related 6.125% Senior Notes. The fair value
  of the Swap Agreement of approximately $21 million at September 30, 2006 is
  recorded as a noncurrent liability and a reduction to the book carrying value
  of the related 6.125% Senior Notes. At September 30, 2006, 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 is summarized as follows (in thousands):

Fair Value of Financial Instruments

|                                                             |  |                      |         |                     |   |            |  |              |         |  |   |         | 
|------------------------------------------------------------ |  | -------------------- | ------- | ------------------- | - | ---------- |  | ------------ | ------- |  | - | ------- | 
|                                                             |  | September 30,
  2006 |         | December 31,
  2005 |  
|                                                             |  |                      |         |                     |  
|Financial
  Instrument:                                      |  | Book Value           |         | Market Value        |   | Book Value |  | Market Value |        
|                                                             |  |                      |         |                     |   |            |  |              |        
|                                                            
|8.125% senior subordinated
  notes, due 2011                 |  | $                    | 8,225   |                     | $ | 8,600      |  | $            | 8,775   |  | $ | 9,200   | 
|6.125% senior subordinated notes, due 2013, gross            |  |                      | 250,000 |                     |   | 237,300    |  |              | 250,000 |  |   | 245,600 | 
|6.75% senior subordinated
  notes, due 2013                  |  |                      | 225,000 |                     |   | 219,900    |  |              | 225,000 |  |   | 230,900 | 
|6.875% senior subordinated
  notes, due 2015                 |  |                      | 525,000 |                     |   | 510,600    |  |              | 525,000 |  |   | 538,100 | 
|4.00% junior subordinated
  convertible debentures, due 2033 |  |                      | 345,000 |                     |   | 403,300    |  |              | 345,000 |  |   | 512,800 | 
|3.25% convertible senior
  debentures, due 2035              |  |                      | 977,500 |                     |   | 873,700    |  |              | 977,500 |  |   | 972,000 | 

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

The
Company has operations and revenue that occur outside of the U.S. and
transactions that are settled in currencies other than the U.S. dollar,
exposing it to market risk related to changes in foreign currency exchange
rates. However, the substantial portion of the Companys operations and
revenues and the substantial portion of the Companys 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.

78

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ITEM 4. CONTROLS AND PROCEDURES

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

(b)
There were no changes in the Companys internal control over financial
reporting that occurred during the Companys fiscal quarter ended September 30,
2006 that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.

79

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PART II  OTHER
INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On
  May 18, 2006, an antitrust and fraud action entitled Omnicare, Inc. v. UnitedHealth
  Group, Inc., et al., 2:06-cv-00103-WOB, was filed by the Company in the
  United States District Court for the Eastern District of Kentucky against UnitedHealth
  Group, Inc., PacifiCare Health Systems, Inc., and RxSolutions, Inc. d/b/a Prescription
  Solutions, asserting claims of violations of federal and state antitrust laws,
  civil conspiracy and common law fraud arising out of an alleged conspiracy by
  defendants to illegally and fraudulently coordinate their negotiations with
  the Company for Medicare Part D contracts as part of an effort to defraud the
  Company and fix prices. The complaint seeks, among other things, damages, injunctive
  relief and reformation of certain contracts. On June 5, 2006, the Company filed
  a first supplemental and amended complaint in which it asserted the identical
  claims. On July 10, 2006, the defendants moved to transfer the case to the Northern
  District of Illinois or in the alternative to dismiss the Companys antitrust
  claims because, among other grounds, defendants assert that the Company
  lacks standing to pursue antitrust claims and that defendants were legally unable
  to conspire during the pendency of defendants merger. The Companys
  opposition to the motions was filed with the court on August 11, 2006, and a
  hearing on the motions was held on November 8, 2006. In an order dated November 9, 2006, the defendants’ motion to transfer venue to the United States District Court for the Northern District of Illinois was granted and the motion to dismiss the antitrust claims was denied without prejudice, with leave to refile in the transferee court.

The
Company has received administrative subpoenas from the United States Attorneys
Office, District of Massachusetts, seeking information arising out of the
Companys relationships with certain manufacturers and distributors of
pharmaceutical products and certain customers, as well as with respect to contracts
with certain companies acquired by the Company.  The Company believes that it has complied with all applicable
laws and regulations with respect to these matters.

As
  disclosed in the Companys 2005 Annual Report on Form 10-K, the federal
  government and certain states are investigating allegations relating to three
  generic pharmaceuticals provided by the Company in connection with the substitution
  of capsules for tablets (Ranitidine), tablets for capsules (Fluoxetine) and
  two 7.5 mg tablets for one 15 mg tablet (Buspirone). The Company is cooperating
  fully in these matters. The Company has recorded a special litigation charge
  of $0.4 million and $53.8 million pretax ($0.2 million and $42.8 million aftertax)
  in its financial results for the three and nine months ended September 30, 2006,
  respectively, to establish a settlement reserve relating to the aforementioned
  inquiries by the federal government and certain states relating to three generic
  pharmaceuticals provided by the Company, based on discussions between these
  government representatives, the Company and its legal counsel. The Company anticipates
  making payments of approximately $51 million in the fourth quarter of 2006 related
  to these matters. There can be no assurance, however, that the settlement will
  be finalized or any settlement amounts will be paid in the Companys fourth quarter. This special litigation charge represents the Companys
  current best estimate of the settlement amounts and associated costs under SFAS
  No. 5, Accounting for Contingencies.

On
  July 11, 2006, the Attorney Generals Office in Michigan provided the Companys
  legal counsel with information concerning an investigation that it was conducting
  relating to certain billing issues under the Michigan Medicaid program. On October
  5, 2006, the Company announced that it has entered into a voluntary Settlement
  Agreement with the State of Michigan to resolve certain billing issues under
  the Michigan Medicaid program. The Company also announced that it has reached
  an agreement in principle with the State of Michigan with respect

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to certain hospice claims. The Company cooperated fully with
  the States investigation. The Settlement Agreement does not include any
  finding of wrongdoing or any admission of liability. The Company has recorded
  a special litigation charge of $54.0 million pretax ($46.7 million aftertax)
  in its financial results for the nine months ended September 30, 2006 based
  on the terms of the settlement agreements. The Company paid $42 million related
  to the Michigan settlement in October 2006.

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.  The complaints,
which purport to be brought on behalf of purchasers of Omnicare common stock
from August 3, 2005 through January 27, 2006, allege that Omnicare has
artificially inflated its earnings by engaging in improper generic drug substitution
and that the defendants have made false and misleading statements regarding the
Companys business and prospects.  The
complaints seek, among other things, compensatory damages and injunctive
relief.  On April 3, 2006, Plaintiffs in
the HOD
Carriers case formally moved for consolidation and the appointment
of lead plaintiff and lead counsel pursuant to the Private Securities
Litigation Reform Act of 1995.  On May
22, 2006, that motion was granted, the cases were consolidated, and a lead
plaintiff and lead counsel were appointed.
On July 20, 2006, plaintiffs filed a consolidated amended complaint,
adding a third officer as a defendant and new factual allegations primarily relating
to revenue recognition, the valuation of receivables and the valuation of
inventories.  The Company and the three
officers will file a response to the amended complaint in accordance with the
courts scheduling order.  On October
31, 2006, plaintiffs moved for leave to file a second amended complaint.  The proposed second amended complaint, which
purports to be brought on behalf of all purchasers of Omnicare common stock
from August 3, 2005 through July 27, 2006, seeks to add two members of the
Companys Board of Directors as defendants and a new claim (asserted by a new
proposed plaintiff) 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.  In addition, the proposed second amended
complaint would, among other things, add allegations that the Company failed to
timely disclose its contractual dispute with UnitedHealth Group (see discussion
of the UnitedHealth Group matter above) and failed to timely record certain
special litigation reserves.  Defendants
response to plaintiffs motion for leave to amend is due on or before November
20, 2006.

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.  On April 7, 2006, the defendants moved to
stay all proceedings in both actions pending resolution of the earlier-filed
federal class actions and virtually identical

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derivative action (see discussion of the Irwin matter below)
  pending in the Eastern District of Kentucky. Shortly thereafter, the defendants
  moved to consolidate the Isak and Fragnoli actions, and plaintiffs
  consented to the consolidation. The motion to stay was argued to the court on
  July 27, 2006, and the parties are awaiting a decision on the motion.

On
  March 23, 2006, a shareholder derivative action entitledIrwin v. Gemunder,
  et al., 2:06cv62, was filed in the United States District Court for the
  Eastern District of Kentucky 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 purported improper substitution of generic
  drugs. The complaint seeks, among other things, damages, restitution and injunctive
  relief. On May 26, 2006, the Companys board of directors moved to dismiss
  the complaint for failure to make a pre-suit demand, among other grounds. On
  the day plaintiffs opposition to the motion to dismiss was due, plaintiff
  filed an amended complaint, adding the same new factual allegations as were
  added to the HOD Carriers complaint and a third officer as a defendant.
  On August 3, 2006, plaintiff was ordered by the court to respond to the directors
  May 26, 2006 motion to dismiss by August 14, 2006. Plaintiff complied with this
  order and the motion has been fully briefed as of September 7, 2006. A hearing
  on this motion has been scheduled for November 16, 2006.

On
  September 18, 2006, a second shareholder derivative action entitledGeldzahler
  v. Gemunder, et al.,was filed in United States District Court for the Eastern
  District of Kentucky 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, unjust enrichment
  and for violation of Section 14(a) of the Securities Exchange Act of 1934 arising
  out of the Companys alleged violations of federal and state health care
  laws based primarily upon the purported improper substitution of generic drugs.
  The complaint seeks, among other things, damages, restitution and injunctive
  relief. On October 25, 2006, the board of directors moved to stay the action
  pending resolution of the substantially similar derivative action (see discussion
  of the Irwin matter above) that is also pending before the court.

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

The
three and nine months ended September 30, 2006 included a $9.5 million and
$11.0 million pretax charge ($5.9 million and $6.8 million aftertax),
respectively, for litigation-related professional expenses in connection with
the administrative subpoenas from the United States Attorneys Office, District
of Massachusetts, the purported class and derivative actions and the Companys
lawsuit against United as discussed above.
See further discussion at the Commitments and Contingencies note of
the Notes to Consolidated Financial Statements.

Although
the Company cannot predict the ultimate outcome of the matters described in the
preceding paragraphs, there can be no assurance that the resolution of these
matters will not have a material adverse impact on the Companys consolidated
financial position, results of operations or cash flows or, in the case of the investigations
regarding certain drug substitutions and certain billing issues under the
Michigan Medicaid program, that these matters will be resolved in an amount
that would not exceed the amount of the pretax charges recorded by the Company.

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

ITEM 1A. RISK FACTORS

Our
2005 Annual Report on Form 10-K includes a detailed discussion of our risk
factors. The information presented below updates and should be read in
conjunction with the risk factors and information disclosed in that Form 10-K.

Risks Relating to Our Business

If we or our client facilities
fail to comply with Medicaid and Medicare reimbursement regulations, our
revenue could be reduced, we could be subject to penalties and we could lose
our eligibility to participate in these programs.

Historically,
  approximately one-half of our pharmacy services billings were directly reimbursed
  by government sponsored programs (including Medicaid and, to a lesser extent,
  Medicare). Beginning January 1, 2006, the new prescription drug benefit under
  Medicare Part D became effective. As a result, we experienced a shift in payor
  mix during the quarter ended September 30, 2006 such that payments under Part
  D currently represent approximately 42% of total company revenues. In particular,
  Medicare beneficiaries who are also entitled to benefits under a state Medicaid
  program (so-called dual eligibles), including the nursing home residents
  we serve whose drug costs were previously covered by state Medicaid programs,
  now have their outpatient prescription drug costs covered by the new Medicare
  drug benefit. (In 2005, approximately 46% of our revenue was derived from beneficiaries
  covered under state Medicaid programs.) Under the new Part D benefit, payment
  is determined in accordance with the agreements we have negotiated with the
  Part D Plans. The remainder of our billings are paid or reimbursed by individual
  residents, long-term care facilities and other third party payors, including
  private insurers. A portion of these revenues also are indirectly dependent
  on government programs.

The
Medicaid and Medicare programs are highly regulated.  The failure, even if inadvertent, of us and/or our client
facilities to comply with applicable regulations could adversely affect our
reimbursement under these programs and our ability to continue to participate
in these programs.  As disclosed in the
Companys 2005 Annual Report on Form 10-K, our client long-term care facilities
are required to be certified to be in compliance with requirements pertaining
to participation in the Medicare and Medicaid programs.  Facilities are surveyed for compliance with
these program requirements.  On September 20, 2006, CMS issued revised
Guidance to Surveyors on Long Term Care regarding the survey protocol for
review of pharmacy services provided in long-term care facilities participating
in the Medicare and Medicaid programs.
The new guidelines, which become effective December 18, 2006, expand the
areas and detail in which surveyors are to assess pharmacy services at the
facility, including ordering, acquiring, receiving, storing, labeling,
dispensing and disposing of all medications at the facility; the provision of
medication-related information to health care professionals and

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residents; the process of identifying and addressing medication-related
  issues through medication regimen reviews and collaboration between the licensed
  consultant pharmacist, the facility and other healthcare professionals; and
  the provision, monitoring and use of medication-related devices. The new guidelines
  also emphasize the important role of consultative services of pharmacists in
  promoting safe and effective medication use through the coordination of all
  aspects of pharmacy services provided to all residents within a facility. While
  the Company has extensive policies and procedures involving the provisions of
  pharmacy services and consulting pharmacist service to long-term care facilities,
  there can be no assurance that the enhanced focus on pharmacy services by government
  surveyors will not have an adverse impact on the Companys clients or on
  the Companys businesses. In addition, our failure to comply with applicable
  Medicare and Medicaid regulations could subject us to other penalties. See Managements
  Discussion and Analysis of Financial Condition and Results of Operations (MD&A).

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

In
recent years, federal legislation has resulted in major changes in the
healthcare system, which significantly affected healthcare providers.  The
Balanced Budget Act of 1997 (the BBA) sought to achieve a balanced federal
budget by, among other things, changing the reimbursement policies applicable
to various healthcare providers.  In an
important change for the skilled nursing facility (SNF) industry, the BBA
provided for the introduction in 1998 of the prospective payment system (PPS)
for Medicare-eligible residents of SNFs.
Prior to PPS, SNFs under Medicare received cost-based
reimbursement.  Under PPS, Medicare pays
SNFs a fixed fee per patient per day based upon the acuity level of the resident,
covering substantially all items and services furnished during a Medicare-covered
stay, including pharmacy services.  PPS
resulted in a significant reduction of reimbursement to SNFs.  Admissions of Medicare residents,
particularly those requiring complex care, declined in many SNFs due to
concerns relating to the adequacy of reimbursement under PPS.  This caused a weakness in Medicare census
leading to a significant reduction of overall occupancy in the SNFs the Company
serves.  This decline in occupancy and
acuity levels adversely impacted Omnicares results beginning in 1999, as the
Company experienced lower utilization of Omnicare services, coupled with
PPS-related pricing pressure from Omnicares SNF customers.

In
1999 and 2000, Congress sought to restore some of the reductions in
reimbursement resulting from PPS.  This
legislation helped to improve the financial condition of SNFs, motivated them
to increase admissions, particularly of higher acuity residents, and stabilized
the unfavorable operating trends attributable to PPS.  One provision gave SNFs a temporary rate increase for certain
specific high-acuity patients beginning April 1, 2000, and ending when Centers
for Medicare & Medicaid Services (CMS) implemented a refined patient
classification system under PPS.  For
several years, CMS did not implement such refinements, thus continuing the
additional rate increase for certain high-acuity patients through federal
fiscal year 2005.

On
August 4, 2005 CMS issued its final SNF PPS rule for fiscal year 2006.  Under the rule, the CMS added nine patient
classification categories to the PPS patient classification system, thus
triggering the expiration of the high-acuity payments add-ons.  However, CMS estimated that the rule would
have a slightly positive financial impact on SNFs in fiscal year 2006 because
the $1.02 billion reduction from the expiration of the add-on payments would be
more than offset by a $510 million increase in the nursing case-mix weight for
all of the RUG categories and a $530 million

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increase associated with various
updates to the payment rates (including updates to the wage and market basket
indexes), resulting in a $20 million overall increase in payments for fiscal
year 2006.  The new patient
classification refinements became effective on January 1, 2006, and the market
basket increase became effective October 1, 2005.  On July 31, 2006, CMS issued the update to the SNF PPS rates for
fiscal year 2007.  Effective October 1,
2006, SNFs receive the full 3.1 percent market basket increase to rates,
increasing payments to SNFs by approximately $560 million for fiscal year
2007.  While the fiscal year 2007 SNF
PPS rates do not decrease payments to SNFs, the loss of revenues
associated with future changes in SNF payments could, in the future, have an
adverse effect on the financial condition of the Companys SNF clients which
could, in turn, adversely affect the timing or level of their payments to
Omnicare.

Moreover,
  on February 8, 2006, the President signed into law the Deficit Reduction Act
  (DRA), which will reduce net Medicare and Medicaid spending by approximately
  $11 billion over five years. Among other things, the legislation reduces Medicare
  SNF bad debt payments by 30 percent for those individuals who are not dually
  eligible for Medicare and Medicaid. This provision is expected to reduce payments
  to SNFs by $100 million over 5 years (fiscal years 2006-2010). Further, on February
  6, 2006, the Bush Administration released its fiscal year 2007 budget proposal,
  which would reduce Medicare spending by $2.5 billion in fiscal year 2007 and
  $35.9 billion over 5 years. The proposed budget would, among other things, limit
  the payment update for the SNF PPS to market basket minus 0.4 percent in fiscal
  year 2008 and 2009. To enhance the long-term financing of the Medicare program,
  the budget also proposes automatic reductions in provider updates if general
  revenues are projected to exceed 45 percent of total Medicare financing. To
  date, congressional resolutions have not included these reimbursement cuts,
  and these proposals would require legislation to be implemented. Nonetheless,
  Congress may yet consider these and other proposals in the future that would
  further restrict Medicare funding for SNFs. See MD&A.

In
December 2003, Congress enacted the Medicare Prescription Drug, Improvement and
Modernization Act of 2003, or MMA, which includes a major expansion of the
Medicare prescription drug benefit under a new Medicare Part D. Prior to
enrollment in Part D, Medicare beneficiaries have been able to receive
assistance with their outpatient prescription drug costs through a prescription
drug discount card program.  This
discount card program began in June 2004, and has provided enrollees access to
negotiated discounted prices for prescription drugs.  The discount card program ended May 15, 2006.

Under
the new prescription drug benefit, Medicare beneficiaries may enroll in
prescription drug plans offered by private entities (or in a fallback plan
offered on behalf of the government through a contractor, to the extent private
entities fail to offer a plan in a given area), which  provide coverage of outpatient prescription drugs (collectively, Part
D Plans). Part D Plans include both plans providing the drug benefit on a
stand alone basis and Medicare Advantage plans providing drug coverage as a
supplement to an existing medical benefit under that Medicare Advantage plan,
most commonly a health maintenance organization plan.  Medicare beneficiaries generally have to pay a premium to enroll
in a Part D Plan, with the premium amount varying from plan to plan, although
CMS provides various federal subsidies to Part D Plans to reduce the cost to
beneficiaries.  Medicare beneficiaries
who are also entitled to benefits under a state Medicaid program (so-called dual
eligibles) now have their prescription drug costs covered by the new Medicare
drug benefit, including the nursing home residents Omnicare serves, whose drug
costs were previously covered by state Medicaid programs.  (In

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2005, approximately 46% of Omnicares  revenue was derived from beneficiaries covered under state
Medicaid programs.)

CMS
provides premium and cost-sharing subsidies to Part D Plans with respect to
dual eligible residents of nursing homes.
Such dual eligibles are not required to pay a premium for enrollment in
a Part D Plan, so long as the premium for the Part D Plan in which they are
enrolled is at or below the premium subsidy, nor are they required to meet
deductibles or pay copayment amounts.
Further, all dual eligibles who had not affirmatively enrolled in a
Part D Plan as of December 31, 2005 were automatically enrolled into a PDP
by CMS on a random basis from among those PDPs meeting CMS criteria for
low-income premiums in the PDP region.
As is the case for any nursing home beneficiary, such dual eligible
beneficiaries may select a different Part D Plan at any time through the Part D
enrollment process.  In sum, dual
eligible residents of nursing homes are entitled to have their prescription
drug costs covered by a Part D Plan, provided that the prescription drugs which
they are taking are either on the Part D Plans formulary, or an exception to
the plans formulary is granted.  CMS
requires the formularies of Part D Plans to include the types of drugs most
commonly needed by Medicare beneficiaries and an exceptions process to provide
coverage for medically necessary drugs.

Pursuant
to the Part D final rule, effective January 1, 2006, we obtain reimbursement
for drugs we provide to enrollees of a given Part D Plan in accordance with the
terms of agreements negotiated between us and that Part D Plan.  We have entered into such agreements with
nearly all Part D Plan sponsors under which we provide drugs and associated
services to their enrollees.  We continue
to have ongoing discussions with Part D Plans in the ordinary course and may,
as appropriate, renegotiate agreements.
Moreover, as expected in the transition to a new program of this
magnitude, certain administrative and payment issues have arisen.  Until these administrative and payment
issues have been resolved, we will not be able to determine the impact of the
new Part D drug benefit on our results of operations, financial condition and
cash flows.

The
MMA does not change the manner in which Medicare pays for drugs for Medicare
beneficiaries covered in a Part A stay.
We continue to receive reimbursement for drugs provided to such
residents from the SNFs, in accordance with the terms of the agreements we have
negotiated with each SNF.  We also continue
to receive reimbursement from the state Medicaid programs, albeit to a greatly
reduced extent, for those Medicaid beneficiaries not eligible for the Part D
program, including those under age 65, and for certain drugs specifically
excluded from Medicare Part D.

CMS
has issued subregulatory guidance on many aspects of the final Part D rule,
including the provision of pharmaceutical services to long-term care
residents.  CMS has also expressed some
concerns about pharmacies receipt of discounts, rebates and other price
concessions from drug manufacturers.
Specifically, in a finalized Call Letter for the 2007 calendar year,
CMS indicated that for 2007, CMS will require Part D sponsors to have policies
and systems in place, as part of their drug utilization management programs, to
protect beneficiaries and reduce costs when long-term care pharmacies are
subject to incentives to move market share through access/performance rebates
from drug manufacturers.  For the
purposes of managing and monitoring drug utilization, especially where such
rebates exist, CMS instructs Part D Plan sponsors to require pharmacies to
disclose to the Part D Plan sponsor any discounts, rebates and other direct or
indirect remuneration designed to directly or indirectly influence or

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impact utilization of Part D drugs. CMS stated that Plan sponsors
  should provide assurances that such information will remain confidential. CMS
  has recently issued subregulatory guidelines specifying the information that
  CMS will require from Plan sponsors with respect to rebates paid to long-term
  care pharmacies. The Company intends to negotiate with Plan sponsors with respect
  to the terms and conditions under which rebate information would be provided.

CMS
has indicated it will continue to issue guidance on the Part D program as it is
implemented.  We are continuing to
monitor implementation of the new Part D benefit, and until further agency
guidance is known and until the administrative and payment issues associated
with the transition to this massive program have been resolved, we cannot
predict the ultimate effect of the final rule or the outcome of other potential
developments relating to its implementation on our business, results of
operations, financial position, or cash flows.

With
respect to Medicaid, the BBA repealed the Boren Amendment federal payment
standard for Medicaid payments to Medicaid nursing facilities, effective
October 1, 1997, giving states greater latitude in setting payment rates for
such facilities.  The law also granted
states greater flexibility to establish Medicaid managed care programs without
the need to obtain a federal waiver.
Although these waiver programs generally exempt institutional care,
including nursing facilities and institutional pharmacy services, some states
do use managed care principles in their long-term care programs.  Moreover, no assurances can be given that
additional Medicaid programs ultimately will not change the reimbursement
system for long-term care or pharmacy services.  In addition, some states continue to face budget shortfalls,
which may prompt them to take steps to implement reductions in Medicaid
reimbursement and other cost control measures.  Likewise, the DRA includes
several changes to the Medicaid program designed to rein in program
spending.  These include, among others:
strengthening the Medicaid asset transfer restrictions for persons seeking to
qualify for Medicaid long-term care coverage, which could, due to the timing of
the penalty period, increase facilities exposure to uncompensated care.  This provision is expected to reduce
Medicaid spending by an estimated $2.4 billion over 5 years.  The law also gives states greater
flexibility to expand access to home and community based services by allowing
states to provide these services as an optional benefit without undergoing the
waiver approval process, and includes a new demonstration to encourage states
to provide long-term care services in a community setting to individuals who
currently receive Medicaid services in nursing homes.  Together, these provisions could increase state funding for home
and community based services, while prompting states to cut funding for nursing
facilities.

The
law also changes the so-called Medicaid upper limit rules for prescription
drugs.  With the advent of Medicare Part
D, our revenues from state Medicaid programs are substantially lower than has
been the case previously.  However, some
of our agreements with Part D Plans have incorporated the Medicaid upper limit
rules into the pricing mechanisms for our prescription drugs.  There can be no assurance that future changes in Medicaid payments to
pharmacies, nursing facilities or managed care systems, or their potential
impact on payments under agreements with Part D Plans, will not have an adverse
impact on our business.

In
addition, the Presidents proposed fiscal year 2007 budget includes a series of
proposals impacting Medicaid and the State Childrens Health Insurance Program
(SCHIP), including administrative changes to the financing structure of
Medicaid that would save more than $12 billion over five years.  These proposed changes include further
reductions in Medicaid drug reimbursement, reforms to Medicaid drug rebate
requirements, allowing states to use

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managed drug formularies,
and reforms to Medicaid provider taxes.
While we have endeavored to adjust to these types of funding pressures
in the past, there can be no assurance that these or future changes in Medicaid
payments to nursing facilities, pharmacies, or managed care systems, or their
potential impact on payments under agreements with Part D Plans, will not have
an adverse impact on our business.

Further,
in order to rein in healthcare costs, we anticipate that federal and state
governments will continue to review and assess alternate healthcare delivery
systems, payment methodologies and operational requirements for healthcare
providers, including long-term care facilities and pharmacies.  Given the continuous debate regarding the
cost of healthcare, managed care and other healthcare issues, we cannot predict
with any degree of certainty what additional healthcare initiatives, if any,
will be implemented or the effect any future legislation or regulation will
have on our business.  Longer term,
funding for federal and state healthcare programs must consider the aging of
the population and the growth in enrollees as eligibility is expanded; the
escalation in drug costs owing to higher drug utilization among seniors and the
introduction of new, more efficacious but also more expensive medications; the
impact of the Medicare Part D benefit for seniors; and the long-term financing
of the entire Medicare program.  Given
competing national priorities, it remains difficult to predict the outcome and
impact on us of any changes in healthcare policy relating to the future funding
of the Medicare and Medicaid programs.
Further, Medicare, Medicaid and/or private payor rates for
pharmaceutical supplies and services may not continue to be based on current
methodologies or remain comparable to present levels.  Any future healthcare legislation or regulation may adversely
affect our business.

Changes
in the use of the average wholesale price as a benchmark from which pricing in
the pharmaceutical industry is negotiated could adversely affect the Company.

On
  October 4, 2006, the plaintiffs in New England Carpenters Health Benefits
  Fund et al. v. First DataBank, Inc. and McKesson Corporation, CA No. 1:05-CV-11148-PBS
  (United District Court for the District of Massachussetts) and defendant First
  DataBank, Inc. (First DataBank) entered into a settlement agreement
  relating to First DataBanks publication of average wholesale price (AWP).
  AWP is a pricing benchmark that is widely used to calculate a portion of the
  reimbursement payable to pharmacy providers for the drugs and biologicals they
  provide, including under State Medicaid programs, Medicare Part D Plans and
  certain of the Companys contracts with long-term care facilities. The
  settlement agreement would require First DataBank to cease publishing AWP two
  years after the settlement becomes effective unless a competitor of First DataBank
  is then publishing AWP, and would require that First DataBank modify the manner
  in which it calculates AWP until First DataBank ceases publishing same. Although
  the settlement agreement is yet subject to approval of the court, the Company
  is evaluating the potential impact of the settlement in the context of certain
  of the contracts that it has with various payors and the actions that may be
  taken, if necessary, to offset or otherwise mitigate such impact. In addition,
  the government and private health insurance programs could discontinue or modify
  the use of AWP or otherwise implement payment methods that reduce the reimbursement
  for drugs and biologicals. There can be no assurance, however, that the First
  DataBank settlement, if approved, or actions, if any, by the government or private
  health insurance programs relating to AWP would not have an adverse impact on
  the Companys reimbursement for drugs and biologicals and have implications
  for the use of AWP as a benchmark from which pricing in the pharmaceutical industry
  is negotiated, which could adversely affect the Company.

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

A
summary of the Companys repurchases of Omnicare, Inc. common stock during the
quarter ended September 30, 2006 is as follows (in thousands, except per share
data):

|                       |  |                                          |     |                                  |   |                                                                                          |  |                                                                                                                       |   |  |  |   | 
|---------------------- |  | ---------------------------------------- | --- | -------------------------------- | - | ---------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- | - |  |  | - | 
|Period                 |  | Total Number
  of Shares
  Purchased (a) |     | Average Price
  Paid per
  Share |   | Total Number of
  Shares Purchased as
  Part of Publicly
  Announced Plans or
  Programs |  | Maximum Number (or
  Approximate Dollar
  Value) of Shares that Must
  Yet Be Purchased Under
  the Plans or Programs |  
|                       |  |                                          |     |                                  |   |                                                                                          |  |                                                                                                                       |  
|July 1 - 31, 2006      |  |                                          | 0.0 |                                  | $ | 0.00                                                                                     |  |                                                                                                                       |  |  |  |  | 
|August 1 - 31, 2006    |  |                                          | 0.2 |                                  | $ | 46.05                                                                                    |  |                                                                                                                       |  |  |  |  | 
|September 1 - 30, 2006 |  |                                          | 0.5 |                                  | $ | 44.61                                                                                    |  |                                                                                                                       |  |  |  |  | 
|                       |  |                                          |     |                                  |   |                                                                                          |  |                                                                                                                       |   |  |  |   | 
|Total                  |  |                                          | 0.7 |                                  | $ | 45.01                                                                                    |  |                                                                                                                       |  |  |  |  | 
|                       |  |                                          |     |                                  |   |                                                                                          |  |                                                                                                                       |   |  |  |   | 

(a) During the
third quarter of 2006, the Company purchased 0.7 shares of Omnicare common
stock in connection with its employee benefit plans, including purchases
associated with the vesting of restricted stock awards. These purchases were
not made pursuant to a publicly announced repurchase plan or program.

ITEM 6. EXHIBITS

See
Index of Exhibits.

89

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SIGNATURE

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

|      |                  |     |    
|----- | ---------------- | --- | ---
|      |                  |     |    
|      |                  |     |    
|      |                  |     |    
|Date: | November 9, 2006 | By: | /s/
|      |                  |     |    
|      |                  |     |    

90

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INDEX OF EXHIBITS

|                                                                                         |  |                                                                                                                                                |  |                              
|---------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------
|Number and
  Description of Exhibit
  (Numbers Coincide with Item 601 of Regulation S-K) |  | Document
  Incorporated by Reference from a Previous Filing, Filed Herewith or Furnished
  Herewith, as Indicated Below                       
|                                                                                         |  |                                                                                                                                               
|                                                                                         |  |                                                                                                                                                |  |                              
|(3.1)                                                                                    |  | Restated
  Certificate of Incorporation of Omnicare, Inc. (as amended)                                                                         |  | Form 10-K
  March 27, 2003   
|                                                                                         |  |                                                                                                                                                |  |                              
|(3.3)                                                                                    |  | Second
  Amended and Restated By-Laws of Omnicare, Inc.                                                                                        |  | Form 10-Q
  November 14, 2003
|                                                                                         |  |                                                                                                                                                |  |                              
|(10.24)                                                                                  |  | Amendment to
  Employment Agreement with J.F. Gemunder dated as of April 6, 2006*                                                              |  | Form 8-K
  April 12, 2006    
|                                                                                         |  |                                                                                                                                                |  |                              
|(10.25)                                                                                  |  | Amendment to
  Employment Agreement with P.E. Keefe dated as of April 6, 2006*                                                                 |  | Form 8-K
  April 12, 2006    
|                                                                                         |  |                                                                                                                                                |  |                              
|(10.26)                                                                                  |  | Amendment to
  Employment Agreement with C.D. Hodges dated as of April 6, 2006*                                                                |  | Form 8-K
  April 12, 2006    
|                                                                                         |  |                                                                                                                                                |  |                              
|(12)                                                                                     |  | Statement of
  Computation of Ratio of Earnings to Fixed Charges                                                                               |  | Filed
  Herewith             
|                                                                                         |  |                                                                                                                                                |  |                              
|(31.1)                                                                                   |  | Rule
  13a-14(a) Certification of Chief Executive Officer of Omnicare, Inc. in
  accordance with Section 302 of the Sarbanes-Oxley Act of 2002 |  | Filed
  Herewith             
|                                                                                         |  |                                                                                                                                                |  |                              
|(31.2)                                                                                   |  | Rule
  13a-14(a) Certification of Chief Financial Officer of Omnicare, Inc. in
  accordance with Section 302 of the Sarbanes-Oxley Act of 2002 |  | Filed
  Herewith             
|                                                                                         |  |                                                                                                                                                |  |                              
|(32.1)                                                                                   |  | Section 1350
  Certification of Chief Executive Officer of Omnicare, Inc. in accordance with
  Section 906 of the Sarbanes-Oxley Act of 2002** |  | Furnished
  Herewith         

E-1

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INDEX OF EXHIBITS

|                                                                                         |  |                                                                                                                                                |  |                     
|---------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------
|Number and
  Description of Exhibit
  (Numbers Coincide with Item 601 of Regulation S-K) |  | Document
  Incorporated by Reference from a Previous Filing, Filed Herewith or Furnished
  Herewith, as Indicated Below                       
|                                                                                         |  |                                                                                                                                               
|                                                                                         |  |                                                                                                                                               
|(32.2)                                                                                   |  | Section 1350
  Certification of Chief Financial Officer of Omnicare, Inc. in accordance with
  Section 906 of the Sarbanes-Oxley Act of 2002** |  | Furnished
  Herewith
|                                                                                         |  |                                                                                                                                                |  |                     

* Indicates
management contract or compensatory arrangement.

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

E-2

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